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True / False

1. Technology has made it more difficult for companies to find ways to develop competitive advantages.
a. True
b. False
ANSWER: True

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. In today's global economy, some resources that were traditionally critical to firms' efforts to produce, sell, and distribute
goods are now less likely to be a source of competitive advantage.
a. True
b. False
ANSWER: True

4. 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

5. 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

6. 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

7. 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

8. Resources are the source of capabilities, some of which lead to the development of core competencies. In turn, some
core competencies may lead to a competitive advantage for the firm.
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a. True
b. False
ANSWER: True

9. 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

10. Creating value for customers is the source of above-average returns for a firm.
a. True
b. False
ANSWER: True

11. 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

12. The need to meet quarterly earnings results causes managers to accurately examine the firm's internal organization.
a. True
b. False
ANSWER: False

13. 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

14. 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

15. 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
ANSWER: True

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16. 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
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. Resources, capabilities, and core competencies are the foundation of competitive advantage.
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. 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

22. Capabilities are usually developed separately from specific functional areas such as manufacturing, R&D, and
marketing.
a. True
b. False
ANSWER: False

23. "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

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24. Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals.
a. True
b. False
ANSWER: True

25. 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 complete research and development
tasks to create a capability in R&D.
a. True
b. False
ANSWER: True

26. The length of time a firm can expect to create value by using its core competencies is a function of how quickly
competitors can successfully imitate a good, service, or process.
a. True
b. False
ANSWER: True

27. Valuable capabilities allow the firm to exploit strengths or neutralize weaknesses in the internal environment.
a. True
b. False
ANSWER: False

28. Costly-to-imitate capabilities are those that other firms cannot easily develop.
a. True
b. False
ANSWER: True

29. 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

30. 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

31. Interpersonal relationships, trust, friendships among managers and between managers and employees, and a firm's
reputation with suppliers and customers are all examples of complex social phenomena that make capabilities easy to
imitate.
a. True
b. False
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ANSWER: False

32. 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

33. Value chain activities in the value chain create value, whereas support functions generate costs.
a. True
b. False
ANSWER: False

34. 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

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
ANSWER: True

36. Firms should never outsource a primary activity because of the danger of the activity being imitated by rivals.
a. True
b. False
ANSWER: False

37. Two concerns about outsourcing are the potential loss of a firm's innovative ability and the loss of jobs within the
focal firm.
a. True
b. False
ANSWER: True

38. Any core competency has the potential to lose its value-creating ability.
a. True
b. False
ANSWER: True

Multiple Choice

39. All competitive advantages have:

a. a limited life.

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b. an expiration date.
c. the ability to earn above-average returns indefinitely.
d. the ability to lead to more competitive advantages.
ANSWER: a

40. 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

41. 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

42. Which of the following is NOT a factor affecting sustainability of a competitive advantage?
a. Availability of substitutes for a firm's core competence
b. Rate at which obsolescence of the core competence occurs because of environmental changes
c. Imitability of a core competence
d. Length of time the core competence has existed
ANSWER: d

43. Internal analysis enables a firm to determine what it:

a. can do.
b. should do.
c. will do.
d. might do.
ANSWER: a

44. 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

45. The key to achieving competitiveness, earning above-average returns, and remaining ahead of competitors in the long
run is to manage current core competencies:
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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

46. 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

47. Value consists of a product's:

a. proprietary characteristics and attributes for which customers are willing to pay.
b. performance characteristics and attributes for which customers are willing to pay.
c. proprietary characteristics and attributes for which customers consider paying.
d. performance characteristics and attributes for which customers consider paying.
ANSWER: b

48. __________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

49. __________ is measured by a product's performance characteristics and by its attributes for which customers are
willing to pay.
a. Competitive advantage
b. Profit potential
c. Contribution
d. Value
ANSWER: d

50. By emphasizing core competencies when selecting and implementing 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

51. The challenge and difficulty of making effective decisions are implied by preliminary evidence suggesting that
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__________ of organizational decisions fail.
a. one-fourth
b. one-fifth
c. one-tenth
d. one-half
ANSWER: d

52. 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

53. 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

54. 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

55. 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

56. 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

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57. The MOST numerous of the following organizational characteristics are:
a. resources.
b. capacities.
c. capabilities.
d. core competencies.
ANSWER: a

58. Capabilities typically come from:

a. individual resources.
b. one unique resource.
c. several outstanding resources used independently.
d. combining resources.
ANSWER: d

59. 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

60. 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

61. 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

62. 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

63. Compared to tangible resources, intangible resources are __________ and __________.
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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

64. The critical executive skill of the current business age is the ability to:
a. manage technological innovation.
b. manage intellectual capital.
c. initiate change and overcome inertia.
d. coordinate tangible and intangible resources.
ANSWER: b

65. Which of the following is NOT a reputational resource?

a. Customers' opinions that the firm's products are high quality
b. Employees' opinions of the firm as a terrible place to work
c. Suppliers' opinions that the firm pays its bills in a timely manner
d. Customers' opinions that using the firm's products makes them attractive
ANSWER: b

66. 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. Which of the following 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 businesses.
d. The investor should search for a firm that has competitive advantages based on tangible resources.
ANSWER: b

67. 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

68. 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.

