MGT 449 Exam 3 Information

Milton Friedmans framework

"the social responsibility of business is to increase profits"

Globalization 3.0: 21st Century

- Business function locations are based on costs, capabilities, and PESTEL factors - Companies can operate 24/7, 365 days a year

Firm strategy & structure

-Are interdependent -impact a firm's performance -changes over time as the firm grow in: *size *complexity -different firm stages require different structures

How is globalization made possible?

-Falling trade and investment barriers -Advances in telecommunications -Reductions in transportation costs

Globalization 1.0 (1900-1941)

-Sales, operations, and some procurement -Strategy flowed from HQ to international sites

Globalization 2.0 (1945-2000)

-To reconstruct damage from the war -Focus on European countries, Japan, and Australia -Greater local-responsiveness -HQ set goals, international sites influenced tactics

partner selection & alliance formation

-benefits must exceed costs -partners must be compatible & committed

How do firms achieve growth?

-build: internal development -borrow: enter a contract/strategic alliance -buy: acquire new resources, capabilities, and competencies

Cost reduction vs. local responsiveness

-cost reductions = key competitive weapon -Local responsiveness = tailoring to specific preferences

Disadvantages of the Matrix Structure

-difficult to implement (organizational complexity, costs, unclear reporting structures) -accountability can be undermined (employees can have trouble reconciling goals, principal-agent problems, slower decision making)

Where do organizational cultures come from?

-founder imprinting (example: steve jobs, walt disney) *beware of groupthink- when individuals dont challenge a leader's opinion -values: should be linked to a reward system

why do firms merge?

-horizontal integration 1. reduction in competitive intensity 2. lower costs 3. increased differentiation

Open innovation

-ideas & innovation also arise from external sources (customers, suppliers, universities) -leverages licensing agreements, strategic alliances, joint ventures, and acquisitions

Culture can be the basis of a firms competitive advantage if:

-it makes a positive contribution to economic value creation -it passes the VRIO principles -it can adapt as the business evolves

multi-domestic

-low cost reduction/high local responsiveness -local consumers percieve products as local -can be costly & inefficient - duplication of business functions across countries example: dominos, mcdonalds

international

-low responsiveness/low on cutting costs -sells the same products domestically & abroad -large / reputation harley davidson, rolex, starbucks

Three alliance-related tasks must be managed concurrently

-partner selection & alliance formation -alliance design & governance -post formation alliance management

Geographic distance

-physical size -within country distances to borders -topography -time zones -whether the countries are contiguous -waterway/ocean access -infrastructure

Closed innovation

-products developed internally -costly & time consuming

Simple structure

-small firms with low organizational complexity -Founders make decisions & run day-to-day operations -professional managers & sophisticated systems not yet put in place

disadvantages of functional structure

-suboptimal communication across departments -cannot effectively address greater diversification

Why do firms acquire other firms?

-to access new markets and distribution channels -to access new capabilities or competencies -to preempt rivals

when facing ethical dilemmas

-was the action within professional behavior?? -are you comfortable defending the decision to the public??

Advantages of going global

1. Gain access to a larger market 2. Gain access to low-cost input factors 3. Develop new competencies

disadvantages of going global

1. Liability of foreignness 2. Loss of reputation 3. Loss of intellectual property

What is the hierarchy of authority?

1. State Charter 2. Shareholders 3. Board of Directors 4. Management 5. Employees

Why firms enter strategic alliances

1. Strengthen competitive position 2. Enter new markets 3. Hedge against uncertainty 4. Access critical complementary assets 5. Learn new capabilities

Functional structure business strategy

A functional structure works when a firm has •A narrow focus and small geographic footprint It pairs well with: •Cost Leadership Strategy •Differentiation Strategy •Blue Ocean Strategy

Juno LLC is a small, new pharmaceutical company that is developing a valuable new drug. Which of these strategies would it be wise for Juno's owners or managers to take? A. Seek an alliance with a company or companies that will complete the value chain. B. Pursue managerial hubris at all levels of development. C. Quickly build downstream complementary assets. D. Enter multiple learning races within strategic alliances.

