Chapter 03

CHAPTER 3The External Assessment

True/False

Introduction

1. Industry analysis is also referred to as external strategic management audit.

Ans: T Page: 80

2. An external audit focuses on identifying and evaluating trends and events within the control of management.

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The Nature of an External Audit

3. To develop an exhaustive list of every possible factor that could influence the business is the aim of external audit.

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4. Identifying and evaluating external opportunities and threats enables organizations to develop a clear mission, to design strategies to achieve long-term objectives and to develop policies to achieve annual objectives.

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5. Five major categories of external variables are: (1) economic forces, (2) social and cultural forces, (3) political, governmental and legal forces, (4) technological forces and (5) demographic forces.

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6. The output of an external strategic-management audit is a finite set of the most important opportunities and strengths on which the future of a business should be built.

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7. As many managers and employees as possible must be involved in the process of performing an external audit.

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8. Given the broad knowledge and expertise at the top management level, the process of performing an external audit should remain at and involve primarily the top management.

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9. Five basic steps for conducting an external audit are: (1) select key environmental variables, (2) select key sources of external information, (3) use forecasting tools and techniques, (4) construct a Competitive Profile Matrix and (5) construct an External Review Matrix.

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10. An external audit can be described as collecting and evaluating social, cultural, demographic, environmental, political, governmental, economic, technological and competitive information that may represent key opportunities and threats to an organization.

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11. Assigning each source of information to a team of individuals and then requiring periodic scanning reports from those individuals is one approach to environmental scanning that has proved successful.

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12. To perform an external audit, a company first must gather competitive intelligence and information about social, cultural, demographic, environmental, economic, political, legal, governmental and technological trends.

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13. Freund argues that key external factors must not be hierarchical.

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Economic Forces

14. An economic trend in America is increasing numbers of two-income households.

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15. The value of the dollar on the world market is an example of a demographic variable.

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16. Economic factors do not have much impact on the attractiveness of strategies.

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17. The discretionary income and the demand for discretionary goods declines as interest rates rise.

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18. The money market rate is a key political variable.

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19. Tourism-oriented firms in the United States are hampered when the value of the dollar falls.

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20. The terms downsizing, rightsizing and decruiting were created from the mass layoffs by U.S. firms in the 1990s.

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21. The U.S. is becoming less entrepreneurial everyday.

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22. Generally, a strong dollar makes American goods more expensive on the overseas market.

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23. A low value of the dollar means lower exports and higher imports.

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24. America’s trade deficit is worsened by a strong or high dollar, which makes American goods more expensive on overseas markets.

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25. Deregulation of industries worldwide is acting to restrain inflation worldwide.

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26. United States exports to Canada, Mexico, Europe and Japan are increasing.

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27. Veskel and barter are the main ways business is done between companies and individuals in China.

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28. Russia’s government has imposed strict quality and safety standards on the majority of goods exiting the country, and this hampers trading with Russia.

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29. Business Week magazine calls the Russian economy bizarre because real money, goods and output play such a small role.

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Social, Cultural, Demographic and Environmental Forces

30. The United States is getting older and less Caucasian, feeding generational competition for government money.

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31. As evidenced by the significant fall in church membership for Southern Baptists and Mormons, religious values in the Untied States are on a decline.

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32. Hispanics are expected to become a larger minority group in the United States than African Americans by 2021.

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33. By 2050, the Census Bureau projects the number of Americans age 100 and older to significantly decrease to under 10,000.

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34. Americans are on the move in a population shift to the Northeast and Midwest, given the significant rise in population in the Sun Belt region.

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35. Nevada is the fastest growing state, relative to population shifts across the country.

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36. Currently, there are over 20,000 maquiladoras, which most analysts believe are a non-vital key to continued U.S. global competitiveness.

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37. Today, the favorite location for global investors to establish business in the developing world is Mexico.

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38. In Juarez, explosive industrial growth and uncontrolled urban expansion have far surpassed municipal services.

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39. Increased unionization is an example of a demographic trend.

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40. Well over 1 billion people in the world are still without safe water for drinking, bathing, cooking and cleaning.

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Political, Governmental and Legal Forces

41. Mexico has very lenient worker regulations that penalize employers who lay off employees by giving them minimal severance packages.

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42. Political forecasts can be the most important part of an external audit for firms that depend heavily on government contracts.

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43. Today, strategists must possess skills that enable them to deal more legalistically and politically than previous strategists.

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44. Federal laws impact the strategies of large multinational organizations more than small organizations.

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45. East Asian countries have become world leaders in labor-intensive industries.

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46. A key external factor can be voter participation.

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47. Given the significant economic growth, Russia’s debt payments as a proportion of GDP are growing.

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48. Russian tax laws are among the world’s most relaxed and lenient, so firms keep business off the books to avoid paying about 30 percent of their profits to the government.

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49. Bartering is an excellent way to motivate Russian workers because the ruble has virtually no value in Russia.

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Technological Forces

50. The Internet is changing the very nature of many industries by altering product life cycles and changing the historical trade-off between production standardization and flexibility.

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51. To effectively capitalize on e-commerce, organizations are establishing two new positions: CBO and CIT.

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52. No company or industry today is insulated against emerging technological developments.

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53. In practice, critical technology decisions are too often delegated to lower organizational levels or are made without an understanding of their strategic implications.

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54. Information technology has changed the relationship between industries and various suppliers, creditors, customers and competitors.

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55. Because they have a better firsthand knowledge of what is needed, technological decisions should be handled mainly by lower management.

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56. An emerging consensus is that technology management is one of the key responsibilities of strategists.

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Competitive Forces

57. A characteristic that describes the most competitive companies in America is “whether it’s broke or not, fix it—make it better; not just products, but the whole company if necessary.”

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58. “Innovate or evaporate; particularly in technology-driven businesses, nothing quite recedes like success,” is a characteristic given that describes the most competitive companies in America.

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59. Internal opportunities can be represented by major competitors’ weaknesses.

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60. According to Business Week, there are less than 500 corporate spies now actively engaged in intelligence activities, and 6 out of 10 large companies have employees dedicated solely to gathering competitive intelligence.

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61. A course in competitive or business intelligence is offered by most MBA programs.

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62. An effective CI program allows all areas of a firm to access consistent and verifiable information in making decisions.

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63. Gathering competitive intelligence should be a part of everyone’s job in an organization.

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64. Marriott is an example firm that recently made major strategic mistakes as a result of having a weak competitive intelligence-gathering system.

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65. Because 95 percent of the information a company needs to make strategic decisions is available and accessible to the public, competitive intelligence is not corporate espionage.

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66. Running an intelligence program requires many people, computers and other resources.

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67. American companies often form alliances with Asian firms to gain an understanding of their manufacturing excellence, even though Asian competence in this area is not easily transferable.

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68. Learning from the partner is a major reason why U.S. firms enter into cooperative agreements.

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Competitive Analysis: Porter’s Five-Forces Model

69. According to Michael Porter, five competitive forces create vital opportunities and threats to organizations: (1) new entrants, (2) substitute products or services, (3) bargaining power of suppliers, (4) bargaining power of buyers, and (5) rivalry among existing firms.

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70. Bargaining power of consumers is usually the most powerful of Porter’s five competitive forces.

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71. As price-cutting becomes common, the intensity of rivalry among competing firms tends to increase.

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72. New firms sometimes enter industries with higher-quality products, lower prices and substantial marketing resources, even though there are numerous barriers to entry.

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73. Competitive pressures arising from substitute products increase as the relative price of substitute products increase and as consumers’ switching costs increases.

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74. Forward integration is used by firms to gain control or ownership of suppliers.

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75. Bargaining power of suppliers is higher when the products being purchased are standard or undifferentiated.

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Sources of External Information

76. Computerization and the Internet have made it easier today for firms to gather, assimilate and evaluate information.

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77. Interactive services offer Internet users not only access to information worldwide, but also the ability to communication with the author(s) of the information.

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Forecasting Tools and Techniques

78. Forecasts are educated assumptions about future trends and events.

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79. Quantitative forecasts become less accurate as historical relationships become less stable.

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80. Qualitative forecasts are most appropriate when historical relationships among key variables are expected to continue in the future.

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81. Planning is possible without assumptions as explained by McConkey.

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82. Linear regression is based on the assumption that the future will be different from the past.

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83. Without reasonable assumptions, the strategy-formulation process could not proceed effectively.

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The Global Challenge

84. From what previously was a multitude of distinct national markets, a world market is emerging.

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85. A process of worldwide integration of strategy formulation, implementation and evaluation activities is globalization.

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86. A global strategy seeks to meet the needs of customers worldwide with the lowest value at the highest cost.

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87. A major reason why the aircraft industry became global is the need to amortize massive R&D investments over many markets.

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88. Currently, the second most desirable country behind the United States in the world for foreign direct investment is Japan.

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89. Hong Kong serves as the gateway to fast-growing China.

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90. Among the risks that still restrain firms from initiating business with China are rampant corruption and the absence of a legal system.

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91. The minimum wage in China is half that of the United States.

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92. Hong Kong has rejected the “One China” policy and desires independence from China, creating political instability for global investors.

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93. China exports 61 percent of its products to the U.S., and these sales grew greatly in late 2001 and early 2002.

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Industry Analysis: The EFE Matrix

94. The weights in an EFE Matrix are identical for all firms in an industry.

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95. A firm’s EFE Matrix should address opportunities whereas CPM should address threats.

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96. The recommended number of key opportunities and threats to include in the External Factor Evaluation Matrix is from 5 to 30.

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97. The external audit includes identifying key opportunities and threats of a corporation.

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98. In an EFE Matrix, opportunities often receive higher weights than threats, but threats too can receive high weights if they are especially severe or threatening.

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99. Ratings in an EFE Matrix are industry-based and weights are company-based.

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100. A major weakness of a competitor is indicated by a rating of 4 in the EFE Matrix.

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101. Regardless of the number of key opportunities and threats included in an External Factor Evaluation Matrix, the highest possible total weighted score for an organization is 4.0, and the lowest possible total weighted score is 0.0.

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102. If one firm receives a 3.2 total weighted score and another receives a 2.8 rating in an EFE Matrix, a reasonable conclusion is that the first firm is 20 percent better than the second.

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The Competitive Profile Matrix (CPM)

103. Both a Competitive Profile Matrix and an EFE Matrix have the same meaning in the weights, ratings and total weighted scores.

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104. The critical success factors in a Competitive Profile Matrix are often the same as those in an EFE Matrix.

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105. When one firm receives a 3.2 rating and another receives a 2.8 rating in a Competitive Profile Matrix, it does not follow that the first firm is 20 percent better than the second.

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Multiple ChoiceThe Nature of an External Audit

106. __________ is not part of an external audit.a. Analyzing competitorsb. Analyzing financial ratiosc. Analyzing available technologiesd. Studying the political environmente. Analyzing social, cultural, demographic and geographic forces

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107. External variables can be categorized into ______ major categories.a. 5b. 3c. 7d. 12e. 15

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108. Identifying and evaluating key social, political, economic, technological and competitive trends and events comprise a. developing an effective mission statement.b. conducting an internal audit.c. performing an external audit.d. formulating strategy.e. implementing strategy.

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109. _____________ are external forces affecting organizationsa. Technological forcesb. Political forcesc. Economic forcesd. All of the abovee. None of the above

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110. The process of performing an external audit must involvea. only top level managers, as it’s a planning function.b. as many managers and employees as possible.c. primarily front-line supervisors.d. between 15 to 20 managers for it to be valid.e. stockholders and external government agencies.

Ans: b Page: 80

111. To perform an external audit, a company first must a. get an approval from the Securities and Exchange Commission.b. perform an internal audit.c. gather competitive intelligence and information about external trends.d. hire a consultant to develop a comprehensive strategic plan.e. All of these.

Ans: c Page: 81

112. Freund emphasizes that key external factors should be all of these excepta. important to achieving long-term and annual objectives.b. measurable.c. relatively few in number.d. applicable to all competing firms.

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113. Increasing numbers of two-income households is a(n) ______ trend in America.a. socialb. economicc. culturald. technological

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114. When interest rates rise, discretionary income ______, and the demand for discretionary goods ______.a. rises; risesb. declines; risesc. rises; fallsd. declines; falls

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Economic Forces

115. An example of a(n) __________ external variable is availability of credit.a. economicb. politicalc. sociald. governmentale. demographic

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116. Trends in the dollar’s value have __________ effect(s) on companies in different industries and in different locations.a. significant and equalb. marginal and equalc. significant and unequald. insignificant and unequale. no

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117. Generally, a strong dollar makes American goods __________ on overseas markets.a. less expensiveb. more attractivec. cheaperd. more expensivee. desirable

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118. An example of a(n) ______ external variable is tax rates.a. economicb. politicalc. governmentald. demographice. legal

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119. Propensity of people to spend is an example of a(n) __________ variable.a. politicalb. economicc. sociald. demographice. governmental

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120. Stock market trends, monetary policies and inflation rates are alla. economic variables that could indicate opportunities and threats.b. wildly unpredictable, and therefore not of any use to strategists.c. moving up and down together.d. good predictors of a company’s profit margin.e. strategy indicators.

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121. __________ of industries worldwide is acting to restrain inflation worldwide.a. Politicizationb. Unionizationc. Deregulationd. Managemente. Regulation

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122. Non-cash forms of payment now make up ______ percent of most companies and cities’ budgets in Russia.a. 30b. 90c. 75d. 45e. 11

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123. Which of the following is not a barrier to increased U.S. exports to Russia?a. High import dutiesb. Strict quality and safety standards on goodsc. Relaxed customs clearance processes at border pointsd. Onerous Russian excise levies

Ans: c Page: 84 124. In Russia, most business between companies and individuals is done through IOUs

known as a. velta and perm.b. barter and velta.c. veksels and barter.d. perm and barter.e. None of the above

Ans: c Page: 84

Social, Cultural, Demographic and Environmental Forces

125. The United States will have __________ racial or ethnic majority by the year 2075.a. only twob. Hispanics as ac. African Americans as the onlyd. noe. Hindus as a

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126. It is interesting to note that during the 1980s, as a social trend, church memberships __________ for nearly all religious denominations in the United States.a. marginally increasedb. fell substantiallyc. had no changed. increased significantly

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127. By 2021, _________ will become the largest minority group in America.a. African Americansb. Whitesc. Hispanicsd. Indianse. Japanese

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128. The world’s longest-living people are thea. Americans.b. Mexicans.c. Indians.d. Filipinos.e. Japanese.

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129. Americans are on the move in a population shift to thea. frost belt.b. South and West.c. Northeast.d. Midwest.

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130. ________ is the global investor’s favorite location for establishing business in the developing world.a. Mexicob. Indiac. Chinad. Africae. Korea

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131. ___________ are assembly plants on the Mexican side of the border.a. Maquiladorasb. Assembladorasc. Veskelsd. XMLse. Tijuana

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132. Trust in the government is an example of a(n) ______ of force.a. economicb. culturalc. politicald. technologicale. demographic

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133. The number of marriages and divorces is an example of a(n) __________ force.a. socialb. politicalc. economicd. governmentale. legal

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134. All of the following except __________ are examples of social trends.a. increased level of educationb. delays in childbearingc. rising interest ratesd. increasing numbers of women workers

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Political, Governmental and Legal Forces

135. Mexican companies laid off almost ______ employees during the first 10 months of 2001.a. 1.5 millionb. 25,000c. 3 milliond. 500,000

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136. When an industry relies heavily on government contracts, ______ forecasts can be the most important part of an external audit.a. economicb. politicalc. technologicald. competitive

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137. Local, state and national elections and lobbying activities are examples ofa. constitutional amendments.b. international rights.c. external political variables that are important to follow.d. internal political variables that are important to follow.

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138. The world of biopolitics includesa. assisted suicide and cloning.b. genetic testing and genetic engineering.c. brain imaging and abortion.d. All of the above

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139. ___________ can be especially critical and complex for multinational firms that depend on foreign countries for natural resources, facilities, distribution of products, special assistance, or customers.a. Political forecastingb. Global competitionc. Economic forecastingd. Technological factors

Ans: a Page: 90

140. _________ accents the need for accurate political, governmental and legal forecasts.a. A developing economyb. A declining economyc. Increasing global competitiond. Decreasing global competitione. Reduced number of industry competitors

Ans: c Page: 90

141. The world leaders in labor-intensive industries are ___________ countries.a. East Asianb. Europeanc. South Africand. former Soviet Union

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142. If a company benefits by way of a tariff against imports, the company would be taking advantage ofa. an economic trend.b. a political trend.c. a competitive trend.d. a social trend.e. a demographic trend.

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143. Which of the following is not a political or governmental variable?a. Special tariffsb. Import-export regulationsc. Attitudes toward authorityd. Lobbying activitiese. Foreign elections

Ans: c Page: 91

144. An example of a political trend isa. increased levels of education.b. tariffs and patents.c. inflation and recession.d. increased automation.e. increased numbers of minorities.

