Question 1

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

Accepted Answer

Corporate-level strategy focuses on gaining long-term revenue, profits, and market value through managing operations in multiple businesses.

Question 2

An advantage of a firm entering into a strategic alliance is that it does not have to share the wealth with its partners.

Accepted Answer

Firms that engage in internal development (like corporate entrepreneurship) capture the value created by their own innovative activities without having to share the wealth with alliance partners or face the difficulties associated with combining activities across the value chains of several firms or merging corporate cultures.

Question 3

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 have many potential advantages. Among these are entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies.

Question 4

Which of the following is not a reason for merger and acquisition failures?
A) The acquiring company pays too high a 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 acquired company assets are poorly integrated into the acquiring company business lines.
D) The acquisition leads to value creation.

Accepted Answer

Research shows that the vast majority of acquisitions result in value destruction rather than value creation. Many large multinational firms have also failed to effectively integrate their acquisitions, paid too high a premium for the common stock of the target company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business. At times, top executives may not have acted in the best interests of shareholders. The motive for the acquisition may have been to enhance the power and prestige of the executive rather than to improve shareholder returns.

Question 5

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. Although top managers lose their jobs, the golden parachute provisions protect their income.

Question 6

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 superb human resource practices and budgeting systems.This is an example of __________________.
A) using related diversification to achieve value by leveraging core competencies to attain economies of scope
B) using related diversification to achieve value by leveraging core competencies to acquire market power
C) using unrelated diversification to achieve value through portfolio management in order to acquire financial synergies
D) using unrelated diversification to achieve value through restructuring and parenting

Accepted Answer

In this case, the corporate office of Cooper Industries adds value to its acquired, unrelated businesses by performing such activities as auditing their manufacturing operations, improving their accounting activities, and centralizing union negotiations. The primary potential benefits of this unrelated diversification strategy are derived largely from hierarchical relationships; that is, value creation derived from the corporate office.

Question 7

One of the obligatory aspects of strategic alliances is the dependence on written contracts to delimit responsibilities and enforce compliance.

Accepted Answer

A strategic alliance is a cooperative relationship between two (or more) firms. Alliances may be either informal or formal, one involving a written contract.

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 an effort by the target firm to prevent an impending takeover. When a hostile firm buys a large block of outstanding target company stock and the target company management feels that a tender offer is impending, they offer to buy the stock back from the hostile company at a higher price than the unfriendly company paid for it.

Question 9

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

Accepted Answer

Core competencies reflect the collective learning in organizations, which is how to coordinate diverse production skills, integrate multiple streams of technologies, and market diverse products and services. In some circumstances, a core competence can create value and provide a viable basis for synergy among the businesses in a corporation. Casio, a giant electronic products producer, synthesizes its abilities in miniaturization, microprocessor design, material science, and ultrathin precision castings to produce digital watches. These are the same skills it applies to the design and production of its miniature card calculators, digital cameras, pocket electronic dictionaries, and other small electronics.

Question 10

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

Accepted Answer

Growth through mergers and acquisitions has been critical to many corporations in a wide variety of high-technology and knowledge-intensive industries. Speed (speed to market, speed to positioning, and speed to becoming a viable company) is critical in such industries. For example, in 2010, Apple acquired Siri Inc. so that they could quickly fully integrate the Siri natural language voice recognition software into iOS, the Apple proprietary operating system.

Question 11

The acquisition of two or more counter-cyclical businesses is an example of using diversification to reduce risk.

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 12

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

Accepted Answer

In recent years many high-tech firms have suffered from the negative impact of their uncontrolled growth. Consider, for example, Priceline.com made an ill-fated venture into an online service to offer groceries and gasoline. A myriad of problems, perhaps most importantly a lack of participation by manufacturers, caused the firm to lose more than $5 million a week prior to abandoning these ventures.

Question 13

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.

Question 14

Among the advantages of acquisitions are the expensive premiums that are frequently paid to acquire a business.

