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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification

Chapter 06

Corporate-Level Strategy: Creating Value through Diversification

True / False Questions

1. Whenever an organization iversifies! it represents investing a stoc"holer#s funs in a $ay

in $hich the iniviual investor is una%le.&rue 'alse

(. Diversification that results in strengthening the value chain an increasing co)petitiveavantages is the %est possi%le e*a)ple of investing stoc"holers# funs in a $ay that

iniviual investors cannot.

&rue 'alse

+. When fir)s iversify into unrelate %usinesses! the pri)ary potential %enefits are

horizontal relationships! i.e.! %usinesses sharing tangi%le an intangi%le resources.

&rue 'alse

,. ne$ly acuire %usiness )ust al$ays have proucts that are si)ilar to the e*isting

%usinesses# proucts to %enefit fro) the corporation#s core co)petence.

&rue 'alse

/. Sharing activities across %usiness units can provie t$o pri)ary %enefits: cost savings an

revenue enhance)ents.&rue 'alse

6. Sharing activities a)ong %usiness units can have a negative effect on a given %usiness#s

ifferentiationas in the e*a)ple of Dai)ler-enz#s acuisition of Chrysler.&rue 'alse

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2. 3ar"et po$er refers to cost savings fro) leveraging core co)petencies or sharing activities

a)ong the %usinesses in a corporation.&rue 'alse

4. &he t$o principal )eans %y $hich fir)s achieve synergy through )ar"et po$er are: poole

negotiating po$er an corporate parenting.&rue 'alse

5. Si)ilar %usinesses $or"ing together or the affiliation of a %usiness $ith a strong parent canstrengthen a fir)#s %argaining position relative to suppliers an custo)ers.

&rue 'alse

10. fir) that incorporates )ore processes to$ar the original source of ra$ )aterials is ane*a)ple of for$ar integration.

&rue 'alse

11. pu%lishing co)pany that purchases a chain of %oo"stores to sell its %oo"s is an e*a)ple

of unrelate iversification.

&rue 'alse

1(. ne of the ris"s of vertical integration is that there )ay %e pro%le)s associate $ith

un%alance capacities or unfille e)ans along a fir)#s value chain.

&rue 'alse

1+. Vertical integration shoul %e unerta"en $hen e)an for the organization#s proucts is

very unsta%le.&rue 'alse

6-(




1,. 3ar"et transactions o not involve transaction costs.

&rue 'alse

1/. Vertical integration is attractive $hen )ar"et transaction costs are higher than internal

a)inistrative costs.

&rue 'alse

16. ccoring to the te*t! the t$o )ain sources of synergy in unrelate iversification are

parenting an financial synergies via portfolio )anage)ent.&rue 'alse

12. 7estructuring reuires the corporate office to fin either poorly perfor)ing fir)s $ith

unrealize potential or fir)s in inustries on the threshol of significant! positive change.&rue 'alse

14. 8ortfolio )anage)ent shoul %e consiere as the pri)ary %asis for for)ulatingcorporate-level strategies.

&rue 'alse

15. 8ortfolio )anage)ent )atrices generally consist of t$o a*es that reflect inustry or

)ar"et gro$th an the )ar"et share of a %usiness.

&rue 'alse

(0. &he acuisition of t$o or )ore counter-cyclical %usinesses is an e*a)ple of using

iversification to reuce ris".

&rue 'alse

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(1. n avantage of )ergers an acuisitions is that they can ena%le a fir) to rapily enter

ne$ prouct )ar"ets.&rue 'alse

((. )ong the isavantages of acuisitions are the e*pensive pre)iu)s that are freuently

pai to acuire a %usiness.&rue 'alse

(+. &hrough 9oint ventures! fir)s can irectly acuire the assets an co)petencies of otherfir)s.

&rue 'alse

(,. &he potential avantages of strategic alliances an 9oint ventures inclue entering ne$)ar"ets as $ell as eveloping an iffusing ne$ technologies.

&rue 'alse

(/. 'or strategic alliances to %e effective! reliance on $ritten contracts to eli)it

responsi%ilities an enforce co)pliance is vital.

&rue 'alse

(6. n avantage of a fir) entering into a strategic alliance is that it oes not have to share

the $ealth $ith its partners.

&rue 'alse

(2. n avantage of internal evelop)ent is that fir)s o not have to co)%ine activities

across the value chains of )any co)panies an )erge co)pany cultures.&rue 'alse

6-,




(4. ;n recent years! )any high tech fir)s such as 8riceline.co) have suffere fro) the

negative i)pact of uncontrolle gro$th.&rue 'alse

(5. <reen)ail is an offer %y a co)pany! threatene %y ta"eover! to offer its stoc" at a reuce

price to a thir party.&rue 'alse

+0. golen parachute is a prearrange contract $ith )anagers specifying that in the event of a hostile ta"eover! the target fir)#s )anagers $ill %e pai a significant severance pac"age.

&rue 'alse

ultiple Choice Questions

+1. Corporate-level strategy aresses t$o relate issues:

. ho$ to co)pete in a given %usiness= the application of technology.. $hat %usinesses to co)pete in= ho$ these %usinesses can achieve synergy.

C. ho$ to integrate pri)ary activities= increase shareholer $ealth.

D. ho$ to i)prove a fir)#s infrastructure= ho$ to )aintain ethical %ehavior.

+(. ;niviual investors are epenent upon the corporation#s )anagers to

. iversify the stoc"holer#s invest)ents in orer to reuce ris".

. a value to their invest)ents in a $ay that the stoc"holers coul not acco)plish on theiro$n.

C. achieve ris" reuction at a lo$er cost than stoc"holers coul o%tain on their o$n.

D. )a*i)ize short-ter) returns in the for) of iviens.

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++. 3c>esson! a large istri%ution co)pany! sells )any prouct lines such as phar)aceuticals

an liuor through its super $arehouses. &his is an e*a)ple of. achieving econo)ies of scope through relate iversification.

. achieving )ar"et po$er through relate iversification.

C. attaining the %enefits of restructuring through unrelate iversification.D. attaining the %enefits of parenting through unrelate iversification.

+,. 8hilip 3orris %ought 3iller re$ing an use its )ar"eting e*pertise to i)prove 3iller#s

)ar"et share. &his 9ustification for iversification is %est escri%e as. utilizing co))on infrastructures.

. capitalizing on core co)petencies.

C. reucing corporate ris".D. using portfolio analysis.

+/. &he corporate office of Cooper ;nustries as value to its acuire %usinesses %y

perfor)ing such activities as auiting their )anufacturing operations! i)proving theiraccounting activities! an centralizing union negotiations. &his is an e*a)ple of

. achieving econo)ies of scope through relate iversification.

. achieving )ar"et po$er through relate iversification.C. attaining the %enefits of restructuring through unrelate iversification.

D. attaining the %enefits of parenting through unrelate iversification.

+6. ?????????? reflect@sA the collective learning in organizations such as ho$ to coorinate

prouction s"ills! integrate )ultiple strea)s of technologies! an )ar"et an )erchanise

iverse proucts an services.

. 8ri)ary value chain activities. Culture

C. Core co)petencies

D. Borizontal integration

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+2. 'or a core co)petence to %e a via%le %asis for the corporation strengthening a ne$

%usiness unit! there are three reuire)ents. Which one of the follo$ing is not one of thesereuire)ents

. &he co)petence )ust help the %usiness gain strength relative to its co)petition.

. &he ne$ %usiness )ust %e si)ilar to e*isting %usinesses to %enefit fro) a core co)petence.C. &he collection of co)petencies shoul %e uniue! so that they cannot %e easily i)itate.D. &he ne$ %usiness )ust have an esta%lishe large )ar"et share.

+4. Sharing core co)petencies is one of the pri)ary potential avantages of iversification. ;norer for iversification to %e )ost successful! it is i)portant that

. the si)ilarity reuire for sharing core co)petencies )ust %e in the value chain! not in the

prouct.. the proucts use si)ilar istri%ution channels.

C. the target )ar"et is the sa)e! even if the proucts are very ifferent.D. the )ethos of prouction are the sa)e.

+5. When )anage)ent uses co))on prouction facilities or purchasing proceures to

istri%ute ifferent %ut relate proucts! they are

. %uiling on core co)petencies.. sharing activities.

C. achieving process gains.

D. using portfolio analysis.

,0. Sha$ ;nustries! a giant carpet )anufacturer! increases its control over ra$ )aterials %y

proucing )uch of its o$n polypropylene fi%er! a "ey input into its )anufacturing process.

&his is an e*a)ple of. leveraging core co)petencies.

. sharing activities.

C. vertical integration.D. poole negotiating po$er.

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,1. &he ris"s of vertical integration inclue all of the follo$ing except

. costs an e*penses associate $ith increase overhea an capital e*penitures.. lac" of control over valua%le assets.

C. pro%le)s associate $ith un%alance capacities along the value chain.

D. aitional a)inistrative costs associate $ith )anaging a )ore co)ple* set of activities.

,(. n%alance capacities that li)it cost savings! ifficulties in co)%ining specializations!

an reuce fle*i%ility are isavantages associate $ith

. strategic alliances.. ivest)ent.

C. vertical integration.

D. horizontal integration.

,+. fir) shoul consier vertical integration $hen

. the co)petitive situation is highly volatile.

. custo)er nees are evolving.C. the fir)#s suppliers $illingly cooperate $ith the fir).

D. the fir)#s suppliers of ra$ )aterials are often una%le to )aintain uality stanars.

,,. ;t )ay %e avantageous to vertically integrate $hen

. lo$er transaction costs an i)prove coorination are vital an achieva%le through verticalintegration.. the )ini)u) efficient scales of t$o corporations are ifferent.

C. fle*i%ility is reuce! proviing a )ore stationary position in the co)petitive environ)ent.

D. various segregate specializations $ill %e co)%ine.

,/. &ransaction costs inclue all of the follo$ing costs except

. search costs.

. negotiating costs.

C. )onitoring costs.D. agency costs.

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,6. Vertical integration is attractive $hen

. transaction costs are higher than internal a)inistrative costs.. internal a)inistrative costs are higher than transaction costs.

C. transaction costs an internal a)inistrative costs are eual.

D. search costs are higher than )onitoring costs.

,2. ?????????? is $hen a fir)#s corporate office helps su%siiaries )a"e $ise choices in

their o$n acuisitions! ivestures! an ne$ ventures.

. 8arenting. 7estructuring

C. Leveraging core co)petencies

D. ;ncreasing )ar"et po$er

,4. ?????????? is $hen a fir) tries to fin an acuire either poorly perfor)ing fir)s $ith

unrealize potential or fir)s in inustries on the threshol of significant! positive change.

. 8arenting. 7estructuring


D. Sharing activities

,5. ccoring to the te*t! corporate restructuring inclues. capital restructuring! asset restructuring! an technology restructuring.. glo%al iversification! capital restructuring! an asset restructuring.

C. )anage)ent restructuring! financial restructuring! an procure)ent restructuring.

D. capital restructuring! asset restructuring! an )anage)ent restructuring.

/0. 8ortfolio )anage)ent )atrices are applie to $hat level of strategy

. Depart)ental level

. usiness level

C. Corporate levelD. ;nternational level

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/1. When using a C< )atri*! a %usiness that currently hols a large )ar"et share in a

rapily gro$ing )ar"et an that has )ini)al or negative cash flo$ $oul %e "no$n as a. co$.

. og.

C. pro%le) chil.D. star.

/(. ;n the C< @oston Consulting <roupA 3atri*! a %usiness that has a lo$ )ar"et share in

an inustry characterize %y high )ar"et gro$th is ter)e a. star.

. uestion )ar".

C. cash co$.D. og.

/+. 8ortfolio )anage)ent fra)e$or"s @e.g.! C< )atri*A share $hich of the follo$ing

characteristics. <ri i)ensions are %ase on e*ternal environ)ents an internal capa%ilitiesE)ar"et

positions.

. usinesses are plotte on a +-i)ensional gri.C. 8osition in the )atri* suggests a nee for! or a%ility to share! infrastructures or %uil on

core co)petences.

D. &hey are )ost helpful in helping %usinesses evelop types of co)petitive avantage.

/,. cash co$! referre to in the oston Consulting <roup 8ortfolio )anage)ent

techniue! refers to a %usiness that has

. lo$ )ar"et gro$th an relatively high )ar"et share.. relatively lo$ )ar"et share an lo$ )ar"et gro$th.

C. relatively lo$ )ar"et share an high )ar"et gro$th.

D. high )ar"et gro$th an relatively high )ar"et share.

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//. ;n )anaging a fir)#s portfolio! the C< )atri* $oul suggest that

. ogs shoul %e investe in to increase )ar"et share an %eco)e cash co$s.. stars are in lo$ gro$th )ar"ets an can provie e*cess cash to fun other opportunities.

C. uestion )ar"s can represent future stars if their )ar"et share is increase.

D. cash co$s reuire su%stantial cash outlays to )aintain )ar"et share.

/6. ;n the oston Consulting <roup#s @C<A <ro$th Share 3atri*! the suggeste strategy for

stars is to

. )il" the) to finance other %usinesses.. invest large su)s to gain a goo )ar"et share.

C. not invest in the) an to shift cash flo$ to other %usinesses.

D. )aintain position an after the )ar"et gro$th slo$s use the %usiness to provie cash flo$.

/2. ll of the follo$ing are li)itations @or o$nsiesA of the C< @oston Consulting <roupA

)atri* except

. every %usiness cannot %e accurately )easure an co)pare on the t$o i)ensions.. it vie$s each %usiness as a stan-alone entity an ignores the potential for synergies across

%usinesses.

C. it ta"es a yna)ic vie$ of co)petition $hich can lea to overly co)ple* analyses.D. $hile easy to co)prehen! the C< )atri* can lea to so)e trou%leso)e an overly

si)plistic prescriptions.

/4. &he three pri)ary )eans %y $hich a fir) can iversify are:

. )ergers an acuisitions= 9oint ventures an strategic alliances= internal evelop)ent.

. )ergers an acuisitions= ifferentiation= overall cost leaership.

C. 9oint ventures an strategic alliances= integration of value chain activities= acuiring hu)ancapital.

D. )ergers an acuisitions= internal evelop)ent= ifferentiation.

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/5. &he o$nsies or li)itations of )ergers an acuisitions inclue all of the follo$ing

except :. e*pensive pre)iu)s that are freuently pai to acuire a %usiness.

. ifficulties in integrating the activities an resources of the acuire fir) into a

corporation#s on-going operations.C. it is a slo$ )eans to enter ne$ )ar"ets an acuire s"ills an co)petences.D. there can %e )any cultural issues that can oo) an other$ise pro)ising acuisition.

60. Divesting %usinesses can acco)plish )any ifferent o%9ectives. &hese inclue. ena%ling )anagers to focus their efforts )ore irectly on the fir)#s core %usinesses.

. proviing the fir) $ith )ore resources to spen on )ore attractive alternatives.

C. raising cash to help fun e*isting %usinesses.D. all of the a%ove.

61. co)pany offering local teleco))unications service co)%ines resources $ith an

international co)pany that )anufactures igital s$itching euip)ent to research a ne$ typeof teleco))unications technology. &his is an e*a)ple of

. 9oint iversification.

. strategic alliance.C. ivest)ent.

D. glo%al integration.

6(. Cooperative relationships such as ?????????? have the potential avantages such as

entering ne$ )ar"ets! reucing )anufacturing @or otherA costs in the value chain! an

eveloping an iffusing ne$ technologies.

. 9oint ventures. )ergers an acuisitions

C. strategic alliances

D. an C

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6+. ll of the follo$ing are guielines for )anaging strategic alliances except

. esta%lishing a clear unerstaning %et$een partners.. relying pri)arily on a contract to )a"e the 9oint venture $or".

C. not shortchanging your partner.

D. $or"ing har to ensure a colla%orative relationship %et$een partners.

6,. Which of the follo$ing state)ents regaring internal evelop)ent as a )eans of

iversification is false

. 3any co)panies use internal evelop)ent to e*ten their prouct lines or a to theirservice offerings.

. n avantage of internal evelop)ent is that it is generally faster than other )eans of

iversification an fir)s can %enefit fro) spee in eveloping ne$ proucts an services.C. &he fir) is a%le to capture the $ealth create $ithout having to share the $ealth $ith

alliance partners.D. 'ir)s can often evelop proucts or services at a lo$er cost if they rely on their o$n

resources instea of e*ternal funing.

