CH-3 The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages – Strategic Management: Concepts and Cases: Competitiveness and Globalization : Exam Guide

Chapter 3 The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages True/False 1. Technology is a critical resource for helping organizations learn how to continually innovate. A. True B. False Answer: False 2. Firms should seek to continually develop new core competencies because all core competencies guarantee above- average profit. A. True B. False Answer: False 3. Firms achieve strategic competitiveness and earn above-average returns by acquiring, bundling, and leveraging their resources for the purpose of taking advantage of opportunities in the external environment in ways that create value for customers. A. True B. False Answer: True 4. Analyzing the internal environment enables a firm to determine what it might do by identifying what opportunities and threats exist. A. True B. False Answer: False 5. Analyzing the internal environment enables a firm to determine what it can do by identifying resources, capabilities, and core competencies in the internal organization. A. True B. False Answer: True 6. Understanding how to leverage the firm's unique bundle of resources and capabilities is a key outcome decision makers seek when analyzing the internal organization. A. True B. False Answer: True 7. Resources are the source of capabilities, some of which lead to the development of core competencies; in turn, some core competencies may lead to competitive advantage. A. True B. False Answer: True 8. Value is measured by the variable and fixed costs associated with the production and marketing of a particular product compared with the revenue and profits the product generates. A. True B. False Answer: False 9. Creating customer value is the source of the firm's potential to earn above-average returns. A. True B. False Answer: True 10. Walmart uses core competencies such as information technology and distribution channels to create value for its customers through its "everyday low prices." A. True B. False Answer: True 11. The need to meet quarterly earnings numbers disciplines managers to accurately examine the firm's internal organization. A. True B. False Answer: False 12. The learning generated by making and correcting mistakes is generally unimportant to efforts to create new capabilities and core competencies. A. True B. False Answer: False 13. By themselves, resources can allow firms to create value for customers as the foundation for earning above- average returns. A. True B. False Answer: False 14. Resources must be combined to form capabilities, as illustrated by Subway, which linked its fresh ingredients with several other resources, including the continual training it provides to those running the firm's units as the foundation for customer service as a capability. A. True B. False Answer: True 15. GE's brand name is a tangible source of competitive advantage for the company. A. True B. False Answer: False 16. The value of tangible assets such as the firm's borrowing capacity and its physical plant is high because they can be easily leveraged to derive additional value. A. True B. False Answer: False 17. Although an organization's good reputation is a valuable resource that takes years of superior marketplace competence to achieve, it is not a good basis for building a competitive advantage because it can be destroyed almost instantly by bad publicity. A. True B. False Answer: False 18. Compared to tangible resources, intangible resources are an inferior source of core competencies. A. True B. False Answer: False 19. The foundation of many capabilities lies in the unique skills and knowledge of a firm's employees. A. True B. False Answer: True 20. Capabilities of an organization emerge spontaneously through the interaction of tangible and intangible resources. A. True B. False Answer: False 21. Older employees are less valuable resources to firms than younger employees, because the older employees have lower stocks of knowledge. Consequently, employee reductions should begin with early-retirement inducements. A. True B. False Answer: False 22. At IBM, human capital is critical to forming and using the firm's capabilities in customer relationships, scientific and research skills, and technical skills in hardware, software, and services. A. True B. False Answer: True 23. Capabilities are usually developed separately from specific functional areas such as manufacturing, R&D, and marketing. A. True B. False Answer: False 24. "Motivating, empowering, and retaining employees" is an example of a capability that resides within the human resources functional area. A. True B. False Answer: True 25. Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals. A. True B. False Answer: True 26. Apple has combined some of its tangible resources (such as financial resources and research laboratories) and intangible resources (such as scientists, engineers, and organizational routines) to create a capability in R&D which creates a core competence in innovation. A. True B. False Answer: True 27. The firm with the most capabilities wins. A. True B. False Answer: False 28. Valuable capabilities allow the firm to exploit strengths or neutralize weaknesses in the internal environment. A. True B. False Answer: False 29. Costly-to-imitate capabilities are those which other firms cannot easily develop as they have no strategic equivalent. A. True B. False Answer: False 30. Capabilities may be costly to imitate if firms have unique and valuable organizational cultures, are causally ambiguous, and socially complex. A. True B. False Answer: True 31. At Southwest Airlines, the complex interrelationship between its culture and human capital adds value for customers in ways that other airlines cannot, such as jokes on flights by flight attendants and cooperation between gate personnel and pilots. A. True B. False Answer: True 32. Interpersonal relationships, trust, friendships, and a firm's reputation are all examples of complex social phenomena that make capabilities easy to imitate. A. True B. False Answer: False 33. A company can earn above-average returns only when the value it creates is less than the costs incurred to create that value. A. True B. False Answer: False 34. Value chain activities in the value chain create value, whereas support functions generate costs. A. True B. False Answer: False 35. One criterion for a resource or capability to be a source of competitive advantage is that it must allow the firm to perform a value-creating activity that competitors cannot perform. A. True B. False Answer: True 36. A firm should outsource only activities where it cannot create value or where it is at a substantial disadvantage compared to competitors. A. True B. False Answer: True 37. Firms should never outsource a primary activity because of the danger of the activity being imitated by rivals. A. True B. False Answer: False 38. Two concerns about outsourcing are the potential loss of a firm's innovative ability and the loss of jobs within companies that decide to outsource