Multiple choice questions – Porter’s 5 Force model
1. Porter's Five Forces framework is based on the principle of: Structure - conduct - performance
The fundamental principle that Porter implicitly believes in is that the structure of an industry
determines how organizations must conduct themselves and this determines the profits that are
possible in that industry. This view has been vigorously opposed by many theorists some of whom
represent the resource-based view of the firm.
2. In Porter's Five Forces, the 'threat of new entrants' relates to: Barriers to entry
This force can be seen from two points of view - from the outsider's view (barriers to entry) and
from those already in the industry (threat of new entrants).
3. Brandenburg and Nalebuff added a sixth force to Porter's Five Forces. It is known as:
Complementors
Brandenburg and Nalebuff's contention is that some industries rely on other industries for survival
such as the personal computer industry requiring adequate software to go inside. Also televisions
require the existence of acceptable programmes. Cinemas require the existence of films.
Complementors shouldn't be confused with substitutes.
4. 'Co-opetition' as suggested by Brandenburger and Nalebuff (1997) can be defined as:
Competitive behaviour that combines competition and cooperation
Competitive behaviour that combines competition and cooperation.
The theory is that companies can create a more valuable market overall if they cooperate with each
other rather than engage in competitive behaviour. They can then compete with each other for a
share of this more valuable market.
5. The 'positioning' approach to strategy holds the view that: Strategy is about how a firm position
itself in relation to the industry structure
Strategy is about how a firm position itself in relation to the industry structure. The positioning
approach was popular in the 1980s but has now declined in popularity due to the emergence of the
resource-based view of the firm.
6. Barriers to entry into an industry are likely to be high if: Requirement for economies of scale is
high.
If economies of scale are required to make a reasonable profit-margin it will be difficult to enter the
industry.
7. Buyer power is high if: Differentiation is low
If the product is standard or undifferentiated, buyers are more likely to exert pressure on price
because they can get the same product from alternative suppliers.
8. Supplier power will be high if: There is a threat of forward integration
When suppliers are able to acquire firms in the buyer's industry, it will reduce the profitability of the
buyer's industry.
9. A substitute product or service is: An alternative way of meeting the same need.
Firms need to consider whether other ways of meeting the same need are likely to be more
attractive to the customer. The substitute could come from an entirely different industry.
10. Competitive rivalry will be high if: There are a few strong players in the industry.
If there are a few strong players in an industry it will be difficult for a firm to make a move that goes
unnoticed.
11. Porter's Five Forces assumes a 'zero-sum game'. A 'zero-sum game' means: Firm A wins at the
expense of Firm B.
It is becoming increasingly common for firms within an industry to cooperate with each other thus
creating a 'win-win' situation.
12. An industry characterized by irregular patterns of stability, rapid technological change, high
uncertainty and global competition can be described as: Hypercompetitive.
Hyper-competition is a term coined by d'Aveni. In these conditions, deliberate strategies are perhaps
unrealistic because the environment is moving too fast. Strategy is more likely to be developed in an
opportunistic fashion.
13. The 'value-net' as developed by Brandenburger and Nalebuff (1996) can be defined as: The
relationship between organizations interacting in the same game.
The 'value-net' uses the idea of the Complementors to extend the usual rules of business. It uses
concepts from game theory.
14. A strategic group can be defined as: A group of firms in an industry following the same or a
similar strategy.
It should be assumed that a firm within one strategic group cannot move into another strategic
group. It depends on the mobility barriers between the groups.
15. Strategic group analysis involves mapping organizations using: Two variables appropriate to
the industry.
One of the problems with strategic group analysis is that judgment is involved when selecting the
two variables on which to map the firms. If inappropriate variables are chosen, it can give a false
picture. The mapping can also change according to the variables chosen.
