Chapter 11 Organizational Structure and Controls True/False 1. As shown in the Chapter 11 Opening Case, Borders was able to structure its operations in ways that allowed it to manage the different businesses in each country and market effectively. A. True B. False Answer: False 2. The Chapter 11 Opening Case about Borders shows that although strategy has an important influence on structure, once a particular structure is in place, that structure influences strategy. A. True B. False Answer: True 3. An overriding lesson from the Chapter 11 Opening Case about Borders is that failure to properly structure an organization can contribute to poor strategic decisions and eventually bankruptcy. A. True B. False Answer: True 4. Strategy has an important influence on structure, although once in place, structures influence strategy. A. True B. False Answer: True 5. Over time, large and complex organizations must customize their structure to fit their unique strategic needs. A. True B. False Answer: True 6. Organizational structures must be both stable and flexible. A. True B. False Answer: True 7. Organizational inertia often prompts top management to initiate structural change when organizational performance levels drop. A. True B. False Answer: False 8. With a related diversification corporate-level strategy, financial controls are used by corporate leaders to verify the sharing of appropriate strategic factors such as knowledge, markets, and technologies across businesses. A. True B. False Answer: False 9. Strategic controls are largely subjective criteria intended to verify that the firm is using appropriate strategies for the conditions in the external environment and the company's competitive advantages. A. True B. False Answer: True 10. Organizational controls guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions to take when the difference is unacceptable. A. True B. False Answer: True 11. To properly execute strategic controls in firms using related diversification, the executives must have a deep understanding of each unit's business-level strategy. A. True B. False Answer: True 12. RexMacDonald, Inc., uses a differentiation strategy that relies on cooperation, communication, and sharing of ideas among employees. In order to foster this behavior, RexMacDonald should emphasize strategic controls over financial controls. A. True B. False Answer: True 13. Companies and business units of large diversified firms using the cost leadership strategy should use strategic controls. A. True B. False Answer: False 14. Companies and business units using the differentiation strategy should emphasize financial rather than strategic controls. A. True B. False Answer: False 15. According to Michael Dell, an overemphasis on financial controls to produce attractive short-term results contributed to performance difficulties at Dell, Inc. This point emphasizes the importance of properly balancing the use of strategic and financial controls. A. True B. False Answer: True 16. Research shows that structure has a more important influence on strategy than the reverse and hence the emphasis of the chapter on the subject of structure. A. True B. False Answer: False 17. The centralized structure used by Borders (Chapter 11 Opening Case) did not provide information from local stores that might have been useful in changing its technology strategy more quickly than it did. This example illustrates the effect of structure on strategy. A. True B. False Answer: True 18. Research has consistently shown that there is one best way to structure all organizations, regardless of competitive strategy. A. True B. False Answer: False 19. The simple structure is used by owner-managed firms which are characterized by informal relationships, few rules, limited task specialization, and unsophisticated information systems. A. True B. False Answer: True 20. As a firm grows, it typically shifts from a simple structure to a functional structure. A. True B. False Answer: True 21. A simple structure is an organizational form in which the owner-manager makes all major decisions directly and monitors all activities, while the staff merely serves as an extension of the manager's supervisory authority. A. True B. False Answer: True 22. Specialization refers to the extent to which authority for decision making is retained at higher managerial levels. A. True B. False Answer: False 23. There are three variations of the multidivisional structure. A. True B. False Answer: True 24. High levels of formalization of rules and procedures which often emanate from the centralized staff are a characteristic of the structure used to implement the cost leadership strategy. A. True B. False Answer: True 25. Centralized and formalized procedures allow for greater flexibility, an important factor for firms using a cost leadership strategy. A. True B. False Answer: False 26. The marketing and R&D functions are emphasized in the differentiation strategy's functional structure. A. True B. False Answer: True 27. Firms using the differentiation strategy need to respond quickly to environmental opportunities and threats. The structural features that are best for these requirements are centralization, specialization, and many rules and procedures. A. True B. False Answer: False 28. The integrated cost leadership/differentiation strategy needs structural features that are partially centralized and partially decentralized, jobs that are semi-specialized, and rules and procedures that call for some formal and some informal job behavior. A. True B. False Answer: True 29. Firms switch from a functional structure to a multidivisional structure because greater levels of environmental complexity and uncertainty make it necessary for the firm to develop cooperative relationships with its stakeholders. A. True B. False Answer: False 30. The three multidivisional structures that are used to implement a diversification strategy are the competitive form, the strategic business unit form, and the integrated form. A. True B. False Answer: False 31. The cooperative form is an M-form structure in which horizontal integration is used to bring about interdivisional cooperation. A. True B. False Answer: True 32. To implement a related constrained strategy, firms should use the cooperative form of the multidivisional structure. A. True B. False Answer: True 33. Cisco implemented the related constrained strategy using the SBU form of the multidivisional structure. A. True B. False Answer: False 34. The matrix organization has a dual structure combining functional specialization and business product or project specialization. A. True B. False Answer: True 35. To implement a related linked strategy, a firm usually needs an SBU structure. A. True B. False Answer: True 36. An SBU structure consists of at least three levels: the top level, the corporate headquarters; the next level, the strategic business units (SBUs); and the final level, SBU divisions. A. True B. False Answer: True 37. The divisions within each SBU are related in terms of shared products or markets, but the divisions of one SBU have little in common with the divisions of the other SBUs. A. True B. False Answer: True 38. The competitive form of the M-form structure is characterized by complete independence among the form's divisions. Unlike the divisions included in the cooperative structure, divisions that are part of the competitive structure do not share common strengths. A. True B. False Answer: True 39. Internal competition for corporate resources is effective for companies with an unrelated diversification