Contemporary Strategy Analysis Text And Cases 8th Edition By Robert M. Grant - Test Bank

Contemporary Strategy Analysis Text And Cases 8th Edition By Robert M. Grant – Test Bank

 

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Sample Questions Are Posted Below

 

Chapter 5

Analyzing Resources & Capabilities

 

 

True or False Questions

 

1. According to Hiroyuki Itami, intangible assets are a primary source of sustainable competitive advantage.

@ Pages and References: p111

*a. T

1. F

 

2. Strategy is concerned with matching a firm’s resources and capabilities to the opportunities emerging from its environment.

@ Pages and References: p112

*a. T

1. F

 

2. The “resource-based view” is a concept of the firm that focuses upon the need for environmental sustainability

@ Pages and References: p112

1. T

*b. F

 

3. If a firm’s external environment is changing rapidly, then a firm’s resources and capabilities may offer a more stable foundation for strategy than focusing upon a specific product, market, or customer need.

@ Pages and References: p113

*a. T

1. F

 

4. The strategic options of technology-based companies are typically restricted, because their technology ties them to a specific market focus.

@ Pages and References: p113

1. T

*b. F

 

5. The key lesson from the failure of Eastman Kodak is the difficulty of maintaining focus on a particular customer need when the technology needed to satisfy that need changes radically.

@ Pages and References: p114

*a. T

1. F

 

6. The ability of established firms to reconfigure their resources and capabilities around new technologies means that, typically, disruptive technologies are launched by established rather than new firms.

@ Pages and References: p115

1. T

*b. F

 

7. The profits arising from market power are called monopoly rents, whereas those arising from superior resources are Ricardian rents

@ Pages and References: p115

*a. T

1. F

 

 

8. The analysis of resources and capabilities is a valuable tool of strategy analysis for business enterprises; it is less applicable to not-for-profit organizations.

@ Pages and References: p116

1. T

*b. F

 

9. Corporate balance sheets do not include human resources (since these are not owned by the firm), apart from this major exception, balance sheets offer a comprehensive picture of a firm’s resources.

@ Pages and References: pp117-118

1. T

*b. F

 

10. One indicator of the value of a firm’s intangible resources is the difference between its market capitalization and the fair value of its tangible assets.

@ Pages and References: p119.

*a. T

1. F

 

11. Companies with the highest ratios of market value to book value tend to be those, either with valuable brands or valuable proprietary technologies.

@ Pages and References: p119

*a. T

1. F

 

12. The trend among companies to “hire for attitude; train for skills” is the result of research identifying that the importance of psychological and social aptitudes in determining superior work performance.

@ Pages and References: p121

*a. T

1. F

 

13. “Organizational capability” and organizational competence” refer to different concepts.

@ Pages and References: p121

1. T

*b. F

 

14. Prahalad and Hamel argue that, if companies concentrate upon developing successful products, they will inevitably nurture the core competences that underlie them.

@ Pages and References: p121

1. T

*b. F

 

15. Porter’s value chain is useful tool for understanding the sequence of activities that a firm performs but is of little value in mapping a firm’s resources and capabilities.

@ Pages and References: p123

1. T

*b. F

 

16. Organizational capabilities are based upon organizational processes which guide coordinated, routinized actions by organizational members.

@ Pages and References: pp123-124

*a. T

1. F

 

17. For a resource or capability to be a source of competitive advantage, two conditions must be present: scarcity and relevance

@ Pages and References: p127

*a. T

1. F

 

18. A well-recognized brand is unlikely to be a source of sustainable competitive advantage because of lack of durability and transferability (a competitors can acquire a well-known brand through licensing).

@ Pages and References: p128

1. T

*b. F

 

19. A key feature of efficient and reliable processes is that a firm has been able to perform them routinely. However, making a process become routine is not sufficient to make it a distinctive competence.

@ Pages and References: pp124-125

*a. T

1. F

 

20. In general, higher level capabilities that involve cross-functional integration are the more strategically important because they are more difficult for rivals to replicate.

@ Pages and References: p126,

*a. T

1. F

 

21. Competition within investment banks between the firms and their employees over the appropriation of returns from superior capabilities has encouraged investment banks to emphasize the skills of teams rather than the skills of star employees.