6/. ?????????? )ay %e ti)e consu)ing an! therefore! fir)s )ay forfeit the %enefits of

spee that gro$th through ?????????? an ?????????? can provie.. Strategic alliances= 9oint ventures! internal evelop)ent

. ;nternal evelop)ent= )ergers= acuisitions

C. Strategic alliances= )ergers= 9oint ventures

D. 3ergers= internal evelop)ent= strategic alliances

66. ccoring to 3ichael 8orter: &here#s a tre)enous allure to ??????????. ;t#s the %ig

play! the ra)atic gesture. With one stro"e of the pen you can a %illions to size! get a front page story! an create e*cite)ent in )ar"ets.

. strategic alliances an 9oint ventures

. )ergers an acuisitionsC. internal evelop)ent

D. ifferentiation strategies

6-1+




62. n antita"eover tactic calle @aA ?????????? is $hen a fir) offers to %uy shares of their

stoc" fro) a co)pany @or iniviualA planning to acuire their fir) at a higher price than theunfrienly co)pany pai for it.

. golen parachute

. green)ailC. poison pillD. scorche earth

64. n antita"eover tactic in $hich e*isting shareholers have the option to %uy aitionalshares of stoc" at a iscount to the current )ar"et price is calle

. green)ail.

. a poison pill.C. a golen parachute.

D. scorche earth.

65. &he ter) golen parachutes refers to. a clause reuiring that huge ivien pay)ents %e )ae upon ta"eover.

. financial inuce)ents offere %y a threatene fir) to stop a hostile suitor fro) acuiring it.

C. )anagers of a fir) involve in a hostile ta"eover approaching a thir party a%out )a"ingthe acuisition.

D. pay given to e*ecutives fire %ecause of a ta"eover.

20. ntita"eover tactics inclue all of the follo$ing except

. green)ail.

. golen parachutes.

C. golen hancuffs.D. poison pills.

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!ssay Questions

21. What are the pri)ary %enefits an ris"s associate $ith relate iversification

2(. riefly e*plain the avantages an isavantages of vertical integration.

2+. What are so)e of the "ey issues to ta"e into account $hen consiering $hether or not to

vertically integrate

2,. F*plain ho$ transaction cost analysis can provie insights into vertical integration

ecisions.

6-1/




2/. What are the pri)ary %enefits an ris"s associate $ith unrelate iversification

26. F*plain the uses an li)itations of portfolio )anage)ent )atrices such as the gro$th-

share )atri* evelope %y the oston Consulting <roup @C<A.

22. Su))arize the avantages an isavantages of )ergers an acuisitions as a )eans of

iversification.

24. Discuss so)e of the potential %enefits of ivest)ent.

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25. Strategic alliances are arrange)ents in $hich t$o fir)s 9oin forces an for) a cooperative

partnership. Discuss the avantages an isavantages of strategic alliances as $ell asguielines for reucing conflict %et$een the partners.

40. Discuss ho$ the potential %enefits of iversification )ay %e aversely affecte %y

conflicts %et$een )anagers# interests an stoc"holers# interests. Bint: Fgotis)! gro$th for

gro$th#s sa"e! antita"eover tactics.

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Chapter 06 Corporate-Level Strategy: Creating Value through Diversification

ns$er >ey

True / False Questions

1. (p. 198) Whenever an organization iversifies! it represents investing a stoc"holer#s funs ina $ay in $hich the iniviual investor is una%le.

F"LS!

AACSB: Analytic

Bloom's: Comprehension Difficulty: e!ium

"earnin# $%&ectie: *+

(. (p. 198) Diversification that results in strengthening the value chain an increasing

co)petitive avantages is the %est possi%le e*a)ple of investing stoc"holers# funs in a $ay

that iniviual investors cannot.

T#$!

AACSB: Analytic


"earnin# $%&ectie: *+

+. (p. 198) When fir)s iversify into unrelate %usinesses! the pri)ary potential %enefits are

horizontal relationships! i.e.! %usinesses sharing tangi%le an intangi%le resources.

F"LS!

AACSB: Analytic

Bloom's: Comprehension

Difficulty: e!ium "earnin# $%&ectie: *+

6-14




,. (p. +) ne$ly acuire %usiness )ust al$ays have proucts that are si)ilar to the e*isting

%usinesses# proucts to %enefit fro) the corporation#s core co)petence.

F"LS!

AACSB: Analytic


"earnin# $%&ectie: *,

/. (p. +1 * ++) Sharing activities across %usiness units can provie t$o pri)ary %enefits: costsavings an revenue enhance)ents.

T#$!

AACSB: Analytic


Difficulty: e!ium


6. (p. +,) Sharing activities a)ong %usiness units can have a negative effect on a given

%usiness#s ifferentiationas in the e*a)ple of Dai)ler-enz#s acuisition of Chrysler.

T#$!

AACSB: Analytic



2. (p. +,) 3ar"et po$er refers to cost savings fro) leveraging core co)petencies or sharing

activities a)ong the %usinesses in a corporation.

F"LS!

AACSB: Analytic

Bloom's: -nole!#e

Difficulty: /asy "earnin# $%&ectie: *,

6-15




4. (p. +,) &he t$o principal )eans %y $hich fir)s achieve synergy through )ar"et po$er are:

poole negotiating po$er an corporate parenting.

F"LS!

