IIA IIA Certifications IIA-CIA-PART4 Questions & Answers

• Question 471:

  When firms compete in different geographical locations or have multiple product lines that do not necessarily overlap, the most effective way of responding to an aggressive move by a competitor without directly triggering destructive moves and countermoves is to

  A. Mislead the competitor into taking or not taking an action.

  B. Make a prior announcement of intended moves.

  C. Initiate a move in the market where the competitor is strong.

  D. Initiate direct aggressive moves

  Correct Answer: C

  Initiating a move in the market where the competitor is strong is a cross- parry. A cross- parry is an effective way to signal displeasure and raise the threat of more serious retribution without directly triggering destructive moves and countermoves.

• Question 472:

  General Electric has popularized a model for competitive analysis. In this portfolio matrix,

  A. Each of the firm's businesses is represented by a circle proportional to its size.

  B. Business strength and market attractiveness are measured using a multifactor index.

  C. The number of cells varies with the number of factors used by the firm in its analysis.

  D. The four quadrants represent combinations of high or low market growth rates and business profitability.

  Correct Answer: B

  The GE model is a multifactor portfolio matrix with two variables. Business strength or competitive position (BUS) is on one axis, and market attractiveness (MAT) is on the other. To measure BUS and MAT, the firm must isolate the multiple factors affecting each, quantify them, and create an index. Factors will vary with each business. The measurements will provide the values on the exes of the matrix.

• Question 473:

  According to the Boston Consulting Group's portfolio model for competitive analysis, the strategy fora strong cash cow should be

  A. Harvest.

  B. Divest.

  C. Hold.

  D. Build.

  Correct Answer: C

  A hold strategy is used for strong cash cows. It is necessary if the business is to continue to generate large net cash inflows. Harvesting might impair a strong cash cow's ability to generate long-term positive net cash inflows.

• Question 474:

  General Electric (GE) portfolio model for competitive analysis of strategic business units (SBUs) is presented in a matrix format. This matrix

  A. Has four quadrants.

  B. Shows SBUs as circles directly proportional to their business strength.

  C. Classifies its cells into nine zones.

  D. Classifies each variable in one of three categories.

  Correct Answer: D

  The GE model is a multifactor portfolio matrix with two variables. Business strength or competitive position (BUS) is on one axis, and market attractiveness (MAT) is on the other. BUS is classified as strong, medium, or weak, and MAT is classified as high, medium, or low. Thus, the matrix in this model is 3 x 3 and has nine cells.

• Question 475:

  The General Electric (GE) portfolio model for competitive analysis of strategic business units (SBUs) should be compared with the Boston Consulting Croup's growth-share matrix. The GE model:

  A. Is a matrix with two variables:relative market share and market growth rate.

  B. Calculates an index for each of its two variables.

  C. Considers such factors for business strength as market size, growth rate, and price levels.

  D. Considers such factors for market attractiveness as market share, growth rate, and marketing skills.

  Correct Answer: B

  The GE model is a multifactor portfolio matrix with two variables. Business strength or competitive position (BUS) is on one axis, and market attractiveness (MAT) is on the other. BUS is classified as strong, medium, or weak, and MAT is classified as high, medium, or low. Thus, the matrix in this model is 3 x 3 and has nine cells. SBUs are shown in the matrix as circles. Circle size is directly proportional to the size of the related market, with a shaded portion in the circle that represents the SBU's market share. To measure BUS and MAT, the firm must isolate the multiple factors affecting each, quantify them, and create an index. Factors will vary with each business. The measurements will provide the values on the axes of the matrix.

• Question 476:

  According to the growth-share matrix approach developed by the Boston Consulting Group, a harvest strategy is most likely to be used for SBUs that are

  A. Question marks that may become stars.

  B. Strong cash cows.

  C. Weak cash cows.

  D. Dogs that reduce the firm's profits.

  Correct Answer: C

  Each SBU should have objectives, a strategy should be formulated to achieve those objectives, and a budget should be allocated. A harvest strategy maximizes short- term net cash inflow. Harvesting means zero-budgeting RandD, reducing marketing costs, not replacing facilities, etc. This strategy is used for weak cash cows and possibly question marks and dogs.

• Question 477:

  A strategic business unit (SBU) has a low relative market share (RMS) and a high market growth rate (MGR). According to the portfolio model for competitive analysis (thegrowth sharematrix) created by the Boston Consulting Group, the SBU is considered a

  A. Star.

  B. Question mark.

  C. Cash cow.

  D. Dog.

  Correct Answer: B

• Question 478:

  A firm has a strategic business unit (SBU) that has a low market share in a high growth market. To maintain even this low share of the market requires the firm to commit a significant amount of cash. The firm might successfully adopt a build strategy for this unit if the:

  I. SBU shows a strong potential to grow and obtains a significant share of the market.

  II. Firm can finance its growth.

  III. Firm expects a short-term increase in cash flow.

  IV.

  Firm is willing to forgo short-term earnings.

  A.

  I only.

  B.

  II and Ill only.

  C.

  Ill and IV only.

  D.

  I, II, and IV only.

  Correct Answer: D

  One of the two portfolio models most frequently used for competitive analysis was created by the Boston Consulting Group (BCG). This model, the growth-share matrix, has two variables. The market growth rate (MGR) is on the vertical axis, and the firm's relative market share (RMS) is on the horizontal axis. The growth-share matrix has four quadrants. The firm's SBUs are commonly represented in their appropriate quadrants by circles. The size of a circle is directly proportional to the SBU's sales volume. Question marks (low RMS, high MGR) are weak competitors in high-growth markets. They need large amounts of cash not only to finance growth and keep pace with the market but also to increase RMS, but do poorly in cash generation. If RMS increases significantly, a question mark may become a star. If not, it becomes a dog. A build strategy is necessary for a question mark with the potential to be a star. Consequently, a firm may adopt a build strategy for this type of SBU if it shows a strong potential to grow, if the firm is willing to forgo short- term earnings and cash flow, and if the firm is willing and has the capacity to finance its growth. However, a firm that expects only a short-term increase in cash flow may adopt either a divest or a harvest strategy but not a build strategy. This type of SBU needs a lot of cash flow to finance its growth.

• Question 479:

  In the Boston Consulting Group (BCG) growth-share matrix, which strategic business units generate large amounts of cash, need heavy investment to grow and maintain competitive positioning, but usually have modest net cash flow?

  A. Cash cows.

  B. Question marks.

  C. Dogs.

  D. Stars.

  Correct Answer: D

  A star is a business with a strong competitive position in a growth industry. It has a high relative market share, and the market growth rate is high. Thus, the industry is robust, and the SBU is highly attractive. Net cash flow is modest because investment is heavy, although stars generate large amounts of cash.

• Question 480:

  A strategic business unit (SBU) has a relative market share (RMS) of 2.0 and a market growth rate (MGR) of 9.5%. According to the portfolio model for competitive analysis created by the Boston Consulting Group, such an SBU is considered a

  A. Star.

  B. Question mark.

  C. Cash cow.

  D. Dog.

  Correct Answer: C

  The annual MGR reflects the maturity and attractiveness of the market and the relative need for cash to finance expansion. An MGR of 10% or more is generally regarded as high. The RMS reflects an SBU's competitive position in the marketsegment. An RMS of 1.0 or moresignifies that the SBU has a strong competitive position. Cash cows have high RMS and low MGR. They are strong competitors and cash generators in low-growth markets.