Chapter 3 Resources and Capabilities 1. Industry attractiveness is now more important in explaining firms profitability than competitive advantage.

@Pages and References: Page 111 a. !b. " #. $ompetitive advantage is generally the amount by which one firms profitability exceeds anothers in the same industry. @Pages and References: Page 111 !a. b. " %. &onda defines itself as a motorbi'e and automobile company. @Pages and References: Page 111 a. !b. " (. It is vital for a business strategist to distinguish between a firms resources and its capabilities @Pages and References: Page 111 !a. b. " ). Resources are a firms productive assets* capabilities are what a firm can do. @Pages and References: Page 111 !a. b. " +. $ombining several resources may create capabilities that deliver superior profitability @Pages and References: Page 111 !a. b. " ,. -o resources are ultimately more important than capabilities. @Pages and References: Page 111 a. !b. " .. he safest way to value a firms productive assets for strategic purposes is to use the historic cost boo' value of its assets. @Pages and References: Pages 11(/11+ a. !b. " 0. &uman resources are always listed on a firms balance sheet. @Pages and References: Pages 11(/11+ a. !b. "

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12. he value of a brand is the confidence it instils in customers regarding the expected benefits associated with that brand. @Pages and References: Pages 11+/110 !a. b. " 11. -uperior capabilities can be ac7uired and owned by astute firms. @Pages and References: Pages 1%1/1%( a. !b. " 1#. 8 capability that is needed to win versus competitors is a core competence. @Pages and References: Pages 1%,/1(% !a. b. " 1%. 4e need to honestly appraise our resources and capabilities in order to maximi9e our appeal to customers. @Pages and References: Pages 1%,/1(% a. !b. " 1(. :ecause good companies 'now their own relative strengths and wea'nesses they focus efforts on strengthening the right resources and capabilities. @Pages and References: Pages 1%,/1(% !a. b. " 1). Remedying strategic wea'nesses in capabilities is li'ely to ta'e several years. @Pages and References: Pages 1(%/1() !a. b. " 1+. 8ssembling a great set of resources is the 'ey to getting good results. @Pages and References: Pages 1()/1(, a. !b. " 1,. 8 footballs position on a soccer field is path/dependent. @Pages and References: Pages 1(,/1(. a. !b. " 1.. 8n experienced football coachs 'nowledge is path/dependent. @Pages and References: Pages 1(,/1(. !a. b. " 10. $ore rigidities provide the spine that helps firms learn new s'ills faster. @Pages and References: Pages 1(./1)2 a. !b. "

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#2. ;ynamic capabilities are useful in fast changing environments. @Pages and References: Pages 1(./1)2 !a. b. " #1. he internal environment: @Pages and References: Pages 111/11( a. Is the structure inside an industry b. &as become less important as an explanation of firms profitability !c. Is how a firms resources and capabilities are deployed to deliver its business strategy d. $an safely be left to the &R ;epartment to manage ##. Prahalad and &amels 1002 paper: @Pages and References: Pages 111/11( a. -ummari9ed the main constraints of the external environment b. -ummari9ed the strategic positioning schools point of view c. 4on that years <obel pri9e for =conomics !d. >ic'/started the modern resource/based view of the firm #%. In fast changing environments: @Pages and References: Pages 111/11( a. 8 firm should focus on its oldest mar'ets !b. 8 firm may define itself by its resources and capabilities c. :oth a and b d. <either a nor b #(. %? is: @Pages and References: Pages 111/11( a. 8 successful group of unrelated businesses b. 8 group of businesses lin'ed by their use of glue/based technologies c. 8 group of businesses with an outstanding ability to develop and launch new "ast ?oving $onsumer Products !d. 8 group of businesses with a core capability to develop and launch new products using adhesives@ coatings@ and other technologies #). 4e can define the following general resources for a firm: @Pages and References: Pages 11(/11+ !a. &uman@ Intangible and angible b. angible@ Intaglio and &umane c. &umane@ "ungible and angible d. Physical@ "inancial@ and Ather $urrent #+. o value a firms tangible resources: @Pages and References: Page 11+ a. 4e should ta'e the historic cost boo' value b. 4e must update historic cost assets to current cost Bmodern replacement costC assets !c. 4e need to 'now how they could be used optimally d. his is a specialist tas' for professional accountants #,. $ompanies Dboo' valuesE are generally much less than their stoc' mar'et valuations because: @Pages and References: Page 11+/110 1 #21# 3ohn 4iley 5 -ons 6td. www.foundationsofstrategy.com

