strategy final quizzes
________ enables firms to increase their organizational boundaries because the number of competitors decreases. This is demonstrated through the ________ model. A) Vertical integration; horizontal integration B) Horizontal integration; vertical integration C) Vertical integration; Porter's Five Forces D) Horizontal integration; structure-conduct-performance
D Horizontal integration changes in the underlying industry structure favor the surviving firms.
Stratton Oakmont pursues a related diversification strategy, deriving less than 70 percent of revenues from its original business unit, Stratton Piedmont, and maintaining several related units including Stratton Wellmont and Stratton Fredmont. Which of the following structures is most likely to support this strategy? A) M-Form with centralized decision-making power (cooperative multidivisional) B) M-Form with decentralized decision-making power (competitive multidivisional) C) functional with centralized decision-making power D) functional with decentralized decision-making power
A For firms that pursue either related or unrelated diversification, the M-form is the preferred organizational structure. Firms using the M-form organizational structure to support a related-diversification strategy tend to concentrate decision making at the top of the organization. Doing so allows a high level of integration. It also helps corporate headquarters leverage and transfer across different SBUs the core competencies that form the basis for a related diversification
Ganjaflex Industries is a major multinational conglomerate. Its business units compete in a range of industries, including home appliances, pharmaceuticals, commercial real estate, and plastics manufacturing. Although its largest business unit, which produces kitchen appliances, is among the most profitable in the industry, it generates only 35 percent of the company's revenues. Which of the following is most likely true of Ganjaflex's stock price? A) It is valued at less than the sum of its individual business units. B) It is valued at greater than the sum of individual business units. C) It is valued at the exact sum of individual business units. D) It is consistently lower than the industry average
A Ganjaflex Industries has pursued an unrelated diversification strategy. Firms that pursue unrelated diversification are often unable to create additional value. They experience a diversification discount: The stock price of such highly diversified firms is valued at less than the sum of their individual business units.
Sarah, a recent fashion design school graduate, has received praise for her clothing designs from her peers and friends on social networking sites; this has inspired her to set up a store where she can design and sell apparel. After experiencing some success with sales, she recruits two employees to handle customers at the store. However, she handles other day-to-day affairs herself, while continuing to design clothes. Which of the following is likely to be a pitfall of this organizational structure established by Sarah? A) Once the firm starts growing and attracting more customers she is likely to feel overloaded. B) Hiring more employees will result in loss of intellectual property. C) People are highly unlikely to buy clothes from a store run by a fashion design student. D) The online admiration of her designs will not translate into sales.
A A likely pitfall of this organizational structure established by Sarah is that once the firm starts growing and attracting more customers she is likely to feel overloaded. A simple structure generally is used by small firms with low organizational complexity. In such firms, the founders tend to make all the important strategic decisions and run the day-to-day operations. Typically, neither professional managers nor sophisticated systems are in place, which often leads to an overload for the founder and/or CEO when the firms experience growth
Because Facebook receives almost all of its revenues from online advertising, we would conclude that Facebook would be characterized as a(n) ________ firm, which has the lowest levels of corporate diversification. A) single business B) dominate business C) related diversification D) unrelated diversification
A A single-business firm is characterized by a low level of diversification, if any, because it derives more than 95 percent of its revenues from one business.
Paper Street Soap Company, a cosmetics firm, has offices in New York, Texas, California, New Mexico, and New Jersey. Each of these offices is headed by a president who reports directly to Jennifer Watson, the CEO. The heads of the centralized HR, Finance, and Marketing teams report to Jennifer Watson as well. Managers in the various offices also report to the CEO directly. Based on this information, which of the following statements is most likely to be true? A) Jennifer Watson has a wide span of control. B) Paper Street Soap Company has a tall hierarchical structure. C) Jennifer Watson is underworked. D) Paper Street Soap Company is a mechanistic organization.
A Based on this information, the statement that is most likely to be true is that Jennifer Watson has a wide span of control. Hierarchy determines the formal, position-based reporting lines and thus stipulates who reports to whom. The number of levels of hierarchy, in turn, determines the managers' span of control—how many employees directly report to a manager. In tall organizational structures, the span of control is narrow. In flat structures, the span of control is wide, meaning one manager supervises many employees.
