Bus Pol Final Exam

Which of the following best illustrates site specificity? A) equipment necessary for mining bauxite and aluminum smelting B) bottling machinery to manufacture bottles with trademarked shapes C) investment made in human capital to master procedures of a specific organization D) investment made to train employees to operate computers

) A Equipment necessary for mining bauxite and aluminum smelting best illustrates site specificity. Site specificity, a form of specialized assets, refers to assets that are required to be co-located, such as the equipment necessary for mining bauxite and aluminum smelting.

Why should managers using the M-form organizational structure to support a related- diversification strategy ideally concentrate decision making at the top of the organization? A) It allows a high level of integration. B) It helps contain the core competencies within a strategic business unit (SBU). C) It leads to competition between SBUs. D) It helps evaluate each SBU as a stand-alone profit-and-loss center.

) A Managers using the M-form organizational structure to support a related-diversification strategy should ideally 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

Why is it difficult to imitate the organizational culture of firms like Southwest Airlines and Zappos? A) Their culture reflects complex relationships with their employees, customers, and suppliers. B) They produce products that cannot be copied easily because of their complex designs. C) The employees in the organization themselves are unaware of the factors contributing to their organizational culture. D) It is not commercially viable for other companies to implement the same culture.

) A Once it becomes clear that a firm's culture is a source of competitive advantage, some competitors will attempt to imitate that culture. Therefore, only a culture that cannot be easily copied can provide a competitive advantage. However, it can be difficult, at best, to imitate the cultures of successful firms, for two reasons: causal ambiguity and social complexity.

XYZ Inc. is a publicly traded company and a highly diversified firm. However, XYZ's most recent stock price is valued less than the sum of all its individual business units. We would conclude that XYZ is currently experiencing a A) diversification discount. B) diversification premium. C) two for one split. D) shareholder rights plan.

A A diversification discount occurs when the stock price of a highly diversified firm is valued less than the sum of all their SBUs

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.

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 value chain. By pursuing backward integration, Golddex would produce all necessary components for its automobiles in-house, reducing the costs and potential for interruptions associated with sourcing components from external suppliers.

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.

In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech start-up Genentech. In 2009, after witnessing the success of Genentech's drug discovery and development projects, Roche spent $47 billion to purchase the remaining minority interest in Genentech, making it a wholly owned subsidiary. In terms of strategic alliances, this scenario best indicates A) the real-options perspective. B) co-opetition. C) explicit knowledge. D) the stakeholder strategy.

A In terms of strategic alliances, this scenario best indicates the real-options perspective. Taking a wait-andsee approach by entering strategic alliances allows incumbent firms to buy time and wait for the uncertainty surrounding the market and technology to fade.

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.

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.

Vanessa just graduated from law school and wants to open her own law firm. Vanessa should probably adopt a(n) ______ structure for the firm. A) simple B) functional C) M-form D) matrix

A Simple structures exhibit low formalization and specialization, which is suitable for new start-ups and small professional firms.

NoRu Inc. is a publicly traded firm that does not wish to be acquired by FRESHPoP Corporation, a much larger publicly traded firm, who is planning an acquisition of NoRu Inc. This is an example of a A) hostile takeover. B) friendly takeover. C) joint venture. D) strategic alliance.

A When a target firm does not want to be acquired, the acquisition is considered a hostile takeover.

According to the perspective of shareholder capitalism, shareholders in public stock companies A) are restricted from buying shares of two competing companies. B) have the most legitimate claim on profits. C) have significant decision-making power. D) have unlimited financial liability.

B According to the perspective of shareholder capitalism, shareholders—the providers of the necessary risk capital and the legal owners of public companies—have the most legitimate claim on profits.

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."

A drawback involved in using cross-border strategic alliances to enter new foreign markets is that A) the foreign firm will need to make larger investments when compared to entering the new market on its own. B) some of the firm's proprietary know-how may be appropriated by the foreign partner. C) all potential business risks in the new market will have to be faced alone by the foreign firm. D) the shareholder value of the foreign partner will decline drastically.

B Cross-border strategic alliances have both benefits and risks. While the foreign firm can benefit from local expertise and contacts, it is exposed to the risk that some of its proprietary know-how may be appropriated by the foreign partner.

