BUS800 Part 2 Chapter 6 -10

When a customer and a supplier choose to, or are technically obliged to, integrate their processes,

a) there can no longer be a market operating between them for the item concerned. b) there can be an adversarial relationship as each tries to gain advantage. c) there can be strategic benefit, so long as the partners try to jointly maximise their profit in the downstream market.

In a multidivisional structure each division is responsible for

all functions necessary to produce one range of products.

If banks lack 'social legitimacy' they

are perceived by society to have equity, ethical, and/or sustainability problems.

Johnson says that a corporate culture includes a firm's

mission and values, rituals, routines and myths.

A SIM is a framework for helping categorize jurisdictions by their

social, economic, and environmental sustainability components.

A long-term underlying cause of the financial crisis was

'Light touch' regulation which encouraged financial innovation.

The Enron scandal featured

a company that falsified its accounts from top to bottom of its main financial statements.

A hybrid vertical relationship is one which

attempts to secure optimum benefits from close collaboration whilst preserving some form of market transaction.

The basis for different structures is different ways of organizing

hierarchies within the firm.

Corporate governance refers to

the way that a company is directed, administered, and controlled at the top.

To make a choice between vertical integration or external sourcing, which statement is true?

It depends on the specific factors prevailing.

Of Michael Porter's three tests of whether a proposed diversification will create value, the most important one is usually

The "better-off" test.

Schein says that corporate culture can be understood

at three levels: artefacts, values, and tacit beliefs.

A major problem associated with internal capital markets is

despite the cost-savings, poor investment decisions tend to be made.

The managers of firms in low-growth, cash-generative industries often opt for diversification because

low growth does not look good for managers with an eye on their next job.

To bring labour specialization to a productive conclusion, firms need to implement structures and systems that

make employees coordinate their actions and cooperate with other stakeholders.

A good strategic plan is less important than

the process of strategic planning.

A significant determining factor on whether a firm conducts an activity internally is

whether the transaction costs of buying in the activity in the market exceed the administrative cost of doing it themselves

A firm becomes more vertically integrated when

it moves to own more stages of the value chain, either upstream or downstream of its core activity.

In this chapter we examine how three key factors shape and are shaped by strategy:

systems, structure and culture.

The main components of financial plans are

the capital budget and the operating budget.

Realized strategies are a mix of

unintended and intended actions.

The coordination problem is

unless employees coordinate their efforts nothing will get produced.

Select the best strategic reasons for firms to ensure proper occupational health and safety practices.

Direct financial impact and diminished brand value if they don't follow these practices.

Hamel argues that modern business leaders need to be

constitution writers, social architects, and entrepreneurs of meaning.

The most often-cited benefits of diversification are

growth, risk reduction and value creation.

A strategy of unrelated diversification is

not always as unrelated as it may seem e.g. the businesses may share some common attributes which can be exploited.

Business sustainability refers to the triple bottom line of

profit, people and planet.

One might expect corporate culture to be at least partly summarized in

the staff handbook given to all new joiners.

Corporate culture typically means

the values and ways of thinking the firm's senior managers wish to encourage.

A firm's culture could be shown by

the way a customer complaint is handled.

Large transaction-specific investments tend to lead to

vertical integration of the processes involved.

An advantage of diversification is a better internal labour market because

Employees can be transferred rather than hired / fired, and the firm knows these people well.

The strategic worry about short-termism is that

Managers focus too much on headline profitability and not enough on the underlying causes of it.

What is the difference between a firm's geographical scope and its vertical scope?

The first describes the regions of the world where the firm is present and the second the stages of the industry value chain which the firm performs itself.

As a firm progresses, it is invariably the case that it expands its scope

This is not true. Some firms narrow some aspects of their scope, or voluntarily even break up.

The starting point for strategy is usually

What business(es) are we in?

Corporate strategy is concerned with

Where a firm chooses to compete i.e., in which industries. and the scope of a firm's activities.

The original cause of the Great Recession was

a financing failure in the US housing market.

At the heart of the Enron and Worldcom scandals was

a fraud by directors and senior managers involving accounts with overstated profits.

Which of these choices is NOT an example of a vertical relationship?

a long-term agreement with competitors to fix the market price for a commodity product

An adhocracy describes the kind of structure found in

a research lab or new product development group - such as much of Google or Microsoft.

Over the past 30 years, the tendency in the USA and Europe has been

a trend for diversified firms to refocus and reduce their diversification.

Economies of scope and economies of scale both relate to lower average cost but

a) economies of scale refer to cost-advantage from higher volume of a single product. b) economies of scope refer to cost-advantage from spreading a common cost over multiple products.

The main concepts to determine the scope of a firm's activities are

a) economies of scope. b) transaction costs. c) corporate complexity.

The main management systems that can affect how strategy is implemented are

a) information and human resource management systems. b) strategic and financial planning systems.

A major limitation of the BCG Growth-Share Matrix is

a) it's only based on one variable to judge market attractiveness. b) it's only based on one variable to assess competitive strength. c) it presumes a portfolio of businesses which have little synergy or mutual dependence.

In the GE/McKinsey Matrix, the industry attractiveness axis combines

a) market growth rate and market size. b) market profitability, cyclicality, inflation recovery and international potential.

In a weak culture

a) people interpret a senior manager's statement or signal differently. b) people hold contrary views on how they should behave at work.

Ultimately business leaders have got to

a) tend the emotional climate of the organization. b) provide meaning for the typical employee's aspirations. c) unify and inspire their employees.

