Question 1

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 of the Polaris operating divisions.This is an example of 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) related diversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting.

Accepted Answer

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

Question 2

If a multinational firm fails to effectively integrate their acquisitions,this can result in
A) cost savings.
B) divestiture.
C) expansion.
D) further acquisition.

Accepted Answer

Research shows that a majority of acquisitions of public corporations 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 company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business.

Question 3

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) strategic alliances
C) stockholder enhancement
D) joint ventures

Accepted Answer

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, including acquisitions, strategic alliances, and joint ventures, as well as internal development.

Question 4

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 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 economies of scope by integrating vertically in order to acquire market power.
D) related diversification to acquire market power by integrating vertically.

Accepted Answer

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

Question 5

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 design and produce its miniature card calculators, digital cameras, pocket electronic dictionaries, and other small electronics.

Question 6

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

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 7

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 8

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 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 parenting, restructuring, and financial synergies through corporate 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 9

ConAgra,a diversified food producer,increases its power over suppliers by centrally purchasing huge quantities of packaging materials for all of 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.

Accepted Answer

ConAgra uses pooled negotiating power to enhance market power. They do this to increase their power over suppliers by centrally purchasing huge quantities of packaging materials for all of its food divisions.

Question 10

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 USD 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 11

If a multinational company's motive for the acquisition may have been to enhance executive powers and prestige rather than to improve shareholder return,this can lead to
A) divestiture.
B) cost savings.
C) expansion.
D) acquisition.

Accepted Answer

Research shows that a majority of acquisitions of public corporations result in value destruction rather than value creation. Top executives may not have acted in the best interests of shareholders. That is, the motive for the acquisition may have been to enhance executive powers and prestige rather than to improve shareholder returns.

Question 12

Which of the following is not a reason for merger and acquisition failures?
A) The acquiring company pays 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 13

If a multinational firm is unable to understand how the acquired company's assets would fit with their own lines of business,this can lead to
A) expansion.
B) divestiture.
C) cost savings.
D) acquisition.

Accepted Answer

Research shows that a majority of acquisitions of public corporations 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 company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business.

Question 14

Proctor and Gamble is a large multinational organization that has many business sharing distribution resources.Diversification strategies take advantage of the __________ that exist in their organization.
A) costs
B) employees
C) synergies
D) discontinuities

Accepted Answer

Why should companies even bother with diversification initiatives? The answer, in a word, is synergy, derived from the Greek word synergos, which means working together. Firms can also enhance their market power via pooled negotiating power and vertical integration. For example, Procter and Gamble enjoys many synergies from having businesses that share distribution resources.

Question 15

If a multinational firm paid too high a premium for the common stock of the company,this can lead to
A) expansion.
B) cost savings.
C) divestiture.
D) acquisition.

Accepted Answer

Research shows that a majority of acquisitions of public corporations 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 company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business.

Question 16

An acquisition that results in ______________ indicates that expectations were not met.
A) expansion
B) divestiture
C) cost savings
D) increased sales

Accepted Answer

Many acquisitions ultimately result in divestiture, which is an admission that things did not work out as planned. In fact, some years ago, a writer for Fortune magazine lamented that studies show 33 percent to 50 percent of acquisitions are later divested, giving corporate marriages a divorce rate roughly comparable to that of men and women.

Question 17

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 leveraging pooled negotiating power
B) using related diversification to acquire market power by leveraging core competencies
C) using unrelated diversification to acquire financial synergies through portfolio management
D) using related diversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting

Accepted Answer

They can use unrelated diversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting.

Question 18

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 in 2007.
A) expansion
B) divestiture
C) cost savings
D) acquisition

Accepted Answer

In 2012, Microsoft admitted to a major acquisition mistake when it wrote off essentially the entire 6.2 billion USD it paid for a digital advertising firm, aQuantive, that it purchased in 2007.

Question 19

Novartis,formerly Ciba-Geigy,uses portfolio management to improve many key activities,including resource allocation and reward and evaluation systems.This is an example of using
A) related diversification to achieve value by leveraging pooled negotiating power to attain economies of scope.
B) related diversification to acquire market power by leveraging pooled negotiating power.
C) unrelated diversification to acquire financial synergies through portfolio management.
D) related diversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting.

Accepted Answer

A corporation may diversify into unrelated businesses. Novartis has followed a successful strategy of unrelated diversification. Here, the primary potential benefits are derived largely from hierarchical relationships, that is, value creation derived from the corporate office. Examples of the latter would include leveraging some of the support activities in the value chain. Unrelated diversifiers often benefit from the best practices of sister businesses, even though their products, markets, and technologies may differ dramatically.

Question 20

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.

Accepted Answer

Research shows that a majority of acquisitions of public corporations result in value destruction rather than value creation. At times, the only other people who may have benefited were the shareholders of the acquired firms or the investment bankers who advise the acquiring firm, because they collect huge fees up front regardless of what happens afterward.

Quiz 6: Corporate-Level Strategy: Creating Value Through Diversification

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 of the Polaris operating divisions.This is an example of using

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

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?

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 using

Diversification initiatives include all of the following except

Corporate-level strategy focuses on

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 using

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

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

If a multinational company's motive for the acquisition may have been to enhance executive powers and prestige rather than to improve shareholder return,this can lead to

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

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

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

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

An acquisition that results in ______________ indicates that expectations were not met.

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

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 in 2007.

Novartis,formerly Ciba-Geigy,uses portfolio management to improve many key activities,including resource allocation and reward and evaluation systems.This is an example of using

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