Companies must evaluate the relevancy of their internal resources. This happens in two ways: they test whether resources are (1) similar to those the firm needs to develop and (2) superior to those of competitors in the targeted area. Which of the following is the best way in which firms assess the second test? A) Firms can apply the VRIO framework for the second test. B) Firms can implement various financial metrics like NPV and IRR. C) Firms can employ external analysis tool like PESTEL and Porters Five Forces. D) Firms can use an international framework to determine global relevancy.
A Firms evaluate the relevance of internal resources in two ways: they test whether resources are (1) similar to those the firm needs to develop and (2) superior to those of competitors in the targeted area. For the second test, firms should apply the VRIO framework
John owns John's Trucking Corporation and is trying to determine if his firm should engage in vertical integration and diversify the range of services his business sells. Before John goes through with these decisions, he'll need to consider what is his A) corporate level strategy. B) business level strategy. C) functional level strategy. D) geographic scope.
A John is trying to make a decision based on the three principles of corporate-level strategy; vertical integration along the industry value chain, diversification of products and services, and geographic scope.
Fang and Bone Corp. is a successful drug manufacturer. Because the pharmaceutical industry features a high rate of change and the threat of disruption is high, Fang and Bone Corp. should A) be prepared to restructure as the landscape changes. B) stick with the structure that brought it success no matter what happens. C) attempt to implement an unstructured organization. D) switch to whichever structure is most common in the industry.
A Organizational inertia refers to a firm's resistance to change the status quo that can set the stage for the firm's subsequent failure. To avoid inertia and possible organizational failure, the firm needs a flexible and adaptive structure to effectively translate the formulated strategy into action. Ideally the firm would maintain a virtuous cycle of reconsidering organization, particularly in industries where the rate of change is high and potential disruption frequent.
Anheuser-Busch InBev sold Busch Entertainment, its theme park unit that owns SeaWorld and Busch Gardens, to a group of private investors for roughly $3 billion. This strategic move allowed InBev to focus more fully on its core business of brewing and distributing beer across the world. This is an example of A) restructuring. B) corporate diversification. C) a business level strategy. D) the Core Competence-Market Matrix.
A Restructuring describes the process of reorganizing and divesting business units and activities to refocus a company to leverage its core competencies more fully.
Stratton Oakmont Inc., a well-established and reputed multinational enterprise (MNE), is headquartered in a highly developed economy. It wants to start its operations in Old Hebrides, considered one of the less-developed nations in the world. How will this strategic move most likely affect Stratton Oakmont Inc.? A) It will benefit from economic arbitrage. B) Stratton Oakmont will use its competitive advantage from economies of standardization. C) Stratton Oakmont will replicate its existing business model easily. D) It will be able to easily sell products for which demand varies by income.
A Stratton Oakmont Inc. will most likely be able to benefit from economic arbitrage. Companies from wealthy countries trade with companies from poor countries to benefit from economic arbitrage, which is the exploitation of differences in the cost of labor, capital, or more industry-specific inputs. Textile companies that take advantage of the difference in labor costs to set up sweatshops in other countries are a common example.
Raul is the Chief Operating Officer (COO) of Black Mesa Inc., a firm that produces handcrafted kitchen tables for both the residential and commercial markets. Jose believes that his domestic market is saturated and now wishes to go global. Which of the following below would serve as an advantage for Raul if he chose to pursue international markets? A) Raul could gain access to cheaper raw materials in a foreign country, thus lowering the cost of his input factors. B) Raul could share his intellectual properties with another firm that operates in a foreign country in hopes of achieving collaboration. C) Raul's brand might suffer a loss in reputation if he goes global but could increase his market share. D) Raul may benefit from learning about Hofstede's cultural dimensions that could be leveraged on his current employees in his domestic market.
A There are several advantages of "going global," in this case, Raul could benefit from gaining access to low-cost input factors that could drive his production costs down.
Yubaba Inc., a company that manufactures and sells premium perfumes, is pursuing an international strategy. Axe Inc., a supermarket chain, follows a multidomestic strategy. Which of the following statements is most likely true of this scenario? A) Yubaba Inc. will sell the same products in both domestic and foreign markets, whereas Axe Inc. will customize its product offerings to suit local requirements. B) Yubaba Inc. will pursue a differentiation strategy at the business level, whereas Axe Inc. will pursue a cost-leadership strategy at the business level. C) Yubaba Inc. will be better protected from exchange rate fluctuations when compared to Axe Inc. D) Yubaba Inc. will not be able to use its home-based core competencies in foreign markets as much as Axe Inc. will.
A Yubaba Inc. will sell the same products and services in both domestic and foreign markets, whereas Axe Inc. will customize its product offerings to suit local requirements. An international strategy is essentially a strategy in which a company sells the same products or services in both domestic and foreign markets. Firms pursuing a multidomestic strategy attempt to maximize local responsiveness, hoping that local consumers will perceive them to be domestic companies.
Golddex Autos currently sources components such as airbags, upholstery, and brake pads from various suppliers in the industry value chain. In order to lower costs and reduce the risk of interruptions in the supply of components, Golddex should pursue A) backward integration. B) forward integration. C) product diversification. D) geographic diversification.
A Backward integration is moving ownership of activities upstream to the originating inputs of the valuechain. By pursuing backward integration, Golddex would produce all necessary components for itsautomobiles in-house, reducing the costs and potential for interruptions associated with sourcingcomponents from external suppliers
Delos Inc. is an apparel manufacturer. The management at Delos Inc. prefers moderate control over the operations of the different departments such as R&D, design, marketing, and sales. It allocates a budget to each function at the beginning of each quarter. This is an example of implementing control through A) output controls. B) input controls. C) multidivisional strategy. D) centralization.
B This is an example of implementing control through input controls. Input controls seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures. Firms use input controls when the goal is to define the ways and means to reach a strategic goal and to ensure a predictable outcome. The use of budgets is a key to input controls.
Which of the following statements is true about managing alliance-related tasks? A) Forming an alliance with another firm prohibits that firm from forming other alliances. B) Alliance-management capability is based on three alliance-related tasks. C) A merger is one of the three options for alliance design and governance. D) In post-formation alliance management, none of the firms in an alliance is permitted to gain a competitive advantage.
B Alliance-management capability is a firm's ability to effectively manage three alliance-related tasks concurrently, often across a portfolio of many different alliances. The firms in an alliance must choose an appropriate governance mechanism from among the three options: nonequity contractual agreement, equity alliances, or joint venture. To be a source of competitive advantage, the partnership needs to create resource combinations that obey the VRIO criteria.
Tom is the inventor of a personal fitness tracking device, and he is in the process of hiring employees after receiving investment funding. When considering how to structure his company, he should A) emulate the structure of the leading firm in the industry. B) first establish a strategy and let that be him guide. C) choose the structure that will give him the most control. D) ask employees what structure they are most comfortable with.
B As demonstrated by business historian Alfred Chandler in his seminal book Strategy and Structure, organizational structure must follow strategy in order for firms to achieve superior performance: "Structure can be defined as the design of organization through which the enterprise is administered ... structure follows strategy
Oceanic, a venture capital firm, has the opportunity to invest in one of two firms that are in the process of globalizing. Macmillan, an air-conditioner manufacturer, faces intense pressure from its home market. Rent a Swag, a dog-toy manufacturer, has encountered little competition in its country of origin. In which company should Oceanic invest? A) Macmillan, because air conditioners cost more to ship than dog toys do B) Macmillan, because firms that face stiff competition at home tend to do better abroad C) Rent a Swag, because firms that face little or no competition at home tend to do better abroad D) Rent a Swag, because dog toys cost less to ship than air conditioners do
B Companies that face a highly competitive environment at home tend to outperform global competitors that lack such intense domestic competition. Fierce domestic competition in Germany, for example, combined with demanding customers and the no-speed-limit autobahn make a tough environment for any car company. Success requires top-notch engineering of chassis and engines, as well as keeping costs and fuel consumption ($6-per-gallon gas) in check. This extremely tough home environment amply prepared German car companies such as Volkswagen (which also owns Audi and Porsche), BMW, and Daimler for global competition.
Bayside Inc., a reputed brand for fine art supplies, is implementing an international strategy. Cyberdyne Corp., a maker of mini-computer tablets, is pursuing a global-standardization strategy. Which of the following statements most likely holds true in this scenario? A) While Bayside Inc.'s competitive advantage lies in its high local responsiveness, Slalom Corp. will lack such capabilities. B) Cyberdyne Corp. focuses more on cost-reductions when compared to Bayside Inc. C) Cyberdyne's business functions are highly centralized, whereas Bayside organizes its activities worldwide. D) Cyberdyne is exposed to greater risks of exchange rate fluctuations.
B Cyberdyne most likely focuses more on cost-reductions when compared to Bayside Inc. he global-standardization strategy arises out of the combination of high pressure for cost-reductions and low pressure for local responsiveness. An international strategy is advantageous when the multinational enterprise MNE faces low pressures for both local responsiveness and cost-reductions.
DalTech Inc., a publicly traded company, designs and manufactures wearable technology. What approach should DalTech take after a long period of horizontal integration in its industry? Assume that the industry is now stable and competitors have not made any major changes in price or marketing recently. A) Compete based on price in order to drive out remaining competitors and create a monopoly. B) Focus on research and development as a form of nonprice competition. C) Encourage new competitors to enter the market to improve competition. D) Prepare to resist a hostile takeover by buying back as much stock as possible.
B Horizontal integration changes the underlying industry structure in favor of the surviving firms. Excess capacity is taken out of the market, and competition tends to decrease as a consequence of horizontal integration, assuming no new entrants. As a whole, the industry structure becomes more consolidated and potentially more profitable. If the surviving firms find themselves in an oligopolistic industry structure and maintain a focus on nonprice competition (i.e., focus on R&D spending, customer service, or advertising), the industry can indeed be quite profitable, and rivalry would likely decrease among existing firms.
The core competency of Newex Motors is its fuel-efficient engine found in its cars. These engines are developed and built in-house. The company realizes that the growing demand for "green" vehicles has created a new market opportunity. Thus, it uses its existing technology to develop an engine that improves the fuel efficiency of recreational motorhomes. In this scenario, Newex Motors is A) leveraging existing core competencies to target the chasm between the early adopter and early majority market segment. B) redeploying and recombining existing core competencies to compete in future markets. C) building new core competencies to create and compete in future markets. D) building new core competencies to protect and extend current market position.
B In this scenario, Newex Motors is redeploying and recombining existing core competencies to compete in markets of the future. Here, managers must strategize about how to redeploy and recombine existing core competencies to compete in future markets.
Fang and Bone Inc. is a snack manufacturer that wants to expand globally. Few people abroad are familiar with Fang and Bone snacks. The countries into which the company wants to expand require a high degree of local responsiveness when it comes to food, and the citizens of those countries already spend plenty of money on snacks. Which action should the leaders of Fang and Bone take? A) Achieve economies of scale by using the global-standardization approach. B) Pursue a multidomestic strategy that includes new "local" brands. C) Keep costs low with undifferentiated product in the international strategy. D) Appease pressures for cost-reductions by following the transnational approach
B Multinational enterprises (MNEs) pursuing a multidomestic strategy attempt to maximize local responsiveness, hoping that local consumers will perceive their products or services as local ones. This strategy arises out of the combination of high pressure for local responsiveness and low pressure for cost-reductions. MNEs frequently use a multidomestic strategy when entering host countries with large and/or idiosyncratic domestic markets, such as Japan or Saudi Arabia. A multidomestic strategy is common in the consumer products and food industries. For example, Swiss-based Nestlé, the largest food company in the world, is known for customizing its product offerings to suit local preferences, tastes, and requirements. A transnational strategy is less appropriate because the required matrix structure is difficult to implement. It is also difficult to find managers who can dexterously work across cultures in the ways that strategy requires.
Because strategic alliances rarely work as well as managers expect they will, why do companies continue to go through with them? A) Recent advances in management science have greatly improved the success rate of strategic alliances. B) Many owners, managers, and business analysts believe they are essential to survive in an industry. C) Government entities such as the Federal Trade Commission or the European Union sometimes force companies into strategic alliances. D) These alliances have an excellent record of success if managers have enough confidence in the outcome.
B Strategic alliances create a paradox for managers. Although alliances appear to be necessary to compete in many industries, between 30 and 70 percent of all strategic alliances do not deliver the expected benefits, and are considered failures by at least one alliance partner. Given the high failure rate, effective alliance management is critical to gaining and sustaining a competitive advantage, especially in high-technology industries.
Sterling Cooper Footware and NERV Shoes Inc., two competing shoe brands, entered into a strategic alliance to study and acquire each other's competencies. Sterling Cooper Footware entered the strategic alliance to acquire the production system pioneered by NERV Shoes. Similarly, NERV Shoes agreed to the strategic alliance to study the design process of Sterling Cooper Footware. However, Sterling Cooper Footware was more successful and faster than NERV Shoes in accomplishing its alliance goal. What does this scenario best illustrate? A) network effects B) economies of scope C) learning races D) time compression diseconomies
C This scenario best illustrates learning races. Co-opetition can lead to learning races in strategic alliances, a situation in which both partners are motivated to form an alliance for learning, but the rate at which the firms learn may vary. The firm that learns faster and accomplishes its goal more quickly has an incentive to exit the alliance or, at a minimum, to reduce its knowledge sharing
Iselectrics, a medium-sized medical technology company, has been successful in its research and development but needs improvement in its European sales. Which of these actions would most likely lead to long-term success for Iselectrics's European sales? A) Alert the European Union that conditions in the European medical technology market are approaching oligopoly. B) Initiate a hostile takeover of a European rival. C) Acquire a company that has a successful medical technology sales force in Europe so that Iselectric scan gain access to new distribution channels. D) Contact its congressional representative to request higher tariffs on European technology products.
C Firms may resort to acquisitions when they need to overcome entry barriers into markets they are currently not competing in or to access new distribution channels.
Soylent Corporation is a major nutritional supplement chain. Its managers are motivated to grow the firm in order to increase their market power and change the industry structure in their favor. Which of the following strategies is most associated with their motive for growth? A) employing celebrity spokespeople B) implementing automated soy-making machinery C) purchasing competitors D) increasing executive salaries
C Soylent Corporation's managers are motivated to achieve growth to increase their market share and with it their market power. To do so, firms often consolidate industries through horizontal mergers and acquisitions (buying competitors), thereby changing the industry structure in their favor. Fewer competitors generally equates to higher industry profitability. Moreover, larger firms have more bargaining power with suppliers and buyers.
Doncon Guitars is interested in pursuing backward integration to take greater ownership of the extraction of raw materials and production of components used in its signature line of guitars. Although this approach would lower the overall cost of producing a guitar, the costs associated with producing electronic pickups for sound amplification are far greater than those associated with sourcing pickups from a reliable supplier. Which of the following approaches is likely to produce superior results? A) Invest in vertical integration despite the cost of producing pickups. B) Abandon the idea of vertical integration entirely. C) Pursue taper integration. D) Introduce a budget line of guitars to diversify the firm's offerings
C Taper integration is a way of orchestrating value activities in which a firm is backwardly integrated, but it also relies on outside-market firms for some of its supplies, and/or is forwardly integrated but also relies on outside-market firms for some if its distribution. By pursuing a taper integration strategy, Doncon Guitars could take ownership of most of the upstream value chain activities while sourcing pickups from a lower-cost supplier. Firms that pursue taper integration achieve superior performance in both innovation and financial performance when compared with firms that rely more on vertical integration or strategic outsourcing.
Condax Electronics relied on a large chain of consumer electronics stores to sell its tablet computers, cell phones, and televisions and also to provide customer service and technical support. However, that retailer outsourced its service departments, and customers began to complain that they could not get reliable tech support for Condax products. In response, Condax Electronics decided to set up its own tech support department, and it also began to investigate opening its own brand-based retail stores. What does this scenario best illustrate? A) crowdsourcing B) new product development C) forward vertical integration D) conglomerate diversification
C This scenario best illustrates forward vertical integration. Forward vertical integration involves moving ownership of activities closer to the end customer
Hooli, a web development firm, wants to implement an organic structure to foster innovation and attract the most talented creative minds. Which of the following features will make it difficult to do so? A) decision-making power distributed throughout the organization B) a wide span of control for managers C) dedication to a cost-leadership business strategy D) flexible job descriptions for employees
C A cost-leadership strategy is typically associated with mechanistic structures, which allow for standardization and economies of scale. A differentiation strategy is more commonly used by organic firms.
Why does a functional structure rely on a flat organizational structure? A) The work in the organization is centrally coordinated by the CEO. B) It allows for a higher degree of specialization and domain expertise. C) It allows for efficient bottom-up and top-down communication. D) It allows for the implementation of a differentiation strategy.
C A functional structure allows for an efficient top-down and bottom-up communication chain between the CEO and the functional departments, and thus relies on a relatively flat structure.
Globex Inc., a company popular for its dairy products, successfully follows a multidomestic strategy. Omni Consumer Products, a large conglomerate, pursues a transnational strategy. Which of the following statements is most likely true of this scenario? A) While Omni Consumer Products' competitive advantage will lie in its high local responsiveness, Globex Inc. will lack such competencies. B) Omni Consumer Products will face greater pressure for cost-reductions than Globex Inc. due to strategy choice. C) Both Globex Inc. and Omni Consumer Products will have to duplicate key business functions in multiple host countries. D) While Globex Inc. will require a global matrix structure, Omni Consumer Products Inc. will require a traditional headquarters model.
C A multidomestic strategy is costly and inefficient because it requires the duplication of key business functions across multiple countries. Each country unit tends to be highly autonomous. Similarly, for a transnational strategy, high local responsiveness typically requires that key business functions are frequently duplicated in each host country
Rantouch is one of the largest tax-preparation firms in the United States. It wants to acquire Doncon , a smaller rival. After the merger, Rantouch will be one of the two largest income-tax preparers in the U.S. market. What should Rantouch include in its acquisition plans? A) It should refocus its attention from the national to the international market. B) In addition to acquiring Doncon, it should also determine the best way to drive independent "mom and pop" tax preparers out of business. C) Rantouch will need to explain to the Federal Trade Commission how the acquisition will not result in an increase in prices for consumers. D) Rantouch should enter a price-based competition with its other major competitor to force it out of business and become a monopoly.
C Because of the potential to reduce competitive intensity in an industry, government authorities such as the FTC and/or the European Commission usually must approve any large horizontal integration activity.
Aperture Science relies on its employees to provide innovative ideas for new educational products. To foster intrinsic motivation in its workforce, Aperture Science should A) offer bonuses to employees whose ideas go into production. B) threaten to fire employees who do not come up with at least one new idea per week. C) give employees a "free day" every two weeks to pursue ideas for new educational toys. D) distribute a list of standard operating procedures for employees to follow.
C By giving employees a free day to pursue ideas relating to educational toys, Aperture Science provides intrinsic motivation for its employees. Intrinsic motivation is driven by the employee's interest in and the meaning of the work itself. In contrast, extrinsic motivation is driven by external factors such as awards and higher compensation, or punishments like demotions and layoffs (the carrot-and-stick approach). Intrinsic motivation in a task is highest when an employee has autonomy (about what to do), mastery (how to do it), and purpose (why to do it).
A payroll company in the nation of Osterlich is seeking to expand beyond its borders while limiting administrative and political distance in the new country. Which potential site is the best one for this type of expansion? A) one that considers payroll companies essential to national security B) one that is outside of any trading blocs that Osterlich participates in C) one that used to have a colonizer or colonized relationship with Osterlich D) in a country that has extensive tariffs and trade quotas to protect businesses
C Colony-colonizer relationships have a strong positive effect on bilateral trade between countries. British companies continue to trade heavily with businesses from its former colonies in the commonwealth; Spanish companies trade heavily with Latin American countries; and French businesses trade with the franc zone of West Africa.
American Snacks Inc., a conglomerate, has a strategic alliance with Très Bien Limité, a French snack-maker. However, Très Bien managers are concerned that the different business units of American Snacks will set up partnerships with direct competitors of Très Bien in France. What can owners and managers at American Snacks do to respond to Très Bien's concern? A) Require business units at American Snacks and Très Bien to sign loyalty pledges. B) Encourage business units at American Snacks to act independently. C) Arrange for the alliance to be managed at the corporate level. D) Sever the relationship with Très Bien and find a more trusting corporate partner.
C Conglomerates such as ABB, GE, Philips, or Siemens are engaged in hundreds of alliances simultaneously. In fact, if alliances are not managed from a portfolio perspective at the corporate level, serious negative repercussions can emerge. Groupe Danone, a large French food conglomerate, lost its leading position in the highly lucrative and fast-growing Chinese market because its local alliance partner, Hangzhou Wahaha Group, terminated the long-standing alliance. Wahaha accused different Danone business units of subsequently setting up partnerships with other Chinese firms that were a direct competitive threat to Wahaha. This example makes it clear that although alliances are important pathways by which to pursue business-level strategy, they are best managed at the corporate level.
Los Pollos Hermanos is a nationwide fast-food chain. Decision power resides at the top of the organization. Each job is documented in minute detail. The firm has many levels of supervision, including vice presidents and regional managers. The firm's headquarters provides detailed instructions to each of its franchisees so that they provide comparable quality and service across the board. Based on this scenario, which of the following is an accurate statement about Tony's? A) Los Pollos Hermanos has a low degree of specialization and formalization, a high degree of centralization, and relies on a flat hierarchy. B) Los Pollos Hermanos has a high degree of specialization and formalization, a low degree of centralization, and relies on a tall hierarchy. C) Los Pollos Hermanos has a high degree of specialization, formalization, and centralization and relies on a tall hierarchy. D) Los Pollos Hermanos has a low degree of specialization, formalization, and centralization and relies on a flat hierarchy.
