MGMT EXAM 2
refers to moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain
Strategic outsourcing
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
a fully vertically integrated company
When a manufacturer of computers starts to produce its own computer components, the manufacturer engages in ______ vertical integration.
backward
What does taper integration allows firms to do?
be more flexible when responding to market changes such as fluctuations in demand gain knowledge from external sources
Advantages of organizing economic activity at the market level include which of the following?
increased flexibility high-powered incentives
The risks of vertical integration are increased costs, reduced quality, reduced flexibility, and ______.
increased potential for legal repercussions
The Boston Consulting Group growth-share matrix locates a firm's individual SBUs in which of the following dimensions?
speed of market growth relative market share
What term describes the separation or sale of a strategic business unit to form a new, stand-alone corporation?
spinout
What are advantages of organizing economic activity inside of a firm?
the creation of a community of knowledge transaction-specific investments command-and-control decisions
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
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
franchising
Long-term contracts include which of the following forms?
franchising licensing
Long-term contracts typically last
1 year or more
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
True or false: According to studies, companies with taper integration tend to have inferior financial performance and lower levels of innovation than ones with more vertical integration.
False
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 is the shape of the relationship between the level of diversification and performance?
Inverted U
What are the two main motivations behind restructuring?
It allows higher-performing units to be more agile and pursue growth opportunities. It enables the firm to spin out underperforming units.
Which of the following are characteristics of a joint venture?
It is a long-term commitment by two or more partners. It facilitates transaction-specific investments.
refers to the act of outsourcing some of the firm's activities outside of the home country to another nation
Offshoring
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.
Request 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
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 type of horizontal diversification The geographic scope The degree of vertical integration
Why might a firm want to enter into an equity alliance instead of a short- or long-term contract?
To take partial ownership in the other partner by buying stock or assets. To signal greater commitment to the partnership.
_____ 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
True or false: According to the make-or-buy continuum, strategic alliances are more integrated than short-term contracts.
True
True or false: Related diversification is more likely to generate incremental value than unrelated diversification.
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
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
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
What can companies do to get the benefits of vertical integration without the accompanying risks?
choose strategic outsourcing use taper integration
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 ______-level strategic question
corporate
The key question of where to compete is addressed by
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
Amazon's explosive success is largely due to which of the following?
diversification vertical integration
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
Companies that transact in the open market incur
external transaction costs
Corporate strategy needs to be dynamic over time in order to allow firms to do which of the following?
keep and maintain a competitive advantage diversify to capture growth opportunities respond to the ever-changing external environment
Which of the following is an option for formulating strategy via core competencies?
leverage existing core competencies to improve current market position
Which of the following are types of strategic alliances?
long-term contracts equity alliances joint ventures
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
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)
parent-subsidiary relationship
refers to the assets whose physical and engineering properties are designed to satisfy a particular customer
physical-asset specifcity
A company that pursues both a product and a geographic diversification strategy simultaneously follows a ______ diversification strategy
product-market
The first stage of the industry value chain is typically which of the following?
raw materials
What are the risks of vertical integration?
reduced flexibility reduced quality increased costs
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
Which type of diversification is most likely to lead to superior performance?
related diversification
What term refers to the process of reorganizing and divesting business units and activities to refocus a firm to leverage its core competencies?
restructuring
Stages four and five of the industry value chain involve which of the following?
sales marketing after-sales service and support
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
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
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
The lemons problem suggests that information asymmetries can cause
superior goods to be replaced by inferior ones
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 use
taper integration
The degree of vertical integration corresponds to
the number of industry value chain stages in which a firm directly participates
The most integrated alternative to vertical integration is
the parent-subsidiary relationship
What is a major disadvantage of organizing economic activity within firms?
the principal-agent problem
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 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
Which of the following are among the reasons firms need to grow?
to increase profits to motivate management
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 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
An advantage of ______ 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
When a firm is more efficient in organizing economic activity than markets are, the firm should
vertically integrate
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
TWN, a large multinational corporation, chose to spin off one of its SBUs that was unrelated to TWN's core business in order to avoid the ______. When they announced the spin-off, the stock price of TWN went up by 5%
diversification discount
What are the main types of corporate diversification?
dominant business diversification single business diversification unrelated diversification related diversification
Firms are motivated to grow so that they achieve _____ which is when their average costs decrease as their output increases.
economies of scale
What are the four quadrants of the core competence-market matrix?
existing competencies with new markets new competencies with new markets new competencies with existing markets existing competencies with existing markets
What is an advantage of a firm in organizing economic activity?
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
One reason why firms pursue growth is to lower their costs, which they achieve through ______, which drives down average costs as output increases.
economies of scale
Advantages of vertical integration include which of the following?
facilitating scheduling reducing costs bettering quality
Disadvantages of organizing economic activity in the open market include all of the following except
increased flexibility
Amazon's continued focus on ______ is key to its ongoing success.
innovation
The forms of specialized assets include which of the following?
human-asset specificity physical-asset specificity site specificity
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 ______ 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 a fundamental corporate-level strategic decision?
What products and services should the firm offer?
Which type of cost in a related-diversification strategy is a function of the number, size, and types of businesses that are linked?
coordination
What are the costs associated with related-diversification strategies?
coordination costs influence costs
A firm that is active in several different countries is pursuing a(n) ______ diversification strategy.
geographic
In order for a firm to lower costs, it must
grow
The ______ depicts the transformation of raw materials into finished goods and services along distinct vertical stages, each of which represents a distinct industry in which a number of different firms are competing.
industry value chain
When a multi-business firm pools and shares resources and leverages competencies across different business lines, it is following a(n) ______.
related diversification strategy
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
What happens when the markets along the industry value chain are too risky and alternatives too costly in time or money?
vertical market failure
In general, related diversification leads to high levels of performance because
it accesses numerous areas of value creation, such as economies of scale and scope
