Strategic Management and Business Policy - Chapter 4
Environmental scanning is the monitoring, evaluating, and disseminating of information from the external environment to key people within the corporation.
TRUE
A corporation uses environmental scanning to avoid strategic surprise.
TRUE
Political-legal forces regulate the values, mores, and customs of society.
FALSE
The societal environment includes the economic, technological, political-legal, and sociocultural forces.
TRUE
Industry analysis was popularized by Michael Porter.
TRUE
In dynamic environments, the CEO's focus is on forces in the societal environment.
FALSE
Today's organizations must scan the natural environment for factors that might previously have been taken for granted.
TRUE
The transferring of profits from a foreign subsidiary to a corporation's headquarters is known as repatriation of profits.
TRUE
An example of an economic variable in the societal environment is interest rates.
TRUE
The growing health consciousness is an example of a political-legal force.
FALSE
One of the demographic variables in the societal environment is the changing household composition.
TRUE
One of the breakthrough developments in technology is the portable information device and electronic networking.
TRUE
A multinational corporation is a company with significant assets and activities in multiple countries.
TRUE
The origin of competitive advantage lies in the ability to identify and respond to environmental change well in advance of competition.
TRUE
Strategic myopia is the willingness to reject unfamiliar as well as negative information.
TRUE
Booz & Company found that companies that are most successful at avoiding surprises had a well-defined system that integrated planning, budgeting, and business reviews.
TRUE
An industry is a group of firms producing a similar product or service.
TRUE
According to Michael Porter, the weaker each of the competitive forces, the more limited companies are in their ability to raise prices and earn greater profits.
FALSE
According to Michael Porter, a high force can be regarded as a threat because it is likely to reduce profits.
TRUE
An entry barrier is an obstruction that makes it difficult for a company to enter an industry.
TRUE
One of the possible barriers to entry is product differentiation.
TRUE
The need to invest huge financial resources in manufacturing facilities in order to produce large commercial airplanes creates a significant barrier to entry to any competitor for Boeing and Airbus.
TRUE
Governments can do little to erect barriers to entry in an industry.
FALSE
NutraSweet can serve as a product substitute for sugar satisfying the same need.
TRUE
A buyer may be powerful when changing suppliers costs a great deal.
FALSE
A fragmented industry is dominated by a few large firms, each of which struggles to differentiate its products from the competition.
FALSE
Multidomestic industries are specific to each country or group of countries.
TRUE
The only factor used to determine whether an industry will be primarily multidomestic or primarily global is the pressure for local responsiveness.
FALSE
McDonald's and Olive Garden are in the same strategic group.
FALSE
According to Miles and Snow, reactors are companies with a limited product line that focus on improving the efficiency of their existing operations.
FALSE
In hyper-competitive industries, competitive advantage comes from an up-to-date knowledge of environmental trends and competitive activity coupled with a willingness to risk a current advantage for a possible new advantage.
TRUE
Key success factors seldom vary from industry to industry.
FALSE
An industry matrix summarizes the key success factors within a particular industry.
TRUE
Competitive intelligence is a formal program of gathering information on a company's competitors.
TRUE
Business intelligence is one of the fastest growing fields within strategic management.
TRUE
A.C. Nielsen is an example of an outside organization providing a firm with competitive intelligence.
TRUE
To combat the increasing theft of company secrets, the U.S. government passed the Economic Espionage Act in 1996.
TRUE
Faulty underlying assumptions are the most frequent cause of forecasting errors.
TRUE
Extrapolation rests on the assumption that the world is relatively dynamic and changes quickly in the short run.
FALSE
Statistical modeling is a quantitative forecasting technique that attempts to discover causal or at least explanatory factors that link two or more time series together.
TRUE
An industry scenario is a forecasted description of a particular industry's likely future. It is developed by analyzing the probable impact of future societal forces on key groups in a particular industry.
TRUE
The combination of the degree of complexity and the degree of change existing in an organization's external environment is/are called
A) strategic factors.
B) strategic issues.
C) environmental uncertainty.
D) strategic fit.
E) scenarios.
Answer: C
According to the text, one reason environmental uncertainty is a threat to strategic managers is because
A) it is a costly and time-consuming process.
B) it creates a new playing field in which creativity and innovation can play a major part in strategic decisions.
C) it forces the strategic manager to be more stable.
D) it hampers their ability to develop long-range plans.
E) there are too many uncontrollable variables.
Answer: D
Which of the following is NOT descriptive of external environmental scanning?
A) used as a tool to ensure a corporation's long-term health
B) used to monitor, evaluate, and disseminate information relevant to the organizational development of strategy
C) used to identify major stockholders
D) used as a tool for corporations to avoid strategic surprise
E) used to determine a firm's competitive advantage
Answer: C
The corporation's task environment
A) encompasses the physical working areas of the organization.
B) includes those elements or groups within an organization's industry.
C) is an advisory committee to top management.
D) is an accounting of the many jobs within an organization.
E) is the job requirement specification listing necessary skills and abilities.
Answer: B
Which of the following is NOT an element of the organization's task environment?
A) local communities
B) trade associations
C) governments
D) technological developments
E) special interest groups
Answer: D
Which environment was generally perceived by business people to be something to exploit, not conserve until the twentieth century?
A) the task environment
B) the natural environment
C) the internal environment
D) the societal environment
E) the external environment
Answer: B
Which of the following is NOT a major force in the societal environment?
A) political-legal forces
B) labor forces
C) economic forces
D) technological forces
E) sociocultural forces
Answer: B
All of the following are technological breakthroughs already having a significant impact on many industries EXCEPT
A) growing health consciousness.
B) alternative energy sources.
C) genetically altered organisms.
D) smart, mobile robots.
E) virtual personal assistants.
Answer: A
Which societal force includes demographic trends?
A) political-legal forces
B) labor forces
C) economic forces
D) technological forces
E) sociocultural forces
Answer: E
Which of the following is NOT one of the eight current sociocultural trends mentioned in the text?
A) increasing environmental awareness
B) growth of the seniors market
C) decline of the mass market
D) increasing food consumption
E) impact of Generation Y boomlet
Answer: D
Which is the largest of the current U.S. generations?
A) Baby Boomers
B) Woofies
C) Silent Generation
D) Gen X
E) Gen Y
Answer: A
A company with significant assets and activities in multiple countries is known as a(n)
A) multinational corporation.
B) repatriated corporation.
C) transferable corporation.
D) duplicate corporation.
E) emancipated corporation.
Answer: A
When strategic managers have a willingness to reject unfamiliar as well as negative information it is referred to as
A) strategic paralysis.
B) corporate inertia.
C) management indifference.
D) strategic myopia.
E) corporate apathy.
Answer: D
The origin of competitive advantage lies in the ability to
A) gain major stockholders.
B) identify and respond to environmental change well in advance of competition.
C) launch products quickly.
D) serve customers faster.
E) create surprise for others.
Answer: B
According to Porter, seeing clothing firms such as Under Armour enter the athletic shoe industry would reflect a
Answer: A
Industry analysis is primarily concerned with a corporation's
A) societal environment.
B) task environment.
C) sociocultural environment.
D) economic environment.
E) internal environment.
Answer: B
According to Porter, the corporation is most concerned with
A) the intensity of competition within its industry.
B) the aggregate level of demand for a product line.
C) a market's position on its life cycle.
D) the amount of pressure from the societal environment.
E) the level of government action in an industry.
Answer: A
In addition to Porter's Five Forces, another force added in the text is
A) bargaining power of unions.
B) other stakeholders.
C) threat of prospects.
D) threat of shareholders.
E) bargaining strength of employees.
Answer: B
According to Porter, the collective strength of the interaction of potential entrants, buyers, substitutes, suppliers, firm rivalry, and other stakeholders determine
A) the level of government action in an industry.
B) the probable industry attractiveness and business strength position.
C) the ultimate profit potential in the industry measured in terms of long-run return on invested capital.
D) the aggregate level of demand for a product line.
E) the amount of pressure from the societal environment.
Answer: C
According to Porter's model, a strong or high force is likely to reduce profits and can be regarded as a(n)
A) benefit.
B) opportunity.
C) advantage.
D) threat.
E) risk.
Answer: D
According to Porter's model, a low force can enable the company to earn greater profits and can be regarded as a(n)
A) benefit.
B) opportunity.
C) advantage.
D) threat.
E) risk.
Answer: B
Which of the following is NOT descriptive of the "threat of new entrants"?
A) depends on the presence of entry barriers
B) have a desire to gain market share
C) depends on the reaction of existing competitors
D) does not impact industry attractiveness
E) brings new capacity and substantial resources
Answer: D
Which barrier to entry do corporations such as P&G use to force new entrants to spend heavily to overcome existing customer loyalty?
A) rivalry among existing firms
B) switching costs
C) capital requirements
D) product differentiation
E) access to distribution channels
Answer: D
Which barrier to entry uses cost advantages associated with large size?
A) rivalry among existing firms
B) switching costs
C) cost disadvantages independent of size
D) capital requirements
E) economies of scale
Answer: E
Which barrier to entry is demonstrated by Microsoft's MS-DOS operating system?
A) government policy
B) access to distribution channels
C) cost disadvantages independent of size
D) capital requirements
E) economies of scale
Answer: C
Intel was able to gain a significant cost advantage over its competitors in the production and sale of microprocessors because of
A) capital requirements.
B) product differentiation.
C) switching costs.
D) economies of scale.
E) access to distribution.
Answer: D
Which of the following is NOT descriptive of intense rivalry among firms?
A) slow industry growth
B) high fixed costs
C) high exit barriers
D) few competitors or competitors that are roughly equal in size and power
E) product offerings that are highly differentiated
Answer: E
Which of the following is NOT descriptive of the threat of substitute products or services?
A) Substitute products appear to be different, but satisfy the same need as another product.
B) If the cost of switching is low, substitutes may have a strong effect on an industry.
C) Identifying substitutes is relatively easy since they look similar.
D) Possible substitute products or services may not appear to be easily substitutable.
E) Substitutes limit the potential returns of an industry.
Answer: C
A sugar company that is worried that consumers may buy artificial sweetener instead of sugar is concerned about the
A) threat of new entrants.
B) rivalry among existing firms.
C) threat of substitute products.
D) bargaining power of suppliers.
E) bargaining power of buyers.
Answer: C
Which of the following is NOT descriptive of a high level of bargaining powers of buyers?
A) Changing suppliers costs very little.
B) Alternative suppliers are plentiful because of standardization of the product.
C) The purchased product represents a high percentage of buyer's costs.
D) The buyer buys a large proportion of the seller's product or service.
E) A buyer earns high profits and is very insensitive to costs and service differences.
Answer: E
When General Motors considers making its own automotive parts, Delphi Automotive Supply Company would be concerned with the
A) bargaining power of suppliers.
B) bargaining power of buyers.
C) rivalry among existing competitors.
D) threat of substitutes.
E) threat of new entrants.
Answer: B
Which of the following is NOT descriptive of a high level of bargaining power of suppliers?
A) Substitutes are readily available.
B) The product or service is unique.
C) The supplier industry is dominated by a few companies, but sells too many.
D) The purchasing industry buys only a small portion of the supplier group's goods and services.
E) Suppliers are able to integrate forward and compete directly with their present customers.
Answer: A
Other software companies could not compete with Microsoft based on the hesitation of consumers to try a new software. Which of Porter's forces does this reflect?
A) exit barriers
B) bargaining power of buyers
C) threat of substitutes
D) bargaining power of suppliers
E) rivalry among existing firms
Answer: D
A company or an industry whose product works well with a firm's product and without which the product would lose much of its value is considered to be a(n)
A) complementor.
B) oligopoly.
C) strategic group.
D) industry leader.
E) staggered company.
Answer: A
A relationship that illustrates the term "complementor" is
A) Microsoft and Intel.
B) General Motors and Ford.
