MGT 429 Exam 3

What are the benefits of a company staying in one industry?

allows a company focus on core competencies and focus on what it knows best.

A company pursuing a strategy of vertical integration may expand its operations:

backward into an industry that produces inputs for the company's products.

In a vertically integrated company, a commonly used pricing rule for transferred resources allows the selling division to add an appropriate markup to the cost incurred in the manufacturing process. This policy can be considered as a

behavior control.

free cash flow

cash in excess of that required to fund investments in the company's existing industry and meet any debt commitments (profitably reinvested)

Hierarchy of Authority

chain of command, that defines each managers relative Authority, from the CEO down to the middle managers and first-line managers

This organizational unit has the responsibility to oversee and control all divisions of a multi-business company

corperate headquarters staff

A corporate head office or headquarters is not responsible for

day-to-day operations of each division.

This BP oil spill that occurred in the Gulf Of Mexico in 2010 is an example of this ethical issue

environmental degradation

flat structure

fewer levels relative to company size

Staying in a single industry allows a company to

focus its resources on one area.

market structure

focus on may different Customer groups

Three skills of a company's top managers include entrepreneurial, organizational design, and strategic capabilities

general organization competencies

This type of structure is often used by chain stores such as Home Depot due to different needs from regional customers

geographic structure

A localization strategy should implement a ...

global area structure

Localization

global-area structure

This benefit of horizontal integration results in low prices from suppliers due to the larger size of the combined firm

increased market power

Product bundling

involves offering customers the opportunity to purchase a range of products at a single combined price.

An organizational culture

is a collection of values, norms, beliefs, and attitudes shared by members within an organization.

holdup

lack of trust, being taken advantage of by a trading partner after the investment in specialized assets has been made

backward integration

moving into the component parts manufacturing and raw material's production

risk capital

no guarantee that stockholders will ever recoup their investment and earn a decent return

This process is about creating, using, and combining structure, control, and culture to pursue a strategy successfully

organizational design

The process of deciding how a company should create, use, and combine organizational structure, control systems, and culture to pursue a business model successfully is referred to as:

organizational design.

This control system is often used in a company pursing unrelated diversification to evaluate divisional performance.

output control

This practice offers customers the opportunity to buy a complete range of products at a single combined price.

product bundling

When are bureaucratic cost substantial?

related diversification

This disconnection between this function and marketing leads to poor communication of new products

research and development

stock options

rights to buy a certain number of shares of stock at a specified price

When developing and implementing strategies a company must consider the claims of its

stakeholders

The unethical behavior of information manipulation violates the interest of

stockholders.

This practice aims at establishing informal pricing agreements without communication to reduce the risk of price wars

tacit price collusion

This term is used to describe an organizational structure with many levels of authority relative to company size

tall structure

product-team structure

tasks are divided along project or product lines, functional specialist become part of a permanent cross-functional team that focuses on the development of one particular range of products, such as luxury cars or computer workstations

span of control

the number of subordinates who report directly to a manager

Transferring competencies

the process of taking a distinctive competency developed by a business unit in one industry and implanting it in a business unit operating in another industry

Leveraging Competencies

the process of taking a distinctive competency developed by a business unit in one industry and using it to create a NEW business unit in a different industry

Internal new venturing

the process of transferring resources to in creating a NEW business unit or division in a NEW industry or embryonic industry

takeover constraint

the risk of being acquired by another company

greenmail

the target company purchases the acquirer's shares at a premium over the market price

The condition to achieve economies of scope is that

there should be sufficient commonalities between one or more value-chain functions.

integrating roles

An experienced corporate manager assumes the responsibility for managing complex transfers between two or more divisions

How does increasing profitability help a company reduce industry rivalry?

By reducing the threat of damaging price competition

Which of the following statement is not true regarding the board of directors.

CEO duality is the most effective way to use the board of directors as a governance mechanism.

organizational culture

Collection of values, Norms, beliefs, and attitudes that are shared by people and groups in an organization and that control the way they interact with each other and with stakeholders outside the organization

behavior control

Control through the establishment of a comprehensive system of rules and procedures to direct the actions or behavior of divisions, functions, and individuals STANDARDIZE

what is the purpose of organizational structure?

Coordinate and integrate the efforts of all employees at all levels and across companies functions and business units that they work together in a way that will allow it to achieve the specific set of startegies

This group of stakeholders provides Ford with distribution channels

Dealers

This former CEO was convicted in 2005 of crimes related to his receipt of $81 million in unauthorized bonuses

Dennis Kozlowski

Which of the following corporate-level strategies is not covered in this chapter?

Diversification

Diversification strategy is used only by large corporations.

False

Divisional managers and corporate manangers share responsibilities of strategy-making at the business-level.

False

This strategy allows Apple to enhance differentiation advantages through opening its own retail stores

Forward integration

geographic structure

Geographic regions become the basis for grouping the organization activities

This company pulled out of European Iceland's market due to its standardization practice in importing goods

McDonalds

Which of the following is not a general organizational competency?

Product bundling

control system

Provides managers with incentives for employees as well as feedback on how the company performs

True or False: A strategic alliance becomes a substitute for vertical integration?

TRUE

True or False: Companies that base their diversification strategy on transferring competencies tend to acquire new business RELATED to their existing business because of commonalities of value chain functions

TRUE

True or False: New ventures has a high risk of failure

TRUE

true or false: IT is a form of both behavioral and output control

TRUE

organizational design

The process of deciding on a company should create, use, and combine organizational structure, control systems, and culture to pursue a business model successfully

personal control

To shape and influence the behavior of a person in a face-to-face interaction

The multidivisional structure allows corporate managers to allocate financial resources to divisions based on financial performance.

True

Pursuing which corporate-level strategy is most likely to cause the transfer pricing problem?

Vertical integration

Unrelated diversification

a corporate level strategy based on a mutli business model whose goal is to increase profitability through the use of General organization competencies to increase performance of the company's business units

code of ethics

a formal statement of ethical principles and rules of conduct

Problems with vertical integration

1) Increasing cost structure (in-house suppliers slack) 2) Technological change 3) Demand unpredictability

Benefits of outsourcing

1. Lower cost structure 2. Enhanced differentiation 3. Focus on the core business

Mergers and acquisitions are

1. conceptually different but can be used interchangeably. 2. means to realize horizontal integration. 3. popular corporate strategies to grow the company's size and market power.

Disadvantages of diversification

1.) Changes in industry or inside a company that occur over time 2.) pursued for the wrong reasons 3.) increasing bureaucratic costs

multidivisional organizational design advantages

1.) Corporate headquarters staff is pregnant to monitor division activities in exercise Financial control over each decision 2.) In each industry in which a company operates, strategic managers group all it's different business operations in the industry into one division or subunit

Problems with Horizontal Integration

1.) Difficult to implement 2.) Conflict with the Federal Trade Commission (FTC) 3.) Abuse of market power

Advantages of a multi-divisional structure

1.) Enhance corporate Financial control 2.) enhanced to strategic control 3.) profitable long-run grow stronger 4.) pursuit of internal efficiency

Disadvantages of multi-divisional structure

1.) Establishing the divisional corporate Authority relationship 2.) restrictive Financial controls lead to short-run focus 3.) competition for resources 4.) transfer pricing 5.) duplication of functional resources

Benefits of acquisition when entering into New Markets

1.) Fast 2.) less risky 3.) enter in an interest rate that is protected by High barriers-to-entry

Which of the following industries may face different needs from regional customers?

1.) Home improvement 2.) Retail clothing 3.) Food services

strategic control systems

1.) How to monitor and evaluate whether the strategy and structure working as intended, how they could be improved, and how they should be changed if they are not working 2.) Formal Target setting, measurement, and feedback systems that allows you to take me to superior quality, efficiency, Innovation, and customer responsiveness

Disadvantages of acquisition when entering new markets

1.) Management problems and turn over 2.) overestimate economic benefit 3.) expensive fail to recognize business model problems

Disadvantages of new Ventures

1.) Market entry onto smaller scale 2.) poor commercialization of new Venture products 3.) poor corporate management

Benefits of IT and strategy implementation

1.) Promotes development of functional competencies and capabilities 2.) transfer knowledge and expertise across functional groups and integrate into operations 3.) innovate and perform R&D

restructuring

1.) Streamlining the hierarchy of authority and reducing the number of levels in the hierarchy to a minimum 2.) reducing the number of employees to lower operating costs

Successful Acquisitions must have

1.) Target identification in pre-acquisition screening 2.) bidding strategy 3.) integration 4.) learning from experience

Diversification can increase profitability when

1.) Transferring competencies (related industries) 2.) leveraging competencies (new industries) 3.)sharing resources and capabilities (economies of scope) 4.) product bundling 5.) using general organizational competencies

Which of the following strategies allow a company to compete in multiple industries?

1.) Vertical integration 2.) Related Diversification 3.) Unrelated Diversification

Internal new ventures are a preferred entry strategy when

1.) a company is to enter a newly emerging or embryonic industry. 2.) a company possesses distinctive competencies that can be leveraged or recombined to enter a new industry. 3.) a company tries to avoid any integration problems.

Acquisitions are a preferred entry strategy when

1.) a company lacks the competencies necessary to compete in a new industry. 2.) a company is to enter an industry that is protected by high barriers to entry. 3.) a company needs to move fast to establish a presence in a new industry.

An organizational structure

1.) defines the reporting relationships between members in an organization. 2.) assigns employees to specific value creation tasks and roles. 3.) specifies ways to integrate and coordinate the efforts of all employees.

Entrepreneurship

1.) encouraging managers to take risks 2.) give them the time and resources to pursue novel idea 3.)not punish managers when a new idea fails 4.) make sure it's a free cash flow is not wasted in pursuing too many risky new Ventures

Benefits of Vertical Integration

1.) facilitating investments in specialized assets 2.) enhanced product quality 3.) improved sceudling

How companies can behave ethically

1.) hire and promote employees with good ethics 2.) organizational culture with high ethical value 3.) leaders are ethical 4.) ethics officers 5.) moral courage 6.) strong governance processes 7.) decision makers are ethical

risk of outsourcing

1.) holdup 2.) loss of information

Strategies to build long term cooperative relationships

1.) hostage taking 2.) credible commitments 3.) maintaining market discipline

A division in the multidivisional structure

1.) is self-contained with a full set of value-chain functions. 2.) operates independently and separately from other divisions of the same company. 3.) can choose an appropriate strategy as well as organizational structure that suits the business.

Benefits of diversification

1.) lower cost 2.) allows differentiation and pricing options 3.) manage rivalry

Benefits of Horizontal Integration

1.) lower cost structure (economies of scale and reduce duplication of resources) 2.) increased product differentiation (increase flow of innovative new products, product bundling, and cross-selling) 3.) replicating the business model (replicate model in new market segments) 4.) reduced industry rivalry (eliminate excess capacity and implement tacit price coordination) 5.) increased bargaining power (leverage to bargain down price)

Strategic control systems

1.) provide incentives to motivate employees. 2.) allow managers to evaluate the performance of employees at all levels. 3.) provide performance feedback so that corrective actions can be taken if needed.

To combat internal agency problems, companies may use internal governance mechanisms including

1.) strategic control systems. 2.) employee incentives. 3.) balanced score cards.

In mergers and acquisitions potential integration problems could come from

1.) the difficulty in merging two companies' management hierarchies and establishing a new line of authority. 2.) different cultures that two companies may have. 3.) different strategic control systems and financial reporting systems of two companies.

General organizational competencies

1.) transcend individual functions or business units. 2.) involve the capabilities residing with upper-level managers. 3.) allow diversification strategy to increase profitability of each business unit.

knowledge management system

A company-specific information system that system eyes and the knowledge of its employees and provide them with access to other employees who have the expertise to solve the problems that they encounter as they perform their jobs

new venture division

A separate and independent division established to give its managers the autonomy to develop a new product.

information asymmetry

Agent has more information about the resources being managed than the principal and they maximize their own interests at the expense of principles

Which of the following is not correct in a principal-agent relationship?

Agent is the person that delegates decision-making authority or control over the other person.

decentralized authority

An organization structure in which decision-making authority is delegated to lower-level managers more familiar with local conditions than headquarters management could be.

Which of the following companies uses forward vertical integration to enhance their product differentiation advantage?

Apple

All of the following are benefits of horizontal integration except: A.) Increased product differentiation B.) Reduced risk of coming into conflict with the FTC C.) Reduced industry rivalry D.) Reduced cost structure

B

principle of the minimum chain of control

Choose the higher key with the fewest levels of authority necessary to use organizational resources efficiently and effectively

virtual organization

Composed of people who are linked by laptops, smartphones, computer aided design systems, and Global video teleconferencing and who may rarely see another face to face

True or False: Achieving economies of scale is important to industries with a low fixed-cost structure?

FALE high fixed-structure

True or false: CEOs invest in empire building to help stockholders

FALSE

True or False: If I function off makes it easier to apply Behavior control

FALSE OUTPUT

True or false: Related diversification has lower costs than unrelated diversification

FALSE higher

True or False: When a company outsources a value-chain activity, it is choosing to focus on more numbers of value-chain activities

FALSE less

True or false: Companies pursuing a strategy of unrelated diversification have some intention of transferring or leveraging competencies between business units

FASLE NO INTENTION

A union and the general public are examples of internal stakeholders.

False

Different divisions in a firm with a Multidivisional structure are not given authority to adopt their own organizational structures.

False

If a company's core skills are highly specialized and have few applications outside the core business, then a company should pursue a related diversification strategy.

False

It is important for the strategy of unrelated diversification to have a corporate-wide culture.

False

Managers use corporate-level strategy to identify which countries a company should compete in to maximize long-run profitability.

False

The purpose of organizational structure is to provide managers with specific feedback on how well an organization and its members are performing and building competitive advantage.

False

Economies of scale arise when one or more of a diversified company's business units are able to realize cost-saving or differentiation advantages because they can more effectively pool, share, and utilize resources or capabilities.

Fasle

reengineering

Fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance such as cost, quality, service, and speed

International

Global Division Structure

Global standardization

Global Structure-group structure

Which global structure is compatible with the global strategy of localization?

Global area structure

Transnational

Global-matrix Structure

division

Grouping functions to allow an organization to better produce and transfer its goods and services to its customer

Which of the following is an advantage of the multidivisional structure?

It makes it easier for the corporate office to evaluate divisional performance

In the example of Philip Morris (Chapter 10, p314) which competency was transferred between Philip Morris and Miller Brewing?

Marketing

Outside Directors

Not full-time employees of the company, Provide objectivity to the monitoring and evaluation of processes

environmental degradation

Occurs when a company's actions directly or indirectly result in pollution or other forms of environmental harm

self-dealing

Occurs when managers find a way to feather their own nests with corporate Monies

adaptive culture

One that is innovative and that encourages and rewards middle and lower-level managers for taking the initiative

An automobile company enters into a long-term contract with two suppliers for the same automobile tool. This is to ensure the company is protected in the event of one of the suppliers adopting an uncooperative attitude. Which of the following concepts is illustrated in this scenario?

Parallel sourcing

functional structures

People on the basis of their common expertise and experience or because they use the same resources

ethics

Principles of right or wrong that govern the conduct of a person, the members are in possession, or the actions of an organization

When is transfer pricing most common

Pursuing a vertical integration or related diversification strategy

Which diversification strategy is based on the idea that the company creates value by applying the distinctive competencies it developed in one line of business to another business activity?

