Coulter Smia6 TB 03

Strategic Management in Action, 6e (Coulter)
Chapter 3 Assessing Opportunities and Threats: Doing an External Analysis
1) An external analysis is the process of scanning and evaluating an organization's various

external environmental sectors to determine positive and negative trends that could impact on
organizational performance.
Answer: TRUE
Diff: 1 Page Ref: 56
Topic: Describe What an External Analysis Is
AACSB: Analytical Skills
Objective: Explain how to evaluate a firm's external environment
2) Threats are positive external environmental trends or changes that will help the organization
improve its performance.
Answer: FALSE
3) Opportunities are positive external environmental trends or changes that may help the
organization improve its performance.
Answer: TRUE
4) Max Weber viewed organizations as open systems.

Answer: FALSE
5) An open system is one that interacts with and responds to its external environment.
Answer: TRUE
1
Copyright © 2013 Pearson Education, Inc. Publishing as Prentice Hall
6) As an open system, an organization is affected by the environment and can also impact that
environment.
Answer: TRUE
7) A key element of the environment as a source of resources perspective is the idea of

environmental uncertainty.
Answer: FALSE
8) The specific environment includes such sectors as demographics, economics, and

political/legal factors.
Answer: FALSE
Topic: Explain How to Do an External Analysis of an Organization's Specific and General
Environments
9) Switching costs can be both psychological and financial.

Answer: TRUE
Environments
10) Buyers have bargaining power if the industry's product is not important to the quality of the
buyers' products or services.
Answer: TRUE
Environments
2
11) Substitute products can be found in the same industry.
Answer: FALSE
Environments
12) Industry sales forecasts and trends are part of the general economic sector.
Answer: FALSE
Environments
13) If an organization does business globally, its economic analysis changes significantly.
Answer: FALSE
Environments
14) An external information system is an information system that provides managers with needed
internal information on an annual basis.
Answer: FALSE
Environments
AACSB: Use of Information Technology
15) Front-line employees or operational level employees are viewed as being on the "firing line"
and are often the last to hear comments from people outside the organization.
Answer: FALSE
Environments
3
16) An external analysis enables the organization to examine
A) opportunities and threats.
B) strengths and weaknesses.
C) product substitution and durability.
D) manufacturing and operations.
E) None of the answer choices is correct.
Answer: A
17) Which of the following are parts of an open system?

A) Inputs
B) Outputs
C) Processes
D) The environment
E) All of the above are parts of an open system.
Answer: E
18) As an open system, an organization ________ and ________ its external environment.
A) reacts to; controls
B) interacts with; responds to
C) interacts with; controls
D) reacts to; responds to
Answer: B
4
19) The various studies of organizational environments can be summarized from the following
perspective(s):
A) environment as a source of information.
B) environment as a source of resources.
C) environment as a source of power.
D) environment as a source of information and of resources.
Answer: D
20) An element of the environment as information perspective is

A) environmental relevancy.
B) environmental uncertainty.
C) environmental currency.
D) environmental texture.
Answer: B
21) Which of the following would be examples of sectors that could be found in the specific
environment?
A) Demographics
B) Competitors
C) Economics
D) Political/legal
E) All of the answer choices are correct.
Answer: B
Environments
5
22) Which of the following is not one of the five competitive forces?
A) Competition forms substitute products
B) The threat of potential entry
C) The strength of industry forces
D) The bargaining power of buyers
Answer: C
Environments
23) The Porter five forces model includes all of the following factors except
A) bargaining power of suppliers.
B) threat of new entrants.
C) threat of a decrease in research and development.
D) threat of substitute products.
E) bargaining power of buyers.
Answer: C
Environments
24) One of the conditions that contributes to intense competitor rivalry is

A) numerous or equally balanced competitors.
B) slow industry growth.
C) high fixed costs.
D) diverse competitors.
Answer: E
Environments
6
25) One of the factors that shapes the definition of exit barriers as factor(s) that keep companies
competing in businesses, even when those businesses are failing, is
A) economic factors.
B) strategic factors.
C) emotional factors.
D) All of the answer choices are correct.
Answer: C
Environments
26) An example of a strategic group would be all of the following except

A) Mercedes Benz versus General Motors' Saturn.
B) Toyota Camry versus Honda Accord.
C) Mercedes Benz versus BMW.
D) All of the above are strategic group examples.
E) None of the above is an example of a strategic group.
Answer: A
Environments
27) Which of the following does not usually function as an entry barrier?
A) Economies of scale
B) High strategic stakes
C) Product differentiation
D) Switching costs
E) Access to distribution channels
Answer: B
Environments
7
28) ________ refers to cost savings that you get as volume increases.
A) Switching costs
B) Economic costs
C) Economies of scale
Answer: C
Environments
29) According to Michael Porter, major potential barriers to entry include