a. 8uditors tend to err on the conservative side !b. 8ccountants are generally re7uired by accounting standards to ignore the value of brands and all other reputational assets c. o be on the safe side accountants tend to undervalue brand values d. 8ccountants and mar'eting experts have different methods of valuing brands #.. :rand values are a: @Pages and References: Page 11+/110 a. ype of tangible resource !b. ype of intangible resource c. ype of synergistic resource d. ype of sustainable resource #0. Argani9ational culture is: @Pages and References: Page 110/1#2 a. he way a firm is organi9ed b. 8 firms deeply held values@ traditions and social norms c. 8 firms deeply held values@ traditions and social norms !d. 8nswers b and c %2. -pending money raising mar'et perceptions of &yundais brand was: @Pages and References: Page 1#1 !a. 8 worthwhile investment in intangible resources b. 8 worthwhile investment in human resources c. =ventually recogni9ed in the balance sheet d. 8 waste of money %1. he difference between a capability and a competence is: @Pages and References: Page 1#2 a. 8 competence is core to a firms operations b. 8 capability is necessary to survive@ but a competence is essential to thrive c. 8 competence is necessary to survive@ but a capability is essential to thrive !d. <o difference in this textboo' where they are ta'en as interchangeable %#. Threshold capabilities enable a firm to do what every firm in its industry must do. Distinctive or core competences: @Pages and References: Page 1#2 !a. =nable it to earn higher profits or greater mar'et share than its competitors in the same industry b. 8re its uni7ue selling point c. 8re those product features that stop non/customers from buying the product d. 8re captured in logos@ trademar's etc. %%. 8pple and %?s ability to develop genuinely new products are: @Pages and References: Page 1#0 a. Part of their corporate structures b. ;ue entirely to their uni7ue corporate cultures c. 6uc'y coincidences !d. Ane of their core operational capabilities %(. :ecause mar'eting is a threshold capability for &yundai: @Pages and References: Pages 1#(/1#) a. hey learned all the vital lessons early on

1 #21# 3ohn 4iley 5 -ons 6td. www.foundationsofstrategy.com

!b. o counter their earlier poor image they have had to catch up their rivals capabilities c. hey do not need to pay it significant attention d. hey now excel at mar'eting %). Porters firm value chain can be used to: @Pages and References: Pages 1#+/1#, a. =stimate the value added at each stage of a goods production and distribution b. -how the after/tax profit generated by each part of the firm c. -how the pre/tax profit generated by each part of the firm !d. ?ap out a firms main activities into threshold and distinctive capabilities %+. &uman Resource capabilities: @Pages and References: Pages 1#+/1#, !a. Include the s'ills to train and develop people b. 8re generally a firms greatest resource c. 8re the distinctive capability of most automobile ma'ers d. 8nswer b and c %,. 8 capability re7uires: @Pages and References: Pages 1#./1%2 a. ?any uni7ue resources b. 3ust one uni7ue resource c. <o uni7ue resources !d. Individuals to coordinate with each other@ and some capital or technology@ to achieve a valuable transformation to goods or services %.. 8 process is: @Pages and References: Pages 1#./1%2 a. 4hat suspects endure in court rooms b. 8 long line of people performing one activity !c. 8 se7uence of coordinated actions that performs a tas' d. he chain of command above an employee %0. In most small firms a process which is not usually routini9ed is: @Pages and References: Pages 1#./1%2 a. he sales process b. he end/of/month accounting process !c. he staff disciplinary proceedings process d. he process for getting debtors to pay up (2. 4hen firms develop organi9ational routines they are: @Pages and References: Pages 1#./1%2 a. -ee'ing to liven up boring production manuals !b. 6earning by doing c. In the mature stage of an industrys life cycle d. In the declining stage of an industrys life cycle (1. he hierarchy of capabilities refers to: @Pages and References: Pages 1#./1%2 !a. &ow capabilities to do mar'et research time/effectively and buy advertising cost/effectively@ belong under mar'eting capabilities

