Question 1

Amazon Prime is credited for helping to increase the Amazon stock price by nearly 300 percent from 2008 to 2010. This competitive advantage is known as
A)causal ambiguity.
B)product rarity.
C)service validity.
D)substitutability.

Accepted Answer

Causal ambiguity means that would-be competitors may be thwarted because it is impossible to disentangle the causes (or possible explanations) of either what the valuable resource is or how it can be re-created. The continued success of Amazon as the largest global online marketplace is an example of competitive advantage through causal ambiguity. Competitors recently tried to imitate the Amazon free shipping strategy, but with limited success. The reason is that Amazon has developed an array of interrelated elements of strategy which their rivals find too difficult to imitate.

Question 2

Which of the following is a profitability ratio?
A)current ratio
B)total debt ratio
C)total asset turnover
D)return on equity

Accepted Answer

Profitability ratios include: profit margin, return on assets, and return on equity.

Question 3

Which of the following groups generally is charged with creating value through the process of organizing, coordinating, and leveraging employees as well as other forms of capital such as plant, equipment, and financial capital?
A)unions
B)boards of directors
C)managers
D)stakeholders

Accepted Answer

Manager power is based on how well they create resource-based advantages. They are generally charged with creating value through the process of organizing, coordinating, and leveraging employees as well as other forms of capital such as plant, equipment, and financial capital. Such activities provide managers with sources of information that may not be readily available to others.

Question 4

Raymond Ozzie, the software designer who was critical in the development of Lotus Notes, was able to dictate the terms under which IBM acquired Lotus. This illustrates that he had ______ bargaining power based on the ________ cost required by the firm to replace him.
A)low; low
B)low; high
C)high; low
D)high; high

Accepted Answer

If employee skills are idiosyncratic and rare (a source of resource-based advantages), they should have high bargaining power based on the high cost required by the firm to replace them. For example, Raymond Ozzie, the software designer who was critical in the development of Lotus Notes, was able to dictate the terms under which IBM acquired Lotus.

Question 5

Comparing your firm with all other firms in your industry assesses _________ performance.
A)excessive
B)consistent
C)relative
D)non-comparable

Accepted Answer

Comparing your firm with all other firms in your industry assesses relative performance. Banks often use such comparisons when evaluating company creditworthiness.

Question 6

Historical comparisons provide information to managers about changes in the competitive position of a firm. Historical comparisons often are misleading
A)if the overall strategy of the firm is the same.
B)if the firm shows constant growth.
C)in periods of recession or economic boom.
D)if the firm's stock is publicly traded.

Accepted Answer

Exhibit 3.9 illustrates a 10-year period of return on sales (ROS) for a hypothetical company. As indicated by the dotted trend lines, the rate of growth (or decline) differs substantially over time periods, and periods of recession and economic boom may make the trends unreliable.

Question 7

Making comparisons between a firm and its most direct rivals is useful because firms within the same strategic industry group have _______ strategies.
A)different
B)the same
C)similar
D)relative

Accepted Answer

Firms with similar strategies are members of a strategic group in an industry. Furthermore, competition is more intense among competitors within groups than across groups. Thus, you can gain valuable insights into the financial and competitive position of a firm, if you make comparisons between a firm and its most direct rivals.

Question 8

Financial ratio analysis measures the performance of the firm based on all but which of the following?
A)balance sheet
B)market valuation
C)income statement
D)industry comparison

Accepted Answer

Financial ratio analysis a technique for measuring the performance of a firm according to its balance sheet, income statement, and market valuation.

Question 9

Which of these categories of financial ratios is used to measure the ability of a firm to meet its short-term financial obligations?
A)liquidity ratios
B)profitability ratios
C)activity ratios
D)leverage ratios

Accepted Answer

Short-term solvency ratios are also known as liquidity ratios. These ratios are used to assess the ability of a company to meet imminent financial obligations.

Question 10

A crash R&D program by one firm cannot replicate a successful technology developed by another firm, when research findings cumulate. This is an example of
A)social complexity.
B)physical uniqueness.
C)path dependency.
D)causal ambiguity.

Accepted Answer

Path dependency means that resources are unique and therefore scarce because of all that has happened along the path followed in their development and/or accumulation. A crash R&D program generally cannot replicate a successful technology, when research findings cumulate. These path-dependent conditions build protection for the original resource. The benefits from experience and learning through trial and error cannot be duplicated overnight.

Question 11

Ratios that reflect whether or not a firm is efficiently using its resources are known as
A)turnover ratios.
B)leverage ratios.
C)liquidity ratios.
D)profitability ratios.

Accepted Answer

Asset utilization (or turnover) ratios are one measure of whether a firm is efficiently using its resources.

Question 12

The best measure of company ability to meet imminent financial obligations is known as the
A)debt ratio.
B)profit margin.
C)total asset turnover.
D)current ratio.

Accepted Answer

According to Exhibit 3.8, short-term solvency ratios are also known as liquidity ratios. The best measure of the ability of a company to meet imminent financial obligations is the current ratio, the ratio of current assets to current liabilities.

Question 13

A variety of firm resources include interpersonal relations among managers in the firm, its culture, and its reputation with its suppliers and customers. Such competitive advantages are based upon
A)path dependency.
B)social complexity.
C)physical uniqueness.
D)tangible resources.

Accepted Answer

Resources of a firm may be imperfectly inimitable, because they reflect a high level of social complexity. A wide variety of firm resources may be considered socially complex. Examples include interpersonal relations among the managers in a firm, its culture, and its reputation with its suppliers and customers.

