Formative Assessments - Strategy Final

A major risk of a network cooperative strategy is that firms gain access to their partner's partners thus exposing their proprietary processes to loss or theft. True or False

False

Amelia Smith is the sole owner of the successful restaurant chain, Amelia's Caf é. Ms. Smith has taken a no-interest loan from the company in order to build a luxurious seaside house for herself in Carmel, California. This constitutes a classic agency problem. True or False

False

As a default, decision makers tend to engage in slow decision making. True or False

False

Cash flow projections can be reliable under conditions of uncertainty. True or False

False

Horizontal complementary strategic alliances are designed so that each partner realizes equal benefits from equal investments in the alliance. True or False

False

In a situation of true ambiguity, reserving the right to play is the preferred strategic option. True or False

False

In most countries, contract and temporary employees are much more expensive to lay off than full-time employees. True or False

False

Nonequity strategic alliances are formed when one partner owns a much larger (or inequitable) share of the joint venture than do the remaining partner(s). True or False

False

Option valuation models are an appropriate analytical tool for situations with a range of possible outcomes, but no natural scenarios. True or False

False

The 4S method consists of the stages search, structure, solve, and sell. True or False

False

There is no distinction between the concepts of risk and uncertainty. True or False

False

When it comes to strategic thinking, fast thinking is always superior to slow thinking. True or False

False

A horizontal acquisition involves two firms in the same industry. True or False

True

A low exercise price suggests a higher probability of the option being exercised. True or False

True

A transnational strategy is an international strategy through which the firm seeks to achieve both global efficiency and local responsiveness. True or False

True

Fast thinking allows for quick and efficient sensemaking. True or False

True

Firms seeking to implement a strategy of flexibility under conditions of uncertainty should adopt flexible forms of organization. True or False

True

If a candidate solution exists, a hypothesis pyramid is the appropriate method to decompose a complex strategic problem. True or False

True

In a large number of family-owned firms, ownership and managerial control are not separated. True or False

True

In a situation of true ambiguity, shapers face lower risks than under situations of lower uncertainty. True or False

True

The separation of the positions of CEO and chairperson of the board of directors reduces the power of the CEO over firm governance practices. True or False

True

The traditional strategy toolkit is appropriate for clear-enough futures. True or False

True

To see if valuing an investment as a real option creates any extra value for the firm, it is necessary to establish a benchmark. True or False

True

Using present value analysis does not work under conditions of uncertainty. True or False

True

in the TOSCA framework, who you talk to (i.e., the owner) affects how you define the problem (success criteria, constraints, etc.). True or False

True

Which of the following statements is false? a. Private synergy is easy for competitors to understand and imitate. b.Private synergy results when the combination of two firms yields competencies and capabilities that could not be achieved by combining with any other firm. c. Private synergy is more likely when the two firms in an acquisition have complementary assets. d.Synergy resulting from an acquisition gen

a. Private synergy is easy for competitors to understand and imitate.

U.S. companies moving into the international market need to be sensitive to the need for local country or regional responsiveness because of: a. consumer needs and desires, industry conditions, political and legal structures, and social norms vary by country. b. increasing rejection of American culture across much of the world. c. the sophistication of the international consumer due to the Internet. d. the increasing loss of economies of scale.

a. consumer needs and desires, industry conditions, political and legal structures, and social norms vary by country.

Which of the following is NOT one of the five pitfalls of (strategic) problem solving? a. having too much information b. using a flawed problem definition c. using the wrong framework d. miscommunication

a. having too much information

FrameCo, a maker of commercial greenhouses, has just extricated itself from a failing cooperative alliance with another firm. The expected synergies never were achieved, and FrameCo lost most of its investment. The top management of FrameCo should: a. internalize the knowledge about the successes and failures of this alliance so FrameCo can learn from the experience. b.enter into future cooperative alliances only if the alliance is closely monitored by a third party to prevent opportunistic behavior by the alliance partner. c. avoid future cooperative alliances because they lack the skills needed to manage them successfully. d.realize that most cooperative alliances fail and that it should ally itself only with an experienced alliance partner in the future.

a. internalize the knowledge about the successes and failures of this alliance so FrameCo can learn from the experience.

Moon Flower Cosmetics Company's executives are aware that their Asian customer base is interested in advanced skin care treatments beyond Moon Flower's traditional herbal and organic compounds. Moon Flower and a large American chemical company are in discussions to create a 50-50 partnership in a new firm, which would create skin care treatments based on innovative chemical formulations that would be marketed both in Asia and the United States. Beyond being a cross-border alliance, this partnership can be called a(n): a. joint venture. b. horizontal complementary alliance. c. nonequity strategic alliance. d. equity strategic alliance.

a. joint venture.

