114. Megaline, Inc., with five divisions, follows the competitive form of the multidivisional structure. One division has not
met the rate-of-return goals for the past year. Another division has exceeded the rate-of-return goals. The other
three divisions met the rate–of–return goals. The headquarters office must decide where to allocate capital in the
next year. Which scenario is the MOST likely?
a. The poorest-performing division will get the highest capital allocation so that it can fix its problems and
achieve the rate-of-return goal next year.
b. The highest-performing division will get the highest capital allocation because it has the best prospects for
creating more wealth for the shareholders next year.
c. The average-performing divisions which met the rate–of–return goals will receive the highest allocation
because their performance exactly matched corporate requirements.
d. All divisions will receive the same capital allocation for the next year because this organizational structure
rewards divisional managers based on achievement of strategic goals.
115. In the competitive form of the multidivisional structure, the focus of headquarters is on all of the following EXCEPT
a. integration.
b. performance appraisal.
c. resource allocation.
d. long–range planning.
116. TheLG Company has units operating in significantly different industries and uses financial controls to manage its
portfolio. LG is most likely using the structure.
a. combination-matrix
b. cooperative form of the multidivisional
c. competitive form of the multidivisional
d. strategic business unit multidivisional
117. Implementing the multidomestic strategy requires decentralization to
a. facilitate the tailoring of products to the demand in local markets.
b. develop economies of scale.
c. achieve economies of scope.
d. reduce bureaucracy and speed up decision making.
118. A worldwide geographic area structure is an organizational form in which
a. multiple alliances across the globe link complementary businesses.
b. standardized products are offered across country markets.
c. national interests dominate and management adapts to local or cultural differences.
d. responsiveness to local demand is combined with economies of scale.
119. A multidomestic strategy would be associated with
a. high levels of coordination.
b. informal coordination among units.
c. many integrative mechanisms.
d. interdependent divisions.
120. Galatea Foods was founded in Greece by Galatea Chronos in 1978, and the company spread rapidly through
Western Europe. Ms. Chronos retains the office of CEO. The Spanish division is headed by her oldest son. The
North European division is headed by her only daughter, and the French-Italian division is headed by Ms. Chronos’
brother. This company probably uses the strategy.
a. network
b. multidomestic
c. global
d. transnational
121. The primary disadvantage of the multidomestic strategy and worldwide geographic area structure relates to limited
a. centralization.
b. coordination across divisions.
c. ability to meet local market needs.
d. potential for global efficiency.
122. One of the primary disadvantages of the global strategy and worldwide product divisional structure is that
a. it is difficult to achieve economies of scale.
b. the firm must develop centers to offer after-sales service to customers.
c. it is difficult to respond effectively to local market needs and preferences.
d. achieving economies of scale with this strategy/structure combination is nearly impossible.
123. Ichabod Industries has a Latin American Division, a European Division, an Industrial Lubricants Division, and a
Food Service Division. Ichabod Industries probably uses the organizational structure.
a. horizontal complementary strategic alliance
b. competitive multidivisional
c. strategic business unit multidivisional
d. hybrid combination
124. The need for the organization to combine local responsiveness and efficiency is most critical in a strategy.
a. multidomestic
b. transnational
c. global
d. focus
125. IKEA is a global furniture retailer with more than 300 outlets in 39 countries and regions. IKEA focuses on
lowering its costs as well as understanding customer needs, especially younger ones. IKEA’s international strategy
is best described as
structure.
, and the appropriate organizational structure to implement this strategy is the
a. transnational; combination
b. global; worldwide product divisional
c. multidomestic; worldwide geographic area
d. competitive; strategic business unit multidivisional
126. Which of the following is NOT a preliminary task of the strategic center firm in a strategic network?
a. strategic outsourcing
b. encouraging friendly rivalry among network members
c. allocating internal capital
d. supporting development of new core competencies
127. It is easiest to identify the company that functions as the strategic center firm in
a. horizontal complementary strategic alliances.
b. vertical complementary strategic alliances.
c. corporate-level cooperative partnerships.
d. international cooperative partnerships.
128. Toyota and its suppliers have a relationship in which Toyota encourages suppliers to modernize their facilities and
provides them with technical and financial assistance to do so. It also promotes longer-term contracts with suppliers
and enables engineers in the supplier companies to have better communication with Toyota. This is an example of
a(n)
a. worldwide product divisional structure.
b. functional structure.
c. SBU multidivisional structure.
d. strategic network.
129. McDonald’s operates through a franchising system wherein the head office uses strategic and financial controls to
ensure that the franchises are creating the greatest possible value. This is an example of a(n)
a. worldwide product divisional structure.
b. strategic network.
c. SBU multidivisional structure.
d. simple structure.
130. Airlines have forged a number of complementary strategic alliances, in part because many airlines are not
profitable. Some airlines participate in several alliances simultaneously. This tends to
a. make the partners’ true loyalties and intentions unclear.
b. make the role of the strategic center firms more critical to alliance success.
c. distribute the alliances along several segments of the airline industry value chain.
d. be most effective when the alliances are with airlines headquartered in different nations.
131. Toyota heavily uses a strategic network of vertical relationships. Toyota enables engineers in supplier firms to
communicate easily with companies with which Toyota has contracts for services. This results in the suppliers and
Toyota (the strategic center firm) being more
a. interdependent.
b. competitive with one another.
c. creative.
d. complementary.
132. After years of negotiating short-term contracts with its suppliers, Icon Images has decided to agree to longer-term
contracts. In doing this, Icon Images is hoping to
a. reduce transaction costs.
b. increase negotiating leverage with suppliers.
c. become less dependent on its suppliers.
d. move toward horizontal alliances with its suppliers.
133. In Japan, the center firm in a strategic network of vertical relationships might be expected to undertake all of the
following EXCEPT
a. reducing its transaction costs by promoting longer-term contracts with subcontractors.
b. enabling engineers in upstream companies to have better communication with those companies with which it
has contracts for services.
c. encouraging subcontractors to modernize their facilities and providing them with technical and financial
assistance to do so.
d. decreasing communications between network members to reduce communication costs.
Essay
134. Discuss the difference between strategic controls and financial controls.
135. Describe the three major types of organizational structure and their appropriate use.
136. Discuss the organizational structures used to implement the different business-level strategies.
137. Define the three major dimensions of organizational structure: specialization, centralization, and formalization. How
do these dimensions vary in organizations implementing the cost leadership, differentiation, and cost
leadership/differentiation strategies?
138. Discuss the organizational structures used to implement corporate-level strategies.
139. Describe the organizational structure associated with a firm that pursues an unrelated diversification strategy.
140. Describe the organizational structures used to implement the three international strategies.
141. Describe the organizational structures used to implement cooperative strategies, giving attention to the role of the
strategic center firm.
Subjective Short Answer
Case Scenario 1: Compliance, Inc.
Compliance, Inc., (CI) conducts clinical human and animal trials for the pharmaceutical and biotechnology
industries. Revenues are split evenly between early and late drug development services. While the bulk of its
business is conducted in Europe and the U.S. (10 and 17 subsidiaries, respectively), CI also has subsidiaries in
Africa, Latin America, Asia, and Australia. Historically CI operated under a multidomestic strategy, owing to the
fact that the clinical testing industry was geographically fragmented to meet the diverse needs of the many strong
local pharmaceutical companies and distinct regulatory environments. CI’s organizational structure truly reflected
the autonomous character of each country’s businesses. Many of the country managers have been with CI for
more than a decade, and have a great deal of discretion over the activities of their home-market businesses.
However, globalization of the regulatory environment (both global and local standards), globalization of the
biotechnology firms (increasing the geographic scope of their operations), and tremendous consolidation in the
pharmaceutical industry (reducing the number of pharmaceutical industry participants to only a handful of major
global companies) caused CI to question its multidomestic strategy. Consequently, the firm has begun its transition
to a transnational strategy.
142. (Refer to Case Scenario 1). What type of organizational structure was likely to have been in place under CI’s
multidomestic strategy?
143. (Refer to Case Scenario 1). What type of organizational structure will likely be needed for CI‘s transnational
strategy? What impact will this have on the location of particular value chain activities?
144. (Refer to Case Scenario 1). What obstacles is CI likely to encounter as it attempts to change its structure to
support the transnational strategy?
145. (Refer to Case Scenario 1). Given its change from a multidomestic strategy to a transnational strategy, Compliance
Inc. should change its structure from to
A. worldwide product divisional; combination
B. worldwide geographic area; combination
C. combination; worldwide product divisional
D. worldwide geographic area; worldwide product divisional
Case Scenario 2: Palmetto.
Palmetto was an early pioneer of personal data assistants (PDAs) and dominates that market space (in terms of
market share) with its core product, the Palmetto Pidgy. Because this product category was entirely new to the
market, Palmetto had to internally develop the hardware and software sides of the business, and today it is both a
manufacturer of PDAs and a programmer and licensor of its PDA operating system software. Recently, however,
the hand-held device maker’s performance has taken a dive as a result of slumping sales and costly inventory
problems. Palmetto has also had difficulty coordinating its software and hardware businesses, in part because of the
near absence of a coherent structure and the differing economics underlying the two. Specifically, hardware for
PDAs is increasingly a cost-based business, while software is a highly differentiated one. While Palmetto is doing
pretty well in both businesses, its own resource base does not allow it to compete any differently than that
proscribed for other industry participants (that is, it competes on cost with hardware and features with software). In
addition to the issues created by these fundamental differences, other large companies are entering both the
equipment (such as Sony) and software (such as Microsoft) sides of its business, putting further pressure on
margins. Management has decided that it is unable to focus on the complexities of each of these businesses so it is
opting to break Palmetto into two separate, independent public companies – Pal, Inc. will be devoted to hardware
and Mettolink, Inc. will be devoted to software.
146. (Refer to Case Scenario 2). What basic structural form would you recommend for both Pal and Mettolink? What
must each firm be careful to avoid with this structure?
147. (Refer to Case Scenario 2). How would the implementation of this structure differ for Pal?
148. (Refer to Case Scenario 2). How would the implementation of this structure differ for Mettolink?
149. (Refer to Case Scenario 2). Which structural form would be best for Pal given that it competes on the basis of low
cost?
A. simple
B. functional
C. multidivisional
D. network
150. (Refer to Case Scenario 2). All of the following structural characteristics are important to implementing Mettolink’s
strategy EXCEPT
A. frequent use of cross-functional product development teams
B. a focus on marketing and product R&D
C. decentralized decision making
D. a focus on process improvements in manufacturing
Case Scenario 3: Jewell Company.
Jewell Company (JC) is a $2 billion diversified manufacturer and marketer of simple household items, cookware,
and hardware. While JC’s 16 different lines of business may appear quite different, they all share the common
characteristics of being staple manufactured items and sold primarily through volume retail channels such as
Walmart, Target, and Kmart. Because JC operates each line of business autonomously (separate manufacturing,
R&D, and selling responsibilities for each line), it is perhaps best described as pursuing a related linked
diversification strategy. The common linkages are both internal (accounting systems, product merchandising skills,
and acquisition competency are centralized in the corporate office) and external (distribution channel of volume
retailers). Despite this partial centralization of the divisions’ operations, each business is run entirely separately. To
keep the managers focused on their respective businesses, they are paid a base salary but can earn up to three
times that salary in bonuses based on meeting divisional performance targets. An additional, but smaller, part of
their compensation is derived from stock options.
151. (Refer to Case Scenario 3) What is the corporate structural form used by Jewell?
A. functional
B. cooperative M-Form
C. SBU M-Form
D. competitive M-Form
152. (Refer to Case Scenario 3). The centralization of Jewell’s operations can be described as
A. centralized at corporate headquarters.
B. centralized at country office.
C. partially centralized in SBUs or divisions.
D. decentralized to divisions.
153. (Refer to Case Scenario 3). Jewell’s divisional incentive compensation can be described as
A. linked to divisional performance.
B. mixed linkage to corporate, SBU, and divisional performance.
C. linked to overall corporate profitability.
D. linked to Jewell‘s stock market performance.