MAN 4720 Chapter 8 (Exam 2)

A company is considered to be a single-business firm when at least _________ percent of revenues are generated by the dominant business.

95

Each stage of the vertical value chain typically represents:

A distinct industry.

Information asymmetries occur when:

A firm transacts in the market with a seller who has better information about the product or service.

Which of the following acquisitions would be considered the LEAST related?

A toy manufacturer acquiring a coffee company

Which of the following is NOT a strategic advantage of forward integration?

Ability to secure critical supplies

When a firm is fully vertically integrated:

All activities are conducted within the boundaries of the firm.

Human-asset specificity is the form of an asset that a firm invests in to create the human capital with knowledge about the specific routines and procedures needed to support a firm's vertical integration strategy. These routines and procedures bring competitive value to the firm because:

All of these.

A liquidity event is all of the following EXCEPT:

An opportunity for the firm to offer low-powered incentives to employees.

Which of the following is NOT an example of a firm benefiting from economies of scope?

Anheuser-Busch spreading its fixed costs over millions of gallons of beer produced each year

Transaction costs:

Are all of these.

Today, many companies use PeopleSoft and EDS to manage their human resources. By doing this, these firms:

Are doing all of these.

If a firm wants to have more ownership of the activities closer to product inputs or design, then it should:

Backward vertically integrate.

In 2009, Oracle, a software company, acquired Sun Microsystems, a hardware company. Around the same time, Dell purchased Perot Systems, and Xerox bought the IT services company ACS. These diversification events could be based on the _____________, which occurs when firms copy the moves of their industry rivals.

Bandwagon effect

Firms use related diversification strategies in order to:

Benefit from economies of scale and scope.

Which of the following is NOT a strategic advantage of backward integration?

Better access to end users

Under the Transaction Cost Economics framework, when it would cost the firm more to pursue an activity in-house than obtaining that activity in the external market, the firm should:

Consider options such as short-term contracts or strategic alliances.

_____________ are additional costs that are attached to the related-diversification strategy because of managing the number, size, and types of businesses that are linked to one another.

Coordination costs

A tool that helps managers evaluate how the firm's core competencies can support certain diversification strategies is the:

Core competence-market matrix.

The Boston Consulting Group (BCG) matrix is a tool that helps with:

Corporate portfolio planning and restructuring.

In order for a diversification strategy to enhance firm performance, it must do any of the following EXCEPT:

Create diversification discounts.

Executives determine the scope of the firm in order to enhance the firm's ability to gain and sustain competitive advantage. In that attempt, they formulate and execute corporate-level strategy by using all of the following dimensions EXCEPT:

Cultural integration.

When a firm that follows the unrelated diversification strategy allocates capital from internal sources, it can create value by doing all of the following EXCEPT:

Disregarding its debt rating and investing large amounts of capital in projected growth areas.

When the stock price of highly diversified firms is valued less than the sum of its individual business units, a(n) _________ occurs.

Diversification discount

When it is cheaper for a firm to produce two or more outputs or services together rather than separately through using the same resources and technology, then _________ occur.

Economies of scope

As noted in Strategy Highlight 8.3, in 2008 ExxonMobil reported the highest profits ever recorded by any company. Exxon receives the majority of its profits from petroleum-based products. Due to the political and regulatory climate and the global movement toward cleaner energy sources, Exxon purchased the natural gas company XTO Energy in 2009 as a low-carbon alternative to petroleum. Exxon then became the world's largest producer of natural gas. All of the following are true about Exxon's strategic move EXCEPT:

Exxon is pursuing an unrelated diversification strategy.

If a firm wants to have more ownership of activities closer to the end product or customer, it should:

Forward vertically integrate.

A(n) _____________ is where the transformation of raw materials into finished goods and services occurs along distinct vertical stages.

Industry value chain

Political maneuvering by managers to influence resource and capital allocation can result in firm inefficiencies in a related-diversified firm. These costs are called:

Influence costs.

As noted in Strategy Highlight 8.1, when Toyota wanted to secure a long-term supply of lithium, it had to create a bond of trust with the Argentinean firm Orocobre before the company would invest several hundred million dollars in specialized equipment to supply the lithium to Toyota. What did Toyota do to instill this trust?

It made a credible commitment by taking an equity stake in Orocobre.

Dow Corning is owned jointly by Dow Chemical and Corning. Dow and Corning have entered into a __________, which is a special form of strategic alliance whereby two or more partners create and jointly own a new organization.

Joint venture

One way to overcome the principal-agent problem is to:

Make managers owners through stock options.

Markets often provide higher-powered incentives than firms when it comes to employee motivation for economic transaction because:

Markets provide incentives like IPOs for individual work efforts.

Under the core competence-market matrix, the most difficult diversification strategy is combining __________ with ________, because core competencies must be built. However, this creates the potential for "mega opportunities" and significant future growth opportunities for a firm that achieves this.

New core competencies; new markets

When one firm makes a credible commitment to another firm, it is doing all of the following EXCEPT:

Offering a promise that it will perform in the future.

Which of the following is NOT a risk of vertical integration ("make")?

Organizational planning often improves when a firm integrates.

The ________________ relationship is the closest to a firm being fully integrated. In this relationship, transaction costs typically arise from political turf battles between the corporate office and the standalone business.

Parent-subsidiary

A type of specific asset that has physical and engineering properties that were specifically created to satisfy a particular customer (for example, the bottles for PepsiCo) are which form of asset specificity?

Physical-asset

When an employee of a firm follows his or her own interests such as pursuing managerial perks when performing activities on behalf of the owner of the firm, a(n) _______________ problem occurs.

Principal-agent

PepsiCo sells a wide variety of beverages and food products in 190 countries. It is clearly engaging in ______________ to achieve continuous growth.

Product-market diversification

Economies of scope often occur when a firm is using the ______________ diversification strategy because the firm is able to pool resources and leverage competencies.

Related

When a firm uses many links (common resources and competencies) among its businesses, it is engaging in a(n) _________ diversification strategy.

Related-constrained

Research indicates that when it comes to the diversification-performance relationship:

Related-constrained and related-linked strategies are associated with higher firm performance.

Which of the following corporate diversification strategies most closely describes Disney?

Related-linked

An alternative perspective to the transaction cost economics framework concerning the make-or-buy decision is the _____________ view of the firm, which focuses the firm less on transaction costs and more on its capabilities and knowledge and what it does well.

Resource-based

All of the following are forms of strategic alliances EXCEPT:

Short-term outsourcing.

__________ assets are assets like special equipment that are required to be co-located and used by a firm, such as mineral extraction equipment and bauxite mines.

Site specificity

When a firm vertically integrates along the industry supply chain and invests in specific assets in order to support its activities, it has invested in:

Specialized assets.

Which of the following is NOT part of the BCG matrix?

Strangers

Managers wishing to diversify the firm must remember that:

Successful diversification must be aligned with and strengthen a firm's business strategy.

All of the following are fundamental elements of an industry value chain EXCEPT:

Support activities.

Both Apple and Nike produce their products and own retail outlets. They also rely on independent distributors to sell their offerings. Apple and Nike are utilizing _________ to partially rely on outside- market firms while supporting their forward vertical integration strategy.

Taper integration

The two alternatives to vertical integration that provide similar benefits while reducing the risks to the firm are _________ and ____________.

Taper integration; strategic outsourcing

Equity alliances are forms of strategic alliances that do all of the following EXCEPT:

Temporarily allow one partner to use the other's trademark and business processes.

Vertical integration involves all of the following EXCEPT:

The expansion by the firm into different product lines and markets.

