Fred r david – strategic management, 13th edition ch03

Exam Name _ TRUE/FALSE Write 'T' if the statement is true and 'F' if the statement is false 1) Industry analysis is also referred to as external strategic management audit 1) _ 2) An external audit focuses on identifying and evaluating trends and events within the control of management 2) _ 3) The aim of an external audit is to develop an exhaustive list of every possible factor that could influence the business 3) _ 4) External audits attempt to identify key variables that offer actionable responses 4) _ 5) Five major categories of external variables are 1) economic forces; 2) social and cultural forces; 3) political, governmental and legal forces; 4) technological forces; and 5) demographic forces 5) _ 6) As many managers and employees as possible should be involved in the process of performing an external audit 6) _ 7) To perform an external audit, a company first must gather competitive intelligence and information about social, cultural, demographic, environmental, economic, political, legal, governmental and technological trends 7) _ 8) Freund argues that key external factors must not be hierarchical 8) _ 9) Research findings suggest that a greater percentage of a firm's profitability can be explained by the industry than can be explained by the firm's internal factors 9) _ 10) An economic trend in the Arab world is an increasing number of two-income households 10) 11) Economic factors not have much impact on the attractiveness of strategies 11) 12) An increase in interest rates is directly related to an increase in both discretionary income and the demand for discretionary goods 12) 13) In Arab countries that are oil producers, government expenditures increase and jobs become more readily available when oil revenues increase 13) 14) In some Arab countries, companies that depend heavily on imports benefit greatly when the dollar falls against the yen and euro 14) 15) Decreasing demands for oil will significantly impact the economies of many countries in the Middle East region, as these countries are either oil producers or labor exporters for the oil-producing countries 15) 16) The Arab region is experiencing little change in terms of social priorities and population changes 16) 17) The Arab world, in general, has a high rate of birth; and the youth demographic group is one of the largest in the population 17) 18) With about 60 percent of its population under 25 years of age, the Arab world is one of the most youthful regions in the world 18) 19) The Arab Human Development Report 2009 shows that life expectancy of the Arab population, on average, jumped from 46 years in 1960 to about 70 in 2005 19) 20) All Arab countries share a similar culture and have the same ethnic and religious beliefs 20) 21) Spending on domestic and international travel by Gulf nationals in 2000 amounts to 8.7 percent of the total personal consumption in the region, and is expected to grow at 5.2 percent per year over the next decade 21) 22) Social and demographic trends are not shaping the way the Arabs live, work, produce, and consume 22) 23) Although the Arab world has one of the highest rates of expansion of the youth demographic in the world, the growing percentage of the older segment is apparent in some countries 23) 24) In 2050, approximately a quarter of the populations are expected to be aged 60 years and older in five Arab countries 24) 25) Political, governmental, and legal factors are considered key threats for most small and large organizations 25) 26) Political forecasts can be the most important part of an external audit for firms that depend heavily on government contracts 26) 27) In addition to liberalization, Arab executives have shown an interest in asking their respective governments to join the World Trade Organization and in protecting the environment 27) 28) Mass communication and high technology are creating similar patterns of consumption in diverse cultures worldwide, which means that many companies may find it difficult to survive by relying solely on domestic markets 28) 29) Within the European Union (EU), tax rates have been standardized to end competitive tax breaks among member countries 29) 30) The Internet is changing the very nature of many industries by altering product life cycles and changing the historical trade-off between production standardization and flexibility 30) 31) In practice, critical technology decisions are too often delegated to lower organizational levels or are made without an understanding of their strategic implications 31) 32) Pepsi Bottling is the top beverage company in the U.S 32) 33) Competition in virtually all industries can be described as intense, and sometimes as cutthroat in the Arab world 33) 34) "Innovate or evaporate; particularly in technology-driven businesses, nothing quite recedes like success" is a characteristic of the most competitive companies 34) 35) Corporate intelligence can be defined as a systematic and ethical process for gathering and analyzing information about the activities and general business trends of the competition, to further a business's own goals 35) 36) Internal opportunities can be represented by major competitors' weaknesses 36) 37) According to Business Week, there are less than 500 corporate spies now actively engaged in intelligence activities 37) 38) According to Business Week, out of 10 large companies have employees dedicated solely to gathering competitive intelligence 38) 39) An effective CI program allows all areas of a firm to access consistent and verifiable information in making decisions 39) 40) Competitive intelligence is not considered corporate espionage because 95 percent