Strategic Management and Competitive Advantage, 4e (Barney)
Chapter 3 Evaluating a Firm’s Internal Capabilities
1) Capabilities are a subset of a firm’s resources and are defined as tangible and intangible assets
that enable a firm to take full advantage of other resources it controls.
2) Resources in the resource based view are defined as the tangible and intangible assets that a
firm controls, which it can use to conceive of and implement its strategies.
3) Financial resources include only the profits a firm has made earlier in its history and that it has
reinvested in itself.
4) Organizational resources include the training, experience, judgment, intelligence, relationships
and insight of individual managers and workers in a firm, while human resources are an attribute
of collections of individuals.
5) One of the key assumptions of the RBV is resource homogeneity.
6) The assumption of resource immobility holds that it may be very costly for firms without
certain resources and capabilities to develop or acquire them.
7) Inputs whose quantity of supply is fixed and whose demand does not respond to price
increases are said to be elastic in supply.
8) A firm’s plant and equipment, its geographic location and its access to raw materials are all
examples of physical resources.
9) In the VRIO framework, the R represents resources.
10) Within the VRIO framework, valuable resources and capabilities are also known as
strengths.
11) Within the VRIO framework, resources and capabilities that are not valuable are also known
as weaknesses.
12) In general, firms that use their resources and capabilities to exploit opportunities to neutralize
threats will see no increase in their net revenues nor a decrease in their net costs compared to the
situation where they are not using these resources and capabilities to exploit opportunities or
neutralize threats.
13) The value of a firm’s resources and capabilities will generally manifest itself in either higher
revenues or lower costs or both once a firm starts using these resources and capabilities to exploit
opportunities or neutralize threats.
14) A firm’s value chain is the set of business activities in which it engages to develop and
produce, but not to market, its products and services.
15) If a firm creates environmental pollution in the process of manufacturing its goods, the
pollution is known as an externality.
16) The value chain model developed by McKinsey and Company divides value-creating
activities into two large categories: primary activities and support activities.
17) Primary value chain activities include activities such as inbound logistics, outbound logistics,
sales and marketing and services.
18) A resource can be a source of competitive advantage even if the resource is controlled by
numerous firms.
19) Most firms have a resource base that is composed primarily of valuable but common
resources and capabilities, some of which are essential if a firm is to gain competitive parity.
20) In general, as long as the number of firms that possess a particular valuable resource or
capability is less than the number of firms needed to generate perfect competition dynamics in an
industry, that resource can be considered rare and a potential source of competitive advantage.
21) When firms without a resource or capability face a cost disadvantage in obtaining or
developing it compared to firms that already possess it, this resource or capability is described as
perfectly imitable.
22) A sustained competitive advantage can be competed away by strategic imitation.
23) In general, imitation can occur in one of two ways: direct duplication or substitution.
24) The ability of firms to acquire, develop, and use resources often depends upon their place in
time and space, and firms that do not have space-and-time-dependent resources face a significant
cost disadvantage in obtaining and developing them.
25) A process is said to be path dependent when imitating firms are not able to understand the
relationship between the resources and capabilities controlled by a firm and that firm’s
competitive advantage.
26) The interpersonal relations among managers in a firm, a firm’s culture, and a firm’s
reputation among suppliers and customers can all act to make a firm’s resources and capabilities
socially complex.
27) A firm’s patents may decrease, rather than increase, the costs of imitation.
28) Most technological developments in an industry are diffused throughout firms in a relatively
brief period of time, but only if the technology in question has not been patented.
29) A firm’s formal reporting structure is a description of who in an organization reports to
whom and is often embedded in a firm’s organizational chart.
30) Formal management controls include a firm’s culture and the willingness of employees to
monitor each other’s behavior.
31) Compensation policies are the ways that firms pay employees, and such policies create
incentives for employees to behave in certain ways.
32) If a resource or capability is valuable and rare but not costly to imitate, exploiting this
resource will generate a sustainable competitive advantage for a firm.
33) Decisions made by other firms given the strategic choices of a particular firm define the
nature of the competitive dynamics that exist in an industry.
34) One reason a firm may not respond to another firm’s competitive advantage is because it
does not have the resources or capabilities to do so.
35) Any actions that a firm takes that have the effect of reducing the level of rivalry in an
industry that also do not require firms in an industry to negotiate with each other can be thought
of as explicit cooperation.
36) When tacit cooperation has the effect of reducing supply and increasing prices, it is known as
tacit collusion.
37) Tacit cooperation is only a viable strategy when an industry is perfectly competitive.
38) In the end, competitive advantage is so important to a firm’s success, it must remain the sole
property of senior management.
39) If there is a conflict between the resources a firm controls and the firm’s organization, the
resources should be changed.
