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Finance
Q:
From a CEO's perspective, coordinating functional specialists to implement a vertical integration strategy rarely involves conflict resolution.
Q:
Budgets are an important control tool and they contribute to only positive outcomes.
Q:
Strategic alliances are the major substitute for vertical integration.
Q:
A firm's ability to conceive and implement vertical integration strategies tends to be highly susceptible to direct duplication.
Q:
A firm may be able to gain an advantage from vertically integrating when it resolves some uncertainty it faces sooner than its competition.
Q:
If a firm has capabilities that are valuable and rare, then vertically integrating into businesses that exploit these capabilities can enable the firm to gain at least a temporary competitive advantage.
Q:
A firm's vertical integration strategy can only be rare when it is the only firm that is able to vertically integrate efficiently.
Q:
Outsourcing can help firms reduce costs and focus their efforts on those business functions that are central to their competitive advantage.
Q:
A firm's vertical integration strategy is rare when few competing firms are able to create value by vertically integrating in the same way.
Q:
The downside risks associated with investing in a strategic alliance are unknown but fixed.
Q:
A flexibility-based approach to vertical integration suggests that when the decision-making setting regarding a business activity is highly uncertain, firms should form a strategic alliance to enter this activity instead of vertically integrating.
Q:
The use of budgets in a vertically integrated U-form organization can lead functional managers to overemphasize short-term behavior that is easy to measure and underemphasize longer-term behavior that is more difficult to measure.
Q:
A decision-making setting is uncertain when the future value of an exchange cannot be known when investments in that exchange are being made.
Q:
Flexibility is only valuable when the decision-making setting a firm is facing is uncertain.
Q:
Flexibility is always valuable.
Q:
Once a firm has vertically integrated it has committed its organizational structure, its management controls, and its compensation policies to a particular vertically integrated way of doing business and it has enhanced its flexibility.
Q:
Research suggests that, in general, vertically integrating is more flexible than not vertically integrating.
Q:
Flexibility is low when the cost of changing strategic choices is low.
Q:
Flexibility refers to how costly it is for a firm to alter its strategic and organizational decisions.
Q:
One of the biggest uncertainties in providing customer service through call centers is the question of whether the people staffing the phones actually help a firm's customers.
Q:
If a firm engages in vertical integration into a business activity where it does not possess any of the valuable, rare, or costly-to-imitate resources it needs to gain a competitive advantage, it may find itself at a competitive disadvantage to the extent that some firms already have competitive advantages in these business activities.
Q:
Firms should not vertically integrate into business activities where they do not possess the resources necessary to gain competitive advantages.
Q:
Firms should avoid vertically integrating in those businesses where they possess valuable, rare, and costly-to-imitate resources and capabilities.
Q:
Transaction-specific investments make parties to an exchange vulnerable to opportunism, and vertical integration solves this vulnerability problem.
Q:
A transaction-specific investment is any investment in an exchange that has significantly more value in the current exchange than it does in alternative exchanges.
Q:
The threat of opportunism is the least when a party to an exchange has made transaction-specific investments.
Q:
Firms should only bring market exchanges within their boundaries when the cost of vertical integration is more than the cost of opportunism.
Q:
If one of a firm's exchange partners behaves opportunistically, this reduces the economic value of the firm.
Q:
If Iron Horse Helmets (IHH) were to contract with a Chinese manufacturing firm to provide IHH with superior quality helmets for sale in the United States but discovered that the shipments were actually of inferior quality when they were received, IHH would be said to be acting opportunistically.
Q:
Opportunism exists when a firm is unfairly exploited in an exchange.
Q:
A firm with a high ratio between value added and sales has brought many of the value-creating activities associated with its business inside its boundaries, consistent with a high level of vertical integration.
Q:
When companies staffed and operated their own call centers in the United States, they were engaging in backward vertical integration, but when they started using independent companies in India to staff and operate these centers, they were more vertically integrated.
