Policy and Strategy Exam3

Globalization

The process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs.

Strategic outsourcing

moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain

Moral Hazard

A situation in which information asymmetry increases the incentive of one party to take undue risks or shirk other responsibilities because the costs incur to the other party.

Leveraged Buyout (LBO)

A single investor or group of investors buys, with the help of borrowed money (leveraged against the company's assets), the outstanding shares of a publicly traded company in order to take it private.

Boston Consulting Group (BCG) growth-share matrix

A corporate planning tool in which the corporation is viewed as a portfolio of business units, which are represented graphically along relative market share (horizontal axis) and speed of market growth (vertical axis). SBUs are plotted into four categories (dog, cash cow, star, and question mark), each of which warrants a different investment strategy.

CAGE distance framework

A decision framework based on the relative distance between home and a foreign target country along four dimensions: cultural distance, administrative and political distance, geographic distance, and economic distance

ambidexterity

A film's ability to address trade-offs not only at one point but also over time. It encourages managers to balance exploitation with experience

alliance management capability

A firm's ability to effectively manage three alliance-related tasks concurrently: (1) partner selection and alliance formation, (2) alliance design and governance, and (3) post-formation alliance management.

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.

credible commitment

A long-term strategic decision that is both difficult and costly to reverse

founder imprinting

A process by which the founder defines and shapes an organization's culture, which can persist for decades after his or her departure.

liability of foreignness

Additional costs of doing business in an unfamiliar cultural and economic environment, and of coordinating across geographic distances

________ are best described as costs that occur due to political maneuvering by managers to control capital and resource allocation and the resulting inefficiencies stemming from suboptimal allocation of scarce resources. A) Fixed costs B) Influence costs C) Coordination costs D) Opportunity costs

B) Influence costs

How did the strategic alliance between HP and DreamWorks Animation SKG affect HP? A) It helped HP pursue a taper integration strategy. B) It enabled HP to compete head on with Cisco's videoconferencing solution. C) It resulted in depreciation of HP's shareholder value. D) It failed because HP lacked the expertise in selecting and integrating technology acquisitions.

B) It enabled HP to compete head on with Cisco's videoconferencing solution.

Which of the following statements is true of organizational culture? A) Changes in culture are too frequent to have any impact on strategic implementation. B) It is better for founder CEOs to create a relevant culture, structure, and strategy in the early stages. C) It is always better to focus on output control and performance than on organizational culture. D) According to research, more than 50 percent of firms change culture successfully.

B) It is better for founder CEOs to create a relevant culture, structure, and strategy in the early stages.

40. Which of the following real-world scenarios best exemplifies formalization? A) Zappos' focus on allowing its customer service employees to use their own approach rather than depend on scripts B) McDonald's use of standard operating procedures across the world C) W.L. Gore's associates organizing themselves in project -based teams that are led by sponsors, not bosses D) Yahoo's decision to fire its CEO after incurring huge losses

B) McDonald's use of standard operating procedures across the world

A greater cultural distance between two trading countries A) increases linguistic similarities between the two countries. B) increases the liability of foreignness. C) reduces the uncertainty of doing business. D) reduces the transaction costs associated with business.

B) increases the liability of foreignness.

Which of the following best explains why Disney showed superior post-merger integration capabilities? A) Disney pursued a combination of horizontal and vertical integration through its acquisitions. B) Disney did a thorough job in eliminating principal-agent problems in the firms it acquired. C) Disney managed its new subsidiaries more like alliances rather than attempting full integration. D) Disney used a corporate strategy based on a build-borrow-or-buy framework for its acquisitions.

C) Disney managed its new subsidiaries more like alliances rather than attempting full integration.

Why does a firm use an organic organization combined with a functional structure when implementing a differentiation strategy? A) It allows the firm to create incentives to foster process innovation in order to drive down cost. B) It allows the firm to reduce its cost below that of competitors while offering acceptable value. C) It allows the firm to constantly upgrade core competencies in R&D, innovation, and marketing. D) It allows the firm to nurture and constantly upgrade necessary core competencies in manufacturing and logistics.

C) It allows the firm to constantly upgrade core competencies in R&D, innovation, and marketing.

20. Which of the following corresponds to the use of tacit knowledge? A) Jose studies a fact sheet about France B) Cassandra reads a demographic report about minorities in Texas C) Phil assembles a motorcycle from memory D) Jean uses a scientific article to defend her thesis about global warming

C) Phil assembles a motocycles from memory

36. PolyCon's, a large and successful retail chain on the East Coast, decides to expand its operations across the United States. Which of the following organizational structures should PolyCon's use? A) basic B) simple C) multidivisional D) functional

C) multidivisional

build-borrow-or-buy framework

Conceptual model that aids firms in deciding whether to pursue internal development (build), enter a contractual arrangement or strategic alliance (borrow), or acquire new resources, capabilities, and competencies (buy).

Related diversification strategy

Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity.

unrelated diversification strategy

Corporate strategy in which a firm derives less than 70 percent of its revenues from a single business and there are few, if any, linkages among its businesses.

Susan owns a firm that is considered fully integrated. Which of the following statements below would best describe a firm that is fully integrated? A) Susan's firm is more than likely a conglomerate. B) Susan's firm is still reliant on certain key suppliers in the industry value chain. C) Susan's firm is a single-business organization. D) All of Susan's business activities are conducted within the boundaries of the firm.

D) All of Susan's business activities are conducted within the boundaries of the firm.

