Question 1

Research suggests that _______________has decreased while ___________has increased possibly due to the restructuring that took place in the 1990s and early twenty-first century.
A) forward vertical integration; backward vertical integration
B) backward vertical integration; forward vertical integration
C) related diversification; unrelated diversification
D) unrelated diversification; related diversification

Accepted Answer

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

Question 2

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 3

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 4

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

Accepted Answer

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Question 5

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 6

Compared with diversification based on intangible resources, diversification based on financial resources is:
A) less imitable and less likely to create value on a long-term basis.
B) more imitable and less likely to create value on a long-term basis.
C) less imitable and more likely to create value on a long-term basis.
D) more imitable and more likely to create value on a long-term basis.

Accepted Answer

The answer of Compared with diversification based on intangible resources,...

Question 7

Which of the following resources are more likely to create value in the diversification process?
A) Plant and equipment
B) Tacit knowledge
C) Excess capacity
D) Financial resources

Accepted Answer

Tacit knowledge, or the knowledge and expertise that employees possess, can provide a competitive advantage and contribute to the success of a diversified company. Plant and equipment and excess capacity may not necessarily be relevant or useful in all diversified ventures. Financial resources can be important, but they alone may not create value without the right knowledge and expertise to invest and allocate those resources effectively.

Question 8

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:
A) plan to take poison pills.
B) have golden parachutes.
C) have silver handcuffs.
D) have ironclad contracts.

Accepted Answer

Having golden parachutes means that the executives have employment contracts that provide for significant financial compensation in case they are terminated due to a change in ownership or control of the company. This would give them financial security and may not worry about their impending job loss as they would receive a large sum of money as compensation.

Question 9

The Cherrywood Fine Furniture Company finds itself with excess capacity in its plant and equipment for furniture manufacturing. This excess capacity will be useful in:
A) unrelated diversification.
B) related diversification projects.
C) corporate restructuring.
D) multipoint competition

Accepted Answer

Excess capacity in plant and equipment for furniture manufacturing can be used in related diversification projects, where the company can expand its product lines or enter into related industries. This will enable them to use their existing resources and capabilities to generate additional revenue. Unrelated diversification or corporate restructuring would not necessarily require the use of excess capacity in furniture manufacturing, while multipoint competition refers to a competitive strategy rather than a utilization of excess capacity.

Question 10

The curvilinear relationship of corporate performance and diversification indicates that:
A) dominant-business corporate strategies tend to be higher performing than related constrained or unrelated business strategies.
B) the highest performing business strategy is related constrained diversification.
C) the less related the businesses acquired, the higher performing the organization.
D) none of the strategies consistently outperforms the others.

Accepted Answer

The answer of The curvilinear relationship of corporate performance and...

Question 11

Which of the following is NOT a governance mechanism that may limit managerial tendencies to over-diversify?
A) The market for corporate control
B) The Board of Directors
C) Surveillance technologies
D) Executive compensation practices

Accepted Answer

Surveillance technologies are not typically considered a governance mechanism that limits managerial tendencies to over-diversify. Some examples of other governance mechanisms that may limit over-diversification include the market for corporate control, the Board of Directors, and executive compensation practices. Surveillance technologies may be used to monitor and control various aspects of a company's operations, but their focus is not necessarily on limiting diversification.

Question 12

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?
A) Economies of scope
B) Desire for increased compensation
C) Reduced managerial risk
D) Low performance

Accepted Answer

Economies of scope is a value-creating reason to diversify, as it allows the company to leverage common resources and capabilities across different business units, resulting in cost savings and increased efficiency. Desire for increased compensation and reduced managerial risk are not necessarily value-creating reasons for diversification, and low performance is not a reason for diversification at all.

Question 13

The downside of synergy in a diversified firm is:
A) increasing independence of businesses.
B) the reduction of activity sharing.
C) excessive focus on risky innovation.
D) the loss of flexibility.

Accepted Answer

Synergy in a diversified firm can lead to the loss of flexibility. This is because the firm becomes too reliant on the benefits of integration and may struggle to adapt to changes in the market or adjust its strategy for individual business units. As a result, it can be harder for the firm to respond quickly to new opportunities or challenges, which can reduce its competitiveness and overall performance.

Question 14

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 15

As the threat of corporate failure increases due to relatedness between a firm's business units, firms may decide to:
A) increase the firm's level of retained resources.
B) diversify into less risky environments.
C) reduce the level of diversity in its investments.
D) pursue unproven product lines.

Accepted Answer

Diversifying into less risky environments can help mitigate the risk associated with the relatedness of business units, as it spreads the risk across different markets or industries.

Question 16

Describe the primary reasons a firm pursues increased diversification.

Accepted Answer

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Question 17

Synergy exists when:
A) cost savings are realized through improved allocations of financial resources based on investments inside or outside the firm.
B) two units create value by utilizing market power in their respective industries.
C) firms utilize constrained related diversification to build an attractive portfolio of businesses.
D) the value created by business units working together exceeds the value the units create when working independently.

Accepted Answer

Synergy exists when the combined value created by business units working together is greater than the value those units create when working independently. Therefore, option D is the correct answer. While options A, B, and C may also be strategies that lead to improved performance, they don't necessarily indicate the existence of synergy.

Question 18

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:
A) a successful acquisition will increase the CEO's power over the Board of Directors.
B) making an acquisition is an easier route to increased firm value than is improving the firm's core competencies.
C) higher CEO pay is related to larger organization size.
D) CEOs nearing retirement seek to create empires to continue their legacy.

Accepted Answer

Higher CEO pay is often related to the size of the organization, and acquisitions can increase the size of the company, potentially leading to higher compensation for the CEO.

Question 19

What are the managerial motives to diversify?

Accepted Answer

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

Question 20

Managerial motives to seek diversification include a desire to:
A) improve their marketability to other firms.
B) effectively use corporate resources.
C) provide higher returns to corporate stakeholders.
D) increase their compensation.

Accepted Answer

Managers may seek diversification to increase their compensation, as larger and more complex firms often justify higher executive pay.

Quiz 6: Corporate-Level Strategy

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?

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

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

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

Compared with diversification based on intangible resources, diversification based on financial resources is:

Which of the following resources are more likely to create value in the diversification process?

The Cherrywood Fine Furniture Company finds itself with excess capacity in its plant and equipment for furniture manufacturing. This excess capacity will be useful in:

The curvilinear relationship of corporate performance and diversification indicates that:

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

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?

The downside of synergy in a diversified firm is:

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

As the threat of corporate failure increases due to relatedness between a firm's business units, firms may decide to:

Describe the primary reasons a firm pursues increased diversification.

Synergy exists when:

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:

What are the managerial motives to diversify?

Managerial motives to seek diversification include a desire to: