Chapter 06 - Corporate-Level Strategy: Creating Value Value through Diversification
Chapter 06 Corporate-Level Strategy: Creating Value through Diversification Answer Key
True / False Questions
1 (p. 204) !henever an organi"ation #iversifies$ it represents investing a stoc%hol#er&s fun#s in a way in which the in#ivi#ual investor is una'le FALSE Diversification initiatives (ust 'e )ustifie# 'y the creation of value for sharehol#ers *ut this is not always the case Ac+uiring fir(s typically pay high pre(iu(s when they ac+uire a target fir( ,n contrast$ private investors can #iversify their portfolio of stoc%s very cheaply cheaply
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#02 $o% $o% managers can create create !al&e t'ro&g' di!ersiication initiati!es. Le!el o iic<y: 2 *edi&m +opic: *a,ing i!ersiication -or,: An O!er!ie%
(p. 204) Diversification that results in strengthening the value chain an# increasing co(petitive a#vantages is the 'est possi'le e.a(ple of investing stoc%hol#ers& fun#s in a way that in#ivi#ual investors cannot TRUE Diversification initiatives$ whether through (ergers an# ac+uisitions$ ac+ uisitions$ strategic alliances an# )oint ventures$ or internal #evelop(ent$ (ust 'e )ustifie# 'y the creation creation of value for sharehol#ers /hey typically are successful when they intro#uce synergy synergy
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#02 $o% $o% managers can create create !al&e t'ro&g' di!ersiication initiati!es. Le!el o iic<y: 2 *edi&m +opic: *a,ing i!ersiication -or,: An O!er!ie%
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Chapter 06 - Corporate-Level Strategy: Creating Value Value through Diversification
(p. 20) !hen fir(s #iversify into unrelate# 'usinesses$ the pri(ary potential 'enefits are hori"ontal relationships$ ie$ 'usinesses sharing tangi'le an# intangi'le resources FALSE !hen a corporation #iversifies into unrelate# 'usinesses$ the pri(ary potential 'enefits are #erive# largely fro( hierarchical relationships that is$ value creation #erive# fro( the corporate office 2ori"ontal relationships are the pri(ary 'enefit of #iversification into relate# 'usinesses
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#02 $o% $o% managers can create create !al&e t'ro&g' di!ersiication initiati!es. Le!el o iic<y: 2 *edi&m +opic: *a,ing i!ersiication -or,: An O!er!ie%
3 (p. 20/) A newly ac+uire# 'usiness (ust always have pro#ucts that are si(ilar to the e.isting 'usinesses& pro#ucts to 'enefit fro( the corporation&s core core co(petence FALSE ,t is not essential that the pro#ucts or services the(selves 'e si(ilar 4ather$ 4ather$ at least one ele(ent in the value chain (ust re+uire si(ilar s%ills in creating co(petitive a#vantage if the corporation is to capitali"e on its core co(petence
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% $o% corporations can &se &se related di!ersiication to ac'ie!e synergistic synergistic beneits t'ro&g' economies economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
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Chapter 06 - Corporate-Level Strategy: Creating Value Value through Diversification
(p. 20) !hen fir(s #iversify into unrelate# 'usinesses$ the pri(ary potential 'enefits are hori"ontal relationships$ ie$ 'usinesses sharing tangi'le an# intangi'le resources FALSE !hen a corporation #iversifies into unrelate# 'usinesses$ the pri(ary potential 'enefits are #erive# largely fro( hierarchical relationships that is$ value creation #erive# fro( the corporate office 2ori"ontal relationships are the pri(ary 'enefit of #iversification into relate# 'usinesses
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#02 $o% $o% managers can create create !al&e t'ro&g' di!ersiication initiati!es. Le!el o iic<y: 2 *edi&m +opic: *a,ing i!ersiication -or,: An O!er!ie%
3 (p. 20/) A newly ac+uire# 'usiness (ust always have pro#ucts that are si(ilar to the e.isting 'usinesses& pro#ucts to 'enefit fro( the corporation&s core core co(petence FALSE ,t is not essential that the pro#ucts or services the(selves 'e si(ilar 4ather$ 4ather$ at least one ele(ent in the value chain (ust re+uire si(ilar s%ills in creating co(petitive a#vantage if the corporation is to capitali"e on its core co(petence
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% $o% corporations can &se &se related di!ersiication to ac'ie!e synergistic synergistic beneits t'ro&g' economies economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
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Chapter 06 - Corporate-Level Strategy: Creating Value Value through Diversification
5 (p. 203) Sharing activities across 'usiness units can provi#e two pri(ary p ri(ary 'enefits: cost savings an# revenue enhance(ents TRUE Corporations also can achieve synergy 'y sharing activities across their 'usiness units /hese inclu#e value-creating activities such as co((on (anufacturing facilities$ #istri'ution channels$ an# sales forces Sharing activities can provi#e two pri(ary payoffs: cost savings an# revenue enhance(ents
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% $o% corporations can &se &se related di!ersiication to ac'ie!e synergistic synergistic beneits t'ro&g' economies economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
6 (p. 20) Sharing activities a(ong 'usiness units can have ha ve a negative effect on a given 'usiness&s #ifferentiationas #ifferentiationas in the e.a(ple of Dai(ler-*en"&s ac+uisition ac+uisition of Chrysler Chrysler TRUE 7anagers (ust %eep in (in# that sharing activities a(ong 'usinesses in a corporation can have a negative effect on a given 'usiness&s #ifferentiation #ifferentiation 8or e.a(ple$ with the (erger of Chrysler an# Dai(ler-*en"$ (any consu(ers (ay lower their perceptions of 7erce#es&s +uality an# prestige 'ecause they felt that co((on pro#uction co(ponents an# processes were 'eing use# across the two #ivisions
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% $o% corporations can &se &se related di!ersiication to ac'ie!e synergistic synergistic beneits t'ro&g' economies economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
9 (p. 20) 7ar%et power refers to cost savings fro( leveraging core co(petencies or sharing activities a(ong the 'usinesses in a corporation FALSE 7ar%et power refers to fir(s& a'ilities to profit through restricting or controlling supply to a (ar%et or coor#inating with other fir(s to re#uce invest(ent
