Strategic Management 3rd Edition Rothaermel Test Bank 1

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Chapter 04
Internal Analysis: Resources, Capabilities, and Core Competencies
Multiple Choice Questions
1. 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 Beat?
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.
4-1
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2. _____ are best described as unique strengths, embedded deep within a firm, that allow a firm
to differentiate its products and services from those of its rivals, creating higher value for the
customer or offering products and services of comparable value at lower cost.
A. Resource leverages
B. Core competencies
C. Capital gains
D. Equity reserves
3. Dandelions Max is a consumer electronics company. It has acquired an edge over its
competitors through its ability to provide breakthrough technology at the lowest price in the
market. This advantage of Dandelions Max best exemplifies a
A. markup.
B. resource flow.
C. capital gain.
D. core competency.
4. 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.
5. Amazon.com's ability to provide the largest selection of items online, combined with superior
IT systems and customer service, can be referred to as its
A. equity reserve.
B. economic equity.
C. core competency.
D. capital gain.
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6. Which of the following is an example of a firm's resources?
A. routine activities like order taking and invoicing customers, performed in a firm
B. assistance available from the government in the form of rules and regulations
C. assets such as land and buildings owned by a firm
D. liabilities such as bills payables and short-term debts
7. 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. the company's copyrights

B. the company's brand equity
C. the company's patents
D. the company's machinery
8. Which of the following is an example of a firm's intangible resources?
A. the firm's cash at bank

B. the firm's finished goods inventory
C. the firm's organizational culture
D. the firm's land and building
9. Smooth Fusion Inc. is a software company, which 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 resources of the company that are mobile

B. the capital raised by the company from its shareholders
C. the expertise acquired by the employees in the company
D. the headquarters owned by the company
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10. 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 fail to do the same.
B. Tangible assets can be bought on the open market, 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 to imitate, whereas intangible assets can be easily replicated.
11. 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. It is easier to buy intangible assets with cash than tangible assets.

B. It is likely that BC Inc. is better enabled than GN Corp. to gain and sustain a competitive
advantage.
C. It takes longer time to build tangible assets than intangible assets.
D. There is no resource heterogeneity between the two firms, BC Inc. and GN Corp., as they
operate in the same industry.
12. Coral Think Inc. is a new company in the publishing industry. It 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 Coral Think Inc. to acquire using its
capital?
A. inventory
B. tools and equipment
C. land and building
D. brand name
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13. Intangible assets add great value to a firm primarily because the firm's
A. reputation and brand equity are accumulated quickly and can be leveraged easily.
B. knowledge and culture take time to develop and are generally difficult to imitate.
C. tangible assets require a higher degree of capital than its intangible assets.
D. capabilities are by nature typically tangible.
14. 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. Which of the following is an implication of the
market condition indicated in this scenario?
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.
15. The resource-based view of a firm assumes that the
A. resources of firms are highly scarce and hence the government interferes to ensure equal
distribution.
B. resources of firms are highly exhaustible and hence they cannot contribute to their
competitive advantage.
C. resource bundles of firms competing in the same industry are unique to some extent and
thus differ from one another.
D. resource bundles of firms competing in the same industry tend to be highly mobile, moving
easily from firm to firm.
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16. 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. lacks. In this scenario, which
of the following critical assumptions of the resource-based view of a firm has been
illustrated?
A. resource equality
B. resource heterogeneity
C. resource mobility
D. resource maturity
17. As a result of _____, a critical assumption in the resource-based model of a firm, the resource
differences that exist between firms are difficult to replicate.
A. resource immobility
B. resource homogeneity
C. resource perishability
D. resource equality
18. Kaleidoscope Inc. is a leading international apparel company. Competitors across the globe
have failed to imitate Kaleidoscope Inc.'s production models, supply chain systems,
knowledge systems, and culture. These attributes have remained unique to Kaleidoscope 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 perishability
C. resource equality
D. resource immobility
4-6
19. 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.

B. firm will have a sustained competitive advantage because of its unique resources.
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.
20. 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.
21. Trust Machines Inc. is a company that manufactures and markets consumer electronics. The
unique microprocessors developed by the company contribute to its high resource immobility.
According to the resource-based view of competitive advantage, which of the following is an
implication of this situation?
A. The competitive advantage of Trust Machines Inc. will soon be lost.

B. The resource heterogeneity of Trust Machines Inc. is low within the industry.
C. The resources of Trust Machines Inc. are difficult to replicate or imitate.
D. The environment in which Trust Machines Inc. operates is closest to perfect competition.
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22. 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 in
tangible assets over intangible assets.
B. Two Triangle Inc. has lost its market share because its resources are not mobile, that is
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
resources is difficult to replicate.
23. The perfectly competitive industry structure differs from the resource-based model in its view
that
A. all firms have access to the same resources.

B. accessibility to bundles of resources differ across firms.
C. resources tend to be "sticky."
D. competencies differ across firms working in the same industry.
24. 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.
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25. The competitive advantage that one firm has will be short-lived in an industry where
A. resource immobility is high.

B. perfect competition exists.
C. resource heterogeneity is high.
D. capabilities of a firm are not easily replicable.
26. 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. inexhaustible
C. tangible
D. perishable
27. If a resource is common
A. competitive advantage will persist with one firm for a long period of time.
B. it will result in perfect competition.
C. it will result in greater resource immobility.
D. competitive parity will cease to exist.
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28. Gene Craft Inc. is the market leader in the pharmaceutical 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 Gene
Craft Inc. is most likely to be considered a rare resource that is best 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 chemical patents
29. If a resource is rare or unique to a particular firm, then
A. the industry in which the firm operates will experience perfect competition.
B. the mobility of the resource will be high.
C. the firm will be able to maintain a competitive advantage for a long period.
D. it will be less costly for rivals to imitate the resource.
30. The "Gold Crisps" potato wafers manufactured by True Foods Inc. have been the highest
selling wafers in the market. Though the market for wafers is flooded with competitors, True
Foods Inc. has been able to maintain its market position for a long time. This is mainly
attributed to the unique taste of the wafers that comes from the unique natural flavoring
used by the company. This competency of True Foods Inc. will be considered as a(n) _____
resource in the VRIO framework.
A. inexhaustible
B. rare
C. intangible
D. virtual
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31. Next Door Cellular is a leading mobile network operator. Since most of the resources used by
Next Door Cellular are easily available, the company's brand name is the only resource that
distinguishes it from the other operators. No other competitor in the industry has a strong
brand name like that of Next Door Cellular. This unique asset that has helped the company
gain a competitive advantage will be considered as a(n) _____ resource in the VRIO
framework.
A. tangible
B. mobile
C. imperishable
D. rare
32. EasyOpen Inc. gained a patent for an electronic corkscrew. Soon the company made a huge
profit on this device. Recently, however, other firms have produced electronic corkscrews. As
a result, EasyOpen lost its competitive advantage. Which of the following would most likely
be the reason for this development?
A. EasyOpen failed to renew the patent after 10 years.

B. EasyOpen's patent expired after 20 years.
C. EasyOpen failed to copyright the corkscrew.
D. EasyOpen's copyright expired after 30 years.
33. In knowledge-intensive industries, the marginal costs after initial invention are
A. low.
B. high.
C. moderate.
D. unpredictable.
4-11
34. 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 used a title for its assembly system that was similar to the title of Gogo's
system.
B. The competitor failed to apply for a patent of its assembly system.
C. The competitor infringed on Gogo's patent of the "diagonal assembly system."
D. The competitor produced an assembly system that was somewhat similar to Gogo's
system.
35. With regard to 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 expensive.
D. non-substitutable.
36. A firm's resource is most likely to be an internal strength and a core competency when the
resource is
A. valuable but common.

B. valuable and costly to imitate.
C. easily accessible and mobile.
D. easy to substitute.
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37. If Finolo and Ethver, companies that manufacture televisions, develop the same customer
knowledge base and create products that provide the same customer appeal as Invoro, a
market leader in consumer electronics, 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.
38. Riya has recently started a restaurant in a commercial area where there are many other
established restaurants and popular fast-food chains. Riya owns the plot on which her
restaurant is located and this makes her cost of operations lower than the competitors. This
factor allows her to offer her products at a competitive price. Riya has also invested a huge
amount on the interiors of the restaurant and in equipping the kitchen with the latest
appliances used by her competitors. 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 interiors

B. the latest kitchen equipment that is at par with the restaurant's competitors
C. the restaurant's late entry into the market
D. the land owned by Riya, which reduces cost of operations
39. Otion Inc. is a relatively new firm in the consumer electronics industry. The company's
primary objective is to become the market leader in less than 5 years, for which it has to gain
and sustain a competitive advantage. In the context of the VRIO framework, which of the
following resources should Otion Inc. primarily focus on to achieve its objective?
A. quality standards, which are common and mandatory throughout the industry
B. inexpensive unskilled labor that is easily accessible by all companies
C. component parts that are sourced from competitors' suppliers
D. production systems that reduce costs by 30 percent below the current industry standards
4-13
40. 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
41. During market testing, Sensation Cosmetics (SC) realized that the cosmetics industry was
dominated with multiple, well-established brands. These brands mostly sold their products in
exclusive outlets and departmental stores. A new entrant like SC 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.
42. Creating resources that meet the VRIO criteria is strategically important to a firm because it
A. helps the firm curb its resource heterogeneity and resource immobility.
B. facilitates greater knowledge diffusion in the industry.
C. leads to competitive parity within the industry.
D. helps the firm to gain and sustain a competitive advantage.
4-14
43. Pulse Mobiles Inc. is a cell phone manufacturing company. Its latest range of smartphones
bears a straight resemblance 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
44. Even though many valuable, rare, and inimitable resources were generated at Xerox's Palo
Alto Research Center (PARC), the management at Xerox's headquarters failed to gain a
competitive advantage by exploiting the breakthroughs in computing software and hardware.
What is the most likely implication of this example?
A. It is advisable to outsource research and development functions.

