Deck 6: Corporate-Level Strategy

Question 1

 Which of the following is the main goal of related diversification?

A) Support failing businesses
B) Understand social values
C) Create strategic flexibility
D) Achieve economies of scope

Answer 1

D

Question 2

 XYZ Company has physical assets that are not being used to full capacity, and it has a strong brand name that it could use to leverage its assets. To grow, XYZ Company will likely pursue 

A) related diversification.
B) single-product diversification.
C) unrelated diversification.
D) vertical integration.

Answer 2

A

Question 3

 Z-Furn is an organization that manufactures and sells office furniture. It maintains a good name in this business and has strong capital resources. The organization decides to purchase a failing food product business in order to tap into the market of that company. Which of the following types of diversification is the firm pursuing?

A) Related diversification
B) Unrelated diversification
C) International diversification
D) Single-product diversification

Answer 3

B

Question 4

 _____ is created when a firm generates sustainable cost savings by combining duplicate activities or deploying underutilized assets across multiple businesses.

A) Value
B) Strategy
C) Synergy
D) Market power

Question 5

 Which of the following questions is addressed by the organizational design of a firm's corporate-level strategy?

A) In what markets and businesses will the firm compete?
B) How will the business units of the firm be aligned?
C) What are the businesses to be acquired?
D) How will the resources of the firm be coordinated?

Question 6

 The ultimate goal of developing a corporate-level strategy is to build

A) employee commitment.
B) a corporate advantage.
C) customer relationships.
D) a wholly owned subsidiary.

Question 7

 Fine Electronics is a corporation that controls all aspects of its business such as extracting raw materials, manufacturing the products, distributing them, and finally marketing to customers. It manages these activities through several business units, where one unit provides inputs to the other. This is an example of

A) unrelated diversification.
B) vertical integration.
C) strategic flexibility.
D) franchising.

Question 8

 Which of the following statements is an advantage of related diversification strategy?

A) Related diversification strategy allows a firm to maintain several businesses that are not connected in any way.
B) The sharing of resources is a key component of developing economies of scope and often increases a firm's competitive advantage.
C) Related diversification strategies often achieve financial economies through the restructuring of business units.
D) Related diversification strategy can allow a sick or dying company to use capital generated in a profitable division to prop it up for a short period of time.

Question 9

 Which of the following is NOT a reason why managers pursue diversification strategies?

A) The opportunity to increase customer loyalty
B) The potential to manage or minimize risk
C) The potential for personal gain
D) The opportunity to leverage core assets or skills between different businesses

Question 10

 The Coca-Cola Company acquired Honest Tea Company, a producer of bottled iced tea beverages. This is an example of

A) unrelated diversification.
B) backward vertical integration.
C) forward vertical integration.
D) related diversification.

Question 11

 Which of the following questions is NOT part of the three-pronged test to identify conditions under which diversification can create shareholder value?

A) What is the cost of entry?
B) How will the business units of the firm be aligned?
C) How attractive is the industry?
D) Will the business be better off?

Question 12

 The scope of a corporate-level strategy focuses on

A) the manner in which activities of the firm will be coordinated.
B) the relationship between business units.
C) the markets and businesses in which the firm will compete.
D) the internal environment affecting a firm's business.

Question 13

 ABC Company wished to acquire EFG Company. An analysis of the merger passed the better-off test but failed the ownership test. The managers of ABC Company should

A) maintain a single-product strategy.
B) enter into a spot contract with EFG Company.
C) seek an alternative arrangement with EFG, such as a strategic alliance.
D) ?outsource work to another company. 

Question 14

 An appliance manufacturer acquires a fruit preserves cannery. This is an example of

A) unrelated diversification.
B) backward vertical integration.
C) forward vertical integration.
D) related diversification.

Question 15

 _____ occurs when one corporation owns business units that make inputs for other business units in the same corporation.

A) Globalization
B) Franchising
C) Vertical integration
D) International diversification

Question 16

 The ultimate goal of an unrelated diversification strategy is usually to

A) create financial economies.
B) support failing businesses.
C) enhance innovation.
D) expand globally.

