T9

Question 1

Resource-Based View (RBV)

Answer 1

A perspective that argues a company’s resources must be valuable, rare, and well-managed to provide a competitive advantage.

Question 2

Technical Consultant

Answer 2

A consultant with deep knowledge in a specific discipline (e.g., engineering or information technology), providing specialized expertise to improve product quality or processes.

Question 3

Management Consultant

Answer 3

A consultant who provides expertise in general areas such as strategy, operations, and organizational management to improve overall performance.

Question 4

Best Practices

Answer 4

A set of standardized work activities shown through experience and research to consistently lead to optimal outcomes.

Question 5

Extremeness of Product Quality

Answer 5

The likelihood that a product will exhibit either exceptionally low or exceptionally high quality, affected by the use of consultants.

Question 6

Why are technical consultants described as a double-edged sword in Barthélemy’s study?

Answer 6

Technical consultants reduce the risk of low-quality outcomes but also limit the potential for exceptionally high-quality products due to their reliance on generalized best practices.

Question 7

When are technical consultants most valuable?

Answer 7

Technical consultants are most valuable when the client’s resource quality is low, as their best practices have more room to improve the product.

Question 8

How do consultants impact high-quality products?

Answer 8

For high-quality products, consultants have less impact since the internal knowledge already leads to high performance, making their standardized methods less valuable.

Question 9

How does the uniqueness of internal knowledge compare to the use of best practices by consultants?

Answer 9

Internal knowledge is often more unique and can lead to exceptional outcomes, whereas best practices, while reducing risks, tend to be more generalized and less likely to result in extraordinary success.

Question 10

What industry does Barthélemy’s study focus on to assess the impact of technical consultants?

Answer 10

The Bordeaux wine industry, where winemaking consultants are hired to improve product quality by applying best practices.

Question 11

What is the overall effect of hiring technical consultants on product quality?

Answer 11

Hiring technical consultants generally improves product quality by reducing the chances of poor outcomes, but it also reduces the likelihood of exceptional product quality due to their reliance on less unique knowledge.

Question 12

Signaling Theory

Answer 12

A theory that explains how one party (with more information) signals its intentions or quality to another party (with less information) to influence their perceptions and decisions.

Question 13

Stock Market Reaction

Answer 13

The response of investors, reflected in changes to stock prices, to news or announcements about a company, such as hiring consultants.

Question 14

How does the stock market typically react to a company announcing the hiring of management consultants?

Answer 14

The stock market generally reacts positively, especially when the hiring firm has a history of strong financial performance.

Question 15

Why is a company’s financial health an important signal for investors when hiring consultants?

Answer 15

Investors view strong financial performance as a positive signal, indicating that hiring consultants is likely to enhance the company’s future success.

Question 16

How does the brand-name reputation of the management consulting firm affect stock market reactions?

Answer 16

Surprisingly, the reputation of the consulting firm has little impact on stock market reactions, with investors focusing more on the client’s financial health than the consultant’s brand.

Question 17

Client’s Financial Performance

Answer 17

The level of profitability and financial health of a company, which influences how positively the stock market reacts to their decision to hire management consultants.

Question 18

Management Consultant’s Brand-Name Reputation

Answer 18

The perceived prestige and credibility of a consulting firm in the industry, expected to signal quality to investors but found to have limited impact on stock market reactions.

Question 19

How do investors perceive the hiring of consultants by financially strong companies?

Answer 19

Investors generally perceive it as a positive move, expecting that the consultants will help sustain or enhance the company’s performance.

Question 20

How do investors react when struggling companies hire consultants?

Answer 20

Investors may view it as a distress signal, interpreting the hiring as a sign that the company is in trouble, leading to a less positive or even negative reaction.

Question 21

Does hiring a prestigious management consultancy enhance a company’s legitimacy in the eyes of investors?

Answer 21

No, the study found that hiring a prestigious consulting firm does not significantly impact a company’s legitimacy or certification in the eyes of the stock market.