Ans: b Page: 91

145. __________ is one of its primary responsibilities at which the Russian government has failed.a. Importing goodsb. Collecting taxesc. Exporting jobsd. Increasing interest rates

Ans: b Page: 91

146. The risks of business investments in Russia decreases froma. south to north.b. east to west.c. north to south.d. None of the above

Ans: a Page: 92

147. Which of the following is an excellent way to motivate Russian workers?a. Participation and involvementb. Stock ownershipc. Barteringd. Downsizing

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Technological Forces

148. The _________ is acting as a national and even global economic engine that is spurring productivity.a. U.S. governmentb. Internetc. stock marketd. agricultural innovation

Ans: b Page: 92

149. The Internet is changing the nature of opportunities and threats by doing all of the following excepta. altering the life cycles of products.b. decreasing the speed of distribution.c. erasing limitations of traditional geographic markets.d. creating new products and services.

Ans: b Page: 92

150. Technological advancements can create new ______ advantages that are more powerful than existing advantages.a. economicb. socialc. environmentald. competitive

Ans: d Page: 93

151. Technological advances represent __________ for companies planning strategies.a. threatsb. opportunitiesc. financial bankruptcyd. All of the abovee. a & b

Ans: e Page: 93

152. Technological advances are important for which of the following?a. Service organizationsb. Computer organizationsc. All organizationsd. No organizations

Ans: c Page: 93

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Competitive Forces

153. Which of the following is not a characteristic that describes the most competitive companies in America?a. Divestiture is essential to growthb. People make a differencec. Innovate or evaporated. There is no substitute for quality and no greater threat than failing to be cost-

competitive on a global basise. Whether it’s broke or not, fix it

Ans: a Page: 94

154. Collecting and evaluating information on competitors is essential for successfula. internal analysis.b. strategy evaluation.c. strategy formulation.d. strategy implementation.

Ans: c Page: 94

155. A systematic and ethical process for gathering and analyzing information about the competition’s activities and general trends to further a business’ own goals is calleda. unethical business practice.b. artificial intelligence.c. competitive intelligence.d. information sharing.

Ans: c Page: 94

156. ___________________ is not a basic mission of a competitive intelligence program.a. To provide a general understanding of an industry and its competitorsb. To identify industry executives who could be hired by the firmc. To identify areas where competitors are vulnerable and to assess the impact

strategic actions would have on competitorsd. To identify potential moves a competitor might make that would endanger a

firm’s position in the market

Ans: b Page: 96

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157. Which of the following is not a misperception about business intelligence among American executives?a. Intelligence gathering is an unethical business practice.b. Running an intelligence program requires many people, computers and other

resources.c. Collecting intelligence about competitors violates antitrust laws.d. Business intelligence is not equal to espionage.

Ans: d Page: 96

158. The typical reaction is to _____________ if a firm detects weakness in a competitor.a. try to form a joint venture with the competitorb. try to purchase the competitorc. show no mercy toward the competitord. form a cooperative arrangement with the competitor

Ans: d Page: 97-98

159. Learning from the partner is a major reason why ______ firms enter into cooperative agreements.a. Asianb. Americanc. Africand. European

Ans: a Page: 98

Competitive Analysis: Porter’s Five-Forces Model

160. Intensity of competition is _______ in lower-return industries.a. lowestb. non-existentc. highestd. not important

Ans: c Page: 98

161. Five competitive forces, according to Michael Porter, create vital opportunities and threats to organizations. Which of the following is not a competitive force?a. New entrantsb. Rivalry among existing firmsc. Bargaining power of unionsd. Bargaining power of supplierse. Bargaining power of buyers

Ans: c Page: 100

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162. _________________, according to Porter, is usually the most powerful of the five competitive forces.a. Potential development of substitute productsb. Bargaining power of suppliersc. Bargaining power of consumersd. Rivalry among competing firmse. Potential entry of new competitors

Ans: d Page: 100

163. Whenever new firms can easily enter a particular industry, the intensity of competitiveness among firmsa. stays the same.b. increases.c. decreases.d. neutralizes.

Ans: b Page: 100

164. If suppliers are unreliable or too costly, which of these strategies may be appropriate?a. Horizontal integrationb. Backward integrationc. Market penetrationd. Forward integratione. Concentric diversification

Ans: b Page: 101

165. Bargaining power of consumers is ______ when the products being purchased are standard or undifferentiated.a. marginalb. lowc. highd. negative

Ans: c Page: 101

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Sources of External Information

166. Computerization and the Internet have made it easier today for firms to do all of the following excepta. assimilate information.b. hide information.c. gather information.d. evaluate information.

Ans: b Page: 103

167. Because of the Internet, barriers to personal and business success are a. being eliminated.b. being built.c. acting like glass walls.d. significantly enhanced.

Ans: a Page: 103

Forecasting Tools and Techniques

168. ____________ are educated assumptions about future trends and events.a. Guessesb. Forecastsc. Factsd. Statisticse. Predictions

Ans: b Page: 103

169. All quantitative forecasts are based ona. a computer system.b. the tax rate.c. historical data.d. the number of persons employed by the firm.e. sales and profits.

Ans: c Page: 105

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170. _______ are vital to the strategic-management process and to the success of organizations.a. Assumptionsb. Forecastsc. Randomnessd. Threats

Ans: b Page: 105

171. Planning would be impossible without a. assumptions.b. employees.c. data.d. competitive intelligence.

Ans: a Page: 105

The Global Challenge

172. In its simplest sense, the international challenge faced by U.S. business is twofold:a. how to gain and maintain exports to other nations and how to defend

domestic markets against imported goods.b. how to enhance imported goods in domestic markets and minimize exports

to other nations.c. how to gain exports to other nations and enhance market share for imported

goods in domestic markets.d. how to defend domestic markets against imported goods while minimizing

exports.

Ans: a Page: 106

173. Which of the following is a process of worldwide integration of strategy formulation, implementation and evaluation activities?a. Mission developmentb. Globalizationc. Brainstormingd. Industry analysis

Ans: b Page: 106

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174. Globalization of industries is occurring for all of these reasons excepta. a worldwide trend toward similar consumption patterns.b. the emergence of global buyers and sellers.c. a worldwide trend toward different consumption patterns.d. e-commerce and the instant transmission of money and information across

continents.

Ans: c Page: 107

175. All of these are risks that still restrain firms from initiating business with China excepta. absence of a legal system.b. severe human rights violations.c. freedom of press and religion.d. rampant corruption.

Ans: c Page: 108

176. Which of the following changes in China resulted from its membership in the WTO?a. Foreign countries can take decreased stakes in mobile phone companies.b. Tariffs on high tech products will increase by 2007c. Foreign banks may conduct domestic currency business with Chinese firms.d. Retail oil distribution will close its doors in China by 2008.

Ans: c Page: 109

177. Which country has rejected China’s “One China” policy and desires independence?a. Hong Kongb. Taiwanc. Koread. Philippines

Ans: b Page: 109

Industry Analysis: The EFE Matrix

178. The total weighted score ranges from ____________ in an EFE Matrix.a. 0 to 4b. 1 to 4c. 0 to 5d. 1 to 5

Ans: b Page: 110

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179. ____________________ is the first step in designing an EFE Matrix.a. Identifying key external factors in the industryb. Summing the weighted score for each competitorc. Calculating the sales of each competitord. Drawing the horizontal and vertical lines for the matrixe. Determining four competitors

Ans: a Page: 110

180. In the EFE Matrix, the range of weights is __________.a. 1 to 10b. –10 to +10c. 0 to 1d. 0 to 10e. 1 to 5

Ans: c Page: 110

181. _______ is the average weighted score on the EFE matrix.a. 3.0b. 3.0c. 2.0d. 2.5e. 4.0

Ans: d Page: 111

182. What is the range for a firm’s total weighted score in an External Factor Evaluation Matrix?a. 0 to 5b. 0 to 4c. 1 to 5d. 1 to 4

Ans: d Page: 111

The Competitive Profile Matrix (CPM)

183. One difference between CPM and EFE is thata. CPM includes both internal and external issues.b. the weight and total weighted score mean opposite.c. CPM ratings range from 1 to 10.d. CPM is performed only for the company, whereas EFE is performed for both

the company and the competitors.

Ans: a Page: 112

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Essay Questions

184. What are the five major types of external forces that should be examined as part of an external audit? Give an example of each type of force.

External forces can be divided into five broad categories: (1) economic forces, (2) social, cultural, demographic and environmental forces, (3) political, governmental and legal forces, (4) technological forces and (5) competitive forces. Relationships among these forces and an organization are depicted in Figure 3-2.

