MGT603 Strategic Management Solved MCQs from Book by David (chap 3)
CHAPTER 3

The External Assessment

True/False

Introduction

1. Industry analysis is also referred to as external strategic management audit.

Ans: T Page: 82

2. An external audit focuses on identifying and evaluating trends and events within the control of management.

Ans: F Page: 82


 

The Nature of an External Audit

3. The aim of an external audit is to develop an exhaustive list of every possible factor that could influence the business.

Ans: F Page: 83

4. External audits attempt to identify key variables that offer actionable responses.

Ans: T Page 83

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.

Ans: F Page: 83

6. As many managers and employees as possible should be involved in the process of performing an external audit.

Ans: T Page: 83

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.

Ans: T Page: 84

8. Freund argues that key external factors must not be hierarchical.

Ans: F Page: 84

The Industrial Organization (I/O) View

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.

Ans: F Page: 85


 

Economic Forces

10. An economic trend in America is the increasing numbers of two-income households.

Ans: T Page: 85

11. Economic factors do not have much impact on the attractiveness of strategies.

Ans: F Page: 85

12. An increase in interest rates is directly related to an increase in discretionary income and an increase in the demand for discretionary goods.

Ans: F Page: 85

13. Motor vehicle firms in the United States are vulnerable when the value of the dollar falls.

Ans: F Page: 86

14. A low value of the dollar means lower exports and higher imports.

Ans: F Page: 86

15. In 2005, the Yen rose to a five-year high against the dollar.

Ans: T Page 86

16. The economic standard of living varies little between cities and countries.

Ans: F Page 86

17. The cost of living in London is greater than the cost of living in New York City.

Ans: T Page 87

18. The cost of living in Boston is greater than the cost of living in New York City.

Ans: F Page 87

19. According to the Wall Street Journal, the political bureaucracy in Russia has been able to stimulate economic progress, free enterprise, and entrepreneurship.

Ans: F Page 87

20. Russian businesses are more likely to fall victim to illegal actions by officials and policemen than by criminals.

Ans: T Page 87


 

Social, Cultural, Demographic and Environmental Forces

21. The United States is getting older and less Caucasian.

Ans: T Page: 88

22. It is predicted that, by 2025, over 18% of the population in the United States will be over 65 years old.

Ans: T Page 88

23. Recent consumption trends in the United States indicate that wine consumption is increasing at 5% while beer consumption is increasing at 10%.

Ans: F Page 88

24. Hispanics are expected to become a larger minority group in the United States than African Americans by 2021.

Ans: T Page: 88

25. In the

United States, the population has been moving from the south and west to the Northeast and Midwest.

Ans: F Page: 89

26. In 2003,China replaced Mexico as the largest exporter to the United States.

Ans: T Page 89


 

Political, Governmental and Legal Forces

27. Political, governmental, and legal factors are considered key threats for most small and large organizations.

Ans: F Page 90

28. Political forecasts can be the most important part of an external audit for firms that depend heavily on government contracts.

Ans: T Page: 83

29. Within the European Union (EU), tax rates have been standardized to end competitive tax breaks among member countries.

Ans: F page 90


 

Technological Forces

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.

Ans: T Page: 93

31. In practice, critical technology decisions are too often delegated to lower organizational levels or are made without an understanding of their strategic implications.

Ans: T Page: 94


 

Competitive Forces

32. A characteristic that describes the most competitive companies in America is “whether it’s broke or not, fix it—make it better; not just products, but the whole company if necessary.”

Ans: T Page: 96

33. “Innovate or evaporate; particularly in technology-driven businesses, nothing quite recedes like success,” is a characteristic given that describes the most competitive companies in America.

Ans: T Page: 96

34. Corporate intelligence can be defined as a systematic and ethical process for gathering and analyzing information about the competition’s activities and general business trends to further a business’s own goals.

Ans: F Page 96

35. Internal opportunities can be represented by major competitors’ weaknesses.

Ans: F Page: 96

36. According to Business Week, there are less than 500 corporate spies now actively engaged in intelligence activities.

Ans F: Page 96

37. According to Business Week, and 9 out of 10 large companies have employees dedicated solely to gathering competitive intelligence.

