MGT ch 8
B
17. Corporate strategy is concerned with determining the boundaries of the firm among geographic, vertical, and product/service dimensions. This is referred to as: A. Economic scope. B. The scope of the firm. C. Multidimensional mapping. D. Boundary spanning
T
10. The most challenging diversification strategy is one in which the firm must create new core competencies while pursuing new market opportunities. True False
F
11. Research indicates that low levels of diversification are generally associated with higher overall firm performance. True False
T
12. Corporate diversification strategy leads to superior performance only if the individual businesses are worth more under the company's management than if managed individually. True False
T
15. A firm's overall corporate strategy is most concerned with determining levels of vertical integration as well as levels of diversification. True False
B
17. Corporate strategy is concerned with determining the boundaries of the firm among geographic, vertical, and product/service dimensions. This is referred to as: A. Economic scope. B. The scope of the firm. C. Multidimensional mapping. D. Boundary spanning.
C
18. Managers wishing to diversify the firm must remember that: A. A single-business diversification strategy generally works best. B. Forward integration is more successful than is backward integration. C. Successful diversification must be aligned with and strengthen a firm's business strategy. D. It is competitively advantageous to shrink the size and scope of most firms.
D
19. All of the following are decisions that managers must make when formulating corporate strategy EXCEPT: A. What stages of the industry value chain to participate in. B. What range of products and services should be offered. C. Where globally the company should compete. D. Whether the company should compete through differentiation or cost leadership.
T
2. Corporate-level strategy involves the decisions made and actions taken while deciding which industries and markets to pursue simultaneously. True False
C
20. A(n) _____________ is where the transformation of raw materials into finished goods and services occurs along distinct vertical stages. A. Production value chain B. Process value chain C. Industry value chain D. Business value chain
B
21. Management of a firm must decide what range of products and services the firm should offer. This determines the firm's horizontal integration, or: A. Consolidation. B. Diversification. C. Categorization. D. Implementation.
A
23. When it is cheaper for a firm to produce two or more outputs or services together rather than separately through using the same resources and technology, then _________ occur. A. Economies of scope B. Transaction economies C. Economies of scale D. Output economies
B
24. Which of the following is NOT an example of a firm benefiting from economies of scope? A. Kleenex Corporation using paper products for both its facial tissue and paper towel businesses B. Anheuser-Busch spreading its fixed costs over millions of gallons of beer produced each year C. Amazon leveraging its core competencies in IT systems into a wide range of online services, from retailing to cloud computing D. Honda using flexible manufacturing systems for quick and low-cost switching from one product to another
D
25. Applying the ______________ framework helps managers make economic decisions namely; what activities to pursue within the firm and which to obtain from the external market. A. Transformational analysis B. Economic investment analysis C. Appropriation economics D. Transaction cost economics
B
26. The costs associated with the "make or buy" question when determining the scope of the firm are: A. Investment costs. B. Transaction costs. C. Diversification costs. D. Scale costs.
C
27. When it would cost the firm less to pursue an activity in-house than obtaining that activity from a supplier in the external market, then the firm should: A. Enter into a joint venture. B. Execute a short-term contract. C. Vertically integrate. D. Strategically outsource.
C
28. Vertical integration involves all of the following EXCEPT: A. The level of ownership by a firm of production or service inputs. B. The level of ownership by a firm of the channels for the distribution of outputs. C. The expansion by the firm into different product lines and markets. D. Being more efficient internally than the external market.
T
3. A key component to formulating corporate-level strategy is the "make" or "buy" decisions. True False
B
33. Advantages to organizing economic activity within the firm ("make") include all of the following EXCEPT: A. The coordination of highly complex tasks. B. The principal-agent problem. C. Creating an internal community of knowledge. D. The ability to make command-and-control decisions
A
37. A disadvantage to a firm when transacting in the market rather than owning its own production and distribution activities involves the costs associated with searching for and selecting suppliers. These types of costs are referred to as: A. Search costs. B. Investigative costs. C. Resource costs. D. Exploratory costs.
T
4. Industry value chains are also called vertical value chains. True False
C
40. Under the Transaction Cost Economics framework, when it would cost the firm more to pursue an activity in-house than obtaining that activity in the external market, the firm should: A. Consider horizontally integrating instead. B. Perform the activity in-house anyway in order to gain core competencies. C. Consider options such as short-term contracts or strategic alliances. D. Divest that particular business.
