Exam 10: Corporate-Level Strategy: Related and Unrelated Diversification

Research suggests that organizations that acquire many companies over time become expert in this process and can generate significant value from their experience of the acquisition process.

Sara Lee Corp., a clothing firm, purchased Platex Apparel Inc. This purchase helped to make Sara Lee Corp. one of the largest makers of women's apparel in the United States. Sara Lee Corp. utilized an acquisition strategy.

In which of the following industry environments are acquisitions MOST likely to be favored over new ventures?

Since the free cash flow of a firm technically belongs to the company's owners or its shareholders, in order for diversification to create value, a company's future ROIC must be less than the value shareholders would reap by returning the cash to them.

Bob's Running Shoes has acquired Fleet Feet about six months ago. Due to the differences in processes and cultures of the two companies, it has taken a long time to adopt a common management and financial control system. They share information and personnel but have had difficulty in creating a common culture. Management is threatening to leave because the employees do not like the acquiring company's way of operating. Which of the following acquisition pitfalls does this scenario describe?

Which of the following is NOT a way to use diversification to increase profitability?

In which of the following cases are bureaucratic costs likely to be lowest?

In which of the following stages of successful acquisition is timing an essential component?

How is the acquisition of new business related to existing business activities in situations where company leaders base their diversification strategy on transferring competencies?

Which of the following is NOT an effect of an extensively diversified company with multiple business units?

Which of the following is perhaps the MOST important reason why acquisitions fail?

In 2007, Google bought YouTube. This is an example of which of the following?

When business-unit managers inability to remain informed across multiple business units leads them to blame poor performance on difficult competitive conditions, even when it is the result of their inability to craft a successful business model, organizational problems increase. Top managers must spend an enormous amount of time and effort to solve them which increases bureaucratic costs and cancels out the profit-enhancing advantages of pursuing diversification, such as those obtained from sharing or leveraging competencies.

A company should pursue related diversification instead of unrelated diversification when the company's: