This Document Contains Chapters 3 to 4 Chapter 03 Assessing the Internal Environment of the Firm True/False Questions 1. One advantage of SWOT analysis is that it helps managers to identify strengths that are almost always sources of competitive advantages that are sustainable. Answer: False Rationale: The strengths and capabilities of a firm, no matter how unique or impressive, may not enable it to achieve a competitive advantage in the marketplace. 2. The SWOT analysis can show managers how to achieve a competitive advantage. Answer: False Rationale: But SWOT has its limitations. It is just a starting point for discussion. By listing the firm's attributes, managers have the raw material needed to perform more in-depth strategic analysis. However, SWOT cannot show them how to achieve a competitive advantage. They must not make SWOT analysis an end in itself, temporarily raising awareness about important issues but failing to lead to the kind of action steps necessary to enact strategic change. 3. The strengths and capabilities of a firm are enough to enable it to achieve a competitive advantage in the marketplace. Answer: False Rationale: The strengths and capabilities of a firm, no matter how unique or impressive, may not enable it to achieve a competitive advantage in the marketplace. If a firm builds its strategy on a capability that cannot, by itself, create or sustain competitive advantage, it is essentially a wasted use of resources. 4. Toyota paid a heavy price for its excessive emphasis on cost control. By focusing on only one strength exclusively, it suffered severe losses. This is an example of the limitations of a SWOT analysis. Answer: True Rationale: Sometimes firms become preoccupied with a single strength or a key feature of the product or service they are offering and ignore other factors needed for competitive success. For example, Toyota, the giant automaker, paid a heavy price for its excessive emphasis on cost control. The resulting problems with quality and the negative publicity led to severe financial losses and an erosion of its reputation in many markets. 5. In conducting a SWOT analysis, a risk for strategists is that they rely on traditional definitions of their industry and competitive environment and therefore focus too narrowly on current competitors. Answer: True Rationale: Strategists who rely on traditional definitions of their industry and competitive environment often focus their sights too narrowly on current customers, technologies, and competitors. Hence they fail to notice important changes on the periphery of their environment that may trigger the need to redefine industry boundaries and identify a whole new set of competitive relationships. 6. Value-chain analysis assumes that the basic economic purpose of a firm is to create value and it is a useful framework for analyzing the strengths and weaknesses of the firm. Answer: True Rationale: Value-chain analysis views the organization as a sequential process of value-creating activities. It provides greater insights into analyzing the competitive position of a firm than SWOT analysis does by itself. 7. In value-chain analysis, value is measured by the market value of the total stock outstanding of the company. Answer: False Rationale: Value is the amount that buyers are willing to pay for what a firm provides them and is measured by total revenue, a reflection of the price the product of the firm commands and the quantity it can sell. 8. Primary activities contribute to the physical creation of a product or service, its sale and transfer to the buyer, and its service after the sale. Answer: True Rationale: The five primary activities in the Porter value chain model (inbound logistics, operations, outbound logistics, marketing and sales, and service) contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale. 9. The value-chain concept assumes that both primary and support activities are capable of producing value for customers. Answer: True Rationale: Both types of activities can add value, either directly or through important relationships with other activities. 10. Inbound logistics include all activities associated with transforming inputs into the final product form such as machining, packaging, assembly, equipment, testing, printing, and facility operations. Answer: False Rationale: Inbound logistics is primarily associated with receiving, storing, and distributing inputs to the product. Operations include all activities associated with transforming inputs into the final product form, such as machining, packaging, assembly, testing, printing, and facility operations. 11. Support activities provide support for primary activities, but not each other. Answer: False Rationale: Support activities (procurement, technology development, human resource management, and general administration) either add value by themselves or add value through important relationships with both primary activities and other support activities. 12. Establishing a customer service hotline to handle customer complaints would be considered a primary activity in value-chain analysis. Answer: True Rationale: Service is a primary activity which includes all actions associated with providing service to enhance or maintain the value of the product, such as installation, repair, training, parts supply, and product adjustment. 13. Technology development is a much broader concept than research and development. Answer: True Rationale: Every value activity embodies technology. The array of technologies employed in most firms is very broad, ranging from technologies used to prepare documents and transport goods to those embodied in processes and equipment or the product itself. Technology development related to the product and its features supports the entire value chain, while other technology development is associated with particular primary or support activities. 14. In value-chain analysis, finance and accounting are considered part of the general administration of a firm. Answer: True Rationale: General administration consists of a number of activities, including general management, planning, finance, accounting, legal and government affairs, quality management, and information systems. Administration typically supports the entire value chain and not individual activities. 15. Frito-Lay uses crowdsourcing to make its Super Bowl ads. This is an example of a primary activity in the value chain. Answer: True Rationale: Marketing and sales activities are associated with purchases of products and services by end users and the inducements used to get them to make purchases. They include advertising, promotion, sales force, quoting, channel selection, channel relations, and pricing. Frito-Lay uses crowdsourcing to create competition for ads. The best ones air during the Super Bowl. 16. Campbell Soup uses an electronic network to facilitate its continuous-replenishment program with its most progressive retailers. This is known as an operations primary activity in the value chain. Answer: False Rationale: Outbound logistics is associated with collecting, storing, and distributing the product or service to buyers. These activities include finished goods, warehousing, material handling, delivery vehicle operation, order processing, and scheduling. Campbell Soup uses an electronic network to facilitate its continuous-replenishment program with its most progressive retailers. 17. At Sephora.com, a customer service representative taking a phone call from a repeat customer has instant access to what shade of lipstick she likes best. This is an example of a procurement support activity in the value chain. Answer: False Rationale: Service is a primary activity in the value chain that includes all actions associated with providing service to enhance or maintain the value of the product, such as installation, repair, training, parts supply, and product adjustment. At Sephora.com, a customer service representative taking a phone call from a repeat customer has instant access to what type of lipstick she likes best. This will help the rep cross-sell by suggesting a matte type of lip gloss. 18. Managers should focus their attention on interrelationships among value-chain activities within the firm, NOT on relationships among activities within the firm and other organizations (such as suppliers and customers). Answer: False Rationale: The importance of relationships among value-chain activities has two levels: (1) interrelationships among activities within the firm and (2) relationships among activities within the firm and with other stakeholders (e.g., customers and suppliers) that are part of the expanded value chain of the firm. 19. Some leading edge companies are applying the prosumer concept. Here, firms team up with their suppliers and alliance partners to satisfy their customer needs. Answer: False Rationale: In the future, we will be talking more and more about the prosumer, a customer/producer who is even more extensively integrated into the value chain. As a consequence, production processes will be customized more precisely and individually. Including customers in the actual production process can create greater satisfaction among them, result in significant cost savings, and generate innovative ideas for the firm. 20. Value-chain analysis can only be applied to manufacturing operations. Answer: False Rationale: The value chain can be applied to service organizations, suggesting that the value-adding process may be configured differently depending on the type of business a firm is engaged in. 21. The resource-based view of the firm focuses solely on the internal analysis of the operations of the firm. Answer: False Rationale: The resource-based view (RBV) of the firm combines two perspectives: (1) the internal analysis of phenomena within a company and (2) an external analysis of the industry and its competitive environment. 22. Tangible resources are assets that are relatively easy to identify such as financial and physical assets. Answer: True Rationale: Tangible resources are assets that are relatively easy to identify. They include the physical and the financial assets that an organization uses to create value for its customers. 23. Intangible resources of a firm refer to its capacity to deploy tangible resources over time and leverage those resources effectively. Answer: False Rationale: Intangible resources are organizational assets that are difficult to identify and to account for and are typically embedded in unique routines and practices, including human resources, innovation resources, and reputation resources. 24. Products and services that are difficult to imitate help firms sustain their profitability. Answer: True Rationale: For a resource to provide a firm with the potential for a sustainable competitive advantage, it must have four attributes. Among these is the idea that the resource must be difficult for competitors to imitate. 25. Path dependency has no impact on the inimitability of resources. Answer: False Rationale: Many resources cannot be imitated because of what economists refer to as path dependency. This means that resources are unique and therefore scarce because of all that has happened along the path followed in their development and/or accumulation. Competitors cannot buy these resources quickly and easily; they must be built up over time in ways that are difficult to accelerate. 26. Capabilities that exhibit causal ambiguity are difficult to imitate. Answer: True Rationale: One source of inimitability is termed causal ambiguity. This 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. 27. For a resource to provide a firm with potential sustainable advantages it must satisfy only two criteria: rareness and difficulty in substitution. Answer: False Rationale: For a resource to provide a firm with the potential for a sustainable competitive advantage, it must have four attributes. First, the resource must be valuable in the sense that it exploits opportunities and/or neutralizes threats in the environment of the firm. Second, it must be rare among the current and potential competitors of the firm. Third, the resource must be difficult for competitors to imitate. Fourth, the resource must have no strategically equivalent substitutes. 28. Firms that are successful in creating competitive advantages that are sustainable for a period of time do not have to be concerned about profits being retained by employees or managers. Answer: False Rationale: Firms may be successful in creating competitive advantages that can be sustainable for a period of time. However, much of the profits can be retained by its employees and managers or other stakeholders instead of flowing to the owners of the firm. 29. Employee exit cost is a factor that can increase employee bargaining power and help him or her appropriate profits of the firm. Answer: False Rationale: Employee exit costs may tend to reduce employee bargaining power. An individual may face high personal costs when leaving the organization. Thus, the threat of the individual leaving may not be credible. In addition, employee expertise may be firm-specific and of limited value to other firms. 