Strategy Process Content Context 4th Edition By de Wit Bob – 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: 1

11.The more core competencies a firm has, the more likely it is to generate a sustained competitive advantage.

ANS: F PTS: 1

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

ANS: F PTS: 1

13.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

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

ANS: T PTS: 1

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

ANS: T PTS: 1

16.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

17.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

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

ANS: F PTS: 1

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

ANS: F PTS: 1

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

ANS: F PTS: 1

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

ANS: T PTS: 1

22.Imitation is not likely to be a successful strategy.

ANS: T PTS: 1

23.A sustained competitive advantage can last since not all advantages eventually erode.

ANS: F PTS: 1

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

ANS: T PTS: 1

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

ANS: F PTS: 1

MULTIPLE CHOICE

1.According to the resource-based view of the firm:

a.	Strategies are neither deliberate nor emergent
b.	Competitors may all develop the same competitive strength
c.	The environment offers significant challenges to be overcome
d.	Organizations are bundles of resources

ANS: D PTS: 1

2.According to the resource-based view of the firm:

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

3.What is the most logical relationship between a sustainable competitive advantage and an organizational strength?

a.	A sustainable competitive advantage is a strength that is difficult for competitors to imitate
b.	A strength cannot be duplicated while a sustainable competitive advantage is easily copied
c.	Every strength leads to a sustainable competitive advantage
d.	Every sustainable competitive advantage leads to a strength

ANS: A PTS: 1

4.A realized competitive advantage becomes sustainable when:

a.	It is unique, valuable, and based on strong financial resources
b.	It involves all of the functional areas of the organization
c.	It is based on physical assets rather than knowledge
d.	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

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

a.	It cannot be a source of competitive advantage
b.	It is likely to lead to a sustainable competitive advantage
c.	It is a core competency or capability
d.	It can be a source of competitive advantage for a limited period of time

ANS: D PTS: 1

6.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

7.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

8.When resources and capabilities serve as a source of competitive advantage for a firm, the firm has created a(n):

a.	Strategic mission	c.	Core competence
b.	Inspiring vision	d.	Sustainable market niche

ANS: C PTS: 1

9.The resource-based model of the firm argues that:

a.	All resources have the potential to be the basis of sustainable competitive advantage
b.	Resources alone can be a source of sustainable competitive advantage
c.	The key to competitive success is the structure of the industry in which the firm competes
d.	Resources that are valuable, rare, costly to imitate, and non-substitutable form the basis of a firm’s core competencies

ANS: D PTS: 1

10.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.	Calls for firms to focus on their homogeneous capabilities to compete against their rivals
d.	Suggests that vision and mission are closely linked to sustainable competitive advantage

ANS: A PTS: 1

11.Internal analysis enables a firm to determine what the firm:

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

ANS: A PTS: 1

12.By emphasizing core competencies when formulating strategies, companies learn to compete primarily on the basis of:

a.	Intangible resources	c.	Firm-specific differences
b.	Their primary activities	d.	Efficiency of production

ANS: C PTS: 1

13.Compared to tangible resources, intangible resources are:

a.	Of less strategic value to the firm
b.	Not the focus of strategic analysis
c.	A superior source of core competencies
d.	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.	Analyze a firm’s external environment for value-creating opportunities
b.	Analyze a firm’s primary and support activity in isolation from influences of the external environment
c.	Understand the parts of the firm’s operation that create value and those that do not
d.	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.	It offers a heavily market-based view
b.	It depends on information systems to provide useful data
c.	It requires managers to set aside time from their regular duties to examine data
d.	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 engages
d.	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	c.	Poor management
b.	Market uncertainty	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.	What products or services are most likely to be successful in the market?
b.	Who are your most important competitors?
c.	What is the cause of this outcome?
d.	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. 

• 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

2.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

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

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

ANS:

• The value chain divides organizational processes into distinct activities that create value for the customer.

• 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

5.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

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

ANS:

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

7.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.

• 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

8.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

9.What is the relationship between resources and capabilities?  Is one more important than the other in creating a sustainable competitive advantage?

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

10.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.  The 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 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:

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

PTS: 1

2.Briefly describe the steps to be taken when performing a value chain analysis.  Don’t merely list them; be sure to explain each step.

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