Deck 6: Corporate-Level Strategy: Creating Value Through Diversification

Question 1

When using the BCG matrix, a business that currently holds a large market share in a rapidly growing market and that has minimal or negative cash flow is described as a:

A) cow.
B) dog.
C) problem child.
D) star.

Answer 1

D

Question 2

_______ is when a firm tries to find and acquire either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change.

A) Parenting
B) Restructuring
C) Leveraging core competencies
D) Sharing activities

Answer 2

B

Question 3

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

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

Answer 3

C

Question 4

When Rogers acquired Microcell, the clients of Fido, Microcell's brand name

A) costs and associated expenses increased with expanded overhead and capital expenditures.
B) instantly gained broader market coverage and better reception for their phones.
C) problems developed with unbalanced capacities along the value chain.
D) additional administrative costs associated with managing a more complex set of activities increased.

Question 5

Vertical integration is attractive when

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

Question 6

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

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

Question 7

Molson, Inc. of Montreal and Adolph Coors Co. of Golden, Colorado merged their operations in order to stand up to the

A) continued diversification in the beverage market.
B) competition from Japan.
C) continuing consolidation in the global beer industry.
D) substantial cash outlays to maintain market share.

Question 8

Which two related issues are addressed with a corporate-level strategy?

A) How to compete in a given business; the application of technology.
B) What businesses to compete in; how these businesses can achieve synergy.
C) How to integrate primary activities; increase shareholder wealth.
D) How to improve a firm's infrastructure; how to maintain ethical behaviour.

Question 9

Transaction costs include all of the following costs, except

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

Question 10

It may be advantageous to vertically integrate when

A) lower transaction costs and improved coordination are vital and achievable.
B) the minimum efficient scales of two corporations are different.
C) flexibility is reduced, providing a more stationary position in the competitive environment.
D) various segregated specializations will be combined.

Question 11

In the BCG (Boston Consulting Group) matrix, a business that has a weak market share in an industry characterized by high market growth is called a:

A) star.
B) question mark.
C) cash cow.
D) dog.

Question 12

When using the BCG matrix, a SBU with weak market shares in low-growth industries is described as a

A) cow.
B) dog.
C) Monkey.
D) star.

Question 13

__________ reflect the collective learning in organizations, such as, how to coordinate production skills, integrate multiple streams of technologies, and market and merchandise diverse products and services.

A) Primary value chain activities
B) Cultures
C) Core competencies
D) Horizontal integrations

Question 14

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

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

Question 15

A firm should consider vertical integration when

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

Question 16

According to the text, Canfor Corporation of Vancouver is a good example from the forest industry of having followed a successful strategy, to expand across markets, of

A) capital restructuring and technology restructuring.
B) asset restructuring.
C) horizontal integration.
D) vertical integration.

Question 17

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

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

Question 18

The word synergy means:

A) Creating value
B) Working together
C) Increasing competition
D) Deregulating industries

Question 19

Portfolio management frameworks (e.g., BCG matrix) share which of the following characteristics?

A) Grid dimensions are based on external environments and internal capabilities/market positions.
B) Businesses are plotted on a 3-dimensional grid.
C) Position in the matrix suggests a need for, or ability to share, infrastructures or build on core competences.
D) They are most helpful in helping businesses develop types of competitive advantage.

Question 20

Portfolio management matrices are applied to what level of strategy?

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

Question 21

In terms of strategy evaluation, which of the following terms refers to the competitive stance of the corporate strategy and whether it is creating inimitable advantages?

A) Consistency
B) Consonance
C) Advantage
D) Feasibility

Question 22

A company offering local telecommunications service combines resources with an international company that manufactures digital switching equipment to research a new type of telecommunications technology. This is an example of

A) joint diversification.
B) strategic alliance.
C) divestment.
D) global integration.

Question 23

The term "golden parachute" refers to

A) a clause requiring that huge dividend payments be made upon takeover.
B) financial inducements offered by a threatened firm to stop a hostile suitor from acquiring it.
C) managers of a firm involved in a hostile takeover approaching a third party about making the acquisition.
D) pay given to executives fired because of a takeover.

Question 24

Which of the following tests considers the potential for synergy as advantage emerges for a new business because of its association with another company?

A) The just-like-me test
B) The attractiveness test
C) The cost-of-entry test
D) The better-off test

Question 25

Which of the following statements regarding internal development as a means of diversification is ?

A) Many companies use internal development to extend their product lines or add to their service offerings.
B) An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services.
C) The firm is able to capture the wealth created without having to 'share the wealth' with alliance partners.
D) Firms can develop products or services at a lower cost if they rely on their own resources instead of external funding.

Question 26

Real options analysis is most appropriate when

A) the total investment required is small, but the environment is uncertain.
B) the investment required can be justified by Discounted Cash Flow (DCF) techniques.
C) a small investment up front can be followed by a series of subsequent investments.
D) there is no prospect of obtaining additional knowledge before making subsequent investments.

