Deck 6: Corporate-Level Strategy Creating Value through Diversification

Question 1

With unrelated diversification, potential benefits can be gained from vertical or hierarchical relationships; that is, the creation of synergies from the interaction of the corporate office with outside stakeholders.

Answer 1

False

Question 2

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

Answer 2

False

Question 3

Restructuring requires the corporate office to find either exceptionally performing firms with realized potential or firms in industries on the threshold of significant, negative change.

Answer 3

False

Question 4

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

Question 5

Benefits derived from horizontal and hierarchical relationships are mutually exclusive.

Question 6

In recent years, many high-tech firms such as Priceline.com have suffered from the negative impact of uncontrolled growth.

Question 7

Diversification initiatives must be justified by the creation of value for shareholders.

Question 8

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

Question 9

For a core competency to create value and provide a viable basis for synergy among the businesses in a corporation, it must at least create superior customer value and it must be difficultto imitate.

Question 10

Diversified public corporations, such as Berkshire Hathaway and Virgin Group, create value through management expertise by improving plans and budgets. This is an example of a relateddiversification strategy.

Question 11

It is necessary for a core competence to be difficult to imitate and to be non-substitutable.

Question 12

Gillette developed the Fusion and Mach 3 shaving systems. These products created superior customer value as a result of the company core competency in research and development.

Question 13

Portfolio models such as the BCG Portfolio matrix are limited in value because they only compare the SBU on four dimensions.

Question 14

The Hewlett-Packard and Autonomy merger in 2011 is an example of a successful merger.

Question 15

Many acquisitions ultimately result in divestiture.

Question 16

Research shows that most acquisitions of public corporations result in value creation rather than value destruction.

Question 17

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

Question 18

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

Question 19

When firms diversify into unrelated businesses, the primary potential benefits are horizontal relationships, i.e., businesses sharing tangible and intangible resources.

Question 20

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

Question 21

The Coca-Cola acquisition of its bottlers failed because

A) Coca-Cola had valuable competencies.
B) the bottling business required too much capital investment and time.
C) consumers consumed less because the distribution channel changed.
D) Coca-Cola spent less money on the distribution of concentrates and syrups.

Question 22

3M leverages its competencies in adhesives technologies to many industries, including automotive, construction, and telecommunications. This is an example of creating value by using

A) related diversification to acquire economies of scope by leveraging pooled negotiating power.
B) unrelated diversification to financial synergies through portfolio management.
C) related diversification to acquire economies of scope by leveraging core competencies.
D) unrelated diversification to parenting, restructuring, and financial synergies through restructuring and parenting.

Question 23

At Cooper Industries, there are few similarities in the products it makes or the industries in which it completes. The corporate office adds value through such activities as improvingtheir accounting activities and centralizing union negotiations. This is an example of creating value by using

A) related diversification to acquire economies of scope by leveraging pooled negotiating power.
B) related diversification to acquire market power by leveraging core competencies.
C) unrelated diversification to acquire financial synergies through portfolio management.
D) unrelated diversification to acquire synergies through corporate restructuring and parenting.

Question 24

Many leading high-tech firms such as Google, Apple, and Intel have dramatically enhanced their revenues, profits, and market values through a wide variety of diversification initiatives. Which of the following is not such an initiative?

A) acquisitions
B) strategicalliances
C) stockholder enhancement
D) joint ventures

Question 25

If a multinational firm paid too high a premium for the common stock of the company, this can lead to

A) divestiture.
B) expansion.
C) cost savings.
D) acquisition.

Question 26

ConAgra, a diversified food producer, increases its power over suppliers by centrally purchasing huge quantities of packaging materials for all its food divisions. This is an example of using

A) related diversification to acquire economies of scope by leveraging pooled negotiating power.
B) related diversification to acquire market power by leveraging pooled negotiating power.
C) unrelated diversification to acquire financial synergies through portfolio management.
D) unrelated diversification to acquire parenting, restructuring, and financial synergies through restructuring and parenting.

