Deck 5: Analyzing Resources and Capabilities

Question 1

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

Answer 1

True

Question 2

Honda Motor Company,Microsoft,and 3M Corporation are examples of companies whose corporate strategies have been focused on satisfying a clearly defined customer need.

Answer 2

False

Question 3

The notion that organizational capabilities form a "hierarchy of integration" in which specialized capabilities are combined to form more general capabilities is only relevant to mature,stable industries.

Answer 3

False

Question 4

The failure of Eastman Kodak points to the difficulties that companies face in acquiring the resources and capabilities needed to adapt to a radical technological change that transforms their core business.

Question 5

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 6

The more stable is a firm's external environment,the more likely it is that the firm's resources and capabilities,rather than customer needs,will offer a more stable foundation for strategy.

Question 7

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

Question 8

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

Question 9

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 10

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 11

Superior capability need to be based upon superior resources.

Question 12

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

Question 13

The resource-based approach to strategy implies that strategic management is more about exploiting distinctive differences rather than trying to emulate other companies.

Question 14

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

Question 15

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 16

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

Question 17

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

Question 18

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

Question 19

One indicator of the growing importance of intangible resources is the widening difference between firms' market capitalization and the balance sheet value of their assets.

Question 20

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

Question 21

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 22

For the purposes of strategy formulation,a firm needs to consider only those resources and capabilities that are strategically unimportant.Any strengths in what appear to be strategically unimportant resources and capabilities ("superfluous strengths")are best ignored.

Question 23

Benchmarking is seldom an effective means of assessing the strength of a firm's resources and capabilities relative to those of competitors.

Question 24

There are two types of economic rent (pure profit):

A)Monopoly rent and Ricardian rent
B)Market power and competitive advantage
C)Monopoly rent and quasi rent
D)Cost advantage and differentiation advantage

Question 25

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 26

The main implication of the resource-based view of firm is:

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

Question 27

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 28

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 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 are static;capabilities are dynamic
C)A resource is a weak source of competitive advantage whereas a capability is a strong one
D)There is no clear distinction: a capability is a type of resource

Question 30

Organizational culture is an important resource for most business enterprises because:

A)It help employees to understand one another
B)It has a powerful motivating effect
C)It influences the capabilities a business develops and how these capabilities are exercised
D)It shapes a business's vision

Question 31

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 accumulate the resources that form the basis of competences
C)Strategy should be focused on both developing and exploiting firms' distinctive capabilities
D)Competitive advantage rather than industry attractiveness was the primary source of superior profitability

Question 32

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.

Question 33

The framework of resource and capability analysis does not generate strategy options for a firm,it is a tool for helping the firm to identify its potential for competitive advantage.

Question 34

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

A)The failure of senior managers to understand 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 35

One implication of the resource-based perspective is that:

A)Firms tend to adopt similar or close strategies
B)Aligning strategies with resources and capabilities implies that 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 eliminating their weaknesses

Question 36

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 37

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 more stable 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 38

The more a capability is based on complex networks of interacting organizational routines,the more strategically important it is because it is difficult for rivals to replicate.

Question 39

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 40

The main problem in using a company's balance sheet to identify its resources and capabilities is that:

A)Human resources are not included
B)Intangible resources are mis-valued,and some are excluded
C)Both (a)and (b)
D)Neither (a)nor (b)

Question 41

Prahalad and Hamel's "core competences" tend to be broad-based organizational capabilities that:

A)Integrate a number of more specialist organizational capabilities
B)Are also known as "dynamic capabilities"
C)Are found primarily in Japanese companies
D)Are mainly concerned with technological expertise

Question 42

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 43

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 44

For most organizations,geographical location should be regarded as:

A)A resource whose characteristics can be an important source of competitive advantage
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 if it offers access to an industry ecosystem such as Silicon Valley for IT firms and New York for advertising firms

Question 45

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 46

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 are protected by trademark law,hence cannot be copied
C)Brand create product differentiation barriers to entry that protect a firm from competition from new entrants
D)Brands are durable,they lose value when transferred between firms,and are costly to create.

Question 47

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 processes that are heavily dependent upon corporate systems

Question 48

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 49

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 to 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 50

"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 51

Resources lack transferability between firms when:

A)They are tangible (rather than intangible)
B)They are difficult to replicate
C)When the firms involved are in different industries
D)Lack of information about the characteristics of the resources impedes market transactions