Session 7 - corporate strategy: integration & diversification

Question 1

___ the overacrching plan that defines the scope and direction of a business.

Answer 1

corporate strategy

Question 2

What outlines the industries, products/services, and geographic markets where a company will compete?

Answer 2

corporate startegy

Question 3

the funadamental corporate strategy is choosing “___”

Answer 3

“where to compete”

Question 4

business strategy focuses on “___” within our clients chosen industry

Answer 4

“how to compete”

Question 5

To maintain a competitive edge, a corporate strategy must reinforce a firm’s strategic position, whether it’s through differentiation, cost leadership, or a blend of both. It revolves around three key questions:

Answer 5

1. Which industries should we compete in?
2. How can we add value to our Strategic Business Units (SBUs)?
3. Will diversifying or entering new industries bolster our competition in existing ones?

Question 6

What help managers decide what activities to do in-house (make) versus whhat to obtain from the external market (buy)?
* cost associated with an economic exchange
* can be within or external to a form

Answer 6

transaction cost economics

Question 7

Firm should consider vertical integration, own production of the inputs, and/or own output distribution channels if ___

Answer 7

in-house costs < market costs

Question 8

firm should consider purchasing isntead of making if ___

Answer 8

market costs < in-house costs

Question 9

What could you consider if you dont want to choose between make vs. buy?

Answer 9

strategic alliances

Question 10

what are the 5 strategic alliances?

Answer 10

1. short term contracts
2. long term contracts
3. equity alliances
4. joint ventures
5. parent-subsidiary relationships

Question 11

What strategic alliances is this?

Firm send out RFP, competitive bidding ensues, the buying firm can often demand lower prices

Answer 11

short term contracts

Question 12

What strategic alliances is this?

Licensing enables firms to commercialize intellectual property, and
franchising enables use of trademarks, brands, and goods & services in exchange for a lump sum paid up-front & a percent revenue

Answer 12

long term contract

Question 13

What strategic alliances is this?

one partner taks a partial (fianncial) ownership of another partner

Answer 13

equity alliances

Question 14

What strategic alliances is this?

two or more partnets jointly create & own a new organization

Answer 14

joint ventures

Question 15

What strategic alliances is this?

the most integrated alternativeto performing work in-house. the corporate parent owns the subsidairy and can direct it via command and control. however, the can result in political turf battles and competition for resources

Answer 15

parent-subsidiary relationships

Question 16

When a frm pursuing ___

a firm gets involved in new portions of the value chain.
* attractive when a firm’s suupliers or buyers have too much power over the firm and are becoming increasingly profitable at the firm’s expenses

Answer 16

vertical integration

Question 17

A ___ strategy invovles a firm moving back along the value chain and entering a supplier’s business

Answer 17

backward vertical integration

Question 18

A ___ strategy invovles a firm moving further down it’s industry value chain to enter a buyer’s business.

Answer 18

forward vertical integration

Question 19

these are examples of

• ford motor company created subsidaiiries that provided key inputs to vehicles such as rubber, glass, and metal
• publix or targetr have their own brand on the shelf next to the national brand

Answer 19

backward vertical integration

Question 20

these are examples of

• disney operating more than 300 retail stores that sell merchandise based on disney’s characters and movies

Answer 20

forward vertical integration

Question 21

What are 4 main types of corporate diversification?

Answer 21

1. single business
2. dominant business
3. related diversification
4. unrelated diverisification

Question 22

This is characteristics of

• deries 95% or more of its revenue form one business
• coca-cola, google, meta

Answer 22

single business

Question 23

This is characteristics of

• derives between 70-95% of its revenues form a single business, but pursues at least one other business activity
• harley davidson, nestle, ups

Answer 23

dominant business

Question 24

This is characteristics of

• occurs when form moves into a new industry that has important similarities with the firm’s existing industry or industries
• derives less than 70% of its revenues from a single business activity, but obtains revenues from other lines of business
• disney purchase of ABC

Answer 24

related diversification

Question 25

What are the 2 choices within related diversification strategy?

Answer 25

1. related-linked - all businesses share competencies (amazon & disney) 2. Related constrained - some businesses share competencies (exxon mobile & nike)

Question 26

# This is characteristics of * less than 70% of its revenue come from a single business, and there are few, if any, linkages among its business * Coca-cola purchase columbia pictures

Answer 26

unrelated diversification (conglomerate)

Question 27

Firms engage in related diversification aim to develop and exploit a _____ to become more successful. * Honda applied its engine-building skills int he all-terrain vehicale, lawn mowe4r, and boat motor industries

Answer 27

core competency

Question 28

What do we use to measure the sucess between SBU's, especially if they are in diffrent industries?

Answer 28

BCG Matrix

Question 29

___ is used to help companies analyze their product lines or business units for strategic planning and resource allocation.

