Strategy Final (Quiz Questions)

Which of the following supports the rationale for forming alliances to hedge against uncertainty? -Interfirm trust is essential for the benefit of cost and risk reduction to be achieved. -Valuable projects can be foregone due to the large investment requirements that would be hard for individual firms to meet. -Alliances help to share the fixed costs in large projects or to achieve scale and scope economies. -All of the above

All of the above

Which of the following does NOT characterize managing relationships between business units in a multi-business firm? -Building the parent company's infrastructure to support the individual business unit's specific strategies -Combining activities across business units -Mandating top-down initiatives that encourage integration and communication between business units -Applying the same performance metrics to newly developed business units for evaluation without considering cost of capital

Applying the same performance metrics to newly developed business units for evaluation without considering cost of capital

Which of the following is NOT a problem associated with incentive systems? -controllability -alignment -retention -interdependency

retention

All of the following are important recent trends related to the increasing frequency of partnering EXCEPT: -the growth of technology-intensive industries -global integration -the diffusion of European management practices -large tech firms seeking advanced or complementary technology

the diffusion of European management practices

The tendency for equity markets to undervalue firms with multiple business units that are linked only through financial cross-subsidization is called: -the conglomerate contraction -the diversification discount -the financial forfeiture -the multibusiness markdown

the diversification discount

All of the following are known to be strong motivations for entering new businesses, EXCEPT: -the industry which the firm intends to enter scores low on the five forces and high on the value net elements. -the parent company possesses a significant amount of capital available. -CEOs seek to build their empire to raise their pay while reducing their employment risk. -In face of performance decline of the core business, the new business unit can offer significant growth in revenue and support repositioning of the core business.

the parent company possesses a significant amount of capital available.

Two or more resources or activities are complementary when: -they are consistent with the goals of the firm -they produce a more effective outcome together than they would independently -they come from the same source -each is necessary for the execution of the other

they produce a more effective outcome together than they would independently

According to the strategic sourcing framework, alliances are recommended when the strategic value of an activity is (a) __________ and the firm's capability to perform the activity compared to others is (b) __________. -(a) high, (b) high -(a) low, (b) high -(a) high, (b) low -(a) low, (b) low

(a) high, (b) low

Which of the following contributions from the parent corporation to the new venture is LEAST likely to improve performance or efficiency? -resources linked to economies of scope -capabilities that are implicit and valuable yet fairly transferable to the new unit -entrepreneurial management skills developed in similar industries -financial capital, as a replacement for external capital markets

financial capital, as a replacement for external capital markets

All of the following are potential contributions a new venture may make to the parent corporation, EXCEPT: -repositioning existing businesses -growth in corporate revenues and earnings -general management skills -corporate risk reduction

general management skills

All of the following are generally good options for organizing globally in single-business firms except: -handling international operations under the marketing division -forming a separate international division -placing international activities within functional divisions -placing functional activities within regional divisions

handling international operations under the marketing division

All of the following are indicators of an attractive market for diversification, EXCEPT: -strong market growth -large ultimate market size -high cost of entry -a favorable future industry structure

high cost of entry

All of the following are reasons why global firms in the same industry can differ in their configurations and strategies except: -country of origin -managerial talent -firm size -entry opportunities

managerial talent

Consistency among activities is most important for firms that are: -stuck in the middle -targeting niche markets -pursuing either cost leadership or value-based differentiation in stable industries -attempting to introduce a disruptive innovation

pursuing either cost leadership or value-based differentiation in stable industries

All of the following are important benefits that can come from partnerships, EXCEPT: -the opportunity to jointly develop an innovative technology -gaining access to a new market -race to learn new technology -reducing risks and costs by sharing them within the partnership

race to learn new technology

For which types of new businesses will the parent corporation's contributions of financial capital be most valuable? -smaller units in mature industries -larger businesses in mature industries -smaller units in growing industries -larger businesses in growing industries

smaller units in growing industries

Which of the following is NOT true about strategy execution? -Strategy execution refers to the process of how planned strategies are realized using the firm's resources and capabilities. -A well-planned strategy without execution is sufficient for achieving and sustaining competitive advantage. -Resources and capabilities serve as the tools and devices that firms use to implement the planned strategies -Capabilities significantly affect how much the underlying resource is worth to the firm.