For which of the following companies will geographic distance be the most relevant factor in deciding whether to trade with a target country? A) a firm that manufactures cell phone batteries B) a firm that extracts and exports iron ore C) a firm that produces movies D) a firm that sells wristwatches

B Geographic distance is particularly relevant when trading products with low value-to-weight ratios such as steel, cement, or other bulk products and fragile and perishable products such as glass or fresh meats and fruits

Duke & Duke 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, Duke & Duke Autos Inc. is reaping the benefits of A) economies of scope. B) location economies. C) resource immobility. D) resource ambiguity.

B In this scenario, Duke & Duke Autos Inc. is reaping the benefits of location economies. Location economies are benefits from locating value chain activities in the world's optimal geographies for a specific activity, wherever that may be

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.

J-Texon Manufacturing is a large conglomerate that operates only in its home country. The company competes in industries like the consumer electronics, health care, hotel, airlines, education, and steel industries. Which of the following diversification strategies does this best illustrate? A) process diversification B) product diversification C) geographic diversification D) market diversification

B J-Texon Manufacturing is pursuing a product diversification strategy. A firm that is active in several different product markets is pursuing a product diversification strategy.

Which of the following real-world scenarios best exemplifies formalization? A) Zappos' focus on allowing its customer service employees to use their own approach rather than depend on scripts B) McDonald's use of standard operating procedures across the world C) W. L. Gore's associates organizing themselves in project-based teams that are led by sponsors, not bosses D) Yahoo's decision to fire its CEO after incurring huge losses

B McDonald's use of standard operating procedures across the world best exemplifies formalization. Formalization captures the extent to which employee behavior is controlled by explicit and codified rules and procedures.

Leslie has completed the organizational design of her firm but is now interested in the second key informal building block, which she believes will help her firm achieve a competitive advantage. Specifically, she's interested in how things will get done on a day-to-day basis and the intangible piece of her organization that cannot be easily codified. Leslie wants to build an effective A) employee handbook. B) organizational culture. C) list of standard operating procedures. D) innovation strategy.

B Organizational culture is the second key building block when designing organizations for competitive advantage. Culture is an informal, and thus an intangible, building block of organizational design that, unlike the formal structure, cannot be easily observed or codified.

Billy is the CEO of Billy's Kicks, a soccer ball retailer. He decides to purchase the synthetic rubber manufacturing firm so he can create his own soccer balls and sell them, nationally, in his retail stores. In order to do this, Billy will need to engage in ________, which is a corporate level strategy. A) forward vertical integration B) backward vertical integration C) horizontal integration D) differentiation

B Since Billy is moving upstream in his industry value chain and purchasing one of his suppliers, he is engaging in backward vertical integration

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.

Domenick is a recent graduate who states that he has interned at a major accounting firm so that his value as a candidate for employment increases. A start-up recruits Domenick based on his stated credentials without verifying them. Two days into the job, Domenick's team lead realizes that Domenick does not know much of what he claimed to know duringthe interview. This scenario best exemplifies A) moral hazard. B) adverse selection. C) shared value creation. D) corporate governance.

B This scenario best exemplifies adverse selection. In general, adverse selection occurs when information asymmetry increases the likelihood of selecting inferior alternatives. In principal-agent relationships, for example, adverse selection describes a situation in which an agent misrepresents his or her ability to do the job.

One way to foster ethical behavior in employees is to A) avoid codifying organizational culture. B) create a control system that encourages desired values. C) view clients as counter parties to transactions. D) align the vision statement of the organization with its informal culture.

B To foster ethical behavior in employees, top management must create an organizational structure, culture, and control system that values and encourages desired behavior. Furthermore, a company's formal and informal cultures must be aligned, and executive behavior must be in sync with the formally stated vision and values.

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.

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.

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.

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.

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.

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.

1) ________ 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.

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.

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.

A primary advantage of organizing economic activity within firms is the A) ability to coordinate highly complex tasks to allow for specialized division of labor. B) low administrative costs because of reduced bureaucracy. C) eradication of the principal-agent problem. D) high-powered incentive to work as salaried employees for an existing firm.

) A The advantages of organizing economic activity within firms include coordination of highly complex tasks to allow for specialized division of labor. Internal transaction costs include administrative costs associated with coordinating economic activity between different business units of the same corporation such as transfer pricing for input factors, and between business units and corporate headquarters including important decisions pertaining to resource allocation, among others.

