Ch3. Resources and Capabilities

Question 1

The trend over time has been to see sources of profit as lying mainly in the external environment rather than being located within firms.
a. true
b. false

Answer 1

b. false
p. 87

Question 2

In a world where customer preferences are volatile and the technologies for serving them are changing, a market-focussed strategy may not provide the stability and constancy needed to guide the company.
a. true
b. false

Answer 2

a. true
p. 87

Question 3

The Honda Motor Company has always defined itself as a supplier of motor vehicles.
a. true
b. false

Answer 3

b. false
p. 88

Question 4

The greater the rate of change in a firm’s external environment, the more likely it is that internal resources and capabilities will provide a secure foundation for long term strategy.
a. true
b. false

Answer 4

a. true
p. 88

Question 5

Resources are a firm’s productive assets; capabilities are what a firm can do.
a. true
b. false

Answer 5

a. true
p. 89

Question 6

Intangible resources are often more valuable than tangible resources in conferring competitive advantage.
a. true
b. false

Answer 6

a. true
p. 90-91

Question 7

The value of a brand is the confidence it instils in customers regarding the expected benefits associated with that brand.
a. true
b. false

Answer 7

a. true
p. 91

Question 8

Resources are ultimately more important than capabilities.
a. true
b. false

Answer 8

b. false
p. 93

Question 9

Human resources are always listed on a firm’s balance sheet.
a. true
b. false

Answer 9

b. false
p. 93

Question 10

The culture of an organization is a key intangible resource.
a. true
b. false

Answer 10

a. true
p. 93

Question 11

The term “organizational capability” refers to those things an organization does particularly well relative to its competitors.
a. true
b. false

Answer 11

b. false
p. 94

Question 12

A core competence makes a disproportionate contribution to ultimate customer value.
a. true
b. false

Answer 12

a. true
p. 94

Question 13

Individual products may succeed or fail: the key to success is learning from both successes and failures in order to build capability.
a. true
b. false

Answer 13

a. true
p. 95

Question 14

Value chain analysis identifies organizational capabilities in relation to each of the principal functional areas of the firm.
a. true
b. false

Answer 14

b. false
p. 95-96

Question 15

Value chain analysis separates the activities of the firm into a sequential chain and explores the linkages between activities.
a. true
b. false

Answer 15

a. true
p. 95-96

Question 16

Drawing up an inventory of an organization’s capabilities is straightforward.
a. true
b. false

Answer 16

b. false
p. 97-100

Question 17

Organizational routines are a critical element of organizational capabilities.
a. true
b. false

Answer 17

a. true
p. 97-100

Question 18

The employees of McDonald’s hamburger restaurants develop efficient work routines because the tasks they undertake are regular and predictable.
a. true
b. false

Answer 18

a. true
p. 97-100

Question 19

For a resource or capability to establish a competitive advantage, the resource or capability needs to be widely available and relevant to key success factors within the market.
a. true
b. false

Answer 19

b. false
p. 100-102

Question 20

Once established, competitive advantage tends to be sustained over time.
a. true
b. false

Answer 20

b. false
p. 100-102

Question 21

The internal environment:

a. Is the structure inside an industry
b. Has become less important as an explanation of firms’ profitability
c. focuses on the relationship between a firm’s resources and capabilities and its business strategy
d. focuses on industry attractiveness as a primary source of profit

Answer 21

c. focuses on the relationship between a firm’s resources and capabilities and its business strategy

Question 22

Prahalad and Hamel’s 1990 paper:

a. Summarized the main constraints of the external environment
b. Summarized the strategic positioning school’s point of view
c. Emphasized technological innovation as the as main source of “competitiveness”
d. Was one of the papers that popularised the modern resource-based view of the firm

Answer 22

d. Was one of the papers that popularised the modern resource-based view of the firm

Question 23

The resource-based view of the firm can be described as:

a. the outside-in approach
b. the inside-out approach
c. the positioning approach
d. the planning approach

Answer 23

b. the inside-out approach

Question 24

In fast changing environments:

a. A firm should focus on its oldest markets
b. A firm may define itself by its resources and capabilities
c. Both a and b
d. Neither a nor b

Answer 24

b. A firm may define itself by its resources and capabilities

Question 25

3M is:

a. A successful conglomerate comprising a group of unrelated businesses
b. A group of businesses linked by their use of glue-based technologies
c. A group of businesses with an outstanding ability to develop and market new Fast Moving Consumer Products
d. A group of businesses with a core capability to develop and launch new products using adhesives, thin-film coatings, and other technologies

Answer 25

d. A group of businesses with a core capability to develop and launch new products using adhesives, thin-film coatings, and other technologies

Question 26

In our discussion of the resource-based view of the firm, we categorise the resources of a firm as:

a. Human, Intangible and Tangible
b. Fixed, Variable and Human
c. Human, Fungible and Tangible
d. Physical, Financial, and Brand-related

Answer 26

a. Human, Intangible and Tangible

Question 27

When valuing a firm’s tangible resources:

a. We should take the historic cost book value
b. We must update historic cost assets to current cost (modern replacement cost) assets
c. We need to understand their potential for creating competitive advantage
d. We need to rely on the services of professional accountants

Answer 27

c. We need to understand their potential for creating competitive advantage

Question 28

Companies’ “book values” can be much less than their stock market valuations because:

a. Auditors tend to err on the conservative side
b. Accountants are generally required by accounting standards to ignore the value of brands and all other reputational assets
c. To be on the safe side accountants tend to undervalue brand values
d. Accountants and marketing experts have different methods of valuing brands

Answer 28

b. Accountants are generally required by accounting standards to ignore the value of brands and all other reputational assets

Question 29

Brand values are a:

a. Type of tangible resource
b. Type of intangible resource
c. Type of synergistic resource
d. Type of sustainable resource

Answer 29

b. Type of intangible resource

Question 30

‘Reputation’ in the context of an organization’s resources can provide competitive advantage because:

a. It is difficult to copy
b. It is based on word-of-mouth
c. it is essential for a firm to do business
d. it is easily destroyed by bad publicity

Answer 30

a. It is difficult to copy

Question 31

Human Resource capabilities:

a. Include the skills to train and develop people
b. generally constitute a firm’s greatest resources
c. Are the distinctive capability of most large organisations
d. Answer b and c

Answer 31

a. Include the skills to train and develop people

Question 32

Organizational culture is:

a. The way a firm is organized
b. A firm’s distinctive myths, rituals and symbols
c. A firm’s deeply held values, traditions and social norms
d. Answers b and c

Answer 32

d. Answers b and c

Question 33

Jay Barney in his 1986 paper argues that a strong organizational culture:

a. is rarely of strategic importance
b. is often associated with poor financial performance
c. often results in inflexibility and corporate rigidity
d. is potentially a very valuable strategic resource

Answer 33

d. is potentially a very valuable strategic resource

Question 34

A capability requires:

a. Many unique resources
b. Just one unique resource
c. No unique resources
d. Individuals to coordinate with each other, and some capital or technology, to achieve a valuable transformation to goods or services

Answer 34

d. Individuals to coordinate with each other, and some capital or technology, to achieve a valuable transformation to goods or services

Question 35

The difference between a capability and a competence is:

a. A competence is core to a firm’s operations
b. A capability is necessary to survive, but a competence is essential to thrive
c. A competence is necessary to survive, but a capability is essential to thrive
d. No difference in this textbook where they are taken as interchangeable

Answer 35

d. No difference in this textbook where they are taken as interchangeable
p. 94

Question 36

Threshold capabilities enable a firm to do what every firm in its industry must do. Distinctive or core competences:

a. Enable it to earn higher profits or greater market share than its competitors in the same industry
b. Are its unique selling point
c. Are those product features that stop non-customers from buying the product
d. Are captured in logos, trademarks etc.

Answer 36

a. Enable it to earn higher profits or greater market share than its competitors in the same industry

Question 37

Which of the following is typically viewed as a functional area of firm activity:

a. financial control
b. research and development
c. marketing
d. all of the above

Answer 37

d. all of the above

Question 38

Porter’s firm value chain is often used to:

a. Estimate the revenue the firm derives at each stage of a good’s production and distribution
b. Show the after-tax profit generated by each part of the firm
c. Show the pre-tax profit generated by each part of the firm
d. Map out a firm’s main activities into threshold and distinctive capabilities

Answer 38

d. Map out a firm’s main activities into threshold and distinctive capabilities

Question 39

40. When firms develop organizational routines they are:

a. Seeking to liven up boring production manuals
b. Learning by doing
c. In the mature stage of an industry’s life cycle
d. In the declining stage of an industry’s life cycle

Answer 39

b. Learning by doing

Question 40

Tight complex organizational routines:

a. Are based on unique corporate structures
b. Can be copied if rivals hire the right employees
c. Are hard for rivals to replicate
d. Answers a and c

Answer 40

c. Are hard for rivals to replicate

Question 41

The hierarchy of capabilities refers to:

a. How capabilities to do market research time-effectively and buy advertising cost-effectively, belong under marketing capabilities
b. How capabilities are made up of processes that use resources to achieve a desired result
c. How the CEO should have more capabilities than the CFO, the COO etc.
d. How core capabilities are more valuable than threshold capabilities

Answer 41

a. How capabilities to do market research time-effectively and buy advertising cost-effectively, belong under marketing capabilities

A hierarchy of capabilities is where more general, broadly defined capabilities are formed from the integration of more specialized capabilities.

Question 42

The creation of organizational capabilities:

a. is simply a matter of allowing routines to merge
b. requires conscious and systematic action by management
c. is a result of lucky coincidences
d. requires a stable environment

Answer 42

b. requires conscious and systematic action by management

Question 43

A capability that is “needed to play” is often referred to as:

a. A threshold resource
b. A unique resource
c. A threshold competence
d. A core competence

Answer 43

c. A threshold competence

Question 44

For a resource or capability to establish a competitive advantage two conditions must be present. These are:

a. The resource or capability must be widely available and relevant to the key success factors in the market
b. the resource or capability needs to be scarce and relevant to the key success factors in the market
c. The resource or capability must be central to operations and its strategic role well understood by all employees
d. The resource or capability must be central to operations and its strategic role appreciate by just a few members of the organization

Answer 44

b. the resource or capability needs to be scarce and relevant to the key success factors in the market

Question 45

Resources and capabilities can generate higher profits

a. If competition is fierce
b. If the competitive advantage they generate is sustained for some years
c. Only if governments allow firms to share resources
d. Only where cartels are effectively allowed

Answer 45

b. If the competitive advantage they generate is sustained for some years

Question 46

To stop rivals acquiring a core resource or capability:

a. Is foolish: a firm cannot stop its rivals from doing things they want to
b. Firms must make that resource or capability immobile
c. Firms have to rely on patent and copyright legislation
d. Everyone involved in this activity must be paid at a higher rate than that offered by rivals

Answer 46

b. Firms must make that resource or capability immobile

Question 47

Three characteristics of resources and capabilities determine the sustainability of the competitive advantage they offer:

a. durability, transferability and replicability
b. scarcity, relevance and property rights
c. property rights, relative bargaining power and embededness
d. None of the above

Answer 47

a. durability, transferability and replicability

Question 48

Superior capabilities are often traced to staff skills and efforts so:

a. the organization should, if possible, lock key staff in through their employment contracts
b. the organization needs to pay a good market rate to attract and retain top talent
c. it is important to have the right corporate culture and motivate staff
d. all of the above

Answer 48

d. all of the above

Question 49

Firms try to develop resources and capabilities to:

a. Maximize attractiveness to our customers
b. Create sustainable competitive advantage
c. Maximize current profit rates
d. Attract the best employees

Answer 49

b. Create sustainable competitive advantage

Question 50

We need to appraise our resources and capabilities against:

a. Our past record; we must continually improve
b. The best firms around the world, no matter in what country, market or industry
c. Our competitors’ resources and capabilities
d. The best that our competitors might attain in the future

Answer 50

c. Our competitors’ resources and capabilities

Question 51

Internal appraisal of a company’s capabilities against the best competitors:

a. Cannot be done; only external appraisal is valid
b. Can be done using discussion of past successes and failures
c. Can be done using external benchmarking
d. Answers b and c

Answer 51

d. Answers b and c

Question 52

The final appraisal of the strengths and weaknesses of a firm’s resources & capabilities:

a. Is a quantitative appraisal by an objective outside body
b. Requires an objective appraisal of the firm’s resources and capabilities
c. Requires artistic flair and creative questioning
d. Requires detailed knowledge of business strategy theory, and all its intellectual roots

Answer 52

b. Requires an objective appraisal of the firm’s resources and capabilities

Question 53

If a company has only a few key strengths this suggests the company should :

a. sell up and exit its existing business as soon as possible
b. adopt a niche strategy
c. move into new unrelated product markets
d. recruit a more dynamic management team

Answer 53

b. adopt a niche strategy

Question 54

Outsourcing to specialists can help a firm:

a. Reduce unnecessary costs
b. Increase control over a key production process
c. Reduce a relative weakness in its capabilities
d. Improve launch times for new products

Answer 54

c. Reduce a relative weakness in its capabilities

Question 55

Harley-Davidson retained its competitiveness in the motorcycle market by:

a. investing heavily in new technology
b. introducing a broad range of motorcycles targeted at different customer segments
c. making a virtue out of its traditional designs
d. by outsourcing much of its production process

Answer 55

c. making a virtue out of its traditional designs

Question 56

In appraising resources and capabilities we need to acknowledge the important role that industry context plays. In general it is best to define the industry context:

a. very narrowly
b. relatively broadly
c. on the basis of the firm’s existing strategy
d. on the basis of the firm’s likely future strategy

Answer 56

b. relatively broadly

Question 57

The management systems of most firms:

a. pay more attention to the physical and financial assets on their balance sheets than to their intangible and human resources
b. pay more attention to intangible and human resources than to the physical and financial resources on their balance sheet
c. provide detailed and up-to-date information on the firm’s resources and capabilities
d. provide an easy way of identifying key resources and capabilities

Answer 57

a. pay more attention to the physical and financial assets on their balance sheets than to their intangible and human resources

Question 58

Developing the strategic implications of the resource-based view of the firm, requires the firm to:

a. identify its strengths and assess how these can be exploited more fully
b. identify its weaknesses and
consider whether it can outsource activities that can be performed better by other organizations
c. identify its weaknesses and assess whether these can be corrected by acquiring new resources and capabilities
d. all of the above

Answer 58

d. all of the above