Each division in an M-form organization typically adopts a matrix structure and the
division general manager takes on the role of senior project executive.
Answer:
A multinational strategy exploits all the advantages of both international integration and
local responsiveness.
Answer:
Hedging strategies reduce the political risks that firms assume when they enter into
nondomestic markets.
Answer:
Resources in the resource based view are defined as the tangible and intangible assets
that a firm controls, which it can use to conceive and implement its strategies.
Answer:
From a CEO’s perspective, coordinating functional specialists to implement a vertical
integration strategy rarely involves conflict resolution.
Answer:
Outsourcing can help firms reduce costs and focus their efforts on those business
functions that are central to their competitive advantage.
Answer:
In general, the less tangible the resources and capabilities that are to be brought to a
strategic alliance, the less costly it will be to estimate their value before an alliance is
created and the more likely it is that adverse selection will occur.
Answer:
One common agency problem occurs when managers decide to take some of a firm’s
capital and invest it in managerial perquisites that do not add economic value to the
firm but that do directly benefit those managers.
Answer:
Firms that pursue a product-differentiation strategy can choose whether or not they
want to reveal this strategic choice to their competition by adjusting their prices.
Answer:
Differential low-cost access to productive inputs may create cost differences among
firms producing similar products in an industry.
Answer:
Firms for whom the prices of the products or services they sell are determined by
market conditions and not by the individual decisions of the firms themselves are
known as price makers.
Answer:
When the efficient size of a firm or plant is significantly smaller than the total size of an
industry, there will usually be numerous efficient firms/plants in that industry, and a
cost-leadership strategy based on economies of scale will be rare.
Answer:
In general, cost advantages are not possible when competing firms produce similar
products.
Answer:
The difference between the unexpected value of an acquisition actually obtained by a
bidder and the price the bidder paid for the acquisition is a profit for the equity holders
of the target firm.
Answer:
While product features, by themselves, are usually not a source of sustained
competitive advantage, they can be a source of a temporary competitive advantage.
Answer:
Flexibility is always valuable.
Answer:
Product features, product customization, and product complexity have few obvious
close substitutes and may be sources of sustained competitive advantages.
Answer:
A firm’s vertical integration strategy is rare when few competing firms are able to create
value by vertically integrating in the same way.
Answer:
Firms able to successfully differentiate their products and services are likely to see a
decrease in their volume of sales.
Answer:
Numerous conflicts can arise among functional managers in a vertically integrated
U-form organization.
Answer:
Linkages between firms that differentiate their products are examples of cooperative
strategic alliance strategies.
Answer:
In all acquisitions bidding, firms will be willing to pay a price for a target up to the
value that the firm adds to the bidder once it is acquired.
Answer:
According to Bradenburger and Nalebluff, a firm’s competitors help increase the size of
a firm’s markets while complementors divide this market among a set of firms.
Answer:
Tacit cooperation is only a viable strategy when an industry is perfectly competitive.
Answer:
Strategic choices are generally limited to very experienced senior managers in large
corporations; in smaller and entrepreneurial firms, many employees end up being
involved in the strategic management process.
Answer:
Economic measures of competitive advantage compare a firm’s level of return to its
costs of capital instead of to the average level of return to the industry.
Answer:
If there is a conflict between the resources a firm controls and the firm’s organization,
the resources should be changed.
Answer:
In general, as long as the number of firms that possess a particular valuable resource or
capability is less than the number of firms needed to generate perfect competition
dynamics in an industry, that resource or capability can be considered rare and a
potential source of competitive advantage.
Answer:
Free cash flow is simply the amount of cash a firm has to invest after all positive net
present-value investments in its ongoing businesses have been funded.
Answer:
Strategy implementation occurs when a firm adopts organizational policies and
practices that are consistent with its strategy.
Answer:
In an agency relationship the party delegating the decision-making authority is called
the agent.
Answer:
While cost leadership requires rewards for cost reduction, product differentiation
requires rewards for ________.
A) creative flair
B) efficiency
C) quantitative goals
D) production goals
Answer:
The ________ consists of broad trends in the context in which a firm operates that can
have an impact on a firm’s strategic choices.
A) micro-environment
B) general environment
C) task environment
D) internal environment
Answer:
A competitive advantage that lasts a very short period of time is known as a ________
competitive advantage.
A) temporary
B) sustained
C) transient
D) perpetual
Answer:
________ is a business strategy whereby firms attempt to gain a competitive advantage
by increasing the perceived value of their products or services relative to the perceived
value of other firms’ products or services.
A) Product differentiation
B) Related diversification
C) Cost leadership
D) Best-cost provider
Answer:
SpandoCorp is a diversified firm that makes industrial, military and consumer products
from Spandex. SpandoCorp manages each of the businesses that it operates in as a
separate division and treats each as a true profit-and-loss center. In this organization,
Grace McKenna is responsible for deciding which set of businesses SpandoCorp will
operate in and for encouraging behavior that is consistent with this strategy, Wells
Tucker provides information to McKenna about the internal and external environments
that she uses in her decision making, and Kelly Rae is one of the individuals who is
responsible for evaluating the firm’s decision making to ensure that it is consistent with
the interests of equity holders.
If the bulk materials division of SpandoCorp sold its reams of Spandex to the military
division and set the transfer price of these reams equal to the bulk materials actual cost
of production, SpandoCorp would be using the ________ transfer pricing scheme.
A) exchange autonomy
B) mandated full cost
C) mandated market based
D) dual pricing
Answer:
Which of the following economies of scope is costly to duplicate?
A) shared activities
B) internal capital allocation
C) risk reduction
D) tax advantages
Answer:
Southwest Airlines’ strong internal culture that helps ensure that employees act in ways
consistent with the company’s strategy is an example of a(n)
A) informal management control.
B) formal management control.
C) compensation policy.
D) formal reporting structure.
Answer:
eBay, the online auction company, has an impressive portfolio of cooperative
agreements. This portfolio includes an agreement with the U.S. Postal Service to
facilitate the shipping of goods purchased through eBay auctions, an agreement to allow
MBNA to use eBay’s name on a credit card, and an agreement in an online auction
company in Korea that is supplemented with an investment by eBay in the Korean
partner. In addition, at one time eBay had formed an independent firm, called eBay
Australia and New Zealand, with an Australian company known as ecorp.
eBay’s agreement with MBNA is most accurately characterized as a(n)
A) supply agreement.
B) licensing agreement.
C) equity alliance.
D) joint venture.
Answer:
________ can help firms be successful in addressing the local needs of nondomestic
customers, thereby increasing demand for a firm’s current products or services.
A) Globalization
B) Internationalization
C) Target responsiveness
D) Local responsiveness
Answer:
Which of the following is not a reason that diversified firms might spin off businesses?
A) Management may require specific skills that are not present.
B) Anticipated economies of scope may not be realized.
C) Funding may be needed for other businesses.
D) The business is too related to other firm businesses.
Answer:
Limits of activity sharing include
A) substantial organizational issues that are often associated with a diversified firm’s
learning how to manage cross-business relationships and in which failure can lead to
excess bureaucracy, inefficiency, and organizational gridlock.
B) a significant reduction in an organization’s innovation and flexibility.
C) substantial organizational issues related to adequately compensating personnel
across businesses and setting transfer prices.
D) a significant reduction in an organization’s ability to meet the needs of any of its
customers.
Answer:
LaserTech is a manufacturer of industrial lasers and has developed a new, patented
technology that allows its customers to manufacture their products more precisely with
a higher level of consistency and at a lower cost than they could previously. LaserTech’s
executives believe that no rivals have a similar technology and that it would be very
difficult for rivals to copy this technology since the benefits of the new technology can
only be realized within LaserTech’s system, which includes processes that are protected
by trade secrets, making it difficult for rivals to understand the relationship between the
company’s new technology and its competitive advantage. LaserTech’s new technology
is an example of
A) financial resources.
B) physical resources.
C) human resources.
D) organizational resources.
Answer:
A(n) ________ occurs when a large, typically diversified firm divests itself of a
business in which it has historically been operating and the divested business operates
as an independent unit.
A) harvest
B) liquidation
C) initial public offering
D) corporate spin-off
Answer:
SpandoCorp is a diversified firm that makes industrial, military and consumer products
from Spandex. SpandoCorp manages each of the businesses that it operates in as a
separate division and treats each as a true profit-and-loss center. In this organization,
Grace McKenna is responsible for deciding which set of businesses SpandoCorp will
operate in and for encouraging behavior that is consistent with this strategy, Wells
Tucker provides information to McKenna about the internal and external environments
that she uses in her decision making, and Kelly Rae is one of the individuals who is
responsible for evaluating the firm’s decision making to ensure that it is consistent with
the interests of equity holders.
If SpandoCorp used a ________ budgeting process, it would assume that no project
would receive funding for the future simply because it was funded in the past and
would require each project to stand on its own merits each year to be included in a list
of important projects that the firm can afford to fund.
A) zero-based
B) cost plus
C) dynamic
D) traditional
Answer:
TerraLoc competes in the market for global positioning devices and services. The
company manufactures its own GPS units, which are smaller than those of any other
competitor and include a proprietary battery that lasts 200% longer than any other
competitor’s battery and that TerraLoc manufacturers on-site. TerraLoc also has
developed proprietary software that is much faster and more precise than that of any
competitor. When developing the proprietary battery, TerraLoc decided to manufacturer
the battery in-house to reduce the possibility that the company it outsourced the battery
manufacturing to might reverse engineer the battery and sell a similar product to
competitors. This possibility was especially troubling given that the company expected
a significant increase in demand due to the improved battery life. Additionally,
TerraLoc sells its products and services through its own direct sales force to ensure that
its representatives highlight the longer battery life of TerraLoc’s units.
If TerraLoc wanted to expand into selling its GPS units through company-owned retail
stores, this would be an example of ________
A) forward vertical integration.
B) backward vertical integration.
C) opportunism.
D) a joint venture.
Answer:
Research over the years has demonstrated conclusively that the primary determinant of
the compensation of top managers in a firm is
A) not the size of the firm, usually measured in sales, but the economic performance of
the firm.
B) both the economic performance of the firm as well as the size of the firm, usually
measured in sales.
C) not the economic performance of the firm but the size of the firm, usually measured
in sales.
D) neither the economic performance of the firm nor the size of the firm.
Answer:
Product differentiation is ultimately an expression of the ________ of individuals and
groups within firms and is limited only by the ________ that exist, or that can be
created, in a particular industry.
A) creativity; resources
B) resources; opportunities
C) creativity; opportunities
D) opportunities; resources
Answer:
If Dell computers were to open its own factory to manufacture the LCD televisions it
sells at its online store, this would be an example of
A) forward vertical integration.
B) product differentiation.
C) forward horizontal integration.
D) backward vertical integration.
Answer:
A firm’s ________ measures the percentage of a firm’s sales that is generated by
activities done within the boundaries of a firm.
A) value added as a percentage of sales
B) simple product diversification
C) competitive advantage
D) competitive dynamic
Answer:
Agrestal Cosmetics, Inc. is a leading U.S. manufacturer of natural, herb-based cosmetic
products. It started out purely as a domestic company but in 1983 established operations
in India primarily to gain access to that country’s abundant supply of hibiscus, a plant
that provided important raw materials to the company’s products. In 2009, Agrestal did
business in 29 countries around the world. It has factories in Malaysia and Taiwan to
use the low labor cost in those countries in making its labor-intensive products. In the
late 1990s, it had to close it operations in a foreign country when, due to a change in the
country’s leadership, all foreign companies had to cease doing business there. During
the Brazilian financial crisis, Agrestal adopted the practice of using revenues generated
in Brazil to buy orange concentrate locally and sell that concentrate in the United
States. Agrestal’s corporate finance department aggressively uses hedging in all the
countries where it operates. In a few select countries, Agrestal licenses its brand names
and know-how to local licensees. Currently, Agrestal is organized whereby all strategic
and operational decisions are made at its Princeton, New Jersey headquarters.