Related diversification

Which of the following corporate strategies results in the highest bureaucratic costs?

Related diversification

ethical dilemmas

Situations in which there is no agreement over exactly what the accepted principles of right and wrong are or where none of the available alternatives seem ethically available

Which of the following is true of stakeholders?

Stockholders are internal stakeholders that provide an enterprise with risk capital.

output control

Strategic managers estimate or forecast appropriate performance goals for each division, Department, an employee and the measure actual performance relative to those goals

management by objectives

System in which employees are encouraged to help set their own goals so that managers intervene only when they sense something is wrong

True or False: A short term contracting does not result in specialized investments

TRUE

True or False: United States, publicly owned companies must regularly file detailed financial statements with the Securities and Exchange Commission that are in accordance with generally accepted accounting principles

TRUE

True or false: An unrelated company does not have to achieve coordination between business units

TRUE

True or false: Effective organizational structure and controls for a incentives that encourage business unit managers to maximize efficiency and effectiveness of the unit

TRUE

True or false: a diversification strategy is not consistent with maximizing returns to shareholder

TRUE

True or false: horizontal integration is for a single market or industry?

TRUE

Which integrating mechanism provides the longest time frame for collaborations.

Teams

bureaucratic costs

The costs associated with solving the transaction difficulties between business units and corporate headquarters as a company obtains the benefits from transferring, sharing, and leveraging competencies.

strategic outsourcing

The decision to allow one or more of a company's value-chain activities to be performed by independent, specialist companies that focus all their skills and knowledge on just one kind of activity to increase performance.

horizontal integration

The process of acquiring or merging with industry competitors to achieve the competitive advantages that arise from a large size and scope of operations.

A number of studies have suggested that many mergers and acquisitions do not create value and some even destroy value.

True

Agency theory is used to explain the relationship between stockholders and corporate managers, and between upper-level managers and the lower-level managers they supervise.

True

Company-owned suppliers lack incentives to reduce costs therefore develop a higher cost structure than those of the independent suppliers.

True

Diversification is the process of a company entering new industries distinct from its core industry, using a multibusiness model.

True

Firms may pursue both related diversification and unrelated diversification strategies simultaneously.

True

Horizontal integration may be accomplished by acquisitions or mergers.

True

In a firm with a Multidivisional structure, corporate managers oversee the actions of divisional managers.

True

In the product structure, the centralized support functions may contain product-specific teams that focus on the specific need of one particular product group.

True

Span of control refers to the number of subordinates who report directly to one supervisor.

True

Stockholders receive a return on their investment in a company's stock from dividend payments and capital appreciation.

True

Strategic control systems are the primary governance mechanisms established within a company to reduce the scope of the agency problem between levels of management.

True

Strategic outsourcing is the decision to allow one or more of a company's value chain activities or functions to be performed by independent companies

True

The global area structure is a multidivisional structure.

True

The multidivisional divisional structure enhances the company's internal efficiency and allows the company to grow into large sizes.

True

The multidivisional structure usually is adopted by large and complex corporations such as diversified and multinational companies.

True

Transfer pricing may lead to divisional battles in a multidivisional company.

True

matrix structure

Value chain activities are group vertically by function in horizontally by product or project, flat and decentralized

This term has been coined to describe companies that have pursued extensive strategic outsourcing

Virtual corporation

teams

When two or more functional division share many common problems a manager from each relevant function will be assigned to work together

A function in an organizational structure is

a collection of people who work together and perform similar tasks or hold similar positions.

cross-selling

a company taking advantage of or "leveraging" its established relationship with customers by acquiring additional product lines or categories that can sell to them

diversified company

a company that makes and sells products in two or more different or distinct industries

Organizational design

a company's ability to create a structure culture and control system that motivates and chordates employees to perform at a high level