Vinny, the CEO of Rainholm Industries is looking to employ a ________ strategy, which would take advantage of economies of scale and location economies. He wishes to pursue and establish a global division of labor based on wherever best-of-class capabilities reside at the lowest possible cost for Rainholm Industries. A) global standardization B) multidomestic C) international D) transnational

A Rainholm Industries is following a global-standardization strategy attempt to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost.

Janet hires Vanessa to perform a critical task in her organization. However, Vanessa has misrepresented her knowledge, skills and abilities and Janet has no way of knowing whether Vanessa can indeed perform well. This is an example of A) agency theory. B) disparate treatment. C) adverse selection. D) ineffective corporate governance.

C In principal-agent relationships, for example, adverse selection describes a situation in which an agent misrepresents his or her ability to do the job.

Paul runs an organization that implements a cost-leadership strategy. This business-level strategy supports both a ________ and ________ structure. A) matrix; organic B) M-form; vertical C) simple; organic D) functional; mechanistic

D A cost-leadership strategy usually focuses on offering standardized products to mainstream customers. Usually a functional and mechanistic organizational structure is preferred here to promote scale economies

Blackzim Inc. entered the low-priced digital watch market several years ago. This firm's earnings have been unsteady but might be growing. According to the BCG growth matrix, Blackzim is a A) cash cow. B) star. C) dog. D) question mark.

D According to the BCG growth matrix, Blackzim is a question mark. Question marks have low, unstable earnings that might be growing

Jim is the CEO of a financial services firm. What action should Jim take to be sure the firm avoids moral hazards? A) He should closely monitor the behavior and performance of new employees to be certain that they have the skills they claimed to have in interviews. B) Jim must increase hiring and develop influential relationships with government officials so that his firm will be considered "too big to fail." C) He must create a plan in which government agencies, or a consortium of other financial services firms will assume any future debts of the company. D) Jim should define undue risk-taking, institute strict auditing of loans, and make it clear that the company will fire employees who lend recklessly.

D In general, moral hazard describes a situation in which information asymmetry increases the incentive of one party to take undue risks or shirk other responsibilities because the costs accrue to the other party. For example, bailing out homeowners from their mortgage obligations or bailing out banks from the consequences of undue risk-taking in lending are examples of moral hazard. The costs of default are rolled over to society. Knowing that there is a high probability of being bailed out ("too big to fail") increases moral hazard. In this scenario, any profits remain private, while losses become public.

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 Sarahis 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.

Bob is the strategic business unit (SBU) CEO in charge of manufacturing cufflinks for men's clothing. While the market he competes in is low growth, Bob's SBU's earnings and cash flow are both ranked at high and stable. When examining Bob's SBU through the Boston Consulting Group (BCG) matrix lens, we can conclude that his SBU would be classified as a A) cash cow. B) dog. C) star. D) question mark.

A Cash cows are SBUs that compete in a low-growth market but hold considerable market share. Their earnings and cash flows are high and stable

When examining the core competence-market matrix, the most challenging diversification strategy occurs when firms attempt to combine ________ with ________. If done successfully, the firm could have the potential for "mega-opportunities" that may lead to competitive advantage. A) new core competencies, new markets B) new core competencies, existing markets C) existing core competencies, existing markets D) existing core competencies, new markets

A Combining new core competencies with new market opportunities creates future "mega-opportunities," but it is the most difficult diversification strategy because new core competencies need to be built to create and compete in new markets.

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.

Carla recently became a board member of a firm that has a history of reckless actions by senior employees. Which task would be appropriate for Carla to undertake to help safeguard the company's financial health? A) Request and review a copy of the firm's risk assessment plan, if such a plan exists. B) Take part in the annual reviews of employees in the financial department. C) Draft and circulate a statement that the firm's board members serve at the pleasure of the CEO. D) Determine how to postpone or evade the firm's compliance with local, regional, and national regulations.

A In addition to general strategic oversight and guidance, the board of directors has other, more specific functions. These include conducting a thorough risk assessment, proposing options to mitigate risk, and ensuring the firm's compliance with laws and regulations.

Ethics is A) not synonymous with law. B) impossible to codify into law. C) universal and cannot differ between cultures. D) the minimum acceptable standard in business practice.

A Law and ethics are not synonymous. This distinction is important. Staying within the law is a minimum acceptable standard.

