Deck 2: Analyzing the External Environment of the Firm: Creating Competitive Advantages

Question 1

If companies miscalculate the market, opportunities will be lost.

Answer 1

True
Explanation: Successful managers must recognize opportunities and threats in the external environment of their firm in order to not lose out on them.

Question 2

Environmental monitoring is not an input to forecasting.

Answer 2

False
Explanation: The three important processes of scanning, monitoring, and gathering competitive intelligence are used to develop forecasts.

Question 3

Two companies ask outsiders to critique strategy during their board's strategy sessions. Such input typically leads to spirited discussions that provide valued input on the hinge assumptions and options that are under consideration. This is an example of how to improve perceptual acuity.

Answer 3

True
Explanation: How can perceptual acuity be improved? Although many CEOs may complain that the top job is a lonely one, they cannot do it effectively by sitting alone in their office. Instead, high-performing CEOs are constantly meeting with people and searching out information.

Question 4

Environmental monitoring deals with tracking changes in environmental trends that are often uncovered during the environmental scanning process.

Question 5

Competitive intelligence generally does not benefit very much from gathering information on competitors from sources in the public domain.

Question 6

Consider the example of Salemi Industries and the launch of its product, Cell Zone, in 2005. Although it tried to carefully analyze its potential market, it misread the market demand for the product and paid a steep price for its mistake. This is an example of internal forecasting.

Question 7

Perceptual acuity can be improved by sitting alone and not consulting others.

Question 8

One CEO gets together with his critical people for half a day every eight weeks to discuss what's new and what's going on in the world. The setting is informal, and outsiders often attend. This is an example of how not to improve perceptual acuity.

Question 9

Competitor Intelligence (CI) is a tool that can provide management with early warnings about both threats and opportunities.

Question 10

SWOT analysis is useful in part because it obliges the firm to act proactively by putting an emphasis on identifying opportunities and threats that constrain the action choices a firm might make as a result of its internal and external environmental scan.

Question 11

Even with all of the advances in recent years, forecasting is typically considered more of an art than a science and it is of little use in generating accurate predictions.

Question 12

Blockbuster, Borders, Circuit City, and Radio Shack are examples of firms that did not have good perceptual acuity.

Question 13

Environmental scanning involves surveillance of the internal environment of a firm to predict environmental changes and detect changes already under way.

Question 14

Environmental scanning and competitor intelligence provide important inputs for forecasting activities.

Question 15

Ted Turner saw the potential of 24-hour news before anyone else. This is an example of perceptual acuity.

Question 16

A CEO meets four times a year with about four other CEOS of large, but noncompeting, diverse global companies. This is an example of how to improve perceptual acuity.

Question 17

Scenario planning is useful for anticipating major future changes in the external environment.

Question 18

When management assumptions, premises, or beliefs are incorrect or when internal inconsistencies among them render the overall theory of the business invalid, the strategy of the firm needs to be updated.

Question 19

Perceptual acuity, according to Ram Charan, is the ability to know for certain what will happen in the future.

Question 20

Scenario analysis is a superficial approach to forecasting that seeks to explore possible developments that many only be connected to the past.

Question 21

Even with all of the advances in recent years, forecasting is typically considered more of an art than a science and it is of little use in generating accurate predictions.

Question 22

The strengths and weaknesses of a SWOT analysis refer to the external conditions of the firm.

Question 23

Scenario analysis is a form of environmental forecasting.

Question 24

The SWOT analysis framework leads to a conceptually simple approach to identifying the important factors that constrain strategic choices without sacrificing analytical rigor.

Question 25

Scenario planning is usually concerned with short-term forecasts.

Question 26

Scenario analysis relies on the extrapolation of historical trends.

Question 27

Keeping track of competitors has become more difficult today with the amount of information that is available on the Internet.

Question 28

In the SWOT framework, Opportunities and Threats are environmental conditions internal to the firm.

Question 29

PPG Industries has developed four alternative futures based on differing assumptions about two key variables: the cost of energy and the extent of opportunity for growth in emerging markets. This is called demand monitoring.

Question 30

In the SWOT framework, the Strengths and Weaknesses are external environmental factors to consider.

Question 31

A Motel 6 executive indicates that he regularly reviews the number of rooms in the budget segment of the industry in the United States and the difference between the average daily room rate and the consumer price index (CPI). This is an example of Competitive Intelligence.

Question 32

Although changes in the general environment may often adversely or favorably impact a firm, they seldom alter an entire industry.

Question 33

Underestimating uncertainty can lead to strategies that neither defend against threats nor take advantage of opportunities.

Question 34

The impact of a demographic trend varies across industries.

Question 35

Steve Jobs, the former chairman of Apple, used intuition and judgment to forecast the future.

