IIA IIA Certifications IIA-CIA-PART4 Questions & Answers

• Question 211:

  The concurrent action of basic competitive forces as defined by Porter's model determines the

  A. Long-term profitability and the competitive intensity of the industry.

  B. Entrance barriers that potential players must face to get into the industry.

  C. Rivalry inside the industry.

  D. Strategy that a firm should follow to achieve its objectives.

  Correct Answer: A

  Michael E. Porter, a leader in the field of strategic management, has developed a comprehensive model of the structure of industries and competition. One feature is his analysis of the five competitive forces that determine long-term profitability measured by long-term return on investment. This analysis determines the attractiveness of an industry.

• Question 212:

  Which condition does not increase the threat of new competitor entry into the industry?

  A. Strong brand identity.

  B. Existing firms do not enjoy the cost advantages of vertical integration.

  C. Few proprietary product differences.

  D. Low capital requirements.

  Correct Answer: A

  Strong brand identity decreases the threat that new competitors will enter an industry. New competitors have difficulty because potential customers are loyal to established firms in the industry.

• Question 213:

  Which industry factor does not contribute to competitive rivalry?

  A. Price-cutting, large advertising budgets, and frequent introduction of new products.

  B. A firm's growth must come from winning other firms' customers.

  C. High costs of customers switching suppliers.

  D. High fixed costs relative to variable costs.

  Correct Answer: C

  If it is expensive to switch suppliers, customers will be less motivated to respond to competitor advances.

• Question 214:

  A corporation is performing research to determine the feasibility of entering the truck rental industry.The decision to enter the market is most likely to be deterred if:

  A. Buyer switching costs are high.

  B. Buyers view the product as differentiated.

  C. The market is dominated by a small consortium of buyers.

  D. Buyers enjoy large profit margins.

  Correct Answer: C

  When purchasing power is concentrated in a few buyers or when buyers are well organized, their bargaining power is greater. This effect is reinforced when sellers are in a capitalintensive industry, such as trucking.

• Question 215:

  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 216:

  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 217:

  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 218:

  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 219:

  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 220:

  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.