Ans: T Page: 96

38. An effective CI program allows all areas of a firm to access consistent and verifiable information in making decisions.

Ans: T Page: 97

39. 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.

Ans: T Page: 97

40. Because companies are fearful of corporate espionage, cooperative agreements between competitors are becoming less popular.

Ans: F Page 98

41. Learning from the partner is a major reason why U.S. firms enter into cooperative agreements.

Ans: F Page: 99

42. Market commonality is the extent to which the type and amount of a firm’s internal resources are comparable to a rival.

Ans: F page 99


 

Competitive Analysis: Porter’s Five-Forces Model

43. 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.

Ans: T Page: 100

44. The first step for using Porter’s Five-Forces Model is to evaluate the relative strength of each competitive force.

Ans: F Page 101

45. Bargaining power of consumers is usually the most powerful of Porter’s five competitive forces.

Ans: F Page: 101

46. 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.

Ans: T Page: 102

47. Laser eye surgery would be considered a substitute product for eyeglasses and contact lenses.

Ans: T Page 102

48. Forward integration is used by firms to gain control or ownership of suppliers.

Ans: F Page: 102

49. The bargaining power of consumers can be the most important force impacting competitive advantage.

Ans: T page 103


Forecasting Tools and Techniques

50. Forecasts are educated assumptions about future trends and events.

Ans: T Page: 104

51. 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.

Ans: F page 104

52. Quantitative forecasts become less accurate as historical relationships become less stable.

Ans: T Page: 104

53. Linear regression is based on the assumption that the future will be different from the past.

Ans: F Page: 104

54. Linear regression is a popular technique for qualitative forecasts.

Ans: F Page 104

55. Without reasonable assumptions, the strategy-formulation process could not proceed effectively.

a. Ans: T Page: 104


The Global Challenge

56. Globalization is a process of worldwide integration of strategy formulation, implementation and evaluation activities.

Ans: T Page: 106

57. A global strategy seeks to meet the needs of customers worldwide with the lowest cost at the highest value.

Ans: T Page: 106

58. Rampant corruption and the absence of a legal system are risks that still restrain firms from initiating business with

China.

Ans: T Page: 106

59.China is the world’s fastest-growing economy.

Ans: T Page 107

60. Hong Kong serves as the gateway to China.

Ans: T Page: 108


Industry Analysis: The EFE Matrix

61. In an EFE Matrix, opportunities often receive higher weights than threats, but threats too can receive high weights if they are especially severe or threatening.

Ans: T Page: 109

62. 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.

Ans: F Page: 109


The Competitive Profile Matrix (CPM)

63. Both a Competitive Profile Matrix and an EFE Matrix have the same meaning in the weights, ratings and total weighted scores.

a. Ans: T Page: 111

64. The critical success factors in a Competitive Profile Matrix are often the same as those in an EFE Matrix.

a. Ans: F Page: 111


Multiple Choice

The Nature of an External Audit

65. __________ is not part of an external audit.

a. Analyzing competitors
b. Analyzing financial ratios
c. Analyzing available technologies
d. Studying the political environment
e. Analyzing social, cultural, demographic and geographic forces

Ans: b Page: 83

66. Identifying and evaluating key social, political, economic, technological and competitive trends and events comprise
a. developing an effective mission statement.
b. conducting an internal audit.
c. performing an external audit.
d. formulating strategy.
e. implementing strategy.

Ans: c Page: 83

67. The process of performing an external audit needs to include:
a. only top level managers, as it’s a planning function.
b. as many managers and employees as possible.
c. primarily front-line supervisors
d. between 15 to 20 managers for it to be valid
e. stockholders and external government agencies

Ans: b Page: 83

68. To perform an external audit, a company first must:
a. get an approval from the Securities and Exchange Commission
b. perform an internal audit
c. gather competitive intelligence and information about external trends
d. hire a consultant to develop a comprehensive strategic plan.
e. all of these
Ans: c Page: 84

69. Freund emphasizes that key external factors should be all of these except:

a. important to achieving long-term and annual objectives.
b. measurable.
c. relatively few in number.
d. applicable to all competing firms.
e. hierarchical in the sense that some will pertain to the overall company while others will be more narrowly focused.
Ans: c Page: 84