A. Seek an alliance with a company or companies that will complete the value chain.

If two large movie-theater chains decide to merge, the result is likely a horizontal integration that creates a more favorable industry structure by decreasing competition. A. True B. False

A. True

When deciding whether to build, borrow, or buy as a means of growth, firms no longer need to consider the need for physical closeness to their resource partners. A. True B. False

B. False

A drawback involved in using cross-border strategic alliances to enter new foreign markets is that A. the foreign firm will need to make larger investments when compared to entering the new market on its own. B. some of the firm's proprietary know-how may be appropriated by the foreign partner. C. the shareholder value of the foreign partner will decline drastically. D. all potential business risks in the new market will have to be faced alone by the foreign firm.

B. Some of the firm's proprietary know-how may be appropriated by the foreign partner.

Which of the following best illustrates a merger between the two companies HQ Inc. and AV Inc.? A. HQ Inc. outsources a few of its business activities to AV Inc. for competitive advantage. B. HQ Inc. purchases AV Inc. for $80 billion despite AV Inc. being against the purchase. C. HQ Inc. and AV Inc. join together to form a single new company called HQAV Inc. D. HQ Inc. and AV Inc. join together to form a third new entity, while they also operate separately.

C. HQ Inc. and AV Inc. join together to form a single new company called HQAV Inc.

Sanibel Autos Inc. merged with its competitor Vroom Autos Inc. This allowed Sanibel Autos to use its technological competencies along with Vroom Autos' marketing capabilities to capture a larger market share than what the two entities individually held. What type of integration does this scenario best illustrate? A. Technological B. Supply-chain C. Horizontal D. Perfect

C. Horizontal

When entering a foreign market, it is advisable for a new venture that has a core competency only in R&D to form a strategic alliance with a local partner because A. the value gap created by the firm can be easily lowered in an alliance. B. the local partner can better protect its proprietary know-how. C. building downstream complementary assets can be expensive and time-consuming. D. the strategic alliance will reduce the differentiation of its product and service offerings.

C. building downstream complementary assets can be expensive and time-consuming

A firm that uses a structure that is organized along different business functions such as HR, R&D, Sales, and Marketing and also along different geographical areas such as different countries of the world is most likely using a ________ structure. a. functional b. multidivisional c. global matrix d. simple

C. global matrix

What causes the winner's curse? A. buying a firm with a competitive disadvantage B. underpaying for an acquisition C. overpaying for an acquisition D. buying a firm with principal-agent problems

C. overpaying for an acquisition

In terms of the build-borrow-or-buy framework, a firm's internal resources are considered to be relevant when they are A. different from those that need to be developed and superior to those of competitors in the targeted area. B. similar to those that need to be developed and inferior to those of competitors in the targeted area. C. similar to those that need to be developed and superior to those of competitors in the targeted area. D. different from those that need to be developed and inferior to those of competitors in the targeted area.

C. similar to those that need to be developed and superior to those of competitors in the targeted area.

Which of the following reasons motivated Facebook to acquire Instagram, a photo and video-sharing social media site, for $1 billion? A. the need to reduce its level of horizontal integration B. the desire to pursue an unrelated diversification strategy C. the desire to gain a new capability D. the need to enter a new geographical market

C. the desire to gain a new capability

CAGE Distance Framework

Cage is an acronym for Cultural, administrative & political, geographic, economic

Administrative & political distance

Captured in factors such as: -Shared monetary or political associations -Political hostilities -Weak or strong legal and financial institutions Political and administrative barriers include: -Tariffs -Trade quotas -FDI restrictions

build-borrow-buy framework

Conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy). (relevancy, tradeability, closeness, integration)

How can we measure globalization?

DHL Global connectedness index

Competitive M-Form (Unrelated diversification)

Decentralized decision making, low level of integration @ corporate HQ, competition amongst SBUs for resources

Why are strategic alliances attractive?

Firm goals can be achieved faster and at lower costs. •Complement or augment the value chain •Less complex legally •Can help a firm gain and sustain a competitive advantage

Alliance design & governance

Governance mechanisms: •Contractual agreement •Equity alliances •Joint venture Inter-organizational trust is critical.

