Risk and Insurance Management Society (RIMS) Certified Risk Management Professional (CRMP) Practice Exam

What strategy tool is used to assess internal firm activities for competitive advantage?

1. Value creation analysis

2. Market analysis

3. Value chain analysis

4. Competitor analysis

The correct answer is: Value chain analysis

Value chain analysis is the strategy tool utilized to assess internal firm activities with the aim of identifying opportunities for gaining competitive advantage. This technique involves examining a company's internal processes, from raw materials sourcing to the final delivery of products or services. By breaking down these activities into primary and support processes, a management professional can determine which parts of the operation contribute to value creation and which may be sources of inefficiency or cost. This kind of analysis allows firms to pinpoint areas where they can enhance performance, reduce costs, or differentiate themselves from competitors. By optimizing each segment of the value chain, a company can improve its overall competitiveness in the market. The other strategy tools mentioned, while valuable in their own contexts, do not focus specifically on internal activities in the same way. Market analysis pertains to understanding the external market environment, including customer needs and industry trends. Competitor analysis focuses on assessing competitors' strengths and weaknesses rather than evaluating a firm's own internal processes. Value creation analysis, while relevant, is a broader concept that does not specifically examine the functioning of the firm’s internal processes as systematically as value chain analysis does.