Question 1

TerraLoc's decision to manufacture the battery in-house is most consistent with which explanation of vertical integration?
A) Flexibility-based explanations
B) Firm capability-based explanations
C) Alliance-based explanations
D) Opportunism-based explanations

Accepted Answer

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Question 2

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

Accepted Answer

All of the other options listed would help the CEO ensure that managers do not become too focused on the short term. However, determining the budgets for managers and only allowing them to focus on meeting those budgets could lead to short-term thinking and potentially harm the long-term success of the company.

Question 3

Within the flexibility-based approach to vertical integration when should firms engage in strategic alliances instead of vertical integration,and what are the advantages of alliances under these conditions?

Accepted Answer

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Question 4

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
A) flexibility.
B) opportunism.
C) uncertainty.
D) vertical integration.

Accepted Answer

This scenario represents opportunistic behavior on the part of the supplier, who took advantage of the situation by delivering substandard products without disclosing the information. This type of behavior can harm the relationship between the supplier and Digipics and jeopardize future business dealings.

Question 5

Discuss the opportunism-based explanation of vertical integration value creation and identify when,under this explanation,firms should vertically integrate.In your answer be sure to clearly define opportunism and the role that transaction-specific investments play in the opportunism-based explanation.

Accepted Answer

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Question 6

Identify the three fundamental explanations of how vertical integration can create value and discuss how value is created under each.

Accepted Answer

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Question 7

Identify three reasons why a firm may be able to create value through vertical integration when most of its competitors are not able to create value through vertical integration.

Accepted Answer

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Question 8

Define vertical integration and differentiate between forward vertical integration and backward vertical integration.

Accepted Answer

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Question 9

TerraLoc's development of the new battery technology is likely to
A) reduce the rarity of TerraLoc's vertical integration strategy since competitors can purchase batteries from other sources.
B) increase the rarity of TerraLoc's vertical integration strategy since TerraLoc has reduced uncertainties related to increased battery life in its products.
C) increase the imitability of TerraLoc's vertical integration strategy since competitors can purchase traditional batteries from other sources.
D) decrease the imitability of TerraLoc's vertical integration strategy since it increases competitors' flexibility.

Accepted Answer

TerraLoc's development of the new battery technology increases the rarity of their vertical integration strategy as it reduces uncertainties related to increased battery life in their products. This means that their competitors may find it harder to replicate TerraLoc's strategy, as they may not have access to the same battery technology, demonstrated by TerraLoc's ability to innovate in this area.

Question 10

Discuss the firm capabilities-based explanation of how vertical integration can create value.In your discussion identify the two broad implications of this approach and when,under this approach,firms should engage in vertical integration.

Accepted Answer

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Question 11

If Digipics were to begin manufacturing lenses for the cameras they assembled,this would be an example of
A) backward vertical integration.
B) a strategic alliance.
C) forward vertical integration.
D) opportunism.

Accepted Answer

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Question 12

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

Accepted Answer

Forward vertical integration involves a company expanding its operations downstream by acquiring or owning distribution or retail channels. In this case, TerraLoc is expanding its sales channels by opening its own retail stores, which is an example of forward vertical integration.

Question 13

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
A) forward vertical integration.
B) backward vertical integration.
C) a transaction-specific investment.
D) opportunism.

Accepted Answer

This is a transaction-specific investment because it is tailored for the specific needs of PicPro and would not be useful for any other customer.

Question 14

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
A) backward vertical integration.
B) a strategic alliance.
C) forward vertical integration.
D) opportunism.

Accepted Answer

Forward vertical integration involves a company taking control of the distribution and sales of its products by selling directly to its customers. This is exactly what Digipics would be doing if it were to sell its cameras through its website.

Question 15

What type of compensation approach goes best with the flexibility explanation of vertical integration?

Accepted Answer

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Question 16

Discuss the role of the budgeting process as a control mechanism in vertically integrated U-form organizations,the potential unintended negative consequence budgets can have,and three things CEOs can do to counter this potential consequence.

Accepted Answer

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Question 17

TerraLoc is most likely to use the ________ organizational structure.
A) matrix
B) product-based multidivisional
C) functional
D) geography-based multidivisional

Accepted Answer

TerraLoc's organizational structure is focused on manufacturing its proprietary GPS units and battery in-house to ensure quality control and prevent reverse engineering. This suggests a functional organizational structure where departments are organized by specialized functions such as manufacturing, research and development, and sales. In this structure, each department has a specific role to play in the production and sale of the product, and there is a clear chain of command. The other options, such as matrix, product-based multidivisional, and geography-based multidivisional, do not align with TerraLoc's specific focus on in-house manufacturing and direct sales.

Question 18

Identify the organizational structure that is used to implement a vertical integration strategy and why from a CEO's perspective coordinating functional specialists to implement a vertical integration strategy almost always involves conflict resolution and how this conflict can be resolved.

Accepted Answer

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Question 19

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.
A) low flexibility
B) low opportunism
C) high flexibility
D) high opportunism

Accepted Answer

The fact that it would be very costly for Digipics to alter its operations if the large customer decided to stop doing business with them suggests that they have low flexibility in this situation.

Question 20

Discuss the flexibility-based explanation of vertical integration.In discussing this explanation be sure to define flexibility,the role of uncertainty in this explanation,and identify when,under this explanation,firms should engage in vertical integration.

Accepted Answer

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Quiz 6: Vertical Integration

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

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

Within the flexibility-based approach to vertical integration when should firms engage in strategic alliances instead of vertical integration,and what are the advantages of alliances under these conditions?

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

Identify the three fundamental explanations of how vertical integration can create value and discuss how value is created under each.

Identify three reasons why a firm may be able to create value through vertical integration when most of its competitors are not able to create value through vertical integration.

Define vertical integration and differentiate between forward vertical integration and backward vertical integration.

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

Discuss the firm capabilities-based explanation of how vertical integration can create value.In your discussion identify the two broad implications of this approach and when,under this approach,firms should engage in vertical integration.

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

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

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

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

What type of compensation approach goes best with the flexibility explanation of vertical integration?

Discuss the role of the budgeting process as a control mechanism in vertically integrated U-form organizations,the potential unintended negative consequence budgets can have,and three things CEOs can do to counter this potential consequence.

TerraLoc is most likely to use the ________ organizational structure.

Identify the organizational structure that is used to implement a vertical integration strategy and why from a CEO's perspective coordinating functional specialists to implement a vertical integration strategy almost always involves conflict resolution and how this conflict can be resolved.

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.

Discuss the flexibility-based explanation of vertical integration.In discussing this explanation be sure to define flexibility,the role of uncertainty in this explanation,and identify when,under this explanation,firms should engage in vertical integration.