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chapter 3 questions

chapter 3 questions - Alba Vargas BMGT495 Chapter 3...

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Alba Vargas BMGT495 February 11, 2008 Chapter 3 Challenge Questions 1. Evaluating external opportunities and threats and then developing resources and capabilities to exploit these opportunities and neutralize these threats would be the best approach to formulate a strategy that is more likely to generate economic profits. This is the case because if we use the VRIO framework, we can see that if a resource or capability is valuable, rare, and costly-to-imitate it will create a sustainable competitive advantage. Competitive advantage is reached because these resources exploit opportunities and neutralize threats to the extent that revenues are increased or costs are decreased. 2. I believe a firm with valuable, rare, and costly-to-imitate resources and capabilities operating in a very unattractive industry will have a higher level of economic performance than a firm in a very attractive industry. I believe this to be true because if all other things are equal, a company in an unattractive industry who is experiencing a sustainable competitive advantage will be exponentially better off than the rest of the firms, opposed to the firm in the attractive industry who would only be slightly better off than the other firms in their industry. 3. Water is clearly more critical to sustaining human life than diamonds. Firms that provide water to customers generally earn lower economic performance than firms that provide diamonds because they’re resource is not rare. It passes the first determinant of the VRIO framework, which establishes that it (the water) is valuable. However, water is not rare because of the fact that every human needs it
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