30. Amazon Prime is an example of a difficult to imitate capability that gives it competitive advantage over its rivals. Answer: True Rationale: Amazon Prime has proven to be extremely hard for rivals to copy. It enables Amazon to exploit its wide selection, low prices, network of third-party merchants, and finely tuned distribution system, while keying off that faintly irrational human need to maximize the benefits of a club that you have already paid to join. The four criteria a resource must possess in order to maintain a sustainable advantage are: valuable, rarity, difficult to imitate, and difficult to substitute. 31. Dell lost its competitive advantage by 2009 in part because it placed its efforts on operational excellence to the exclusion of reinvention, according to Inder Sidhu. Answer: True Rationale: Dell illustrates what can happen when a company emphasizes optimization to the exclusion of reinvention. According to author Inder Sidhu, the Dell obsession with operational excellence prevented it from delivering innovations that the market wanted, costing it a great deal of goodwill and prestige. 32. Financial analysis provides an accurate way to assess the relative strengths of firms and can be used as a complete guide to study companies. Answer: False Rationale: The financial position of a firm should not be analyzed in isolation. Important reference points are needed. Some issues that must be taken into account to make financial analysis more meaningful include: historical comparisons, comparisons with industry norms, and comparisons with key competitors. 33. Leverage ratios provide measures of the capacity of a firm to meet its long-term financial obligations. Answer: True Rationale: Financial leverage ratios are also known as long-term solvency ratios. They measure the capacity of the firm to meets its long-term obligations. 34. Historical comparisons are most appropriate during periods of recession or economic boom. Answer: False Rationale: Exhibit 3.10 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. 35. When using industry norms as a standard of comparison, managers must be sure that the firms used in the comparisons are representative of all sizes and strategies within the industry. Answer: False Rationale: Comparing a firm with all other firms in that industry assesses relative performance. Banks often use such comparisons when evaluating the creditworthiness of an individual firm. 36. A primary benefit of the balanced scorecard is that it complements financial indicators with operational measures of customer satisfaction, internal processes, and the innovation and improvement activities of the organization. Answer: True Rationale: A balanced scorecard provides top managers with a fast but comprehensive view of the business. In a nutshell, it includes financial measures that reflect the results of actions already taken, but it complements these indicators with measures of customer satisfaction, internal processes, and the innovation and improvement activities of the organization (operational measures that drive future financial performance). 37. The balanced scorecard enables managers to evaluate their business from only two perspectives: customer and financial. Answer: False Rationale: The balanced scorecard enables managers to consider their business from four key perspectives: customer, internal, innovation and learning, and financial. 38. An important implication of the balanced scorecard is that managers need NOT look at their job as primarily balancing stakeholder demands. Answer: True Rationale: A key implication is that managers do not need to look at their job as balancing stakeholder demands. The balanced scorecard provides a win-win approach, increasing satisfaction among a wide variety of organizational stakeholders, including employees, customers, and stockholders. 39. A strength of the balanced scorecard is that it is very easy to implement and that there is little need for executive sponsorship. Answer: False Rationale: The key limitation of the balanced scorecard is that some executives may view it as a quick fix that can be easily installed. Implementing a balanced metrics system is an evolutionary process. It is not a one-time task that can be quickly checked off as completed. If managers do not recognize this from the beginning and fail to commit to it long term, the organization will be disappointed. 40. In considering the business from the innovation and learning perspective using the balanced scorecard, the ability of the firm to do well is more dependent on its intangible and tangible assets. Answer: True Rationale: The ability of the firm to do well from an innovation and learning perspective is more dependent on its intangible than tangible assets. Three categories of intangible assets are critically important: human capital (skills, talent, and knowledge), information capital (information systems, networks), and organization capital (culture, leadership). 41. In considering the business from the customer perspective using the balanced scorecard, company performance is essential. Answer: True Rationale: How a company is performing from the perspective of its customers is a top priority for management. The balanced scorecard requires that managers translate their general mission statements on customer service into specific measures that reflect the factors that really matter to customers. 42. In considering the business from the internal business perspective using the balanced scorecard, customer-based measures must be translated into indicators of what the firm must do internally to meet customer expectations. Answer: True Rationale: Customer-based measures are important. However, they must be translated into indicators of what the firm must do internally to meet customer expectations. The internal measures should reflect business processes that have the greatest impact on customer satisfaction. 43. In considering the business from the internal business perspective using the balanced scorecard, periodic financial statements are used to indicate the consequences of improved quality, response time, productivity, and innovative products. These consequences include improved sales. Answer: True Rationale: Measures of financial performance indicate whether the company strategy, implementation, and execution are indeed contributing to bottom-line improvement. Typical financial goals include profitability, growth, and shareholder value. Periodic financial statements remind managers that improved quality, response time, productivity, and innovative products benefit the firm only when they result in improved sales, increased market share, reduced operating expenses, or higher asset turnover. Multiple Choice Questions 44. Which of the following is NOT a limitation of SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis? A. Organizational strengths may not lead to competitive advantage. B. The SWOT focus on the external environment is too broad and integrative. C. SWOT gives a one-shot view of a moving target. D. SWOT overemphasizes a single dimension of strategy. Answer: B. The SWOT focus on the external environment is too broad and integrative. Rationale: Among the limitations of SWOT are: organizational strengths may not lead to competitive advantage; the SWOT focus on the external environment is too narrow; it gives a one-shot view of a moving target; and it overemphasizes a single dimension of strategy. 45. In value-chain analysis, the activities of an organization are divided into two major categories of value activities: primary and support. Which of the following is a primary activity? A. purchasing key inputs B. repairing the product for the consumer C. recruiting and training employees D. monitoring the cost of producing the product through a cost accounting system Answer: B. repairing the product for the consumer Rationale: Five primary activities (inbound logistics, operations, outbound logistics, marketing and sales, and service (which includes repairs)) contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale. 46. Inbound logistics include: A. machining and packaging. B. repair and parts supply. C. warehousing and inventory control. D. promotion and packaging. Answer: C. warehousing and inventory control. Rationale: Inbound logistics is associated primarily with receiving, storing, and distributing inputs to the product. It includes material handling, warehousing, inventory control, vehicle scheduling, and returns to suppliers. 47. In assessing its primary activities, an airline would examine ___________. A. baggage handling B. employee training programs C. criteria for lease versus purchase decisions D. the effectiveness of its lobbying activities Answer: A. baggage handling Rationale: Five primary activities: inbound logistics, operations (which would include baggage handling for an airline), outbound logistics, marketing and sales, and service contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale. 48. Advertising is a __________ activity. Supply of replacement parts is a __________ activity. A. support; primary B. support; secondary C. primary; support D. primary; primary Answer: D. primary; primary Rationale: Five primary activities (inbound logistics, operations, outbound logistics, marketing and sales, and service) contribute to the physical creation of the product or service, its sale and transfer to the buyer, and its service after the sale. Inbound logistics is primarily associated with receiving, storing, and distributing inputs to the product. Marketing and sales activities include advertising. 49. Which of the following examples demonstrates how successful organizations manage their primary activities? A. Motorola has revised its compensation system to reward employees who learn a variety of skills. B. Hewlett Packard has cut lead time from five days to one by employing JIT inventory management. C. National Steel improved its efficiency by reducing the number of job classifications. D. Wal-Mart implemented a sophisticated information system that resulted in reduced inventory carrying costs and shortened customer response times. Answer: B. Hewlett Packard has cut lead time from five days to one by employing JIT inventory management. Rationale: Just-in-time (JIT) inventory systems were designed to achieve efficient inbound logistics, which is one of the five primary activities in value-chain analysis. With JIT inventory systems, parts deliveries arrive at the assembly plants only hours before they are needed. 50. Which of the following is not an advantage of Just-In-Time inventory systems? A. reduced raw material storage costs B. minimized idle production facilities and workers C. reduced dependence on suppliers D. reduced work-in-process inventories Answer: C. reduced dependence on suppliers Rationale: With JIT inventory systems, parts deliveries arrive at the assembly plants only hours before they are needed. This requires greater reliance on superior performance of suppliers. 51. XYZ Corp. is focusing on the objective of low-cost, high quality, on-time production by minimizing idle productive facilities and workers. The XYZ Corp. is taking advantage of a __________ system. A. Last In, First Out (LIFO) B. First In, First Out (FIFO) C. Just-In-Time (JIT) D. Highly mechanized Answer: C. Just-In-Time (JIT) Rationale: Just-in-time (JIT) inventory systems were designed to achieve efficient inbound logistics, which is one of the five primary activities in value-chain analysis. With JIT inventory systems, parts deliveries arrive at the assembly plants only hours before they are needed, which reduces idle production capacity. 52. ___________ is/are associated with collecting, storing, and distributing the product or service to buyers. They consist of warehousing, material handling, delivery operation, order processing, and scheduling. A. Services B. Outbound logistics C. Inbound logistics D. Operations Answer: B. Outbound logistics Rationale: Outbound logistics is associated with collecting, storing, and distributing the product or service to buyers. These activities include finished goods, warehousing, material handling, delivery vehicle operation, order processing, and scheduling. 53. Customer service includes ________. A. product promotion B. parts supply C. product distribution D. procurement of critical supplies Answer: B. parts supply Rationale: Service activity includes all actions associated with providing service to enhance or maintain the value of the product, such as installation, repair, training, parts supply, and product adjustment. 54. Which of the following is a support activity? A. inbound logistics B. technology development C. operations D. customer service Answer: B. technology development Rationale: Support activities in the value chain can be divided into four generic categories: general administration, human resource management, technology development, and procurement. 55. Which of the following lists consists of support activities? A. human resource management, technology development, customer service, and procurement B. human resource management, customer service, marketing and sales, and operations C. customer service, information systems, technology development, and procurement D. human resource management, technology development, procurement, and firm infrastructure Answer: D. human resource management, technology development, procurement, and firm infrastructure Rationale: Support activities in the value chain can be divided into four generic categories: general administration, human resource management, technology development, and procurement. 56. Human resource management consists of activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel. It supports _______________. A. only individual primary activities B. both individual primary and support activities and the entire value chain C. only individual support activities D. mostly support activities but does have some impact on primary activities Answer: B. both individual primary and support activities and the entire value chain Rationale: Human resource management consists of activities involved in the recruiting, hiring, training, development, and compensation of all types of personnel. It supports both individual primary and support activities and the entire value chain. 57. According to value-chain analysis, which of the following would be considered part of the general administration in a firm? A. human resource management B. technology development C. information systems D. procurement Answer: C. information systems Rationale: General administration consists of a number of activities, including general management, planning, finance, accounting, legal and government affairs, quality management, and information systems. Administration typically supports the entire value chain and not individual activities. 58. Although general administration is often viewed only as overhead expense, it can become a source of competitive advantage. Examples include all of the following EXCEPT: A. negotiating and maintaining ongoing relations with regulatory bodies B. marketing expertise increasing the revenues of the firm and enabling it to enter new markets C. effective information systems contributing significantly to overall cost leadership strategy for the firm D. top management providing a key role in collaborating with important customers Answer: B. marketing expertise increasing the revenues of the firm and enabling it to enter new markets Rationale: General administration consists of a number of activities, including general management, planning, finance, accounting, legal and government affairs, quality management, and information systems. Marketing is a primary activity. 59. For firms such as CarMax, information systems have been a source of competitive advantage. Their proprietary information system captures, analyzes, interprets, and disseminates information about all cars on the CarMax lot. Which of the following can be attributed to this information system? A. decrease in uncertainties in hard to forecast areas such as inventory management B. decrease in operational efficiency C. reduced customer service D. decrease in sales Answer: A. decrease in uncertainties in hard to forecast areas such as inventory management Rationale: CarMax also operates a proprietary information system that captures, analyzes, interprets, and disseminates information about all cars on the CarMax lot. The key features of this system provide CarMax management with real-time business insights into different store operations, such as inventory management, pricing, and sales consultant productivity. This advanced information system allows CarMax to decrease uncertainties in traditionally hard to forecast areas such as inventory management, allowing management to improve operational efficiency and anticipate future trends. 60. A marketing department that promises delivery faster than the ability of the production department to produce is an example of a lack of understanding of the _____________. A. organizational culture and leadership B. interrelationships among functional areas and firm strategies C. need to maintain the reputation of the company D. synergy of the business units Answer: B. interrelationships among functional areas and firm strategies Rationale: Important to value-chain analysis are interrelationships which are the collaborative and strategic exchange relationships between value-chain activities either (a) within firms or (b) between firms. Strategic exchange relationships involve exchange of resources such as information, people, technology, or money that contribute to the success of the firm. 61. In a retail service industry, which of the following is not a primary value-chain activity? A. purchasing goods B. operating stores C. partnering with vendors D. human resource management Answer: D. human resource management Rationale: Primary value-chain activities include: inbound logistics, operations, outbound logistics, marketing and sales, and service. Human resource management is a support activity. 62. The resource-based view (RBV) of the firm combines two perspectives: A. the primary and support activities of the firm B. the interrelationships among the primary activities of the firm and corporate management C. the internal analysis of the firm and the external analysis of the industry and competitive environment D. the industry and the competitive environment Answer: C. the internal analysis of the firm and the external analysis of the industry and competitive environment Rationale: The resource-based view (RBV) of the firm combines two perspectives: (1) the internal analysis of phenomena within a company and (2) an external analysis of the industry and its competitive environment. 63. The three key types of resources that are central to the resource-based view of the firm are: A. tangible resources, intangible resources, and organizational structure B. culture, tangible resources, intangible resources C. tangible resources, intangible resources, and organizational capabilities D. tangible resources, intangible resources, and top management Answer: C. tangible resources, intangible resources, and organizational capabilities Rationale: Firm resources are all assets, capabilities, organizational processes, information, knowledge, and so forth, controlled by a firm that enable it to develop and implement value-creating strategies. The three types of resources are tangible resources, intangible resources and organizational capabilities. 64. In the resource-based view of the firm, examples of tangible resources include: A. financial resources, human resources, and firm competencies B. financial resources, physical resources, and technological resources C. financial resources, physical resources, and the capacity to combine intangible resources D. outstanding customer service, innovativeness of products, and reputation Answer: B. financial resources, physical resources, and technological resources Rationale: Examples of tangible resources are financial resources, physical resources, organizational resources, and technological resources. 65. Typically embedded in unique routines and practices that have evolved and accumulated over time such as effective work teams is which of the following: A. tangible resources B. intangible resources C. reputational resources D. organizational capabilities Answer: B. intangible resources Rationale: Intangible resources are typically embedded in unique routines and practices that have evolved and accumulated over time. These include human resources (e.g., experience and capability of employees, trust, and effectiveness of work teams). 66. Apple combines and packages proven technology in new and innovative ways. This is an example of its use of ____________. A. tangible resources B. intangible resources C. organizational capabilities D. strong primary activities Answer: C. organizational capabilities Rationale: Organizational capabilities are the competencies or skills that a firm employs to transform inputs into outputs. Examples of organizational capabilities are outstanding customer service, excellent product development capabilities, superb innovation processes, and flexibility in manufacturing processes. 67. __________ are the competencies or skills that a firm employs to transform inputs into outputs. A. Tangible resources B. Organizational capabilities C. Reputational resources D. Intangible resources Answer: B. Organizational capabilities Rationale: Organizational capabilities are the competencies or skills that a firm employs to transform inputs into outputs. Examples of organizational capabilities are outstanding customer service, excellent product development capabilities, superb innovation processes, and flexibility in manufacturing processes. 68. For a resource to provide a firm with the potential for a sustainable competitive advantage, it must have four attributes. Which of the following is not one of these attributes? A. rare B. valuable C. easy for competitors to substitute D. difficult for competitors to imitate Answer: C. easy for competitors to substitute Rationale: For a resource to provide a firm with the potential for a sustainable competitive advantage, it must have four attributes. First, the resource must be valuable in the sense that it exploits opportunities and/or neutralizes threats in the firm's environment. Second, it must be rare among current and potential competitors of the firm. Third, the resource must be difficult for competitors to imitate. Fourth, the resource must have no strategically equivalent substitutes. 69. A competitive advantage based on inimitability can be sustained for at least some time if it has the following characteristics: A. psychographic uniqueness, path dependency, causal ambiguity, and substitutability B. physical uniqueness, path dependency, causal ambiguity, and social complexity C. rarity, path dependency, causal ambiguity, and social substitutability D. geographic uniqueness, cause dependency, social ambiguity, and path complexity Answer: B. physical uniqueness, path dependency, causal ambiguity, and social complexity Rationale: An advantage based on inimitability will not last forever. Competitors will eventually discover a way to copy most valuable resources. However, managers can forestall them and sustain profits for a while by developing strategies around resources that have at least one of the following four characteristics: physical uniqueness, path dependency, causal ambiguity, and social complexity. 70. 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 Answer: C. path dependency Rationale: 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. 71. 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 Answer: B. social complexity Rationale: 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. 72. 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 Answer: B. complex physical technology Rationale: 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. 73. 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 Answer: B. a temporary competitive advantage Rationale: 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. 74. 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 Answer: C. the cost to the firm of replacing them is high Rationale: 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. 75. 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. Answer: D. Managers have low bargaining power. Rationale: 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. 76. Amazon Prime is credited for helping to increase the Amazon stock price by nearly 300 percent from 2008 to 2010. This is competitive advantage is known as _________. A. causal ambiguity B. product rarity C. service validity D. substitutability Answer: A. causal ambiguity Rationale: 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. 77. 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 Answer: C. in periods of recession or economic boom Rationale: Exhibit 3.10 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. 78. The best measure of a company's ability to meet imminent financial obligations is known as the A. debt ratio B. current ratio C. total asset turnover D. profit margin Answer: B. current ratio Rationale: According to Exhibit 3.9, 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. 79. 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 Answer: C. the legitimacy and reputation of a firm Rationale: The legitimacy and reputation of a firm are harder to assess, because there is no simple mathematical formula to compute them. 80. Which of these categories of financial ratios is used to measure the ability of a firm to meet its short-term financial obligations? A. leverage ratios B. profitability ratios C. activity ratios D. liquidity ratios Answer: D. liquidity ratios Rationale: 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. 81. Ratios that reflect whether or not a firm is efficiently using its resources are known as A. leverage ratios B. turnover ratios C. liquidity ratios D. profitability ratios Answer: B. turnover ratios Rationale: Asset utilization (or turnover) ratios are one measure of whether a firm is efficiently using its resources. 82. The balanced scorecard provides top managers with a __________ view of the business. A. detailed and complex B. simple and routine C. fast but comprehensive D. long-term financial Answer: C. fast but comprehensive Rationale: A balanced scorecard provides top managers with a fast but comprehensive view of the business. In a nutshell, it includes financial measures that reflect the results of actions already taken, but it complements these indicators with measures of customer satisfaction, internal processes, and the innovation and improvement activities of the organization. 83. The balanced scorecard, developed by Kaplan and Norton, helps to integrate ______. A. financial analysis and the reputation of a firm B. intangible resources and operational measures C. financial analysis and stakeholder perspectives D. short-term perspectives and strategic positioning Answer: C. financial analysis and stakeholder perspectives Rationale: The balanced scorecard enables managers to consider their business from four key perspectives: customer, internal, innovation and learning, and financial. 84. The balanced scorecard enables managers to consider their business from all of the following perspectives EXCEPT: A. customer perspective B. internal perspective C. innovation and learning perspective D. ethical perspective Answer: D. ethical perspective Rationale: The balanced scorecard enables managers to consider their business from four key perspectives: customer, internal, innovation and learning, and financial. 85. An important implication of the balanced scorecard approach is that _______________. A. managers need to recognize that satisfaction of stockholder demands is their primary job B. the key emphasis on customer satisfaction and financial goals are only a means to that end C. managers should not look at their job as primarily balancing stakeholder demands D. gains in financial performance and customer satisfaction must come at a cost of employee satisfaction Answer: C. managers should not look at their job as primarily balancing stakeholder demands Rationale: A key implication is that managers do not need to look at their job as balancing stakeholder demands. The balanced scorecard provides a win-win approach, increasing satisfaction among a wide variety of organizational stakeholders, including employees (at all levels), customers, and stockholders. Essay Questions 86. What are some of the key strengths and limitations of SWOT analysis? Answer: Key strengths of SWOT analysis include its simplicity in application, providing a structured framework to assess both internal strengths and weaknesses, as well as external opportunities and threats. It helps organizations identify strategic advantages and potential risks. However, SWOT analysis has limitations such as its tendency to oversimplify complex situations, its reliance on subjective assessments, the static nature of the analysis, and the challenge of effectively prioritizing factors. It's crucial to use SWOT alongside other analytical tools for a more robust strategic assessment. 87. What are the key advantages of value-chain analysis over SWOT analysis? Answer: Key advantages of value-chain analysis over SWOT analysis include its focus on specific activities within an organization's operations, allowing for a detailed understanding of cost structures and competitive advantages. It helps identify opportunities for cost reduction and differentiation across the entire value chain. Unlike SWOT, which is more general, value-chain analysis provides a clearer path for improving organizational efficiency and creating value for customers. Additionally, it offers a systematic approach to understanding how activities are linked and contribute to competitive advantage. 88. What are some ways in which a firm's general administration can help create (or enhance) competitive advantages? Answer: General administration can create or enhance competitive advantages through: 1. Efficient Resource Allocation: Effective administration ensures resources are allocated optimally, enhancing productivity and reducing costs. 2. Strategic Decision-Making: Administration plays a crucial role in strategic planning and decision-making, aligning organizational goals with market opportunities. 3. Effective Organizational Structure: Well-designed administrative structures promote communication, collaboration, and innovation, fostering agility and responsiveness to market changes. 4. Talent Management: Administering human resources strategically attracts and retains talent, cultivating a skilled workforce that drives innovation and customer satisfaction. 5. Compliance and Risk Management: Ensuring regulatory compliance and managing risks effectively safeguard the firm's reputation and operational continuity, contributing to long-term competitive advantage. 89. How can a firm develop (or enhance) its advantages in the marketplace by having strong, positive interrelationships among its value chain activities and those of its suppliers and customers? Provide an example. Answer: A firm can enhance its marketplace advantages by fostering strong interrelationships among its value chain activities, suppliers, and customers through collaboration and integration. For example, integrating customer feedback directly into product development (from suppliers to manufacturing to distribution) enhances product relevance and customer satisfaction (e.g., Apple's integration of customer preferences into new iPhone features). This alignment ensures seamless operations, reduces costs, and improves overall value proposition, strengthening competitive positioning in the marketplace. 90. The resource-based view (RBV) combines both the internal analysis of the firm and the external analysis of the environment. Discuss and provide examples. Answer: The resource-based view (RBV) emphasizes that a firm's competitive advantage stems from its unique and valuable resources and capabilities, both internal and external. For example, Apple's design and innovation capabilities (internal) combined with its exclusive supplier relationships (external) create a sustainable competitive advantage in the smartphone market. By leveraging these resources effectively, firms can develop distinctive competencies that are difficult for competitors to replicate, leading to long-term profitability and market leadership. 91. Explain the four attributes that a resource must have to provide a firm with a sustainable competitive advantage. Answer: For a resource to provide a firm with a sustainable competitive advantage, it must possess four key attributes: 1. Valuable: The resource enables the firm to exploit opportunities or mitigate threats in the environment. 2. Rare: It is unique or relatively scarce compared to competitors. 3. Inimitable: Competitors cannot easily replicate or imitate the resource. 4. Non-substitutable: There are no equivalent substitutes that can achieve the same competitive advantage. These attributes ensure that the resource contributes uniquely to the firm's ability to maintain superior performance over time. 92. Explain how causal ambiguity can provide a sustainable competitive advantage. Illustrate your comments with an example from a real business. Answer: Causal ambiguity refers to the complexity or difficulty in understanding the relationship between a firm's resources and its competitive advantage, which can create a sustainable advantage. For example, Coca-Cola's brand reputation and customer loyalty are partly due to its secret recipe and marketing strategies, which are not fully understood by competitors. This ambiguity makes it challenging for rivals to replicate Coca-Cola's success, thereby maintaining its competitive edge in the beverage industry. 93. Discuss the competitive advantage of a resource that is difficult to imitate, using an example from a real business that supports your argument. Answer: A resource that is difficult to imitate provides a competitive advantage by creating barriers for competitors. For instance, Netflix's recommendation algorithm, which suggests personalized content based on viewing habits and preferences, is a complex resource that competitors find challenging to replicate. This technology enhances customer satisfaction and retention, contributing significantly to Netflix's leadership in the streaming entertainment industry despite numerous competitors attempting to emulate its success. 94. What are the benefits and limitations of making historical comparisons in analyzing a firm's performance? Answer: Making historical comparisons in analyzing a firm's performance offers benefits such as identifying trends, benchmarking against past successes or failures, and providing insights into long-term strategic decisions. It helps in assessing growth patterns and understanding market responses over time. However, limitations include changes in market conditions, technological advancements, and shifts in consumer preferences, which may render historical data less relevant or accurate for current decision-making. Additionally, over-reliance on historical comparisons can overlook emerging trends and new competitive threats. 95. What are the four perspectives that the "balanced scorecard" enables managers to evaluate their business? Answer: The balanced scorecard enables managers to evaluate their business from four perspectives: 1. Financial Perspective: Focuses on financial performance metrics like profitability, revenue growth, and cost efficiency. 2. Customer Perspective: Measures customer satisfaction, retention, and market share to gauge how well the business is meeting customer needs. 3. Internal Business Processes Perspective: Evaluates efficiency, quality, and innovation within the organization's operations and processes. 4. Learning and Growth Perspective: Assesses capabilities in terms of employee skills, technology, and organizational culture to drive future performance and innovation. 96. What are some of the most important implications of using the "balanced scorecard" approach? Answer: Using the balanced scorecard approach has several important implications: 1. Holistic Performance Measurement: It encourages a balanced view of organizational performance across financial and non-financial metrics. 2. Alignment of Objectives: Helps align strategic objectives across different levels of the organization, promoting coherence in actions. 3. Focus on Long-term Strategy: Shifts focus from short-term financial results to long-term strategic goals and sustainability. 4. Enhanced Communication and Accountability: Facilitates clearer communication of strategic priorities and enhances accountability by linking performance metrics to strategic objectives. 5. Continuous Improvement: Promotes continuous monitoring and adjustment of strategies and tactics based on performance feedback from multiple perspectives. 97. Address some of the limitations and potential downsides of the balanced scorecard. Answer: Some limitations and potential downsides of the balanced scorecard include: 1. Complexity: Developing and maintaining a balanced scorecard system can be resource-intensive and time-consuming. 2. Overemphasis on Metrics: Focusing too much on metrics may lead to neglect of qualitative aspects that are harder to quantify. 3. Resistance to Change: Implementation challenges and resistance from employees accustomed to traditional performance measures. 4. Risk of Misinterpretation: Metrics can be misinterpreted or manipulated, leading to inaccurate assessments of performance. 5. Difficulty in Causality: Establishing clear cause-and-effect relationships between metrics and outcomes can be challenging, affecting the reliability of performance evaluations. Chapter 04 Recognizing a Firm's Intellectual Assets: Moving beyond a Firm's Tangible Resources True/False Questions 1. According to the text, for most of the 20th century, managerial efforts were directed more toward the efficient allocation of labor and capital, which are the two traditional factors of production. Answer: True Rationale: For most of the 20th century, managers focused on tangible resources such as land, equipment, and money as well as intangibles such as brands, image, and customer loyalty. Efforts were directed more toward the efficient allocation of labor and capital, which are the two traditional factors of production. 2. The importance of human capital has decreased in recent years. For this reason, many firms have placed greater attention on attracting talent, but not on developing or retaining it. Answer: False Rationale: In the knowledge economy, wealth is increasingly created by effective management of knowledge workers, instead of physical and financial assets. The growing importance of knowledge, coupled with the move by labor markets to reward knowledge work, tells us that investing in a company is, in essence, buying a set of talents, capabilities, skills, and ideas (intellectual capital) not physical and financial resources. 3. The more reliance a firm has on intellectual capital, the closer its book value will be to its market value. Answer: False Rationale: The gap between the market value and book value of a firm is far greater for knowledge-intensive corporations than for firms with strategies based primarily on tangible assets. 4. The difference between the market value and book value of a firm is its social capital. Answer: False Rationale: Social capital is the network of relationships that individuals have throughout the organization. 5. In the current economy, reliance on the three traditional financial statements (income statement, balance sheet, and statement of cash flow) has increased. Answer: False Rationale: In 1978 the book value for U.S. companies was 95 percent of market value. However, market values and book values have diverged significantly. Within 20 years, the S&P industrials were, on average, trading at 2.2 times book value. Robert A. Howell, an expert on the changing role of finance and accounting, suggests that the big three financial statements are about as useful as an 80-year-old Los Angeles road map. 6. Firms such as Apple and Google will tend to have a higher ratio of market value to book value than industrial companies such as Nucor Steel. Answer: True Rationale: As shown in Exhibit 4.1, firms such as Apple and Google have very high market value to book value ratios because of their high investment in knowledge resources and technological expertise. In contrast, firms in more traditional industry sectors, such as Nucor, have relatively low market to book ratios. 7. Creation of new knowledge typically involves the continual interaction of explicit and tacit knowledge. Answer: True Rationale: New knowledge is constantly created through the continual interaction of explicit knowledge (knowledge that is codified, documented, easily reproduced, and widely distributed, such as engineering drawings, software code, and patents) and tacit knowledge (knowledge that is in the minds of employees and is based on their experiences and backgrounds). 8. Knowledge workers are more loyal to their companies than traditional workers. Answer: False Rationale: Knowledge workers place professional development and personal enrichment (financial and otherwise) above company loyalty. 9. Technical skills are a necessary and sufficient condition for hiring an employee. Answer: False Rationale: Firms can identify top performers by focusing on key employee mind-sets, attitudes, social skills, and general orientations. If they get these elements right, the task-specific skills can be learned quickly. This does not imply that task-specific skills are unimportant; rather, it suggests that the requisite skill sets must be viewed as a necessary but not a sufficient condition. 10. One of the most important elements in a good employee is his or her attitude. Firms should follow the adage: hire for attitude, train for skill. Answer: True Rationale: Firms can identify top performers by focusing on key employee mind-sets, attitudes, social skills, and general orientations. If they get these elements right, the task-specific skills can be learned quickly. This does not imply that task-specific skills are unimportant; rather, it suggests that the requisite skill sets must be viewed as a necessary but not sufficient condition. 11. Companies have found that referrals from their own employees are generally an effective approach to recruiting top talent. Answer: True Rationale: Companies like GE Medical Systems have found that current employees are the best source for new ones. When someone refers a former colleague or friend for a job, his or her credibility is on the line. Employees are careful recommending people unless they are reasonably confident they are good candidates. 12. The Millennial generation expects employers to provide incentives to attract and retain them. A company that does this will have a competitive advantage. Answer: True Rationale: This generation has also been termed Generation Y or Echo Boom and includes people that were born after 1982. Many call them impatient, demanding, or entitled. However, if employers do not provide incentives to attract and retain young workers, somebody else will. Thus, they will be at a competitive disadvantage. 13. Millennials value hard work and will rarely use vacation time. Answer: False Rationale: Millennials strive for more work-life balance, so liberal vacations become very important. They also want assurances that they can use it. At KPMG, 80 percent of employees used 40 hours of paid time off in the first six months of a recent year. 14. In most effective evaluation and reward systems employees only receive evaluation and feedback from their immediate supervisor. Answer: False Rationale: As organizations continue to push responsibility downward, traditional top-down appraisal systems become insufficient. To address the limitations of the traditional approach, many organizations use 360-degree evaluation and feedback systems. Here, superiors, direct reports, colleagues, and even internal and external customers rate the performance of a person. 15. 360-degree evaluation and feedback systems address many of the limitations of traditional approaches of evaluating human capital. Answer: True Rationale: To address the limitations of the traditional approach, many organizations use 360-degree evaluation and feedback systems. Here, superiors, direct reports, colleagues, and even internal and external customers rate a person's performance. The 360-degree feedback system complements teamwork, employee involvement, and organizational flattening. 16. 360-degree evaluation systems are not useful due to the need to integrate large amounts of feedback. Answer: False Rationale: The 360-degree feedback system complements teamwork, employee involvement, and organizational flattening. As organizations continue to push responsibility downward, traditional top-down appraisal systems become insufficient. 17. The most effective method of improving retention of top talent at a firm is to intensify its hiring efforts. Answer: False Rationale: Stepped-up recruiting is a poor substitute for weak retention. Today, leaders can either provide the work environment and incentives to keep productive employees and management from wanting to bail out, or they can use legal means such as employment contracts and noncompete clauses. 18. An internal work opportunity market for employees is one means of increasing employee retention. Answer: True Rationale: One way firms keep highly mobile employees motivated and challenged is through opportunities that lower barriers to employee mobility within a company. For example, Shell Oil Company has created an open sourcing model for talent. Jobs are listed on the Shell intranet; with a two-month notice, employees can go to work on anything that interests them. 19. The text suggests that talented professionals are typically most concerned about financial rewards. Money is the top reason why such employees take and leave jobs. Answer: False Rationale: Paying people more is seldom the most important factor in attracting and retaining human capital. Most surveys show that money is not the most important reason why people take or leave jobs, and that money, in some surveys, is not even in the top 10. 20. Workforces that reflect demographic changes will become more homogeneous over the next few decades with regard to gender, race, ethnicity, and nationality. Answer: False Rationale: Demographic trends and accelerating globalization of business make management of cultural differences a critical issue. Workforces that reflect demographic changes in the overall population will be increasingly heterogeneous along dimensions such as gender, race, ethnicity, and nationality. 21. Social capital is based on the network of relationships within a firm, not in the skills and abilities of an individual employee. Answer: True Rationale: Social capital development (the friendships and working relationships among talented individuals) gains importance when key players are free agents, because it helps tie knowledge workers to a given firm. 22. Social capital is found in the knowledge, skills, and abilities of individual employees. Answer: False Rationale: Social capital development (the friendships and working relationships among talented individuals) gains importance when key players are free agents, because it helps tie knowledge workers to a given firm. 23. Developing social capital is risky for an organization because social capital is specific to individuals and remains with the employee, if he or she leaves the organization. Answer: False Rationale: Social capital development (the friendships and working relationships among talented individuals) gains importance when key players are free agents, because it helps tie knowledge workers to a given firm. 24. Social network analysis can be used to help identify groups or clusters of individuals that comprise the network, individuals who link the clusters, and other network members. Answer: True Rationale: Social network analysis depicts the pattern of interactions among individuals and helps to diagnose effective and ineffective patterns. It helps identify groups or clusters of individuals that comprise the network, individuals who link the clusters, and other network members. It helps diagnose communication patterns and, consequently, communication effectiveness. 25. Developing and protecting social capital requires independence, in which individuals must spend most of their time working individually. Answer: False Rationale: Developing social capital requires interdependence among group members. Social capital erodes when people in the network become independent. Increased interaction between members aids in the development and maintenance of mutual obligations in a social network. 26. In bridging relationships in social networks, one member is central to the communication flows in a group. Answer: False Rationale: In closure relationships one member is central to the communication flows in a group. In bridging relationships, one person bridges or brings together groups that would have been otherwise unconnected. 27. Closure, in contrast to bridging relationships, stresses the importance of ties connecting heterogeneous people. Answer: False Rationale: Bridging relationships, in contrast to closure, stresses the importance of ties connecting people. Employees who bridge disconnected people tend to receive timely, diverse information because of their access to a wide range of heterogeneous information flows. 28. From the individual perspective, social networks deliver three unique advantages: private information, access to diverse skill sets, and power. Answer: True Rationale: Effective social networks provide many advantages for the firm. They can play a key role in the career advancement and success of an individual. A social network potentially can provide three unique advantages: private information, access to diverse skill sets, and power. 29. One potential downside of building social capital in an organization is groupthink. This means everyone in the group thinks on his or her own and comes up with new ideas. Answer: False Rationale: Some firms have been adversely affected by very high levels of social capital because it may breed groupthink, a tendency not to question shared beliefs. In effect, too many warm and fuzzy feelings among group members prevent people from rigorously challenging each other. 30. The role of technology in the recruitment of human capital has lowered individual reliance on the use of social networks. Answer: False Rationale: Technology can be used to leverage human capital and knowledge within organizations as well as with customers and suppliers beyond their boundaries, but social networks are still important for sharing information. 31. The use of e-mail can be distracting to employees. Some firms limit the time that employees spend using email. Answer: True Rationale: E-mail is an effective means of communicating a wide variety of information. It is quick, easy, and almost costless. Of course, it can become a problem when employees use it extensively for personal reasons. 32. Since electronic teams (e-teams) seldom meet face-to-face, it is NOT important for them to be concerned with how to combine individual contributions effectively. Answer: False Rationale: Successful action by both traditional teams and e-teams requires that e-team leaders and key members know how to combine individual contributions in the most effective manner for a coordinated and appropriate response. 