Chapter 4
MANAGING FIRM RESOURCES
True/False Questions
1. A strategic resource is an asset that is valuable, rare, difficult to imitate, and nonsubstitutable.
True; Easy
2. A strategic resource is valuable to the extent that it is difficult to imitate.
False; Moderate
3. A resource is valuable to the extent that it helps a firm create strategies that capitalize on
opportunities and ward off threats.
True; Easy
4. All difficult to imitate strategic resources are protected by various legal means including
trademarks, patents, and copyrights.
False; Moderate
5. A resource that is valuable and rare but that can be imitated might provide an edge in the
short-term, but competitors can overcome such an advantage eventually.
True; Easy
6. An organization cannot hope to create an enduring competitive advantage around common
resources.
True; Easy
7. Intangible resources of a firm include the knowledge and skills of its employees, its
reputation, and its property, plants, and equipment.
False; Moderate
8. A firm’s property, reputation, and culture are considered to be its tangible resources.
False; Easy
9. Tangible resources are more likely to meet the criteria for strategic resources than are
intangible resources.
False; Easy
10. Resources refer to what an organization owns, capabilities refer to what the organization can
do.
True; Easy
11. A firm that enjoys a dynamic capability is one that is skilled at continually updating its
strategic resources.
False; Moderate
12. A distinctive competence is a set of strategic resources that an organization owns.
False; Moderate
13. Resource-based theory offers a complete framework for analyzing organizations.
True; Easy
14. The distinctive competency theory offers a complete framework for analyzing organizations.
False; Moderate
15. The marketing mix concept was proposed by circus impresario P.T. Barnum.
False; Easy
16. The four Ps of marketing are: product, price, place, and promotion.
True; Easy
17. The four main types of intellectual property are patents, trademarks, copyrights, and trade
secrets.
True; Easy
18. Companies develop intellectual property to eliminate the risk of substitution of resources by
competitors.
False; Moderate
19. Patents are legal decrees that protect inventions from direct imitation for a limited period of
time.
True; Easy
20. To earn a patent from the U.S. Patent and Trademark Office, an inventor must demonstrate
than an invention is new, non-obvious, and useful.
True; Easy
21. Patents are phrases, pictures, names, or symbols used to identify a particular organization.
False; Moderate
22. A value chain charts the path by which products and services are created and eventually sold
to customers.
True; Moderate
23. Relative to their peers, best value supply chains focus on the total value added to the
customer.
True; Easy
24. Best value supply chains strive to excel along four measures: speed, quality, cost, and
flexibility.
True; Easy
25. Enactment contends that an organization can, at least in part, create an environment for itself
that is beneficial to the organization.
True; Easy
26. Enactment and environmental determinism offer similar views on why some firms succeed
and others fail.
False; Moderate
27. Transaction cost economics is a theory that centers on just one element of business activity:
the cost of creating a product and moving it to the customer.
False; Easy
28. Strengths and weaknesses, as a part of the SWOT analysis, refer to external events and
trends.
False; Easy
29. Opportunities and threats, as a part of the SWOT analysis, are assessed by examining the
firm’s resources.
False; Easy
30. SWOT analysis examines the situation faced by the competitors in an industry.
False; Moderate
Multiple-choice Questions
31. A resource is _____ to the extent that it helps a firm create strategies that capitalize on
opportunities and ward off threats.
a. rare
b. difficult to imitate
c. nonsubstitutable
d. executable
e. valuable
e; Easy
32. According to the resource-based theory, _____ of an asset is one of the four qualities that
makes it a strategic resource for a business.
a. availability
b. dynamism
c. rarity
d. tangibility
e. competitiveness
c; Easy
33. Which of the following qualities of an asset makes it a strategic resource for a business?
a. Available
b. Dynamic
c. Tangible
d. Difficult to imitate
e. Competitive
d; Easy
34. According to the resource-based theory, resources that provide a firm a sustained competitive
advantage are rare:
a. dynamic, nonsubstitutable, and available.