AACSB: Analytic

Bloom's: -nole!#e Difficulty: /asy


5. (p. +, * +0) Si)ilar %usinesses $or"ing together or the affiliation of a %usiness $ith a strong parent can strengthen a fir)#s %argaining position relative to suppliers an custo)ers.

T#$!

AACSB: Analytic


Difficulty: e!ium


10. (p. +) fir) that incorporates )ore processes to$ar the original source of ra$ )aterials

is an e*a)ple of for$ar integration.

F"LS!

AACSB: Analytic



11. (p. +) pu%lishing co)pany that purchases a chain of %oo"stores to sell its %oo"s is an

e*a)ple of unrelate iversification.

F"LS!

AACSB: Analytic

Bloom's: Application

Difficulty: ar! "earnin# $%&ectie: *,

6-(0




1(. (p. + * +2) ne of the ris"s of vertical integration is that there )ay %e pro%le)s associate

$ith un%alance capacities or unfille e)ans along a fir)#s value chain.

T#$!

AACSB: Analytic



1+. (p. +8) Vertical integration shoul %e unerta"en $hen e)an for the organization#s proucts is very unsta%le.

F"LS!

AACSB: Analytic


Difficulty: e!ium


1,. (p. +8 * +9) 3ar"et transactions o not involve transaction costs.

F"LS!

AACSB: Analytic


Difficulty: e!ium "earnin# $%&ectie: *,

1/. (p. +8 * +9) Vertical integration is attractive $hen )ar"et transaction costs are higher thaninternal a)inistrative costs.

T#$!

AACSB: Analytic


Difficulty: e!ium


6-(1




16. (p. +9 * +11) ccoring to the te*t! the t$o )ain sources of synergy in unrelate

iversification are parenting an financial synergies via portfolio )anage)ent.

T#$!

AACSB: Analytic


"earnin# $%&ectie: *0

12. (p. +1) 7estructuring reuires the corporate office to fin either poorly perfor)ing fir)s$ith unrealize potential or fir)s in inustries on the threshol of significant! positive

change.

T#$!

AACSB: Analytic


Difficulty: e!ium "earnin# $%&ectie: *0

14. (p. +11) 8ortfolio )anage)ent shoul %e consiere as the pri)ary %asis for for)ulatingcorporate-level strategies.

F"LS!

AACSB: Analytic


Difficulty: e!ium


15. (p. +11) 8ortfolio )anage)ent )atrices generally consist of t$o a*es that reflect inustry or

)ar"et gro$th an the )ar"et share of a %usiness.

T#$!

AACSB: Analytic



6-((




(0. (p. +10) &he acuisition of t$o or )ore counter-cyclical %usinesses is an e*a)ple of using

iversification to reuce ris".

T#$!

AACSB: Analytic



(1. (p. +13 * +1) n avantage of )ergers an acuisitions is that they can ena%le a fir) torapily enter ne$ prouct )ar"ets.

T#$!

AACSB: Analytic


Difficulty: e!ium


((. (p. +12) )ong the isavantages of acuisitions are the e*pensive pre)iu)s that are

freuently pai to acuire a %usiness.

T#$!

AACSB: Analytic



(+. (p. ++) &hrough 9oint ventures! fir)s can irectly acuire the assets an co)petencies of

other fir)s.

F"LS!

AACSB: Analytic

Bloom's: -nole!#e

Difficulty: /asy "earnin# $%&ectie: *3

6-(+




(,. (p. ++ * +++) &he potential avantages of strategic alliances an 9oint ventures inclue

entering ne$ )ar"ets as $ell as eveloping an iffusing ne$ technologies.

T#$!

AACSB: Analytic



(/. (p. +++) 'or strategic alliances to %e effective! reliance on $ritten contracts to eli)itresponsi%ilities an enforce co)pliance is vital.

F"LS!

AACSB: Analytic


Difficulty: e!ium


(6. (p. ++ * +++) n avantage of a fir) entering into a strategic alliance is that it oes not have

to share the $ealth $ith its partners.

F"LS!

AACSB: Analytic



(2. (p. +++) n avantage of internal evelop)ent is that fir)s o not have to co)%ine activities

across the value chains of )any co)panies an )erge co)pany cultures.

T#$!

AACSB: Analytic



6-(,




(4. (p. ++, * ++0) ;n recent years! )any high tech fir)s such as 8riceline.co) have suffere fro)

the negative i)pact of uncontrolle gro$th.

T#$!

AACSB: Analytic


"earnin# $%&ectie: *

(5. (p. ++3) <reen)ail is an offer %y a co)pany! threatene %y ta"eover! to offer its stoc" at areuce price to a thir party.

F"LS!

AACSB: Analytic

Bloom's: -nole!#e

Difficulty: /asy


+0. (p. ++3) golen parachute is a prearrange contract $ith )anagers specifying that in the

event of a hostile ta"eover! the target fir)#s )anagers $ill %e pai a significant severance pac"age.

T#$!

AACSB: Analytic


Difficulty: e!ium


6-(/




ultiple Choice Questions

+1. (p. 193) Corporate-level strategy aresses t$o relate issues:

. ho$ to co)pete in a given %usiness= the application of technology.

%& $hat %usinesses to co)pete in= ho$ these %usinesses can achieve synergy.C. ho$ to integrate pri)ary activities= increase shareholer $ealth.

D. ho$ to i)prove a fir)#s infrastructure= ho$ to )aintain ethical %ehavior.

AACSB: Analytic Bloom's: -nole!#e

Difficulty: /asy


+(. (p. 198) ;niviual investors are epenent upon the corporation#s )anagers to

. iversify the stoc"holer#s invest)ents in orer to reuce ris".

