CH 8

Which types of diversification tend to have the lowest performances?

single business unrelated diversification

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

strategic alliances

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

taper integration strategic outsourcing

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

Inverted U

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

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

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

Transaction

A non-diversified company focuses on which of the following?

a single market

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

corporate strategy

Corporate strategy needs to be dynamic over time in order to ______.

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

What are the four quadrants of the core competence-market matrix?

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

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

existing core competence--existing market

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

moderate

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

vertical market failure

______ are unique assets with high opportunity cost.

Specialized assets

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

joint ventures equity alliances

Long-term contracts are classified as ______.

strategic alliances

Why might a firm want to enter into an equity alliance instead of a short- or long-term contract?

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

__ 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

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

Equity alliances

______ 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

Which of the following is the best option to take if you are the buyer and facing information asymmetry?

You should try to gather as much information as possible.

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

a different investment strategy

Companies that transact in the open market incur ______.

external transaction costs

If a company moves ownership of activities closer to the end customer, such as providing after-sales support, it is engaging in ______ vertical integration.

forward

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

some

Why do some firms choose alternatives to vertical integration?

to avoid the risks associated with vertical integration

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

True

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 of the following are the four underlying strategic management concepts that determine the scope of a firm?

transaction costs economies of scope core competencies economies of scale

Long-term contracts typically last ______.

1 year or more

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

backward

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 order for a firm to lower costs, it must ______.

grow

Specialized assets have ______.

high opportunity cost

Transaction costs include ______ costs associated with an economic exchange.

the internal and external

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

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

Which of the following are types of strategic alliances?

equity alliances long-term contracts joint ventures

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

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 have significantly more value in their intended use than in their next-best use?

specialized assets

Which of the following describes economies of scope?

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

Which type of alternative on the make-or-buy continuum involves competitive bidding by external companies hoping to acquire a temporary arrangement with a firm?

short-term contracts

What are the main types of corporate diversification?

unrelated diversification related diversification single business diversification dominant business diversification

To get the benefits of vertical integration without the accompanying risks, companies can ______.

use taper integration choose strategic outsourcing

The forms of specialized assets include which of the following?

site specificity physical-asset specificity human-asset specificity

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 statements about the make-or-buy continuum is true?

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

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

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

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

backward forward

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

vertically integrate

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

Information asymmetry

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

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

True

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

a diversification discount

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

core competencies

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

diversification vertical integration

Long-term contracts include which of the following forms?

licensing franchising

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 investmenting in specialized assets that is characterized by self-interest seeking with guile?

opportunism

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

the principal-agent problem

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

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

______ 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 is licensing?

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

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

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

dogs

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

franchising

A firm follows a(n) ______ 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

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

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.

request for proposal

The degree of vertical integration corresponds to ______.

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