24. One of the disadvantages of GM's focus on its Chinese market is A) the higher cost of Chinese labor due to benefits and health care B) the Chinese dislike of big cars such as Cadillacs C) European and Indian GM factories pulling monies from GM's Chinese manufacturing D) Chinese government-supported domestic car makers are able to initiate a cuttthroat price war

D) Chinese government-supported domestic car makers are able to initiate a cutthroat price war

39. In which of the following ways does Zappos achieve organizational control? A) It continually changes the organizational values that guide its employees B) It refrains from monitoring its employees' calls C) It encourages employees to be creative and innovate and to go the extra mile to deliver a wonderful customer experience D) It enforces that each group member's compensation depends in part on the group's overall productivity

D) It enforces that each group member's compensation depends in part on the group's overall productivity

32) Which of the following statements is true of strategy in an organization? A) Strategy implementation is considered unsuccessful if it requires changes within an organization. B) To implement a strategy successfully, an organization's structure must be rigid. C) Strategy implementation does not affect resource allocation and power distribution within an organization. D) Organizational structure must follow strategy in order for firms to achieve superior performance.

D) Organizational structure must follow strategy in order for firms to achieve superior performance.

Which of the following scenarios best illustrates horizontal integration? A) Silis Inc. enters into a licensing contract with a distributor in a new international market. B) Silis Inc. acquires a component parts manufacturer who previously supplied to Silis' competitor. C) Silis Inc. sets up its own distribution channel and retail stores. D) Siliss Inc. joins with Cancity Inc., one of its direct competitors.

D) Siliss Inc. joins with Cancity Inc., one of its direct competitors.

Which of the following accurately describes an organic organization? A) an inflexible organization that fosters slow decision making and high employee motivation B) an inflexible organization that fosters fast decision making and high employee motivation C) a flexible organization that fosters slow decision making and high employee motivation D) a flexible organization that fosters fast decision making and high employee motivation

D) a flexible organization that fosters fast decision making and high employee motivation

33. Paul runs an organization that implements a cost-leadership strategy. This business-level strategy supports both a ____ and _____ structure A) matrix; organic B) M-form; vertical C) simple; organic D) functional; mechanistic

D) functional; mechanistic

Artifacts

Elements that allow corporate culture to be expressed, such as via the design and layout of physical space, symbols, vocabulary, what events are celebrated and highlighted, and how they are celebrated

strategic control and reward systems

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

output controls

Mechanisms in a strategic control-and-reward system that seek to guide employee behavior by defining expected results (outputs), but leave the means to those results open to individual employees, groups, or SBUs.

multidivisional structure (M-form)

Organizational structure that consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility.

Unicorns

Private start-up companies valued at a billion dollars or more

shareholder capitalism

Shareholders—the providers of the necessary risk capital and the legal owners of public companies—have the most legitimate claim on profits.

board of directors

The centerpiece of corporate governance, composed of inside and outside directors who are elected by the shareholders

national culture

The collective mental and emotional "programming of the mind" that differentiates human groups

organizational culture

The collectively shared values and norms of an organization's members; a key building block of organizational design.

specialized assets

Unique assets with high opportunity cost: They have significantly more value in their intended use than in their next best use. They come in three types: site specificity, physical asset specificity, and human-asset specificity.

conglomerate

a company that combines two or more strategic business units under one overarching corporation; follows an unrelated diversification strategy

Foreign Direct Investment (FDI)

a firm's investments in value chain activities abroad

Adverse Selection

a situation that occurs when information asymmetry increases the likelihood of selecting inferior alternatives

Agency Theory

a theory that views the firm as a nexus of legal contracts

transaction costs

all internal and external costs associated with an economic exchange, whether within a firm or in markets

Diversification

an increase in the variety of products and services a firm offers or markets and the geographic regions in which it competes

ambidextrous organization

an organization able to balance and harness different activities in trade-off situations

formalization

an organizational element that captures the extent to which employee behavior is steered by explicit and codified rules and procedures

hierarchy

an organizational element that determines the formal, position-based reporting lines and thus stipulates who reports to whom

Centralization

an organizational element that refers to the degree to which decision making is concentrated at the top of the organization

Holacracy

an organizational structure in which decision-making authority is distributed through loose collections or circles of self-organizing teams

globalization hypothesis

assumption that consumer needs and preferences throughout the world are converging and thus becoming increasingly homogenous

death-of-distance hypothesis

assumption that geographic location alone should not lead to firm-level competitive advantage because firms are now, more than ever, able to source inputs globally

location economies

benefits from locating value chain activities in the world's optimal geographies for a specific activity, wherever that may be

outside directors

board members who are not employees of the firm, but who are frequently senior executives from other firms or full-time professionals

Forward vertical integration

changes in an industry value chain that involve moving ownership of activities closer to the end (customer) point of the value chain

Backward vertical integration

changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain

mechanistic organization

characterized by a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making

real options

choices that afford managers the right but not the obligations to make further investments

co-opetition

cooperation by competitors to achieve a strategic objective

geographic diversification strategy

corporate strategy in which a firm is active in several different countries

product diversification strategy

corporate strategy in which a firm is active in several different product markets

poison pill

defensive provisions to deter hostile takeovers by making the target firm less attractive

industry value chain

depiction of the transformation of raw materials into finished goods and services along distinct vertical stages, each of which typically represents a distinct industry in which a number of different firms are competing

explicit knowledge

knowledge that can be codified; concerns knowing about a process or product

tacit knowledge

knowledge that cannot be codified; concerns knowing how to do a certain task and can be acquired only through active participation in that task

Input Controls

mechanisms in a strategic control-and-reward system that seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures that are considered prior to the value-creating activities

simple structure

organizational structure in which the founders tend to make all the important strategic decisions as well as run the day-to-day operations

matrix structure

organizational structure that combines the functional structure with the M-form

functional structure

organizational structure that groups employees into distinct functional areas based on domain expertise

Global Strategy

part of a firm's corporate strategy to gain and sustain a competitive advantage when competing against other foreign and domestic companies around the world

exploration

searching for new knowledge that may enhance a firm's future performance

principle-agent problem

situation in which an agent performing activities on behalf of a principle pursues his or her own interests

information asymmetry

situation in which one party is more informed than another because of the possession of private information

diversification discount

situation in which the stock price of highly diversified firms is valued at less than the sum of their individual business units

diversification premium

situation in which the stock price of related-diversification firms is valued at greater than the sum of their individual business units