@ Pages and References: pp129-130,

*a. T

1. F

 

22. Benchmarking is an objective way of assessing a firm’s resources and capabilities by comparing them to those of competitors

@ Pages and References: pp129-130

*a. T

1. F

 

23. When a firm identifies a resource or capability that is a key weakness, the strategic response should be to upgrade that resource or capability through investment.

@ Pages and References: p132

1. T

*b. F

 

24. Like Porter’s “five forces of competition” model, the key value of resource and capability less in providing answers and more in providing an overall framework to guide more detailed analysis can be pursued

@ Pages and References: p133

*a. T

1. F

 

 

Multiple Choice Questions

 

25. The resource-based view of firm focuses on:

@ Pages and References: p112

1. The importance of environmental sustainability for firm strategy
2. The view that the foundation for organizational capability is the resources of the firm

*c. The notion that resources and capabilities are the principal basis for firm strategy and the primary source of profitability

1. A theory of the firm based upon the work of David Ricardo and Joseph Schumpeter

 

26. Strategy needs to take account of both the requirements of the firm’s external environment and the firm’s own resources and capabilities. Resources and capabilities rather than requirements of the external environment offer a stronger basis for strategy formulation when:

@ Pages and References: pp113-114

1. The firm is engaged in the exploitation of natural resources such as petroleum or metal

*b.  The external environment is in a state of flux

1. When the firm is supplying producer goods rather than consumer goods
2. When the firm is a multinational corporation.

 

27. The difficulties faced by Eastman Kodak and Olivetti in adapting to radical technological change within their markets point to:

@ Pages and References: pp114-115

1. The short-sightedness of senior managers in recognizing the implications of new technologies.
2. The power of digital technology as a force for creative destruction
3. The need for firms to devote more resources to technological forecasting

*d. The difficulties established firms experience in building the new capabilities.

 

28. In 1990, C.K. Prahalad and Gary Hamel introduced the concept of “core competence.” Their argument was that:

@ Pages and References: p113

1. Competence was more important than capability as a basis for sustainable competitive advantage
2. Management should build strategy on competences rather than resources

*c. Strategy should be focused on both exploiting and developing firms’ core competences

1. Competitive advantage rather than industry attractiveness was the primary source of superior profitability

 

 

29.There are two primary sources of profit (or “economic rent”):

@ Pages and References: p115

*a. Market power and superior resources

1. Market power and competitive advantage
2. Competitive advantage and disequibrium rents
3. Cost advantage and differentiation advantage.

 

30. What’s the difference between a resource and a capability?

@ Pages and References: p116

*a. A resource is a productive asset of the firm whereas a capability refers to what the firm can do

1. A resource is an immobile asset whereas a capability is a dynamic concept
2. A resource is a weak source of competitive advantage whereas a capability is a strong one
3. It is very difficult to elucidate

 

31. To identify a firm’s resources and capabilities, it is useful:

@ Pages and References: pp116-122

1. To first identify the key success factors within the firm’s industry then identify the resources and capabilities needed to satisfy these success factors
2. Identify the firm’s value chain, then identify the main resources and capabilities at each stage of the value chain
3. Undertake an analysis both of key success factors and the value chain
4. Classify resources into tangible, intangible and human.

 

32. In exploiting tangible assets, two questions must be addressed:

@ Pages and References: p118

1. Can a firm save money on these assets by changing the depreciation policy, and how can it delay replacing them?

*b. How can a firm reduce cost/unit of output on underutilized assets, and/or how can it redeploy them more profitably?

1. How can a firm beat its rivals regarding these assets, and how can it build a better reputation in regards to its external environment?
2. How can a firm acquire more efficient assets from external markets, or how can it build these assets in-house?

 

33. One implication of the resource-based perspective is that:

@ Pages and References: p115

1. Firms tend to adopt similar or close strategies

*b. Firms focus on being different from their competitors

1. Firms focus on building a stronger portfolio of capabilities than their rivals
2. Firms focus on reducing their vulnerability by correcting their weaknesses

 

34. Intangible resources tend to be more valuable than tangible resources because:

@ Pages and References: p119

1. They are easier to acquire
2. They are cheaper to acquire

*c. They are more likely to provide sustainable competitive advantage

1. All of the above

 

 

35. A major reason for the high valuation ratios (ratio of stock market value to balance sheet net asset value) for some companies is:

@ Pages and References: pp119-120

1. Stock market irrationality which results in some companies becoming overvalued

*b.  The undervaluation of intangible resources on companies’ balance sheets

1. Stock market doubts over the valuation of financial assets by companies and their auditors
2. The rise of intellectual property valuation as a result of recent patent litigation.

 

36. Firm’s with outstanding capabilities are typically those which:

@ Pages and References: pp123-124

1. Possess the best resources
2. Have developed their organizational routines over the longest periods of time

*c.  Are able to integrate their resources most effectively

1. Have the most effective leaders.

 

37. Organizational culture comprises:

@ Pages and References: p121

1. A shared cognitive framework among organizational members
2. Senior managers’ beliefs and vision

*c. Shared beliefs, values, assumptions, meanings, myths, rituals, and symbols

1. Organizational identity

 

38. Distinctive competences are:

@ Pages and References: p124

1. The same concept as organizational capabilities
2. Those competences which are easy to identify
3. The same as core competences

*d. Those things which an organization does particularly well relative to competitors

 

39. Core competences possess several attributes:

@ Pages and References: p122

*a. They provide a basis for entering new markets and make a disproportionate contribution to the customer value

1. They provide a basis for building new technological processes and offer a valuable product or service to a firm’s customers
2. Core capabilities are found primarily in Japanese companies such as Honda, Canon, and Sony
3. They allow top managers to understand the human resources of their firm and to define and implement a technological strategy

 

40. What is the link between capabilities and routines?

@ Pages and References: p125

*a. Capabilities routinized, coordinated actions by employees

1. Every routine creates a capability
2. “Needed-to-play” capabilities are routinized, but distinctive capabilities relate to non-routinized activities
3. A capability must be capable of being routinely revised

 

41. Enterprise Resource Planning software (such as that supplied by SAP) is unlikely, on its own, to be source of competitive advantage because:

@ Pages and References: p128

1. It is expensive to install hence its benefits are offset by its costs

*b.  It is available to any firm that wishes to purchase it; hence, it is not scarce

1. It needs to be updated periodically, hence it lacks durability
2. Its benefits are limited to those activities that require substantial information processing

 

42. A well established brand can be a source of sustainable competitive advantage because:

@ Pages and References: pp127-129

1. Consumers will always pay a premium for a recognized brand
2. Brands can be protected by the law relating to trademarks
3. A brand protects a firm form competition from low-cost new entrants

*d.  Existing brands tend to lose value when transferred to another firm and new brands are slow and costly to build.

 

43. “Benchmarking” is:

@ Pages and References: p129

1. A process to ensure that a firm is as similar to competitors as possible
2. An HR manager’s tool to set and justify the firm’s salary scheme versus the industry norm

*c. a way to compare a firm’s attributes against competitors

1. All of the above

 

44. The firm’s ability to appropriate the rents generated by its organizational capabilities:

@ Pages and References: p129

1. Is absolute because firms have full ownership of their capabilities
2. Is greater for firms in high technology than in low technology industries
3. Depends the extent to which the firm’s employees are organized into labor unions and professional associations

*d. Depends upon the extent to which employees are dependent upon corporate systems and their skills embedded in organizational routines

 

45. It is better for an investment bank to have its trading capabilities based upon proprietary trading systems than upon the skills of a few star traders:

@ Pages and References: pp129-130

*a.  Because star traders are in a powerful position to negotiate pay packages which appropriate the major part of the profit they create

1. Because advanced software is better than human intuition at identifying mispricing in financial markets
2. Because star traders are difficult to manage and can easily become “rogue traders”
3. It’s difficult to motivate traders once they have earned their first few million.

