Why might a CEO, a consultant, or an investor conduct a strategic analysis?

• To determine future profitability

• To choose a single method of analyzing data

• To better understand and make decisions about an industry

• To assess an organization's current competitive position

Answer explanation

To better understand and make decisions about an industry:

Strategic analysis allows stakeholders to understand the competitive forces that shape an industry and to evaluate strategies so that they can recommend and take informed action.

An organization's strategy is embodied in its ...

• Chief executive officer

• Declared sales and targets

• Mission, plan, and actions

• Mission statement

Answer explanation

Mission, plan, and actions:

These three components reflect an organization's strategy.

The strategist’s challenge is to…

• Determine the most effective marketing plan for an organization

• Build bridges between operations and outside investors

• Balance workload with other commitments

• Identify valuable competitive positions at the intersection of values, capabilities, and opportunities

Answer explanation

Identify valuable competitive positions at the intersection of values, capabilities, and opportunities :

The strategist’s challenge is to balance these three factors and identify the space where they converge.

In the real world...

• Businesses rarely have a competitive advantage

• Profits are consistent over time

• Product markets are perfectly competitive

• Average industry returns vary even after controlling for risk.

Answer explanation

Average industry returns vary even after controlling for risk :

In the real world, industry returns are variable

Would you complete a SWOT, competitor or environmental analysis to understand at the broadest level a firm's internal capabilities and its external competitive environment?

• Competitor analysis

• SWOT analysis

• Environmental analysis

Answer explanation

SWOT analysis :

A SWOT analysis provides an overarching view of a firm's competitive position--both its internal capabilities and external competitive environment. Other tools provide a more robust understanding of a firm's strategy

Which of the following cases BEST illustrates the generation of rents/economic profits?

• A firm’s revenues exceed its costs

• A firm has higher returns than an established, less risky competitor

• A firm has higher returns than an investment of similar risk

• A firm has the greatest market share in its industry

Answer explanation

A firm has higher returns than an investment of similar risk :

Rents are generated when an investment has higher returns than other options with similar risks.

Why do strategy analysts care about economic profits and not just accounting profits?

• Economic profits are the same as accounting profits.

• Economic profits calculate a firm's profits after operating costs.

• Economic profits reflect the opportunity cost of deploying capital.

• Economic profits reveal a firm's market share.

Answer explanation

Economic profits reflect the opportunity cost of deploying capital :

Economic profits show how a company is utilizing its resources by measuring return on equity against the cost of capital, making it an excellent measure of how it is creating value.

What might a strategist learn about a nonprofit's strategy based on its mission statement: To provide dignified care to our city's aging population?

• Market opportunities and needs

• Values, purpose, and scope

• Capabilities and strengths

Answer explanation

Values, purpose, and scope :

A firm's mission statement reveals its values and purpose which are the foundation for its strategic decisions.

How might an analyst use the environmental analysis tool?

• To understand the broad societal forces that impact a firm

• To understand a firm's competitive strengths

• To understand and evaluate current or potential competitors

• To test a strategic position

Answer explanation

To understand the broad societal forces that impact a firm :

An environmental analysis identifies trends that influence demand, growth, entry and exit of firms, innovation, and regulation.

Which of the following describes a perfectly competitive market?

• Barriers to entry and exit are non-existent.

• Products are varied.

• Knowledge is limited.

• There are few firms competing in an industry.

Answer explanation

Barriers to entry and exit are non-existent :

There are no barriers to entry or exit in perfectly competitive markets.