B. Competitive advantage cannot be gained through unrelated diversification.
C. A firm must be effectively organized to capture value.
D. It is better to build competitive advantage on tangible assets rather than intangible assets.
45. _____ 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
4-15
46. The share price of Groupon, a daily-deal website, fell by 90 percent just a year after its
successful initial public offering. The firm was not able to sustain its competitive advantage
because of the emergence of other daily-deal sites that were able to better serve the needs
of local markets and specific population groups. Which of the following is the most accurate
inference from this example?
A. Groupon's competency was not hard to imitate.

B. Groupon's competency was built more on an intangible resource than on a tangible one.
C. Groupon operated in an industry where the barriers to entry were high.
D. Groupon invested in resources that were invaluable and common.
47. Ambrosia Inc., a leading chocolate producer, anticipated that the prices of cocoa beans would
double in less than three years. This would disrupt the availability of cocoa in the industry.
Thus, Ambrosia Inc. decided to purchase cocoa plantations in Ghana. As predicted, the prices
of cocoa increased twofold. Because of the company-owned cocoa plantations, Ambrosia Inc.
was able to sustain its competitive advantage in turbulent times. Which of the following
isolating mechanisms does this scenario best illustrate?
A. social complexity
B. causal ambiguity
C. time compression diseconomies
D. better expectations of future resource value
48. _____ 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
4-16
49. Path dependence rests on the notion that
A. time cannot be compressed at will.

B. strategic decisions are easily reversible.
C. rare resources can be built in a short period of time.
D. competitive advantage can be sustained indefinitely.
50. Mova Electronics, a leading pager manufacturer, recently declared itself bankrupt. This was
attributed to a decision the company made in the past. While most of Mova's competitors
were shifting their research focus toward cell phones, Mova invested most of its retained
earnings on improvising its pagers. Once the pager market drastically declined, Mova
Electronics 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
51. VRD Systems Inc. took many decades to build its core competencies, and these
competencies were based primarily on the decisions made by the company's top
management in the past. This process is called
A. path dependence.
B. dependence complexity.
C. causal dependence.
D. path immobility.
4-17
52. Which of the following is not a condition that can help a firm sustain its competitive
advantage?
A. when managers have consistently better expectations about the future value of resources
B. when the resource advantage can only be imitated after a long period of time
C. when past decisions act as constraints for the current dynamic capabilities
D. when the source of the competitive advantage is causally ambiguous
53. 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.
C. causal ambiguity.
D. social complexity.
54. 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 most of its competitors had
already been in the laptop market for five years. Blue Tech Inc.'s models were inferior to the
ones in the market. 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.
4-18
55. Due to path dependence
A. strategic decisions have long-term consequences.

B. the occurrence of time compression diseconomies becomes rare.
C. competitors can easily imitate or create core competencies quickly.
D. past decisions of a firm do not affect its current situation.
56. Which of the following best explains why IBM has been able to maintain its competitive
advantage?
A. IBM successfully transformed itself multiple times in the data information industry over a
period of more than 100 years.
B. IBM hired a new CEO to refocus the company on satisfying market needs, which
demanded IT services.
C. IBM focused on producing mainframe and mini-computers that would be produced by fully
integrated companies.
D. IBM helped kick-start the PC revolution in 1981 by setting an open standard in the
computer industry with the introduction of the IBM PC.
57. _____ describes a situation in which the cause and effect of a phenomenon are not readily
apparent.
A. Resource immobility
B. Causal ambiguity
C. Resource heterogeneity
D. Social complexity
4-19
58. 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.
59. 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.
D. path dependence.
60. Value Autos Inc. has been trying to directly copy the strategies of Honk Autos Inc. Even
though it is evident that Honk Autos Inc.'s success comes from its just-in-time inventory
system, Value Autos Inc. has not been able to effectively apply the system in the same way.
This is because the organizational structures, employees, cultures, and the overall business
systems of both the companies vary from each other. Which of the following barriers to
imitation does this scenario best illustrate?
A. path dependence
B. social complexity
D. resource homogeneity
4-20
61. When evaluating the sustainability of a firm's competitive advantage, which of the following
statements is not true?
A. The competitive advantage will not be sustainable if there are substitutes for the firm's
core competence.
B. If managed effectively, existing core competencies can help sustain the competitive
advantage indefinitely.
C. Social complexity often leads to a competitive advantage that is sustainable.
D. When expectations of future resource value turn out to be accurate and can be repeated,
then a sustained competitive advantage is realized.
62. It is difficult even for Apple's managers to pinpoint the underlying cause of the company's
phenomenal success. The term that best applies to this difficulty is known as
A. competitive dependence.
B. resource mobility.
D. path dependence.
63. 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.
4-21
64. _____ describes a firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage its
resources over time in its quest for competitive advantage.
A. Dynamic capability
B. Resource immobility
D. Time compressed diseconomy
65. 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.
66. According to the _____, competitive advantage is the outflow of a firm's ability to modify and
leverage its resource base in a way that enables it to gain and sustain competitive advantage
in a constantly changing environment.
A. value chain perspective

B. two-factor theory
C. expectancy theory
D. dynamic capabilities perspective
67. Given the accelerated pace of technological change, in combination with deregulation,
globalization, and demographic shifts, a firm will only be successful today 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.
4-22
68. Which of the following statements fails to bring out the essence of the dynamic capabilities
perspective?
A. A firm's competitive advantage is derived from static resource or market advantages.

B. A firm must be able to change its resource base as the external environment changes in
order to sustain its competitive advantage.
C. A firm should modify its core competencies to effectively compete in dynamic markets.
D. A firm's external environment is rarely stable, and in many industries, change is fast and
ferocious.
69. Onyxo Inc., a consumer electronics company, is the leading manufacturer of LCD televisions.
LCD technology has been its core competency and the company holds 80 percent shares in
that market. However, Onyxo Inc.'s competitors have now moved on to advance technologies
like LED and 3-D televisions. According to the dynamic capabilities perspective, what should
Onyxo Inc. do?
A. Onyxo Inc. should start working on LED and 3-D television technologies to adapt its core
competency to suit the external environment.
B. Onyxo Inc. should stick to its existing core competency, that is LCD technology, as it is the
best in that segment.
C. Onyxo Inc. should take proactive steps to reduce the causal ambiguity and socially
complexity of its core competency.
D. Onyxo Inc. should work on enhancing the mobility of its core competency.
70. Which of the following resources is a firm's resource stock?
A. cash in the bank

B. reputation for quality
D. plant and machinery
4-23
71. 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.
72. GreenHarvest Inc. has used $350,000 from its total annual earnings of $1,250,000 to invest in
the research and development of a multi-purpose vaccine. Its account receivable from
customers is estimated to be $150,000 and accounts payable $80,000. In monetary terms,
what would GreenHarvest Inc.'s resource flows be?
A. $1,250,000
B. $150,000
C. $80,000
D. $350,000
73. Which of the following statements accurately describes a firm's resource flow?
A. It is the firm's level of investments to maintain or build a resource.

B. It is the firm's current level of intangible resources.
C. It is the firm's current level of tangible resources that are common to other firms.
D. It is the firm's level of expertise to efficiently deploy a valuable resource.
74. 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.
4-24
75. 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. reduced.
D. Bass Automobiles Inc.'s tangible assets decreased.
76. The value chain describes the
A. competitive challenges a firm faces in a highly dynamic external environment.

B. internal activities a firm engages in when transforming inputs into outputs.
C. current consequences a firm experiences due to its decisions in the past.
D. strategic advantages a firm experiences when its resources lack causal ambiguity.
77. 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
78. Chat Zone Inc., a telecommunication company, had been drastically losing its market share
due to tough competition in the industry. The management hired a reputed consulting firm to
advice the company. The experts from the consulting firm pointed out that the company
primarily lost out on its competitive advantage due to its tedious internal policies and
procedures. These ineffective policies and procedures made the company operations,
marketing, and after-sales service inefficient. Chat Zone Inc. can best solve its problem by
working on its
A. immobile assets.
B. support activities.
C. resource flows.
D. resource stocks.
4-25
79. In a generic value chain, a firm's after-sales service will be referred to as its _____.
A. primary activity
B. support activity
C. static resource
D. resource flow
80. 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.
81. _____ allows managers to synthesize insights obtained from an internal analysis of a
company's strengths and weaknesses with those from an analysis of external opportunities
and threats.
A. The VRIO framework

B. The SWOT analysis
C. The break-even analysis
D. Ansoff's matrix
82. 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
4-26
83. 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
84. Which of the following management tools will help determine whether a firm's resources,
capabilities, and competencies are strengths or weaknesses?
A. Porter's five forces analysis

B. PESTEL analysis
C. VRIO framework
D. Ansoff's matrix
85. In the context of SWOT analysis, a firm can develop an offensive strategic option primarily by
A. combining an internal weakness with an external threat.

B. leveraging its internal strengths to minimize external threats.
C. leveraging an external opportunity to overcome an internal threat.
D. using its internal strengths to exploit external opportunities.
86. 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
4-27
87. 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
88. 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 merely evaluate a firm's
current situation, and not its future prospects.
89. To make the SWOT analysis an effective management tool, a strategist must first
A. distinguish a firm's resources, competencies, and capabilities from each other.

B. separate a firm's primary activities from support activities.
C. analyze the pros and cons of strategic options.
D. scan a firm's internal and external environments.
4-28
90. 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
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 in order to maintain its competitive advantage against stiff
competition.
91. Apple paid $3 billion dollars to acquire Beats. This is the largest acquisition in Apple's history.
Which of the following provides a reason for this acquisition?
A. the movement in the music industry from renting works to buying works to own
B. the need for Apple to create an image as a leader in technical audio research
C. the change in content delivery from ownership via downloads to streaming on demand
D. the demand for the extremely high-quality headphones that Beat produced
92. Which of the following accurately summarizes the difference between the resources and
capabilities of a firm?
A. Resources are tangible; capabilities are tangible and intangible.

B. Resources are intangible; capabilities are tangible.
C. Resources are tangible and intangible; capabilities are intangible.
D. Resources are tangible; capabilities are intangible.
93. A resource-based view of a firm provides a model that systematically aids in identifying
A. related competencies.
B. core competencies.
C. competitive disadvantage.
D. competitive parity.
4-29
94. 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 of novel; screenwriter's experience adapting novels

B. money spent to buy rights for the novel; locations in southern Arizona
C. best-selling novel; locations in southern Arizona
D. best-selling novel; screenwriter's experience adapting novels
95. Which of the following statements correctly describes resource heterogeneity?
A. Bundles of resources, capabilities, and competencies differ temporarily across firms.

B. Bundles of resources, capabilities, and competencies are mostly the same across firms.
C. Bundles of resources, capabilities, and competencies differ across firms.
D. Bundles of resources, capabilities and competencies are all the same across firms.
96. 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?
4-30
97. According to the VRIO framework, a firm can gain a competitive advantage if it has resources
that are _____ and captured by an organized firm.
A. varied, refined, costly to introduce

B. valuable, refined, costly to introduce
C. valuable, rare, costly to imitate
D. varied, rare, costly to imitate
98. Rice Dazzle Inc. has been making the same breakfast cereal for 50 years. Recently, sales
have plummeted. To counteract this, the company created a new package that included an
endorsement by a celebrity. As a result, sales increased close to previous highs. However, the
cereal itself remained the same. According the VRIO framework, is the new packaging a
valuable resource for Rice Dazzle?
A. Yes, because the new packaging has an endorsement by a celebrity.

B. Yes, because the new packaging made the product more attractive in the eyes of
consumers.
C. No, because the new packaging did not improve the product itself.
D. No, because the new packaging did help to not increase sales past the previous high for
sales.
99. 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 sports car.
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 grizzly bear.
4-31
100.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 limiting current decisions
C. causal ambiguity
D. social complexity
101.To gain a competitive advantage, Lopez Industries obtained financing and then used this
extra capital to produce the same amount of gaskets in a one-month period that it normally
produces in a two-month period. Which of the following is the most likely outcome of this
endeavor?
A. inconsistent results
B. same results
C. better results
D. inferior results
102.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.
4-32
103.Dynamic capabilities are essential for moving beyond a(n) _____ advantage.
A. long-lived
B. short-lived
C. competitive
D. inconsistent
104.Dynamic capabilities are especially relevant for surviving and competing in markets that
A. shift quickly.
B. shift slowly.
C. remain constant.
D. remain unpredictable.
105.Clean Rinse Shampoo has been the leader of hair-cleaning products for about 40 years.
However, this company relied too long on its competency without refining or upgrading its
product. As a result, other shampoo companies that began to offer organic shampoo gained a
competitive advantage over Clean Rinse. This case is an example of
A. resource flow.
B. dynamic capabilities.
C. core rigidity.
D. value chain.
106.Each activity a firm performs along the horizontal value chain adds _____ value.
A. temporary
B. little
C. incremental
D. absolute
4-33
107.Which of the following is an accurate statement about value chain analysis?
A. The value chain concept can be applied only to manufacturing firms.

B. The value chain concept can be applied only to high-tech firms.
C. The value chain concept can be applied only to manufacturing and high-tech firms.
D. The value chain concept can be applied to all firms, including service firms.
108.To increase its competitive advantage, HRV Automobiles seeks to improve the efficiency of
its production plants. By doing this, HRV is addressing a _____ in the value chain analysis.
A. primary activity
B. secondary activity
C. support activity
D. premier activity
109.All Purpose Tires, Inc. is planning to build a manufacturing plant in Tornado Alley—an area
that often gets hit by tornados. According to the SWOT analysis, this location is considered to
be an
A. external opportunity.
B. external threat.
C. internal opportunity.
D. internal threat.
110.Which of the following management tools will help determine the external opportunities and
threats that affect a firm?

B. PESTEL analysis
C. VRIO framework
D. Ansoff's matrix
4-34
Chapter 04 Internal Analysis: Resources, Capabilities, and Core
Competencies Answer Key
Multiple Choice Questions
1. 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 Beat?
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.
As discussed in Chapter Case 4, Beats has been able to outperform its competitors by
creating a perception of coolness in owning its headphones. As a result, Beats
headphones outsell the higher-quality headphones produced by its competitors.
AACSB: Knowledge Application

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: 2 Medium
Learning Objective: 04-01 Differentiate among a firm's core competencies, resources, capabilities, and activities.
Topic: Core Competencies
4-35
2. _____ are best described as unique strengths, embedded deep within a firm, that allow a
firm to differentiate its products and services from those of its rivals, creating higher value
for the customer or offering products and services of comparable value at lower cost.
A. Resource leverages
B. Core competencies
C. Capital gains
D. Equity reserves
Core competencies are unique strengths, embedded deep within a firm. They allow a firm
to differentiate its products and services from those of its rivals, creating higher value for
the customer or offering products and services of comparable value at lower cost.

Blooms: Remember
Difficulty: 1 Easy
4-36
3. Dandelions Max is a consumer electronics company. It has acquired an edge over its
competitors through its ability to provide breakthrough technology at the lowest price in
the market. This advantage of Dandelions Max best exemplifies a
A. markup.
B. resource flow.
C. capital gain.
D. core competency.
Core competencies allow a firm to differentiate its products and services from those of its
rivals, creating higher value for the customer or offering products and services of
comparable value at lower cost.
AACSB: Reflective Thinking

Blooms: Apply
4-37
4. 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.
Organizational and managerial skills that find their expression in a company's structure,
routines, and culture are referred to as capabilities. Capabilities are the organizational and
managerial skills necessary to orchestrate a diverse set of resources and to deploy them
strategically. Capabilities are by nature intangible.

Blooms: Remember
Difficulty: 1 Easy
5. Amazon.com's ability to provide the largest selection of items online, combined with
superior IT systems and customer service, can be referred to as its
A. equity reserve.
B. economic equity.
C. core competency.
D. capital gain.
Amazon.com's core competencies lie in providing the largest selection of items online,
combined with superior IT systems and customer service.

Blooms: Understand
4-38
6. Which of the following is an example of a firm's resources?
A. routine activities like order taking and invoicing customers, performed in a firm
B. assistance available from the government in the form of rules and regulations
C. assets such as land and buildings owned by a firm
D. liabilities such as bills payables and short-term debts
Assets such as land and building owned by a firm are considered as the firm's resources.
Resources are any assets such as cash, buildings, machinery or intellectual property that a
company can draw on when crafting and executing a strategy.

Blooms: Understand
Difficulty: 1 Easy
7. 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. the company's copyrights

B. the company's brand equity
C. the company's patents
D. the company's machinery
The company's plant and machinery will be included in the assessment of the value of all
the tangible resources the company owns. Tangible resources have physical attributes and
are visible. Examples of tangible resources are labor, capital, land, buildings, plant,
equipment, and supplies.

Blooms: Understand
Difficulty: 1 Easy
Learning Objective: 04-02 Compare and contrast tangible and intangible resources.
Topic: The Resource-Based View
4-39
8. Which of the following is an example of a firm's intangible resources?
A. the firm's cash at bank

B. the firm's finished goods inventory
C. the firm's organizational culture
D. the firm's land and building
The firm's organizational culture should be categorized under its intangible resources.
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.

Blooms: Remember
Difficulty: 1 Easy
4-40
9. Smooth Fusion Inc. is a software company, which 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 resources of the company that are mobile

B. the capital raised by the company from its shareholders
C. the expertise acquired by the employees in the company
D. the headquarters owned by the company
The expertise acquired by the employees in the company is the asset that will best enable
Smooth Fusion Inc. to gain and sustain a competitive advantage. Resource-based view 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. Competitive advantage is more likely to spring from intangible
rather than tangible resources.

