Test on External Assessment in Strategic Management

Question 1: An effective external audit system is primarily developed to analyze internal strengths and weaknesses of an organization.

A. Yes

B. No

Explanation: The purpose of an external audit is to develop a finite list of opportunities that could benefit a firm and threats that should be avoided. It focuses on identifying and evaluating trends and events beyond the control of a single firm, which are external factors.

Question 2: According to the study materials, which of the following statements accurately describes the application and nature of Porter's Five-Forces Model?

A. It is an example of the Industrial Organization (I/O) view, focusing on external forces and industry variables.

B. It helps strategists evaluate the market and industry, but requires good intuitive judgment.

C. It primarily focuses on a firm's internal resources and capabilities to gain competitive advantage.

D. Its variables include factors such as the bargaining power of suppliers.

Explanation: The study materials state that Porter’s Five-Forces Model is an example of the I/O perspective, which focuses on analyzing external forces and industry variables to achieve competitive advantage. It also mentions that the model helps strategists evaluate the market and industry, but must be accompanied by good intuitive judgment. Additionally, 'bargaining power of suppliers' is listed as one of Porter's variables in a review question. The model does not primarily focus on internal resources and capabilities; that is contrary to the I/O view it represents.

Question 3: The five broad categories of external forces include economic, social, cultural, demographic, and natural environment, political, governmental, and legal, technological, and ethical forces.

A. Yes

B. No

Explanation: The study materials state that external forces are divided into five broad categories: economic forces; social, cultural, demographic, and natural environment forces; political, governmental, and legal forces; technological forces; and competitive forces. Ethical forces are not listed as one of these five broad categories.

Question 4: According to the study materials, what is a key distinction between the Chief Information Officer (CIO) and the Chief Technology Officer (CTO) within an organization?

A. The CIO is primarily responsible for technical issues like data acquisition, while the CTO manages stakeholder relationships.

B. The CIO focuses on managing the firm’s relationship with stakeholders, whereas the CTO concentrates on technical issues such as data processing and software acquisition.

C. Both the CIO and CTO are primarily responsible for developing and maintaining a company’s sales database, with no clear distinction in their roles.

D. The CTO ensures that information is available for strategy formulation, while the CIO focuses on developing new product lines.

Explanation: The study materials state that 'The CIO is more a manager, managing the firm’s relationship with stakeholders; the CTO is more a technician, focusing on technical issues such as data acquisition, data processing, decision-support systems, and software and hardware acquisition.' This clearly defines the distinct focus areas of each role.

Question 5: The bargaining power of suppliers increases significantly when there is a large number of suppliers in the industry.

A. Yes

B. No

Explanation: The study materials state that the bargaining power of suppliers affects the intensity of competition, especially when there are only a few good substitute raw materials, or when the cost of switching raw materials is costly. A large number of suppliers generally decreases their bargaining power, as firms have more options.