Chapter 6 - Vertical Integration

Question 1 of 50

1

The number of steps in a firm's value chain that it accomplishes within its boundaries describes the firm's level of

Select one of the following:

product differentiation
diversification.
vertical integration.
competitive dynamics.

Explanation

Question 2 of 50

1

Vertical integration is a type of

Select one of the following:

business strategy.
generic strategy.
differentiation strategy.
corporate strategy.

Explanation

Question 3 of 50

1

When Apple, Inc. opened retail stores to sell its computers and iPods, this was an example of

Select one of the following:

forward vertical integration.
backward vertical integration.
forward horizontal integration.
backward horizontal integration.

Explanation

Question 4 of 50

1

If Dell computers were to open its own factory to manufacture the LCD televisions it sells at its online store, this would be an example of

Select one of the following:

forward vertical integration.
product differentiation.
forward horizontal integration.
backward vertical integration.

Explanation

Question 5 of 50

1

A firm's ________ measures the percentage of a firm's sales that is generated by activities done within the boundaries of a firm.

Select one of the following:

value added as a percentage of sales
simple product diversification
competitive advantage
competitive dynamic

Explanation

Question 6 of 50

1

Which of the following is not used to determine a firm's level of vertical integration using the value added as a percentage of sales approach?

Select one of the following:

value added
net income
sales
gross margin

Explanation

Question 7 of 50

1

A firm with a ratio between value added and sales has brought of the value-creating activities associated with its business inside its boundaries, consistent with a high level of vertical integration.

Select one of the following:

low; many
high; many
medium; many
medium; few

Explanation

Question 8 of 50

1

In 1937, which Nobel Prize-winning economist first articulated the question of vertical integration, i.e., which stages of the value chain should be included within a firm's boundaries and why?

Select one of the following:

Ronald Coase
Adam Smith
David Ricardo
Milton Freidman

Explanation

Question 9 of 50

1

________ exists when a firm is unfairly exploited in an exchange.

Select one of the following:

Competitive advantage
Business level strategy
Opportunism
Corporate level strategy

Explanation

Question 10 of 50

1

A(n) ________ is any investment in an exchange that has significantly more value in the current exchange than it does in alternative exchanges.

Select one of the following:

opportunity-specific investment
transaction-specific investment
competition-specific investment
opportunistic investment

Explanation

Question 11 of 50

1

According to ________ of when vertical integration creates value, vertical integration is valuable when it reduces threats from a firm's suppliers or buyers due to any transaction-specific investments a firm has made.

Select one of the following:

firm capability explanations
opportunity-based explanations
flexibility-based explanations
opportunism-based explanations

Explanation

Question 12 of 50

1

The essence of the ________ to vertical integration is that if a firm possesses valuable, rare, and costly-to-imitate resources in a business activity, it should vertically integrate into that activity otherwise it should not vertically integrate into that activity.

Select one of the following:

flexibility-based explanation
opportunism-based explanation
firm capability explanation
opportunity-based explanation

Explanation

Question 13 of 50

1

To the extent that other firms may have competitive advantages in business activities that a firm is considering to enter through vertical integration, vertically integrating into these activities could put the firm at a

Select one of the following:

competitive advantage.
temporary dynamic disadvantage.
sustainable competitive advantage.
competitive disadvantage.

Explanation

Question 14 of 50

1

________ refers to how costly it is for a firm to alter its strategic and organizational decisions.

Select one of the following:

Flexibility
Dynamic capability
Opportunism
Uncertainty

Explanation

Question 15 of 50

1

Research suggests that, in general, vertically integrating is ________ than not vertically integrating.

Select one of the following:

significantly more flexible
somewhat more flexible
comparatively flexible
less flexible

Explanation

Question 16 of 50

1

A decision-making setting is ________ when the future of an exchange cannot be known when investments in that exchange are being made.

Select one of the following:

uncertain
opportunistic
flexible
dynamic

Explanation

Question 17 of 50

1

A(n) ________ approach to vertical integration suggests that rather than vertically integrating into a business activity whose value is highly uncertain firms should not vertically integrate and instead should form a strategic alliance to manage this exchange.