Blooms: Apply
4-41
10. 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 fail to do the same.
B. Tangible assets can be bought on the open market, 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 to imitate, whereas intangible assets can be easily
replicated.
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.

Blooms: Understand
4-42
11. 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. It is easier to buy intangible assets with cash than tangible assets.

B. It is likely that BC Inc. is better enabled than GN Corp. to gain and sustain a
C. It takes longer time to build tangible assets than intangible assets.
D. There is no resource heterogeneity between the two firms, BC Inc. and GN Corp., as
they operate in the same industry.
It can be concluded that BC Inc. is better positioned than GN Corp. to gain and sustain a
competitive advantage. 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.
AACSB: Analytical Thinking

Blooms: Analyze
Difficulty: 3 Hard
4-43
12. Coral Think Inc. is a new company in the publishing industry. It 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 Coral Think Inc. to acquire using
its capital?
A. inventory
B. tools and equipment
D. brand name
A brand name will be the most difficult for Coral Think Inc. to build merely using its capital.
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

Blooms: Apply
4-44
13. Intangible assets add great value to a firm primarily because the firm's
A. reputation and brand equity are accumulated quickly and can be leveraged easily.
B. knowledge and culture take time to develop and are generally difficult to imitate.
C. tangible assets require a higher degree of capital than its intangible assets.
D. capabilities are by nature typically tangible.
Intangible assets add great value to a firm primarily because the firm's culture and
knowledge take time to develop and are generally difficult to imitate. Competitive
advantage is more likely to spring from intangible rather than tangible resources. A firm's
brand name, reputation, culture, knowledge, and intellectual property must be built, often

Blooms: Understand
4-45
14. 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. Which of the following is an implication of
the market condition indicated in this scenario?
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.
If a resource is common, it will result in perfect competition where no firm is able to

maintain a competitive advantage. In perfect competition, all firms have access to the
same resources and capabilities, ensuring that any advantage that one firm has will be
short-lived.

Blooms: Analyze
Difficulty: 3 Hard
Learning Objective: 04-03 Evaluate the two critical assumptions behind the resource-based view.
4-46
15. The resource-based view of a firm assumes that the
A. resources of firms are highly scarce and hence the government interferes to ensure
equal distribution.
B. resources of firms are highly exhaustible and hence they cannot contribute to their
C. resource bundles of firms competing in the same industry are unique to some extent
and thus differ from one another.
D. resource bundles of firms competing in the same industry tend to be highly mobile,
moving easily from firm to firm.
The resource-based view of a firm assumes that the resource bundles of firms competing
in the same industry are unique to some extent and thus differ from one another. The first
critical assumption—resource heterogeneity—is that bundles of resources, capabilities,
and competencies differ across firms.

Blooms: Understand
4-47
16. 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. lacks. In this
scenario, which of the following critical assumptions of the resource-based view of a firm
has been illustrated?
A. resource equality
D. resource maturity
The scenario illustrates resource heterogeneity. In the resource-based view, a firm is

assumed to be a bundle of resources, capabilities, and competencies. The first critical
assumption—resource heterogeneity—is that bundles of resources, capabilities, and
competencies differ across firms.

Blooms: Apply
4-48
17. As a result of _____, a critical assumption in the resource-based model of a firm, the
resource differences that exist between firms are difficult to replicate.
B. resource homogeneity
C. resource perishability
D. resource equality
A critical assumption of the resource-based model—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.

Blooms: Remember
Difficulty: 1 Easy
4-49
18. Kaleidoscope Inc. is a leading international apparel company. Competitors across the
globe have failed to imitate Kaleidoscope Inc.'s production models, supply chain systems,
knowledge systems, and culture. These attributes have remained unique to Kaleidoscope
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 perishability
C. resource equality
D. resource immobility
The scenario best illustrates resource immobility. A critical assumption of the resource-
based model—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.

Blooms: Apply
4-50
19. 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.

B. firm will have a sustained competitive advantage because of its unique resources.
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.
In the context of the resource-based model of competitive advantage, if a successful firm

exhibits resource immobility it means that the firm will have a sustained competitive
advantage due to its unique resources. In the resource-based view, resource immobility is
an assumption that resources of a firm tend to be "sticky" and do not 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.

Blooms: Understand
4-51
20. 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.
Due to resource immobility, a critical assumption in the resource-based model of a firm,

the resource differences between firms last for a long time. Because of resource
immobility, the resource differences that exist between firms are difficult to replicate and,
therefore, can last for a long time.

Blooms: Understand
Difficulty: 1 Easy
4-52
21. Trust Machines Inc. is a company that manufactures and markets consumer electronics.
The unique microprocessors developed by the company contribute to its high resource
immobility. According to the resource-based view of competitive advantage, which of the
following is an implication of this situation?
A. The competitive advantage of Trust Machines Inc. will soon be lost.

B. The resource heterogeneity of Trust Machines Inc. is low within the industry.
C. The resources of Trust Machines Inc. are difficult to replicate or imitate.
D. The environment in which Trust Machines Inc. operates is closest to perfect
competition.
According to the resource-based view of competitive advantage, the resources of Trust

Machines Inc. are difficult to replicate or imitate. Because of resource immobility, the
resource differences that exist between firms are difficult to replicate and, therefore, can
last for a long time.

Blooms: Analyze
Difficulty: 3 Hard
4-53
22. 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 in
tangible assets over intangible assets.
B. Two Triangle Inc. has lost its market share because its resources are not mobile, that
is 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
resources is difficult to replicate.
In the resource-based model of competitive advantage, resource immobility refers to the

assumption that resources of a firm tend to be "sticky" and do not 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.

Blooms: Apply
4-54
23. The perfectly competitive industry structure differs from the resource-based model in its
view that
A. all firms have access to the same resources.

B. accessibility to bundles of resources differ across firms.
C. resources tend to be "sticky."
D. competencies differ across firms working in the same industry.
The critical assumptions of the resource-based model of a firm are fundamentally

structure. In perfect competition, all firms have access to the same resources and
capabilities, ensuring that any advantage that one firm has will be short-lived.

Blooms: Understand
4-55
24. How are the critical assumptions of the resource-based model of a firm fundamentally
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.
In the resource-based view, a firm is assumed to be a bundle of resources, capabilities,

and competencies. The first critical assumption—resource heterogeneity—is that bundles
of resources, capabilities, and competencies differ across firms. In perfect competition, all
firms have access to the same resources and capabilities, ensuring that any advantage
that one firm has will be short-lived.

Blooms: Understand
4-56
25. The competitive advantage that one firm has will be short-lived in an industry where
A. resource immobility is high.

B. perfect competition exists.
C. resource heterogeneity is high.
D. capabilities of a firm are not easily replicable.
In perfect competition, all firms have access to the same resources and capabilities,
ensuring that any advantage that one firm has will be short-lived.

Blooms: Remember
Difficulty: 1 Easy
4-57
26. 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. inexhaustible
C. tangible
D. perishable
Crystal's competency in designing and manufacturing microprocessors will be considered

a valuable resource in the VRIO framework. 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.

Blooms: Apply
Learning Objective: 04-04 Apply the VRIO framework to assess the competitive implications of a firm's resources.
4-58
27. If a resource is common
A. competitive advantage will persist with one firm for a long period of time.
B. it will result in perfect competition.
C. it will result in greater resource immobility.
D. competitive parity will cease to exist.
If a resource is common, it will result in perfect competition where no firm is able to

maintain a competitive advantage.

Blooms: Understand
Difficulty: 1 Easy
4-59
28. Gene Craft Inc. is the market leader in the pharmaceutical 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 Gene
Craft Inc. is most likely to be considered a rare resource that is best 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 chemical patents
Gene Craft's chemical patents would be considered a rare resource that is best
contributing to its competitive advantage. A resource is rare if only one or a few firms
possess it.

Blooms: Analyze
Difficulty: 3 Hard
4-60
29. If a resource is rare or unique to a particular firm, then
A. the industry in which the firm operates will experience perfect competition.
B. the mobility of the resource will be high.
C. the firm will be able to maintain a competitive advantage for a long period.
D. it will be less costly for rivals to imitate the resource.
If a resource is rare or unique to a particular firm, then the firm will be able to maintain a
competitive advantage for a long period. A firm is on the path to competitive advantage
only if it possesses a valuable resource that is also rare.

Blooms: Understand
4-61
30. The "Gold Crisps" potato wafers manufactured by True Foods Inc. have been the highest
selling wafers in the market. Though the market for wafers is flooded with competitors,
True Foods Inc. has been able to maintain its market position for a long time. This is
mainly attributed to the unique taste of the wafers that comes from the unique natural
flavoring used by the company. This competency of True Foods Inc. will be considered as
a(n) _____ resource in the VRIO framework.
A. inexhaustible
B. rare
C. intangible
D. virtual
This competency of True Foods Inc. will be considered as a rare resource in the VRIO
framework. A resource is rare if the number of firms that possess it is less than the
number of firms it would require to reach a state of perfect competition.

Blooms: Apply
4-62
31. Next Door Cellular is a leading mobile network operator. Since most of the resources used
by Next Door Cellular are easily available, the company's brand name is the only resource
that distinguishes it from the other operators. No other competitor in the industry has a
strong brand name like that of Next Door Cellular. This unique asset that has helped the
company gain a competitive advantage will be considered as a(n) _____ resource in the
VRIO framework.
A. tangible
B. mobile
C. imperishable
D. rare
This unique asset that has helped Next Door Cellular gain a competitive advantage will be
considered as a rare resource in the VRIO framework. A resource is rare if the number of
firms that possess it is less than the number of firms it would require to reach a state of
perfect competition.

Blooms: Apply
4-63
32. EasyOpen Inc. gained a patent for an electronic corkscrew. Soon the company made a
huge profit on this device. Recently, however, other firms have produced electronic
corkscrews. As a result, EasyOpen lost its competitive advantage. Which of the following
would most likely be the reason for this development?
A. EasyOpen failed to renew the patent after 10 years.

B. EasyOpen's patent expired after 20 years.
C. EasyOpen failed to copyright the corkscrew.
D. EasyOpen's copyright expired after 30 years.
IP protection does not last forever, however. Once the protection has expired the invention
can be used by others. Patents usually expire 20 years after a patent was filed with the
U.S. Patent and Trademark Office.

Blooms: Understand
4-64
33. In knowledge-intensive industries, the marginal costs after initial invention are
A. low.
B. high.
C. moderate.
D. unpredictable.
Although the initial investments to create first version of a new product or service is quite
high in many knowledge-intensive industries, the marginal cost (the cost to produce the
next unit) after initial invention is generally quite low.

Blooms: Remember
Difficulty: 1 Easy
4-65
34. 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 used a title for its assembly system that was similar to the title of
Gogo's system.
B. The competitor failed to apply for a patent of its assembly system.
C. The competitor infringed on Gogo's patent of the "diagonal assembly system."
D. The competitor produced an assembly system that was somewhat similar to Gogo's
system.
A company can often win a lawsuit against a competitor when the court finds that the
competitor infringed on patents owned by the company.

Blooms: Analyze
Difficulty: 3 Hard
4-66
35. With regard to 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 expensive.
D. non-substitutable.
Competitive advantage cannot be sustained if the underlying capability can easily be

replicated and can thus be directly imitated. Despite its patents and celebrity
endorsements, other firms were able to more or less directly copy Crocs shoes, taking a
big bite into its profits.

Blooms: Understand
36. A firm's resource is most likely to be an internal strength and a core competency when the
resource is
A. valuable but common.

B. valuable and costly to imitate.
C. easily accessible and mobile.
D. easy to substitute.
If the resource in question is valuable, rare, and costly to imitate, then it is an internal
strength and a core competency.

Blooms: Remember
Difficulty: 1 Easy
4-67
37. If Finolo and Ethver, companies that manufacture televisions, develop the same customer
knowledge base and create products that provide the same customer appeal as Invoro, a
market leader in consumer electronics, 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.
If Finolo and Ethver develop the same customer knowledge base and create products that
provide the same appeal, then Invoro will have a resource that is still valuable but no
longer rare.

Blooms: Analyze
Difficulty: 3 Hard
4-68
38. Riya has recently started a restaurant in a commercial area where there are many other
established restaurants and popular fast-food chains. Riya owns the plot on which her
restaurant is located and this makes her cost of operations lower than the competitors.
This factor allows her to offer her products at a competitive price. Riya has also invested a
huge amount on the interiors of the restaurant and in equipping the kitchen with the latest
appliances used by her competitors. 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 interiors

B. the latest kitchen equipment that is at par with the restaurant's competitors
C. the restaurant's late entry into the market
D. the land owned by Riya, which reduces cost of operations
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.

Blooms: Apply
4-69
39. Otion Inc. is a relatively new firm in the consumer electronics industry. The company's
primary objective is to become the market leader in less than 5 years, for which it has to
gain and sustain a competitive advantage. In the context of the VRIO framework, which of
the following resources should Otion Inc. primarily focus on to achieve its objective?
A. quality standards, which are common and mandatory throughout the industry
B. inexpensive unskilled labor that is easily accessible by all companies
C. component parts that are sourced from competitors' suppliers
D. production systems that reduce costs by 30 percent below the current industry
standards
Otion Inc. should primarily focus on production systems that reduce costs by 30 percent
below industry standards to achieve its objective. A resource is valuable if it allows a firm
to take advantage of an external opportunity and/or neutralize an external threat.

Blooms: Analyze
Difficulty: 3 Hard
4-70
40. 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
A resource is costly to imitate if firms that do not possess the resource are unable to
develop or buy the resource at a reasonable price. If the resource in question is valuable,
rare, and costly to imitate, then it is an internal strength and a core competency.

Blooms: Apply
4-71
41. During market testing, Sensation Cosmetics (SC) realized that the cosmetics industry was
dominated with multiple, well-established brands. These brands mostly sold their products
in exclusive outlets and departmental stores. A new entrant like SC 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.
In this scenario, Sensation Cosmetics accomplished substitution primarily through

strategic equivalence. An avenue of imitation for a firm's valuable and rare resource is
through substitution. This is often accomplished through strategic equivalence.

Blooms: Apply
4-72
42. Creating resources that meet the VRIO criteria is strategically important to a firm because
it
A. helps the firm curb its resource heterogeneity and resource immobility.
B. facilitates greater knowledge diffusion in the industry.
C. leads to competitive parity within the industry.
D. helps the firm to gain and sustain a competitive advantage.
Creating resources that meet the VRIO criteria is strategically important to a firm because
it helps the firm to gain and sustain a competitive advantage. For a firm to gain and
sustain a competitive advantage, its resources and capabilities need to interact in such a
way as to create unique core competencies. Only a few competencies may turn out to be
core competencies that fulfill the VRIO requirements.

Blooms: Understand
Difficulty: 1 Easy
4-73
43. Pulse Mobiles Inc. is a cell phone manufacturing company. Its latest range of smartphones
bears a straight resemblance 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
Pulse Mobiles Inc. has used direct imitation to replicate the valuable and rare resource of
Talkie Gen Inc. A competing firm can succeed in replicating a firm's valuable and rare
resource by directly imitating the resource in question (direct imitation) or through working
around it to provide a comparable product or service (substitution).

Blooms: Understand
4-74
44. Even though many valuable, rare, and inimitable resources were generated at Xerox's Palo
Alto Research Center (PARC), the management at Xerox's headquarters failed to gain a
competitive advantage by exploiting the breakthroughs in computing software and
hardware. What is the most likely implication of this example?
A. It is advisable to outsource research and development functions.

B. Competitive advantage cannot be gained through unrelated diversification.
C. A firm must be effectively organized to capture value.
D. It is better to build competitive advantage on tangible assets rather than intangible
assets.
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. Due to a lack of appropriate
organization, Xerox failed to appreciate and exploit the many breakthroughs made by its
Palo Alto Research Center (PARC) in computing software and hardware.

Blooms: Understand
4-75
45. _____ 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
Isolating mechanisms are barriers to imitation that prevent rivals from competing away the
advantage a firm may enjoy.

Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-05 Evaluate different conditions that allow a firm to sustain a competitive advantage.
4-76
46. The share price of Groupon, a daily-deal website, fell by 90 percent just a year after its
successful initial public offering. The firm was not able to sustain its competitive
advantage because of the emergence of other daily-deal sites that were able to better
serve the needs of local markets and specific population groups. Which of the following is
the most accurate inference from this example?
A. Groupon's competency was not hard to imitate.

B. Groupon's competency was built more on an intangible resource than on a tangible
one.
C. Groupon operated in an industry where the barriers to entry were high.
D. Groupon invested in resources that were invaluable and common.
As discussed in Strategy Highlight 4.1, to target and fine-tune its local deals, Groupon
relies heavily on human labor to do the selling. Barriers to entry in this type of business
are nonexistent because Groupon's competency is built more on a tangible resource
(labor) than on an intangible one (proprietary technology). Given that Groupon's valuable
and rare competency was not hard to imitate, hundreds of new ventures (so-called
"Groupon clones") rushed in to take advantage of the opportunity.

Blooms: Understand
4-77
47. Ambrosia Inc., a leading chocolate producer, anticipated that the prices of cocoa beans
would double in less than three years. This would disrupt the availability of cocoa in the
industry. Thus, Ambrosia Inc. decided to purchase cocoa plantations in Ghana. As
predicted, the prices of cocoa increased twofold. Because of the company-owned cocoa
plantations, Ambrosia Inc. was able to sustain its competitive advantage in turbulent
times. Which of the following isolating mechanisms does this scenario best illustrate?
A. social complexity
B. causal ambiguity
C. time compression diseconomies
D. better expectations of future resource value
The scenario illustrates better expectations of future resource value. Sometimes firms can
acquire resources at a low cost, which lays the foundation for a competitive advantage
later when expectations about the future of the resource turn out to be more accurate.

Blooms: Apply
4-78
48. _____ 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
Path dependence is a situation in which the options one faces in the current situation are
limited by decisions made in the past.

