Question 1

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

Accepted Answer

This high premium offer was necessary for Microsoft to complete a diversification initiative, as the acquisition of LinkedIn would have expanded Microsoft's reach into the social media and professional networking markets, diversifying their business portfolio beyond their traditional software and hardware products.

Question 2

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.

Accepted Answer

When management uses common production facilities or purchasing procedures to distribute different but related products, it is known as sharing activities. This allows for cost savings and efficiency gains by streamlining processes and consolidating resources.

Question 3

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.

Accepted Answer

The risks of vertical integration include costs and expenses associated with increased overhead and capital expenditures, loss of flexibility resulting from large investments, problems associated with unbalanced capacities along the value chain, and additional administrative costs associated with managing a more complex set of activities.

Question 4

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.

Accepted Answer

The text states that corporate restructuring includes capital restructuring, asset restructuring, and management restructuring. Option A is partially correct but does not include management restructuring, while option C includes financial and procurement restructuring which are not mentioned in the text. Option D mentions global diversification, which may or may not be a part of corporate restructuring, but it is not mentioned in the given text about the types of corporate restructuring. Therefore, the correct answer is B.

Question 5

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.

Accepted Answer

Vertical integration is attractive when transaction costs are higher than administrative costs. This means that it is more cost-effective for a company to produce or acquire a product/service in-house rather than to buy it from another entity. Vertical integration helps to reduce the dependency on external suppliers or distributors, which in turn reduces transaction costs such as negotiation, contract development, and coordination. It also allows a company to have more control over quality, delivery, and pricing. Therefore, if transaction costs are higher than administrative costs, vertical integration will be more beneficial for the company.

Question 6

Transaction costs include all the following costs except
A) monitoring costs.
B) negotiating costs.
C) search costs.
D) agency costs.

Accepted Answer

Transaction costs include monitoring costs, negotiating costs, and search costs, but agency costs are not typically included in this category. Agency costs refer to the costs associated with conflicts of interest between principals and agents, and can arise when one party (the agent) is entrusted to make decisions on behalf of another party (the principal). This is a separate concept from transaction costs, which generally refer to the costs associated with completing a transaction or exchange of goods or services.

Question 7

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.

Accepted Answer

Vertical integration typically involves the acquisition of valuable assets, so lack of control over them is not a risk. However, the other options listed, such as increased overhead and administrative costs, imbalanced capacities, and increased complexity, are all risks associated with vertical integration.

Question 8

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

Accepted Answer

Synergies refer to the benefits that come from different parts of a company working together effectively. Proctor and Gamble's diversification strategy takes advantage of the synergies that exist within their organization, allowing them to share resources and expertise across multiple business units.

Question 9

________ 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

Accepted Answer

Unrelated diversification refers to a situation where a firm enters into an entirely different business that has little or no horizontal interaction with other businesses of the firm. In other words, the new business is not related to the existing business of the firm in terms of product lines, markets, technology, or customers. This strategy is aimed at reducing risks associated with operating in a single industry, as well as broadening the firm's revenue base.

Question 10

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.

Accepted Answer

Sharing core competencies requires that the value chain of the firm be similar in at least one way to allow for leveraging of those competencies. This means that the firm should have at least one shared activity or resource that can be utilized across its different businesses, leading to economies of scale and scope. Having similar distribution channels, target markets, or methods of production may not necessarily result in the leveraging of core competencies.

Question 11

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

Accepted Answer

A corporation may diversify into unrelated businesses. Here, the primary potential benefits are derived largely from hierarchical relationships, that is, value creation derived from the corporate office.

Question 12

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.

Accepted Answer

Vertical integration involves a company expanding its control over the supply chain by either owning inputs (backward integration) or owning distribution channels (forward integration). In this case, Shaw Industries is owning its key input, polypropylene fiber, by producing it themselves. This allows them to have more control over their supply chain, potentially increase efficiency and reduce costs.

Question 13

Vertical integration is more likely to be attractive when the end consumer market is
A) volatile.
B) stable.
C) contracting.
D) fragmented.

Accepted Answer

Vertical integration involves owning and controlling different stages of the supply chain, from production to distribution, in order to increase efficiency and reduce costs. This strategy is more suitable for stable consumer markets as the demand is predictable, allowing firms to better forecast their production needs. In volatile, contracting or fragmented markets, firms may struggle to efficiently manage their supply chain and may be better off focusing on their core competencies.

Question 14

________ 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

Accepted Answer

Parenting is the term for corporate office assistance in creating value within business units through acquisition, divestiture, and new ventures. Restructuring refers to changing the organizational structure, leveraging core competencies refers to utilizing strengths in a particular area to gain an advantage, and increasing market power refers to gaining greater influence over the market.

Question 15

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.

Accepted Answer

Diversified public corporations like Berkshire Hathaway and Virgin Group create value through parenting expertise. This means that they invest in and manage a portfolio of companies with the aim of creating synergies and improving overall performance. This approach involves providing support, resources, and strategic guidance to each subsidiary or business unit, which can lead to improved efficiency, innovation, and profitability. By leveraging the skills and capabilities of the different businesses within the portfolio, diversified companies can achieve economies of scale, access new markets, and reduce risk.

Question 16

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.

Accepted Answer

The collective skills that Casio utilizes in producing various small electronics are core competencies. Core competencies are the unique capabilities and resources that a firm possesses and can leverage to gain a competitive advantage in the market.

Question 17

________ 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

Accepted Answer

This is known as restructuring, where a firm acquires other firms or business units in order to create value within its own operations. By identifying poorly performing firms with unrealized potential or industries on the brink of positive change, the firm can improve its own business units and overall performance. Parenting involves managing and overseeing business units once they are acquired, leveraging core competencies involves utilizing a firm's strengths to gain a competitive advantage, and sharing activities involves sharing resources and capabilities between business units. None of these fully match the explanation provided.

Question 18

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.

Accepted Answer

For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, it must meet three criteria:the core competence must enhance competitive advantage by creating superior customer value; different businesses in the corporation must be similar in at least one important way related to the core competence; and the core competencies must be difficult for competitors to imitate or find substitutes for.

Question 19

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

Accepted Answer

When a firm diversifies into related businesses, the primary potential benefits come from horizontal relationships, where those businesses can share intangible and tangible resources. These resources can include technology, marketing, manufacturing processes, and distribution channels, providing economies of scale and scope for the firm. This diversification strategy allows the firm to leverage its existing competencies and capabilities, resulting in a lower risk of failure and a higher probability of success in new markets.

Question 20

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.

Accepted Answer

A firm should consider vertical integration if the company is not satisfied with the quality of the value that its present suppliers and distributors are providing.

Quiz 6: Corporate-Level Strategy Creating Value through Diversification

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.

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

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

According to the text, corporate restructuring includes

Vertical integration is attractive when

Transaction costs include all the following costs except

The risks of vertical integration include all the following except

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.

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

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

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.

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

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

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

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

________ 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.

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?

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 firm should consider vertical integration when