MGT 3830 Exam 1, ch. 4
How do managers benefit from conducting a SWOT analysis?
A SWOT analysis allows managers to evaluate a firm's current situation and future prospects by simultaneously considering internal and external factors. The SWOT analysis encourages managers to scan the internal and external environments, looking for any relevant factors that might affect the firm's current or future competitive advantage. The focus is on internal and external factors that can affect—in a positive or negative way—the firm's ability to gain and sustain a competitive advantage.
Discuss resource immobility as a critical assumption in the resource-based model of a firm.
A critical assumption in the resource-based view—resource immobility—is that resources tend to be "sticky" and don't move easily from firm to firm. Because of that stickiness, the resource differences that exist between firms are difficult to replicate and, therefore, can last for a long time.
Elaborate on the drawback of SWOT analysis with the help of an example.
Although the SWOT analysis is a widely used management framework, a word of caution is in order. A problem with this framework is that a strength can also be a weakness, and that an opportunity can also simultaneously be a threat. For example, Google's headquarters in Silicon Valley and near several universities acts as a key resource for the firm. Most people would consider this a strength for the firm. However, California has a high cost of living and is routinely ranked among the worst of the states in the U.S. in terms of "ease of doing business." In addition, this area of California is along major earthquake fault lines and is more prone to natural disasters than many other parts of the country. So Google's location can be a strength or a weakness.
________ describes a process in which the options one faces in a current situation are limited by decisions made in the past. A) Social complexity B) Path dependence C) Cannibalization D) Causal ambiguity
B
Threadbare Industries is a new high-end textile company that has raised sufficient capital from multiple sources. It is planning to use its capital to purchase certain assets. Which of the following assets will be the most difficult for Threadbare Industries to acquire using its capital? A) a new CEO B) software C) a lease for a new building D) brand name
D
Provide examples of the secondary activities in a firm's value chain.
Support activities of a firm add value indirectly. These activities—such as research and development (R&D), information systems, human resources, accounting and finance, and firm infrastructure including processes, policies, and procedures—support each of the primary activities.
A music distributor that decides to launch a proprietary music streaming service to respond to changes in music consumption trends exhibits dynamic capabilities.
T
Provide examples of the primary activities in a firm's value chain.
The primary activities of a firm add value directly as the firm transforms inputs into outputs—from raw materials through production phases to sales and marketing and finally customer service. Primary activities are: supply chain management, operations, distribution, marketing & sales, and after-sales service.
Explain the value chain perspective of a firm's competitive advantage.
The value chain perspective enables managers to see how competitive advantage flows from the firm's distinct set of activities. This is because a firm's core competency is generally found in a network linking different but distinct activities, each contributing to the firm's strategic position as either low-cost leader or differentiator.
A firm will fail to create a sustained competitive advantage when the A) fit between its internal strengths and the external environment is static. B) source of its competitive advantage is causally ambiguous. C) source of its competitive advantage is socially complex. D) resource bundles exhibit heterogeneity and immobility.
A
An observer may conclude that the organizational culture of Zappos, an online retailer for shoes and clothing, might be the basis for its competitive advantage. However, reverse social engineering to crack Zappos' code of success might be much more difficult for a company trying to exactly imitate its strategy. Thus, the source of Zappos competitive advantage is said to be A) socially complex. B) inexhaustible. C) non-substitutable. D) nonambiguous.
A
Crystal Tech Inc.'s competency in designing and manufacturing efficient microprocessors has made its laptops the most advanced computers in the market. This competency, along with the just-in-time manufacturing system, has enabled Crystal Tech Inc. to increase its profitability by lowering its production costs. Thus, Crystal's competency in designing and manufacturing microprocessors will be considered a(n) ________ resource in the VRIO framework. A) valuable B) substitute C) imitable D) organized
A
Dynamic capabilities are especially relevant for surviving and competing in markets that A) shift quickly. B) shift slowly. C) remain constant. D) remain unpredictable.
A
How does causal ambiguity act as an isolating mechanism for organizations? A) It makes it difficult for the competitors to understand why a company has been so successful. B) It creates a situation in which different social and business systems interact with one another. C) It makes it difficult for competitors to deploy their resources by creating ambiguity within their organizational structures. D) It makes it difficult for competitors to imitate core competencies quickly due to time compression diseconomies.
A
In the context of the SWOT matrix, which of the following best exemplifies a firm's internal strength? A) increase in a firm's customer loyalty B) growth in the size of the market in which a firm operates C) rise in the income of the demographic segment to which a firm caters D) loss of a competitor's reputation
A
InVue, a consumer electronics company, is the leading manufacturer of high-definition (HD) LED televisions. HD technology has been its core competency and the company holds 60 percent shares in that market. However, InVue's competitors have now begun to produce more-advanced technologies like 4K Ultra HD and Internet-enabled Smart televisions. According to the dynamic capabilities perspective, what should InVue do? A) InVue should start working on Ultra HD and Smart television technologies to adapt its core competency to suit the external environment. B) InVue should stick to its existing core competency, that is HD LED technology, as it is the best in that segment. C) InVue should take steps to reduce the causal ambiguity and socially complexity of its core competency. D) InVue should work on enhancing the mobility of its core competency.
