BUSA 4900 Exam 3

In the Boston Consulting Group growth-share matrix, each of the four categories in the matrix represents ______.

a different investment strategy

What determines the allocation of resources and the organization and operations of workers?

a firm's organizational structure

What must financial statements by public companies do?

be audited by certified public accountants; adhere to generally accepted accounting principles (GAAP)

The shared value creation framework is a tool intended to help businesses ______.

benefit all stakeholders, not just shareholders

Narrowly defining public stock companies in terms of financial performance can lead to ______.

black swan events

What mechanism uses codified policies and procedures to define and direct employee behavior?

input controls

In regard to the public stock company, limited liability means that ______.

investors are not responsible for any debts incurred by the company and are only at risk of losing their invested capital

What is typical of an organic organization?

flexible division of labor

Incentives that are too high-powered, such as an outsized bonus, may cause individuals to ______.

focus too much attention on the incentive and not enough on strategic activities

What must strategic alliances do in order to create the foundation for a competitive advantage?

form unique resource combinations that obey the VRIO criteria

If a company moves ownership of activities closer to the end customer, such as providing after-sales support, it is engaging in ______ vertical integration.

forward

What are types of vertical integration along the industry value chain?

forward, backward

Kurtis loves Benicio's Burritos and wants to open a branch in his hometown. Benicio's Burritos grants Kurtis the right to use its trademark and name, and Kurtis agrees to follow Benicio's Burritos guidelines. This is an example of ______.

franchising

A firm that is organized according to SBUs but also is decentralized in that different geographic locations are fully functional is likely organized in the ______ structure.

functional

What features are frequently associated with organic organizations?

greater employee creativity; high levels of employee satisfaction; fast decision making

Specialized assets have ______.

high opportunity cost

Strategy implementation is essentially ______.

how a firm performs its work

Which bodies regulate mergers and acquisitions?

European Commission, Federal Trade Commission

The ideas of corporate social responsibility and stakeholder strategy are particularly prevalent in ______.

Germany

What is a true statement about the building blocks of an organizational structure?

Hierarchy is one of the building blocks of an organizational structure.

What is true regarding the government and horizontal integration?

Large horizontal integration activity typically needs to be approved by government authorities.

Why does management frequently fail at strategy implementation?

Managers cannot make needed adjustments because of their effect on the firm's resource allocation and power distribution.

Peter's Pans makes cast-iron cookware. It decides to acquire another similar-sized cast-iron cookware company in the hope that its larger size will enable it to snag some market share away from Iron Maiden, the industry leader. What is Peter's Pans strategy?

Peter's Pans is trying to overcome competitive disadvantage.

What are common reasons a firm might pursue a merger?

Principal-agent problems; Superior acquisition and integration capability; The desire to overcome competitive disadvantage.

True or false: A horizontal integration strategy leads to industry consolidation.

TRUE

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

TRUE

True or false: It can be riskier to own parts of the supply chain than to rely on external supply chains.

TRUE

What best exemplifies the relational view of competitive advantage?

The strategic alliance between company A and company B creates more value than either company individually.

What is a true statement about strategic alliances?

They have a high failure rate.

What two statements accurately describe mechanistic organizations?

They have a tall hierarchy. They are highly specialized.

What statements about equity alliances is true?

They require larger investments than non-equity alliances.

Why might a firm want to enter into an equity alliance instead of a short- or long-term contract?

To take partial ownership in the other partner by buying stock or assets; To signal greater commitment to the partnership.

