Deck 13: Implementing Corporate Strategy: Managing the Multibusiness Firm

Question 1

The mechanisms through which the corporate headquarters exercises control over individual businesses can be classified into "input control" and "output control." Performance management systems represent a form of "input control."

Answer 1

False

Question 2

For conglomerate companies (companies that comprise unrelated businesses) portfolio management is likely to be more important source of value creation than in a diversified company that comprises closely-related businesses.

Answer 2

False

Question 3

The axes of the BCG and GE/McKinsey business portfolio matrixes represent the two fundamental sources of profitability for a business: the attractiveness of its industry and its competitive advantage.

Answer 3

True

Question 4

.The GE/McKinsey portfolio planning matrix is less sophisticated than the BCG growth-share matrix, but is easier to apply.

Question 5

Typically, a common corporate identity and well-established corporate systems means that there are few barriers to transferring best practices between business units within a company.

Question 6

Most multibusiness companies have a dual planning process: strategic planning focuses on the short and medium term, financial planning on the medium to long term

Question 7

In large multibusiness, multinational companies shared service organizations are almost always located close to their corporate headquarters.

Question 8

Sharing resources and activities between business units can often impose costs which exceed the value of the synergies gained.

Question 9

The closer the linkages between the business units of a multibusiness corporation, the more involved must corporate management be in coordinating across the businesses.

Question 10

According to Jack Welch, the advantages of focus that single business companies possess are outweighed the advantage that multibusiness companies possess in terms of their ability to share the ideas from many different sources.

Question 11

Within a multidivisional company, "portfolio management" involves managing the linkages among the businesses in order to exploit the synergies between them.

Question 12

A key challenge for the strategic planning systems of large corporations is reconciling top-down strategic leadership with bottom-up strategy initiatives.

Question 13

The Ashridge portfolio display is distinguished by the fact that it takes account of fit between each business and the corporate owner.

Question 14

If corporate management focuses heavily upon enforcing financial performance targets on its individual businesses, this increases the need for corporate management to guide the strategic plans of the individual businesses.

Question 15

Implementing corporate strategy mainly involves the relationships between the corporate headquarters and the individual businesses.

Question 16

Multibusiness corporations with close linkages between their businesses tend to have smaller corporate headquarters than multibusiness corporations with more independent businesses.

Question 17

Increasingly, the corporate headquarters of multibusiness companies are being divided into two parts: that which exerts financial and strategic control over the businesses and that which provided common services to the businesses.

Question 18

Corporate management systems based upon financial targets and budgetary controls tend to work best in multibusiness companies with relatively few, closely-related, technology-intensive businesses

Question 19

The strategic planning systems of multibusiness corporations have been criticized for the fact that they do not make strategy.

Question 20

"Restructuring" is a corporate strategy that involves acquiring companies then intervening to cut costs, divest assets, revise competitive strategies, and adjust financial structure.
{see pp.323-324]

Question 21

The success of Berkshire Hathaway over the past five decades under the leadership of Warren Buffett may be attributed primarily to:

A)Warren Buffett's ability to guide strategic decisions at each of Berkshire Hathaway's subsidiaries
B)Acquiring well-managed companies in attractive industries, then exerting rigorous discipline in allocating capital among them
C)Acquiring poorly-performing companies at bargain prices, turning around their performance, then divesting them at high prices
D)All of the above

Question 22

The concept of "parenting advantage" is best summarized by the following statement:

A)Corporate managers should emulate the role and skills of good parents in disciplining their children
B)The primary criterion for a company's continued ownership of a business is its ability to add more value than any alternative corporate parent
C)The primary role of corporate management is to coach business management
D)The ultimate measure of success for a multibusiness company is to develop successful new businesses

Question 23

The development of portfolio planning techniques at the end of the 1960s was initiated by:

A)The Rand Corporation
B)General Electric
C)Michael Porter
D)Peter Drucker

Question 24

A major limitation of the BCG matrix in guiding corporate strategy is:

A)The assumption that each business has synergistic links with every other business within the portfolio
B)Business' market shares and growth rates are difficult to measure
C)Neither market growth nor relative market share are reliable indicators of a businesses' future profitability
D)Its long history renders it obsolete.