A
Pulse Mobiles Inc. is a cell phone manufacturing company. Its latest range of smartphones are visually similar to the Y-series range of smartphones from Talkie Gen Inc., in terms of its shape and look-and-feel. Which of the following strategies has Pulse Mobiles Inc. used to replicate the valuable and rare resource of Talkie Gen Inc.? A) direct imitation B) strategic equivalence C) substitution D) innovation
A
Salubre Pharmaceuticals invested $3.4 billion dollars to develop a new drug for individuals with diabetes. After Salubre receives FDA approval of the drug, its marginal cost to produce the drug for market will be A) low. B) high. C) moderate. D) unpredictable.
A
Southwest Airlines (SWA) has enjoyed a sustained competitive advantage, allowing it to outperform its competitors over several decades. Continental and Delta attempted to copy SWA with their offerings of Continental Lite and Song, respectively. Neither Continental nor Delta, however, was able to successfully imitate the resource bundles and firm capabilities that make SWA unique. Which of the following is this case an example of? A) resource immobility B) resource heterogeneity C) resource imitation D) resource substitution
A
The owners of Puff Ball bakery want to open a second retail outlet. Which of the following scenarios is most likely to yield a competitive advantage? A) Open a shop on an inexpensive piece of land near a new mixed-use residential and business district currently under construction. B) Purchase an existing bakery from a business that closed due to declining sales and try to revive it. C) Build a shop in a sparsely populated rural area where the land is inexpensive and few other bakeries exist. D) Open a shop in a crowded downtown location where several other bakeries have been successful over the years.
A
To help a firm achieve a competitive advantage, each distinct activity performed in the value chain needs to A) contribute to the firm's strategic position as either low-cost leader or differentiator. B) reduce the immobility and the heterogeneity of the firm's resources. C) create a static fit between the company's internal resources and the external environment. D) reduce the causal ambiguity and the social complexity of the firm's source of success.
A
To reduce the amount of time it takes to apply packaging to its finished products, North Star Foods is implementing new equipment at its production plants. By doing this, North Star is addressing a ________ in the value chain analysis. A) primary activity B) secondary activity C) support activity D) premier activity
A
Trendline Architects' core competency is building multi-family housing in urban areas. This competency is based primarily on the decisions made by the company's top management over several years to focus on building in densely populated cities. This process is called A) path dependence. B) dependence complexity. C) causal dependence. D) path immobility.
A
Which of the following best exemplifies social complexity as an isolating mechanism? A) Kristin's Cosmetics attempted to imitate how Monica's Makeup combined its management and product development systems with little success. B) Kristin's Cosmetics failed to acquire the resources for its eyeliner at a low cost and thereby lost its competitive advantage over Monica's Makeup. C) Kristin's Cosmetics had difficulty competing with Monica's Makeup because it could not access the many makeup factories in Kentucky as easily as its competitor. D) Kristin's Cosmetics did not fully understand the reasons for the success of Monica's Makeup and therefore had difficulty competing with the firm.
A
Which of the following describes a situation in which firms acquire resources at a low cost, laying the foundation for a competitive advantage later? A) better expectations of future resource value B) path dependence affecting current decisions C) causal ambiguity D) social complexity
A
Which of the following is an implication of high employee turnover in a company? A) It results in a reduction in the company's intangible-resource stocks. B) It makes the source of the company's competitive advantage causally ambiguous. C) It makes the source of the company's competitive advantage socially complex. D) It results in greater immobility and heterogeneity of the company's resources.
A
You are the manager of Impromptu Printing, a leading print shop. Impromptu's resources include a highly experienced staff and state-of-the-art printing presses. However, your closest competition has started to cut into your market share by offering same-day turnaround on most orders. Although your staffing and equipment is not optimized for rapid production, you decide to start offering a same-day guarantee to your customers. According to the resource-based view, what is wrong with this decision? A) You have failed to take into account resource immobility. B) Customers tend to have negative opinions of firms that imitate other firms. C) Employees are often resistant to changes in strategy. D) Your business is not organized to capture value.
A
Explain how the activities of a firm help in achieving a competitive advantage.
A firm's activities are one of the key internal drivers of performance differences across firms. Activities are distinct actions that enable firms to add incremental value at each step by transforming input into goods and services. Managing a supply chain, running the company's IT system and web sites, or providing customer support are all examples of distinct activities. To help a firm achieve a competitive advantage, each distinct activity performed needs to either add incremental value to the product or service offering or lower its relative cost. Discrete and specific firm activities are the basic units with which to understand competitive advantage because they are the drivers of the firm's relative costs and level of differentiation the firm can provide to its customers.
Differentiate resource stocks from resource flows with the help of the bathtub metaphor.
