Strategy Practice questions
In the strategic sourcing framework, firms should outsource when the strategic importance of the activity is ______(a)______ and the firm's competence to perform the activity is _______(b)________. (a) high; (b) low (a) low; (b) high (a) low; (b) low (a) high (b) high
(a) low; (b) low
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
Which of the following correctly describes strategic sourcing? -a risk-reduction technique resulting in multiple suppliers and thus lower supplier power -A capital-investment technique resulting in backward vertical integration -A cost-reduction technique resulting in lower inventories, manufacturing efficiencies, and better planning -A revenue-enhancement technique resulting in two-way purchase agreements
-A cost-reduction technique resulting in lower inventories, manufacturing efficiencies, and better planning
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 and support
-Applying the same performance metrics to newly developed business units for evaluation and support
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.
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 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.
Which of the following is NOT true about the practice of centralizing activities in a multi-business 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.
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 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 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 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
In which of the following situations is a firm most likely to succeed in developing a successful new business? -The firm is generating significant cash flow and its current industry does not offer significant growth. -The firm believes it can increase value by promoting customization with the new venture. -The firm believes it can decrease costs by promoting economies of scope with the new venture. -The new venture's returns are expected to be uncorrelated with those of the firm.
-The firm believes it can decrease costs by promoting economies of scope with the new venture.
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
Economies of scope occur when: -The average cost of making the product goes up as your firm produces more of it today The average cost of making the product goes down as your firms produces more of it over time -The variable cost of making the product is less than its average cost -The total cost of producing two products is less than the sum of costs to produce them separately
-The total cost of producing two products is less than the sum of costs to produce them separately
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 represents the best example of complementary products? -Starbucks coffee and Diet Coke -a Walmart Supercenter and a Walmart Neighborhood Market -an iPhone and the Netflix app -Gucci handbags and YSL dresses
-an iPhone and the Netflix app
"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)
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 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
The employment relationship differs from supplier relationships because: -suppliers receive fixed payments, while employees can earn performance bonuses -employees have contracts, while suppliers rely on relationships and their industry reputations -employees give up control (to their employers) over aspects of work that cannot be specified in advance - employers are liable for the damage a supplier may do in the course of business, but not the damage an employee may cause
-employees give up control (to their employers) over aspects of work that cannot be specified in advance
All of the following are key tasks in new venture governance within a corporation, EXCEPT: -building interunit coordination and control mechanisms -establishing relationships with outside sources of capital -developing managerial incentives that encourage entrepreneurship -using alternative resource allocation mechanisms
-establishing relationships with outside sources of capital
Which of the following determine(s) the duration and severity of a shakeout? -the type of CEO compensation -expectations about future demand and the degree of sunk costs -whether firms have implemented scale-based cost drivers -the geographical location of dominant firms
-expectations about future demand and the degree of sunk costs
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 both transferable and defendable -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
According to the property rights theory of vertical integration, the company that internalizes an activity (e.g. by acquiring another firm) is the one that: -has the strongest Value-minus-Cost position in its industry -gains the most from the control benefits of performing the activity internally -has the lowest competence in the activity (prior to the vertical integration) -has the best forecast of the value of the activity
-gains the most from the control benefits of performing the activity internally
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
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
-help the CEO decide which organizational structure is best
According to transaction cost theory, vertical integration occurs under two conditions: -high uncertainty and high supplier asset specialization -low uncertainty and high supplier asset specialization -high uncertainty and strong supplier market competition -low uncertainty and strong suppler market competition
-high uncertainty and high supplier asset specialization