Agrestal’s use of hedging is a way for the company to guard against ________ risks.
A) political
B) market
C) business
D) financial
Answer:
The ________ is the subcommittee of the board of directors that is responsible for
ensuring the accuracy of accounting and financial statements.
A) audit committee
B) finance committee
C) nominating committee
D) personnel and compensation committee
Answer:
According to Coach’s website, the company has built a distinctive style and prestigious
image over the past 40 years to develop a reputation as “America’s preeminent designer,
producer, and marketer of fine accessories and gifts for women and men including
handbags, business cases, luggage and travel accessories, wallets, outerwear, eyewear,
gloves, scarves and fine jewelry.” Coach employs a multi-channel distribution channel
to reach its customers, including company-owned stores and boutiques in the stores of
prominent specialty retailers both within the United States and abroad, and the company
operates an online store. Consumers who purchase coach products are generally willing
to pay the premium price due to the superior quality of Coach’s products as well as the
perceived prestige of owning a Coach product. Coach stresses these features in its
advertising campaigns and regularly allows movies and television shows to favorably
feature Coach products in appropriate scenes. Over the last five years. Coach has
partnered with automobile manufacturers such as Lexus to produce automobiles with
Coach interiors. In an effort to expand its international reach, Coach intends to increase
its international distribution and is expanding into Japan through Coach Japan, Inc., a
joint venture with a local company that will allow Coach to control international
distribution and to maintain a consistent brand strategy domestically and abroad.
Which of the following bases of Coach’s competitive advantage is likely to be the
easiest to duplicate?
A) product features
B) consumer marketing
C) location
D) reputation
Answer:
In many ways, the transnational structure is similar to the
A) coordinated federation.
B) centralized hub.
C) decentralized federation.
D) decentralized hub.
Answer:
Perhaps the only time economies of scale are not subject to low-cost duplication is
when the ________ size of operations is a significant percentage of ________ in an
industry.
A) minimum; marginal demand
B) efficient; total demand
C) maximum; marginal demand
D) efficient; marginal demand
Answer:
Investments made by employees that have more value in a particular company than in
alternative companies are known as
A) firm-specific investments.
B) individual-specific investments.
C) group-specific investments.
D) opportunistic investments.
Answer:
Agrestal Cosmetics, Inc. is a leading U.S. manufacturer of natural, herb-based cosmetic
products. It started out purely as a domestic company but in 1983 established operations
in India primarily to gain access to that country’s abundant supply of hibiscus, a plant
that provided important raw materials to the company’s products. In 2009, Agrestal did
business in 29 countries around the world. It has factories in Malaysia and Taiwan to
use the low labor cost in those countries in making its labor-intensive products. In the
late 1990s, it had to close it operations in a foreign country when, due to a change in the
country’s leadership, all foreign companies had to cease doing business there. During
the Brazilian financial crisis, Agrestal adopted the practice of using revenues generated
in Brazil to buy orange concentrate locally and sell that concentrate in the United
States. Agrestal’s corporate finance department aggressively uses hedging in all the
countries where it operates. In a few select countries, Agrestal licenses its brand names
and know-how to local licensees. Currently, Agrestal is organized whereby all strategic
and operational decisions are made at its Princeton, New Jersey headquarters.
To optimize both local responsiveness and international integration, Agrestal has to
move to a ________ structure.
A) matrix
B) transnational
C) operational
D) coordinated federation
Answer:
When one firm makes more transaction-specific investments in a strategic alliance than
partner firms make, that firm may be subject to a form of cheating called ________ that
occurs when a firm that has not made significant transaction-specific investments
demands returns from an alliance that are higher than what the partners agreed to when
they created the alliance.
A) adverse selection
B) holdup
C) moral hazard
D) noncompliance
Answer:
Which of the following statements regarding CEO compensation is accurate?