A helpful metaphor to explain the differences between resource stocks and resource flows is a bathtub that is being filled with water. The amount of water in the bathtub indicates a company's level of a specific intangible resource stock—such as its dynamic capabilities, new-product development, engineering expertise, innovation capability, reputation for quality, and so on. Intangible-resource stocks are built through investments over time. These resource flows are represented in the drawing by the different faucets, from which water flows into the tub. These different faucets indicate investments the firm can make in different intangible resources. Investments in building an innovation capability, for example, differ from investments made in marketing expertise. Each investment flow would be represented by a different faucet. How fast a tub fills depends on how much water comes out of the faucets and how long the faucets are left open. Intangible resources are built through continuous investments and experience over time. How fast the bathtub fills, however, also depends on how much water leaks out of the tub. The outflows represent a reduction in the firm's intangible-resource stocks. Resource leakage might occur through employee turnover, especially if key employees leave. Significant resource leakage can erode a firm's competitive advantage. A reduction in resource stocks can occur if a firm does not engage in a specific activity for some time and forgets how to do this activity well.
In the context of the VRIO Framework, what does a valuable resource mean?
A resource is valuable if it helps a firm increase the perceived value of its product or service in the eyes of consumers, either by adding attractive features or by lowering price because the resource helps the firm lower its costs. By raising the perceived value of the product, the resource increases the firm's revenues, in turn increasing the firm's profitability (assuming costs are not increasing). If the resource allows the firm to lower its cost, it also increases profitability (assuming perceived value is not decreasing). A resource that is valuable allows the firm to take advantage of an external opportunity and/or neutralize an external threat.
) In the context of the resource-based model of competitive advantage, if a successful firm exhibits resource immobility it means that the A) rival firms have better accessibility to quality resources, which they will be able to acquire and deploy to their benefit. B) firm will have a sustained competitive advantage because of its unique resources that are difficult for others to replicate that are difficult for others to replicate. C) competitors can easily replicate or copy the firm's resource bundles and capabilities. D) resources of the firm cannot be effectively deployed within its own organization.
B
A resource-based view of a firm provides a model that systematically aids in identifying A) core rigidities. B) core competencies. C) competitive disadvantage. D) competitive parity.
B
According to an evaluation using the VRIO framework, Crocs Shoes was unable to sustain its competitive advantage primarily because its products were A) invaluable and common. B) easy to imitate. C) extremely rare. D) non-substitutable.
B
Although True Ion Inc. and One Electro Inc. operate in the same consumer electronic industry, True Ion Inc. has better sales and brand equity. This is attributed to True Ion Inc.'s commitment to innovation. The company has adequate financial and human capital to invest in research and development, an area in which One Electro Inc. lags behind. In this scenario, which of the following critical assumptions of the resource-based view of a firm has been illustrated? A) resource value B) resource heterogeneity C) resource immobility D) resource imitation
B
Beats Electronics has been able to outperform Audio-Technica, Bose, JBL, Skullcandy, Sennheiser, and Sony in the high-end, premium headphone market. Which of the following statements accurately explains one of the main reasons for the success of Beats? A) It produced the highest-quality headphones. B) It created a perception that owning its products was cool. C) It emphasized marketing over core competency. D) It focused on sponsoring future athletic superstars.
B
Facing stiff competition in the e-reader market, Sumac Industries wants to protect its competitive advantage by increasing the perceived value of its reader. Sumac's best strategy to accomplish this would be to A) increase the cost of production to add innovative new features. B) highlight the number of celebrities who use Sumac e-readers. C) lower the retail price of its e-reader to attract new customers. D) try to imitate some of the features found in competing products.
B
GN Corp. and BC Inc. are two competing firms in the same industry. GN Corp.'s tangible assets are valued at $15 billion and its intangible assets are valued at $35 billion. BC Inc.'s tangible assets are valued at $5 billion and its intangible assets are valued at $45 billion. What can be concluded from this information? A) BC Inc. will be less competitive than GN Corp. because of its smaller investment in tangible assets. B) It is likely that BC Inc. is better enabled than GN Corp. to gain and sustain a competitive advantage. C) Judging from the assets listed, BC Inc. has probably been in the industry a much shorter time than GN Corp. D) There is no resource heterogeneity between the two firms, BC Inc. and GN Corp., as they operate in the same industry.
B
Igor's Furniture has seen its profit margins shrink over the past several years as increased competition has driven down furniture prices. You have been tasked with improving the company's margins. Which of the following approaches makes the most sense within the context of strategic activity systems? A) Go against the trend and raise prices. B) Install modern manufacturing equipment to improve efficiency. C) Increase spending on online marketing efforts. D) Focus on imitating the most successful products of competitors.
B
Invoro is a market leader in consumer electronics. If Finolo and Ethver, companies that manufacture televisions, develop the same customer knowledge base and create products with the same customer appeal as Invoro, then A) Finolo and Ethver will have a VRIO resource. B) Invoro will have a resource that is valuable but no longer rare. C) Invoro will have a sustainable competitive advantage in the industry. D) Invoro will have a resource that is rare but no longer valuable.
B
O'Ryan Plastics maintains a manufacturing plant overseas. The local government has just been overthrown by a military group that opposes foreign influence in the country. According to the SWOT analysis, the political situation in this location is considered to be an A) external opportunity. B) external threat. C) internal strength. D) internal weakness.
B
Online retailer NetShop had been drastically losing market share to its competitors. The management hired a reputed consulting firm to advise the company. The experts from the consulting firm pointed out that the company primarily lost out on its competitive advantage due to its poor customer service, including slow response times to customer inquiries and unclear return policies. These ineffective policies and procedures led to many disgruntled customers and a steady migration to more customer-friendly retailers. NetShop can best solve its problem by working on its A) immobile assets. B) support activities. C) resource flows. D) resource stocks.
B
Several senior managers recently left Bass Automobile Inc. and went to work at Unicorn Autos Inc., a rival company. What does this imply? A) The resource stock of Bass Automobiles Inc. increased. B) Bass Automobiles Inc. faced resource leakage. C) The resource flow into Unicorn Autos Inc. was reduced. D) Bass Automobiles Inc.'s tangible assets decreased.
B
The "Natural Nourishment" granola bars manufactured by Global Good Foods have been the top-selling granola bars in the market. Though the market for granola bars is flooded with competitors, Global Good has been able to maintain its market position for a long time. This is mainly attributed to the pleasant texture of its granola, which comes from a proprietary processing technique used by the company. This competency of Global Good Foods will be considered as a(n) ________ resource in the VRIO framework. A) imitable B) rare C) intangible D) organizational
B
The competitive advantage that one firm has will be short-lived in an industry in which A) resource immobility is high. B) perfect competition exists. C) resource heterogeneity is high. D) capabilities of a firm are not easily replicable.
B
Tony's Pizza has been trying to directly copy the strategies of Moonlight Pies. Even though it is evident that the success of Moonlight Pies' success comes from the freshness and variety of ingredients it uses, Tony's Pizza has not been able to introduce the same types of produce into its recipes. This is because Moonlight's network of relationships with local growers, as well as its efficient supply chain, are very difficult to emulate. Which of the following barriers to imitation does this scenario best illustrate? A) path dependence B) social complexity C) resource mobility D) resource homogeneity
B
Which of the following provides an example of how a firm's valuable resource can be imitated? A) To compete with Build Your Own's model of the Eiffel Tower, Best Replica came out with a model of a generic medieval cathedral. B) To compete with Build Your Own's model of the Eiffel Tower, Best Replica came out with a model of the Leaning Tower of Pisa. C) To compete with Build Your Own's model of the Eiffel Tower, Best Replica came out with a model of the U.S.S. Enterprise aircraft carrier. D) To compete with Build Your Own's model of the Eiffel Tower, Best Replica came out with a model of a castle from a fantasy movie.
B
Which of the following statements accurately brings out the difference between tangible and intangible resources? A) Tangible resources contribute to a company's competitive advantage, whereas intangible resources have little effect on competitive advantage. B) Tangible assets can be bought on the open market by anyone with the necessary cash, whereas intangible assets cannot be easily purchased. C) Tangible resources take a longer time to build, whereas intangible assets can be built comparatively easily. D) Tangible assets are difficult for competitors to imitate, whereas intangible assets can be easily replicated.
B
eth's Computer Repair has maintained a competitive advantage based on its thorough and professional service, reasonable pricing, and money-back guarantee. Management at the company is so committed to doing repairs well that they often have rejected employee suggestions to expedite their processes. Recently, the company has begun to lose customers to a new local service offering same day in-home repairs and 24/7 online customer support. According to the dynamic capabilities perspective, Seth's Computer Repair has lost its competitive advantage due to A) value chain disruption. B) core rigidity. C) resource flows. D) resource stocks.
B
Amazon.com's network of distribution centers allow it to drastically reduce its delivery times compared to other online retailers. These distribution centers are examples of Amazon's A) core competency. B) intangible resources. C) tangible resources. D) capabilities.
C
Assume a firm's resources and capabilities are costly to imitate. This is because rival companies do not clearly understand the relationship between the resources and capabilities controlled by the firm. In this case, the firm's competitive advantage is protected against imitation by A) path dependence. B) dependence complexity. C) causal ambiguity. D) social complexity.
C
Cartech Inc. is a manufacturer of automobile parts, which it sells to retail auto supply stores. Its core competencies include superior design and engineering capabilities, as well as a highly integrated and efficient supply chain. To sustain its competitive advantage, Cartech should first A) seek to replicate its nearest competitor's competency in innovative marketing. B) attempt to cut costs by replacing assembly line workers with robots. C) upgrade its engineering department and improve its supply chain. D) diversify its product offerings by developing parts for construction equipment.
C
Competitors have found it extremely difficult to imitate Gene Electronics Inc.'s valuable resources, capabilities, or competencies. This is primarily because the source for the company's success has been unclear. The competitors are uncertain if Gene Electronics Inc.'s success is due to its strong leadership, the skills of its research and development team, or the timing of the company' s product introductions. Gene Electronics Inc. has been protected from losing its competitive advantage as a result of A) time compression diseconomies. B) resource homogeneity. C) causal ambiguity. D) path dependence.
