External Analysis: Quiz :Business Strategy (Strategic Leadership and Management Specialization) Answers 2025

Question 1

What does the “P” in the PESTEL framework stand for?

❌ Psychology
✅ Political
❌ Psycho-social
❌ Public

Explanation:
In PESTEL, P = Political, referring to government policies, regulations, taxation, and political stability that affect businesses.

Question 2

When assessing the overall effect on industry profitability of the five forces in Porter’s framework, one should follow which approach?

❌ Calculate and focus on the average effect of all the forces
✅ Focus mostly on the pivotal force, which is the greatest source of competition in the industry
❌ Ignore the assessment of each of the forces
❌ Use the PESTEL framework to understand how the five forces will affect profitability

Explanation:
While all forces matter, the strongest (pivotal) force usually dominates industry profitability, so it deserves the most attention.

Question 3

Which of the following industries is historically among the most profitable in the U.S.?

❌ Aircraft, guided missiles, and parts
❌ Airline services
❌ Iron and steel
✅ Pharmaceutical drugs

Explanation:
The pharmaceutical industry has historically shown high profitability due to patents, high entry barriers, and pricing power.

Question 4

In which scenario are entry barriers low so that new firms will likely enter an industry?

❌ Existing firms are strong and retaliate
✅ Capital requirements in the industry are low
❌ The industry has strong learning curve economies
❌ Access to critical raw materials is limited

Explanation:
Low capital requirements reduce barriers to entry, making it easier for new firms to enter an industry.

Question 5

PESTEL is a strategic framework used to analyze the industry environment of a company.

❌ True
✅ False

Explanation:
PESTEL analyzes the macro-environment, not the industry environment (which is analyzed using Porter’s Five Forces).

Question 6

Complements, which were not originally included in Porter’s 5 forces, are conceptually the opposite of substitutes.

❌ False
✅ True

Explanation:
Substitutes reduce value by replacing a product, while complements increase value when used together (e.g., smartphones and apps).

Question 7

The presence of close substitute products in an adjacent industry tends to increase the profitability of an industry.

❌ False
❌ True

Explanation:
Close substitutes reduce pricing power and profitability by giving customers alternative options.

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