Managerial employment risk is the: a. managers' risk of job loss, loss of compensation, and/or loss of reputation. b. risk that managers will behave opportunistically. c. risk undertaken by managers to earn stock options. d. risk managers will not find a new top management position if they should be dismissed.

a. managers' risk of job loss, loss of compensation, and/or loss of reputation.

One means that is considered to improve the effectiveness of outside directors is: a. requiring outside directors to own significant equity stakes in the firm. b. requiring that outside directors act objectively and have no ownership interest in the firm. c. requiring that outside directors be former executives of the firm. d. mandating that all outside directors be drawn from government or academia rather than industry.

a. requiring outside directors to own significant equity stakes in the firm.

A firm building a manufacturing plant that employs only general-purpose machinery is an example of the option to ________. defer contract grow abandon

abandon

Which of the following is NOT a disadvantage of international acquisitions? a. Merging the acquired and acquiring firm is difficult. b. It is the slowest way to enter a new market. c. The acquiring firm has to deal with the regulatory requirements of a host country. d. They are very expensive and often require debt financing.

b. It is the slowest way to enter a new market.

Which of the following is NOT an internal governance mechanism? a. Executive compensation b. Market for corporate control c. Board of directors d. Ownership concentration

b. Market for corporate control

Legitimately, a firm may pursue an international strategic alliance for all of the following reasons EXCEPT to: a. operate within government restrictions in the local country. b. enhance the compensation packages of top managers. c. leverage core competencies in new markets. d. escape limited domestic growth opportunities.

b. enhance the compensation packages of top managers.

The two important environmental trends that influence a firm's choice and use of international corporate-level strategies are __________ and __________. a. culture; geographic scope b. liability of foreignness; regionalization c. cost; quality d. regionalization; globalization

b. liability of foreignness; regionalization

Research has shown that the more __________, the greater is the probability that an acquisition will be successful. a. disparate the corporate cultures b. related the acquired and acquiring firms are c. involved investment banking firms are in the due diligence process d. diverse the resulting portfolio of competencies

b. related the acquired and acquiring firms are

Baby Doe's, a designer and manufacturer of children's clothing, has decided to purchase a retail chain specializing in children's clothing. This purchase is a(n): a. unrelated acquisition. b. vertical acquisition. c. horizontal acquisition. d. merger.

b. vertical acquisition.

To see if valuing an investment as a real option creates any extra value for a firm, it is necessary to establish a ________. benchmark floor timeline ceiling

benchmark

__________ is often used when the acquiring firm paid too high a premium to acquire the target firm. a. Downscoping b. Leveraged buyout c. Downsizing d. Management buyout

c. Downsizing

Which of the following is NOT a typical disadvantage of licensing? a. Lower potential returns than the use of exporting or strategic alliances b. Licensees may develop a competitive product after the license expires c. Incompatibility of the licensing partners d. Little control over the marketing of products

c. Incompatibility of the licensing partners

A licensing agreement: a. can be greatly impacted by currency exchange rate fluctuations. b. results in two firms agreeing to share the risks and the resources of a new venture. c. allows a foreign firm to purchase the right to manufacture and sell a firm's products within a host country. d. is the best way to protect proprietary technology from future competitors.

c. allows a foreign firm to purchase the right to manufacture and sell a firm's products within a host country.

Institutional owners are: a. banks and other lending institutions that have provided major financing to the firm. b. shareholders in the large institutional firms listed on the New York Stock Exchange. c. financial institutions, such as mutual funds and pension funds, that control large-block shareholder positions. d. prevented by the Sarbanes-Oxley Act from owning more than 50 percent of the stock of any one firm.

c. financial institutions, such as mutual funds and pension funds, that control large-block shareholder positions.

Corporate governance is important to nations because: a. company boards have lobbied for strong governance. b. shareholders want large stock returns. c. firms seek to invest in nations with national governance standards that are acceptable to them. d. the United States requires that other nations adopt its governance practices.

c. firms seek to invest in nations with national governance standards that are acceptable to them.

All of the following are rationales for acquisitions EXCEPT: a. overcoming significant barriers to entry. b. increasing speed of market entry. c. positioning the firm for a tactical competitive move. d. achieving greater market power.

c. positioning the firm for a tactical competitive move.

In China, Starbucks is standardizing its operations while simultaneously decentralizing some decision-making responsibility to local levels to meet customers' tastes. Starbucks is following the __________ international corporate-level strategy. a. global b. differentiation c. transnational d. multidomestic

c. transnational

A manufacturer of specialty jams and jellies has decided to ally itself with an orchard and vineyard growing rare strains of fruit. This is a(n) __________ strategy. a. uncertainty-reducing b. horizontal complementary c. vertical complementary d. network

c. vertical complementary

Which of the following statements about corporate governance is false? a. Corporate governance mechanisms sometimes fail to monitor and control top managers' decisions. b. Governance is used to establish order between parties whose interests may be in conflict. c. Corporate governance mechanisms can be in conflict with one another. d. Corporate governance is best achieved with a board of directors with strong ties to management.

d. Corporate governance is best achieved with a board of directors with strong ties to management.