CEO/chairperson duality

situation where the CEO of a publicly traded company is also the chairperson of the board of directors

learning races

situations in which both partners in a strategic alliance are motivated to form an alliance for learning, but the rate at which the firms learn may vary

relational views of competitive advantage

strategic management framework that proposes that critical resources and capabilities frequently are embedded in strategic alliances that span time boundaries

global-standardization strategy

strategy attempting to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost

integration-responsiveness framework

strategy framework that juxtaposes the pressures an MNE faces for cost reductions and local responsiveness to derive four different strategies to gain and sustain competitive advantage when competing globally

multidomestic strategy

strategy pursued by MNEs that attempts to maximize local responsiveness, with the intent that local consumers will perceive them to be domestic companies

Transnational Strategy

strategy that attempts to combine the benefits of a localization strategy (high local responsiveness) with those of a global-standardization strategy (lowest-cost position attainable)

International Strategy

strategy that involves leveraging home-based core competencies by selling the same products or services in both domestic and foreign markets

Corporate Strategy

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

Vertical Integration

the firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs

merger

the joining of two independent companies to form a combined entity

local responsiveness

the need to tailor product and service offerings to fit local consumer preferences and host-country requirements

span of control

the number of employees who directly report to a manager

organizational design

the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization

Horizontal Integration

the process of merging with competitors, leading to industry consolidation

acquisition

the purchase or takeover of one company by another; can be friendly or unfriendly

Norms

unwritten rules that define appropriate employee attitudes and behaviors in employees' day-to-day work and interactions

strategic alliances

voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services

Vertical market failure

when the markets along the industry value chain are too risky, and alternatives too costly in time or money

National Competitive Advantage

world leadership in specific industries

5. XYZ Inc. is a publicly traded company and a highly diversified firm. However, XYZ's most recent stock price is valued less than the sum of all its individual business units. We would conclude that XYZ is currently experiencing a A) diversification discount B) diversification premium C) two for one split D) shareholder rights plan

A) diversification discount

joint venture

A stand-alone organization created and jointly owned by two or more parent companies.

Transaction Cost economics

A theoretical framework in strategic management to explain and predict the boundaries of the firm, which is central to formulating a corporate strategy that is more likely to lead to competitive advantage

Which of the following best illustrates forward vertical integration? A) A firm that manufactures and sells car engines to major automobile companies launches its own line of cars. B) A chain of ice cream parlors launches a brand of toys and accessories for children. C) A multinational coffee chain sources its coffee beans from plantations in Brazil and Vietnam D) A designer shoe company that previously purchased leather from external suppliers establishes its own leather tannery.

A) A firm that manufactures and sells car engines to major automobile companies launches its own line of cars.

Which of the following real-world scenarios best exemplifies information asymmetry in a public stock company? A) Based on a tip-off by a Goldman Sachs employee, the Galleon Group sold its holdings in Goldman Sachs' stocks prior to the announcement of missed earnings estimates. B) GE knew that it could create a profitable venture out of producing green products, so it rolled out the Ecomagination strategy. C) Mark Hurd, CEO of HP, was unaware of the sexual-harassment allegations, and the board's demand for him to resign caught him by surprise. D) Goldman Sachs followed through with the Abacus deal despite knowing its shortcomings.

A) Based on a tip-off by a Goldman Sachs employee, the Galleon Group sold its holdings in Goldman Sachs' stocks prior to the announcement of missed earnings estimates.

37. Why should managers using the M-form organizational structure to support a related-diversification strategy ideally concentrate decision making at the top of the organization? A) It allows a high level of integration B) It helps contain the core competencies within a strategic business unit (SBU) C) It leads to competition between SBUs D) It helps evaluate each SBU as a stand-alone profit-and-loss center

A) It allows a high level of intergration

Maria wants to pursue an international strategy but is concerned that foreign markets aren't ready for her products and services. You recommend that she engage in ________, which would be contract based and would limit risk and exposure of her investments. A) exporting B) licensing C) equity alliance D) greenfield operations

A) exporting

Business Ethics

An agreed-upon code of conduct in business, based on societal norms.

stock options

An incentive mechanism to align the interests of shareholders and managers, by giving the recipient the right (but not the obligation) to buy a company's stock at a predetermined price sometime in the future.

Specialization

An organizational element that describes the degree to which a task is divided into separate jobs (i.e. the division of labor)

real-options perspective

Approach to strategic decision making that breaks down a larger investment decision into a set of smaller decisions that are staged sequentially over time

48. One way to foster ethical behavior in employees is to A) avoid codifying organizational culture B) create a control system that encourages desired values C) view clients as counter parties to transactions D) align the vision statement of the organization with its informal culture

B) create a control system that encourages desired values

What is the main reason that most mergers and acquisitions negatively affect shareholder value? A) The entire market becomes an oligopoly or a monopoly. B) Promised synergies never take place. C) Market conditions change too quickly. D) Companies that resist acquisitions are subject to the "winner's curse."

B) Promised synergies never take place.

44. According to Michael Porter, which of the following is a problem with many publicly traded companies? A) Shareholders of publicly traded companies do not have a legitimate claim on profits B) They have defined value creation too narrowly in terms of financial performance C) There is no transferability of stock ownership in publicly traded companies D) Publicly traded companies have no legal standing and are not responsible for their debts

B) They have defined value creation too narrowly in terms of financial performance

27. For which of the following companies will geographic distance be the most relevant factor in deciding whether to trade with a target country? A) a firm that manufactures cell phone batteries B) a firm that extracts and exports iron ore C) a firm that produces movies D) a firm that sells wristwatches

B) a firm that extracts and exports iron ore

In 2013, CEO Hsieh announced that Zappos would implement a reorganization in which, as Hsieh said, "... employees ... act more like entrepreneurs and self-direct their work ..." Hsieh changed Zappos from A) a holacracy to a hierarchy. B) a hierarchy to a holacracy. C) a decentralized structure to a formalized structure. D) a bottom-up to a top-down style.