of the information a company needs to make strategic decisions is available and accessible to the public 40) 41) Because companies are fearful of corporate espionage, cooperative agreements between competitors are becoming less popular 41) 42) Learning from the partner is a major reason why Asian and European firms enter into cooperative agreements 42) 43) Market commonality is the extent to which the type and amount of a firm's internal resources are comparable to a rival 43) 44) According to Michael Porter, five competitive forces create vital opportunities and threats to organizations 1) new entrants; 2) substitute products or services; 3) bargaining power of suppliers; 4) bargaining power of buyers; and 5) rivalry among existing firms 44) 45) The first step for using Porter's Five-Forces Model is to evaluate the relative strength of each competitive force 45) 46) The most powerful of Porter's five competitive forces is usually the bargaining power of consumers 46) 47) Significant barriers to entry are not always sufficient to keep some new firms from entering industries with higher-quality products, lower prices and substantial marketing resources 47) 48) Laser eye surgery would be considered a substitute product for eyeglasses and contact lenses 48) 49) Forward integration is used by firms to gain control or ownership of suppliers 49) 50) The bargaining power of consumers can be the most important force impacting competitive advantage 50) 51) Forecasts are educated assumptions about future trends and events 51) 52) Qualitative forecasts are most appropriate when historical data are available, and when the relationships among key variables are expected to remain the same in the future 52) 53) Quantitative forecasts become less accurate as historical relationships become less stable 53) 54) Linear regression is based on the assumption that the future will be different from the past 54) 55) Linear regression is a popular technique for qualitative forecasts 55) 56) Without reasonable assumptions, the strategy-formulation process could not proceed effectively 56) 57) Globalization is a process of worldwide integration of strategy formulation, implementation and evaluation activities 57) 58) A global strategy seeks to meet the needs of customers worldwide with the lowest cost at the highest value 58) 59) A global strategy includes designing, producing, and marketing products with global needs in mind, instead of considering individual countries alone 59) 60) It is clear that different industries become domestic for different reasons 60) 61) An EFE Matrix does not alow strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information 61) 62) In an External Factor Evaluation Matrix, opportunities often receive higher weights than threats, but threats too can receive high weights if they are especially severe or threatening 62) 63) Regardless of the number of key opportunities and threats included in an External Factor Evaluation Matrix, the highest possible total weighted score for an organization is 4.0, and the lowest possible total weighted score is 0.0 63) 64) A Competitive Profile Matrix allows strategists to summarize and evaluate economic, social, cultural, demographic, environmental, political, governmental, legal, technological, and competitive information 64) 65) Both a Competitive Profile Matrix and an EFE Matrix have the same meaning in the weights, ratings and total weighted scores 65) 66) The critical success factors in a Competitive Profile Matrix are often the same as those in an EFE Matrix 66) MULTIPLE CHOICE Choose the one alternative that best completes the statement or answers the question 67) is not part of an external audit 67) A) Studying the political environment B) Analyzing social, cultural, demographic and geographic forces C) Analyzing financial ratios D) Analyzing available technologies E) A) To provide a general understanding of an industry B) To identify industry executives who could be hired by the firm C) To provide a general understanding of a company's competitors D) To identify areas where competitors are vulnerable and to assess the impact strategic actions would have on competitors E) To identify potential moves a competitor might make that would endanger a firm's position in the market 96) Which statement about business intelligence is least accurate? 96) A) Running an intelligence program requires many people B) Intelligence gathering is an unethical business practice C) Business intelligence is equal to espionage D) Collecting intelligence about competitors violates antitrust laws E) Running an intelligence program requires many computers and other resources 97) Keeping strategies secret from employees and stakeholders can all of the following except 97) A) provide competitive advantage to competitors B) inhibit employee and stakeholder understanding C) forego valuable employee or stakeholder input D) inhibit employee and stakeholder communication E) inhibit employee and stakeholder commitment 98) Learning from the partner is a major reason why firms enter into cooperative agreements 98) A) American B) Asian C) Mexican D) African E) European 99) Intensity of competition in lower-return industries 99) A) fluctuates B) is lowest C) is non-existent D) is highest E) is not important 100) What is not one of Michael Porter's five competitive forces? 100) _ A) Bargaining power of suppliers B) Bargaining power of buyers C) Rivalry among existing firms D) Bargaining power of unions E) New entrants 101) According to Porter, what is usually the most powerful of the five competitive forces? 