C) Hewlett Packard and Compaq.
D) Gateway and Dell.
E) America Online and CompuServe.
Answer: A
The strength of each of the six driving forces of industry competition varies according to the
A) effectiveness of the strategic planning.
B) stage of industry evolution.
C) capital requirements.
D) changes in the political environment.
E) amount of government regulation.
Answer: B
In a fragmented industry
A) no firm has large market share.
B) prices drop as new competitors enter the market.
C) economies of scale are used to reduce costs.
D) companies integrate to further reduce costs.
E) all of the above
Answer: E
The U.S. major home appliance industry is an example of an industry
A) that has evolved from an oligopoly to a monopoly.
B) in which each company maintained a distinct product line.
C) that was once fragmented, but now is consolidated.
D) that has experienced consistent, increasing sales.
E) experiencing a successful strategy of product specialization because of product differentiation.
Answer: C
An industry dominated by a few large firms, all of which struggle with product differentiation, is known as
A) multidomestic.
B) consolidated.
C) global.
D) indigenous.
E) worldwide.
Answer: B
In which type of international industry do corporations tailor their products to the specific needs of consumers in a particular country?
A) consortium industry
B) global industry
C) indigenous industry
D) multidomestic industry
E) worldwide industry
Answer: D
Which type of international industry manufactures and sells the same products with only minor adjustments made for individual countries around the world?
A) consortium industry
B) global industry
C) indigenous industry
D) multidomestic industry
E) worldwide industry
Answer: B
Which of the following is an example of a global industry?
A) retailing
B) banking
C) tires
D) insurance
E) health care
Answer: C
The two factors that tend to determine whether an industry will be primarily multidomestic or primarily global are (1) the pressure for coordination within the MNCs operating in that industry and (2)
A) the pressure for local responsiveness on the part of individual country markets.
B) the power of the local country governments to restrict MNC actions.
C) the need for brand management in the various MNCs operating within that industry.
D) the importance of differentiating with integrating mechanisms in regional cooperatives.
E) the likelihood of terrorist activity impacting that industry.
Answer: A
When the pressure for coordination is strong and the pressure for local responsiveness is weak for multinational corporations within a particular industry, the industry will tend to become
A) global.
B) consolidated.
C) multidomestic.
D) risky.
E) indigenous.
Answer: A
When the pressure for local responsiveness is strong and the pressure for coordination is weak for multinational corporations in an industry, the industry will tend to become
A) global.
B) consolidated.
C) multidomestic.
D) risky.
E) indigenous.
Answer: C
What is a set of business units or firms that "pursue similar strategies with similar resources"?
A) strategic group
B) collective collaboration
C) cooperative
D) integral association
E) strategic assembly
Answer: A
Which of the following is NOT one of the general strategic types according to Miles and Snow?
A) initiators
B) reactors
C) analyzers
D) prospectors
E) defenders
Answer: A
According to Miles and Snow, which strategic orientation is demonstrated by companies that have a limited product line and focuses on improving the efficiency of their existing operations?
A) initiators
B) reactors
C) analyzers
D) prospectors
E) defenders
Answer: E
According to Miles and Snow, a company that operates in at least two different product-market areas in which one product is stable and the other one is variable, reflects which strategic orientation?
A) initiators
B) reactors
C) analyzers
D) prospectors
E) defenders
Answer: C
According to Miles and Snow, companies with fairly broad product lines that focus on product innovations and market opportunities such as Frito-Lay, reflect which strategic orientation?
A) initiators
B) reactors
C) analyzers
D) prospectors
E) defenders
Answer: D
According to Miles and Snow, most major U.S. airlines have reflected which strategic orientation?
A) initiators
B) reactors
C) analyzers
D) prospectors
E) defenders
Answer: B
To succeed in a hypercompetitive industry, companies must be willing to
A) cut prices below marginal costs.
B) pursue market share instead of profits.
C) operate in the ethical gray zone.
D) cannibalize their own successful product lines.
E) reduce spending on research and development.
Answer: D
A table which summarizes the key success factors within a particular industry is called a(n)
A) EFAS Table.
