STGY Chapter 6

Question 1

corporate-level strategy

Answer 1

a strategy that focuses on gaining long-term revenue, profits, and market value through managing operations in multiple businesses.

Question 2

diversification

Answer 2

the process of firms expanding their operations by entering new businesses.

Question 3

related diversification

Answer 3

a firm entering a different business in which it can benefit from leveraging core competencies, sharing activities, or building market power.

Question 4

economies of scope

Answer 4

cost savings from leveraging core competencies or sharing related activities among businesses in a corporation.

Question 5

core competencies

Answer 5

a firm’s strategic resources that reflect the collective learning in the organization.

Question 6

sharing activities

Answer 6

having activities of two or more businesses’ value chains done by one of the businesses.

Question 7

market power

Answer 7

firms’ abilities to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment.

Question 8

pooled negotiating power

Answer 8

the improvement in bargaining position relative to suppliers and customers.

Question 9

vertical integration

Answer 9

an expansion or extension of the firm by integrating preceding or successive production processes.

Question 10

transaction cost perspective

Answer 10

a perspective that the choice of a transaction’s governance structure, such as vertical integration or market transaction, is influenced by transaction costs, including search, negotiating, contracting, monitoring, and enforcement costs, associated with each choice.

Question 11

unrelated diversification

Answer 11

a firm entering a different business that has little horizontal interaction with other businesses of a firm.

Question 12

parenting advantage

Answer 12

the positive contributions of the corporate office to a new business as a result of expertise and support provided and not as a result of substantial changes in assets, capital structure, or management.

Question 13

restructuring

Answer 13

the intervention of the corporate office in a new business that substantially changes the assets, capital structure, and/or management, including selling off parts of the business, changing the management, reducing payroll and unnecessary sources of expenses, changing strategies, and infusing the new business with new technologies, processes, and reward systems.

Question 14

portfolio management

Answer 14

a method of (a) assessing the competitive position of a portfolio of businesses within a corporation, (b) suggesting strategic alternatives for each business, and (c) identifying priorities for the allocation of resources across the businesses.

Question 15

acquisitions

Answer 15

the incorporation of one firm into another through purchase.

Question 16

mergers

Answer 16

the combining of two or more firms into one new legal entity.

Question 17

divestment

Answer 17

the exit of a business from a firm’s portfolio.

Question 18

strategic alliance

Answer 18

a cooperative relationship between two or more firms.

Question 19

joint ventures

Answer 19

new entities formed within a strategic alliance in which two or more firms, the parents, contribute equity to form the new legal entity.

Question 20

internal development

Answer 20

entering a new business through investment in new facilities, often called corporate entrepreneurship and new venture development.

Question 21

managerial motives

Answer 21

managers acting in their own self-interest rather than to maximize long-term shareholder value.

Question 22

growth for growth’s sake

Answer 22

managers’ actions to grow the size of their firms not to increase long-term profitability but to serve managerial self-interest.

Question 23

egotism

Answer 23

managers’ actions to shape their firms’ strategies to serve their selfish interests rather than to maximize long-term shareholder value.

Question 24

antitakeover tactics

Answer 24

managers’ actions to avoid losing wealth or power as a result of a hostile takeover.

Question 25

greenmail

Answer 25

a payment by a firm to a hostile party for the firm’s stock at a premium made when the firm’s management feels that the hostile party is about to make a tender offer.

Question 26

golden parachute

Answer 26

a prearranged contract with managers specifying that, in the event of a hostile takeover, the target firm’s managers will be paid a significant severance package.

Question 27

poison pill

Answer 27

used by a company to give shareholders certain rights in the event of a takeover by another firm.