Business Policy Ch5 & Ch6

Which of the following are ways that parent companies create value through their management expertise?

-Providing consulting on business units' acquisitions, divestitures, and new internal development decisions -Improving plans and budgets -Providing central functions such as human resource management and procurement

Industry Life Cycle Stages

1. Introduction 2. Growth 3. Maturity 4. Decline

______ is when firms are in a turnaround situation and aggressively cut administrative expenses and inventories and speed up receivable collections.

Asset and cost surgery

Revenues grow during the growth stage due to which of the following?

The number of repeat customers is increasing. New consumers are purchasing the product.

True or false: Portfolio management tools have been widely used in American corporations.

True

Breakaway Positioning

______ is to offer a product in a different category to create the perception that the product is altogether different.

Antitakeover tactics

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

When a company incorporates more processes toward the original source of raw materials, it is called ______ integration.

backward

Which of the following are antitakeover tactics that managers use?

golden parachute poison pill greenmail

Greensmail

is 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.

Transaction costs

is a perspective where every market transaction involves specific costs.

Companies that implement a related diversification strategy may benefit from which of the following?

leveraging core competencies and sharing activities economies of scope horizontal relationships across different businesses in the diversified corporation

Which of the following are the two types of market power?

pooled negotiating power vertical integration

Which of the following are potential limitations of mergers and acquisitions?

-Competitors can often imitate advantages realized or copy synergies that result from mergers and acquisitions. -There are often many organizational cultural issues that doom any benefits. -Managers sometimes acquire companies because of their ego instead of making a sound business decision. -There is often a high premium for acquiring a company.

Which of the following are potential disadvantages of internal development?

-Firms that diversify through internal development often must develop critical capabilities. -Firms may miss an opportunity due to the process being time-consuming.

Which of the following are limitations with portfolio models like the Boston Consulting Group matrix?

-It can lead to troublesome and overly simplistic prescriptions. -The reliance on "strict rules" regarding resource allocation across business units can be detrimental to a firm's long-term viability. -The symbols themselves (cow, dog, question market, and star) oversimplify a business unit's position in the market.

Which of the following are some problems with using portfolio models?

-The approach views each business unit as a standalone entity that ignores synergy, sharing, etc. -There is a belief that every business unit can be accurately compared on two dimensions. -They compare business units on only two dimensions.

Which of the following statements regarding unrelated diversification are correct?

-The corporate office enhances value by establishing human resource practices and financial controls for each business unit. -Potential benefits are derived from vertical (hierarchical) relationships. -Synergy is created through business units' interactions with the corporate office.

Which of the following are ways that synergy is created through the use of unrelated diversification?

-The parent company restructures the acquired business. -The corporate office adds value by allocating resources throughout the entire corporation to optimize corporate profitability goals. -The corporate office contributes through parenting.

Which of the following issues are related to the takeover premium of a merger or acquisition?

-The premium is often 30% or higher. -Two times out of three the acquiring firm's stock price drops once the deal is made public. -Performance hurdles are increased due to the premium price.

Which of the following are motives for and benefits of using mergers and acquisitions as a strategy?

-They provide a means for companies to enter new market segments. -They are faster than building internal resources from scratch. -They provide the opportunity to attain synergy by leveraging core competencies, sharing activities, and building market power. -They help obtain valuable resources that can help expand product and service offerings.

Which of the following are transaction-related costs, according to the transaction cost perspective?

-costs due to the searching for and purchase of inputs from an outside source -costs associated with monitoring and enforcing the terms of the contract -costs associated with negotiating terms -costs associated with creating the contract

Which of the following are the three main purposes of portfolio management?

-identifying priorities for allocating resources -achieving a better understanding of the competitive position of an overall portfolio of businesses -suggesting strategic alternatives for each of the businesses

Which of the following are ways a firm can achieve the benefits of diversification?

-mergers and acquisitions -internal development -strategic alliances or joint ventures

Which of the following are benefits of vertical integration?

