Strategy Process Content Context 4th Edition by Bob de Wit – Test Bank

Complete Test Bank With Answers

 

 

Sample Questions Posted Below

 

Chapter 5: The Internal Environment

TRUE/FALSE

1. Capabilities and resources have the potential to lead to competitive advantage if they are valuable and

unique.

ANS: T PTS: 1

2. If an organization possesses a valuable and unique resource, it is always a source of competitive

advantage.

ANS: F PTS: 1

3. The resource-based model assumes that if firms have resources that are rare or costly to imitate, this is

sufficient to form a basis for competitive advantage.

ANS: F PTS: 1

4. Firms should seek to continually develop new core competencies because all core competencies have

limited life spans.

ANS: T PTS: 1

5. Given enough time, any firm’s competitive advantage can be imitated by its competitors.

ANS: T PTS: 1

6. Resources are bundled to create capabilities which in turn are the source of core competencies which

are then the basis of competitive advantages.

ANS: T PTS: 1

7. Compared to tangible resources, intangible resources are an inferior source of core competencies.

ANS: F PTS: 1

8. The foundation of many capabilities lies in the unique skills and knowledge of a firm’s employees.

ANS: T PTS: 1

9. Capabilities of an organization emerge spontaneously through the interaction of tangible and intangible

resources.

ANS: F PTS: 1

10. Core competencies are capabilities that serve as a source of competitive advantage for a firm over its

rivals.

ANS: T PTS: 111. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. The more core competencies a firm has, the more likely it is to generate a sustained competitive

advantage.

ANS: F PTS: 1

Every core competence is a capability and every capability is a core competence.

ANS: F PTS: 1

Interpersonal relationships, trust, friendships, and a firm’s reputation are all examples of complex

social phenomena that make capabilities costly to imitate.

ANS: T PTS: 1

If a core competence is emphasized when it is no longer competitively relevant, it can become a core

rigidity.

ANS: T PTS: 1

Tangible resources include physical assets such as equipment, buildings, land, furniture, money and

patents.

ANS: T PTS: 1

Intangible resources include such things as the skills of the founders of a company, the organization’s

culture, and relationships with key suppliers.

ANS: T PTS: 1

A capability is a set of tightly integrated activities, organizational skills, and internally developed

routines that relies on ordinary resources. Combining resources into activities eliminates the

requirement that they be extraordinary to produce superior performance.

ANS: F PTS: 1

Intangible resources and capabilities are assets that are more easily quantified.

ANS: F PTS: 1

It is easier to imitate intangible resources/capabilities than tangible ones.

ANS: F PTS: 1

Causal ambiguity refers to the difficulty of identifying the outcomes of causal determinants.

ANS: F PTS: 1

Valuable, rare, but imitable resources/capabilities may provide temporary competitive advantage.

ANS: T PTS: 1

Imitation is not likely to be a successful strategy.

ANS: T PTS: 123. 24. 25. A sustained competitive advantage can last since not all advantages eventually erode.

ANS: F PTS: 1

The logic of the resource-based view is relatively static.

ANS: T PTS: 1

Critics suggest that the resource-based view should eliminate dynamic capabilities.

ANS: F PTS: 1

MULTIPLE CHOICE

1. 2. 3. 4. 5. According to the resource-based view of the firm:

a. b. c. d. Strategies are neither deliberate nor emergent

Competitors may all develop the same competitive strength

The environment offers significant challenges to be overcome

Organizations are bundles of resources

ANS: D PTS: 1

According to the resource-based view of the firm:

a. b. Organizational resources include physical resources such as plants

One of the most important roles of strategic managers is to manage resources so as to

produce a sustainable competitive advantage

c. Organizational resources include organizational culture

d. All of the above

ANS: D PTS: 1

What is the most logical relationship between a sustainable competitive advantage and an

organizational strength?

a. b. c. d. A sustainable competitive advantage is a strength that is difficult for competitors to imitate

A strength cannot be duplicated while a sustainable competitive advantage is easily copied

Every strength leads to a sustainable competitive advantage

Every sustainable competitive advantage leads to a strength

ANS: A PTS: 1

A realized competitive advantage becomes sustainable when:

a. b. c. d. It is unique, valuable, and based on strong financial resources

It involves all of the functional areas of the organization

It is based on physical assets rather than knowledge

It is based on a resource or capability that is difficult to imitate by competitors and there is

no readily available substitute

ANS: D PTS: 1

If an organizational capability or resource is valuable and unique, but it is easy to imitate:

a. b. c. It cannot be a source of competitive advantage

It is likely to lead to a sustainable competitive advantage

It is a core competency or capability6. 7. 8. 9. 10. 11. 12. d. It can be a source of competitive advantage for a limited period of time

ANS: D PTS: 1

Which of the following is least likely to be a source of sustainable competitive advantage?

