Q&A Hero

Q: A company should foster close links between R&D and marketing personnel to ensure that the company has the capability to manufacture any proposed new products.

Q: To increase the probability of commercial success, a company should foster close links between R&D and marketing personnel.

Q: Research evidence suggests that large-scale entry into a new business is the best way for an internal venture to succeed.

Q: Internal new ventures involve creating the value-chain functions necessary to start a new business from scratch.

Q: Hamal and Prahalad maintain that identifying current core competencies is the first step a company should take in deciding which business opportunities to pursue.

Q: According to Hamel and Prahalad, a core competency is a central value creation capability of a company, this is, a core skill.

Q: The third step in the change process is to evaluate the effects of the changes in strategy on organizational performance.

Q: The emphasis in bottom-up change is on employee participation and keeping people informed about the situation so that uncertainty is minimized.

Q: Bottom-up change is generally slower than top-down change.

Q: When companies promote CEOs from within, they get the benefits of both inside information and external perspective.

Q: Although internal managers may have the most experience or knowledge about a company's operations, they may lack perspective because they are too close to the situation.

Q: Even when companies have been forced to change frequently, managers often do not have the ability to handle change easily.

Q: Individual resistance reinforces the tendency of each function and division to oppose changes that may have uncertain effects on it.

Q: Change is difficult at the divisional level if divisions are highly interrelated, because a shift in one division's operations affects other divisions.

Q: At the corporate level, changing strategy even in seemingly trivial ways will not significantly affect a company's behavior.

Q: Obstacles to change can be found at four levels in the organization: functional, corporate, divisional, and business unit.

Q: Managers are the only ones that can recognize that there is a gap between desired company performance and actual performance.

Q: Managers seldom have trouble determining that something is going wrong in their organization.

Q: The second step in the change process is for strategic managers to recognize the need for change.

Q: Restructuring usually involves flattening the organizational hierarchy and downsizing the work-force.

Q: Reengineering and TQM are both approaches to improving effectiveness, but they are incompatible with each other.

Q: Business processes are the responsibility of one organizational function.

Q: A business process is any activity that takes place within a functional area (i.e., marketing, operations, R&D, etc.).

Q: Reengineering is a process in which managers focus on business processes underlying the value-creation process.

Q: Strategic change refers to the movement of a company away from its present state toward some desired future state to increase competitive advantage and profitability.

Q: A diversified company is one that operates in two or more industries to find ways to increase it long-run profitability.

Q: Diversification is the process of a company entering new industries distinct from its core industry.

Q: Vertical integration protects product quality, enabling a company to become a differentiated player in its core business.

Q: Outsourcing promotes a company's competitive advantage when the company enters into long-term relationships or alliances with its partners.

Q: Taper integration occurs when a company buys from two or more independent suppliers at the same time.

Q: A company achieves full integration when it produces all of a particular input needed for its processes or disposes of all of its output through its own operations.

Q: Vertical integration can raise costs if, over time, a company continues to purchase inputs from company-owned suppliers when low-cost independent suppliers that can supply the same inputs exist.

Q: Vertical integration adds value to a company's core products because entry into new industries increases the core products' differentiated appeal.

Q: The risk of holdup refers to the chance of being taken advantage of by a trading partner after the investment in specialized assets has been made.

Q: A steel company that established the value chain operations necessary to supply its iron ore needs from company-owned iron ore mines exemplifies forward integration.

Q: A company pursuing a vertical integration strategy expands its operations by acquiring similar firms in its industry.

Q: Vertical integration is a corporate-level strategy that involves a company entering new industries to increase its long-run profitability.

Q: A company may be able to differentiate its final products better by outsourcing certain noncore activities to specialists.

Q: A virtual corporation is a company that outsources most of its functional activities and focuses on one or a few core value chain functions.

Q: Mattel hires dozens of small Asian firms to make the plastic Barbie dolls and metal Hot Wheels cars that are its primary products. Mattel is using outsourcing to manage its manufacturing function.

Q: Strategic outsourcing is the decision to allow one or more of a company's value creation functions to be performed by independent companies on its behalf.

Q: Antitrust law is primarily concerned with protecting smaller companies from consolidation brought about by vertical integration.

Q: One benefit of horizontal integration is industry consolidation, leading to more bargaining power over buyers and suppliers.

Q: Horizontal integration can help to reduce industry rivalry.

Q: Product bundling occurs when a firm offers a range of products that are sold together at a single price.

Q: Horizontal integration rarely allows companies to realize economies of scale.

Q: One of the benefits of horizontal integration is that it lowers operating costs.

Q: The net result of the recent wave of mergers and acquisitions has been to increase the fragmentation in a wide range of industries.

Q: DaimlerChrysler was created by the combination of two firms (Daimler-Benz and Chrysler) who agreed to blend their firms to create a new company. This is an example of an acquisition.

Q: A merger occurs when one company uses its capital resources to purchase another company.

Q: Concentrating on a single business allows a company to "stick to the knitting" that is, to focus on doing what is knows best and avoid entering new businesses it knows little about and where it can create little value.

Q: Horizontal integration is the process of acquiring or merging with companies up and/or down the supply chain.

Q: When a company stays inside one industry, it may miss out on opportunities to create more value and increase their profitability by using their resources and capabilities to make and sell products in other markets or industries.

Q: A company can choose to enter new industries that may or may not be connected to its existing industry by pursuing a strategy of diversification.

Q: An advantage of concentrating on a single industry is that by staying in one industry a firm can focus its resources and capabilities on competing successfully in just one business.

