Practice Exam 3
b
A high degree of formalization in an organization is most likely to a) improve customer service. b) slow down decision making. c) produce inconsistent results. d) increase creativity and innovation.
b
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) a) non-equity alliance b) equity alliance c) joint venture d) capital venture
d
A company that is using extrinsic motivation as an output control mechanism will most likely a) organize training sessions for employees. b) cut budgets during recessions. c) implement a peer review system. d) threaten to lay off employees if they do not achieve targets.
b
A functional structure is recommended when a firm a) has a broad focus in terms of its product/service offerings. b) has a low level of diversification. c) has a low degree of specialization. d) diversifies into different product lines and geographies.
a
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 a) legal but not ethical b) ethical but not legal c) legal and ethical d) neither legal nor ethical
a
A primary advantage of organizing economic activity within firms is the a) ability to coordinate highly complex tasks to allow for specialized division of labor. b) low administrative costs because of reduced bureaucracy. c) eradication of the principal-agent problem. d) high-powered incentive to work as salaried employees for an existing firm.
b
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 a) competition. b) co-opetition. c) exploitation. d) exploration.
b
According to Michael Porter, which of the following is a problem with many publicly traded companies? a) Shareholders of publicly traded companies do not have a legitimate claim on profits. b) They have defined value creation too narrowly in terms of financial performance. c) There is no transferability of stock ownership in publicly traded companies. d) Publicly traded companies have no legal standing and are not responsible for their debts.
a
Adverse selection in a public stock company occurs when a) information asymmetry increases the likelihood of selecting inferior alternatives. b) a firm's work tasks, incentives, and employment contracts minimize opportunism by agents. c) a principal is not aware of the context from which information from an agent is derived. d) an agent manipulates information to benefit stockholders.
c
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? a) requires business units at american snacks and tres bien to sign loyalty pledges b) encourages business units at american snacks to act independently c) arrange for the alliance to be managed at the corporate level d) sever the relationship with tres bien and find a more trusting corporate partner
b
Because strategic alliances rarely work as well as managers expect they will, why do companies continue to go through with them? a) recent advances in management science have greatly improved the success rate of strategic alliances b) many owners, managers, and business analysts believe they are essential to survive in an industry c) government entities such as the federal trade comission or the european union sometimes force companies into strategic alliances d) these alliances have an excellent record of success if managers have enough confidence in the outcome
d
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 a) formalized. b) mechanistic. c) centralized. d) organic.
a
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)a joint venture b) a franchisee c) a licensing contract d) a corporate acquisition
a
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? a) it will lower its costs through economies of scale b) it will diminish its economic value creation c) elemental pharma will increase its cost of distribution d) elemental pharma will reduce the size of its product line
b
For which of the following companies will geographic distance be the most relevant factor in deciding whether to trade with a target country? a) a firm that manufactures cell phone batteries b) a firm that extracts and exports iron ore c) a firm that produces movies d) a firm that sells wristwatches
b
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? a) concentric integration b) taper integration c) horizontal integration d) conglomerate integration
b
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? a) Achieve economies of scale by using the global-standardization approach. b) Pursue a multidomestic strategy that includes new "local" brands. c) Keep costs low with undifferentiated product in the international strategy. d) Appease pressures for cost reductions by following the transnational approach.
c
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? a) A CEO is likely to be more responsible because he or she is setting his or her own performance targets. b) The CEO might be able to influence the board through setting the meeting agendas. c) The CEO possesses invaluable inside information that can help him or her chair the board effectively. d) Any CEO will suggest board appointees who are friendly toward him or her.
a
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? a)licensing b)franchising c)crowdsourcing d) bootlegging
d
How does horizontal integration within an industry affect the surviving firms? a) by increasing the threat the surviving firms will face from new entrants b) by strengthening the rilvalry among existing firms c) by requiring the surviving firms to shift their focus from non-price to price competition d) by strengthening the bargaining power of the surviving firms vis-a-vis suppliers and buyers
c
In a non-equity alliance, which of the following types of information would firms most likely share? a) a manager's knowledge related to solving non-routine problems b) a top level manager's experience related to making strategic decisions c) the documented information about the material composition of a product d) the employee's entrepreneurial skills
c
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 a) the horizontal integration activity changes the industry structure from oligopolitic to monopolistically competitive b) the surviving firms will need to be protected against the increasing bargaining power of suppliers c) the horizontal integration activity has the potential to reduce competitive intensity in an industry d) the surviving firms will need protection against the relaxed entry barriers
b
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? a) While Janessa Inc.'s competitive advantage lies in its high local responsiveness, Slalom Corp. will lack such capabilities. b) Slalom Corp. focuses more on cost-reductions when compared to Janessa Inc. c) Slalom's business functions are highly centralized, whereas Janessa. organizes its activities worldwide. d) Slalom is exposed to greater risks of exchange rate fluctuations.
a
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? a) Makes Scents Inc. will sell the same products in both domestic and foreign markets, whereas PriceSmasher Inc. will customize its product offerings to suit local requirements. b) Makes Scents Inc. will pursue a differentiation strategy at the business level, whereas PriceSmasher Inc. will pursue a cost-leadership strategy at the business level. c) Makes Scents Inc. will be better protected from exchange rate fluctuations when compared to PriceSmasher Inc. d) Makes Scents Inc. will not be able to use its home-based core competencies in foreign markets as much as PriceSmasher Inc. will.
b
McDonald's operates Hamburger University that trains students to ensure consistent food quality across its outlets throughout the world. This indicates that McDonalds's a) is organic in nature. b) is mechanistic in nature. c) has an informal structure. d) has a decentralized structure.