C
Due to resource immobility, a critical assumption in the resource-based model of a firm, the A) competitive advantage of a firm exists for a short period of time. B) resource bundles of a firm can be easily imitated by competitors. C) resource differences between firms last for a long time. D) competencies and capabilities of all firms in an industry are similar.
C
How are the critical assumptions of the resource-based model of a firm fundamentally different from the way in which a firm is viewed in the perfectly competitive industry structure? A) In the resource-based model, resources are freely available and mobile, whereas in the perfectly competitive industry structure, resources are highly immobile. B) In perfect competition, it is extremely difficult to replicate the resource bundles of a firm, whereas in the resource-based model, it is extremely easy to imitate them. C) In perfect competition, all firms have access to the same capabilities, whereas in the resource-based model, resource differences exist between firms in the same industry. D) In the resource-based model, only physical assets of a firm are considered as resources, whereas in perfect competition, a firm's capabilities and competencies are also considered as resources.
C
In the context of SWOT analysis, which of the following best exemplifies a firm's external opportunity? A) an increase in its financial resources B) an increase in its brand equity C) an increase in its customers' disposable income D) an increase in its employee productivity
C
Leading guitar string producer Wound Up Inc. has enjoyed a competitive advantage based on its proprietary coating that gives its strings a clearer sound and longer lifespan than uncoated strings. One of Wound Up's competitors, however, has recently developed a similar coating using less expensive ingredients, which allows it to charge a lower price than Wound Up for similar-quality strings. Wound Up's competitive advantage is in danger due to A) a lack of perceived value. B) a lack of organization. C) direct imitation and substitution. D) resource immobility.
C
Merton's Toothpaste has been the leader of dental care products for about 40 years. However, this company relied too long on its competency of reducing cavities without refining or upgrading other aspects of its product. As a result, other personal hygiene companies that began to offer toothpastes with natural whitening agents gained a competitive advantage over Merton's. This case is an example of A) resource flow. B) dynamic capabilities. C) core rigidity. D) value chain.
C
Smooth Fusion Inc. is a software company that has built and acquired numerous assets over the years. According to the resource-based view of a firm, which of the following assets of Smooth Fusion Inc. will best enable it to gain and sustain a competitive advantage? A) the cloud computing service that it uses B) the capital the company raised from its shareholders C) the expertise acquired by the employees in the company D) the headquarters building owned by the company
C
The "diagonal assembly system" was a production system pioneered by the automobile company Gogo. Recently, Gogo was able to sue a competitor and won the suit, thereby receiving $100 million in damages. Which of the following would most likely enable Gogo to win such a lawsuit? A) The competitor ran advertising that criticized Gogo's assembly system. B) The competitor failed to apply for a patent of its own assembly system. C) The competitor infringed on Gogo's patent of the "diagonal assembly system." D) The competitor developed an assembly system that worked on a newer theory than Gogo's system.
C
When the laptop market overtook the desktop market, Blue Tech Inc., a leader in desktop technology, was left at a competitive disadvantage. Later, Blue Tech Inc.'s management channeled all of the company's efforts and revenue to develop an efficient laptop from scratch in less than a year. However, the company failed because Blue Tech Inc.'s models were inferior to the third- and fourth-generation models its competitors were selling. In this scenario, Blue Tech Inc.'s failure can be best attributed to A) causal ambiguity. B) diseconomies of scope and scale. C) time compression diseconomies. D) social complexity.
C
Which of the following applies to the Strength-Threats quadrant of the SWOT matrix? A) The local fast-food chain Easy Hot Dogs expanded its limited menu to maintain its advantage against stiff competition. B) The local fast-food chain Easy Hot Dogs added a salad bar to maintain its competitive advantage against stiff competition. C) The local fast-food chain Easy Hot Dogs used its wholesome image to maintain its competitive advantage against stiff competition. D) The local fast-food chain Easy Hot Dogs revised its image of being a cheap-food place to being a wholesome family place to maintain its competitive advantage against stiff competition.
C
Which of the following is a drawback of the SWOT analysis? A) The SWOT analysis takes into account only the internal environment of a firm, ignoring the equally important external environment. B) This framework is only applicable to the manufacturing industries; it is ineffective when applied to the service firms. C) A problem with this framework is that a strength can also be a weakness, and that an opportunity can also simultaneously be a threat. D) A drawback of this framework is that it allows managers to evaluate only a firm's current situation and not its future prospects.
C
Which of the following statements accurately describes a firm's resource stock? A) Resource stocks are a firm's level of resources that are common to competitors. B) Resource stocks are a firm's future estimate of both tangible and intangible resources. C) Resource stocks are a firm's current level of intangible resources. D) Resource stocks are a firm's level of investments to maintain or build a resource.
C
_______ are barriers to imitation that prevent rivals from competing away the advantage a firm may enjoy. A) Embargoes B) Cartel arrangements C) Isolating mechanisms D) Market niches
C
Describe causal ambiguity and provide an example of how it can act as a barrier against imitation of a firm's valuable resources.