Output controls

Guides employee behavior by: •Defining expected results (outputs), but •Leaving the means to those results open to individual employees, groups, or SBUs Intrinsic motivation is highest when an employee has: •Autonomy (about what to do) •Mastery (how to do it) •Purpose (why to do it)

global standardization strategy

High cost reductions / low local responsiveness -economies of scale & location economies -wherever capabilities have the lowest cost -price is the main competitive weapon -laptops: buy laptops in various countries, components are the same (reduced cost b/c components)

Integration:

If we acquire this firm, will they fit well what what we have currently? (low relevance, low tradeability, high need for closeness)

Matrix structure

Leverages SBU (M-form) benefits: - Domain expertise - Economies of scale - Efficient processing of information Also leverages organizational structure benefits - Responsiveness - Decentralized focus

organic organization

Little specialization and formalization Flat organizational structure Decentralized decision making

Mechanistic organization

Much specialization and formalization Tall hierarchies Centralized decision making

non-equity alliances

Partnerships based on contracts

input controls

Seeks to define and direct employee behavior through: •Explicit, codified rules. •Standard operating procedures. Considered before employees make business decisions. •Example: a budget. •Managers allocate money to R&D projects before they begin.

Current state of globalization

The world only semi-globalized. •The level of globalization is at 10-25% total. Evidence: •2% of all voice-calling minutes are cross-border. •3% of world's population are immigrants. •9% of investments are foreign direct investments. •15% of patents list at least one foreign inventor. •18% of Internet traffic crosses national borders. Retrenchment may occur in the future. •There has been a rise of nationalism.

Post formation alliance management

To create VRIO resource combinations: make relation-specific investments establish knowledge-sharing routines build interfirm trust Build capability through repeated experiences over time

Multidivisional structure

Used as a firm diversifies products & geography -each business unit has profit & loss, operated independently, led by a unique CEO

How does organizational culture change?

When an environment changes / when there is new leadership

organizational inertia

a firm's resistance to change the status quo, which can set the stage for the firm's subsequent failure

integration-responsiveness framework

a framework of MNE management on how to simultaneously deal with the pressures for both global integration and local responsiveness

Executive compensation

a governance mechanism that seeks to align the interests of managers and owners through salaries, bonuses, and long-term incentives such as stock awards and options

Globalization

a process of closer integration and exchange between countries and people worldwide

agency theory

a set of ideas on organizational control based on the belief that the separation of the ownership from management creates the potential for the wishes of owners to be ignored

joint venture

a standalone organization jointly owned by two or more companies

Strategic alliance

a voluntary arrangement between firms involving the sharing of knowledge, resources and capabilities to develop processes, products & services

What are poison pills? a. They are defensive provisions that kick in should a buyer reach a certain level of share ownership. b. They are unspecified conditions in the contract between stakeholders in an organization. c. Companies use them in a bid to perform a hostile takeover of competing firms. d. Shareholders use them to prevent the founder of a company from taking the company private through a leveraged buyout.

a. They are defensive provisions that kick in should a buyer reach a certain level of share ownership.

Administrative and political distances, such as the presence or absence of colonial ties, are part of the CAGE distance framework. a. True b. False

a. True

If a privately held company has a history of legal and ethical problems, those problems can prevent a successful initial public offering (IPO) from taking place. a. True b. False

a. True

A functional structure is recommended when a firm a. has a low level of diversification. b. has a broad focus in terms of its product/service offerings. c. diversifies into different product lines and geographies. d. has a low degree of specialization.

a. has a low level of diversification.

A trend observed during the Globalization 3.0 stage involves a. multinational companies organizing as global-collaboration networks. b. privately owned firms getting nationalized. c. world's market economies becoming less integrated. d. countries around the globe becoming more self-sufficient and independent.

a. multinational companies organizing as global-collaboration networks.

Which of the following characteristics of a public stock company deals with principals and agents? a. separation of legal ownership and management control b. legal personality c. transferability of investor ownership d. limited liability of investors

a. separation of legal ownership and management control

A high degree of formalization in an organization is most likely to a. slow down decision making. b. produce inconsistent results. c. increase creativity and innovation. d. improve customer service.

a. slow down decision making.