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 5 asy +opic: 1elated i!ersiication: *ar,et 6o%er
(p. 20#250) /he two principal (eans 'y which fir(s achieve synergy through (ar%et power are poole# negotiating power an# corporate parenting FALSE /he two principal (eans 'y which fir(s achieve synergy through (ar%et power are poole# negotiating power ;the i(prove(ent in 'argaining position relative to suppliers an# custo(ers< an# vertical integration ;an e.pansion or e.tension o f the fir( 'y integrating prece#ing or successive pro#uction processes<
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 5 asy +opic: 1elated i!ersiication: *ar,et 6o%er
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
= (p. 20) Si(ilar 'usinesses wor%ing together or the affiliation of a 'usiness with a strong parent can strengthen a fir(&s 'argaining position relative to suppliers an# custo(ers TRUE Si(ilar 'usinesses wor%ing together or the affiliation of a 'usiness with a strong parent can strengthen an organi"ation&s 'argaining position relative to suppliers an# custo(ers an# enhance its position vis->-vis co(petitors
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiication: *ar,et 6o%er
10 (p. 250) A fir( that incorporates (ore processes towar# the original source of raw (aterials is an e.a(ple of forwar# integration FALSE Vertical integration occurs when a fir( 'eco(es its own supplier or #istri'utor /he fir( incorporates (ore processes towar# the original source of raw (aterials ;'ac%war# integration< or towar# the ulti(ate consu(er ;forwar# integration<
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiication: *ar,et 6o%er
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
11 (p. 250) A pu'lishing co(pany that purchases a chain of 'oo%stores to sell its 'oo%s is an e.a(ple of unrelate# #iversification FALSE /his is an e.a(ple of vertical integration$ when a fir( 'eco(es its own supplier or #istri'utor 2ere$ the fir( incorporates (ore processes towar# the ulti(ate consu(er ;forwar# integration<
AACSB: Analytic Blooms: Apply Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: $ard +opic: 1elated i!ersiication: *ar,et 6o%er
1 (p. 252) ?ne of the ris%s of vertical integration is that there (ay 'e pro'le(s associate# with un'alance# capacities or unfille# #e(an#s along a fir(&s value chain TRUE /he ris%s of vertical integration inclu#e ;1< the costs an# e.penses associate# with increase# overhea# an# capital e.pen#itures to provi#e facilities$ raw (aterial inputs$ an# #istri'ution channels insi#e the organi"ation ;< a loss of fle.i'ility resulting fro( the ina'ility to respon# +uic%ly to changes in the e.ternal environ(ent 'ecause of the huge invest(ents in vertical integration activities that generally cannot 'e easily #eploye# elsewhere ;< pro'le(s associate# with un'alance# capacities or unfille# #e(an# along the value chain an# ;3< a##itional a#(inistrative costs associate# with (anaging a (ore co(ple. set of activities See @.hi'it 63
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiication: *ar,et 6o%er
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
1 (p. 25) Vertical integration shoul# 'e un#erta%en when #e(an# for the organi"ation&s pro#ucts is very unsta'le FALSE 2igh #e(an# or sales volatility are not con#ucive to vertical integration !ith the high level of fi.e# costs in plant an# e+uip(ent as well as operating costs that acco(pany en#eavors towar# vertical integration$ wi#ely fluctuating sales #e(an# can either strain resources ;in ti(es of high #e(an#< or result in unuse# capacity ;in ti(es of low #e(an#<
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiication: *ar,et 6o%er
13 (p. 25) 7ar%et transactions #o not involve transaction costs FALSE ?ne approach that has prove# very useful in un#erstan#ing vertical integration is the transaction cost perspective Accor#ing to this perspective$ every (ar%et transaction involves so(e transaction costs
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiication: *ar,et 6o%er
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
15 (p. 254) Vertical integration is attractive when (ar%et transaction costs are higher than internal a#(inistrative costs TRUE Decisions a'out vertical integration are 'ase# on a co(parison of transaction costs an# a#(inistrative costs ,f transaction costs are higher than a#(inistrative costs$ vertical integration 'eco(es an attractive strategy
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiication: *ar,et 6o%er
16 (p. 254) Accor#ing to the te.t$ the two (ain sources of synergy in unrelate# #iversification are parenting an# financial synergies via portfolio (anage(ent TRUE !ith unrelate# #iversification$ potential 'enefits can 'e gaine# fro( vertical ;or hierarchical< relationships$ the creation of synergies fro( the interaction of the corporate office with the in#ivi#ual 'usiness units /here are two (ain sources of such synergies$ parenting an# financial synergies
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 5 asy +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
19 (p. 25) 4estructuring re+uires the corporate office to fin# either poorly perfor(ing fir(s with unreali"e# potential or fir(s in in#ustries on the threshol# of significant$ positive change TRUE 4estructuring is a (eans 'y which the corporate office can a## value to a 'usiness 2ere$ the corporate office tries to fin# either poorly perfor(ing fir(s with unreali"e# potential or fir(s in in#ustries on the threshol# of significant$ positive change /he parent intervenes$ often selling off parts of the 'usiness changing the (anage(ent re#ucing pay roll an# unnecessary sources of e.penses changing strategies an# infusing the co(pany with new technologies$ processes$ rewar# syste(s$ an# so forth
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 2 *edi&m +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
1 (p. 25"9 253) Bortfolio (anage(ent shoul# 'e consi#ere# as the pri(ary 'asis for for(ulating corporate-level strategies FALSE Bortfolio (anage(ent helps achieve a 'etter un#erstan#ing of the co(petitive position of an overall portfolio ;or fa(ily< of 'usinesses$ to suggest strategic alternatives for each of the 'usinesses$ an# to i#entify priorities for the allocation of resources$ 'ut it #oes have li(itations such as 'eing overly si(plistic
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 2 *edi&m +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
1= (p. 25") Bortfolio (anage(ent (atrices generally consist of two a.es that reflect in#ustry or (ar%et growth an# the (ar%et share of a 'usiness TRUE /he *oston Consulting roup&s ;*C< growthshare (atri. is a(ong the 'est %nown of the portfolio (anage(ent tools ,n the *C approach$ each of the fir(&s strategic 'usiness units ;S*Es< is plotte# on a two-#i(ensional gri# in which the a.es are relative (ar%et share an# in#ustry growth rate
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 5 asy +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
0 (p. 25) /he ac+uisition of two or (ore counter-cyclical 'usinesses is an e.a(ple of using #iversification to re#uce ris% TRUE ?ne of the purposes of #iversification is to re#uce the ris% that is inherent in a fir(&s varia'ility in revenues an# profits over ti(e /hat is$ if a fir( enters new pro#ucts or (ar%ets that are affecte# #ifferently 'y seasonal or econo(ic cycles$ its perfor(ance over ti(e will 'e (ore sta'le 8or e.a(ple$ a fir( (anufacturing lawn (owers (ay #iversify into snow 'lowers to even out its annual sales
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 2 *edi&m +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
1 (p. 225#222) An a#vantage of (ergers an# ac+uisitions is that they can ena'le a fir( to rapi#ly enter new pro#uct (ar%ets TRUE rowth through (ergers an# ac+uisitions has 'een critical to (any co rporations in a wi#e variety of high-technology an# %nowle#ge-intensive in#ustries Spee#spee# to (ar%et$ spee# to positioning$ an# spee# to 'eco(ing a via'le co(panyis critical in such in#ustries Ale. 7an#l$ A/F/&s for(er presi#ent$ clai(e# that getting new cellular technology through ac+uiring is (uch faster than 'uil#ing
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
(p. 22) A(ong the #isa#vantages of ac+uisitions are the e.pensive pre(iu(s that are fre+uently pai# to ac+uire a 'usiness TRUE /here are (any potential #raw'ac%s or li(itations to (erger activity 8or e.a(ple$ the ta%eover pre(iu( that is pai# for an ac+uisition typically is very high /wo ti(es out of three$ the stoc% price of the ac+uiring co(pany falls once the #eal is (a#e pu'lic Since the ac+uiring fir( often pays a 0 percent or higher pre(iu( for the target co(pany$ the ac+uirer (ust create synergies an# scale econo(ies that result in sales an# (ar%et gains e.cee#ing the pre(iu( price
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
(p. 22") /hrough )oint ventures$ fir(s can #irectly ac+uire the assets an# co(petencies of other fir(s FALSE Goint ventures represent a special case of alliances$ wherein two ;or (ore< fir(s contri'ute e+uity to for( a new legal entity
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 5 asy +opic: +'e *eans to Ac'ie!e i!ersiication
3 (p. 22") /he potential a#vantages of strategic alliances an# )oint ventures inclu#e entering new (ar%ets as well as #eveloping an# #iffusing new technologies TRUE Strategic alliances an# )oint ventures have (any potential a#vantages A(ong these are entering new (ar%ets$ re#ucing (anufacturing ;or other< costs in the value chain$ an# #eveloping an# #iffusing new technologies
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
5 (p. 22") 8or strategic alliances to 'e effective$ reliance on written contracts to #eli(it responsi'ilities an# enforce co(pliance is vital FALSE A strategic alliance is a cooperative relationship 'etween two ;or (ore< fir(s Alliances (ay 'e either infor(al or for(al$ one involving a written contract
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
6 (p. 223) An a#vantage of a fir( entering into a strategic alliance is that it #oes not have to share the wealth with its partners FALSE 8ir(s that engage in internal #evelop(ent ;li%e corporate entrepreneurship< capture the value create# 'y their own innovative activities without having to share the wealth with alliance partners or face the #ifficulties associate# with co('ining activities across the value chains of several fir(s or (erging corporate cultures
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
9 (p. 223) An a#vantage 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 TRUE 8ir(s that engage in internal #evelop(ent ;li%e corporate entrepreneurship< capture the value create# 'y their own innovative activities without having to share the wealth with alliance partners or face the #ifficulties associate# with co('ining activities across the value chains of several fir(s or (erging corporate cultures
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
(p. 22) ,n recent years$ (any high tech fir(s such as Bricelineco( have suffere# fro( the negative i(pact of uncontrolle# growth TRUE ,n recent years (any high-tech fir(s have suffere# fro( the negative i(pact of their uncontrolle# growth Consi#er$ for e.a(ple$ Bricelineco(&s ill-fate# venture into an online service to offer groceries an# gasoline A (yria# of pro'le(s$ perhaps (ost i(portantly a lac% of participation 'y (anufacturers$ cause# the fir( to lose (ore than H5 (illion a wee% prior to a'an#oning these ventures
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0" *anagerial be'a!iors t'at can erode t'e creation o !al&e. Le!el o iic<y: 2 *edi&m +opic: $o% *anagerial *oti!es Can rode
= (p. 22) reen(ail is an offer 'y a co(pany$ threatene# 'y ta%eover$ to offer its stoc% at a re#uce# price to a thir# party FALSE reen(ail is an effort 'y the target fir( to prevent an i(pen#ing ta%eover !hen a hostile fir( 'uys a large 'loc% of outstan#ing target co(pany stoc% an# the target fir(&s (anage(ent feels that a ten#er offer is i(pen#ing$ they offer to 'uy the stoc% 'ac% fro( the hostile co(pany at a higher price than the unfrien#ly co(pany pai# for it
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#0" *anagerial be'a!iors t'at can erode t'e creation o !al&e. Le!el o iic<y: 5 asy +opic: $o% *anagerial *oti!es Can rode
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
0 (p. 22) A gol#en parachute is a prearrange# contract with (anagers specifying that$ in the event of a hostile ta%eover$ the target fir(&s (anagers will 'e pai# a significant severance pac%age TRUE A gol#en parachute is a prearrange# contract with (anagers specifying that$ in the event of a hostile ta%eover$ the target fir(&s (anagers will 'e pai# a significant severance pac%age Although top (anagers lose their )o's$ the gol#en parachute provisions protect their inco(e
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0" *anagerial be'a!iors t'at can erode t'e creation o !al&e. Le!el o iic<y: 2 *edi&m +opic: $o% *anagerial *oti!es Can rode
