Question 1

Synergy exists when the value created by business units working together exceeds the value that those same units create working independently.

Accepted Answer

A) True 
 B)False  True

Question 2

Golden parachutes protect managers from the negative consequences of over-diversifying a firm.

Accepted Answer

A) True 
 B)False  True

Question 3

Differentiate between corporate-level and business-level strategies and give examples of each.

Accepted Answer

A business-level strategy determines how a firm will compete in a single industry or product market. When a firm diversifies beyond a single industry it uses a corporate-level strategy. A diversified company has two levels of strategy: business-level and corporate-level. Each business unit has a business level strategy. The corporate strategy is concerned with: 1) what businesses the firm should be in and 2) how the corporate office should manage the group of businesses. The top management of diversified companies views the firm's businesses as a portfolio of core competencies that will generate above-average returns by creating value. An example of a business-level strategy would be whether the firm targets the mass market and competes on price, or whether it competes on the basis of uniqueness. An example of a corporate-level strategy would be whether the firm should sell off a poorly performing subsidiary.

Question 4

Economies of scope are cost savings resulting from a firm successfully leveraging, either through sharing or transferring, some of its capabilities and competencies developed in one business to another business.

Accepted Answer

A) True 
 B)False

Question 5

The ultimate test of the value of a corporate-level strategy is whether the:

Accepted Answer

A)  corporation earns a great deal of money. 
B)  top management team is satisfied with the corporation's performance. 
C)  businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership. 
D)  businesses in the portfolio increase the firm's financial returns. 
A)  corporation earns a great deal of money. 
B)  top management team is satisfied with the corporation's performance. 
C)  businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership. 
D)  businesses in the portfolio increase the firm's financial returns.

Question 6

Compared to diversification that is grounded in intangible resources, diversification based on financial resources only is more visible to competitors and thus more imitable and less likely to create value on a long-term basis.

Accepted Answer

A) True 
 B)False

Question 7

A major advantage of diversification is that overall monitoring costs are reduced because each separate business comes under the control of corporate headquarters.

Accepted Answer

A) True 
 B)False

Question 8

A significant benefit of an internal capital market is limiting competitors' access to information about the performance of the individual businesses within the corporation.

Accepted Answer

A) True 
 B)False

Question 9

Firms with both operational and corporate relatedness are favorites of investment analysts because the transparency and clarity of their financial statements clearly show the value-creation resulting from the combination of multiple businesses.

Accepted Answer

A) True 
 B)False

Question 10

The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be:

Accepted Answer

A)  discounted by investors. 
B)  inflated by investors. 
C)  completely ignored by investors. 
D)  highly valued by investors. 
A)  discounted by investors. 
B)  inflated by investors. 
C)  completely ignored by investors. 
D)  highly valued by investors.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is NOT a limitation directly relating to vertical integration?

Accepted Answer

A)  Bureaucratic costs 
B)  The loss of flexibility through investment in specific technologies 
C)  Capacity balance and coordination problems from changes in demand 
D)  Imitation of core technology by potential competitors 
A)  Bureaucratic costs 
B)  The loss of flexibility through investment in specific technologies 
C)  Capacity balance and coordination problems from changes in demand 
D)  Imitation of core technology by potential competitors

Question 14

Multipoint competition occurs when:

Accepted Answer

A)  firms have multiple retail outlets. 
B)  firms have multiple products in their primary industry. 
C)  diversified firms compete against each other in several markets. 
D)  firms have diversified portfolios of companies. 
A)  firms have multiple retail outlets. 
B)  firms have multiple products in their primary industry. 
C)  diversified firms compete against each other in several markets. 
D)  firms have diversified portfolios of companies.

Question 15

Decisions to expand a firm's portfolio of businesses to reduce managerial risk can have a positive effect on the firm's value.

Accepted Answer

A) True 
 B)False

Question 16

Diversification strategies can be used with both value-creating and value-neutral objectives.

Accepted Answer

A) True 
 B)False

Question 17

When a firm simultaneously practices operational relatedness and corporate relatedness:

Accepted Answer

A)  it is difficult for investors to observe the value created by the firm. 
B)  the firm is likely to be overvalued by investors. 
C)  the firm will suffer from diseconomies of scope that outweigh cost savings generated. 
D)  the firm is seeking to create value through financial economies. 
A)  it is difficult for investors to observe the value created by the firm. 
B)  the firm is likely to be overvalued by investors. 
C)  the firm will suffer from diseconomies of scope that outweigh cost savings generated. 
D)  the firm is seeking to create value through financial economies.

Question 18

Which acquisition would be considered the LEAST related?

Accepted Answer

A)  A candy manufacturer purchases a chemical laboratory specializing in food flavorings. 
B)  A chain of garden centers acquires a landscape architecture firm. 
C)  A hospital acquires a long-term care nursing home. 
D)  An upscale "white-tablecloth" restaurant chain acquires a travel agency. 
A)  A candy manufacturer purchases a chemical laboratory specializing in food flavorings. 
B)  A chain of garden centers acquires a landscape architecture firm. 
C)  A hospital acquires a long-term care nursing home. 
D)  An upscale "white-tablecloth" restaurant chain acquires a travel agency.

