Deck 8: Corporate-Level Strategy

Question 1

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

Answer 1

True

Question 2

The informational benefits of an internal capital market include limiting access to information for external competitors to analyze.

Answer 2

True

Question 3

Market power exists when a firm is able to sell its products above the existing competitive level or decrease the costs of its primary and support activities below the competitive level,or both.

Answer 3

True

Question 4

In the U.S.,companies following the unrelated diversification strategy are typically family-controlled.

Question 5

Many manufacturing firms are disintegrating and moving to independent supplier networks.

Question 6

To properly execute strategic controls in firms using related diversification,the executives must have a deep understanding of each unit's business-level strategy.

Question 7

Unrelated diversification strategies are a uniquely American activity.

Question 8

When firms share activities across units,they are often able to create value and financial returns.

Question 9

Firms may seek to create value from economies of scope by sharing activities and transferring capital resources.

Question 10

UPS is an example of a company following a dominant business strategy.

Question 11

A primary approach to corporate-level strategy is through mergers and acquisitions.

Question 12

Mutual forbearance exists when two or more diversified firms compete in the same product areas or geographic markets.

Question 13

Corporate-level strategies detail actions taken to gain a competitive advantage through the selection and management of a group of different businesses competing in several industries and product markets.

Question 14

Diversification has been the norm for the most successful firms in many industrialized countries such as Germany,Italy,and France,but not in emerging economies.

Question 15

Proctor & Gamble (P&G) uses a paper production plant jointly for its paper towel and baby diaper businesses.This use of P&G's production plant is an example of activity sharing.

Question 16

An unrelated diversification strategy can create value through two types of financial economies: efficient internal capital allocations and purchasing other corporations and restructuring their assets.

Question 17

Few of the companies following an unrelated diversification strategy are found in the less-developed countries of the world.

Question 18

In a diversified firm,capital allocation can be adjusted according to more specific criteria than is possible with external market allocation.

Question 19

Vertical integration continues to be the focus of most manufacturing firms,including Intel,Dell,and GM.

Question 20

Mutual forbearance is the situation in which a responding firm takes the same strategic action as the attacking firm,thus signaling a commitment to defend the status quo without escalating rivalry.

Question 21

Since the 1950s,the level of diversification in American corporations has remained constant.

Question 22

Free cash flows,as such,are less likely to be a source of competitive advantage than other types of resources.

Question 23

When links between a diversified firm's businesses are rather direct,a(n) ____ diversification strategy is being used.

A) linked
B) constrained
C) integrated
D) effective

Question 24

To create value as a result of appropriate diversification,firms must consider all of the following EXCEPT:

A) potential retaliation of competitors.
B) its own core competencies.
C) external opportunities and threats.
D) its own available resources (especially financial resources).

Question 25

When diversification results in two companies,such as Compaq and Hewlett-Packard simultaneously competing in multiple markets,this is called ____ competition.

A) multiple market
B) cut-throat
C) multipoint
D) oligopolistic

Question 26

Diversification by a firm would be expected to reduce a manager's executive compensation.

Question 27

When implementing a restructuring strategy,success usually calls for a focus on mature,low-technology businesses.

Question 28

Conglomerates follow the ____ strategy:

A) unrelated diversification
B) related constrained diversification
C) related linked diversification
D) global diversification

Question 29

As illustrated by the Eastman Kodak Co.,low performance may provide an incentive for greater diversification.

Question 30

The essence of the prevailing theory of diversification is that firms should diversify when they:

A) have market power in their industry and are market leaders.
B) have control of tactical and strategic competitive actions.
C) are market followers and have a secure niche.
D) have excess resources,capabilities,and core competencies with multiple uses.

Question 31

Unrelatedness refers to:

A) the absence of direct links among businesses in the corporate portfolio.
B) a moderate amount of linkages among businesses in the corporate portfolio.
C) a heavy number of linkages among businesses in the corporate portfolio.
D) concentration in a single line of business.

Question 32

No organizational form encourages competition for capital between separate divisions of the corporation.

Question 33

The corporate-level strategy should evolve from the firm's:

A) strategic and tactical actions.
B) business-unit and operational-level strategies.
C) top management team's annual planning meeting.
D) core competencies.

Question 34

It is overly pessimistic to assume that managers will usually act in their own self-interest as opposed to acting as positive stewards of firm resources.

Question 35

Whenever governance mechanisms are implemented,managers will not attempt to diversify the firm to a point at which it fails to earn average returns.

Question 36

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

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 37

A firm with strong capabilities in managing synergy is able to create economies of scope using ____.

A) high operational relatedness and low corporate relatedness
B) low operational relatedness and high corporate relatedness
C) high operational relatedness and high corporate relatedness
D) low operational relatedness and high corporate relatedness

Question 38

An external governance threat will restrain the behavior of managers and thus provides a sure means of controlling managerial motives for diversification.

Question 39

Multipoint competition is where:

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

Question 40

Government policy provides few incentives for either increased or decreased levels of diversification.

Question 41

For a firm's diversification to be considered unrelated,the firm must earn:

A) less than 70% of its revenue from its dominant business and must have only limited links among its businesses.
B) more than 70% of its revenue from the dominant business of the firm and must have only limited links among its businesses.
C) less than 70% of its revenue from a dominant business and no common links among its businesses.
D) 98% of its revenue from a single business.

Question 42

For a firm's diversification to be considered related linked,it must earn:

A) less than 70% of revenue from the dominant business and there are only limited links between businesses.
B) more than 70% of revenue from the dominant business and have strong links between businesses.
C) between 70% and 80% of revenues from a single business.
D) 98% of revenues from a single business.

Question 43

Which of the following is true of the diversification trend today?

A) In response to global trends,most companies are becoming more diversified.
B) In Latin America and other emerging economies,such as South Korea and India,focused firms continue to dominate the private sector.
C) A better match between the firm's core competencies and its environmental opportunities and threats leads to increased diversification.
D) A number of U.S.firms continue to maintain high levels of diversification.

Question 44

Procter & Gamble's motto of "think globally,act locally" is appropriate to its strategy and its ____ form of structure.

A) competitive multidivisional
B) cooperative multidivisional
C) SBU multidivisional
D) functional divisional

Question 45

A firm that earns less than 70% of revenue from its dominant business and has direct links between its businesses is engaging in ____ diversification.

A) unrelated
B) related constrained
C) related linked
D) dominant

Question 46

The paper towel and baby diaper business units at Procter and Gamble share ____ activities.

A) marketing
B) paper production
C) research and development
D) inventory delivery

Question 47

The noted business historian Alfred Chandler views the multidivisional structure as an innovative response to:

A) an emerging management philosophy.
B) changes in the environment.
C) coordination and control problems.
D) a shift toward manufacturing in the U.S.economy.

Question 48

For a firm's diversification to be considered related constrained:

A) more than 70% of its revenue must come from the dominant business,and all businesses share product,technological and distribution linkages.
B) less than 70% of its revenue comes from the dominant business,and the businesses share product,technological and distribution linkages.
C) between 70% and 80% of revenues come from a single business.
D) a firm must be concentrated in a large number of very different industries.

Question 49

A cooperative multidivisional structure features:

A) the use of many integrating devices.
B) the use of few integrating devices.
C) no use of integrating devices.
D) financial criteria for performance evaluation.

Question 50

Gatorade using Pepsi Cola's outbound logistics to increase market share outside the U.S.is an example of:

A) market power.
B) marketing.
C) sharing activities.
D) quality assurance.

Question 51

A firm pursuing a related-constrained diversification strategy would typically need all of the following EXCEPT:

A) centralization between units for the sake of coordination.
B) liaison roles.
C) decentralization between units to generate creativity.
D) temporary teams or task forces formed around specific projects.

Question 52

Campbell's Soup is a good example of a successful follower of a(n) ____ diversification strategy.

A) dominant business
B) related constrained
C) related linked
D) unrelated

Question 53

Firms that have selected a related diversification corporate-level strategy seek to exploit:

A) control shared among business-unit managers.
B) market power.
C) the favorable demand of buyers.
D) economies of scope between business units.

Question 54

Firms seek to create value from economies of scope through all of the following EXCEPT:

A) activity sharing.
B) skill transfers.
C) transfers of corporate core competencies.
D) linked operations.

Question 55

Firms using the dominant business corporate-level diversification strategy are firms that generate between ____ of their total sales within a single business category.

A) 90% and 100%
B) 80% and 95%
C) 70% and 95%
D) 60% and 95%

Question 56

Related linked firms have ____ sharing of actual resources and activities and ____ transfers of knowledge and competencies between units than do related constrained firms.

A) more,less
B) less,equivalent
C) no more or less,no more or less
D) more,equivalent

Question 57

Usually a company is classified as a single business firm when revenues generated by the dominant business are greater than ____ percent.

A) 99
B) 95
C) 90
D) 70

Question 58

The basic types of operational economies through which firms seek value from economies of scope are:

A) buyer and supplier relationships.
B) concentric diversification and joint ventures.
C) sharing activities and transferring skills or corporate core competencies.
D) joint ventures and selling of skills.

Question 59

Which of the following is NOT a reason to implement a diversification strategy?

A) To enhance the value creation of the entire company
B) To expand the business portfolio in order to reduce managerial employment risk
C) To gain market power relative to competitors
D) To increase the low performance levels of a business unit

Question 60

Which of the following is a true statement about related linked firms vs.related constrained firms?

A) Related constrained firms have less sharing of actual resources than do related linked firms.
B) Few examples of either type of diversification exist in the U.S.today.
C) Both obtain revenues from two or more dominant businesses.
D) Related linked firms share fewer resources and activities between businesses than do related constrained firms.

Question 61

The drawbacks to transferring competencies by moving key people into new management positions include all of the following EXCEPT:

A) the people involved may not want to move.
B) transfers of key people frequently fail because of organizational culture clashes.
C) managers with these skills are expensive.
D) top-level managers may resist having these key people transferred.

Question 62

Backward integration occurs when:

A) a company produces its own inputs.
B) a company owns its own source of distribution of outputs.
C) a company is concentrated in a single industry.
D) there are no linkages among the businesses.

