EXAM 2
Pipeline businesses are typically better than platform businesses at incorporating user feedback and taking advantage of network effects.
False
Sending jobs out of the country to lower costs is known as outsourcing.
False
Social entrepreneurs forego the pursuit of profits to achieve social and environmental goals.
False
The best way for a firm to keep its proprietary technologies, recipes, or formulas secret is to obtain a patent.
False
The internal and external costs associated with an economic exchange are known as interaction costs.
False
When deciding whether to build, borrow, or buy as a means of growth, firms no longer need to consider the need for physical closeness to their resource partners.
False
The pace of innovation has slowed in the 21st century
False DUH
Google, the leader in online search and advertisement, engaged in a number of smaller acquisitions of tech ventures. It did this in order to
Fill gaps in its competency lineup.
37) Which of the following is an advantage offered by a functional structure?
It allows for a higher degree of specialization and deeper domain expertise.
38) Why does a functional structure rely on a flat organizational structure?
It allows for efficient bottom-up and top-down communication.
Why is following an unrelated diversification strategy especially advantageous in an emerging economy?
It allows the conglomerate to overcome institutional weaknesses in emerging economies.
43) Why does a firm use an organic organization combined with a functional structure when implementing a differentiation strategy?
It allows the firm to constantly upgrade core competencies in R&D, innovation, and marketing.
48) Which of the following is a disadvantage of a functional strategy?
It cannot effectively address a higher level of diversification.
75) One of Waterfall Apparel's core values is to provide unbeatable customer service, a commitment introduced to the company by its founder more than 10 years ago. This value is expressed in the company's "True to You" campaign, which promises a no-questions-asked returns policy and an offer to stitch the customer's initials onto any item for free using a patented sewing technique, two features that are not offered by any of Waterfall's competitors. Although the campaign has resulted in a 10 percent decline in profits, Waterfall has decided to continue to pursue its founder's vision to reward customers and maintain employees' sense of purpose. Why does Waterfall's culture, exemplified by the "True to You" campaign, fail to support a competitive advantage?
It does not increase economic value creation for the firm.
How did the strategic alliance between HP and DreamWorks Animation SKG affect HP?
It enabled HP to compete head on with Cisco's videoconferencing solution.
76) In which of the following ways does Zappos achieve organizational control?
It enforces that each group member's compensation depends in part on the group's overall productivity.
How has Kraft Foods benefited from its hostile takeover of Cadbury PLC?
It has access to convenience stores and a new distribution channel.
Which of the following is a disadvantage of a horizontal integration corporate strategy?
It increases the potential for legal repercussions.
Which of the following is a drawback of vertical integration?
It increases the potential of legal repercussions.
67) Which of the following statements best describes groupthink?
It is a situation in which opinions coalesce around a leader without individuals critically challenging and evaluating that leader's opinions and assumptions.
73) Which of the following statements is true of organizational culture?
It is better for founder CEOs to create a relevant culture, structure, and strategy in the early stages.
Which quadrant in the core competence-market matrix is the hardest to pursue?
Building new core competencies to create and compete in markets of the future
58) The board of directors of a public stock company consists of
individuals who formally represent the firm's shareholders and oversee the work of executives.
34) Marika received a tip from a close friend who is an executive manager of a publicly traded company called MicroGreen Inc. The manager received some inside information about how to trade MicroGreen stock to get a huge profit. He shared this information with Marika. This scenario is an example of
information asymmetry.
43) The root cause of the principal-agent problem between senior executives and lower-level employees can be explained by the
informational advantage of the lower-level employees.
18) A trend observed during the Globalization 3.0 stage involves
multinational companies organizing as global-collaboration networks.
13) Esther is the CEO of a line of accessories and cosmetics, Starring Me! Inc., which has retail stores and production units in five countries. In this scenario, Starring Me! Inc. is most likely a
multinational enterprise.
Michael Porter's diamond framework explains
national competitive advantage.
74) Ethics is
not synonymous with law.
74) Organizational culture can help a firm gain and sustain competitive advantage only if the culture makes a positive contribution to the firm's economic value creation and
obeys the VRIO principles.
55) Shareholders of public companies need to appoint a board of directors to represent their interests because
of the separation of ownership and control.
45) The administrative and political distance between two trading countries decreases when
there is a well-functioning capital market in the host country.
66) The most important yet least visible element of organizational culture is
values.
In general, it is shortsighted to acquire companies as a defensive move to prevent rival organizations from gaining access to certain patents, technology, or customer bases.
False
In recent years strategic alliances have declined because of increasing government regulation.
False
Innovation and strategic entrepreneurship can only occur within new businesses.
False
Innovation that targets new markets with existing technologies is known as disruptive innovation.
False
Managers have exactly two choices when determining the boundaries of the firm: produce goods and services in-house ("make") or purchase them externally ("buy").
False
Managers who are eager to forge business alliances often forget that the expected benefits of the partnership must represent only a small percentage of its monetary and time-related costs.
False
Network effects always lead to a virtuous cycle in which an increasing number of customers improves the quality of a product or service, thereby attracting more customers and continuing the cycle.
False
34) Frederica, the chief financial officer at a moped 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?
"It will be much more difficult to protect our intellectual property if we build factories overseas."
In the United States, the time period for the right to exclude others from the use of a patented technology is ________ from the filing date of a patent application.
20 Years
63) Sorenson LLC, a publicly traded company, has ten members on its board. Of the ten members, six members are employees of the company—including the CEO, who also chairs the board. The board has been failing in its responsibilities toward the shareholders, who now want a new board. Assuming that the total number of board members remains constant, how many outside directors should the shareholders appoint to Sorenson's board to achieve board independence?
7
Which of the following business models in the landscaping industry is likely to scale most efficiently?
A company that allows users of its website to schedule appointments with landscapers who specialize in the exact service required
Argus Inc. is a large multinational company owned by two partners, is active in the petroleum, capital market, chemicals, steel, beverages, hospitality, airlines, education, automobiles, and consumer electronics industries. The company has multiple brands and a large product portfolio under its banner. Which of the following terms would best describe this company?
A conglomerate
Royal Motor Corp. generates a major portion of its revenues by manufacturing luxury sports cars. However, the company also derives an insignificant percent of its annual revenues by selling its sports merchandise that includes apparel, shoes, and other accessories under the same brand name. Which of the following terms best describes Royal Motor Corp.?
A dominant-business firm
Assume that the market for print book publishing has entered the maturity stage. Which of the following would most likely exist during this stage?
A few large publishers
Which of the following best illustrates forward vertical integration?
A firm that manufactures and sells car engines to major automobile companies launches its own line of cars.
Coastal Pharma and Brainwave Technologies have together invested and created a new organization, InnerView, to focus on developing diagnostic devices. Through this new firm, both companies are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. However, the new organization operates independent of Coastal Pharma and Brainwave Technologies. Which of the following alternatives to integration does this scenario best illustrate?
A joint venture
Which of the following best illustrates physical-asset specificity?
A machine solely designed to give a candy its trademarked shape
14) Which of the following descriptions best exemplifies adverse selection?
A manager cannot ascertain the contributions of individual team members in team production.
Which of the following accurately describes a common difference between a merger and an acquisition?
A merger tends to be friendly; an acquisition can be friendly or unfriendly.
Solaris Autos Inc., a large automobile company, made an initial small investment in a start- up company that was developing a solar-powered car. This gave Solaris Autos controlling interests in the start-up company. However, Solaris Autos had no obligations to make continued investments in the experiments of the start-up company. It could invest small amounts depending on the new product's success at each stage of its development. If the product proved to be successful, Solaris Autos would have the right to buy out the start-up company. This approach to strategic alliance is referred to as
A real-options perspective.
Which of the following is an example of explicit knowledge?
A research summary
Braintree Inc.m a manufacturer of smartphones, has entered into a 15-year partnership with a software company to develop sophisticated operating systems and innovative mobile applications for its phones. This would mean that both the companies will have to mutually share their resources, knowledge, and capabilities to develop a superior product. What is the relationship between Braintree and the software company best referred to as in this scenario?
A strategic alliance
25) Which of the following will most likely harm a multinational enterprise's (MNE's) reputation?
A sweatshop owned by an MNE has an explosion that kills hundreds of workers.
49) Adverse selection in a public stock company occurs when
A) information asymmetry increases the likelihood of selecting inferior alternatives.
A primary advantage of organizing economic activity within firms is the
Ability to coordinate highly complex tasks to allow for specialized division of labor.
When Turbo Autos Inc. wanted to sell its cars in the country of Sylvanistan, it lacked access to distribution channels and marketing expertise in the country. Thus, Turbo Autos had to enter into a strategic alliance with a local automobile company to get access to the foreign partner's well-established distribution channels. Which of the following reasons for entering into a strategic alliance is best illustrated in this scenario?
Accessing critical complementary assets
Mediflow, 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 Mediflow's European sales?
Acquire a company that has a successful medical technology sales force in Europe so that Mediflow can gain access to new distribution channels.
When large, incumbent firms buy start-up companies, the transaction is generally described as a(n)
Acquisition.
Which of the following statements about managing alliance-related tasks is true?
Alliance management capability is based on three alliance-related tasks.
Which of the following statements is true about managing alliance-related tasks?
Alliance management capability is based on three alliance-related tasks.
GoodGear is a mobile platform that matches independent fashion designers with consumers who want a personalized wardrobe. Which of the following initiatives would best allow GoodGear to fine-tune its offerings to better meet the needs of its consumers?
Allowing users to provide feedback to producers on the style and fit of clothing
The Palace Hotel Group purchased Orange Roof Hotels for an estimated value of $120 billion. All the hotels previously owned by Orange Roof Hotels are now managed by the Palace Hotel Group and are known as Palace hotels. What does this scenario best illustrate?
An acquisition
How is an equity alliance different from a joint venture?
An equity alliance involves taking ownership in a partner; a joint venture involves two or more entities owning a firm.
To be successful and to survive the shakeout stage of the industry life cycle, a firm should
Gain economies of scale
DigitalHealth Electronics Inc. is a company that builds diagnostic devices. It was the first company to develop a compact MRI scanner by reconfiguring the components of the MRI technology. This smaller and user-friendly version of the huge MRI scanner created demand from small hospitals, nursing homes, and private practice doctors who were earlier dependent on the scanning machines in large hospitals. Which of the following types of innovations does this scenario best illustrate?
Architectural innovation
Canon was able to redesign the copying machine so that it didn't need professional service—reliability was built directly into the machine, and the user could replace parts, such as the cartridge. What Xerox had not envisioned was the possibility that the components of the copying machine could be put together in an altogether different way that was more user-friendly. This example describes
Architectural innovation.
When firms innovate by leveraging existing technologies into new markets, they are said to be involved in
Architectural innovations.
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?
Arrange for the alliance to be managed at the corporate level.
In the context of industrial growth, which of the following statements is true of standards?
As the size of a market expands, a standard signals the market's agreement on a common set of engineering features and design choices.
24) Which of the following describes a firm in the Globalization 1.0 stage?
Asha Inc. had a base office in New York and distributed some of its products overseas.
52) Which of the following countries has a high geographic distance but a low cultural distance from the United States?
