Question 1

Case Scenario 2: Jewell Company.
Jewell Company (JC) is a $2 billion diversified manufacturer and marketer of simple household items, cookware, and hardware. In the early 1950s, JC's business consisted solely of manufactured curtain rods that were sold through hardware stores and retailers like Sears. Since the 1960s however, the company has diversified extensively through acquisition into such businesses as paintbrushes, writing pens, pots and pans, and hairbrushes. Over 90 percent of its growth can be attributed to these many small acquisitions, whose performance it improved tremendously through aggressive restructuring and its corporate emphasis on cost-cutting and cost controls. While JC's sixteen different lines of business may appear quite different, they all share the common characteristics of being staple manufactured items and sold primarily through volume retail channels like Wal-Mart, Target, and Kmart. Because JC operates each line of business autonomously (separate manufacturing, R&D, and selling responsibilities for each line), it is perhaps best described as pursuing a related linked diversification strategy. The common linkages are both internal (accounting systems, product merchandising skills, and acquisition competency) and external (distribution channel of volume retailers). JC is presently contemplating the acquisition of Plastico, a $3 billion U.S.-based manufacturer of flexible plastic products like trash cans, reheatable and freezable food containers, and a broad range of other plastic storage containers designed for home and office use. While Plastico has been highly innovative (over 80% of its growth has come from internal new product development), it has had difficulty controlling costs and is losing ground against powerful customers like Wal-Mart. JC believes that the market power it wields with retailers like Wal-Mart will help it turn Plastico's prospects around.
-(Refer to Case Scenario 2) How might JC's related diversification strategy result in economies of scope and market power?

Accepted Answer

The answer of Case Scenario 2: Jewell Company.
Jewell Company (JC)...

Question 2

Case Scenario 1: Syco.
Syco is a diversified company that has six primary lines of business. Fifty percent of its revenues and 18 percent of its profits come from retailing. Most of its retail outlets are discount department stores that serve as anchor tenants for large suburban shopping malls. The remaining businesses are broken out as follows: Insurance accounts for 30 percent of revenues and 50 percent of profits; consumer credit card operations are 6 percent of sales and 17 percent of profits; 5 percent of revenues and 6 percent of profits come from its stock brokerage business; commercial and residential real estate operations generate 4 percent of sales and 8 percent of profits; finally, 5 percent of revenues and 1 percent of profits come from its online portal business. The company's management states that all these businesses are essential to its competitive future.
-(Refer to Case Scenario 1) Why might there be so much variability among the proportion of sales versus profitability contributed by each of the businesses? Does this mean that Syco is more successful in its insurance business than in its retail business?

Accepted Answer

The answer of Case Scenario 1: Syco.
Syco is a diversified...

Question 3

What are the two ways that an unrelated diversification strategy can create value?

Accepted Answer

The answer of What are the two ways that an...

Question 4

What is the effect of a firm's low performance on the pursuit of diversification?

Accepted Answer

The answer of What is the effect of a firm's...

Question 5

Describe the primary reasons a firm pursues increased diversification.

Accepted Answer

The answer of Describe the primary reasons a firm pursues...

Question 6

Differentiate between corporate-level and business-level strategies and give examples of each.

Accepted Answer

The answer of Differentiate between corporate-level and business-level strategies and...

Question 7

Case Scenario 3: Walt Disney Company.
Walt Disney Company is famed for its creativity, strong global brand, and uncanny ability to take service and experience businesses to a higher level. In the 1970s, the company realized nearly 90% of its revenues from its cartoons and the Disneyland theme park in Anaheim, CA. By the beginning of the 21st Century, Disney had not only opened up more parks and ramped up its output of animated films, it had also diversified into many businesses well beyond its traditional core of high-quality cartoon animation and theme parks. For instance, the Disney empire diversified vertically and horizontally into retail (The Disney Store, since licensed to The Children's Place), cruise lines, theaters, motels, and the Disney Press. It also moved into new product offerings such as sports franchises, TV networks (ABC and ESPN) and stations, Miramax, Broadway shows (Beauty and the Beast), and vacation clubs. International growth included EuroDisney and Hong Kong Disney and new releases of TV shows, videos, and movies worldwide. Indeed, while many of Disney's businesses had some tie to Mickey Mouse, only about 28% of total revenues now came directly from its parks.
-(Refer to Case Scenario 3) What level and type of diversification best characterized Disney in the 1970s?

