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Answer Key
1. False
2. True
3. False
4. False
5. True
6. True
7. True
8. True
9. True
10. True
11. False
12. False
13. False
14. False
15. False
16. False
17. False
18. True
19. False
20. False
21. True
22. True
23. True
24. True
25. True
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26. True
27. True
28. True
29. False
30. False
31. False
32. False
33. True
34. False
35. True
36. False
37. True
38. False
39. True
40. b
41. b
42. d
43. a
44. b
45. a
46. b
47. c
48. b
49. c
50. b
51. c
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52. a
53. d
54. c
55. b
56. b
57. a
58. b
59. c
60. c
61. b
62. c
63. a
64. d
65. d
66. a
67. b
68. b
69. b
70. a
71. c
72. d
73. b
74. b
76. c
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77. c
78. b
79. a
80. a
81. c
82. c
83. c
84. a
85. c
86. b
87. c
88. a
89. c
90. c
91. b
92. b
93. c
94. a
95. c
96. b
97. b
98. a
99. a
100. b
101. d
102. c
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103. c
104. b
105. d
106. c
107. c
108. b
109. b
110. c
111. b
112. b
113. d
114. b
115. a
116. c
117. c
118. c
119. d
120. d
121. d
122. d
123. a
124. 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
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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.
131. 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).
132. 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.
133. 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 nonsubstitutable 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, nonsubstitutable capabilities
do not have strategic equivalents that are rare and inimitable.
1. Analyzing the internal environment enables a firm to determine what it might do by identifying what opportunities and
threats exist.
a.
True
b.
False
2. Resources must be combined to form capabilities, as illustrated by Chipotle, which linked fresh ingredients with several
other resources, including the marketing and training of employees, as the foundation for customer service as a capability.
a.
True
b.
False
3. Older employees are less valuable resources to firms than younger employees, because older employees have lower
levels of knowledge. Consequently, employee layoffs should begin with early-retirement inducements.
a.
True
b.
False
4. Firms should seek to continually develop new core competencies because all core competencies guarantee above-
average profit.
a.
True
b.
False
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research skills, and technical skills in hardware, software, and services.
a.
True
b.
False
6. 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 that creates a
core competence in innovation.
a.
True
b.
False
7. 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
8. The foundation of many capabilities lies in the unique skills and knowledge of a firm’s employees.
a.
True
b.
False
9. 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
10. 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
11. Costly-to-imitate capabilities are those which other firms cannot easily develop as they have no strategic equivalent.
a.
True
b.
False
12. The value of tangible assets, such as the firm’s borrowing capacity and its physical plant, is high because these assets
can be easily leveraged to derive additional value.
a.
True
b.
False
13. Capabilities are usually developed separately from specific functional areas such as manufacturing, R&D, and
marketing.
a.
True
b.
False
14. 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
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b.
False
15. 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
16. Valuable capabilities allow the firm to exploit strengths or neutralize weaknesses in the internal environment.
a.
True
b.
False
17. Firms should never outsource a primary activity because of the danger of the activity being imitated by rivals.
a.
True
b.
False
18. 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
19. Capabilities of an organization emerge spontaneously through the interaction of tangible and intangible resources.
a.
True
b.
False
20. By themselves, resources can allow firms to create value for customers as the foundation for earning above-average
returns.
a.
True
b.
False
21. Creating customer value is the source of the firm’s potential to earn above-average returns.
a.
True
b.
False
22. “Motivating, empowering, and retaining employees” is an example of a capability that resides within the human
resources functional area.
a.
True
b.
False
23. Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals.
a.
True
b.
False
24. 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
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b.
False
25. 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
26. 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
27. Any core competency has the potential to lose its value-creating ability.
a.
True
b.
False
28. Capabilities may be costly to imitate if firms have unique and valuable organizational cultures, are causally
ambiguous, and socially complex.
a.
True
b.
False
29. The firm with the most capabilities wins.
a.
True
b.
False
30. 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
31. The learning generated by making and correcting mistakes is generally unimportant to efforts to create new
capabilities and core competencies.
a.
True
b.
False
32. Compared to tangible resources, intangible resources are an inferior source of core competencies.
a.
True
b.
False
33. Technology has made it more difficult for companies to find ways to develop competitive advantages.
a.
True
b.
False
34. The need to meet quarterly earnings results causes managers to accurately examine the firm’s internal organization.
a.
True
b.
False
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35. 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
36. Value chain activities in the value chain create value, whereas support functions generate costs.
a.
True
b.
False
37. 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
38. 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
39. In today’s global economy, some resources that were traditionally critical to firms’ efforts to sell goods are now less
likely to be a source of competitive advantage.
a.
True
b.
False
Indicate the answer choice that best completes the statement or answers the question.
40. 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.
41. 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.
42. 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.
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b.
an organizational resource.
c.
a rare resource.
d.
a core competency.
43. 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.
44. 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.
45. 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.
46. 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
47. 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.
48. 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.
49. 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.
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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.
50. 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.
51. 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.
52. 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.
53. 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
54. 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.
55. 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.
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b.
parity.
c.
disadvantage.
d.
neutrality.
56. 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
57. 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.
58. 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.
59. Value chain activities include all of the following EXCEPT:
a.
supply-chain management.
b.
operations.
c.
management information systems.
d.
distribution.
60. 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
61. 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.
62. 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.
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c.
purchase of a value-creating activity from an external supplier.
d.
use of computers to obtain value-creating data from the Internet.
63. 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.
64. Capabilities typically come from:
a.
individual resources.
b.
one unique resource.
c.
several outstanding resources used independently.
d.
combining resources.
65. 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.
66. 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.
67. 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.
68. 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.
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69. 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
70. Capabilities that other firms cannot develop easily are classified as:
a.
costly to imitate.
b.
rare.
c.
valuable.
d.
nonsubstitutable.
71. 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.
72. 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
73. 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.
74. 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.
75. ______ 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