CH 6

Question 1

What is the importance of a corporate level strategy?

Answer 1

Must maintain focus on creating value

Question 2

How should diversification create value?

Answer 2

1) Joint Ventures
2) Internal Development
3) Strategic Alliances
4) Mergers and Acquisitions

J.I.S.M

Question 3

What justifies diversification tactics?

Answer 3

The creation of value for shareholders

Question 4

What determines value for shareholders?

Answer 4

Synergy between two or more businesses.

1 + 1 should be greater than 2

Question 5

True or False: Benefits derived from diversification are NOT mutually exculsive

Answer 5

True

Question 6

Related diversification is also called?

Answer 6

Horizontal Relationships

Question 7

Unrelated diversification is also called?

Answer 7

Hierarchical Relationships

Question 8

How are benefits derived from related businesses?

Answer 8

• Sharing core competencies

- Sharing tangible resources (production plants)

Question 9

How are benefits derived from unrelated businesses?

Answer 9

• Corporate Offices (IT and HR)

- Leveraging these activities into the value chain

Question 10

What are the benefits of economies of scope?

Answer 10

• Leverage core competencies
• Share related activities
• Enjoy greater revenues

Question 11

How do related businesses gain market power?

Answer 11

• Pooled negotiating power

- Vertical integration

Question 12

What is economies of scope?

Answer 12

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

Question 13

What is another way a firm can gain revenue?

Answer 13

If both businesses together produce greater revenues than if they were separate (synergy)

Question 14

What is market power?

Answer 14

A firm’s ability to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment

Question 15

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

Answer 15

The similarly required sharing for core competencies must be in the value chain, not in the product

Question 16

How do core competencies create value and synergy?

Answer 16

1) Create superior customer value
2) Value chain elements in separate businesses require the same skills
3) Difficult for competitors to imitate

Question 17

What is included in collective learning?

Answer 17

1) Coordinate diverse production skills
2) Integrate multiple streams of technologies
3) Market diverse products and services

Question 18

True or false: It is essential that products between businesses or similar, not skills.

Answer 18

False. Similar skills are important, not products

Question 19

What are sharing activities?

Answer 19

Activities of two or more businesses’ value chains done by one business

Question 20

What are some tangible value-creating activities?

Answer 20

1) Manufacturing
2) Distribution
3) Sales Forces

Question 21

How does sharing tangible value creating activities provide payoffs?

Answer 21

1) Cost savings

2) Revenue enhancements

Question 22

How can market power raise value and synergy?

Answer 22

1) Pooled negotiating power

2) Vertical integration

Question 23

True or False: Managers must be careful when it comes to negotiating power. Buyers/sellers may retaliate.

Answer 23

True

Question 24

Q. Shaw industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own plastic fiber. This is an example of:

Answer 24

Vertical integration

Question 25

What are the 5 factors to evaluate when considering vertical integration?

Answer 25

1) Quality of services of current sellers/distributors 2) Outsourced activities in value chain that could create more profit 3) Demand stability of product 4) Necessary competencies for vertical integration 5) Will vertical integration be negative to stakeholders?

Question 26

What is transaction cost perspective?

Answer 26

The choice of a transaction's structure is influenced by transactions costs

Question 27

What are transaction costs?

Answer 27

Sum of all market transactions

Question 28

From the transaction cost perspective, when is vertical integration beneficial?

Answer 28

Transaction costs > Admin costs

Question 29

What is the parenting advantage?

Answer 29

Positive contributions of the corporate office to a new business as a result of expertise and support, and not as a result of restructuring

Question 30

What is restructuring?

Answer 30

Intervention in corporate office to change assets, capital, or management

Question 31

What is portfolio management?

Answer 31

Analyzing the competitive position of a portfolio of businesses within a corporation

Question 32

What are five ways of understanding using portfolio management?

Answer 32

1) Suggesting strategic alternatives 2) Identifying allocation of resources 3) Using Boston Consulting Groups matrix 4) Identify strategic acquisitions 5) Provide financial resources

Question 33

What are stars?

Answer 33

Long term growth potential, increased investment

Question 34

What are question marks?

Answer 34

High growth industries with weak market shares, increased investment

Question 35

What are cash cows?

Answer 35

Low growth industries with high market share, source of cash for investments

Question 36

What are dogs?

Answer 36

Weak potential, divest

Question 37

What are some limitations of portfolio models?

Answer 37

1) Two dimensional comparisons 2) Ignores synergies 3) Looking at processing as mechanical 4) Strict allocation rules 5) Overly simplified predictions

Question 38

What are three ways a firm can diversify?

Answer 38

1) Mergers & Acquisitions 2) Joint venture or strategic alliance 3) Internal development

Question 39

What are 5 limitations to mergers and acquisitions?

Answer 39

1) High costs 2) Advantages can be imitated 3) Synergies can be imitated 4) Manager's egos can get in the way 5) Cultural issues

Question 40

Q. Divestment can be a common result of an acquisition. Divesting businesses can accomplish many different objectives. These include:

Answer 40

1) Enabling managers to focus efforts 2) Provide more resources 3) Raising cash