Chapter Three: The Diamond-E Framework

Multiple Choice

MC 3-1 The Diamond-E model is a framework for

a. financial assessment
b. market evaluation
c. product decisions
d. strategic analysis

Answer: d
Difficulty: easy
Page: 48

MC 3-2 Three key components of the Diamond-E model are

a. product/market focus, corporate goals, and strategy
b. organization, strategy, and environment
c. financial resources, management preferences, and the product/market focus
d. corporate goals, internal strengths, and external threats

Answer: b
Difficulty: easy
Page: 49

MC 3-3 A viable strategy needs to be aligned with the

a. financial resources of the firm
b. organization's internal capabilities
c. priorities of the shareholders
d. organization's current market position

Answer: b
Difficulty: easy
Page: 49

MC 3-4 Opportunities for the organization are found in its

a. financial statements
b. external environment
c. internal capabilities
d. the value chain activities

Answer: b
Difficulty: easy
Page: 49

Copyright © 2016 Pearson Canada Inc. 1

MC 3-5 The underlying logic of the Diamond-E model is consistency, meaning the
a. financial resources of the firm are matched with the priorities of the shareholders
b. strategy is in keeping with the priorities of suppliers
c. strategy is consistent with the internal and external environment
d. financial resources of the firm are matched with its strengths

Answer: c
Difficulty: moderate
Page: 49

MC 3-6 Environmental risks typically arise because the

a. management misread the situation or failed to adapt to changing circumstances
b. organization was incapable of responding to the situation or its response was inadequate
c. management took too long to respond to the situation
d. organization lacked the required resources to respond to the situation

Answer: a
Difficulty: moderate
Page: 51

MC 3-7 Environmental risks typically arise from inconsistencies between

a. strategy and the sustainability of the organization
b. the financial resources of the organization and its strengths
c. strategy and external opportunities and challenges
d. the financial resources of the organization and its technology assets

Answer: c
Difficulty: challenging
Page: 51

MC 3-8 Capability risks typically arise from inconsistencies between

a. strategy and the sustainability of the organization
b. the financial resources of the organization and its strengths
c. strategy and internal competencies of the organization
d. the financial resources of the organization and its culture

Answer: c
Difficulty: moderate
Page: 51

MC 3-9 When evaluating a strategic proposal, an important consideration is the implications for
the organization's
a. employees
b. suppliers
c. contractors
d. current strategy

Copyright © 2016 Pearson Canada Inc. 2

Answer: d
Difficulty: easy
Page: 53

MC 3-10 The strategy-environment linkage aligns

a. strategy with the regulatory environment in which the organization operates
b. strategic opportunities and challenges with external forces
c. strategy with the financial environment of the organization
d. strategic opportunities and challenges with the internal environment

Answer: b
Difficulty: moderate
Page: 53

MC 3-11 A technique known as a gap analysis is used to evaluate the

a. strategy-resources linkage
b. resources-organization linkage
c. strategy-management preferences linkage
d. resources-environment linkage

Answer: a
Difficulty: easy
Page: 54

MC 3-12 The strategic preferences of the management team need to be considered to

a. avoid conflict
b. develop an appropriate strategy
c. counter environmental threats
d. leverage internal capabilities

Answer: b
Difficulty: moderate
Page: 54

MC 3-13 An organization's capabilities are influenced by its

a. financial resources and employee development program
b. leadership and the priorities of the Board of Directors
c. structure and management processes
d. culture and corporate governance

Answer: c
Difficulty: easy
Page: 55

Copyright © 2016 Pearson Canada Inc. 3

MC 3-14 Strategic tension refers to the constraints that exist between what an organization
a. has done in the past and what it could do in the future
b. could do and how the management team wants to proceed
c. should do and its product/market focus
d. should do and what it can do

Answer: d
Difficulty: moderate
Page: 56

MC 3-15 The organization's external environment suggests what the organization

a. needs to do given the competitive landscape
b. has the capabilities to competently execute
c. should have done in the past
d. should implement immediately

