Chapter 13

Question 1

What does the acronym SAFE stand for in evaluating strategic initiatives?

Answer 1

• Suitability
• Acceptability
• Feasibility
• Evaluation

These elements allow for systematic assessment of strategies.

Question 2

What are the two broad categories of performance measures mentioned?

Answer 2

• Economic measures
• Effectiveness measures

Economic measures are more widely used but have limitations.

Question 3

What are the three main dimensions of economic performance measures?

Answer 3

• Performance in product markets
• Sales growth
• Market share

For non-profits, this may include growth in membership or funds raised.

Question 4

What are the three dimensions of the triple bottom line?

Answer 4

• Economic performance
• Social measures
• Environmental measures

This approach emphasizes corporate social responsibility.

Question 5

What is the purpose of gap analysis?

Answer 5

To compare actual or projected performance with desired performance

It helps identify performance shortfalls and anticipate future problems.

Question 6

What is a key consideration when evaluating performance comparisons?

Answer 6

Performance relative to what?

This includes comparisons against organisational targets, trends over time, and competitors.

Question 7

What is the first R in the assessment of strategy acceptability?

Answer 7

Return

Measures of return assess the financial profitability and effectiveness of a strategy.

Question 8

In the private sector, how do investors and shareholders typically measure returns?

Answer 8

Financial return on their investment

In the public sector, returns are measured in terms of ‘value for money’ of services delivered.

Question 9

What are the three types of performance metrics used for non-profits?

Answer 9

• Success in mobilising resources
• Staff effectiveness
• Progress in fulfilling mission

These metrics vary by non-profit organization.

Question 10

What does ROCE stand for?

Answer 10

Return on Capital Employed

It calculates profitability in relation to capital for a specific time period after a new strategy is in place.

Question 11

What is the payback period in financial analysis?

Answer 11

Length of time before cumulative cash flows become positive

It is often used where forecasting difficulty is high.

Question 12

True or false: The payback period assumes that forecast cash flows are equally valuable in the future.

Answer 12

TRUE

This assumption can lead to inaccuracies in assessing the value of future cash flows.

Question 13

What does DCF stand for in investment appraisal?

Answer 13

Discounted Cash Flow

It uses cash-flow forecasting techniques to reflect future risk and the time value of money.

Question 14

What is the formula for ROIC?

Answer 14

ROIC = Net operating profits after tax / total invested capital

It helps assess a company’s competitive advantage.

Question 15

What is the cost of capital in financial analysis?

Answer 15

The required rate of return by those providing finance

It serves as a ‘hurdle’ that projects must exceed.

Question 16

What is the Net Present Value (NPV) of a project?

Answer 16

The extra value a strategic initiative generates during its lifetime

It is calculated by adding up all present values of cash flows.

Question 17

What does SVA stand for?

Answer 17

Shareholder Value Analysis

It values the whole business based on present and future cash flows.

Question 18

What is a key factor in financial analysis regarding stakeholder preferences?

Answer 18

Returns seen as acceptable vary by stakeholder

Employees might prefer higher salaries, while shareholders might prefer higher returns.

Question 19

What is a potential problem with financial analysis methods?

Answer 19

They may not account for uncertainty in cash flow predictions

Most methods were developed for discrete projects with predictable cash inflows and outflows.

Question 20

What does a decision tree help identify in strategic planning?

Answer 20

Best strategic options based on key criteria

It can help visualize outcomes and remove unsuitable options.

Question 21

What are the four main strategic options in evaluating future strategies?

Answer 21

• International acquisition
• International alliance
• Overseas greenfield investment
• Increase marketing

These options vary based on resource commitment and the threat of new competitors.

Question 22

True or false: Financial appraisals focus solely on direct tangible costs and benefits.

Answer 22

FALSE

Financial appraisals often struggle to identify specific costs and benefits related to a proposed strategy.

Question 23

What is the importance of assumptions in financial analysis?

Answer 23

• Assumptions affect sales levels
• Misguided assumptions reduce analysis value
• Sensitivity testing is crucial

Variations in assumptions can significantly impact the outcomes of financial analyses.

Question 24

What does break-even analysis demonstrate?

Answer 24

The point at which revenue covers fixed and variable costs

It helps assess risks and cost structures of strategies.

Question 25

Fill in the blank: **Financial risk** refers to the possibility that the organisation may not be able to meet its _______.

Answer 25

key financial obligations ## Footnote This includes ensuring strategies meet acceptable levels of financial risk.

Question 26

What are the two key measures of **financial risk**?

Answer 26

* Level of gearing (debt relative to equity) * Liquidity (availability of liquid assets) ## Footnote High gearing increases financial risk due to mandatory interest payments.

Question 27

What is the **risk-return tradeoff**?

Answer 27

Higher risk is generally associated with higher potential returns ## Footnote Low-risk opportunities tend to attract more competitors, driving down returns.

Question 28

What is the focus of **feasibility** in strategy evaluation?

Answer 28

* Capacity to deliver the strategy * Availability of resources and capabilities ## Footnote Feasibility assesses whether an organization can effectively implement a proposed strategy.

Question 29

What are the three areas of focus in assessing **financial feasibility**?

Answer 29

* Cash flow implications * Funding sources * Timing of funding requirements ## Footnote Understanding these areas is crucial for evaluating the viability of a proposed strategy.

Question 30

What is a **real options approach** in strategy evaluation?

Answer 30

Values strategic initiatives as options that can be exercised later ## Footnote This approach allows for flexibility in decision-making as conditions change.

Question 31

What is the **role of stakeholders** in evaluating a proposed strategy?

Answer 31

* Financial expectations of owners * Risk concerns of bankers * Regulatory considerations of government agencies ## Footnote Stakeholders may react differently based on how a strategy affects their interests.

Question 32

What are the **three distinct branches** of the United States government?

Answer 32

* Legislative Branch * Executive Branch * Judicial Branch ## Footnote Each branch has specific powers and responsibilities to check the powers of the others, ensuring a balance of power.

Question 33

What is the **Declaration of Independence**?

Answer 33

A formal document asserting the American colonies' separation from Great Britain ## Footnote It was adopted by the Second Continental Congress in mid-1776.

Question 34

What are the **phases** of the business life cycle mentioned?

Answer 34

* Start-up * Growth * Mature * Declining ## Footnote Each phase has different funding implications and business risks.

Question 35

What type of funding do **start-up businesses** typically seek?

Answer 35

* Venture capital * Business angels ## Footnote Start-ups are high-risk and often require substantial investment.

Question 36

In the **growth phase**, what is a key characteristic of businesses?

Answer 36

They may remain volatile and highly competitive ## Footnote Businesses in this phase may seek equity capital to finance growth.

Question 37

What is a common funding strategy for **mature businesses**?

Answer 37

* Generate regular cash flow * Use debt financing ## Footnote Mature businesses typically have lower funding requirements and can leverage reliable returns.

Question 38

True or false: **Declining businesses** find it easy to attract equity finance.

Answer 38

FALSE ## Footnote Declining businesses often struggle to attract equity finance and focus on cost-cutting.

Question 39

What are the **three critical questions** regarding people and skills in strategy implementation?

Answer 39

* Are the systems to support people fit for the strategy? * Can the competences be obtained or developed? * Will changes in work content significantly alter job orientation? ## Footnote These questions help assess the feasibility of a proposed strategy.

Question 40

What is the importance of **consistency** between different elements of a strategy?

Answer 40

Component parts must work together as a package ## Footnote Inconsistencies can lead to strategic failures.