Deck 5: Analyzing Resources and Capabilities

Question 1

A strong brand is unlikely to be a source of sustainable competitive advantage since brands lack durability and can be purchased or created through advertising and promotion.

Answer 1

False

Question 2

In general,higher level capabilities that involve cross-functional integration are the more strategically important because they are more difficult for rivals to replicate.

Answer 2

True

Question 3

The profits arising from market power are called monopoly rents,whereas those arising from superior resources are Ricardian rents

Answer 3

True

Question 4

The ability of established firms to reconfigure their resources and capabilities around new technologies means that,typically,disruptive technologies are pioneered by established rather than new firms.

Question 5

For a resource or capability to be a source of competitive advantage,two conditions must be present: scarcity and relevance

Question 6

The trend among companies to "hire for attitude; train for skills" is the result of research identifying that the importance of psychological and social aptitudes in determining superior work performance.

Question 7

"Organizational capability" and "organizational competence" refer to two concepts which,although related,are different.

Question 8

According to Prahalad and Hamel,a company's core competences are those capabilities that are fundamental to its strategy ad to its performance.

Question 9

The "resource-based view" emphasized that a firm's strategy needs to be environmental sustainable.

Question 10

The key lesson from the failure of Eastman Kodak is the difficulty of maintaining focus on a particular customer need when the technology needed to satisfy that need changes radically.

Question 11

The more stable is a firm's external environment,the more likely it is that the firm's resources and capabilities will offer a more stable foundation for strategy than focusing upon its product market,or the needs of its customers.

Question 12

The analysis of resources and capabilities is a valuable tool of strategy analysis for business enterprises; it is less applicable to not-for-profit organizations.

Question 13

Corporate balance sheets do not include human resources (since these are not owned by the firm),apart from this major exception,balance sheets offer a comprehensive picture of a firm's resources.

Question 14

Organizational capabilities are based upon an organization's processes and routines.

Question 15

Porter's value chain is useful tool for understanding the sequence of activities that a firm performs but is of limited value in mapping a firm's resources and capabilities.

Question 16

A key feature of efficient and reliable processes is that a firm has been able to perform them routinely.However,routinizing a process does not necessarily make it a distinctive capability.

Question 17

Companies with the highest ratios of market value to book value tend to be those,either with valuable brands or valuable proprietary technologies.

Question 18

One indicator of the value of a firm's intangible resources is the difference between its market capitalization and the fair value of its tangible assets.

Question 19

David's victory of over Goliath (as portrayed in The Bible)demonstrates the importance of aligning strategy with one's resources and capabilities.

Question 20

Strategy is concerned with matching a firm's resources and capabilities to the opportunities emerging from its environment.

Question 21

When a firm's capabilities are based upon team effort rather than the skills of star employees the returns from those capabilities accrue to employees rather than to shareholders.

Question 22

In 1990,C.K.Prahalad and Gary Hamel introduced the concept of "core competence." Their argument was that:

A)Competence was more important than capability as a basis for sustainable competitive advantage
B)Management should build strategy on competences rather than resources
C)Strategy should be focused on both exploiting and developing firms' core competences
D)Competitive advantage rather than industry attractiveness was the primary source of superior profitability

Question 23

The distinguishing attributes of core competences is that:

A)They provide a basis for entering new markets and make a disproportionate contribution to the customer value
B)They provide a basis for building new technological processes and offer a valuable product or service to a firm's customers
C)They are found primarily in Japanese companies such as Honda,Canon,and Sony
D)They allow top managers to understand the human resources of their firm and to define and implement a technological strategy

Question 24

Benchmarking is an objective way of assessing the strength of a firm's resources and capabilities relative to those of competitors

Question 25

Strategy needs to take account of both the requirements of the firm's external environment and the firm's own resources and capabilities.Resources and capabilities rather than requirements of the external environment offer a stronger basis for strategy formulation when:

A)The firm is engaged in the exploitation of natural resources such as petroleum or metal.
B)The external environment is in a state of flux.
C)When the firm is supplying producer goods rather than consumer goods.
D)When the firm is a multinational corporation.

Question 26

When considering which industry segments a firm should specialize in,it is more important to be guided by segment attractiveness than whether the key success factors align with the firm's resource and capability strengths.

Question 27

The difficulties faced by Eastman Kodak,Smith Corona.and Olivetti in adapting to radical technological change within their markets point to:

A)The short-sightedness of senior managers in recognizing the implications of new technologies.
B)The power of digital technology as a force for creative destruction.
C)The need for firms to devote more resources to technological forecasting.
D)The difficulties established firms experience in building the new capabilities.

Question 28

The main strategic lesson to be drawn from the Biblical story of David and Goliath is:

A)The importance of first-mover advantage.
B)Adapt strategy to your relative strengths.
C)Conventional strategies don't work for newcomers.
D)The Israelis usually win.

Question 29

The difference between a resource and a capability is:

A)A resource is a productive asset; a capability refers to what the firm can do
B)A resources tend to be immobile assets; capabilities are dynamic
C)A resource is a weak source of competitive advantage whereas a capability is a strong one
D)A capability is a type of resource

Question 30

Intangible resources tend to be more valuable than tangible resources because:

A)They are easier to acquire
B)They are cheaper to acquire
C)They are more likely to provide sustainable competitive advantage
D)All of the above

Question 31

When a firm identifies a resource or capability that is a key weakness,the strategic response should be to upgrade that resource or capability through investment.

Question 32

One implication of the resource-based perspective is that:

A)Firms tend to adopt similar or close strategies
B)By aligning their strategies to their resources and capabilities,firms emphasize their differences rather than their similarities
C)Firms focus on building a stronger portfolio of capabilities than their rivals
D)Firms focus on reducing their vulnerability by correcting their weaknesses

Question 33

Like Porter's "five forces of competition" model,the key value of resource and capability analysis lies less in providing answers and more in providing an overall framework to guide more detailed analysis.

Question 34

Firm's with outstanding capabilities are typically those which:

A)Possess the best resources.
B)Have developed their organizational routines over the longest periods of time.
C)Are able to integrate their resources most effectively.
D)Have the most effective leaders.

Question 35

There are two primary sources of profit (or "economic rent"):

A)Market power and superior resources.
B)Market power and competitive advantage.
C)Competitive advantage and disequilibrium rents.
D)Cost advantage and differentiation advantage.

Question 36

Organizational culture comprises:

A)A shared cognitive framework among organizational members
B)Senior managers' beliefs and vision
C)Shared beliefs,values,assumptions,meanings,myths,rituals,and symbols
D)Organizational identity

Question 37

The resource-based view of firm implies that:

A)The boundaries of the firm are determined by the firm's resources rather than by transaction costs
B)The resources of the firm are the foundation for its capabilities
C)Resources and capabilities are the principal basis for firm strategy and the primary source of profitability
D)Ricardian rents are a more important source of firm profitability than monopoly rents Schumpeter

Question 38

To identify a firm's resources and capabilities,it is useful:

A)To first identify the key success factors within the firm's industry then identify the resources and capabilities needed to satisfy these success factors.
B)Identify the firm's value chain,then identify the main resources and capabilities at each stage of the value chain.
C)Both (a)and (b).
D)Classify resources into tangible,intangible and human.

Question 39

To exploit its tangible assets more effectively requires that a firm:

A)Economizes on these assets by changing its depreciation policy
B)Economizes on underutilized assets and redeploys assets into more profitable uses
C)Expands sales in order to ensure they are fully deployed
D)Leases assets rather than owning them in order to boost return on capital employed

Question 40

A major reason why many companies have the high valuation ratios (ratio of stock market value to balance sheet net asset value)is:

A)Stock market irrationality which results in some companies becoming overvalued.
B)The undervaluation of intangible resources on companies' balance sheets.
C)Stock market doubts over the valuation of financial assets by companies and their auditors.
D)The rise of intellectual property valuation as a result of recent patent litigation.

Question 41

For most organizations,geographical location should be regarded as:

A)A key resource whose characteristics need to be given careful attention when formulating strategy
B)A formerly important resource which is becoming increasingly irrelevant in a digital world
C)An organizational characteristic,not a resource
D)A source of competitive advantage only its gives the organization access to an industry ecosystem such as Silicon Valley for IT firms and New York for advertising firms

Question 42

The firm's ability to appropriate the rents generated by its organizational capabilities:

A)Is guaranteed by the fact that firms have full ownership of their capabilities
B)Is greater for firms in high technology than in low technology industries
C)Is weakened if a firm uses independent contractors instead of full-time employees
D)Depends upon the extent to those capabilities are embedded in team-based process that are heavily dependent upon corporate systems

Question 43

If an organization possesses strengths in a resource or capability that bears little relationship to the industry's key success factors it should:

A)Regard that resource or capability as strategically irrelevant.
B)Seek to sell that resource r capability to another organization.
C)Seek an innovative approach to making that resource or capability strategically relevant.
D)Adopt a niche strategy.

Question 44

"Benchmarking" is:

A)A process to ensure that a firm is as similar to competitors as possible
B)An HR manager's tool to set and justify the firm's salary scheme versus the industry norm
C)A way to compare a firm's resources and capabilities against those of competitors
D)All of the above

Question 45

When a company has weaknesses relative to competitors among strategically important resources and capabilities,the appropriate strategic response is to:

A)Invest heavy in order to upgrade weaknesses.
B)Diversify in order to find new areas of business where these resources and capabilities are unimportant to competitive advantage.
C)Outsource those activities where third parties can offer superior capabilities while positioning the business to reduce vulnerable to remaining weaknesses.
D)Employ management consultants to seek a solution.

Question 46

A bank is establishing a fixed income trading department.It is considering whether to hire a team of star traders or to invest a similar sum of money in developing a proprietary,automated trading system.The most valid reason for investing in the automated trading system in preference ot hiring star traders is:

A)The proprietary trading system is likely to generate better returns since star traders are in a powerful position to negotiate pay packages which appropriate the major part of the profit they create.
B)Advanced software is better than human intuition at identifying mispricing in financial markets.
C)Star traders are difficult to manage and can easily become "rogue traders".
D)It's difficult to motivate traders once they have earned their first few million.

Question 47

Resources lack transferability between firms when:

A)They are embodied in fixed capital
B)They are difficult to replicate
C)They are subject to time compression diseconomies
D)Market transactions are impeded by imperfect information

Question 48

Enterprise Resource Planning software (such as that supplied by SAP)is unlikely,on its own,to be source of competitive advantage because:

A)It is expensive to install hence its benefits are offset by its costs
B)It is available to any firm that wishes to purchase it; hence,it is not scarce
C)It needs to be updated periodically,hence it lacks durability
D)Its benefits are limited to those activities that require substantial information processing

Question 49

A well-established brand can be a source of sustainable competitive advantage because:

A)Consumers will always pay a premium for a recognized brand.
B)Brands can be protected by the law relating to trademarks.
C)A brand protects a firm form competition from low-cost new entrants.
D)It tends to be durable,loses value when transferred between firms,and is costly to replicate.