Answer: a
Difficulty: easy
Page: 56

MC 3-16 Strategic reviews are typically undertaken

a. as part of the annual financial audit
b. every December 31
c. in preparation for filing the corporate tax return
d. on a periodic basis, such as once a year

Answer: d
Difficulty: moderate
Page: 57

MC 3-17 Organizations that engage in informal strategic reviews on an on-going basis are
a. concerned about their organization's financial stability
b. having misgivings about their organization's strategic direction
c. in a position to respond in a timely manner to strategic possibilities
d. following the lead of their major competitors

Answer: c
Difficulty: moderate
Page: 57

MC 3-18 The first step in the process of strategic analysis is to

a. develop a set of mutually exclusive options
b. establish the need for action
c. evaluate the competitive environment
d. undertake a gap analysis

Copyright © 2016 Pearson Canada Inc. 4

Answer: b
Difficulty: easy
Page: 57

MC 3-19 One of the key activities associated with the development of the base case is a careful
analysis of the
a. capabilities of the management team
b. priorities of the Board of Directors
c. strengths of the organization's major competitors
d. current performance of the organization

Answer: d
Difficulty: moderate
Page: 57

MC 3-20 One approach that can be used to evaluate the performance of the organization is to
a. forecast future performance based on the current strategy
b. measure performance against the level of competition in the industry
c. compare the budget forecast to actual expenditures for the current period
d. measure performance against an external standard

Answer: d
Difficulty: moderate
Page: 58

MC 3-21 If organizational performance is not in keeping with expectations, the recommended

strategic approach is to
a. check vulnerabilities
b. develop new core competencies
c. introduce cost cutting measures
d. problem solve and undertake remedial action

Answer: d
Difficulty: moderate
Page: 58

MC 3-22 One of the key activities associated with the strategy formulation stage of strategic
analysis is to
a. generate strategic proposals
b. assess past performance
c. forecast future performance based on current strategy
d. establish need for change

Answer: a
Difficulty: easy
Page: 59

Copyright © 2016 Pearson Canada Inc. 5

MC 3-23 When reviewing an organization's strategic proposals, one of the considerations should
be the
a. uniqueness of the proposals
b. cost of retraining the workforce
c. regulatory reporting requirements
d. level of risk given the nature of the opportunity

Answer: d
Difficulty: moderate
Page: 60

MC 3-24 Hidden assets can be identified from the

a. organization's financial statements
b. minutes of the Board of Directors' meetings
c. organization's internal capabilities
d. organization's external analysis

Answer: c
Difficulty: moderate
Page: 61

MC 3-25 Good strategies sometimes fail because the

a. competition moved ahead
b. industry outlook was negative
c. government called an election
d. implementation was challenging

Answer: d
Difficulty: moderate
Page: 61

MC 3-26 The second step in the process of strategic analysis is to

a. develop and evaluate proposals to address business opportunities and challenges
b. assess past performance
c. forecast future performance under current strategy
d. move to build commitment and develop required capabilities

Answer: a
Difficulty: moderate
Page: 57

MC 3-27 The third step in the process of strategic analysis is to

a. forecast future performance under current strategy
b. use the Diamond-E framework to shape and short-list proposals
c. prepare performance forecasts for short-listed proposals
d. commit, implement and review

Copyright © 2016 Pearson Canada Inc. 6

Answer: d
Difficulty: easy
Page: 57

MC 3-28 When a firm satisfies key stakeholder interests at the expense of not delivering exactly
what the market needs, the firm is most likely guided by
a. what the firm “needs” to do
b. what the firm’s capabilities “can” do
c. what the firm’s management preference “wants” to do
d. what the firm’s belief in what it “should” do

Answer: c
Difficulty: challenging
Page: 56

MC 3-29 Kodak procrastinating for years before deciding to enter the market for digital
photography is an example of
a. inconsistencies with strategy and resources
b. inconsistencies between strategy and environment
c. inconsistencies with strategy and capabilities
d. inconsistencies between current and proposed strategies

Answer: b
Difficulty: challenging
Page: 51

MC 3-30 Management roll-out of a new comprehensive compensation scheme is likely addressing

a. short-term environmental risks
b. long-term environmental risks
c. short-term capability risks
d. long-term capability risks

Answer: d
Difficulty: moderate
Page: 51

True/False

TF 3-31 Strategy describes the opportunities the business is pursuing in the marketplace.