Australia
51) Avalanche operates as a strategic business unit (SBU) under Snowfall Inc., a home-furnishings manufacturer. From this information, it may be reasonable to infer that
Avalanche is led by its own CEO (or equivalent general manager).
When entering a foreign market, it is advisable for a new venture that has a core competency only in R&D to form a strategic alliance with a local partner because
Building downstream complementary assets can be expensive and time-consuming.
Radial 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, Radial should pursue
Backward integration.
Firms that use taper integration also use ________ when they rely on outside-market firms for some of their supplies.
Backward vertical integration
39) Which of the following real-world scenarios best exemplifies information asymmetry in a public stock company?
Based on a tip-off by a Goldman Sachs employee, the Galleon Group sold its holdings in Goldman Sachs' stocks prior to the announcement of missed earnings estimates.
17) Which of the following is an observable feature in the Globalization 3.0 stage?
Based on an optimal mix of costs, skills, and PESTEL factors, companies now freely locate business functions anywhere in the world.
60) Bellhaven Inc. has a board of directors that consists of seven members. Which of the following is most likely an accurate statement about Bellhaven's board of directors?
Bellhaven's board of directors has a minority number of inside directors and it evaluates the firm's strategic initiatives.
59) Which of the following provides an example of a common drawback of a functional strategy?
Bert had a difficult time communicating efficiently with the manager of another department.
17) Eyenima Inc. is a public stock company. Which of the following best exemplifies the legal personality of the company?
Bjorn Eyenima, the company's founder, died a few years ago, yet the company is doing well.
Which of the following summarizes the benefit of the strategic alliance between HP and DreamWorks?
Both HP and DreamWorks were able to enter a new market that they would not have been able to pursue alone.
74) Milk Benefits Inc., a company popular for its dairy products, successfully follows a multidomestic strategy. Andrew Products Inc., a large conglomerate, pursues a transnational strategy. Which of the following statements is most likely true of this scenario?
Both Milk Benefits Inc. and Andrew Products Inc. will have to duplicate key business functions in multiple host countries.
62) Two leading home appliance companies, Redwood Inc. and Boxer Technologies, are in competition for market share. In their quest for exciting new products, Redwood employs an open innovation model, while Boxer pursues a closed innovation model. Which of the following statements is most likely true?
Boxer will protect its intellectual property with patents and trade secrets.
In 2007, Salesforce.com recognized an emerging market for platform as a service (PaaS) offerings and developed a new competency in delivering software development and deployment tools. This allowed its customers to either extend their existing CRM offering or build completely new types of software. This is an example of
Building new core competencies to create and compete in markets of the future.
Ancho Corp. is an automobile company whose core competency lies in manufacturing petrol- and diesel-based cars. The company realizes that more of its potential customers are switching to electric cars. The R&D department of the company acquires competencies in developing electric cars and launches its first hybrid car, which uses both gas and electricity. In this scenario, Ancho is primarily
Building new core competencies to protect and extend current market position.
23) Arnold is a firm believer in Milton Friedman's view of a firm's social obligations. With which of the following statements is Arnold most likely to agree?
Businesses can use their resources to create profit as long as they do so within the rules of the game.
The managers at Camphor Plastics decided that their firm needed to diversify because of overall falling sales and lower performance in one sector. How does diversifying compensate for the lackluster performance in this sector?
By having higher performance in another sector
How did the recent horizontal integration in the U.S. airline industry provide benefits to the surviving carriers?
By lowering competitive intensity in the industry overall
How has Apple been able to sustain its competitive advantage in the smartphone industry?
By regularly introducing incremental improvements in its product
How does horizontal integration within an industry affect the surviving firms?
By strengthening the bargaining power of the surviving firms vis-à-vis suppliers and buyers
45) Stella accepts a job as vice president for human resources at a technology startup. She discovers that the startup believes that teamwork is so important that it plans to award all raises and bonuses by splitting them equally within a team rather than presenting them to individual employees. What action should Stella take regarding this plan?
Cancel the plan because under it, opportunistic employees will do little or no work.
24) ________ refers to the degree to which decision making is concentrated at the top of the organization.
Centralization
72) Which of the following is true of business ethics?
Certain notions such as fairness, honesty, and reciprocity are universal norms.
R&M Chatelaine is one of the largest tax-preparation firms in the United States. It wants to acquire The Tax Experts, a smaller rival. After the merger, Chatelaine will be one of the two largest income-tax preparers in the U.S. market. What should Chatelaine include in its acquisition plans?
Chatelaine will need to explain to the Federal Trade Commission how the acquisition will not result in an increase in prices for consumers.
Which of the following is an example of social entrepreneurship? The committee approved the new formula for an all-purpose cleaner because it
Cleaned as well as others cleaners and used organic ingredients
Which of the following businesses is most likely to disrupt an existing industry?
Closer Connex developed an earphone that receives emails and text messages and converts them to voice messages. The first models had poor reception, but they rapidly improved over time.
Win Goods Inc. is a large multinational conglomerate. As a single business unit, the company's stock price is estimated to be $200. However, by adding the actual market stock prices of each of its individual business units, the stock price of the company as one unit would be $300. What is Win Goods experiencing in this scenario?
Diversification discount
RHC Pharmaceuticals Inc., Lawrence Pharma Inc., and Quincy Pharma Inc. are three rival firms who have set up an alliance to conduct research and find a cure for cancer. They have made almost equal contributions to the research, and they also share their expertise with one another. However, the three firms will continue to behave as competitors in markets for other drugs and vaccines. What is this arrangement best referred to as?
Co-opetition
Which of the following is a feature of the shakeout phase of the industry life cycle?
Competitive intensity within the industry increases.
When the market for standalone Global Positioning System (GPS) devices declined with the arrival of GPS-enabled mobile phones, Magnet Inc., a manufacturer of GPS devices, bought out most of its rivals that were planning to exit. This allowed the company to get rid of all the excess capacity and acquire a monopolistic market power in the declining industry. Which of the following strategies has Magnet adopted in this scenario?
Consolidation strategy
When a firm pursues a maintain strategy, it
Continues to support marketing efforts even if the demand for the product is declining.
76) Midas Touch, a venture capital firm, has the opportunity to invest in one of two firms that are in the process of globalizing. Coolco, an air-conditioner manufacturer, faces intense pressure from its home market. Barker, a dog-toy manufacturer, has encountered little competition in its country of origin. In which company should Midas Touch invest?
Coolco, because firms that face stiff competition at home tend to do better abroad
________, which are incurred when pursuing a related-diversification strategy, are a function of the number, size, and types of businesses that are linked to one another.
Coordination costs
36) Sirhan is president of a medium-sized bank. What can he do to lessen the chances of employees or board members taking part in insider trading?
Create a strict code of ethics and explain that inside traders will be fired.
HealthTech wanted its research partner, an R&D company, to develop a cancer vaccine. However, the project required huge capital investments, and its research partner was not ready to solely face the risks involved. Thus, to gain its partner's confidence and to prove its involvement, HealthTech invested $100 million in the project. This investment made by HealthTech will result in a
Credible commitment.
82) Which of the following is an implication for the strategist in the context of corporate governance and a company's success?
Effective corporate governance and solid business ethics are critical to gaining and sustaining competitive advantage.
The demand for flip phones has drastically reduced, and there are only a few consumer electronics companies selling them at extremely low prices. Also, the current buyers of flip phones are mainly categorized under laggards. Which of the following stages of the industry life cycle is the flip phone industry in currently?
Decline stage
Horizontal integration through mergers and acquisitions can help firms strengthen their competitive positions by increasing
Differentiation.
Which of the following best explains why Disney showed superior post-merger integration capabilities?
Disney managed its new subsidiaries more like alliances rather than attempting full integration.
A(n) ________ leverages new technologies to attack existing markets.
Disruptive innovation
As a start-up company, DigiWrist entered the low end of the highly competitive smartwatch industry with its low-cost smartwatches. Initially, the company was able to sell its inferior technology due to its low prices. Over the years, however, its rate of technology improvements increased above the industry standards. This helped the company to create a strong strategic position for its smartwatches in the high-end segment and claim a premium price. Which of the following types of innovation does this scenario best illustrate?
Disruptive innovation
Streaming video services replacing brick-and-mortar video rental stores would be an example of a(n)
Disruptive innovation.
Sunshine Technologies introduced a tablet that could run completely on solar energy and was less expensive than competitors'; tablets. On the downside, it required more frequent charging than the competition' tablets. However, the technology of the Sunshine tablet improved rapidly, thereby improving its recharge frequency. This example describes
Disruptive innovation.
When Japanese carmakers entered the existing U.S. automobile market by first offering small fuel-efficient cars, and then leveraging their low-cost and high-quality advantages into high-end luxury segments, they were engaging in
Disruptive innovation.
ESB Group is the parent company of many related businesses under its banner. Each share of the parent company is quoted at $220. However, if this had to be assessed by adding the stock prices of each of its strategic business units, the value would only be $200 per share. In this scenario, what has ESB Group created?
Diversification premium
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
Divest the strategic business unit.
ElectraSync Inc., a large consumer electronics company, has divided each product in its portfolio into a separate strategic business unit (SBU). The desktop SBU has been experiencing drastic decline in its cash flow, and its market share has also reduced to an insignificant 10 percent. This has been attributed to the low growth in the desktop market after the arrival of tablet computers and laptops. In the context of the Boston Consulting Group (BCG) growth-share matrix, the desktop SBU will be categorized under
Dogs.
28) Why does Michael Porter recommend expanding the customer base of an organization in terms of the shared value creation framework?
Doing so could yield significant business opportunities that could improve the standard of living of the poor.
On which of the following tenets is the crossing-the-chasm framework, suggested by Geoffrey Moore, based?
Each stage of the industry life cycle is dominated by a different customer group.
The customers entering the market in the growth stage are primarily
Early adopters.
At the time when Ellen decided to purchase a tablet computer, the product had just become accessible to the mass market. She did not purchase the tablet until after she was convinced that the benefits it would offer her would far exceed its price. Also, she waited for her friends to try the product and popular gadget television shows to endorse it. Which of the following customer segments does Ellen best represent?
Early majority
Marble Inc. is a new firm that entered the smartwatch industry during the growth stage of the industry life cycle. It managed to become one of the top-three smartwatch manufacturers during the shakeout stage due to its low-cost structure. What features should Marble emphasize in its product marketing to ensure it successfully crosses the chasm into the maturity stage?
Ease of use
26) Burnley and Co., a graphic design 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 Emma Burnley, the CEO. The heads of the centralized HR, Finance, and Marketing teams report to Emma Burnley 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?
Emma Burnley has a wide span of control.
It is important for a firm to win over the early majority section of the market to ensure the commercial success of an innovation because they
Enter into the market in large numbers, creating a herding effect.
As a research scholar, Denise had built a helicam as part of her project. The helicam could capture aerial images. Realizing the potential use of this product in movie production and military and rescue operations, she started a new venture where she could customize these helicams to fit the specific needs of the buyers and sell them. Denise can be best described as a(n)
Entrepreneur
Which of the following best illustrates site specificity?
Equipment necessary for mining bauxite and aluminum smelting
A candy company called Hearts Aflame Inc. forms an agreement with another candy company called Dreamcatcher Inc. Through this agreement, Hearts Aflame owns 30 percent of Dreamcatcher. However, Dreamcatcher does not own any part of Hearts Aflame. This type of agreement is called a(n)
Equity alliance.
Which of the following statements is true of explicit knowledge?
Explicit knowledge is shared in non-equity alliance firms.
26) Which of the following perspectives best supports the shared value creation framework?
Externalities such as pollution, wasted energy, and costly accidents actually create internal costs.
1) Most businesses around the world are more than 50 percent globalized, meaning that more than half their revenues are from outside the home country.
FALSE
10) Research indicates that most corporate ethics problems are caused by a few "bad apples" rather than an unethical culture.
FALSE
10) Results-only-work-environments (ROWEs) are characterized by their use of extrinsic motivations such as promotions or the threat of layoffs.
FALSE
10) The term demand conditions refers to how high the volume of demand is for a particular product in a particular country.
FALSE
2) A detergent manufacturer decides to clean up the waterways it uses even though no federal, state, or local laws require the firm to do this. The firm's managers believe that the cleanup will improve the company's image and benefit the environment. This scenario is an example of shareholder capitalism.
FALSE
2) Once a firm finds success in a given organizational structure, it should seek to reinforce and maintain that structure for the life of the firm.
FALSE
3) A planned emergence approach to strategic planning is most likely to be found in a highly centralized firm.
FALSE
3) Businesses located in countries that have relatively weak domestic demand rarely make the leap to multinational enterprises because they must focus their attention on shoring up their economic positions in their home countries.
FALSE
4) Communities of learning are metropolitan areas that have large numbers of high school graduates who are ready for a university education.
FALSE
4) Jeannette was a manager at Fabco. Instead of working full-time on Fabco's projects, she used Fabco's tools, employees, computers, and other resources to work on a research project that she hopes might help her start her own firm. This is an example of adverse selection.
FALSE
5) One of the most challenging aspects of principal—agent problems is that firms have almost no defenses against them.
FALSE
6) A primary advantage of the matrix organizational structure is that it simplifies decision making and communication in geographically diverse organizations.
FALSE
6) The cultural distance between Australia and the United States is relatively high because of the physical distance between the two nations.
FALSE
7) Foreign-entry modes such as acquisitions and greenfield projects are usually disadvantageous because they require a high level of capital and resource investment but allow for a low level of control.
FALSE
7) It is up to shareholders to make certain that the financial statements that their firms release are correct and not misleading.
FALSE
8) An open innovation model reduces a firm's absorptive capacity.
FALSE
8) It can be difficult for shareholders of publicly traded companies to determine how much money those companies are making or losing because these companies use different accounting firms, and each accounting firm follows different rules.
FALSE
A company that wants to enter a new geographic market within China or Saudi Arabia should avoid joint ventures with companies that are based in that country. Partnering with a foreign entity props up that entity's business rather than weakening it through competition.
False
Although Disney acquired Pixar through a hostile takeover, the merger has proven extremely profitable for both entities.
False
Corporate strategy is focused solely on determining the geographic locations in which the firm should compete.
False
Even if a merger may not increase shareholder value as planned, it is often a wise idea to champion it so that managers will have the greater opportunities of working at an expanding company.
False
Fabulous Jewelry Inc. is considering a takeover of its competitor, Cranberry Dream Jewelry LLC. In general, Fabulous should go ahead with the acquisition as long as Cranberry is more valuable as a continued standalone company than it would be inside Fabulous.
False
Firms that pursue extremely high or extremely low levels of diversification perform better than those that pursue moderate levels of diversification.
False
As the inventor of hypertension medication, OneSure Pharmaceuticals (OSP) Inc. was able to reap the benefits of economies of scale due to a large consumer demand for the drug. Even when competitors later developed similar drugs after the expiry of OSP's patents, regular users did not want to switch because they were concerned about possible side effects. Which of the following benefits does this scenario best illustrate?
First-mower advantages
Future Clothes Inc., a publicly traded company, designs and manufactures wearable technology. What approach should Future Clothes 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.
Focus on research and development as a form of non-price competition.
Which of the following is an ineffective practice in alliance management?
Focusing on developing an alliance-management capability in isolation
Incline 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 Incline products. In response, Incline 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?
Forward vertical integration
Mondo Tacos, a fast food restaurant, operates through a business model in which individuals can buy the rights to set up Mondo Taco stores and sell the company's food in return for a lump sum fee at the beginning of the contract and a percentage of revenues every month. The owners of the stores have to offer a menu approved by the company's headquarters and also maintain consistent customer service as expected in its flagship store. Which of the following alternatives to integration does this best illustrate?
Franchising
27) Galaxy Toys Inc., a toy manufacturing company, encourages its employees to enjoy their work by taking on additional responsibilities or switching jobs with each other. It allows its employees immense flexibility in charting their own career path within the organization. Chris has worked at Galaxy Toys for eight years, but has never had a boss or supervised an employee. Which of the following is most likely true in this scenario?
Galaxy Toys Inc. has a flat organizational structure.
Revolution Watches, a Swiss-based premium watch brand, has recently started selling its watches through company-owned retail outlets in major cities of developing nations. Which of the following types of diversification strategies is the firm pursuing?
Geographic diversification strategy
50) Gino is the CEO of a financial services firm. What action should Gino take to be sure the firm avoids moral hazards?
Gino should define undue risk-taking, institute strict auditing of loans, and make it clear that the company will fire employees who lend recklessly.
In which of the following stages of the industry life cycle is a standard first established?
Growth stage
The leading producer of cell phone backup batteries, Jumpstart, has achieved great success because they produce high-quality battery backups that are not too expensive. Even so, another company that produces lower-quality batteries at the same price has also achieved some success, but not as much as Jumpstart. Also, in general, the price of backup batteries has declined because of economies of scale and learning. In addition, Jumpstart has added complementary assets, such as a carrying case. Considering all of these factors, the backup battery industry is most likely in the
Growth stage
Intel's Celeron chip and Atom chip are initiatives to
Guard the company against disruptive innovation by protecting the low end of the market.
Which of the following best illustrates a merger between the two companies HQ Inc. and AV Inc.?
HQ Inc. and AV Inc. join together to form a single new company called HQAV Inc.
Although Mountaintop Electronics still sells its DVD players, a product in its decline stage, the investments made by the company on improving or marketing the product are very low. The company has allocated the least amount of human and financial capital to this department. Which of the following strategies has Mountaintop Electronics adopted in this scenario?
Harvest strategy
In the decline stage, which of the following strategies involves a reduction of investments in
Harvest strategy
77) Atangadi is a strategist who wants to decide on the appropriate strategy to help his firm "go global." Which of the following should he consider while choosing his strategy?
He must be aware of the fact that despite globalization and the emergence of the internet, firm
52) Andrew 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?
He should find out whether the majority of his shareholders want long-term steady growth or short-term spikes in the stock price.
Ira can be categorized under the late majority customer segment. Which of the following behaviors is the most likely to exhibit?
He will prefer to buy from well-established brands rather than unknown new ventures.
Sanibel Autos Inc. merged with its competitor Vroom Autos Inc. This allowed Sanibel Autos to use its technological competencies along with Vroom Autos' marketing capabilities to capture a larger market share than what the two entities individually held. What type of integration does this scenario best illustrate?
Horizontal
83) Elvira is the CEO of a firm. She has an opportunity to increase the competitive advantage of her company but is not sure if accepting the opportunity is ethical. Which of the following questions would help her decide if accepting the opportunity is ethical?
How would the media report her decision to accept the opportunity if it were to become public?
Which of the following examples describes the task of an alliance manager?
Hussein trained the employees of his alliance partner in the skills needed to create a display for an e-notebook.
Judging from the Disney-Pixar merger, which of these is an effective way to create shareholder value from a merger?
If the acquired company creates high-quality products or services, don't force it to mirror the management style of the acquiring company.
Which of the following corresponds to the use of tacit knowledge?
Igor assembles a motorcycle from memory.
The four-step innovation process ends with
Imitation
Potomac Industries is a manufacturer of high-definition televisions. The industry has gone through a period of rapid growth and expansion, and has started to experience a decline in the rate of growth. Several smaller firms have been bought out by larger competitors, and competition for market share is intensifying. Which of the following strategies is most likely to give Potomac a competitive advantage?
Implement process innovations that lower per-unit costs.
Which of the following statements is true of an equity alliance?
In an equity alliance, the partners frequently exchange personnel to make the acquisition of tacit knowledge possible.
Using the Boston Consulting Group growth-share matrix, the managers of Xylicon International determined that their business unit devoted to personal health monitoring devices was a star. Based on this finding, which of the following strategies is likely to produce the best results?
Increase investment in the personal health monitoring unit to encourage future growth.
The Martinez Legal Firm (MLF) recently acquired a smaller competitor, Miller and Associates, which specializes in issues not previously covered by MLF, such as land use and intellectual property cases. Given the increase in the firm's size and complexity, it is likely that its internal transaction costs will
Increase.
Lillypad Toys is a manufacturer of educational toys for children. Six months ago, the company's research and development division came up with an idea for a unique touchscreen device that can be used to introduce children to a number of foreign languages. Three months ago, the company produced a working prototype, and last month the company successfully launched its new device on the commercial market. What should Lillypad's managers prepare for next?
Increased competition from imitators
52) 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?
It allows a high level of integration.
Foot Friendly is a manufacturer of athletic shoes. It has released an improved version of its premier running shoe in markets in which the company already operates. Which of the following types of innovations does this scenario best illustrate?
Incremental innovation
Which of the following most accurately describes a difference between incremental innovation and radical innovation?
Incremental innovation builds on an established knowledge base; radical innovation uses an entirely different knowledge base.
A factor favoring the success of disruptive innovation is that
Incumbent firms are slow to change.
Each stage of the vertical value chain typically represents a distinct ________ in which a number of different firms are competing.
Industry
________ are best described as costs that occur due to political maneuvering by managers to control capital and resource allocation and the resulting inefficiencies stemming from sub-optimal allocation of scarce resources.
Influence costs
Nina is in an interview for a sales job that requires no experience. She is trying to portray herself as a highly enthusiastic, energetic person with high-level communication and interpersonal skills. The interviewer is convinced that Nina should be hired as a salesperson in the company. However, in her resume, Nina had not mentioned her previous work experience as she was fired from that job because of her frequent absenteeism. Which of the following does this scenario best illustrate?
Information asymmetry
________ is best described as a situation in which one party is more informed than another, because of the possession of private information.
Information asymmetry
With reference to the Strategy Highlight 8.2, the Tata Group's corporate strategy is attempting to
Integrate different strategic positions, pursued by different strategic business units.
A. G. Lafley at Procter & Gamble (P&G) had implemented an open-innovation model, which had greatly benefitted the company. In the light of this information, we can conclude that A. G. Lafley is a(n)
Intrapreneur
General Electric (GE) disrupted itself in the healthcare industry by
Introducing inexpensive and smaller diagnostic devices in developing countries.
Which of the following lists the stages of the industry life cycle in the correct order?
Introduction, growth, stakeout, maturity, and decline
42) Which of the following is an advantage of using a functional structure when pursuing a cost-leadership strategy?
