Ch. 5 Sevi

Which of the following is a fundamental corporate-level strategic decision? Multiple choice question.

What products and services should the firm offer?

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

a diversification discount

Olivia's, an olive oil company, grows and harvests olives, makes olive oil, and distributes its olive oil to its retail shop. Olivia's is an example of Blank______.

a fully vertically integrated company

Which of the following are types of vertical integration along the industry value chain?

backward forward

Each stage of the vertical value chain represents a distinct Blank______ in which a number of different firms are competing.

industry

What term describes the separation or sale of a strategic business unit to form a new, stand-alone corporation?

spinout

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

true

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 Blank__

vertically integrate

Kurtis loves Benicio's Burritos and wants to open a branch in his hometown. Benicio's Burritos grants Kurtis the right to use its trademark and name, and Kurtis agrees to follow Benicio's Burritos guidelines. This is an example of Blank______.

franchising

Specialized assets have Blank______.

high opportunity cost

A conglomerate fits which type of corporate diversification model?

unrelated diversification

What best describes a spinout?

A division is separated from the rest of the company and is turned into a new, stand-alone corporation.

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

Boston Consulting Group (BCG) growth-share matrix

strategy involves the decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously.

Corporate

______ 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

are partnerships in which at least one partner takes partial ownership in the other partner.

Equity alliances

True or false: The industry value chain is also called the horizontal value chain

False

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

Information asymmetry

What are the two main motivations behind restructuring?

It enables the firm to spin out underperforming units. It allows higher-performing units to be more agile and pursue growth opportunities.

refers to the act of outsourcing some of the firm's activities outside of the home country to another nation.

Offshoring

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

Physical-asset specificity

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

Requests for Proposals

are perhaps the major drawback of transacting in markets.

Search costs

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

What are the three dimensions along which executives formulate corporate strategy?

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

costs are all of the costs associated with an economic exchange.

Transaction

is a theoretical framework that helps explain and predict the boundaries of the firm

Transaction cost economics

It can be riskier to own parts of the supply chain than to rely on external supply chains

True

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

What is licensing?

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

In a fully vertically integrated organization,

all stages of the industry value chain are conducted within the firm

What type of arrangement did Coca-Cola form with Monster in 2014?

an equity alliance

Transaction cost economics help managers do which of the following?

choose which activities to carry out within the firm

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

Which national markets should the firm compete in?" is an example of a Blank______-level strategic question

corporate

The key question of where to compete is addressed by

corporate strategy

In order to assess whether Blank______ 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

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

n the Blank______ 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 are the four quadrants of the core competence-market matrix?

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

Which of the following is an option for formulating strategy via core competencies?

leverage existing core competencies to improve current market position

Long-term contracts include which of the following forms?

licensing franchising

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

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

opportunism

Which of the following are the types of general diversification strategies?

product geographic product-market

The first stage of the industry value chain is typically which of the following?

raw materials

A firm follows a(n) Blank______ diversification strategy when it derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity.

related

What are the main types of corporate diversification?

related diversification unrelated diversification dominant business diversification single 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

What term refers to the process of reorganizing and divesting business units and activities to refocus a firm to leverage its core competencies?

restructuring

Which types of diversification tend to have the lowest performances?

single business unrelated diversification

Why did Coca-Cola enter into a strategic alliance with Monster?

so that it could gain private information to determine whether an acquisition might be beneficial

In the taper integration system, a firm has Blank______ reliance on outside markets.

some

A(n) Blank______ 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 are classified as

strategic alliances

A state university hires an outside firm to develop and maintain their human resource system. This is called

strategic outsourcing

The lemons problem suggests that information asymmetries can cause Blank

superior goods to be replaced by inferior ones

A benefit of Blank______ is that in-house suppliers and distributors are subjected to market competition, which allows the firm to assess performance in comparison to others

taper integration

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 Blank______.

taper integration

Transaction costs include Blank______ costs associated with an economic exchange.

the internal and external

The degree of vertical integration corresponds to Blank______.

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

The most integrated alternative to vertical integration is Blank______.

the parent-subsidiary relationship

What is a major disadvantage of organizing economic activity within firms?

the principal-agent problem

Which of the following is not a dimension along which corporate strategy is assessed?

the size of the company in comparison to its main competitors

Why do some firms choose alternatives to vertical integration?

to avoid the risks associated with vertical integration

What is the purpose of the core competence-market matrix?

to provide guidance regarding how to diversify in order to grow the company

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

to reduce risk

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 Blank______ investments

transaction-specific

An advantage of Blank______ is that it helps ensure that materials and distribution channels are available when needed.

vertical integration

What term refers to the firms' ownership of the inputs it needs for production or of the channels by which it distributes its outputs?

vertical integration

Disadvantages of organizing economic activity in the open market include all of the following except

increased flexibility

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

innovation

Amazon's explosive success is largely due to which of the following?

vertical integration diversification

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

dogs

One reason why firms pursue growth is to lower their costs, which they achieve through Blank______, which drives down average costs as output increases.

economies of scale

Companies that transact in the open market incur

external transaction costs

The risks of vertical integration are increased costs, reduced quality, reduced flexibility, and Blank______.

increased potential for legal repercussions

What are the costs associated with related-diversification strategies?

influence costs coordination costs

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

joint venture

Which of the following are alternatives on the make-or-buy continuum?

joint ventures equity alliances

Which of the following are types of strategic alliances?

joint ventures equity alliances long-term contracts

The Boston Consulting Group growth-share matrix locates a firm's individual SBUs in which of the following dimensions?

relative market share speed of market growth

Advantages of vertical integration include which of the following?

bettering quality facilitating scheduling reducing costs

Which type of cost in a related-diversification strategy is a function of the number, size, and types of businesses that are linked?

coordination

Corporate strategy needs to be dynamic over time in order to allow firms to do which of the following?

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

To figure out if a firm's type of diversification is Blank______, 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

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

specialized assets

What is an advantage of a firm in organizing economic activity?

transaction-specific investments

What are advantages of organizing economic activity inside of a firm?

transaction-specific investments command-and-control decisions the creation of a community of knowledge

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

transaction; lower

True or false: According to the make-or-buy continuum, strategic alliances are more integrated than short-term contracts.

true

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 does taper integration allows firms to do?

gain knowledge from external sources be more flexible when responding to market changes such as fluctuations in demand

A firm that is active in several different countries is pursuing a(n) Blank______ diversification strategy.

geographic

In order for a firm to lower costs, it must

grow

Which of the following is a fundamental corporate-level strategic decision?

What products and services should the firm offer?

Which of the following terms describes the strengths that allow a firm to distinguish itself from the competition?

core competencies

In general, related diversification leads to high levels of performance because Blank______.

it accesses numerous areas of value creation, such as economies of scale and scope

Stages four and five of the industry value chain involve which of the following?

marketing sales after-sales service and support

Wheels on the Go! is a company that manufactures tires for semitrucks. The company is entirely owned by North American Haulers, a large company in the semitruck industry. The two companies have formed a(n) Blank_____

parent-subsidiary relationship

The two alternatives to vertical integration are which of the following?

taper integration strategic outsourcing

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 would be as a result of information asymmetry?

crowding out of desirable goods and services by inferior ones

A(n) Blank______ 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