b. valuable, nonsubstitutable, and available.
c. valuable, nonsubstitutable, and difficult to imitate.
d. valuable, dynamic, and difficult to imitate.
e. dynamic, distinctive, and difficult to imitate.
c; Easy
35. Which of the following is least likely to meet the criteria for strategic resources?
a. A firm’s raw material inventory
b. A firm’s organizational culture
c. A firm’s reputation
d. A firm’s intellectual properties
e. A firm’s employees’ skills
a; Easy
36. A firm that enjoys a(n) _____ capability is one that is skilled at continually updating its array
of capabilities in order to keep pace with changes in its environment.
a. competitive
b. distinctive
c. strategic
d. dynamic
e. evolving
d; Easy
37. Which of the following is also known as the four Ps of marketing and provides important
insights into how to convince customers to purchase a firm’s goods and services?
a. The marketing bible
b. The marketing mix
c. The marketing cocktail
d. The marketing mantra
e. The marketing gospel
b; Easy
38. Which of the following is one of the four Ps of the marketing mix?
a. Process
b. Physical evidence
c. People
d. Promotion
e. Planning
d; Easy
39. _____ is one of the four Ps of the marketing mix.
a. Process
b. Physical evidence
c. People
d. Planning
e. Price
e; Easy
40. _____ are legal decrees that protect inventions from direct imitation for a limited period of
time.
a. Patents
b. Copyrights
c. Trademarks
d. Trade secrets
e. Inventor rights
a; Easy
41. To earn a(n) _____ from the U.S. Patent and Trademark Office, an inventor must demonstrate
than an invention is new, non-obvious, and useful.
a. copyright
b. trademark
c. trade secret
d. patent
e. inventor right
d; Easy
42. Which of the following is an example of a patent?
a. Richard James’s Slinky
b. McDonald’s golden arches
c. The Nike swoosh
d. The formulation of Coca-Cola
e. Original artistic creations, like books
a; Moderate
43. Trademarks:
a. are phrases, pictures, names, or symbols used to identify a particular organization.
b. provide exclusive rights to the creators of original artistic works such as books, movies,
songs, and screenplays.
c. are legal decrees that protect inventions from direct imitation for a limited period of time.
d. refer to formulas, practices, and designs that are central to a firm’s business and that
remain unknown to competitors.
e. provide exclusive rights to the creators of formulas, practices, and designs and allow
them to keep those a secret.
a; Moderate
44. McDonald’s golden arches, the Nike swoosh, and Apple’s outline of an apple are examples of
_____.
a. copyrights
b. trademarks
c. trade secrets
d. patents
e. inventor rights
b; Easy
45. _____ provide exclusive rights to the creators of original artistic works such as books,
movies, songs, and screenplays.
a. Patents
b. Copyrights
c. Trademarks
d. Trade secrets
e. Inventor rights
b; Easy
46. Which of the following is an example of a copyright?
a. Richard James’s Slinky
b. McDonald’s golden arches
c. The Nike swoosh
d. The formulation of Coca-Cola
e. Original artistic creations, like books
e; Moderate
47. Trade secrets:
a. are phrases, pictures, names, or symbols used to identify a particular organization.
b. provide exclusive rights to the creators of original artistic works such as books, movies,
songs, and screenplays.
c. are legal decrees that protect inventions from direct imitation for a limited period of time.
d. refer to formulas, practices, and designs that are central to a firm’s business and that
remain unknown to competitors.
e. provide exclusive rights to the creators of formulas, practices, and designs and allow
them to keep those a secret.
d; Moderate
48. The blend of 11 herbs and spices used in Kentucky Fried Chicken’s original chicken recipe is
an example of a(n) _____.
