CHAPTER 04

ENVIRONMENTAL SCANNING AND INDUSTRY ANALYSIS

True/False
1.
Environmental scanning is the monitoring, evaluating, and disseminating of information from
the external and internal environments to key people within the corporation.
Answer: T
2.
Political-legal forces regulate the values, mores, and customs of society.
Answer: F
3.

The transferring of profits from a foreign subsidiary to a corporations headquarters is known as

repatriation of profits.
Answer: T
4.
One of the breakthrough developments in technology is the portable information device.
Answer: T
5.
An example of an economic variable in the societal environment is antitrust regulation.
Answer: F
6.

One of the demographic variables in the societal environment is the changing household
competition.
Answer: T
7.

A multinational corporation is a company with significant assets and activities in multiple

countries.
Answer: T
8.

A corporations internal strategic factors are those key environmental trends that are judged to
have both a medium to high probability of occurrence and a medium to high probability of
impact on the corporation.
Answer: F
9.
An entry barrier is an obstruction that makes it difficult for a company to enter an industry.
Answer: T
10.
One of the possible barriers to entry is product differentiation.
Answer: T
11.
Exit barriers keep a company from entering an industry.
Answer: F
12.
Nutrasweet can serve as a substitute for sugar.
Answer: T
13.
Multidomestic industries are specific to each country or group of countries.
Answer: T
14.

The only factor used to determine whether an industry will be primarily multidomestic or
primarily global is the pressure for local responsiveness.
Answer: F
15.

Reactors are companies with a limited product line that focus on improving the efficiency of their
existing operations.
Answer: F
16.

An industry matrix summarizes the key success factors within a particular industry.

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Answer: T
17.

Competitive intelligence is an informal program of gathering information on a companys

competitors.
Answer: F
18.
Brainstorming is a quantitative approach.
Answer: F
19.

Statistical modeling is a quantitative technique that attempts to discover causal or at least

explanatory factors that link two or more time series together.
Answer: T
20.
An industry scenario is a forecasted description of a particular industrys likely future.
Answer: T
Multiple Choice
21.
The combination of the degree of complexity and the degree of change existing in an
organization's external environment is/are called
a.
b.
c.
d.
e.
22.

According to the text, one reason environmental uncertainty is a threat to strategic managers is
because
a.
b.
c.
d.
e.

23.

competitive and task environment

government and competitive environment
economic and local environment
task and societal environment
resource and economic environment

Which of the following is NOT descriptive of external environmental scanning?

a.
b.
c.
d.
e.

25.

it is a costly and time consuming process.

the strategic manager cannot control the environment.
it forces the strategic manager to be reactive.
it hampers their ability to develop long-range plans.
there are too many uncontrollable variables.

What are the two interacting environments that provide the variables and forces affecting how an
organization operates and exists?
a.
b.
c.
d.
e.

24.

strategic factors.
strategic issues.
environmental uncertainty.
strategic fit.
scenarios.

Used as a tool to ensure a corporation's long-term health.

Used to monitor, evaluate, and disseminate information from the external environment
to key people within the corporation.
Used to identify opportunities and threats.
It is a tool that corporations use to avoid strategic surprise.
Used to identify strengths and weaknesses.

The corporation's task environment

a.
b.
c.

encompasses the physical working areas of the organization.

includes those elements or groups within an organization's industry.
is an advisory committee to top-management.

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d.
e.
26.

The transferring of profits from a foreign subsidiary to a corporations headquarters is known as

a.
b.
c.
d.
e.

27.

Precision farming
A virtual personal assistant
A genetically altered organism
Alternative energy
Specific farming

In the future, smart robots could perform activities such as

a.
b.
c.
d.
e.

30.

10%
20%
30%
50%
60%

_____ is a response to the limited farmland for a growing population.

a.
b.
c.
d.
e.

29.

repatriation of profits.
expatriation of profits.
transfer of income.
property transfer.
repatriation of revenue.

By the end of the decade, fuel-cells and alternative energy sources will be used at about a level of
____.
a.
b.
c.
d.
e.

28.

is an accounting of the many jobs within an organization.

is the job requirement specification listing necessary skills and abilities.

conduct factory work.

run errands.
do household chores.
assist the disabled.
All of the above are correct.

Which of the following is NOT a member of the organization's task environment?

a.
b.
c.
d.
e.

local communities
trade associations
governments
technological developments
special interest groups

31.

Which of the following is NOT a force in the societal environment?

a.
political-legal forces
b.
labor forces
c.
economic forces
d.
technological forces
e.
sociocultural forces

32.

Which societal force regulates the values, mores, and customs of society?
a.
b.
c.

political-legal forces
labor forces
economic forces

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d.
e.
33.

Which societal force generates problem-solving inventions?

a.
b.
c.
d.
e.

34.

multinational corporation
repatriated corporation
transferable corporation
duplicate corporation
emancipated corporation

According to Ohmae, which three developed areas make up "the triad?"

a.
b.
c.
d.
e.

39.

Whites.
Blacks.
Hispanics.
American Indians.
Asians.

A company with significant assets and activities in multiple countries is known as a(n) _____.
a.
b.
c.
d.
e.

38.

75%.
15%.
9%.
50%.
25%.

The racial/ethnic group with the flattest predicted increase is

a.
b.
c.
d.
e.

37.

Increasing environmental awareness.

Growth of the seniors market.
Decline of the mass market.
Increasing food consumption.
Generation Y boomlet.

According to the U.S Census Bureau, by the year 2050 the percentage of Hispanics in the U.S.
population should reach
a.
b.
c.
d.
e.

36.

political-legal forces
labor forces
economic forces
technological forces
sociocultural forces

Which of the following is NOT one of the seven sociocultural trends mentioned in the text?
a.
b.
c.
d.
e.

35.

technological forces
sociocultural forces

China, Japan, and Taiwan

Europe, Asia, and North America
Western Europe, the United States, and Asia
Japan, North America, and Western Europe
Southeast Asia, South America, and the Middle East

One variable that is present in the international societal environment which is not present in the
domestic societal environment is
a.
b.

tax laws.
protectionist sentiment.

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c.
d.
e.
40.

According to the text, which one of the following is NOT a factor in why few firms successfully
monitor strategic issues?
a.
b.
c.
d.
e.

41.

societal environment.
task environment.
sociocultural environment.
economic environment.
internal environment.

According to Porter, the corporation is most concerned with

a.
b.
c.
d.
e.

45.

importance to the industry and likelihood of occurrence.

industry growth rate and probable competitive position.
probability of occurrence and probable impact on the corporation.
probable industry attractiveness and business strength/competitive position.
issue importance and relative power of stakeholder groups.

Industry analysis is primarily concerned with a corporation's

a.
b.
c.
d.
e.

44.

external strategic factors

scenarios
industry forces
strategic issues
historical concerns

The issues priority matrix used in environmental scanning is composed of two axis or dimensions
which are labeled
a.
b.
c.
d.
e.

43.

There are too many uncontrollable and extenuating factors which affect the
external environment.
The personal values of a corporation's top managers bias their perception of the external
environment.
Different companies often respond differently to the same environmental changes.
Different ability of their strategic managers to recognize and understand strategic issues
and factors.
Different interpretation of what their strategic managers perceive to be important in the
external environment.

What are the environmental strategic issues that are judged to have a high probability of
occurrence and a high probability of impact on the corporation?
a.
b.
c.
d.
e.

42.

demographics.
wage levels.
GDP trends.

the level of intensity of competition within an industry.

the aggregate level of demand for a product line.
a market's position on its life cycle.
the amount of pressure from the societal environment.
the level of government action in an industry.

In addition to Porters Five Forces Model, another force added in the text is
a.
b.
c.
d.
e.

bargaining power of unions.

other stakeholders.
threat of prospects.
threat of shareholders.
bargaining strength of employees.

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46.

The collective strength of the interaction of potential entrants, buyers, substitutes, suppliers, firm
rivalry, and other stakeholders determine
a.
b.
c.
d.
e.

47.

According to the Porter model, a strong force can be regarded as a(n)

a.
b.
c.
d.
e.

48.

benefit.
opportunity.
advantage.
threat.
risk.

Which of the following is NOT descriptive of "threat of new entrants?"

a.
b.
c.
d.
e.