Question 14

In making the decision to enter the pharmaceutical industry, a company would not need to consider which of the following?
A)historical comparisons
B)comparisons with industry norms
C)comparisons with key competitors
D)comparisons with non-competitors

Accepted Answer

The financial position of a firm should not be analyzed in isolation. Important reference points are needed. We will address some issues that must be taken into account to make financial analysis more meaningful: historical comparisons, comparisons with industry norms, and comparisons with key competitors.

Question 15

Which of the following is not a factor that helps to explain the extent to which employees and managers will be able to obtain a proportionately high level of the profits that they generate?
A)Employees have high bargaining power.
B)The cost of employee replacement is high.
C)The cost of exit is high for an employee.
D)Managers have low bargaining power.

Accepted Answer

Four factors help explain the extent to which employees and managers will be able to obtain a proportionately high level of the profits that they generate: employee bargaining power, employee replacement cost, employee exit costs, and manager bargaining power. Manager power is based on how well they create resource-based advantages. They are generally charged with creating value through the process of organizing, coordinating, and leveraging employees as well as other forms of capital such as plant, equipment, and financial capital. Such activities provide managers with sources of information that may not be readily available to others.

Question 16

All of the following are examples of socially complex organizational phenomena except
A)a firm's culture.
B)complex physical technology.
C)interpersonal relations among a firm's managers.
D)leadership and trust.

Accepted Answer

Social complexity is a characteristic of the resources of a firm that is costly to imitate because the social engineering required is beyond the capability of competitors, including interpersonal relations among managers, organizational culture, and reputation with suppliers and customers.

Question 17

A resource is valuable and rare but neither difficult to imitate nor without substitutes. This should enable the firm to attain
A)no competitive advantage.
B)a temporary competitive advantage.
C)competitive parity.
D)a sustainable competitive advantage.

Accepted Answer

Resources and capabilities must be rare and valuable as well as difficult to imitate or substitute in order for a firm to attain competitive advantages that are sustainable over time. When a resource is valuable and rare but neither difficult to imitate nor without substitutes, it is likely to result in a temporary competitive advantage.

Question 18

Four factors help explain the extent to which employees and managers will be able to obtain a proportionately high level of the profits that they generate. Which is not one of these factors?
A)employee bargaining power
B)employee replacement cost
C)employee exit costs
D)competitor bargaining power

Accepted Answer

Four factors help explain the extent to which employees and managers will be able to obtain a proportionately high level of the profits that they generate: employee, bargaining power, employee replacement cost, employee exit costs, and manager bargaining power.

Question 19

Employees will be able to obtain a proportionately high level of profits they generate (relative to the firm) if
A)suppliers are loyal to the firm.
B)their expertise is firm-specific.
C)the cost to the firm of replacing them is high.
D)the firm's resources are path dependent.

Accepted Answer

Several factors help explain the extent to which employees and managers will be able to obtain a proportionately high level of the profits, including if they generate high employee replacement costs. If employee skills are idiosyncratic and rare (a source of resource-based advantages), they should have high bargaining power based on the high cost required by the firm to replace them.

Question 20

Which of the following would be most difficult to assess?
A)the liquidity position of a firm
B)market share growth
C)the legitimacy and reputation of a firm
D)the efficiency with which a firm utilizes its assets

Accepted Answer

The legitimacy and reputation of a firm are harder to assess, because there is no simple mathematical formula to compute them.

Quiz 3: Assessing the Internal Environment of the Firm

Amazon Prime is credited for helping to increase the Amazon stock price by nearly 300 percent from 2008 to 2010. This competitive advantage is known as

Which of the following is a profitability ratio?

Which of the following groups generally is charged with creating value through the process of organizing, coordinating, and leveraging employees as well as other forms of capital such as plant, equipment, and financial capital?

Raymond Ozzie, the software designer who was critical in the development of Lotus Notes, was able to dictate the terms under which IBM acquired Lotus. This illustrates that he had bargaining power based on the __ cost required by the firm to replace him.

Comparing your firm with all other firms in your industry assesses _________ performance.

Historical comparisons provide information to managers about changes in the competitive position of a firm. Historical comparisons often are misleading

Making comparisons between a firm and its most direct rivals is useful because firms within the same strategic industry group have _______ strategies.

Financial ratio analysis measures the performance of the firm based on all but which of the following?

Which of these categories of financial ratios is used to measure the ability of a firm to meet its short-term financial obligations?

A crash R&D program by one firm cannot replicate a successful technology developed by another firm, when research findings cumulate. This is an example of

Ratios that reflect whether or not a firm is efficiently using its resources are known as

The best measure of company ability to meet imminent financial obligations is known as the

A variety of firm resources include interpersonal relations among managers in the firm, its culture, and its reputation with its suppliers and customers. Such competitive advantages are based upon

In making the decision to enter the pharmaceutical industry, a company would not need to consider which of the following?

Which of the following is not a factor that helps to explain the extent to which employees and managers will be able to obtain a proportionately high level of the profits that they generate?

All of the following are examples of socially complex organizational phenomena except

A resource is valuable and rare but neither difficult to imitate nor without substitutes. This should enable the firm to attain

Four factors help explain the extent to which employees and managers will be able to obtain a proportionately high level of the profits that they generate. Which is not one of these factors?

Employees will be able to obtain a proportionately high level of profits they generate (relative to the firm) if

Which of the following would be most difficult to assess?