Multiple Choice Questions
1 (p. 205) Corporate-level strategy a##resses two relate# issues: A how to co(pete in a given 'usiness the application of technology B. what 'usinesses to co(pete in how these 'usinesses can achieve synergy C how to integrate pri(ary activities increase sharehol#er wealth D how to i(prove a fir(&s infrastructure how to (aintain ethical 'ehavior Corporate-level strategy a##resses two relate# issues: ;1< what 'usinesses shoul# a corporation co(pete in$ an# ;< how can these 'usinesses 'e (anage# so they create synergy$ that is$ (ore value 'y wor%ing together than if they were freestan#ing units
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#05 +'e reasons or t'e ail&re o many di!ersiication eorts. Le!el o iic<y: 5 asy +opic: i!ersiication 8ail&res
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
(p. 204) ,n#ivi#ual investors are #epen#ent upon the corporation&s (anagers to A #iversify the stoc%hol#er&s invest(ents in or#er to re#uce ris% B. a## value to their invest(ents in a way that the stoc%hol#ers coul# not acco(plish on their own C achieve ris% re#uction at a lower cost than stoc%hol#ers coul# o'tain on their own D (a.i(i"e short-ter( returns in the for( of #ivi#en#s Diversification initiatives$ whether through (ergers an# ac+uisitions$ strategic alliances an# )oint ventures$ or internal #evelop(ent$ (ust 'e )ustifie# 'y the creation of value for sharehol#ers *ut this is not always the case Ac+uiring fir(s typically pay high pre(iu(s when they ac+uire a target fir( ,n contrast$ private investors can #iversify their portfolio of stoc%s very cheaply
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#02 $o% managers can create !al&e t'ro&g' di!ersiication initiati!es. Le!el o iic<y: 2 *edi&m +opic: *a,ing i!ersiication -or,: An O!er!ie%
(p. 20) 7cKesson$ a large #istri'ution co(pany$ sells (any pro#uct lines such as phar(aceuticals an# li+uor through its super warehouses /his is an e.a(ple of A. achieving econo(ies of scope through relate# #iversification * achieving (ar%et power through relate# #iversification C attaining the 'enefits of restructuring through unrelate# #iversification D attaining the 'enefits of parenting through unrelate# #iversification 7cKesson$ a large #istri'ution co(pany$ sells (any pro#uct lines$ such as phar(aceuticals an# li+uor$ through its superwarehouses Accor#ing to @.hi'it 6$ this is an e.a(ple of relate# #iversification utili"ing econo(ies of scope 4efer to @.hi'it 6
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#02 $o% managers can create !al&e t'ro&g' di!ersiication initiati!es. Le!el o iic<y: 2 *edi&m +opic: *a,ing i!ersiication -or,: An O!er!ie%
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
3 (p. 20") Bhilip 7orris 'ought 7iller *rewing an# use# its (ar%eting e.pertise to i(prove 7iller&s (ar%et share /his )ustification for #iversification is 'est #escri'e# as A utili"ing co((on infrastructures B. capitali"ing on core co(petencies C re#ucing corporate ris% D using portfolio analysis Core co(petencies reflect the collective learning in organi"ationshow to coor#inate #iverse pro#uction s%ills$ integrate (ultiple strea(s of technologies$ an# (ar%et #iverse pro#ucts an# services ,n so(e circu(stances$ a core co(petence can create value an# provi#e a via'le 'asis for synergy a(ong the 'usinesses in a corporation
AACSB: Analytic Blooms: Apply Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: $ard +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
5 (p. 20) /he corporate office of Cooper ,n#ustries a##s value to its ac+uire# 'usinesses 'y perfor(ing such activities as au#iting their (anufacturing operations$ i(proving their accounting activities$ an# centrali"ing union negotiations /his is an e.a(ple of A achieving econo(ies of scope through relate# #iversification * achieving (ar%et power through relate# #iversification C attaining the 'enefits of hori"ontal integration D. attaining the 'enefits of parenting through unrelate# #iversification /he corporate office of Cooper ,n#ustries a##s value to its ac+uire# 'usinesses 'y perfor(ing such activities as au#iting their (anufacturing operations$ i(proving their accounting activities$ an# centrali"ing union negotiations /his is an e.a(ple of unrelate# #iversification utili"ing corporate restructuring an# parenting 4efer to @.hi'it 6
AACSB: Analytic Blooms: Apply Learning Obecti!e: 0"#02 $o% managers can create !al&e t'ro&g' di!ersiication initiati!es. Le!el o iic<y: $ard +opic: *a,ing i!ersiication -or,: An O!er!ie%
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
6 (p. 20") IIIIIIIIII reflect;s< the collective learning in organi"ations such as how to coor#inate pro#uction s%ills$ integrate (ultiple strea(s of technologies$ an# (ar%et an# (erchan#ise #iverse pro#ucts an# services A Bri(ary value chain activities * Culture C. Core co(petencies D 2ori"ontal integration Core co(petencies reflect the collective learning in o rgani"ations$ how to coor#inate #iverse pro#uction s%ills$ integrate (ultiple strea(s of technologies$ an# (ar%et #iverse pro#ucts an# services
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
9 (p. 20"#20/) 8or a core co(petence to 'e a via'le 'asis for the corporation strengthening a new 'usiness unit$ there are three re+uire(ents !hich one of the following is not one of these re+uire(entsJ A /he co(petence (ust help the 'usiness gain strength relative to its co(petition * /he new 'usiness (ust 'e si(ilar to e.isting 'usinesses to 'enefit fro( a core co(petence C /he collection of co(petencies shoul# 'e uni+ue$ so that they cannot 'e easily i(itate# D. /he new 'usiness (ust have an esta'lishe# large (ar%et share 8or a core co(petence to create value an# provi#e a via'le 'asis for synergy a(ong the 'usinesses in a corporation$ it (ust (eet three criteria: the core co(petence (ust enhance co(petitive a#vantage;s< 'y creating superior custo(er value$ #ifferent 'usinesses in the corporation (ust 'e si(ilar in at least one i(portant way relate# to the core co(petence$ an# the core co(petencies (ust 'e #ifficult for co(petitors to i(itate or fin# su'stitutes for
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 5 asy +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