Q: Managers use corporate-level strategy to identify which industries a company should compete in to maximize long-run profitability.

Q: What is meant by the terms "related diversification" and "unrelated diversification" and how should a company choose between them.

Q: Consider the case of a manufacturing firm that purchases subassemblies from a supplier, creates a finished product, and then sells that product to a wholesale distributor. What advantages might this firm gain from forward integration? From backward integration? What potential pitfalls of vertical integration might the firm face?

Q: How can strategic outsourcing strengthen a company's business model and increase its profitability?

Q: Compare the benefits and risks associated with horizontal and vertical integration. Under what circumstances would a firm prefer one to the other?

Q: Identify and discuss the profitability justifications for pursuing a multi-business model based on diversification.

Q: A _________________ involves halting investment in a unit in order to maximize short-to-medium-term cash flow from that unit. a) management buyout b) liquidation strategy c) spin-off d) harvest strategy e) corporate restructuring

Q: Which of the following is not a rationale for restructuring? a) The existence of a diversification discount b) Response to a failed acquisition c) Innovations in management processes and strategy have diminished the advantages of diversification. d) Increased product differentiation e) All of these are rationales for restructuring.

Q: _____________ refers to the fact that the stock of highly diversified companies is valued lower, relative to their earnings, than the stock of less diversified enterprises. a) Market inefficiencies b) Systematic market effect c) Diversification discount d) Diversification value effect e) Inefficient market theory

Q: _____________ refers to the process of companies divesting themselves of diversified activities and downsizing in order to concentrate on fewer businesses. a) Industry positioning b) Competitive alignment c) Strategic decomposition d) Vertical integration e) Restructuring

Q: When one or more components of a company's value chain are applicable to a wide variety of industrial and commercial situations, which of the following strategies should a company pursue? a) Unrelated diversification b) Backward integration c) A focus strategy d) Taper integration e) Related diversification

Q: A company should pursue unrelated diversification instead of related diversification when a) its core skills are highly specialized and have few applications outside core business. b) the company's top management is skilled at acquiring and turning around poorly run enterprises. c) its core technological skills are applicable to a wide variety of industrial and commercial situations. d) it wants to maximize growth. e) the bureaucratic costs of implementation do not exceed the value that can be created by realizing economies of scope.

Q: A company should pursue related diversification instead of unrelated diversification when a) the company's core skills create value by resource sharing and by transferring competencies between businesses. b) the company's core skills are highly specialized and have few applications outside the core business. c) the company's top management is skilled at acquiring and turning around poorly run enterprises. d) the company's main objective is to maximize growth. e) the company's free cash flow is high enough to have funds available for investment.

Q: A diversification strategy based on resource sharing a) entails a company creating value by applying the distinctive competencies it developed in one line of business to another line of business. b) requires the development of new business-level strategies. c) can help a company to realize economies of scope. d) is a valid way of supporting the generic business-level strategy of differentiation. e) increases the accountability of units.

Q: ___________ arise when one or more of a diversified company's business unites are able to realize cost-saving or differentiation advantages because they can share resources or capabilities. a) Economies of scope b) Competitive advantages c) Economies of scale d) Distinctive competencies e) Multi-point business models

Q: Diversification based on transferring competencies a) requires the existence of significant commonalities between one or more of the value-creation functions. b) requires that acquisitions be made in the same industry as the company's core business area. c) allows a company to achieve the advantage of risk pooling. d) allows a company to reduce bureaucratic costs. e) requires both the existence of significant commonalities between one or more of the value-creation functions and that acquisitions be made in the same industry as the company's core business area.

Q: When a company is generating financial resources in excess of the amount needed to maintain a competitive advantage in its core business, it will most likely pursue a) taper integration. b) full integration. c) strategic alliances. d) long-term contracts. e) diversification.

Q: _____________ refers to the process of entering new industries, distinct from a company's core industry. a) Horizontal integration b) Value reconstruction c) Vertical integration d) Diversification e) Vertical specialization

Q: _____________________ can be a major disadvantage when operating costs increase. a) Horizontal integration b) Protecting product quality c) Forward integration d) Vertical integration e) Backward integration

Q: Vertical integration can be disadvantageous when a) industry technology is changing rapidly. b) demand is stable. c) competitors are vertically integrated. d) technology is changing slowly. e) competitors are vertically integrated and industry technology changes rapidly.

Q: Companies invest in specialized assets because these assets allow them to ______________ of value creation and/or to better differentiate their products from those of competitors. a) increase the costs b) keep the cost level c) lower the costs d) double the costs e) none of the above

Q: Under which of the following circumstances is vertical integration hazardous? a) When a company has to purchase high-cost inputs from company-owned suppliers, even though low-cost external sources exist b) When vertical integration involves moving downstream into retailing c) When the value added by successive stages of production is declining d) When the industries involved are undergoing rapid expansion e) When the company's competitors are also following a strategy of vertical integration

Q: Which of the following is not a benefit of vertical integration? a) Facilitating investments in specialized assets b) Increasing cost structure c) Improved scheduling d) Protects product quality e) Builds barriers to entry

Q: The strategy of ___________ involves choosing the value-added stages of the raw-material-to-consumer chain in which to compete. a) diversification based on economies of scope b) diversification based on acquisition and restructuring c) cost leadership d) differentiation e) vertical integration

Q: When an intermediate manufacturer moves into final assembly, it is pursuing a) backward vertical integration. b) forward vertical integration. c) taper vertical integration. d) related vertical differentiation. e) unrelated vertical differentiation.