Deck 4: Further Topics in Industry and Competitive Analysis

Question 1

It is common knowledge that rapid change is everywhere. Are all industries actually in permanent and rapid change?

Answer 1

Everyone thinks that change is permanent, rapid and present in all industries, and that this trend is getting stronger over time.
In fact, this common belief is not entirely supported by research. Some studies have concluded that there is a "lack of widespread evidence" that instability is stronger now than in the recent past.
Some industries are obviously experiencing rapid changes and evolution in their structure, their technologies and their players, such as semi-conductor, computers, consumer electronics, internet-based industries, etc. D'Aveni coined the term "hyper-competition" to describe this type of industry.
However, in some other industries, change is slower and the Schumpeterian destructive creation appears to be more of a breeze than a gale! In that context, profit levels and repartition across the players evolve slowly and gradually.

Question 2

If structural change within an industry happens to be very rapid, then Porter's five forces model of competition has limited predictability. How can fast-pace industry firms -such as technology-driven or e-commerce firms-predict their competition?

Answer 2

When the industry environment changes rapidly, forecasting becomes more difficult because uncertainty increases.
However, prediction always remains possible, even if the scope of possible futures becomes larger. Speed of change is another dimension that amplifies the difficulty.
Still, the Porter model's predictability is not nullified by strong uncertainty and high speed change. The same forces are at play in the industry but they accommodate larger variations and evolve faster.
In such an environment, other techniques may be necessary, such as forecasting methods to build more comprehensive representations of possible futures. Scanning will be sophisticated enough to detect very early signals of change in the environment and behave accordingly.
Strategies have to be flexible and not as detailed as in a very stable environment. Some basic but meaningful principles prove to be a better guide in that context. Strategic scenarios should be available with multiple options. Strategic choices should offer robustness in case the expected scenario does not take place.
Forecasting competition is difficult and depends on the structure of the industry. An oligopolistic industry may require tools for analyzing games between few actors whereas fragmented industries will need tools to predict and monitor large set of rivals. The classic steps of analysis (e.g. a rival's current strategy, objectives, or assumptions about the industry, and a rival's resources and competencies) are still appropriate in this type of environment.

Question 3

Can the structure of an industry game be modified?

A)Never
B)Always
C)Yes, with creative strategies such as alliances or agreements
D)No, because the structure of the industry is shaped by macro-level forces

Answer 3

C

Question 4

Signaling refers to:

A)Communications that announce your strategic intentions or plans to rivals
B)Any deliberate action that is intended to influence rivals' perceptions or behavior
C)Deception campaigns and misinformation actions
D)Internal communications that divert strategic orientations and obtain the buy-in of the organization's key stakeholders

Question 5

As a deterrence action, at the expiration of the Nutrasweet patents, Monsanto:

A)Prepared a legal battle to fight against firms which would sell similar products under other names
B)Invested heavily in excess production capacity in generic aspartame
C)Enhanced its product quality to create a differentiation strategy and customer loyalty
D)Was preparing new products in related areas and had accepted sharing the market for Nutrasweet

Question 6

What does competitive intelligence involve?

Question 7

In Europe, EasyJet, BalticAir, SkyEurope, and Ryanair:

A)Are fighting for the dominance of the long-haul international routes
B)Are generally small size firms; this small size gives them the advantage of flexibility and the capacity to adapt rapidly
C)Belong to the same strategic group
D)Have nothing in common

Question 8

Regarding a firm's profitability, why can one say that industry does not "matter much"?

Question 9

The 1963 Cuban missile crisis, the Boeing and Airbus conflict, and NASCAR race tactics are examples of:

A)Situations where politics and strategy are interwoven
B)The use of game theory
C)The use of the segmentation matrix
D)Situations that can be framed through the prisoners' dilemma

Question 10

Game theory can be applied where:

A)Agents are restrained
B)Firms are very similar and their options are few and similar
C)Hard commitments pay dividends
D)Firms only deter rivals by signaling their intent

Question 11

What are the key success factors of a particular industry?

Question 12

Why do firms compete and cooperate at the same time?

Question 13

When a "complement product" situation exists within an industry, which are some of the players' behavioral patterns?

Question 14

How can a firm discover its rivals' hidden assumptions about the industry?

Question 15

Technology-intensive and manufacturing industries are illustrations of:

A)The so-called "Nash equilibrium"
B)The so-called "creative destruction"
C)The so-called "hyper-competition'
D)The so-called "deterrence effect"

Question 16

Different types of relationships may exist between firms. For example:

A)Coca.cola and PepsiCo are mostly competing
B)Intel and Microsoft are cooperating
C)Exxon and Shell are competing
D)All of the above

Question 17

How can a firm "separate the wheat from the chaff" regarding outside signaling?

Question 18

For firms such as Unilever, Procter & Gamble, Coca-cola, General Electric, Starbucks, or United Technologies:

A)The industry structure is strongly influenced by the main players' behaviors
B)The most important strategic factor is technological evolution
C)Size becomes an issue which is generally not addressed in strategic management
D)Advertising represents a major core competence

Question 19

The European metal can industry can be segmented according to the following dimensions:

A)Size of container, political risk, and country market
B)Customer type, size of the container, and economic risk
C)Type of container, type of customer, and country market
D)Type of customer, country market, and main technology of production

Question 20

In 1944, Allied deception was so successful that:

A)Even after the start of D-Day in Normandy, the Germans were still waiting for the main invasion near Calais in France
B)Some German spies were turned and were working for Allies and transmitting false information to the Germans
C)The Germans could not protect all the potential invasion zones simultaneously in France
D)All of the above

Question 21

An example of an industry recipe is:

A)All players in an industry belonging to a trade association which issues Statements of Good Practice
B)All brewers making beer with barley, water and hops
C)Both movie sellers and buyers habitually judging a movie's ultimate success by the first weekend's box office sales
D)All carmakers assuming cars must have an engine and more than two wheels

Question 22

In segmentation analysis, identifying key segment variables means determining:

A)Which product and service the firm should offer its customers in few segments
B)Which product and service the firm should offer its customers, taking into account the limited substitutability among customers and producers
C)Which customers to serve and where to serve them
D)The dimensions of the segmentation

Question 23

Deterrence is defined as:

A)A strong incentive to behave in a certain way
B)A strong incentive not to behave in a certain way
C)A strong incentive to create organizational punishment
D)A strong incentive to delay the game until a Nash equilibrium appears optimal for all

Question 24

In the example of the European metal can industry, what is the last step of the segmentation analysis?

A)The collection of data related to the industry
B)The analysis of the segment attractiveness
C)The design of a segmentation matrix
D)The analysis of the attractions of broad vs. narrow segment scope

Question 25

Why is commitment so important? Because:

A)It makes deterrence appear more credible
B)It shows the power of the focal firm
C)It demonstrates the will of rivals to resist
D)It strengthens a leader's image in the eyes of his followers

Question 26

The relationship between competition and cooperation can be described as follows:

A)Industries either compete or cooperate; if they cooperate they will be investigated by competition bodies
B)Cooperation and competition may exist in an industry, but not at the same time
C)Both can co-exist simultaneously
D)Both can co-exist at the same time, but not in the same industry segment or strategic group

Question 27

Rather than pursue game theory further this textbook emphasizes:

A)Factually accurate descriptive methods
B)Detailed econometric analysis of time series data
C)Exploiting a firm's uniqueness to establish sustainable competitive advantage
D)Analyzing the external environment (product, market, and structure of the industry) to formulate a winning strategy

Question 28

The point of establishing a rival's resources and capabilities is to:

A)To attack that rival's position by directing our initiatives towards their relative weaknesses
B)To match that rival's resources and capabilities
C)To know top managers and their personalities in-depth
D)To understand this rival's position better than they do

Question 29

If administering deterrence is costly or unpleasant for the threatening party, then:

A)It appears as not at all credible
B)It appears as extremely credible
C)It does not influence its power
D)It reinforces the power of the threatening party

Question 30

The level of a rival's current performance, in relation to its objectives:

A)Has no specific influence on any player's strategy
B)Determines the likelihood of the rival's strategy change
C)Determines the likelihood of a strategy change in your firm
D)Determines the likelihood of state intervention in the competitive game

Question 31

Game theory has become a valuable tool for strategic management. It allows strategists to:

A)Frame their decisions, to predict the outcome of competition, and to identify the optimal choice in relatively simple scenarios.
B)Frame their decision, to confirm their past predictions, and to predict their rivals' behaviors
C)Analyze the effect of reputation, of information, and of commitment
D)Ensure that they understand what each firm's top managers prefer

Question 32

To predict competitive behaviors, Porter suggests a four-step framework, where analysts sequentially identify:

A)The rival's current strategy, its objectives, then its assumptions about the industry, and finally its available resources and competencies
B)The rival's current strategy, its assumptions about the industry, then its available resources and competencies, and finally its weaknesses
C)The rival's assumptions about the industry, its available resources and competencies, then its objectives, and finally its competitive advantage
D)The rival's available resources and competencies, its objectives, then its competitive advantage, and finally its current strategy