101) _ A) Rivalry among competing firms B) Potential entry of new competitors C) Bargaining power of consumers D) Bargaining power of suppliers E) Potential development of substitute products 102) Whenever new firms can easily enter a particular industry, the intensity of competitiveness among firms 102) _ A) stays the same B) neutralizes C) increases D) decreases fluctuates E) 103) If suppliers are unreliable or too costly, which of these strategies may be appropriate? 103) _ A) Backward integration B) Forward integration C) Market penetration D) Horizontal integration E) Concentric diversification 104) What level of bargaining power consumers have when the products being purchased are standard or undifferentiated? 104) _ A) Marginal B) Not necessary C) High D) Negative E) Low 105) Because of the Internet, barriers to personal and business success are 105) _ A) being eliminated B) significantly enhanced C) acting like glass walls D) lower E) being built 106) What are educated assumptions about future trends and events? 106) _ A) Statistics B) Facts C) Predictions D) Forecasts E) Guesses 107) The international challenge faced by Arab corporations is twofold 107) _ A) how to enhance imported goods in domestic markets and minimize exports to other nations B) how to defend domestic markets against imported goods while minimizing exports C) how to gain exports to other nations and enhance market share for imported goods in domestic markets D) how to gain and maintain exports to other nations and how to defend domestic markets against imported goods E) how to increase exports to other countries and how to increase imports from other countries 108) Which of the following is a process of worldwide integration of strategy formulation, implementation and evaluation activities? 108) _ A) Industry analysis B) Brainstorming C) Industrialization D) Mission development E) Globalization 109) Globalization of industries is occurring for all of these reasons except 109) _ A) the emergence of global buyers B) e-commerce and the instant transmission of money and information across continents C) a worldwide trend toward different consumption patterns D) a worldwide trend toward similar consumption patterns E) the emergence of global sellers 110) What is the first step in designing an EFE Matrix? 110) _ A) Identifying key external factors in the industry B) Summing the weighted score for each competitor C) Calculating the sales of each competitor D) Determining four competitors E) Drawing the horizontal and vertical lines for the matrix 111) What is the range for a firm's total weighted score in an External Factor Evaluation Matrix? 111) _ A) to B) to C) to 10 D) to E) to 112) One difference between CPM and EFE is that 112) _ A) CPM includes both internal and external issues B) CPM is only used in small firms C) the weight and total weighted score mean opposite D) CPM is performed only for the company, whereas EFE is performed for both the company and the competitors E) CPM ratings range from to 10 ESSAY Write your answer in the space provided or on a separate sheet of paper 113) What are the five major types of external forces that should be examined as part of an external audit? 114) Discuss the process of performing an external audit 115) Discuss the I/O approach in relation to competitive advantage 116) Identify five key economic variables that could represent major opportunities or threats to a bank in your town or city 117) List three opportunities and three threats that could represent key factors facing your college or university 118) Explain how the Internet is changing businesses around the world 119) Discuss the following statement "Corporate intelligence is not corporate espionage because 95 percent of the information a company needs to make strategic decisions is available and accessible to the public." 120) According to Michael Porter, what are the five competitive forces that create vital opportunities and threats for organizations? Which force you feel is most important in the computer industry today? Why? 121) Discuss the following statement "Planning would be impossible without assumptions." 122) List five steps that comprise an effective framework for conducting an EFE Matrix Explain the details involved in performing any one of the steps 123) What is a CPM and how is it different from a EFE Matrix? 1) TRUE 2) FALSE 3) FALSE 4) TRUE 5) FALSE 6) TRUE 7) TRUE 8) FALSE 9) FALSE 10) TRUE 11) FALSE 12) FALSE 13) TRUE 14) FALSE 15) TRUE 16) FALSE 17) TRUE 18) TRUE 19) TRUE 20) FALSE 21) TRUE 22) FALSE 23) TRUE 24) TRUE 25) FALSE 26) TRUE 27) TRUE 28) TRUE 29) FALSE 30) TRUE 31) TRUE 32) FALSE 33) TRUE 34) TRUE 35) FALSE 36) FALSE 37) FALSE 38) TRUE 39) TRUE 40) TRUE 41) FALSE 42) TRUE 43) FALSE 44) TRUE 45) FALSE 46) FALSE 47) TRUE 48) TRUE 49) FALSE 50) TRUE 51) TRUE 52) FALSE 53) TRUE 54) FALSE 55) FALSE 56) TRUE 57) TRUE 58) TRUE 59) TRUE 60) FALSE 61) FALSE 62) TRUE 63) FALSE 64) FALSE 65) TRUE 66) FALSE 67) C 68) A 69) A 70) D 71) E 72) A 73) C 74) D 75) C 76) E 77) C 78) D 79) A 80) E 81) B 82) E 83) A 84) B 85) B 86) E 87) E 88) C 89) A 90) A 91) E 92) A 93) C 94) D 95) B 96) C 97) A 98) B 99) D 100) D 101) A 102) C 103) A 104) C 105) A 106) D 107) D 108) E 109) C 110) A 111) E 112) A 113) External forces can be divided into five broad categories 1) economic forces, 2) socialand demographic forces, 3) political and governmental, 4) envionmental forces, and 5) technological forces Students might discuss the relationships among these forces and an organization, following the points depicted in Figure 32 114) To perform an external audit, a company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal and technological trends Once information is gathered, it should be assimilated and evaluated