40) To the extent that a firm’s resources and capabilities are continuously evolving, its
organizational structure, control systems, and compensation policies must also evolve.
41) ________ in the RBV are defined as the tangible and intangible assets that a firm controls
that it can use to conceive of and implement its strategies.
A) Management controls
B) Capabilities
C) Resources
D) Compensation policies
42) ________ are a subset of a firm’s resources and are defined as tangible and intangible assets
that enable a firm to take full advantage of other resources it controls.
A) Retained earnings
B) Capabilities
C) Human resources
D) Financial resources
43) A firm’s marketing skills and teamwork as well as its cooperation among managers are
examples of
A) financial resources.
B) human resources.
C) physical resources.
D) capabilities.
44) The training, experience, judgment, intelligence, relationships and insight of individual
managers and workers in a firm are examples of
A) physical resources.
B) human resources.
C) organizational resources.
D) financial resources.
45) Computer hardware and software technology, robots used in manufacturing and automated
warehouses are examples of which type of resources?
A) Financial resources
B) Physical resources
C) Human resources
D) Organizational resources
46) A firm’s formal reporting structure, its formal and informal planning and its controlling and
coordinating systems are examples of which type of resources?
A) Financial resources
B) Physical resources
C) Human resources
D) Organizational resources
47) The VRIO assumption that some of the resource and capability differences among firms may
be long lasting is known as
A) resource mobility.
B) resource homogeneity.
C) resource immobility.
D) resource heterogeneity.
48) ________ implies that for a given business activity, some firms may be more skilled in
accomplishing this activity than other firms.
A) Resource mobility
B) Resource homogeneity
C) Resource immobility
D) Resource heterogeneity
49) The theoretical roots of the resource-based view can be traced to research done by
A) David Ricardo.
B) Adam Smith.
C) Oliver Williamson.
D) Joseph Schumpeter.
50) Inputs whose quantity is fixed and whose demand does not respond to price increases are
said to be
A) elastic in supply.
B) inelastic in supply.
C) elastic in demand.
D) perfectly competitive.
51) To the extent that a firm’s resources and capabilities enhance a firm’s competitive position by
enabling a firm to exploit its opportunities or neutralize its threats, these resources and
capabilities are valuable and are known as
A) temporary competitive advantages.
B) sustainable competitive advantages.
C) core competencies.
D) strengths.
52) The set of business activities in which a firm engages to develop, produce, and market its
products or services is known as its
A) value chain.
B) physical resources.
C) organizational resources.
D) human resources.
53) If in the process of maximizing its performance, a firm engages in activities that pollute the
environment, the impact of that pollution is a(n)
A) capability.
B) externality.
C) competitive advantage.
D) weakness.
54) In Porter’s value chain model, which of the following activities would be considered a
primary activity?
A) Technology development
B) Human resource management
C) Inbound logistics
D) Product development
55) ESPN’s development of an extensive offering of X-Games coverage that is unmatched by
any other sports outlet is an example of which element of the VRIO framework?
A) Organization
B) Imitability
C) Value
D) Rarity
56) Most firms have a resource base that is composed primarily of resources and capabilities that
are
A) valuable but not rare.
B) neither valuable nor rare.
C) valuable and rare.
D) rare but not valuable.
57) Which of the following is not one of the six distinct activities in McKinsey and Company’s
value chain model?
A) Technology development
B) Product design
C) Manufacturing
D) Inbound logistics
58) In general, as long as the number of firms that possess a particular valuable resource or
capability is less than the number of firms needed to generate perfect competition dynamics in an
industry, that resource or capability can be considered ________ and a potential source of
competitive advantage.
A) valuable
B) rare
C) inimitable
D) un-substitutable
59) If firms that do not possess resource or capabilities face a cost disadvantage in obtaining
these resources or capabilities compared to the firms that already possess them, these resources
and capabilities are termed
A) rare.
B) valuable.
C) imperfectly imitable.
D) perfectly imitable.
60) Firms that possess and exploit costly-to-imitate, rare and valuable resources in choosing and
implementing their strategies may enjoy a period of
A) temporary competitive advantage.
B) competitive disadvantage.
C) competitive parity.
D) sustained competitive advantage.
61) If a firm’s resources and capabilities are costly to imitate because imitating firms may not
understand the relationship between the resources and capabilities controlled by a firm and that
firm’s competitive advantage, this competitive advantage is said to be protected from imitation
by
A) path dependence.
B) casual ambiguity.
C) unique historical conditions.
D) social complexity.
62) Resources and capabilities, such as relations among managers and a firm’s culture, that may
be costly to imitate because they are beyond the ability of firms to systematically manage and
influence are referred to as
A) socially complex.
B) casually ambiguous.
C) path dependent.
D) the result of unique historical conditions.