Question 27

Firms have several choices of diversification initiatives that can be used to create value. Which of the following is not one of them?

A) using related diversification to acquire economies of scope
B) using related diversification to acquire market power
C) using unrelated diversification to acquire financial synergies
D) using related diversification to acquire parenting and restructuring synergies

Question 28

If a multinational firm is unable to understand how the assets of the acquired company would fit with their own lines of business, this can lead to

A) expansion.
B) divestiture.
C) cost savings.
D) acquisition.

Question 29

An acquisition that results in ________ commonly indicates that expectations were not met.

A) expansion
B) divestiture
C) cost savings
D) increased sales

Question 30

Diversification initiatives include all the following except

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

Question 31

Polaris, a manufacturer of snowmobiles, motorcycles, watercraft, and off-road vehicles, shares manufacturing operations across its businesses. It also has a corporate research and development facility and staff departments that support all the Polaris operating divisions. This is an example of creating value by using

A) related diversification to acquire market value by leveraging core competencies.
B) related diversification to acquire economies of scope by sharing.
C) unrelated diversification to acquire financial synergies through portfolio management.
D) relateddiversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting.

Question 32

Which of the following is not a reason for merger and acquisition failures?

A) The acquiring company pays a large premium for the common stock of the target company.
B) Top executives act in their best interests rather than those of the shareholders.
C) The acquisition leads to value creation.
D) The acquired company assets are poorly integrated into the acquiring company business lines.

Question 33

The corporate office of Novartis, formerly Ciba-Geigy, acts to improve many key activities, including resource allocation and reward and evaluation systems. This is an example of creatingvalue by using

A) related diversification to achieve value by leveraging pooled negotiating power to attain economies of scope.
B) unrelated diversification to acquire financial synergies through portfolio management.
C) related diversification to acquire market power by leveraging pooled negotiating power.
D) related diversification to acquire parenting synergies through corporate restructuring and parenting.

Question 34

If a multinational firm fails to effectively integrate their acquisitions, this can result in

A) cost savings.
B) further acquisition.
C) expansion.
D) divestiture.

Question 35

In 2012, Microsoft admitted to a major ________ mistake when it wrote off essentially the entire 6.2 billion USD it paid for a digital advertising firm, aQuantive, that it purchased in2007

A) expansion
B) divestiture
C) acquisition
D) cost savings

Question 36

One of the reasons it is said that only the investment banker wins when a company is acquired is that they

A) assure the newly acquired company will be successful.
B) continue to work with the two companies involved.
C) collect huge up-front fees regardless of the outcome afterwards.
D) monitor the progress of both companies for long term growth.

Question 37

AOL purchased Time Warner for 114 billion USD in 2001. By 2003, AOL Time Warner had lost 150 billion USD in market valuation. This is an example of a

A) good expansion.
B) reasonable divestiture.
C) cost savings strategy.
D) failed acquisition.

Question 38

Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input to its manufacturing process. Thisis an example of creating value by using

A) related diversification to acquire market power by pooling negotiating power.
B) related diversification to acquire economies of scope by leveraging core competencies.
C) related diversification to acquire market power by integrating vertically.
D) related diversification to acquire economies of scope by integrating vertically to acquire market power.

Question 39

Corporate-level strategy focuses on

A) gaining long-term revenue.
B) gaining short-term profits.
C) decreasing business locations.
D) managing investment bankers and their interests.

Question 40

Yahoo purchased Tumblr for 1.1 billion in 2013 but wrote off 80 percent of the investment by the middle of 2016. They considered this to be a poor

A) expansion.
B) divestiture.
C) acquisition.
D) cost savings.

Question 41

Microsoft offered in 2016 to buy LinkedIn for 26.2 billion USD which was 50 percent higher than the value for LinkedIn the day before. This high premium offer was necessary for Microsoft to complete ________ initiative.