A well planned strategy without execution is sufficient for achieving and sustaining competitive advantage.

From the perspective of strategy, all of the following are reasons why countries matter except: -Countries vary in their geographical location and natural resource reserves. -Countries have different levels of supplier power for producers of commodity inputs. -Countries regulate economic behavior through different sets of laws and regulations. -Countries possess unique cultural traits, leading to differences in consumer buying habits.

Countries have different levels of supplier power for producers of commodity inputs.

All of the following are elements of Porter's Diamond Model except: -Demand conditions -Related and supporting industries -Cultural constraints -Firm strategy, structure, and rivalry

Cultural constraints

What is NOT a key task for the corporate office for managing a multi-business company? -Deciding how to allocate financial capital across business units when information about the business unit in need of financial support is highly valuable and sensitive -Deciding the appropriate organizational structure -Deciding how to determine transfer prices between the internal supplier and internal buyer -Deciding on the top management team's compensation

Deciding on the top management team's compensation

Which of the following is NOT true about firms using alliances to strengthen their competitive position? -Clustering of firms through partnerships can reduce competitive rivalry but also raise antitrust concerns. -Firms can gain a stronger competitive position by partnering with the most profitable player in the industry. -Through alliances, firms can improve their Value-Cost profile by gaining access to resources and capabilities that they previously lacked. -Firms often form alliances with the goal of establishing a dominant standard for the industry.

Firms can gain a stronger competitive position by partnering with the most profitable player in the industry.

Which of the following is NOT true about organizational culture? -Culture allows employees to have a common understanding of problems and tasks within the organization. -Strong cultures create more consistent behavior among employees. -Culture is important in that it encourages openness to learning, communication, and cooperation across employees and different units. -Firms should always aim to have a strong culture because it is a necessary condition for competitive advantage.

Firms should always aim to have a strong culture because it is a necessary condition for competitive advantage.

Which of the following statements is NOT true for multi-business firms? -As firms started to grow and expand scope, they switched from a function- or geography-based structure to a product-based structure. -Firms using financial cross-subsidization from a business unit with strong performance to a unit with weaker performance tend to be highly valued by outside investors. -The switch to a product-based structure has led to other management challenges to be resolved, such as allocating resources across units, setting prices in these transfers, and combining certain activities to achieve cost advantages. -The growth-share matrix uses the growth rate of the industry in which the individual business unit competes and its relative market share to determine what management actions should be taken for each business.

Firms using financial cross-subsidization from a business unit with strong performance to a unit with weaker performance tend to be highly valued by outside investors.

In order to ensure a successful alliance, the following is required: I. Routines that facilitate knowledge-sharing II. Investments made specific to the partnership III. Separation of partners' national and organizational cultures I and II II and III I and III I, II, and III

I and II

Which of the following correctly describe the difference between a global (mega-national) organization and a multi-domestic organization? I. Global organizations centralize both information and the firm's operational functions, while multi-domestic organizations are decentralized by geography. II. Multi-domestic organizations are focused on sensing and exploiting local opportunities, while global organizations are meant to carry out the strategy of the parent company. III. Global organizations have customers all over the world, while multi-domestic organizations only operate in the most profitable markets. I and II I and III II and III I, II, and III

I and II

Which of the following statements about diversification is/are TRUE? I. In general, a diversification event involves an entry into a new industry. II. Diversification can occur through increasing the firm's variety of both products and supply chain activities. III. As a motivation for diversification, risk reduction is a higher priority than improving returns in each business unit. I only I and II I and III II and III