a. copyright
b. trademark
c. trade secret
d. patent
e. inventor right
c; Easy
49. The formulation of Dr. Pepper’s is an example of a(n) _____.
a. copyright
b. trademark
c. trade secret
d. patent
e. inventor right
c; Easy
50. The formulation of Coca-Cola is an example of a(n) _____.
a. copyright
b. trademark
c. trade secret
d. patent
e. inventor right
c; Easy
51. Which of the following refer to formulas, practices, and designs that are central to a firm’s
business and that remain unknown to competitors?
a. Patents
b. Copyrights
c. Trademarks
d. Trade secrets
e. Inventor rights
d; Easy
52. The legal system is the least favored choice of firms for protecting their _____.
a. patents
b. copyrights
c. trademarks
d. trade secrets
e. inventor rights
d; Moderate
53. Which of the following is an example of a trade secret?
a. Richard James’s Slinky
b. McDonald’s golden arches
c. The Nike swoosh
d. The formulation of Coca-Cola
e. Original artistic creations, like books
d; Moderate
54. A value chain differs from a supply chain in that a value chain:
a. is a system of people, activities, information, and resources involved in creating a product
and moving it to the customer.
b. charts the path by which products and services are created and eventually sold to
customers.
c. is a broader concept than a supply chain.
d. concept is fixated on how fast products can be made available to consumers.
e. creation requires the components of agility, adaptability, and alignment.
b; Moderate
55. _____ is one of the five primary activities that value chains include.
a. Procurement
b. Firm infrastructure
c. Technology
d. Human resource management
e. Inbound logistics
e; Easy
56. Which of the following is a primary activity that value chains include?
a. Procurement
b. Firm infrastructure
c. Service
d. Technology
e. Human resource management
c; Easy
57. _____ is one of the five secondary activities that value chains include.
a. Inbound logistics
b. Technology
c. Operations
d. Service
e. Marketing and sales
b; Easy
58. Which of the following is a secondary activity that value chains include?
a. Inbound logistics
b. Firm infrastructure
c. Operations
d. Service
e. Marketing and sales
b; Easy
59. Which of the following is one of the four components required for creating best value supply
chains?
a. Strategic value chain management
b. Adaptability
c. Technology
d. Diversification
e. Operations
b; Easy
60. Which of the following components required for creating best value supply chains can be
achieved through the use of buffers?
a. Agility
b. Strategic supply chain management
c. Alignment
d. Adaptability
e. Operations
a; Easy
61. Apple has been able to reshape its environment by introducing products such as the iPhone
and the iPad that transcend the traditional boundaries between the cell phone, digital camera,
music player, and computer businesses. This is an example of _____ for explaining a firm’s
competitiveness.
a. resource-based theory
b. enactment
c. transaction cost economics
d. environmental determinism
e. institutional theory
b; Easy
62. Which of the following theories for explaining a firm’s competitiveness treats executives as
the masters of their domains?
a. Resource-based theory
b. Enactment
c. Transaction cost economics
d. Environmental determinism
e. Institutional theory
b; Easy
63. Which of the following theories for explaining a firm’s competitiveness contends that
organizations are very limited in their ability to adapt to the conditions around them?
a. Resource-based theory
b. Enactment
c. Transaction cost economics
d. Environmental determinism
e. Institutional theory
d; Easy
64. Which of the following theories for explaining a firm’s competitiveness centers on the extent
to which firms copy each other’s strategies?
a. Resource-based theory
b. Enactment
c. Transaction cost economics
d. Environmental determinism
e. Institutional theory
e; Easy
65. Which of the following theories for explaining a firm’s competitiveness centers on just one
element of business activity: whether it is cheaper for a firm to make or to buy the products
that it needs?
a. Resource-based theory
b. Enactment
c. Transaction cost economics
d. Environmental determinism
e. Institutional theory
c; Easy
66. Transaction cost theory helps executives decide whether to pursue a _____ integration
strategy or not.
a. forward
b. forward vertical
c. forward horizontal
d. backward
e. backward horizontal
d; Easy
67. It would be simply too costly for an airline to pursue a backward integration strategy and
enter the airplane manufacturing business. Which of the following theories for explaining a
firm’s competitiveness is most likely to give executives such insights?
a. Resource-based theory
b. Enactment
c. Transaction cost economics
d. Environmental determinism
e. Institutional theory
c; Easy
68. Which of the following is true about enactment with regard to a firm’s competitiveness?
a. It is a theoretical perspective that contends that an organization can, at least in part, create
an environment for itself that is beneficial to the organization.
b. It is a theoretical perspective that contends that organizations are very limited in their
ability to adapt to the conditions around them.
c. It is a theory that examines the extent to which firms copy each other’s strategies.
d. It is a theory that centers on whether it is cheaper for a firm to make or to buy the
products that it needs.
e. It is a theory that contends that the possession of strategic resources can provide an
organization with competitive advantages over its rivals.
a; Easy
69. Which of the following is true about institutional theory?
a. It is a theory that contends that an organization can, at least in part, create an environment
for itself that is beneficial to the organization.
b. It is a theory that contends that organizations are very limited in their ability to adapt to
the conditions around them.
c. It is a theory that examines the extent to which firms copy each other’s strategies.
d. It is a theory that centers on whether it is cheaper for a firm to make or to buy the
products that it needs.
e. It is a theory that contends that the possession of strategic resources can provide an
organization with competitive advantages over its rivals.
c; Easy
70. Which of the following is true about transaction cost economics?
a. It is a theory that contends that an organization can, at least in part, create an environment
for itself that is beneficial to the organization.
b. It is a theory that contends that organizations are very limited in their ability to adapt to
the conditions around them.
c. It is a theory that examines the extent to which firms copy each other’s strategies.
d. It is a theory that centers on whether it is cheaper for a firm to make or to buy the
products that it needs.
e. It is a theory that contends that the possession of strategic resources can provide an
organization with competitive advantages over its rivals.
d; Easy
71. _____ is a classic management tool that incorporates the idea of scanning elements such as
strengths, weaknesses, opportunities, and threats which are both external and internal to the
firm.
a.
PESTLE analysis
b.
Business intelligence
c.
Enterprise resource planning
d.
Process mining
e.
SWOT analysis
e; Moderate
72. A company manufacturing hockey sticks makes an annual assessment of its resources in
terms of raw materials, technical expertise, and technological knowhow. It assesses the type
of competition that it faces in the sports goods market and also looks out for opportunities
that would allow it to expand its business. This is an example of a(n):
a.
SWOT analysis.
b.
enterprise resource planning.
c.
process mining.
d.
PESTLE analysis.
e.
business intelligence.
a; Moderate
73. Which of the following statements about the SWOT analysis is accurate?
a. SWOT analysis is a rigorous method for selecting strategies.
b. SWOT analysis is a brainstorming technique for generating creative ideas.
c. SWOT analysis is useful for identifying a business’s closest competitors.
d. SWOT analysis examines the situations faced by the competitors in an industry.
e. SWOT analysis is routinely used for identifying strategic groups within an industry.
b; Moderate
Essay Questions
74. What qualities should an asset have in order to be classified as a strategic resource according
to the resource-based theory? What kind of competitive advantage does a resource provide if
it has all these qualities?
According to the resource-based theory, an asset should have the following four qualities in
order to be classified as a strategic resource: valuable, rare, difficult to imitate, and
nonsubstitutable. A resource that has all four of these qualities can provide sustained
competitive advantage – one that will endure over time and help the firm stay successful far
into the future.
Moderate
75. Differentiate between capabilities and a dynamic capability.
Capabilities refer to what the organization can do. Capabilities tend to arise over time as a
firm takes actions that build on its strategic resources. The concept of dynamic capability, on
the other hand, implies that a firm with dynamic capability has a unique capability of creating
new capabilities. A firm that enjoys a dynamic capability is one that is skilled at continually
updating its array of capabilities in order to keep pace with changes in its environment.
