Deck 6: Corporate-Level Strategy: Creatingvalue Through Diversification

Question 1

It is not necessary for a core competence to be difficult to imitate or to be nonsubstitutable.

Answer 1

False
Explanation: For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, it must meet three criteria: it must enhance competitive advantage by creating superior customer value; different businesses in the corporation must be similar in at least one important way related to the core competence; and it must be difficult for competitors to imitate or find substitutes for it.

Question 2

Economies of scope in a related diversification strategy result from the leveraging of core competencies and the sharing of activities such as production.

Answer 2

True
Explanation: Related diversification enables a firm to benefit from economies of scope, which are cost savings that are derived from leveraging core competencies or sharing related activities among businesses in a corporation. A firm can also enjoy greater revenues if two businesses attain higher levels of sales growth combined than either company could attain independently.

Question 3

Research shows that the vast majority of acquisitions results in value creation rather than value destruction.

Answer 3

False
Explanation: Research shows that the vast majority of acquisitions result in value destruction rather than value creation.

Question 4

At times,the only other people who may have benefited from a merger-acquisition were the shareholders of the acquired firms.

Question 5

Diversification initiatives must be justified by the creation of value for shareholders.

Question 6

All diversification moves,including those involving mergers and acquisitions,erode performance.

Question 7

Economies of scope are cost savings from leveraging core competencies or sharing unrelated activities among businesses in a corporation.

Question 8

Many acquisitions ultimately result in divestiture.

Question 9

Related diversification enables a firm to benefit from horizontal relationships across different businesses in the diversified corporation by leveraging core competencies and sharing activities.

Question 10

Benefits derived from horizontal and hierarchical relationships are mutually exclusive.

Question 11

Cooper Industries has followed a successful strategy of related diversification.There are few similarities in the products it makes or the industries in which it competes.

Question 12

Core competencies do not create value in a business.

Question 13

One of the criteria for a core competence is that the different businesses in the corporation must be similar in at least one important way related to the core competence.

Question 14

Reasons for acquisition failure include: ineffective integration of the acquisition,too high of a premium paid for the common stock of the target company,or inability to understand how the assets of the acquired firm would fit with the lines of business of the existing company.

Question 15

When firms diversify into unrelated businesses,the primary potential benefits are horizontal relationships,i.e.,businesses sharing tangible and intangible resources.

Question 16

When firms diversify into related businesses,the primary potential benefits come from horizontal relationships,which are businesses sharing intangible and tangible resources.

Question 17

Corporate-level strategy focuses on gaining short-term revenue through managing operations in multiple businesses.

Question 18

The Hewlett-Packard and Autonomy merger in 2011 is an example of a successful merger.

Question 19

For a core competency to create value and provide a viable basis for synergy among the businesses in a corporation it must at least create superior customer value and it must be difficult to imitate.

Question 20

Gillette developed the Fusion and Mach 3 shaving systems that created superior customer value as a result of their core competency in research and development.

Question 21

IBM leverages its competencies in computing technology to provide health care services.This is an example of a core competence being used across dissimilar businesses within the same corporation.

Question 22

According to the transaction cost perspective in analyzing vertical integration,every market transaction involves some transaction cost.

Question 23

If a corporation is to achieve synergy by sharing activities across its business units,it is not important to compromise on the design or performance of an activity that is to be shared.

Question 24

The main reason that automobile manufacturers have increased the amount of outsourced inputs is because of the importance of boom and bust cycles in the industry.

Question 25

One of the risks of vertical integration is that there may be problems associated with unbalanced capacities along the value chain of a firm.

Question 26

Restructuring requires the corporate office to find either poorly performing firms with unrealized potential or firms in industries on the threshold of significant,positive change.

Question 27

Although acquiring related businesses can enhance the bargaining power of a corporation,there is a risk of retaliation by competitors that can result in a diminishing of the desired bargaining power.

Question 28

Portfolio management should be considered as the primary basis for formulating corporate-level strategies.

Question 29

When sharing activities across business units,a company can attain the highest cost savings when it acquires another from the same industry in the same country.

Question 30

The two principal means by which firms achieve synergy through market power are pooled negotiating power and corporate parenting.

Question 31

Portfolio management matrices generally consist of two axes that reflect industry or market growth and the market share of a business.

Question 32

Market power refers to cost savings from leveraging core competencies or sharing activities among the businesses in a corporation.

Question 33

An oil refinery secures land leases and develops its own drilling capacity to ensure a constant supply of crude oil.This is an example of forward integration.

Question 34

Shared activities among businesses in a corporation do not always have a positive effect on a differentiation strategy of a corporation.

Question 35

Similar businesses working together or the affiliation of a business with a strong parent can strengthen the bargaining position of a company relative to suppliers and customers.

Question 36

With unrelated diversification,potential benefits can be gained from vertical or hierarchical relationships; that is,the creation of synergies from the interaction of the corporate office with outside stakeholders.

