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.

Accepted Answer

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 the individual business units.

Question 2

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

Accepted Answer

Portfolio management helps achieve a better understanding of the competitive position of an overall portfolio of businesses, to suggest strategic alternatives for each of the businesses, and to identify priorities for the allocation of resources.

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.

Accepted Answer

Restructuring is a means by which the corporate office can add value to a business. Here, the corporate office tries to find either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. The parent intervenes, often selling off parts of the business; changing the management; reducing payroll and unnecessary sources of expenses; changing strategies; and infusing the company with new technologies, processes, reward systems, and so forth.

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.

Accepted Answer

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.

Accepted Answer

This statement is false. Both horizontal and hierarchical relationships can bring about various benefits that are not exclusive to each other. Horizontal relationships encourage teamwork, creativity, and innovation, while hierarchical relationships provide structure, clarity in roles, and clear lines of authority. Both types of relationships can coexist and benefit an organization.

Question 6

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

Accepted Answer

Uncontrolled growth can often lead to issues such as lack of focus, financial strain, and decreased efficiency, which can negatively impact high-tech firms. Priceline.com is just one example of a high-tech firm that has experienced these challenges.

Question 7

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

Accepted Answer

Diversification should not be done for the sake of doing it. The company must provide a clear justification for why the diversification will create value for its 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.

Accepted Answer

Greenmail is actually when a company facing a takeover threat buys back its own shares from the potential acquirer at a premium price. This is done to discourage the takeover and protect the control of the company's management.

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.

Accepted Answer

A core competency must create superior customer value and be difficult to imitate in order to provide value and synergy within a corporation.

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.

Accepted Answer

One of the purposes of diversification is to reduce the risk that is inherent in the variability in revenues and profits of a firm over time. If a firm enters new products or markets that are affected differently by seasonal or economic cycles, its performance over time will be more stable. For example, a firm that manufactures lawn mowers may diversify into snow blowers in order to even out its annual sales.

Question 11

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

Accepted Answer

Core competencies are the unique and valuable abilities and characteristics that distinguish a company from its competitors. For a core competency to provide sustainable competitive advantage, it must be difficult for others to imitate or replicate, and there should be no easy substitute for this competency. This makes it a valuable asset for the organization, and thus essential for the organization.

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.

Accepted Answer

Gillette's core competency in research and development led to the development of the Fusion and Mach 3 shaving systems, which created superior customer value.

Question 13

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

Accepted Answer

Despite the potential benefits of portfolio models, there are also some notable downsides. First, they compare SBUs on only two dimensions, making the implicit but erroneous assumption that (1) those are the only factors that really matter and (2) every unit can be accurately compared on that basis.

Question 14

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

Accepted Answer

The Hewlett-Packard and Autonomy merger in 2011 was not a successful merger, as HP later accused Autonomy of accounting fraud, leading to a significant write-down and legal battles.

Question 15

Many acquisitions ultimately result in divestiture.

Accepted Answer

Many companies acquire other companies with the ultimate goal of divesting or selling off certain parts of the acquired company that are not core to their business, or to reduce debt or refocus their strategy. Therefore, many acquisitions do result in divestiture.

Question 16

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

Accepted Answer

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

Question 17

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

Accepted Answer

This statement is incorrect. The sentence should read as an advantage instead of disadvantage. Mergers and acquisitions can enable a firm to rapidly enter new product markets, which can be an advantage.

Question 18

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

Accepted Answer

Strategic alliances and joint ventures can provide a way for firms to access new markets and collaborate on research and development to create and share 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.

Accepted Answer

When firms diversify into unrelated businesses, the primary potential benefits are vertical relationships, i.e., the ability to control the inputs or distribution channels of a product or service. Horizontal relationships are more common in related diversification, where businesses share similarities in products, markets, or technology.

Question 20

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

Accepted Answer

Joint ventures represent a special case of alliances, wherein two (or more) firms contribute equity to form a new legal entity.

Quiz 6: Corporate-Level Strategy Creating Value through Diversification

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.

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

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.

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.

Benefits derived from horizontal and hierarchical relationships are mutually exclusive.

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

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

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

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.

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.

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

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.

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

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

Many acquisitions ultimately result in divestiture.

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

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

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

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

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