Page: 80

185. Discuss the process of performing an external audit.

To perform an external audit, a company first must gather competitive intelligence and information about economic, social, cultural, demographic, environmental, political, governmental, legal and technological trends. Once information is gathered, it should be assimilated and evaluated. A meeting or series of meetings of managers is needed to collectively identify the most important opportunities and threats facing the firm. These key external factors should be listed on flip charts or a blackboard. A prioritized list of these factors could be obtained by requesting that all managers to rank the factors identified, from 1 for the most important opportunity/threat to 20 for the least important opportunity/threat.

Page: 81

186. Identify five key economic variables that could represent major opportunities or threats to a bank in your town or city.

Student answers will vary. However, they should look at economic, social/cultural, political/legal, technological and competitive factors.

Page: 83

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187. Explain how the Internet is changing businesses around the world.

The Internet is acting as a national and even global economic engine that is spurring productivity. The Internet is saving companies billions of dollars in distribution and transaction costs from direct sales to self-service systems. The Internet is changing the very nature of opportunities and threats by altering the life cycles of products, increasing the speed of distribution, creating new products and services, erasing limitations of traditional geographic markets and changing the historical trade-off between production standardization and flexibility. It is also altering economies of scale, changing entry barriers and redefining the relationship between industries and various suppliers, creditors, customers and competitors. An emerging consensus holds that technology management is one of the key responsibilities of strategists.

Page: 92-94

188. Agree or disagree with (and discuss) the following statement: “Corporate intelligence is not corporate espionage because 95 percent of the information a company needs to make strategic decisions is available and accessible to the public.”

Agree. Firms need an effective competitive intelligence (CI) program. The three basic missions of a CI program are (1) to provide a general understanding of an industry and its competitors, (2) to identify areas in which competitors are vulnerable and to assess the impact strategic actions would have on competitors and (3) to identify potential moves a competitor might make that would endanger a firm’s position in the market. An effective CI program allows all areas of a firm to access consistent and verifiable information in making decisions.

Page: 96

189. According to Michael Porter, what are the five competitive forces that create vital opportunities and threats for organizations? Which force do you feel is most important in the computer industry today? Why?

Please refer to Figure 3-3 on page 99 in the text.

Page: 99

190. Discuss the following statement: “Planning would be impossible without assumptions.”

Please refer to the discussion on Making Assumptions on page 105.

Page: 105

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191. Discuss the opportunities and threats China presents to an international firm interested in doing business with China.

U.S. firms increasingly are doing business in China as market reforms create a more businesslike arena daily. Risks that still restrain firms from initiating business with China include the following: (1) poor infrastructure, (2) disregard for the natural environment, (3) absence of a legal system, (4) rampant corruption, (5) lack of freedom of press, speech and religion, (6) severe human-rights violations, (7) little respect for patents, copyrights, brands and logos, (8) counterfeiting, fraud and pirating of products, (9) little respect for legal contracts and (10) no generally accepted accounting principles.

Both the European community and the U.S. have approved China’s membership in the WTO. This action integrated the world’s most populated country into the global trading order. Some key changes resulting from this action are as follows: (1) foreign companies can take increased stakes in mobile phone companies, (2) tariffs on high-tech products will be phased out and eliminated by 2005, (3) import tariffs on automobiles will drop to 25 percent by mid-2006 from 90 percent today, (4) foreign banks may conduct domestic currency business with Chinese firms, (5) foreign banks may do business anywhere in China by 2006, (6) foreign firms will be allowed a 49 percent stake in securities joint ventures by 2004, (7) foreign insurance firms may own operations in China and (8) retail oil distribution will open in China by 2004.

Page: 108-110

192. List three opportunities and three threats that could represent key factors facing your college or university.

Student answers will vary. However, they should look at economic, social/cultural, political/legal, technological and competitive factors.

Page: 110

284

193. List five steps that comprise an effective framework for conducting an EFE Matrix. Explain the details involved in performing any one of the steps.

The EFE Matrix can be developed in five steps: 1) list key external factors as identified in the external-audit process with a total of from 10 to 20 factors, including both opportunities and threats that affect the firm and its industry, 2) assign to each factor a weight that ranges from 0.0 to 1.0, 3) assign a 1 to 4 rating to each key external factor to indicate how effectively the firm’s current strategies respond to the factor, where 4 = the response is superior, 3 = the response is above average, 2 = the response is average, and 1 = the response is poor, 4) multiply each factor’s weight by its rating to determine a weighted score and 5) sum the weighted scores for each variable to determine the total weighted score for the organization.

Page: 110-111

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