Employees learn about an organization's culture through the process of a. socialization. b. acculturation. c. exploitation. d. co-opetition.

a. socialization

Jen works as a front-line employee for a nationwide retail store. She reports to a floor manager, who reports to a departmental manager, who reports to a regional supervisor, who reports to a vice president, who reports to the CEO. Which of the following best describes this retail store? a. tall structure b. flat structure c. centralized structure d. decentralize structure

a. tall structure

European aircraft maker Airbus invested $600 million in Mobile, Alabama, to build jetliners. Which of the following statements best explains why it used this strategy? a. to take advantage of lower taxes in the southern United States b. to take advantage of the high cost of living in the southern United States c. to take advantage of the low impact of globalization in the United States d. to take advantage of the high labor costs in the southern United States

a. to take advantage of lower taxes in the southern United States

Organizational design involves establishing a firm's structure, culture, and control mechanisms. a. True b. False

a. true

the market for corporate control

activist investors who seek to gain control of an underperforming corporation by buying shares of its stock in the open market

Disadvantages of multidivisional structure

adds another layer of corporate hierarchy (slower decision making) & SBUs compete

business ethics

an agreed-upon code of conduct in business based on societal norms

Adverse selection

an increased likelihood of selecting inferior alternatives (used car market)

globalization hypothesis

assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous

Frederica, the chief financial officer at a moped manufacturer in Canada, wants to build new plants in Canada rather than overseas. Which of these points should she make as she argues her case to the board of directors? a. "Canada's wages and benefits are so low compared with the rest of the world that it makes the most sense to build factories here." b. "It will be much more difficult to protect our intellectual property if we build factories overseas." c. "Keeping our factories in Canada means facing up to the liability of foreignness." d. "As the rest of the world globalizes, we will lead the way in strengthening our home nation."

b. "It will be much more difficult to protect our intellectual property if we build factories overseas."

It is up to shareholders to make certain that the financial statements that their firms release are correct and not misleading. a. True b. False

b. False

Most businesses around the world are more than 50 percent globalized, meaning that more than half their revenues are from outside the home country. a. True b. False

b. False

Why should managers using the M-form organizational structure to support a related-diversification strategy ideally concentrate decision making at the top of the organization? a. It helps evaluate each SBU as a stand-alone profit-and-loss center. b. It allows a high level of integration. c. It leads to competition between SBUs. d. It helps contain the core competencies within a strategic business unit (SBU).

b. It allows a high level of integration.

Why does a firm use an organic organization combined with a functional structure when implementing a differentiation strategy? a. It allows the firm to reduce its cost below that of competitors while offering acceptable value. b. It allows the firm to constantly upgrade core competencies in R&D, innovation, and marketing. c. It allows the firm to create incentives to foster process innovation in order to drive down cost. d. It allows the firm to nurture and constantly upgrade necessary core competencies in manufacturing and logistics.

b. It allows the firm to constantly upgrade core competencies in R&D, innovation, and marketing.

An open innovation model reduces a firm's absorptive capacity. a. True b. False

b. false

Starling Inc. is a public stock company that provides natural gas for businesses. Although this company generates a large profit, management's focus on reducing costs caused the maintenance budget to be trimmed. Its pipelines have at times leaked, which created significant environmental problems. As a result, the company's value creation has suffered. This scenario supports Michael Porter's warning that public companies a. often do not keep economic needs and societal needs separate from each other, thereby contributing to low value creation. b. have defined value creation too narrowly in terms of financial performance, thereby contributing to black swan events. c. do not focus enough on increasing firm profits, thereby contributing to low value creation. d. have defined value creation too narrowly and as a result have ignored political lobbying, thereby contributing to black swan events.

b. have defined value creation too narrowly in terms of financial performance, thereby contributing to black swan events.

Downshift Autos Inc. has shifted its research and development unit from its home country to Germany. This allows the company to be better informed about the latest developments in the automotive industry by tapping into the highly advanced automotive industry in Germany. In this scenario, Downshift Autos Inc. is reaping the benefits of a. resource ambiguity. b. location economies. c. resource immobility. d. economies of scope.

b. location economies

Which of the following descriptions best exemplifies adverse selection? a. An employee spends time on social networking sites during work hours. b. A research scientist uses the organization's resources to conduct personal research. c. A manager cannot ascertain the contributions of individual team members in team production. d. An interview candidate lists his qualifications in chronological order.

c. A manager cannot ascertain the contributions of individual team members in team production.

