Chapters 8 vertical integration

Question 1

Business strategy

Answer 1

is a firm’s theory of how to gain a competitive advantage in a single business or industry. or how to position itself in a market

Question 2

corporate strategy

Answer 2

is a firm’s theory of how to gain a competitive advantage by operating in several businesses simultaneously. or which business to enter

Question 3

vertical integration

Answer 3

is the number of steps in a value chain that a firm accomplishes within its boundaries.

Question 3

value chain

Answer 3

is that set of activities that must be accomplished to bring a product or service from raw materials to the point that it can be sold to a final customer

Question 4

a company with high vertical integration

Answer 4

integration takes on more of these steps themselves instead of relying on other companies.

Question 5

backward vertical integration

Answer 5

is when it incorporates more stages of the value chain within its boundaries and those stages bring it closer to the beginning of the value chain, that is closer to gaining access to raw materials.

Question 6

forward vertical integration

Answer 6

when it incorporates more stages of the value chain within its boundaries and those stages bring it closer to the end of the value chain; that is, closer to interacting directly with final customers.

Question 7

vertical integration is valuable if

Answer 7

It’s valuable if it prevents opportunism, uses rare capabilities, or adds flexibility

Question 8

leverage capabilities

Answer 8

Firm capabilities can be sources of competitive advantage in other business if not then don’t integrate exchange

Question 9

manage opportunism

Answer 9

opportunism may be checked by internalizing. internalizing must be less costly than opportunism

Question 10

exploit flexibility

Answer 10

internalizing is usually less flexible. flexibility is prized when uncertainty is high

Question 11

rarity of vertical integration

Answer 11

A firm’s integration strategy may be rare because the firm integrates or because the firm does not integrate. A firm’s integration strategy is rare or common with
respect to the value created by the strategy.

Question 12

The value-producing function of integration may be costly to imitate, if:
– the integrated firm possesses resource combinations that are the
result of

Answer 12

▪ historical uniqueness
▪ causal ambiguity
▪ social complexity

Question 13

3

Answer 13

organizational structure
management control systems
compensation policies

Question 14

Management controls

Answer 14

*Budgeting
*Executive Committee: Meets weekly to address short-term performance and crises.
*Operations Committee: Meets monthly to discuss longer-term projects (e.g., new products, expansions

Question 15

compensation policies

Answer 15

• Individual Focus: For firm-specific contributions, uses salaries, bonuses, and stock grants based on performance.
• Group/Capability-Based: Rewards teamwork and collective knowledge, typically with cash bonuses and stock grants based on firm-wide performance.
• Flexibility-Based: Uses stock options with fixed downside risks and high upside potential to support flexible strategies.

Question 16

organizational structure

Answer 16

• Functional (U-Form) Structure: Used for cost leadership, product differentiation, and vertical integration strategies.
• CEO Role: Focuses on strategy formulation and implementation, resolving conflicts between functions (e.g., manufacturing vs. sales)

Question 17

the goal of vertical of integration and a reason you should is

Answer 17

to reduce costs and to increase revenue