33. Once a knowledge asset (e.g., a software code) is developed and paid for, it can be used many times at very low cost as long as it does not have to be substantially modified each time. Answer: True Rationale: One of the challenges of knowledge-intensive organizations is to capture and codify the knowledge and experience that, in effect, resides in the heads of its employees. Once a knowledge asset (e.g., a software code or processes) is developed and paid for, it can be reused many times at very low cost, assuming that it does not have to be substantially modified each time. 34. According to the text, effective e-teams identify group members with a proper balance of technical and interpersonal skills. Answer: True Rationale: The potential for process losses tends to be more prevalent in e-teams than in traditional teams, because the geographical dispersion of members increases the complexity of establishing effective interaction and exchanges. Such problems can be exacerbated when team members have less than ideal competencies and social skills. This can erode problem-solving capabilities as well as the effective functioning of the group as a social unit. 35. Explicit knowledge is generally known to everyone in the firm and is not a critical concern of management. Answer: False Rationale: Explicit (or codified) knowledge is knowledge that can be documented, widely distributed, and easily replicated. One of the challenges of knowledge-intensive organizations is to capture and codify the knowledge and experience that, in effect, resides in the heads of its employees. Otherwise, they will have to constantly reinvent the wheel, which is both expensive and inefficient. 36. Intellectual property rights are easier to define and protect than property rights for physical assets (e.g., plant and equipment). Answer: False Rationale: Intellectual property rights are more difficult to define and protect than property rights for physical assets (e.g., plant, equipment, and land). If, however, intellectual property rights are not reliably protected by the state, there will be no incentive to develop new products and services. Multiple Choice Questions 37. The makeup of goods and services in the Gross Domestic Products of developed countries has changed over the last decade. More than 50 percent of the value of GDP of developed countries is based on _____. A. clothing and apparel B. capital accumulation C. knowledge D. financial management Answer: C. knowledge Rationale: Today, more than 50 percent of the gross domestic product (GDP) in developed economies is knowledge-based; it is based on intellectual assets and intangible people skills. 38. As the competitive environment changes, strategic management must focus on different aspects of the organization. Recently, strategic management has moved from focusing on tangible resources to ________. A. fixed capital B. working capital C. intangible resources D. investment capital Answer: C. intangible resources Rationale: For most of the 20th century, managers focused on tangible resources such as land, equipment, and money and intangibles like brands, image, and customer loyalty. Today, more than 50 percent of the GDP in developed economies is knowledge-based; it is based on intellectual assets and intangible people skills. 39. Changes in our economy have forced firms to be more concerned with protecting their ______. A. knowledge workers B. social capital C. intellectual capital D. all of these Answer: D. all of these Rationale: In the knowledge economy, wealth is increasingly created by effective management of knowledge workers instead of by efficient control of physical and financial assets. The growing importance of knowledge, coupled with the move by labor markets to reward knowledge work, tells us that investing in a company is buying a set of talents, capabilities, skills, and ideas (intellectual capital), not physical and financial resources. 40. In the knowledge economy, if a large portion of company value is in intellectual and human assets, the difference between the market value and book value of the company should ___________ a company with mostly physical and financial assets. A. be equal to B. be larger than C. be smaller than D. not be correlated with Answer: B. be larger than Rationale: In firms where knowledge and the management of knowledge workers are relatively important contributors to developing products and services, and physical resources are less critical, the ratio of market-to-book value tends to be much higher. 41. According to the text, intellectual capital is the difference between the market value and the book value of a firm. Intellectual capital can be increased by ________________. A. increasing retention of below average workers B. decreasing labor costs C. attracting and retaining knowledgeable workers D. increasing the turnover of employees Answer: C. attracting and retaining knowledgeable workers Rationale: Companies create value in the knowledge-intensive economy, and thus intellectual capital, by attracting and leveraging human capital effectively through mechanisms that create products and services of value over time. 42. Which of the following firms would you expect to have the highest ratio of market value to book value? A. Apple B. Google C. Southwest Airlines D. Nucor (steel) Answer: A. Apple Rationale: As shown in Exhibit 4.1, firms such as Apple, Google, Microsoft, and Oracle have very high market value to book value ratios, because of their high investment in knowledge resources and technological expertise. In contrast, firms in more traditional industry sectors such as Nucor and Southwest Airlines have relatively low market to book ratios. 43. Human capital includes ________________. A. the relationships between people B. an individual's capabilities, knowledge, and skills C. the output from assembly line employees D. an improved product Answer: B. an individual's capabilities, knowledge, and skills Rationale: Human capital is the individual capabilities, knowledge, skills, and experience of the company employees and managers. This knowledge is relevant to the task at hand, as well as the capacity to add to this reservoir of knowledge, skills, and experience through learning. 44. Creativity and problem solving ability are considered to be part of ____________. A. physical capital B. human capital C. social capital D. emotional capital Answer: B. human capital Rationale: Human capital is the individual capabilities, knowledge, skills, and experience of the company employees and managers. This knowledge is relevant to the task at hand, as well as the capacity to add to this reservoir of knowledge, skills, and experience through learning. 45. The network of relationships that individuals have throughout the organization is known as _______. A. human capital B. intellectual capital C. social capital D. tacit knowledge Answer: C. social capital Rationale: Social capital is the network of relationships that individuals have throughout the organization. Relationships are critical in sharing and leveraging knowledge and in acquiring resources. Social capital can extend beyond the organizational boundaries to include relationships between the firm and its suppliers, customers, and alliance partners. 46. Tacit knowledge __________________. A. is the same as explicit knowledge B. can be accessed only with the consent of the employees C. is found mostly at the lower levels of the organization D. can be codified but not reproduced Answer: B. can be accessed only with the consent of the employees Rationale: Tacit knowledge is in the minds of employees and is based on their experiences and backgrounds. It is shared only with the consent and participation of the individual. 47. New knowledge involves the continual interaction between __________ and __________ knowledge. A. intellectual; pragmatic B. tacit; explicit C. theoretical; practical D. detailed; tacit Answer: B. tacit; explicit Rationale: New knowledge is constantly created through the continual interaction of explicit and tacit knowledge. Consider two software engineers working together on a computer code. The computer code is the explicit knowledge. 48. Today, the loyalty of a knowledge worker to his or her employing firm has __________ compared to his or her loyalty to his or her profession and colleagues. A. increased B. remained the same C. decreased D. no correlation when Answer: C. decreased Rationale: The rise to prominence of knowledge workers as a vital source of competitive advantage is changing the balance of power in organizations today. Knowledge workers place professional development and personal enrichment (financial and otherwise) above company loyalty. 49. The text discusses three areas a firm must be concerned with in order to keep their best and brightest employees from leaving. These include all of the following EXCEPT: A. hiring/selecting B. developing C. sorting/absorbing D. retaining Answer: C. sorting/absorbing Rationale: Hiring is the first process in which all successful organizations must engage to build and leverage human capital. Firms must also develop employees to fulfill their full potential to maximize joint contributions, and provide the working environment and intrinsic and extrinsic rewards to retain their best and brightest. 50. Managing a knowledge intensive workforce is very challenging. The best way for a firm to manage its workforce is to __________. A. retain knowledge workers B. balance efforts in the attraction, selection, and retention of top talent C. attract the brightest employees D. ensure that it pays higher salaries than its rivals Answer: B. balance efforts in the attraction, selection, and retention of top talent Rationale: Attracting, developing, and retaining human capital are highly interrelated activities, like a three-legged stool. If one leg is weak or broken, the stool collapses. To illustrate such interdependence, poor hiring impedes the effectiveness of development and retention processes. In a similar vein, ineffective retention efforts place additional burdens on hiring and development. 51. Firms must compete for top talent. When attracting and selecting employees, firms must strive to select the best fit for both the employee and the firm. In an effort to reduce wasted time and effort in interviewing too many candidates while assuring a good candidate pool, a firm should _______. A. run employment ads in the newspaper B. only let lower level employees interview job candidates C. use a pre-interview quiz D. refrain from hiring by referrals from present employees Answer: C. use a pre-interview quiz Rationale: Alan Cooper, president of Cooper Software, Inc., cleverly uses technology to hone in on the problem-solving ability of his applicants and their attitudes before an interview even takes place. He has devised a Bozo Filter, an online test that can be applied to any industry. Before you spend time on whether job candidates will work out satisfactorily, find out how their minds work. 52. Many companies use referrals by current employees as a source for new hiring and even monetarily reward them because __________________. A. it is less expensive than the fees paid to head hunters B. current employees normally are careful in recommending someone due to their personal credibility C. it is a good test of employee loyalty D. current employees are careful in their recommendations and it is less expensive than the fees paid to head hunters Answer: D. current employees are careful in their recommendations and it is less expensive than the fees paid to head hunters Rationale: GE Medical Systems offers a monetary reward for referrals, but it is peanuts compared to the fees that it typically pays to head hunters for each person hired. When someone refers a former colleague or friend for a job, his or her credibility is on the line. Thus, employees will be careful in recommending people for employment, unless they are reasonably confident that these people are good candidates. 53. ABC, Incorporated desires to have the most qualified people in every position throughout its organization. This is an example of a concern for _________. A. decreasing labor intensive training B. developing social networks C. developing human capital D. leveraging organizational structure Answer: C. developing human capital Rationale: It is not enough to hire top-level talent and expect that the skills and capabilities of those employees remain current throughout the duration of their employment. Rather, training and development must take place at all levels of the organization, which is considered developing human capital. 54. Developing human capital is essential to maintaining a competitive advantage in the current knowledge economy. Efforts and initiatives to develop human capital should be directed ________. A. at top managers B. at human resource departments C. throughout the firm at all levels D. at the employees themselves Answer: C. throughout the firm at all levels Rationale: It is not enough to hire top-level talent and expect that the skills and capabilities of those employees remain current throughout the duration of their employment. Rather, training and development must take place at all levels of the organization, which is considered developing human capital. 55. Maintaining a competitive workforce is very challenging in the current economy. The role of evaluating human capital, in recent years, has ________. A. remained the same B. decreased C. become less important D. increased Answer: D. increased Rationale: In the current environment, collaboration and interdependence are vital to organizational success. Individuals must share their knowledge and work constructively to achieve collective, not just individual, goals. Traditional systems evaluate performance from a single perspective (i.e., top down) and generally do not address the softer dimensions of communications and social skills, values, beliefs, and attitudes. 56. In a 360-degree evaluation and feedback system, which of these does not rate the skills and performance of an individual? A. superiors B. family C. direct reports D. colleagues Answer: C. direct reports Rationale: To address the limitations of the traditional approach, many organizations use 360-degree evaluation and feedback systems. Here, superiors, direct reports, colleagues, and even internal and external customers rate the performance of an employee. 57. Attracting and retaining human capital is a challenge for many firms today. Firms experiencing high turnover should __________. A. focus on increased recruiting B. decrease money spent on human capital C. adopt effective retention strategies D. make their work environment less stimulating Answer: C. adopt effective retention strategies Rationale: Stepped-up recruiting is a poor substitute for weak retention. Leaders can either provide the work environment and incentives to keep productive employees and management from wanting to bail out, or they can use legal means such as employment contracts and noncompete clauses. 58. In order to take advantage of investment in human capital, a firm should ___________. A. rotate workers through functions in the company as quickly as possible B. refrain from training individual employees C. establish practices that will enhance employee retention D. keep employees in the same position forever Answer: C. establish practices that will enhance employee retention Rationale: Since attracting and developing talent represent an investment to a firm, it is necessary to ensure the third step is also done to fully leverage the human capital. A firm must also retain the talent. 59. The least effective way to retain human capital is to _________. A. encourage employee identification with organizational mission and goals B. provide employees with a challenging and stimulating work environment C. require employees to sign agreements that prevent them from working for competitors in the future D. provide employees with financial and nonfinancial rewards and incentives Answer: C. require employees to sign agreements that prevent them from working for competitors in the future Rationale: For retention of talent, greater efforts should be directed at a good work environment and incentives, although employment contracts and noncompete clauses may sometimes have their place. 60. Generally, employees are most likely to stay with an organization if _____________. A. the employer provides high salaries to technology professionals B. the firm is in a high tech industry C. the organization mission and values align with the employees mission and values D. the mission and values of the organization change often Answer: C. the organization mission and values align with the employees mission and values Rationale: People who identify with and are more committed to the core mission and values of the organization are less likely to stray or bolt to the competition. Paying people more is seldom the most important factor in attracting and retaining human capital. 61. Many successful firms use internal labor markets. The most important reason for doing this is ________. A. they want to encourage job rotation B. they want to keep highly mobile employees motivated and challenged C. if employees remain in the same department for too long, they would become indispensable D. an employee who moves too much can be identified as unreliable and then eliminated Answer: B. they want to keep highly mobile employees motivated and challenged Rationale: One way firms keep highly mobile employees motivated and challenged is through opportunities that lower barriers to an employee's mobility within a company. For example, Shell Oil Company has created an open sourcing model for talent. Jobs are listed on the Shell intranet and with a two-month notice employees can go to work on anything that interests them. 62. All of the following are the benefits of diversity in the workforce of a firm except: A. creativity argument B. problem-solving argument C. similarity in perspectives argument D. resource acquisition argument Answer: C. similarity in perspectives argument Rationale: Six areas where sound management of diverse workforces can improve the effectiveness and competitive advantages of an organization are: (1) cost, (2) resource acquisition, (3) marketing, (4) creativity, (5) problem-solving, and (6) organizational flexibility. 63. Human capital and social capital are vital for superior firm performance. If a firm has strong human capital, the firm may exploit this by building social capital. This can be accomplished by _________. A. requiring workers to work independently of each other B. decreasing the interaction of departments within the firm C. structuring the firm with rigid departmental and employee divisions D. encouraging the sharing of ideas between employees in the firm Answer: D. encouraging the sharing of ideas between employees in the firm Rationale: In the knowledge economy, the development of social capital (the friendships and working relationships among talented individuals) gains importance, because it helps tie knowledge workers to a given firm. The interaction, sharing, and collaboration will create a situation in which a worker will develop firm-specific ties and be less likely to bolt for a higher salary offer. 64. In an effort to capture key employees from competitors, firms may attract the symbolic leader of a group within a competing firm and hope others will follow. This has been termed _____________. A. the Columbus effect B. knowledge integration C. the Pied Piper effect D. strategically competitive hiring Answer: C. the Pied Piper effect Rationale: In The Wall Street Journal, Bernard Wysocki described the increase in a type of Pied Piper effect, in which teams or networks of people are leaving one company for another. The trend is to recruit job candidates at the crux of social relationships in organizations, particularly if they are seen as having the potential to bring with them valuable colleagues. 65. What is a major reason for Nokia to lose its competitive edge in the cell phone business? A. The team consisted of scientists from around the world. B. The team consisted of only Finnish scientists. C. All of the work required diverse skill sets. D. Each scientist worked alone, separate from colleagues. Answer: B. The team consisted of only Finnish scientists. Rationale: When given the choice, people will often choose to collaborate with others they know well or who have similar backgrounds, yet static groups breed insularity and may suffocate innovation. Take the former executive team at Nokia as an example. The team was 100 percent Finnish and had worked closely together for more than a decade. Many believe this homogeneity explains why Nokia failed to see the smartphone threat emerging from Silicon Valley. 66. Social capital is a source of strength to many firms. Firms leverage their social capital in an effort to create competitive advantages. The social capital of a firm is based on ___________. A. the individual abilities of employees B. the allocation of the financial resources of the firm C. the relationships among the employees of the firm D. the knowledge of an individual Answer: C. the relationships among the employees of the firm Rationale: In the knowledge economy, the development of social capital (the friendships and working relationships among talented individuals) gains importance, because it helps tie knowledge workers to a given firm. 67. Social network analysis is helpful because the configuration of the group member social ties within and outside the group affects the extent to which members connect to individuals who do all of the following EXCEPT ______________. A. convey needed resources B. have the opportunity to exchange information and support C. ensure that everyone has the same perspective on strategic and operational issues D. have the motivation to treat each other in positive ways Answer: C. ensure that everyone has the same perspective on strategic and operational issues Rationale: The configuration of group member social ties within and outside the group affects the extent to which members connect to individuals who convey needed resources; have the opportunity to exchange information and support; have the motivation to treat each other in positive ways; and have the time to develop trusting relationships that might improve group effectiveness. 68. In social network analysis, the importance of ties connecting heterogeneous people that help to ensure a wide range of diversity in information and perspective is known as ___________. A. closure B. bridging relationships C. redundancy D. social supports Answer: B. bridging relationships Rationale: Bridging relationships, in contrast to closure, stresses the importance of ties connecting people. Employees who bridge disconnected people tend to receive timely, diverse information because of their access to a wide range of heterogeneous information flows. Such bridging relationships span a number of different types of boundaries. 69. In social network analysis, groups can become too insular and fail to share what they have learned with people outside the group. This is a result of __________. A. bridging relationships B. intellect C. closure D. diverse knowledge Answer: C. closure Rationale: Groups that become too closed can become insular. They cut themselves off from the rest of the organization and fail to share what they are learning from people outside their group. Research shows that while managers need to encourage closure up to a point, if there is too much closure, they need to encourage people to open up their groups and infuse new ideas through bridging relationships. 70. Advantages of effective social networks for career success include all of the following EXCEPT _________. A. access to private information B. access to diverse skill sets C. greater redundancy in knowledge sources D. greater power Answer: C. greater redundancy in knowledge sources Rationale: Effective social networks can play a key role in the advancement and success of a personal career. A personal social network potentially can provide three unique advantages: private information, access to diverse skill sets, and power. 71. Social capital has downsides. Which of the following is a downside? A. High social capital may breed groupthink, that is, a tendency to question shared beliefs. B. Socialization processes is inexpensive. C. Individuals may become more willing to collaborate on joint projects. D. Social capital may both breed groupthink and the socialization processes to create it (orientation, training, etc.) can be expensive. Answer: D. Social capital may both breed groupthink and the socialization processes to create it (orientation, training, etc.) can be expensive. Rationale: There are several downsides to social capital. Some firms have been adversely affected by very high levels of social capital because it may breed groupthink, a tendency not to question shared beliefs. Additionally, the socialization processes (orientation, training, etc.) can be expensive in terms of both financial resources and managerial commitment. 72. Social capital has many potential benefits. However, according to the text, social capital _________. A. is always beneficial to a firm B. usually restricts the productivity of employees C. may or may not be beneficial to a firm D. always hurts firm performance Answer: C. may or may not be beneficial to a firm Rationale: Social capital is not always beneficial. For example, in firms with deep-rooted mindsets, they may continue to hire, reward, and promote like-minded people who tend to further intensify organizational inertia and erode innovation. Such homogeneity would increase over time and decrease the effectiveness of decision-making processes. 