Related diversification

a corporate level strategy that is based on the goal of establishing a business unit in a NEW industry that is RELATED to a company's existing business units by some form of commonality or linkage between the Vatican functions of the existing and new business units (Apple products)

Diversification strategy is

a corporate-level strategy regarding the company's decision to enter one or more new industries.

strategic alliance

a long-term agreement between two or more companies to jointly develop new products or processes that benefit all companies concerned.

hostage taking

a means of exchanging valuable resources to guarantee that each partner to an agreement will keep its side of the bargain (mutually dependent)

Leveraging competencies involves taking a distinctive competency developed by a business unit in one industry to create

a new business unit in a different industry.

anticompetitive behavior

a range of actions aimed at harming actual or potential competitors, most often by using monopoly power, and thereby enhancing the long-run prospects of the firm

business ethics

accepted principles of right or wrong governing the conduct of business people

This entry mode is often used when the barriers to entry into the target industry are high

acquisition

merger

an agreement between equals to pool their operations and create a new equity

centralized authority

an organization structure in which decision-making authority is maintained at the top level of management

credible commitments

are believable promises or pledges to support the development of a long-term relationship between companies.

corruption

arise when managers pay bribes to gain access to lucrative contracts

substandard working conditions

arise when managers underinvest in working conditions, or pay employees below-market rates, in order to reduce their production costs

organizational structure

assigns employees to specific value creation tasks and roles and specifies how test and rules are to be linked together in ways that increases efficiency, quality, Innovation, and responsiveness to customers

diversification strategy

based on a company's decision to enter one or more new industries to take advantage of its existing distinctive competencies and business model

Standardization is a form of:

behavior control

long term contracting

both companies agree to make specialized investments and work jointly to find ways to lower costs or increase product quality so both can gain from the relationship

These expenses are incurred by firm in solving transaction difficulties that often arise in diversification strategy

bureaucratic costs

A corporate-level strategy is about how to

compete across multiple industries.

The purpose of a(n) is to provide managers with incentives for employees as well as feedback on how the company performs.

control system

product structure

different kinds of products for many different market segments (large electronics, furniture makers)

How do stockholders make money?

dividends and capital appreciation

Board of Directors

elected by stockholders and under corporate law they represent the stockholder's of interest in the company, can be legally accountable for company actions

What are the three most important stakeholders?

employees, customers, stockholders

The unethical behavior of substandard working conditions violates the interest of

employees.

In the article "Self-Dealing at Computer Associates" (Chapter 11 page357) the behavior conducted by the three top managers

enriched the three executives themselves.

Agency Relationship

exists when one party delegates decision-making responsibility (principle) to a second party for compensation (agent)

vertical integration

expanding a company's operations either backward into an industry that produces inputs for its products or forward into an industry that uses, distributes, or sells its products

This term refers to a collection of people who work together, perform the same types of tasks or hold similar positions

function

International strategy should implement a...

global division structure

This global structure is often used by multinational companies which pursue an international strategy

global division structure

A structure is a structure in which horizontal differentiation proceeds along two dimensions: product division and geographic area.

global matrix

Transnational strategy should implement a...

global matrix structure (decentralized)

Global standardization strategy should implement a

global product group structure

How can horizontal integration lower a cost structure?

increasing economies of scale

External Stakeholders

individuals or groups that have some claim on a firm such as customers, suppliers, and unions

This condition allows agents to posses more, better information to mislead principles and maximize their own interests.

information asymmetry

intrapreneurs

inside or internal entrepreneurs

The main difference between leveraging and transferring competencies is that

leveraging competencies requires an entirely new business to be created internally

These positions refer to managers representing a function or division and coordinating with the other

liaison roles

What are the challenges of strategic outsourcing?

loss of important information and becoming too dependent on the supplier.

What are the benefits of strategic outsourcing?

lower cost structures, enhanced differentiation, and allowing the company to focus and strengthen their business core.

tall structure

many levels of authority relative to company size

This type of organizational structure divides the company's business activities into different customer groups

market structure

forward integration

moving into distribution and sales

opportunistic exploitation

occurs when the managers of a firm seek to unilaterally rewrite the terms of a contract with suppliers, buyers, or complement providers in a way that is more favorable to the firm, often using their power to force the revision through

This behavior of spending company funds on perks such as executive jets, lavish offices, etc, is a typical agency problem

on the job consumption

When corporate CEOs and top managers use their power and control over funds to satisfy their personal desires for wealth or status, it is called

on-the-job consumption

liaison roles

one or more team members are responsible for regularly communicating with other teams and coordinating the teams' activities as needed

integrating mechanisms

organizing tools that managers can use to increase communication and coordination among functions and divisions

How do you increase profitability using a corporate level strategy?

perform value chain activities at a LOWER COST and in a way that allows for DIFFERENTIATION

This process gains knowledge about a potential takeover target and lessens the risk of purchasing a problem business

pre-acquisition screening

Apple uses this strategy to compete in different technology-related industries (PC, smartphone, music, tablet)

related diversification

Inside directors

senior employees of the company, such as the CEO

Corporate governance is primarily concerned with the agency relationship between

stockholders and managers.

Internal Stakeholders

stockholders, employees, and board members

governance mechanisms inside a comany

strategic control systems and incentives

To make sure that managers do not misrepresent their firm's financial information, the SEC requires that the accounts be audited by an independent and accredited accounting firm. However the auditor is not independent of the client firm if

the auditing firm has other business dealings with the client firm at the same time.

personal ethics

the generally accepted principles of right and wrong governing the conduct of individuals

stakeholders

the individuals or groups that have an interest, stake, or claim in the actions and overall performance of a company

Organizational structure can be defined as:

the means through which a company assigns employees to specific tasks and roles and specifies how these tasks and roles are to be linked together to increase efficiency, quality, innovation, and responsiveness to customers.

diversification

the process of entering new industries, distinct from a company's core or original industry, to make new kinds of products that can be sold profitably to customers in these new industries

Restructuing

the process of reorganizing and disgusting business units in exiting and Fisheries to refocus on a company's Core Business and rebuild its distinctive competencies

Diversification discount

the stock of Highly Diversified companies is value with lower, relative to their earnings, than the stock of less than versified companie

handoffs

the work exchanges or transfers among people, functions, and subunits

Governance Mechanisms

to ensure that agents act in a manner that is consistent with the best interests of their principles.

General organizational competencies

transcend individual functions or business unit and are found at the top of corporate level

This practice sets the fair price of a resource developed in one division to be transferred or sold to another division

transfer pricing

This benefit of diversification explains the motif of Phillip Morris to acquire Miller Brewing

transferring competencies

true or false: output control can create tension and competition between divisions

true

Parallel sourcing

two suppliers are the sole suppliers of two different parts, but they are also backup suppliers for each other's parts

The need for integration is low in firms using this strategy because there are no exchanges or linkages among divisions

unrelated diversification

What is the cheapest strategy?

unrelated diversification

This relationship between this group and lower level management is an agency relationship

upper level management

on the job consumption

use position to invest in cooperate finds in various perks that enhance their status (Executive Jets, lavish offices, and expense paid trip to exotic location) rather than investing those funds in ways that increase stockholders returns

organizational socialization

used to describe how people learn organizational culture

This strategy allows a company to facilitate investments in specialized assets that are subject to the risk of holdup

vertical integration

virtual corporation

when companies pursued extensive strategic outsourcing to the extent that they only perform the central value creation functions that lead to competitive advantage

acquisition

when one company uses its capital resources, such as stock, debt, or cash, to purchase another company

economies of scope

when one or more of a diversified company's business units are able to realize cost saving or differentiation advantages because they can more effectively pool, share, and utilize expensive resources or capabilities. MUST BE SIGNIFICANT COMMONALITIES