%& a value to their invest)ents in a $ay that the stoc"holers coul not acco)plish on theiro$n.

C. achieve ris" reuction at a lo$er cost than stoc"holers coul o%tain on their o$n.

D. )a*i)ize short-ter) returns in the for) of iviens.

AACSB: Analytic


Difficulty: e!ium "earnin# $%&ectie: *+

++. (p. 199) 3c>esson! a large istri%ution co)pany! sells )any prouct lines such as phar)aceuticals an liuor through its super $arehouses. &his is an e*a)ple of

"& achieving econo)ies of scope through relate iversification.

. achieving )ar"et po$er through relate iversification.

C. attaining the %enefits of restructuring through unrelate iversification.D. attaining the %enefits of parenting through unrelate iversification.

AACSB: Analytic Bloom's: Comprehension

Difficulty: e!ium


6-(6




+,. (p. 199) 8hilip 3orris %ought 3iller re$ing an use its )ar"eting e*pertise to i)prove

3iller#s )ar"et share. &his 9ustification for iversification is %est escri%e as. utilizing co))on infrastructures.

%& capitalizing on core co)petencies.

C. reucing corporate ris".D. using portfolio analysis.

AACSB: Analytic


Difficulty: ar! "earnin# $%&ectie: *,

+/. (p. 199) &he corporate office of Cooper ;nustries as value to its acuire %usinesses %y perfor)ing such activities as auiting their )anufacturing operations! i)proving their

accounting activities! an centralizing union negotiations. &his is an e*a)ple of. achieving econo)ies of scope through relate iversification.. achieving )ar"et po$er through relate iversification.

C. attaining the %enefits of restructuring through unrelate iversification.

D& attaining the %enefits of parenting through unrelate iversification.

AACSB: Analytic


Difficulty: ar!


+6. (p. +) ?????????? reflect@sA the collective learning in organizations such as ho$ to

coorinate prouction s"ills! integrate )ultiple strea)s of technologies! an )ar"et an)erchanise iverse proucts an services.

. 8ri)ary value chain activities

. Culture

C& Core co)petencies

D. Borizontal integration

AACSB: Analytic



6-(2




+2. (p. + * +1) 'or a core co)petence to %e a via%le %asis for the corporation strengthening a

ne$ %usiness unit! there are three reuire)ents. Which one of the follo$ing is not one ofthese reuire)ents

. &he co)petence )ust help the %usiness gain strength relative to its co)petition.

. &he ne$ %usiness )ust %e si)ilar to e*isting %usinesses to %enefit fro) a core co)petence.C. &he collection of co)petencies shoul %e uniue! so that they cannot %e easily i)itate.

D& &he ne$ %usiness )ust have an esta%lishe large )ar"et share.


Difficulty: /asy


+4. (p. +) Sharing core co)petencies is one of the pri)ary potential avantages of

iversification. ;n orer for iversification to %e )ost successful! it is i)portant that"& the si)ilarity reuire for sharing core co)petencies )ust %e in the value chain! not in the prouct.

. the proucts use si)ilar istri%ution channels.

C. the target )ar"et is the sa)e! even if the proucts are very ifferent.D. the )ethos of prouction are the sa)e.

AACSB: Analytic



+5. (p. +1) When )anage)ent uses co))on prouction facilities or purchasing proceures toistri%ute ifferent %ut relate proucts! they are

. %uiling on core co)petencies.

%& sharing activities.C. achieving process gains.

D. using portfolio analysis.

AACSB: Analytic



6-(4




,0. (p. +) Sha$ ;nustries! a giant carpet )anufacturer! increases its control over ra$ )aterials

%y proucing )uch of its o$n polypropylene fi%er! a "ey input into its )anufacturing process.&his is an e*a)ple of

. leveraging core co)petencies.

. sharing activities.C& vertical integration.D. poole negotiating po$er.

AACSB: Analytic Bloom's: Application

Difficulty: ar!


,1. (p. +2) &he ris"s of vertical integration inclue all of the follo$ing except

. costs an e*penses associate $ith increase overhea an capital e*penitures.%& lac" of control over valua%le assets.C. pro%le)s associate $ith un%alance capacities along the value chain.

D. aitional a)inistrative costs associate $ith )anaging a )ore co)ple* set of activities.

AACSB: Analytic


Difficulty: e!ium


,(. (p. +2) n%alance capacities that li)it cost savings! ifficulties in co)%iningspecializations! an reuce fle*i%ility are isavantages associate $ith

. strategic alliances.. ivest)ent.

C& vertical integration.

D. horizontal integration.

AACSB: Analytic


Difficulty: e!ium "earnin# $%&ectie: *,

6-(5




,+. (p. +2 * +8) fir) shoul consier vertical integration $hen

. the co)petitive situation is highly volatile.. custo)er nees are evolving.

C. the fir)#s suppliers $illingly cooperate $ith the fir).

D& the fir)#s suppliers of ra$ )aterials are often una%le to )aintain uality stanars.

AACSB: Analytic


Difficulty: e!ium


,,. (p. +2 * +8) ;t )ay %e avantageous to vertically integrate $hen

"& lo$er transaction costs an i)prove coorination are vital an achieva%le through verticalintegration.

. the )ini)u) efficient scales of t$o corporations are ifferent.C. fle*i%ility is reuce! proviing a )ore stationary position in the co)petitive environ)ent.D. various segregate specializations $ill %e co)%ine.

AACSB: Analytic



,/. (p. +8 * +9) &ransaction costs inclue all of the follo$ing costs except

. search costs.. negotiating costs.

C. )onitoring costs.

D& agency costs.


Difficulty: /asy


6-+0




,6. (p. +8 * +9) Vertical integration is attractive $hen

"& transaction costs are higher than internal a)inistrative costs.. internal a)inistrative costs are higher than transaction costs.

C. transaction costs an internal a)inistrative costs are eual.

D. search costs are higher than )onitoring costs.

AACSB: Analytic


Difficulty: e!ium


,2. (p. +9) ?????????? is $hen a fir)#s corporate office helps su%siiaries )a"e $ise choices

in their o$n acuisitions! ivestures! an ne$ ventures.

"& 8arenting

. 7estructuringC. Leveraging core co)petenciesD. ;ncreasing )ar"et po$er

AACSB: Analytic



,4. (p. +1) ?????????? is $hen a fir) tries to fin an acuire either poorly perfor)ing fir)s

$ith unrealize potential or fir)s in inustries on the threshol of significant! positivechange.

. 8arenting

%& 7estructuring


D. Sharing activities

AACSB: Analytic

Bloom's: -nole!#e


6-+1




,5. (p. +1) ccoring to the te*t! corporate restructuring inclues

. capital restructuring! asset restructuring! an technology restructuring.. glo%al iversification! capital restructuring! an asset restructuring.

C. )anage)ent restructuring! financial restructuring! an procure)ent restructuring.

D& capital restructuring! asset restructuring! an )anage)ent restructuring.

AACSB: Analytic

Bloom's: -nole!#e

Difficulty: /asy


/0. (p. +11) 8ortfolio )anage)ent )atrices are applie to $hat level of strategy

. Depart)ental level. usiness level

C& Corporate levelD. ;nternational level

AACSB: Analytic



/1. (p. +1+) When using a C< )atri*! a %usiness that currently hols a large )ar"et share in arapily gro$ing )ar"et an that has )ini)al or negative cash flo$ $oul %e "no$n as a

. co$.. og.

C. pro%le) chil.

D& star.


Difficulty: /asy


6-+(




/(. (p. +1+) ;n the C< @oston Consulting <roupA 3atri*! a %usiness that has a lo$ )ar"et

share in an inustry characterize %y high )ar"et gro$th is ter)e a. star.

%& uestion )ar".

C. cash co$.D. og.

AACSB: Analytic

Bloom's: -nole!#e


/+. (p. +11) 8ortfolio )anage)ent fra)e$or"s @e.g.! C< )atri*A share $hich of the follo$ingcharacteristics

"& <ri i)ensions are %ase on e*ternal environ)ents an internal capa%ilitiesE)ar"et positions.. usinesses are plotte on a +-i)ensional gri.

C. 8osition in the )atri* suggests a nee for! or a%ility to share! infrastructures or %uil on

core co)petences.D. &hey are )ost helpful in helping %usinesses evelop types of co)petitive avantage.

AACSB: Analytic



/,. (p. +1+) cash co$! referre to in the oston Consulting <roup 8ortfolio )anage)enttechniue! refers to a %usiness that has

"& lo$ )ar"et gro$th an relatively high )ar"et share.

. relatively lo$ )ar"et share an lo$ )ar"et gro$th.C. relatively lo$ )ar"et share an high )ar"et gro$th.

D. high )ar"et gro$th an relatively high )ar"et share.

AACSB: Analytic



6-++




/4. (p. +10 * +13) &he three pri)ary )eans %y $hich a fir) can iversify are:

"& )ergers an acuisitions= 9oint ventures an strategic alliances= internal evelop)ent.. )ergers an acuisitions= ifferentiation= overall cost leaership.

C. 9oint ventures an strategic alliances= integration of value chain activities= acuiring hu)an

capital.D. )ergers an acuisitions= internal evelop)ent= ifferentiation.

AACSB: Analytic

Bloom's: -nole!#e


/5. (p. +12 * +18) &he o$nsies or li)itations of )ergers an acuisitions inclue all of thefollo$ing except :

. e*pensive pre)iu)s that are freuently pai to acuire a %usiness.. ifficulties in integrating the activities an resources of the acuire fir) into acorporation#s on-going operations.

C& it is a slo$ )eans to enter ne$ )ar"ets an acuire s"ills an co)petences.

D. there can %e )any cultural issues that can oo) an other$ise pro)ising acuisition.

AACSB: Analytic


Difficulty: e!ium


60. (p. +18 * ++) Divesting %usinesses can acco)plish )any ifferent o%9ectives. &hese inclue

. ena%ling )anagers to focus their efforts )ore irectly on the fir)#s core %usinesses.. proviing the fir) $ith )ore resources to spen on )ore attractive alternatives.

C. raising cash to help fun e*isting %usinesses.

D& all of the a%ove.

AACSB: Analytic



6-+/




61. (p. ++) co)pany offering local teleco))unications service co)%ines resources $ith an

international co)pany that )anufactures igital s$itching euip)ent to research a ne$ typeof teleco))unications technology. &his is an e*a)ple of

. 9oint iversification.

%& strategic alliance.C. ivest)ent.D. glo%al integration.


Difficulty: e!ium


6(. (p. ++) Cooperative relationships such as ?????????? have the potential avantages such as

entering ne$ )ar"ets! reucing )anufacturing @or otherA costs in the value chain! aneveloping an iffusing ne$ technologies.. 9oint ventures

. )ergers an acuisitions

C. strategic alliances

D& an C

AACSB: Analytic



6+. (p. +++) ll of the follo$ing are guielines for )anaging strategic alliances except . esta%lishing a clear unerstaning %et$een partners.