Select one of the following:

alliance-based
flexibility-based
firm capabilities-based
opportunism-based

Explanation

Question 18 of 50

1

Which of the explanations of vertical integration is the oldest and has received the greatest empirical support?

Select one of the following:

opportunism-based
flexibility-based
firm capabilities-based
alliance-based

Explanation

Question 19 of 50

1

If a firm decided to maintain relationships with several different call center management companies, each of which have adopted different technological solutions to the problem of how to use call center employees to assist customers who are using very complex products, to reduce the uncertainty of whether the people staffing the phone can help the firm's customers, this would be consistent with which explanation of vertical integration?

Select one of the following:

opportunism-based
flexibility-based
firm capabilities-based
alliance-based

Explanation

Question 20 of 50

1

Some observers predict that by ________ an additional 3.3 million jobs in the United States will be outsourced, many to operations overseas.

Select one of the following:

2014
2015
2016
2017

Explanation

Question 21 of 50

1

If a computer company decided to open its own call centers to provide technical support to its corporate customers because the employees in these call centers need a significant level of in-depth training that was highly specialized to the computer company's products, this would be consistent with which explanation of vertical integration?

Select one of the following:

opportunism-based
flexibility-based
firm capabilities-based
alliance-based

Explanation

Question 22 of 50

1

A firm is likely to be among the first in its industry to vertically disintegrate an exchange when

Select one of the following:

the firm concludes that the level of specific investment required to manage an economic exchange is high.
the firm believes that the exchange is costly to imitate.
the level of uncertainty about the value of an exchange has increased.
the firm believes that the exchange is rare.

Explanation

Question 23 of 50

1

Which of the following statements regarding direct duplication and substitutes for vertical integration is accurate?

Select one of the following:

A firm's valuable and rare vertical integration choices may be subject to direct duplication and substitutes.
A firm's valuable and rare vertical integration choices are subject to neither direct duplication nor substitutes.
A firm's valuable and rare vertical integration choices may be subject to direct duplication but not to substitutes.
A firm's valuable and rare vertical integration choices may be subject to substitutes but not to direct duplication.

Explanation

Question 24 of 50

1

The major substitute for vertical integration is

Select one of the following:

vertical disintegration.
strategic alliances.
a product-differentiation strategy.
a low-cost strategy.

Explanation

Question 25 of 50

1

Which organizational structure is used to implement a vertical integration strategy?

Select one of the following:

matrix
functional
multidivisional
product-divisional

Explanation

Question 26 of 50

1

From a CEO's perspective, coordinating functional specialists to implement a vertical integration strategy almost always involves

Select one of the following:

conflict resolution.
competitive positioning.
product differentiation.
corporate expansion.

Explanation

Question 27 of 50

1

If Brenda Thompson, Tom Mix's supervisor, wanted to use a budgeting process to help evaluate Tom's performance but wanted to ensure that using a budget did not encourage Tom to focus on short-term behaviors at the expense of long-term results, she should

Select one of the following:

develop the budget herself using realistic goals based on the economic reality facing Tom's function and use both quantitative and qualitative evaluations of the performance of Tom's function and then give the budget to Tom to follow.
work with Tom in an open and participative process to develop the budget based on the most optimistic scenario possible and use both quantitative and qualitative evaluations of the performance of Tom's function.
develop the budget herself based on the most pessimistic scenario possible and use both quantitative and qualitative evaluations of the performance of Tom's function and then give the budget to Tom to follow.
work with Tom in an open and participative process to develop the budget based on the economic reality facing Tom's function and use both quantitative and qualitative evaluations of the performance of Tom's function.

Explanation

Question 28 of 50

1

Evaluating a functional manager's performance relative to budgets can be an effective control when

Select one of the following:

the process used in developing budgets is open and participative.
the process reflects the economic best-case scenario developed by the functional manager.
the process reflects the economic worst-case scenario developed by the functional manager.
the process relies solely on quantitative criteria to evaluate the functional manager's performance.

Explanation

Question 29 of 50

1

Which committee in a U-form organization meets monthly and usually consists of the CEO and each of the heads of the functional areas included in a firm?