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d. temporarily sacrificing a tangible asset that is easily replaced.
ANSWER: c

69. 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

70. __________ can be viewed as the capacity to take action.

a. Strategic assets
b. Human capital
c. Core competencies
d. Functional capabilities
ANSWER: c

71. __________ 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

72. 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

73. 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

74. To provide a sustainable competitive advantage, a capability must satisfy all of the following criteria EXCEPT be:
a. technologically innovative.
b. hard for competing firms to duplicate.
c. without good substitutes.
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d. valuable to customers.
ANSWER: a

75. 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 nonsubstitutable.
d. valuable and nonsubstitutable.
ANSWER: b

76. Valuable capabilities allow the firm to:

a. exploit opportunities in its external environment.
b. neutralize threats in its internal environment.
c. exploit opportunities or neutralize threats in its external environment.
d. neutralize opportunities in its internal environment.
ANSWER: c

77. Capabilities that other firms cannot develop easily are classified as:
a. costly to imitate.
b. rare.
c. valuable.
d. nonsubstitutable.
ANSWER: a

78. 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

79. 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 of the following 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

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80. 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

81. 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

82. 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

83. 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

84. 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. Nonsubstitutable
ANSWER: c

85. 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
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b. Rare
c. Costly to imitate
d. Nonsubstitutable
ANSWER: c

86. 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

87. 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

88. 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

89. 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 of the following capability tests?
a. Value test
b. Rareness test
c. Substitutability test
d. Costly-to-imitate test
ANSWER: c

90. 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.

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ANSWER: b

91. 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

92. 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

93. 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

94. Value chain activities include all of the following EXCEPT:

a. supply-chain management.
b. operations.
c. management information systems.
d. distribution.
ANSWER: c

95. 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

96. 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.

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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

97. 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

98. 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

99. To build social capital whereby resources such as knowledge are transferred across organizations requires
__________ between partners.
a. a contract
b. determination
c. confidence
d. trust
ANSWER: d

100. 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

101. A major reason outsourcing is effective is that:

a. it increases the innovative potential of the firm.
b. few firms possess superior capability in each value chain activity and support function.
c. it permits unlimited access to capital resources.
d. competitors do not have access to the same external sources.
ANSWER: b

102. 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.
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c. Outsourcing strengthens the creative and innovative functions within the firm.
d. Outsourcing is effective only when it includes all support activities.
ANSWER: b

103. 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

104. 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

105. 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

106. 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

107. All of the following were traditional sources of competitive advantage EXCEPT:
a. labor costs.
b. access to financial resources.
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c. protected markets.
d. a highly educated labor market.
ANSWER: d

108. __________ 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

109. A product's value is created by all 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

110. 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

111. All of the following are true about the strategic decisions managers make about their firm's internal organization
EXCEPT that they:
a. are directly correlated to executive compensation.
b. are nonroutine.
c. have ethical implications.
d. significantly influence the firm's ability to earn above-average returns.
ANSWER: a

112. 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

113. 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 newspaper’s managers
are making decisions under:
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a. certainty.
b. uncertainty.
c. intraorganizational conflict.
d. interorganizational conflict.
ANSWER: b

114. 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

115. 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

116. 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

117. 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

118. 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(n):
a. human resource.
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b. organizational resource.
c. rare resource.
d. core competency.
ANSWER: d

119. 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

120. The __________ are those with the potential to be formed into core competencies as the foundation for creating
value for customers.
a. "most" knowledge resources
b. "most" capabilities
c. "right" resources
d. "dark side" resources
ANSWER: c

121. 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

122. All core competencies have the potential to become core:

a. rigidities.
b. stagnations.
c. inefficiencies.
d. weaknesses.
ANSWER: a

Essay

123. Describe the importance of internal analysis to the strategic success of a firm. Should not-for-profit organizations
perform internal analyses? Why or why not?
ANSWER: By analyzing its internal organization, 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.
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Not-for-profit organizations absolutely need to conduct internal analyses. 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.

124. 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, skills, and abilities to
collaborate with others); innovation resources (ideas, scientific capabilities, and capacity to innovate); and
reputational resources (brand name; perceptions of product quality, durability, and reliability; and positive
reputation with stakeholders such as suppliers and customers). 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.

125. 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).

126. 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 nonsubstitutable 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, nonsubstitutable capabilities do not have strategic
equivalents that are rare and inimitable.

127. 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 parts of its operations that create value 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
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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. Support functions include the activities or tasks the firm completes in order to support the work
being done to produce, sell, distribute, and service the products the firm is producing. If the firm can either
perform an activity in a manner that provides value superior to that provided by competitors or perform a
value-creating activity that competitors cannot perform, then the activity may be a source of competitive
advantage.

128. 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.

129. 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.

130. 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 where they cannot create value or where they are at a substantial
disadvantage compared to competitors should be outsourced.

131. Why is it important to identify internal strengths and weaknesses?

ANSWER: By analyzing the internal organization, firms identify their strengths and weaknesses as reflected by their
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 for customers and developing competitive advantages as a
result of doing so. Tools such as outsourcing help the firm focus on its core competencies as the source of its
competitive advantages.

132. Describe an organization with which you are familiar. Does it have a sustainable competitive advantage?
ANSWER: Student answers will vary, but they 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.

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