Deck 8: Corporate-Level Strategy

Question 1

One advantage of an unrelated diversification strategy in a developed economy is that competitors cannot easily imitate the financial economies whereas they can easily replicate the value gained through the use of a related diversification strategy.

Answer 1

False

Question 2

A strategic business unit is that part of a company charged with developing both business and corporate strategy.

Answer 2

False

Question 3

Management of resources is a major corporate-level strategic management responsibility.

Answer 3

True

Question 4

Performance continues to increase as diversification increases from single business to unrelated diversification.

Question 5

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

Question 6

Synergy among businesses is created instantly if they are related to each other.

Question 7

A firm uses a corporate-level diversification strategy for a variety of reasons all of which have to do with ways to create value.

Question 8

Most acquisitions are financially beneficial to the shareholders of the acquiring firm.

Question 9

Different incentives to diversify sometimes exist,and the quality of a firm's resources may permit only diversification that is value neutral rather than value creating.

Question 10

Corporate-level strategies are strategies a firm uses to diversify its operations from a single business competing in a single market into several product markets and,most commonly,into several businesses.

Question 11

The growth motivation for diversification is driven,in part,by the desire of managers to preside over a larger firm.

Question 12

Corporate strategy answers the question "What businesses should we be in?" while business strategy answers the question "How should we compete in this business?"

Question 13

Corporate-level strategy in a diversified organization requires a common business strategy for each component business.

Question 14

Corporate strategy is concerned with acquiring,managing,and divesting business units to create a portfolio of businesses that earns economic returns above those that the individual businesses could earn on their own.

Question 15

A common criticism that applies to many portfolio models is that they are based on the past instead of the future.

Question 16

Transaction cost economics is used primarily to determine when unrelated diversification is appropriate.

Question 17

Financial economies are cost savings realized through improved allocations of financial resources based on investments inside or outside the firm.

Question 18

Managers sometimes choose to diversify because they are motivated by power,income,and status.

Question 19

Acquisitions are a common type of merger.

Question 20

Decisions to expand a firm's portfolio of businesses to reduce managerial risk can have a positive effect on the firm's value.

Question 21

If all of the businesses of an organization are related to a common "core" business,the organization is probably pursuing which corporate strategy?

A) Prospector
B) Cost focus
C) Defender
D) Related diversification

Question 22

The industry-based view posits that the degree of competitiveness in an industry largely determines firm performance.

Question 23

Which of the following is typically a corporate-level strategy formulation responsibility?

A) Establishment of short-term operating goals
B) Choice of generic strategy for each business unit
C) Selection of businesses in which to compete
D) Direct supervision of research and development programs

Question 24

Related diversification differs from unrelated diversification in which of the following ways?

A) Related diversification is connected to the organization's dominant business; unrelated diversification is not
B) Unrelated diversification is connected to the organization's dominant business; related diversification is not
C) Single business firms use related diversification and never use unrelated diversification
D) Single business firms use unrelated diversification and never use related diversification

Question 25

Mergers are more likely to be successful if:

A) They are hostile
B) They are friendly
C) They involve high premiums
D) The managers of the acquired firm leave to make way for new managers

Question 26

Vertical diversification results from two companies combining to share supply chains.

Question 27

Strategies of firms within a strategic group tend to be different,so does their performance.

Question 28

Horizontal diversification occurs when a merger or acquisition combines two companies that are in different industries but share the same customers.

Question 29

Joint ventures:

A) Slow the speed of entry into a new field or market
B) Are considered a more risky diversification option than mergers
C) Encourage the entry of new competitors
D) Are often motivated by the desire to share resources across companies

Question 30

According to the theory of transaction cost economics,a market is likely to fail if:

A) There are a large number of suppliers
B) All parties to the transaction have the same level of knowledge
C) The future is highly uncertain
D) The future is highly certain

Question 31

A variety of studies over the years conclude that diversification is nearly as likely to destroy shareholder value as it is to create shareholder value.

Question 32

Joint ventures:

A) Result in complete control by one firm
B) Incur low administrative costs
C) Entail a risk of opportunism by partners to the venture
D) Are desirable in all environments

Question 33

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

A) Corporation earns a great deal of money
B) Top management team is satisfied with the corporation's performance
C) Businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership
D) Businesses in the portfolio increase the firm's financial returns

Question 34

Two organizations or business units have similar management processes,cultures,systems,and structures.These similarities are best described as:

A) Synergy
B) Managerial hubris
C) Business intelligence
D) Organizational fit

Question 35

Which of the following is most likely to occur as a result of an acquisition?

