Chapter test questions: 1-3

Question 1

• realized strategy :

Answer 1

is a sum of deliberate strategy and emergent strategy (test question)

Question 2

• Business and corporate strategy difference (midterm , final exam - essay)

Answer 2

corporate ->
industry attractiveness: which industries should we be in
-> Corporate Strategy (WHERE TO COMPETE)

Business ->
Competitive Advantage: How should we compete ->
BUSINESS STRATEGY (HOW TO COMPETE)

Question 3

Corporate-level Strategy

►

Answer 3

Corporate-level Strategy
► defines the scope of the firm in terms of the industries and
markets in which it competes (i.e. where to compete?)

Question 4

Business-level Strategy

►

Answer 4

Business-level Strategy
► is concerned with how the firm competes within a particular
industry or market (i.e. how to compete?): how to establish a
competitive advantage over rivals

Question 5

► Intended strategy:

Answer 5

► Intended strategy: strategy as conceived of by the

top management team

Question 6

Realized strategy:

Answer 6

Realized strategy: the actual strategy that is

implemented

Question 7

Emergent strategy:

Answer 7

Emergent strategy: decisions that emerge from
the complex processes in which managers interpret
the intended strategy and adapt to changing
external circumstances

Question 8

◦What do you need for realized strategy
‣
‣

Answer 8

Test question
◦What do you need for realized strategy
‣ Deliberate strategy
‣ Emergent strategy

Question 9

Utilitarianism (John Stuart Mill)
–
–

Answer 9

Utilitarianism (John Stuart Mill)
– “A good society creates the greatest good for the greatest
number of people”.
– Goodness is measured as UTILITY: “what’s right” can be calculated by the total benefits minus total costs (created by the action).

Question 10

Rights (Immanuel Kant)
– “ “
–
–

Answer 10

Rights (Immanuel Kant)
– “The good society ensures a basic set of rights for its citizens”.
– People have fundamental rights that cannot be violated or
traded away and duties they cannot ignore.
– Viewing people as ends in themselves (never a means)

Question 11

Liberty (Robert Nozick)
– “ ”
–
–

Answer 11

Liberty (Robert Nozick)
– “A good society creates the most freedom for people to act as they please”.
– Advocating limited government and efficient market mechanism
– “Ethical behavior” promotes human freedom of expression and development.

Question 12

Ethics of care (Carol Gilligan)
–
–

Answer 12

Ethics of care (Carol Gilligan)
– “In a good society, individuals care for each other, exhibit
empathy with others, and focus on meaningful relationships”.
– Relationships matter the most

Question 13

►
►

Answer 13

Firm as Property View
Shareholder
Emphasis
- Shareholders compete
for attention and
resources of the firm
► Gain of one is a loss to
the other
e.g. increasing
employee benefits
means higher labor
cost, so it is a loss for
shareholders

Question 14

►
►

Answer 14

Firm as Social Entity View
-  Stakeholder Emphasis
► Stakeholders are
dependent on each other
for their success and wellbeing
► Mutual benefits
e.g. increasing employee benefits means
higher employee morale, so it is a longterm again for shareholders

Question 15

Triple Bottom Line
►
►

Answer 15

Triple Bottom Line
► a concept which seeks to broaden the focus on the
financial aspect and measures a company’s degree
of CSR
► Assessment of a firm’s (a) SOCIAL , (b) ENVIRONMENTAL and (c) FINANCIAL PERFORMANCE

Question 16

Social Enterprise

Three Characteristics

Answer 16

Three Characteristics

1. Social entrepreneurship meets needs unmet by commercial markets and (usually) the government.
2. Social entrepreneurship is motivated by social benefit.
3. Successful social entrepreneurship usually works with, not against, markets.

Question 17

► How agency problems occur

[2]

Answer 17

• adverse selection

- moral hazard

Question 18

► Adverse selection (ex ante):

Answer 18

► Adverse selection (ex ante)
► By the limited ability of shareholders to precisely
determine the competencies and priorities of executives at
the time they are hired
(i.e. selecting wrong executives)

Question 19

Moral Hazard (ex post):

Answer 19

Moral Hazard (ex post)
► Because owners have limited access to company
information, making executives free to pursue their own
interests.
(i.e. selected executives act selfish)

Question 20

Agency Costs
►
►
►

Answer 20

Agency Costs
► Sum of incentive costs, monitoring costs,
enforcement costs, and individual financial losses
incurred by principals, because governance
mechanisms cannot guarantee total compliance by
the agent
► Principals may engage in monitoring behavior to assess the
activities and decisions of managers.
► However, dispersed shareholding makes it difficult and
inefficient to monitor management’s behavior.

Question 21

External Governance Mechanisms
►
►
►

Answer 21

External Governance Mechanisms
► Market for Corporate Control
► This market is a set of potential owners seeking to acquire undervalued firms and earn above-average returns on their investments by replacing ineffective top-level management
teams.
► Ineffective or opportunistic managers can be replaced by takeover, thus threat of takeover may discipline managers.

Question 22

► Three Director Classifications

Answer 22

1. insiders
2. related outsiders
3. outsiders

Question 23

► Insiders:

managers

Answer 23

► Insiders: the firm’s CEO and other top-level managers

Question 24

► Related Outsiders:

Answer 24

► Related Outsiders: individuals uninvolved with day-to-day operations, but who have a relationship with the firm

Question 25

Outsiders:

Answer 25

Outsiders: individuals who are independent of the firm’s day-to-day operations and other
relationships

Question 26

CEO-Chairperson Duality

►

Answer 26

CEO-Chairperson Duality

► Duality: CEO also serve as a chairperson of the board

Question 27

Which is one should be more outsiders
or insiders [test question]
◦

Answer 27

Which is one should be more outsiders
or insiders [test question]
◦Outsiders

Question 28

Stock Options
►
►

Answer 28

Stock Options
► Right to buy stocks at certain price
► e.g. Facebook: Mark Zuckerberg can buy a share at 6 cents
for next few years

Question 29

► [ Example ] Principal-Principal (PP) Conflicts

►

Answer 29

► [ Example ] Principal-Principal (PP) Conflicts
► In public family firms, hiring family member as
executives, making special dividends favorable to
family owners, using other family member’s
company as a supplier etc. can create P-P conflicts.

Question 30

In principal-prinpipcal conflict,
what owner issues can they have
[test question]

Answer 30

-