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Chapter 6 - Vertical Integration

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Quiz on Chapter 6 - Vertical Integration , created by Strategy IO on 14/11/2016.
Strategy IO
Quiz by Strategy IO, updated more than 1 year ago
Strategy IO
Created by Strategy IO about 8 years ago
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Resource summary

Question 1

Question
The number of steps in a firm's value chain that it accomplishes within its boundaries describes the firm's level of
Answer
  • product differentiation
  • diversification.
  • vertical integration.
  • competitive dynamics.

Question 2

Question
Vertical integration is a type of
Answer
  • business strategy.
  • generic strategy.
  • differentiation strategy.
  • corporate strategy.

Question 3

Question
When Apple, Inc. opened retail stores to sell its computers and iPods, this was an example of
Answer
  • forward vertical integration.
  • backward vertical integration.
  • forward horizontal integration.
  • backward horizontal integration.

Question 4

Question
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
Answer
  • forward vertical integration.
  • product differentiation.
  • forward horizontal integration.
  • backward vertical integration.

Question 5

Question
A firm's ________ measures the percentage of a firm's sales that is generated by activities done within the boundaries of a firm.
Answer
  • value added as a percentage of sales
  • simple product diversification
  • competitive advantage
  • competitive dynamic

Question 6

Question
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?
Answer
  • value added
  • net income
  • sales
  • gross margin

Question 7

Question
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.
Answer
  • low; many
  • high; many
  • medium; many
  • medium; few

Question 8

Question
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?
Answer
  • Ronald Coase
  • Adam Smith
  • David Ricardo
  • Milton Freidman

Question 9

Question
________ exists when a firm is unfairly exploited in an exchange.
Answer
  • Competitive advantage
  • Business level strategy
  • Opportunism
  • Corporate level strategy

Question 10

Question
A(n) ________ is any investment in an exchange that has significantly more value in the current exchange than it does in alternative exchanges.
Answer
  • opportunity-specific investment
  • transaction-specific investment
  • competition-specific investment
  • opportunistic investment

Question 11

Question
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.
Answer
  • firm capability explanations
  • opportunity-based explanations
  • flexibility-based explanations
  • opportunism-based explanations

Question 12

Question
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.
Answer
  • flexibility-based explanation
  • opportunism-based explanation
  • firm capability explanation
  • opportunity-based explanation

Question 13

Question
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
Answer
  • competitive advantage.
  • temporary dynamic disadvantage.
  • sustainable competitive advantage.
  • competitive disadvantage.

Question 14

Question
________ refers to how costly it is for a firm to alter its strategic and organizational decisions.
Answer
  • Flexibility
  • Dynamic capability
  • Opportunism
  • Uncertainty

Question 15

Question
Research suggests that, in general, vertically integrating is ________ than not vertically integrating.
Answer
  • significantly more flexible
  • somewhat more flexible
  • comparatively flexible
  • less flexible

Question 16

Question
A decision-making setting is ________ when the future of an exchange cannot be known when investments in that exchange are being made.
Answer
  • uncertain
  • opportunistic
  • flexible
  • dynamic

Question 17

Question
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.
Answer
  • alliance-based
  • flexibility-based
  • firm capabilities-based
  • opportunism-based

Question 18

Question
Which of the explanations of vertical integration is the oldest and has received the greatest empirical support?
Answer
  • opportunism-based
  • flexibility-based
  • firm capabilities-based
  • alliance-based

Question 19

Question
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?
Answer
  • opportunism-based
  • flexibility-based
  • firm capabilities-based
  • alliance-based

Question 20

Question
Some observers predict that by ________ an additional 3.3 million jobs in the United States will be outsourced, many to operations overseas.
Answer
  • 2014
  • 2015
  • 2016
  • 2017

Question 21

Question
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?
Answer
  • opportunism-based
  • flexibility-based
  • firm capabilities-based
  • alliance-based

Question 22

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

Question 23

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

Question 24

Question
The major substitute for vertical integration is
Answer
  • vertical disintegration.
  • strategic alliances.
  • a product-differentiation strategy.
  • a low-cost strategy.

Question 25

Question
Which organizational structure is used to implement a vertical integration strategy?
Answer
  • matrix
  • functional
  • multidivisional
  • product-divisional

Question 26

Question
From a CEO's perspective, coordinating functional specialists to implement a vertical integration strategy almost always involves
Answer
  • conflict resolution.
  • competitive positioning.
  • product differentiation.
  • corporate expansion.

Question 27

Question
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
Answer
  • 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.

Question 28

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

Question 29

Question
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?
Answer
  • executive committee
  • functional committee
  • operations committee
  • managerial committee

Question 30

Question
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?
Answer
  • top management team
  • executive committee
  • operations committee
  • functional committee

Question 31

Question
Investments made by employees that have more value in a particular company than in alternative companies are known as
Answer
  • firm-specific investments.
  • individual-specific investments.
  • group-specific investments.
  • opportunistic investments.

Question 32

Question
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?
Answer
  • cash bonuses for corporate performance
  • cash bonuses for group performance
  • stock options for individual performance
  • stock grants for individual performance

Question 33

Question
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?
Answer
  • salary
  • cash bonuses for corporate performance
  • cash bonuses for individual performance
  • stock grants for individual performance

Question 34

Question
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?
Answer
  • stock options for individual performance
  • stock grants for individual performance
  • stock grants for corporate performance
  • cash bonuses for individual performance

Question 35

Question
________ are payments to employees in a firm's stock.
Answer
  • Stock grants
  • Cash grants
  • Flexibility grants
  • Option grants

Question 36

Question
________ are when employees are given the right, but not the obligation, to purchase stock at predetermined prices.
Answer
  • Flexibility grants
  • Stock grants
  • Grant options
  • Stock options

Question 37

Question
The ________ explanations call for compensation that focuses on individual employees, such as cash bonuses for individual performance.
Answer
  • capabilities-based
  • strategically-based
  • flexibility-based
  • opportunism-based

Question 38

Question
Compensation that focuses on groups of employees such as cash bonuses and stock grants are best suited for ________ explanations of vertical integration.
Answer
  • flexibility-based
  • capabilities-based
  • strategically-based
  • opportunism-based

Question 39

Question
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.
Answer
  • opportunism
  • strategic
  • capabilities
  • flexibility

Question 40

Question
Firm-specific investments are a type of ________ investments.
Answer
  • operational
  • contingent
  • transaction-specific
  • horizontal

Question 41

Question
If Digipics were to begin manufacturing lenses for the cameras they assembled, this would be an example of
Answer
  • backward vertical integration.
  • a strategic alliance.
  • forward vertical integration.
  • opportunism.

Question 42

Question
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
Answer
  • backward vertical integration.
  • a strategic alliance.
  • forward vertical integration.
  • opportunism.

Question 43

Question
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
Answer
  • flexibility.
  • opportunism.
  • uncertainty
  • vertical integration.

Question 44

Question
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
Answer
  • forward vertical integration.
  • backward vertical integration.
  • a transaction-specific investment.
  • opportunism.

Question 45

Question
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.
Answer
  • low flexibility
  • low opportunism
  • high flexibility
  • high opportunism

Question 46

Question
TerraLoc's decision to manufacture the battery in-house is most consistent with which explanation of vertical integration?
Answer
  • Flexibility-based explanations
  • Firm capability-based explanations
  • Alliance-based explanations
  • Opportunism-based explanations

Question 47

Question
TerraLoc's development of the new battery technology is likely to
Answer
  • 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.

Question 48

Question
TerraLoc is most likely to use the ________ organizational structure.
Answer
  • matrix
  • product-based multidivisional
  • functional
  • geography-based multidivisional

Question 49

Question
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
Answer
  • 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.

Question 50

Question
If TerraLoc wanted to expand into selling its GPS units through company-owned retail stores, this would be an example of ________
Answer
  • forward vertical integration.
  • backward vertical integration.
  • opportunism.
  • a joint venture.
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