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.

Jack is a board member of firm A but is not an employee of firm A; Jack is a senior executive from firm B. Jack can best be described as a(n) A) outside director. B) inside director. C) shareholder. D) philanthropists.

A Outside directors are not employees of the firm. They frequently are senior executives from other firms or full-time professionals, who are appointed to a board and who serve on several boards simultaneously.

Paul is a manager at Macmillan Toys Inc. and is friends with the company's CEO. This privilege gives Paul the information that Macmillan Toys is in the midst of talks to take over a leading rival. Paul buys stocks of Macmillan Toys with the expectation that its stocks will appreciate. But the deal falls through, and the stocks of Macmillan Toys depreciate in the following months. Are Paul's actions unethical? Why or why not? A) Yes. It is unethical to trade stocks based on insider information, irrespective of the final outcome. B) Yes. It is illegal and unethical for Paul to possess any kind of insider information. C) No. Paul did not ask the CEO to disclose such information to him. D) No. Paul did not make any profits from trading stocks using this information.

A Paul's actions are unethical because it is illegal and unethical to trade stocks based on insider information, irrespective of the final outcome. Although possessing insider information is not illegal and indeed is part of an executive's job, what is illegal is acting upon it through trading stocks or passing on the information to others who might do so. Insider-trading cases provide an example of egregious exploitation of information asymmetry

In a public stock company, senior executives, such as the CEO, face agency problems when A) they delegate authority of strategic business units to general managers. B) they decide to get involved in the day-to-day operations of a company. C) the board of directors possesses more information about the company than they do. D) the firm designs work tasks, incentives, and employments that minimize opportunism.

A Senior executives, such as the CEO, face agency problems when they delegate authority of strategic business units to general managers. Employees who perform the actual operational labor are agents who work on behalf of the managers. Such front-line employees often enjoy an informational advantage over management.

Sean was recently hired at an up-and-coming firm that has a history of ethics violations. Which action is best for him to take if he wants to determine whether the firm is now acting ethically? A) Observe executives at the company, and see whether they model ethical behavior and demand it of others. B) Research the results of the ethics violations. If the perpetrators were fired or jailed, then the rest of the company is sound. C) Check the company's mission statement to make sure that it guarantees respect and integrity. D) Ignore the alleged ethics violations because there is no one standard of ethical behavior.

A Some people believe that unethical behavior is limited to a few "bad apples" in organizations. However, research indicates that it is not just the few "bad apples" but entire organizations that can create a climate in which unethical, even illegal behavior is tolerated. While there clearly are some people with unethical or even criminal inclinations, in general one's ethical decision-making capacity depends very much on the organizational context. Research shows that if people work in organizations that expect and value ethical behavior, they are more likely to act ethically. The opposite is also true. Enron's stated key values included respect and integrity, and its mission statement proclaimed that all business dealings should be open and fair. Yet, the ethos at Enron was all about creating an inflated share price at any cost, and its employees observed and followed the behavior set by their leaders.

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.

Josie wants to invest in the stock market but is afraid of losing more money than what she invests. Josie need not worry because of A) limited liability for investors. B) transferability of investor ownership. C) legal personality. D) separation of legal ownership and management control.

A This characteristic means the shareholders who provide the risk capital are liable only for the capital specifically invested, and not for other investments they may have made or for their personal wealth.

Martha received a tip from a close friend who is an executive manager of a publicly traded company called TelAmeriCorp Inc. The manager received some inside information about how to trade TelAmeriCorp stock to get a huge profit. He shared this information with Martha. This scenario is an example of A) information asymmetry. B) adverse selection. C) stakeholder strategy. D) shared value creation.

A This scenario is an example of information asymmetry. Information asymmetry occurs when managers, executives, and board members have access to private information concerning important company developments that outsiders, especially investors, are not privy to. Although possessing insider information is not illegal and indeed is part of an executive's job, what is illegal is acting upon it through trading stocks or passing on the information to others who might do so.

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.

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.

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.

Judging from the Disney-Pixar merger, which of these is an effective way to create shareholder value from a merger? A) Integrate the acquired company as fully as possible, merging staffs and locations, so that all employees have as similar an on-the-job experience as possible. B) If the acquired company creates high-quality products or services, don't force it to mirror the management style of the acquiring company. C) Cut prices at the acquired company but not the acquiring company so that the acquisition covers all consumer price points. D) Raise consumer prices at the acquiring company and the acquired company to reflect the fact that the market is now less competitive.

B Disney has shown superior post-merger integration capabilities after acquiring Pixar, Marvel, and Lucasfilm. Disney managed its new subsidiaries more like alliances rather than attempting full integration, which could have destroyed the unique value of the acquisitions. In Pixar's case, Disney kept the entire creative team in place and allowed its members to continue to work in Pixar's headquarters near San Francisco with minimal interference. The hands-off approach paid huge dividends: Although Disney paid a steep $7.4 billion for Pixar, it made some $10 billion on Pixar's Toy Story 3 franchise revenues alone. As a consequence, Disney has gained a competitive advantage over its rivals such as Sony and has also outperformed the Dow Jones Industrial Average over the past few years by a wide margin.

Which of the following statements is true of an equity alliance? A) An equity alliance is based on contractual agreements rather than partial ownership. B) In an equity alliance, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible. C) In an equity alliance, a standalone organization is created that is jointly owned by two or more parent companies. D) An equity alliance creates weaker ties between the alliance partners when compared to a nonequity alliance.

B Equity alliances allow for the sharing of tacit knowledge. Therefore, the partners in an equity alliance frequently exchange personnel to make the acquisition of tacit knowledge possible.

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.

What is the result of managers' pursuit of strategies that define value creation too narrowly in public stock companies? A) It gives the managers greater control of the performance of the organization in the long term. B) It reduces the trust of shareholders in the organization as a vehicle for value creation. C) It helps companies increase firm profits by creating shared value. D) It enables companies to create social value by addressing society's needs but prevents them from creating economic value for shareholders.

B Managers' pursuit of strategies that define value creation too narrowly may have negative consequences for society at large, as evidenced during the global financial crisis. This narrow focus has contributed to the loss of trust in the corporation as a vehicle for value creation, not only for shareholders but also other stakeholders and society.

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.

Jerry is one of the SBU managers for a firm that has been in business for over 50 years. The external environment in which they have operated has changed significantly in the past decade, but this firm is still operating under a "business as usual" mantra. Jerry can't seem to convince the upper level executives to reorganize the firm's structure and formal reporting relationships. This firm is probably experiencing A) a failed strategy. B) organizational inertia. C) a change in leadership. D) increased morale due to their organizational culture.

B Organizational inertia is a firm's resistance to change in the status quo

Greg is the president of a technology firm that has recently gone public. What action, if any, should Andrew take to build the confidence of his new shareholders? A) Greg needs to focus on the company's earnings because that is what shareholders care about. B) He should find out whether the majority of his shareholders want long-term steady growth or short-term spikes in the stock price. C) He should discourage pension funds from investing because they are interested in safety at the expense of growth. D) He should make the company stock available only to hedge funds so he will have the freedom to take risks as the firm expands.

B Shareholders' interests are not uniform. The goals of some shareholders, such as institutional investors (e.g., retirement funds, governmental bodies, and so on), are generally the long-term viability of the enterprise combined with profitable growth. Long-term viability and profitable growth should allow consistent dividend payments and result in stock appreciation over time. The goals of other shareholders, such as hedge funds, are often to profit from short-term movements of stock prices. These more proactive investors often demand changes in a firm's strategy, such as spinning out certain divisions or splitting up companies into parts to enhance overall performance. Votes at shareholder meetings, generally in proportion to the amount of ownership, determine whose representatives are appointed to the board of directors.

Shelia is a graduate student pursuing a course in business. Presented with the case of a company's unethical behavior, Shelia wonders if the company's board of directors should ask the CEO to step down. Having a strong belief in Michael Porter's idea of value creation, Shelia is most likely to conclude that company's board of directors A) should not ask the CEO to step down because doing so would cause a profit dip that would affect its shareholders. B) should ask the CEO to step down because it has a greater obligation toward society. C) should not ask the CEO to step down because he was responsible for an almost 90 percent appreciation of the company's stock. D) should ask the CEO to step down because agents, unlike principals, are disposable.

B Shelia is most likely to conclude that company's board of directors should ask the CEO to step down because it has a greater obligation toward society. According to Michael Porter, many public companies have defined value creation too narrowly in terms of financial performance. This implies that a firm's obligations should frequently go beyond the economic responsibility to increase profits, extending to legal, ethical, and philanthropic expectations that society has of the business enterprise.

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.

Managers in a firm hired to improve the firm's profitability and ultimately the shareholders' value will add to the overall costs if they pursue their own self-interests. What does this best illustrate? A) diseconomies of scale B) principal-agent problem C) experience-curve effects D) information asymmetries

B The principal-agent problem is a major disadvantage of organizing economic activity within firms, as opposed to within markets. It can arise when an agent such as a manager, performing activities on behalf of the principal (the owner of the firm), pursues his or her own interests.

According to Michael Porter, which of the following is a problem with many publicly traded companies? A) Shareholders of publicly traded companies do not have a legitimate claim on profits. B) They have defined value creation too narrowly in terms of financial performance. C) There is no transferability of stock ownership in publicly traded companies. D) Publicly traded companies have no legal standing and are not responsible for their debts.

B The public stock company has been a major contributor to value creation since its inception as a new organizational form over 100 years ago. Michael Porter and others, however, argue that many public companies have defined value creation too narrowly in terms of financial performance.

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.

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.

Which of the following could most likely have prevented the accounting scandals of the early 2000s and the global financial crisis? A) adopting a narrow shareholder perspective B) separating economic interests and social needs C) practicing effective corporate governance D) adopting the principles of shareholder capitalism

C Corporate governance is about checks and balances and about asking the tough questions at the right time. The accounting scandals of the early 2000s and the global financial crisis of 2008 and beyond got so out of hand because the enterprises involved did not practice effective corporate governance.

Tom Terry is the CEO of BuildIt.com but wants a physical retail presence. In order to accomplish this, Tom formed a joint venture with a major real estate tycoon who has a significant foothold in the commercial property sector. This venture will require exchanging more than just codified information; as such, Tom should expect to share A) his knowledge of financial markets. B) his firm's supply chain. C) both tacit and explicit knowledge. D) only explicit knowledge.

C Due to the level of commitment that is inherent with a joint venture, Tom can expect to exchange both tacit and explicit knowledge.

selectrics, 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 Iselectricscan 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.

Which of the following is the most likely advantage of using foreign acquisitions or greenfield plants as a foreign-entry mode? A) They are easy to initiate and terminate. B) They require low amounts of investments in terms of capital. C) They reduce a firm's exposure to loss of reputation. D) They are based on contracts rather than ownership.

C Foreign-entry modes with a high level of control such as foreign acquisitions or greenfield plants reduce the firm's exposure to two particular downsides of global business: loss of reputation and loss of intellectual property.

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).

A firm pursuing a transnational strategy would believe that A) key business functions should be located in its home country headquarters. B) local responsiveness is more important than cost-reductions for competitive advantage. C) best practices, ideas, and innovations should be diffused throughout the world. D) the majority of the value creation should take place in the home country.

C Multinational enterprises typically implement a transnational strategy through a global matrix structure. That structure combines economies of scale along specific product divisions with economies of learning attainable in specific geographic regions. The idea is that best practices, ideas, and innovations will be diffused throughout the world, regardless of their origination.

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.

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.

Which of the following corresponds to the use of tacit knowledge? A) José studies a fact sheet about France. B) Cassandra reads a demographic report about minorities in Texas. C) Phil assembles a motorcycle from memory. D) Jean uses a scientific article to defend her thesis about global warming.

C Phil assembling the motorcycle from memory is an example of tacit knowledge. Tacit knowledge concerns "knowing how" to do a certain task. It can be acquired only through actively participating in the process. It does not involve a codified form of knowledge.

PolyCon's, a large and successful retail chain on the East Coast, decides to expand its operations across the United States. Which of the following organizational structures should PolyCon's use? A) basic B) simple C) multidivisional D) functional

C PolyCon's should use a multidivisional organizational structure. Over time, as a firm diversifies into different product lines and geographies, it implements a multidivisional or a matrix structure. The multidivisional structure (or M-form) consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility.

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.

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.

