Deck 7: Developing Corporate Strategy

Question 1

Managers can squander value through diversification.

Answer 1

True

Question 2

The first form of organizational diversification in the United States was probably horizontal diversification.

Answer 2

False

Question 3

General Electric was among the 12 original companies to be included in the newly created Dow Jones Industrial Average.

Answer 3

True

Question 4

Moving "upstream" in an industry value chain will draw firms closer to the source of needed raw materials.

Question 5

Corporate strategy addresses issues-related decisions about entering or exiting an industry.

Question 6

Synergy is the degree to which a firm conducts business in more than one arena.

Question 7

3M has entered most of its businesses through internal innovation, but recently it increased its pace of acquisitions.

Question 8

The economic logic of diversification incorporates levers to achieve synergy and transfer knowledge between business units.

Question 9

General Electric is a company that is only involved in electronics-related businesses.

Question 10

Synergy is the condition in which the combined benefits of multiple activities are greater than the simple sum of those benefits.

Question 11

Common core competencies are the unique resources and knowledge that a company's management must consider when developing strategy.

Question 12

A firm's corporate strategy usually stays close to the same over time.

Question 13

Corporate-level strategy must maintain strategic coherence across business units to create value for shareholders.

Question 14

Corporate-level strategy allows business units to operate independently of one another.

Question 15

Most publicly traded firms are single-business operations.

Question 16

In the late 19th century, the booming U.S. economy fostered a period of rapid business diversification.

Question 17

To secure needed resources, large firms often move "downstream" in the industry value chain.

Question 18

Many large monopolistic companies were broken up as a result of the Great Depression.

Question 19

A firm's corporate strategy is created annually and remains stable until the following year.

Question 20

Business strategy and corporate strategy have very similar objectives.

Question 21

Managers can integrate what they know about products or industry life cycles with the portfolio visualization tool.

Question 22

Substantial empirical evidence indicates that some forms of diversification can create significant shareholder wealth.

Question 23

The ability to join the procurement function across more than one business unit and buy materials jointly creates an economy of scope.

Question 24

Whenever a common resource can be used across more than one business unit, the company will always generate enhanced shareholder value.

Question 25

Business history is full of stories of successful growth and diversification strategies.

Question 26

Economies of scope are only possible in production.

Question 27

Expanding a firm's scope does not necessarily create value for shareholders.

Question 28

Firms often acquire and merge with firms in adjacent sectors in order to bundle related products and cross sell to existing customers.

Question 29

Economies of scope generally arise from bundling and joint-selling opportunities.

Question 30

Economies of scope and synergy are collectively referred to as revenue-enhancement opportunities.

Question 31

A "dog" is a business that has a very strong competitive position, but is in a slow-growth industry.

Question 32

Revenue-enhancement opportunities result from producing two or more products jointly instead of producing them separately.

Question 33

Diversification strategies always lead to increased shareholder value.

Question 34

A "cash cow" is a business that has a strong competitive position in a fast-growth industry.

Question 35

Comarketing two products may provide cost savings.

Question 36

As a result of the Sherman Antitrust Act of 1890, many large firms began expanding into areas unrelated to their core businesses.

Question 37

Portfolio planning was not initially intended to help managers achieve a balanced portfolio of large stable businesses.

Question 38

A conglomerate is a corporation consisting of many companies in different businesses or industries.

Question 39

Portfolio planning dictated that "cash cows" should not be maintained, but "dogs" should be.

Question 40

Revenue-enhancement synergy exists when the whole is greater than the sum of the parts.

Question 41

To create economies of scope and revenue-enhancement synergies, a firm's resources should counteract with its business activities.

Question 42

When diversification is unrelated it is more likely to create value.

Question 43

Financial markets will recognize the existence of a parenting advantage when the collective market value is less than the independent market value of a portfolio of business units.

Question 44

The more dissimilar the contexts across which its businesses compete, the harder it is to manage a firm's portfolio and to create value through economies of scope.

Question 45

A significant diversification discount is a measure of the losses anticipated from buying a parent firm and selling off its portfolio piecemeal.

Question 46

When strategies differ significantly, managers will generally be slower and less decisive.

Question 47

The strategy of common ownership can dissipate potential shareholder value.

Question 48

When there are many businesses and they are largely unrelated, the firm is referred to as a conglomerate.

Question 49

Complex firms are more difficult to manage than simple firms.

Question 50

It is easier to manage a firm that requires dissimilar dominant logics across business units.

Question 51

Both economies of scope and revenue enhancement materialize when a firm expands into new lines of business.

Question 52

A firm becomes a prime candidate for takeover when investors suspect the prospect of a significant diversification discount.

Question 53

High levels of diversification can be very effective strategies in countries with developing capital markets.

Question 54

Relatedness is assessed by how similar the underlying industries are.

Question 55

The harmful side effects of too little diversification include increasing transaction costs and managerial complexity.

Question 56

Unrelated diversification is the form of diversification in which the business units that a firm operates are highly dissimilar.

Question 57

Managers may have self-serving motives for diversification.

Question 58

Transferring capabilities is a special case of resource sharing that can create cost savings and revenue enhancement.

Question 59

Both unrelated and related diversification can create serious managerial problems.

Question 60

Businesses that are managed separately always have an advantage over a corporation that maintains ownership over multiple business units because of their ability to gain specialized knowledge.

Question 61

When an adjacent segment is profitable, it is always a good area for a firm to enter.

Question 62

Segment profitability may vary widely by product group.

Question 63

Empire building almost always results in greater prestige for top executives.

Question 64

Different geographic markets can exhibit different degrees of relatedness.

Question 65

The profit pool incorporates key complementary businesses near the point at which a firm is directly involved in customer transactions.

Question 66

Managerial know-how is a general resource that could be exploited in any number of contexts.

Question 67

Sometime firms entering new geographic markets discover that they must adapt certain components of their strategies to accommodate local environments.

Question 68

The profit pool reminds us that profit and revenue concentration usually occur at the same place in an industry.

Question 69

Depths of profit pools are stable within a given value-chain segment.

Question 70

The main determinant of CEO pay is the firm's industry.

Question 71

Customer purchase decisions in horizontally related industries are often made consecutively.

Question 72

In some cases, firms can create values by moving into buyers' value chains if it can bundle complementary products.

Question 73

Vertical expansion is often a logical growth option because a company is already familiar with the arena that it's entering.

Question 74

The corporate strategy involves operating in a singular arena.

Question 75

Geographic expansion is typically motivated by a desire to reduce overhead costs.

Question 76

Most global firms approach their corporate strategies from the perspective of their domestic market.

Question 77

Because segments in closely related industries often use similar assets and resources, a firm can frequently achieve cost savings by sharing them among businesses in different segments.

Question 78

Firms typically enter arenas randomly, without much logic.

Question 79

The success with which diversified firms are managed in harmony with key organizational features has a significant effect on the level of value that can be created through their portfolios.

Question 80

The degree to which horizontal expansion is desirable depends on the degree to which the new industry is related to a firm's home industry.