Accepted Answer

In the 1970s, Disney realized nearly 90% of its revenues from its cartoons and the Disneyland theme park in Anaheim, CA, indicating a dominant business diversification strategy.

Question 8

Describe how diversified firms can use activity sharing and transfer of core competencies to create value.

Accepted Answer

The answer of Describe how diversified firms can use activity...

Question 9

Isidore Crocker, CEO of Gotham Engines, is strongly in favor of acquiring Carolina Textiles, a firm in an unrelated industry. Some members of the board of directors are questioning Crocker's motives for the acquisition. They argue that it is not uncommon for CEOs to push for acquisitions because

Accepted Answer

The answer of Isidore Crocker, CEO of Gotham Engines, is...

Question 10

In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify?

Accepted Answer

Economies of scope is a value-creating reason to diversify as it allows the firm to share resources and technology between different business units, resulting in cost savings and improved efficiency. Desire for increased compensation or reduced managerial risk are not necessarily value-creating reasons, while low performance is a reason to address internal issues rather than diversify.

Question 11

Case Scenario 2: Jewell Company.
Jewell Company (JC) is a $2 billion diversified manufacturer and marketer of simple household items, cookware, and hardware. In the early 1950s, JC's business consisted solely of manufactured curtain rods that were sold through hardware stores and retailers like Sears. Since the 1960s however, the company has diversified extensively through acquisition into such businesses as paintbrushes, writing pens, pots and pans, and hairbrushes. Over 90 percent of its growth can be attributed to these many small acquisitions, whose performance it improved tremendously through aggressive restructuring and its corporate emphasis on cost-cutting and cost controls. While JC's sixteen different lines of business may appear quite different, they all share the common characteristics of being staple manufactured items and sold primarily through volume retail channels like Wal-Mart, Target, and Kmart. Because JC operates each line of business autonomously (separate manufacturing, R&D, and selling responsibilities for each line), it is perhaps best described as pursuing a related linked diversification strategy. The common linkages are both internal (accounting systems, product merchandising skills, and acquisition competency) and external (distribution channel of volume retailers). JC is presently contemplating the acquisition of Plastico, a $3 billion U.S.-based manufacturer of flexible plastic products like trash cans, reheatable and freezable food containers, and a broad range of other plastic storage containers designed for home and office use. While Plastico has been highly innovative (over 80% of its growth has come from internal new product development), it has had difficulty controlling costs and is losing ground against powerful customers like Wal-Mart. JC believes that the market power it wields with retailers like Wal-Mart will help it turn Plastico's prospects around.
-(Refer to Case Scenario 2) Why would the acquisition of Plastico be good for JC?

Accepted Answer

The answer of Case Scenario 2: Jewell Company.
Jewell Company (JC)...

Question 12

What are the managerial motives to diversify?

Accepted Answer

The answer of What are the managerial motives to diversify?...

Question 13

Research suggests that _______________has decreased while ___________has increased possibly due to the restructuring that took place in the 1990s and early twenty-first century.

Accepted Answer

The answer of Research suggests that _______________has decreased while ___________has...

Question 14

What are the five categories of businesses based on level of diversification?

Accepted Answer

The answer of What are the five categories of businesses...