It allows a cost-leader to upgrade core competencies in manufacturing and logistics.
Coca-Cola was primarily known for its core competencies in marketing, bottling, and distributing aerated drinks. However, with the success of Gatorade, Coca-Cola developed competencies in the development and marketing of its own sports drink, Powerade. Which of the following is true of Coca-Cola?
It is building new core competencies to protect and extend its current market position.
Greenway 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 Greenway's stock price?
It is valued at less than the sum of its individual business units.
77) Which of the following best supports the fact that Goldman Sachs was unethical in the Abacus deal?
It knew that Paulson & Co. had bundled high-risk mortgages into the collateralized debt obligation.
15) What most likely happens when a firm optimizes its organizational structure to its current situation?
It plants the seed of subsequent failure: the tightly coupled system can break apart when internal or external pressures occur.
22) What is the result of managers' pursuit of strategies that define value creation too narrowly in public stock companies?
It reduces the trust of shareholders in the organization as a vehicle for value creation.
73) Which of the following is a drawback of pursuing a transnational strategy?
It requires a global matrix structure, which is difficult to implement.
50) Myriad Inc., a well-established and reputed multinational enterprise (MNE), is headquartered in a highly developed economy. It wants to start its operations in New Denistan, considered one of the less-developed nations in the world. How will this strategic move most likely affect Myriad Inc.?
It will benefit from economic arbitrage.
Elemental Pharma Inc. recently acquired Crick Pharmaceuticals Inc. It now sells its own products along with the products originally sold by Crick Pharmaceuticals. As a result, Elemental Pharma's sales force will also be marketing the acquired company's products. How will this horizontal integration most likely affect Elemental Pharma?
It will lower its costs through economies of scale.
58) Why is the optimal organizational structure a multidivisional structure?
Its focus is on driving down costs.
While KFC focuses on international markets, its competitor, Chick-fil-A, focuses on the domestic U.S. market. What is the reason behind this strategic difference?
KFC has more financial resources than Chick-fil-A since it is a publicly traded stock company.
Which of the following scenarios best illustrates horizontal integration?
King Autos Inc. joins with Dimitra Motors Inc., one of its direct competitors.
Which of the following is a common drawback of a non-equity alliance?
Lack of trust between partners
While the personal computer industry is flooded and growing with laptops and tablets, Malik recently bought a desktop, his first personal computer. He realized that a computer at home would be helpful for his children for their school projects, and he could use it to maintain the simple accounts of his plumbing business. Which of the following customer segments does Ivan best represent?
Laggards
A new product often has a high price when it is launched because of a
Large investments in designing a product while producing small quantities.
Nirvana Shoes Inc. and StepOut Shoes Inc., two competing shoe brands, entered into a strategic alliance to study and acquire each other's competencies. Nirvana Shoes entered the strategic alliance to acquire the production system pioneered by StepOut Shoes. Similarly, StepOut Shoes agreed to the strategic alliance to study the design process of Nirvana Shoes. However, Nirvana Shoes was more successful and faster than StepOut Shoes in accomplishing its alliance goal. What does this scenario best illustrate?
Learning races
Decisions relating to the range of products and services a firm will offer determine the firm's
Level of diversification.
Hiku Inc. developed a superior touch screen technology for tablet computers that enabled multiple users to operate the screen at the same time. The technology was leased to Broadway Technologies, a consumer electronics company, for five years. Which of the following alternatives to integration does this best illustrate?
Licensing
65) GameGo is a publicly traded manufacturer of home electronics. Based on what you have read, which of these actions would be wisest for GameGo's board of directors to take to be sure that the company's new CEO is as motivated as possible?
Link the CEO's pay to her performance, but avoid high-powered incentives that may cause reckless behavior.
There are many reasons why firms need to grow. Which of the following reasons is strongly influenced by economies of scale?
Lowering costs
60) Island Home Goods pursues a related diversification strategy, deriving less than 70 percent of revenues from its original business unit, Island Furniture, and maintaining several related units including Island Lighting and Island Hardware. Which of the following structures is most likely to support this strategy?
M-Form with centralized decision-making power (cooperative multidivisional)
66) Makes Scents Inc., a company that manufactures and sells premium perfumes, is pursuing an international strategy. PriceSmasher Inc., a supermarket chain, follows a multidomestic strategy. Which of the following statements is most likely true of this scenario?
Makes Scents Inc. will sell the same products in both domestic and foreign markets
In Eli Lilly's Office of Alliance Management, the alliance champion is primarily responsible for
Making sure that an alliance fits within the firm's existing alliance portfolio and corporate-level strategy.
Icarus Airway's decision to acquire Midas Fuels Inc. proved to be ill-fated because the Icarus 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?
Managerial hubris
Why did Quaker Oats Company's acquisition of Snapple fail?
Managerial hubris
Winter Wonder Inc. is a leader in producing winter sports equipment, including skis and skates. Recently, the firm decided to expand into the bobsled market and acquired Sleds by Bob Inc. This company produced bobsleds, but its sales had slowed. The managers of Winter Wonder convinced themselves that they were able to manage the business of Sleds by Bob more effectively even though they had no experience in the bobsled market. However, this move backfired and the sale of Sleds by Bob's bobsleds plummeted. Which of the following terms is often used to describe this scenario?
Managerial hubris
Because strategic alliances rarely work as well as managers expect they will, why do companies continue to go through with them?
Many owners, managers, and business analysts believe they are essential to survive in an industry.
77) Which of the following best exemplifies the use of input controls?
McDonald's use of standard operating procedures
20) Which of the following real-world scenarios best exemplifies formalization?
McDonald's use of standard operating procedures across the world
Which of the following motivations for business growth involves principal-agent problems?
Motivating managers
16) Which of the following is a feature of the Globalization 2.0 stage?
Multinational enterprises (MNEs) began to create smaller, self-contained replicas of themselves in a few key countries.
Which of the following scenarios best exemplifies a platform business?
Myra operates an industrial test kitchen in which local growers bring their produce to local chefs, who use the kitchen to try new recipes and determine which produce to buy.
Which of the following accurately describes how Netflix used innovation to gain a competitive advantage?
Netflix applied big data analytics to its user preferences to provide highly personalized viewing recommendations
In a radical innovation, a firm targets
New markets by using new technologies.
Overall, was the Adidas acquisition of Reebok a success?
No. Adidas has slipped from number two in the U.S. market to number three.
64) ________ define appropriate employee attitudes and behaviors.
Norms
78) Sanjaya 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?
Observe executives at the company, and see whether they model ethical behavior and demand it of others.
36) Ruby, 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 Ruby?
Once the firm starts growing and attracting more customers she is likely to feel overloaded.
Ayesha is a strategist for the firm Optiks Inc., which produces high-quality HD movie cameras. This company needs a specific material for a new camera they are developing, which is manufactured in large quantities by a competitor called Expert Technology Inc. However, this material is difficult to trade. Because of this, which of the following is most likely the best strategy for Ayesha to suggest?
Optiks should acquire Expert Technology.
63) ________ describes the collectively shared values and norms of an organization's members.
Organizational culture
16) ________ refers to a firm's resistance to change the status quo that can set the stage for the firm's subsequent failure.
Organizational inertia
A firm's resistance to changes in the status quo is referred to as
Organizational inertia.
13) Which of the following statements is true of strategy in an organization?
Organizational structure must follow strategy in order for firms to achieve superior performance.
Adidas acquired Reebok primarily to
Overcome its competitive disadvantage against Nike.
What causes the winner's curse?
Overpaying for an acquisition
Bulldog Holdings is a U.S.-based consumer electronics company. It owns smaller firms in Japan and Taiwan where most of its cell phone technology is developed and manufactured before being released worldwide. Which of the following alternatives to integration does this best illustrate?
Parent-subsidiary relationship
When ReGen Pharmaceuticals released a new drug to treat insomnia, its chemical composition was disclosed at the back of the drug's cover. However, any attempts by competitors to copy the chemical composition would result in infringement of ReGen Pharmaceuticals intellectual property rights. Thus, the drug is protected by a
Patent
Anthonia is a senior manager at Buxley Corp., a motorcycle manufacturer. Buxley has entered an equity alliance with Supremo, a moped manufacturer. "Don't worry, Anthonia" her counterpart at Supremo tells her. I'm going to send you all our guidelines and documentation for manufacturing catalytic converters, and then you'll be all set." What else should Anthonia request from Supremo?
Personnel exchanges to share tacit knowledge
True Tomato Inc. makes organic ketchup. To promote its products, this firm decided to make bottles in the shape of tomatoes. To accomplish this, True Tomato worked with its bottle manufacture to create a set of unique molds for its bottles. Which of the following specialized assets does this example demonstrate?
Physical-asset specificity
Which of the following businesses is most susceptible to negative network effects?
Pics Match is a social media platform where users upload photos to the site and are matched with other users who have taken similar photos.
The main reason behind Alphabet's decision to acquire the Israeli start-up company Waze for $1 billion was probably to
Preempt its competitors from buying Waze.
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?
Principal-agent problem
The managers at Speed Automobile Inc. want to diversify the business by acquiring a consumer electronics company. This acquisition would mean increased job security, higher compensation, and greater decision-making authority for the managers. The managers correlate this acquisition to greater power for them rather than to the appreciation in shareholder value. In this scenario, this acquisition by Speed Automobile is most likely a result of
Principal-agent problems.
WellMade 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?
Product diversification
Amazon.com has decided to enter the college bookstore market. The goal of "Amazon Campus" is to offer co-branded university-specific web sites that offer textbooks and paraphernalia, such as logo sweaters and baseball hats. This development shows Amazon's relentless pursuit of
Product diversification.
Groundswell Industries, a U.S.-based large conglomerate, competes in the hospitality, education, telecommunications, entertainment, airlines, and chemical industries. It currently operates in about 30 nations, and is planning to expand its portfolio by investing in rapidly developing countries. Which of the following strategies is Groundswell Industries pursuing?
Product-market diversification strategy
PepsiCo operates in many countries and sells a wide variety of aerated drinks, other beverages, different types of chips, and Quaker Oats goods to achieve continuous growth. From this data, we can conclude that PepsiCo has been involved in
Product-market diversification.
What is the main reason that most mergers and acquisitions negatively effect shareholder value?
Promised synergies never take place.
Dominic is the founder of an innovative "impromptu catering" business that provides elegant, healthy party food and decorations on less than 24 hours' notice. The company has grown by over 150 percent in the past year. Dominic credits some of the company's success to studying the strategies of prominent social entrepreneurs, such as Wikipedia's Jimmy Wales. What can Dominic do to exemplify the social entrepreneurship model?
Provide free weekly catered meals for the homeless.
Best Burger is a major fast food 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?
Purchasing competitors
The strategic objective of a first mover during the introduction stage of the industry life cycle is to
Pursue a harvest strategy
62) Fun Foods Inc. is a snack manufacturer that wants to expand globally. Few people abroad are familiar with Fun Foods 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 Fun Foods take
Pursue a multidomestic strategy that includes new "local" brands.
Heaven Freezes Over (HFO) is a company that makes frozen lunch and dinner entrées. Based on what you know about companies like Nestlé, what action should HFO take as it strives to become multinational?
Pursue a multidomestic strategy, customizing product offerings to suit local preferences.
Phoenix 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?
Pursue taper integration.
TimeEnough 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, TimeEnough is a
Question mark.
Which of the following scenarios would be characteristic of an entrepreneur?
Rachel implemented a new and more efficient way to produce pottery.
Incumbent firms favor incremental innovation over radical innovation because
Radical innovation will disturb the existing power distribution within the firms.
Elegance Inc. is a large cosmetics company that made an initial small investment in a start-up company, Peace Planet, which was developing an organic face lotion. This gave Elegance controlling interests in the start-up company. However, Peace Planet soon began to have financial difficulties because of principal-agent problems. As a result, Elegance did not invest in the next stage of development and pulled out of the company. This approach to strategic alliance is referred to as a
Real-options perspective.
Skylark Sodas has been a market leader in the soft drink industry for several decades. However, its market research shows that consumer tastes have begun to shift to sugar-free flavored seltzer waters, a product that Skylark is capable of producing with minimal changes to its facilities and production processes. Based on your knowledge of the core competence-market matrix, which diversification strategy should Skylark pursue?
Redeploy and recombine existing core competencies to compete in markets of the future.
The core competency of GoGo 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, GoGo Motors is
Redeploying and recombining existing core competencies to compete in future markets.
Beagle Autos is known for its affordable and reliable brand of consumer vehicles. Because its shareholders expect to see an improved rate of growth in the coming years, Beagle's executives have decided to diversify the company's range of products so that at least 40 percent of the firm's revenue is generated by new business units. However, the company's resources, capabilities, and competencies are limited to producing other forms of motorized vehicles, such as motorcycles and all-terrain vehicles (ATVs). Which type of corporate diversification strategy should Beagle pursue?
Related-constrained
When executives of a firm consider business opportunities only where they can leverage their existing competencies and resources, it can be concluded that the firm is using
Related-constrained diversification.
A strategy of ________ will be most beneficial for a firm to enhance its overall corporate performance.
Related-linked diversification
Disney became the world's leading media company to a large extent by pursuing a corporate strategy of
Related-linked diversification.
Nocturnal 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 Nocturnal pursuing in this scenario?
Related-linked strategy
The Boston Consulting Group (BCG) growth-share matrix locates a firm's individual strategic business units (SBUs) in which two dimensions?
Relative market share and speed of market growth
54) Delores recently became a board member of a firm that has a history of reckless actions by senior employees. Which task would be appropriate for Delores to undertake to help safeguard the company's financial health?
Request and review a copy of the firm's risk assessment plan, if such a plan exists.
WJ Group Inc., a large multinational conglomerate, had begun to experience declining revenues over the years. The top management at the headquarters of the company decided that it was important for the company to avoid deviating from its core competencies. Thus, a few of the company's key businesses like energy, telecommunications, and automobiles were centralized, giving the top management more control over them. Also, relatively newer businesses like beverages and food processing were divested. In this scenario, WJ Group is involved in
Restructuring.
19) Sven is a senior vice president at a textile manufacturer that wants to move from being 20 percent globalized to 70 percent globalized in the next 10 years. What are some possible drawbacks that Sven's company must anticipate?
Rising wages may cancel out cost savings of access to low-cost input factors.
Juno LLC is a small, new pharmaceutical company that is developing a valuable new drug. Which of these strategies would it be wise for Juno's owner or manager to take?
Seek an alliance with a company or companies that will complete the value chain.
The process of alliance management begins with
Selecting the best possible partner.
Medequip 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 Medequip?
Serial acquisitions
40) Barrett is the ethics officer at Exton Corp., a publicly traded company. She wants to make sure that on-the-job consumption at Exton stays within legal and ethical bounds. Which action should she and the Exton board of directors take?
Set strict limits on what executives can spend on office redecoration or work-related celebrations.
CordKing Electronics has entered a stage in which the demand for their innovative fax machines has declined. Now most customers are buying replacement parts or buying their second fax machine from the firm. What stage in the industry life cycle does this scenario describe?
Shakeout stage
15) Ignacio Inc. is a public stock company. Which of the following statements about the company best illustrates the fact that its investors have limited liability?
Shareholders of Ignacio are responsible to the company only to the capital they have invested.
12) Angie owns and runs Archana, a private start-up company with a current value of $1.3 billion. Archana is interested in going public to fund future growth. Which action should Angie take before Archana's initial public offering?
She should investigate Archana's existing or potential problems with ethics or the law, if such problems exist.
In terms of the build-borrow-or-buy framework, a firm's internal resources are considered to be relevant when they are
Similar to those that need to be developed and superior to those of competitors in the targeted area.
70) Janessa Inc., a reputed brand for fine art supplies, is implementing an international strategy. Slalom 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?
Slalom Corp. focuses more on cost-reductions when compared to Janessa Inc.
Edna Gomez is the founder of the restaurant chain Good and Green. She ensures that the products in her stores are ethically and responsibly sourced. Most products are therefore 100 percent organic and all packaging is manufactured from recycled material. Also, her company sources ingredients from farms within 100 miles from her locations. Edna's belief is that her restaurants should be able to support the community at large. Which of the following terms best describes Edna Gomez?
Social entrepreneur
A drawback involved in using cross-border strategic alliances to enter new foreign market is that
Some of the firm's proprietary know-how many appropriated by foreign partner.
71) Which of the following real-world scenarios best exemplifies the use of organizational culture to build competitive advantage?
Southwest Airlines pilots sometimes help load baggage, which results in quick turnaround time.
The smartphone division of the large consumer electronics company, True Electra Inc., has a significant market share in the fast-growing cell phone market. If the company invests further into this division, it will be able to reap increased cash flows. In the Boston Consulting Group (BCG) growth-share matrix, the smartphone division of True Electra will be categorized under
Stars.
A voluntary arrangement between firms that involves the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services is best described as a
Strategic alliance
Which of the following is a drawback of using the industry life cycle as a framework to guide strategic choice?
The framework does not explain everything about changes in industries.
________ are best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage.
Strategic alliances
12) Why does strategy implementation often require changes within an organization?
Strategy implementation transforms strategy into actions and business models.
About 20 years ago, Sturdy Light, Inc., produced a sturdy, lightweight backpack in a market that was rapidly growing. Sturdy Light became a leader in this market. Eventually, the backpack market reached the maturity stage and slowed down. However, by this time, Sturdy Light had developed a strong brand name and continued to steadily lead the market. Which of the following describes this scenario?
Sturdy Light was a star that developed into a cash cow.
TL & Co. is following a related-linked diversification strategy, and Soar Inc. is following a related constrained diversification strategy. How do the two firms differ from each other?
TL & Co. will share fewer common competencies and resources between its various businesses when compared to Soar Inc.
1) If a privately held company has a history of legal and ethical problems, those problems can prevent a successful initial public offering (IPO) from taking place.
TRUE
1) Organizational design involves establishing a firm's structure, culture, and control mechanisms.
TRUE
2) In recent years as economic forces have changed, many governments and multinational enterprises have been more interested in negotiating bilateral trade agreements between countries rather than multinational agreements through international agencies.
TRUE
3) Dinesh is a senior manager at a large, publicly traded corporation. He has access to insider information about the company profits, losses, mergers, and acquisitions. It is legally and ethically acceptable for him to have this information as long as he does not use it to buy or sell stocks and does not tell others to buy or sell stocks.
TRUE
4) Firms with a flat structure and a low degree of specialization tend to foster innovation better than firms with a tall structure and high degree of specialization.
TRUE
5) A firm that successfully balances exploitation of current opportunities and exploration of future possibilities is considered ambidextrous.
TRUE
5) Administrative and political distances, such as the presence or absence of colonial ties, are part of the CAGE distance framework.
TRUE
6) Linda owns and runs her own firm. She also serves on the boards of several companies. Although she does not work for these companies, she attends board meetings, analyzes information, and tries to act in the best interests of their shareholders. Linda is an example of an outside director.
TRUE
7) Firms that pursue a closed approach to innovation typically enjoy first-mover advantages.
TRUE
8) MacAdam Enterprises sells the same sparkplugs in more than 30 countries. MacAdam is an example that helps to support the globalization hypothesis.
TRUE
9) A change in company culture is most commonly accompanied by a change in leadership.
TRUE
9) Corporate codes of conduct go beyond what the law requires, imposing higher standards of honesty and fairness.
TRUE
9) When multinational enterprises enter host countries such as Saudi Arabia and Japan, the most logical option is usually to pursue a multidomestic strategy even though that strategy rarely leads to significant cost reductions.
TRUE
Fortress International, a large conglomerate, procures a few component parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. Aside from this, the company does not solely depend on outside distributors to reach its customers. In fact, it has its own retail stores to distribute its products. In this scenario, which of the following alternatives to vertical integration is Fortress International applying?
Taper integration
64) General Electric's board has only one inside director, John Flannery, GE's CEO, who also acts as chairman of the board. This is known as duality. Which of the following statements represents the best argument for this duality in GE?
The CEO possesses invaluable inside information that can help him or her chair the board effectively.
27) Which of the following statements best supports the view that GE's Ecomagination strategy is in line with the shared value creation framework?
The Ecomagination strategy allows GE to produce "green" products while increasing revenue and competitive advantage.
The Hershey Company, the largest U.S. chocolate manufacturer, decided to enter the Chinese market because
The U.S. population was growing slowly and becoming more health conscious.
The downside of equity alliances is
The amount of investment that can be involved.
75) A bank, CQC, offers a customer a personal loan. In which of the following circumstances will this decision most likely be considered unethical?
The bank knows that the customer will be unable to pay the loan if the interest rate rises.
Which of the following stakeholders of a company would most likely be responsible for formulating a corporate strategy?
The chief executive officer
How does a conglomerate benefit from following an unrelated diversification strategy?
The conglomerate can overcome institutional weaknesses, such as a lack of capital markets, in emerging economies.
Which of the following is a feature of the growth stage of the industry life cycle?
The consumer demand increases
Which of the following is an example of an internal transaction cost?
The cost of maintaining a production unit
Which of the following is an example of an external transaction cost?
The cost of searching for a contract manufacturer
22) How has China been affected by its one-child-per-family policy and appreciation of its currency?
The country's advantage in low-cost manufacturing is now reduced.
Which of the following reasons motivated Facebook to acquire Instagram, a photo and video-sharing social media site, for $1 billion?
The desire to gain a new capability
In a non-equity alliance, which of the following types of information would firms most likely share?
The documented information about the material composition of a product
Which of the following customer segments as described in the chasm framework make up the mass market?
The early and late majority together
Banana Computers has decided to procure processing chips required for its laptops from external suppliers instead of manufacturing them in their own facilities. How will this decision affect the firm?
The firm will have more flexibility in purchasing and comparing prices of goods and services.
69) What is most likely to happen if a firm relies too long on a competency without honing, refining, and upgrading as the firm and the environment change?
The firm's culture can turn from a core competency into a core rigidity.
Which of the following is a competitive benefit experienced by the first mover firm in an industry?