Question 27

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

Question 28

The downsides or limitations of mergers and acquisitions include all of the following, except

A) expensive premiums that are frequently paid to acquire a business.
B) difficulties in integrating the activities and resources of the acquired firm into a corporation's on-going operations.
C) it is a slow means to enter new markets and acquire skills and competences.
D) there can be many cultural issues that can doom an otherwise promising acquisition.

Question 29

An anti-takeover tactic called a ___________ is when a firm offers to buy shares of their stock from a company planning to acquire their firm at a higher price than the unfriendly company paid for it.

A) golden parachute
B) greenmail
C) poison pill
D) scorched earth

Question 30

In terms of strategy evaluation, which of the following terms describes whether the diversification strategy is in alignment with the organization's goals and objectives?

A) Consistency
B) Consonance
C) Advantage
D) Feasibility

Question 31

In terms of strategy evaluation, which of the following terms refers to the fit between the corporate-level strategy and the external environment?

A) Consistency
B) Consonance
C) Advantage
D) Feasibility

Question 32

When Canadian family-controlled firm Schneider's wanted to block Maple Leaf Foods, they looked to Springfield as a

A) greenmail.
B) golden parachute.
C) white knight.
D) poison pill.

Question 33

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

Question 34

An anti-takeover tactic called greenmail is

A) encouraged in Canada.
B) prohibited in Canada.
C) only allowed in Quebec.
D) borrowed from NAFTA.

Question 35

Which of the following tests evaluates such factors as entry barriers, supplier bargaining power, and the number of substitute products available?

A) The just-like-me test
B) The attractiveness test
C) The cost-of-entry test
D) The better-off test

Question 36

Cooperative relationships such as _______ have potential advantages such as entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies.

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

Question 37

Loblaw Companies Limited, with a strong presence in Ontario and western Canada, gained a footprint into the Quebec market by

A) establishing a clear understanding between partners.
B) acquiring Provigo.
C) not shortchanging your partner.
D) working hard to ensure a collaborative relationship between partners.

Question 38

In terms of strategy evaluation, which of the following terms refers to the capacity of the firm to achieve what it is embarking on?

A) Consistency
B) Consonance
C) Advantage
D) Feasibility

Question 39

Options exist when the owner of the option has

A) the obligation, but not the right to engage in a transaction.
B) the right, but not the obligation to engage in a transaction.
C) the right and obligation to engage in a transaction.
D) neither the right nor the obligation to engage in a transaction.

Question 40

A newly acquired business must always have products that are similar to the existing businesses' products to benefit from the corporation's core competence.

Question 41

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

Question 42

Upon the acquisition of Microcell, Rogers was able to immediately obtain savings.

Question 43

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

Question 44

A publishing company that purchases a chain of bookstores to sell its books is an example of unrelated diversification.

Question 45

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

Question 46

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

Question 47

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

Question 48

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

Question 49

According to the text, the main source of synergy in unrelated diversification is the value created by the knowledge and expertise of the corporate office.

Question 50

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

Question 51

What are the primary benefits associated with related diversification?

Question 52

Strategic alliances and joint ventures are quickly becoming less prominent in today's global economy.

Question 53

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

Question 54

Risk reduction in and of itself is rarely a viable way to create shareholder value.

Question 55

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

Question 56

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

Question 57

Real options analysis helps managers make investment decisions involving large irreversible commitments of financial resources.

Question 58

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

Question 59

What are the primary benefits associated with unrelated diversification?

Question 60

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

Question 61

Carefully explain 'greenmail' as an anti-takeover tactic..

Question 62

Summarize the disadvantages of mergers and acquisitions as a means of diversification.

Question 63

Explain the limitations of portfolio management matrices such as the growth-share matrix developed by the Boston Consulting Group (BCG).

Question 64

Explain the meaning of consistency as it applies to the evaluation of a corporate strategy.

Question 65

Explain how transaction cost analysis can provide insights into vertical integration decisions.

Question 66

Strategic alliances are arrangements in which two firms join forces and form a cooperative partnership. Discuss the potential advantages of strategic alliances.

Question 67

Explain how consolidating an industry can increase a firm's market power.

Question 68

Outline Porter's three critical tests for evaluating strategy.

Question 69

What are some of the key issues to take into account when considering whether or not to vertically integrate?

Question 70

Briefly explain the advantages of vertical integration.

Question 71

Briefly describe each of the four quadrants of the BCG matrix.

Question 72

Explain the meaning of consonance as it applies to the evaluation of a corporate strategy.

Question 73

Discuss how the potential benefits of diversification may be adversely affected by conflicts between managers' interests and shareholders' interests.

Question 74

What is Real Options Analysis (ROA) and how can it be used by strategic decision makers?

Question 75

Carefully explain 'poison pills' as an anti-takeover tactic.

Question 76

Explain the meaning of feasibility as it applies to the evaluation of a corporate strategy.