some of their work. A. True B. False Answer: True 39. At the conclusion of the internal analysis, firms must identify their opportunities and threats in resources, capabilities, and core competencies. A. True B. False Answer: False 40. Any core competency has the potential to lose its value-creating ability. A. True B. False Answer: True Multiple Choice 41. All competitive advantages have A. a limited life. B. an expiration date. C. the ability to earn above-average returns indefinitely. D. the ability to lead to more competitive advantages. Answer: A 42. It is increasingly difficult for a firm to develop and sustain a competitive advantage because of the effects of globalization and A. the rapid development of the Internet's capabilities. B. extensive use of outsourcing within the borders of the United States. C. the declining number of inventions and patents developed by U.S. citizens. D. the simultaneous erosion of the U.S. work ethic and the U.S. education system. Answer: A 43. Which of the following is NOT required for a firm to achieve strategic competitiveness and earn above-average returns from its core competencies? A. Core competencies must be acquired. B. Core competencies must be bundled. C. Core competencies must be internationalized. D. Core competencies must be leveraged. Answer: C 44. Which of the following is NOT a factor affecting sustainability of a competitive advantage? A. the availability of substitutes for a firm's core competence B. the rate at which obsolescence of the core competence occurs because of environmental changes C. the imitability of a core competence D. the length of time the core competence has existed Answer: D 45. Internal analysis enables a firm to determine what the firm A. can do. B. should do. C. will do. D. might do. Answer: A 46. The proper matching of what a firm can do with what it might do A. balances the internal characteristics of the firm with the characteristics of the external environment. B. overcomes the rigidity and inertia resulting from a history of success. C. yields insights the firm requires to select its strategy. D. develops core competencies based on human knowledge. Answer: C 47. The key to achieving competitiveness, earning above-average returns, and remaining ahead of competitors in the long run is to manage current core competencies A. in a way that uniquely bundles and leverages the firm's existing resources. B. while simultaneously developing new ones. C. and imitate the core competencies of successful competitors. D. in order to preserve and enhance them against the firm's competitors. Answer: B 48. Which of the following is NOT a component of internal analysis leading to competitive advantage? A. tangible and intangible resources B. analysis of supplier power C. capabilities D. core competencies Answer: B 49. Value consists of A. a product's proprietary characteristics and attributes for which customers are willing to pay. B. a product's performance characteristics and attributes for which customers are willing to pay. C. a product's proprietary characteristics and attributes for which customers consider paying. D. a product's performance characteristics and attributes for which customers consider paying. Answer: B 50. _________ are the source of a firm's _________ , which are the source of the firm's A. Resources; capabilities; core competencies/ B. Capabilities; resources; core competencies. C. Capabilities; resources; above-average returns. D. Core competencies; resources; competitive advantage/ Answer: A 51. _________ is measured by a product's performance characteristics and its attributes for which customers are willing to pay. A. Competitive advantage B. Profit potential C. Contribution D. Value Answer: D 52. By emphasizing core competencies when formulating strategies, companies learn to compete primarily on the basis of A. intangible resources. B. their primary activities. C. firm-specific differences. D. efficiency of production. Answer: C 53. The challenge and difficulty of making effective decisions are implied by preliminary evidence that _________ of organizational decisions fail. A. one-fourth B. one-fifth C. one-tenth D. one-half Answer: D 54. A decision that results in failure A. is a career-ending event because it is so unusual. B. often results from lack of accountability. C. fosters organizational inertia. D. allows for learning. Answer: D 55. Today, a substantially slimmed-down Polaroid is introducing a number of new products, including GL20 Camera Glasses which have a built-in camera and LCDs. This wave of new product development is explained by A. the funds provided by a patent-infringement lawsuit won by Polaroid. B. weaker competitors in its industry. C. the learning that occurred from making earlier mistakes. D. an easing of regulations governing intellectual property protection. Answer: C 56. The three conditions that characterize difficult managerial decisions concerning resources, capabilities, and core competencies are A. complexity, rarity, and human intellectual capital. B. uncertainty, complexity, and intraorganizational conflicts. C. imitability, complexity, and interorganizational conflicts. D. imitability, comparability, and human intellectual capital. Answer: B 57. In the television show Mad Men, Don Draper is in charge of the creative department at an advertising agency. He appears to spend most of his time drinking and relaxing, but occasionally he has a flash of insight that leads to a new ad campaign. He provides which valuable intangible resource? A. trust B. ideas C. brand name D. capacity to innovate Answer: B 58. Supply and demand impacts the level at which people are paid. If there are few people with a proven record of using judgment effectively then they will be in high demand and offered high compensation. CEOs are valued for their judgment as A. resource allocators. B. capability counters. C. strategic leaders. D. core competency accumulators. Answer: C 59. A person who has made a successful decision when no obviously correct model or rule is available or when relevant data are unreliable or incomplete has exercised A. foresight. B. judgment. C. effective strategic thinking. D. decisiveness. Answer: B 60. One reason executive judgment can be a particularly important source of competitive advantage is that judgment A. allows a firm to build a strong reputation. B. gains the loyalty of shareholders. C. increases human intellectual capacity. D. allows for superior bundling of resources. Answer: A 61. Judgment is the capacity for making a successful decision when A. there are multiple decision criteria. B. no obviously correct model or rule is available. C. cognitive biases create barriers to rationality. D. there are contradictions between the firm's vision and its implemented strategy. Answer: B 62. The most numerous of the following organizational characteristics are A. resources. B. capacities. C. capabilities. D. core competencies. Answer: A 63. Capabilities typically come from A. individual resources. B. one unique resource. C. several outstanding resources used independently. D. combining