strategy, but dysfunctional for companies with a related constrained strategy. A. True B. False Answer: True 40. The selection of an organizational structure for an internationally diversified firm should consider the international corporate-level strategy the firm is using. A. True B. False Answer: True 41. The organizational structure for an internationally diversified firm requires trade-offs between global integration and local market responsiveness. A. True B. False Answer: True 42. Firms implementing the multidomestic strategy often attempt to isolate themselves from global competitive forces by establishing protected market positions or by competing in industry segments that are most affected by differences among local countries. A. True B. False Answer: True 43. The worldwide geographic area structure differs from the worldwide product divisional structure in the level of centralization of decision making. A. True B. False Answer: True 44. The worldwide product divisional structure has centralized decision-making authority in the worldwide division headquarters to coordinate and integrate decisions and actions among business units. A. True B. False Answer: True 45. In the hybrid form of the combination structure, some divisions are oriented toward products while others are oriented toward market areas. A. True B. False Answer: True 46. A strategic network can be characterized as a loose federation of partners revolving around a strategic center firm. A. True B. False Answer: True 47. Arnold Schwartz, CEO and founder of Schwartz Engineering, has repeatedly rebuffed efforts by other firms to draw Schwartz Engineering into strategic alliances. Schwartz Engineering has built its highly successful business around proprietary processes invented by Mr. Schwartz in the 1980s. Mr. Schwartz is concerned that his firm will be required to share the sources of its competitive advantage with alliance partners. This is a reasonable fear. A. True B. False Answer: True 48. For firms in a vertical complementary alliance (such as between Toyota and its suppliers), it is more difficult to identify the strategic center firm than in a horizontal complementary alliance (for example, airline alliances). A. True B. False Answer: False 49. Alliances of organizations in the same position on the value chain are known as vertical alliances. A. True B. False Answer: False 50. If firms band together in a large number of vertical complementary strategic alliances, there is a danger that the government will suspect them of illegal collusive activities. A. True B. False Answer: False 51. Distributed strategic networks are the organizational structure used to manage international cooperative strategies. A. True B. False Answer: True Multiple Choice 52. An important lesson from the Chapter 11 Opening Case about Borders is that A. Borders did a good job of implementing its strategy but its structure was wrong. B. structures rarely evolve in response to strategic change. C. while a firm's structure usually follows the strategy, once in place, structure can have a significant effect on strategy. D. Borders' decentralized structure led to poor decision making. Answer: C 53. Which of the following is TRUE? A. Organizations tend to change structure too frequently, which erodes their competitive advantage. B. Large organizations can retain a simple structure as long as they have a focus strategy. C. Flexibility in structure is more important than stability. D. Strategy has a more important influence on structure than structure has on strategy. Answer: D 54. Organizational structure A. specifies the firm's formal reporting relationships, procedures, controls, and authority and decision-making processes. B. specifies the firm's informal reporting relationships, procedures, controls, and authority and decision-making processes. C. specifies the firm's formal value proposition, the markets it will serve, and how the firm will provide value in those markets. D. specifies the firm's control mechanisms, grievance procedures, reporting relationships, procedures, and authority over decision-making processes. Answer: A 55. The Amos Ball Printing Company was established in 1866. Currently, Amos Ball V is the CEO and chairman of the board. The company has traditionally used a functional structure. Five years ago, the company branched into online publishing and small-batch printing in addition to its regular large-batch operations. Both new businesses are significantly different in technology and marketing from each other and from Ball's traditional business. Despite the hiring of experienced professionals in these new endeavors, performance continues to be poor and is affecting Ball's overall performance. Which of the following statements is TRUE? A. Amos should consider adopting the multidivisional structure. B. Mr. Ball has insufficient power to change the structure of the organization. C. Restructuring must only be done from a position of strength, so it is necessary to wait until the company's overall performance improves before making radical changes. D. These businesses are too disparate to coordinate within one corporate structure. Answer: A 56. A firm's _________ specifies the work to be done and how to do it given the firm's strategy or strategies. A. structure B. controls C. culture D. strategy Answer: A 57. Structural stability affects the organization's ability to A. resist organizational inertia. B. cope with uncertainty about cause-and-effect relationships in the global economy. C. develop new competitive advantages. D. consistently and predictably manage its daily work routines. Answer: D 58. Selecting the organizational structure and controls that effectively implement the chosen strategy is a challenge for managers because A. firms must be flexible while retaining a degree of stability. B. managers are never able to obtain all the information necessary to make the best selection. C. the structure of a firm should not duplicate the structures of its competitors. D. the environment changes too rapidly for corporations to maintain a consistent corporate structure. Answer: A 59. One reason why a long-tenured top-level manager may hesitate to conclude the firm's structure is a problem is that doing so A. indicates to competitors that the firm is vulnerable to a hostile takeover. B. will only lead to inefficiencies. C. requires that the firm undertake a multi-year restructuring period that will delay retirement. D. suggests that the firm's previous choices were not the best ones. Answer: D 60. Strategic controls allow corporate-level managers to A. evaluate business-level performance on objective criteria. B. concentrate on day-to-day corporate operations. C. assess performance of employees and managers in each business unit. D. examine the fit between what the firm might do and what it can do. Answer: D 61. Financial controls are most important in the _________ strategy. A. single business B. related constrained C. unrelated diversified D. vertical complementary Answer: C 62. ________ controls are objective criteria that allow corporate managers to evaluate the returns earned by individual business units. A. Strategic B. Managerial C. Financial D. Environmental Answer: C 63. Alfred Chandler found that firms grow in a predictable pattern and that the firm's growth patterns determine its structural form. Which form corresponds to the FINAL stage in Chandler's theory? A. functional B. simple C. vertically integrated D. multidivisional Answer: D 64. Andermeyer Jewelers, which specializes in high-end jewelry, has