Q:
If Wal-Mart were to purchase a factory to make socks and it planned to sell these socks in its stores, this would be an example of forward vertical integration.
Q:
A firm engages in backward vertical integration when it incorporates more stages of the value chain within its boundaries and those stages bring it closer to gaining access to raw materials.
Q:
More vertically integrated firms accomplish fewer stages of the value chain within their boundaries than less vertically integrated firms.
Q:
A firm's level of vertical integration is the number of steps in its value chain that the firm accomplishes within its boundaries.
Q:
Decisions about whether or not to vertically integrate often determine whether or not a firm is operating in a single business or industry or multiple businesses or industries.
Q:
Business strategy is a firm's theory of how to gain competitive advantage by operating in several businesses simultaneously.
Q:
What type of compensation approach goes best with the flexibility explanation of vertical integration?
Q:
Discuss the role of the budgeting process as a control mechanism in vertically integrated U-form organizations, the potential unintended negative consequence budgets can have, and three things CEOs can do to counter this potential consequence.
Q:
Identify the organizational structure that is used to implement a vertical integration strategy and why from a CEO's perspective coordinating functional specialists to implement a vertical integration strategy almost always involves conflict resolution and how this conflict can be resolved.
Q:
Identify three reasons why a firm may be able to create value through vertical integration when most of its competitors are not able to create value through vertical integration.
Q:
Within the flexibility-based approach to vertical integration when should firms engage in strategic alliances instead of vertical integration, and what are the advantages of alliances under these conditions?
Q:
Discuss the flexibility-based explanation of vertical integration. In discussing this explanation be sure to define flexibility, the role of uncertainty in this explanation, and identify when, under this explanation, firms should engage in vertical integration.
Q:
Discuss the firm capabilities-based explanation of how vertical integration can create value. In your discussion identify the two broad implications of this approach and when, under this approach, firms should engage in vertical integration.
Q:
Discuss the opportunism-based explanation of vertical integration value creation and identify when, under this explanation, firms should vertically integrate. In your answer be sure to clearly define opportunism and the role that transaction-specific investments play in the opportunism-based explanation.
Q:
Identify the three fundamental explanations of how vertical integration can create value and discuss how value is created under each.
Q:
Define vertical integration and differentiate between forward vertical integration and backward vertical integration.
Q:
TerraLoc competes in the market for global positioning devices and services. The company manufactures its own GPS units, which are smaller than those of any other competitor and include a proprietary battery that lasts 200% longer than any other competitor's battery and that TerraLoc manufacturers on-site. TerraLoc also has developed proprietary software that is much faster and more precise than that of any competitor. When developing the proprietary battery, TerraLoc decided to manufacturer the battery in-house to reduce the possibility that the company it outsourced the battery manufacturing to might reverse engineer the battery and sell a similar product to competitors. This possibility was especially troubling given that the company expected a significant increase in demand due to the improved battery life. Additionally, TerraLoc sells its products and services through its own direct sales force to ensure that its representatives highlight the longer battery life of TerraLoc's units.
If TerraLoc wanted to expand into selling its GPS units through company-owned retail stores, this would be an example of ________
A) forward vertical integration.
B) backward vertical integration.
C) opportunism.
D) a joint venture.
Q:
TerraLoc competes in the market for global positioning devices and services. The company manufactures its own GPS units, which are smaller than those of any other competitor and include a proprietary battery that lasts 200% longer than any other competitor's battery and that TerraLoc manufacturers on-site. TerraLoc also has developed proprietary software that is much faster and more precise than that of any competitor. When developing the proprietary battery, TerraLoc decided to manufacturer the battery in-house to reduce the possibility that the company it outsourced the battery manufacturing to might reverse engineer the battery and sell a similar product to competitors. This possibility was especially troubling given that the company expected a significant increase in demand due to the improved battery life. Additionally, TerraLoc sells its products and services through its own direct sales force to ensure that its representatives highlight the longer battery life of TerraLoc's units.
