Chapter 7 Flashcards
Vertical integration can be best defined as _________.
a) bringing business processes or activities previously conducted by outside companies in-house
b) the sequence of all activities that are performed by a firm to turn raw materials into a finished product
c) a graphic representation of the relationship between cost per unit of a product and its scale of production
d) breaking a large process into smaller tasks that require specialized knowledge
a) bringing business processes or activities previously conducted by outside companies in-house
Yellow Express LLC is a company in the computer hardware industry that solely manufactures microchips. Yellow Express LLC is _________.
a) diagonally integrated
b) vertically integrated
c) vertically specialized
d) horizontally diversified
c) vertically specialized
In the context of the primary reasons for vertical integration in companies, what do capabilities refer to?
a) Whether a company has the finances to handle and overcome organizational criticism
b) Whether a company can economize on scarce inputs in order to reduce transaction costs
c) Whether a company has the right resources to perform an activity better than other firms
d) Whether a company knows when it should establish and exercise strict rules and regulations
c) Whether a company has the right resources to perform an activity better than other firms
In this context of the three Cs of vertical integration, which of the following scenarios accurately depicts capabilities?
a) StyleRight LLC, an apparel company, manufactures eco-friendly, organic, and sustainable clothes.
b) GoSpeed Corp., an automobile manufacturing company, evaluates itself by asking if it can perform the vertically integrated activity better than its rivals.
c) BagMore Inc., a handbag company, decides to engage in backward integration and manufacture all of its products and accessories in the company house.
d) HDC Inc., an electronics company, decides to effectively regulate its new technologies.
b) GoSpeed Corp., an automobile manufacturing company, evaluates itself by asking if it can perform the vertically integrated activity better than its rivals.
Apex Electronics LLC requires many teams to work together intensively and in tandem with each other in order to effectively produce its products. A high level of coordination between the working teams is essential for the company to maintain the high quality of its products. This type of interdependence can be best termed as _________.
a) sequential interdependence
b) reciprocal interdependence
c) limited interdependence
d) modular interdependence
b) reciprocal interdependence
Having more flexibility, or being less vertically integrated, is more valuable when _________.
a) technology used is outdated
b) a firm can create its own raw materials
c) new technologies are innovated
d) the cost to perform an activity remains the same
c) new technologies are innovated
Saturn LLC., a computer manufacturer, uses outdated technology to build specialized graphic cards for its computers. The company finds it difficult to upgrade its graphic card building technology to a newer version. However, Sun Products Inc., one of its competitors, upgrades itself to the new version with lesser difficulty. In this scenario, Saturn LLC is facing a _________.
a) loss of facility
b) loss of frequency
c) loss of focus
d) loss of flexibility
d) loss of flexibility
Which of the following scenarios supports the view that a company should engage in outsourcing?
a) Innovator Inc., a software company, which foresees that its employees will have less work and more time under their disposal for leisure activities if it lets other suppliers help perform its activities
b) FRC Inc., an apparel company, which fears the loss of a strong hold over its prime activities if it does not perform them in house
c) AutoLuxe LLC, an automobile company, which has the flexibility to contract processes to another company at a fast rate
d) Zenith Corp., a publishing house, which needed a high capital investment to grow because it contracted most of its peripheral activities to other companies
c) AutoLuxe LLC, an automobile company, which has the flexibility to contract processes to another company at a fast rate
Adia, the chief executive officer (CEO) of Touch Works Corp., believes that outsourcing would be a disadvantage to her company. She states that she would not be able to control the finances and assets of her company if work gets outsourced. Which of the following statements strengthens Adia’s belief?
a) Outsourcing would prevent Touch Works Corp. from contracting out activities to industry specialists.
b) Touch Works Corp. would lose the ability to innovate and create competitive advantage.
c) Touch Works Corp. would be forced to focus on a wide range of activities.
d) Outsourcing would maximize the capital investment that Touch Works Corp. would require to grow.
b) Touch Works Corp. would lose the ability to innovate and create competitive advantage.
Identify a reason why companies choose to make versus buy.
a) Coordinating multiple activities in the value chain is always easy.
b) They lack the marketing capability to build a brand that will differentiate its products.
c) It offers the flexibility to make changes to any activity in the value chain.
d) They have the capability to perform an activity better than other firms.
d) They have the capability to perform an activity better than other firms.
In the context of the three Cs of vertical integration, some activities require lower levels of coordination than others to be successful because the activities _________.
a) do not involve huge investments
b) are modular in nature
c) are not very important in the value chain
d) are performed by highly skilled professionals
b) are modular in nature
Identify a danger of vertical integration.
a) Loss of control over the activities of the value chain
b) Loss of creativity to create a unique product
c) Loss of flexibility to quickly make changes to a business
d) Loss of capabilities to create a new product
c) Loss of flexibility to quickly make changes to a business
Which of the following is a disadvantage of outsourcing?
a) A lack of control over critical assets or activities results.
b) A firm does not have an established brand image to protect.
c) It is difficult to focus on many different activities at once.
d) Firms lack the flexibility to quickly make changes to the business model.
a) A lack of control over critical assets or activities results.
As a danger of vertical integration, a(n) ________ refers to the fact that the more different types of activities a firm needs to manage, the harder it is to be world class in all of those activities.
loss of focus