Hard
76. What are trademarks? Why are trademarks important for organizations? Give two examples
of trademarks.
Students’ examples may vary.
Trademarks are phrases, pictures, names, or symbols used to identify a particular
organization. Trademarks are important for organizations because they help an organization
stand out and build an identity in the marketplace, and because they help rising companies
carve out a unique niche for themselves.
Some examples of trademarks: McDonald’s golden arches, the Nike swoosh, and Apple’s
outline of an apple.
Moderate
77. What are trade secrets? How are they protected? Give two examples of trade secrets.
Students’ examples may vary.
Trade secrets refer to formulas, practices, and designs that are central to a firm’s business and
that remain unknown to competitors. Trade secrets are protected by laws on theft, but once a
secret is revealed, it cannot be a secret any longer. This leads firms to rely mainly on silence
and privacy rather than the legal system to protect trade secrets.
Some examples of trade secrets: the blend of 11 herbs and spices used in Kentucky Fried
Chicken’s original chicken recipe, the formulation of Coca-cola, and the formulation of Dr.
Pepper.
Moderate
78. Identify the five primary activities that are included in value chains.
Primary activities are actions that are directly involved in the creation and distribution of
goods and services. Value chains include the following five primary activities:
 Inbound logistics refers to the arrival of raw materials.
 Operations refers to the actual production process.
 Outbound logistics tracks the movement of a finished product to customers.
 Attracting potential customers and convincing them to make purchases is the domain of
marketing and sales.
 Service refers to the extent to which a firm provides assistance to their customers.
Moderate
79. Describe the four measures along which best value supply chains strive to excel.
Best value supply chains strive to excel along four measures.
 Speed (often referred to as ‘cycle time’) is the time duration from initiation to completion
of the production and distribution process.
 Quality refers to the relative reliability of supply chain activities.
 Supply chains efforts at managing cost involve enhancing value by either reducing
expenses or increasing customer benefits for the same cost level.
 Flexibility refers to a supply chain’s responsiveness to changes in customers’ needs.
Through balancing these four metrics, best value supply chains attempt to provide the highest
level of total value added.
Moderate
80. Differentiate between enactment and the environmental determinism.
Enactment treats executives as the masters of their domains. Enactment contends that an
organization can, at least in part, create an environment for itself that is beneficial to the
organization. This is accomplished by putting strategies in place that reshape competitive
conditions in a favorable way.
Environmental determinism offers a completely opposite view from enactment on why some
firms succeed and others fail. Environmental determinism views organizations much like
biological theories view animals – organizations (and animals) are very limited in their ability
to adapt to the conditions around them.
Hard
81. Describe the theory of transactional cost economics.
Transaction cost economics is a theory that centers on just one element of business activity:
whether it is cheaper for a firm to make or to buy the products that it needs. If a firm decides
to make certain products that it needs, it might adopt the backward integration strategy and
enter the business of one of its suppliers. A firm’s financial situation will improve if such
decisions are made wisely.
Moderate
82. How is Porter’s five forces analysis different from a SWOT analysis?
Strategic groups analysis examines the situation faced by subsets of the competitors in an
industry whose strategies are similar to each other. SWOT analysis, on the other hand, takes a
narrower focus by centering on an individual firm. SWOT analysis considers a firm’s
strengths and weaknesses along with the opportunities and threats that exist in the firm’s
environment.
Moderate
83. Though SWOT analysis is used within most organizations, it is easy to misinterpret its
results. Identify three points that executives should keep in their minds for performing a
successful SWOT analysis.
A few important cautions that executives should keep in their mind for performing a
successful SWOT analysis are:

In laying out each of the four elements of SWOT, internal and external factors should
not be confused with each other.
Opportunities should not be confused with the strategic moves that are designed to
capitalize on these opportunities.

The results of SWOT analysis should not be overemphasized. The SWOT analysis
tool should be viewed more as a brainstorming tool for generating creative ideas and less
as a rigorous method for selecting strategies.
Moderate