50.

benefit.
opportunity.
advantage.
threat.
risk.

According to the Porter model, a low force can be regarded as a(n)

a.
b.
c.
d.
e.

49.

the level of government action in an industry.

the probable industry attractiveness and business strength position.
the ultimate profit potential in the industry measured in terms of long-run return on
invested capital.
the aggregate level of demand for a product line.
the amount of pressure from the societal environment.

Depends on the presence of entry barriers.

New entrants have a desire to gain market share.
Depends on the reaction of existing competitors.
Rivalry among existing firms in the industry.
New entrants bring new capacity and substantial resources.

Which barrier to entry uses brand identification to force new entrants to spend heavily to
overcome existing customer loyalty?
a.
b.
c.
d.
e.

rivalry among existing firms

switching costs
capital requirements
product differentiation
access to distribution channels

51.

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

52.

Which barrier to entry uses cost advantages NOT easily imitated by new entrants such as patents
on proprietary product knowledge or government subsidies?
a.
b.
c.
d.

government policy
switching costs
cost disadvantages independent of size
capital requirements

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e.
53.

Intel was able to gain a significant cost advantage over its competitors because of
a.
b.
c.
d.
e.

54.

b.
c.
d.
e.

58.

Substitute products appear to be different, but satisfy the same need as another product.
If the cost of switching is low, substitutes may have a strong effect on an industry.
Competition occurs only with those corporations within an industry.
Possible substitute products or services may not appear to be easily substitutable.
Substitutes limit the potential returns of an industry.

A sugar company 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.
Which of the following is NOT descriptive of the "bargaining powers of buyers?"
a.
b.
c.
d.
e.

59.

Industry growth is slow, generating fights for market share by expansion-oriented

companies.
Fixed costs are high or the product is perishable.
Capacity is normally added in large increments.
Competitors are either numerous or roughly equal in size and power.
A competitive move by one firm will not have a noticeable effect on its competitors.

Which of the following is NOT descriptive of "threat of substitute products or services?"

a.
b.
c.
d.
e.

57.

rivalry among existing firms.

rivalry among bankrupt firms.
threat of new entrants.
threat of substitute products.
threat of substitute services.

Which of the following is NOT descriptive of "rivalry among existing firms?"

a.

56.

capital requirements.
product differentiation.
switching costs.
economies of scale.
access to distribution.

When one corporation follows the actions of other companies due to competitive activity such as
price reduction, this increases the
a.
b.
c.
d.
e.

55.

economies of scale

Changing suppliers costs very little.

Alternative suppliers are plentiful because of standardization.
The purchased product represents a high percentage of buyer's costs.
The buyer buys in large proportion of seller's product or service.
The product earns high profits and is very insensitive to costs and service
differences.

When General Motors considers making its own automotive parts, Delphi Automotive Supply
Company would be concerned with the
a.
b.

bargaining power of suppliers.

bargaining power of buyers.

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c.
d.
e.
60.

Which of the following is NOT descriptive of the "bargaining power of suppliers?"

a.
b.
c.
d.
e.

61.

complementor.
oligopoly.
strategic group.
industry leader.
staggered company.

The relationship that was discussed in the text that used to illustrate the term complementor is
(p.64)
a.
b.
c.
d.
e.

65.

threat of new entrants.

bargaining power of buyers.
threat of substitutes.
bargaining power of suppliers.
rivalry among existing firms.

A company or an industry whose product works well with a firms product and without which the
product would lose much of its value is considered to be a(n)
a.
b.
c.
d.
e.

64.

threat of new entrants

threat of substitutes
bargaining power of buyers
bargaining power of suppliers
rivalry among existing firms

Other software companies could not compete with Microsoft based on the hesitation of buyers to
try a new software, which resulted in the
a.
b.
c.
d.
e.

63.

Substitutes are readily available.

The product or service is unique.
The supplier industry is dominated by a few companies, but sells to many.
The purchasing industry buys only a small portion of the supplier group's goods and
services.
Suppliers are able to integrate forward and compete directly with their present
customers.

Which force places a ceiling on the price firms in an industry can probably charge?
a.
b.
c.
d.
e.

62.

rivalry among existing competitors.

threat of substitutes.
threat of new entrants.

Microsoft and Intel.

General Motors and Ford.
Hewlett Packard and Compaq.
Gateway and Dell.
America Online and Compuserve.

According to the text, the strength of each of the six driving forces of industry competition varies
according to the
a.
b.
c.
d.
e.

effectiveness of the strategic planning.

stage of industry evolution.
industry growth rate and competitive position.
changes in the political environment.
amount of government regulation.

140

66.

The effects of a fragmented industry include

a.
b.
c.
d.
e.

67.

The U.S. major home appliance industry, including the companies of Maytag, Whirlpool, General
Electric, and Electrolux, is an example of an industry
a.
b.
c.
d.
e.

68.

consortium industry
global industry
indigenous industry
multidomestic industry
worldwide industry

Which type of industry is typical of a global industry?

a.
b.
c.
d.
e.

72.

consortium industry
global industry
indigenous industry
multidomestic industry
worldwide industry

Which type of international industry manufactures and sells the same products with only minor
adjustments made for individual countries around the world?
a.
b.
c.
d.
e.

71.

multidomestic.
consolidated.
global.
indigenous.
worldwide.

In which type of international industry do corporations tailor their products to the specific needs
of consumers in a particular country?
a.
b.
c.
d.
e.

70.

that has evolved from an oligopoly to a monopoly.

in which each company maintained a distinct product line.
that was once fragmented changing to an oligopoly.
that has experienced consistent, increasing sales.
experiencing a successful strategy of product specialization because of product
differentiation.

An industry dominated by a few large firms, all of which struggle with product differentiation, is
known as
a.
b.
c.
d.
e.

69.

decrease in costs.
decrease in prices.
the integration of companies.
product differentiation.
All of the above are correct.

retailing
banking
tires
insurance
health care

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.

141

b.
c.
d.
e.
73.

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 be
a.
b.
c.
d.
e.

74.

global.
consolidated.
multidomestic.
risky.
indigenous.

When the pressure for local responsiveness is strong and the pressure for coordination is weak for
multinational corporations in an industry, the industry will be
a.
b.
c.
d.
e.

75.

the power of the local country governments to restrict MNC actions.

the need for brand management in the various MNCs operating within that industry.
the importance of differentiating with integrating mechanisms in regional cooperatives.
the likelihood of terrorist activity impacting that industry.

global.
consolidated.
multidomestic.
risky.
indigenous.

What is a set of business units or firms that "pursue similar strategies with similar resources?"
a.
b.
c.
d.
e.

strategic group
collective collaboration
cooperative
integral association
strategic assembly

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76.

Plotting the market position of industry competitors on a two-dimensional graph using two
strategic variables as the vertical and horizontal axes, is a process called
a.
b.
c.
d.
e.

77.

Which of the following is NOT one of the general strategic types?

a.
b.
c.
d.
e.

78.

initiators
reactors
analyzers
prospectors
defenders

Companies with fairly broad product lines that focus on product innovations and market
opportunities, uses which method of strategic orientation?
a.
b.
c.
d.
e.

81.

initiators
reactors
analyzers
prospectors
defenders

A company that operates in at least two different product-market areas in which one product is
stable and the other one is variable, uses which method of strategic orientation?
a.
b.
c.
d.
e.

80.

initiators
reactors
analyzers
prospectors
defenders

Which strategic orientation do companies have that has a limited product line and focuses on
improving the efficiency of their existing operations?
a.
b.
c.
d.
e.

79.

correlation.
ranking.
charting.
association.
mapping.

initiators
reactors
analyzers
prospectors
defenders

Corporations that lack a consistent strategy-structure-culture relationship use which method of

strategic orientation?
a.
b.
c.
d.
e.

initiators
reactors
analyzers
prospectors
defenders

143

82.

When an industry becomes hypercompetitive, it is characterized by

a.
b.
c.
d.
e.

83.

To succeed in a hypercompetitive industry, companies must be willing to

a.
b.
c.
d.
e.

84.

7%.
27%.
57%.
77%.
97%.

A formal program of gathering information on a companys competitors is referred to as

a.
b.
c.
d.
e.

88.

100%.
80%.
50%.
0%.
20%.

The percentage of large U.S. companies having fully developed intelligence programs is
a.
b.
c.
d.
e.

87.

EFAS Table.
IFAS Table.
SFAS Table.
TOWS Matrix.
industry matrix.

A study of product innovation in the scientific instrument field and machine tool industries found
the percentage of all new product innovations being initiated by customers in the form of
inquiries and complaints to be
a.
b.
c.
d.
e.

86.

cut prices below marginal costs.

pursue market share instead of profits.
operate in the ethical gray zone.
cannibalize their own successful product lines.
reduce spending on research and development.

A table which summarizes the strategic factors facing a particular industry is called a(n)
a.
b.
c.
d.
e.

85.

high entry barriers.

low rivalry.
short product life cycles.
industry fragmentation.
sustainable competitive advantages.

statistical modeling.
competitive intelligence.
competitive strategy.
quantitative forecasting.
qualitative matrix.

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.
b.
c.
d.
e.

statistical modeling
scenario-writing
delphi technique
brainstorming
trend extrapolation

144

89.

Over _____ of companies use trend extrapolation.

a.
b.
c.
d.
e.

90.

What is trend extrapolation?

a.
b.
c.
d.
e.

91.

scrutinize each idea generated.

propose ideas without mentally screening them.
calculating future earnings of each idea.
critique each idea for rationality.
forecast the success of each idea.

When managers have more faith in gut feel than number crunching, it is better to use the
forecasting technique of
a.
b.
c.
d.
e.

95.

simulations.
the delphi technique.
signal monitoring.
brainstorming.
scenarios.

One rule necessary for effective brainstorming is

a.
b.
c.
d.
e.

94.

iterative modeling.
time series methods.
repeated processes.
time extrapolation.
rotating time methods.

A non-quantitative approach to forecasting that requires simply the presence of people with some
knowledge of the situation to be predicted is called
a.
b.
c.
d.
e.

93.

The process of converting intuition and hunches into reality.

The extension of present trends into the future.
Process of asking some authorities in the area to make an "informed guess" about the
future.
Given a large amount of historical data on certain interrelated factors, one attempts to
conceptualize alternative futures.
Detecting faulty underlying assumptions before forecasting errors can occur.

One means of conducting a trend extrapolation is handled through

a.
b.
c.
d.
e.

92.

20%
30%
40%
50%
70%

brainstorming.
expert opinion.
trend extrapolation.
statistical modeling.
time series modeling.

A forecasting technique using quantitative measures that attempt to discover causal or at least
explanatory factors that link two or more time series together is called
a.
b.

the delphi technique.

statistical modeling.

145

c.
d.
e.
96.

The most widely used forecasting technique used after trend extrapolation is
a.
b.
c.
d.
e.

97.

IFAS.
EFAS.
SFAS.
S.W.O.T..
the issues priority matrix.

The indicator of how well a particular company is responding to current and expected factors in
its external environment is characterized by the
a.
b.
c.
d.
e.

100.

Examine possible shifts in the societal variables.

Identify uncertainties in each of the six forces in the task environment.
Generate at least 15 scenarios.
Make a range of plausible assumptions about each important causal factor.
Analyze the industry situation that would prevail under each scenario.

The technique recommended by the text to summarize an analysis of external strategic factors is
called
a.
b.
c.
d.
e.

99.

statistical modeling.
simulations.
scenario-writing.
expert opinion.
brainstorming.

Which one of the following is NOT an element of industry scenarios?

a.
b.
c.
d.
e.

98.

trend extrapolation.
trend-impact analysis.
morphological analysis.

IFAS.
industry matrix.
total weighted score.
S.W.O.T. weighted score.
SFAS weighted score.

One criterion used in evaluating intelligence gathering is

a.
b.
c.
d.
e.

the truthfulness and reliability of the information.

the ability to transfer the information into revenues.
the ability to use the information in cost reduction.
the ability for lower level employees to understand.
the opportunity for suppliers to lower their costs.

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101.

A term which describes when strategic managers fail to perceive the significance of changing
external conditions because they are partially blinded by strongly held common beliefs is called
a.
b.
c.
d.
e.

strategic paralysis.
corporate inertia.
management indifference.
strategic myopia.
corporate apathy.

147