Final Study Flash Cards 10-12

Landon is a senior manager for the firm Anderssen Inc. Because of his experience, he has been appointed to the board of EEC Inc., even though he doesn't work for this firm. He also serves on the boards of several other companies. Landon is a(n) ________ for Anderssen and a(n) ________ for EEC.

inside director; outside director

During the period of Globalization 1.0, the mode of entry into foreign markets primarily involved

exporting goods

Advantages of going global

1.Gain access to a larger market. 2.Gain access to low-cost input factors. Develop new competencies

disadvantage of going global

1.Liability of foreignness 2.Loss of reputation 3.Loss of intellectual property

A functional structure works when a firm has

A narrow focus and small geographic footprint.

Mechanical Structure

A tight organizational structure characterized by rigidly defined tasks, formalization, many rules and regulations, and centralized decision making

Horizontal Structure Dominant

Adaptable & shared tasks. Decentralized decision making. Informal horizontal communication. Vertical & horizontal collab. Few rules. Relaxed hierarchy

________ refers to the degree to which decision making is concentrated at the top of the organization.

Centralization

The functional structure pairs well with

Cost Leadership Strategy with A more mechanistic structure. It allows the company centralize the decision making to nature and upgrade necessary competencies in manufacturing and logistics, to create incentives to foster process innovation to drive down cost and to reap economics of scale.

Vertical Structure Dominant

Fixed & Specialized tasks. Centralized decision making. formal vertical communication. Rigid hierarchical relationships. Many rules. Strict hierarchy of authority

Cost-leadership

Functional •Mechanistic organization •Centralized •Command and control •Core competencies in efficient manufacturing and logistics •Process innovation to drive down cost •Focus on economics of scale

Differentiation

Functional •Organic organization •Decentralized •Flexibility and mutual adjustment •Core competencies in R&D, innovation, and marketing •Product innovation •Focus on economies of scope

Typical Functional Structure

It has 5 functional areas, R&D, engineering and manufacturing, and marketing and sales, human resources, finance and accounting.

Which of the following is a drawback of pursuing a transnational strategy?

It requires a balance between centralization and decentralization, which is difficult to implement.

Multinational enterprise

Multinational enterprise is a company that deploys resources and capabilities in two countries or more.

To effectively implement a differentiation strategy, managers rely on a functional structure that resembles an organization that is highly

Organic

________ refers to a firm's resistance to change the status quo that can set the stage for the firm's subsequent failure.

Organizational inertia

Exploration

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

An external corporate-governance mechanism

The market has activist investors who seek to gain control of an underperforming corporation by buying shares of its stock in the open market. If a company is poorly managed, its performance suffers and its stock price falls to a low enough level, the hostile investors can do a leveraged buyout (LBO

According to Michael Porter, which of the following is a problem with many publicly traded companies?

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

related and supporting industries/complementors

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

The principal-agent problem

a core part of agency theory, which views the firm as a nexus of legal contracts. Conflicts that may arise are to be addressed in the legal realm.

To keep track of the latest developments in computing, Lenovo's research centers are located in China, the United States, and Japan. Also, to benefit from low-cost labor and reduced shipping costs, the company's manufacturing facilities are in Mexico, India, and China. Lenovo's products are the same for its domestic and foreign markets. Which strategy does Lenovo follow?

a global-standardization strategy

organic organization

a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making. Zappos in the opening case is a good example.

Screaming Eagle, a luxury motorcycle company, sells the same motorcycles and offers the same superior services in both its home country and foreign markets. The market it operates in faces low pressures for both local responsiveness and cost reductions. Which of the following strategies within the integration-responsiveness framework does Screaming Eagle most likely pursue?

an international strategy

Mechanistic Organization

characterized by a high degree of specialization and formalization and by a tall hierarchy that relies on centralized decision making. McDonald's is a good example of this organization.

Corporate governance

concerns the mechanisms to direct and control an enterprise in order to ensure that it pursues its strategic goals successfully and legally.

According to the agency theory,

conflicts that arise in corporations should be addressed in the legal realm

When two neighboring, democratic countries that are part of a trading bloc follow different religions and social norms, they most likely have high ________ distance.

cultural

Which of the following foreign entry modes primarily involves producing goods in one country to sell in another?

exporting

organic organization features

flexible information flow among employees in both horizontal and vertical directions; faster decision making; higher employee motivation, retention, satisfaction, and creativity. a higher rate of entrepreneurial behaviors and innovation. So if a company wants to foster R&D and/or marketing as a core competency, it is better to use Organic structures.

Marika received a tip from a close friend who is an executive manager of a publicly traded company called MicroGreen Inc. The manager received some inside information about how to trade MicroGreen stock to get a huge profit. He shared this information with Marika. This scenario is an example of

information asymmetry

location economies.

globalization

Maddox Bauxite Extraction 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?

greenfield operation

According to the perspective of shareholder capitalism, shareholders in public stock companies

have the most legitimate claim on profits.

A greater cultural distance between two trading countries

increases the liability of foreignness.

Downshift 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, Downshift Autos Inc. is reaping the benefits of

location economies

Downshift 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, Downshift Autos Inc. is reaping the benefits of

location economies.

Fine Lines Inc. is a notebook manufacturing company based in Ohio. Fine Lines' main market is Ohio. It aims at providing its products at better prices than its competitors. Which of the following structures is Fine Lines Inc. likely to use if it has functional setup?

mechanistic

A company scientist at a biotechnology company decides to work on his own research project, hoping to eventually start his own firm, rather than on the project he was assigned. However, the company's stockholders are unaware of this situation. This is an example of a(n) ________ in the context of a principal-agent problem.

moral hazard

When a firm diversifies into different product lines and geographies, a ________ structure is preferred.

multidivisional

A trend observed during the Globalization 3.0 stage involves

multinational companies organizing as global-collaboration networks

Esther is the CEO of a line of accessories and cosmetics, Starring Me! Inc., which has retail stores and production units in five countries. In this scenario, Starring Me! Inc. is most likely a

multinational enterprise

Michael Porter's diamond framework explains

national competitive advantage.

Adverse selection

occurs when information asymmetry increases the likelihood of selecting inferior alternatives

Shareholders of public companies need to appoint a board of directors to represent their interests because

of the separation of ownership and control.

CEO/chairperson duality

one person holding both the role of CEO and chairperson of the board. This practice has been declining in recent years

Badlands Corp., a tool maker, is considering where to locate its new factories and offices. According to the CAGE distance model, which of these countries is statistically most attractive to Badlands?

one that is in the same trading bloc as Badlands' home country

The shared value creation framework

provides guidance to managers about how to reconcile the economic imperative of gaining and sustaining competitive advantage with corporate social responsibility. It helps managers create a larger pie that benefits both shareholders and other stakeholders

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

related and supporting industries/complementors.

A high degree of formalization in an organization is most likely to

slow down decision making

A firm's ________ determines how the work efforts of individuals and teams are orchestrated and how resources are distributed.

structure

Jen works as a front-line employee for a nationwide retail store. She reports to a floor manager, who reports to a departmental manager, who reports to a regional supervisor, who reports to a vice president, who reports to the CEO. Which of the following best describes this retail store?

tall structure

Under the CAGE distance framework, the administrative and political distance between two countries primarily increases with

the absence of a trading bloc.

Organizational design is

the process of creating, implementing, and modifying the structure of an organization

Which of the following is the source of the principal-agent problem in publicly traded companies?

the separation of ownership and control

Gary owns shares in a company called Archibald Industries Inc. The company's financial performance has been declining over the past few months, and the value of its stock has been decreasing. Gary wants to proactively cut his losses and therefore sells his shares. Anneke, a trading enthusiast, buys shares in Archibald Industries because she believes that the share prices cannot go anywhere but up. Which of the following characteristics of a public stock company does this scenario best exemplify?

transferability of investor ownership

Ambidextrous Organization

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

Bad Barrels

•An unethical organizational climate

Limited liability for investors

•Encourages investments by the wider public and entrepreneurial risk-taking

Blue ocean

•Functional •Ambidextrous organization •Balancing centralization with decentralization •Multiple core competencies along the value chain required: R&D, manufacturing, logistics, innovation, and marketing, etc. •Process and product innovation •Focus on economies of scale and scope

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 firm's ability to address trade-offs not only at one point but also over time. It encourages managers

Inertia

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

organic structure

A flexible, free-flowing organizational structure that has few rules and regulations and decentralizes decision making right down to the employees performing the job

What is globalization?

A process of closer integration and exchange.•Between countries and people worldwide Made possible by: •Falling trade and investment barriers •Advances in telecommunications•Reductions in transportation costs

LBO (leveraged buyout)

An LBO changes the ownership structure of a company from public to private. To avoid being taken over, some firms put in place a poison pill.

Exploitation

Applying current knowledge to enhance firm performance in the short term

qMichael Porter's view:

argues that executives should not concentrate exclusively on increasing firm profits. He thinks an effective strategic leader should focus on creating shared value, a concept that involves creating economic value for shareholders while also creating social value by addressing society's needs and challenges. He argues that managers need to reestablish the important relationship between superior firm performance and societal progress

In Michael Porter's diamond framework, ________ conditions describe a country's endowments in terms of natural, human, and other resources.

factor

While working a night job at a call center, Eric creates an app called EatOut, which can be used to place orders at restaurants, rate the restaurants, and make reservations. Because he receives good responses for his app, he quits his current job to focus his efforts on EatOut. He creates a start-up called BestApps and hires three people to help him improve EatOut and maintain the servers that run it. In this scenario, BestApps most likely has a ________ structure.

simple

Organization design

the process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization. The key components of organizational design are structure, culture, and control. The goal is to design an organization that allows managers to effectively translate their chosen strategy into a realized one

Which of the following best explains why a board of directors may grant stock options as part of a compensation package?

to align incentives between shareholders and management

Bad Apples

•Individuals who act opportunistically

Disadvantage of sub optimal communication

•Lacks effective communication channels across departments •Solution: cross-functional teams

The pattern for successful firms often follows

•Mastery of, and fit with, the current environment •Success, usually measured by financial measurements •Structures, measures and systems to accommodate and manage size •A resulting organizational inertia that tends to minimize opportunities and challenges created by shifts in the internal and external environment

Legal personality

•Rights and obligations •Allows a firm's continuation beyond the founder or the founder's family

To set the ethical tone, leaders must:

•Set clear ethical expectations •Put structure, culture and control systems in place •Culture must be aligned •Executive behavior must adhere to values

Shareholder capitalism

•Shareholders have the most legitimate claim on profits

Transferability of investor ownership

•Through the trading of shares of stock

Moral hazard

•When one party is incentivized to take undue risks or shirk responsibilities because the costs incur to the another party