Dinotopia is a country of English-speaking people and has a very profitable economy. Which of the following countries is most likely to be the closest to Dinotopia in terms of cultural distance? A) Khemed, which has the same wealth and per capita income as Dinotopia B) Luftnarp, which has a very profitable economy and where people speak Luftnarpian C) Maldonia, where people speak English and have a low standard of living D) Moloni Republic, which is located close to Dinotopia and is easily accessible by road

C The country that is most likely to be the closest to Dinotopia in terms of cultural distance is Maldonia, where people speak English and have a low standard of living. Cultural differences find their expression in language, ethnicity, religion, and social norms.

The Konex Hotel Group purchased Green-Plus Hotels for an estimated value of $120 billion. All the hotels previously owned by Green-Plus Hotels are now managed by the Konex Hotel Group and are known as Konex hotels. What does this scenario best illustrate? A) a merger B) a joint venture C) an acquisition D) an equity alliance

C The scenario best illustrates an acquisition. An acquisition describes the purchase or takeover of one company by another. Acquisitions can be friendly or unfriendly.

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.

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.

CA 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.

European aircraft maker Airbus invested $600 million in Mobile, Alabama, to build jetliners. Which of the following statements best explains why it used this strategy? A) to take advantage of the high labor costs in the southern United States B) to take advantage of the high cost of living in the southern United States C) to take advantage of the low impact of globalization in the United States D) to take advantage of lower taxes in the southern United States

D Airbus made a significant strategic commitment to the U.S. market, the destination of the majority of its new jetliners. Being located in Alabama allows Airbus to be much closer to its customers and thus to receive and incorporate feedback, as individual airlines request specific customizations. It allows Airbus to take advantage of business-friendly conditions such as lower taxes, labor cost, and cost of living, plus other incentives provided by host states in the Southern United States. Making Airbus planes in the United States also prevents the European company from being forced to accept import restrictions.

One of the disadvantages of GM's focus on its Chinese market is A) the higher cost of Chinese labor due to benefits and health care. B) the Chinese dislike of big cars such as Cadillacs. C) European and Indian GM factories pulling monies from GM's Chinese manufacturing. D) Chinese government-supported domestic car makers are able to initiate a cutthroat price war.

D As mentioned in Strategy Highlight 10.1, several government-supported domestic car manufacturers in China are initiating a cutthroat price war to gain market share and scale.

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).

Genco Pura Olive Oil Company has established themselves as a strong differentiator in their respective SBUs but now wishes to explore international strategies. They are prepared to fully customize their product offerings to meet the needs of the foreign country that they are entering; having conducted many surveys on local preferences, tastes, and requirements, the Genco Pura Olive Oil Company will more than likely pursue a ________ strategy. A) global standardization B) cost-leadership C) transnational D) multidomestic

D Genco Pura Olive Oil Company should pursue a multidomestic strategy to maximize local responsiveness with the hope that local consumers will perceive their products or services as local ones.

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.

How does horizontal integration within an industry affect the surviving firms? A) by increasing the threat the surviving firms will face from new entrants B) by strengthening the rivalry among existing firms C) by requiring the surviving firms to shift their focus from nonprice to price competition D) by strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers

D Horizontal integration can favorably affect several of Porter's five forces for the surviving firms: strengthening bargaining power vis-à-vis suppliers and buyers, reducing the threat of entry, and reducing rivalry among existing firms.

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.

Bill Lewis is the CEO of Nordic Technologies Inc., a firm that offers a limited line of standard products that competes in a similar manner with a narrow, local market focus and whose competitive advantage is a focus on low cost derived from gaining economies of scale. Bill should use a A) group of strategic business units that each have a geographic focus. B) matrix structure that combines functional departments with geographic divisions. C) simple structure. D) functional structure.

D Nordic Technologies Inc. focuses on efficiency and achieving scale economies by producing limited lines of products to mainstream customers. Therefore, a functional structure is appropriate

In which of the following ways does Zappos achieve organizational control? A) It continually changes the organizational values that guide its employees. B) It refrains from monitoring its employees' calls. C) It encourages employees to be creative and innovate and to go the extra mile to deliver a wonderful customer experience. D) It enforces that each group member's compensation depends in part on the group's overall productivity.

D Norms, informal and tacit in nature, act as a social control mechanism. Zappos, for example, achieves organizational control partly through an employee's peer group: Each group member's compensation, including the supervisor's, depends in part on the group's overall productivity.

