Question 1

"Where to compete" is the key question senior management must answer for corporate strategy.Provide an example of a corporate strategy and briefly explain how it answers this question.

Accepted Answer

Students can provide a variety of answers,but the ChapterCase 8 opener on GE should often be mentioned.Jeff Immelt is purposely moving GE away from a large dependence on financial services and toward the expected future-growth industries of clean energy and health care.
Explanation: Each answer should be an example of senior managers moving the firm into different markets with a strategic intent to change the business focus in some major way.

Question 2

An alternative perspective to the transaction cost economics framework concerning the make-or-buy decision is the _____________ view of the firm,which focuses the firm less on transaction costs and more on its capabilities and knowledge and what it does well.

Accepted Answer

A)   Achievement-based
B)   Resource-based
C)   Entrepreneurial-based
D)   Competitive-based B

Question 3

When the stock price of highly diversified firms is valued less than the sum of its individual business units,a(n)_________ occurs.

Accepted Answer

A)   Competitive discount
B)   Diversification discount
C)   Conglomerate efficiency
D)   Diversification efficiency B

Question 4

When an employee of a firm follows his or her own interests such as pursuing managerial perks when performing activities on behalf of the owner of the firm,a(n)_______________ problem occurs.

Accepted Answer

A)   Delegation excess
B)   Principal-agent
C)   Authority-excess
D)   Agent efficiency

Question 5

In ChapterCase 8,CEO Jeffrey Immelt restructured GE's portfolio partly because its future performance potential was too reliant on the GE Capital division.

Accepted Answer

A) True 
 B)False

Question 6

The more "constrained" the relatedness of diversification:

Accepted Answer

A)   The fewer the linkages between the businesses owned by the firm.
B)   The wider the variation in the portfolio of businesses owned by the firm.
C)   The more links there are among the businesses owned by the organization.
D)   The higher the proportion of total organizational revenue is derived from the dominant business.

Question 7

Human-asset specificity is the form of an asset that a firm invests in to create the human capital with knowledge about the specific routines and procedures needed to support a firm's vertical integration strategy.These routines and procedures bring competitive value to the firm because:

Accepted Answer

A)   They organize the firm's work processes.
B)   They are not transferable to a different employer.
C)   They are not easily imitated.
D)   All of these.

Question 8

All of the following are fundamental elements of an industry value chain EXCEPT:

Accepted Answer

A)   Raw materials.
B)   Support activities.
C)   Marketing and sales.
D)   Final assembly of goods.

Question 9

Which quadrant in the core competence-market matrix is the hardest to be successful in? Briefly explain why.

Accepted Answer

The answer of Which quadrant in the core competence-market matrix...

Question 10

Each stage of the vertical value chain typically represents:

Accepted Answer

A)   A distinct industry.
B)   A type of product.
C)   The distinct process being applied.
D)   The type of material being used.

Question 11

The Boston Consulting Group (BCG)matrix is a tool that helps with:

Accepted Answer

A)   Analyzing mergers and acquisitions.
B)   Quality improvement.
C)   Corporate portfolio planning and restructuring.
D)   Cost reduction initiatives.

Question 12

If a firm wishes to bridge the gap between being fully integrated ("make")and transacting in the marketplace ("buy"),it can enter into a(n)_________ agreement which grants the right to an individual or group to use the firm's trademark and business processes to sell goods and services that carry the firm's brand name.

Accepted Answer

A)   Licensing
B)   Franchising
C)   Contracting
D)   Equity partnership

Question 13

When a firm like GE has few if any linkages among its businesses,it is pursuing a(n)________ diversification strategy.

Accepted Answer

A)   Slightly-related
B)   Comprehensive
C)   Broad-based
D)   Unrelated

Question 14

Companies that pursue related diversification often receive a diversification premium,leading to a stock price valuation that is higher than the sum of their individual business units.This premium indicates that investors:

Accepted Answer

A)   Are hedging their bets that at least a few of the related businesses will experience high performance.
B)   Believe that firms with related diversification strategies are more likely to be restructured in the future.
C)   Are experiencing the bandwagon effect when it comes to investment choices.
D)   Understand that firms with related diversification strategies are more likely to improve their performance than other diversified firms.

Question 15

A drawback for a firm engaging in a short-term contract is:

Accepted Answer

A)   It usually takes at least a year for processes between organizations to get in sync.
B)   The supplying firm has no incentive to make additional transaction-specific investments to increase performance or quality.
C)   There is no competitive bidding process with short-term contracts.
D)   Short-term contracts offer less planning opportunity than individual market transactions.

Question 16

Industry value chains are also called vertical value chains.

Accepted Answer

A) True 
 B)False

Question 17

The most challenging diversification strategy is one in which the firm must create new core competencies while pursuing new market opportunities.

Accepted Answer

A) True 
 B)False

Question 18

Which type of corporate diversification does research show is the most successful?

Accepted Answer

The answer of Which type of corporate diversification does research...

Question 19

Information asymmetries occur when:

Accepted Answer

A)   Certain departments within the firm keep information from other departments.
B)   There are gaps in technological skills between employees of a firm.
C)   A firm transacts in the market with a seller who has better information about the product or service.
D)   All of these.

Question 20

All of the following are forms of strategic alliances EXCEPT:

Accepted Answer

A)   Long-term contracts.
B)   Equity alliances.
C)   Joint ventures.
D)   Short-term outsourcing.

Exam 8: Corporate Strategy: Vertical Integration and Diversification

"Where to compete" is the key question senior management must answer for corporate strategy.Provide an example of a corporate strategy and briefly explain how it answers this question.

An alternative perspective to the transaction cost economics framework concerning the make-or-buy decision is the _____________ view of the firm,which focuses the firm less on transaction costs and more on its capabilities and knowledge and what it does well.

When the stock price of highly diversified firms is valued less than the sum of its individual business units,a(n) _________ occurs.

When an employee of a firm follows his or her own interests such as pursuing managerial perks when performing activities on behalf of the owner of the firm,a(n) _______________ problem occurs.

In ChapterCase 8,CEO Jeffrey Immelt restructured GE's portfolio partly because its future performance potential was too reliant on the GE Capital division.

The more "constrained" the relatedness of diversification:

Human-asset specificity is the form of an asset that a firm invests in to create the human capital with knowledge about the specific routines and procedures needed to support a firm's vertical integration strategy.These routines and procedures bring competitive value to the firm because:

All of the following are fundamental elements of an industry value chain EXCEPT:

Which quadrant in the core competence-market matrix is the hardest to be successful in? Briefly explain why.

Each stage of the vertical value chain typically represents:

The Boston Consulting Group (BCG) matrix is a tool that helps with:

When a firm like GE has few if any linkages among its businesses,it is pursuing a(n) ________ diversification strategy.

Companies that pursue related diversification often receive a diversification premium,leading to a stock price valuation that is higher than the sum of their individual business units.This premium indicates that investors:

A drawback for a firm engaging in a short-term contract is:

Industry value chains are also called vertical value chains.

The most challenging diversification strategy is one in which the firm must create new core competencies while pursuing new market opportunities.

Which type of corporate diversification does research show is the most successful?

Information asymmetries occur when:

All of the following are forms of strategic alliances EXCEPT: