Chap 8

______ are partnerships in which at least one partner takes partial ownership in the other partner.

Equity alliances

______ is a situation in which one party has more knowledge than another due to the possession of private knowledge.

Information asymmetry

Which of the following is a fundamental corporate-level strategic decision?

What products and services should the firm offer?

Transaction cost economics help managers do which of the following?

choose which activities to carry out within the firm

Stages four and five of the industry value chain involve ______.

sales after-sales service and support marketing

A(n) ______ is a voluntary arrangement between firms that involves sharing of resources and capabilities with the intent of developing processes, products, or services.

strategic alliance

What is the purpose of the core competence--market matrix?

to provide guidance regarding how to diversify in order to grow the company

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

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

Amazon's explosive success is largely due to which of the following?

vertical integration diversification

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

vertical market failure

________ is best described as the changes in an industry value chain that involve moving ownership of activities upstream to the originating (inputs) point of the value chain

backward vertical integration

What is a major disadvantage of organizing economic activity within firms?

the principal-agent problem

Which of the following is not a dimension along which corporate strategy is assessed?

the size of the company in comparison to its main competitors

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

vertical integration

A(n) ______ is a situation in which the stock price of a highly diversified firms is valued as less than the sum of their individual business units.

diversification discount

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

diversification discount

Which of the following best illustrates a dominant-business firm?

Siova Inc. is a luxury brand that derives 90 percent of its revenues from its apparel line and 10 percent of its revenues from its premium furniture business unit.

______ is a way of orchestrating value activities in which a firm is backwardly or forwardly integrated and relies on outside-market firms for supplies or distribution.

Taper integration

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

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

A firm follows a(n) ______ diversification strategy when it derives less than 70% of its revenues from a single business activity and obtains revenues from other lines of business that are linked to the primary business activity.

related

Which type of diversification is most likely to lead to superior performance?

related diversification

When a multi-business firm pools and shares resources and leverages competencies across different business lines, it is following a(n)

related diversification strategy

In the taper integration system, a firm has ______ reliance on outside markets.

some

The lemons problem suggests that information asymmetries can cause

superior goods to be replaced by inferior ones

A benefit of ______ is that in-house suppliers and distributors are subjected to market competition, which allows the firm to assess performance in comparison to others.

taper integration

The most integrated alternative to vertical integration is

the parent-subsidiary relationship

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

transaction-specific

What are advantages of organizing economic activity inside of a firm?

transaction-specific investments the creation of a community of knowledge command-and-control decisions

Google's choice to hire programmers in-house suggests that they decided that the ______ costs associated with this strategy are ______ than the costs associated with contracting in the open market.

transaction; lower

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

true

When a firm is more efficient in organizing economic activity than markets are, the firm should

vertically integrate

What is a related-linked diversification strategy?

one in which executives pursue various businesses opportunities that share only a limited number of linkages

Olivia's, an olive oil company, grows and harvests olives, makes olive oil, and distributes its olive oil to its retail shop. Olivia's is an example of

a fully vertically integrated company

Which of the following is an example of the principal-agent problem even when the principal's goal is to create shareholder value?

a manager flying first class on all business trips

In a fully vertically integrated organization,

all stages of the industry value chain are conducted within the firm

Which of the following is an example of related-constrained diversification

an automobile company that manufactures petrol cars expanding into the diesel car industry

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

backward

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

equity alliance

In the ______ quadrant of the core competence--market matrix, the focus is on leveraging current core competencies to improve current market position.

existing competence--existing market

An inverted U-shaped relationship between the type of diversification and overall firm performance indicates that

high and low levels of diversification are generally associated with lower overall performance.

Specialized assets have

high opportunity cost

Advantages of organizing economic activity at the market level include which of the following?

increased flexibility high-powered incentives

Each stage of the vertical value chain represents a distinct ______ in which a number of different firms are competing.

industry

The ______ depicts the transformation of raw materials into finished goods and services along distinct vertical stages, each of which represents a distinct industry in which a number of different firms are competing.

industry value chain

Amazon's continued focus on ______ is a key to its ongoing success.

innovation

In general, related diversification leads to high levels of performance because

it accesses numerous areas of value creation, such as economies of scale and scope

A(n) __ is a standalone organization created and jointly owned by two or more parent companies.

joint venture

Which of the following is an option for formulating strategy via core competencies

leverage existing core competencies to improve current market position

North Carolina National Bank (NCNB) used its unique core competency of identifying, appraising, and integrating acquisition targets to be rebranded as Bank of America, one of the largest banks in the United States. This is an example of a firm

leveraging existing core competencies to improve current market position.

Long-term contracts include which of the following forms?

licensing franchising

One way to overcome the principal-agent problem is to

make managers owners through stock options

Which diversification strategy involves executives pursuing various business opportunities that share only a small number of similarities?

related-linked

The Boston Consulting Group growth-share matrix locates a firm's individual SBUs in which of the following dimensions?

relative market share speed of market growth

Which type of alternative on the make-or-buy continuum involves competitive bidding by external companies hoping to acquire a temporary arrangement with a firm?

short term contracts

Which types of diversification tend to have the lowest performances?

single business unrelated diversification

Why did Coca-Cola enter into a strategic alliance with Monster?

so that it could gain private information to determine whether an acquisition might be beneficial

Which of the following is an example of internal transaction costs?

the costs pertaining to setting up a shop floor

The degree of vertical integration corresponds to

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

______ is a theoretical framework that helps explain and predict the boundaries of the firm.

Transaction cost economics

The rationale behind related diversification is to

Benefit from economies of scale and scope

The ______ is a corporate planning tool in which the corporation is viewed as a portfolio of business units.

Boston Consulting Group (BCG) growth-share matrix

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

Inverted U