B) a hierarchy to a holacracy.

46. Domenick is a recent graduate who states that he has interned at a major accounting firm so that his value as a candidate for employment increases. A start-up recruits Domenick based on his stated credentials without verifying them. Two days into the job, Domenick's team lead realizes that Domenick does not know much of what he claimed to know during the interview. This scenario best exemplifies A) moral hazard B) adverse selection C) shared value creation D) corporate governance

B) adverse selection

1. Billy is the CEO of Billy's Kicks, a soccer ball retailer. He decides to purchase the synthetic rubber manufacturing firm so he can create his own soccer balls and sell them, nationally, in his retail stores. In order to do this, Billy will need to engage in ________, which is a corporate level strategy. A) forward vertical integration B) backward vertical integration C) horizontal integration D) differentiation

B) backward vertical integration

Jennifer is the CEO of JustFixIt Inc., a firm that merges technology with commercial hardware. She has been struggling with the decision to allocate her resources for the development of a new system or go to the market and search for an already established system. The Board of Directors for JustFixIt Inc. suggested that enter a contractual agreement with a partner. This scenario best illustrates the concept of A) buy-sell-or-trade framework. B) build-borrow-or-buy framework. C) the horizontal and vertical integration frameworks. D) the strategic alliance framework.

B) build-borrow-or-buy framework.

Pete E' Gee sell's Big Dog Choppers, a special type of motorcycle. His business generates roughly 80 percent of his revenues from selling these motorcycles and about 20 percent on motorcycle repair and service. Pete E' Gee would be classified as a ________ firm. A) single business B) dominate business C) related diversification D) unrelated diversification

B) dominate business

13. A drawback involved in using cross-border strategic alliances to enter new foreign markets is that A) the foreign firm will need to make larger investments when compared to entering the new market on its own B) some of the firm's proprietary know-how may be appropriated by the foreign partner C) all potential business risks in the new market will have to be faced alone by the foreign firm D) the shareholder value of the foreign partner will decline drastically

B) some of the firm's proprietary know-how may be appropriated by the foreign partner

Todd Wilkinson, the founder of 123.com, looked outside his firm for the right talent in order to develop his firm's website. The search led him and his team to a different country where they were able to procure the right talent to get the job done. This example best illustrates the concept of A) insourcing B) strategic outsourcing C) investments in human capital D) value chain analysis

B) strategic outsourcing

Rundofase International, a large conglomerate, procures a few component parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. Aside from this, the company does not solely depend on outside distributors to reach its customers. In fact, it has its own retail stores to distribute its products. In this scenario, which of the following alternatives to vertical integration is Rundofase International applying? A) concentric integration B) taper integration C) horizontal integration D) conglomerate integration

B) taper integration

inside directors

Board members who are generally part of the company's senior management team; appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance.

26. Dinotopia is a country of English-speaking people and has a very profitable economy. Which of the following countries is most likely to be the closest to Dinotopia in terms of cultural distance? A) Khemed, which has the same wealth and per capita income as Dinotopia B) Luftnarp, which has a very profitable economy and where people speak Luftnarpian C) Maldonia, where people speak English and have a low standard of living D) Moloni Republic, which is located close to Dinotopia and is easily accessible by road

C) Maldonia, where people speak English and have a low standard of living

Stark Industries is a public stock company. Which of the following statements about the company best illustrates the fact that its investors have limited liability? A) Employees of Stark Industries are legally permitted to invest their capital in the company's stock. B) Employees of Stark Industries are also the owners of the company. C) Shareholders of Stark Industries are responsible to the company only to the capital they have invested. D) Shareholders of Stark Industries are not permitted to trade their company stock at the New York Stock Exchange (NYSE).

C) Shareholders of Stark Industries are responsible to the company only to the capital they have invested.

28. Which of the following is the most likely advantage of using foreign acquisitions or greenfield plants as a foreign-entry mode? A) They are easy to initiate and terminate B) They require low amounts of investments in terms of capital C) They reduce a firm's exposure to loss of reputation D) They are based on contracts rather than ownership

C) They reduce a firm's exposure to loss of reputation

Sonron Auto Corporation generates 85 percent of its annual revenues by manufacturing luxury cars. The company derives 15 percent of its annual revenues by selling its sports merchandise that includes apparel, shoes, and other accessories under the same brand name. Which of the following terms best describes Sonron Auto Corporation? A) a conglomerate B) a subsidiary C) a dominant-business firm D) a single-business firm

C) a dominant-business firm

43. Janet hires Vanessa to perform a critical task in her organization. However, Vanessa has misrepresented her knowledge, skills, and abilities and Janet has no way of knowing whether Vanessa can indeed perform well. This is an example of A) agency theory B) disparate treatment C) adverse selection D) ineffective corporate governance

C) adverse selection

16. The Konex Hotel Group purchased Green-Plus Hotels for an estimated value of $120 billion. All the hotels previously owned by Green-Plus Hotels are now managed by the Konex Hotel Group and are known as Konex hotels. What does this scenario best illustrate? A) a merger B) a joint venture C) an acquisition D) an equity alliance

C) an acquisition

Which of the following statements best explains why Walmart is finding it difficult to replicate its existing business model in India? A) because of the political differences between India and the United States B) because NAFTA prohibits Walmart from investing in countries outside North America C) because of the large economic distance between the United States and India D) because Indian consumers have not accepted Walmart's low-cost strategy

C) because of the large economic distance between the United States and India

30. A firm pursuing a transnational strategy would believe that A. key business functions should be located in its home country headquarters. B. local-responsiveness is more important than cost-reductions for competitive advantage. C. best practices, ideas, and innovations should be diffused throughout the world. D. the majority of the value creation should take place in the home country.