If TerraLoc were to use a U-form organizational structure and the CEO decided to use budgets as a management control but wanted to make sure that the managers did not become too focused on the short term, the CEO should do all of the following except
A) use an open process in developing budgets.
B) determine budgets for her managers and allow them to focus only on meeting the budgets.
C) use both quantitative and qualitative evaluations of managers' performance.
D) make sure that the process used in developing budgets reflects the economic reality facing the firm's managers.
Q:
TerraLoc competes in the market for global positioning devices and services. The company manufactures its own GPS units, which are smaller than those of any other competitor and include a proprietary battery that lasts 200% longer than any other competitor's battery and that TerraLoc manufacturers on-site. TerraLoc also has developed proprietary software that is much faster and more precise than that of any competitor. When developing the proprietary battery, TerraLoc decided to manufacturer the battery in-house to reduce the possibility that the company it outsourced the battery manufacturing to might reverse engineer the battery and sell a similar product to competitors. This possibility was especially troubling given that the company expected a significant increase in demand due to the improved battery life. Additionally, TerraLoc sells its products and services through its own direct sales force to ensure that its representatives highlight the longer battery life of TerraLoc's units.
TerraLoc is most likely to use the ________ organizational structure.
A) matrix
B) product-based multidivisional
C) functional
D) geography-based multidivisional
Q:
TerraLoc competes in the market for global positioning devices and services. The company manufactures its own GPS units, which are smaller than those of any other competitor and include a proprietary battery that lasts 200% longer than any other competitor's battery and that TerraLoc manufacturers on-site. TerraLoc also has developed proprietary software that is much faster and more precise than that of any competitor. When developing the proprietary battery, TerraLoc decided to manufacturer the battery in-house to reduce the possibility that the company it outsourced the battery manufacturing to might reverse engineer the battery and sell a similar product to competitors. This possibility was especially troubling given that the company expected a significant increase in demand due to the improved battery life. Additionally, TerraLoc sells its products and services through its own direct sales force to ensure that its representatives highlight the longer battery life of TerraLoc's units.
TerraLoc's development of the new battery technology is likely to
A) reduce the rarity of TerraLoc's vertical integration strategy since competitors can purchase batteries from other sources.
B) increase the rarity of TerraLoc's vertical integration strategy since TerraLoc has reduced uncertainties related to increased battery life in its products.
C) increase the imitability of TerraLoc's vertical integration strategy since competitors can purchase traditional batteries from other sources.
D) decrease the imitability of TerraLoc's vertical integration strategy since it increases competitors' flexibility.
Q:
TerraLoc competes in the market for global positioning devices and services. The company manufactures its own GPS units, which are smaller than those of any other competitor and include a proprietary battery that lasts 200% longer than any other competitor's battery and that TerraLoc manufacturers on-site. TerraLoc also has developed proprietary software that is much faster and more precise than that of any competitor. When developing the proprietary battery, TerraLoc decided to manufacturer the battery in-house to reduce the possibility that the company it outsourced the battery manufacturing to might reverse engineer the battery and sell a similar product to competitors. This possibility was especially troubling given that the company expected a significant increase in demand due to the improved battery life. Additionally, TerraLoc sells its products and services through its own direct sales force to ensure that its representatives highlight the longer battery life of TerraLoc's units.
TerraLoc's decision to manufacture the battery in-house is most consistent with which explanation of vertical integration?
A) Flexibility-based explanations
B) Firm capability-based explanations
C) Alliance-based explanations
D) Opportunism-based explanations
Q:
The fact that it would be very costly for Digipics to alter its operations if the large customer referred to in the previous question decided to stop doing business with Digipics suggests that Digipics has ________ in this situation.