All of the following are downsides of expertise, EXCEPT: a. Rigid mental models resistant to change b. Overconfidence in their abilities c. Constraints when it comes to problems outside their area of expertise d. Inferior problem recognition and understanding

d. Inferior problem recognition and understanding

Which of the following is NOT an incentive for firms to become multinational? a. To gain access to consumers in emerging markets b. To gain easier access to raw materials c. Opportunities to integrate operations on a global scale d. To avoid high domestic taxation on corporate income

d. To avoid high domestic taxation on corporate income

If intellectual property rights in an emerging economy are not well protected, the number of firms in the industry is rapidly growing, and the need for global integration is high, __________ is the preferred entry mode. a. strategic alliance b. exporting c. licensing d. a joint venture or wholly owned subsidiary

d. a joint venture or wholly owned subsidiary

The CEO of Skyco, a publicly traded company that has been earning below-average returns, has been publicly criticized by shareholders for persuading the board of directors to give her interest-free loans, for having the company purchase and furnish a lavish apartment in Paris for her personal use on her twice-yearly trips there, and for excessive stock options. The CEO's behavior may be an indication of: a. the laxity of institutional investors. b. reasonably compensating a CEO. c. the difference in risk propensity between owners and managers. d. a weak board of directors.

d. a weak board of directors.

Which of the following is NOT an advantage of the argument method of selling the solution? a. best for complex messages b. makes solution appear logical c. Perceived as more elegant and tactful d. audience must agree at each step in key line to agree with conclusion

d. audience must agree at each step in key line to agree with conclusion

Caterpillar's payment of a 32 percent premium for the acquisition of Bucyrus in 2011 and subsequent need to issue more stock illustrates the acquisition problem of: a. inability to achieve synergy. b. integration difficulties. c. managers overly focused on acquisitions. d. large or extraordinary debt.

d. large or extraordinary debt.

Disney suffered lawsuits in France, at Disneyland Paris, because of the lack of fit between its transferred personnel policies and the French employees charged to enact them. This is an example of the: a. effects of regionalization. b. effect of demand conditions. c. risks of a multidomestic strategy. d. liability of foreignness.

d. liability of foreignness.

Which of the following is NOT a problem associated with the "expertise trap"? a. constraints when it comes to problems outside area of expertise b. overconfidence in abilities c. rigid mental models resistant to change d. mentally organizing knowledge for easy recall and use

d. mentally organizing knowledge for easy recall and use

In some countries, the only legal way for foreign firms to invest in the country is through: a. greenfield ventures. b. acquisitions. c. mergers. d. strategic alliance with a local firm.

d. strategic alliance with a local firm.

The Renault Nissan alliance is an example of a __________ in that the firms seek to create economies of scope by sharing their resources and capabilities to develop manufacturing platforms that can be used to produce cars that will be either a Renault or a Nissan. a. dynamic alliance network b. horizontal complementary alliance c. joint venture d. synergistic alliance

d. synergistic alliance

A __________ is a strategy in which firms share some of their resources to create economies of scope and is similar to the business-level horizontal complementary strategic alliance. a. joint venture b. dynamic alliance network c. diversifying strategic alliance d. synergistic strategic alliance

d. synergistic strategic alliance

Due diligence includes all of the following activities EXCEPT assessing: a. tax consequences of the acquisition. b. differences in firm cultures. c. financing for the intended transaction. d. the level of private synergy between the two firms.

d. the level of private synergy between the two firms.

One problem with becoming too large is that large firms: a. have less potential for economies of scale. b. become attractive takeover targets. c. tend to have less market power. d. usually increase bureaucratic controls.

d. usually increase bureaucratic controls.

When a firm acquires its supplier, it is engaging in a(n): a. merger. b. unrelated acquisition. c. hostile takeover. d. vertical acquisition.

d. vertical acquisition.

A firm investing to create one product because that investment could lead to the development of other products in the future is an example of the option to ________. defer expand contract grow

expand

A firm building a plant with the ability to add capacity at low cost is an example of the option to ________. grow abandon defer contract

grow

Vertically integrating into an exchange is generally ________ than using market contracts or strategic alliances to manage an exchange. less flexible more strategic more flexible less strategic

less flexible

If the value of an option is $4.59, it means an investor should be willing to pay up to $4.59 for the ________, but not the ________ to buy the stock. obligation; right right; obligation obligation; opportunity chance; right

right; obligation

Gambling at a casino is a classic example of a(n) ________ decision. risky deferred uncertain managed

risky

A firm outsourcing distribution to a firm that distributes the products of many firms instead of outsourcing distribution to a firm that distributes only its production is an example of the option to ________. shut down and restart defer contract grow

shut down and restart