4490 Chapter 8

True or false: It can be riskier to own parts of the supply chain than to rely on external supply chains.

True

______ is a way of orchestrating value activities in which a firm is backwardly or forwardly integrated and relies on outside-market firms for supplies or distribution.

Taper integration

Which of the following statements about the make-or-buy continuum is true?

The "make" and "buy" choices anchor each end of the continuum.

What are the three dimensions along which executives formulate corporate strategy? The size of the top management team The type of diversification The geographic scope The degree of vertical integration

The type of diversification The geographic scope The degree of vertical integration

What are the main types of corporate diversification? (Check all that apply.) related diversification single business diversification unrelated diversification horizontal diversification double business diversification dominant business diversification

related diversification single business diversification unrelated diversification dominant business diversification

When a multi-business firm pools and shares resources and leverages competencies across different business lines, it is following a(n) ______.

related diversification strategy

Which of the following have significantly more value in their intended use than in their next-best use?

specialized assets

A(n) ______ is a voluntary arrangement between firms that involves sharing of resources and capabilities with the intent of developing processes, products, or services.

strategic alliance

Long-term contracts (such as licensing and franchising), equity alliances, and joint ventures are examples of which of the following?

strategic alliances

Long-term contracts are classified as ______.

strategic alliances

The two alternatives to vertical integration are which of the following? (Select all that apply.) strategic outsourcing nominal innovation specialized disintegration horizontal integration taper integration

strategic outsourcing taper integration

The lemons problem suggests that information asymmetries can cause ______.

superior goods to be replaced by inferior ones

Which of the following describes economies of scope?

the savings from producing two or more outputs at less cost than producing each output individually

A disadvantage of a short-term contract as an alternative on the make-or-buy continuum is that ______.

the supplying firm has little reason to perform transaction-specific investments

Which of the following is the term for the costs associated with an economic exchange?

transaction costs

Unlike short-term contracts, long-term contracts encourage firms to make ______ investments.

transaction-specific

Google's choice to hire programmers in-house suggests that they decided that the ______ costs associated with this strategy are ______ than the costs associated with contracting in the open market.

transaction; lower

A conglomerate fits which type of corporate diversification model?

unrelated diversification

To get the benefits of vertical integration without the accompanying risks, companies can ______. (Check all that apply.) use taper integration control every element of the industry value chain opt to become fully vertically integrated choose strategic outsourcing

use taper integration choose strategic outsourcing

Amazon's explosive success is largely due to which of the following? (Check all that apply.) vertical integration information asymmetry diversification single business focus

vertical integration diversification

What happens when the markets along the industry value chain are too risky and alternatives too costly in time or money?

vertical market failure

When a firm is more efficient in organizing economic activity than markets are, the firm should ______.

vertically integrate

When engaging in short-term contracting, a firm sends out ________ _______ _______ to potential companies, which initiate competitive bidding for contracts to be awarded with a short duration.

Blank 1: requests or request Blank 2: for Blank 3: proposals or proposal

The ______ is a corporate planning tool in which the corporation is viewed as a portfolio of business units.

Boston Consulting Group (BCG) growth-share matrix

______ refers to an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes.

Diversification

______ is a situation in which one party has more knowledge than another due to the possession of private knowledge.

Information asymmetry

What is the shape of the relationship between the level of diversification and performance?

Inverted U

______ refers to the assets whose physical and engineering properties are designed to satisfy a particular customer.

Physical-asset specificity

______ refers to the firms' ownership of its production of needed inputs or of the channels by which it distributes its outputs.

Vertical integration

In the Boston Consulting Group growth-share matrix, each of the four categories in the matrix represents ______.

a different investment strategy

Firms that pursue an unrelated diversification strategy and are unable to create additional value tend to experience which of the following?

a diversification discount

What is licensing?

a long-term contract that enables firms to commercialize intellectual property

When a manufacturer of computers starts to produce its own computer components, the manufacturer engages in ______ vertical integration.

backward

According to the Boston Consulting Group matrix, cash cows are SBUs that do which of the following?

compete in a low-growth market but have high market share

When a business answers the question of where to compete, it is determining ___.

corporate strategy

In order to assess whether ______ is working, managers can ask if the individual businesses are worth more under the firm's management or if they are worth more under individual management.