The first mover will be able to reduce costs through economies of scale
It is necessary for government authorities such as the Federal Trade Commission (FTC) and/or the European Commission to approve any large horizontal integration activity because
The horizontal integration activity has the potential to reduce competitive intensity in an industry.
29) Uptown Office Systems recently underwent a reorganization. Based on customer feedback, the company eliminated many of its middle management positions and implemented a flatter structure. Which of the following is a possible drawback of this decision?
The increased span of control for remaining managers may lead to higher levels of stress and possible burnout.
In developed economies, the electric car industry is in the introduction stage, and the industry for MP3 players is in the shakeout phase. What does this imply?
The industry for electric cars will focus more on product innovation, whereas in the MP3 player industry, the focus will be on process innovation.
Which of the conditions prevail when an industry is at the end of its life cycle?
The level of process innovation reaches its maximum as firms attempt to lower cost.
Showstopper Inc. dominates the ladies'; wig market and wants to expand into men's toupees. How can Showstopper's managers determine whether the company should develop a toupee division internally, ally with a toupee maker, or acquire a toupee-making firm?
The managers need to determine whether the skills needed to create wigs and toupees are similar and whether Showstopper creates better hairpieces than its competitors do.
Which of the following is a feature of the maturity stage of the industry life cycle?
The market reaches its maximum size
23) Which of the following is most likely an accurate statement?
The multinational enterprise Starship benefited from advances in communications technology.
67) Which of the following is a common result of a hostile takeover of a company?
The new owner sells the company in pieces.
73) What helps notions such as fairness, honesty, and reciprocity to be codified into law?
The notions are universal norms.
70) Which of the following scenarios best exemplifies a leveraged buyout of a microchip manufacturer, Rigoletto Inc.?
The owner of another company buys all the outstanding shares of Rigoletto in order to take it private.
BestDrive Inc. is a large automobile company. The company's petrol cars strategic business unit (SBU) has been recognized as a cash cow, and its hybrid electric cars SBU has been categorized under stars. Which of the following can be inferred from this scenario?
The petrol cars SBU operates in a low-growth market, whereas the hybrid electric cars SBU operates in a high-growth market.
The typical four-step innovation process begins with
The presentation of an idea as findings derived from basic research
What is horizontal integration?
The process of merging with a competitor at the same stage of the value chain
In 1990, Roche, a Swiss pharmaceutical company, initially invested $2.1 billion to purchase a controlling interest in the biotech startup 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
The real-options perspective.
A software firm is interested in acquiring an app development company that is small but highly profitable. The app developer also has a widely admired management structure and much lower attrition rates than are common in the industry. Which of these problems should the software firm anticipate?
The software firm may overpay for the app developer, poorly serving the software firm's shareholders.
56) Which of the following global strategies best matches with a multidivisional structure?
multidomestic
A drawback of short-term contracting as an alternative to making a component in-house is that
The supplying firm has no incentive to make any transaction-specific investments to increase performance or quality.
What is an invention?
The transformation of an idea into a new product or process
A microchip company wants a computer company to produce more powerful tablets and therefore use more of its chips. That same computer company wants the microchip maker to create chips with faster processing power. What approach could these companies take so that both can serve stockholders well?
The two companies should enter a strategic alliance to bring about a win-win situation for them and to limit their rivals' power.
Why is the phase after the growth stage of the industry life cycle referred to as the shakeout stage?
The weaker firms are forced out of the industry in this stage
72) Why is it difficult to imitate the organizational culture of firms like Southwest Airlines and Zappos?
Their culture reflects complex relationships with their employees, customers, and suppliers.
Which of the following is a result of horizontal integration in terms of Porter's five forces model?
There is a reduction of excess capacity in the market.
Which of the following statements accurately brings out the distinction between the introduction and growth stages of the industry life cycle?
There is more strategic variety in the growth stage when compared to the introduction stage.
21) How will an increase in coordinated economic and political integration between countries affect the world economy?
There will be gains in social welfare and living standards across the globe.
79) Why are controls like budgets and operating procedures that McDonald's implements known as input controls?
They are considered before employees make any decisions.
71) What are poison pills?
They are defensive provisions that kick in should a buyer reach a certain level of share ownership.
13) Which of the following statements is true of shareholders in a public stock company?
They are granted a charter of incorporation by the state and legally own company stock.
Which of the following is true of acquisitions?
They can be friendly or hostile.
76) Which of the following is true of the codes of conduct of an organization?
They detail how the organization expects an employee to behave and to represent the company in business dealings.
Which of the following statements is true of joint ventures?
They enable the exchange of both tacit and explicit knowledge.
20) According to Michael Porter, which of the following is a problem with many publicly traded companies?
They have defined value creation too narrowly in terms of financial performance.
79) Three months ago, Darren became a board member at Runswell, a publicly traded company. Two weeks ago, the board members discovered that Runswell's CEO is facing a lawsuit from a family member who accuses the CEO of theft. Based on what you have read, to what ethical standard should Darren and the other board members hold the CEO?
They must hold her to the highest ethical standards because the leaders of publicly traded companies must withstand intense public scrutiny.
Which of the following is an advantage of equity alliances when compared to non-equity alliances?
They produce stronger ties between partners.
56) Which of the following is the most likely advantage of using foreign acquisitions or greenfield plants as a foreign entry mode?
They reduce a firm's exposure to loss of reputation.
12) Amber is a strategist for a furniture manufacturer that has a large presence in the United States and Canada. By checking economic and political reports, she knows that trade and investment barriers are falling among wealthy nations. She also knows that the price of oil has dropped 50 percent in the previous two years. Based on this information, what action should Amber and her company take?
They should seriously consider globalization because of the falling trade and investment barriers.
Which of the following statements is true of the early majority section of consumers?
They weigh the benefits and costs carefully when adopting a new product.
82) Which of the following is true of the process of organizing for competitive advantage?
To maintain competitive advantage, companies need to restructure as they grow and the competitive environment changes.
Why did incumbent pharmaceutical firms enter into hundreds of strategic alliances with biotech start-ups?
To make small-scale investments in ventures poised to disrupt existing market economics
32) Tony's Tacos 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. Tony'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?
Tony's has a high degree of specialization, formalization, and centralization and relies on a tall hierarchy.
A conglomerate receives less than 70 percent of its revenues from any single business and features a number of strategic business units that have little to no relationship with each other.
True
A firm that decides to stop purchasing components from suppliers and start producing them in-house is pursuing backward vertical integration.
True
According to the crossing-the-chasm framework, the biggest chasm between customer segments is between early adopters and the mass market made up of the early majority and the late majority.
True
Firms are more capable than markets at coordinating highly complex tasks, while markets are more capable of providing high-powered incentives for entrepreneurship.
True
For ideas and inventions to be innovative, they must first be commercialized.
True
If two large movie-theater chains decide to merge, the result is likely a horizontal integration that creates a more favorable industry structure by decreasing competition.
True
Not all firms are motivated by a need to grow.
True
Organizations seeking strategic alliances often pursue non-equity alliances because they are the easiest to create and to sever. However, the short duration of these alliances often means there is little trust or commitment on either side.
True
Process innovation typically overtakes product innovation in importance during the shakeout stage of the industry life cycle.
True
The most challenging diversification strategy is likely to be one that combines new core competencies with new and emerging markets.
True
Garrett is an executive vice president at Samm Hardware. He researches a proposal by a larger company, Maximum Hardware, to combine the two companies. By analyzing past performance, conducting focus groups, and interviewing Maximum employees, Garrett concludes that Maximum has poor profit margins, sells shoddy merchandise, and treats customers poorly. What actions should Garrett and Samm Hardware take?
Turn down the acquisition offer and prepare to resist a hostile takeover.
11) How did Uber conflict with Carnegie Mellon University's National Robotics Engineering Center (NREC)?
Uber poached entire NREC research teams with signing bonuses, twice the salaries, and stock options, thereby threatening the future of NREC.
69) Save On Everything Inc., a supermarket chain, is implementing a multidomestic strategy. Solar Future Inc., a company that manufactures solar panels for commercial and domestic purposes, is pursuing a global-standardization strategy. How will the two companies most likely differ from each other?
Unlike Solar Future Inc., Save On Everything Inc. will be able to pursue a differentiation strategy at the business level.
Why is it easier for new entrants to get involved in radical innovations when compared to incumbent firms?
Unlike incumbent firms, new entrants do not have formal organizational structures and processes.
Which of the following statements accurately brings out the difference between technology enthusiasts and early adopters?
Unlike technology enthusiasts, early adopters'; demand is fueled more by intuition and vision rather than technology concerns.
A firm follows a(n) ________ when less than 70 percent of its revenues come from a single business and there are few, if any, linkages among its businesses.
Unrelated diversification strategy
42) New Zoya 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 New Zoya in terms of cultural distance?
Valyria, where people speak English and have a low standard of living
________ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs.
Vertical integration
Decisions relating to "what stages of the industry value chain to participate in" determine a firm's
Vertical integration.
Gold Leaf Computers sources the components for its laptops from various suppliers on the market. The firm pays $100 for processors, $35 for disk drives, $50 for screens, $10 for memory, and $40 for graphics and wireless internet cards. Gold Leaf has determined that it would cost $200 per unit to produce all of the necessary components in its in-house manufacturing facility. In this scenario, Gold Leaf should
Vertically integrate.
53) Which of the following is true of the board of directors in a public stock company?
Votes at shareholder meetings determine whose representatives are appointed to the board of directors.
48) Which of the following statements is true with regard to international trade between countries?
Wealthy countries engage in relatively more cross-border trade than poorer ones.
Anita has been named CEO of a popular sports apparel company. As CEO, she is tasked with setting the firm's corporate strategy. Which of the following decisions is Anita most likely to make?
What range of products the firm should offer
When does a firm fall into the large competitive chasm between early adopters and early majority?
When it fails to successfully launch a mass-market version of its product
When does a merger between companies typically occur?
When two firms of comparable size join to form a combined entity
While the domestic airline industry is in the maturity stage of the industry life cycle, the internet-enabled appliance industry is in its growth stage. Which of the following can be inferred from the given data?
While the domestic airline industry is mostly free from excess capacity, the internet-enabled appliance industry will have new entrants.
While cell phones with holographic keyboards are currently in the introduction stage of the industry life cycle, tablet computers are in the growth stage. In the context of this scenario, which of the following statements is true?
While the industry for cell phones with holographic keyboards will focus more on product innovation, the tablet industry will focus more on process innovation.
Real Goods Inc. is a large conglomerate. The company's beverages strategic business unit (SBU) has been recognized as a cash cow, and its tobacco SBU has been categorized as a dog. Which of the following can be inferred from this scenario?
While the market share of the company in the beverages industry will be high, the market share in the tobacco industry will be low.
38) Ben is a manager at Unique Accessories Inc. and is friends with the company's CEO. This privilege gives Ben the information that Unique Accessories is in the midst of talks to take over a leading rival. Ben buys stocks of Unique Accessories with the expectation that its stocks will appreciate. But the deal falls through, and the stocks of Unique Accessories depreciate in the following months. Are Ben's actions unethical? Why or why not?
Yes. It is unethical to trade stocks based on insider information, irrespective of the final outcome.