Question 17

 The distinguishing factor between unrelated and related diversification strategies is that a firm using unrelated diversification strategy

A) has numerous businesses that are linked in some manner.
B) manages several businesses with no reasonable connection.
C) focuses on one specific product, typically in one market.
D) develops core competencies using its resources and capabilities.

Question 18

 In a single-product diversification strategy

A) a firm attempts to develop core competencies in a specific market.
B) a firm owns numerous businesses that are linked in some manner.
C) a firm manages several businesses with no reasonable connection.
D) a firm's main focus is on establishing customer recognition and loyalty.

Question 19

 Foxx Company wished to share resources with Chixx Company. An analysis of their potential relationship passed both the better-off test and the ownership test. The managers of Foxx Company should

A) enter into a partnership with Chixx Company.
B) enter into a joint venture with Chixx Company.
C) enter into a strategic alliance with Chixx Company.
D) purchase a controlling interest in Chixx Company. 

Question 20

 A firm can pass the better-off test in determining the viability of diversification when

A) the price of the acquired firm is low enough to yield a potential return on investment.
B) the total competitive advantage is above and beyond what the two businesses could achieve independently.
C) it acquires extremely high-cost industries.
D) it spends more time on implementation processes.

Question 21

 Firms pursuing related diversification to increase market power are attempting to decrease the price at which they sell their products to levels below the normal prices found in the market.

Question 22

 _____ costs refer to the costs a firm incurs to coordinate activities between business units.

A) Franchising
B) Administrative
C) Outsourcing
D) Transaction

Question 23

 Define diversification and describe its types.

Question 24

 Discuss the results of diversification.

Question 25

 Corporate advantage occurs when a firm maximizes its resources to build a competitive advantage across its various business units.

Question 26

 Define vertical integration and its types.

Question 27

 Firms that have excess capacity or potential in their physical assets or their intangible assets tend to pursue unrelated diversification.

Question 28

 Footflyer Publishing is considering procuring editorial services from outside sources. Which of the following should NOT weigh in Footflyer's decision? 

A) The administrative costs of keeping this function in-house
B) The transaction costs of procuring the outside services
C) The economies of scope achieved through vertical integration with another publisher
D) Possible damage to the firm's core competencies

Question 29

 Footflyer Publishing has had difficulty finding timely press availability with a four-color printer for its magazines. Footflyer should consider

A) backward vertical integration.
B) forward vertical integration.
C) unrelated diversification.
D) ?abandoning print publications.

Question 30

 The ultimate goal of an unrelated diversification strategy is usually to create some form of financial economies.

Question 31

 Transaction costs refer to the costs a firm incurs to coordinate activities between business units.

Question 32

 The management of an automobile manufacturing company signed a contract with a consultancy that provides recruitment services. Though the organization was performing this function on its own previously, the management felt that the consultancy would offer a better service. Which of the following alternatives to vertical integration has the management opted?

A) Franchising
B) Exporting
C) Outsourcing
D) Licensing

Question 33

 According to one key study, a firm's performance decreases as it shifts from single-business strategies to related diversification.

Question 34

 In vertical integration, forward integration occurs when a firm

A) attempts to achieve economies of scope.
B) controls the customers for its main products.
C) owns or controls the inputs it uses.
D) generates sustainable cost savings.

Question 35

 A candy company purchases sugar plantations to guarantee its own supply of sugar. This is an example of

A) unrelated diversification.
B) backward vertical integration.
C) forward vertical integration.
D) backward horizontal integration.

Question 36

 A film production company purchases a television network to guarantee its shows will be aired. This is an example of

A) unrelated diversification.
B) backward vertical integration.
C) forward vertical integration.
D) backward horizontal integration.

Question 37

 In vertical integration, backward integration occurs when a firm

A) owns or controls the inputs it uses.
B) owns the distribution channels for its main products.
C) controls the primary activities involved.
D) controls the customers for its products.

Question 38

 Spot contracts involve a firm's commitment to buy a commodity product at a specific price.

Question 39

 According to one key study, performance increases as firms change from related diversification to unrelated diversification.

Question 40

 Why do managers pursue diversification strategies?