Question 33

Competitive intelligence aims to:

A)Forecast competitors' behavior, predict rivals' reactions, and explore how their behavior may be positively influenced
B)Forecast rivals' behavior, predict their potential attacks, and respond to a firm's previous strategic initiatives
C)Explore how rivals' behavior could be positively influenced in the firm's interest, and signal the firm's strategic positions to its environment
D)Collect information about rivals in other countries and, especially, to forecast their attacks against the focal firm's domestic market

Question 34

Commitment involves:

A)Increased risk and better solutions for building successful strategies
B)Increased risk and measurement of rivals' determination before a competitive attack
C)Hard commitment for first movers or soft commitment for fast second movers
D)Increased risk and removal of some possible strategic options

Question 35

To aid strategic decision making competitive intelligence consists of:

A)Collecting and analyzing information about rivals, potential rivals, and suppliers
B)Collecting information about rivals from public and private sources
C)Collecting and analyzing information about rivals from public sources
D)Collecting information about rivals through official, unofficial and, if necessary, espionage sources

Question 36

In which of the following situations might game theory help a strategy analyst?

A)A duopoly with dozens of products and markets
B)An industry with a hundred competitors
C)Three firms with unlimited differentiation possibilities for their products
D)Three firms producing a single commodity with long investment lead times

Question 37

In which of the following situations might game theory help a firm's analyze its strategic options:

A)An oligopoly of two large and three small firms each making up to six products
B)A perfectly competitive industry
C)A monopoly attempting to bluff its regulator that its allowed profit rate should be increased or it will become financially unsustainable
D)Two rivals making a single product that is capable of unlimited differentiation

Question 38

Game theory shows that increases in output by one firm result in output reduction by the other. Therefore, under quantity adjustment, a hard commitment will:

A)Tend to have a positive effect on the committing firm's profitability
B)Tend to lead other firms to reduce their outputs
C)Answers a and b
D)None of the above

Question 39

Segmentation is a process through which:

A)One can assess the strengths and weaknesses of any firm in its market
B)Industries are divided into specific markets
C)Markets are divided into specific products
D)Product combinations are matched with buyers' tastes

Question 40

In a competitive intelligence exercise, the t aim is:

A)To maintain a strategic focus, not getting drawn into tactics
B)To obtain and analyze the most confidential data
C)To assess a rival's options objectively
D)To get inside a rival CEO's head & predict their firm's behavior

Question 41

Hyper-competition implies:

A)Rapid changes in industries and a general trend of concentration
B)Strong competition and high rate of start-up failure due to rapid change experienced by high-tech industries
C)No firm can ever achieve a competitive advantage
D)Strong competition and rapid changes in firms' competitive advantages

Question 42

The limitations of Porter's approach point to the need to:

A)Disaggregate broad industry groups and understand the determinants of competition more deeply
B)Determine the exact level of analysis in an industry
C)Stop attempting to forecast the future evolution of any industry
D)Increase competitive intelligence to collect more information on rivals

Question 43

Porter's original five forces model is least useful where:

A)There are no complementary goods
B)Switching costs vary over the purchase-ownership cycle
C)Structural change in an industry is rapid
D)Industry entry is practically impossible

Question 44

Schumpeter's process of "creative destruction" suggests that:

A)Hindu ideas of rebirth can easily be applied to business strategy and economics
B)Cooperation is more common in business than competition
C)Competitors' behavior determines an industry's structure rather than structure determining the competition
D)Competition is a good thing in the mature and declining stages of a product's life

Question 45

Hyper-competition describes markets characterized by frequent and rapid competitive moves, where advantages are continually eroded and must be continually recreated or rebuilt

Question 46

What is the difference between a substitute and a complement?

A)Substitutes reduce the value of a product, whereas complements increase value
B)Complements reduce the value of a product, whereas substitutes increase value
C)Complements cannot be used together, whereas substitutes can
D)Complements increase the average price of any of them, whereas substitutes do the opposite

Question 47

How does a producer of complementary products maximize its relative bargaining power?

A)It adopts a differentiation strategy that allows it to sell at a premium price
B)It adopts a cost strategy to provide its product at the lowest possible cost and so exploit economies of scale
C)It reduces the value contributed by the other producers through corporate PR, advertising and other communication media
D)It creates a differentiated market for its product and a commodity market for the complementary good

Question 48

How does industry structure actually affect industry profitability?