Accepted Answer

There are many potential drawbacks or limitations to merger activity. For example, the takeover premium that is paid for an acquisition typically is very high. Two times out of three, the stock price of the acquiring company falls once the deal is made public. Since the acquiring firm often pays a 30 percent or higher premium for the target company, the acquirer must create synergies and scale economies that result in sales and market gains exceeding the premium price.

Question 15

The Cisco acquisition of Pure Digital Technologies,the parent of the Flip video camera,failed because __________________.
A) Cisco had valuable competencies
B) the Flip division of Cisco was slow and less responsive to market pressures
C) consumers continued to purchase the camera
D) Cisco had good vision of the market

Accepted Answer

In large, widely diversified firms, decision making can become slow and remote to market conditions. Cisco competes in a wide range of markets and had nearly 60 decision making groups in its structure, with several layers separating John Chambers, the CEO of Cisco, from the individual markets. In such a large and diversified firm, the decision making in a small division with only $400 million in sales, 1 percent of the overall sales of Cisco, was not the top priority of corporate managers. Stephen Baker, an analyst with NPD Group, said that Cisco was never really committed to the product. As a result, Flip was slower and less responsive to market pressures than it was when it was an entrepreneurial firm.

Question 16

Diversification initiatives include all of the following except ___________________.
A) mergers and acquisitions
B) strategic alliances
C) joint ventures
D) shareholder development

Accepted Answer

Diversification initiatives, whether through mergers and acquisitions, strategic alliances and joint ventures, or internal development, must be justified by the creation of value for shareholders.

Question 17

McKesson,a large distribution company,sells many product lines such as pharmaceuticals and liquor through its super warehouses.This is an example of ____________.
A) using related diversification to achieve value by sharing activities to create economies of scope
B) using related diversification to achieve value by leveraging core competencies to create market power
C) using unrelated diversification to create value by managing its portfolio to create financial synergies
D) using unrelated diversification to create value by managing its portfolio to create restructuring advantages

Accepted Answer

In this case, McKesson uses related diversification to create value by sharing activities in order to create economies of scope.

Question 18

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.This is an example of _______________.
A) using related diversification to achieve value by pooling negotiating power to achieve market power
B) using related diversification to achieve value by leveraging core competencies to achieve economies of scope
C) using related diversification to achieve value by integrating vertically in order to acquire market power
D) using related diversification to achieve value by integrating vertically in order to attain economies of scope

Accepted Answer

In this case, Shaw Industries uses related diversification to achieve value by integrating vertically in order to acquire market power.

Question 19

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

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 20

An advantage of internal development is that firms do not have to combine activities across the value chains of many companies and merge company cultures.

Accepted Answer

Firms that engage in internal development (like corporate entrepreneurship) capture the value created by their own innovative activities without having to share the wealth with alliance partners or face the difficulties associated with combining activities across the value chains of several firms or merging corporate cultures.

Quiz 6: Corporate-Level Strategy: Creatingvalue Through Diversification

Corporate-level strategy focuses on _____________.

An advantage of a firm entering into a strategic alliance is that it does not have to share the wealth with its partners.

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

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

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.

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 superb human resource practices and budgeting systems.This is an example of __________________.

One of the obligatory aspects of strategic alliances is the dependence on written contracts to delimit responsibilities and enforce compliance.

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

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

The acquisition of two or more counter-cyclical businesses is an example of using diversification to reduce risk.

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

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

Among the advantages of acquisitions are the expensive premiums that are frequently paid to acquire a business.

The Cisco acquisition of Pure Digital Technologies,the parent of the Flip video camera,failed because __________________.

Diversification initiatives include all of the following except ___________________.

McKesson,a large distribution company,sells many product lines such as pharmaceuticals and liquor through its super warehouses.This is an example of ____________.

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.This is an example of _______________.

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?

An advantage of internal development is that firms do not have to combine activities across the value chains of many companies and merge company cultures.