OAM 331 Exam 3 Review

At which level of the corporation should strategic alliances and mergers and acquisitions be managed?

at the corporate level

A real option gives a firm the right to continue making investments ____________.

but does not obligate the firm to do so.

Because executives make decisions about structure and strategy,

a change in leadership often results in a change in culture

In the Boston Consulting Group growth-share matrix, each of the four categories in the matrix represents ______

a different investment strategy

What is a top-down approach to managing innovation that involves implementing structures and systems that foster creativity?

induced innovation

When a firm is more efficient in organizing economic activity than markets are, the firm should ________________.

vertically integrate

What are three options used by executives to drive firm growth?

organic growth, acquisitions, alliances

What is a major disadvantage of organizing economic activity within firms? Multiple choice question. search costs enforcement of contracts transaction-specific investments the principal-agent problem

the principle agent problem

criticisms of disruptive innovation

- Clay Christensen's(Harvard Professor) most embarrassing prediction was that the iPhone would not succeed. Being a low-end guy, Christensen saw it as a fancy cell phone; it was only later that he realized that it was also disruptive to laptops. - Disruption often triggers an industry shakeout, and while often the top players survive and come through stronger, weaker players fail or consolidated away... just because some firms survive and even become more dominant, doesn't mean a disruptive innovation doesn't have profound industry effects. (Urbanophile)

Which of the following statements about closed innovation are true? Multiple select question. It is time-consuming. It involves collaboration with partners. It is a costly approach. Its goal is low-cost leadership.

- It is time-consuming - It is a costly approach

________________ refers to the competitive benefits that accrue to the successful innovator.

first mover advantage

A top-down strategic plan generally takes place in which type of organization?

highly centralized

Horizontal integration can _________.

help a firm improve its strategic position in an industry

What are factors that influenced the shift from closed innovation to open innovation?

- Increasing supply and mobility of skilled workers - Exponential growth of venture capital - Increasing availability of external options (such as spinning out new ventures) to commercialize ideas that were previously shelved or to insource promising ideas and inventions - Increasing capability of external suppliers globally

The key building blocks of an organizational structure are:

- specialization - formalization - centralization - hierarchy

Intertia

A firms resistance to changing the status quo

The key question of where to compete is addressed by _______________.

corporate strategy

Open innovation

A framework for R&D that proposes permeable firm boundaries to allow a firm to benefit not only from internal ideas and inventions, but also from external ones. The sharing goes both ways: some external ideas and inventions are insourced while others are spun out.

Why does management frequently fail at strategy implementation?

Managers cannot make needed adjustments because of their effect on the firm's resource allocation and power distribution.

What structure is a combination of the multidivisional structure and the functional structure?

Matrix structure

How would you describe blue ocean strategy in terms of innovation?

More for Less

Increases in the value of a product or service that result from a corresponding increase in the number of users are known as:

Network Effects

The framework for R&D that involves permeable firm boundaries and allows for sharing of ideas and inventions is known as ___________.

Open innovation

What tends to directly improve employee conformity and performance?

Peer control

What metrics are used by social entrepreneurs to evaluate performance?

Planet, profits, people

True or false: Innovation can create value for one firm while destroying value for another.

True

True or false: The functional structure results in difficulty communicating across departments. True false question.

True, a disadvantage of a functional structure is that it lacks effective communication channels across departments

What is the most important yet least visible element of organizational culture?

Values

What are the key elements of organization culture?

Values, artifacts, norms

What is important is defined by ________; which includes attitudes and behavior are deemed appropriate are defined by __________.

Values, norms

Which of the following is a fundamental corporate-level strategic decision? What products and services should the firm offer? What distribution network should the firm use? How will the firm recruit and select employees? Where should the firm get supplies from?

What products and services should the firm offer?