 

46. When a company has weaknesses relative to competitors among strategically important resources and capabilities, the appropriate strategic response is to:

@ Pages and References: p132

1. Invest heavy in order to upgrade weaknesses
2. Diversify in order to find new areas of business where the these resources and capabilities are unimportant to competitive advantage

*c.  Outsource those activities where third parties can offer superior capabilities while positioning the business to reduce vulnerable to remaining weaknesses○

1. Employ management consultants to seek a solution.

 

47. Resources and capabilities lack transferability between firms when:

@ Pages and References: pp127-128

1. They are geographical immobile
2. They are difficult to replicate
3. They are subject to asset mass efficiencies and time compression diseconomies

*d. Efficient interfirm transfer is impeded by immobility and/or imperfect information

 

 

Essay Questions

 

48. When are resources and competencies valuable for a firm?

 

Answer: They are valuable when they allow a firm to create value for the customer and to generate returns. Moreover, they are valuable if the firm can establish a competitive advantage because of them, if this competitive advantage can be sustained over the long term, and if the firm can appropriate the generated returns. To lead to a competitive advantage, two conditions must be met: the resource or capability must be 1/ scarce and 2/ relevant for the activity of the firm and to its markets. For the competitive advantage to be sustainable over a significant period of time, the capability has to be durable, not easily transferrable across organizations, and not easily replicable. Finally, for the appropriation of the returns, ownership of the capability is the critical issue. The player who owns the capability will be able to extract the maximum of the returns it generated.

 

49. How are industry attractiveness and competitive advantage, on the one hand, related to Ricardian and monopoly rents, on the other?

 

Answer: Industry attractiveness and competitive advantage (based on the ownership of superior resources) have been identified as two major sources of superior profitability.

Among these two sources, competitive advantage is the more important, and industry-related factors account for only a small portion of inter-firm return differentials.

Economists make a distinction between different types of profit (or rent). The profits generated by market power are referred as “monopoly rents”, whereas the profits arising from superior resources are “Ricardian rents” (after the British economist David Ricardo). Ricardo defined this rent as the return earned by a scarce resource over and above the cost of bringing it into production.

Consequences of this distinction are important in strategy: industry-related factors are mostly out of the control of the firm, whereas superior resources could be managed by the firm. In practice, this distinction is less clear because industry attractiveness may ultimately derive from the ownership of resources.

 

50. What does managerial action at Walt Disney in the mid-1980s illustrate?

 

Answer:  The strategic orientations and actions taken by management illustrate the mobilization of Disney’s vast resource base, and the subsequent turnaround of the company.

Disney developed underutilized landholdings in Florida in partnership with a land development company, and built a theme park, attractions, resort vacation facilities, business convention center, and residential housings.

To exploit its huge film library, Disney licensed packages of movies to TV networks, increased its marketing of theme parks, creating more synergies with the value of the brand. Disney also created a theme park in France, and a chain of Disney stores was established to increase Disney’s product sales.

Finally, Disney reinforced its movie studio business, and expanded massively its Touchstone label, doubling the number of movies in production. This regeneration as a movie studio mobilized and expanded its assets in this area, and developed synergies across Disney’s businesses.

 

51. Are “Human resources” really resources?

 

Answer: Human resources comprise the expertise, the efforts, the knowledge offered by employees. But this resource is special, because it is “alive”. Human beings have their own beliefs, expectations, emotions, and desires, and behave accordingly. Therefore, human resources cannot be considered as an “ordinary” resource, which is owned by firms.

This implies that managing “human resources” appears to be a daunting task, and much more complex than managing ordinary resources, such as technological processes, or administrative routines. Competency modeling, analysis of emotional intelligence, analysis of organizational culture, employee development, training, and evaluation, are some of the specific actions required to “manage” human resources.

 

52. What are the determinants of the potential for resources and capabilities to generate profits?

 

Answer: Three factors determine the potential of resources and capabilities to generate profit:

-the ability to establish a competitive advantage

-the ability to sustain a competitive advantage

-the ability to appropriate the returns to that competitive advantage

The ability to establish a competitive advantage stems from the scarcity and the relevance of the focal asset. Scarcity relates to the extent to which the asset is owned by a single firm, and relevance measures the extent to which the asset is linked with competitive advantage.

The ability to sustain a competitive advantage depends on how durable, transferable, and replicable the asset is. In other words, it depends on the extent to which attributes of the asset protect it, and keep it scarce and relevant.

Finally, the ability to appropriate the returns to that competitive advantage is determined by the power the firm is enjoying in regard to this asset. Ownership of the asset plays a critical role, but when this ownership is not clearly established and other players have a stake in it, the relative bargaining power of the firm becomes the critical factor for the rent appropriation.

 

53. If employees are a firm’s most valuable assets, how can organizations keep them?

 

Answer: Members of an organization are critical assets because they are the only “living intelligence gifted” entity within the organization. Their skills, experience, motivation and involvement are precious assets of the firm, because they collectively and individually make a strong difference in organizational performance.