Answer: t
Difficulty: 49
Page: easy

TF 3-32 Managerial preferences influence resource developing indirectly.

Copyright © 2016 Pearson Canada Inc. 7

Answer: t
Difficulty: moderate
Page: 49

TF 3-33 A viable strategy is one that is consistent with the realities of the internal and external
environment.

Answer: t
Difficulty: moderate
Page: 50

TF 3-34 Once a strategy has been established it seldom needs to be changed.

Answer: f
Difficulty: moderate
Page: 49-50

TF 3-35 Changes in the external environment can cause a strategy to become obsolete in the
short term.

Answer: f
Difficulty: easy
Page: 50-51

TF 3-36 Failure to develop internal capabilities in the long term can limit the success of the
strategic initiative.

Answer: t
Difficulty: moderate
Page: 51

TF 3-37 A short-run environmental risk is a strategy that demands too much of an

organization.

Answer: f
Difficulty: moderate
Page: 51-52

TF 3-38 Industry profits are a good indicator of environmental risks.

Answer: t
Difficulty: moderate
Page: 51-52

TF 3-39 Complacency can cause an organization's internal capabilities to erode over time.

Copyright © 2016 Pearson Canada Inc. 8

Answer: t
Difficulty: moderate
Page: 51-52

TF 3-40 Strategy tends to emerge from a series of discrete decisions made over time.

Answer: t
Difficulty: easy
Page: 51-52

TF 3-41 One of the outcomes of the environmental assessment is an identification of the

strengths of the organization.

Answer: f
Difficulty: moderate
Page: 53

TF 3-42 The implication of changes in the external environment is an important factor when
assessing the strategy-resources linkage.

Answer: f
Difficulty: moderate
Page: 54

TF 3-43 A gap analysis identifies missing resource requirements.

Answer: t
Difficulty: easy
Page: 54

TF 3-44 Managerial preferences can be a strategic constraint.

Answer: t
Difficulty: moderate
Page: 54

TF 3-45 If the strategy-organization linkage is flawed, then the organizational structure may
need to be changed.

Answer: t
Difficulty: moderate
Page: 55

TF 3-46 Culture is a critical variable when it comes to developing organizational capabilities.

Answer: t

Copyright © 2016 Pearson Canada Inc. 9

Difficulty: moderate
Page: 55

TF 3-47 One of the challenges faced by the management team when developing strategy is to
determine what the organization can do versus what it is capable of doing.

Answer: t
Difficulty: 56
Page: easy

TF 3-48 The process of strategic analysis should be part of the everyday agenda of the
management team.

Answer: t
Difficulty: easy
Page: 56-57

TF 3-49 The base case forecasts organizational performance for the most conservative of the
strategic proposals under consideration.

Answer: f
Difficulty: moderate
Page: 57

TF 3-50 A comparison of the firm's performance relative to its competitors can identify areas
of strength as well as vulnerabilities.

Answer: t
Difficulty: challenging
Page: 57-58

TF 3-51 Not all businesses have a strategy, so the management team may have to create one to
begin the strategic analysis process.

Answer: f
Difficulty: moderate
Page: 58

TF 3-52 The Diamond-E model is used primarily for developing new strategic initiatives.

Answer: f
Difficulty: moderate
Page: 58-59

TF 3-53 An analysis of implementation issues should inform the formulation of strategy.

Answer: t
Difficulty: moderate

Copyright © 2016 Pearson Canada Inc. 10

Page: 59

TF 3-54 Once the strategic proposals have been evaluated, the next step is implementation.

Answer: f
Difficulty: easy
Page: 59

TF 3-55 The Diamond-E model provides an effective means for formulating a new strategy.

Answer: f
Difficulty: challenging
Page: 59

Copyright © 2016 Pearson Canada Inc. 11