resources. Answer: D 64. All of the following are tangible resources EXCEPT A. production equipment. B. distribution centers. C. a firm's reputation. D. formal reporting structures. Answer: C 65. Tangible resources include A. assets that are people-dependent, such as know-how. B. assets that can be observed and quantified. C. organizational culture. D. a firm's reputation. Answer: B 66. Compared to intangible resources, tangible resources are _______ constrained because they are _________ to leverage. A. less; easier B. less; harder C. more; harder D. more; easier Answer: C 67. Compared to tangible resources, intangible resources are A. of less strategic value to the firm. B. less likely to be the focus of strategic analysis. C. a superior source of capabilities. D. more likely to be reflected on the firm's balance sheet. Answer: C 68. Compared to tangible resources, intangible resources are _________ and A. less visible; more difficult to copy. B. less visible; less difficult to copy. C. more visible; more difficult to copy. D. more visible; less difficult to copy. Answer: A 69. The critical executive skill of the current business age is the ability to A. manage technological innovation. B. manage human intellect. C. initiate change and overcome inertia. D. coordinate tangible and intangible resources. Answer: B 70. Which of the following is NOT a reputational resource? A. customer opinion that the firm's products are high quality B. employees' opinion of the firm as a terrible place to work C. suppliers' opinion that the firm pays its bills in a timely manner D. customer opinion that using the firm's products makes them attractive Answer: B 71. An investor is considering buying a restaurant that has been in operation for a number of years. The restaurant has a highly regarded chef, and many long-term kitchen and wait staff who work together smoothly. It has a reputation for dishes of consistently high quality and an appealing dining atmosphere. What should the investor consider when making a decision? A. The investor will find that the success of this restaurant is so heavily based on human resources that the business will likely be subject to inertia in the future. B. The investor will find that the restaurant's financial statements undervalue the true value of its resources. C. The investor should be aware that intangible assets are difficult to leverage into additional business. D. The investor should search for a firm which has competitive advantages based on tangible resources. Answer: B 72. Which of the following is a true statement about capabilities? A. Capabilities are often developed in specific functional areas such as manufacturing, R&D, and marketing. B. Valuable capabilities are based almost entirely on tangible resources. C. Capabilities based on human capital are more vulnerable to obsolescence than other intangible capabilities because of the tendency for employee knowledge to become outdated. D. The link between firm financial performance and capabilities is dependent on whether the capabilities are based on tangible or intangible resources. Answer: A 73. When firms lay off employees, they are A. treating employees as an intangible resource. B. recognizing the reduced value of labor in the value chain. C. eroding the organization's knowledge resources. D. temporarily sacrificing a tangible asset that is easily replaced. Answer: C 74. Because firms combine tangible and intangible resources to create capabilities, A. these capabilities are fragile and subject to sudden loss of value. B. capabilities are often based on developing, carrying, and exchanging information and knowledge through the firm's human capital. C. capabilities are easily transferred from one firm to another as employees change jobs. D. these types of capabilities are considered primary activities in the value chain. Answer: B 75. _________ can be viewed as the capacity to take action. A. Strategic assets B. Human capital C. Core competencies D. Functional capabilities Answer: C 76. _________ is an example of a capability that is based in the functional area of distribution. A. Effective use of logistics management techniques B. Effective control of inventories through point-of-purchase data collection C. Effective organizational structure D. Product and design quality Answer: A 77. Capabilities A. tend to be developed through firm-wide interactions and reside in the firm as a whole. B. tend to be concentrated in the support activities of the value chain. C. tend to be concentrated in the primary activities of the value chain. D. are often developed in specific functional areas. Answer: D 78. Samsung has core competencies in manufacturing its own components and components for other competitors, which help it to predict future innovations and bring them to market quickly. It is in direct competition with Apple in the smartphone market. Its competencies allow Samsung to _________ Apple's innovations. A. get a first-mover advantage over B. prevent C. block D. imitate Answer: D 79. Innovation, consumer understanding, brand-building, go-to-market, and scale are activities that P&G performs well and are examples of the company's A. tangible resources. B. intangible resources. C. core competencies. D. capabilities. Answer: C 80. To provide a sustainable competitive advantage, a capability must satisfy all of the following criteria EXCEPT A. be technologically innovative. B. be hard for competing firms to duplicate. C. be without good substitutes. D. be valuable to customers. Answer: A 81. From a customer's point of view, for an organization's capability to be a core competence it must be A. inimitable and unique. B. valuable and unique. C. inimitable and non-substitutable. D. valuable and non-substitutable. Answer: B 82. Valuable capabilities A. allow the firm to exploit opportunities in its external environment. B. allow the firm to neutralize threats in its internal environment. C. allow the firm to exploit opportunities or neutralize threats in its external environment. D. allow the firm to neutralize opportunities in its internal environment. Answer: C 83. Capabilities that other firms cannot develop easily are classified as A. costly to imitate. B. rare. C. valuable. D. non substitutable. Answer: A 84. A major department store chain has a strict policy of banning photographs or videos of its sales floor or back-room operations. It also does not allow academics to conduct studies of it for publication in research journals. In fact, some of its own top managers refer to the management's policies on secrecy as "verging on paranoid." These policies indicate that the top management of the firm believes the organization's core competencies are A. causally ambiguous. B. unobservable. C. imitable. D. common. Answer: C 85. Several months ago, a restaurant developed a new appetizer that is a hit with customers. Many customers go to the restaurant just for the appetizer, and it was at the center of a recent highly positive review by a food critic. Preparation involves common ingredients and average culinary skills but requires a very high oven temperature, which significantly increases utility costs. Several competing restaurants have since added their own version of the appetizer to their menu. Which criterion for assessing capabilities/core competencies is met? A. The restaurant has the capability to develop something that is valuable. B. The restaurant has the capability to develop something that is rare. C. The restaurant has the capability to develop something that is costly to imitate. D. All of these criteria are met. Answer: A 86. In the airline industry, frequent-flyer programs, ticket kiosks, and e-ticketing are all examples of capabilities that are _________ but no longer A. rare; valuable. B. valuable; rare. C. socially complex; rare. D. valuable; causally ambiguous. Answer: B 87. The capabilities used to create the sustainability/green initiatives at Walmart and Target are ______ but less likely to be A. rare; valuable. B. valuable; rare. C. socially complex; rare. D. valuable; causally ambiguous. Answer: B 88. Costly-to-imitate capabilities can emerge for all of the following reasons EXCEPT A. lack of scientific transference. B. social complexity. C. unique historical conditions. D. causal ambiguity. Answer: A 89. A financial management firm has existed for more than 70 years. Some of its original clients' grandchildren are now clients of the firm themselves. The partners and staff of the firm have spent most or all of their careers with the firm. Many have even married into each other's families. This firm has capabilities that would be costly to imitate because of its A. access to large amounts of financial capital. B. causally ambiguous core competencies. C. social complexity. D. unique historical conditions. Answer: C 90. Southwest Airlines has a complex interrelationship between its culture and staff that adds value in ways that other airlines cannot, such as jokes on flights or the cooperation between gate personnel and pilots. These examples illustrate which of the following criteria for sustainable competitive advantage? A. valuable B. rare C. costly to imitate D. non-substitutable Answer: C 91. McDonald's culture, with an emphasis on cleanliness, consistency, service, and the training that reinforces the value of these characteristics, illustrates which of the following criteria for sustainable competitive advantage? A. valuable B. rare C. costly to imitate D. non-substitutable Answer: C 92. Organizational culture is A. amorphous and changeable. B. not easily imitable. C. so difficult to analyze that most firms should choose to ignore it. D. typically fragile in the face of changes in the external environment. Answer: B 93. Gamma, Inc., has struggled for industry dominance with Ardent, Inc., its main competitor, for years. Gamma has gathered and analyzed large amounts of competitive intelligence about Ardent. It has observed as much of the firm's internal functioning and technology as it can legally, yet Gamma cannot understand why Ardent has a competitive advantage over it. The source of Ardent's success is A. impregnable. B. causally ambiguous. C. rationally obscure. D. elusive. Answer: B 94. If a firm offers a service that is valuable, rare, and costly to imitate, but a substitute exists for the service, the firm will A. achieve competitive parity. B. have a competitive disadvantage. C. have a temporary competitive advantage. D. gain a sustainable competitive advantage. Answer: C 95. ACME Corp. is a leading provider of radios to the commercial market. Its products all rely on printed circuit-board technology. ACME has protected its market leadership with continued advancements in this technology, which it patents. A competitor has developed a radio for this market with equal performance but uses a software-based technology instead of circuit boards. ACME's technology leadership fails which capability test? A. the value test B. the rareness test C. the substitutability test D. the costly-to-imitate. It fails all three of these tests Answer: C 96. Firms that achieve competitive parity can expect to A. earn below-average returns. B. earn average returns. C. earn above-average returns. D. initially earn above-average returns, declining to average returns. Answer: B 97. A veterinary practice has added a pet boarding and grooming facility. Most of the practice's competitors also provide these services. The veterinary practice is gaining competitive A. advantage. B. parity. C. disadvantage. D. neutrality. Answer: B 98. A local restaurant, Farm Fresh Ingredients, has become highly successful through its menu, based solely on organically raised chicken and beef, and organic seasonal produce. It has opened new locations in other cities, and these new locations are becoming highly profitable. Farm Fresh can expect that, at best, its competitive advantage will be A. permanent. B. sustainable. C. temporary. D. defensible. Answer: C 99. Value chain activities are A. the activities most likely to be imitated by competitors. B. activities or tasks the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customers. C. the core competencies of the organization. D. the activities most crucial to implementing the firm's business strategy. Answer: B 100. Value chain activities include all of the following EXCEPT A. supply-chain management. B. operations. C. management information systems. D. distribution. Answer: C 101. Examples of support activities include all of the following EXCEPT A. finance. B. human resources. C. follow-up service. D. management information systems. Answer: C 102. Value chain analysis is a tool used to A. analyze a firm's external environment for value-creating opportunities. B. analyze a firm's value chain activities and support functions in isolation from its competitors' value chain. C. understand the parts of the firm's operation that create value and those that do not. D. identify the firm's core competencies in each of the primary activities of the firm. Answer: C 103. Firms that have strong positive relationships with suppliers and customers are said to have _______ , an essential ingredient to creating value. A. customer value B. social capital C. effective marketing D. an attractive industry Answer: B 104. Knowledge transfer and access to resources within the value chain are enhanced by A. guidelines for sharing knowledge and resources. B. social capital. C. penalties for not sharing knowledge and resources. D. training employees on how to cooperate. Answer: B 105. To build social capital whereby resources such as knowledge are transferred across organizations requires ______ between the parties. A. a contract B. determination C. confidence D. trust Answer: D 106. Outsourcing is the A. spinning off of a value-creating activity to create a new firm. B. selling of a value-creating activity to other firms. C. purchase of a value-creating activity from an external supplier. D. use of computers to obtain value-creating data from the Internet. Answer: C 107. A major reason outsourcing is effective is that A. it increases the innovative potential of the firm. B. few firms possess superior capability in all primary and