Answer 29

BCG Matrix

Question 30

# This is characteristics of what quadrants of the BCG * low market growth rate; low market share * underperforming businesses * low and unstable earnings * neutral or negative cash flows * strategic: harvest/divest

Answer 30

Dogs

Question 31

# This is characteristics of what quadrants of the BCG * low market growth, high market share * earning and cash flows are high and stable * strategic recommendation is to **invest enough** into ____ to **hold** their current position and to avoid having them turn into dogs

Answer 31

cash cows

Question 32

# This is characteristics of what quadrants of the BCG * high market grwoth, high market share * earning are high and either stable or grwoing * strategic recommendation is to** invest sufficient **resources to **hold** the ____ position or even increase investments for future growth

Answer 32

stars

Question 33

# This is characteristics of what quadrants of the BCG * high growth, low market share * consume a lot of cash but bring little in return, at least at the start * problem child -> lose money * have potential to turn into stars * strategy: increase market share or harvest/divest

Answer 33

question marks

Question 34

corporate level strategy adresses where to compete along 3 dimensions:

Answer 34

1. industry value chain - vertical integration 2. products and services - make vs. buy (horizontal integration 3. geography - geographic scope

Question 35

why do firms need to grow?

Answer 35

* increase profits - results in shareholder returns * lower costs - growth enables efficiency * increase market power - fewer competitors, more bargainig power, higher profitability * reduce risk - low performance in one SBU can be compensated by another * motivate management - job security

Question 36

benefits of vertical integration

Answer 36

* lower costs * improves quality * facilitates scheduling and planning * secures critical supplies and distribution channels

Question 37

risks of vertical integration

Answer 37

* increase in costs * reduction in quality * reduce in flexibility * increase in the potential for legal repercussior

Question 38

when does certical integration make sense?

Answer 38

* when there are shortages of raw materials * to enhace the customer's experience

Question 39

# this describe an alternative to vertical integration involves either: * backward integration & relying on others for supplies * forward integration & relying on others for distribution

Answer 39

taper integration

Question 40

# this describe moving one or more internal value chain activities outside the firm's boundaries to other firms in the industry value chain * off-shoring (banking, IT, health care)

Answer 40

strategic outsourcing

Question 41

# this describe increase in: * the variety of products/services a firm offers * the markets/geogrpahic regions in which it competes can be targeted toward: * products * geography * product-market

Answer 41

diversification

Question 42

does corporate diversification indeed lead to superior performance?

Answer 42

yes, if typically it's classified as related diversification

Question 43

____ are the best described as voluntary arrangements between firms that involve the sharing of knowledge, resources, and capabilities with the intent of developing processes, products, or services to lead to competitive advantage

Answer 43

strategic alliance

Question 44

bada llc and bing llc have together invested and created a new organization, bada bing llc, to focus on developing medical diagnostic devices. through this new firm, both companeis are attempting to combine their core competencies to innovate and reduce their risks associated with transaction-specific investments. however, the new organization operates independent of bada and bing. which of the following alternatives to integration does this scenario best illustrate?

Answer 44

joint venture

Question 45

transaction cost economics help managers decide what activities to do in-house vs. what services and products to obtain from the externla market. having been trained at ASI, you immediately recognize this corporate level strategy as:

Answer 45

the make vs. buy decision

Question 46

asi electronics inc. sopurced touch screens required for its tablet computers, cell phones, and televisions from a manufacturer in china. but the demand for such components was high globally, and the supplier could not meet the quality standards of asi. thus asi decided to set up its own unit to develop and manufacture the required touch screens. what does this scenario best illustrate?

Answer 46

backward

Question 47

two wheels inc, a large cologmerate, procures a few component bicycle parts from external suppliers and also manufactures some of the key raw materials in its own subsidiaries. two wheels does not soelly depend on outside distributors to reach its customers. in fact, it has its own retail stores to distribute its products. in this sccenario, which of the following laternatives to vertical integration is twowheel inc... applying?

Answer 47

taper integration

Question 48

you've just been hjired to review susan's corporate level strategy. shje's interested in the concept of forward vertical integration but can't seem to remember what that entails - she asks you to provide her an example that she can drawn upon. you think for a moment and then respond with:

Answer 48

a firm that manufactures and sells car engines to major automobile companies launches its own line of cars

Question 49

crazy cars inc. generate a major portion of its revenues by manufacturing luxury sports cars. however, the company also derives 10% of its annual revenues by selling its sports merchandise that includes apparel, shoes, and other accessories, under the same brand name. which of the following corporate level stratgies best describes crazy car?

Answer 49

dominant business

Question 50

does corporate diversification lead to superior performance?

Answer 50

* high and low levels of diversification = lower performance * moderate levels of diversification = higher firm performance