Chapter 6

Question 1

Two key issues with corp-level strategy:

Answer 1

1. in what product markets and businesses should the firm compete?
2. how should corporate headquarters manage those businesses

Question 2

Corporate - Level Strategy

Answer 2

specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets

Question 3

Market Development

Answer 3

moving into different geographic markets

Question 4

Product Development

Answer 4

developing new products and/or significantly improving on existing products

Question 5

Horizontal Integration

Answer 5

acquisition of competitors; horizontal movement at the same point in the value chain

Question 6

Vertical Integration

Answer 6

becoming your own supplier or distributor through acquisition; vertical movement up or down the value chain

Question 7

Corporate-level strategy’s value is ultimately determined by the degree to which:

Answer 7

the businesses in the portfolio are worth more under the management of the company than they would be under any other ownership

Question 8

Diversification

Answer 8

growing into new business areas either related (similar to existing business) or unrelated (different from existing business); allows a firm to create value by productively using excess resources

Question 9

Product Diversification

Answer 9

a primary form of corporate-level strategies; concerns the scope of the markets and industries in which the firm competes

Question 10

Value Creation

Answer 10

low – high levels of diversification

• sharing of resources
• transferring of core competencies
• can destroy value if not careful

Question 11

Low levels of diversification

Answer 11

• single business

- dominant business

Question 12

Single Business

Answer 12

95% or more of revenue comes from a single business

Question 13

Dominant Business

Answer 13

between 70% and 95% of revenue comes from a single business

Question 14

Moderate to high levels of diversification

Answer 14

• related constrained

- related linked

Question 15

Related Constrained

Answer 15

less than 70% of revenue comes from the dominant business, and all businesses share product, technological, and distribution linkages

Question 16

Related Linked

Answer 16

less than 70% of revenue comes from a business, and there are only limited links between businesses

Question 17

Very high levels of diversification

Answer 17

• unrelated

Question 18

Unrelated

Answer 18

less than 70% of revenue comes front the dominant business, and there are no common links between businesses

Question 19

A firm is related through its diversification when its businesses share links across:

Answer 19

• products
• technologies
• distribution channels

Question 20

The more links among businesses, the more _______ is the relatedness of diversification

Answer 20

constrained

Question 21

Value creating diversification

Answer 21

• economies of scope
• market power
• financial economies

Question 22

Value neutral diversification

Answer 22

antitrust regulation, tax laws, low performance, uncertain future cash flows, risk reduction, tangible, and intangible resources

Question 23

Value reducing diversification

Answer 23

• diversifying managerial employment risk

- increasing managerial compensation

Question 24

Value creating diversification strategies

Answer 24

Operational relatedness & Corporate relatedness

Question 25

Low operational and corporate relatedness

Answer 25

Unrelated diversification

Question 26

High corporate and low operational

Answer 26

related linked

Question 27

High operational and low corporate

Answer 27

related constrained

Question 28

High corporate and operational

Answer 28

harry potter (disney)

Question 29

Corporate Relatedness

Answer 29

transferring core competencies into businesses

Question 30

Operational Relatedness

Answer 30

sharing activities between businesses

Question 31

Firm creates value by building upon or extending:

Answer 31

- resources - capabilities - core competencies

Question 32

Purpose for value creating

Answer 32

gain market power relative to competitors

Question 33

Competency for value creating

Answer 33

economies of scope

Question 34

Economies of Scope

Answer 34

Cost savings that occur when a firm transfers capabilities and competencies developed in one of its businesses to another of its businesses (cost/unit decreases based on your scope)

Question 35

Backward Integration

Answer 35

a firm produces its own inputs

Question 36

Forward Integration

Answer 36

a firm operates its own distribution

Question 37

Virtual Integration

Answer 37

suppliers have access to real-time info (WalMart w/ P&G)

Question 38

Diseconomies

Answer 38

increasing the cost/unit with the amount you are producing because you are doing too much

Question 39

Unrelated diversification creates value through two types of financial economies

Answer 39

- cost savings realized through improved allocations of financial resources - restructuring of acquired assets

Question 40

Conglomerate discount

Answer 40

results from analysts not knowing how to value a vast array of large businesses with complex financial reports (stocks sell for less)

Question 41

Achilles' Heel

Answer 41

Financial economies are more easily duplicated by competitors than are gains from operational and corporate relatedness

Question 42

Restructuring of Assets

Answer 42

- may create financial economies | - resource allocation decisions may become complex

Question 43

External Incentives to Diversify

Answer 43

- antitrust regulations | - tax laws

Question 44

Internal Incentives to Diversify

Answer 44

- low performance - uncertain future cash flows - synergy and firm risk reduction

Question 45

Diversification may be defensive strategy if the:

Answer 45

- product line matures - product line is threatened - firm is small and is in a mature or maturing industry

Question 46

A firm must have both:

Answer 46

- incentives to diversify | - the resources required

Question 47

Managerial Opportunism

Answer 47

the manager takes advantage of an opportunity to benefit themselves at the expense of the firm

Question 48

Managerial motives to diversify

Answer 48

- managerial risk reduction | - desire for increased compensation