Codehow Inc. is a large firm involved in the highly competitive market of high-tech medical equipment. In this market, smaller firms that focus on research are constantly making new technological developments. Which of the following approaches would best serve the needs of Codehow? A) mergers B) serial mergers C) acquisitions D) serial acquisitions

D Serial acquisitions would best serve Codehow. Large existing firms often engage in serial acquisitions to maintain a window on the latest technology developments.

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?).

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) a transnational strategy B) a multidomestic strategy C) a localization strategy D) a global-standardization strategy

D The global-standardization strategy would require Lenovo to organize its operations worldwide to develop uniform products for its domestic and foreign markets. Firms following a global-standardization strategy attempt to reap significant economies of scale and location economies by pursuing a global division of labor based on wherever best-of-class capabilities reside at the lowest cost.

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.

Jordan is president of a medium-sized bank. What can he do to lessen the chance of employees or board members taking part in insider trading? A) forbid managers and executives from having access to private information B) forbid board members from having access to private information C) work with analysts and customer-facing employees to root out information asymmetry D) create a strict code of ethics and explain that inside traders will be fired

D The risk of opportunism on behalf of agents is worsened by information asymmetry: The agents are generally better informed than the principals. Managers, executives, and board members tend to have access to private information concerning important company developments that outsiders, especially investors, are not privy to. Often this informational advantage is based on timing—insiders are the first to learn about important developments before the information is released to the public. Although possessing insider information is not illegal and indeed is part of an executive's job, what is illegal is acting upon it through trading stocks or passing on the information to others who might do so. Insider-trading cases, therefore, provide an example of egregious exploitation of information asymmetry.

Which of the following perspectives best supports the shared value creation framework? A) Markets are more often than not defined by societal needs rather than economic needs. B) Failing to create value for society almost always reflects on the bottom line. C) A firm's competitive advantage depends on pitting economic and societal needs in a trade- off. D) Externalities such as pollution, wasted energy, and costly accidents actually create internal costs.

D The shared value creation framework proposes that managers maintain a dual focus on shareholder value creation and value creation for society. It recognizes that markets are defined not only by economic needs but also by societal needs. It also advances the perspective that externalities such as pollution, wasted energy, and costly accidents actually create internal costs, at least in lost reputation if not directly on the bottom line.

In the context of the Boston Consulting Group (BCG) growth-share matrix, if one of the strategic business units of a conglomerate is categorized under dogs, the management should A) infuse more capital into the strategic business unit. B) provide more human resources to the business. C) hold the business till it turns into a star. D) divest the strategic business unit.

D The strategic recommendations for dogs are either to divest the business or to harvest it. This implies stopping to invest in the business and squeezing out as much cash flow as possible before shutting it down or selling it.

Johnathan owns shares in a company called Delos Inc. The company's financial performance has been declining over the past few months, and the value of its stock has been decreasing. Johnathan wants to proactively cut his losses and therefore sells his shares. Mary, a trading enthusiast, buys shares in Delos Inc. 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? A) separation of legal ownership and management control B) legal personality C) limited liability for investors D) transferability of investor ownership

D This scenario best exemplifies transferability of investor ownership. Investors are allowed to trade shares of stock freely in the stock market on exchanges such as the New York Stock Exchange (NYSE) and NASDAQ.

Laura owns and runs Cyberdyne Systems Corp., a private start-up company with a current value of $1.3 billion. Cyberdyne Systems Corp.is interested in going public to fund future growth. Which action should Laura take before Cyberdyne Systems Corp.'s initial public offering? A) Laura should come up with a business plan for what Cyberdyne Systems Corp. will do once it is no longer publicly traded. B) She and senior managers should write down their code of ethics. C) Laura should not embark on an IPO until Cyberdyne Systems Corp.'s value is higher. D) She should investigate Cyberdyne Systems Corp.'s existing or potential problems with ethics or the law, if such problems exist.

D To fund future growth, companies frequently need to go public. Private start-up companies valued at a billion dollars or more are called unicorns, because at one time they seemed as rare as the mythical beast. But their elusiveness has changed. As long as these unicorns remain private, they do not have to follow the stringent financial reporting and auditing requirements that public stock companies do. Consider that there may be a connection between firm structure and the degree that it integrates ethics. Not needing to expose themselves to as much public scrutiny as a publicly traded company allows unicorns to undertake risky actions in their legal and ethical business practices. A potential downside is, however, that a track record of ethics and legal problems may prevent a successful initial public offering (IPO) in the future.