Chap 8
______ are partnerships in which at least one partner takes partial ownership in the other partner.
Equity alliances
______ is a situation in which one party has more knowledge than another due to the possession of private knowledge.
Information asymmetry
Which of the following is a fundamental corporate-level strategic decision?
What products and services should the firm offer?
Transaction cost economics help managers do which of the following?
choose which activities to carry out within the firm
Stages four and five of the industry value chain involve ______.
sales after-sales service and support marketing
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
What is the purpose of the core competence--market matrix?
to provide guidance regarding how to diversify in order to grow the company
Corporate strategy needs to be dynamic over time in order to ______
respond to the ever-changing external environment diversify to capture growth opportunities keep and maintain a competitive advantage
Amazon's explosive success is largely due to which of the following?
vertical integration diversification
What happens when the markets along the industry value chain are too risky and alternatives too costly in time or money?
vertical market failure
________ is best described as the changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain
backward vertical integration
What is a major disadvantage of organizing economic activity within firms?
the principal-agent problem
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
______ refers to the firms' ownership of its production of needed inputs or of the channels by which it distributes its outputs.
vertical integration
A(n) ______ is a situation in which the stock price of a highly diversified firms is valued as less than the sum of their individual business units.
diversification discount
Firms that pursue an unrelated diversification strategy and are unable to create additional value tend to experience which of the following?
diversification discount
Which of the following best illustrates a dominant-business firm?
Siova Inc. is a luxury brand that derives 90 percent of its revenues from its apparel line and 10 percent of its revenues from its premium furniture business unit.
______ is a way of orchestrating value activities in which a firm is backwardly or forwardly integrated and relies on outside-market firms for supplies or distribution.
Taper integration
What are the three dimensions along which executives formulate corporate strategy?
The geographic scope The degree of vertical integration The type of diversification
A firm follows a(n) ______ diversification strategy when it derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity.
related
Which type of diversification is most likely to lead to superior performance?
related diversification
When a multi-business firm pools and shares resources and leverages competencies across different business lines, it is following a(n)
related diversification strategy
In the taper integration system, a firm has ______ reliance on outside markets.
some
The lemons problem suggests that information asymmetries can cause
superior goods to be replaced by inferior ones
A benefit of ______ is that in-house suppliers and distributors are subjected to market competition, which allows the firm to assess performance in comparison to others.
taper integration
The most integrated alternative to vertical integration is
the parent-subsidiary relationship
Unlike short-term contracts, long-term contracts encourage firms to make ______ investments.
transaction-specific
What are advantages of organizing economic activity inside of a firm?
transaction-specific investments the creation of a community of knowledge command-and-control decisions
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.
transaction; lower
According to the make-or-buy continuum, strategic alliances are more integrated than short-term contracts.
true
When a firm is more efficient in organizing economic activity than markets are, the firm should
vertically integrate
What is a related-linked diversification strategy?
one in which executives pursue various businesses opportunities that share only a limited number of linkages
Olivia's, an olive oil company, grows and harvests olives, makes olive oil, and distributes its olive oil to its retail shop. Olivia's is an example of
a fully vertically integrated company
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 flying first class on all business trips
In a fully vertically integrated organization,
all stages of the industry value chain are conducted within the firm
Which of the following is an example of related-constrained diversification
an automobile company that manufactures petrol cars expanding into the diesel car industry
When a manufacturer of computers starts to produce its own computer components, the manufacturer engages in ______ vertical integration.
backward
Which of the following is the best option if a company wants to show strong commitment to a partner firm without acquiring that firm?
equity alliance
In the ______ quadrant of the core competence--market matrix, the focus is on leveraging current core competencies to improve current market position.
existing competence--existing market
An inverted U-shaped relationship between the type of diversification and overall firm performance indicates that
high and low levels of diversification are generally associated with lower overall performance.
Specialized assets have
high opportunity cost
Advantages of organizing economic activity at the market level include which of the following?
increased flexibility high-powered incentives
Each stage of the vertical value chain represents a distinct ______ in which a number of different firms are competing.
industry
The ______ depicts the transformation of raw materials into finished goods and services along distinct vertical stages, each of which represents a distinct industry in which a number of different firms are competing.
industry value chain
Amazon's continued focus on ______ is a key to its ongoing success.
innovation
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
A(n) __ is a standalone organization created and jointly owned by two or more parent companies.
joint venture
Which of the following is an option for formulating strategy via core competencies
leverage existing core competencies to improve current market position
North Carolina National Bank (NCNB) used its unique core competency of identifying, appraising, and integrating acquisition targets to be rebranded as Bank of America, one of the largest banks in the United States. This is an example of a firm
leveraging existing core competencies to improve current market position.
Long-term contracts include which of the following forms?
licensing franchising
One way to overcome the principal-agent problem is to
make managers owners through stock options
Which diversification strategy involves executives pursuing various business opportunities that share only a small number of similarities?
related-linked
The Boston Consulting Group growth-share matrix locates a firm's individual SBUs in which of the following dimensions?
relative market share speed of market growth
Which type of alternative on the make-or-buy continuum involves competitive bidding by external companies hoping to acquire a temporary arrangement with a firm?
short term contracts
Which types of diversification tend to have the lowest performances?
single business unrelated diversification
Why did Coca-Cola enter into a strategic alliance with Monster?
so that it could gain private information to determine whether an acquisition might be beneficial
Which of the following is an example of internal transaction costs?
the costs pertaining to setting up a shop floor
The degree of vertical integration corresponds to
the number of industry value chain stages in which a firm directly participates
______ is a theoretical framework that helps explain and predict the boundaries of the firm.
Transaction cost economics
The rationale behind related diversification is to
Benefit from economies of scale and scope
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
What is the shape of the relationship between the level of diversification and performance
Inverted U