Hoofdstuk 8 Organizing to implement corporate diversification

Question 1

Organizational structure

Answer 1

Each business that the firm engages in is managed through a division

Question 2

Board of directors

Answer 2

Monitor decision making in the firm, ensuring that it is consistent with the interests of outside equity holders

Question 3

Institutional owners

Answer 3

Pension funds, mutual funds, insurance companies, or other groups of individual investors that have joined together to manage their investments

Question 4

The senior executive

Answer 4

Resolving conflicts. Strategy formulation and strategy implementation

Question 5

Corporate staff

Answer 5

Provide information about the firm’s external environments to the firm’s senior executives

Question 6

Division general manager

Answer 6

Day-to-day business. Compete for corporate capital

Question 7

Shared activity managers

Answer 7

Support the operations of the divisions that share the activity
Cost-centers: assigned a budget and manage their operations to that budget. Covering costs.
Profit centers: compete for internal customers

Question 8

Management controls

Answer 8

• Evaluating divisional performance (accounting performance or economic performance)
• Allocating corporate capital (problem that division managers overstate performance; rank on importance)
• Transferring intermediate products

Question 9

Transfer pricing

Answer 9

The transfer price should be the value of the opportunities forgone when one division’s product or service is transferred to another division; opportunity costs. However, this information is difficult to obtain.
Alternatives: exchange autonomy (negotiate prices; equal to price of external customers), mandated full cost (actual cost of production or standard cost), mandated market based (market price) or dual pricing (buying division pays actual or standard cost, selling division pays external market price)

Question 10

Compensation policies

Answer 10

Stock (options)