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 -increased control over strategic decisions -reducing risks and costs by sharing them within the partnership
-increased control over strategic decisions
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 -attempting to introduce a disruptive innovation
-pursuing either cost leadership or value-based differentiation
Which of the following is NOT a condition that characterizes industries in the mature stage? -a low market growth rate -high buyer experience -high industry concentration -the decline of niche markets
-the decline of niche markets
A firm should consider vertically integrating an activity in all of the following situations EXCEPT: -the supplier refuses to accommodate the firm's requests for specialized inputs -the firm's competence to perform the activity is high and the activity's strategic value is low -the firm wants to control the incentives and information related to the activity -the activity is important to the firm and the only current provider has strong supplier power
-the firm's competence to perform the activity is high and the activity's strategic value is low
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
Which of the following is not a general category for strategic initiatives? -termination or turnaround of underperforming operations -top management compensation -investments in growth -development of risk management and compliance initiatives
-top management compensation
Which of the following are cost drivers? 1. the learning curve 2. economies of scope 3. firm revenues 4. complementary products 1 and 2 3 and 4 1 and 4 1, 3 and 4
1 and 2
Which of the following are isolating mechanisms? 1. causal ambiguity 2. the learning curve 3. property rights 4. search costs 1 and 2 3 and 4 1, 3, and 4 all of these
1, 3, and 4
All of the following are new and valuable control benefits that a firm gains when it vertically integrates with a supplier, EXCEPT: Control over the supplier's incentive system Control over the supplier's investments in assets, human resources, and management processes Control over access to information about the supplier's business Control over the final price of the product to the consumer
Control over the final price of the product to the consumer
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
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 occur(s) during the emergence of a dominant design? I. Buyer preferences settle on a specific combination of features that were independently produced throughout the industry's history II. The variation in market positions of competing firms goes down III. Once the design is set, firms compete on increasing value through product innovation I only I and II II and III I, 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 statements about diversification is/are TRUE? I. In general, a diversification event involves an entry into a new industry. II. The diversification paths of firms in different countries tend to follow the same industry-to-industry expansion pattern. III. As a motivation for diversification, risk reduction is a higher priority than improving returns in each business unit. I only II only III only I, II, and III
I only
Which of the following are important considerations in partner selection? I. the partner's partnering experience II. the partner's present capabilities III. the partner's future capabilities II only I and II, but not III II and III, but not I I, II, and III
I, II, and III
Which of the following types of firms are threatened by industry evolution? I. Firms pursuing a value-based differentiation strategy II. Firms pursuing cost leadership III. Firms in niche markets I only I and III II and III I, II, and III
I, II, and III
In the field of strategy, an industry's boundaries are determined based on: I. employees switching between companies II. technologically-similar products III. highly-correlated stock prices IV. interdependent consumer markets I and III II and IV I, II, and III all of the above
II and IV
Which of the following statements about industry evolution are TRUE? I. Over the industry life cycle, firms tend to shift from process to product innovation. II. The emergence of a dominant design is necessary for an industry to enter the shakeout stage. III. Investing in projects based on the learning curve is more attractive in the growth phase of industry evolution. II only III only II and III I, II, and III
III only
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 an element of a business-level strategic plan? industry analysis operating goals SWOT analysis specific programs
SWOT analysis
Which of the following statements about buyer and supplier power is TRUE? Buyer power increases when there are more buyers and the industry is growing quickly. Buyer and supplier power do not matter to small firms, since industry forces are proportional to size. A firm working with weak suppliers and strong buyers will generate high profits. Strong suppliers can achieve high margins even if their buyers operate in markets with intense rivalry.
Strong suppliers can achieve high margins even if their buyers operate in markets with intense rivalry.
Which of the following statements is FALSE? The cost leader in an industry can be identified by finding the company with the lowest prices. The customer, not the seller, determines the value of the product. Market position is determined by the absolute Value-minus-Cost that a firm provides. A firm can occupy a superior market position without having the lowest cost or highest value.
The cost leader in an industry can be identified by finding the company with the lowest prices.