Human resources are the only assets that can leave the organization. Employees offer their services within the framework of a contract. Firms use several levers to keep these resources within the organization. The basic idea is to satisfy these employees by creating strong incentives for them to stay. These incentives can be monetary, with many different types of bonuses and package components, or non monetary, such as job satisfaction through autonomy, promotion, or a very interesting job. The organizational culture appears to be a tool to create a pleasant work environment and positive work relations.

This topic has been extensively studied in HR management and in the organizational behavior field. Contingency is key; different employees require different techniques because their personality, their expectations, their potential, and their skills are completely different.

 

 

54. Does the expertise and knowledge that top managers have acquired in previous professional experiences matter if their current firm lacks the required resources and competencies?

 

Answer: Even if their current organization lacks the required assets for achieving performance, their skills and expertise matter very much. Top managers’ behaviors and knowledge are extremely critical for the organization because these individuals make strategic decisions and contribute to their implementation. The impact of these decisions is dramatic for the firm’s performance. In the case that a firm lacks necessary resources and competencies, their actions appear even more critical because they should fix the problem and allow the firm to acquire the needed assets.

If top managers have excellent skills, this situation of “shortage” should not exist or at least not exist for long because as soon as they become aware of it, they would act quickly to correct the problem. The nature and the extent of their past experience matter as well: in which industries did they acquire it? Were the constraints, the rivals, the key success factors similar? Which assets were critical in their previous firms?

 

 

55. Is it possible in large organizations such as Wal-Mart, 3M, or Toyota that top managers do not have full knowledge of their firm’s competencies?

 

Answer: This scenario is highly probable. In such large organizations, the complexity and size are obstacles to an extensive knowledge about their own competence portfolio. Competencies exist at different levels of complexity and top managers may be aware of the higher levels (which are easier to capture) and of the most visible competencies. They may ignore or overlook competencies located at a lower level in the organization or some complex competencies.

This question is in debate today in relation to the very definition of competence. With a “dynamic” definition of competence, this issue becomes even more complex because the object itself is harder to grasp. Conceptual obstacles may hinder this knowledge, even in small organizations, such as: a/ the “infinite regress” phenomenon, where causes and consequences are linked in a endless chain, b/ the weaknesses of definitions and of existing practical tools to detect competencies and c/ the volume and complexity of the object to identify and classify. Top managers can use several techniques to build their portfolio, but a large part is left to intuition, judgment and subjectivity. However, this knowledge is indispensable to manage the firm.

 

56. What are the strengths and weaknesses of the practical guide to put resources and capability analysis to work?

 

Answer: This practical guide comprises three steps:

-Identifying the key resources and capabilities

-Appraising resources and capabilities

-Developing strategic implications

This guide offers a formalized framework to enter into the “RBV world”, and to mobilize this theory to produce concrete results.

The identification of resources and capabilities relies on a difference between the two concepts, on the analysis of the key success factors of the industry, and on the value chain of the firm.

To appraise these resources and capabilities, two criteria are proposed: their absolute and relative importance. The absolute importance measures the value of the resource or capability in regard to its potential to satisfy the customer (its relevance) or in regard to its potential to produce any positive consequence, and relative to some of the attributes measuring its scarcity. The relative importance determines the value of an asset in regard to rivals’ use of the same resource or capability.

Inspired from a portfolio analysis approach, it proposes to exploit strengths, to manage weaknesses, to manage superfluous strengths, and to develop strategic implications.

A weakness of the guide may be that the identifying and the appraising steps are in practice joined, because capabilities are defined by their value, and identifying without appraising is impossible.

 

57. Why do different names exist related to the central notion of competence, such as capability, distinctive competence, core competence, dynamic capability, etc?

 

Answer: Different names exist for the following reasons. First, historically different streams of research have progressively enriched the notion of competence, and have integrated more content into the name which refers fundamentally to the same notion (competence, capability, or dynamic competence). Second, in the resource and competence system, different levels of competencies exist regarding their nature (for example, are competencies basic, important, or extremely critical for the success of the organization?). A third reason would be a general weakness in terms of precision and the fact that many authors have proposed their own definition with various names covering slightly different variations of the central concept.

More work is needed to clarify this area.