According to Michael Porter, which of the following is a problem with many publicly traded companies? a. Shareholders of publicly traded companies do not have a legitimate claim on profits. b. There is no transferability of stock ownership in publicly traded companies. c. They have defined value creation too narrowly in terms of financial performance. d. Publicly traded companies have no legal standing and are not responsible for their debts.

c. They have defined value creation too narrowly in terms of financial performance.

David and Fred are customer care employees at JPN Care. In between calls, David and Fred spend time on Facebook and YouTube. The relaxed guidelines at JPN allow them to do that. However, sometimes, they knowingly avoid answering calls or keep customers on hold, while they check their social networking accounts. Such behavior a. is neither unlawful nor unethical; hence, David and Fred cannot be reprimanded. b. demonstrates the dangers of information asymmetry. c. can be stopped by implementing performance incentives and strict control mechanisms. d. typically exemplifies the agency problem of adverse selection.

c. can be stopped by implementing performance incentives and strict control mechanisms.

Cooperative M-form (related diversification)

centralized decision making, integrated @ corporate HQ, co-opetition among SBUs

Organizational design

creating, implementing, monitoring and modifying the structure, processes & procedures of an organization (structure, culture, control).

Angie owns and runs Archana, a private start-up company with a current value of $1.3 billion. Archana is interested in going public to fund future growth. Which action should Angie take before Archana's initial public offering? a. She and senior managers should write down their code of ethics. b. Angie should come up with a business plan for what Archana will do once it is no longer publicly traded. c. Angie should not embark on an IPO until Archana's value is higher. d. She should investigate Archana's existing or potential problems with ethics or the law, if such problems exist.

d. She should investigate Archana's existing or potential problems with ethics or the law, if such problems exist.

Vassar Systems Inc. wants to globally expand its market. It intends to ensure that its mode of foreign entry allows it to have strong control over its operations and protect its intellectual property, though that may mean investing a significant amount of capital and other resources. In this scenario, which of the following foreign entry modes would best suit Vassar Systems? a. exporting b. franchise agreement c. licensing d. acquisition

d. acquisition

According to the agency theory, a. principals and agents have interchangeable roles. b. companies should focus on generating profits for stockholders. c. corporations are more than a set of contracts between parties. d. conflicts that arise in corporations should be addressed in the legal realm.

d. conflicts that arise in corporations should be addressed in the legal realm.

Which of the following entry modes was used extensively in Globalization 1.0 stage? a. greenfield operations b. acquisitions c. strategic alliances d. exports

d. exports

When a firm diversifies into different product lines and geographies, a ________ structure is preferred. a. functional b. network c. simple d. multidivisional

d. multidivisional

Planet Resource Inc. is a global internet company that offers country-specific variations of its sites, keeping in mind the linguistic and religious differences between the countries it serves. Planet Resource is most likely doing this to a. reduce its geographical distance from the other countries. b. increase its economic distance from the other countries. c. increase its administrative distance from the other countries. d. reduce its cultural distance from the other countries.

d. reduce its cultural distance from the other countries.

Which of the following factors is the most important determinant of economic distance? a. the topography of a country b. the ethnicity and religion of consumers c. the presence of legal institutions in a country d. the wealth and per capita income of consumers

d. the wealth and per capita income of consumers

multi-national enterprise

deploys resources & capabiities in two countries or more

Specialization

describes the degree to which a task is divided into separate jobs -larger firms: high degree -smaller ventures: low degree

organizational structure

determines how efforts of individuals and teams are orchestrated (how resources are distributed) including: specialization, formalization, centralization & hierarchy.

