Question 1

The risks of vertical integration include all of the following EXCEPT:

Accepted Answer

The risks of vertical integration include costs and expenses associated with increased overhead and capital expenditures, loss of flexibility resulting from large investments, problems associated with unbalanced capacities along the value chain, and additional administrative costs associated with managing a more complex set of activities.

Question 2

In managing the corporate portfolio,the BCG matrix would suggest that __________.

Accepted Answer

Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Question Marks are SBUs competing in high-growth industries but having relatively weak market shares. Resources should be invested in them to enhance their competitive positions, potentially making them Stars.

Question 3

Vertical integration is attractive when ____________.

Accepted Answer

If transaction costs are higher than administrative costs, that is, those costs incurred when coordinating the activities elsewhere in the value chain, vertical integration becomes an attractive strategy.

Question 4

A Cash Cow,in the BCG framework,refers to a business that has _______________.

Accepted Answer

Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Cash Cows are SBUs with high market shares in low-growth industries. These units have limited long-run potential but represent a source of current cash flows to fund investments in Stars and Question Marks.

Question 5

Portfolio management matrices are applied to what level of strategy?

Accepted Answer

Corporate-level strategy addresses two related issues: what businesses should a corporation compete in and how can these businesses be managed so they create synergy. Portfolio management matrices can be used to improve understanding of the competitive position of a portfolio (or family) of businesses, to suggest strategic alternatives, and to identify priorities for the allocation of resources.

Question 6

Unbalanced capacities that limit cost savings,difficulties in combining specializations,and reduced flexibility are disadvantages associated with ___________.

Accepted Answer

The risks of vertical integration include costs and expenses associated with increased overhead and capital expenditures, loss of flexibility resulting from large investments, problems associated with unbalanced capacities along the value chain, and additional administrative costs associated with managing a more complex set of activities.

Question 7

Creating value within business units can happen when the corporate office helps subsidiaries make wise choices in their own acquisitions,divestures,and new ventures.This is known as ________.

Accepted Answer

Parent companies create value through management expertise. They improve plans and budgets and provide especially competent central functions such as legal, financial, human resource management, and procurement. They also help subsidiaries make wise choices in their own acquisitions, divestitures, and new internal development decisions.

Question 8

Sharing core competencies is one of the primary potential advantages of diversification.In order for diversification to be most successful,it is important that _____________.

Accepted Answer

For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, different businesses in the corporation must be similar in at least one important way related to the core competence. It is not essential that the products or services themselves be similar, but at least one element in the value chain must require similar skills in creating competitive advantage.

Question 9

The primary means by which a firm can diversify are __________,_________,and ________.

Accepted Answer

There are three basic means of diversification: First, through acquisitions or mergers, corporations can directly acquire company assets and competencies. Second, corporations may agree to pool the resources of other companies with their resource base, commonly known as a joint venture or strategic alliance. Third, corporations may diversify into new products, markets, and technologies through internal development.

Question 10

Shaw Industries,a giant carpet manufacturer,increases its control over raw materials by producing much of its own polypropylene fiber,a key input into its manufacturing process.This is an example of ______________.

Accepted Answer

Shaw Industries, a carpet manufacturer, has attained a dominant position in the industry via a strategy of vertical integration. Shaw has successfully implemented strategies of both forward and backward integration.

Question 11

In the BCG Matrix,a business that has a low market share in an industry characterized by high market growth is termed a ____________.

Accepted Answer

Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Question Marks are SBUs competing in high-growth industries but having relatively weak market shares. Resources should be invested in them to enhance their competitive positions.

Question 12

When using a BCG matrix,a business that currently holds a large market share in a rapidly growing market and has minimal or negative cash flow would be known as a __________.

Accepted Answer

Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Stars are SBUs competing in high-growth industries with relatively high market shares. These firms have long-term growth potential and should continue to receive substantial investment funding.

Question 13

A firm should consider vertical integration when ___________.

Accepted Answer

A firm should consider vertical integration if the company is not satisfied with the quality of the value that its present suppliers and distributors are providing.

Question 14

Portfolio management frameworks,such as the BCG matrix,share which of the following characteristics?

Accepted Answer

Portfolio models are overly simplistic, consisting of only two dimensions (growth and market share). They view each business as separate, ignoring potential synergies across businesses.

Question 15

In the BCG Growth Share Matrix,the suggested strategy for Stars is to ________.

Accepted Answer

Stars are SBUs competing in high-growth industries with relatively high market shares. These firms have long-term growth potential and should continue to receive substantial investment funding. When growth slows, they may become Cash Cows themselves.

Question 16

Transaction costs include all of the following costs EXCEPT

Accepted Answer

Transaction costs are the sum of search costs, negotiation costs, contracting costs, monitoring costs, and enforcement costs. These transaction costs can be avoided by internalizing the activity, in other words, by producing the input in-house.

Question 17

When management uses common production facilities or purchasing procedures to distribute different but related products,they are ________________.

Accepted Answer

Corporations can achieve synergy by sharing activities across their business units. These include value-creating activities such as common manufacturing facilities, distribution channels, and sales forces.

Question 18

Creating value within business units can happen when a firm tries to find and acquire either poorly performing firms with unrealized potential or firms in industries on the threshold of significant,positive change.This is action is known as ______.

Accepted Answer

In restructuring, the corporate office tries to find poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. The parent intervenes, often selling off parts of the business; changing the management; reducing payroll and unnecessary sources of expenses; changing strategies; and infusing the company with new technologies, processes, or reward systems.

Question 19

All of the following are limitations (or downsides)of the BCG (Boston Consulting Group)matrix EXCEPT:

Accepted Answer

There are some notable downsides to portfolio models. They compare SBUs on only two dimensions, making the erroneous assumption that those are the only factors that really matter and that every unit can be accurately compared on that basis. The approach views each SBU as a stand-alone entity, ignoring the promise for synergies across business units. The process can become mechanical, substituting an oversimplified graphical model for the important contributions of management judgment. Reliance on strict rules regarding resource allocation across SBUs can be detrimental to long-term viability for the firm. While easy to comprehend, the imagery of the BCG matrix can lead to some troublesome, overly simplistic prescriptions.

Question 20

According to the text,corporate restructuring includes

Accepted Answer

Restructuring can involve changes in assets, capital structure, or management.

Quiz 6: Corporate-Level Strategy: Creatingvalue Through Diversification