Foundations of Strategy 2nd Edition By Grant - Test Bank

1. The business environment of a firm consists of all the internal and external influences that affect its performance.

@Pages and References: Pages 42-45

a. T

*b. F

2. PEST analysis is a popular environmental scanning framework.

@Pages and References: Pages 42-45

*a. T

b. F

3. Value is created when the price the customer is willing to pay for a product exceeds the costs incurred by the firm in supplying the product.

@Pages and References: Page 45

*a. T

b. F

4. Value creation translates directly into profit

@Pages and References: Page 45

a. T

*b. F

5. The level of profit in an industry is determined by three factors: the value of products to customers, the intensity of competition, and the relative bargaining power of producers and suppliers.

@Pages and References: Page 45

*a. T

b. F

6. When a firm dominates a specific segment in an industry, it is well-placed to earn a higher level of profit than the average.

@Pages and References: Page 47

*a. T

b. F

7. We analyse industry structure because this is helps us explain variations in the profitability of different industries.

@Pages and References: Pages 47-57

*a. T

b. F

8. Michael Porter’s five forces model is a framework for analysing the factors that determine a firm’s competitive strategy.

@Pages and References: Page 48

a. T

*b. F

9. For a specific product or service, the existence of close substitutes means that customers could switch to these substitutes if prices, service levels or other factors make it in their interests to do so.

@Pages and References: Pages 48-49

*a. T

b. F

10. In a contestable market there does not always need to be actual competition to keep prices relatively low – just the threat of competitors entering the market.

@Pages and References: Pages 48-49

*a. T

b. F

11. Economies of scale, absolute cost advantages, high capital start-up costs, and access to channels of distribution are all examples of “barriers to entry”.

@Pages and References: Pages 49-52

*a. T

b. F

12. Retaliation against a new entrant may take the form of aggressive price-cutting, increased advertising, sales promotion, or vexatious litigation.

@Pages and References: Pages 49-52

*a. T

b. F

13. A high ‘Concentration Ratio’ is typical of oligopolistic industries, dominated by a few large players.

@Pages and References: Pages 52-54

*a. T

b. F

14. Excess capacity often leads firms to cut prices to hold on to existing business for fear that competitors will do the same first, leaving them with a lower market share, and adverse average costs.

@Pages and References: Pages 52-54

*a. T

b. F

15. Having high fixed costs makes it hard to make a profit in a recession, so is indicative of poor cost-control.

@Pages and References: Pages 52-54

a. T

*b. F

16. The bargaining power of one player in the industry relative to another player rests, ultimately, on refusal to deal with the other player.

@Pages and References: Page 55

*a. T

b. F

17. Understanding the structure of the industry helps managers to work out how to make a profit in future and to possibly identify ways to change the industry structure to their advantage.

@Pages and References: Pages 57-61

*a. T

b. F

18. There is no single absolute definition of what an “Industry” is.

@Pages and References: Page 62-63

*a. T

b. F

19. Porter's 5 Forces model arguably has some deficiencies and does not answer all possible questions. But this is true of all models.

@Pages and References: Pages 64-65

*a. T

b. F

20. Key success factors are defined by the market and by customers not by the company.

@Pages and References: Pages 68-69

*a. T

b. F

21. Which of the following is a framework for categorising key elements of an organization’s external environment?

@Pages and References: Pages 42-43

a. SWOT

*b. PEST

c. The BCG matrix

d. Porter’s value chain

22. Systematic, continual scanning of a wide range of external influences would appear desirable but:

@Pages and References: Pages 42-45

a. merely listing a large number of external factors is rarely helpful

b. environmental analysis can be expensive to undertake

c. extensive scanning can result in information overload

*d. all of the above

23. The starting point for industry analysis is:

@Pages and References: Pages 42-45

a. Classifying the environmental influences by source

b. Classifying the environmental influences by proximity

c. understanding the value of the product to customers and suppliers

*d. understanding the value of the product to customers, the intensity of competition and the bargaining power of  producers relative to their suppliers

24. One can view the connection between the general environment and the industry environment as:

@Pages and References: Pages 42-45