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TESTBANK: CHAPTER 5
Analyzing Resources and Capabilities
True/False Questions
1. Strategy is concerned with matching a firm’s resources and capabilities to the opportunities
emerging from its environment.
[See p.114]
2. David’s victory of over Goliath (as portrayed in The Bible) demonstrates the importance of aligning
strategy with one’s resources and capabilities.
[See p.115]
3. The “resource-based view” emphasized that a firm’s strategy needs to be environmental sustainable.
[See p.114]
4. The more stable is a firm’s external environment, the more likely it is that the firm’s resources and
capabilities will offer a more stable foundation for strategy than focusing upon its product market, or
the needs of its customers.
[See p.115]
5. The key lesson from the failure of Eastman Kodak is the difficulty of maintaining focus on a
particular customer need when the technology needed to satisfy that need changes radically.
[See p.116]
6. The ability of established firms to reconfigure their resources and capabilities around new
technologies means that, typically, disruptive technologies are pioneered by established rather than new
firms.
[See p.118]
7. The profits arising from market power are called monopoly rents, whereas those arising from
superior resources are Ricardian rents
[See p.118]
8. The analysis of resources and capabilities is a valuable tool of strategy analysis for business
enterprises; it is less applicable to not-for-profit organizations.
[See pp.116-118]
9. Corporate balance sheets do not include human resources (since these are not owned by the firm),
apart from this major exception, balance sheets offer a comprehensive picture of a firm’s resources.
[See pp.118 and 120]
10. One indicator of the value of a firm’s intangible resources is the difference between its market
capitalization and the fair value of its tangible assets.
[See pp.120-121.
11. Companies with the highest ratios of market value to book value tend to be those, either with
valuable brands or valuable proprietary technologies.
[See pp.120-121]
12. The trend among companies to “hire for attitude; train for skills” is the result of research
identifying that the importance of psychological and social aptitudes in determining superior work
performance.
[See p.123]
13. “Organizational capability” and “organizational competence” refer to two concepts which, although
related, are different.
[See p.123]
14. According to Prahalad and Hamel, a company’s core competences are those capabilities that are
fundamental to its strategy ad to its performance.
[See p.123]
15. Porter’s value chain is useful tool for understanding the sequence of activities that a firm performs
but is of limited value in mapping a firm’s resources and capabilities.
[See p.123]
16. Organizational capabilities are based upon an organization’s processes and routines.
[See p.124]
17. For a resource or capability to be a source of competitive advantage, two conditions must be
present: scarcity and relevance
[See p.126]
18. A strong brand is unlikely to be a source of sustainable competitive advantage since brands lack
durability and can be purchased or created through advertising and promotion.
[See p.127]
19. A key feature of efficient and reliable processes is that a firm has been able to perform them
routinely. However, routinizing a process does not necessarily make it a distinctive capability.
[See pp.124-125]
20. In general, higher level capabilities that involve cross-functional integration are the more
strategically important because they are more difficult for rivals to replicate.
[See pp.124-126],
21. When a firm’s capabilities are based upon team effort rather than the skills of star employees the
returns from those capabilities accrue to employees rather than to shareholders.
[See p.128]
22. Benchmarking is an objective way of assessing the strength of a firm’s resources and capabilities
relative to those of competitors
[See pp.129-130]
23. When a firm identifies a resource or capability that is a key weakness, the strategic response should
be to upgrade that resource or capability through investment.
[See pp.131-132]
24. When considering which industry segments a firm should specialize in, it is more important to be
guided by segment attractiveness than whether the key success factors align with the firm’s resource
and capability strengths.
[See p.133]
25. Like Porter’s “five forces of competition” model, the key value of resource and capability analysis
lies less in providing answers and more in providing an overall framework to guide more detailed
analysis.
[See p.133]
Multiple Choice Questions
26. The resource-based view of firm implies that:
[See pp.114-115]
27. Strategy needs to take account of both the requirements of the firm’s external environment and the
firm’s own resources and capabilities. Resources and capabilities rather than requirements of the
external environment offer a stronger basis for strategy formulation when:
[See pp.114-115]
28. The main strategic lesson to be drawn from the Biblical story of David and Goliath is:
[See p.115]
30. In 1990, C.K. Prahalad and Gary Hamel introduced the concept of “core competence.” Their
argument was that:
[See p.116]
31. There are two primary sources of profit (or “economic rent”):
[See pp.117-118]
32. The difference between a resource and a capability is:
[See p.116]
33. To identify a firm’s resources and capabilities, it is useful:
[See pp.118-123]
34. To exploit its tangible assets more effectively requires that a firm:
[See p.120]
35. One implication of the resource-based perspective is that:
[See pp.115-116]
36. Intangible resources tend to be more valuable than tangible resources because:
[See p.121]
37. A major reason why many companies have the high valuation ratios (ratio of stock market value to
balance sheet net asset value) is:
[See p.121]
38. Firm’s with outstanding capabilities are typically those which:
[See p.124]
39. Organizational culture comprises:
[See p.122]
40. The distinguishing attributes of core competences is that:
[See p.122]
41. Enterprise Resource Planning software (such as that supplied by SAP) is unlikely, on its own, to be
source of competitive advantage because:
[See p.127]
42. For most organizations, geographical location should be regarded as:
[See pp.131-133]
43. A well-established brand can be a source of sustainable competitive advantage because:
[See p.127]
44. “Benchmarking” is:
[See p.129]
45. The firm’s ability to appropriate the rents generated by its organizational capabilities:
[See p.129]
46. A bank is establishing a fixed income trading department. It is considering whether to hire a team
of star traders or to invest a similar sum of money in developing a proprietary, automated trading
system. The most valid reason for investing in the automated trading system in preference ot hiring star
traders is:
[See p.128]
47. When a company has weaknesses relative to competitors among strategically important resources
and capabilities, the appropriate strategic response is to:
[See pp.131-132]
48. Resources lack transferability between firms when:
[See pp.127-128]
49. If an organization possesses strengths in a resource or capability that bears little relationship to the
industry’s key success factors it should:
[See pp. 132-133]
