MGT 491 Exam 3
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).
________ refers to the degree to which decision making is concentrated at the top of the organization.
Centralization
Which of the following is true of business ethics?
Certain notions such as fairness, honesty, and reciprocity are universal norms.
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
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 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.
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.
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.
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.
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 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.
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.
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.
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.
________ define appropriate employee attitudes and behaviors.
Norms
________ describes the collectively shared values and norms of an organization's members.
Organizational culture
________ refers to a firm's resistance to change the status quo that can set the stage for the firm's subsequent failure.
Organizational inertia
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.
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.
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.
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.
Which of the following is most likely an accurate statement?
The multinational enterprise Starship benefited from advances in communications technology.
What helps notions such as fairness, honesty, and reciprocity to be codified into law?
The notions are universal norms
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.
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 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.
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.
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.
Which of the following accurately describes an organic organization?
a flexible organization that fosters fast decision making and high employee motivation
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
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.
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.
One way to foster ethical behavior in employees is to
create a control system that encourages desired values.
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
Which of the following global strategies best matches with a multidivisional structure?
multidomestic
A trend observed during the Globalization 3.0 stage involves
multinational companies organizing as global-collaboration networks.
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.
Shareholders of public companies need to appoint a board of directors to represent their interests because
of the separation of ownership and control.
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.
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
Employees learn about an organization's culture through the process of
socialization.
Successful ________ requires managers to design and shape structure, culture, and control mechanisms.
strategy implementation
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
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.
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
Which of the following is the source of the principal-agent problem in publicly traded companies?
the separation of ownership and control
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.
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.
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
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.
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 geographic location has actually maintained its importance.
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.
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.
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.
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.
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.
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.
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.
Why are controls like budgets and operating procedures that McDonald's implements known as input controls?
They are considered before employees make any decisions.
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
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
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
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
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.
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.
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
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
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
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.
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
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.
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
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
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.
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.
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.
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.
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.
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.
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.
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.
Why is the optimal organizational structure a multidivisional structure?
Its focus is on driving down costs.
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.
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)
Which of the following best exemplifies the use of input controls?
McDonald's use of standard operating procedures
Which of the following real-world scenarios best exemplifies formalization?
McDonald's use of standard operating procedures across the world
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.
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.
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.
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.
Which of the following types of groups is most susceptible to groupthink?
a cohesive group
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
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.
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
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.
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.
Which of the following modes of entering a foreign market allows for the lowest level of control?
exporting
During the period of Globalization 1.0, the mode of entry into foreign markets primarily involved
exporting goods.
Which of the following types of organizations comparatively requires the lowest levels of investment and control?
franchising
Which of the following organizational structures matches best with an international strategy?
functional
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.
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
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
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.
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.
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
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
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.
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.
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.
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.
An organization that is organized according to strategic business units (SBUs) and also along organizational structures is most likely using a ________ structure.
matrix
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
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
When a firm diversifies into different product lines and geographies, a ________ structure is preferred.
multidivisional
To effectively implement a differentiation strategy, managers rely on a functional structure that resembles an organization that is highly
organic
Which of the following types of organizations best helps match a differentiation strategy to a functional structure?
organic organization
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.
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
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
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.
Organizational design is
the process of creating, implementing, and modifying the structure of an organization.