68) Which of the following types of groups is most susceptible to groupthink?
a cohesive group
23) W. L. Gore & Associates is organized in such a way that it has no formal job titles, job descriptions, or chains of command. This implies that it has
a decentralized structure.
46) For which of the following companies will geographic distance be the most relevant factor in deciding whether to trade with a target country?
a firm that extracts and exports iron ore
83) Mona sets up a business consulting firm in which the employees are motivated because they find their work interesting and creative. She carefully hires workers who fit well with their assigned tasks. Also, she clearly defines the results expected of each worker, but allows the workers to determine the means to these results. Which of the following best describes Mona's business?
a firm that relies on high output controls to tap into intrinsic motivation
33) Which of the following accurately describes an organic organization?
a flexible organization that fosters fast decision making and high employee motivation
Fierce domestic competition in New Schuyler makes a tough environment for any motorcycle company. Success requires top-notch engineering of chassis and engines, as well as keeping costs and fuel consumption in check. As a result, New Schuyler's motorcycles have a competitive advantage in the global market. According to Porter's diamond framework, this scenario shows the influence of competitive intensity in
a focal industry.
68) 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 global-standardization strategy
65) Blush Bashful Cosmetics Inc. operates in 20 countries around the globe. The company clearly understands that the skin and hair type of customers varies from one country to another. Consequently, its products are customized to suit local needs and preferences of customers, even though the costs incurred while producing these products are exceptionally high. This strategy helps the company behave as a local firm in a foreign market. In this scenario, which of the following strategies does Blush Bashful most likely implement?
a multidomestic strategy
71) Devonshire Ventures is a large snack-food conglomerate that operates in more than 50 countries and employs more than 80,000 people across the world. It operates through multiple regional product divisions, which tend to function as autonomous profit-and-loss centers. This allows the company to reap significant economies of scale. Though each division acts as an autonomous firm with its individual regional leaders, frequent sharing of knowledge between the divisions allows for global learning. These factors help the company reconcile product and service differentiations at low cost. Which of the following strategies does Devonshire most likely use?
a transnational strategy
61) Sky Pioneers Inc. manufactures airplane parts. It wants to globalize and is willing to spend a considerable amount to protect its intellectual property. Which of these business ventures makes the most sense for Sky Pioneers?
acquiring an airplane-parts manufacturer in another country
57) Vassar Systems Inc. wants to globally expand its market. It intends to ensure that its mode of foreign entry allows it to have strong control over its operations and protect its intellectual property, though that may mean investing a significant amount of capital and other resources. In this scenario, which of the following foreign entry modes would best suit Vassar Systems
acquisition
46) Nate 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 Nate based on his stated credentials without verifying them. Two days into the job, Nate's team lead realizes that Nate does not know much of what he claimed to know during the interview. This scenario best exemplifies
adverse selection.
48) At Agile Ltd., a cross-functional team is formed to work on a project for a new client. The team consists of Charles and four other members. At most of the team's presentations to senior management, Charles takes the lead and discusses project specifics with the management, while others chip in with additional information. At the completion of the project, Charles is recommended for promotion, while the other team members receive little recognition for their hard work. The reality is that Charles did very little actual work but spent some time compiling the project report based on different documents submitted by the others. This scenario at Agile Ltd. is a typical consequence of
adverse selection.
47) Keyhole Corporation is the parent company of Inspire.com and Roker Inc. To cut costs, Keyhole integrated InSpire.com's and Roker Inc.'s management functions with Keyhole's management, while keeping other functions such as product development independent. Keystone has encourage the senior teams at both Inspire and Roker to exploit the success of their existing products while exploring new products for the future. This scenario best exemplifies a(n)
ambidextrous organization.
28) Managers at Durkmunder, a firm in West Feenistan, want to make their company a global leader in business process outsourcing (BPO). What should the Durkmunder managers look for as they decide where to locate their BPO facilities?
an abundance of well-educated English speakers
63) Screaming Eagle, a luxury motorcycle company, sells the same motorcycles and offers the same superior services in both its home country and foreign markets. The market it operates in faces low pressures for both local responsiveness and cost reductions. Which of the following strategies within the integration-responsiveness framework does Screaming Eagle most likely pursue?
an international strategy
18) ValueHealth is a successful drug manufacturer. Because the pharmaceutical industry features a high rate of change and the threat of disruption is high, ValueHealth should
be prepared to restructure as the landscape changes.
49) Which of the following statements best explains why Walmart is finding it difficult to replicate its existing business model in India?
because of the large economic distance between the United States and India
27) Which of the following has been a key driver for firms to expand globally during the Globalization 3.0 stage?
benefits from lower labor costs in manufacturing and services
72) A firm pursuing a transnational strategy would believe that
best practices, ideas, and innovations should be diffused throughout the world.
The transnational strategy is similar to a(n) ________ strategy because they both focus on product differentiation and low costs.
blue ocean
85) The name for an agreed-upon code of conduct in business, based on societal norms, is
business ethics.
45) Sunset Foods relies on a highly centralized functional structure to ensure consistency in the quality and taste of its products and to drive down costs via process innovations. However, as a consequence of its highly compartmentalized structure, the firm has found it difficult to transfer information and ideas from one department to the next. With the launch of its new line of breakfast foods coming up, how can Sunset improve its ability to collaborate without sacrificing the benefits of its current structure?
by establishing cross-functional teams
43) How did Canada, Mexico, and the United States reduce the administrative and political distance between them?
by establishing the North American Free Trade Agreement (NAFTA)
44) David and Fred are customer care employees at JPN Care. In between calls, David and Fred spend time on Facebook and YouTube. The relaxed guidelines at JPN allow them to do that. However, sometimes, they knowingly avoid answering calls or keep customers on hold, while they check their social networking accounts. Such behavior
can be stopped by implementing performance incentives and strict control mechanisms.
53) ABX Inc. is an electronic appliances manufacturer that has many strategic business units (SBUs), among which, television and computers share a close relationship. These SBUs have to fight each other for R&D funding because there is a combined amount set aside for these two units. However, they share technological findings with each other and work together to ensure that their combined output is better that of the other SBUs. Such a relationship between SBUs in a business is referred to as
co-opetition.
41) According to the agency theory,
conflicts that arise in corporations should be addressed in the legal realm.
70) GM's insistence on sticking to a bureaucratic culture combined with its M-form structure and its subsequent failure to adapt to changing customer preferences for more fuel-efficient cars, produce higher quality, and create innovative designs best exemplifies
core rigidity.
68) Because of poor management, the stock price of Orange Dolphin Inc. falls and many investors sell their shares. Soon Orange Dolphin becomes the target of a hostile takeover, during which Hans buys enough shares to exert control over the firm. In this scenario, Hans performs the role of a(n)
corporate raider.
80) One way to foster ethical behavior in employees is to
create a control system that encourages desired values.
39) When two neighboring, democratic countries that are part of a trading bloc follow different religions and social norms, they most likely have high ________ distance.
cultural
34) Cheetah, 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?
dedication to a cost-leadership business strategy
55) Which of the following modes of entering a foreign market allows for the lowest level of control?
exporting
58) Which of the following foreign entry modes primarily involves producing goods in one country to sell in another?
exporting
15) During the period of Globalization 1.0, the mode of entry into foreign markets primarily involved
exporting goods.
53) Which of the following entry modes was used extensively in Globalization 1.0 stage?
exports
In Michael Porter's diamond framework, ________ conditions describe a country's endowments in terms of natural, human, and other resources.
factor
14) Tina is the inventor of a personal fitness tracking device, and she is in the process of hiring employees after receiving investment funding. When considering how to structure her company, she should
first establish a strategy and let that be her guide.
44) Which of the following features helps match a cost-leadership strategy to a functional structure?
focus on economies of scale
60) Which of the following types of organizations comparatively requires the lowest levels of investment and control?
franchising
57) Which of the following organizational structures matches best with an international strategy?
functional
84) Turquoise Games relies on its employees to provide innovative ideas for new educational products. To foster intrinsic motivation in its workforce, Turquoise should
give employees a "free day" every two weeks to pursue ideas for new educational toys.
55) A firm that uses a structure that is organized along different business functions such as HR, R&D, Sales, and Marketing and also along different geographical areas such as different countries of the world is most likely using a ________ structure.
global matrix
67) Vermilion Inc., a manufacturer of high-technology medical devices, has its product development centers located in the United States and South Korea. The manufacturing units are located in China and the Philippines to benefit from low-labor costs and access to original equipment manufacturers. This allows the company to competitively price its devices. Also, the various phone models sold by the company are uniform in all the foreign markets it operates in. In this scenario, which of the following strategies does Vermilion most likely pursue?
global-standardization strategy
20) The process of closer integration and exchange between different countries and peoples worldwide is
globalization.
59) Maddox Bauxite Extraction Inc. has decided to enter into a foreign market by setting up its own production facilities and distribution channels from scratch. This will give it strong control over all its business activities. Which of these foreign entry modes will Maddox most likely choose?
greenfield operation
41) A functional structure is recommended when a firm
has a low level of diversification.
19) Starling Inc. is a public stock company that provides natural gas for businesses. Although this company generates a large profit, management's focus on reducing costs caused the maintenance budget to be trimmed. Its pipelines have at times leaked, which created significant environmental problems. As a result, the company's value creation has suffered. This scenario supports Michael Porter's warning that public companies
have defined value creation too narrowly in terms of financial performance, thereby contributing to black swan events.
24) According to the perspective of shareholder capitalism, shareholders in public stock companies
have the most legitimate claim on profits.
26) Emirates, Etihad Airlines, and Qatar Airways are a threat to U.S. legacy carriers because they offer
higher quality for lower costs for international routes.
41) A greater cultural distance between two trading countries
increases the liability of foreignness.
78) Spiderweb Inc. is an apparel manufacturer. The management at Spiderweb 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
input controls.
57) Landon is a senior manager for the firm Anderssen Inc. Because of his experience, he has been appointed to the board of EEC Inc., even though he doesn't work for this firm. He also serves on the boards of several other companies. Landon is a(n) ________ for Anderssen and a(n) ________ for EEC.
inside director; outside director
59) What do we call the board members who are part of a company's senior management team appointed by shareholders to provide the board with necessary information pertaining to the company's internal workings and performance?
inside directors
37) The informational advantage that agents possess over principals is often based on the fact that
insiders are the first to learn about important developments before the information is released to the public.
11) Because keeping cost low is critical to IKEA's value innovation, it switched from a(n)
international strategy to a global-standardization strategy.
81) Output controls can sometimes discourage collaboration among different strategic business units. However, more and more work requires creativity and innovation, especially in highly-developed economies. One way firms are grappling with this issue is by
introducing results-only-work-environments to tap intrinsic motivations.
75) Bejukistan Laboratories Inc. has a national competitive advantage in the pharmaceutical industry. This means that the country
is a world leader in the pharmaceutical industry.
61) Bernard is a board member at Lopez Electronics Inc. He is also a senior executive of the firm. The board is chaired by Ernest Jones, the CEO of Stanley Motors. According to this scenario, Bernard
is an inside director of Lopez Electronics.
31) McDonald's operates Hamburger University that trains students to ensure consistent food quality across its outlets throughout the world. This indicates that McDonalds's
is mechanistic in nature.