(p. 20/) Sharing core co(petencies is one of the pri(ary potential a#vantages of #iversification ,n or#er for #iversification to 'e (ost successful$ it is i(portant that A. the si(ilarity re+uire# for sharing core co(petencies (ust 'e in the value chain$ not in the pro#uct * the pro#ucts use si(ilar #istri'ution channels C the target (ar%et is the sa(e$ even if the pro#ucts are very #ifferent D the (etho#s of pro#uction are the sa(e 8or a core co(petence to create value an# provi#e a via'le 'asis for synergy a(ong the 'usinesses in a corporation$ #ifferent 'usinesses in the corporation (ust 'e si(ilar in at least one i(portant way relate# to the core co(petence ,t is not essential that the pro#ucts or services the(selves 'e si(ilar 4ather$ at least one ele(ent in the value chain (ust re+uire si(ilar s%ills in creating co(petitive a#vantage
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
= (p. 203) !hen (anage(ent uses co((on pro#uction facilities or purchasing proce#ures to #istri'ute #ifferent 'ut relate# pro#ucts$ they are A 'uil#ing on core co(petencies B. sharing activities C achieving process gains D using portfolio analysis Corporations can achieve synergy 'y sharing activities across their 'usiness units /hese inclu#e value-creating activities such as co((on (anufacturing facilities$ #istri'ution channels$ an# sales forces
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 5 asy +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
30 (p. 250) Shaw ,n#ustries$ a giant carpet (anufacturer$ increases its control over raw (aterials 'y pro#ucing (uch of its own polypropylene fi'er$ a %ey input into its (anufacturing process /his is an e.a(ple of A leveraging core co(petencies * sharing activities C. vertical integration D poole# negotiating power Shaw ,n#ustries$ a carpet (anufacturer that has attaine# a #o(inant position in the in#ustry via a strategy of vertical integration Shaw has successfully i(ple(ente# strategies of 'oth forwar# an# 'ac%war# integration @.hi'it 6 #epicts the stages of Shaw&s vertical integration 4efer to @.hi'it 6
AACSB: Analytic Blooms: Apply Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: $ard +opic: 1elated i!ersiication: *ar,et 6o%er
31 (p. 252) /he ris%s of vertical integration inclu#e all of the following @C@B/ A costs an# e.penses associate# with increase# overhea# an# capital e.pen#itures B. lac% of control over valua'le assets C pro'le(s associate# with un'alance# capacities along the value chain D a##itional a#(inistrative costs associate# with (anaging a (ore co(ple. set of activities /he ris%s of vertical integration inclu#e costs an# e.penses associate# with increase# overhea# an# capital e.pen#itures$ loss of fle.i'ility resulting fro( large invest(ents$ pro'le(s associate# with un'alance# capacities along the value chain$ an# a##itional a#(inistrative costs associate# with (anaging a (ore co(ple. set of ac tivities 4efer to @.hi'it 63
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiication: *ar,et 6o%er
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
3 (p. 252) En'alance# capacities that li(it cost savings$ #ifficulties in co('ining speciali"ations$ an# re#uce# fle.i'ility are #isa#vantages associate# with A strategic alliances * #ivest(ent C. vertical integration D hori"ontal integration /he ris%s of vertical integration inclu#e costs an# e.penses associate# with increase# overhea# an# capital e.pen#itures$ loss of fle.i'ility resulting fro( large invest(ents$ pro'le(s associate# with un'alance# capacities along the value chain$ an# a##itional a#(inistrative costs associate# with (anaging a (ore co(ple. set of ac tivities 4efer to @.hi'it 63
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiication: *ar,et 6o%er
3 (p. 25) A fir( shoul# consi#er vertical integration when A the co(petitive situation is highly volatile * custo(er nee#s are evolving C the fir(&s suppliers willingly cooperate with the fir( D. the fir(&s suppliers of raw (aterials are often una'le to (aintain +uality stan#ar#s A fir( shoul# consi#er vertical integration if the co(pany is not satisfie# with the +uality of the value that its present suppliers an# #istri'utors are provi#ing
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiication: *ar,et 6o%er
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
33 (p. 254) ,t (ay 'e a#vantageous to vertically integrate when A. lower transaction costs an# i(prove# coor#ination are vital an# achieva'le through vertical integration * the (ini(u( efficient scales of two corporations are #ifferent C fle.i'ility is re#uce#$ provi#ing a (ore stationary position in the co(petitive environ(ent D various segregate# speciali"ations will 'e co('ine# ,f transaction costs are higher than a#(inistrative costs$ those incurre# when coor#inating the activities previously elsewhere in the value chain$ vertical integration 'eco(es an attractive strategy
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiication: *ar,et 6o%er
35 (p. 25) /ransaction costs inclu#e all of the following costs @C@B/ A search costs * negotiating costs C (onitoring costs D. agency costs /ransaction costs are thus the su( of search costs$ negotiation costs$ contracting costs$ (onitoring costs$ an# enforce(ent costs /hese transaction costs can 'e avoi#e# 'y internali"ing the activity$ in other wor#s$ 'y pro#ucing the input in-house
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 5 asy +opic: 1elated i!ersiication: *ar,et 6o%er
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
36 (p. 254) Vertical integration is attractive when A. transaction costs are higher than internal a#(inistrative costs * internal a#(inistrative costs are higher than transaction costs C transaction costs an# internal a#(inistrative costs are e+ual D search costs are higher than (onitoring costs ,f transaction costs are higher than a#(inistrative costs$ those incurre# when coor#inating the activities previously elsewhere in the value chain$ vertical integration 'eco(es an attractive strategy
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiication: *ar,et 6o%er
39 (p. 254#25) IIIIIIIIII is when a fir(&s corporate office helps su'si#iaries (a%e wise choices in their own ac+uisitions$ #ivestures$ an# new ventures A. Barenting * 4estructuring C Leveraging core co(petencies D ,ncreasing (ar%et power Barent co(panies create value through (anage(ent e.pertise /hey i(prove plans an# 'u#gets an# provi#e especially co(petent central functions such as legal$ financial$ hu(an resource (anage(ent$ an# procure(ent /hey also help su'si#iaries (a%e wise choices in their own ac+uisitions$ #ivestitures$ an# new internal #evelop(ent #ec isions
