MGT - Ch 11 & 13
In the last decades, the prevailing wisdom has been that
"De-integration" enhances flexibility and helps firms to concentrate on their core capabilities
Which of these has been the trend in the last thirty years?
A contraction of corporate boundaries AND Downsizing and refocusing
A self-fulfilling prophecy is
A prediction that becomes true because the enunciation and communication of the statement leads to the predicted outcome
Vertical integration compounds risk because
A problem at one stage diffuses to all stages of the value chain
A process of active waiting describes
A situation where a firm is ready to commit resources to effectively exploit a strategic window
Strategies about vertical integration have
Been subject to shifting fashion
With regard to vertical integration, the diffusion of the internet leads to
Decreased transaction costs
Why does FedEx purchase its trucks externally, and not operate a truck manufacturing business?
FedEx's needs are well below the efficient scale in that industry
McDonalds, Century 21 Real Estate, Hilton Hotels, and 7-Eleven stores are illustrations of
Franchises
A situation of vertical integration where a firm does not use any outside input for all the stages of the main "production process" is called
Full vertical integration
The choice between market and firm as a way to organize economic activities
Has changed over time
High powered-incentives and low-powered incentives respectively apply to
Market and hierarchy forms of organization
"Creative abrasion" is a concept used to describe
Teams where different personalities and profiles interact to foster innovation and creativity
To stimulate creativity, a critical factor is
The ability to play, which liberates one from conventional constraints, and creates an environment of inquiry
Network externalities is a phenomenon defined as
The construct that the value of a product for a customer depends on the number of other users for the same product
Network externalities are fueled by three sources
The economy of switching costs, the existence of a natural network in an industry, and the availability of complementary products or services
One example of the factors to consider is
The extent to which information is distributed along the value chain
What is the difference between a firm's geographical scope and its vertical scope?
The first describes the regions of the world and the second the stages of the industry value chain where the firm is present
Corporate strategy is concerned with
The scope of a firm's activities
Standards are important in an industry because
They allow interoperability and industry growth, and are linked with network externalities
Cross functional product development teams, product champions, and incubators are organizational devices used
To reconcile the conflicting requirements of operations and innovation
In an analysis of the relationship between steel producers and steel strip producers, which element appears to be the basis of the relationship?
Transaction-specific investments
In a relationship similar to the one between steel producers and steel strip producers, vertical integration is the best form of organization, because
Vertical integration avoids the heavy associated transaction costs that would result from a market
Is vertical integration associated with specific costs?
Yes, administrative costs
Backward vertical integration and forward vertical integration can be respectively defined as a situation where
A firm takes over activities producing its own inputs, and takes over activities previously undertaken by its customers
A virtual corporation is
A firm that coordinates a network of suppliers
Vertical integration is defined as
A firm's ownership of vertically integrated activities
Which factors explain this last shift?
A greater turbulence in the environment, and the development of information and communication technologies
In recent years, the trend has been
A growing diversity of hybrid vertical relationships AND Greater effort to reconcile the advantages of the market and of the internalization mode. Answers b and c
Licensing, joint ventures, and alliances, are examples of
Alternative strategies to exploit innovation
The Dyson dual cyclone bagless vacuum cleaner story describes
An episodic fight against patent infringement, and the choice between internal commercialization vs. license
The drop in administrative costs relative to transaction costs of markets is explained by
An increase in the efficiency of firms, induced by improvements in technology and management techniques
With regard to the two main forms of economic organization, the firm can be understood as
An organization built around individuals bound by employment contracts with a central contracting authority
Why would a contract (market form of organization) not be efficient in managing the relationship between steel and steel strip producers?
Because of uncertainty of the future, contracts would be incomplete and hard to manage
The Morse telegraph and compact discs are
Both inventions and innovations
If a strong system of appropriability exists, the innovator
Can capture a significant portion of the created value
In comparison to EDS, IBM, and Accenture, firms such as Xerox, Kodak, and Philips
Cannot reach the level of capabilities of the former firms in the IT field
The key concepts of economies of scope, resources and capabilities, transaction costs, and cost and complexity are
Common to the three dimensions that articulate scope: vertical, geographical, and product scope
Examples of intellectual property include
Copyrights, patents, and trade secrets
Spot sales, long-term contracts, agency agreements, joint ventures, and supplier-customer partnerships, are examples of
Different types of relationships between sellers and buyers
Vertical integration and market respond to the need for flexibility
Differently
Which firm has the largest vertical scope of activities?