Blooms: Remember
Difficulty: 1 Easy
49. Path dependence rests on the notion that
A. time cannot be compressed at will.

B. strategic decisions are easily reversible.
C. rare resources can be built in a short period of time.
D. competitive advantage can be sustained indefinitely.
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.

Blooms: Remember
Difficulty: 1 Easy
4-79
50. Mova Electronics, a leading pager manufacturer, recently declared itself bankrupt. This
was attributed to a decision the company made in the past. While most of Mova's
competitors were shifting their research focus toward cell phones, Mova invested most of
its retained earnings on improvising its pagers. Once the pager market drastically declined,
Mova Electronics 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
The scenario best illustrates path dependence. Path dependence is a situation in which
the options one faces in the current situation are limited by decisions made in the past.

Blooms: Apply
Difficulty: 3 Hard
4-80
51. VRD Systems Inc. took many decades to build its core competencies, and these
competencies were based primarily on the decisions made by the company's top
management in the past. This process is called
A. path dependence.
C. causal dependence.
D. path immobility.
Path dependence is a process in which the options that one faces in a current situation
are affected by decisions made in the past.

Blooms: Apply
4-81
52. Which of the following is not a condition that can help a firm sustain its competitive
advantage?
A. when managers have consistently better expectations about the future value of
resources
B. when the resource advantage can only be imitated after a long period of time
C. when past decisions act as constraints for the current dynamic capabilities
D. when the source of the competitive advantage is causally ambiguous
When past decisions act as constraints on a firm's current dynamic capabilities, it will be
difficult to sustain a competitive advantage. Path dependence describes a process in
which the options one faces in a current situation are limited by decisions made in the
past. Often, early events—sometimes even random ones—have a significant effect on final
outcomes.

Blooms: Understand
4-82
53. 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.
Causal ambiguity describes a situation in which the cause and effect of a phenomenon are
not readily apparent. In the given scenario, the firm's competitive advantage is protected
against imitation by causal ambiguity.

Blooms: Understand
4-83
54. 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 most of its competitors
had already been in the laptop market for five years. Blue Tech Inc.'s models were inferior
to the ones in the market. 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.
In this scenario, Blue Tech Inc.'s failure can be attributed to time compression
diseconomies. 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.

Blooms: Analyze
Difficulty: 3 Hard
4-84
55. Due to path dependence
A. strategic decisions have long-term consequences.

B. the occurrence of time compression diseconomies becomes rare.
C. competitors can easily imitate or create core competencies quickly.
D. past decisions of a firm do not affect its current situation.
Strategic decisions have long-term consequences due to path dependence and time
compression diseconomies; they are not easily reversible.

Blooms: Understand
4-85
56. Which of the following best explains why IBM has been able to maintain its competitive
advantage?
A. IBM successfully transformed itself multiple times in the data information industry over
a period of more than 100 years.
B. IBM hired a new CEO to refocus the company on satisfying market needs, which
demanded IT services.
C. IBM focused on producing mainframe and mini-computers that would be produced by
fully integrated companies.
D. IBM helped kick-start the PC revolution in 1981 by setting an open standard in the
computer industry with the introduction of the IBM PC.
As discussed in Strategy Highlight 4.2, IBM's dynamic capability to successfully transform

itself multiple times over its more than 100-year history enabled it to maintain its

Blooms: Understand
4-86
57. _____ describes a situation in which the cause and effect of a phenomenon are not readily
apparent.
A. Resource immobility
B. Causal ambiguity
D. Social complexity
Causal ambiguity is a situation in which the cause and effect of a phenomenon are not
readily apparent.

Blooms: Remember
Difficulty: 1 Easy
4-87
58. 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.
Causal ambiguity describes a situation in which the cause and effect of a phenomenon are
not readily apparent. To formulate and implement a strategy that enhances a firm's
chances of gaining and sustaining a competitive advantage, managers need to have a
hypothesis or theory of how to compete. Understanding the underlying reasons of
observed phenomena is, however, far from trivial.

Blooms: Understand
4-88
59. 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.
D. path dependence.
Gene Electronics Inc. has been protected from losing its competitive advantage as a result
of causal ambiguity. Causal ambiguity describes a situation in which the cause and effect
of a phenomenon are not readily apparent.

Blooms: Apply
4-89
60. Value Autos Inc. has been trying to directly copy the strategies of Honk Autos Inc. Even
though it is evident that Honk Autos Inc.'s success comes from its just-in-time inventory
system, Value Autos Inc. has not been able to effectively apply the system in the same
way. This is because the organizational structures, employees, cultures, and the overall
business systems of both the companies vary from each other. Which of the following
barriers to imitation does this scenario best illustrate?
A. path dependence
B. social complexity
Social complexity describes situations in which different social and business systems
interact with one another. It emerges when two or more individual systems are combined.
Copying the emerging complex social systems is difficult for competitors because neither
direct imitation nor substitution is a valid approach.

Blooms: Apply
4-90
61. When evaluating the sustainability of a firm's competitive advantage, which of the
following statements is not true?
A. The competitive advantage will not be sustainable if there are substitutes for the firm's
core competence.
B. If managed effectively, existing core competencies can help sustain the competitive
advantage indefinitely.
C. Social complexity often leads to a competitive advantage that is sustainable.
D. When expectations of future resource value turn out to be accurate and can be
repeated, then a sustained competitive advantage is realized.
Several conditions can only offer some protection to a successful firm by making it more
difficult for competitors to imitate the resources, capabilities, or competencies that
underlie its competitive advantage. However, no competitive advantage can be sustained
indefinitely.

Blooms: Understand
4-91
62. It is difficult even for Apple's managers to pinpoint the underlying cause of the company's
phenomenal success. The term that best applies to this difficulty is known as
A. competitive dependence.
B. resource mobility.
D. path dependence.
The term that best applies to this difficulty is known as causal ambiguity. Everyone can
see that Apple has had several hugely successful innovative products such as the iMac,
iPod, iPhone, and the iPad, combined with its hugely popular iTunes services. A deep
understanding, however, of exactly why Apple has been so successful is very difficult.
Even Apple's managers themselves may not be able to clearly pinpoint the sources of their
success.

Blooms: Remember
Difficulty: 1 Easy
4-92
63. 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.
Although an observer may conclude that Zappos' culture, with its focus on providing
superior customer service, might be the basis for its competitive advantage, engaging in
reverse social engineering to crack Zappos' code of success might be much more difficult.
A firm may be able to protect its competitive advantage (even for long periods of time)
when the source of its competitive advantage is causally ambiguous or socially complex.

Blooms: Understand
4-93
64. _____ describes a firm's ability to create, deploy, modify, reconfigure, upgrade, or leverage
its resources over time in its quest for competitive advantage.
A. Dynamic capability
B. Resource immobility
D. Time compressed diseconomy
Dynamic capabilities describe a firm's ability to create, deploy, modify, reconfigure,

upgrade, or leverage its resources over time in its quest for competitive advantage.
Dynamic capabilities are essential to move beyond a short-lived advantage and to create a
sustained competitive advantage.

Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-06 Outline how dynamic capabilities can enable a firm to sustain a competitive advantage.
Topic: The Dynamic Capabilities Perspective
65. 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 firm must be able to change its resource base as the external environment changes.
Rather than creating a static fit, the firm's internal strengths should change with its
external environment in a dynamic fashion.

Blooms: Understand
4-94
66. According to the _____, competitive advantage is the outflow of a firm's ability to modify
and leverage its resource base in a way that enables it to gain and sustain competitive
advantage in a constantly changing environment.
A. value chain perspective

B. two-factor theory
C. expectancy theory
D. dynamic capabilities perspective
Dynamic capabilities describe a firm's ability to create, deploy, modify, reconfigure,

upgrade, or leverage its resources over time in its quest for competitive advantage.

Blooms: Remember
Difficulty: 1 Easy
4-95
67. Given the accelerated pace of technological change, in combination with deregulation,
globalization, and demographic shifts, a firm will only be successful today 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.
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.

Blooms: Understand
4-96
68. Which of the following statements fails to bring out the essence of the dynamic
capabilities perspective?
A. A firm's competitive advantage is derived from static resource or market advantages.

B. A firm must be able to change its resource base as the external environment changes
in order to sustain its competitive advantage.
C. A firm should modify its core competencies to effectively compete in dynamic markets.
D. A firm's external environment is rarely stable, and in many industries, change is fast
and ferocious.
The essence of the dynamic capabilities 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.

Blooms: Understand
4-97
69. Onyxo Inc., a consumer electronics company, is the leading manufacturer of LCD
televisions. LCD technology has been its core competency and the company holds 80
percent shares in that market. However, Onyxo Inc.'s competitors have now moved on to
advance technologies like LED and 3-D televisions. According to the dynamic capabilities
perspective, what should Onyxo Inc. do?
A. Onyxo Inc. should start working on LED and 3-D television technologies to adapt its
core competency to suit the external environment.
B. Onyxo Inc. should stick to its existing core competency, that is LCD technology, as it is
the best in that segment.
C. Onyxo Inc. should take proactive steps to reduce the causal ambiguity and socially
complexity of its core competency.
D. Onyxo Inc. should work on enhancing the mobility of its core competency.
According to the dynamic capabilities perspective, Onyxo Inc. should start working on LED
and 3-D television technologies to adapt its core competency to suit the external
environment. The essence of dynamic capabilities 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.