been in existence since the 1870s and has served generations of wealthy families. Owned and managed by the Andermeyer family since its founding, it has never had more than 20 designers and jewelers in its shop. Andermeyer Jewelers should use the _________ structure. A. simple B. functional C. matrix D. network Answer: A 65. Typically, an organization using a simple structure would be A. large. B. small. C. of any size if the firm is privately held. D. a family-owned-and-managed firm of any size. Answer: B 66. In most cases, the focus strategy is best managed using a _________ structure. A. simple B. functional C. multidivisional D. vertical Answer: A 67. The benefits of a simple structure include all of the following EXCEPT A. ease of coordination within the organization. B. the lack of a need for sophisticated information systems. C. active involvement by the owner-manager. D. the ability of specialists to develop deep expertise. Answer: D 68. Functional structures work best for firms for all of the following strategies EXCEPT A. cost leadership strategy. B. differentiation strategy. C. related constrained diversification strategy. D. single or dominant business corporate strategy. Answer: C 69. Leslie is a newly graduated certified public accountant with a specialty in corporate tax. She wishes to join an organization (not an accounting firm) that will allow her to concentrate on corporate tax and become deeply proficient in this area. Leslie should look for a position in a firm with a _________ structure. A. simple B. functional C. multidivisional D. network Answer: B 70. One disadvantage of the functional structure is that A. career paths and professional development are limited. B. dual reporting relationships blur lines of authority. C. the CEO cannot coordinate and control the efforts of functional-level employees. D. communication and coordination are difficult among organizational functions. Answer: D 71. Which of the following does NOT cause a firm to move from a functional structure to a multidivisional structure? A. increasing diversification B. coordination and control issues C. need for knowledge-sharing among specialists D. greater amounts of data and information to process Answer: C 72. The multidivisional structure was initially designed to produce three major benefits over the functional form. Which of the following is NOT one of the three benefits? A. aligning the corporate structure with the demands of global expansion B. more accurate monitoring of the performance of each business C. facilitating comparison between divisions D. stimulating managers of poorly performing divisions to look for ways of improving performance Answer: A 73. Jumbo Industrial Supply has grown from a one-location firm with a restricted product line to a multi-state organization with numerous product lines and a large sales staff. Sales have doubled every year for the last three years. It currently has a simple structure with Jared Smith, the owner-manager, making all major decisions. Jumbo is probably now experiencing or will soon experience A. coordination and control problems. B. bureaucratic inefficiencies. C. excessive competition among division managers. D. limited communication among functional specialists. Answer: A 74. The noted business historian Alfred Chandler viewed the multidivisional structure as an innovative response to A. an emerging professional management philosophy. B. the increasing demand by consumers for both high quality and low prices. C. coordination and control problems. D. a shift toward the global economy. Answer: C 75. Some experts consider the ________ structure to be one of the 20th century's most significant organizational innovations because of its value to diversified firms. A. network B. cooperative C. multidivisional D. functional Answer: C 76. The three structural characteristics that differ among organizational structures include all of the following EXCEPT A. centralization. B. formalization. C. specialization. D. intermediation. Answer: D 77. Which of the following is NOT associated with an organizational structure that supports a cost leadership strategy? A. centralization B. specialization C. formalization D. integration Answer: D 78. _________ is the degree to which rules and procedures govern work. A. Formalization B. Centralization C. Specialization D. Unification Answer: A 79. ____ is the degree to which decision-making authority is retained at higher managerial levels. A. Formalization B. Centralization C. Specialization D. Unification Answer: B 80. Successfully implementing a cost leadership strategy requires A. freedom from constraining rules. B. centralization of authority. C. communication between functional silos. D. sharing of competencies among divisions. Answer: B 81. Agatha Adams founded Insurance Specialists to process medical claims for physicians' practices. She plans to compete on the basis of cost, offering the lowest processing cost per claim in her market area. Ms. Adams' company should A. be the strategic center firm in a network structure. B. have a specialized multidivisional structure. C. develop alliances with firms with complementary competencies. D. have a highly centralized, functional structure. Answer: D 82. Walmart's effective strategy/structure configuration is A. cost leadership/functional. B. differentiation/functional. C. related constrained/multidivisional. D. related linked/multidivisional. Answer: A 83. Firms seeking to compete on the basis of cost leadership particularly need support from the ________ and ________ functions. A. finance; accounting B. manufacturing; process R&D C. product R&D; marketing D. management information; finance Answer: B 84. Firms seeking to differentiate particularly need support from the _________ and _________ functions. A. finance; accounting B. engineering; operations C. product R&D; marketing D. management information; finance Answer: C 85. Typically, a successful firm pursuing a differentiation strategy will A. have a very hierarchical structure. B. require a structure that is very formal. C. use cross-functional development teams. D. develop free-standing business units. Answer: C 86. Which of the following is a TRUE statement about organizational structures for implementing business-level strategies? A. A cost leadership strategy requires a simple structure emphasizing high specialization, centralization, and structured job roles. B. A differentiation strategy requires a functional structure with limited formalization, broad job descriptions, and an emphasis on the product R&D and marketing functions. C. An integrated cost leadership/differentiation strategy requires a multidivisional structure using high formalization, decentralized decision making, and vertical coordination. D. A focused strategy requires a functional structure featuring high levels of both specialization and formalization. Answer: B 87. Successful implementation of the differentiation strategy requires a structure that A. has specialized jobs. B. decentralizes decision making. C. focuses on the finance function. D. is dominated by the operations function. Answer: B 88. The integrated cost leadership/differentiation strategy is difficult to implement mostly because A. different primary and support activities are emphasized when using cost leadership and differentiation strategies. B. this strategic approach demands more flexibility than most firms can manage. C. the dual reporting relationships required for this strategy slow organizational decision making. D. the cost leadership strategy