Vertical integration may afford flexibility in responding to uncertain demand when

a) the firm has built a capability to respond speedily in a coordinated fashion. b) the firm maintains spare capacity, and can bear spare capacity. c) the market cannot respond as quickly, or capacity is unavailable.

Once a firm buys its supplier in order to vertically integrate a process,

a) the lack of a market removes the high-powered incentive of market forces to keep costs low.

Increased corporate complexity because of expanded scope is caused by

a) the need for managers to understand a wider range of businesses. b) the need for managers to operate differently to succeed in different businesses. c) the extent of the linkages between the various businesses.

Using the Virtue Matrix introduced by Roger Martin of the University of Toronto, a firm is said to occupy the Strategic Frontier quadrant when it

advances corporate responsibility and shareholder value.

The Deepwater Horizon oil spill taught us that

b) even the most professional risk plans can ignore some major risks. c) confused responsibilities can emerge from trying to coordinate complex teams and systems.

A Ponzi scheme

b) pays "returns" to savers out of capital paid in from new investments or new investors. c) is guaranteed to fail eventually.

There was a fashionable trend towards "virtual companies" in recent years, who make the largest profits in a value chain by co-ordinating all the other aspects. The risk with this plan is

b) such a company may find it loses the ability to understand the industry it is in. c) a group of suppliers and/or customers may decide to co-ordinate themselves, and isolate the virtual company.

Full vertical integration compounds risk because

b) the capital invested and the fixed costs are often much higher for a vertically integrated firm. c) a decline in sales and profits in the end market affects all stages simultaneously.

Share option schemes go wrong when

bad senior managers manipulate reported profits.

Michael Porter's "attractiveness test" means that a firm considering diversifying into another industry should

be able to see a way to make superior profits in that industry.

The move over the past 25 years to refocus and de-integrate has NOT been universal; some industries have further vertically integrated

because in some industries the conditions favouring further vertical integration outweigh the benefits of focusing and outsourcing.

To sum up, strategy in practice may differ from top management's vision

because staff enact it, and they are influenced by the firm's structure, systems and culture around them.

The hypothetical link between culture and a company's performance has NOT been statistically demonstrated yet because

both 'culture' and 'relative company performance' are hard to measure statistically across many firms.

Whether formal or informal, all strategic planning systems

coordinate plans within a company.

Outsourcing is a form of

de-integration or disaggregation.

At BP, before Deepwater Horizon, drilling risks were evaluated

differently by managers and engineers, who belonged to different sub-cultures.

A functional structure means individual departments

do the same kind of activity or task.

An internal capital market occurs when

enough cash generated by one set of internal firms is used by other internal firms in need of cash

Principal concerns of corporate responsibility include

equity, occupational health and safety, ethics, social and ecological sustainability

The existence of economies of scope is likely to lead a company to

expand the scope of its activities in some relevant way.

High-powered incentives and low-powered incentives respectively generally apply to

externally and internally sourced inputs.

When a natural disaster occurs in the twenty-first century

financial markets and global economies react rapidly - sometimes with dire effects.

The 'equity' problem is

fundamentally about the distribution of income in the capitalist system, and what seems fair given different people's inputs, job security, advancement, recognition, diversity, and flexible work schedules.

Ways to group employees in international multiproduct companies include by

geography, products, tasks and processes.

By persuading employees to adopt common values of the firm's culture, managers aim to

get all employees to align their actions to achieve company goals independently - reducing the need for close supervision.

Today's high levels of interconnectedness result from high levels of

global trade, interest and exchange rate flexibility, and speed of communication.

Meeting the 'triple bottom line' refers to

having an adequate performance economically, socially, and environmentally

The 'cooperation problem' is

how to align the interests of the different participants who make up a firm.

Select the best answer. Some of the benefits to firms from employing sustainable strategies include

improved brand reputation, premium pricing and margins, attracting and retaining employees.

Well-designed share options can be a way of aligning the

interests of managers with those of shareholders.

When increased flexibility is required,

it depends very much on the circumstances whether it's best to source from the market or vertically integrate.

Although economies of scope refer to spreading cost, this is NOT the case for brand extension

it is still true for brand extension, since creating and maintaining a brand does cost a lot e.g., in advertising.

After BP moved from strategic controls to financial controls,

operational managers were being asked to trade off savings that were certain against risks they thought very unlikely.

A company in a mature industry which is good at cost reduction is exhibiting

potential for economy of scope based on organisational or managerial capability.

A matrix structure means a firm is formally organized by

products, geography and functions simultaneously.

Total Quality Management requires that employees receive

regular, timely, feedback on their performance.

The commonest ways to achieve coordination are to use

rules, routines and mutual adjustment.

The practical importance of budgets is that

senior executives and divisional managers are held accountable against the figures in these budgets.

HR Management systems need to

set goals, create incentives, and monitor the performance of every individual.

One common argument against diversification strategies is

shareholders can invest in other industries themselves, achieving risk-reduction more efficiently.

In an adhocracy a person

switches between roles as needed by the team at that period in the project's life.

One huge problem with vertical integration of activities with only one major sellable output is

the entire integrated value-chain is subject to the same single market risk.

A major reason why managers are attracted to diversification is

the experience may reduce risk, and secure their job; and if not it looks dynamic for securing their next job.

Gaining the advantage from economies of scope requires that

the firm is be able to spread common cost somehow, either by performing the additional activity internally, or by licensing the resource.

The 200-year-old quote from Adam Smith's early industrial pin factory illustrates

the gains to be had from task specialization.

Adam Smith, the famous economist, called the market mechanism

the invisible hand.

The primary source of value creation from diversification is likely to be

the linkages or synergies between the businesses concerned.