Blooms: Apply
4-98
70. Which of the following resources is a firm's resource stock?
A. cash in the bank

B. reputation for quality
D. plant and machinery
Resource stocks are a firm's current level of intangible resources. A company's intangible
resource stock includes its dynamic capabilities, new-product development, engineering
expertise, innovation capability, reputation for quality, and so on.

Blooms: Understand
Difficulty: 1 Easy
71. 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.
Resource stocks are a firm's current level of intangible resources. A company's intangible
resource stock includes its dynamic capabilities, new-product development, engineering
expertise, innovation capability, reputation for quality, and so on.

Blooms: Understand
Difficulty: 1 Easy
4-99
72. GreenHarvest Inc. has used $350,000 from its total annual earnings of $1,250,000 to invest
in the research and development of a multi-purpose vaccine. Its account receivable from
customers is estimated to be $150,000 and accounts payable $80,000. In monetary terms,
what would GreenHarvest Inc.'s resource flows be?
A. $1,250,000
B. $150,000
C. $80,000
D. $350,000
In monetary terms, GreenHarvest Inc.'s resource flows would be $350,000. Resource flows
are a firm's level of investments to maintain or build a resource.

Blooms: Apply
73. Which of the following statements accurately describes a firm's resource flow?
A. It is the firm's level of investments to maintain or build a resource.

B. It is the firm's current level of intangible resources.
C. It is the firm's current level of tangible resources that are common to other firms.
D. It is the firm's level of expertise to efficiently deploy a valuable resource.
Resource flows are the firm's level of investments to maintain or build a resource.

Blooms: Remember
Difficulty: 1 Easy
4-100
74. 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.
An implication of high turnover in a company is that it results in a reduction in the

company's intangible-resource stocks. The outflows of resources represent a reduction in
a firm's intangible-resource stocks. Significant resource leakage can erode a firm's

Blooms: Understand
75. 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. reduced.
D. Bass Automobiles Inc.'s tangible assets decreased.
Resource leakage might occur through employee turnover, especially if key employees
leave. Significant resource leakage can erode a firm's competitive advantage.

Blooms: Apply
4-101
76. The value chain describes the
A. competitive challenges a firm faces in a highly dynamic external environment.

B. internal activities a firm engages in when transforming inputs into outputs.
C. current consequences a firm experiences due to its decisions in the past.
D. strategic advantages a firm experiences when its resources lack causal ambiguity.
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.

Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-07 Apply a value chain analysis to understand which of the firm's activities in the process of
transforming inputs into outputs generate differentiation and which drive costs.
Topic: The Value Chain Analysis
4-102
77. 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
The primary activities 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 and sales, and after-sales service.

Blooms: Understand
Difficulty: 1 Easy
4-103
78. Chat Zone Inc., a telecommunication company, had been drastically losing its market
share due to tough competition in the industry. The management hired a reputed
consulting firm to advice the company. The experts from the consulting firm pointed out
that the company primarily lost out on its competitive advantage due to its tedious internal
policies and procedures. These ineffective policies and procedures made the company
operations, marketing, and after-sales service inefficient. Chat Zone Inc. can best solve its
problem by working on its
A. immobile assets.
B. support activities.
C. resource flows.
D. resource stocks.
Support activities are firm activities that add value indirectly, but are necessary to sustain
primary activities. Thus, Chat Zone Inc. could solve its problem by working on its support
activities.

Blooms: Apply
4-104
79. In a generic value chain, a firm's after-sales service will be referred to as its _____.
A. primary activity
B. support activity
C. static resource
D. resource flow
The primary activities add value directly as a 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 and sales, and after-sales service.

Blooms: Understand
Difficulty: 1 Easy
4-105
80. 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.
To help a firm achieve a competitive advantage, each distinct activity performed in the
value chain needs to contribute to the firm's strategic position as either low-cost leader or
differentiator. Each distinct activity performed needs to either add incremental value to the
product or service offering or lower its relative cost.

Blooms: Understand
4-106
81. _____ allows managers to synthesize insights obtained from an internal analysis of a
company's strengths and weaknesses with those from an analysis of external
opportunities and threats.
A. The VRIO framework

B. The SWOT analysis
C. The break-even analysis
D. Ansoff's matrix
SWOT analysis is a framework that allows managers to synthesize insights obtained from
an internal analysis of the company's strengths and weaknesses (S and W) with those
from an analysis of external opportunities and threats (O and T).

Blooms: Remember
Difficulty: 1 Easy
Learning Objective: 04-08 Conduct a SWOT analysis to generate insights from external and internal analysis and derive
strategic implications.
Topic: Implications for the Strategist
4-107
82. 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
In this scenario, Juanita is using the SWOT analysis. SWOT analysis is a framework that
allows managers to synthesize insights obtained from an internal analysis of the
company's strengths and weaknesses (S and W) with those from an analysis of external
opportunities and threats (O and T).

Blooms: Apply
Difficulty: 1 Easy
4-108
83. 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
The increase in a firm's customer loyalty best exemplifies a firm's internal strength.
Strengths and weaknesses are internal to an organization, whereas opportunities and
threats are external to the organization.

Blooms: Apply
4-109
84. Which of the following management tools will help determine whether a firm's resources,
capabilities, and competencies are strengths or weaknesses?

B. PESTEL analysis
C. VRIO framework
D. Ansoff's matrix
Whether a firm's resources, capabilities, and competencies are strengths or weaknesses

can be determined by applying the VRIO framework. External opportunities and threats are
in the firm's general environment and can be captured by PESTEL and Porter's five forces
analyses.

Blooms: Remember
Difficulty: 1 Easy
4-110
85. In the context of SWOT analysis, a firm can develop an offensive strategic option primarily
by
A. combining an internal weakness with an external threat.

B. leveraging its internal strengths to minimize external threats.
C. leveraging an external opportunity to overcome an internal threat.
D. using its internal strengths to exploit external opportunities.
In the context of SWOT analysis, a firm can develop an offensive strategic option primarily
by using its internal strengths to exploit external opportunities. In the SWOT matrix, firms
focus on the Strengths-Opportunities quadrant to derive "offensive" alternatives by using
an internal strength in order to exploit an external opportunity.

Blooms: Remember
Difficulty: 1 Easy
4-111
86. 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
In the context of SWOT analysis, decline in a firm's market share best exemplifies a firm's
internal weakness. Strengths and weaknesses are internal to an organization, whereas
opportunities and threats are external to the organization.

Blooms: Apply
4-112
87. 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
In the context of SWOT analysis, an increase in its customers' disposable income best
exemplifies a firm's external opportunity. Strengths and weaknesses are internal to an
organization, whereas opportunities and threats are external to the organization.

Blooms: Understand
4-113
88. 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 merely evaluate a firm's
current situation, and not its future prospects.
Although the SWOT analysis is a widely used management framework, however, 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.

Blooms: Understand
4-114
89. To make the SWOT analysis an effective management tool, a strategist must first
A. distinguish a firm's resources, competencies, and capabilities from each other.

B. separate a firm's primary activities from support activities.
C. analyze the pros and cons of strategic options.
D. scan a firm's internal and external environments.
To make the SWOT analysis an effective management tool, a strategist must first conduct
a thorough external and internal analysis.

Blooms: Remember
Difficulty: 1 Easy
4-115
90. 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
B. The local fast-food chain Easy Hot Dogs added a salad bar to maintain its competitive
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 in order to maintain its competitive advantage
against stiff competition.
The Strength-Threats quadrant of the SWOT matrix uses an external strength, such as a
wholesome image, to minimize the effect of an external threat, such as stiff competition.

Blooms: Apply
4-116
91. Apple paid $3 billion dollars to acquire Beats. This is the largest acquisition in Apple's
history. Which of the following provides a reason for this acquisition?
A. the movement in the music industry from renting works to buying works to own
B. the need for Apple to create an image as a leader in technical audio research
C. the change in content delivery from ownership via downloads to streaming on demand
D. the demand for the extremely high-quality headphones that Beat produced
Two main reasons spurred Apple's acquisition of Beats. First, Apple hoped that some of
Beats' coolness would spill over to its brand, which had become somewhat stale. Second,
content delivery, especially in music, was moving rapidly from ownership via downloads to
streaming on demand. Apple was hoping that by acquiring Beats Electronics it could
become a leader in the music streaming space.

Blooms: Understand
92. Which of the following accurately summarizes the difference between the resources and
capabilities of a firm?
A. Resources are tangible; capabilities are tangible and intangible.

B. Resources are intangible; capabilities are tangible.
C. Resources are tangible and intangible; capabilities are intangible.
D. Resources are tangible; capabilities are intangible.
Resources are tangible and intangible; capabilities are intangible.

Blooms: Remember
Difficulty: 1 Easy
4-117
93. A resource-based view of a firm provides a model that systematically aids in identifying
A. related competencies.
B. core competencies.
C. competitive disadvantage.
D. competitive parity.
A resource-based view of a firm provides a model that systematically aids in identifying

core competencies.