Disney
In the case of steel producers and steel strip producers, which statement best describes their relationship
Each steel strip producer is tied to its adjacent steel producer AND The relationship can be called "bilateral monopoly" AND Their relative bargaining power is central to their relationship. All of the above
The choice between vertical integration and the market form depends on
Economic characteristics of the activity, legal and fiscal context, a firm's strategy, the allocation of risk, and the incentive structure
Microsoft's war against Netscape in the browser industry, and GE's lead over EMI in the CT scanner industry show that
Existing resources and capabilities are critical in a competition between high technology products
Relational contracts
Have no written components at all AND Rely on mutual trust between the parties. Answers a and b
The extent to which an innovation is based on codifiable or tacit knowledge influences the innovator's potential to appropriate the returns to the innovation because
In the absence of legal protection, the extent to which an innovation can be imitated depends on the ease with which the technology can be comprehended and communicated
Which statement describes the relationship between invention and innovation most accurately
Innovation involves the commercialization of invention
Empirical research suggests that most inventions are the result of
Internal commercialization
Which of the following modalities of innovation management permits the largest degree of control by the innovator?
Internal commercialization
To make a choice between vertical integration or a market form, which statement is true?
It depends on many factors
How is vertical integration linked with the two forms of economic organization?
It is one of the dimensions of corporate scope
How does the physical integration of processes reduce costs?
It reduces transportation and energy costs
How does turbulence in the environment influence the relative costs of the two forms of economic organization?
It tends to increase administrative costs because of the need for flexibility and speed of response
Risk in emerging industries is created by the following factors
Market and technological uncertainties
Matsushita's VHS format won against Sony's Betamax format because
Matsushita was able to gain acceptability of its standard in the market
Why is innovation no guarantee of profit
Most innovations create value, but that value be appropriated by other parties
Computer, telephone, search engines, wedding organizations, are examples of industries where the following strong phenomenon is at work
Network externalities
Managing vertically related but strategically different businesses is
Not easy, and relies on the different resources and competencies needed to manage these related activities
In order to conduct economic activity, firms are
Not necessary
To make a choice between vertical integration or a market form, which statement is true?
One has to consider the factors that determine the relative advantages of market transactions vs. internalization within the firm
In 1996, the world's leading producers of telecom equipment, in terms of stock market valuation, were AT&T, Alcatel, NEC, Siemens, and GTE. In 2006, the most valuable producers were
Qualcomm, Nokia, and Cisco Systems
In the media industry, the benefits of vertical integration are the focus of a debate, because
Some think that the ownership of the distribution activity helps content providers to lower their costs AND Some claim that content providers can cooperate with distributors without common ownership. Answers a and b
Public vs. private standards are respectively
Standards available for all organizations and industry players vs. standards owned by firms or individuals
Cooperation with lead users and flexibility are two illustrations of
Strategies to limit the technological risk associated with emerging industries
Monsanto's Nutrasweet artificial sweetener, Pfizer's Viagra, and Pilkington's float glass process are examples of
Strong regimes of appropriability
Vertical integration provides
Superior coordination and security
A shared service organization is an internal entity that
Supplies corporate services, while competing with external suppliers
Administrative costs are
The costs incurred by the internal organization for its operations
One of the factors explaining the growth of firms regarding their size and scope during the 19th and the 20th centuries is
The decrease in administrative costs of the firm as compared to the transaction costs of markets
An innovation's complexity impacts
The ease with which it can be copied
The determinants of the choice between a leader vs. a follower strategy are
The extent of protection of the innovation, the potential to establish a standard, and the importance of complementary resources
The two main forms of economic organization are
The firm and the market
Why is the market demand uncertainty a factor to consider?
The greater the unpredictability of demand, the greater the flexibility advantage of outsourcing
A firm specialized in a few activities can develop distinctive capabilities in those activities. Under which assumption is this statement true?
The independence of capabilities between different vertical activities
The example of Microsoft and its 1988 operating systems shows that
The industry was facing uncertainty with regard to standards
The examples of xerography, jet engines, mathematics of fuzzy logic, and MP3 format illustrate that
The innovation cycle has speeded up over time
Which characteristic of transaction-specific investments explains the necessity for vertical integration?
The linked values of these two investments AND The fact that each of the two producers has the opportunity to "hold up" the other. Both a and b
In the electrical components sector (e.g. integrated circuits), "manufacturing" was identified as the most effective mechanism for protecting process innovations. This is because of
The manufacturing processes for most electronic components are highly complex and draw heavily upon tacit knowledge
The classic justification of vertical integration relies on the fact that
The physical integration of two processes, for example linking the two stages of production in a single location, results in cost savings
According to R. Coase, which factor determines the form of organization that will result, i.e. market or hierarchy?
The relative cost associated with market and hierarchy
Can-making and caning products industries, oil refining and petrochemical production, steel and steel strip production illustrates
The technical economies stemming from the physical integration of processes
The extent to which a patent protects the returns to innovation depends primarily upon
The type of innovation that is being protected
De facto standards suffer from the following weakness
Their value is built through voluntary adoption by users, which may take a long time
Which statement is true with regard to strategic management of innovation and technological change
They can contribute to a firm's competitive advantage
Network externalities are critical phenomena because
They create positive feedback that leads to a winner-takes-all situation
Vertical integration may make independent suppliers and customers less willing to do business with the vertically integrated firm, because
They may fear the firm's power all along the value chain
Between spot contracts and long-term contracts
Time is critical
Zara, the main division and brand of the Spanish clothing firm Inditex, illustrates
Vertical integration
