CA Inter P6 · Chapter 12
Strategic Analysis: Internal Environment MCQs with Answers
10 multiple-choice questions on Strategic Analysis: Internal Environment for CA Inter P6 Financial Management and Strategic Management. Try each one before revealing the answer and explanation.
Practise this chapter interactivelyQuestion 1
According to Prahalad and Hamel, a capability qualifies as a core competence if it passes three tests. These are that it:
- A) Is owned by the chief executive, is recorded in the balance sheet and can be sold separately
- B) Gives access to a wide variety of markets, contributes significantly to the benefits customers perceive in the end product, and is difficult for competitors to imitate
- C) Is common to all firms in the industry, is easy to copy and requires little investment
- D) Gives the lowest cost, the highest price and the largest market share
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Answer: B) Gives access to a wide variety of markets, contributes significantly to the benefits customers perceive in the end product, and is difficult for competitors to imitate
Prahalad and Hamel's three tests are market extendibility (access to many markets), customer value (a real contribution to perceived customer benefit) and inimitability (hard to copy). A capability shared by all firms or easily copied is a threshold capability, not a core competence.
Question 2
Under the four criteria used to identify capabilities that are core competencies (and a source of sustainable competitive advantage), a capability qualifies when it is:
- A) Valuable and rare but easy for rivals to imitate
- B) Rare but not valuable to customers
- C) Valuable, rare, costly to imitate and non-substitutable
- D) Valuable but possessed by most competitors
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Answer: C) Valuable, rare, costly to imitate and non-substitutable
Capabilities that are valuable, rare, costly to imitate and non-substitutable are core competencies. A valuable capability that many rivals possess gives no advantage to any one of them. A capability that is easy to imitate or has a strategic equivalent cannot sustain an advantage. All four criteria must be met.
Question 3
According to Michael Porter's generic strategies, a firm that produces standardised products at a very low per-unit cost for price-sensitive buyers across a broad market is following:
- A) Cost leadership strategy
- B) Focused differentiation strategy
- C) Differentiation strategy
- D) Best-cost provider strategy
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Answer: A) Cost leadership strategy
Cost leadership aims at the broad mass market and emphasises producing standardised products at a very low per-unit cost for price-sensitive consumers, through economies of scale, efficiency and tight cost control. Differentiation targets price-insensitive buyers with unique products, focus strategies serve a narrow segment, and best-cost provider combines low cost with upscale features.
Question 4
Under Mendelow's matrix, a regulator that has high power to influence an organisation but normally shows little interest in its day-to-day strategy should be:
- A) Managed closely as a key player
- B) Kept informed
- C) Treated as low priority and only monitored
- D) Kept satisfied
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Answer: D) Kept satisfied
Mendelow's matrix groups stakeholders by power and interest. High power, low interest stakeholders such as banks and government bodies should be kept satisfied. High power, high interest stakeholders are key players to be managed closely. Low power, high interest stakeholders are kept informed, and low power, low interest stakeholders are low priority and only monitored. Positions can change, for example if a regulation is breached.
Question 5
Which of the following is an intangible resource of a firm?
- A) Cash and bank balances
- B) Brand reputation and customer goodwill
- C) Factory land and buildings
- D) Inventory of raw materials
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Answer: B) Brand reputation and customer goodwill
Resources may be tangible (physical and financial assets such as land, plant, cash and inventory) or intangible (such as reputation, brands, patents, know-how and organisational culture). Intangible resources are often harder to imitate and are therefore more likely to be a source of lasting advantage.
Question 6
The distinction between a firm's resources and its capabilities is best expressed as:
- A) Resources belong to employees, while capabilities belong to shareholders
- B) There is no difference; the two terms mean the same
- C) Resources are intangible, while capabilities are always tangible
- D) Resources are the assets the firm owns or controls, while capabilities are its ability to combine and use those resources effectively
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Answer: D) Resources are the assets the firm owns or controls, while capabilities are its ability to combine and use those resources effectively
Resources are inputs such as plant, finance, people, brands and technology. Capabilities refer to the firm's capacity to deploy and coordinate these resources through its processes and routines to achieve a desired result. Two firms with similar resources may perform very differently because of differences in capability.
Question 7
In a SWOT analysis, which elements relate to the internal environment of the organisation?
- A) Strengths and opportunities
- B) Opportunities and threats
- C) Strengths and weaknesses
- D) Weaknesses and threats
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Answer: C) Strengths and weaknesses
SWOT combines an internal appraisal (strengths and weaknesses, which the organisation can control) with an external appraisal (opportunities and threats arising in the environment). Combining the two helps match the firm's capabilities to its environment.
Question 8
Kalpa Hotels runs a small chain of luxury wellness resorts serving only high-income, health-conscious travellers, offering unique Ayurvedic treatments at premium prices. Under Michael Porter's generic strategies, its strategy is best described as:
- A) Cost leadership
- B) Focused differentiation
- C) Broad differentiation
- D) Focused cost leadership
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Answer: B) Focused differentiation
Kalpa targets a narrow buyer segment (high-income, health-conscious travellers) rather than the whole market, so it follows a focus strategy. Within that niche it competes through unique features at premium prices rather than low cost, so the strategy is focused differentiation. Broad differentiation would target the mass market.
Question 9
Velo Mobiles sells smartphones whose features and quality are comparable to those of premium brands, but at noticeably lower prices than rivals offering similar quality, aiming at value-conscious buyers. Its competitive strategy is best described as:
- A) Best-cost provider strategy
- B) Cost leadership strategy
- C) Focused differentiation strategy
- D) Broad differentiation strategy
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Answer: A) Best-cost provider strategy
A best-cost provider gives customers more value for money by combining low cost with upscale features: it offers products of comparable quality and features at a lower price than rivals, or much better quality at a similar price. A cost leader sells standardised, basic products at the lowest cost. A differentiator charges a premium for unique features.
Question 10
Which statement about competitive advantage is correct?
- A) Competitive advantage is sustainable only if competitors cannot easily copy or neutralise it over a long period
- B) Competitive advantage arises only from having lower costs
- C) A firm can have a competitive advantage only in a monopoly market
- D) Any advantage, once gained, lasts indefinitely
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Answer: A) Competitive advantage is sustainable only if competitors cannot easily copy or neutralise it over a long period
A firm has a competitive advantage when it creates more value for customers than rivals, whether through lower cost or differentiation. The advantage becomes sustainable only when it rests on resources and capabilities that are hard to imitate or substitute. Most advantages wear away as competitors respond.