31) A firm is said to be pursuing a polycentric innovation strategy when
it draws from multiple, equally important research facilities located throughout the world.
33) Culinary Solutions Inc. manufactures cooking and baking equipment and has its base in the country of Vandevar. It has approximately 300 stores across the country and is already active in three foreign countries. It attempts to establish itself in the country of Balalaika, and uses its low-cost strategy to do so. However, due to the additional costs associated with training, coordinating across geographic distances, and other costs associated with doing business in an unfamiliar cultural and economic environment, Culinary Solutions Inc. incurs huge financial losses in Balalaika. In this scenario, Culinary Solutions Inc.'s failure to establish itself successfully in Balalaika occurs most likely because
it underestimated its liability of foreignness when entering the Balalaika market.
54) Worldwide Minerals Inc. wants to expand into the international market. It does not want to spend a very large amount of money for this process. However, Worldwide Minerals wants to maintain some control in the foreign market. Which of the following would be the best entry mode for this firm?
joint ventures
84) A mortgage-loan officer persuades unsuspecting consumers to sign up for exotic mortgages, such as "option ARMs." These mortgages offer borrowers the choice to pay less than the required interest, which is then added to the principal while the interest rate can adjust upward. Because of this setup, many borrowers are unable to repay the mortgage once the interest rates go up. Which of the following phrases best describes this scenario?
legal but not ethical
18) Jaronda founded Diamond Communications Inc. in 1993. Ten years later, the company went public. Despite Jaronda's death in 2005, the company reported a 75 percent increase in revenue in 2006. Which of the following characteristics of a publicly traded company does this scenario best exemplify?
legal personality
62) Angelica is the CEO of Sandhaven Ltd., a publicly traded company. The shareholders want Angelica on the board of directors despite her recent appointment as the CEO. This decision of the shareholders is most likely because Angelica is
likely to provide the board with valuable inside information.
78) WackyPop Inc. produces an inexpensive microwave popcorn that is well tailored for the tastes of U.S. consumers. However, it has failed to satisfy the consumer preferences of its host country, Japan. Which of the following categories has WackyPop performed poorly in?
local responsiveness
29) Unilever's new-concept center is situated in downtown Shanghai, China, attracting hundreds of eager volunteers to test the firm's latest product innovations on-site while Unilever researchers monitor consumer reactions. In this example, Unilever is trying to reap the benefits of
location economies.
30) Downshift 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, Downshift Autos Inc. is reaping the benefits of
location economies.
38) Carpatia and Novenica 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
luxury items manufactured in Carpatia.
54) An organization that is organized according to strategic business units (SBUs) and also along organizational structures is most likely using a ________ structure.
matrix
39) Fine Lines Inc. is a notebook manufacturing company based in Ohio. Fine Lines' main market is Ohio. It aims at providing its products at better prices than its competitors. Which of the following structures is Fine Lines Inc. likely to use if it has functional setup?
mechanistic
47) A company scientist at a biotechnology company decides to work on his own research project, hoping to eventually start his own firm, rather than on the project he was assigned. However, the company's stockholders are unaware of this situation. This is an example of a(n) ________ in the context of a principal-agent problem.
moral hazard
51) Rajat Gupta's role in providing inside information to Galleon Group for the benefit of Galleon Group's stockholders and himself is an example of
moral hazard.
49) When a firm diversifies into different product lines and geographies, a ________ structure is preferred.
multidivisional
50) Harvey's, a large and successful retail chain on the West Coast, decides to expand its operations across the U.S. Which of the following organizational structures should Harvey's use?
multidivisional
37) Badlands Corp., a tool and die maker, is considering where to locate its new factories and offices. According to the CAGE distance model, which of these countries is statistically most attractive to Badlands?
one that is in the same trading bloc as Badlands' home country
44) A payroll company in the nation of Antono 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?
one that used to have a colonizer or colonized relationship with Antono
61) Butterfly Technologies produces touch-enabled wearable devices. Its research and development team recently became aware of a new, open-source technology produced by a firm overseas that would improve the processing speed and battery life of all Butterfly devices. In this scenario, Butterfly would be best served to embrace
open innovation.
46) Which of the following types of organizations best helps match a differentiation strategy to a functional structure?
organic organization
30) BioCure Inc. is a pharmaceutical company that has many breakthroughs in medicine to its credit. Unlike many other pharmaceutical companies, BioCure 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, BioCure Inc. is most likely an organization that is
organic.
40) To effectively implement a differentiation strategy, managers rely on a functional structure that resembles an organization that is highly
organic.
51) Calabash Inc. is located in the nation of West Fenwick near the nation of East Fenwick. Calabash is considering expanding into East Fenwick. Both countries have similar consumer incomes and knowledge bases and share a common language. Also, the transportation networks between the countries are strong. Even so, the two nations have a long-standing dispute concerning the control of an area of land along their common border. Currently, West Fenwick rules this land. Which of the following would most likely prevent Calabash from expanding into East Fenwick?
political distance
35) Which of the following is part of Geert Hofstede's cultural dimensions?
power distance
30) Which of the following could most likely have prevented the accounting scandals of the early 2000s and the global financial crisis?
practicing effective corporate governance
35) Yelena, the CEO of Andron Inc., reports to the board of directors appointed by the shareholders of Andron. Based on shareholder suggestions, the board ties Yelena's compensation to the performance of Andron. Due to this pressure, Yelena begins devoting extra time to projects and undertakes other activities to ensure that she has job security and that she receives adequate compensation. The reasons why the board ties Yelena's compensation to firm performance is to overcome
principal-agent problem.
33) CPA Inc. is a publicly traded company. The stockholders of this company delegate the authority to make decisions for the company to a CEO named Joaquin. The stockholders expect Joaquin to make decisions that will benefit the company. However, Joaquin begins to find ways to maximize his total compensation, which hinders CPA's performance. This scenario reflects
principal-agent problems.
40) Planet Resource Inc. is a global internet company that offers country-specific variations of its sites, keeping in mind the linguistic and religious differences between the countries it serves. Planet Resource is most likely doing this to
reduce its cultural distance from the other countries.
21) Which of the following is an unintended side effect of a high degree of specialization in an organization?
reduced employee satisfaction due to repetition of tasks
Toyota's global success in the 1990s and early 2000s was based to a large extent on a network of world-class suppliers in Japan. This tightly knit network allowed for fast two-way knowledge sharing—this in turn improved Toyota's quality and lowered its cost, which it leveraged into a successful blue ocean strategy at the business level. This example shows the effectiveness of
related and supporting industries/complementors.
17) InSeason Inc. started a chain of organic supermarkets that had initial success. The managers achieved a mastery of the firm's current environment, thereby filling a need in the market. However, InSeason defined and measured it success by financial metrics, with a focus on short-term performance. As a result, the firm put in place metrics and systems to accommodate and manage increasing firm size due to continued success. As a result of this tightly coupled system, InSeason developed a
resistance to change.
21) Which of the following characteristics of a public stock company deals with principals and agents?
separation of legal ownership and management control
56) Megan is a graduate student pursuing a course in business. Presented with the case of a company's unethical behavior, Megan 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, Megan 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.
32) Which of the following statements accurately explains the primary reason behind Walmart's failure in Germany?
significant differences between its U.S. personnel policies and Germany's culture
35) While working a night job at a call center, Eric creates an app called EatOut, which can be used to place orders at restaurants, rate the restaurants, and make reservations. Because he receives good responses for his app, he quits his current job to focus his efforts on EatOut. He creates a start-up called BestApps and hires three people to help him improve EatOut and maintain the servers that run it. In this scenario, BestApps most likely has a ________ structure.
simple
22) A high degree of formalization in an organization is most likely to
slow down decision making.
65) Employees learn about an organization's culture through the process of
socialization.
The key objective for firms during the growth phase is to
stake out a strong strategic position not easily imitated by rivals.
85) Successful ________ requires managers to design and shape structure, culture, and control mechanisms.
strategy implementation
19) A firm's ________ determines how the work efforts of individuals and teams are orchestrated and how resources are distributed.
structure
25) Telescopic Inc., a web development firm, is headed by Rob Dennis, the CEO. Each functional department of the company—marketing, finance, and HR—has a president who reports to the CEO directly. Each department has various managers who manage teams. The managers report to the presidents, and the team leads report to the managers. Finally, the employees at the lowest level report to their team leads. It is rare for a lower-level employee to interact with the CEO of the company. In this scenario, Telescopic Inc. can be said to have a(n)
tall hierarchical structure.
28) Jen works as a front-line employee for a nationwide retail store. She reports to a floor manager, who reports to a departmental manager, who reports to a regional supervisor, who reports to a vice president, who reports to the CEO. Which of the following best describes this retail store?
tall structure
81) The MBA oath first developed at Harvard Business School and now signed by students at over 300 business schools is modeled after
the Hippocratic oath in medicine.
36) Under the CAGE distance framework, the administrative and political distance between two countries primarily increases with
the absence of a trading bloc.
69) Which of the following is a major issue at the forefront of CEO compensation in recent years?
the absolute size of the CEO pay package compared with the pay of the average employee
31) In public stock companies, which of the following expectations of principals is most likely to lead to principal-agent problems?
the expectation that the agent will act in the principal's best interest
29) Grameen Bank in Bangladesh was founded to provide microcredit to impoverished farmers who wanted to start their own entrepreneurial ventures that would help themselves climb out of poverty. This best exemplifies Michael Porter's suggestion that
the largest but poorest socioeconomic group can yield significant business opportunities.
25) Which of the following could be used as an example of why a stakeholder strategy approach to business has shortcomings?
the nonsustainable debt levels incurred by sovereign governments to fund social programs
11) Organizational design is
the process of creating, implementing, and modifying the structure of an organization.
32) Which of the following is the source of the principal-agent problem in publicly traded companies?
the separation of ownership and control
47) Which of the following factors is the most important determinant of economic distance?
the wealth and per capita income of consumers
42) In a public stock company, senior executives, such as the CEO, face agency problems when
they delegate authority of strategic business units to general managers.
64) Multinational enterprises (MNEs) like Harley-Davidson, Rolex, and Starbucks are said to be following an international strategy because
they offer the same products or services in all their stores throughout the world.
80) A company that is using extrinsic motivation as an output control mechanism will most likely
threaten to lay off employees if they do not achieve targets.
66) Which of the following best explains why a board of directors may grant stock options as part of a compensation package?
to align incentives between shareholders and management
14) 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?
to take advantage of lower taxes in the southern United States
16) Gary owns shares in a company called Archibald Industries Inc. The company's financial performance has been declining over the past few months, and the value of its stock has been decreasing. Gary wants to proactively cut his losses and therefore sells his shares. Anneke, a trading enthusiast, buys shares in Archibald 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?
transferability of investor ownership
The German multimedia conglomerate Bertelsmann operates in more than 60 countries throughout the world and owns many regional leaders in their specific product categories, including Random House Publishing in the United States. Bertelsmann operates its more than 500 regional media divisions as more or less autonomous profit-and-loss centers, but it attempts to share best practices across units. Global learning and human resource strategies for executives are coordinated at the network level. Bertelsmann is following a(n)
transnational strategy.