Strategic Management Test PT. 2

Matthew is a divisional manager at Venus Inc. and reports to the CEO of the company. The CEO delegates resources and authority to Matthew so that he can ensure good performance from the division. Matthew has more employees working for him than required and he has not told the CEO about this, even though there are other departments that need more employees. Which of the following concepts is illustrated here?

Information asymmetry

Which of the following is a justification that a business adopts to justify diversification?

Entry into new industries will rescue the core business and lead to long-term growth and profitability

Which of the following is NOT a way to use diversification to increase profitability?

Evaluate business units to determine which needs to be shut-down to give more time and attention to more successful units

A company's top managers do not need to have entrepreneurial capabilities for diversification to increase profitability.

False

A laundromat and a pool hall together invest in a new store, where customers can wash their clothes and play pool while waiting. This is an example of an internal new venture.

False

A merger occurs when one company uses capital resources such as stock, debt, or cash to purchase another company.

False

A union and the public are examples of internal stakeholders.

False

An example of increased product differentiation, acquiring or merging with a competitor helps to eliminate excess capacity in an industry.

False

Horizontal integration can lead to low cost advantages but rarely to differentiation advantages.

False

In a strategic alliance, one company in the agreement benefits more than the other.

False

In order to achieve the increased profitability that horizontal integration can offer, the only area integration must be successful in is reducing rivalry within the industry.

False

Inside directors are not full-time employees of the company.

False

Phil is an employee at Global Tech Inc. He is considered an external stakeholder.

False

Strategic alliances cannot serve as a substitute for vertical integration because they only create relatively weak, short-term partnerships that allow only one company to obtain the benefits that would have resulted from vertical integration.

False

Tina's Technologies is expanding its operations backward into an industry that produces inputs for the company's products. Tina's Technologies is utilizing horizontal integration.

False

Transfer pricing refers to when a company is taken advantage of by another company it does business with after it has made an investment in expensive specialized assets to better meet the needs of the other company.

False

When managers consider the efficiency, timeliness and employee satisfaction in a company's scorecard, they are looking at the customer perspective.

False

With recent events, corporate boards have taken a hands-off role in top-management decisions and play a much more passive role in corporate governance.

False

Which of the following statements is true about takeover constraint?

It is the governance mechanism of last resort and is often invoked only when other governance mechanisms have failed

Using a strategic control system known as the balanced scorecard model, which of the following would be evaluated from the customer perspective?

Level of service

Lime's business decision to buy scooters that are not optimized for its purposes because the option to manufacture their own scooters would result in large fixed costs. Which of the following disadvantages of vertical integration does this represent?

Mismatches in optimal scale

Tom just received a $500 bonus for surpassing his yearly sales targets. This is an example of using employee incentives to motivate employees to work toward goals that are central to maximizing long-term profitability.

True

Vertical integration can raise costs if, over time, a company's leaders continue to purchase inputs from company-owned suppliers even when independent suppliers can supply the same inputs at lower cost.

True

Which of the following describes when diversification to obtain economies of scope is possible?

When there are significant commonalities between one or more value-chain functions in a company's different business units or division that result in synergies which increase profitability

A strategy based on diversification may fail to add value because companies:

incur bureaucratic cost that exceed the value created by the strategy

Horizontal integration may be thought of as:

staying inside the industry in which the company currently operates.

Which of the following is NOT a difference between in-house and independent suppliers?

Independent suppliers can pass on cost increases in the form of higher transfer prices

When one or more components of a company's value chain are applicable to a wide variety of industrial and commercial situations, which of the following strategies should a company pursue?

Related diversification

In which of the following cases are bureaucratic costs likely to be lowest?

A company with five divisions that pursues unrelated diversification based on acquisitions and restructuring

Which of the following statements is true in the context of principal-agent relationships?

Agents almost always have more information about the resources they are managing the principles do

Which of the following statements about the board of directors is NOT true?

All the directors are full-time employees of the company

Venus LLC is a large monopolistic electronic firm. The firm has been putting a lot of pressure on some of the complementor companies, asking them to bundle their products along with the products made by Venus LLC, which will make it mandatory for customers to buy Venus LLC products along with the complementary products, even if they are unrelated. Which of the following is Venus LLC demonstrating?

Anticompetitive behavior

Which of the following are an example of an internal stakeholder in a company?

Board members

Which of the following is NOT an accurate statement about current levels of pay for CEOs of U.S.-based firms?

CEO compensation is closely tied to corporate performance in most firms

Which of the following are an example of an external stakeholder in a company?

Customers

A leading software company merged with its competitor to form a new company. Which of the following is likely to be the result of this merger?

Decreased cost per unit output

Which of the following reasons can make a diversification strategy an unwise course of action for a company to pursue?

Diversification for pooling risk

Gamma Corp. recently bought stocks in an underperforming company that has failed to maximize stockholder wealth. Gamma Corp. made changes to the top management structure of the company and persuaded the management to pursue strategies that maximize the wealth of stockholders. Gamma Corp. has been able to earn millions by doing so. Which of the following concepts is illustrated in this scenario?

Greenmail

Which of the following is a source of gaining wealth whereby corporate raiders either push companies to change their corporate strategy to one that will benefit stockholders, or charge a premium for stock when the company wants to buy it back?

Greenmail

Product bundling and cross-selling are ways to establish which of the following?

Increased Profit differentiation

Rachel, a new mom, is shopping for baby products. She notices that one of the manufacturers, Lucy's, is offering a wide range of products such as baby shampoo, baby lotion, and baby wipes packaged together at a better price as one combined product. Which of the following concepts is the company utilizing to meet customers' needs?

Product bundling

Which of the following is NOT a general organizational competency?

Product bundling

Which of the following is NOT an example of ways to monitor agents, evaluate their performance, and take corrective action?

Reduction of information asymmetry

How is the acquisition of new business related to existing business activities in situations where company leaders base their diversification strategy on transferring competencies?

Related

Which of the following statements concerning profitability and profit growth is NOT true?

Satisfying the claims of other key stakeholder group happens at the risk of decreased profitability and profit growth

Which of the following statements is true in the context of stock-based compensation?

Stock-based compensation schemes for executives can align management and stockholder interest

Which of the following is true of stakeholders?

Stockholders are internal stakeholders that provide an enterprise with risk capital

Managers who have hard-to-define governance skills that are required to manage different business units in a way that enables these units to perform better than they would if they were independent companies, helps probe business-unit managers for information, and helps them think through strategic problems describes which of the following general organizational competencies?

Superior strategic management capabilities

Which of the following statements is true about corporate raiders?

They may purchase stock in a company to take over the business and run it more efficiently

The horizontal integration of pharmaceutical companies helps lower costs by filling the need to achieve scale economies in research and development (R&D), sales, and marketing and combining the fixed costs of building a nationwide pharmaceutical sales force.

True

Which of the following may be true for a company pursuing a strategy of unrelated diversification rather than a strategy of related diversification?

The company has superior strategic management and organizational design

Adam's boss tells him that their company is pursuing the strategy of horizontal integration. Which of the following is true of this scenario?

The company will buy or merge one of its rivals

Ownership of retail outlets may be necessary if:

The required standards of after-sales service for complex products are able to be maintained

Which of the following statements is NOT generally true of a diversification strategy based on the realization of economies of scope?

The strategy requires the head office to evaluate each business unit as a stand-alone operation

Which of the following involves taking a distinctive competency developed by a business unit in one industry and implanting it in a business unit operating in another industry?

Transferring compentencies

When Coca-Cola decided to use its successful marketing experience and global distribution network to buy Colombia Pictures and get into the business of making movies, which of the following ways of pursuing a multibusiness model based on diversification was it utilizing?

Transferring competencies across business

A company can increase the probability of success of an internal venture by constructing efficient-scale manufacturing facilities ahead of demand.

True

A company can pursue related diversification to enhance the competitive position of its core business.

True

According to an SEC investigation, Computer Associates, one of the world's largest software companies, backdated contracts to boost the company's reported revenues. This is not an ethical business practice.

True

By using their enormous bargaining power and efficiency in inventory logistics, Wal-Mart has been able to expand and have a competitive advantage in other discount retail store formats, such as its chain of Sam's Clubs. This is an example of leveraging a competitive advantage more broadly.

True

Joint ventures allow frequent and close contact between companies, which facilitates learning and transfer of knowledge, but this advantage can also become a risk if it leads to an unintentional leak of proprietary information across companies.

True

One cause of the diverging interests between principals and agents is that managers in the company are motivated by different desires such as power, job security, and income and may use their position to help fulfill those desires rather than invest in ways that increase stockholder returns.

True

One negative effect of competitive bidding is that suppliers don't want to invest in expensive, long-term specialized assets as they will be reluctant to agree upon scheduling that will increase a supplier's costs and reduce its profitability.

True

One way a diversified company can increase its profitability is by acquiring inefficient or poorly managed companies and then restructuring them to improve their performance.

True

Oracle Corp., based in Reno, Nevada, has purchased several other companies to become the world's largest maker of database software. This strategy is known as the strategy of acquisition.

True

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

True

Research suggests that organizations that acquire many companies over time become expert in this process and can generate significant value from their experience of the acquisition process.

True

Sara Lee Corp., a clothing firm, purchased Platex Apparel Inc. This purchase helped to make Sara Lee Corp. one of the largest makers of women's apparel in the United States. Sara Lee Corp. utilized an acquisition strategy.

True

Stock-based compensation schemes for senior executives are designed to align the interests of managers with those of stockholders.

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 "better off" test evaluates whether the company's diversification strategy makes the company more valuable than before diversification.

True

The three main types of diversification strategies are:

acquisition, internal new ventures, joint ventures

For a company concentrating on final assembly, adding retail and distribution into its value chain will require:

forward integration

Free cash flow is defined as:

cash amounts that exceed what is required to fund new investments in the company's current business and meet existing debt commitments

The final part of the strategy-formulation process is choosing:

corporate-level strategies