ChapterCase 8 highlights the corporate-level strategy of General Electric. As noted, CEO Jeffrey Immelt decided to refocus GE's portfolio of businesses and leverage the firm's core competencies in industrial engineering while pursuing future-growth industries. The two industries CEO Immelt had decided will provide strategic importance to the firm are ___________ and ____________.

The green economy; health care

Which of the following is the most salient problem with GE losing its AAA bond rating?

The higher cost of money.

The more "constrained" the relatedness of diversification:

The more links there are among the businesses owned by the organization.

Advantages to organizing economic activity within the firm ("make") include all of the following EXCEPT:

The principal-agent problem.

Corporate strategy is concerned with determining the boundaries of the firm among geographic, vertical, and product/service dimensions. This is referred to as:

The scope of the firm.

A drawback for a firm engaging in a short-term contract is:

The supplying firm has no incentive to make additional transaction-specific investments to increase performance or quality.

Long-term contracts such as licensing and franchising offer an advantage over short-term contracts because:

There is more incentive for transaction-specific investments.

All of the following are true about conglomerates EXCEPT:

They are likely acquisition targets for large single-business firms.

All of the following are reasons why a firm seeks to diversify EXCEPT:

To determine how to compete in current markets.

Applying the ______________ framework helps managers make economic decisions namely; what activities to pursue within the firm and which to obtain from the external market.

Transaction cost economics

The costs associated with searching for economic agents with whom the firm contracts, negotiates, and enforces contracts with are:

Transaction costs.

The costs associated with the "make or buy" question when determining the scope of the firm are:

Transaction costs.

Companies that pursue related diversification often receive a diversification premium, leading to a stock price valuation that is higher than the sum of their individual business units. This premium indicates that investors:

Understand that firms with related diversification strategies are more likely to improve their performance than other diversified firms.

___________ firms are often unable to achieve additional value creation.

Unrelated diversified

Industry value chains consist of all of the processes that transform raw materials into finished goods and services. These value chains are also called:

Vertical value chains.

When it would cost the firm less to pursue an activity in-house than obtaining that activity from a supplier in the external market, then the firm should:

Vertically integrate.

When Anheuser-Busch InBev sold Busch Entertainment (including SeaWorld and Busch Gardens), it was doing all of the following EXCEPT:

Weakening its position.

All of the following are decisions that managers must make when formulating corporate strategy EXCEPT:

Whether the company should compete through differentiation or cost leadership.

_____________ such as paying salaries and setting up a shop floor are internal transaction costs.

administrative costs

Management of a firm must decide what range of products and services the firm should offer. This determines the firm's horizontal integration, or:

diversification

If a firm wishes to bridge the gap between being fully integrated ("make") and transacting in the marketplace ("buy"), it can enter into a(n) _________ agreement which grants the right to an individual or group to use the firm's trademark and business processes to sell goods and services that carry the firm's brand name.

franchising

If a firm wishes to expand beyond a single market and grow through being active in several different countries, it is pursuing the _______________ diversification strategy.

geographic

___________ is a form of long-term contracting that is generally used in the manufacturing sector and which enables a firm to commercialize intellectual property like patents.

licensing

When a firm is active in several different product markets, it is pursuing a(n) ____________ diversification strategy.

product

A disadvantage to a firm when transacting in the market rather than owning its own production and distribution activities involves the costs associated with searching for and selecting suppliers. These types of costs are referred to as:

search costs

If a firm wishes to bridge the gap between being fully integrated ("make") and transacting in the marketplace ("buy"), it can enter into a(n) ______________, which is a contractual arrangement to obtain inputs for a time period of generally a year or less.

short-term contract

____________ allow a firm to enter into a voluntary arrangement with another firm with the intent of sharing knowledge and resources to develop processes, products, or services together.

strategic alliances

When a firm like GE has few if any linkages among its businesses, it is pursuing a(n) ________ diversification strategy.

unrelated

Which of the following questions is the most relevant for corporate-level strategy?

where to compete?