Question 25

By separating their corporate headquarters into a corporate management unit and a shared services organization, large corporations anticipate the following benefits:

A)Better exploitation of synergy among the business units
B)Economies of scale and greater responsiveness to user needs in supplying services to the business units
C)Ensure standardization in the support services provided to business units
D)Encourage the identification and transfer of best practices.

Question 26

Portfolio planning techniques, (also called portfolio matrixes), contribute to the following corporate management function:

A)Allocating resources among businesses
B)Selecting diversification opportunities
C)Formulating competitive strategies for individual businesses
D)Establishing performance targets for each business

Question 27

The record of most large, mature corporations in developing new businesses is poor.

Question 28

The axes of the BCG and GE/McKinsey portfolio planning matrices act as proxies for two key strategic variables:

A)Market share and market growth
B)Competitive advantage and market growth
C)Competitive advantage and market attractiveness ○
D)Individual business unit performance and potential for synergy.

Question 29

As boards of directors have become increasingly preoccupied with compliance issues, they have become less effectives in guiding the strategies of the companies they oversee.

Question 30

Besides managing the overall corporate portfolio of businesses, corporate management can add value to individual businesses by:

A)Managing the individual businesses, exploiting linkages between them, and managing change.
B)Developing and managing corporate-level capabilities
C)Designing strategic orientations, and developing detailed operational plans for each business
D)Communicating the strategic orientations to the main stakeholders, and managing conflicts at lower divisional levels

Question 31

Mintzberg identified a key rigidity of the multidivisional firm is its tendency to impose standardized management systems across all of its divisions.

Question 32

The principal merit of the BCG portfolio planning matrix is:

A)Its accuracy in predicting profit and cash flow potential
B)Its empirical basis: the relationship between market share and profitability has been widely observed
C)Its simplicity
D)Its use of metaphor (dogs, cash cows, stars, etc.)

Question 33

The fundamental issue that Implementing corporate strategy addresses is:

A)How the multibusiness company can best create value for its different businesses
B)Where the firm should be competing
C)Managing the business portfolio
D)Exploiting linkages among the different businesses.

Question 34

The main purpose of a portfolio planning matrix is to:

A)Locate potential synergies between businesses
B)Forecast the future performance of the different businesses
C)Evaluate the group's market positioning of its different products relative to its leading competitors
D)Represent graphically the different businesses in terms of key strategic variables that determine their potential for profit

Question 35

Managing linkages among businesses through transferring skills and sharing resources would appear to offer greater potential for creating value than portfolio management because:

A)Economies of scope have a greater impact on profitability than industry attractiveness
B)The size of acquisition premiums means that acquisitions typically destroy value for the acquirer
C)Increasingly efficient capital markets limit the potential either to acquire undervalued companies or to create value through internal capital allocation among businesses
D)Stock markets apply a conglomerate discount to highly diversified companies

Question 36

A strategic inflection point is a point where major changes in a firm's competitive environment require a complete change of strategy

Question 37

What are the two dimensions of the Ashridge portfolio display?

A)The relative organizational power of the parent, and the business's innate profitability
B)The parent's potential to add value to a business, and its potential to impose effective control on the business
C)The parent's potential to create value and to destroy value in a business
D)The cultural fit between the parent and the business.

Question 38

Although sharing resources among the different businesses within the multibusiness corporation can offer substantial cost economies, these savings are often offset by:

A)Internal conflicts between divisional managers
B)The need for each business to have resources and facilities that are specialized to its own requirements
C)The costs of coordinating such resource sharing
D)The unwillingness of each business to pay for the maintenance of common resources.

Question 39

The primary purpose of the "Ashridge portfolio display" is to:

A)Evaluate the potential for a corporate parent to add value to its individual businesses
B)Appraise the performance of each individual business under the corporate umbrella
C)Benchmark the strategic position of individual businesses in relation to one another
D)Identify businesses that are candidates for divestment.

Question 40

Evidence that companies make only minor changes in their allocation of capital expenditure among their businesses from year to year supports Oliver Williamson's argument that multidivisional structures (the "M-form") permit more rationale, less politicized decision making at the corporate level.

