IIA IIA Certifications IIA-CIA-PART3 Questions & Answers

• Question 611:

  Structural considerations affecting the threat of substitutes include all of the following except:

  A. Relative prices.

  B. Brand identity.

  C. Cost of switching to substitutes.

  D. Customers' inclination to use a substitute.

  Correct Answer: B

  Substitutes are types of goods and services that serve the same purpose. All products that can replace a good or service should be considered substitutes. For example, bicycles and cars are substitutes for public transportation. Structural considerations determine the effect substitutes have on one another. However, because substitutes are types (not brands) of goods and services that have the same purposes, brand identity is not a structural consideration affecting the threat of substitutes.

• Question 612:

  The prospect for the long-term profitability of an existing firm is greater when:

  A. The firm operates in an industry with a steep learning curve in its production process.

  B. The costs of switching suppliers is low.

  C. New entrants are encouraged by government policy.

  D. Distribution channels are willing to accept new products.

  Correct Answer: A

  The prospects of long-term profitability are contingent upon the industry's exit and entry barriers. The entry of new firms in a market decreases the prospect for long-term profitability. When a firm operates in an industry that has a steep learning curve, it is more difficult for new firms to enter the market. Thus, the prospects of long-term profitability are greater for an existing firm.

• Question 613:

  Intensity of rivalry among existing firms in an industry increases when:

  I. Products are relatively undifferentiated. II.Consumer switching costs are low.

  A. I only.

  B. II only.

  C. Both I and II.

  D. Neither I nor II.

  Correct Answer: C

  The degree of product differentiation and the costs of switching from one competitor's product to another increase the intensity of rivalry and competition in an industry. Less differentiation tends to heighten competition based on price, with price cutting leading to lower profits. Low costs of switching products also increase competition.

• Question 614:

  Which of the following factors is least typical of an industry that faces intense competitive rivalry?

  A. Price-cutting.

  B. Large advertising budgets.

  C. Frequent introduction of new products.

  D. A high threat of substitutes.

  Correct Answer: D

  A high threat of substitutes reduces the attractiveness of an industry. It tends to increase the price elasticity of demand and therefore limits price increases and profit margins. If other factors are constant, fewer entrants result in less intense competition.

• Question 615:

  Strategic management includes establishment of appropriate controls. Control measurements are made to determine whether organizational objectives are being achieved. One category of strategic control measures concerns external effectiveness. A measurement relating to external effectiveness is:

  A. Cycle time.

  B. Waste.

  C. Flexibility.

  D. Productivity.

  Correct Answer: C

  Strategic control measures may be categorized as concerning either external effectiveness or internal efficiency. Flexibility overlaps these categories. It relates to effectiveness and efficiency. Thus, an organization must be externally flexible in responding to changing customer needs and internally flexible in reordering its structural arrangements, retraining employees, etc.

• Question 616:

  Strategic control measurements of financial results relate to:

  A. Internal efficiency at the business-unit level.

  B. Internal efficiency at the departmental level.

  C. External effectiveness at the business-unit level.

  D. External effectiveness at the business-operating-system level.

  Correct Answer: A

  Strategic controls should be established to monitor progress, isolate problems, identify invalid assumptions, and take prompt corrective action. As plans are executed at each organizational level, control measurements are made to determine whether objectives have been achieved. Thus, objectives flow down the organizational hierarchy, and control measures flow up. One category of strategic control measures relates to external effectiveness. A second category ofstrategic control measures relates to internal efficiency. At the business-unit level, the latter measures concern financial results.

• Question 617:

  Strategic control measurements that relate to external effectiveness concern customer satisfaction at the:

  A. Departmental level.

  B. Business-operating-system level.

  C. Business-unit level.

  D. Work-center level.

  Correct Answer: B

  Strategic controls should be established to monitor progress, isolate problems, identify invalid assumptions, and take prompt corrective action. As plans are executed at each organizational level, control measurements are made to determine whether objectives have been achieved. Thus, objectives flow down the organizational hierarchy, and control measures flow up. One category of strategic control measures relates to external effectiveness. At the business- operating-system level, these measures concern satisfaction and flexibility.

• Question 618:

  A firm should state its primary competitive scopes when it:

  A. Defines its strategic business units (SBUs).

  B. Establishes strategic control points.

  C. Formulates its mission.

  D. Makes investment and divestment decisions.

  Correct Answer: C

  At the highest level, a firm's strategic planning function involves formulating its mission (ultimate firm purposes and directions), determining its strategic business units (SBUs), allocating resources to SBUs, planning to start new businesses, and downsizing or divesting oldbusinesses. A mission statement should address reasonably limited objectives, define the firm's major policies and values, and state the firm's primary competitive scopes (e.g., industries, products and services, applications, core competencies, market segments, degree of vertical integration, and geographic markets).

• Question 619:

  In a SWOT analysis, a firm considers macroeconomic factors when it identifies:

  A. The capability profile.

  B. Opportunities and threats.

  C. Core competencies.

  D. Strengths and weaknesses.

  Correct Answer: B

  Opportunities and threats (the external environment) are identified by consideringmacro environmentalfactors (economic, demographic, political, legal, social, cultural, and technical) andmicro environmentalfactors (suppliers, customers, distributors, competitors, and other competitive factors in the industry).

• Question 620:

  What operations strategy is most likely to be adopted when the product sold by an organization is a commodity and the market is very large?

  A. Flexibility strategy.

  B. Quality strategy.

  C. Service strategy.

  D. Cost strategy.

  Correct Answer: D

  An operations strategy formulates a long-term plan for using enterprise resources to reach strategic objectives. A cost strategy is successful when the enterprise is the low-cost producer. However, the product (e.g., a commodity) tends to be undifferentiated in these cases, the market is often very large, and the competition tends to be intense because of the possibility of high-volume sales.