Causal ambiguity describes a situation in which the cause and effect of a phenomenon are not readily apparent. Ray-Ban sunglasses, for example, have been a leading brand of eyewear since the 1930s. Although the company has countless imitators and stiff competition in the luxury eyewear market, it has retained its leadership position for most of its existence. Ray-Ban's iconic designs and commitment to high-quality materials are certainly contributing factors, but it remains unclear why consumers continue to prefer Ray-Bans to other brands offering similar styles and materials. This ambiguity makes it exceedingly difficult for other firms to capture part of Ray-Ban's market share.
According to the value chain analysis, which of the following is a primary activity? A) research and development B) human resources management C) accounting and finance D) marketing and sales
D
After conducting a SWOT analysis, your firm has decided to focus on addressing issues located in the Weaknesses-Opportunities quadrant. Which of the following steps are you most likely to take? A) Devote more resources to an extremely popular advertising campaign to promote an exciting new product. B) Shut down struggling retail outlets in an economically depressed region. C) Deploy top sales personnel to prevent buyers from migrating towards lower-priced competition. D) Reorganize the inefficient research and development department to bring innovative products to market more quickly.
D
As manager of a relatively new company, you are tasked with analyzing company resources to identify core competencies capable of supporting a competitive advantage. Which of the following resources is most likely to generate a competitive advantage? A) new production facilities B) large cash holdings C) stockpile of supplies D) enthusiastic company culture
D
Brain Boost Inc. is a leading educational toy company. Competitors across the globe have failed to imitate Brain Boost's production models, supply chain systems, knowledge systems, and culture. These attributes have remained unique to Brain Boost Inc. for a long time. Which of the following assumptions of the resource-based model of competitive advantage does this scenario best illustrate? A) resource homogeneity B) resource cost C) resource substitution D) resource immobility
D
Cloud Cones is a fast-growing chain of ice cream shops. It has acquired an edge over its competitors through its ability to provide a wide array of unique flavors and a hip atmosphere in stores. This advantage of Cloud Cones best exemplifies a A) markup. B) resource flow. C) capital gain. D) core competency.
D
During market testing, Sensation Cosmetics (SC) realized that the cosmetics industry was dominated by multiple, well-established brands. These brands mostly sold their products in exclusive outlets and departmental stores. SC management realized that a new entrant would require a different business model to be successful. Thus, SC started selling its products through direct marketing. In this scenario, Sensation Cosmetics accomplished substitution primarily through A) path dependence. B) technology transfer. C) knowledge diffusion. D) strategic equivalence.
D
Given the accelerated pace of technological change, in combination with deregulation, globalization, and demographic shifts, a firm will be successful today only if its A) competitive advantage is derived from static resource or market advantages. B) resource advantage is not causally ambiguous or socially complex. C) resource advantage is maintained for a short period of time. D) internal strengths change with its external environment in a dynamic fashion.
D
Gladiator Apparel is the market leader in the sportswear industry. Though most of its resources are common to those of its competitors, a few rare resources have helped the company gain and sustain a competitive advantage. Which of the following assets of Gladiator Apparel is most likely to be considered a rare resource that is contributing to its competitive advantage? A) the company's land and buildings B) the company's plant and machinery C) the company's raw material supplies D) the company's design patents
D
Home Value Inc., Max Cart Inc., and Nice Necessities Inc. are three consumer-product retailing companies. Their products consist primarily of day-to-day items that are easy to imitate and sell. All three companies use the same resources and capabilities in the production and distribution of their products. Judging from the market conditions described in this scenario, which of the following statements is true? A) Resource immobility of the firms will be low. B) The industry structure will be far from perfect competition. C) Barriers to entry within the industry will be high. D) Any advantage that one firm has will be short-lived.
D
In the context of SWOT analysis, which of the following best exemplifies a firm's internal weakness? A) fall in the purchasing power of the firm's customers B) increased competition in the industry where the firm operates C) irregularity in the raw materials supply throughout the industry D) decline in the firm's market share
D
In the context of the resource-based model of competitive advantage, which of the following scenarios best exemplifies resource immobility? A) AP Corp. has earned a good reputation among its shareholders by investing more heavily in equipment than in building up brand equity. B) Two Triangle Inc. has lost its market share because its resources are rigid, inflexible, and static. C) Blue Elixir Corp. has been able to gain a competitive advantage because of its ability to efficiently move its resources from one manufacturing unit to another. D) True 3 Inc. has been able to outperform its competitors because the uniqueness of its employee experience is difficult for competitors to replicate.