a. A unique and valuable relationship with an important stakeholder

b. A computer program

c. An organization’s culture

d. An organization’s reputation

ANS: B PTS: 1

Primary activities of the value chain include all of the following except:

a. Inbound logistics c. Marketing and sales

b. Procurement d. Service

ANS: B PTS: 1

When resources and capabilities serve as a source of competitive advantage for a firm, the firm has

created a(n):

a. Strategic mission b. Inspiring vision c. Core competence

d. Sustainable market niche

ANS: C PTS: 1

The resource-based model of the firm argues that:

a. b. c. d. All resources have the potential to be the basis of sustainable competitive advantage

Resources alone can be a source of sustainable competitive advantage

The key to competitive success is the structure of the industry in which the firm competes

Resources that are valuable, rare, costly to imitate, and non-substitutable form the basis of

a firm’s core competencies

ANS: D PTS: 1

The resource-based view of the firm:

a. Emphasizes that it is difficult to develop and sustain a competitive advantage based on

resources alone

b. Argues that the industry environment has a stronger influence on firms’ ability to

implement strategies successfully than does the competitor environment

c. d. Calls for firms to focus on their homogeneous capabilities to compete against their rivals

Suggests that vision and mission are closely linked to sustainable competitive advantage

ANS: A PTS: 1

Internal analysis enables a firm to determine what the firm:

a. Can do b. Should do c. Will do

d. Might do

ANS: A PTS: 1

By emphasizing core competencies when formulating strategies, companies learn to compete primarily

on the basis of:

a. Intangible resources b. Their primary activities c. Firm-specific differences

d. Efficiency of production

ANS: C PTS: 113. Compared to tangible resources, intangible resources are:

a. b. c. d. Of less strategic value to the firm

Not the focus of strategic analysis

A superior source of core competencies

More likely to be reflected on the firm’s balance sheet

ANS: C PTS: 1

14. Regardless of the industry, the most valuable links on a firm’s value chain will likely be:

a. Financial managers

b. Technology experts

c. People who have knowledge of customers

d. Research and development specialists

ANS: C PTS: 1

15. Value chain analysis is a tool used to:

a. b. Analyze a firm’s external environment for value-creating opportunities

Analyze a firm’s primary and support activity in isolation from influences of the external

environment

c. d. Understand the parts of the firm’s operation that create value and those that do not

Identify the firm’s core competencies in each of the primary activities of the firm

ANS: C PTS: 1

16. Value chain activities:

a. Are used to identify the industry profit pool that the firm should target

b. Show that there are multiple means that can be used to implement a business strategy

c. Focus on the links between primary activities, because these are the true source of

competitive advantage for the firm

d. Can be used in not-for-profit organizations if the analysis focuses on support activities

ANS: B PTS: 1

17. Which of the following is not one of the basic methods for conducting an internal analysis?

a. Resource-based analysis c. Value chain analysis

b. SWOT analysis d. Probability-impact analysis

ANS: D PTS: 1

18. Which of the following is a potential drawback of value chain analysis?

a. b. c. d. It offers a heavily market-based view

It depends on information systems to provide useful data

It requires managers to set aside time from their regular duties to examine data

It requires thorough knowledge of financial ratios if it is to be done right

ANS: B PTS: 1

19. Significant results of a value chain analysis include which of the following?

a. It can identify how much of a contribution is made by some of the intangible service

activities performed in the company

b. It can shed light on how or where in the company the creation and capture of value can be

enhanced and/or costs can be lowered without sacrificing value

c. It creates a better understanding of the complete set of value-creating activities in which

the company engagesd. All of the above

ANS: D PTS: 1

20. Resources that are not physical in nature, including such things as relationships with suppliers, an

organization’s culture, business processes or the skills of the founders are ________ resources.

a. Ephemeral c. Creative

b. Intangible d. Exemplary

ANS: B PTS: 1

21. When the link between a company’s resources and its competitive advantage is poorly understood a

state of ________ exists.

a. Causal ambiguity b. Market uncertainty c. Poor management

d. Strategic uncertainty

ANS: A PTS: 1

22. Having valuable, but common resources/capabilities leads to:

a. Competitive parity. c. Competitive disparity.

b. Competitive advantage. d. Competitive disadvantage

ANS: A PTS: 1

23. Traditional resource-based view:

a. Overemphasizes leveraging existing resources/capabilities

b. Underemphasizes developing new resources/capabilities

c. Both of the above

d. Underemphasizes leveraging existing resources/capabilities

ANS: C PTS: 1

24. Tacit knowledge is probably the most _________ resource.

a. Valuable c. Hard-to-imitate

b. Unique d. All of the above

ANS: D PTS: 1

25. Which of the following questions should repeatedly be asked of managers to help them understand the

nature of their core resources?

a. b. c. d. What products or services are most likely to be successful in the market?