A) economies of scale.
B) product differentiation.
C) switching costs.
D) capital requirements.
Answer: E
Environments
30) The one-time costs facing the buyer who switches from one supplier's product to another's is
A) product differentiation.
B) capital requirements.
C) switching costs.
D) access to distribution channels.
E) government policy.
Answer: C
Environments
8
31) Government policy is a potential barrier to entry because of
A) licensing requirements.
B) controlling access to raw materials.
C) product safety standards.
D) water pollution standards.
E) All of the above are issues of government policy.
Answer: E
Environments
32) When consumers consider whether they have the ability and resources themselves to
manufacture the products they are purchasing from the industry, this issue refers to the ________
of the Porter five forces model.
A) bargaining power of buyers
B) threat of potential entrants
C) threat of substitute products
D) bargaining power of suppliers
E) None of the answer choices are correct.
Answer: A
Environments
33) A buyer will have less bargaining power if all of the following factors apply except
A) buyers have limited information.
B) buyers face few switching costs.
C) the products purchased are highly differentiated and unique.
D) buyers do not have the ability to manufacture the products.
E) buyers purchase small volumes of the products.
Answer: B
Environments
9
34) When organizations consider whether there are upcoming price increases in the products
purchased by the industry, this issue refers to the ________ of the Porter five forces model.
A) bargaining power of buyers
B) threat of potential entrants
C) threat of substitute products
D) bargaining power of suppliers
Answer: D
Environments
35) A supplier will have more bargaining power

A) if it is able to provide the products that the industry is currently providing.
B) if the supplier's product is an important input to the industry.
C) if the supplier's products are differentiated or there are customer switching costs.
Answer: D
Environments
36) Which of the following would be considered substitute products?

A) Coke and Pepsi
B) Contacts and eyeglasses
C) The Internet and the World Wide Web
D) AT&T and Sprint
Answer: B
Environments
10
37) Recent census data showed that for the first time in the history of the United States there
were more Americans over age ________ than under.
A) 25
B) 30
C) 21
D) 19
E) 35
Answer: B
Environments
38) The generation of the postwar group was born between the years
A) 1912-1921.
B) 1922-1927.
C) 1928-1945.
D) 1965-1977
E) 1978-1994.
Answer: C
Environments
39) Which of the general environmental sectors is affected when minimum wage laws are
changed?
A) Economics
B) Demographics
C) Sociocultural
D) Political/legal
E) Technological
Answer: D
Environments
11
40) One of the significant legislative acts affecting organizations is
A) Equal Employment Opportunity Act of 1972.
B) Family and Medical Leave Act of 1993.
C) North American Free Trade Agreement of 1993.
D) Consumer Product Safety Act of 1972.
Answer: E
Environments
41) The law governing safe and hazard-free work environments is

A) the Equal Employment Opportunity Act of 1972.
B) the Americans with Disabilities Act of 1990.
C) the Occupational Safety and Health Act of 1970.
D) the Civil Rights Act of 1991.
E) the U.S. Economic Espionage Act of 1996.
Answer: C
Environments
42) One of the biggest technological advancements to affect the organization in recent years is
A) the assembly line.
B) the ability of consumers to buy online.
C) the introduction of hand-held personal computers.
D) continuing computerization of an organization's activities.
E) the ability of managers to control employees electronically.
Answer: D
Environments
AACSB: Use of Information Technology
12
43) Demographic information can be obtained from all of the following sources except
A) the Economic Statistics Briefing Room.
B) the U.S. Bureau of the Census.
C) the Statistical Abstract of the World.
D) the Statistical Yearbook.
E) the Current Population Survey.
Answer: A
Environments
44) In an external analysis, the primary role of the middle manager is to

A) use information in terms of the "big picture."
B) act as an information gatherer and disseminator.
C) encourage workers to listen to the customer.
Answer: B
Environments
45) A manager who anticipates changes and plans for those changes can be referred to as a(n)
A) reactive manager.
B) negligent manager.
C) ethical manager.
D) proactive manager.
E) socially responsible manager.
Answer: D
Environments
13
46) The major problem with forecasts and trend analyses is
A) the information is difficult to compile with the latest technology.
B) the information constitutes predictions of the future, not actual facts.
C) the information is built using historical trends.
D) consumers do not benefit from technological trends predicted.
Answer: B
Topic: Discuss the Benefits and Challenges of Doing an External Analysis
47) One challenge of conducting an external analysis is

A) an external analysis can be time consuming.
B) the environment might be changing more rapidly than you can keep up with.
C) the internal analysis of the organization is very important to managing strategically.
D) it is time consuming and the environment changes very rapidly.
E) None of the above represents challenges in conducting an external analysis.
Answer: D
48) A challenge in conducting an external analysis is that

A) market conditions are stable.
B) brand loyalty is low.
C) markets may be concentrated.
D) markets may be fragmented.
E) forecasts aren't facts.
Answer: E
49) Managing ________ is an ongoing process.