c
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? a) alert the european union that conditions in the european medical technology market are approaching oligopoly b) initiate a hostile takeover of a european rival c) acquire a company that has a successful medical technology sales force in europe so that mediflow can gain access to new distribution channels d) contact its congressional representative to request higher tariffs on european technology products
b
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? a) coolco because air conditioners cost more to ship than dog toys do b) coolco because firms that face stiff competition at home tend to do better abroad c) barker because the firms that face little or no competition at home tend to do better abroad
a
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? a) information asymmetry b) principal-agent problem c) experience-curve effect d) learning-curve effect
b
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? a) licensing some of its newest designs to overseas competitors b) acquiring an airplane-parts manufacturer in another country c) beginning a brownfield project in its home country d) exporting airplane parts to many other countries
b
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) a break-even analysis. b) a real-options perspective. c) credible commitment. d) transaction cost economics.
d
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) a) multidomestic strategy b) international strategy c) global standardization strategy d) transnational strategy
a
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? a) by having higher performance in another sector b) by sharing their market power c) by increasing the firm's risk in another sector d) by motivating managers
a
The root cause of the principal-agent problem between senior executives and lower-level employees can be explained by the a) informational advantage of the lower-level employees. b) higher number of lower-level employees than senior executives. c) knowledge of employees regarding day-to-day tasks. d) operational expertise of lower-level employees in concentrated areas of a particular field.
b
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? a) They should hold her to the same ethical standards that they would expect of any Runswell employee—no more, no less. b) They must hold her to the highest ethical standards because the leaders of publicly traded companies must withstand intense public scrutiny. c) If the board members are able to determine that the CEO is not a "bad apple," then they should give her their full support. d) The board members must wait until the lawsuit results in a settlement or a guilty verdict.
a
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 a) be prepared to restructure as the landscape changes. b) stick with the structure that brought it success no matter what happens. c) attempt to implement an unstructured organization. d) switch to whichever structure is most common in the industry.
c
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? a) international strategy b) multidomestic strategy c) global-standardization strategy d) transnational strategy
d
What are poison pills? a) Shareholders use them to prevent the founder of a company from taking the company private through a leveraged buyout. b) They are unspecified conditions in the contract between stakeholders in an organization. c) Companies use them in a bid to perform a hostile takeover of competing firms. d) they are defensive provisions that kick in should a buyer reach a certain level of share ownership.
b
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? a) increasing competitive intensity b) accessing critical complementary assets c) procuring additional capital investments d) reducing differentiation of product and service offerings
c
When a firm diversifies into different product lines and geographies, a ________ structure is preferred. a) simple b) functional c) multidivisional d) network
a
Which of the following best illustrates forward vertical integration? a) A firm that manufactures and sells car engines to major automobile companies launches its own line of cars. b) A chain of ice cream parlors launches a brand of toys and accessories for children. c) A multinational coffee chain sources its coffee beans from plantations in Brazil and Vietnam. d) A designer shoe company that previously purchased leather from external suppliers establishes its own leather tannery.
d
Which of the following best illustrates physical-asset specificity? a) a unique training program developed in an organization b) a ship container designed to carry more than the average load of iron ore c) a generic machine that can be used to churn different mixtures d) a machine solely designed to give a candy its trademarked shape
c
Which of the following countries has a high geographic distance but a low cultural distance from the United States? a) canada b) mexico c) australia d) france
b
Which of the following is an example of an external transaction cost? a) the cost of setting up a production unit b) the cost of searching for a contract manufacturer c) the cost of recruiting and retaining employees d) the cost of maintaining plant and machinery
a
Which of the following provides an example of a common drawback of a functional strategy? a) Bert had a difficult time communicating efficiently with the manager of another department. b) Marietta was surprised about the inflexibility of her firm when it rejected her marketing plan. c) Juan's manager dismissed his idea because it was too innovative. d) Mary did not accept the position with the firm because it has an ineffective cost-leadership strategy.
b
Which of the following statements accurately explains the primary reason behind Walmart's failure in Germany? a) inability to implement its trademark focused-differentiation strategy in the German market b) significant differences between its U.S. personnel policies and Germany's culture c) Germany's unfamiliarity with retail discount powerhouses d) Metro's hostile takeover of Walmart in Germany
c
Why does a firm use an organic organization combined with a functional structure when implementing a differentiation strategy? a) It allows the firm to create incentives to foster process innovation in order to drive down cost. b) It allows the firm to reduce its cost below that of competitors while offering acceptable value. c) It allows the firm to constantly upgrade core competencies in R&D, innovation, and marketing. d) It allows the firm to nurture and constantly upgrade necessary core competencies in manufacturing and logistics.
a
Why is it difficult to imitate the organizational culture of firms like Southwest Airlines and Zappos? a) Their culture reflects complex relationships with their employees, customers, and suppliers. b) They produce products that cannot be copied easily because of their complex designs. c) The employees in the organization themselves are unaware of the factors contributing to their organizational culture. d) It is not commercially viable for other companies to implement the same culture.
a
Why is the optimal organizational structure a multidivisional structure? a) Its focus is on driving down costs. b) Its focus is on producing differentiated products. c) Its focus is on retaining activities within a single geographic area. d) Its focus is on establishing a flat hierarchy operated in a decentralized fashion.
c
________ is best described as a firm's ownership of its production of needed inputs or of the channels by which it distributes its outputs. a) Venture capitalism b) Bootlegging c) Vertical integration d) Crowdsourcing