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 5 asy +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
3 (p. 25) IIIIIIIIII is when a fir( tries to fin# an# ac+uire either poorly perfor(ing fir(s with unreali"e# potential or fir(s in in#ustries on the threshol# of significant$ positive change A Barenting B. 4estructuring C Leveraging core co(petencies D Sharing activities ,n restructuring$ the corporate office tries to fin# poorly perfor(ing fir(s with unreali"e# potential or fir(s in in#ustries on the threshol# of significant$ positive change /he parent intervenes$ often selling off parts of the 'usiness changing the (anage(ent re#ucing payroll an# unnecessary sources of e.penses changing strategies an# infusing the co(pany with new technologies$ processes$ or rewar# syste(s
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 5 asy +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
3= (p. 25) Accor#ing to the te.t$ corporate restructuring inclu#es A 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 4estructuring can involve changes in assets$ capital structure$ or (anage(ent 4efer to @.hi'it 65
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 5 asy +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
50 (p. 25") Bortfolio (anage(ent (atrices are applie# to what level of strategyJ A Depart(ental level * *usiness level C. Corporate level D ,nternational level Corporate-level strategy a##resses two relate# issues: ;1< what 'usinesses shoul# a corporation co(pete in$ an# ;< how can these 'usinesses 'e (anage# so they create synergy Bortfolio (anage(ent (atrices can 'e use# to i(prove un#erstan#ing of the co(petitive position of a portfolio ;or fa(ily< of 'usinesses$ to suggest strategic alternatives$ an# to i#entify priorities for the allocation of resources
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 2 *edi&m +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
51 (p. 25/) !hen using a *C (atri.$ a 'usiness that currently hol#s a large (ar%et share in a rapi#ly growing (ar%et an# that has (ini(al or negative cash flow woul# 'e %nown as a A cow * #og C pro'le( chil# D. star @ach of the four +ua#rants of the *C Bortfolio gri# has #ifferent i(plications for the S*Es that fall into that category Stars are S*Es co(peting in high-growth in#ustries with relatively high (ar%et shares /hese fir(s have long-ter( growth potential an# shoul# continue to receive su'stantial invest(ent fun#ing
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 5 asy +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
5 (p. 25/) ,n the *C ;*oston Consulting roup< 7atri.$ a 'usiness that has a low (ar%et share in an in#ustry characteri"e# 'y high (ar%et growth is ter(e# a A star B. +uestion (ar% C cash cow D #og @ach of the four +ua#rants of the *C Bortfolio gri# has #ifferent i(plications for the S*Es that fall into that category uestion 7ar%s are S*Es co(peting in high-growth in#ustries 'ut having relatively wea% (ar%et shares 4esources shoul# 'e investe# in the( to enhance their co(petitive positions
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 5 asy +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
5 (p. 25) Bortfolio (anage(ent fra(ewor%s ;eg$ *C (atri.< share which of the following characteristicsJ A. ri# #i(ensions are 'ase# on e.ternal environ(ents an# internal capa'ilities(ar%et positions * *usinesses are plotte# on a -#i(ensional gri# C Bosition 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 a#vantage Bortfolio (o#els are overly si(plistic$ consisting of only two #i(ensions ;growth an# (ar%et share< /hey view each 'usiness as separate$ ignoring potential synergies across 'usinesses 4efer to @.hi'it 69
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 5 asy +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
53 (p. 25/) A cash cow$ referre# to in the *oston Consulting roup Bortfolio (anage(ent techni+ue$ refers to a 'usiness that has A. low (ar%et growth an# relatively high (ar%et share * relatively low (ar%et share an# low (ar%et growth C relatively low (ar%et share an# high (ar%et growth D high (ar%et growth an# relatively high (ar%et share @ach of the four +ua#rants of the *C Bortfolio gri# has #ifferent i(plications for the S*Es that fall into that category Cash Cows are S*Es with high (ar%et shares in low-growth in#ustries /hese units have li(ite# long-run potential 'ut represent a source of cu rrent cash flows to fun# invest(ents in stars an# +uestion (ar%s
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 5 asy +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
55 (p. 25/) ,n (anaging a fir(&s portfolio$ the *C (atri. woul# suggest that A #ogs shoul# 'e investe# in to increase (ar%et share an# 'eco(e cash cows * stars are in low growth (ar%ets an# can provi#e e.cess cash to fun# other opportunities C. +uestion (ar%s can represent future stars if their (ar%et share is increase# D cash cows re+uire su'stantial cash outlays to (aintain (ar%et share @ach of the four +ua#rants of the *C Bortfolio gri# has #ifferent i(plications for the S*Es that fall into that category uestion 7ar%s are S*Es co(peting in high-growth in#ustries 'ut having relatively wea% (ar%et shares 4esources shoul# 'e investe# in the( to enhance their co(petitive positions$ potentially (a%ing the( stars
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 2 *edi&m +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
56 (p. 25/) ,n the *oston Consulting roup&s ;*C< rowth Share 7atri.$ the sugg este# strategy for stars is to A (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 flow to other 'usinesses D. (aintain position an# after the (ar%et growth slows use the 'usiness to provi#e cash flow Stars are S*Es co(peting in high-growth in#ustries with relatively high (ar%et shares /hese fir(s have long-ter( growth potential an# shoul# continue to receive su'stantial invest(ent fun#ing !hen growth slows$ they (ay 'eco(e cash cows the(selves
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 2 *edi&m +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