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b. &ow capabilities are made up of processes that use resources to achieve a desired result c. &ow the $=A should have more capabilities than the $"A@ the $AA etc. d. &ow core capabilities are more valuable than threshold capabilities (#. Resources and capabilities can generate higher profits @Pages and References: Pages 1%1/1%( a. If competition is fierce !b. If the competitive advantage they generate is sustained for some years c. Anly if governments allow firms to share resources d. Anly where cartels are effectively allowed (%. o stop rivals ac7uiring a core resource or capability: @Pages and References: Pages 1%1/1%( a. Is foolish: a firm cannot stop its rivals from doing things they want to !b. "irms need to ma'e that resource or capability immobile c. "irms must use patents and the full array of legal protections d. =veryone involved in this activity must be paid higher than the rivals could pay ((. ight complex organi9ational routines: @Pages and References: Pages 1%1/1%( a. 8re based on uni7ue corporate structures b. $an be copied if rivals hire the right employees !c. 8re complex capabilities that are hard for rivals to replicate d. 8nswers a and c (). &yundai overcame the most difficult competitive advantages held by the incumbent automa'ers by: @Pages and References: Pages 1%1/1%( a. Recruiting experts from other auto companies b. :enchmar'ing the 'ey capabilities needed to succeed@ then ma'ing clear commitments to achieve them c. ?a'ing long term financial and business commitments to the auto industry !d. 8ll of the above (+. -uperior capabilities are often traced to staff s'ills and efforts @Pages and References: Pages 1%(/1%+ a. -o pay is 'ey: pay the highest rates and the best talents will wal' into your firm b. Fou need to pay a good mar'et rate to attract and retain top talent c. &aving the right corporate culture and being set the right challenges motivates good staff !d. 8nswers b and c (,. 8 good dealership networ' is a 'ey capability for an automa'er @Pages and References: Pages 1%+/1%, !a. <o: dealerships can be independent@ or bought and sold@ so they are a networ' of resources in which &yundai has invested heavily b. -o building a global dealership networ' was &yundais first substantial global move c. hey are also assets against which firms can borrow d. 8nswers b and c

1 #21# 3ohn 4iley 5 -ons 6td. www.foundationsofstrategy.com

(.. "irms try to develop resources and capabilities to: @Pages and References: Pages 1%,/1(% a. ?aximi9e attractiveness to our customers !b. $reate sustainable competitive advantage c. ?aximi9e current profit rates d. 8ttract the best employees (0. 4e need to appraise our resources and capabilities against: @Pages and References: Pages 1%,/1(% a. Aur past record* we must continually improve b. he best firms around the world@ no matter in what country@ mar'et or industry !c. Aur competitors resources and capabilities d. he best that our competitors might attain in the future )2. 8 capability that is Dneeded to playE is: @Pages and References: Pages 1%,/1(% a. 8 threshold resource b. 8 uni7ue resource !c. 8 threshold competence d. 8 core competence )1. In the automobile industry resources such as brand strength: @Pages and References: Pages 1%,/1(% a. 8re common enough* pic' one@ then use it b. $an be bought G loo' at 3aguar Bthree owners in the last ten yearsC !c. $annot be easily ac7uired d. 8nswers a and b )#. Internal appraisal of a companys capabilities against the best competitors: @Pages and References: Pages 1%,/1(% a. $annot be done* only external appraisal is valid b. $an be done using discussion of past successes and failures c. $an be done using external benchmar'ing !d. 8nswers b and c )%. he final appraisal of the strengths and wea'nesses of a firms resources 5 capabilities: @Pages and References: Pages 1%,/1(% a. Is a 7uantitative appraisal by an obHective outside body !b. Re7uires insight and understanding of a firms industry@ and its position within the industry c. Re7uires artistic flair and creative 7uestioning d. Re7uires detailed 'nowledge of business strategy theory@ and all its intellectual roots )(. :?4s core competence is its ability to integrate: @Pages and References: Pages 1%,/1(% !a. 4orld/class engineering@ design excellence and effective mar'eting b. 4orld/class engineering@ design excellence and 'nowledge of global mar'ets c. 4orld/class engineering@ design excellence and products for every luxury mar'et d. 4orld/class products@ design excellence and products for every luxury mar'et