In ______, a single investor or group of investors buys, with the help of borrowed money, the outstanding shares of a publicly traded company and assumes control of it.

a leveraged buyout

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

a manager flying first class on all business trips

What structure is a combination of the multidivisional structure and the functional structure?

a matrix structure

What is the most observable element of organizational culture?

artifacts

What are the four essential aspects of an organizational structure?

centralization, formalization, hierarchy, specialization

Corporate governance is a system of ______.

checks and balances

According to agency theory, which managerial functions can be used to avoid adverse selection and moral hazard?

control and organization

The key question of where to compete is addressed by ______.

corporate strategy

In order to assess whether ______ is working, managers can ask if the individual businesses are worth more under the firm's management or if they are worth more under individual management.

diversification

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

diversification discount

What is an example of an application of agency theory?

employment contracts

The idea of corporate social responsibility (CSR) suggests that a firm's obligations should ______.

exceed the traditional imperative to increase profits

Social consequences of business activities, including pollution, energy loss, and dangerous accidents, are known as ______.

externalities

Economist Michael Porter and many others argue that the value of public stock companies is too narrowly defined in terms of ______, leading to scandals and economic crises.

financial performance

According to agency theory, conflicts such as the principal-agent problem are considered ______ issues.

legal

What are the four characteristics of a public stock company that make it an attractive corporate form?

legal personality; limited liability for investors; separation of ownership and control; transferability of investor interests

In order to reconcile economic and social needs within the shared value creation network, managers need to focus on what?

making products affordable for the poorest socioeconomic groups in order to improve standards of living; creating new regional clusters and business centers; expanding value chains to include NGOs and other organizations committed to social goals

The main goal of a poison pill is to ______.

minimize the threat of a hostile takeover

A situation in which one party has an incentive to shirk their responsibility because the costs will fall to the other party is known as ______.

moral hazard

The most common type of alliance is a(n) ______.

non-equity alliance

What term encompasses a firm's members' shared values and norms?

organizational culture

Corporate governance addresses the ______ problem, which underscores the risk of delegating responsibility and control to individuals who may not have the firm's best interests in mind.

principal-agent

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

relative market share, speed of market growth

What are functions of a board of directors beyond general strategic oversight?

selecting, evaluating, and compensating the CEO; assessing and mitigating risk; ensuring that the firm's accounting practices and reports are accurate

The interests of inside directors on the board of directors typically align with those of ______.

senior management

Ravi works for a small company. The company owner makes all strategic decisions and manages the day-to-day operations. Ravi's company has a ______ structure.

simple

Which of the following have significantly more value in their intended use than in their next-best use?

specialized assets

When a firm's employees have internalized norms and share the firm's core values, the firm is said to have a(n) ______ culture.

strong

What forms of agreement do non-equity alliances typically take?

supply, distribution, licensing

The two alternatives to vertical integration are...

taper integration, strategic outsourcing

Horizontal integration can reduce ______.

the threat of entry

An executive can legally earn a significant profit from stock options if ______.

the firm performs well and the actual price per share exceeds the negotiated strike price

An external governance mechanism that makes a poorly managed company vulnerable to takeover by outside investors is known as ______.

the market for corporate control

Which structure is divided into several distinct business units, each of which has its own profit-and-loss center?

the multi-divisional structure

What are the two significant issues regarding the CEO pay debate?

the relationship between firm performance and CEO pay; the size of the CEO compensation in relation to average employee pay

Why might a firm create a joint venture when entering a new geographic market?

to access local expertise, to adhere to local law, to access local contacts

Why do some firms choose alternatives to vertical integration?

to avoid the risks associated with vertical integration

What is the main goal of corporate venture capital investments?

to create real options in terms of gaining access to new technologies

What is the goal of organizational design?

to enable managers to translate their chosen strategy into a realized one

What is a reason why a firm needs to grow?

to reduce risk

What are critical aspects of maintaining good relationships between a firm and its stakeholders?

transparency and fairness

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

vertical market failure

How does horizontal integration affect Porter's Five Forces for the surviving firms?

It reduces rivalry among existing firms. It reduces the threat of entry.

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

backward

In a public stock company, the centerpiece of corporate governance is the ______.

board of directors

Under agency theory, a manager should seek to align ______ between principals and agents to minimize opportunism.

incentives

A firm's unwillingness to alter how things are currently done is known as ______.

inertia

The functional areas present in a functional structure frequently correspond to what?

stages in the value chain