Question 63

Creating financial economies by acquiring other companies and restructuring their assets usually requires that a firm:

A) remain small.
B) focus on service businesses.
C) focus on high-technology businesses.
D) focus on mature,low-technology firms.

Question 64

In the diversified firm,internal capital allocation may provide greater gains relative to external capital market allocation because:

A) internal capital allocation always leads to an optimal level of diversification.
B) the corporate office has superior information about its businesses compared to the information investors have about those enterprises.
C) the firms act as a mutual fund when investing internal capital.
D) management maintains control of all invested capital.

Question 65

Firms with internal capital markets have the following informational advantage(s):

A) sharing information only with stockholders and no other outside stakeholders.
B) sharing only positive information with capital markets.
C) not sharing information about management compensation and providing limited financial information to stakeholders.
D) sharing all information with owners and providing no information to external stakeholders.

Question 66

Although conglomerates such as ITT and Hansen Trust have refocused their portfolios,these firms:

A) continue to acquire small but successful companies in specific market niches.
B) have been replaced by other unrelated diversified firms.
C) still obtain detailed information from a variety of sources about potential acquisitions.
D) have large corporate staffs that maintain synergies among remaining business units.

Question 67

Financial economies are cost savings realized through:

A) layoffs of employees.
B) the transferring of core competencies.
C) improved allocations of financial resources based on investments inside or outside the firm.
D) cutting costs by the supplier firm.

Question 68

The cooperative multidivisional:

A) seeks to build an organization in which all people respect one another.
B) is common in European countries and seeks to build a flat organization in which all workers share in all responsibilities.
C) is a structure organized around both functional specialization and business projects.
D) is a structure using many integrative devices.

Question 69

In related linked diversified firms,____ are a complex set of resources that link the different businesses through managerial and technological knowledge,experience,and expertise.

A) corporate core competencies
B) strategies
C) competitive links
D) assets

Question 70

According to the text,Disney has been successful in both the sharing of activities and the transfer of knowledge.Disney can be said to have achieved ____.

A) dynamic stability
B) synergy
C) strategic dominance
D) synthesis

Question 71

One means to facilitate the transfer of competencies when engaged in activity sharing is to:

A) divest unrelated entities.
B) transfer key people into new management positions.
C) utilize strategic competitive actions.
D) utilize mutual forbearance.

Question 72

A company pursuing vertical integration can gain market power over its competitors through all of the following EXCEPT:

A) improved process innovation.
B) savings on operations costs.
C) improved product quality.
D) avoidance of market costs.

Question 73

Smithfield Foods produces hams and other meat products.It owns hog-raising operations.This is an example of a ____ business.

A) circularly integrated
B) vertically integrated
C) totally integrated
D) horizontally integrated

Question 74

Successful unrelated diversification through restructuring is typically accomplished by:

A) restructuring a target firm's assets by selling underperforming divisions and placing the remaining divisions under rigorous financial controls.
B) a "random walk" of good luck in picking firms to buy.
C) seeking out high technology firms in high growth industries.
D) a top management team that is not constrained by pre-established ideas of how the firm's portfolio should be developed.

Question 75

Firms following an unrelated diversification strategy can reduce their overall risk when:

A) resources are allocated among many businesses with different risk profiles.
B) they limit their growth to acquiring only successful companies.
C) synergies are developed among the business units.
D) management refuses to purchase businesses outside their sphere of expertise or knowledge.

Question 76

Dominant-business firms that have decided to shift to a related-constrained strategy should change their organizational structure to:

A) a functional structure.
B) a differentiation structure.
C) a simple structure.
D) the cooperative form of the multidivisional structure.

Question 77

In the strategic business unit structure hierarchy,division managers look primarily to ____ for strategic guidance.

A) headquarters personnel
B) the board of directors
C) stakeholders
D) the heads of their particular SBU

Question 78

When a corporation pursues a related-constrained diversification strategy,financial controls may not add value to strategy implementation efforts since it is difficult to:

A) evaluate the financial performance of individual business units and their managers.
B) transfer capital between units.
C) deal with the multiple responsibilities and authorities of division managers.
D) identify which objective criteria to monitor.

Question 79

Which of the following is NOT a limit to vertical integration?

A) Bureaucratic costs
B) Outside suppliers producing a component at a lower cost
C) Capacity balance and coordination problems from changes in demand
D) Protection of core technology from imitation

Question 80

Which of the following is a true statement about implementing corporate-level strategies and effective organizational structures?

A) Firms pursuing a related-linked strategy should implement a competitive structure with a competitive culture and centralized strategic planning activities.
B) Firms pursuing an unrelated diversification strategy should use an SBU structure with a small corporate staff,emphasize the R&D function,and integrate divisions to achieve synergies.
C) Firms pursuing a related-linked strategy should use an SBU structure,emphasize independence among divisions,and manage the strategic planning function from the central office.
D) Firms pursuing a related-constrained strategy should implement a cooperative structure,use integrative devices to link divisions,centralize the R&D function,and emphasize sharing.