Question 37

Vertical integration is attractive when market transaction costs are higher than internal administrative costs.

Question 38

Starbucks acquired the baker chain,La Boulange,with the intention of selling the bakery products at its coffee cafes.The increased market exposure for La Boulange is an example of a revenue enhancing benefit that can arise from the differentiation strategy.

Question 39

Sharing activities across business units can provide two primary benefits: cost savings and revenue enhancements.

Question 40

A car manufacturer controls its own system of dealerships to ensure retail outlets for its products.This is an example of backward integration.

Question 41

Corporate-level strategy focuses on _____________.

A) gaining long-term revenue
B) gaining short-term profits
C) decreasing business locations
D) managing investment bankers and their interests

Question 42

An advantage of a firm entering into a strategic alliance is that it does not have to share the wealth with its partners.

Question 43

The potential advantages of strategic alliances and joint ventures include entering new markets as well as developing and diffusing new technologies.

Question 44

Which of the following is not a reason for merger and acquisition failures?

A) The acquiring company pays too high a premium for the common stock of the target company.
B) Top executives act in their best interests rather than those of the shareholders.
C) The acquired company assets are poorly integrated into the acquiring company business lines.
D) The acquisition leads to value creation.

Question 45

A golden parachute is a prearranged contract with managers specifying that,in the event of a hostile takeover,the target company managers will be paid a significant severance package.

Question 46

At Cooper Industries,there are few similarities in the products it makes or the industries in which it completes.The corporate office adds value through such activities as superb human resource practices and budgeting systems.This is an example of __________________.

A) using related diversification to achieve value by leveraging core competencies to attain economies of scope
B) using related diversification to achieve value by leveraging core competencies to acquire market power
C) using unrelated diversification to achieve value through portfolio management in order to acquire financial synergies
D) using unrelated diversification to achieve value through restructuring and parenting

Question 47

One of the obligatory aspects of strategic alliances is the dependence on written contracts to delimit responsibilities and enforce compliance.

Question 48

Greenmail is an offer by a company,threatened by takeover,to offer its stock at a reduced price to a third party.

Question 49

Casio,a giant electronic products producer,synthesizes it abilities in miniaturization,microprocessor design,material science,and ultrathin precision castings to produce digital watches.It uses the same skills to produce card calculators,digital cameras,and other small electronics.These collective skills are known as _________________.

A) core competencies
B) strategic resources
C) shared activities
D) economies of scope

Question 50

An advantage of mergers and acquisitions is that they can enable a firm to rapidly enter new product markets.

Question 51

The acquisition of two or more counter-cyclical businesses is an example of using diversification to reduce risk.

Question 52

In recent years,many high tech firms such as Priceline.com have suffered from the negative impact of uncontrolled growth.

Question 53

Through joint ventures,firms can directly acquire the assets and competencies of other firms.

Question 54

Among the advantages of acquisitions are the expensive premiums that are frequently paid to acquire a business.

Question 55

The Cisco acquisition of Pure Digital Technologies,the parent of the Flip video camera,failed because __________________.

A) Cisco had valuable competencies
B) the Flip division of Cisco was slow and less responsive to market pressures
C) consumers continued to purchase the camera
D) Cisco had good vision of the market

Question 56

Diversification initiatives include all of the following except ___________________.

A) mergers and acquisitions
B) strategic alliances
C) joint ventures
D) shareholder development

Question 57

McKesson,a large distribution company,sells many product lines such as pharmaceuticals and liquor through its super warehouses.This is an example of ____________.

A) using related diversification to achieve value by sharing activities to create economies of scope
B) using related diversification to achieve value by leveraging core competencies to create market power
C) using unrelated diversification to create value by managing its portfolio to create financial synergies
D) using unrelated diversification to create value by managing its portfolio to create restructuring advantages

Question 58

Shaw Industries,a giant carpet manufacturer,increases its control over raw materials by producing much of its own polypropylene fiber,a key input to its manufacturing process.This is an example of _______________.

A) using related diversification to achieve value by pooling negotiating power to achieve market power
B) using related diversification to achieve value by leveraging core competencies to achieve economies of scope
C) using related diversification to achieve value by integrating vertically in order to acquire market power
D) using related diversification to achieve value by integrating vertically in order to attain economies of scope

Question 59

For a core competence to be a viable basis for the corporation strengthening a new business unit,there are three requirements.Which one of the following is not one of these requirements?

A) The competence must help the business gain strength relative to its competition.
B) The new business must be similar to existing businesses to benefit from a core competence.
C) The collection of competencies should be unique, so that they cannot be easily imitated.
D) The new business must have an established large market share.

Question 60

An advantage of internal development is that firms do not have to combine activities across the value chains of many companies and merge company cultures.

Question 61

The risks of vertical integration include all of the following EXCEPT:

A) costs and expenses associated with increased overhead and capital expenditures.
B) problems associated with unbalanced capacities along the value chain.
C) lack of control over valuable assets.
D) additional administrative costs associated with managing a more complex set of activities.