C Los Pollos Hermanos has a high degree of specialization (employees are assigned specific tasks such as food prep, cook, cashier), formalization (each job documented in minute detail; detailed instructions to each of its franchisees), and centralization (decision power resides at the top) and relies on a tall hierarchy (many levels of supervision).
Better Pill LLC is a small, new pharmaceutical company that is developing a valuable new drug. Which of these strategies would it be wise for Better Pill's owners or managers to take? A) Quickly build downstream complementary assets. B) Enter multiple learning races within strategic alliances. C) Seek an alliance with a company or companies that will complete the value chain. D) Pursue managerial hubris at all levels of development.
C New firms are in need of complementary assets to complete the value chain from upstream innovation to downstream commercialization. This implies that a new venture that has a core competency in R&D, for example, will need to access distribution channels and marketing expertise to complete the value chain. Building downstream complementary assets such as marketing and regulatory expertise or a sales force is often prohibitively expensive and time-consuming, and thus frequently not an option for new ventures. Strategic alliances allow firms to match complementary skills and resources to complete the value chain. Moreover, licensing agreements of this sort allow the partners to benefit from a division of labor, allowing each to efficiently focus on its core competency.
A microchip company wants a computer company to produce more powerful tablets and therefore use more of its chips. That same computer company wants the microchip maker to create chips with faster processing power. What approach could these companies take so that both can serve stockholders well? A) Both companies should reduce prices to force out competitors and make entering the market less appealing to potential rivals. B) Whichever company is larger should acquire the smaller one and impose its management system on the acquired company. C) The two companies should enter a strategic alliance to bring about a win-win situation for them and to limit their rivals' power. D) For data security reasons, both companies should remain separate and refrain from sharing information.
C One reason why firms enter strategic alliances is because they are motivated by the desire to learn new capabilities from their partners.
Two leading home appliance companies, Globex Inc. and Pug Tech, are in competition for market share. In their quest for exciting new products, Globex employs an open innovation model, while Pug Tech pursues a closed innovation model. Which of the following statements is most likely true? A) Globex has a greater chance of capturing market share. B) Pug Tech has a superior absorptive capacity. C) Pug Tech will protect its intellectual property with patents and trade secrets. D) Globex is most concerned with securing first-mover advantages.
C Pug Tech is likely to protect its research and development findings with patents and trade secrets. Firms in the closed innovation model are extremely protective of their intellectual property. This not only allows the firm to capture all the benefits from its own R&D, but also prevents competitors from benefiting from it.
Warephase Airway's decision to acquire Konex Fuels Inc. proved to be ill-fated because the Warephase managers overestimated their abilities and skills. They believed that they had the skills to manage such diversified businesses and create additional shareholder value. However, the acquisition failed to create the anticipated synergies because the managers' capabilities were restricted to the airline industry. What does this scenario best illustrate? A) knowledge race B) competitive feasibility C) managerial hubris D) unfettered free market
C The scenario best illustrates managerial hubris. Managers of the acquiring company convince themselves that they are able to manage the business of the target company more effectively and, therefore, create additional shareholder value. This justification is often used for an unrelated diversification strategy.
Many financial service firms, IT firms, and health care companies are among the most active when it comes to________, which occurs when value chain activities are taken care of outside the home country of the firm. A) strategic outsourcing B) procurement C) offshore outsourcing D) diversification
C When outsourced activities take place outside the home country, the correct term is offshoring (or offshore outsourcing). For example, Infosys, one of the world's largest technology companies and providers of IT services to many Fortune 100 companies, is located in Bangalore, India.
Plexzap Products started as a luxury brand for designer apparel. Soon, the company expanded by launching its own line of premium perfumes, watches, bags, and home furnishings. This expansion allowed the businesses under the company to share a few of the common competencies in products, services, technology, and distribution. Which of the following corporate strategies is Plexzap pursuing in this scenario? A) taper integration strategy B) niche marketing strategy C) related-constrained strategy D) related-linked strategy
D Plexzap is pursuing a related-linked strategy in this scenario. If executives consider new business activities that share only a limited number of linkages, the firm is using related-linked diversification
Mary has been named CEO of an office furniture manufacturing company. As CEO, she is tasked with setting the firm's corporate strategy. Which of the following decisions is Mary most likely to make? A) whether to pursue a differentiation or cost-leadership strategy B) which customer segments to target C) how to achieve the highest levels of customer satisfaction D) what range of products the firm should offer
D Strategic leaders must determine corporate strategy along three dimensions: vertical integration (in what stages of the industry value chain should the company participate?), diversification (what range of products and services should the company offer?), and geographic scope (where should the company compete geographically in terms of regional, national, or international markets?)