Blooms: Remember
Difficulty: 1 Easy
94. 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 of novel; screenwriter's experience adapting novels

B. money spent to buy rights for the novel; locations in southern Arizona
C. best-selling novel; locations in southern Arizona
D. best-selling novel; screenwriter's experience adapting novels
The best-selling novel is intellectual property and therefore is an intangible resource. Also,
a worker's experience is an intangible resource.

Blooms: Apply
4-118
95. Which of the following statements correctly describes resource heterogeneity?
A. Bundles of resources, capabilities, and competencies differ temporarily across firms.

B. Bundles of resources, capabilities, and competencies are mostly the same across
firms.
C. Bundles of resources, capabilities, and competencies differ across firms.
D. Bundles of resources, capabilities and competencies are all the same across firms.
Resource heterogeneity means that bundles of resources, capabilities, and competencies

differ across firms.

Blooms: Remember
Difficulty: 1 Easy
4-119
96. 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?
This case is an example of resource immobility. Resources tend to be "sticky" and don't
move easily from firm to firm. As a result, Continental and Delta were both unable to
successfully copy SWA.

Blooms: Understand
4-120
97. According to the VRIO framework, a firm can gain a competitive advantage if it has
resources that are _____ and captured by an organized firm.
A. varied, refined, costly to introduce

B. valuable, refined, costly to introduce
C. valuable, rare, costly to imitate
D. varied, rare, costly to imitate
According to the VRIO framework, a firm can gain a competitive advantage if it has
resources that are: valuable, rare, costly to imitate, and captured by an organized firm.

Blooms: Remember
Difficulty: 1 Easy
4-121
98. Rice Dazzle Inc. has been making the same breakfast cereal for 50 years. Recently, sales
have plummeted. To counteract this, the company created a new package that included an
endorsement by a celebrity. As a result, sales increased close to previous highs. However,
the cereal itself remained the same. According the VRIO framework, is the new packaging
a valuable resource for Rice Dazzle?
A. Yes, because the new packaging has an endorsement by a celebrity.

B. Yes, because the new packaging made the product more attractive in the eyes of
consumers.
C. No, because the new packaging did not improve the product itself.
D. No, because the new packaging did help to not increase sales past the previous high
for sales.
According to the VRIO framework, a resource is valuable if it helps a firm increase the
perceived value of its product or service in the eyes of consumers.

Blooms: Apply
4-122
99. 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 sports car.
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 grizzly bear.
A competing firm can succeed in imitating another firm's valuable resource by directly
imitating the resource in question (direct imitation) or through working around it to provide
a comparable product or service (substitution). So Best Replica imitated Build Your Own's
model of the Eiffel Tower by coming out with a comparable product, namely a model of
another landmark—the Leaning Tower of Pisa.

Blooms: Analyze
Difficulty: 3 Hard
4-123
100. 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 limiting current decisions
C. causal ambiguity
D. social complexity
Better expectations of future resource value describes a situation in which firms acquire
resources at a low cost, which lays the foundation for a competitive advantage later.

Blooms: Remember
Difficulty: 1 Easy
101. To gain a competitive advantage, Lopez Industries obtained financing and then used this
extra capital to produce the same amount of gaskets in a one-month period that it
normally produces in a two-month period. Which of the following is the most likely
outcome of this endeavor?
A. inconsistent results
B. same results
C. better results
D. inferior results
Trying to achieve the same outcome in a short time period, even with higher investments
tends to lead to inferior results.

Blooms: Understand
4-124
102. 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.
Social complexity describes situations in which different social and business systems
interact with one another. Copying the emerging complex social systems is difficult for
competitors because neither direct imitation nor substitution is a valid approach.
Therefore, Kristin's Cosmetics attempt to imitate how Monica's Makeup combined its
management and product development systems with little success is an example of social
complexity as an isolating mechanism.

Blooms: Apply
4-125
103. Dynamic capabilities are essential for moving beyond a(n) _____ advantage.
A. long-lived
B. short-lived
C. competitive
D. inconsistent
Dynamic capabilities are essential for moving beyond a short-lived advantage.

Blooms: Remember
Difficulty: 1 Easy
104. Dynamic capabilities are especially relevant for surviving and competing in markets that
A. shift quickly.
B. shift slowly.
C. remain constant.
D. remain unpredictable.
Dynamic capabilities are especially relevant for surviving and competing in markets that
shift quickly.

Blooms: Remember
Difficulty: 1 Easy
4-126
105. Clean Rinse Shampoo has been the leader of hair-cleaning products for about 40 years.
However, this company relied too long on its competency without refining or upgrading its
product. As a result, other shampoo companies that began to offer organic shampoo
gained a competitive advantage over Clean Rinse. This case is an example of
A. resource flow.
B. dynamic capabilities.
C. core rigidity.
D. value chain.
A core competency can turn into a core rigidity if a firm relies too long on the competency
without honing, refining, and upgrading as the environment changes.

Blooms: Apply
4-127
106. Each activity a firm performs along the horizontal value chain adds _____ value.
A. temporary
B. little
C. incremental
D. absolute
Each activity the firm performs along the horizontal value 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.

Blooms: Remember
Difficulty: 1 Easy
107. Which of the following is an accurate statement about value chain analysis?
A. The value chain concept can be applied only to manufacturing firms.

B. The value chain concept can be applied only to high-tech firms.
C. The value chain concept can be applied only to manufacturing and high-tech firms.
D. The value chain concept can be applied to all firms, including service firms.
The value chain concept can be applied to all firms, including service firms.

Blooms: Understand
4-128
108. To increase its competitive advantage, HRV Automobiles seeks to improve the efficiency
of its production plants. By doing this, HRV is addressing a _____ in the value chain
analysis.
A. primary activity
B. secondary activity
C. support activity
D. premier activity
Production plants are part of a firm's operations. Operations are primary activities in the
value chain analysis.

Blooms: Apply
4-129
109. All Purpose Tires, Inc. is planning to build a manufacturing plant in Tornado Alley—an area
that often gets hit by tornados. According to the SWOT analysis, this location is
considered to be an
A. external opportunity.
B. external threat.
C. internal opportunity.
D. internal threat.
An external threat is a danger in a firm's general environment.

Blooms: Apply
110. Which of the following management tools will help determine the external opportunities
and threats that affect a firm?

B. PESTEL analysis
C. VRIO framework
D. Ansoff's matrix
External opportunities (O) and threats (T) are in the firm's general environment and can be
captured by the PESTEL analysis.

Blooms: Remember
Difficulty: 1 Easy
4-130
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Internal Analysis: Resources, Capabilities, and Core Competencies

Multiple Choice Questions

A. It produced the highest-quality headphones.

A. the company's copyrights

8. Which of the following is an example of a firm's intangible resources?

A. the firm's cash at bank

A. the resources of the company that are mobile

A. Tangible resources contribute to a company's competitive advantage, whereas intangible

A. It is easier to buy intangible assets with cash than tangible assets.

A. Resource immobility of the firms will be low.

15. The resource-based view of a firm assumes that the

A. rival firms have better accessibility to quality resources.

A. competitive advantage of a firm exists for a short period of time.

A. The competitive advantage of Trust Machines Inc. will soon be lost.

A. all firms have access to the same resources.

A. resource immobility is high.

27. If a resource is common

A. the company's land and buildings

29. If a resource is rare or unique to a particular firm, then

A. EasyOpen failed to renew the patent after 10 years.

A. invaluable and common.

A. valuable but common.

A. Finolo and Ethver will have a VRIO resource.

A. the investments made by Riya on the restaurant's interiors

A. It is advisable to outsource research and development functions.

A. Groupon's competency was not hard to imitate.

A. time cannot be compressed at will.

A. strategic decisions have long-term consequences.

A. time compression diseconomies.

A. value chain perspective

A. competitive advantage is derived from static resource or market advantages.

A. A firm's competitive advantage is derived from static resource or market advantages.

70. Which of the following resources is a firm's resource stock?

A. cash in the bank

A. It is the firm's level of investments to maintain or build a resource.

74. 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.

A. The resource stock of Bass Automobiles Inc. increased.

76. The value chain describes the

A. competitive challenges a firm faces in a highly dynamic external environment.

A. research and development

A. contribute to the firm's strategic position as either low-cost leader or differentiator.

A. The VRIO framework

A. Blake Mouton managerial grid

A. increase in a firm's customer loyalty

A. Porter's five forces analysis

A. combining an internal weakness with an external threat.

A. fall in the purchasing power of the firm's customers

A. an increase in its financial resources

88. Which of the following is a drawback of the SWOT analysis?

A. distinguish a firm's resources, competencies, and capabilities from each other.

A. Resources are tangible; capabilities are tangible and intangible.

A. money spent to buy rights of novel; screenwriter's experience adapting novels

95. Which of the following statements correctly describes resource heterogeneity?

A. Bundles of resources, capabilities, and competencies differ temporarily across firms.

A. varied, refined, costly to introduce

A. Yes, because the new packaging has an endorsement by a celebrity.

A. better expectations of future resource value

102.Which of the following best exemplifies social complexity as an isolating mechanism?

A. The value chain concept can be applied only to manufacturing firms.

A. Porter's five forces analysis