A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm These key external factors should be listed on flip charts or a whiteboard A prioritized list of these factors could be obtained by requesting that all managers rank the factors identified, from for the most important opportunity/threat to 20 for the least important opportunity/threat 115) The I/O approach to competitive advantage advocates that external factors are more important than internal factors in a firm achieving competitive advantage Proponents of the I/O view contend that organizational performance will be primarily determined by industry forces, rather than the firm's internal functional decisions made Research findings suggest that approximately 20 percent of a firm's profitability can be explained by the industry, whereas 36 percent of the variance in profitability is attributed to the firm's internal factors Effective integration of both external and internal factors is the key to securing and keeping a competitive advantage 116) Student answers will vary However, they should look at economic, social/cultural, political/legal, technological and competitive factors Refer to Table 3-1 on page 85 117) Student answers will vary However, they should look at economic, social/cultural, political/legal, technological and competitive factors 118) The Internet is acting as a national and even global economic engine that is spurring productivity The Internet is saving companies billions of dollars in distribution and transaction costs from direct sales to self-service systems The Internet is changing the very nature of opportunities and threats by altering the life cycles of products, increasing the speed of distribution, creating new products and services, erasing limitations of traditional geographic markets and changing the historical trade-off between production standardization and flexibility It is also altering economies of scale, changing entry barriers and redefining the relationship between industries and various suppliers, creditors, customers and competitors An emerging consensus holds that technology management is one of the key responsibilities of strategists 119) Firms need an effective competitive intelligence (CI) program The three basic missions of a CI program are 1) to provide a general understanding of an industry and its competitors, 2) to identify areas in which competitors are vulnerable and to assess the impact strategic actions would have on competitors and 3) to identify potential moves a competitor might make that would endanger a firm's position in the market An effective CI program allows all areas of a firm to access consistent and verifiable information in making decisions 120) The first one is rivalry among competing firms The second is potential entry of new competitors The third is potential development of substitute products The fourth is bargaining power of suppliers The last one is bargaining power of consumers 121) By identifying future occurrences that could have a major effect on the firm and by making reasonable assumptions about those factors, strategists can carry the strategic-management process forward Assumptions are needed only for future trends and events that are most likely to have a significant effect on the company's business Assumptions can serve as checkpoints on the validity of strategies If future occurrences deviate significantly from assumptions, strategists know that corrective actions may be needed Without reasonable assumptions, the strategy-formulation process could not proceed effectively Firms that have the best information generally make the most accurate assumptions, which can lead to major competitive advantages 122) The EFE Matrix can be developed in five steps 1) list key external factors as identified in the external-audit process with a total of from 10 to 20 factors, including both opportunities and threats that affect the firm and its industry; 2) assign to each factor a weight that ranges from 0.0 to 1.0; 3) assign a to rating to each key external factor to indicate how effectively the firm's current strategies respond to the factor, where = the response is superior, = the response is above average, = the response is average, and = the response is poor; 4) multiply each factor's weight by its rating to determine a weighted score; and 5) sum the weighted scores for each variable to determine the total weighted score for the organization 123) The Competitive Profile Matrix (CPM) identifies a firm's major competitors and its particular strengths and weaknesses in relation to a sample firm's strategic position The weights and total weighted scores in both a CPM and EFE have the same meaning However, critical success factors in a CPM include both internal and external issues; therefore, the ratings refer to strengths and weaknesses Differences between the CPM and EFE include 1) The critical success factors in a CPM are broader 2) The critical success factors in a CPM are not grouped into opportunities and threats as they are in an EFE 3) In a CPM, the ratings and total weighted scores for rival firms can be compared to the sample firm ... as these countries are either oil producers or labor exporters for the oil-producing countries 15) 16) The Arab region is experiencing little change in terms of social priorities and population... companies are fearful of corporate espionage, cooperative agreements between competitors are becoming less popular 41) 42) Learning from the partner is a major reason why Asian and European firms... Michael Porter, five competitive forces create vital opportunities and threats to organizations 1) new entrants; 2) substitute products or services; 3) bargaining power of suppliers; 4) bargaining