73. Which of the following reasons explains why painter Vincent van Gogh died penniless, while painter Pablo Picasso left a $740 million estate upon this death? A. Picasso had a wider range of social connections and bridging relationships. B. Van Gogh had a wider range of social connections. C. Picasso was a solitary node with few connections. D. Van Gogh was a hub who embedded himself in a vast network that stretched across various social lines. Answer: A. Picasso had a wider range of social connections and bridging relationships. Rationale: These two artists enjoyed sharply contrasting levels of success during their lifetimes. Effective social networks provide many advantages for the firm. They can play a key role in the career advancement and success of an individual. A personal social network potentially can provide three unique advantages: private information, access to diverse skill sets, and power. Bridging relationships in a social network connect otherwise disconnected people. Employees who bridge disconnected people tend to receive timely, diverse information because of their access to a wide range of heterogeneous information flows. Such bridging relationships span a number of different types of boundaries. 74. The use of information technology (e.g., e-mail) has increased in recent years in many organizations. This has helped to ____________. A. make more effective use of time in every situation B. communicate information efficiently C. restrict social network growth D. create smaller social networks Answer: B. communicate information efficiently Rationale: E-mail is an effective means of communicating a wide variety of information. It is quick, easy, and almost costless. Sharing knowledge and information throughout the organization can be a means of conserving resources, developing products and services, and creating new opportunities. 75. The creation of knowledge assets is typically characterized by ____________. A. high upfront costs and subsequent high variable costs B. high fixed costs and high variable costs C. high upfront costs and low variable costs D. low upfront costs and high variable costs Answer: C. high upfront costs and low variable costs Rationale: One of the challenges of knowledge-intensive organizations is to capture and codify the knowledge and experience that resides in the heads of its employees. Once a knowledge asset (e.g., a software code or processes) is developed and paid for, it can be reused many times at very low cost, assuming that it doesn't have to be substantially modified each time. 76. Mary Stinson was required to take over a project after the entire team left the company. She was able to reconstruct what the team had accomplished through reading e-mails exchanged by the members of the team. This is an example of ___________. A. inefficient use of information management B. using explicit knowledge C. using tacit knowledge D. using replicated knowledge Answer: B. using explicit knowledge Rationale: Explicit (or codified) knowledge, on the other hand, is knowledge that can be documented, widely distributed, and easily replicated. Here, Mary was able to use knowledge assets created by previous employees to complete the work. 77. The management of intellectual property involves all of the following EXCEPT _____. A. patents B. converting explicit knowledge to tacit knowledge C. contracts with confidentiality and noncompete clauses D. copyrights and trademark Answer: B. converting explicit knowledge to tacit knowledge Rationale: The management of intellectual property (IP) involves, besides patents, contracts with confidentiality and noncompete clauses, copyrights, and the development of trademarks. The development of dynamic capabilities is the only avenue providing firms with the ability to reconfigure their knowledge and activities to achieve a sustainable competitive advantage. 78. Dynamic capabilities include all of the following EXCEPT _________________. A. learning and innovating B. becoming more efficient in operational processes C. the ability of an organization to challenge the conventional industry in its industry and market D. continuously adopting new ways of serving the evolving needs of the market Answer: B. becoming more efficient in operational processes Rationale: Dynamic capabilities are about the ability of an organization to challenge the conventional wisdom within its industry and market, learn and innovate, adapt to the changing world, and continuously adopt new ways to serve the evolving needs of the market. 79. Which of the following is not an example of an IP-related litigation? A. Apple and HTC sue each other based on patent infringement. B. Apple sues smartphone makers running Android, Google's mobile operating system. C. China is sued by U.S. manufacturers of video games. D. The United States sues to get access to physical plant assets in China. Answer: D. The United States sues to get access to physical plant assets in China. Rationale: Intellectual property rights are the intangible property owned by a firm in the form of patents, copyrights, trademarks, or trade secrets. Essay Questions 80. What is intellectual capital and what is its effect on the ratio of firm market value to book value? Answer: Intellectual capital encompasses the intangible assets and knowledge assets of a firm, including patents, trademarks, and human capital. It enhances the ratio of firm market value to book value by signaling potential for future growth, innovation, and competitive advantage beyond tangible assets alone. 81. Effective human capital is a benefit to any organization. What are some challenges firms face when attempting to attract and develop top talent? Answer: Effective human capital is crucial, yet firms face challenges in attracting and developing top talent due to competition from other employers, maintaining competitive compensation, fostering a positive work culture, and providing opportunities for career growth and development. 82. Feedback and 360-evaluation systems are used by organizations to provide performance information to employees. Describe how the 360-evaluation systems are implemented and give an example of how it is used in an actual company. Answer: Feedback and 360-evaluation systems are implemented by soliciting feedback on an employee's performance from multiple sources, including peers, supervisors, and subordinates. For example, Google uses a 360-degree feedback system where employees receive anonymous feedback from coworkers, helping to identify strengths and areas for improvement comprehensively. 83. Discuss the adage hire for attitude, train for skill. What are its implications for the attraction, training, and retention of top talent? Answer: The adage "hire for attitude, train for skill" emphasizes that while technical skills can be taught, a positive attitude, cultural fit, and alignment with organizational values are intrinsic qualities that contribute to long-term success and retention of top talent. Focusing on attitude during recruitment ensures a cohesive workplace culture and enhances employee engagement, while training for skill develops competencies tailored to organizational needs. 84. Explain why going green might help to attract good talent. Give an example of an organization that has had positive talent acquisition and retention as a result of going green. Answer: Going green can attract good talent by appealing to employees' environmental values and desire to work for socially responsible organizations. For example, Patagonia's commitment to sustainability has enhanced its reputation as an employer of choice, attracting talent who align with its environmental ethos and contributing to high employee satisfaction and retention rates. 85. In an effort to attract and retain top talent, firms provide financial and nonfinancial rewards to their employees. Give examples of each and describe how the incentives you have chosen may impact individual employees. Answer: Firms provide financial and nonfinancial rewards to attract and retain top talent. Financial rewards include bonuses, stock options, and salary increases, which motivate individuals financially. Nonfinancial rewards like flexible work arrangements, recognition programs, and career development opportunities enhance job satisfaction and loyalty by addressing personal and professional needs beyond monetary compensation. 86. The workforce in the United States will become increasingly diverse over the next few decades. What strategies should firms undergo to take full advantage of this emerging trend? Answer: To leverage increasing workforce diversity, firms should implement strategies such as fostering inclusive workplace cultures, providing diversity training, ensuring equitable opportunities for career advancement, and actively recruiting from diverse talent pools. Embracing diverse perspectives enhances innovation, creativity, and customer understanding, leading to competitive advantage. 87. Describe social capital. Where does it come from and how can a firm attempt to build it? Answer: Social capital refers to the networks of relationships and connections individuals or organizations have, which provide access to resources, information, and opportunities. It originates from interactions and collaborations with colleagues, clients, industry peers, and community members. Firms can build social capital by encouraging networking events, supporting professional associations, promoting cross-functional teamwork, and investing in corporate social responsibility initiatives. 88. What are some of the key tradeoffs between closure and bridging relationships in social network theory? What are some implications for career success? Answer: In social network theory, closure relationships involve strong ties within close-knit groups, fostering trust and support but potentially limiting exposure to new ideas and opportunities outside the group. Bridging relationships are weaker ties across diverse networks, offering access to novel information and diverse perspectives but with less intimacy. Balancing these tradeoffs impacts career success by influencing access to job referrals, mentorship, and diverse career opportunities. 89. Address some of the potential limitations (or downsides) of social capital. Answer: Potential limitations of social capital include the risk of groupthink and homogeneity within networks, limiting innovation and diverse perspectives. Over-reliance on personal connections can lead to nepotism and exclusionary practices, undermining fairness and meritocracy. Networks may also become stagnant or obsolete without active maintenance and renewal, hindering adaptability in changing business environments. 90. The painters, Vincent van Gogh and Pablo Picasso, had different personalities that resulted in their relative wealth at the time of their death. Van Gogh died penniless; Picasso died with an estate valued at $750 million. Explain this result in terms of social network analysis. Answer: Social network analysis can explain the disparity in wealth between Van Gogh and Picasso by examining their social connections and influence. Picasso had a vast network within the art world and beyond, including wealthy patrons and influential figures, which enhanced his marketability and financial success. In contrast, Van Gogh's limited social network and lack of connections to affluent patrons restricted his ability to sell his artwork and generate income during his lifetime, leading to financial hardship. 91. Discuss how technology has impacted the attraction, training, and retention of professionals. How has technology helped firms to enhance their human capital and social capital? Answer: Technology has revolutionized the attraction, training, and retention of professionals by enabling remote work, online learning platforms, and virtual collaboration tools. It has expanded firms' reach in recruiting talent globally, facilitated continuous learning and skills development through e-learning modules, and enhanced employee engagement and productivity through digital communication and project management tools. 92. Address some of the challenges associated with protecting intellectual property. Answer: Challenges associated with protecting intellectual property include the risk of infringement and unauthorized use, especially in digital environments where information can be easily shared and replicated. Other challenges include navigating complex legal frameworks across different jurisdictions, maintaining trade secrets, and balancing the need for innovation with the protection of intellectual assets. Companies must implement robust strategies such as patents, trademarks, and contractual agreements to safeguard their intellectual property effectively. Test Bank for Strategic Management: Text and Cases Gregory Dess, G.T. (Tom) Lumpkin, Alan Eisner, Gerry Mcnamara 9780077862527, 9781259278211, 9781259813955
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