Question 41

IBM and Samsung Electronics are examples of large, mature corporations that have:

A)Sustained their positions as two of the world's most innovative companies in terms of patents awarded and new products launched
B)Developed corporate systems that promote large-scale strategic change and the development of major new areas of businesses
C)Demonstrate the potential of large established companies rich in complementary resources to outperform technology-based start-ups
D)Demonstrate that strong leadership and centralized decision making is the key to corporate success during turbulent times.

Question 42

The corporate headquarters of diversified companies that comprise loosely-related businesses (e.g.Berkshire Hathaway, Danaher, Jardine Matheson, and the Tata Group) differ from the corporate headquarters of closely-related business (e.g.Royal Dutch Shell, IBM, BASF, and Unilever) in the following way:

A)They are more inclined to intervene in the management of their business units
B)They are more oriented towards stakeholder rather than shareholder objectives
C)They are more focused upon creating shareholder value
D)They are smaller

Question 43

A major disadvantage of legislation to improve corporate governance by imposing more stringent reporting requirements on public companies and increasing the penalties that directors face for negligence and misconduct is:

A)Preoccupation with compliance means that boards of directors offer less strategy guidance
B)More companies are choosing to go private
C)Fewer qualified individuals are willing to become board members
D)Increased regulation reinforcing the male domination of corporate boards

Question 44

The changes in the ways in which CEOs and senior executives have been compensated in recent decades, particularly the growth of share options and performance incentives have:

A)Done much to align the interests of top management with those of shareholders
B)Provided major incentives for CEOs to manipulate and mis-report financial performance
C)Greatly boosted compensation while doing little to align the interests of CEOs and shareholders
D)Helped t ensure that market forces determine executive compensation

Question 45

Which of the following is not a key difference between a multidivisional company and a holding company?

A)Multidivisional companies have a centralized treasury; holding companies do not
B)The parent of a holding company appoints the boards of directors of its subsidiaries; the HQ of a multidivisional company directly appoints divisional managers
C)The subsidiaries of a holding company are responsible for their own financing decisions; the divisions of a multidivisional company need only to consider their credit ratings
D)Multidivisional corporations typically have a single, integrated strategic planning process; holding companies do not.

Question 46

Corporate governance is:

A)The way a firm is organized
B)The way a firm makes decisions
C)The system by which the top management of a firm is directed and controlled
D)The way a firm appoints and replaces its CEO

Question 47

Oliver Williamson said two main corporate governance advantages of the multidivisional structure ("M-form") for large, diversified companies were:

A)Allowing decision-making to be decentralized while centralizing high-frequency decision making
B)Allowing decision-making to be decentralizing while centralizing strategic decision making
C)Creating competitive internal capital market in which capital allocation is not dominated by political consideration and creating a corporate headquarters that can represent shareholder interests
D)Ensuring that the divisional managers were dependent on capital allocation at the corporate level

Question 48

The failure of companies such as Enron, WorldCom, Royal Bank of Scotland, and Kaupthing Bank of Iceland illustrate:

A)The hazards of growth through acquisition
B)The ineffectiveness of most company boards of directors
C)The potential for companies to be vehicles for the personal ambitions of chief executives
D)How easily the stock market is fooled by ambitious, visionary CEOs

Question 49

Corporate management can enhance the performance of its individual businesses through imposing corporate systems for performance management and resource allocation, however, the main downside of such corporate intervention is:

A)Constraining innovation
B)Undermining autonomy and motivation of business-level managers
C)Limiting opportunities for exploiting synergies between businesses
D)Requiring an excessive focus on shareholder interests over the interests of other stakeholders

Question 50

The principal mechanisms through which the corporate headquarters seeks to improve the strategic and operational management of its businesses are:

A)Management development activities
B)Providing corporate services
C)Creating strong financial incentives for business unit managers
D)Direct involvement in business-level management, strategic planning, and performance management and financial control

Question 51

The type of corporate strategy through which most leading private equity groups such as Carlyle Group, Kohlberg Kravis Roberts, and Blackstone add value to the businesses they acquire is best described as:

A)Portfolio management
B)Restructuring
C)Transferring skills
D)Sharing resources