MGNT 428 Chapter 8

One way to overcome the principal-agent problem is to ______.

make managers owners through stock options

__________ are unique assets with high opportunity cost

specialized assets

A conglomerate fits which type of corporate diversification model?

unrelated diversification

Firms that pursue an unrelated diversification strategy and are unable to create additional value tend to experience which of the following?

diversification discount

Corporate strategy needs to be dynamic over time in order to ______.

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

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

vertical market failure

Which of the following is the best option to take if you are the buyer and facing information asymmetry?

you should gather as much info as possible

What is the opportunity cost of investment in specialized assets that is characterized by self-interest seeking with guile?

opportunism

A non-diversified company focuses on which of the following?

single market

Which of the following are among the reasons firms need to grow?

to increase profits to motivate management

Which of the following are characteristics of a joint venture?

It is a long-term commitment by two or more partners. It facilitates transaction-specific investments.

Which of the following statements about the make-or-buy continuum is true?

The "make" and "buy" choices anchor each end of the continuum.

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

a different investment strategy

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

Which of the following terms describes the strengths that allow a firm to distinguish itself from the competition?

core competencies

In order to assess whether ______ is working, managers can ask if the individual businesses are worth more under the firm's management or if they are worth more under individual management.

diversification

Amazon's explosive success is largely due to which of the following? (Check all that apply.)

diversification vertical integration

Which of the following is the best option if a company wants to show strong commitment to a partner firm without acquiring that firm?

equality alliance

Companies that transact in the open market incur ______.

external transaction costs

Kanye loves Benicio's Burritos and wants to open a branch in his hometown. Benicio's Burritos grants Kanye the right to use its trademark and name, and Kanye agrees to follow Benicio's Burritos guidelines. This is an example of ______.

franchising

Transaction costs include ______ costs associated with an economic exchange

internal and external

What is the shape of the relationship between the level of diversification and performance?

inverted U

Which of the following are alternatives on the make-or-buy continuum? (Check all that apply.)

joint ventures equity alliances

Which of the following are types of strategic alliances?

joint ventures long-term contracts equity alliances

______ refers to the assets whose physical and engineering properties are designed to satisfy a particular customer

physical-asset specificity

The forms of specialized assets include which of the following?

physical-asset specificity human-asset specificity site specificity

Which types of diversification tend to have the lowest performances?

single business unrelated diversification

Long-term contracts (such as licensing and franchising), equity alliances, and joint ventures are examples of which of the following?

strategic alliances

______ 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

The two alternatives to vertical integration are which of the following?

taper integration and strategic outsourcing

The degree of vertical integration corresponds to ______.

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

Why might a firm want to enter into an equity alliance instead of a short- or long-term contract?

to facilitate transaction-specific investments to make a credible commitment to get insider information about the partner's business

When a manufacturer of computers starts to produce its own computer components, the manufacturer engages in ______ vertical integration.

backward

What are the four quadrants of the core competence-market matrix?

new competencies with new markets new competencies with existing markets existing competencies with new markets existing competencies with existing markets

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

The lemons problem suggests that information asymmetries can cause ______.

superior goods to be replaced by inferior ones

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

transaction specific

True or false: According to the make-or-buy continuum, strategic alliances are more integrated than short-term contracts.

true

True or false: It can be riskier to own parts of the supply chain than to rely on external supply chains.

true

To get the benefits of vertical integration without the accompanying risks, companies can ______.

use taper integration choose strategic outsourcing

______ refers to the firms' ownership of its production of needed inputs or of the channels by which it distributes its outputs.

vertical integration

Which of the following are types of vertical integration along the industry value chain?

forward and backward

What are the three dimensions along which executives formulate corporate strategy?

The degree of vertical integration The type of diversification The geographic scope

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

corporate

In order for a firm to lower costs, it must ______.

grow

To figure out if a firm's type of diversification is ______, one can ask questions about the degree to which the corporation's business units share core competencies.

related or unrelated

Which of the following describes economies of scope?

the savings from producing two or more outputs at less cost than producing each output individually

A disadvantage of a short-term contract as an alternative on the make-or-buy continuum is that ______.

the supplying firm has little reason to perform transaction-specific investments

The persons responsible for forming corporate-level strategy are the ___.

executives

In the ______ quadrant of the core competence--market matrix, a firm combines existing core competencies with existing markets.

existing core competence--existing market

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 of the following is a reason why a firm needs to grow?

to reduce risk

level of diversification that leads to high performance levels

moderate