A) a low cost
B) an internal development
C) a diversification
D) a divestiture

Question 42

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

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

Question 43

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

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

Question 44

According to the text, corporate restructuring includes

A) capital restructuring, asset restructuring, and technology restructuring.
B) capital restructuring, asset restructuring, and management restructuring.
C) management restructuring, financial restructuring, and procurement restructuring.
D) global diversification, capital restructuring, and asset restructuring.

Question 45

Vertical integration is attractive when

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

Question 46

Transaction costs include all the following costs except

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

Question 47

The risks of vertical integration include all the following except

A) costs and expenses associated with increased overhead and capital expenditures.
B) lack of control over valuable assets.
C) problems associated with unbalanced capacities along the value chain.
D) additional administrative costs associated with managing a more complex set of activities.

Question 48

Proctor and Gamble is a large multinational organization that has many business sharing distribution resources. Diversification strategies take advantage of the ________ that exist intheir organization.

A) costs
B) employees
C) discontinuities
D) synergies

Question 49

________ diversification is when a firm enters a different business that has little horizontal interaction with other businesses of a firm.

A) Horizontal
B) Synergistic
C) Related
D) Unrelated

Question 50

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

A) products use similar distribution channels.
B) value chains of the firm be similar enough in at least one way to allow for the leveraging of the core competencies of the firm.
C) target market is the same, even if the products are very different.
D) methods of production are the same.

Question 51

When a firm diversifies into ________ businesses, the primary potential benefits to be derived come from ________ relationships where value creation is derived from the corporate office.

A) unrelated; hierarchical
B) related; hierarchical
C) related; horizontal
D) unrelated; horizontal

Question 52

Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input into its manufacturing process. This isan example of

A) vertical integration.
B) sharing activities.
C) pooled negotiating power.
D) leveraging core competencies.

Question 53

Vertical integration is more likely to be attractive when the end consumer market is

A) volatile.
B) stable.
C) contracting.
D) fragmented.

Question 54

________ is when the corporate office helps subsidiaries make wise choices in their own acquisitions, divestures, and new ventures, thereby creating value within business units.

A) Parenting
B) Restructuring
C) Leveraging core competencies
D) Increasing market power

Question 55

Diversified public corporations such as Berkshire Hathaway and Virgin Group are examples of companies that create value using

A) deconstruction expertise.
B) parenting expertise.
C) excess personnel.
D) increased market positioning.

Question 56

Casio, a giant electronic products producer, synthesizes it abilities in miniaturization, microprocessor design, material science, and ultrathin precision castings to produce digital watches. It uses the same skills to produce card calculators, digital cameras, and other small electronics. These collective skills are

A) strategic resources.
B) core competencies.
C) shared activities.
D) economies of scope.

Question 57

________ 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, therebycreating value within business units.

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

Question 58

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 new business must have an established large market share.
D) The collection of competencies should be unique, so that they cannot be easily imitated.

Question 59

When a firm diversifies into ________ businesses, the primary potential benefits to be derived come from ________ relationships-those businesses that share intangible and tangible resources.

A) related; hierarchical
B) unrelated; hierarchical
C) related; horizontal
D) unrelated; horizontal

Question 60

A firm should consider vertical integration when

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

Question 61

Which of the following is not a downside of portfolio models used to assist a firm in balancing its portfolio of businesses?

A) Portfolio models compare SBUs on only two dimensions under the assumption that these are the only factors that matter.
B) Portfolio models view each SBU as a stand-alone entity.
C) Portfolio models rely on loose rules regarding resource allocation across the SBUs.
D) The evaluation process risks becoming mechanical and oversimplified.

Question 62

In the BCG Growth Share Matrix, the suggested strategy for stars is to

A) milk them to finance other businesses.
B) invest large sums to gain a good market share.
C) maintain position and after the market growth slows use the business to provide cash flow.
D) not invest in them and to shift cash flow to other businesses.

Question 63

Which of the following is not a way a corporation tries to create shareholder value in using portfolio strategy approaches?

A) Portfolio analysis provides a snapshot of the businesses in the portfolio of the corporation.
B) The expertise and analytical resources in the corporate office provide guidance in determining firm attractiveness for acquisition.
C) The corporate office is not able to provide financial resources to the business units on favorable terms.
D) The corporate office can provide high-quality review and coaching for the individual businesses.

Question 64

________ is when one firm buys another through a stock purchase, cash or the issuance of debt.

A) An acquisition
B) A merger
C) An unrelated diversification
D) A related diversification

Question 65

Asset restructuring involves the sale of ________ assets, or even whole lines of businesses that are peripheral.

A) productive
B) efficient
C) unproductive
D) inefficient

Question 66

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

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

Question 67

The primary means by which a firm can diversify are ________, ________, and ________.

A) mergers and acquisitions; differentiation; overall cost leadership
B) mergers and acquisitions; joint ventures and strategic alliances; internal development
C) joint ventures and strategic alliances; integration of value chain activities; acquiring human capital
D) mergers and acquisitions; internal development; differentiation

Question 68

Portfolio management matrices are applied to what level of strategy?

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

Question 69

Research shows that a key competence of high-performance diversified firms is the ability to

A) hide excess capital.
B) efficiently dispose of excess capital.
C) effectively allocate financial capital.
D) invest internationally.

Question 70

When Cabot Corporation used the BCG matrix to evaluate its carbon black manufacturing business, the model led them to move away from ________ and to diversify into unrelated businesseslisted as stars by the model. This resulted in a decline on return on assets. They eventually returned to carbon black manufacturing and divested the unrelated businesses; their 2016 revenue was 2.4 billion USD.

A) the dog quadrant
B) its core market
C) the question mark quadrant
D) semiconductor manufacturing

Question 71

Management restructuring typically involves changes in the composition of the ________, organizational structure, and reporting relationships.

A) middle management team
B) top management team
C)lower management team
D) board of directors

Question 72

A cash cow, in the BCG framework, refers to a business that has

A) high market growth and relatively high market share.
B) relatively low market share and low market growth.
C) relatively low market share and high market growth.
D) low market growth and relatively high market share.

Question 73

________ is when a new legal entity is formed by a combination or consolidation of two firms.

A) An acquisition
B) A merger
C) An unrelated diversification
D) A related diversification

Question 74

Portfolio models are used to assist a firm in

A) achieving a portfolio of businesses.
B) unbalancing its portfolio of businesses.
C) achieving a balanced portfolio of businesses.
D) generating excess cash.

Question 75

In managing the corporate portfolio, the BCG matrix would suggest that

A) dogs should be invested in to increase market share and become cash cows.
B) stars are in low growth markets and can provide excess cash to fund other opportunities.
C) cash cows require substantial cash outlays to maintain market share.
D) question marks can represent future stars if their market share is increased.

Question 76

Capital restructuring involves changing the ________ mix.

A) cash
B) human resource
C) debt-equity
D) management

Question 77

Common steps in management restructuring include all the following except

A) tight financial control.
B) rewards based on meeting short- to medium-term performance goals.
C) penalties for missing short- to medium-term performance goals.
D) reduction in the number of middle-level managers.

Question 78

Portfolio management frameworks, such as the BCG matrix, share which of the following characteristics?

A) Businesses are plotted on a 3-dimensional grid.
B) Grid dimensions are based on external environments and internal capabilities-market positions.
C) Position in the matrix suggests a need for sharing synergies.
D) They are most helpful in helping businesses develop types of competitive advantage.

Question 79

In the BCG Matrix, a ________ is a business that has a low market share in an industry characterized by high market growth.

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

Question 80

The Marriott International purchase of Starwood Hotels for 13.6 billion USD is an example of a(n)

A) acquisition.
B) divestiture.
C) unrelated diversification.
D) related diversification.