59 (p. 253) All of the following are li(itations ;or #ownsi#es< of the *C ;*oston Consulting roup< (atri. @C@B/ A every 'usiness cannot 'e accurately (easure# an# co(pare# on the two #i(ensions * it views each 'usiness as a stan#-alone entity an# ignores the potential for synergies across 'usinesses C. it ta%es a #yna(ic view of co(petition which can lea# to overly co(ple. analyses D while easy to co(prehen#$ the *C (atri. can lea# to so(e trou'leso(e an# overly si(plistic prescriptions /here are so(e nota'le #ownsi#es to portfolio (o#els /hey co(pare S*Es on only two #i(ensions$ (a%ing the erroneous assu(ption that ;1< those are the only factors that really (atter an# ;< every unit can 'e accurately co(pare# on that 'asis /he approach views each S*E as a stan#-alone entity$ ignoring the pro(ise for synergies across 'usiness units /he process can 'eco(e (echanical$ su'stituting an oversi(plifie# graphical (o#el for the i(portant contri'utions of (anage(ent )u#g(ent 4eliance on strict rules regar#ing resource allocation across S*Es can 'e #etri(ental to a fir(&s long-ter( via'ility !hile easy to co(prehen#$ the i(agery of the *C (atri. can lea# to so(e trou'leso(e$ overly si(plistic prescriptions
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 2 *edi&m +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
5 (p. 220) /he three pri(ary (eans 'y which a fir( can #iversify are: A. (ergers an# ac+uisitions )oint ventures an# strategic alliances internal #evelop(ent * (ergers an# ac+uisitions #ifferentiation overall cost lea#ership C )oint ventures an# strategic alliances integration of value chain activities ac+uiring hu(an capital D (ergers an# ac+uisitions internal #evelop(ent #ifferentiation /here are three 'asic (eans of #iversification 8irst$ through ac+uisitions or (ergers$ corporations can #irectly ac+uire a fir(&s assets an# co(petencies Secon#$ corporations (ay agree to pool the resources of other co(panies with their resource 'ase$ co((only %nown as a )oint venture or strategic alliance /hir#$ corporations (ay #iversify into new pro#ucts$ (ar%ets$ an# technologies through internal #evelop(ent
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 5 asy +opic: +'e *eans to Ac'ie!e i!ersiication
5= (p. 22#224) /he #ownsi#es or li(itations of (ergers an# ac+uisitions inclu#e all of the following @C@B/: A e.pensive pre(iu(s that are fre+uently pai# to ac+uire a 'usiness * #ifficulties in integrating the activities an# resources of the ac+uire# fir( into a corporation&s on-going operations C. it is a slow (eans to enter new (ar%ets an# ac+uire s%ills an# co(petences D there can 'e (any cultural issues that can #oo( an otherwise pro(ising ac+uisition /here are several li(itations of (ergers an# ac+uisitions$ inclu#ing that ta%eover pre(iu(s pai# for ac+uisitions are typically very high$ co(peting fir(s often can i(itate any a#vantages or copy synergies that result fro( the (erger or ac+uisition$ (anagers& egos so(eti(es get in the way of soun# 'usiness #ecisions$ an# cultural issues (ay #oo( the inten#e# 'enefits fro( 7FA en#eavors 4efer to @.hi'it 610
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
60 (p. 22) Divesting 'usinesses can acco(plish (any #ifferent o')ectives$ inclu#ing A ena'ling (anagers to focus their efforts (ore #irectly on the fir(&s core 'usinesses * provi#ing the fir( with (ore resources to spen# on (ore attractive alternatives C raising cash to help fun# e.isting 'usinesses D. all of these Divesting a 'usiness can acco(plish (any #ifferent o')ectives inclu#ing: ;1< ena'ling (anagers to focus their efforts (ore #irectly on the fir(&s core 'usinesses$ ;< provi#ing the fir( with (ore resources to spen# on (ore attractive alternatives$ an# ;< raising cash to help fun# e.isting 'usinesses
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
61 (p. 22/) A co(pany offering local teleco((unications service co('ines resources with an international co(pany that (anufactures #igital switching e+uip(ent to research a new type of teleco((unications technology /his is an e.a(ple of A )oint #iversification B. strategic alliance C #ivest(ent D glo'al integration Strategic alliances (ay 'e use# to 'uil# )ointly on the technological e.pertise of two or (ore co(panies /his (ay ena'le then to #evelop pro#ucts technologically 'eyon# the capa'ility of the co(panies acting in#epen#ently
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
6 (p. 22") Cooperative relationships such as IIIIIIIIII have the potential a#vantages such as entering new (ar%ets$ re#ucing (anufacturing ;or other< costs in the value chain$ an# #eveloping an# #iffusing new technologies A )oint ventures * (ergers an# ac+uisitions C strategic alliances D. 'oth )oint ventures an# strategic alliances Strategic alliances an# )oint ventures have (any potential a#vantages A(ong these are entering new (ar%ets$ re#ucing (anufacturing ;or other< costs in the value chain$ an# #eveloping an# #iffusing new technologies
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
6 (p. 223) All of the following are gui#elines for (anaging strategic alliances @C@B/ A esta'lishing a clear un#erstan#ing 'etween partners B. relying pri(arily on a contract to (a%e the )oint venture wor% C not shortchanging your partner D wor%ing har# to ensure a colla'orative relationship 'etween partners Strategic alliances an# )oint ventures shoul# ensure the strengths contri'ute# 'y the partners are uni+ue thus synergies create# can 'e (ore easily sustaine# over the longer ter( /he goal is to #evelop synergies 'etween partner contri'utions$ resulting in a win-win situation 7oreover$ the partners (ust 'e co(pati'le an# willing to trust each other /hese partnerships (ay 'e un#erta%en with or without a contract
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
63 (p. 223) !hich of the following state(ents regar#ing internal #evelop(ent as a (eans of #iversification is 8ALS@J A 7any co(panies use internal #evelop(ent to e.ten# their pro#uct lines or a## to their service offerings B. An a#vantage of internal #evelop(ent is that it is generally faster than other (eans of #iversification an# fir(s can 'enefit fro( spee# in #eveloping new pro#ucts an# services C /he fir( is a'le to capture the wealth create# without having to share the wealth with alliance partners D 8ir(s can often #evelop pro#ucts or services at a lower cost if they rely on their own resources instea# of e.ternal fun#ing /here are potential #isa#vantages to internal #evelop(ent ,t (ay 'e ti(e consu(ing fir(s (ay forfeit the 'enefits of spee# that growth through (ergers can provi#e /his (ay 'e i(portant a(ong high-tech or %nowle#ge-'ase# organi"ations in fast-pace# en viron(ents where 'eing an early (over is critical
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
65 (p. 223) IIIIIIIIII (ay 'e ti(e consu(ing an#$ therefore$ fir(s (ay forfeit the 'enefits of spee# that growth through IIIIIIIIII an# IIIIIIIIII can provi#e A Strategic alliances )oint ventures internal #evelop(ent B. ,nternal #evelop(ent (ergers ac+uisitions C Strategic alliances (ergers )oint ventures D 7ergers internal #evelop(ent strategic alliances /here are potential #isa#vantages to internal #evelop(ent ,t (ay 'e ti(e consu(ing fir(s (ay forfeit the 'enefits of spee# that growth through (ergers can provi#e /his (ay 'e i(portant a(ong high-tech or %nowle#ge-'ase# organi"ations in fast-pace# en viron(ents where 'eing an early (over is critical
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
66 (p. 22) Accor#ing to 7ichael Borter: /here&s a tre(en#ous allure to IIIIIIIIII ,t&s the 'ig play$ the #ra(atic gesture !ith one stro%e of the pen you can a## 'illions to si"e$ get a front page story$ an# create e.cite(ent in (ar%ets A strategic alliances an# )oint ventures B. (ergers an# ac+uisitions C internal #evelop(ent D #ifferentiation strategies /here is an e.cite(ent an# associate# recognition of (a%ing a (a)or ac+uisition As note# 'y 2arvar#&s 7ichael Borter$ /here&s a tre(en#ous allure to (ergers an# ac+uisitions ,t&s the 'ig play$ the #ra(atic gesture !ith one stro%e of the pen you can a## 'illions to si"e$ get a front-page story$ an# create e.cite(ent in (ar%ets
AACSB: Analytic Blooms: Apply Learning Obecti!e: 0"#0" *anagerial be'a!iors t'at can erode t'e creation o !al&e. Le!el o iic<y: $ard +opic: $o% *anagerial *oti!es Can rode
69 (p. 22) An antita%eover tactic calle# ;a< IIIIIIIIII is when a fir( offers to 'uy shares of their stoc% fro( a co(pany ;or in#ivi#ual< planning to ac+uire their fir( at a higher price than the unfrien#ly co(pany pai# for it A gol#en parachute B. green(ail C poison pill D scorche# earth reen(ail is an effort 'y the target fir( to prevent an i(pen#ing ta%eover !hen a hostile fir( 'uys a large 'loc% of outstan#ing target co(pany stoc% an# the target fir(&s (anage(ent feels that a ten#er offer is i(pen#ing$ they offer to 'uy the stoc% 'ac% fro( the hostile co(pany at a higher price than the unfrien#ly co(pany pai# for it
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#0" *anagerial be'a!iors t'at can erode t'e creation o !al&e. Le!el o iic<y: 5 asy +opic: $o% *anagerial *oti!es Can rode
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
6 (p. 22) An antita%eover tactic in which e.isting sharehol#ers have the option to 'uy a##itional shares of stoc% at a #iscount to the current (ar%et price is calle# A green(ail B. a poison pill C a gol#en parachute D scorche# earth Boison pills are an antita%eover tactic use# 'y a co(pany to give sharehol#ers certain rights in the event of a ta%eover 'y another fir($ such as this stoc% #iscount e.a(ple /hey are also %nown as sharehol#er rights plans
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#0" *anagerial be'a!iors t'at can erode t'e creation o !al&e. Le!el o iic<y: 5 asy +opic: $o% *anagerial *oti!es Can rode
6= (p. 22) /he ter( gol#en parachutes refers to A a clause re+uiring that huge #ivi#en# pay(ents 'e (a#e upon ta%eover * financial in#uce(ents offere# 'y a threatene# fir( to stop a hostile suitor fro( ac+uiring it C (anagers of a fir( involve# in a hostile ta%eover approaching a thir# party a'out (a%ing the ac+uisition D. pay given to e.ecutives fire# 'ecause of a ta%eover A gol#en parachute is a prearrange# contract with (anagers specifying that$ in the event of a hostile ta%eover$ the target fir(&s (anagers will 'e pai# a significant severance pac%age
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#0" *anagerial be'a!iors t'at can erode t'e creation o !al&e. Le!el o iic<y: 5 asy +opic: $o% *anagerial *oti!es Can rode
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
90 (p. 22) Antita%eover tactics inclu#e all of the following @C@B/ A green(ail * gol#en parachutes C. gol#en han#cuffs D poison pills Antita%eover tactics are co((on$ inclu#ing green(ail$ gol#en parachutes$ an# poison pills
AACSB: Analytic Blooms: 1emember Learning Obecti!e: 0"#0" *anagerial be'a!iors t'at can erode t'e creation o !al&e. Le!el o iic<y: 5 asy +opic: $o% *anagerial *oti!es Can rode
Essay Questions
91 (p. 20"#254) !hat are the pri(ary 'enefits an# ris%s associate# with relate# #iversificationJ Answers will vary
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
9 (p. 250#252) *riefly e.plain the a#vantages an# #isa#vantages of vertical integration Answers will vary
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
9 (p. 252#25) !hat are so(e of the %ey issues to ta%e into account when consi#ering whether or not to vertically integrateJ Answers will vary
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
93 (p. 25#254) @.plain how transaction cost analysis can provi#e insights into vertical integration #ecisions Answers will vary
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 $o% corporations can &se related di!ersiication to ac'ie!e synergistic beneits t'ro&g' economies o scope and mar,et po%er. Le!el o iic<y: 2 *edi&m +opic: 1elated i!ersiic ation: conomies o Scope and 1e!en&e n'ancement
95 (p. 254#220) !hat are the pri(ary 'enefits an# ris%s associate# with unrelate# #iversificationJ Answers will vary
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 2 *edi&m +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
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Chapter 06 - Corporate-Level Strategy: Creating Value through Diversification
96 (p. 25"#253) @.plain the uses an# li(itations of portfolio (anage(ent (atrices such as the growth-share (atri. #evelope# 'y the *oston Consulting roup ;*C< Answers will vary
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#04 $o% corporations can &se &nrelated di!ersiication to attain synergistic beneits t'ro&g' corporate restr&ct&ring7 parenting7 and portolio analysis. Le!el o iic<y: 2 *edi&m +opic: Unrelated i!ersiication: 8inancial Synergies and 6arenting
99 (p. 220#224) Su((ari"e the a#vantages an# #isa#vantages of (ergers an# ac+uisitions as a (eans of #iversification Answers will vary
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
9 (p. 224#22") Discuss so(e of the potential 'enefits of #ivest(ent Answers will vary
AACSB: Analytic Blooms: Understand Learning Obecti!e: 0"#0 +'e !ario&s means o engaging in di!ersiication#mergers and ac&isitions7 oint !ent&res;strategic alliances7 and internal de!elopment. Le!el o iic<y: 2 *edi&m +opic: +'e *eans to Ac'ie!e i!ersiication
6-9