requires less structured job roles than does the differentiation strategy. Answer: A 89. The ______ structure is the most appropriate structure for implementing the integrated cost leadership/differentiation strategy. A. simple B. functional C. multidivisional D. strategic business unit Answer: B 90. The _________ structure is best for implementing the related-constrained diversification strategy. A. functional B. competitive form of the multidivisional C. SBU form of the multidivisional D. cooperative form of the multidivisional Answer: D 91. Which of the following is NOT a variation of the multidivisional structure? A. competitive form B. regional form C. cooperative form D. strategic business unit form Answer: B 92. The BEST multidivisional structure to use A. is the competitive form. B. is the SBU form. C. is the cooperative form. D. depends on the degree of diversification. Answer: D 93. Cisco's _________ corporate-level structure was useful in implementing its _________ business-level strategy. A. SBU form; integrated cost leadership-differentiation B. competitive form; differentiation C. cooperative form; cost leadership D. cooperative form; integrated cost leadership-differentiation Answer: D 94. Cisco used the _________ structure to implement its _________ strategy. A. functional; cost leadership. B. SBU form of the multidivisional; related linked C. cooperative form of the multidivisional; related linked D. cooperative form of the multidivisional; related constrained Answer: D 95. Ortiz is a manager of BRS Corp. Ortiz's division did not meet financial targets this year. Ramirez, manager of another division, has indicated that Ortiz's division incurred significant costs which resulted in Ramirez's division setting record profits for the year. As a result, performance for BRS as a whole exceeded projections. Which pairing of organizational structures for BRS and bonus for Ortiz is most plausible? A. cooperative structure; no bonus due to failure to meet divisional target B. competitive structure; no bonus due to failure to meet divisional target C. cooperative structure; a bonus for increasing organizational performance D. competitive structure; a bonus for increasing organizational performance Answer: C 96. The cooperative multidivisional firm A. establishes profit centers based on products or markets. B. has a flat organizational structure which broadens jobs and empowers workers. C. has a structure organized around both functional specialization and business projects. D. has a structure requiring heavy use of horizontal integrative devices. Answer: D 97. Which organizational structure will emphasize financial controls for headquarters' evaluation of operating units while the operating units will emphasize strategic controls within their units' performance? A. functional B. cooperative M-Form C. SBU form D. competitive M-Form Answer: C 98. Which of the following is a TRUE statement about implementing corporate-level strategies and effective organizational structures? A. Firms pursuing a related linked strategy should implement a competitive structure with a competitive culture and centralized strategic-planning activities. B. Firms pursuing an unrelated diversification strategy should use an SBU structure with a small corporate staff, emphasize the R&D function, and integrate divisions to achieve synergies. C. Firms pursuing a related linked strategy should use an SBU structure, emphasize interdependence among divisions, and manage the strategic planning function from the central office. D. Firms pursuing a related constrained strategy should implement a cooperative structure, use integrative devices to link divisions, centralize the R&D function, and emphasize sharing. Answer: D 99. The ________ structure is an organizational structure that combines both functional specialization and business product or project specialization. A. functional B. worldwide geographic area C. network D. matrix Answer: D 100. The heavy use of integrative mechanisms in the ______ multidivisional organizational structure is intended to achieve A. cooperative; economies of scope. B. competitive; cost efficiencies. C. functional; sensitivity to cultural diversity. D. SBU; quick response to local customer needs. Answer: A 101. When a corporation pursues a related constrained diversification strategy, financial controls may not add value to strategy implementation efforts because it is difficult to A. use them without reducing cooperation among divisional managers. B. transfer capital between units. C. maintain an arms-length relationship between headquarters and the divisions. D. identify which objective criteria to monitor. Answer: A 102. A firm pursuing a related constrained diversification strategy would typically need all of the following EXCEPT A. centralization of some organizational functions for the sake of coordination. B. frequent, direct contact between division managers. C. division managers' rewards based on division financial performance. D. temporary teams or task forces formed around specific projects. Answer: C 103. Icarus Aviation, Athena Instrumentation, and Hercules Miniaturization are strategic business units of Olympia Industries. One can expect that Icarus, Athena, and Hercules A. use integrative mechanisms to share core competencies. B. compete with one another in Olympia's internal capital markets. C. are not necessarily related to one another in terms of products or markets. D. are network member firms while Olympia is the strategic center firm. Answer: C 104. A private university is made up of various "schools," such as the School of Journalism, the School of Business, the School of Law, the School of Arts and Sciences, and so forth. The university is experiencing some financial problems, so the administration has decided to have each school of the university become a profit center. This scheme is somewhat parallel to the _________ organizational structure. A. network B. strategic business unit multidivisional C. functional D. matrix Answer: B 105. In an SBU structure, ______ is/are evaluated using strategic controls, whereas ___________ is/are evaluated using financial controls. A. each SBU; divisions within the SBUs B. divisions within the SBUs; each SBU C. managers of the SBUs; headquarters staff D. headquarters staff; managers of the SBUs Answer: B 106. The most centralized and most costly form of the multidivisional structure is the A. integrated. B. competitive. C. SBU. D. cooperative. Answer: D 107. Which of the following multidivisional structures is CORRECTLY paired with the appropriate corporate-level strategy? A. competitive form with related-constrained strategy B. cooperative form with unrelated strategy C. SBU form with related-linked strategy D. competitive form with related-linked strategy Answer: C 108. A firm pursuing an unrelated diversification strategy will utilize a _________ structure. A. network B. cooperative form multidivisional C. competitive form multidivisional D. functional Answer: C 109. In the _________ multidivisional structure there is complete independence among the firm's divisions. A. cooperative B. matrix C. competitive D. SBU Answer: C 110. The fewest integrative devices are used in the _________ structure. A. simple B. competitive multidivisional C. SBU D. network Answer: B 111. In the ______ structure hierarchy, the headquarters relies on strategic controls to set rate-of-return targets and financial controls to monitor divisional performance relative to those targets. A. functional B. cooperative C. competitive D. SBU Answer: C 112. Firms such as Textron Inc. that frequently acquire and divest other firms are most likely to use the _____ structure. A. matrix B. competitive multidivisional C. hybrid combination D. horizontal complementary strategic alliance Answer: B 113. The CEO of Transector, Inc., set a 6.5 percent rate-of-return target for all divisions for the past year. Now, at the end of the year, three of Transector's seven divisions have not met this rate-of-return goal. The division managers of these three under-performing divisions have all secretly contacted executive-placement firms to investigate openings at other firms, because they know their future at Transector is in jeopardy as financial performance is all- important at Transector. Transector probably uses the _________ structure. A. competitive form of the multidivisional B. SBU form of the multidivisional C. worldwide geographic area D. distributed strategic network Answer: A 114. Megaline, Inc., with five divisions, follows the competitive form of the multidivisional structure. One division has not met the rate-of-return goals for the past year. Another division has exceeded the rate-of-return goals. The other three divisions met the rate-of-return goals. The headquarters office must decide where to allocate capital in the next year. Which scenario is the MOST likely? A. The poorest-performing division will get the highest capital allocation so that it can fix its problems and achieve the rate-of-return goal next year. B. The highest-performing division will get the highest capital allocation because it has the best prospects for creating more wealth for the shareholders next year. C. The average-performing divisions which met the rate-of-return goals will receive the highest allocation because their performance exactly matched corporate requirements. D. All divisions will receive the same capital allocation for the next year because this organizational structure rewards divisional managers based on achievement of strategic goals. Answer: B 115. In the competitive form of the multidivisional structure, the focus of headquarters is on all of the following EXCEPT A. integration. B. performance appraisal. C. resource allocation. D. long-range planning. Answer: A 116. The LG Company has units operating in significantly different industries and uses financial controls to manage its portfolio. LG is most likely using the _________ structure. A. combination-matrix B. cooperative form of the multidivisional C. competitive form of the multidivisional D. strategic business unit multidivisional Answer: C 117. Implementing the multidomestic strategy requires decentralization to A. facilitate the tailoring of products to the demand in local markets. B. develop economies of scale. C. achieve economies of scope. D. reduce bureaucracy and speed up decision making. Answer: A 118. A worldwide geographic area structure is an organizational form in which A. multiple alliances across the globe link complementary businesses. B. standardized products are offered across country markets. C. national interests dominate and management adapts to local or cultural differences. D. responsiveness to local demand is combined with economies of scale. Answer: C 119. A multidomestic strategy would be associated with A. high levels of coordination. B. informal coordination among units. C. many integrative mechanisms. D. interdependent divisions. Answer: B 120. Galatea Foods was founded in Greece by Galatea Chronos in 1978, and the company spread rapidly through Western Europe. Ms. Chronos retains the office of CEO. The Spanish division is headed by her oldest son. The North European division is headed by her only daughter, and the French-Italian division is headed by Ms. Chronos' brother. This company probably uses the _________ strategy. A. network B. multidomestic C. global D. transnational Answer: B 121. The primary disadvantage of the multidomestic strategy and worldwide geographic area structure relates to limited A. centralization. B. coordination across divisions. C. ability to meet local market needs. D. potential for global efficiency. Answer: D 122. One of the primary disadvantages of the global strategy and worldwide product divisional structure is that A. it is difficult to achieve economies of scale. B. the firm must develop centers to offer after-sales service to customers. C. it is difficult to respond effectively to local market needs and preferences. D. achieving economies of scale with this strategy/structure combination is nearly impossible. Answer: C 123. Ichabod Industries has a Latin American Division, a European Division, an Industrial Lubricants Division, and a Food Service Division. Ichabod Industries probably uses the _________ organizational structure. A. horizontal complementary strategic alliance B. competitive multidivisional C. strategic business unit multidivisional D. hybrid combination Answer: D 124. The need for the organization to combine local responsiveness and efficiency is most critical in a _________ strategy. A. multidomestic B. transnational C. global D. focus Answer: B 125. IKEA is a global furniture retailer with more than 300 outlets in 39 countries and regions. IKEA focuses on lowering its costs as well as understanding customer needs, especially younger ones. IKEA's international strategy is best described as _________ , and the appropriate organizational structure to implement this strategy is the structure. A. transnational; combination B. global; worldwide product divisional C. multidomestic; worldwide geographic area D. competitive; strategic business unit multidivisional Answer: A 126. Which of the following is NOT a preliminary task of the strategic center firm in a strategic network? A. strategic outsourcing B. encouraging friendly rivalry among network members C. allocating internal capital D. supporting development of new core competencies Answer: C 127. It is easiest to identify the company that functions as the strategic center firm in A. horizontal complementary strategic alliances. B. vertical complementary strategic alliances. C. corporate-level cooperative partnerships. D. international cooperative partnerships. Answer: B 128. Toyota and its suppliers have a relationship in which Toyota encourages suppliers to modernize their facilities and provides them with technical and financial assistance to do so. It also promotes longer-term contracts with suppliers and enables engineers in the supplier companies to have better communication with Toyota. This is an example of a(n) A. worldwide product divisional structure. B. functional structure. C. SBU multidivisional structure. D. strategic network. Answer: D 129. McDonald's operates through a franchising system wherein the head office uses strategic and financial controls to ensure that the franchises are creating the greatest possible value. This is an example of a(n) A. worldwide product divisional structure. B. strategic network. C. SBU multidivisional structure. D. simple structure. Answer: B 130. Airlines have forged a number of complementary strategic alliances, in part because many airlines are not profitable. Some airlines participate in several alliances simultaneously. This tends to A. make the partners' true loyalties and intentions unclear. B. make the role of the strategic center firms more critical to alliance success. C. distribute the alliances along several segments of the airline industry value chain. D. be most effective when the alliances are with airlines headquartered in different nations. Answer: A 131. Toyota heavily uses a strategic