The compact digital camera is fading fast. As global shipments plummet—down 42% in the first five months of 2013, according to the Camera and Imaging Products Association—manufacturers are scrambling to adapt to a world where customers value the convenience of smartphones for quick shots they can share on social networks like Facebook and Instagram. The global digital camera market may shrink to as little as 102 million units for all of 2013, compared with a peak of about 144 million in 2010. According to this description, what is the main threat to profits in the digital camera industry, and what is the most likely impact of this threat on companies in the industry? Threat: buyer power; Impact: forces firms to increase value and decrease price Threat: substitutes; Impact: forces firms to increase value and decrease price Threat: buyer power; Impact: forces firms to decrease value and increase cost Threat: substitutes; Impact: forces firms to decrease value and increase cost
Threat: substitutes; Impact: forces firms to increase value and decrease price
There are 326 million wireless subscribers in the U.S. But the battle to take business away from the industry's leaders comes down to just 19 million of them. That is about how many wireless subscribers have left V Wireless and A Telecom annually over the past three years. It may seem like a lot, but most of those subscribers just go back and forth between the top carriers. The four national U.S. carriers together added only about a net 3.3 million subscribers last year and V Wireless and A Telecom accounted for all of them. The numbers show the daunting task ahead as the newly revitalized S Company and T Company gear up to take business away from the two companies that dominate the U.S. industry. The third and fourth largest U.S. wireless carriers are now better capitalized, building advanced networks, carrying the iPhone, and launching new service plans under aggressive new managers or owners. But they are taking on entrenched rivals that are doing a better job than ever of holding on to their customers. The bulk of A Telecom and V Wireless' customers are locked up in two-year contracts with penalties if they leave early. Large majorities are also on family or business plans, which tend to be more complex and harder to leave. Last year, the average percentage of contract customers to leave the carriers each month—a figure the industry calls "churn"—was just 0.91% for V Wireless and 1.08% for A Telecom, according to UBS. Subscribers occasionally try to check out, but they almost never leave. Question: Which of the following isolating mechanisms best describes how V Wireless and A Telecom are maintaining their market positions? Learning costs Transition costs Causal ambiguity Sunk costs
Transition costs
Which of the following types of technology partnership is most appropriate for reducing cost and risk? a joint venture an R&D contract a strategic sourcing agreement a licensing agreement
a joint venture
Which of the following is a source of strategic inflexibility in partnerships? a partner's current management capabilities a partners' commitments to relationship-specific investments a partner's reputation for manufacturing expertise a partner's access to key inputs
a partners' commitments to relationship-specific investments
Vertical integration and outsourcing decision refer to choices about the firm's products markets resources activities
activities
Which of the following are common managerial decision-making biases? escalation of commitment inertia information anchoring all of the above
all of the above
Which of the following is a useful question for competitor analysis? -What are the key macroeconomic forces that affect profits in the industry? -Has the industry passed through a shakeout? -Where is the firm located in the competitive landscape in terms of is value and cost drivers? -all of the above
all of the above
Any of the following expected benefits can alleviate antitrust concerns regarding an alliance, EXCEPT: an increase in the rate of industry innovation an increase in the global competitiveness of US firms an increase in overall industry concentration an increase in efficiency within the alliance, exceeding any harm to competitors
an increase in overall industry concentration
Which of the following is NOT a potential disadvantage 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
Which of the following are key benchmarks for setting financial goals? the firm's historical performance the performance of competitors neither of the above both of the above
both of the above
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 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
Which of the following is NOT a problem associated with incentive systems? controllability alignment retention interdependency
retention
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
The difference between product value and market price is called: the source of customer sensitivity the firm's profit the buyer's surplus the firm's economic contribution
the buyer's surplus
All of the following are important recent trends related to the increasing frequency of partnering EXCEPT: -the growth of technology-intensive industries -the global integration of manufacturing industries -the diffusion of European management practices -the rise of outsourcing in services
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
Which of the following is NOT a problem commonly faced by firms that have grown through unrelated diversification (i.e. acquisitions of firms 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
How would a supplier firm reduce the power of one of its buyers? Increase the percentage of the firm's product sold to the buyer focus on supplying commodity products expand the firm's production capacity vertically integrate into the buyer's industry
vertically integrate into the buyer's industry