Decline Phase Characteristics

When an industry is on the decline, firms need to make difficult choices: exit, harvest, maintain, or consolidate - Exit = not source of advantage, get out - US furniture manufacturers Harvest = get what you can, don't reinvest - IBM and typewriters Maintain = support somewhat - Marlboro with cigarette marketing Consolidate = buy up smaller players - Private equity sometimes "rolls up" an industry to create economies of scale and more pricing power

What are the costs associated with related-diversification strategies? Multiple select question. geographic costs coordination costs influence costs vertical costs

coordination costs influence costs

Which of the following terms describes the strengths that allow a firm to distinguish itself from the competition? Multiple choice question. core competencies transaction costs economies of scale economies of scope Porter's five forces PESTEL strengths

core competencies

When an established firm makes an equity investment in an entrepreneurial venture it is known as a(n)

corporate venture capital investment

The negative effect of innovative ride-sharing services, such as Uber and Lyft, on traditional taxi cab companies is an example of

creative destruction

Successfully transitioning from one stage of the industry life cycle to the next is referred to as

crossing the chasm

One reason why firms pursue growth is to lower their costs, which they achieve through __________, which drives down average costs as output increases.

economies of scale

Which of the following are the four underlying strategic management concepts that determine the scope of a firm? situational framework economies of scale economies of scope transaction costs core competencies cost-leadership positioning

economies of scale economies of scope transaction costs core competencies

Which of the following are types of strategic alliances? Multiple select question. parent-subsidiary relationship mergers equity alliances joint ventures long-term contracts

equity alliances joint ventures long-term contracts

True or false: Firms tend to enter strategic alliances when they have no other choice. True false question.

false

True or false: In most cases, mergers and acquisitions create competitive advantage.

false, in most cases, mergers and acquisitions do not create competitive advantage. Many mergers destroy shareholder value because the anticipated synergies never materialize.

In order for a firm to lower costs, it must:

grow

During which stage does a standard develop? - introduction - growth -shakeout - maturity - decline

growth

What are the primary benefits of horizontal integration?

increased differentiation lower costs a reduction in competitive intensity

The risks of vertical integration are increased costs, reduced quality, reduced flexibility, and ________.

increased potential for legal repercussions

A firm's unwillingness to alter how things are currently done is known as

inertia

What are the costs associated with related-diversification strategies?

influence costs coordination costs

Amazon's continued focus on ____________ is key to it's ongoing success.

innovation

What are the three choices in the Build-Borrow-Buy framework?

internal development (build) strategic alliances (borrow) acquisition of new resources (buy)

In general, related diversification leads to high levels of performance because __________.

it accesses numerous areas of value creation, such as economies of scale and scope

Which of the following is an option for formulating strategy via core competencies? Multiple choice question. build new core competencies to entice shareholders to invest in the company pursue a strategic alliance to become less vertically integrated leverage existing core competencies to improve current market position combine core competencies with rivals in new markets

leverage existing core competencies to improve current market position

Gaining new capabilities or competencies is one of the three main reasons companies

make acquisitions

Which of the following tends to directly improve employee conformity and performance? Multiple choice question. peer control organizational inertia social complexity open innovation

peer control

One way to overcome the principal-agent problem is to ___________. Multiple choice question. offer managers communities of knowledge make managers owners through stock options establish coordination and flexibility specify information symmetries

make managers owners through stock options

When the span of control within an organization is wide, one manager supervises

many employees

Of the following competencies, which one is the most important in the introductory stage of the industry life cycle? sustainability international relations marketing human resources

marketing

A firm that is organized according to SBUs but also is decentralized in that different geographic locations are fully functional is likely organized in the _________ structure

matrix

Disadvantages of the __________ structure include organizational complexity, increased administrative costs, slow decision making, and difficulty in implementation.

matrix

The type of structure that is used by experienced firms and consists of distinct, essentially independent strategic business units is the _____________ structure.

multidivisional

When a firm's organizational structure is tall, the span of control is

narrow

The primary way cultural change is enacted in a company is through

new leadership

What is a related-linked diversification strategy?

one in which executives pursue various businesses opportunities that share only a limited number of linkages

Taki works for a start-up company that is highly centralized and its employees are not allowed to wear headphones while working. However, the company offers a flexible work schedule, free childcare, and free yoga classes. These rules and perks describe the company's

organizational culture

The structure, processes, and procedures of an organization are designed, put into place, reviewed, and reworked through a process known as

organizational design

Graciela's used to be the industry leader in restaurant supplies, but over the years competition grew, and the company's market share declined. Graciela's has launched several marketing campaigns and introduced new products and services. However, not much else in the company has changed, and it still relies on the same team of managers. Graciela's is experiencing ___________.