Select one of the following:

executive committee
functional committee
operations committee
managerial committee

Explanation

Question 30 of 50

1

Which committee in a U-form organization meets weekly and reviews the performance of the firm on a weekly basis and typically consists of a CEO and two or three functional senior managers?

Select one of the following:

top management team
executive committee
operations committee
functional committee

Explanation

Question 31 of 50

1

Investments made by employees that have more value in a particular company than in alternative companies are known as

Select one of the following:

firm-specific investments.
individual-specific investments.
group-specific investments.
opportunistic investments.

Explanation

Question 32 of 50

1

According to the opportunism-based explanations of vertical integration, which of the following would be the most appropriate type of compensation to support strategy implementation?

Select one of the following:

cash bonuses for corporate performance
cash bonuses for group performance
stock options for individual performance
stock grants for individual performance

Explanation

Question 33 of 50

1

According to the capabilities-based explanations of vertical integration, which of the following would be the most appropriate type of compensation to support strategy implementation?

Select one of the following:

salary
cash bonuses for corporate performance
cash bonuses for individual performance
stock grants for individual performance

Explanation

Question 34 of 50

1

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?

Select one of the following:

stock options for individual performance
stock grants for individual performance
stock grants for corporate performance
cash bonuses for individual performance

Explanation

Question 35 of 50

1

________ are payments to employees in a firm's stock.

Select one of the following:

Stock grants
Cash grants
Flexibility grants
Option grants

Explanation

Question 36 of 50

1

________ are when employees are given the right, but not the obligation, to purchase stock at predetermined prices.

Select one of the following:

Flexibility grants
Stock grants
Grant options
Stock options

Explanation

Question 37 of 50

1

The ________ explanations call for compensation that focuses on individual employees, such as cash bonuses for individual performance.

Select one of the following:

capabilities-based
strategically-based
flexibility-based
opportunism-based

Explanation

Question 38 of 50

1

Compensation that focuses on groups of employees such as cash bonuses and stock grants are best suited for ________ explanations of vertical integration.

Select one of the following:

flexibility-based
capabilities-based
strategically-based
opportunism-based

Explanation

Question 39 of 50

1

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.

Select one of the following:

opportunism
strategic
capabilities
flexibility

Explanation

Question 40 of 50

1

Firm-specific investments are a type of ________ investments.

Select one of the following:

operational
contingent
transaction-specific
horizontal

Explanation

Question 41 of 50

1

If Digipics were to begin manufacturing lenses for the cameras they assembled, this would be an example of

Select one of the following:

backward vertical integration.
a strategic alliance.
forward vertical integration.
opportunism.

Explanation

Question 42 of 50

1

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

Select one of the following:

backward vertical integration.
a strategic alliance.
forward vertical integration.
opportunism.

Explanation

Question 43 of 50

1

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

Select one of the following:

flexibility.
opportunism.
uncertainty
vertical integration.

Explanation

Question 44 of 50

1

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

Select one of the following:

forward vertical integration.
backward vertical integration.
a transaction-specific investment.
opportunism.

Explanation

Question 45 of 50

1

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.

Select one of the following:

low flexibility
low opportunism
high flexibility
high opportunism

Explanation

Question 46 of 50

1

TerraLoc's decision to manufacture the battery in-house is most consistent with which explanation of vertical integration?

Select one of the following:

Flexibility-based explanations
Firm capability-based explanations
Alliance-based explanations
Opportunism-based explanations

Explanation

Question 47 of 50

1

TerraLoc's development of the new battery technology is likely to

Select one of the following:

reduce the rarity of TerraLoc's vertical integration strategy since competitors can purchase batteries from other sources.
increase the rarity of TerraLoc's vertical integration strategy since TerraLoc has reduced uncertainties related to increased battery life in its products.
increase the imitability of TerraLoc's vertical integration strategy since competitors can purchase traditional batteries from other sources.
decrease the imitability of TerraLoc's vertical integration strategy since it increases competitors' flexibility.

Explanation

Question 48 of 50

1

TerraLoc is most likely to use the ________ organizational structure.