Who are your most important competitors?

What is the cause of this outcome?

What do your competitors do well that you do not?

ANS: C PTS: 1

SHORT ANSWER

1. What is the resource-based view of the firm? What categories of resources does a firm possess?

ANS:

According to this view, an organization is a bundle of resources, which fall into the general

categories of: financial resources, physical resources, human resources and general organizational

resources.2. 3. 4. Financial resources include all of the monetary resources from which a firm can draw.

Physical resources include tangible artifacts such as plants, equipment, locations, and access to raw

materials.

Human resources pertains to the skills, background, and training of individuals within the firm.

General organizational resources include the formal reporting structure, management techniques,

systems for planning and controlling, culture, reputation, and relationships within the organization as

well as those with external stakeholders.

PTS: 1

Explain the essential characteristics of a resource or capability that leads to a sustainable competitive

advantage.

ANS:

Resources and capabilities become strengths leading to a sustainable competitive advantage if they

are valuable, unique, difficult and costly to imitate.

Valuable means that they allow the firm to exploit opportunities and/or neutralize threats.

Unique applies if an organization is the only one or one of a few with a particular resource or

capability, then that resource or capability may be the source of competitive advantage.

If numerous organizations possess a particular resource or capability, then the situation is described

as competitive parity—no company has the advantage.

The organization must have appropriate systems in place to take advantage of the potential of the

resource or capability.

Management should be aware of the potential of the resource or capability and act to take

advantage of it.

Competing firms face a cost disadvantage in imitating a resource or capability. The more difficult

or costly a resource or capability is, the more valuable it is in producing a sustainable competitive

advantage.

PTS: 1

What is the difference between a tangible and an intangible resource? Which of these types of resources is most likely to lead to competitive advantage? Give an example of each?

Why?

ANS:

Resources fall into the general categories of tangible and intangible.

Tangible resources can be seen, touched, and/or quantified. One example is a product.

Intangible resources are hard to identify in these terms. For example, a stakeholder relationship or

a research process tends to be hard to describe in words.

Intangible resources are much more difficult to imitate and thus have high potential for

competitive advantage.

Tacit knowledge is closely associated with the creation of intangible resources and capabilities,

whereas codified knowledge, which can be described in words, is related to tangible resources.

PTS: 1

Explain the value chain and how it can be used to help firms develop competitive advantages.

ANS:

customer.

The value chain divides organizational processes into distinct activities that create value for the5. 6. 7. Primary activities include inbound logistics, operations, outbound logistics, marketing and sales,

and service.

Support activities include procurement, technology development, human resource management,

and administration.

An organization can develop a competitive advantage (1) in any of the primary or support activities

or (2) in the way they are combined or (3) in the way internal activities are linked to the external

environment.

The cumulative effect of value chain activities and the way they are linked inside the firm and with

the external environment determine organizational performance relative to competitors.

PTS: 1

Describe the importance of internal analysis to the strategic success of the firm.

ANS:

By analyzing its internal environment, a firm determines what actions it can take based on its

unique resources, capabilities and core competencies.

The firm’s core competencies are the source of the firm’s competitive advantage.

Internal analysis allows the firm to compare what it is capable of doing (what it “can do”) with

what it “might do” (which is a function of opportunities and threats in the external environment).

Matching what a firm can do with what it might do allows the firm to develop its vision, pursue its

strategic mission, and select and implement its strategies. This allows the firm to leverage its unique

bundle of resources and capabilities to gain competitive advantage.

PTS: 1

Define capabilities and how they affect the firm’s strategic success.

ANS:

tasks. Capabilities exist when resources have been purposely integrated to achieve a specific task or

Examples of tasks are human resource activities, product marketing, and research and

development.

Capabilities are based on developing, carrying, and exchanging information and knowledge

through the firm’s human capital.

Many of the firm’s capabilities are based on the unique skills and knowledge of its employees and

their functional expertise.

The knowledge possessed by human capital is among the most significant of a firm’s capabilities.

Capabilities are often developed in specific functional areas (such as manufacturing or marketing)

or in a part of a functional area (e.g., advertising).

PTS: 1

Describe the four specific criteria that managers can use to decide which of their firm’s capabilities

have the potential to create a sustainable competitive advantage.

ANS:

Managers must identify whether their firm has capabilities that are valuable and nonsubstitutable

from the customer’s point of view, and unique and inimitable from the firm’s competitors’ point of

view. Only capabilities with these four characteristics are core competencies that can lead to

sustainable competitive advantage.

A valuable capability is one that helps the firm to exploit opportunities or to neutralize threats in

the external environment.

Rare means that few if any competitors possess the particular capability.8. 9. 10. Costly–to-imitate means a capability cannot be easily developed by other firms. Often, this kind of

capability is rooted in the organization’s culture or its unique history. Capabilities may also be costly to

imitate if they are causally ambiguous or involve social complexity.

Nonsubstitutable capabilities do not have strategic equivalents that are rare and inimitable.

PTS: 1

Why is it important to prevent core competencies from becoming core rigidities?

ANS:

All core competencies have the potential to become core rigidities and to generate failure.

Each competence is a potential weakness if it is emphasized when it is no longer competitively

relevant. The success that the competence generated in the past can generate organizational inertia and

complacency.

A core competence can become obsolete if competitors figure out a better way to serve the firm’s

customers, if new technologies emerge, or if political or social events shift in the external environment.

If the organization’s managers react to these changes with inflexibility and strategic myopia, then

core rigidities are created.

PTS: 1

What is the relationship between resources and capabilities? creating a sustainable competitive advantage?

Is one more important than the other in

ANS:

Resources are the basic building blocks of capabilities. The relationship is analogous to that

between elements and compounds in chemistry.

Extraordinary resources that meet the VRIO criteria are the raw materials upon which a

business builds its competitive advantage. Extraordinary resources are combined into

capabilities. These capabilities are used in conjunction with ordinary resources to create the

products and services that, ultimately, result in superior performance.

It can be argued that since extraordinary resources underlie the creation of capabilities that will

lead to a sustainable competitive advantage they (extraordinary resources) are more important.

However, resources find their greatest value when part of a unique, valuable and durable

capability.

PTS: 1

Briefly describe the steps involved in a resource-based analysis.

ANS:

The first step requires key decision makers to create a list of all of the firm’s resources and

capabilities, both tangible and intangible. This will require that managers drill down to the core

resources and activities that more general processes are built upon.

The resources and capabilities identified above are then divided into ordinary and

extraordinary resources. This calls for some judgment on the part of decision makers. list of extraordinary resources will be much smaller than the list of ordinary resources.

Apply the VRIO criteria to those resources judged to be extraordinary. If a resource is

valuable, rare, not easily imitated, and organizable it should be leveraged for a sustainable

competitive advantage.

The last step is to decide how the resources identified in the step immediately above can be

used to create and capture value.

TheThe business model can be extended to new products or customer segments, the resources

and capabilities can be replicated elsewhere in the organization, or complementary resources

can be developed.

PTS: 1

PROBLEM

1. What are some of the things that make a resource or capability difficult for competitors to imitate?

ANS:

by rivals. The different forms of intellectual property protection are a first line of defence against imitation

They include patents, trademarks, and copyrights. While important, these sometimes only

slow imitation.

Reverse-engineering and other forms of “inventing around patents” are commonly used to create

products and processes that are similar (but not exactly the same) to those that have been patented.

Still, intellectual property protection is an important barrier to imitation.

Competitors find it difficult to imitate processes and routines that occur “behind the scenes” of

a company.

Some processes are so complex, involving many people and tasks, that even employees of the

company involved in a process would find it difficult to replicate it on their own.

Companies are often able to keep proprietary manufacturing processes from being imitated

because they are not widely observed by outsiders.

A resource or capability that is socially complex or subject to causal ambiguity may be difficult

to imitate. Consider a team-based process. It can be hard to know whether the team is

successful due to the outsized influence of one member, equal contributions from all members,

the physical work environment, the culture of the organization, or some combination of these.

So a firm that wishes to duplicate the team’s performance will have to identify all of the

variables that could contribute to its success and copy them in the right proportions and

combinations.

2. PTS: 1

Briefly describe the steps to be taken when performing a value chain analysis. them; be sure to explain each step.

Don’t merely list

ANS:

There are three steps to a value chain analysis. First one identifies the company’s value chain

activities. Then each of these must be evaluated for its value-creating properties and cost

characteristics. The last step requires the identification of improvements that will allow the company

to capture greater value.

It is important to identify those activities that represent a significant percentage of operating costs,

are easily separable and distinct from other activities, are performed by competitors in a different way,

or appear to have great potential to create strategic differences from competition.

One of the traditional methods for evaluating an activity is to examine its costs and benchmark

them, where possible, against the costs incurred by rivals doing the same thing.

Managers must examine both executional and structural activity drivers to better understand

how activities create value and incur costs.

Structural activity drivers that are to be adjusted typically require organization-wide, complex

changes and commitments that take some time while executional drivers can often be changed

more quickly.

Activity improvements often are the result of a benchmarking process. Useful questions may

include:– Can we increase benefits while holding costs constant?

– Can we hold benefits constant while reducing costs?

– Could we reduce assets required for this activity, while holding both benefits and costs

constant?

– Would a further investment in assets improve the company’s ability to either create benefits

or reduce costs?

– Can we expand the scale or scope of our activities to a broader audience without sacrificing

benefits or costs to our current sets of stakeholders?

PTS: 1