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1.
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Organizational structure, controls, and compensation policies should address what fundamental Strategy Implementation problem?
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How can the interests of employees be aligned with the interests of the firm?
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2.
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Identify and define the rationality that is attributed to the complexity of large organizations.
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Bounded: people are bounded in their rationality (satisficing)
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3.
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Define satisficing.
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People will make decisions that are "good enough" even though they can't make absolutely maximizing decisions
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4.
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What is the implication between satisficing and bounded rationality?
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Lower-quality decisions will result when information processing requirements grow beyond the managers' bounded rationality
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5.
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What is the main tradeoff in a firm's agency relationships?
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There is tradeoff b/w making info processing more manageable & creating a separation of principals and agents
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6.
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How should the M-form structure be aligned, in terms of the agency relationship?
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Should be organized such that the interests of principals and agents are aligned
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7.
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Identify the 4 aligning incentives, ranked from Short Time Horizon/Not Tied to Performance to Long Time Horizon/Tied to Performance
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Salary, Cash Bonus, Stock Grants, Stock Options
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8.
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Identify and describe the most common organization structure for implement a corporate diversification strategy.
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M-form (multidivisional): Board > Senior Exec > Finance-Legal-Acctng-R&D-Sales-HR > Division General Mgrs > Division
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9.
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What are the monitoring roles or responsibilities of the Board of Directors?
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Monitor decision making in a firm to ensure that it's consistent w/ the interest of outside equity holders
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10.
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What are the monitoring roles or responsibilities of the Institutional Investors?
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Monitor decision making to ensure that it's consistent w/ the interests of major intitutional equity investors
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11.
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What are the monitoring roles or responsibilities of the Senior Executives?
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Formulate corporate strategies consistent w/ equity holders' interests & assure strategy implementation
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12.
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What are the strategy formulation responsibilities of the Senior Executive?
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Decide the biz's which the firm will operate, Decide how the firm should compete in those biz's, Specify the EoSc which the firm will operate
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13.
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What are the strategy implementation responsibilities of the Senior Executive?
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Encourage cooperation across divisions to exploit EoSc's; Evaluate performance of divisions; Allocate capital cross divisions
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14.
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What are the monitoring roles or responsibilities of the Corporate Staff?
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Provide information to the senior executive about internal & external environments for strategy formulation & implementation
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15.
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What are the monitoring roles or responsibilities of the Division General Managers?
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Formulate divisional strategies consistent w/ corporate strategies & assure strategy implementation
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16.
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What are the strategy formulation responsibilities of the Division General Managers?
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Decide how the division will compete in its business, given the corporate strategy
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17.
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What are the strategy implementation responsibilities of the Division General Managers?
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Coordinate decisions of funct. mgrs reporting to DGM to implement div strategy; Compete for corporate capital allocations; Exploit EoSc's
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18.
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What are the monitoring roles or responsibilities of the Shared Activity Managers?
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Support the operations of multiple divisions
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19.
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Identify the different subcommittees typically organized within a Board of Directors.
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Committe: Audit (F/S accuracy), Finance (r-ship b/w firm & ext. cap mkts), Nominating (New Board memb), Personnel/Compensation
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20.
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Define institutional owners.
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Pension funds, mutual funds, insurance cos., etc that joined together to manage their investments
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21.
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What is the effect of institutional investors on the firm?
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Insist that mgmt behaves in ways constistent w/ interests of EH's; Firms tend to sell strategically unrelated biz's; "Only concerned w/ ST"
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22.
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What is the fundamental competition and cooperation between managers?
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Compete for corporate capital, Cooperate with other divisions to exploit corporate economies of scope
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23.
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How do managers compete for corporate capital?
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Promising high rates of return on capital invested by the corp. in their business
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24.
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How do managers cooperate to exploit corporate economies of scope?
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Working w/ shared activity mgrs, corporate staff mgrs, & senior execs to isolate & use the EoSc around which the firm was originally organized
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25.
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Why is competition between managers for corporate capital important?
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It leads division general managers to focus on generating high levels of eceonomic performance from their divisions
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26.
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Why is cooperation between managers to exploit corporate economies of scope important?
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If divisions don't cooperate in exploiting the EoSc's, there's no reason for implementing corporate diversification strategy
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27.
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Identify and define the manner in which shared activities are most often managed.
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Cost Centers: assigned a budget & manage their operations to that budget; shared mgrs don't try to make profit
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28.
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What characteristics identify a well managed cost center?
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The cost of services from a shared activity is less than the cost of comparable services provided by a division itself or ext. suppl.
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29.
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What are the two ways to measure divisional performance?
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Accounting measures and Economic measures
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30.
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Describe the accounting measurers of divisional performance.
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Division's return on sales, sales growth, roa, compared with different standards: Common hurdle rate, Div's budgeted lvl, Avg lvls of div
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31.
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What is the strength & weakness of using the common hurdle rate as an accounting standard of comparison?
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S: Little ambiguity about performance objectives; W: Ignores important differences in performance that might exist across divisions
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32.
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What is the strength & weakness of using a division's budgeted performance as an accounting standard of comparison?
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S: Allows for varying performance expectations; W: time-consuming & political
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33.
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What is the strength & weakness of using a division's average levels as an accounting standard of comparison?
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S: Allows for varying performance expectations; W: Lets other firms determine what is/isn't excellent div performance
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34.
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Describe the economic measures of divisional performance.
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Adjusts acctg methods to incorp. ST invest. that may bring LT benefits; EVA
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35.
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Define economic value added (EVA).
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Substracting cost of capital employed in a division from that division's earnings; Applies financial theory rather than stndard of compar.
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36.
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Which of the two measures of divisional performance more accurate?
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Economic measures
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37.
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What is the primary limitation of internal capital market allocation?
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Division general managers have strong incentive to overstate their division's prospects & understate its problems to gain more capital
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38.
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What is the solution to division general managers overstating their prospects and understating their problems to gain more capital?
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0-Based Budgeting: Execs make list of all cap. allocation requests, rank them, then fund all the projects firm can afford
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39.
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What are the limitations of Zero-based budgeting?
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Evaluating & ranking all projects fairly is hard; Requires execs to have complete knowledge of the strategic role of each request
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40.
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Describe the exchange autonomy alternative transfer pricing scheme.
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Buying & Selling division general mgrs are free to negotioate xfer price w/o corp. involvement; Xfer price = selling div's price to ext.
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41.
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Describe the mandated full cost alternative transfer pricing scheme.
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Xfer price = selling div's actual cost of production; Xfer price = selling div's standard cost (cost of production if sell div @ max)
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42.
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Describe the mandated market based alternative transfer pricing scheme.
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Xfer price = market price in selling division's market
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43.
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Describe the dual pricing alternative transfer pricing scheme.
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Xfer price for buying div = selling div's actual/standard cost; Xfer price for selling div = price to ext. customers or to sell div's mkt price
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44.
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What is the weakness of the buying & selling divisions negotiating their own transfer price?
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Haggling costs; Corp. risks not exploiting EoSc if right xfer price can't be negotiated
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45.
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What is the weakness of the transfer price set equal to the selling division's price to external customers?
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Different customers different prices, Xfer price should be lower than this, Since selling div has no mktg expenses price should be lower
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46.
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What is the weakness of the transfer price set equal to the selling division's actual costs?
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Who determines the "actual" costs, Which costs are relevant to the selling div's "actual" costs
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47.
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What is the weakness of the transfer price set equal to the selling division's standard costs?
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Since standard costs are costs the selling div would incur at max efficiency, this hypothetical capacity subsidizes the buying div
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48.
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What is the weakness of the transfer price set equal to the market price?
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If product is highly differentiated, no easy "mkt price"; No mktg expenses so price should be lower
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49.
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What is the weakness of the transfer price set equal to actual costs for the selling division and to market price for the buying division?
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This combo of schemes combines other problems of setting transfer prices
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50.
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How connected is the compensation of corporate managers in a diversified firm with the firm's economic performance?
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Very little connection
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51.
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What is the common inclusion of compensation for CEO's?
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Stock and stock options as part of the compensation package
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