C) best practices,ideas, and innovations should be diffused throughout the world

29. To keep track of the latest developments in computing, Lenovo's research centers are located in China, U.S.A., and Japan. Also, to benefit from low-cost labor and reduced shipping costs, the company's manufacturing facilities are in Mexico, India, and China. Which of the following strategies would require Lenovo to organize its operations worldwide in order to develop uniform products for its domestic and foreign markets? A. a transnational strategy B. a multidomestic strategy C. a localization strategy D. a global-standardization strategy

D) a global-standardization strategy

17. How does horizontal integration within an industry affect the surviving firms? A) by increasing the threat the surviving firms will face from new entrants B) by strengthening the rivalry among existing firms C) by requiring the surviving firms to shift their focus from nonprice to price competition D) by strengthening the bargaining power of the surviving firms vis-a-vis suppliers and buyers

D) by strengthening the bargaining power of the surviving firms vis-a-vis suppliers and buyers

9. In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should A) infuse more capital into the strategic business unit B) provide more human resource to the business C) hold the business till it turns into a star D) divest the strategic business unit

D) divest the strategic business unit

34. Bill Lewis is the CEO of Nordic Technologies Inc., a firm that offers a limited line of standard products that competes in a similar manner with a narrow, local market focus and whose competitive advantage is a focus on low cost derived from gaining economies of scale. Bill should use a A) group of strategic business units that each have a geographic focus B) matrix structure that combines functional departments with geographic divisions C) simple structure D) functional structure

D) functional structure

Umbrella Corp is a notebook manufacturing company based in Ohio. Umbrella Corps' main market is Texas. It aims at providing its products at better prices than its competitors. Which of the following structures is Umbrella Corp likely to use if it has functional setup? A) organic B) simple C) matrix D) mechanistic

D) mechanistic

Gordon's role in providing inside information to Pearson Specter Litt for the benefit of Pearson Specter Litt's stockholders and himself is an example of A) shareholder capitalism. B) adverse selection. C) shared value creation. D) moral hazard.

D) moral hazard.

22. Genco Pura Olive Oil Company has established themselves as a strong differentiator in their respective SBUs but now wishes to explore international strategies. They are prepared to fully customize their product offerings to meet the needs of the foreign country that they are entering; having conducted many surveys on local preferences, tastes, and requirements, the Genco Pura Olive Oil Company will more than likely pursue a ___ strategy A) global standardization B) cost-leadership C) transnational D) multidomestic

D) multidomestic

10. Blackzim Inc. entered the low-priced digital watch market several years ago. The firm's earnings have been unsteady but might be growing. According to the BCG growth matrix, Blackzim is a A) cash cow B) star C) dog D) question mark

D) question mark

18. Codehow Inc. is a large firm involved in the highly competitive market of high-tech medical equipment. In this market, smaller firms that focus on research are constantly making new technological developments. Which of the following approaches would best serve the needs of Codehow? A) mergers B) serial mergers C) acquisitions D) serial acquisitions

D) serial acquisitions

corporate venture capital (CVC)

Equity investments by established firms in entrepreneurial ventures; CVC falls under the broader rubric if equity alliances

Multinational Enterprise (MNE)

a company that deploys resources and capabilities in the procurement, production, and distribution of goods and services in at least two countries

absorptive capacity

a firm's ability to understand external technology developments, evaluate them, and integrate them into current products or create new ones

inertia

a firm's resistance to change the status quo, which can set the stage for the firm's subsequent failure

Licensing

a form of long-term contracting in the manufacturing sector that enables firms to commercialize intellectual property

managerial hubris

a form of self-delusion in which managers convince themselves of their superior skills in the face of clear evidence to the contrary

core competence-market matrix

a framework to guide corporate diversification strategy by analyzing possible combinations of existing/new core competencies and existing/new markets

organizational structure

a key to determining how the work efforts of individuals and teams are orchestrated and how resources are distributed

related constrained diversification strategy

a kind of related diversification strategy in which executives pursue only businesses where they can apply the resources and core competencies already available in the primary business

related linked diversification strategy

a kind of related diversification strategy in which executives pursue various businesses opportunities that share only a limited number of linkages

Franchising

a long-term contract in which a franchisor grants a franchisee the right to use the franchisor's trademark and business processes to offer goods and services that carry the franchisor's brand name

shared value creation framework

a model proposing that managers have a dual focus on shareholder value creation and value creation for society

Objectives and Key Results (OKRs)

a strategic reward and control system that helps a team and its individual members monitor objectives and outcomes, as well as set ambitious stretch goals

Corporate Governance

a system of mechanisms to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally

taper integration

a way of orchestrating value activities in which a firm is backwardly integrated but also relies on outside market firms for some of its supplies, and/or is forwardly integrated but also relies on outside market firms for some of its distribution

hostile takeover

acquisition in which the target company does not wish to be acquired

exploitation

applying current knowledge to enhance firm performance in the short term

product-market diversification strategy

corporate strategy in which a firm is active in several different product markets and several different countries

external transaction costs

costs of searching for a firm or an individual with whom to contract, and then negotiating, monitoring, and enforcing the contract

internal transaction costs

costs pertaining to organizing an economic exchange within a hierarchy; also called administrative costs

cultural distance

cultural disparity between an internationally expanding firm's home country and its targeted host country

non-equity alliance

partnership based on contracts between firms

equity alliance

partnership in which at least one partner takes partial ownership in the other

What most likely happens when a firm optimizes its organizational structure to its current situation? A) It plants the seed of subsequent failure: the tightly coupled system can break apart when internal or external pressures occur. B) It achieves superior performance. C) It makes it difficult for managers to make the necessary changes due to its effects on resource allocation and power distribution. D) It transforms strategy into actions and business models.

A) It plants the seed of subsequent failure: the tightly coupled system can break apart when internal or external pressures occur.

Which of the following provides an example of a common drawback of a functional strategy? A) Jack had a difficult time communicating efficiently with the manager of another department. B) Leslie was surprised about the inflexibility of her firm when it rejected her marketing plan. C) Chris's manager dismissed his idea because it was too innovative. D) Denise did not accept the position with the firm because it has an ineffective cost-leadership strategy.