A) low flexibility
B) low opportunism
C) high flexibility
D) high opportunism
Q:
If Digipics were to agree to spend a significant amount of money to establish a new assembly line for a large client, PicPro, that has unique needs that would make this assembly line largely useless for any other customer, the funds Digipics spent in establishing this line would be an example of
A) forward vertical integration.
B) backward vertical integration.
C) a transaction-specific investment.
D) opportunism.
Q:
If one of the suppliers that Digipics purchases its components from purposefully delivered a batch of its product that was substandard but did not inform Digipics of this, this would be an example of
A) flexibility.
B) opportunism.
C) uncertainty.
D) vertical integration.
Q:
If Digipics were to begin selling the cameras it assembled directly to customers through a website operated by the company, this would be an example of
A) backward vertical integration.
B) a strategic alliance.
C) forward vertical integration.
D) opportunism.
Q:
If Digipics were to begin manufacturing lenses for the cameras they assembled, this would be an example of
A) backward vertical integration.
B) a strategic alliance.
C) forward vertical integration.
D) opportunism.
Q:
Firm-specific investments are a type of ________ investments.
A) operational
B) contingent
C) transaction-specific
D) horizontal
Q:
The ________ logic suggests that compensation that has a fixed and known downside risk and significant upside potential is important for firms implementing vertical integration strategies.
A) opportunism
B) strategic
C) capabilities
D) flexibility
Q:
Compensation that focuses on groups of employees such as cash bonuses and stock grants are best suited for ________ explanations of vertical integration.
A) flexibility-based
B) capabilities-based
C) strategically-based
D) opportunism-based
Q:
The ________ explanations call for compensation that focuses on individual employees, such as cash bonuses for individual performance.
A) capabilities-based
B) strategically-based
C) flexibility-based
D) opportunism-based
Q:
________ are when employees are given the right, but not the obligation, to purchase stock at predetermined prices.
A) Flexibility grants
B) Stock grants
C) Stock options
D) Grant options
Q:
________ are payments to employees in a firm's stock.
A) Stock grants
B) Cash grants
C) Flexibility grants
D) Option grants
Q:
According to the flexibility-based explanations of vertical integration, which of the following would be the most appropriate type of compensation to support strategy implementation?
A) stock options for individual performance
B) stock grants for individual performance
C) stock grants for corporate performance
D) cash bonuses for individual performance
Q:
In the information technology business, interconnectivity is a relatively unimportant basis of potential product differentiation.
Q:
Linkages between firms that differentiate their products are examples of cooperative strategic alliance strategies.
Q:
The ability to use organization structure to facilitate coordination among scientific disciplines to conduct research is known as architectural competence.
Q:
Once developed, a firm's reputation can last a long time, even if the basis for that reputation no longer exists.
Q:
Through advertising and other consumer marketing efforts, firms attempt to alter the perceptions of current and potential customers, but only when specific attributes of a firm's products or services are altered.
Q:
Products can be differentiated by the extent to which they are customized for particular customer applications.
Q:
The physical location of a firm cannot be a source of product differentiation.
Q:
Timing-based product differentiation relies solely on being a first mover.
Q:
To the extent that differences in product complexity lead customers to conclude that the products of some firms are more valuable than the product of other firms, then product complexity can be a basis of product differentiation.
Q:
Chryslers' introduction of the "cab forward" design was an attempt at differentiation through product features.
Q:
A hedonic price is that part of a products' or services' actual price that is not attributable to a particular attribute of that product or service.
Q:
If products or services are perceived as being different in a way that is valued by customers, even if there is no physical differentiation, then product differentiation exists.
Q:
While firms often alter the objective properties of their products or services in order to implement a product-differentiation strategy, the existence of product differentiation is always a matter of customer perception.
Q:
Attempts to create differences in the relative perceived value of a firm's products or services are rarely made by altering the objective properties of those products or services.
Q:
Product differentiation is a business strategy whereby firms attempt to gain a competitive advantage by increasing the perceived value of their products and services relative to the perceived value of other firms' products or services.