organizational inertia

How do you "cross the chasm?"

pitch your technology as something that will - save you money - is super practical - is less risky Use a "bowling pin" approach for 1 profitable segment of pragmatists, wait for the "tornado" Bowling Pin Alley Attack a specific segment; goal of 40%+ market share Niche markets are profitable Address needs of specific users (not technologists) Drive word-of mouth success in one segment will lead to success in others, one pin knocks over another pin, which knocks over another pin Inside the Tornado - Focus on market share - Sell to infrastructure buyer - Commoditize your product - SHIP, SHIP, SHIP

New methods for producing existing products or delivering existing services are known as

process innovations

A firm that successfully leverages network effects can: push its industry into the growth stage bring its industry life cycle to a halt establish a permanent competitive advantage eliminate competition

push its industry into the growth stage

Which type of diversification is most likely to lead to superior performance?

related diversification

Which diversification strategy involves executives pursuing various business opportunities that share only a small number of similarities? Multiple choice question. unrelated related-constrained dominant business related-linked

related linked

What term describes the separation or sale of a strategic business unit to form a new, stand-alone corporation?

spinout

The functional areas present in a functional structure frequently correspond to which of the following? Multiple choice question. stages in the value chain employee salary averages company office locations the customers being served

stages in the value chain

An agreed-upon solution about a common set of engineering features and design choices is known as a:

standard

A(n) _________ is a voluntary arrangement between firms that involves sharing of resources and capabilities with the intent of developing processes, products, or services.

strategic alliance

Long-term contracts are classified as _________. Multiple choice question. acquisitions parent-subsidiary relationships activities performed in-house strategic alliances

strategic alliances

The degree of vertical integration corresponds to _________. Multiple choice question. the number of parent-subsidiary relationships a firm is involved in the firm's level of integration with the host country's infrastructure the number of industry value chain stages in which a firm directly participates the firm's level of integration among the alternative industry types

the number of industry value chain stages in which a firm directly participates

Which of the following is not a dimension along which corporate strategy is assessed?

the size of the company in comparison to its main competitors

Which of the following are advantages of platform businesses compared to pipeline businesses? They benefit from community feedback. They own and control all their resources. They unlock new sources of value creation and supply. They scale efficiently by eliminating gatekeepers.

they benefit from community feedback. They unlock new sources of value creation and supply. They scale efficiently by eliminating gatekeepers.

What is the main goal of corporate venture capital investments?

to create real options in terms of gaining access to new technologies

What is the goal of organizational design?

to enable managers to translate their chosen strategy into a realized one

Which of the following are among the reasons firms need to grow? to increase profits to increase costs to motivate management to decrease market power

to increase profits to motivate management

What are reasons why firms enter into strategic alliances?

to strengthen their competitive position to learn new capabilities to enter new markets

A strategy focus shift from customer value to ecosystem value is part of moving from a(n):

traditional pipeline business to a platform business model

Unlike short-term contracts, long-term contracts encourage firms to make _________ investments.

transaction-specific

What is the commercialization of an invention called?

Innovation

The Foamy Mug, a chain of coffee shops, ensures consistent quality and service in each of its cafés by using policy and procedure manuals that explicitly describe employee tasks. The Foamy Mug is characterized by a high degree of

formalization

The organizational structure element that deals with the degree to which employees are guided by specific, codified rules and processes is known as

formalization

What are the four essential aspects of an organizational structure?

formalization specialization centralization hierarchy

If a company moves ownership of activities closer to the end customer, such as providing after-sales support, it is engaging in _________ vertical integration

forward

The Boston Consulting Group growth-share matrix locates a firm's individual SBUs in which of the following dimensions? Multiple select question. unrelated diversification economies relative market share extent of vertical integration speed of market growth

relative market share speed of market growth

If a company fails to change its culture as the firm and environment change, the company's culture can turn into a core ____________.

rigidity

Benny's Baos had an edge in the market, but other companies began to enter the market. Benny is now losing customers even though he has launched an aggressive marketing campaign in an attempt to attract customers. Benny's Baos is likely in the __________ stage of the industry life cycle.

shakeout

In which stage of the industry life cycle does competition become more intense, forcing weaker firms out of the industry?

shakeout

Which diversification strategy involves executives pursuing various business opportunities that share only a small number of similarities?

related-linked

One of the disadvantages of a matrix structure is that _____________.

reporting structures are often unclear

First-mover disadvantages can include which of the following? the need to educate potential customers about the product's benefits the need to find distribution channels the need to compete on price instead of product features the need to continuously perfect a product

the need to educate potential customers about the product's benefits the need to find distribution channels the need to continuously perfect a product

What is an advantage of a firm in organizing economic activity?

transaction-specific investments

In the Boston Consulting Group matrix, __________ hold the small market share in a low-growth market. Multiple choice question. question marks cash cows dogs stars

dogs

What term refers to the process of reorganizing and divesting business units and activities to refocus a firm to leverage its core competencies?

restructuring

Which term is used for the customer segment in the introductory stage of the industry life cycle?

technology enthusiasts

Shakeout Phase Characteristics

* Demand slows, competitors start fighting for market share (red ocean) * Cost leadership becomes important - Firms start cutting prices Inefficient firms fail * Mergers and acquisitions increase - Greater economies of scale

Maturity Market Stage Characteristics

- Saturated market; demand is flat / negative - Sales are repeat or replacement - Industry is consolidated; oligopoly - Market share of top 5 companies (US) Wireless = 80%+ Grocerv = 50%+ Social media = 70%+ Airlines = 70%+ Search engine = 90%+

What are the effects that a strong organizational culture can have on employee behavior?

-more effective cooperation, - behavior aligns more closely with the firm's strategic goals, -stronger commitment, engagement, and effort

What is the most observable element of organizational culture?

Artifacts

The ___________ is a corporate planning tool in which the corporation is viewed as a portfolio of business units.

Boston Consulting Group (BCG) growth-share matrix

_____________ are partnerships in which at least one partner takes partial ownership in the other partner.

Equity Alliances

What are the risks of vertical integration?

Increased costs reduced quality reduced flexibility

Which statements correctly describe licensing agreements? Multiple select question. Participants focus on their own comparative advantages. They are contractual alliances between firms. Licensing agreement partners frequently exchange codified information. They are horizontal strategic alliances between firms.

Participants focus on their own comparative advantages. They are contractual alliances between firms. Licensing agreement partners frequently exchange codified information.

The extent to which the ability to make decisions rests with the people at the top of a firm is referred to as

centralization

What can companies do to get the benefits of vertical integration without the accompanying risks?

choose strategic outsourcing use taper integration

Which are examples of strategic control-and-reward systems? Multiple select question. output controls organizational culture managerial hubris reward point systems for customers input controls

output controls organizational culture input controls

Employees learn about their firm's culture through ___________

socialization

What has been called the "graveyard of strategy" due to managers' high rate of failure when attempting it?

strategy implementation

What are advantages of organizing economic activity inside of a firm? the creation of a community of knowledge command-and-control decisions transaction-specific investments high-powered incentives

the creation of a community of knowledge command-and-control decisions transaction-specific investments

True or false: Firms that pursue either related or unrelated diversification generally employ a multidivisional structure. True false question.

true

Long Tail

A large amount of revenue derived from a small number of units among almost unlimited choices

Which type of structure uses domain expertise to separate employees into specific areas based on their purpose, such as sales and human resources?

A functional structure

Which of the following is an example of the principal-agent problem even when the principal's goal is to create shareholder value? a manager controlling and limiting business expenses a manager making decisions based on what is best for the company a manager flying first class on all business trips a manager receiving generous stock options

a manager flying first class on all business trips

Which three strategy focus shifts happen when moving from a traditional pipeline business to a platform business model? a shift from customer value to ecosystem value a shift from ecosystem value to customer value a shift from resource orchestration to resource control a shift from resource control to resource orchestration a shift from external interactions to internal optimization a shift from internal optimization to external interactions

a shift from customer value to ecosystem value a shift from resource control to resource orchestration a shift from internal optimization to external interactions

In a fully vertically integrated organization, _________. Multiple choice question. most, but not all, stages of the industry value chain are conducted within the firm all stages of the industry value chain are conducted within the firm after-sales service and support is conducted within the firm, but other industry value chain activities might be outsourced only the raw materials and components stages of the industry value chain are conducted within the firm

all stages of the industry value chain are conducted within the firm

Which type of cost in a related-diversification strategy is a function of the number, size, and types of businesses that are linked?

coordination

A system that allows managers to specify goals, measure progress, and provide performance feedback by ensuring that the incentives of shareholders and employees are aligned is called a __________ system

strategic control-and-reward

When a firm's employees have internalized norms and share the firm's core values, the firm is said to have a(n) _________ culture.

strong

In order for firms to achieve superior performance, _____________.

structure must follow strategy

Which type of knowledge cannot be codified and can only be gained through active participation in the task?

tacit knowledge

When a company makes incremental investments as part of a larger investment and takes the time to analyze the information gained following each incremental investment, the company is taking a ____________ perspective.

Real options

Which of the following are the main reasons why it is difficult to imitate the cultures of successful firms? Multiple select question. social complexity price elasticity resource scarcity causal ambiguity

- social complexity(Organizational culture is socially complex. It encompasses not only interactions among employees across layers of hierarchy but also the firm's outside relationships with its customers and suppliers) - causal ambiguity (Although one can observe that a firm has a unique culture, the causal relationships among values, norms, artifacts, and the firm's performance may be hard to establish, even for the people who work within the organization)

Attempting to address social or ecological issues when building a for-profit business is known as

Social Entrepreneurship

Which statements correctly describe the advantages commonly possessed by firms in licensing agreements? Multiple select question. Startups frequently possess an innovation advantage. Startups often possess an invention advantage. Established firms generally have an invention advantage. Established firms typically have an innovation advantage.

Startups often possess an invention advantage. Established firms typically have an innovation advantage.

Which of the following statements is true regarding the relationship between strategy formulation and strategy implementation? Multiple choice question. Once a promising strategy has been formulated, implementing it is a simple task. Strategy implementation is at least as important as strategy formulation for success. Strategy formulation is far more important than strategy implementation. Neither strategy formulation nor strategy implementation has a significant effect on the success of a firm.

Strategy implementation is at least as important as strategy formulation for success.

What are some signs of a mature industry?

Tends to be dominated by an oligopoly, industry growth has slowed significantly, maybe there aren't really new customers to target

True or false: Organizational culture should never change.

False

Technology Adoption Life Cycle

A marketing theory that proposes that when marketing a technology product, marketers must cross a chasm, or significant gap, between members of the early adopters segment and members of the early majority segment before a new product will become successful Technology enthusiasts-->Early Adopters-->CHASM-->early majority-->Late Majority-->Laggards

How do mergers and acquisitions differ?

A merger describes the joining of two independent companies, while an acquisition describes the purchase or takeover of a firm.

What allows firms to manage both strategic alliances and mergers and acquisitions?

A relational capability

A business model in which companies can obtain a large part of their revenues by selling a small number of units from among almost unlimited choice is referred to as _________.

The long tail

Innovator's Dilemma

The notion that disruptive innovations can cause established firms or industries to lose market dominance, often leading to failure.

Which of the following statements about platform businesses is true? They tend to receive little to no benefits from community feedback. They are not efficient in managing the flow of information from producer to consumer. They can grow faster than pipeline businesses. Growth involves time and planning and a complex supply chain.

They can grow faster than pipeline businesses.

What are some advantages of strategic alliances?

They might give companies a competitive advantage. They help firms achieve goals faster than they would alone.

Corporate strategy needs to be dynamic over time in order to allow firms to do which of the following? Multiple select question. avoid paying for coordination and influence costs respond to the ever-changing external environment diversify to capture growth opportunities keep and maintain a competitive advantage

respond to the ever-changing external environment diversify to capture growth opportunities keep and maintain a competitive advantage

Sustaining innovation

small and incremental changes in established products rather than dramatic breakthroughs What do our best customers want? - They have a willingness-to-pay; let's keep them happy - This is the majority of innovation - Marketing (4Ps) Manufacturing yield (More for Less)

Because organizational culture encompasses interactions among employees in all levels of the firm as well as the firm's relationships with its customers and suppliers, it is said to be

socially complex

The two alternatives to vertical integration are which of the following? Multiple select question. specialized disintegration taper integration horizontal integration strategic outsourcing nominal innovation

taper integration strategic outsourcing

The customer segment known as _____________ enjoy testing product prototypes and providing voluntary feedback that companies use to perfect their products.

technology enthusiasts

Simone was the first among her peers to try the new unicorn hair dye. For months she was the only person with unicorn hair. After some time, though, the product became available everywhere, and nearly every other person began sporting unicorn hair, even Simone's mom. This situation describes which of the following? the shakeout stage of the industry life cycle the crossing-the-chasm framework the exit strategic option of the industry life cycle process innovation

the crossing-the-chasm framework

Google's choice to hire programmers in-house suggests that they decided that the __________ costs associated with this strategy are __________ than the costs associated with contracting in the open market. Multiple choice question. administrative; higher transaction; higher opportunism; lower transaction; lower

transaction; lower

True or false: A horizontal integration strategy leads to industry consolidation

true, a horizontal integration strategy leads to industry consolidation and therefore a reduction in competitive intensity, lower costs, and increased differentiation.

Amazon's explosive success is largely due to which of the following? vertical integration information asymmetry single business focus diversification

vertical integration diversification

During the 20th century, companies tended to carry out R&D internally, an approach known as ____________.

Closed Innovation

Multidivisonal Structure (M-Form)

Consists of several distinct strategic business units (SBUs) each with its own profit-and-loss (P&L) responsibility

______________ strategy involves the decisions that senior management makes and the goal-directed actions it takes to gain and sustain competitive advantage in several industries and markets simultaneously.

Corporate

The inability to effectively deal with higher levels of _________, a common result of growth, is a weakness of the functional structure.

Diversification

Growth Phase Characteristics

During growth, a "rising tide lifts all boats" and everyone jumps into the opportunity *Initial success and the market expands * Strong demand = attracts lots of firms * Prices start to fall - More production, economies of scale - Learning curve = learning by doing - Experience curve, process innovation * Standards emerge = common set of engineering features and design choices - Focus switches to continuous improvement (think: ISOM) - Six Sigma / Lean Operations - Just-in-time manufacturing

Which of the following is true of an M-form(multidivisional structure)? Multiple choice question. All levels of the firm are highly integrated. There is a flat organizational hierarchy. There is fluid movement between divisions. Each division operates independently.

Each division operates independently

Firms are motivated to grow so that they achieve ________, which is when their average costs decrease as their output increases.

Economies of scale

Which of the following is the best option if a company wants to show strong commitment to a partner firm without acquiring that firm? Multiple choice question. short-term contract franchising licensing equity alliance

Equity alliance

Closed Innovation

Firms focusing on discovering, developing, and commercializing new products and services internally

Firms that follow a single-business or dominant-business strategy at the corporate level generally employ a _________ structure.

Functional

Thanh works in the engineering and manufacturing division of his company. Other departments include marketing, accounting, human resources, and research and development. Each department reports to the CEO. Thanh's company is organized according to a(n) _________structure.

Functional

In terms of industry life cycle, where would you see large fragmentation of a lot of small companies?

Growth stage

Which of the following is a true statement about the building blocks of an organizational structure? The most important building block is familiarity. Hierarchy is one of the building blocks of an organizational structure. The building blocks are different for every company. There are two building blocks, and they are interchangeable.

Hierarchy is one of the building blocks of an organizational structure.

Sustaining and Disruptive Innovation

Incumbents usually innovate incrementally - they make their best products a little bit better, and they target their highest margin customers - what can happen is you make your products too fancy/expensive (4K curved OLED TV...is that really what people need) - Incumbents tend to focus on sustaining innovation, which creates an opportunity for new entrants to focus on the low end of the market

Which of the following is a primary factor in avoiding creative destruction? innovation stock options branding mergers and acquisitions

Innovation

What is needed to motivate innovations through autonomous actions and increase the possibility of their success?

Internal champions who are willing to support promising projects

strategic control and reward systems

Internal-governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees).

Disruptive Innovation

an innovation that leverages new technologies to attack existing markets from the bottom up Incumbents are making their products too fancy; they are "overshooting" the needs of everyday customers (Less for Less)

Industry Life Cycle

the five different stages - introduction, growth, shakeout, maturity, and decline - that occur in the evolution of an industry over time

An advantage of ______________ is that it helps ensure that materials and distribution channels are available when needed.

vertical integration