A) Jack had a difficult time communicating efficiently with the manager of another department.

While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S. market. What is the reason behind this strategic difference? A) KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company B) Chick-fil-A has a larger customer base and number of outlets in the U.S. market than its competitor KFC. C) KFC wants to follow a differentiation strategy, and Chick-fil-A wants to pursue a cost-leadership strategy. D) Chick-fil-A is part of a large conglomerate, whereas KFC has more flexibility to pursue a geographic diversification strategy.

A) KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company

20) Overall, was the Adidas acquisition of Reebok a success? A) No. Adidas has slipped from number two in the U.S. market to number three. B) Yes. By acquiring Reebok, Adidas improved its market share and made sure that Nike could not acquire it. C) The acquisition was a success for Reebok but not for Adidas. D) The acquisition was a success for Adidas but not for Reebok.

A) No. Adidas has slipped from number two in the U.S. market to number three.

________, which captures the cultural fit between different firms, is one key element needed when selecting an alliance partner. A) Partner compatibility B) Partner commitment C) Joint ventures D) Partner competency

A) Partner compatibility

50) A bank, Seaside, offers a customer a personal loan. In which of the following circumstances will this decision most likely be considered unethical? A) The bank knows that the customer will be unable to pay the loan if the interest rate rises. B) The bank is not aware of the investments made by the customer. C) The bank has the financial statements of the customer, but it is not aware of each source of income. D) The bank is depending on the customer to pay back the loan before term completion.

A) The bank knows that the customer will be unable to pay the loan if the interest rate rises.

Which of the following is a common result of a hostile takeover of a company? A) The new owner sells the company in pieces. B) The new owner keeps the company intact. C) The new owner keeps the board of directors of the company the same. D) The new owner enhances the reputations of the company's management.

A) The new owner sells the company in pieces.

38. Why is it difficult to imitate the organizational culture of firms like Southwest Airlines and Zappos? A) Their culture reflects complex relationships with their employees, customers, and suppliers B) They produce products that cannot be copied easily because of their complex designs C) The employees in the organization themselves are unaware of the factors contributing to their organizational culture D) It is not commercially viable for other companies to implement the same culture

A) Their culture reflects complex relationships with their employees, customers, and suppliers

Which of the following is true of acquisitions? A) They can be friendly or hostile. B) They can occur only when the involved entities are of comparable size. C) In acquisitions, two independent companies join to form a separate third entity. D) Acquisitions increase the competitive intensity in an industry.

A) They can be friendly or hostile.

Which of the following statements is true of joint ventures? A) They enable the exchange of both tacit and explicit knowledge. B) They reduce the possibilities of trust and commitment. C) They are characterized by single reporting lines. D) They cannot entail long negotiations.

A) They enable the exchange of both tacit and explicit knowledge.

About 20 years ago, Xx-zobam, Inc., produced a sturdy, lightweight backpack in a market that was rapidly growing. Sturdy Light became a leader in this market. Eventually, the backpack market reached the maturity stage and slowed down. However, by this time, Xx-zobam had developed a strong brand name and continued to steadily lead the market. Which of the following describes this scenario? A) Xx-zobam was a star that developed into a cash cow. B) Xx-zobam was a question mark that developed into a star. C) Xx-zobam was a dog that developed into a question mark. D) Xx-zobam was a cash cow that developed into a star.

A) Xx-zobam was a star that developed into a cash cow.

Grace wants to form a voluntary arrangement with another firm in order to gain more flexibility in her supply chain, complementarity to a few of her support activities via her value chain, and strengthen her firm's overall competitive position. Grace is looking for a simple and common type of alliances, like A) a nonequity alliance. B) an equity alliance. C) a joint venture. D) a merger.

A) a nonequity alliance.

To help increase and maintain ethical values for future managers, a group of Harvard Business School students developed A) a voluntary MBA oath that explicitly recognizes the role of business in society and its responsibilities beyond shareholders. B) the triple bottom line framework to guide managers ethical decisions. C) an ethical value chain that attempts to promote societal benefits. D) a new way to examine business processes that meet the needs of the community.

A) a voluntary MBA oath that explicitly recognizes the role of business in society and its responsibilities beyond shareholders.

6. A primary advantage of organizing economic activity within firms is the A) ability to coordinate highly complex tasks to allow for specialized division of labor B) low administrative costs because of reduced bureaucracy C) eradication of the principal-agent problem D) high-powered incentive to work as salaried employees for an existing firm

A) ability to coordinate highly complex tasks to allow for specialized division of labor

There are several mechanisms in which strategic alliance can be governed. Which of the following below is not one of those ways? A) acquisitions B) nonequity alliances that contain contractual agreements C) equity alliances D) joint ventures

A) acquisitions

Which of the following has been a key driver for firms to expand globally during the Globalization 3.0 stage? A) benefits from lower labor costs in manufacturing and services B) free use of formerly protected intellectual property C) increasing trade barriers that protect businesses D) exporting newly available raw materials, such as rubber and coal

A) benefits from lower labor costs in manufacturing and services

The managers at Acme Corporation decided that their firm needed to diversify because of overall falling sales and lower performance in one sector. How does diversifying compensate for the declining performance in this sector? A) by having higher performance in another sector B) by sharing their market power C) by increasing the firm's risk in another sector D) by motivating managers

A) by having higher performance in another sector

2. Bob is the strategic business unit (SBU) CEO in charge of manufacturing cufflinks for men's clothing. While the market he competes in is low growth, Bob's SBU's earnings and cash flow are both ranked at high and stable. When examining Bob's SBU through the Boston Consulting Group (BCG) matrix lens, we can conclude that his SBU would be classified as a A) cash cow B) dog C) star D) question mark