B) IFAS Table.
C) SFAS Table.
D) TOWS Matrix.
E) industry matrix.
Answer: E
Those variables that can affect significantly the overall competitive positions of companies within any particular industry are known as
A) external strategic factors.
B) internal strategic factors.
C) matrix factors.
D) key success factors.
E) industry scenario.
Answer: D
A formal program of gathering information on a company's competitors is referred to as
A) statistical modeling.
B) competitive intelligence.
C) competitive strategy.
D) quantitative forecasting.
E) qualitative matrix.
Answer: B
Which of the following is true in regards to competitive intelligence?
A) The Economic Espionage Act makes it illegal to steal any material that a business has taken "reasonable efforts" to keep secret.
B) The Society of Competitive Intelligence Professionals urges strategists to stay within the law and to act ethically when searching for information.
C) The Society of Competitive Intelligence Professionals states that illegal activities are foolish because the vast majority of worthwhile competitive intelligence is available publicly via annual reports, websites, and libraries.
D) A number of firms hire consultants with questionable reputations who do what is necessary to get information when the selected methods do not meet SPIC ethical standards or are illegal.
E) all of the above
Answer: E
The primary activity of a competitive intelligence unit is to
A) monitor competitors.
B) engage in corporate espionage.
C) survey stakeholders.
D) determine industry R&D statistics.
E) reverse engineer competitors' products.
Answer: A
A study of nearly 500 of the world's largest corporations indicated which of the following to be the most widely practiced form of forecasting?
A) statistical modeling
B) scenario-writing
C) delphi technique
D) brainstorming
E) trend extrapolation
Answer: E
Over ________ of large companies use trend extrapolation for forecasting.
A) 20%
B) 30%
C) 40%
D) 50%
E) 70%
Answer: E
Trend extrapolation is
A) the process of converting intuition and hunches into reality.
B) the extension of present trends into the future.
C) the process of asking some authorities in the area to make an "informed guess" about the future.
D) given a large amount of historical data on certain interrelated factors, one attempts to conceptualize alternative futures.
E) detecting faulty underlying assumptions before forecasting errors can occur.
Answer: B
A non-quantitative approach to forecasting that requires simply the presence of people with some knowledge of the situation to be predicted to propose ideas without first mentally screening them is called
A) simulations.
B) the delphi technique.
C) brainstorming.
D) signal monitoring.
E) scenarios.
Answer: C
One ground rule necessary for effective brainstorming is
A) scrutinize each idea generated.
B) propose ideas without mentally screening them.
C) calculating future earnings of each idea.
D) critique each idea for rationality.
E) forecast the success of each idea.
Answer: B
Regression analysis is an example of which quantitative forecasting technique?
A) the delphi technique
B) statistical modeling
C) brainstorming
D) trend-impact analysis
E) morphological analysis
Answer: B
The most widely used forecasting technique used after trend extrapolation is
A) statistical modeling.
B) simulations.
C) scenario-writing.
D) expert opinion.
E) brainstorming.
Answer: C
Which one of the following is NOT part of the process of industry scenarios?
A) Examine possible shifts in societal variables.
B) Identify uncertainties in each of the six forces in the task environment.
C) Generate at least 15 scenarios.
D) Make a range of plausible assumptions about future trends.
E) Analyze the industry situation that would prevail under each scenario.
Answer: C
The technique recommended by the text to organize an analysis of external strategic factors is called
A) IFAS.
B) EFAS.
C) SFAS.
D) SWOT.
E) the issues priority matrix.
Answer: B
In the EFAS Table, the indicator of how well a particular company is responding to current and expected factors in its external environment is characterized by the
A) IFAS score.
B) industry matrix.
C) total weighted score.
D) SWOT score.
E) SFAS score.
Answer: C
Describe the four general forces in the societal environment.
Answer: The four general forces in the societal environment are economic, technological, political-legal, and sociocultural. Economic forces regulate the exchange of materials, money, energy, and information. Technological forces generate problem-solving inventions. Political-legal forces allocate power and provide constraining and protecting laws and regulations. Sociocultural forces regulate the values, mores, and customs of society.