Question 22

What factor primarily influences whether investors view hiring consultants as beneficial?

Answer 22

The client company’s current financial health is the primary factor, as investors expect financially healthy firms to benefit more from consultants’ advice.

Question 23

How does advice-seeking behavior influence investor perceptions?

Answer 23

Investors see advice-seeking from consultants as a potentially positive move when done by financially strong firms, but they may interpret it as a weakness in companies with poor performance.

Question 24

Why might hiring consultants be less beneficial for struggling companies?

Answer 24

Investors may see it as a desperate move, and struggling companies may face difficulties implementing consultant recommendations effectively, limiting the positive impact.

Question 25

What do these studies suggest about the overall value of hiring consultants?

Answer 25

Consultants can add value by improving performance or avoiding poor outcomes, but their impact depends on the client’s existing resource quality or financial health.

Question 26

How do technical consultants help manage risks?

Answer 26

By applying best practices, technical consultants help reduce the risk of low-quality outcomes, ensuring consistent performance.

Question 27

What might investors think when financially weak companies hire consultants?

Answer 27

Investors might view it as a distress signal, interpreting the decision as a sign that the company is facing significant challenges.

Question 28

What is one implication for financially struggling firms considering hiring consultants?

Answer 28

Struggling firms may need to carefully consider the timing and public announcement of hiring consultants, as it could lead to negative perceptions among investors.

Question 29

How do high-quality resources affect the impact of consultants?

Answer 29

Consultants have a lesser impact on firms with high-quality resources, as these firms are already likely to perform well due to their internal capabilities.

Question 30

How does the use of general knowledge from consultants compare to internally developed unique knowledge?

Answer 30

General knowledge (best practices) tends to standardize outcomes, reducing the chance of failure but also limiting the potential for extraordinary success compared to unique internal knowledge.

Question 31

Why is internally generated knowledge important for exceptional outcomes?

Answer 31

Internally generated knowledge is often more unique and tailored to the organization, allowing for potentially higher-quality outcomes compared to generalized best practices.

Question 32

Why is the client firm’s financial performance a key factor in stock market reactions to consultant hiring?

Answer 32

Investors are more confident in firms with strong financial health, believing they will effectively leverage consultants’ advice to enhance future performance.

Question 33

What overall trend did Bergh & Gibbons observe in stock market reactions to consultant announcements?

Answer 33

The stock market generally reacts positively to the hiring of consultants, especially when the hiring firm has a history of strong financial performance.

Question 34

How do consultants contribute to consistency in product quality or performance?

Answer 34

By implementing best practices, consultants help ensure more predictable and reliable outcomes, reducing variability in product quality or firm performance.

Question 35

How do technical consultants affect a company’s ability to innovate?

Answer 35

Technical consultants may limit innovation by standardizing processes and relying on general knowledge, reducing the potential for unique, groundbreaking solutions.

Question 36

How do consultants influence the quality of terroir wines in the Bordeaux industry?

Answer 36

Consultants improve consistency in wine quality, but the highest-quality wines often come from internal expertise rather than reliance on external consultants.

Question 37

Why do financially strong companies benefit more from consultants?

Answer 37

These companies are more capable of implementing and benefiting from consultants’ advice, leading to enhanced performance and positive stock market reactions.

Question 38

How do technical consultants add value to firms with low-quality resources?

Answer 38

These firms benefit most from consultants because there is more room for improvement, and best practices can significantly raise their product quality.

Question 39

What is a key limitation of relying on technical consultants?

Answer 39

While they improve consistency, consultants may prevent firms from achieving extraordinary outcomes due to the standardized nature of best practices.

Question 40

How do technical consultants impact a company’s competitive advantage?

Answer 40

Consultants help firms maintain a competitive edge by improving consistency and reducing failure risk, but they may not significantly enhance a firm’s ability to achieve unique, market-leading innovations.