I and II

Which of the following statements about the growth-share matrix is/are TRUE? I. It defines a cash cow as a unit that generates higher cash flows but faces fewer investment opportunities than other types of business in the portfolio. II. To apply the growth-share matrix successfully, the firm must be able to grow new businesses to dominance in their markets. III. The growth-share matrix is appropriate for both mass-market cost-leadership strategies, and for luxury-brand differentiation strategies. I and II I and III II and III I, II, and III

I and II

Which of the following statements about organizational structures is/are TRUE? I. A functional organization is effective in reducing the firm's costs through economies of scope. II. Organizing by geography makes sense when the regions the firm competes in are broadly similar. III. Customer-based organizations emerge when function or geography-based approaches cannot meet the full range of distinct client needs. -I and II -I and III -II and III -I, II, and III

I and III

Which of the following are true about activities within the firm? I. Activities represent the specific routines, policies, procedures, and practices that serve as the basis for the firm's value and cost drivers. II. The value chain analysis helps to dissect the value and cost created at the organization level, thereby allowing the managers to understand how specific activities are contributing to or detracting from improving the firm's V-C profile. III. An activity system is useful as it shows how specific activities are connected to and supplement each other to form firm capabilities. I and II I and III II and III I, II, and III

I, II, and III

Which of the following is NOT true about external corporate governance mechanisms? -The market for corporate control is where activist investors seek to gain control of poorly performing firms. -Managers can protect themselves against market for corporate control using takeover defense provisions. -Industry analysts and rating agencies work as fully independent parties and governance devices. -Competitors, activist investors/corporate raiders, or hedge funds constitute the market for corporate control.

Industry analysts and rating agencies work as fully independent parties and governance devices.

Which of the following is NOT true about the practice of centralizing activities in a multibusiness firm? -It implies the partial emergence of a single business strategy for all business units -It addresses the needs of units that require specialized inputs -Only units with especially strong market positions and contributions to the corporation will be able to resist such decision. -It benefits units whose strategies are cost-focused

It addresses the needs of units that require specialized inputs

Which of the following is NOT true about executive compensation? -Better alignment of executives' incentive pay and firm performance improves their motivation to improve the firm's and shareholders' value. -Incentives (e.g., stocks, stock options) have found to improve firm performance, yet has shown to have side effects such as financial fraud and excessive risk-taking. -It has found to be a highly effective governance mechanism for resolving the agency problem. -The total compensation package comprises cash components (e.g., salary, bonuses) and equity components (e.g., stocks, stock options, stock grants).

It has found to be a highly effective governance mechanism for resolving the agency problem.

Which of the following is NOT true about the alliance benefit of accessing each other's complementary resources? -Large firms typically share complementary skills and assets to co-develop new products. -A vertical alliance refers to a partnership in which upstream and downstream companies bring their own expertise to facilitate the launch of a new product. -Large firms do not have much incentive to partner with start-ups as doing so would undermine their status. -Patent sharing can be an important reason for large firms to partner with each other.

Large firms do not have much incentive to partner with start-ups as doing so would undermine their status.

Approximately 40% of merger activity in the past century has occurred during merger waves. All of the following help explain the existence of merger waves, EXCEPT: -Merger waves are likely to occur when an industry is deregulated. -Merger waves are likely to occur when stock markets are overvalued. -Merger waves are likely to occur when new technologies are introduced. -Merger waves are likely to occur when executives are optimistic about their ability to manage large firms well.

Merger waves are likely to occur when new technologies are introduced.

Which of the following best describes the effect of natural resources on national wealth? -Natural resources and national wealth are not related. -Natural resources make countries that have them wealthy. -Every country starts off with similar resources, but not all countries manage them well. -Natural resources vary significantly across countries, but not all countries manage them well.

Natural resources vary significantly across countries, but not all countries manage them well.

Which of the following is NOT true about alliance governance mechanisms? -Equity alliances exhibit strong levels of commitment due to the equity investments made from the partners. -Joint ventures are least common, yet allow the strongest level of exchange of explicit and tacit knowledge. -Non-equity agreements involve a rich exchange of tacit know-hows in supply or distribution agreements. -Joint ventures carry the disadvantage of relative inflexibility due to higher stakes involved and long negotiations

Non-equity agreements involve a rich exchange of tacit know-hows in supply or distribution agreements.