A)Industry structure is a major determinant of a firm's profitability
B)Industry structure has no impact at all on industry profitability
C)Industry structure and profitability are such closely entwined concepts that their effects cannot be separated
D)Industry structure usually has a small effect on a firm's profitability

Question 49

"Deterrence" can be defined as imposing costs on the other players for actions that we deem to be desirable

Question 50

Porter's five forces model of competition is too simple as originally conceived because it overlooks phenomena such as:

A)The relationships of substitution between products or services within one segment of the market
B)Competitors' strategies may shape the industry structure, rather than structure shaping competition
C)The complexity and stability of the competitive world where rivals' strategies affect each other
D)The different levels of industry analysis that the five forces model can be applied to

Question 51

The "prisoners dilemma" can be described as:

A)A situation where prisoners representing industry players exhibit behavior showing that collusion would improve the outcome
B)A situation where prisoners rat on each other and finally get out of jail
C)A situation where no one can obtain an optimal outcome because actors are playing 'blind' and can only ever reach "Nash equilibria"
D)An invention of business journalists to illustrate the fight between substitute product sellers

Question 52

How do producers of complementary products share the entire value extracted?

A)They try to share it on a fair basis according to which has contributed the most
B)They share according to their respective bargaining powers
C)They share according to their bargaining power and its deployment
D)They aggressively pursue a maximum appropriation of the total value, even at the expense of the other producers

Question 53

Joseph Schumpeter viewed competition as:

A)An unstable and dynamic field where more destruction exists than creation
B)A gale of creative destruction
C)A breeze of creative destruction
D)Inevitable, unless technology improves or progresses

Question 54

In simple situations, game theory allows us to better understand the competitive behavior of players and to predict the outcome of the competitive situation. It also contributes to identifying the optimal strategic choice

Question 55

In many business relationships, competition:

A)Results in an inferior outcome for the players, compared to cooperation
B)Results in a superior outcome for the players, compared to cooperation
C)Results in an outcome not statistically different, compared to cooperation
D)Is so different from cooperation that a comparison does not make sense

Question 56

Strategic group mapping is a very useful tool for identifying strategic niches within industries and the strategic positioning of rivals

Question 57

Is hyper-competition a common phenomenon across industries?

A)Empirical research shows that the answer is Yes
B)Empirical research shows that the answer is No
C)Empirical research remains inconclusive
D)We can all see evidence of the absence of the phenomenon

Question 58

Product range is generally not a pertinent dimension to map strategic groups because most firms within an industry are multi-product organizations

Question 59

Chapter 4 extends the analysis of industry and competition to address:

A)Rising competition, called "hyper-competition"
B)The limitations of Porter's model of competition
C)The growing power of "management gurus"
D)The complementarity between products

Question 60

In the business world competition and cooperation are exclusive

Question 61

The availability of ink cartridges for my printer illustrates the relationship of "complementarity" existing between these two products

Question 62

The Schumpeterian vision of competition (the Austrian school of economics) views industry structure as the outcome of competitive behavior and as a very static process in terms of rivalry

Question 63

Porter's five forces model is exempt from criticism, because it explains most of the variation in profitability across industries

Question 64

Dividing an industry or market into several segments is called 'segmentation"

Question 65

An industry is a homogeneous entity that cannot be disaggregated into sub-parts according to different dimensions

Question 66

The Schumpeterian vision of competition in industries (the Austrian school of economics) emphasizes innovation and entrepreneurship

Question 67

Competitive intelligence involves the systematic collection and analysis of public information about suppliers and customers to aid decision making

Question 68

When two products complement each other, profit accrues to the supplier that builds the stronger market position and reduces the value contributed by the other

Question 69

The industry environment accounts for a relatively small part of a firm's profitability

Question 70

Profit pool mapping is a technique that analyzes the vertical structure of an industry and describes the profitability or profit margin at each stage of that industry's value chain

Question 71

In the prisoners dilemma, the "Nash equilibrium" describes a situation where no player can increase his payoff by a unilateral change

Question 72

Ultimately, segmenting an industry boils down to assessing the characteristics of its customers and products

Question 73

Porter's five forces model offers a systematic approach to the analysis of competition which is, however, a highly simplified vision of industry competition

Question 74

After arriving in Mexico in 1519, the destruction by Hernan Cortes of his own ships was a signal, in game theory terminology, of "commitment" for his troops to the conquest of the Aztec empire

Question 75

A segmentation matrix allows you to present in one small table the sub-markets of an industry by type of customer or product

Question 76

The aim of competitive intelligence is to understand the way other players in the industry behave and to "get inside the heads of your rivals"

Question 77

A strategic group is a group of firms in an industry that are following the same or a similar strategy along strategic dimensions, serving the same strategic customer segment