Select one of the following:

matrix
product-based multidivisional
functional
geography-based multidivisional

Explanation

Question 49 of 50

1

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

Select one of the following:

use an open process in developing budgets.
determine budgets for her managers and allow them to focus only on meeting the budgets.
use both quantitative and qualitative evaluations of managers' performance.
make sure that the process used in developing budgets reflects the economic reality facing the firm's managers.

Explanation

Question 50 of 50

1

If TerraLoc wanted to expand into selling its GPS units through company-owned retail stores, this would be an example of ________

Select one of the following:

forward vertical integration.
backward vertical integration.
opportunism.
a joint venture.

	Created by Strategy IO about 8 years ago

Quiz on Chapter 6 - Vertical Integration , created by Strategy IO on 14/11/2016.

Chapter 6 - Vertical Integration

Question 1 of 50

The number of steps in a firm's value chain that it accomplishes within its boundaries describes the firm's level of

Select one of the following:

Explanation

Question 2 of 50

Vertical integration is a type of

Select one of the following:

Explanation

Question 3 of 50

When Apple, Inc. opened retail stores to sell its computers and iPods, this was an example of

Select one of the following:

Explanation

Question 4 of 50

If Dell computers were to open its own factory to manufacture the LCD televisions it sells at its online store, this would be an example of

Select one of the following:

Explanation

Question 5 of 50

A firm's ________ measures the percentage of a firm's sales that is generated by activities done within the boundaries of a firm.

Select one of the following:

Explanation

Question 6 of 50

Which of the following is not used to determine a firm's level of vertical integration using the value added as a percentage of sales approach?

Select one of the following:

Explanation

Question 7 of 50

A firm with a ________ ratio between value added and sales has brought ________ of the value-creating activities associated with its business inside its boundaries, consistent with a high level of vertical integration.

Select one of the following:

Explanation

Question 8 of 50

In 1937, which Nobel Prize-winning economist first articulated the question of vertical integration, i.e., which stages of the value chain should be included within a firm's boundaries and why?

Select one of the following:

Explanation

Question 9 of 50

________ exists when a firm is unfairly exploited in an exchange.

Select one of the following:

Explanation

Question 10 of 50

A(n) ________ is any investment in an exchange that has significantly more value in the current exchange than it does in alternative exchanges.

Select one of the following:

Explanation

Question 11 of 50

According to ________ of when vertical integration creates value, vertical integration is valuable when it reduces threats from a firm's suppliers or buyers due to any transaction-specific investments a firm has made.

Select one of the following:

Explanation

Question 12 of 50

The essence of the ________ to vertical integration is that if a firm possesses valuable, rare, and costly-to-imitate resources in a business activity, it should vertically integrate into that activity otherwise it should not vertically integrate into that activity.

Select one of the following:

Explanation

Question 13 of 50

To the extent that other firms may have competitive advantages in business activities that a firm is considering to enter through vertical integration, vertically integrating into these activities could put the firm at a

Select one of the following:

Explanation

Question 14 of 50

________ refers to how costly it is for a firm to alter its strategic and organizational decisions.

Select one of the following:

Explanation

Question 15 of 50

Research suggests that, in general, vertically integrating is ________ than not vertically integrating.

Select one of the following:

Explanation

Question 16 of 50

A decision-making setting is ________ when the future of an exchange cannot be known when investments in that exchange are being made.

Select one of the following:

Explanation

Question 17 of 50

A(n) ________ approach to vertical integration suggests that rather than vertically integrating into a business activity whose value is highly uncertain firms should not vertically integrate and instead should form a strategic alliance to manage this exchange.

Select one of the following:

Explanation

Question 18 of 50

Which of the explanations of vertical integration is the oldest and has received the greatest empirical support?

Select one of the following:

Explanation

Question 19 of 50

Select one of the following:

Explanation

Question 20 of 50

Some observers predict that by ________ an additional 3.3 million jobs in the United States will be outsourced, many to operations overseas.

Select one of the following:

A firm with a ratio between value added and sales has brought of the value-creating activities associated with its business inside its boundaries, consistent with a high level of vertical integration.