Corporate governance

direct, control, run a firm to pursue goals successfully & legally

Cultural distance

disparity between a firm's home & host country (social norms and morals, beliefs, and values) -power distance -individualism -masculinity-femininity -uncertainty avoidance -long-term orientation -indulgence

Michael porters idea of creating shared value

earn profits & also do social activities (1) expand customer base (2) expand traditional internal firm value chains (non-profit organizations) (3) focus on creating new regional clusters

Functional structure

employees are grouped into functional areas based on domain expertised, often corresponds to distinct stages in the value chain -leaders report to CEO.

tradeability?

high - strategic alliance (contract/license) low - closeness?

Closeness?

high - strategic alliance (equity alliance/joint venture) low-integration?

individualism

high = individuals from that country focus more on themselves & their closest most inner circle low = care about yourself, your family, your parents, neighbors (large group of people) (US = individualism)

Transnational strategy

high cost reductions/high local responsiveness "think globally, act locally" -best practices, ideas & innovations used everywhere -pursue blue ocean strategy -Bridgestone, nestle, philips

integration?

high- acquisition low- start over

Relevant?

high- internal development low- tradeability?

power distance

how readily do we accept differences in authority high - do not question authority low - question authority (US = low)

long-term orientation

how tied down by traditions you are long-term: think about the present & the future - dont care too much about traditions short term - entrenched in values & beliefs

bad apples

individuals who act opportunistically (selfishly)

Auditors, Government Regulators, and Industry Analysts

industry analysts can make recommendations, must follow GAAP audited by external force - no misrepresentation of financial results

Strategic control & reward systems

internal-governance mechanisms put in place to align the incentives of principals (shareholders) & agents (employees): allows managers to specify goals, measure progress & provide feedback

Foreign direct investments

investments in value chain activities abroad

masculinity vs. femininity

masculinity: assertiveness/agressiveness femininity: caring for others wellbeing

Horizontal integration

merging with a competitor at the same stage of the value chain

equity alliances

one partner takes partial ownership in the other

Holacracy

organizing company with more clarity & autonomy (Zappos doesn't have titles for their employees)

global strategy

part of a firms corporate strategy to gain and sustain competitive advantage & compete against foreign & domestic companies

Shared-value creation framework

provides guidance to managers about how to reconcile the economic imperative of gaining and sustaining competitive advantage with corporate social responsibility (1) limited liability for investors (2) Transferability of knowledge (3) legal personality (4) separation of legal ownership/management

acquisition

purchase of one company by another - can be hostile when the target firm does not wish to be acquired

board of directors

represent interest of shareholders, provide oversight -inside: CEO, CFO -Outside: senior execs from other firms

Organizational culture

shared values & norms of organizations members -values: what is considered important -norms: appropriate attitudes & behaviors (physical space, symbols, events, vocabulary)

types of organizational structure

simple, functional, multidivisional, matrix

Tradability

specific type of trading - can we trade things through a simple contract? we need this component, can we sign a contract with the company to help us produce it? -transfer ownership/allow the use of the resource

Greenfield investment

starting a new operation/business from the ground up

Centralization

the degree to which decision making is concentrated at the top of the organization

Formalization

the extent to which employee behavior is guided by rules & procedures -pros: ensure consistent predictable results -cons: slower decision making, reduced innovation, hindered customer service

Hierarchy

the formal, position-based reporting lines who reports to whom

Merger

the joining of two independent companies - forms a combined entity

span of control

the number of employees who directly report to a manager

bad barrel

toxic/unethical work environment

uncertainty avoidance

we all have a certain level of what we can expect in the future, but we do not know exactly what is going to happen -high = take the steps necessary to reduce uncertainty level -low = dont care

Economic distance

wealth and per capita income of consumers -wealthy countries have more cross-border trade wealthy countries trade with wealthy countries -economies of scale, experience, scope & standards -similar infrastructure/resources wealthy countries trade with poor countries -access to low-cost input factors

moral hazard

when one party is incentivized to take undue risks of shirk responsibilities b/c the costs incur to another party (car insurance)

Brownfield investments

when you buy another part of a company that they are building

Closeness

you want to be hands-on/involved and make sure that your partners are doing what they are supposed to do (this is important when a partner is new to you) -M&As are complex & costly, only use when extreme closeness is needed

Internal resources are relevant if:

•They are similar to those the firm needs. •They are superior to those of competitors. •They pass the VRIO Framework.