Aldorria and Estoccia are neighboring countries with strong economic disparities. However, both the countries share a common national language and the same political ideologies. The relationship between these two countries will most likely affect the trade of A) food processed in Estoccia. B) movies and TV shows produced in Aldorria. C) iron ore extracted in Estoccia. D) luxury items manufactured in Aldorria.
D Between the two countries, trade of luxury items manufactured in Aldorria will be most affected. Economic distance most affects industries or products for which demand varies by income (such as cars).
Todd is a strategist for a furniture manufacturer that has a large presence in the United States and Canada. By checking economic and political reports, he knows that trade and investment barriers are falling among wealthy nations. He also knows that the price of oil has dropped 50 percent in the previous two years. Based on this information, what action should Todd and his company take? A) Todd and her employer should wait out this period of uncertainty and take action when market forces are more stable. B) They should anticipate market corrections because investment barriers and the price of oil inevitably rise. C) Todd and his employer need to prepare for the cost of doing business to increase. D) They should seriously consider globalization because of the falling trade and investment barriers.
D Globalization is a process of closer integration and exchange between different countries and peoples worldwide, made possible by falling trade and investment barriers, advances in telecommunications, and reductions in transportation costs. Combined, these factors reduce the costs of doing business around the world, opening the doors to a much larger market than any one home country. Globalization also allows companies to source supplies at lower costs, to learn new competencies, and to further differentiate products.
E Corp is a pharmaceutical company that has many breakthroughs in medicine to its credit. Unlike many other pharmaceutical companies, E Corp has a relaxed work environment where employees are free to discuss projects with each other. Employees are encouraged to choose the projects that interest them; communication between team members and their supervisors is open and easy. Because of the company's work culture, its employees feel motivated to work harder and display more entrepreneurial behaviors. In this scenario, E Corp Inc. is most likely an organization that is A) formalized. B) mechanistic. C) centralized. D) organic.
D In this scenario, E Corp is most likely an organic organization. Organic structures tend to be correlated with the following: a fluid and flexible information flow among employees in both horizontal and vertical directions; faster decision making; and higher employee motivation, retention, satisfaction, and creativity. Organic organizations also typically exhibit a higher rate of entrepreneurial behaviors and innovation.
Managers at Umbrella Corporation, a firm in East Asia, want to make their company a global leader in business process outsourcing (BPO). What should the Umbrella managers look for as they decide where to locate their BPO facilities? A) large, undeveloped plots of land for greenfield projects B) plentiful natural resources C) many uneducated workers who are highly trainable D) an abundance of well-educated English speakers
D India carved out a competitive advantage in business process outsourcing (BPO), not only because of low-cost labor but also because of an abundance of well-educated, English-speaking young people.
Siobhan, the chief financial officer at an office furniture manufacturer in Canada, wants to build new plants in Canada rather than overseas. Which of these points should she make as she argues her case to the board of directors? A) "As the rest of the world globalizes, we will lead the way in strengthening our home nation." B) "Keeping our factories in Canada means facing up to the liability of foreignness." C) "Canada's wages and benefits are so low compared with the rest of the world that it makes the most sense to build factories here." D) "It will be much more difficult to protect our intellectual property if we build factories overseas."
D The issue of protecting intellectual property in foreign markets looms large. The software, movie, and music industries have long lamented large-scale copyright infringements in many foreign markets. In addition, when required to partner with a foreign host firm, companies may find their intellectual property being siphoned off and reverse-engineered. Japanese and European engineering companies entered China to participate in building the world's largest network of high-speed trains worth billions of dollars. Companies such as Kawasaki Heavy Industries (Japan), Siemens (Germany), and Alstom (France) were joint venture partners with domestic Chinese companies. These firms now allege that the Chinese partners built on the Japanese and European partners' advanced technology to create their own, next-generation high-speed trains. To make matters worse, they also claim that the Chinese companies now compete against them in other lucrative markets, such as Saudi Arabia, Brazil, and even California, with trains of equal or better capabilities but at much lower prices