A) Increase in financial leverage
B) Increase in profitability
C) Increase in R&D
D) Increase in patents

Question 36

Which of the following is not considered a corporate-level strategy?

A) Differentiation
B) Concentration
C) Related diversification
D) Unrelated diversification

Question 37

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

A) Synergies between internal and external capital markets
B) The leveraging of individual tangible resources
C) The sharing of primary and support activities
D) Joint ventures and outsourcing

Question 38

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

A) Control shared among business-unit managers
B) Economies of scope between business units
C) The favourable demand of buyers
D) Market power

Question 39

Corporate-level decisions are typically made by:

A) Low-level employees
B) The CEO and/or board of directors
C) Functional managers
D) Department heads

Question 40

Corporate strategy formulation deals primarily with:

A) How firms compete in the business areas they have selected
B) High-level financial analysis
C) The details of functional area strategies
D) The selection of business areas in which the firm will compete

Question 41

Within a diversified company a set of businesses that share identical or very similar strategies or strategic challenges is called a(n):

A) Strategic business unit
B) Related group
C) Intra-company planning group
D) Common threat subunit

Question 42

In what ways can head offices destroy value?

Question 43

What are the dominant means by which managers can seek to integrate portfolio businesses?

Question 44

Identify the two fundamental roles of the corporate parent and what activities are associated with this.

Question 45

The use of e-commerce to allow firms to reduce the costs of processing transactions while improving their supply-chain management skills and tightening the control of their inventories is beginning to replace:

A) Outsourcing
B) Unrelated diversification
C) De-integration
D) Vertical integration

Question 46

According to Porter (1987),what are the three essential tests that should be applied when assessing whether to enter a new business or acquire one?

Question 47

Should a company choose to divest a business unit it can create a new company from the business unit with its own shares of stock and its own board of directors. This is called a(n):

A) Satellite company
B) Asset sale
C) Spin-off
D) Re-liquidation

Question 48

One of the factors on which a successful acquisition depends is the ability to capture synergies. Which of the following makes this a difficult task?

A) The acquirer tends to "overcommunicate" during the process
B) The synergies dissipate over the time that it takes to complete the deal
C) It is very hard to integrate the cultures of the companies involved
D) Synergies don't want to be captured; they wish to remain free

Question 49

Synergy exists when:

A) Cost savings are realized through improved allocations of financial resources based on investments inside or outside the firm
B) Two units create value by utilizing market power in their respective industries
C) Firms utilize constrained related diversification to build an attractive portfolio of businesses
D) The value created by business units working together exceeds the value the units create when working independently

Question 50

Identify the key themes necessary to ensure synergistic,successful and profitable portfolio of businesses.

Question 51

Explain the major corporate-level strategy formulation responsibilities.

Question 52

The downside of synergy in a diversified firm is:

A) Increasing independence of businesses
B) The reduction of activity sharing
C) Excessive focus on risky innovation
D) The loss of flexibility

Question 53

Differentiate between corporate-level and business-level strategies and give examples of each.

Question 54

Which is a reason for integration as opposed to outsourcing?

A) Greater expense.
B) Strategic flexibility is enhanced.
C) Those within the firm are often more competitive.
D) The activity is crucial to the core business.

Question 55

A typical decision made within the context of corporate strategy is:

A) Which industries to enter and exit
B) Establishing business unit investment priorities
C) Effecting resource and management transfers
D) All of the above

Question 56

Describe the two fundamental types of diversification.

Question 57

One method of facilitating the transfer of competencies between firms is to:

A) Virtually integrate the two firms
B) Transfer key people into new management positions
C) Share support activities, such as purchasing practices
D) Restructure the weaker firm to mirror the structure of the more successful firm

Question 58

When a company enters a new business in a different industry from that in which it currently operates and does not expect to achieve any value chain synergies,this is ________ diversification.

A) Financial
B) Capital-driven
C) Unrelated
D) Opportunistic

Question 59

Explain the positions on the Boston Consulting Group's growth-share matrix.

Question 60

What issues should head offices address when considering how they might best add value to the business as a whole?

Question 61

What are the major types of decisions that are made in the process of corporate strategy?

Question 62

Why might an organization choose to diversify?