Exam 10: Organizing to Implement Corporate Diversification

In an M-form organization,the management of day-to-day operations is delegated to

In the multidivisional structure,each business that the firm engages in is managed through a division.

Economic methods of divisional performance in a diversified firm build on accounting methods but adjust those methods to incorporate short-term investments that may generate long-term benefits.

Traditionally,the compensation of corporate managers in a diversified firm has been only loosely connected to the firm's economic performance.

SpandoCorp is a diversified firm that makes industrial, military and consumer products from Spandex. SpandoCorp manages each of the businesses that it operates in as a separate division and treats each as a true profit-and-loss center. In this organization, Grace McKenna is responsible for deciding which set of businesses SpandoCorp will operate in and for encouraging behavior that is consistent with this strategy, Wells Tucker provides information to McKenna about the internal and external environments that she uses in her decision making, and Kelly Rae is one of the individuals who is responsible for evaluating the firm's decision making to ensure that it is consistent with the interests of equity holders. -If SpandoCorp used a ________ budgeting process,it would assume that no project would receive funding for the future simply because it was funded in the past and would require each project to stand on its own merits each year to be included in a list of important projects that the firm can afford to fund.

To the extent that a firm exploits real economies of scope in implementing a diversification strategy,it will be able to unambiguously evaluate the performance of individual divisions in that firm.

In an agency relationship the party delegating the decision-making authority is called the agent.

Discuss the relationship between accounting methods of measuring divisional performance and economic methods,identify the formula used for calculating economic value added,and discuss methods for adjusting accounting earnings and the importance of making these adjustments.

Whenever one party to an exchange delegates decision-making authority to a second party,an agency relationship has been created between these parties.

SpandoCorp is a diversified firm that makes industrial, military and consumer products from Spandex. SpandoCorp manages each of the businesses that it operates in as a separate division and treats each as a true profit-and-loss center. In this organization, Grace McKenna is responsible for deciding which set of businesses SpandoCorp will operate in and for encouraging behavior that is consistent with this strategy, Wells Tucker provides information to McKenna about the internal and external environments that she uses in her decision making, and Kelly Rae is one of the individuals who is responsible for evaluating the firm's decision making to ensure that it is consistent with the interests of equity holders. -If the bulk materials division of SpandoCorp sold its reams of Spandex to the military division and set the transfer price of these reams equal to the bulk materials actual cost of production,SpandoCorp would be using the ________ transfer pricing scheme.

SpandoCorp is a diversified firm that makes industrial, military and consumer products from Spandex. SpandoCorp manages each of the businesses that it operates in as a separate division and treats each as a true profit-and-loss center. In this organization, Grace McKenna is responsible for deciding which set of businesses SpandoCorp will operate in and for encouraging behavior that is consistent with this strategy, Wells Tucker provides information to McKenna about the internal and external environments that she uses in her decision making, and Kelly Rae is one of the individuals who is responsible for evaluating the firm's decision making to ensure that it is consistent with the interests of equity holders. -Grace McKenna is best described as a(n)________ in SpandoCorp.

In an M-form organization the role of the board of directors is to formulate corporate strategies consistent with equity holders' interests and to assure strategy implementation.

Which of the following statements regarding institutional investors is accurate?

When adjusting a division's accounting earnings for use in the economic value added calculations,R&D spending is usually

SpandoCorp is a diversified firm that makes industrial, military and consumer products from Spandex. SpandoCorp manages each of the businesses that it operates in as a separate division and treats each as a true profit-and-loss center. In this organization, Grace McKenna is responsible for deciding which set of businesses SpandoCorp will operate in and for encouraging behavior that is consistent with this strategy, Wells Tucker provides information to McKenna about the internal and external environments that she uses in her decision making, and Kelly Rae is one of the individuals who is responsible for evaluating the firm's decision making to ensure that it is consistent with the interests of equity holders. -Wells Tucker's position in SpandoCorp is best described as

All firms that use the multidivisional structure use the same criteria for defining the boundaries of profit-and-loss centers.

Describe the nature and role of the board of directors in an M-form organization and discuss who generally serves on the board,the role of outside members on a board of directors and when the roles of CEO and chairman of the board should be combined or separated.

Intermediate products or services are those products or services that are produced in one division of a diversified firm that are used as inputs by another division.

________ have full profit-and-loss responsibility and typically have multiple functional managers reporting to them.

To the extent that a board of directors begins to operate a business on a day-to-day basis,it goes beyond its capabilities.