Question 19

Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the United States make this type of brick. Specialty Steel owns one of these brick plants and buys all of its production. The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick. This significantly reduces the production cost of this type of brick.

Accepted Answer

A)  Specialty Steel has less flexibility now than if it were not vertically integrated. 
B)  This is an example of a capacity balance problem. 
C)  This is a result of conflicts of interest between the managers of the brick plant and the executives of Specialty Steel. 
D)  The market power of Specialty Steel has been reducing vertical integration. 
A)  Specialty Steel has less flexibility now than if it were not vertically integrated. 
B)  This is an example of a capacity balance problem. 
C)  This is a result of conflicts of interest between the managers of the brick plant and the executives of Specialty Steel. 
D)  The market power of Specialty Steel has been reducing vertical integration.

Question 20

The more "constrained" the relatedness of diversification:

Accepted Answer

A)  the fewer the linkages between the businesses within the portfolio owned by the firm. 
B)  the wider the variation in the portfolio of businesses owned by the firm. 
C)  the more links there are among the businesses owned by an organization. 
D)  the lower the proportion of total organizational revenue derived from the dominant business. 
A)  the fewer the linkages between the businesses within the portfolio owned by the firm. 
B)  the wider the variation in the portfolio of businesses owned by the firm. 
C)  the more links there are among the businesses owned by an organization. 
D)  the lower the proportion of total organizational revenue derived from the dominant business.

Synergy exists when the value created by business units working together exceeds the value that those same units create working independently.

Golden parachutes protect managers from the negative consequences of over-diversifying a firm.

Differentiate between corporate-level and business-level strategies and give examples of each.

Economies of scope are cost savings resulting from a firm successfully leveraging, either through sharing or transferring, some of its capabilities and competencies developed in one business to another business.

The ultimate test of the value of a corporate-level strategy is whether the:

Compared to diversification that is grounded in intangible resources, diversification based on financial resources only is more visible to competitors and thus more imitable and less likely to create value on a long-term basis.

A major advantage of diversification is that overall monitoring costs are reduced because each separate business comes under the control of corporate headquarters.

A significant benefit of an internal capital market is limiting competitors' access to information about the performance of the individual businesses within the corporation.

Firms with both operational and corporate relatedness are favorites of investment analysts because the transparency and clarity of their financial statements clearly show the value-creation resulting from the combination of multiple businesses.

The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be:

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.

Which of the following is NOT a limitation directly relating to vertical integration?

Multipoint competition occurs when:

Decisions to expand a firm's portfolio of businesses to reduce managerial risk can have a positive effect on the firm's value.

Diversification strategies can be used with both value-creating and value-neutral objectives.

When a firm simultaneously practices operational relatedness and corporate relatedness:

Which acquisition would be considered the LEAST related?

The more "constrained" the relatedness of diversification:

Strategic Management and Strategic Competitiveness

The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis

The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages

Business-Level Strategy

Competitive Rivalry and Competitive Dynamics

Merger and Acquisition Strategies

International Strategy

Cooperative Strategy

Corporate Governance

Organizational Structure and Controls

Strategic Leadership

Strategic Entrepreneurship

Filters

Exam 6: Corporate-Level Strategy

Synergy exists when the value created by business units working together exceeds the value that those same units create working independently.

Golden parachutes protect managers from the negative consequences of over-diversifying a firm.

Differentiate between corporate-level and business-level strategies and give examples of each.

Economies of scope are cost savings resulting from a firm successfully leveraging, either through sharing or transferring, some of its capabilities and competencies developed in one business to another business.

The ultimate test of the value of a corporate-level strategy is whether the:

Compared to diversification that is grounded in intangible resources, diversification based on financial resources only is more visible to competitors and thus more imitable and less likely to create value on a long-term basis.

A major advantage of diversification is that overall monitoring costs are reduced because each separate business comes under the control of corporate headquarters.

A significant benefit of an internal capital market is limiting competitors' access to information about the performance of the individual businesses within the corporation.

Firms with both operational and corporate relatedness are favorites of investment analysts because the transparency and clarity of their financial statements clearly show the value-creation resulting from the combination of multiple businesses.

The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be:

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.

Which of the following is NOT a limitation directly relating to vertical integration?

Multipoint competition occurs when:

Decisions to expand a firm's portfolio of businesses to reduce managerial risk can have a positive effect on the firm's value.

Diversification strategies can be used with both value-creating and value-neutral objectives.

When a firm simultaneously practices operational relatedness and corporate relatedness:

Which acquisition would be considered the LEAST related?

The more "constrained" the relatedness of diversification:

Strategic Management and Strategic Competitiveness

The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis

The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages

Business-Level Strategy

Competitive Rivalry and Competitive Dynamics

Merger and Acquisition Strategies

International Strategy

Cooperative Strategy

Corporate Governance

Organizational Structure and Controls

Strategic Leadership

Strategic Entrepreneurship

Filters