Question 62

In managing the corporate portfolio,the BCG matrix would suggest that __________.

A) Dogs should be invested in to increase market share and become Cash Cows
B) Stars are in low growth markets and can provide excess cash to fund other opportunities
C) Cash Cows require substantial cash outlays to maintain market share
D) Question Marks can represent future Stars if their market share is increased

Question 63

Vertical integration is attractive when ____________.

A) internal administrative costs are higher than transaction costs
B) transaction costs are higher than internal administrative costs
C) transaction costs and internal administrative costs are equal
D) search costs are higher than monitoring costs

Question 64

A Cash Cow,in the BCG framework,refers to a business that has _______________.

A) high market growth and relatively high market share
B) relatively low market share and low market growth
C) relatively low market share and high market growth
D) low market growth and relatively high market share

Question 65

Portfolio management matrices are applied to what level of strategy?

A) departmental level
B) business level
C) international level
D) corporate level

Question 66

Unbalanced capacities that limit cost savings,difficulties in combining specializations,and reduced flexibility are disadvantages associated with ___________.

A) strategic alliances
B) divestment
C) horizontal integration
D) vertical integration

Question 67

Creating value within business units can happen when the corporate office helps subsidiaries make wise choices in their own acquisitions,divestures,and new ventures.This is known as ________.

A) restructuring
B) parenting
C) leveraging core competencies
D) increasing market power

Question 68

Sharing core competencies is one of the primary potential advantages of diversification.In order for diversification to be most successful,it is important that _____________.

A) the similarity required for sharing core competencies must be in the value chain, not in the product
B) the products use similar distribution channels
C) the target market is the same, even if the products are very different
D) the methods of production are the same

Question 69

The primary means by which a firm can diversify are __________,_________,and ________.

A) mergers and acquisitions; differentiation; overall cost leadership
B) mergers and acquisitions; joint ventures and strategic alliances; internal development
C) joint ventures and strategic alliances; integration of value chain activities; acquiring human capital
D) mergers and acquisitions; internal development; differentiation

Question 70

Shaw Industries,a giant carpet manufacturer,increases its control over raw materials by producing much of its own polypropylene fiber,a key input into its manufacturing process.This is an example of ______________.

A) leveraging core competencies
B) sharing activities
C) pooled negotiating power
D) vertical integration

Question 71

In the BCG Matrix,a business that has a low market share in an industry characterized by high market growth is termed a ____________.

A) Star
B) Cash Cow
C) Question Mark
D) Dog

Question 72

When using a BCG matrix,a business that currently holds a large market share in a rapidly growing market and has minimal or negative cash flow would be known as a __________.

A) Cash Cow
B) Dog
C) Star
D) Question Mark

Question 73

A firm should consider vertical integration when ___________.

A) the competitive situation is highly volatile
B) customer needs are evolving
C) the suppliers of the firm willingly cooperate with the firm
D) the suppliers of raw materials to the firm are often unable to maintain quality standards

Question 74

Portfolio management frameworks,such as the BCG matrix,share which of the following characteristics?

A) Businesses are plotted on a 3-dimensional grid.
B) Grid dimensions are based on external environments and internal capabilities/market positions.
C) Position in the matrix suggests a need for sharing synergies.
D) They are most helpful in helping businesses develop types of competitive advantage.

Question 75

In the BCG Growth Share Matrix,the suggested strategy for Stars is to ________.

A) milk them to finance other businesses
B) invest large sums to gain a good market share
C) maintain position and after the market growth slows use the business to provide cash flow
D) not invest in them and to shift cash flow to other businesses

Question 76

Transaction costs include all of the following costs EXCEPT

A) search costs
B) negotiating costs
C) agency costs
D) monitoring costs

Question 77

When management uses common production facilities or purchasing procedures to distribute different but related products,they are ________________.

A) building on core competencies
B) achieving process gains
C) sharing activities
D) using portfolio analysis

Question 78

Creating value within business units can happen when a firm tries to find and acquire either poorly performing firms with unrealized potential or firms in industries on the threshold of significant,positive change.This is action is known as ______.

A) parenting
B) leveraging core competencies
C) restructuring
D) sharing activities

Question 79

All of the following are limitations (or downsides)of the BCG (Boston Consulting Group)matrix EXCEPT:

A) Every business cannot be accurately measured and compared on the two dimensions.
B) It takes a dynamic view of competition which can lead to overly complex analyses.
C) It views each business as a stand-alone entity and ignores the potential for synergies across businesses.
D) While easy to comprehend, the BCG matrix can lead to some troublesome and overly simplistic prescriptions.

Question 80

According to the text,corporate restructuring includes

A) capital restructuring, asset restructuring, and technology restructuring
B) global diversification, capital restructuring, and asset restructuring
C) management restructuring, financial restructuring, and procurement restructuring
D) capital restructuring, asset restructuring, and management restructuring