A
41. If a firm wishes to bridge the gap between being fully integrated ("make") and transacting in the marketplace ("buy"), it can enter into a(n) ______________, which is a contractual arrangement to obtain inputs for a time period of generally a year or less. A. Short-term contract B. Joint venture C. Equity alliance D. Licensing agreement
B
43. ____________ allow a firm to enter into a voluntary arrangement with another firm with the intent of sharing knowledge and resources to develop processes, products, or services together. A. Strategic alliances B. Short-term contracts C. Fully integrated contracts D. Networked contracts
D
44. All of the following are forms of strategic alliances EXCEPT: A. Long-term contracts. B. Equity alliances. C. Joint ventures. D. Short-term outsourcing
B
49. If a firm wishes to bridge the gap between being fully integrated ("make") and transacting in the marketplace ("buy"), it can enter into a(n) _________ agreement which grants the right to an individual or group to use the firm's trademark and business processes to sell goods and services that carry the firm's brand name. A. Licensing B. Franchising C. Contracting D. Equity partnership
F
5. Investment in specialized assets is a huge risk of vertical integration. True False
D
50. Equity alliances are forms of strategic alliances that do all of the following EXCEPT: A. Signal greater commitment to the partnership. B. Allow one partner to take partial ownership of the other partner's company. C. Encourage specialized investments for future performance. D. Temporarily allow one partner to use the other's trademark and business processes.
C
51. Dow Corning is owned jointly by Dow Chemical and Corning. Dow and Corning have entered into a __________, which is a special form of strategic alliance whereby two or more partners create and jointly own a new organization. A. Conglomerate venture B. Diversified venture C. Joint venture D. Joint contract
C
52. The ________________ relationship is the closest to a firm being fully integrated. In this relationship, transaction costs typically arise from political turf battles between the corporate office and the standalone business. A. Owner-partner B. Conglomerate-alliance C. Parent-subsidiary D. Business-stakeholder
B
53. Industry value chains consist of all of the processes that transform raw materials into finished goods and services. These value chains are also called: A. Horizontal value chains. B. Vertical value chains. C. Circular value chains. D. Flattened value chains
A
54. Each stage of the vertical value chain typically represents: A. A distinct industry. B. A type of product. C. The distinct process being applied. D. The type of material being used.
A
55. When a firm is fully vertically integrated: A. All activities are conducted within the boundaries of the firm. B. It is a single-business organization. C. It is a conglomerate. D. It is still reliant on certain suppliers along the industry value chain.
A
57. If a firm wants to have more ownership of the activities closer to product inputs or design, then it should: A. Backward vertically integrate. B. Forward vertically integrate. C. Forward horizontally integrate. D. Use a single-business diversification strategy.
B
58. If a firm wants to have more ownership of activities closer to the end product or customer, it should: A. Backward vertically integrate. B. Forward vertically integrate. C. Forward horizontally integrate. D. Use a single-business diversification strategy
B
58. If a firm wants to have more ownership of activities closer to the end product or customer, it should: A. Backward vertically integrate. B. Forward vertically integrate. C. Forward horizontally integrate. D. Use a single-business diversification strategy.
A
59. Which of the following is NOT a strategic advantage of backward integration? A. Better access to end users B. Ability to secure critical supplies C. Ability to produce higher-quality products D. The potential to reduce costs
B
60. Which of the following is NOT a strategic advantage of forward integration? A. Better access to end users B. Ability to secure critical supplies C. More control of after-sales service D. Better planning and response to changes in demand
C
61. When a firm vertically integrates along the industry supply chain and invests in specific assets in order to support its activities, it has invested in: A. Fixed assets. B. Firm assets. C. Specialized assets. D. Required assets
D
64. Human-asset specificity is the form of an asset that a firm invests in to create the human capital with knowledge about the specific routines and procedures needed to support a firm's vertical integration strategy. These routines and procedures bring competitive value to the firm because: A. They organize the firm's work processes. B. They are not transferable to a different employer. C. They are not easily imitated. D. All of these
C
65. Which of the following is NOT a risk of vertical integration ("make")? A. Less exposure to market competition leads to higher costs. B. Organizational complexity increases with integration. C. Organizational planning often improves when a firm integrates. D. Less contact with the external market diminishes learning and experience effects
B
66. The two alternatives to vertical integration that provide similar benefits while reducing the risks to the firm are _________ and ____________. A. Incremental integration; horizontal integration B. Taper integration; strategic outsourcing C. Horizontal integration; outsourcing D. In-house supplying; intermediate integration
D
68. Today, many companies use PeopleSoft and EDS to manage their human resources. By doing this, these firms: A. Are engaging in strategic outsourcing. B. Are reducing their level of vertical integration. C. Are leveraging their competencies. D. Are doing all of these.
B
69. A company is considered to be a single-business firm when at least _________ percent of revenues are generated by the dominant business. A. 50 B. 95 C. 80 D. 99
A
71. If a firm wishes to expand beyond a single market and grow through being active in several different countries, it is pursuing the _______________ diversification strategy. A. Geographic B. Global C. Multi-country D. Market expansion
D
72. When a firm is active in several different product markets, it is pursuing a(n) ____________ diversification strategy. A. Market B. Process C. Multipoint D. Product
C
74. PepsiCo sells a wide variety of beverages and food products in 190 countries. It is clearly engaging in ______________ to achieve continuous growth. A. Product diversification B. Geographic diversification C. Product-market diversification D. Multimarket diversification
C
75. Which of the following corporate diversification strategies most closely describes Disney? A. Single-business B. Related-constrained C. Related-linked D. Unrelated diversification
C
76. Firms use related diversification strategies in order to: A. Horizontally integrate the firm's operations and processes. B. Increase revenue from the dominant business of the firm. C. Benefit from economies of scale and scope. D. Improve the chances of being acquired by a similar firm
C
76. Firms use related diversification strategies in order to: A. Horizontally integrate the firm's operations and processes. B. Increase revenue from the dominant business of the firm. C. Benefit from economies of scale and scope. D. Improve the chances of being acquired by a similar firm.
B
77. Economies of scope often occur when a firm is using the ______________ diversification strategy because the firm is able to pool resources and leverage competencies. A. Single-business B. Related C. Dominant business D. Unrelated
A
78. When a firm uses many links (common resources and competencies) among its businesses, it is engaging in a(n) _________ diversification strategy. A. Related-constrained B. Dominant business C. Linked business D. Single-business
C
79. The more "constrained" the relatedness of diversification: A. The fewer the linkages between the businesses owned by the firm. B. The wider the variation in the portfolio of businesses owned by the firm. C. The more links there are among the businesses owned by the organization. D. The higher the proportion of total organizational revenue is derived from the dominant business.
F
8. General Electric is an example of a firm that is following the dominant business diversification strategy. True False
C
80. As noted in Strategy Highlight 8.3, in 2008 ExxonMobil reported the highest profits ever recorded by any company. Exxon receives the majority of its profits from petroleum-based products. Due to the political and regulatory climate and the global movement toward cleaner energy sources, Exxon purchased the natural gas company XTO Energy in 2009 as a low-carbon alternative to petroleum. Exxon then became the world's largest producer of natural gas. All of the following are true about Exxon's strategic move EXCEPT: A. Exxon horizontally integrated when it purchased XTO Energy. B. Exxon is using its core competencies for corporate diversification. C. Exxon is pursuing an unrelated diversification strategy. D. Exxon is investing in more ecologically sound resources.
D
81. When a firm like GE has few if any linkages among its businesses, it is pursuing a(n) ________ diversification strategy. A. Slightly-related B. Comprehensive C. Broad-based D. Unrelated
A
83. A tool that helps managers evaluate how the firm's core competencies can support certain diversification strategies is the: A. Core competence-market matrix. B. Diversification matrix. C. Acquisition matrix. D. Competency leverage matrix.
C
84. Under the core competence-market matrix, the most difficult diversification strategy is combining __________ with ________, because core competencies must be built. However, this creates the potential for "mega opportunities" and significant future growth opportunities for a firm that achieves this. A. New core competencies; existing markets B. Existing core competencies; existing markets C. New core competencies; new markets D. Existing core competencies; new markets
B
85. When the stock price of highly diversified firms is valued less than the sum of its individual business units, a(n) _________ occurs. A. Competitive discount B. Diversification discount C. Conglomerate efficiency D. Diversification efficiency
D
86. Companies that pursue related diversification often receive a diversification premium, leading to a stock price valuation that is higher than the sum of their individual business units. This premium indicates that investors: A. Are hedging their bets that at least a few of the related businesses will experience high performance. B. Believe that firms with related diversification strategies are more likely to be restructured in the future. C. Are experiencing the bandwagon effect when it comes to investment choices. D. Understand that firms with related diversification strategies are more likely to improve their performance than other diversified firms.
C
88. In order for a diversification strategy to enhance firm performance, it must do any of the following EXCEPT: A. Provide economies of scale and reduce costs. B. Exploit economies of scope and increase value. C. Create diversification discounts. D. Reduce costs and increase value.
C
89. Research indicates that when it comes to the diversification-performance relationship: A. Single-business strategies tend to be the highest performing. B. The less related the businesses are, the higher the performance of each. C. Related-constrained and related-linked strategies are associated with higher firm performance. D. No specific level of diversification outperforms another.
T
9. The Indian Tata Group and the Asian software company TCS are firms that make less than 70 percent of revenues from a single business unit and have few, if any, linkages among their businesses. These firms are clearly following an unrelated diversification strategy. True False
C
94. When a firm that follows the unrelated diversification strategy allocates capital from internal sources, it can create value by doing all of the following EXCEPT: A. Using more efficient budgeting processes than the external market. B. Discovering privately which business units provide the highest return to invested capital. C. Disregarding its debt rating and investing large amounts of capital in projected growth areas. D. Accessing capital at a lower cost.
C
95. _____________ are additional costs that are attached to the related-diversification strategy because of managing the number, size, and types of businesses that are linked to one another. A. Opportunity costs B. Specified costs C. Coordination costs D. Sunk costs
B
98. Executives determine the scope of the firm in order to enhance the firm's ability to gain and sustain competitive advantage. In that attempt, they formulate and execute corporate-level strategy by using all of the following dimensions EXCEPT: A. Vertical integration. B. Cultural integration. C. Horizontal integration. D. Global scope.
D
Both Apple and Nike produce their products and own retail outlets. They also rely on independent distributors to sell their offerings. Apple and Nike are utilizing ______ to partially rely on outside-market firms while supporting their forward vertical integration strategy. A. Strategic alliances B. Strategic outsourcing C. Horizontal integration D. Taper integration
