Deck 5: Strategy Make or Buy

Question 1

Which of the following forms of governance does Transaction Costs Economics (TCE) consider?

A) vertical
B) diagonal
C) linear
D) triangular

Answer 1

A

Question 2

Horizontal integration occurs:

A) when a firm competes with another
B) when a firm outsources to another
C) when a firm is dissolved
D) when a firm acquires or merges with another

Answer 2

D

Question 3

Vertical integration occurs:

A) when a firm competes with another
B) when a firm outsources to another
C) when a firm moves into activities that were previously undertaken by a supplier or a customer
D) when a firm acquires or merges with another

Answer 3

C

Question 4

Outsourcing occurs when:

A) activities that were previously undertaken by the firm are moved to outside suppliers
B) firms take over sourcing things themselves that they previously bought
C) a firm undergoes innovation
D) none of the above

Question 5

The alternative to market transactions in TCE is:

A) barter
B) gifts
C) employment contracts
D) potlatch

Question 6

According to TCE, the boundary of the firm is ______.

A) defined by real estate
B) defined by geography
C) defined by economic considerations concerning make or buy, internalizing or externalizing activities
D) none of these

Question 7

The 'father' of TCE is:

A) Karl Marx
B) Hamish McTaggart
C) Ronald Coase
D) Henry Mintzberg

Question 8

TCE postulates that human actors are characterized by ______, ______ and ______.

A) creativity/opportunism/strategic foresight
B) bounded rationality/bounded business units/unbounded energy
C) bounded rationality/opportunistic behaviour/feasible foresight
D) none of these

Question 9

What is TCE's key question?

A) whether transactions should be coordinated within a firm or across markets
B) whether rationality is bounded enough
C) whether to invest more in innovation
D) all of these

Question 10

Bounded rationality means:

A) we never have perfect knowledge and hence can never be perfectly rational
B) we are irrational by nature
C) we cannot be rational because we are forgetful
D) gaining advantage by being economical with, or even distorting, what we take to be the truth

Question 11

Opportunism means:

A) breaching the spirit of a contract for self-interest
B) being serendipitous
C) being biased
D) managerial corruption

Question 12

Feasible foresight means that parties to a contract have the capacity to:

A) think about the potential future conduct of the other party and integrate those insights into the ex-ante design of governance
B) generate a list of feasible and unfeasible futures
C) use strategic models to gain foresight about the future conduct of the other party
D) generate governance models that work for both parties

Question 13

In TCE uncertainty means:

A) being lost in the detail
B) not being able to control the contingencies of contracts
C) being irrational in planning
D) none of these

Question 14

Problems in evaluating performance according to the terms of contracted outcomes are called ______ by TCE.

A) technological uncertainty
B) volume uncertainty
C) behavioural uncertainty
D) radical uncertainty

Question 15

In TCE, asset specificity means:

A) the degree to which an asset is specific to use or user
B) the degree to which an asset can be traded
C) the degree to which an asset can be valued
D) none of these

Question 16

What is Lionel Messi's asset specificity?

A) his #10 shirt
B) Adidas boots
C) scoring goals
D) all of these

Question 17

Transaction frequency refers to ______.

A) the rate at which funds are transferred after completion of a contract
B) the number of people employed to negotiate a contract
C) the number of products being transferred within a single contract
D) none of these

Question 18

Williamson says that market failure problems that result from contracting through vertical integration can be solved through ______, ______ and ______.

A) organizational design/innovation/creative destruction
B) information flows/negotiating costs/incentive alignment
C) managing uncertainty/being boundedly rational/being fast to market
D) none of these

Question 19

What is concurrent sourcing?

A) using different suppliers
B) using different investors
C) using both bounded rationality and uncertainty
D) using both making and buying

Question 20

When does Parmigiani argue that make-and-buy is likely?

A) when making is expensive
B) when outsourcing is difficult
C) when the level of asset specificity is mediocre
D) when the level of asset specificity is low

Question 21

What types of organization did Ouchi add to markets and hierarchies?

A) clans
B) tribes
C) fiefdoms
D) slavery

Question 22

When does TCE argue outsourcing will occur?

A) when asset specificity is low
B) when asset specificity is medium
C) when asset specificity is high
D) none of these

Question 23

What is an advantage of large, well-resourced firms in their attempts to innovate?

A) They can simply take over innovative new and small firms.
B) They have more creative people.
C) both of the above
D) none of these

Question 24

TCE has been criticized for its ______ view of markets.

A) over-socialized
B) under-socialized
C) uncertain
D) none of these

Question 25

According to Adam Smith, ______.

A) TCE developed out of markets
B) markets developed out of monopolies
C) monopolies developed TCE
D) none of these

Question 26

Which of the following have been levied as criticisms of TCE?

A) TCE focuses on cost minimization.
B) TCE understates the cost of organizing.
C) TCE neglects the role of social relationships in economic transactions.
D) all of these

Question 27

Which of the following are benefits of horizontal integration?

A) reduced competitive intensity
B) lower production costs through economies of scale
C) increased differentiation by eliminating similar products or services in the market
D) all of these

Question 28

According to van Marrewijk, ______ is largely a matter of ______.

A) acquisition/money
B) vertical integration/strategy
C) culture/horizontal integration
D) horizontal integration/culture

Question 29

According to van Marrewijk, the central M&A dilemma that he researched was:

A) how to integrate newly acquired internet firms while preserving their organizational autonomy and capacity for innovation
B) how to integrate new internet technology and transfer knowledge to the acquiring firm
C) how to integrate different organizational cultures after a merger
D) how to integrate different information systems after a merger

Question 30

According to van Marrewijk's study, the lesson for M&A's is:

A) getting the right deal at the negotiating stage is crucial
B) managing the integration of it systems is crucial
C) managing the clash of cultures is crucial
D) integrating the two organizational cultures destroys the very reason for the strategic decision to merge in the first place

Question 31

Revitalization, as a potential phase in the process of integration, refers to the process through which employees:

A) forget about their cultural roots and embrace new norms and values
B) talk about the past to keep cultural myths alive
C) embrace the new values of the merged organization
D) seek to restore the cultural values of the past

Question 32

A transaction is ______ while ______ is ______.

A) a cost/value/an asset
B) an event/strategy/a sound plan
C) a cost/strategy/long-term
D) an event\strategy\a process

Question 33

________ involves(s) externalizing an activity that was previously conducted in the organization.

A) Dis-integration
B) Outsourcing
C) Strategic scoping
D) Strategic foresight

Question 34

Institutional theory suggests that firms choose hierarchy over markets because ______.

A) it is more efficient
B) it is functionally necessary
C) it is culturally familiar
D) it is easier

Question 35

Markets, hierarchy and ______ are alternative ways of organizing.

A) networking
B) contracting
C) sensemaking
D) all of these

Question 36

Outsourcing is an example of ______.

A) coercive isomorphism
B) normative isomorphism
C) mimetic isomorphism
D) all of these

Question 37

Which of the following promoted outsourcing as a strategy?

A) Marxism
B) liberalism
C) shareholder value
D) stakeholder activism

Question 38

"Nikefication" is a strategy for ______.

A) building global supply chains
B) making products from sub-components sourced from different suppliers
C) separating design and production
D) managing complex projects