%& relying pri)arily on a contract to )a"e the 9oint venture $or".

C. not shortchanging your partner.D. $or"ing har to ensure a colla%orative relationship %et$een partners.

AACSB: Analytic



6-+6




6,. (p. +++) Which of the follo$ing state)ents regaring internal evelop)ent as a )eans of

iversification is false. 3any co)panies use internal evelop)ent to e*ten their prouct lines or a to their

service offerings.

%& n avantage of internal evelop)ent is that it is generally faster than other )eans ofiversification an fir)s can %enefit fro) spee in eveloping ne$ proucts an services.C. &he fir) is a%le to capture the $ealth create $ithout having to share the $ealth $ith

alliance partners.

D. 'ir)s can often evelop proucts or services at a lo$er cost if they rely on their o$nresources instea of e*ternal funing.

AACSB: Analytic



6/. (p. +++) ?????????? )ay %e ti)e consu)ing an! therefore! fir)s )ay forfeit the %enefits of

spee that gro$th through ?????????? an ?????????? can provie.

. Strategic alliances= 9oint ventures! internal evelop)ent

%& ;nternal evelop)ent= )ergers= acuisitions

C. Strategic alliances= )ergers= 9oint ventures

D. 3ergers= internal evelop)ent= strategic alliances

AACSB: Analytic



66. (p. ++,) ccoring to 3ichael 8orter: &here#s a tre)enous allure to ??????????. ;t#s the

%ig play! the ra)atic gesture. With one stro"e of the pen you can a %illions to size! get afront page story! an create e*cite)ent in )ar"ets.

. strategic alliances an 9oint ventures

%& )ergers an acuisitionsC. internal evelop)ent

D. ifferentiation strategies

AACSB: Analytic


Difficulty: ar!


6-+2




62. (p. ++3) n antita"eover tactic calle @aA ?????????? is $hen a fir) offers to %uy shares of

their stoc" fro) a co)pany @or iniviualA planning to acuire their fir) at a higher price thanthe unfrienly co)pany pai for it.

. golen parachute

%& green)ailC. poison pillD. scorche earth


Difficulty: /asy


64. (p. ++3) n antita"eover tactic in $hich e*isting shareholers have the option to %uy

aitional shares of stoc" at a iscount to the current )ar"et price is calle. green)ail.

%& a poison pill.

C. a golen parachute.

D. scorche earth.

AACSB: Analytic

Bloom's: -nole!#e

Difficulty: /asy


65. (p. ++3) &he ter) golen parachutes refers to

. a clause reuiring that huge ivien pay)ents %e )ae upon ta"eover.. financial inuce)ents offere %y a threatene fir) to stop a hostile suitor fro) acuiring it.

C. )anagers of a fir) involve in a hostile ta"eover approaching a thir party a%out )a"ing

the acuisition.

D& pay given to e*ecutives fire %ecause of a ta"eover.

AACSB: Analytic

Bloom's: -nole!#e

Difficulty: /asy "earnin# $%&ectie: *

6-+4




20. (p. ++3) ntita"eover tactics inclue all of the follo$ing except

. green)ail.. golen parachutes.

C& golen hancuffs.

D. poison pills.

AACSB: Analytic

Bloom's: -nole!#e

Difficulty: /asy


!ssay Questions

21. (p. 199 * +9) What are the pri)ary %enefits an ris"s associate $ith relate iversification

ns$ers $ill vary.

AACSB: Analytic


Difficulty: e!ium


2(. (p. + * +8) riefly e*plain the avantages an isavantages of vertical integration.

ns$ers $ill vary.

AACSB: Analytic


Difficulty: e!ium


6-+5




2+. (p. +2 * +8) What are so)e of the "ey issues to ta"e into account $hen consiering $hether

or not to vertically integrate

ns$ers $ill vary.

AACSB: Analytic



2,. (p. +8 * +9) F*plain ho$ transaction cost analysis can provie insights into verticalintegration ecisions.

ns$ers $ill vary.

AACSB: Analytic


Difficulty: e!ium


2/. (p. +11 * +1,) What are the pri)ary %enefits an ris"s associate $ith unrelate

iversification

ns$ers $ill vary.

AACSB: Analytic



26. (p. +11 * +1,) F*plain the uses an li)itations of portfolio )anage)ent )atrices such as thegro$th-share )atri* evelope %y the oston Consulting <roup @C<A.

ns$ers $ill vary.

AACSB: Analytic


Difficulty: e!ium


6-,0




22. (p. +13 * +18) Su))arize the avantages an isavantages of )ergers an acuisitions as a

)eans of iversification.

ns$ers $ill vary.

AACSB: Analytic



24. (p. +18 * ++) Discuss so)e of the potential %enefits of ivest)ent.

ns$ers $ill vary.


Difficulty: e!ium


25. (p. ++ * +++) Strategic alliances are arrange)ents in $hich t$o fir)s 9oin forces an for) a

cooperative partnership. Discuss the avantages an isavantages of strategic alliances as

$ell as guielines for reucing conflict %et$een the partners.

ns$ers $ill vary.

AACSB: Analytic



6-,1




40. (p. ++, * ++) Discuss ho$ the potential %enefits of iversification )ay %e aversely affecte

%y conflicts %et$een )anagers# interests an stoc"holers# interests. Bint: Fgotis)! gro$th for gro$th#s sa"e! antita"eover tactics.

ns$ers $ill vary.

AACSB: Analytic


Difficulty: e!ium


Chap 006-test bank

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Transcript of Chap 006-test bank