Final Exam

Question 1

Two Business Strategies

Answer 1

1. Low cost –> economies of scale, standardization, functional
2. Differentiation –> customization, adaptation, decentralized

Question 2

Four Organizational Structures

Answer 2

Simple
Functional
Divisional
Matrix

Question 3

Pros/Cons of Functional Structure

Answer 3

+Efficiency
+consolidation, control
-difficult to establish uniform standards of performance

Question 4

Pros/Cons of Divisional Structure

Answer 4

+Effectiveness

-Duplication of activities

Question 5

Pros/Cons of Matrix Structure

Answer 5

+Efficient utilization of resources
+Improved communication, flexibility
-Confusion of leadership, conflicts of power

Question 6

Cost-Adaption Framework: Low cost, Low Adaption

Answer 6

International Strategy

Question 7

Cost-Adaption Framework: High cost, Low Adaption

Answer 7

Global Strategy

Question 8

Cost-Adaption Framework: Low cost, High Adaption

Answer 8

Multi-domestic Strategy

Question 9

Cost-Adaption Framework: High cost, High Adaption

Answer 9

Transnational

Question 10

Four Reasons to Outsource

Answer 10

1. Reduce costs
2. Access supplier core competency
3. Focus on high value-add activities
4. Flexibility

Question 11

Two ways to reduce costs when outsourcing

Answer 11

1. Lower cost structure (wages)

2. Supplier economies of scale

Question 12

Focus on high value add activities (2)

Answer 12

1. Smile curve

2. Economic profit vs. accounting profit, opportunity cots

Question 13

Four Transaction Costs

Answer 13

1. Search
2. Negotiation
3. Monitoring
4. Enforcement

Question 14

Seven Administrative Costs

Answer 14

1. Differences in optimal scale
2. Developing distinct competencies
3. Managing Strategically different businesses
4. Incentive problem
5. Competitive affects of VI (HTC)
6. Compounding risk
7. Flexibility

Question 15

Why Vertically Integrate? (6)

Answer 15

1. Transactions costs > Admin costs
2. Create market power, raise barriers to entry
3. Market failure
4. Counter market power
5. Develop a market (new, or there is exiting happening)
6. Strategy (Apply in retail)

Question 16

Three Market Failures

Answer 16

1. Small number of buyers and sellers
2. Asset specificity (location, technical, human capital)
3. Frequent transactions

Question 17

High Frequency, Low Asset Specificity

Answer 17

Structured Transaction

Question 18

Low Frequency, Low Asset Specificity

Answer 18

Standardized Contracts

Question 19

High Frequency, High Asset Specificity

Answer 19

Vertically Integrate

Question 20

Low Frequency, High Asset Specificity

Answer 20

Unique Contract

Question 21

BCG Matrix Limitations/Assumptions (5)

Answer 21

1. That there is a correlation between market share and profit (Livenation)
2. Growing industries are easy (HTC, Sony)
3. Ignores interdependencies between SBUs
4. Is subjective
5. Balanced portfolio of internal cash flows

Question 22

Operational Economies of Scope (2)

Answer 22

1. Sharing activities

2. Transferring skills, part of competitive advantage

Question 23

Two sharing activities

Answer 23

1. Reduce costs, economies of scale

2. Increased revenue: bundling, reputation spillover

Question 24

Financial Economies of Scope (3)

Answer 24

1. Risk reduction
2. Tax advantages
3. Internal capital allocation

Question 25

Anti-competitve Economies of Scope (2)

Answer 25

1. Multi-market competition, mutual forbearance | 2. Market power, cross-subsidation, predatory pricing

Question 26

Managerial Economy of Scope (1)

Answer 26

Firm size drives manager compensation, agency theory, primary reason for many mergers

Question 27

Porter Three Tests for Diversification

Answer 27

1. Attractiveness, 5 forces analysis 2. Cost of Entry, must not capitalize future profits 3. Better Off, operational economies of scope?

Question 28

Reasons for Mergers that usually lead to competitive advantage (4)

Answer 28

1. Revenue enhancements 2. Cost savings 3. Transferring skills/technology 4. Market Power

Question 29

Reasons for Mergers that usually do NOT lead to competitive advantage (5)

Answer 29

1. Ensuring survival 2. Tax benefits 3. Defensive 4. Financial engineering 5. Managerial pay increase

Question 30

Why do mergers often fail?

Answer 30

1. Overpay 2. Integration failure 3. Wrong motivation

Question 31

Why did Coke want to buy its bottlers? (3)

Answer 31

1. Stop negotiating 2. faster introduction of new products, flexibility 3. Reconfigure distribution channel and reduce redundancies