Exam 6: Corporate-Level Strategy

What is the similarity between high-technology firms and service-based firms that makes them risky as restructuring candidates?

One advantage of an unrelated diversification strategy in a developed economy is that competitors cannot easily imitate the financial economies whereas they can easily replicate the value gained through the use of a related diversification strategy.

As noted in the Opening Case, Foster's Group sought to create corporate relatedness through the sharing activities across its beer and wine businesses.

Case Scenario : Walt Disney Company. Walt Disney Company is famed for its creativity, strong global brand, and uncanny ability to take service and experience businesses to a higher level. In the 1970s, the company realized nearly 90% of its revenues from its cartoons and the Disneyland theme park in Anaheim, CA. By the beginning of the 21st Century, Disney had not only opened up more parks and ramped up its output of animated films, it had also diversified into many businesses well beyond its traditional core of high-quality cartoon animation and theme parks. For instance, the Disney empire diversified vertically and horizontally into retail (The Disney Store, since licensed to The Children's Place), cruise lines, theaters, motels, and the Disney Press. It also moved into new product offerings such as sports franchises, TV networks (ABC and ESPN) and stations, Miramax, Broadway shows (Beauty and the Beast), and vacation clubs. International growth included EuroDisney and Hong Kong Disney and new releases of TV shows, videos, and movies worldwide. Indeed, while many of Disney's businesses had some tie to Mickey Mouse, only about 28% of total revenues now came directly from its parks. -(Refer to the above Case Scenario ) Assume that Disney can benefit from both operational and corporate relatedness. Which of the following corporate core competencies would provide Disney the greatest opportunity to create value across all or most of its many businesses?

In a money-making effort, a small private university has decided to institute consulting services using its business faculty as consultants whose services would be sold to clients. This university is attempting to use its faculty to gain economies of scope.

Research has shown that horizontal acquisitions

Describe how diversified firms can use activity sharing and transfer of core competencies to create value.

Case Scenario : Walt Disney Company. Walt Disney Company is famed for its creativity, strong global brand, and uncanny ability to take service and experience businesses to a higher level. In the 1970s, the company realized nearly 90% of its revenues from its cartoons and the Disneyland theme park in Anaheim, CA. By the beginning of the 21st Century, Disney had not only opened up more parks and ramped up its output of animated films, it had also diversified into many businesses well beyond its traditional core of high-quality cartoon animation and theme parks. For instance, the Disney empire diversified vertically and horizontally into retail (The Disney Store, since licensed to The Children's Place), cruise lines, theaters, motels, and the Disney Press. It also moved into new product offerings such as sports franchises, TV networks (ABC and ESPN) and stations, Miramax, Broadway shows (Beauty and the Beast), and vacation clubs. International growth included EuroDisney and Hong Kong Disney and new releases of TV shows, videos, and movies worldwide. Indeed, while many of Disney's businesses had some tie to Mickey Mouse, only about 28% of total revenues now came directly from its parks. -(Refer to the above Case Scenario ) What level and type of diversification best characterized Disney in the 1970s?

What are the two ways that an unrelated diversification strategy can create value?

As the threat of corporate failure increases due to relatedness between a firm's business units, firms may decide to

Equator, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It plans to move one of its key managers from its plant in St. Louis to Ireland. This can be considered a method of transferring corporate-level core competencies.

CVS's recent merger with Caremark, a large pharmaceutical benefits manager broadens CVS's business from retail into health care management. This strategy is __________ and allows CVS to gain __________.

Extensive outsourcing contributes to the firm's core competencies and helps the firm transfer those competencies to other business units in the diversified firm.

Performance continues to increase as diversification increases from single business to unrelated diversification.

Vertical integration allows the firm to gain market power as the firm develops the ability to save on its operations, avoid market costs, improve product quality, and possibly protect its technology from rivals.

Synergy exists when

Virgin Group successfully transfers its marketing core competence across airlines, cosmetics, music, drinks, mobile phones, health clubs and a number of other businesses. Virgin follows a ____ diversification corporate strategy.

According to the chapter Strategic Focus, companies creating financial economies through restructuring typically focus on high-technology businesses primarily because these firms are human-resource dependent.

An effective corporate strategy creates aggregate returns across all businesses that exceed what those returns would be without the strategy and contributes to the firm's strategic competitiveness and ability to earn above-average returns.

Case Scenario : Syco. Syco is a diversified company that has six primary lines of business. Fifty percent of its revenues and 18 percent of its profits come from retailing. Most of its retail outlets are discount department stores that serve as anchor tenants for large suburban shopping malls. The remaining businesses are broken out as follows: Insurance accounts for 30 percent of revenues and 50 percent of profits; consumer credit card operations are 6 percent of sales and 17 percent of profits; 5 percent of revenues and 6 percent of profits come from its stock brokerage business; commercial and residential real estate operations generate 4 percent of sales and 8 percent of profits; finally, 5 percent of revenues and 1 percent of profits come from its online portal business. The company's management states that all these businesses are essential to its competitive future. -(Refer to the above Case Scenario ) Why might there be so much variability among the proportion of sales versus profitability contributed by each of the businesses? Does this mean that Syco is more successful in its insurance business than in its retail business?