Question 15

Case Scenario 1: Syco.
Syco is a diversified company that has six primary lines of business. Fifty percent of its revenues and 18 percent of its profits come from retailing. Most of its retail outlets are discount department stores that serve as anchor tenants for large suburban shopping malls. The remaining businesses are broken out as follows: Insurance accounts for 30 percent of revenues and 50 percent of profits; consumer credit card operations are 6 percent of sales and 17 percent of profits; 5 percent of revenues and 6 percent of profits come from its stock brokerage business; commercial and residential real estate operations generate 4 percent of sales and 8 percent of profits; finally, 5 percent of revenues and 1 percent of profits come from its online portal business. The company's management states that all these businesses are essential to its competitive future.
-Part 1: (Refer to Case Scenario 1) Develop a logical argument that would lead you to describe Syco's diversification type as related linked and another logical argument that Syco's diversification type is related constrained. For both the related linked and for the related constrained arguments, what product, technological, or distribution activities might link these businesses together?
Part 2: Would you describe either of the logical arguments you developed in response to Part 1 as a good corporate strategy?

Accepted Answer

The answer of Case Scenario 1: Syco.
Syco is a diversified...

Question 16

During the 1990s top executives of Titanic, Inc., followed a pattern of aggressive acquisitions and diversification. Now, Titanic is performing poorly and earning below average returns. Lusitania, a large conglomerate firm, is in the final stages of purchasing Titanic. Lusitania has announced that it will fire Titanic's current top executives. The Titanic executives may not be worried about their impending job loss if they

Accepted Answer

Having golden parachutes means that the Titanic executives have a lucrative severance package, which would ease their worries about job loss. Option A (poison pills) is not applicable in this situation. Option C (silver handcuffs) is not relevant as it refers to retaining employees, not firing them. Option D (ironclad contracts) may be helpful in protecting the executives' employment, but it is not mentioned whether or not they have such contracts.

Question 17

Case Scenario 2: Jewell Company.
Jewell Company (JC) is a $2 billion diversified manufacturer and marketer of simple household items, cookware, and hardware. In the early 1950s, JC's business consisted solely of manufactured curtain rods that were sold through hardware stores and retailers like Sears. Since the 1960s however, the company has diversified extensively through acquisition into such businesses as paintbrushes, writing pens, pots and pans, and hairbrushes. Over 90 percent of its growth can be attributed to these many small acquisitions, whose performance it improved tremendously through aggressive restructuring and its corporate emphasis on cost-cutting and cost controls. While JC's sixteen different lines of business may appear quite different, they all share the common characteristics of being staple manufactured items and sold primarily through volume retail channels like Wal-Mart, Target, and Kmart. Because JC operates each line of business autonomously (separate manufacturing, R&D, and selling responsibilities for each line), it is perhaps best described as pursuing a related linked diversification strategy. The common linkages are both internal (accounting systems, product merchandising skills, and acquisition competency) and external (distribution channel of volume retailers). JC is presently contemplating the acquisition of Plastico, a $3 billion U.S.-based manufacturer of flexible plastic products like trash cans, reheatable and freezable food containers, and a broad range of other plastic storage containers designed for home and office use. While Plastico has been highly innovative (over 80% of its growth has come from internal new product development), it has had difficulty controlling costs and is losing ground against powerful customers like Wal-Mart. JC believes that the market power it wields with retailers like Wal-Mart will help it turn Plastico's prospects around.
-(Refer to Case Scenario 2) What difficulties might you expect JC to encounter related to its acquisition of Plastico?

Accepted Answer

The answer of Case Scenario 2: Jewell Company.
Jewell Company (JC)...

Question 18

Which of the following is NOT a governance mechanism that may limit managerial tendencies to over-diversify?

Accepted Answer

Surveillance technologies are not typically used as a governance mechanism to limit managerial tendencies to over-diversify. The other options like the market for corporate control, the Board of Directors, and executive compensation practices are common governance mechanisms that help limit managerial tendencies to over-diversify.

Question 19

Case Scenario 1: Syco.
Syco is a diversified company that has six primary lines of business. Fifty percent of its revenues and 18 percent of its profits come from retailing. Most of its retail outlets are discount department stores that serve as anchor tenants for large suburban shopping malls. The remaining businesses are broken out as follows: Insurance accounts for 30 percent of revenues and 50 percent of profits; consumer credit card operations are 6 percent of sales and 17 percent of profits; 5 percent of revenues and 6 percent of profits come from its stock brokerage business; commercial and residential real estate operations generate 4 percent of sales and 8 percent of profits; finally, 5 percent of revenues and 1 percent of profits come from its online portal business. The company's management states that all these businesses are essential to its competitive future.
-(Refer to Case Scenario 1) What diversification strategy best describes Syco? Assume that retailing, insurance, consumer credit card, stock brokerages, and online portal businesses allow for some transfer of knowledge about consumer behavior including buying and bill-paying habits.

Accepted Answer

Syco's diversification strategy can be described as related linked diversification because its primary lines of business are related through the transfer of knowledge about consumer behavior, such as buying and bill-paying habits. However, they are not directly related to each other in terms of products or services offered, making it a related linked diversification strategy.

Question 20

Case Scenario 2: Jewell Company.
Jewell Company (JC) is a $2 billion diversified manufacturer and marketer of simple household items, cookware, and hardware. In the early 1950s, JC's business consisted solely of manufactured curtain rods that were sold through hardware stores and retailers like Sears. Since the 1960s however, the company has diversified extensively through acquisition into such businesses as paintbrushes, writing pens, pots and pans, and hairbrushes. Over 90 percent of its growth can be attributed to these many small acquisitions, whose performance it improved tremendously through aggressive restructuring and its corporate emphasis on cost-cutting and cost controls. While JC's sixteen different lines of business may appear quite different, they all share the common characteristics of being staple manufactured items and sold primarily through volume retail channels like Wal-Mart, Target, and Kmart. Because JC operates each line of business autonomously (separate manufacturing, R&D, and selling responsibilities for each line), it is perhaps best described as pursuing a related linked diversification strategy. The common linkages are both internal (accounting systems, product merchandising skills, and acquisition competency) and external (distribution channel of volume retailers). JC is presently contemplating the acquisition of Plastico, a $3 billion U.S.-based manufacturer of flexible plastic products like trash cans, reheatable and freezable food containers, and a broad range of other plastic storage containers designed for home and office use. While Plastico has been highly innovative (over 80% of its growth has come from internal new product development), it has had difficulty controlling costs and is losing ground against powerful customers like Wal-Mart. JC believes that the market power it wields with retailers like Wal-Mart will help it turn Plastico's prospects around.
-(Refer to Case Scenario 2) If Jewell Company is able to transfer its competence in cost-cuting and cost controls to Plastico (which has had difficulty controlling costs), it will have achieved the primary means whereby a related linked diversification strategy creates value.

Accepted Answer

The primary means by which a related linked diversification strategy creates value is through transferring related competencies such as cost-cutting and cost controls from one line of business to another. Therefore, if JC is able to transfer its competence in these areas to Plastico, it will have achieved this value-creating mechanism.

Quiz 6: Corporate Level Strategy

What are the two ways that an unrelated diversification strategy can create value?

What is the effect of a firm's low performance on the pursuit of diversification?

Describe the primary reasons a firm pursues increased diversification.

Differentiate between corporate-level and business-level strategies and give examples of each.

Describe how diversified firms can use activity sharing and transfer of core competencies to create value.

Isidore Crocker, CEO of Gotham Engines, is strongly in favor of acquiring Carolina Textiles, a firm in an unrelated industry. Some members of the board of directors are questioning Crocker's motives for the acquisition. They argue that it is not uncommon for CEOs to push for acquisitions because

In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify?

What are the managerial motives to diversify?

Research suggests that _____has decreased while _has increased possibly due to the restructuring that took place in the 1990s and early twenty-first century.

What are the five categories of businesses based on level of diversification?

Which of the following is NOT a governance mechanism that may limit managerial tendencies to over-diversify?