diversification

Zipster is a local manufacturer of athletic shoes. Zipster has decided it wants to expand to global markets and to offer a larger selection of items. It plans to offer not just athletic shoes but also luggage and car accessories. Zipster is engaging in ______.

diversification

In the Boston Consulting Group matrix, ______ hold the small market share in a low-growth market.

dogs

Which of the following is the best option if a company wants to show strong commitment to a partner firm without acquiring that firm?

equity alliance

The persons responsible for forming corporate-level strategy are the ___.

executives

In the ______ quadrant of the core competence--market matrix, the focus is on leveraging current core competencies to improve current market position.

existing competence--existing market

What is the opportunity cost of investmenting in specialized assets that is characterized by self-interest seeking with guile?

opportunism

What are the four quadrants of the core competence-market matrix? (Check all that apply.) existing competencies with existing markets new competencies with related markets existing competencies with simultaneous markets new competencies with existing markets new competencies with new markets existing competencies with new markets

existing competencies with existing markets new competencies with existing markets new competencies with new markets existing competencies with new markets

In the ______ quadrant of the core competence--market matrix, a firm combines existing core competencies with existing markets.

existing core competence--existing market

Companies that transact in the open market incur ______.

external transaction costs

Which of the following are types of vertical integration along the industry value chain? (Check all that apply.) forward backward simultaneous scheduled

forward backward

Specialized assets have ______.

high opportunity cost

Amazon's continued focus on ______ is a key to its ongoing success.

innovation

A(n) __ is a standalone organization created and jointly owned by two or more parent companies.

joint venture

Which of the following are types of strategic alliances? (Check all that apply.) parent-subsidiary relationship long-term contracts joint ventures mergers equity alliances

long-term contracts joint ventures equity alliances

One way to overcome the principal-agent problem is to ______.

make managers owners through stock options

What level of diversification leads to the highest levels of performance?

moderate

What is a related-linked diversification strategy?

one in which executives pursue various businesses opportunities that share only a limited number of linkages

To figure out if a firm's type of diversification is ______, one can ask questions about the degree to which the corporation's business units share core competencies.

related or unrelated

Which diversification strategy involves executives pursuing various business opportunities that share only a small number of similarities?

related-linked

The Boston Consulting Group growth-share matrix locates a firm's individual SBUs in which of the following dimensions? (Check all that apply.) relative market share extent of vertical integration speed of market growth unrelated diversification economies

relative market share speed of market growth

Corporate strategy needs to be dynamic over time in order to ______. (Check all that apply.) respond to the ever-changing external environment keep and maintain a competitive advantage avoid paying for coordination and influence costs diversify to capture growth opportunities

respond to the ever-changing external environment keep and maintain a competitive advantage diversify to capture growth opportunities

Shaniqua's Shirts uses both in-house and outside suppliers and also sells its shirts through its own retail stores and through independent retailers. Shaniqua's Shirts uses ______.

taper integration

Transaction costs include ______ costs associated with an economic exchange.

the internal and external

The degree of vertical integration corresponds to ______.

the number of industry value chain stages in which a firm directly participates

A(n) ______ is a situation in which the stock price of a highly diversified firms is valued as less than the sum of their individual business units.

diversification discount

True or false: Related diversification is more likely to generate incremental value than unrelated diversification.

True

Why might a firm want to enter into an equity alliance instead of a short- or long-term contract? (Check all that apply.) to get insider information about the partner's business to make a credible commitment to facilitate transaction-specific investments to allow the partner to use the firm's trademark and business processes

to get insider information about the partner's business to make a credible commitment to facilitate transaction-specific investments

Which of the following are among the reasons firms need to grow? (Check all that apply.) to motivate management to decrease market power to increase costs to increase profits

to motivate management to increase profits

Kava Botanicals, a boutique retailer that sells high-end makeup and accessories, is owned by two makeup manufacturers. Kava Botanicals is an example of which type of strategic alliance?

a joint venture

Which of the following is an example of the principal-agent problem even when the principal's goal is to create shareholder value?

a manager flying first class on all business trips

Long-term contracts include which of the following forms? (Check all that apply.) franchising joint ventures exporting agreements licensing

franchising licensing

Which of the following is a reason why a firm needs to grow?

to reduce risk

True or false: A major reason why a firm may choose a related diversification strategy is to take advantage of both economies of scale and of scope.

True