support activities. C. it permits unlimited access to capital resources. D. competitors do not have access to the same external sources. Answer: B 108. Which of the following is TRUE about outsourcing? A. Outsourcing allows firms to be more flexible and requires minimal coordination. B. Outsourcing allows firms to concentrate on those areas in which they can create value. C. Outsourcing strengthens the creative and innovative functions within the firm. D. Outsourcing is effective only when it includes all support activities. Answer: B 109. A major U.S. manufacturer of children's toys believes its main competitive advantage lies in its continuing development of innovative toys and games. The company is facing increasing competition on price, and it is strongly considering outsourcing to offshore firms as a means of reducing costs. The LAST function this firm should consider outsourcing is A. operations. B. research and development. C. supply-chain management. D. distribution. Answer: B 110. The owner of a store that sells fine-quality fabrics for home seamstresses bemoans the fact that few young women know how to do fine tailoring, much less simple dressmaking. Many potential customers are unable to appreciate the premium quality of the fabrics and are deterred by the high prices, as well as the complexity of fine sewing. In the past, the store had a strong demand for fabrics, large classes for women learning the fine points of sewing, and a reputation for excellent service and technical advice. Now the store is earning lower-than-average returns. This case is an example of A. the hazard of competitors being able to imitate a firm's core competency. B. the need for firms to stick to their core competencies through temporary downturns in market demand. C. the lack of intangible resources undermining the core competencies of the firm. D. core competencies that have become core rigidities. Answer: D 111. Which of the following is NOT an external event that reveals the "dark side" of core capabilities? A. A new competitor figures out a better way to serve the firm's customers. B. New technologies emerge and replace those used by the firm. C. A firm changes its focus to a new core competence. D. Political or social events shift the foundation of current core capabilities. Answer: C 112. Acme Auto Repair has a thriving business based on its reputation for high-quality work, honesty, and skilled employees. For continued long-term success, Acme's owner should A. concentrate on maintaining Acme's current core competencies. B. focus on developing Acme's future competitive advantages. C. place more emphasis on tangible resources, which are less vulnerable to obsolescence than intangible resources. D. recognize that core competencies derived from human resources are more subject to becoming core rigidities than are core competencies based on other types of resources. Answer: B 113. Borders had a competitive advantage in physical location. However, Amazon fundamentally changed customer buying habits, and Borders' competitive advantage became a core A. stagnation. B. rigidity. C. weakness. D. inefficiency. Answer: B 114. All of the following were traditional sources of competitive advantage EXCEPT A. labor costs. B. access to financial resources. C. protected markets. D. a highly educated labor market. Answer: D 115. ______ is the ability to analyze, understand, and manage an internal organization in ways that are not dependent on the assumptions of a single country, culture, or context. A. Strategic thinking B. A global mind-set C. Profit-pooling D. Competency-discovering Answer: B 116. A product's value is created by each of the following EXCEPT A. high cost and highly differentiated features. B. low cost. C. highly differentiated features. D. low cost and highly differentiated features. Answer: A 117. A firm's core competencies, integrated with an understanding of the results of studying the conditions in the external environment, should A. guarantee profits. B. lead to a first-mover advantage. C. drive the selection of strategies. D. increase the firm's market share. Answer: C 118. All of the following are true about the strategic decisions managers make about their firm's internal organization EXCEPT that A. they are directly correlated to executive compensation. B. they are non-routine. C. they have ethical implications. D. they significantly influence the firm's ability to earn above-average returns. Answer: A 119. One capability that can be learned from failure is when to A. repeat with a modification. B. add more resources. C. dig in. D. quit. Answer: D 120. Subscriptions to the New York Times have been decreasing as more customers receive their news through other media. At the same time, advertisers have shifted portions of their spending to other media. The NYT's managers are making decisions under A. certainty. B. uncertainty. C. intraorganizational conflict. D. interorganizational conflict. Answer: B 121. _________ may exist among managers making decisions as well as among those affected by the decisions. A. Certainty B. Simplicity C. Intra-organizational conflicts D. Interorganizational conflicts Answer: C 122. Amazon is building a new distribution facility in Robbinsville, New Jersey. It is immediately off the exit of a major road. This is an example of a(n) _________ resource. A. financial B. organizational C. physical D. technological Answer: C 123. The corporate research division of Siemens files, on average, 25 patents a day. The patents are a(n) ______ resource. A. financial B. organizational C. physical D. technological Answer: D 124. Government agencies are known for having so many layers and rules that decisions are made slowly and inefficiently. In this case the _________ resource is a detriment to taxpayers using and paying for the bureaucracy. A. financial B. organizational C. physical D. technological Answer: B 125. A food bank in Florida was struggling to serve its customers. It asked Walmart for help. Walmart sent a team of managers who reorganized storage and transportation. The food bank was able to increase the number of clients served by tenfold. Walmart shared its expertise in A. distribution. B. human resources. C. marketing. D. manufacturing. Answer: A 126. Charmed by Claire is a successful retail boutique that sells women's accessories. Claire, the owner/manager, knows that women have many options when buying jewelry. When customers enter her store they are greeted by name and given prompt, friendly attention. Customers return to the store because the service is excellent. Claire says the most important decision she makes is hiring the best staff because customer service is vital to her business. Customer service is A. a human resource. B. an organizational resource. C. a rare resource. D. a core competency. Answer: D 127. Many firms outsource the payroll function of paying employees to firms such as ADP. Payroll is a(n) A. value-chain activity. B. operation function. C. support function. D. supply-chain function. Answer: C 128. The _________ are those with the potential to be formed into core competencies as the foundation for creating value. A. "most" knowledge resources B. "most" capabilities C. "right" resources D. "dark side" resources Answer: C 129. Tools such as _________ help the firm focus on its core competencies as the source of its competitive advantages. A. marketing B. manufacturing C. outsourcing D. imitation Answer: C 130. All core competencies have the potential to become core A. rigidities. B. stagnations. C. inefficiencies. D. weaknesses. Answer: A Subjective Short Answer Case Scenario 1: Heartsong LLC. Heartsong LLC is a designer and manufacturer of replacement heart valves based in Peoria, Illinois. While a relatively small company in the medical devices field, it has established a worldwide reputation as the provider of choice high-quality, leading-edge artificial heart valves. Most of its products are sold to large regional hospital systems and research hospitals. Specialty heart centers are another emerging, but fast-growing, market for its valves. While Heartsong would like to grow quickly, its growth is constrained by the need to finance larger production runs and then carry this additional inventory. For products like those of Heartsong, vendors typically do not collect payment until the unit is actually used in surgery. Moreover, heart valves are usually required on short notice, which means that they must be either onsite, or inventoried at a nearby location. If nearby, then transport of the unit to a hospital or heart center occurs within a matter of hours, and sometimes minutes. For this reason, accelerated growth would require Heartsong to both finance increased production of its heart valves and carry increased levels of inventory that are in fact sitting on its customers' shelves. In fact, inventory-carrying cost is its single largest cost outside of research and development. While profitable growth is necessary if Heartsong is to continue extending its competitive advantage through increasingly greater investments in basic heart valve R&D, it is not clear that the company can internally support all these increased financial commitments (R&D, manufacturing, and inventory). Doc Watson, the CEO of Heartsong, is considering an outside contractor, EdFex, to handle the inventorying, warehousing, and delivery of its valves. EdFex has secure, high-tech warehouses in most major population centers around the country, and can ensure delivery of a product to these markets from its warehouses in less than one hour. 131. (Refer to Case Scenario 1). What value-chain activities appear to underlie Heartsong's competitive advantage? Answer: The best answers will begin by noting that Heartsong has the capacity to design leading-edge medical products and then take these designs and turn them into reliably manufactured, high- quality replacement heart valves. Thus, basic R&D and quality precision manufacturing are likely to be critical value-creating facets for this firm. 132. (Refer to Case Scenario 1). Why might an outsourcing arrangement with EdFex be attractive to Heartsong? Answer: The best answers will start by observing that the scenario suggests that Heartsong needs to grow if it is going to continue to be competitive and successful. However, Heartsong is also capital constrained, and an outsourcing arrangement with EdFex allows it to more efficiently manage this significant aspect of its cost base (inventory and delivery). This outsourcing solution would be ideal if it allows Heartsong to maintain a centralized warehouse with heart-valve inventory in major population centers, instead of its current practice of carrying inventory on the shelves of each of its hospital customers. As a result, Heartsong could grow its market presence while more efficiently managing the need to have heart valves available on short notice. 133. (Refer to Case Scenario 1). What are the implications of an EdFex outsourcing arrangement for the capabilities underlying Heartsong's competitive advantage? Answer: The best answers will develop the theme that the EdFex outsourcing arrangement is truly likely to be win-win. With the arrangement in place, Heartsong is able to devote its financial, human capital, and managerial resources to basic R&D and quality precision manufacturing; and, EdFex does what it does best in logistics. Moreover, it is hard to contemplate that EdFex would ever think of entering the heart­valve industry – thus, EdFex does not pose a direct threat as a future competitor. It does however pose an indirect threat to Heartsong to the extent it can hold the firm hostage, and extract exorbitant fees for its logistics services. Case Scenario 2: ERP Inc. ERP Inc. is a leading provider of enterprise integration software (EIS). EIS allows a firm to connect and integrate processes across all aspects of its business, regardless of where they are located around the world. ERPI is a product-focused company, whereas most competitors in its market space, such as Oracle, operate as "solutions companies." Oracle and Microsoft have begun to devote considerable resources to the development of and acquisition of products to compete in the EIS space. Despite these recent threats, one benefit of its product-focused strategy is that ERPI's proprietary product is generally recognized as being 200 percent to 300 percent better than competitors' software. ERPI estimates it will take two to three years for competitors to develop the capabilities needed to bring a competing product to market. ERPI invests a considerable percentage of its profits in basic R&D to support its core products. As evidence of this, among its competitors the firm maintains the largest in-house programming staff dedicated solely to the development of advanced enterprise integration software. Installation and related consulting for EIS typically cost between $100 million and $200 million, with the ERPI software component accounting for about 20 percent of the installed cost (the remaining 80 percent is spent on the actual installation, not counting the value of the customer's time). ERPI's target market consists of the world's largest manufacturing and industrial firms, and it currently enjoys a 60 percent market share. 134. (Refer to Case Scenario 2). How valuable, rare, costly to imitate, and non-substitutable are ERPI's capabilities? Answer: The best answers will simply walk through the respective columns in Table 3.5 and reach the conclusion that, at least in the near term, ERPI has a sustainable competitive advantage. Its EIS software is valuable given that it is 200 percent to 300 percent better than competitors' products. It is similarly rare and non-substitutable because it is proprietary, and it currently has a two-year lead on the alternatives. A similar rationale can be invoked to support the argument that ERPI's capabilities in software programming are going to be costly to imitate. A competitor would have to hire a similar workforce or acquire a company that currently occupies the same market space. This strong position is further bolstered by the fact that a large percentage of the market is voting with its feet in favor of ERPI. 135. (Refer to Case Scenario 2). How sustainable is ERPI's competitive advantage? Answer: The best answers will build on the basic notions developed in response to question 4. Students will argue that ERPI's competitive advantage is sustainable as long as its technology continues to define the leading edge of EIS products and that substitute solutions do not encroach much on its two-year lead. However, and as is consistent with most high-technology markets, as students pick apart ERPI's capabilities following the categories in Table 3.5 they should begin to see that sustained competitive advantage in this particular market space may be difficult, particularly given the presence of large, aggressive competitors such as Oracle and Microsoft, which are intent on gaining a presence in the EIS market. 136. (Refer to Case Scenario 2). Imagine that ERPI's historical growth strategy has focused on making one sale and then moving on to the next target company. After several years of building market share using this approach, what new resources has ERPI developed? Answer: This question asks students to take a more dynamic perspective of potentially valuable resources that companies and their customers create together, but that the company itself can exploit (a perfect example of a co-specialized asset). The best answers will begin by observing that if ERPI has focused historically on transactions (making the sale), then it has given little explicit consideration to customers as long-term relationships beyond the need to provide technical support (lifetime value of a customer beyond the first sale). Shifting attention to ERPI installations as relationships suggests that the company now has a customer list to die for. This list is especially valuable since (1) the target companies have invested upwards of $200 million in ERPI proprietary systems, and (2) once installed, given the pervasive nature of EIS systems, those target firms are unlikely to simply switch to another system. 137. (Refer to Case Scenario 2). Which of the following represents the maximum level of performance ERPI should expect to achieve? A. below-average returns B. average returns C. average to above-average returns D. above-average returns Answer: C Case Scenario 3: B.B. Mangler. B.B. Mangler is a top U.S. business-to-business distributor of maintenance, repair, and service equipment, components, and supplies such as compressors, motors, signs, lighting and welding equipment, and hand and power tools. Customers include contractors, service and maintenance shops, manufacturers, hotels, government, and health care and educational facilities. Mangler's industry is typically referred to as MRO, an acronym for maintenance, repair, and supplies. Mangler states its strategy as having the "capacity to quickly offer an unmatched breadth of lowest total cost MRO solutions to business." Mangler's GoMRO sourcing center for indirect spot buys locates products through its unique database of 8,000 suppliers and 5 million products. Mangler also dominates the North American market in terms of its sheer local physical presence. It has 388 physical branches in the U.S. largest cities, including Puerto Rico (90 percent of sales), 184 in Canada, and 5 in Mexico. This physical presence also has garnered Mangler a reputation for excellent, dependable service in its target markets, which in turn translates into a vast and loyal clientele. 138. (Refer to Case Scenario 3). Mangler's physical locations are best an example of A. a core competency. B. a capability. C. an intangible resource. D. a tangible resource. Answer: D 139. (Refer to Case Scenario 3). Mangler's reputation among its customers is an example of A. a core competency. B. a capability. C. an intangible resource. D. a tangible resource. Answer: C 140. (Refer to Case Scenario 3). The Internet threatens to displace physical locations as a basis for competitive advantage. If Mangler's vast network of branch offices were an integral part of its core competencies, what might the branches become if the basis for competitive advantage in the MRO industry moves to the Internet? A. a core rigidity B. a capability C. an intangible resource D. a tangible resource Answer: A Essay 141. Describe the importance of internal analysis to the strategic success of the firm. Should not-for-profit organizations perform internal analysis? Why or Why not? Answer: By analyzing its internal environment, a firm determines what actions it can take based on its unique resources, capabilities, and core competencies. The firm's core competencies are the source of the firm's competitive advantage. Internal analysis allows the firm to compare what it is capable of doing (what it "can do") with what it "might do" (which is a function of opportunities and threats in the external environment). Matching what a firm can do with what it might do allows the firm to develop its vision, pursue its strategic mission, and select and implement its strategies. This allows the firm to leverage its unique bundle of resources and capabilities to gain competitive advantage. Not-for-profit organizations absolutely need to conduct internal analysis. Competition for donations and grants is intense and a well-run, strategically focused organization is more likely to attract positive press and satisfy customer needs. Students should recognize that above-average return is not the only measure of success for organizations. When people gather to try and accomplish something, there will be managers, formal or informal. If those managers can think strategically, the group will have more success. 142. What are the differences between tangible and intangible resources? Which category of resources is more valuable to the firm? Answer: Resources are either tangible or intangible. Tangible resources are those assets that can be observed and quantified. There are four types of tangible assets: financial resources (borrowing capacity, ability to generate internal funds); physical resources (plant and equipment, access to raw materials); technological resources (patents, trademarks, copyrights, and trade secrets); and organizational resources (formal reporting structure, planning, controlling and coordinating systems). Intangible resources are those assets in the firm that are less visible. There are three types of such resources: human resources (knowledge, trust, management capabilities, and organizational routines); resources for innovation (ideas, scientific capability, and capacity for innovation); and reputation (reputation with customers, i.e., the firm's brand name and perceptions of product quality, and relationships with suppliers). Intangible assets develop over time and are deeply rooted in the organization's history. Consequently, they are difficult for competitors to analyze and imitate. In addition, intangible resources can be leveraged to create new value to the firm. These properties give intangible resources a greater ability to create sustainable competitive advantage than do tangible resources. 143. Define capabilities and how they affect the firm's strategic success. Answer: Capabilities exist when resources have been purposely integrated to achieve a specific task or tasks. Examples of tasks are human resource activities, product marketing, and research and development. Capabilities are based on developing, carrying, and exchanging information and knowledge through the firm's human capital. Many of the firm's capabilities are based on the unique skills and knowledge of its employees and their functional expertise. The knowledge possessed by human capital is among the most significant of a firm's capabilities. Capabilities are often developed in specific functional areas (such as manufacturing or marketing) or in a part of a functional area (such as advertising). 144. Describe the four specific criteria that managers can use to decide which of their firm's capabilities have the potential to create a sustainable competitive advantage. Answer: Managers must identify whether their firm has capabilities that are valuable and non-substitutable from the customer's point of view, and unique and inimitable from the firm's competitors' point of view. Only capabilities with these four characteristics are core competencies that can lead to sustainable competitive advantage. A valuable capability is one that helps the firm to exploit opportunities or to neutralize threats in the external environment. Rare means that few if any competitors possess the particular capability. Costly-to-imitate means a capability cannot be easily developed by other firms. Often, this kind of capability is rooted in the organization's culture or its unique history. Capabilities may also be costly to imitate if they are causally ambiguous or involve social complexity. Finally, non-substitutable capabilities do not have strategic equivalents that are rare and inimitable. 145. Describe a value chain analysis. How does a value chain analysis help a firm gain competitive advantage? Answer: A value chain analysis allows a firm to understand the activities that create value for the firm and those that do not. A value chain analysis follows the product from its raw-material stage to the final customer. The purpose is to add as much value as possible as cheaply as possible and to capture that value. To conduct a value chain analysis, managers should study and identify all activities of the firm and evaluate their impact on the effort to create value for the customer. This analysis should be conducted with an attempt to assess the competitor's capabilities in these same areas. There are two central types of activities in a value chain – value chain activities and support functions. Value chain activities are activities or tasks the firm completes in order to produce products and then sell, distribute, and service those products in ways that create value for customers. The support functions are activities or tasks the firm completes in order to support the work being done by the value chain activities. If the firm can either perform the activity in a manner that is superior to how competitors perform it or perform a value-creating activity that competitors cannot complete, then the activity may be a source of competitive advantage. 146. Why is it important to prevent core competencies from becoming core rigidities? Answer: All core competencies have the potential to become core rigidities and to generate failure. Each competence is a potential weakness if it is emphasized when it is no longer competitively relevant. The success that the competence generated in the past can generate organizational inertia and complacency. A core competence can become obsolete if competitors figure out a better way to serve the firm's customers, if new technologies emerge, or if political or social events shift in the external environment. Managers studying the firm's internal organization are responsible for making certain that core competencies do not become core rigidities. 147. What is value? Why is it important? Answer: Value is measured by a product's performance characteristics and by its attributes for which customers are willing to pay. Firms use their resources as the foundation for producing goods or services that will create value for customers. Value is important because firms with a competitive advantage create more value for customers than do competitors, and ultimately, creating value for customers is the source of above-average returns for a firm. 148. Define outsourcing. Why do organizations outsource? Answer: Outsourcing is the purchase of a value-creating activity or a support function activity from an external supplier. Firms engaging in effective outsourcing increase their flexibility, mitigate risks, and reduce their capital investments. The trend toward outsourcing continues at a rapid pace. If outsourcing is to be used, firms must recognize that only activities that cannot create value or that create a substantial disadvantage compared to competitors should be outsourced. 149. Why is it important to identify internal strengths and weaknesses? Answer: By analyzing the internal organization, firms are able to identify their strengths and weaknesses in resources, capabilities, and core competencies. In considering the results of examining the firm's internal organization, managers should understand that having a significant quantity of resources is not the same as having the "right" resources. The "right" resources are those with the potential to be formed into core competencies as the foundation for creating value. Tools such as outsourcing help the firm focus on its core competencies as the source of its competitive advantage. 150. Describe an organization with which you are familiar. Does it have a sustainable competitive advantage? Answer: This question is similar to number 144, but it requires students to evaluate an organization on their own. They should have been doing this while studying the chapter and they will likely use an example from the chapter. Students must identify whether their organization has capabilities that are valuable and non-substitutable from the customer's point of view, and unique and inimitable from the organization's competitors' point of view. Only capabilities with these four characteristics are core competencies that can lead to sustainable competitive advantage. A valuable capability is one that helps the firm to exploit opportunities or to neutralize threats in the external environment. Rare means that few if any competitors possess the particular capability. Costly-to- imitate means a capability cannot be easily developed by other organizations. Often, this kind of capability is rooted in the organization's culture or its unique history. Capabilities may also be costly to imitate if they are causally ambiguous or involve social complexity. Finally, non-substitutable capabilities do not have strategic equivalents that are rare and inimitable. Test Bank for Strategic Management: Concepts and Cases: Competitiveness and Globalization Michael A. Hitt, R. Duane Ireland, Robert E. Hoskisson 9781285425177, 9780538753098, 9781133495239, 9780357033838, 9781305502208, 9781305502147