From the perspective of strategy, all of the following are reasons why regions matter except: -Regions can provide a pool of workers whose skills are specific to the firm. -Regions can contain a strong market of local suppliers. -Regions can lead to economies of scale by offering a large customer base. -Regions can allow firms to benefit by sharing technological information.

Regions can lead to economies of scale by offering a large customer base.

Which of the following is NOT true about corporate governance? -The separation of ownership and control has led to the so-called agency problem, necessitating corporate governance mechanisms to ensure the firm is run within the legal boundaries to improve shareholder value. -External governance mechanisms such as government regulators intervene when internal mechanisms fail. -Stewardship theory shares agency theory's economic assumption that managers are self-interested and are inclined to behave opportunistically. -The collapse of Enron and Lehman Brothers exemplify bad corporate governance practice.

Stewardship theory shares agency theory's economic assumption that managers are self-interested and are inclined to behave opportunistically.

Which of the following is NOT a mechanism to improve corporate governance? -Takeover defense provisions -Executive compensation -Market for corporate control -Board of directors

Takeover defense provisions

Which of the following is NOT true about the principal-agent relationship? -As firms started to expand in scope, owners' control over management and operational decisions became weaker. -The agency problem refers to the discrepancy in the principals' and agents' interests and information about the business. -The agent (manager) is assumed to act in the best interest of owners since owners have complete control over potential misbehavior. -Corporate governance refers to the mechanisms devised to resolve the agency problem.

The agent (manager) is assumed to act in the best interest of owners since owners have complete control over potential misbehavior.

Which of the following is TRUE about the board of directors? -The CEO determines who sits on the board. -The independence of the board refers to the number of total directors sitting on the board. -Board independence has found to warrant higher operating performance. -The board's responsibilities include providing strategic advice to the top management team, hiring the CEO, and representing shareholder interests.

The board's responsibilities include providing strategic advice to the top management team, hiring the CEO, and representing shareholder interests.

What is NOT a reason that external capital markets are more efficient than internal markets? -Political dynamics among corporate managers may deter efficient investment in business opportunities -Managing the multi-business firm's organizational structure becomes too complex and overwhelming that the corporate office becomes less efficient in management -Cognitive biases may exist among corporate managers when making resource allocation decisions -The corporate office possesses more accurate insider information about business units than outside investors

The corporate office possesses more accurate insider information about business units than outside investors

Which of the following is NOT true about organizational structure? -In single business firms, the common structures adopted are functional and geographic structures. -Running multiple businesses started to impair the efficiency in coordination and resource allocation, leading to an adoption of product-based structures. -Different organizational structures build different types of capabilities. -The product-based structure is always more effective and efficient than the function-based structure.

The product-based structure is always more effective and efficient than the function-based structure.

Which of the following groups of shareholders are likely to experience significant benefits during an acquisition? -The target firm's shareholders -The acquiring firm's shareholders, but only if the purchase is made using equity -The acquiring firm's shareholders, but only if the purchase is made using cash -No group of shareholders is likely to benefit, because a substantial portion of acquisitions fail.

The target firm's shareholders

Which of the following is NOT a major factor that affects a firm's global configuration? -Differences in strategic profiles (value vs cost-leader) -Comparative advantages associated with the country of origin -The top management's cultural background -Differences in opportunities at time of entry

The top management's cultural background

Internalization

This process of increasing control over international operations is typically called internalization.

What type of industry would you expect to see if there is a benefit to coordinating raw materials and manufacturing operations in one country, and distribution and marketing in another country? (Assume that these are the only significant benefits available in this industry.) -Nationally segmented industry -Vertically integrated industry across borders -Horizontally integrated industry across borders -Horizontally and vertically integrated industry across borders

Vertically integrated industry across borders

Which of the following is NOT true about transfer pricing? -The internal buyer needs to determine whether it is better off by sourcing from the internal supplier vs. the external market. -When an internal unit produces a component that is required for another internal unit's operation, the two units are obligated to transact with each other as supplier and buyer. -The corporate office needs to weigh the pros and cons of serving the interests of the internal buyer vs. internal supplier and set the price that maximizes the parent company's performance. -In business practice, many large firms use transfer pricing when transacting with overseas subsidiaries to benefit from tax/tariff differences across countries.

When an internal unit produces a component that is required for another internal unit's operation, the two units are obligated to transact with each other as supplier and buyer.

Which of the following is NOT a major challenge when managing new businesses? -ensuring the new unit creates unique contributions and value that is different from those of the existing business -applying different methods and approaches to evaluation, incentives, and resource allocation to the new business unit -acknowledging and integrating the administrative and cultural differences of the newly acquired unit -a drop in CEO's reputation due to diluted brand identity

a drop in CEO's reputation due to diluted brand identity

Which of the following is NOT a good argument for dispersed ownership of corporations? -shareholders can diversify their holdings over many firms -shareholders can divest from poorly performing firms -a larger collection of shareholders is likely to do a better job monitoring the firm's activities -managers are likely to have better information about the firm's markets and operations than shareholders

a larger collection of shareholders is likely to do a better job monitoring the firm's activities

Matrix structures are usually developed in order to: -prevent customers from taking too much of the firm's economic contribution -reduce the costs of top management compensation -help the CEO decide which organizational structure is best -address inconsistent but equally important strategic goals

address inconsistent but equally important strategic goals

Any of the following expected benefits can alleviate antitrust concerns regarding an alliance, EXCEPT: -an increase in the rate of industry innovation and growth -an increase in overall industry concentration -an increase in economic growth -an increase in new developments of technology for the industry

an increase in overall industry concentration

Which of the following is NOT a potential disadvantage or challenge associated with partnering? -an increase in antitrust scrutiny from regulators -a reduction in strategic flexibility -an increase in unilateral decision-making -a reduction in organizational identity

an increase in unilateral decision-making

"Consistency" has a very specific definition in the context of strategy execution. It means that a firm's policies and practices: -are aligned with its strategic position as cost- or value-leader (differentiator) -are constant, and do not change, over time -interact positively with each other to improve the firm's performance -help the firm become more similar to its competitors

are aligned with its strategic position as cost- or value-leader (differentiator)

When a firm can use its entrepreneurial skills to build upon its unique resource and/or capability to diversify into new business, we say the firm has developed a ___________________________. -dynamic capability -absorptive capacity -core rigidity -core competence

dynamic capability OR core competence

In most cases, a firm's capabilities are: -more tradeable than its resources -stable and unchanging over time -based on the coordinated efforts of its employees -easily copied by other firms

based on the coordinated efforts of its employees

Which of the following might be benefits from (Rule 404 of) the Sarbanes-Oxley Act? -more control for professional managers -weaker power for corporate boards of directors -better information for shareholders from increased public scrutiny of top managers and directors -lower internal auditing costs

better information for shareholders from increased public scrutiny of top managers and directors

A nationally segmented industry is one in which: -country-specific advantage and firm-specific advantage are both high -country-specific advantage is high and the firm-specific advantage is low -country-specific advantage is low and firm-specific advantage is high -country-specific advantage and firm-specific advantage are both low

country-specific advantage and firm-specific advantage are both low

Which of the following is NOT a problem commonly faced by firms that have grown through diversification based solely on complementary 'financial' profiles? -their businesses are overly focused on short-term corporate financial goals -the complexity of their business portfolio exceeds executives' management skills -they do not derive any competive advantage from combining their business units in the same corporation -their internal capital markets tend to expose trade secrets, and cannot accommodate irregular funding patterns

their internal capital markets tend to expose trade secrets, and cannot accommodate irregular funding patterns