D
Ironhorse Tools has used $700,000 from its total annual earnings of $1,650,000 to invest in upgrading its manufacturing facilities. Its accounts receivable from customers is estimated to be $130,000 and accounts payable $75,000. In monetary terms, what would Ironhorse's resource flows be? A) $1,650,000 B) $130,000 C) $75,000 D) $700,000
D
Juanita, a manager at a multinational organization, is trying to carefully scan and link the firm's internal environment to its external environment. The insights from this analysis will allow her to effectively leverage the company's internal strengths to exploit external opportunities, while mitigating internal weaknesses and external threats. In this scenario, which of the following managerial tools is Juanita employing? A) Blake Mouton managerial grid B) Ansoff's matrix C) BCG analysis D) SWOT analysis
D
Keen Beans, a leading coffee roaster, anticipated that the prices of coffee beans from Costa Rica, where its main suppliers were located, would double in less than three years. This would significantly affect Keen Beans' profit margins. Thus, Keen Beans decided to develop a new partnership with a supplier in Indonesia. As predicted, the price of Costa Rican coffee beans increased twofold. Because the price of Indonesian coffee beans was much lower, Keen Beans was able to maintain its profit margins in turbulent times. Which of the following isolating mechanisms does this scenario best illustrate? A) intellectual property protection B) causal ambiguity C) time compression diseconomies D) better expectations of future resource value
D
Organizational and managerial skills that find their expression in a company's structure, routines, and culture are referred to as A) tangible resources. B) reserves. C) capital gains. D) capabilities.
D
Riya has recently started a restaurant in a commercial area that already has many other established restaurants and popular fast-food chains. Riya owns the building in which her restaurant is located, rather than leasing premises as her competitors do. This factor allows her to offer her products at a more competitive price. Riya has also invested a huge amount in designing the restaurant's interior and in equipping the kitchen with the appliances that are most widely used in her industry. In this scenario, which of the following is the most valuable resource for Riya's business? A) the investments made by Riya on the restaurant's interior B) the type of kitchen equipment widely used in her industry C) the restaurant's late entry into the market D) the building owned by Riya, which reduces cost of operations
D
Superlative Productions spent 10 million dollars to buy the rights to a best-selling novel. The company then prepared for production by hiring a screenwriter to adapt the novel, casting the main roles, renting cameras and other equipment, and scouting locations in southern Arizona. Which of the following pairs of resources are both intangible? A) money spent to buy rights to the novel; screenwriter's experience adapting novels B) money spent to buy rights to the novel; locations in southern Arizona C) best-selling novel; locations in southern Arizona D) best-selling novel; screenwriter's experience adapting novels
D
The management of a company is assessing the value of all the tangible resources the company owns. Which of the following will be included in this assessment? A) a reputation for fast customer service B) a culture of proactive communication C) patents for electronic components D) the punch presses that produce parts
D
True Moto Corp. (TMC) is a leading automobile company. The company has been able to sustain its competitive advantage primarily due to its high-quality and efficient electric motors. Most of its competitors have failed to develop similar electric motors at a reasonable price. Which of the following resource attributes listed in the VRIO framework has helped TMC sustain its competitive advantage? A) resource mobility B) inexhaustible nature C) intangibility of the company's resource D) high costs involved in imitation
D
Your company, a small software development firm, has attracted many of the top young programmers in your area. As a result, the apps you produce have been praised for their innovative features and intuitive user experience. According to the bathtub metaphor in the dynamic capabilities perspective, what is the best way for you to protect against resource leakage? A) Invest in an online marketing campaign for existing products to retain customers. B) Open a satellite office overseas to support the company culture of taking chances. C) Attempt to undercut the competition by imitating their top-selling product. D) Improve the benefits package to retain key employees and reduce turnover.
D
ceberg Storage, a leading hard drive manufacturer, recently filed for bankruptcy. While most of Iceberg's competitors were shifting away from physical data storage devices toward online cloud storage services, Iceberg invested most of its retained earnings in the effort to improve its hard drives. Once the hard-drive market drastically declined, Iceberg Storage was unable to capitalize on the new technology. Which of the following does this scenario best illustrate? A) causal ambiguity B) knowledge diffusion C) social complexity D) path dependence
D
Provide an example of how dynamic capabilities can benefit firms.
Dynamic capabilities are essential to move beyond a short-lived advantage and to create a sustained competitive advantage. Not only do dynamic capabilities allow firms to adapt to changing market conditions, they also enable firms to create market changes that can strengthen their strategic position. For example, Apple has repeatedly reconfigured its resource base to produce innovative variations on its popular touchscreen devices, from iPods, to iPhones, to iPads, and now Apple Watches. The introductions of each of these devices have kept Apple at the forefront of the consumer electronics industry and forced rivals to be reactive rather than proactive.
A SWOT analysis would provide a definitive answer as to whether a firm's growing footprint in overseas markets is a strength or weakness.
F
Accounting, human resources, and research and development (R&D) are examples of primary activities that add value directly to the value chain.
F
Amazon's tendency to reinvest a large share of its profits into new services and capabilities exemplifies a low level of resource flows.
F
High demand for online video streaming options is one of Netflix's core competencies.
F
Intellectual property (IP) protections such as trademarks or patents are proven methods of establishing permanent barriers to imitation.
F
One of Rolex's tangible resources is its well-known brand name and reputation for quality timepieces.
F
Elaborate on the dynamic capabilities perspective of competitive advantage.
In the dynamic capabilities perspective, competitive advantage is the outflow of a firm's capacity to modify and leverage its resource base in a way that enables it to gain and sustain competitive advantage in a constantly changing environment. Given the accelerated pace of technological change, in combination with deregulation, globalization, and demographic shifts, dynamic markets today are the rule rather than the exception. As a response, a firm may create, deploy, modify, reconfigure, or upgrade resources so as to provide value to customers and/or lower costs in a dynamic environment. The essence of this perspective is that competitive advantage is not derived from static resource or market advantages, but from a dynamic reconfiguration of a firm's resource base. For a firm to sustain advantage, any fit between its internal strengths and the external environment must be dynamic. That is, the firm must be able to change its resource base as the external environment changes. The goal should be to develop resources, capabilities, and competencies that create a strategic fit with the firm's environment. Rather than creating a static fit, the firm's internal strengths should change with its external environment in a dynamic fashion.
Elaborate on time compression diseconomies.
Path dependence rests on the notion that time cannot be compressed at will. When attempting to compress lots of effort and resources such as R&D into a short time period, it will not be as effective as when a firm spreads out its effort and investments over a longer period of time. Trying to achieve the same outcome in a short time period, even with higher investments tends to lead to inferior results. This is why they are called time compression diseconomies. Strategic decisions have long-term consequences due to path dependence and time compression diseconomies; they are not easily reversible. A competitor cannot imitate or create core competencies quickly, nor can one go out and buy a reputation for quality or innovation on the open market. These types of valuable, rare, and costly-to-imitate resources, capabilities, and competencies must be built and organized effectively over time, often through a painstaking process that frequently includes learning from failure.
Differentiate between a firm's resources and capabilities.
Resources are any assets that a firm can draw on when formulating and implementing strategy. They can be tangible or intangible. Capabilities are organizational and managerial skills necessary to orchestrate a diverse set of resources and to deploy them strategically. They are by nature intangible.
According to the resource-based view, a firm that differentiates itself from its competitors through its personalized approach to customer service is likely to sustain its competitive advantage for a long time.
T
Dynamic strategic activity systems help a firm to maintain a competitive advantage for extended periods of time.
T
The core competencies of a firm are determined by the interplay of its tangible resources and intangible capabilities.
T
Compare and contrast tangible and intangible resources.
Tangible resources have physical attributes and are visible. Examples of tangible resources are labor, capital, land, buildings, plant, equipment, and supplies. Intangible resources have no physical attributes and thus are invisible. Examples of intangible resources are a firm's culture, its knowledge, brand equity, reputation, and intellectual property. Competitive advantage is more likely to spring from intangible rather than tangible resources. Tangible assets, like buildings or computer servers, can be bought on the open market by any comers who have the necessary cash. However, a brand name must be built, often over long periods of time.
Briefly describe the VRIO framework.
The VRIO framework is a theoretical framework that explains and predicts firm-level competitive advantage. A firm can gain a competitive advantage if it has resources that are valuable (V), rare (R), and costly to imitate (I); the firm also must organize (O) to capture the value of the resources. Only if a firm's managers are able to answer "yes" four times to the attributes listed in the decision tree is the resource in question a core competency that underpins a firm's sustainable competitive advantage.
How can a firm fully exploit the competitive potential of its resources, capabilities, and competencies?
The final criterion of whether a rare, valuable, and costly-to-imitate resource can form the basis of a sustained competitive advantage depends on a firm's ability to capture the resource's value creating potential. To fully exploit the competitive potential of its resources, capabilities, and competencies a firm must be organized to capture value—that is, it must have in place an effective organizational structure and coordinating systems.
Elaborate on the resource-based view of competitive advantage.
The resource-based view of a firm provides a model that systematically aids in identifying core competencies. It is a model that sees certain types of resources as key to superior firm performance. If a resource exhibits VRIO attributes, the resource enables the firm to gain and sustain a competitive advantage. It is important to note that the resource-based view of the firm uses the term resource much more broadly than previously defined. In the resource-based view of the firm, a resource includes any assets as well as any capabilities and competencies that a firm can draw upon when formulating and implementing strategy.
Define the value chain.
The value chain describes the internal activities a firm engages in when transforming inputs into outputs. Each activity the firm performs along the horizontal chain adds incremental value—raw materials and other inputs are transformed into components that are finally assembled into finished products or services for the end consumer. Each activity the firm performs along the value chain also adds incremental costs.
Describe the core competencies of any three successful companies in today's business environment.
• Coca-Cola: Leveraging one of the world's most recognized brand names (based on its original "secret formula") into a diverse lineup of soft drinks and other beverages. • Facebook: Connecting more than one billion social media users worldwide. • General Electric: Designing and implementing efficient management processes, developing and training leaders, leveraging deep industrial engineering expertise. • Honda: Designing and manufacturing of small but powerful and highly reliable internal combustion engines. • Starbucks: Providing high-quality beverages and selected food items, combined with superior customer service in a friendly and welcoming environment.