Question 36

Code of Ethics guidelines can assist companies in avoiding aggressive competitive intelligence gathering that results from illegal behaviors.

Question 37

An industry is composed of a set of firms that produce similar products or services, sell to similar customers, and use similar methods of production.

Question 38

The opportunities and threats of a SWOT analysis refer to the internal conditions of the firm.

Question 39

To understand the business environment of a particular firm, you need to analyze both the general environment and the firm industry and competitive environment.

Question 40

Only one scenario is considered in a scenario analysis in order to envision possible future outcomes.

Question 41

Buyer power tends to be higher if suppliers provide undifferentiated or standard products.

Question 42

Globalization provides opportunities to access larger potential markets and a narrow base of production factors such as raw materials, labor, skilled managers, and technical professionals.

Question 43

Research shows that many immigrants to the United States are prodigious job creators. This supports legislative battles to increase the number of H-1B visas for foreign workers.

Question 44

Crowdsourcing is used by companies to develop products.

Question 45

Supplier power tends to be highest in industries where products are vital to buyers, where switching from one supplier to another is very costly, and where there are many suppliers.

Question 46

In some industries, high switching costs can act as an important barrier to entry.

Question 47

There is generally a weak relationship between equity markets (e.g., New York Stock Exchange) and economic indicators.

Question 48

The Internet is a leading component in the rising emergence of digital technology.

Question 49

Industries characterized by high economies of scale typically attract fewer new entrants.

Question 50

The power of suppliers will be enhanced if they are able to maintain a credible threat of forward integration.

Question 51

Developments in technology and other innovations can create new industries and alter the boundaries of existing industries.

Question 52

By inviting customers to write online reviews, Amazon used crowdsourcing to build value to its offer.

Question 53

A demographic trend in the United States, the aging of the population, has important implications for the economic segment (in terms of tax policies to provide benefits to increasing numbers of older citizens).

Question 54

The Porter five-forces model is designed to help us understand how social attitudes and cultural values impact U.S. businesses.
E. Porter has been the most commonly used analytical tool for examining the competitive environment. It describes the competitive environment in terms of five basic competitive forces.

Question 55

A major sociocultural trend in the United States is the increased educational attainment by women.

Question 56

It is not important to consider the potential impact of government regulation when developing new innovations.

Question 57

The power of a buyer group is increased if the buyer group has less concentration than the supplier group.

Question 58

Technological innovations can create entirely new industries and alter the boundaries of industries.

Question 59

The competitive environment consists of many factors that are particularly relevant to company strategy. This includes competitors, customers, and suppliers.

Question 60

The five-forces model helps to determine both the nature of competition in an industry and the profit potential for the industry.
E. Porter describes the competitive environment in terms of five basic competitive forces that affect the ability of a firm to compete in a given market. Together, they determine the profit potential for a particular industry.

Question 61

Switching costs for an end user are likely to be much higher because of the Internet.

Question 62

Apple used complementors to gain market share in the digital music business.

Question 63

The more attractive the price/performance ratio of substitute products, the tighter it constrains the ability of an industry to charge high prices.

Question 64

Rivalry is most intense when there are high exit barriers and high industry growth.

Question 65

The use of the strategic group concept is generally not helpful in charting the future directions of the strategies of a firm.

Question 66

Rivalry will be most intense when there is a lack of differentiation or switching costs.

Question 67

Five-forces analysis implicitly assumes a zero-sum game, a perspective that can be short-sighted.

Question 68

Rivalry is not always cutthroat; sometimes, it can be gentlemanly.

Question 69

The Internet and digital technologies suppress the bargaining power of buyers by providing them with more information to make buying decisions.

Question 70

Because of the Internet and digital technologies, it is very difficult for suppliers to create purchasing techniques that lower switching costs.

Question 71

Reintermediation is responsible for an overall reduction in business opportunities.

Question 72

The same environmental trend or event may have a very different impact on different strategic groups within the same industry.

Question 73

In conducting a good industry analysis that will yield an improved understanding of the root causes of profitability, rigorous quantification of the five forces is not necessary.

Question 74

Establishing long-term mutually beneficial relationships with suppliers improves the company ability to implement just-in-time (JIT) inventory systems, which let it manage inventories better and respond quickly to market demands.

Question 75

Complement products typically have no impact on the value of products and services of the firm.

Question 76

The Internet heightens the threat of substitutes because it creates new ways to accomplish the same task.

Question 77

Competition tends to be more intense among firms within a strategic group than between strategic groups.

Question 78

In most industries, new entrants will not be a threat because the Internet lowers entry barriers.

Question 79

Michael Porter's five-forces Analysis is a dynamic tool for analyzing industry attractiveness.

Question 80

The Nintendo success story in the early 1990s was a result of its ability to manage its relationship with its complementors, such as the licensee rights given to outside firms to develop games using the Nintendo game console.