A) cash cow

7. Which of the following best illustrates site specificity? A) equipment necessary for mining bauxite and aluminum smelting B) bottling machinery to manufacture bottles with trademarked shapes C) investment made in human capital to master procedures of a specific organization D) investment made to train employees to operate computers

A) equipment necessary for mining bauxite and aluminum smelting

A firm that uses a structure that is organized along different business functions such as HR, R&D, Sales, and Marketing and also along different geographical areas such as different countries of the world is most likely using a ________ structure. A) global matrix B) multidivisional C) functional D) simple

A) global matrix

21. Vinny, the CEO of Rainholm Industries is looking to employ a ____ strategy, which would take advantage of economies of scale and location economies. He wishes to pursue and establish a global division of labor based on wherever best-of-class capabilities reside at the lowest possible cost for Rainholm Industries A) global standardization B) multidomestic C) international D) transnational

A) global standardization

Aperture Science Inc. has decided to enter into a foreign market by setting up its own production facilities and distribution channels from scratch. This will give it strong control over all its business activities. Which of these foreign-entry modes will Maddox most likely choose? A) greenfield operation B) export C) joint venture D) acquisition

A) greenfield operation

11. NoRu Inc. is a publicly traded firm that does not wish to be acquired by FRESHPoP Corporation, a much larger publicly traded firm, who is planning an acquisition of NoRu Inc. This is an example of a A) hostile takeover B) friendly takeover C) joint venture D) strategic alliance

A) hostile takeover

Stephen is a mid-level manager for a high-tech start-up. He's just been asked by his boss to perform an activity that may be unethical. To improve his ethical decision making, Stephen should A) imagine whether he would feel comfortable explaining and defending the decision in public. B) go forward with the decision without considering the ethical ramifications. C) think about the ethical dilemma but base his decision upon what's best for his career in the short term. D) call his parents and ask them for advice.

A) imagine whether he would feel comfortable explaining and defending the decision in public.

Sirius Cybernetics Inc. has a national competitive advantage in the pharmaceutical industry. This means that the country A) is a world leader in the pharmaceutical industry. B) has nationalized the pharmaceutical industry. C) has low levels of competition, providing other multinational companies with an opportunity to take over the pharmaceutical industry. D) is a potential foreign market for multinational pharmaceutical companies to sell their products.

A) is a world leader in the pharmaceutical industry.

42. Josie wants to invest in the stock market but is afraid of losing more money than what she invests. Josie need not worry because of A) limited liability for investors B) transferability of investor ownership C) legal personality D) separation of legal ownership and management control

A) limited liability for investores

4. When examining the core competence-market matrix, the most challenging diversification strategy occurs when firms attempt to combine _____ with _____. If done successfully, the firm could have the potential for "mega-opportunities" that may lead to competitive advantage. A) new core competencies, new markets B) new core competencies, existing markets C) existing core competencies, existng markets D) existing core competencies, new markets

A) new core competencies, new markets

47. Ethics is A) not synonymous with law B) impossible to codify into law C) universal and cannot differ between cultures D) the minimum acceptable standard in business practice

A) not synonymous with law

41. Jack is a board member of firm A but is not an employee of firm A; Jack is a senior executive from firm B. Jack can be best described as a(n) A) outside director B) inside director C) shareholder D) philanthropists

A) outside director

32. Vanessa just graduated from law school and wants to open her own law firm. Vanessa should probably adopt a(n) _______ structure for the firm. A)simple B) functional C) M-form D) matrix

A) simple

Since Coca-Cola focuses on selling only soft drinks, a low degree of product diversification, we would conclude that they compete in a(n) ________ market versus their main competitor PepsiCo, that sells a wide variety of products. A) single product B) multiple product C) related diversification D) unrelated diversification

A) single product

14. In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech start-up Genentech. In 2009, after witnessing the success of Genentech's drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates A) the real-options perspective B) co-opetition C) explicit knowledge D) the stakeholder strategy

A) the real-options perspective

45. In a public stock company, senior executives, such as the CEO, face agency problems when A) they delegate authority of strategic business units to general managers B) they decide to get involved in the day-to-day operations of a company C) the board of directors possesses more information about the company then they do D) the firm designs work tasks, incentives, and employments that minimize opportunism

A) they delegate authority of strategic business units to general managers

Jane is the CEO of Aperture Science LLC and wishes to develop additional competencies for her business. She is mostly interested in taking advantage of the ________, which are clustered firms that have unique skill sets located in specific geographic regions. A) local social comparisons B) communities of learning C) Hofstede's cultural dimensions D) transnational strategies

B) communities of learning

A candy company called Blackzim Inc. forms an agreement with another candy company called Streethex Inc. Through this agreement, Blackzim owns 30 percent of Streethex. However, Streethex does not own any part of Blackzim. This type of agreement is called a(n) A) nonequity alliance. B) equity alliance. C) joint venture. D) capital venture.

B) equity alliance.

In Michael Porter's diamond framework, ________ conditions describe a country's endowments in terms of natural, human, and other resources. A) market B) factor C) demand D) supply

B) factor

50. According to the perspective of shareholder capitalism, shareholders in public stock companies A) are restricted from buying shares of two competing companies B) have the most legitimate claim on proftis C) have significant decision-making power D) have unlimited financial liability

B) have the most legitimate claim on profits

19. Judging from the Disney-Pixar merger, which of these is an effective way to create shareholder value from a merger? A) Integrate the acquired company as fully as possible, merging staffs and locations, so that all employees have as similar an on-the-job experience as possible B) If the acquired company creates high-quality products or services, don't force it to mirror the management style of the acquiring company C) Cut prices at the acquired company but not the acquiring company so that the acquisition covers all consumer prices points D) Raise consumer prices at the acquiring company and the acquired company to reflect the fact that the market is now less competitive

B) if the acquired company creates high-quality products or services, don't force it to mirror the management style of the acquiring company

15. Which of the following statements is true of an equity alliance? A)An equity alliance is based on contractual agreements rather than partial ownership B) In an equity alliance, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible C) In an equity alliance, a standalone organization is created that is jointly owned by two or more parent companies D) An equity alliance creates weaker ties between the alliance partners when compared to a nonequity alliance

B) in an equity alliance, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible

A firm is said to be pursuing a polycentric innovation strategy when A) its research facility is situated in the headquarters and all other business activities are located around the world. B) it draws from multiple, equally important research facilities located throughout the world. C) it restricts its innovation to Western economies and production to developing markets. D) its knowledge flow takes a one-way path—from its headquarters to the subsidiaries.

