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Chapter 02 Analyzing the External Environment of the Firm: Creating
Competitive Advantages Answer Key
True / False Questions
1.
Environmental scanning and competitor intelligence provide important inputs for forecasting
activities.
2.
Perceptual acuity, according to Ram Charan, is the ability to know for certain what will happen
in the future.
3.
Ted Turner saw the potential of 24-hour news before anyone else. This is an example of
perceptual acuity.
4.
Perceptual acuity can be improved by sitting alone and not consulting others.
5.
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.
6.
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.
7.
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.
Accessibility: Keyboard Navigation
Blooms: Understand
Learning Objective: 02-01 The importance of developing forecasts of the business environment.
Level of Difficulty: 2 Medium
Topic: Creating the Environmentally Aware Organization
8.
Scenario planning is useful for anticipating major future changes in the external environment.
9.
Environmental monitoring is not an input to forecasting.
10.
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.
11.
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.
12.
If companies miscalculate the market, opportunities will be lost.
13.
Blockbuster, Borders, Circuit City, and Radio Shack are examples of firms that did not have
good perceptual acuity.
14.
Environmental monitoring deals with tracking changes in environmental trends that are often
uncovered during the environmental scanning process.
Topic: Creating the Environmentally Aware Organization
15.
Competitor Intelligence (CI) is a tool that can provide management with early warnings about
both threats and opportunities.
16.
Competitive intelligence generally does not benefit very much from gathering information on
competitors from sources in the public domain.
17.
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.
18.
Environmental scanning involves surveillance of the internal environment of a firm to predict
environmental changes and detect changes already under way.
19.
Scenario analysis is a superficial approach to forecasting that seeks to explore possible
developments that many only be connected to the past.
20.
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.
21.
In the SWOT framework, the Strengths and Weaknesses are external environmental factors to
consider.
22.
In the SWOT framework, Opportunities and Threats are environmental conditions internal to
the firm.
23.
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.
24.
Keeping track of competitors has become more difficult today with the amount of information
that is available on the Internet.
25.
Code of Ethics guidelines can assist companies in avoiding aggressive competitive
intelligence gathering that results from illegal behaviors.
26.
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.
27.
Scenario planning is usually concerned with short-term forecasts.
28.
The strengths and weaknesses of a SWOT analysis refer to the external conditions of the
firm.
29.
The opportunities and threats of a SWOT analysis refer to the internal conditions of the firm.
30.
To understand the business environment of a particular firm, you need to analyze both the
general environment and the firm industry and competitive environment.
31.
Underestimating uncertainty can lead to strategies that neither defend against threats nor take
advantage of opportunities.
32.
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.
33.
The SWOT analysis framework leads to a conceptually simple approach to identifying the
important factors that constrain strategic choices without sacrificing analytical rigor.
34.
Steve Jobs, the former chairman of Apple, used intuition and judgment to forecast the future.
35.
Scenario analysis is a form of environmental forecasting.
36.
Scenario analysis relies on the extrapolation of historical trends.
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.
38.
Only one scenario is considered in a scenario analysis in order to envision possible future
outcomes.
39.
Although changes in the general environment may often adversely or favorably impact a firm,
they seldom alter an entire industry.
40.
The impact of a demographic trend varies across industries.
41.
A major sociocultural trend in the United States is the increased educational attainment by
women.
42.
Technological innovations can create entirely new industries and alter the boundaries of
industries.
43.
There is generally a weak relationship between equity markets (e.g., New York Stock
Exchange) and economic indicators.
44.
The Internet is a leading component in the rising emergence of digital technology.
45.
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.
46.
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).
47.
Crowdsourcing is used by companies to develop products.
48.
By inviting customers to write online reviews, Amazon used crowdsourcing to build value to its
offer.
49.
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.
50.
It is not important to consider the potential impact of government regulation when developing
new innovations.
51.
Developments in technology and other innovations can create new industries and alter the
boundaries of existing industries.
52.
The competitive environment consists of many factors that are particularly relevant to
company strategy. This includes competitors, customers, and suppliers.
53.
The Porter five-forces model is designed to help us understand how social attitudes and
cultural values impact U.S. businesses.
54.
The five-forces model helps to determine both the nature of competition in an industry and the
profit potential for the industry.
55.
In some industries, high switching costs can act as an important barrier to entry.
56.
Industries characterized by high economies of scale typically attract fewer new entrants.
57.
The power of a buyer group is increased if the buyer group has less concentration than the
supplier group.
58.
Buyer power tends to be higher if suppliers provide undifferentiated or standard products.
59.
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.
60.
The power of suppliers will be enhanced if they are able to maintain a credible threat of
forward integration.
61.
The more attractive the price/performance ratio of substitute products, the tighter it constrains
the ability of an industry to charge high prices.
62.
Rivalry is most intense when there are high exit barriers and high industry growth.
63.
Rivalry will be most intense when there is a lack of differentiation or switching costs.
64.
Rivalry is not always cutthroat; sometimes, it can be gentlemanly.
65.
In most industries, new entrants will not be a threat because the Internet lowers entry barriers.
66.
The Internet and digital technologies suppress the bargaining power of buyers by providing
them with more information to make buying decisions.