network of vertical relationships. Toyota enables engineers in supplier firms to communicate easily with companies with which Toyota has contracts for services. This results in the suppliers and Toyota (the strategic center firm) being more A. interdependent. B. competitive with one another. C. creative. D. complementary. Answer: A 132. After years of negotiating short-term contracts with its suppliers, Icon Images has decided to agree to longer-term contracts. In doing this, Icon Images is hoping to A. reduce transaction costs. B. increase negotiating leverage with suppliers. C. become less dependent on its suppliers. D. move toward horizontal alliances with its suppliers. Answer: A 133. In Japan, the center firm in a strategic network of vertical relationships might be expected to undertake all of the following EXCEPT A. reducing its transaction costs by promoting longer-term contracts with subcontractors. B. enabling engineers in upstream companies to have better communication with those companies with which it has contracts for services. C. encouraging subcontractors to modernize their facilities and providing them with technical and financial assistance to do so. D. decreasing communications between network members to reduce communication costs. Answer: D Essay 134. Discuss the difference between strategic controls and financial controls. Answer: Strategic and financial controls are both types of organizational controls that guide the use of strategy, indicate how to compare actual results with expected results, and suggest corrective actions if there is an unacceptable difference. Strategic controls are largely subjective criteria intended to verify that the firm is using appropriate strategies for the conditions in the external environment and the company's competitive advantages. Strategic controls are concerned with the fit between what the firm might do (opportunities) and what it can do (competitive advantages). Financial controls are largely objective criteria used to measure the firm's performance against previously established quantitative standards. Accounting-based measures, such as return on investment and return on assets, and market-based measures, such as economic value added, are examples of financial controls. 135. Describe the three major types of organizational structure and their appropriate use. Answer: Firms typically have a simple structure when they are small and the owner-manager makes all the important decisions and monitors all activities. Informal relationships, few rules, limited task specialization, and unsophisticated information systems are characteristic of simple structures. A simple structure is appropriate for firms offering a single product line in a single geographic market. It is well-matched with focus strategies and business-level strategies. As firms grow larger and more complex, the functional structure is adopted. A professional CEO with a limited corporate staff and functional line managers are required. This allows for specialization of organizational functions such as accounting, production, and human resources. Coordination and communication systems are more complex in the functional structure than in the simple structure. As firms diversify in products and/or geographic areas, they evolve to the multidivisional structure and one of its related forms (cooperative, competitive, SBU). The cooperative multidivisional structure, used to implement the related constrained corporate-level strategy, has a centralized corporate office and extensive integrating mechanisms. Divisional incentives are linked to overall corporate performance. The related linked SBU multidivisional structure establishes separate profit centers within the diversified firm. Each profit center may have divisions offering similar products, but the centers are unrelated to each other. The competitive multidivisional structure used to implement the unrelated diversification strategy is highly decentralized and makes little use of integrating mechanisms. It employs objective financial criteria to evaluate each unit's performance. All units compete for corporate resources. 136. Discuss the organizational structures used to implement the different business-level strategies. Answer: Business-level strategies are usually implemented through the functional structure. The cost leadership strategy requires a centralized functional structure, one in which manufacturing efficiency and process improvements are emphasized. Jobs are specialized, and rules and procedures are formal. The differentiation strategy's functional structure focuses on marketing and research and development. Decision making and authority are decentralized. Jobs are not highly specialized and procedures are informal. These characteristics allow employees to exchange ideas and to be more creative. The organizational structure supporting the integrated cost leadership/differentiation strategy must be simultaneously centralized and decentralized. Jobs are semi-specialized and procedures call for some formal and some informal job behavior. 137. Define the three major dimensions of organizational structure: specialization, centralization, and formalization. How do these dimensions vary in organizations implementing the cost leadership, differentiation, and cost leadership/differentiation strategies? Answer: Specialization is concerned with the number and types of jobs required to complete the work of the organization. Centralization is the extent to which authority for decision making is retained at higher managerial levels in the organization. Formalization is the degree to which formal rules and procedures govern work in the organization. Cost leadership strategies are best implemented with high specialization, centralization, and formalization. This results in efficiency. The differentiation strategy is best implemented with decentralized organizations, unspecialized jobs, and low formalization. This allows employees to interact frequently and develop new ideas for products. The cost leadership/differentiation strategy is difficult to implement because it requires decision making that is centralized and decentralized, jobs that are semi- specialized, and rules and procedures that produce both formal and informal job behavior. 138. Discuss the organizational structures used to implement corporate-level strategies. Answer: Corporate-level strategies involve multidivisional structures, which have three forms. The cooperative form of the multidivisional structure is used to implement a related constrained strategy. The cooperative form emphasizes integrating mechanisms, such as liaisons, temporary teams, and task forces. The intent is to share divisional competencies and create economies of scope. A centralized corporate office facilitates cooperation among divisions. Rewards are linked to overall corporate performance and divisional performance. The SBU form of the multidivisional structure is used to implement a related linked strategy. Each strategic business unit is a profit center, and divisions within an SBU are organized to achieve economies of scope and, perhaps, economies of scale. The SBUs are fairly independent, but the divisions within each SBU may be integrated to share competencies. The corporate headquarters is mainly involved in strategic planning for the whole portfolio of businesses, although it also provides strategic help and training to the SBUs. The competitive form of the multidivisional structure is used to implement an unrelated diversification strategy. The structure is highly decentralized. Controls emphasize competition between divisions for internal capital allocations. No integrating mechanisms are used. Objective financial criteria are used to evaluate each unit's performance. Corporate headquarters focuses on long-range planning. 139. Describe the organizational structure associated with a firm that pursues an unrelated diversification strategy. Answer: An unrelated diversification strategy seeks to create value through the efficient internal allocation of capital or through the buying, restructuring, and selling of businesses. Therefore, the unrelated diversified firm employs the competitive form of the multidivisional structure, which emphasizes competition between separate units for corporate capital. To realize the benefits of the efficient allocation of capital, the businesses must have separate and identifiable profit performances. In this structure, the corporate headquarters sets rate-of-return expectations and maintains an arms- length relationship with the divisions. Headquarters audits operations and disciplines managers in divisions that do not meet those rate-of-return standards. Thus, financial controls are heavily used and integrating devices are not needed. 140. Describe the organizational structures used to implement the three international strategies. Answer: A multidomestic strategy is implemented with a worldwide geographic area structure. This structure uses no integrating mechanisms, and it emphasizes decentralization, low formalization, and informal coordination among units. This facilitates the strategic objective of responding to local market differences. The worldwide product divisional structure is used to implement a global strategy. Because the type of firm that uses this structure offers standardized products across the globe, this organizational structure emphasizes centralization to achieve economies of scale and scope. Decision making is centralized. Integrating mechanisms, such as liaison roles and teams, are important. The transnational strategy is implemented with a combination structure. Because it must be simultaneously centralized and decentralized, integrated and nonintegrated, formalized and nonformalized, the combination structure is difficult to organize. There is a strong emphasis on cultural diversity. There are two combination structures, the global matrix structure and the hybrid global design. The matrix structure involves multiple reporting relationships and promotes flexibility and responsiveness to customer needs. The hybrid global design combines some divisions which are product oriented and some which are oriented to particular geographic markets. 141. Describe the organizational structures used to implement cooperative strategies, giving attention to the role of the strategic center firm. Answer: Generally, cooperative strategies are implemented through organizational structures framed around strategic networks (a grouping of organizations that has been formed to create value through participation in an array of cooperative arrangements such as joint ventures and alliances). There are two types of business-level complementary alliances, vertical and horizontal. Vertical alliances group firms with competencies in different stages of the value chain. Horizontal alliances group firms with competencies at the same stage of the value chain. Vertical alliances are much more common than horizontal alliances. To facilitate the effectiveness of a strategic network, a strategic center firm may be necessary. The strategic center firm performs four critical functions. First, it uses strategic outsourcing to partner with firms other than just network members. The strategic center firm also requires the alliance members to find opportunities for the network to create value through cooperative work. The second function concerns competencies. The strategic center firm seeks ways to support each member's efforts to create core competencies that can benefit the network. Third, the strategic center firm focuses on technology, managing the development and sharing of technology-based ideas among network partners. Finally, in a race to learn, the strategic center firm guides participants in efforts to form network-specific competitive advantages through friendly rivalry to develop skills needed to form capabilities that create value for the network. Subjective Short Answer Case Scenario 1: Compliance, Inc. Compliance, Inc., (CI) conducts clinical human and animal trials for the pharmaceutical and biotechnology industries. Revenues are split evenly between early and late drug development services. While the bulk of its business is conducted in Europe and the U.S. (10 and 17 subsidiaries, respectively), CI also has subsidiaries in Africa, Latin America, Asia, and Australia. Historically CI operated under a multidomestic strategy, owing to the fact that the clinical testing industry was geographically fragmented to meet the diverse needs of the many strong local pharmaceutical companies and distinct regulatory environments. CI's organizational structure truly reflected the autonomous character of each country's businesses. Many of the country managers have been with CI for more than a decade, and have a great deal of discretion over the activities of their home-market businesses. However, globalization of the regulatory environment (both global and local standards), globalization of the biotechnology firms (increasing the geographic scope of their operations), and tremendous consolidation in the pharmaceutical industry (reducing the number of pharmaceutical industry participants to only a handful of major global companies) caused CI to question its multidomestic strategy. Consequently, the firm has begun its transition to a transnational strategy. 142. (Refer to Case Scenario 1). What type of organizational structure was likely to have been in place under CI's multidomestic strategy? Answer: The best answers will begin by observing that each country essentially operated its businesses as autonomous units, which suggests that CI was probably organized as a worldwide geographic area M- Form. Students can then speculate about and debate whether there was likely to have been much coordination across the businesses within each country (using country-based SBUs) or decentralized into divisions within each country. 143. (Refer to Case Scenario 1). What type of organizational structure will likely be needed for CI's transnational strategy? What impact will this have on the location of particular value chain activities? Answer: On page 328, the text suggests that "the transnational strategy calls for the firm to combine the multidomestic strategy's local responsiveness with the global strategy's efficiency." Thus, the best answers will address the various value chain dimensions on which the firm must retain its local flavor (such as certain aspects of marketing, customer service, and government relations), while centralizing those that can yield global efficiencies (such as basic R&D). 144. (Refer to Case Scenario 1). What obstacles is CI likely to encounter as it attempts to change its structure to support the transnational strategy? Answer: The best answers will note that any centralization will likely take away some of the power and decision- making authority of the local offices, and will likely be resisted by the country managers. In addition, employees may resist more formalization and loss of family relationships. There may also be problems with cultural diversity. Some confusion in changing structures is inevitable. The best way to drive this home is to have the students role-play various country manager positions and consider how they would feel about headquarters playing a greater role in their decision-making processes. 145. (Refer to Case Scenario 1). Given its change from a multidomestic strategy to a transnational strategy, Compliance Inc. should change its structure from _________ to A. worldwide product divisional; combination B. worldwide geographic area; combination C. combination; worldwide product divisional D. worldwide geographic area; worldwide product divisional Answer: B Case Scenario 2: Palmetto. Palmetto was an early pioneer of personal data assistants (PDAs) and dominates that market space (in terms of market share) with its core product, the Palmetto Pidgy. Because this product category was entirely new to the market, Palmetto had to internally develop the hardware and software sides of the business, and today it is both a manufacturer of PDAs and a programmer and licensor of its PDA operating system software. Recently, however, the hand-held device maker's performance has taken a dive as a result of slumping sales and costly inventory problems. Palmetto has also had difficulty coordinating its software and hardware businesses, in part because of the near absence of a coherent structure and the differing economics underlying the two. Specifically, hardware for PDAs is increasingly a cost-based business, while software is a highly differentiated one. While Palmetto is doing pretty well in both businesses, its own resource base does not allow it to compete any differently than that proscribed for other industry participants (that is, it competes on cost with hardware and features with software). In addition to the issues created by these fundamental differences, other large companies are entering both the equipment (such as Sony) and software (such as Microsoft) sides of its business, putting further pressure on margins. Management has decided that it is unable to focus on the complexities of each of these businesses so it is opting to break Palmetto into two separate, independent public companies – Pal, Inc. will be devoted to hardware and Mettolink, Inc. will be devoted to software. 146. (Refer to Case Scenario 2). What basic structural form would you recommend for both Pal and Mettolink? What must each firm be careful to avoid with this structure? Answer: The best answers will note that each of the companies will essentially be single-business firms, which means that a functional structure fits them best. The functional structure will allow them to garner economies of scale and expertise in each of the functional areas. Functional orientation interferes with communication and coordination among employees representing different functions. So, the CEO must make sure the various functions promote the welfare of the entire firm rather than just the welfare of each function. 147. (Refer to Case Scenario 2). How would the implementation of this structure differ for Pal? Answer: The best answers for the next two questions will begin by observing that the implementation of the functional structure should be determined by the business-level strategy, and that Pal and Mettolink have very different ones. Pal, for instance, is competing in a cost-based business using what appears to be a cost leadership strategy. As the text notes, this means that Pal's functional structure should likely be implemented using simple reporting relationships, few layers of decision making and authority structure, a centralized corporate staff, and a strong focus on process improvements through the manufacturing function rather than the development of new products through an emphasis on product R&D. Since PDAs also have a fashion or design component to their attractiveness, some students may argue that an integrated cost leadership/differentiation strategy may actually be more appropriate – for example, modifying the cost-based structure to include frequent use of cross-functional product development teams, and a strong focus on marketing and product R&D. This is an important aspect to explore and provides an opportunity to discuss the difficulties of attempting to achieve both cost leadership and differentiation through strategic and structural means. 148. (Refer to Case Scenario 2). How would the implementation of this structure differ for Mettolink? Answer: Following the answer to question 5, the best answers will note that Mettolink is competing in a differentiation-based business using what appears to be a differentiation strategy. As the text notes, this means that Mettolink's functional structure should likely be implemented using relatively complex and flexible reporting relationships, frequent use of cross-functional product development teams, and a strong focus on marketing and product R&D. 149. (Refer to Case Scenario 2). Which structural form would be best for Pal given that it competes on the basis of low cost? A. simple B. functional C. multidivisional D. network Answer: B 150. (Refer to Case Scenario 2). All of the following structural characteristics are important to implementing Mettolink's strategy EXCEPT A. frequent use of cross-functional product development teams B. a focus on marketing and product R&D C. decentralized decision making D. a focus on process improvements in manufacturing Answer: D Case Scenario 3: Jewell Company. Jewell Company (JC) is a $2 billion diversified manufacturer and marketer of simple household items, cookware, and hardware. While JC's 16 different lines of business may appear quite different, they all share the common characteristics of being staple manufactured items and sold primarily through volume retail channels such as Walmart, Target, and Kmart. Because JC operates each line of business autonomously (separate manufacturing, R&D, and selling responsibilities for each line), it is perhaps best described as pursuing a related linked diversification strategy. The common linkages are both internal (accounting systems, product merchandising skills, and acquisition competency are centralized in the corporate office) and external (distribution channel of volume retailers). Despite this partial centralization of the divisions' operations, each business is run entirely separately. To keep the managers focused on their respective businesses, they are paid a base salary but can earn up to three times that salary in bonuses based on meeting divisional performance targets. An additional, but smaller, part of their compensation is derived from stock options. 151. (Refer to Case Scenario 3) What is the corporate structural form used by Jewell? A. functional B. cooperative M-Form C. SBU M-Form D. competitive M-Form Answer: C 152. (Refer to Case Scenario 3). The centralization of Jewell's operations can be described as A. centralized at corporate headquarters. B. centralized at country office. C. partially centralized in SBUs or divisions. D. decentralized to divisions. Answer: C 153. (Refer to Case Scenario 3). Jewell's divisional incentive compensation can be described as A. linked to divisional performance. B. mixed linkage to corporate, SBU, and divisional performance. C. linked to overall corporate profitability. D. linked to Jewell's stock market performance. Answer: A Test Bank for Strategic Management: Concepts and Cases: Competitiveness and Globalization Michael A. Hitt, R. Duane Ireland, Robert E. Hoskisson 9781285425177, 9780538753098, 9781133495239, 9780357033838, 9781305502208, 9781305502147
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