A) Differences in CEO cash compensation are very responsive to differences in firm
performance.
B) If a substantial percentage of a CEO’s compensation comes in the form of stock and
stock options in the firm, changes in compensation are closely linked with changes in
firm performance.
C) If a substantial percentage of a CEO’s compensation comes in the form of stock and
stock options in the firm, changes in compensation are not closely linked with changes
in firm performance.
D) If a substantial percentage of a CEO’s compensation comes in the form of salary,
changes in compensation can be expected to be closely linked with changes in firm
performance.
Answer:
In order for corporate diversification to be economically valuable
A) there must be some valuable economy of scope among the multiple businesses in
which a firm is operating and it must be more costly for managers in a firm to realize
these economies of scope than for outside equity holders on their own.
B) there must not be any valuable economy of scope among the multiple businesses in
which a firm is operating and it must be less costly for managers in a firm to realize
these economies of scope than for outside equity holders on their own.
C) there must be some valuable economy of scope among the multiple businesses in
which a firm is operating and it must be less costly for managers in a firm to realize
these economies of scope than for outside equity holders on their own.
D) there must not be any valuable economy of scope among the multiple businesses in
which a firm is operating and it must be more costly for managers in a firm to realize
these economies of scope than for outside equity holders on their own.
Answer:
Firms pursuing a cost-leadership strategy are typically characterized by
A) loose cost control systems.
B) a de-emphasis on quantitative cost goals and costs.
C) infrequent cost control reports.
D) close supervision of labor, raw materials,inventory, and other costs.
Answer:
Actions that firms take to gain competitive advantage in a single market or industry are
known as
A) business-level strategies.
B) corporate-level strategies.
C) functional-level strategies.
D) macro-level strategies.
Answer:
Is it possible for a firm to implement a cost-leadership and product-differentiation
strategy simultaneously?
Answer:
Discuss when strategic alliances may be costly to directly duplicate.
Answer:
Discuss shared activities as a potential source of economies of scope for diversified
firms and identify the potential benefits and limits of activity sharing.
Answer:
Discuss the difference between a company’s existing direct competitors and its
substitutes and discuss the role substitutes play in an industry.
Answer:
Identify the types of control systems that are appropriate for firms pursuing a
cost-leadership strategy.
Answer:
What is the residual claimants view of equity holders?
Answer:
Identify the two primary forms that the substitutes for bases of product differentiation
can take.
Answer:
Identify three reasons why a firm may be able to create value through vertical
integration when most of its competitors are not able to create value through vertical
integration.
Answer:
Identify the most appropriate organizational structure for a firm pursuing a
cost-leadership strategy.
Answer:
Identify and describe the two fundamental assumptions about the resources and
capabilities that firms may control that the RBV rests on.
Answer:
Identify which bases of cost leadership are more likely to be rare and costly to imitate.
Answer:
Discuss the concept of a learning race and identify three reasons why firms in an
alliance may differ in the rate they learn from each other.
Answer:
Identify six reasons firms can differ in their costs.
Answer:
What is financial risk? How can firms hedge?
Answer:
Discuss the role of institutional investors in an M-form organization. In addressing this
question, be sure to identify who institutional investors are and discuss trends in
institutional ownership and whether institutional investors encourage managers to act in
ways that are consistent with the interests of equity holders or if institutional investors
are overly myopic.
Answer:
Discuss the flexibility-based explanation of vertical integration. In discussing this
explanation be sure to define flexibility, the role of uncertainty in this explanation, and
identify when, under this explanation, firms should engage in vertical integration.
Answer:
Identify which economies of scope are more likely to be subject to low-cost imitation
and which are less likely to be subject to low-cost imitation and discuss why each is
either costly or less costly to duplicate.
Answer:
Identify and differentiate between the five different FTC categories of mergers and
acquisitions.
Answer:
What type of compensation approach goes best with the flexibility explanation of
vertical integration?
Answer:
Describe the difference between emergent and intended strategies. Why might firms
employ an emergent strategy?
Answer: