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Chapter 03 Assessing the Internal Environment of the Firm True / False Questions 1. (p. 76) Value chain analysis assumes that a firm's basic economic purpose is to create value and it is a useful framework for analyzing a firm's strengths and weaknesses. 2. (p. 76) In value chain analysis, value is measured by the market value of the total stock outstanding of the company. 3. (p. 76, 78) Primary activities contribute to the physical creation of a product or service, its sale and transfer to the buyer, and its service after the sale. 4. (p. 76, 78) The value chain concept assumes that both primary and support activities are capable of producing value for customers. 5. (p. 76 - 78) Performing a value chain analysis provides a complete assessment of the firm's strengths and weaknesses. 6. (p. 77) One advantage of SWOT analysis is that it helps managers to identify strengths that are almost always sources of competitive advantages that are sustainable. 7. (p. 78) Inbound logistics include all activities associated with transforming inputs into the final product form such as machining, packaging, assembly, equipment, testing, printing, and facility operations. 8. (p. 78) Support activities provide support for primary activities, but not each other. 9. (p. 82) Establishing a customer service hotline to handle customer complaints would be considered a primary activity in value chain analysis. 10. (p. 82) Technology development is a much broader concept than research and development. 11. (p. 84) In value chain analysis, finance and accounting are considered part of a firm's general administration. 12. (p. 85) Information systems can create advantages that deter entry by competitors into an industry. 13. (p. 86) Managers should focus their attention on interrelationships among value chain activities within the firm--not on relationships among activities within the firm and other organizations (such as suppliers and customers). 14. (p. 86 - 88) Value chain analysis can only be applied to manufacturing operations. 15. (p. 88) The resource-based view of the firm focuses on the internal analysis of a firm's operations and competencies. 16. (p. 89 - 90) Tangible resources are assets that are relatively easy to identify such as financial and physical assets. 17. (p. 89 - 90) A firm's intangible resources refer to its capacity to deploy tangible resources over time and leverage those resources effectively. 18. (p. 92) Products and services that are difficult to imitate help firms sustain their profitability. 19. (p. 93) Path dependency has no impact on the inimitability of resources. 20. (p. 93) Capabilities that exhibit causal ambiguity are difficult to imitate. 21. (p. 95) For a resource to provide a firm with potential sustainable advantages it must satisfy only two criteria: rareness and difficulty in substitution. 22. (p. 95 - 97) Firms that are successful in creating competitive advantages that are sustainable for a period of time do not have to be concerned about profits being retained (or "appropriated") by employees or managers. 23. (p. 96) Employee exit cost is a factor that can increase an employee's bargaining and help him or her appropriate a firm's profits. 24. (p. 97) Financial analysis provides an accurate way to assess the relative strengths of firms and can be used as a complete guide to study companies. 25. (p. 98) Leverage ratios provide measures of a firm's capacity to meet its long-term financial obligations. 26. (p. 97 - 98) Historical comparisons are most appropriate during periods of recession or economic boom. 27. (p. 99 - 100) When using industry norms as a standard of comparison, managers must be sure that the firms used in the comparisons are representative of all sizes and strategies within the industry. 28. (p. 100 - 101) A primary benefit of the "balanced scorecard" is that it complements financial indicators with operational measures of customer satisfaction, internal processes, and the organization's innovation and improvement activities. 29. (p. 101) The balanced scorecard enables managers to evaluate their business from only two perspectives: customer and financial. 30. (p. 101 - 102) An important implication of the balanced scorecard is that managers need not look at their job as primarily balancing stakeholder demands. 31. (p. 102 – 103) One strength of the balanced scorecard is that it is very easy to implement and that there is little need for executive sponsorship. 32. (p. 110) Evaluation activities add value by helping firms finalize transactions including negotiating contracts, making payments, and taking delivery. 33. (p. 111) Content such as entertainment programming does little to improve the value proposition of a website. 34. (p. 112) Business models can be defined as methods companies use to create value and earn profits in a competitive environment. 35. (p. 112) A commission-based business model, when applied to the Internet, is similar to the broadcast television model in which viewers watch shows produced with revenues from commission fees.
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