A) emotionally
B) strategically
C) reactively
D) cooperatively
Answer: B
14
50) The key is to make the external analysis process as ________ and ________ as possible.
A) efficient; effective
B) efficient; competitive
C) turbulent; stable
Answer: A
TimberKing is a new Midwest company in the portable saw mill industry. You have been asked
to give Edward Perry, TimberKing's new CEO, advice to assist him in doing an external analysis
of the portable saw mill industry.
51) Which of the following best describes the organizational environment perspective that
summarizes the various studies of organizational environments?
A) Environment as a source of information
B) Environment as a source of resources
C) Environment as a source of power
D) Environment as a source of information and resources
Answer: D
52) Mr. Perry thinks perhaps the $30,000 price tag of each portable saw mill might discourage
buyers from going to another brand portable saw mill. This is an example of
A) product differentiation.
B) capital requirements.
C) switching costs.
D) access to distribution channels.
E) government policy.
Answer: C
Environments
15
53) In thinking about the various laws that affect organizations, Mr. Perry should be most
concerned about which of the following laws?
A) The Equal Employment Opportunity Act of 1972
B) The Americans with Disabilities Act of 1990
C) The Occupational Safety and Health Act of 1970
D) The Civil Rights Act of 1991
E) The U.S. Economic Espionage Act of 1996
Answer: C
Environments
54) As the consultant, you propose to Mr. Perry that one challenge of conducting an external
analysis is
A) market conditions are stable.
B) brand loyalty is low.
C) markets may be concentrated.
D) markets may be fragmented.
E) forecasts and trend analyses are not facts.
Answer: E
55) Explain the two perspectives on the environment.

Answer: The perspective that views the environment as a source of information is characterized
by:
∙ Environments differ in amount of uncertainty.
∙ Uncertainty is determined by complexity and rate of change.
∙ Reducing uncertainty means obtaining information.
∙ Amount of uncertainty determines amount and types of information needed.
∙ Information obtained by analyzing the external environment.
The perspective that views the environment as a source of resources is characterized by:
∙ Organizations depend on the environment for these resources.
∙ Resources are sought by competing organizations.
∙ Dependency is determined by difficulty of obtaining and controlling resources.
∙ Reducing dependency means controlling environmental resources.
∙ Controlling environmental resources, meaning knowing about the environment and attempting
to change or influence it.
Diff: 2 Page Ref: 57-59
AACSB: Reflective Thinking
16
56) Discuss the major barriers to entry.
Answer:
∙ Economies of scale are defined as any cost savings received as volume of the product
increases.
∙ Cost disadvantages from other than scale - There are certain factors in production that yield
cost advantages such as favorable access to raw materials, exclusive or protected product
technology, favorable locations, and government subsidies.
∙ Product differentiation is the identification of the product to the customer. Any aspect of the
product that can set it apart for the customer is the key to brand loyalty and, ultimately, product
differentiation.
∙ Capital requirements are the investment cost required to compete financially.
∙ Switching costs are the costs associated with the buyer that switches from one supplier to
another.
∙ Access to distribution channels - A new competitor in the industry must work with distribution
outlets to provide a space through which its products can be sold.
∙ Government policy can involve the implementation of laws and regulations to which all
competitors in an industry must adhere.
Environments
57) Compare the general versus the specific environment.

Answer: The general environment includes technological, economic, political-legal,
demographic, and sociocultural factors. The specific environment focuses on substitute products,
current rivalry, potential entrants, bargaining power of buyers, and bargaining power of suppliers.
Environments
17
58) Explain the primary responsibility of managers in conducting external analysis across
managerial levels.
Answer:
∙ Lower level managers should encourage workers to listen to what customers are saying or to
what suppliers' sales representatives are saying.
∙ Middle managers act as an information gatherer and disseminator. They also monitor changes
in general environmental sectors.
∙ Upper managers must be responsible for the overall health of the organization. Information
gathered should be used to make strategic decisions about the organization.
Environments
59) Describe the benefits of conducting an external analysis.

Answer:
∙ Proactive management allows managers to remain competitive on current and future trends
within the industry.
∙ The "environment as a source of resources" perspective can allow managers to acquire needed
resources.
∙ An external analysis can provide information to be used in planning, decision making, and
strategy formulation.
∙ The changing environment means that managers must continue to study its external
environment to compete effectively.
∙ Research indicates that organizations that conduct external analysis have higher levels of
performance.
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Strategic Management in Action, 6e (Coulter)

Chapter 3 Assessing Opportunities and Threats: Doing an External Analysis

1) An external analysis is the process of scanning and evaluating an organization's various

4) Max Weber viewed organizations as open systems.

7) A key element of the environment as a source of resources perspective is the idea of

8) The specific environment includes such sectors as demographics, economics, and

9) Switching costs can be both psychological and financial.

17) Which of the following are parts of an open system?

20) An element of the environment as information perspective is

24) One of the conditions that contributes to intense competitor rivalry is

26) An example of a strategic group would be all of the following except

29) According to Michael Porter, major potential barriers to entry include

35) A supplier will have more bargaining power

36) Which of the following would be considered substitute products?

41) The law governing safe and hazard-free work environments is

44) In an external analysis, the primary role of the middle manager is to

47) One challenge of conducting an external analysis is

48) A challenge in conducting an external analysis is that

49) Managing ________ is an ongoing process.

55) Explain the two perspectives on the environment.

57) Compare the general versus the specific environment.

59) Describe the benefits of conducting an external analysis.

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