B) it draws from multiple, equally important research facilities located throughout the world.

49. What is the result of managers' pursuit of strategies that define value creation too narrowly in public stock companies? A) It gives the managers greater control of the performance of the organization in the long term B) It reduces the trust of shareholders in the organization as a vehicle for value creation C) It helps companies increase firm profits by creating shared value D) It enables companies to create social value by addressing society's needs but prevents them from creating economic value for shareholders

B) it reduces the trust of shareholders in the organization as a vehicle for value creation

25. Duke & Duke Autos Inc. has shifted its research and development unit from its home country to Germany. This allows the company to be better informed about the latest developments in the automotive industry by tapping into the highly advanced automotive industry in Germany. In this scenario, Duke & Duke Autos Inc. is reaping the benefits of A) economies of scope B) location economies C) resource immobility D) resource ambiguity

B) location economies

35. Leslie has completed the organizational design of her firm but is now interested in the second key informal building block, which she believes will help her firm achieve a competitive advantage. Specifically, she's interested in how things will get done on a day-to-day basis and the intangible piece of her organization that cannot be easily codified. Leslie wants to build an effective A) employee handbook B) organizational culture C) list of standard operating procedures D) innovation strategy

B) organizational culture

31. Jerry is one of the SBU managers for a firm that has been in business for over 50 years. The external environment in which they have operated has changed significantly in the past decade, but this firm is still operating under a "business as usual" mantra. Jerry can't seem to convince the upper level executives to reorganize the firm's structure and formal reporting relationships. This firm is probably experiencing A) a failed strategy B) organizational inertia C) a change in leadership D) increased morale due to their organizational culture

B) organizational inertia

3. Managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self-interests. What does this best illustrate? A) diseconomies of scale B) principal-agent problem C) experience-curve effects D) information asymmetries

B) principal-agent problem

8. J-Texon Manufacturing is a large conglomerate that operates only in its home country. The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries. Which of the following diversification strategies does this best illustrate? A) process diversification B) product diversification C) geographic diversification D) market diversification

B) product diversification

All of the following are examples of external-governance mechanisms except A) industry analysts. B) shareholders. C) auditors. D) government regulators.

B) shareholders.

12. Tom Terry is the CEO of BuildIt.com but wants a physical retail presence. In order to accomplish this, Tom formed a joint venture with a major real estate tycoon who has a significant foothold in the commercial property sector. This venture will require exchanging more than just codified information; as such, Tom should expect to share A) his knowledge of financial markets B) his firm's supply chain C) both tacit and explicit knowledge D) only explicit knowledge

C) both tacit and explicit knowledge

A firm that uses a functional structure will typically have efficient top-down and bottom-up communication, but A) dual reporting relationships typically blur lines of authority. B) the top management team may fail in their coordination and control efforts of functional-level employees. C) communication may be hampered among the horizontal, distinct organizational functions. D) career paths and professional development are limited.

C) communication may be hampered among the horizontal, distinct organizational functions.

Hot Potatoes, a fast food restaurant, operates through a business model in which individuals can buy the rights to set up Hot Potatoes stores and sell the company's food in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month. The owners of the stores have to offer a menu approved by the company's headquarters and also maintain consistent customer service as expected in its flagship store. Which of the following alternatives to integration does this best illustrate? A) crowdsourcing B) credit rationing C) franchising D) bootstrapping

C) franchising

30) Walmart sells live animals (snakes, eels, toads, etc.) for food preparation in China whereas IKEA sells kimchi refrigerators and metal chopsticks in South Korea. These examples illustrate the need for ________ which often requires the competing firm to tailor their products and services to meet the needs of the market in which they are competing. A) cost-leadership B) international strategy C) local responsiveness D) globalization hypothesis

C) local responsiveness

Which of the following is an unintended side effect of a high degree of specialization in an organization? A) decreased trade-off between breadth and depth of knowledge B) decreased opportunities for the division of labor C) reduced employee satisfaction due to repetition of tasks D) reduced productivity

C) reduced employee satisfaction due to repetition of tasks

organic organization

Characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making.

Toyota's global success in the 1990s and early 2000s was based to a large extent on a network of world-class suppliers in Japan. This tightly knit network allowed for fast two-way knowledge sharing—this in turn improved Toyota's quality and lowered its cost, which it leveraged into a successful blue ocean strategy at the business level. This example shows the effectiveness of A) factor conditions. B) competitive intensity in a focal industry. C) demand conditions. D) related and supporting industries/complementors.

D) related and supporting industries/complementors.

Grameen Bank in Bangladesh was founded to provide microcredit to impoverished farmers who wanted to start their own entrepreneurial ventures that would help them climb out of poverty. This best exemplifies Michael Porter's suggestion that A) managers need to keep economic needs and societal needs disconnected from each other. B) a firm should expand its internal value chain to include nontraditional partners. C) businesses should focus on creating regional clusters such as Silicon Valley in the United States. D) the largest but poorest socioeconomic group can yield significant business opportunities.

D) the largest but poorest socioeconomic group can yield significant business opportunities.

23. European aircraft maker Airbus invested $600 million in Mobile, Alabama, to build jetliners. Which of the following statements best explains why it used this strategy? A) to take advantage of the high labor costs in the southern United States B) to take advantage of the high costs of living in the southern United States C) to take advantage of the low impact of globalization in the United States D) to take advantage of lower taxes in the southern United States

D) to take advantage of lower taxes in the southern United States