List eight current sociocultural trends in the United States that are transforming North America and the world.
Answer: Eight current sociocultural trends in the United States that are transforming North America and the world are as follows:
Increasing environmental awareness
Growing health consciousness
Expanding seniors market
Impact of Millennials
Decline of the mass market
Changing pace and location of life
Changing household composition
Increasing diversity of workforce and markets
Describe Porter's approach to industry analysis.
Answer: Michael Porter contends that a corporation is most concerned with the intensity of competition within its industry. The level of this intensity is determined by basic competitive forces. These are the threat of new entrants, rivalry among existing firms, threat of substitute products or services, bargaining power of buyers, bargaining power of suppliers, and relative power of other stakeholders (added later by the authors).
New entrants to an industry typically bring to it new capacity, a desire to gain market share, and substantial resources. The threat of entry depends on the presence of entry barriers and the reaction that can be expected from existing competitors.
A competitive move by one firm can be expected to have noticeable effect on its competitors and thus may cause retaliation or counter efforts. Intense rivalry is related to the presence of the number of competitors, rate of industry growth, product or service characteristics, the amount of fixed costs, capacity, the height of exit barriers, and the diversity of rivals.
Substitute products are those products that appear to be different but can satisfy the same need as another product.
Buyers affect an industry through their ability to force down prices, bargain for higher quality or more services, and play competitors against each other.
Suppliers can affect an industry through their ability to raise prices or reduce the quality of purchased goods and services.
The sixth force includes a variety of stakeholder groups from the task environment. The importance of these stakeholder groups varies by industry.
Distinguish between a fragmented and consolidated industry.
Answer: A fragmented industry has no firm with a large market share and each firm serves only a small piece of the total market in competition with others. As new competitors enter the industry, prices drop as a result of competition.
A consolidated industry is dominated by a few large firms, each of which struggles to differentiate its products from the competition. The automobile, petroleum, and major home appliance industries are examples of mature, consolidated industries each controlled by a few large competitors.
What are the two factors that tend to determine whether an industry will be primarily multidomestic or primarily global?
Answer: The factors that tend to determine whether an industry will be primarily multidomestic or primarily global are pressure for coordination within the multinational operations operating in that industry and pressure for local responsiveness on the part of individual country markets. A multidomestic industry is one in which companies tailor their products to the specific needs of consumers in a particular country. A global industry is one in which companies manufacture and sell the same products, with only minor adjustments made for individual countries around the world.
Describe the four strategic types of the Miles and Snow typology.
Answer: According to Miles and Snow, there are four general types of firms based on their general strategic orientation. Defenders are companies with a limited product line that focus on improving the efficiency of their existing operations. Prospectors are companies with fairly broad product lines that focus on product innovation and market opportunities. Analyzers are corporations that operate in at least two different product-market areas, one stable and one variable. Reactors are corporations that lack a consistent strategy-structure-culture relationship.
Define competitive intelligence.
Answer: Competitive intelligence is a formal program of gathering information on a company's competitors. Often called business intelligence, it is one of the fastest growing fields within strategic management. Most companies use outside organizations (such as A.C. Nielsen Co.) to provide them with environmental data. The Internet provides the quickest means to obtain data. Some companies choose to use industrial espionage or other intelligence-gathering techniques to get their information straight from their competitors.
Discuss the most commonly practiced form of forecasting.
Answer: Trend extrapolation is the most widely practiced form of forecasting with over 70% of the world's largest firms using this technique either occasionally or frequently. Extrapolation is the extension of present trends into the future. It rests on the assumption that the world is reasonably consistent and changes slowly in the short run. Time-series methods are approaches of this type: they attempt to carry a series of historical events forward into the future. The basic problem with extrapolation is that a historical trend is based on a series of patterns or relationships among so many different variables that a change in any one can drastically alter the future direction of the trend. As a rule of thumb, the further back into the past you can find relevant data supporting the trend, the more confidence you can have in the prediction.