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)). ruly successful firms: @Pages and References: Pages 1%,/1(% a. 8re told their strengths and wea'nesses by external experts !b. 8re honest enough to recogni9e their own true strengths and wea'nesses themselves c. Abtain confirmation of their strengths and wea'nesses from outside experts d. 8nswers b and c )+. Insuccessful firms: @Pages and References: Pages 1%,/1(% a. ;ont 'now their own strengths and wea'nesses b. ;ont 'now where to invest their efforts and resources in remedying wea'nesses !c. 8re arrogant about current capabilities@ relying on past glories d. $an fall into a@ b or c ),. Autsourcing to specialists can help a firm: @Pages and References: Pages 1()/1(, a. Reduce unnecessary costs b. Increase control over a 'ey production process !c. Reduce a relative wea'ness in its capabilities d. Improve launch times for new products ).. Path dependence is: @Pages and References: Pages 1(,/1(. !a. 4here you are today@ with all your 'nowledge@ being a result of how you got here b. he opposite: you could have got to todays position a hundred different ways c. otal reliance on ones own history d. 8 way of planning the careers of future $=As )0. =arly experiences for some maHor oil companies: @Pages and References: Pages 1(,/1(. a. ;ictate their current positions !b. ?ean some of their modern core competences show path dependency c. 8re irrelevant to current corporate cultures d. 8re indelibly printed on older staffs minds +2. $ore rigidities can: @Pages and References: Pages 1(./1(0 a. 8nd must be eliminated by a new $=A b. :e the necessary obverse of core capabilities c. Inhibit firms ability to develop new capabilities !d. 8nswers b and c +1. ;ynamic capabilities: @Pages and References: Pages 1(./1(0 !a. 8re the capacity to learn new capabilities b. $an be ac7uired through Jreverse ta'eovers c. ;evelop rapidly in some industries@ then die d. 8nswers b and c +#. 8c7uiring a firm with similar products but sales in new mar'ets is one of the easier ways to: 1 #21# 3ohn 4iley 5 -ons 6td. www.foundationsofstrategy.com

@Pages and References: Pages 1(./1(0 a. 8c7uire new capabilities or strengthen old ones b. =xtend current capabilities into new mar'ets c. ;estroy vital capabilities@ if 'ey staff in the ac7uired firm soon leave !d. 8nswers b and c +%. 8lliances are a way to develop new capabilities that: @Pages and References: Pages 1(./1(0 a. Is less permanent than an ac7uisitionKmerger b. Is cheaper than an ac7uisition or merger c. 4ill guarantee competitive advantage !d. 8nswers a and b +(. he point of Jresource leveraging is to: @Pages and References: Pages 1(./1(0 a. Ise all a firms resources more efficiently b. Reduce the money tied up in wor'ing capital !c. 6imit the range of new capabilities a firm is trying to develop at one time d. 8nswers b and c +). -ome firms introduce products into specific countries in a se7uence: @Pages and References: Pages 1(./1(0 a. o provide sales for outmoded products b. o progressively develop wor'force capabilities c. o please local politicians !d. 8ll of the above ++. he 7uestion D4hat does a firm need to survive competitionLE: @Pages and References: Pages 1%,/1(% a. $an be addressed through a careful analysis of competitors using all possible means@ even at the edge of legality and ethics b. $an be addressed by studying very carefully the two largest rivals in the industry !c. Re7uires an understanding of the current and future basis of competition specific to the industry d. $an never be answered clearly@ because competitors will not divulge what they are doing +,. he value to managers of understanding 'ey success factors is: @Pages and References: Pages 1%,/1(% a. -elf/evident b. 6egitimate because it is accepted by the academic world c. In 7uestion because some important academics disagree with it !d. Menerally accepted by the corporate@ consulting and academic worlds@ but as with most business concepts and models@ there are always some detractors +.. 8n industry Ddirect modelling of profitabilityE is defined in the text as: @Pages and References: Pages 1%,/1(% a. he identification of the drivers of a firms relative profitability within an industry b. he statistical modeling of the profit as determined by several variables@ using multiple regression analysis c. he comparative modeling of one industry versus another industry

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!d. -etting up a model of industry profitability from the interaction of the "ive "orces +0. Ane useful way to analyse the drivers of a firms relative profitability is: @Pages and References: Pages 1%,/1(% !a. o disaggregate return on capital employed into component ratios that point to the main underlying drivers of profitability b. o disaggregate assets into component parts that point to the main drivers of profitability c. o underta'e a benchmar'ing study to compare a firms profitability with that of its rivals d. o conduct a survey of managers to as' what they thin' are the reasons why their firm is profitable

1 #21# 3ohn 4iley 5 -ons 6td. www.foundationsofstrategy.com