-proprietary access to new technologies -a secured supply of raw materials or distribution channels -simplified procurement and administrative procedures -protection and control over valuable assets

Which of the following are quadrants in the Boston Consulting Group's portfolio matrix?

-question mark -cash cow -dog

Which of the following are objectives that divesting a business can accomplish for the parent?

-raising cash to help fund existing businesses -providing the firm with more resources to spend on attractive alternatives -enabling managers to focus on the firm's core businesses

Which of the following are ways that a company may restructure a newly acquired business unit?

-selling off parts of the business -changing the management -infusing new technology, processes, and reward systems

Which of the following are primary potential benefits of diversification into unrelated businesses?

-the potential of value creation derived from the corporate office -hierarchical relationships

Mergers and acquisitions have been especially popular in high-technology and knowledge-based industries, because ______.

-they help companies to get to market very quickly -they help companies become viable -the industry operates in a highly dynamic environment where changes in the market and technology occur very quickly and unpredictably

Which of the following are goals of reverse positioning?

Allow a product to assume a new competitive position in its category. Move a product from maturity backward into a growth position.

Which of the following are true about cost savings from sharing activities?

Cost savings from sharing activities may come from many sources, including eliminating jobs and facilities. It is the most common type of synergy and easiest to estimate.

Revenues increase during the _________ stage of the industry life cycle as new customers try the product and an ever-increasing number of satisfied customers make repeat purchases.

Growth

Which of the following are among the issues that should be considered in deciding whether to vertically integrate?

How stable is the demand for the company's products or services? Will the vertical integration initiative have potential negative impacts on the firm's stakeholders? Does the company have the necessary competencies to execute the vertical integration strategies? Are suppliers and distributors providing the level of quality and value expected?

True or false: Internal development is often more time-consuming than growing through mergers or acquisitions.

True

True or false: One component of asset and cost surgery for a mature company is to outsource production when market prices are less than in-house production costs.

True

One way to increase negotiating power with suppliers is ______.

for similar business units to work together and pool their raw material procurement

Firms may diversify into related businesses where the primary potential benefits are derived from ______ relationships that allow for sharing tangible and intangible resources.

horizontal

Companies that exit markets need to be aware of ______.

how the exit will affect employees skilled in producing the product & how dropping the product may affect their brand name

While sharing activities may decrease costs, increase revenues, and enhance product differentiation, it sometimes can have an unintended negative effect, such as ______.

lowered perceptions of the product's quality and prestige

Which of the following are strategies that are available in the decline phase?

maintaining exiting harvesting consolidating

Companies that use a consolidation strategy in a declining industry ______.

purchase the best of the surviving firms to enhance their market power, acquire valuable assets, and buy market share

Core competencies

refers to a firm's strategic resources that reflect the collective learning in the organization.

Economies of scope

refers to cost savings from leveraging core competencies or sharing related activities among businesses in the corporation.

Market power

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

Maintaining

refers to keeping a product going without significantly reducing marketing support, technological development, or other investments, in the hope that competitors will eventually exit the market.

JK Industries is a diversified company that has been in business for decades. Its healthcare division has been profitable, but its line of prestige beauty products has been losing money. JK decides to discontinue its line of prestige beauty products and focus its efforts on the healthcare lines that have been most promising. Which strategy is JK using?

selective product and market pruning

Firms pursuing differentiation strategies might engage in ______, such as using a shared order-processing system.

shared activities

An issue that a firm should consider in deciding to vertically integrate is whether ______.

the initiative has potential negative impacts on the firm's stakeholders

Diversification

the process of firms expanding their operations by entering new businesses

What should senior management's primary motivation be for implementing a diversification strategy?

to create shareholder value

The main purpose of a golden parachute is to protect ______.

top managers' income if they lose their jobs due to a hostile takeover

A(n) ______ strategy involves reversing a decline in a company's performance and returning it to growth and profitability.

turnaround

True or false: When transaction costs are lower than administrative costs, vertical integration becomes an attractive strategy.

False

Which of the following are characteristics of products that are in the decline stage?

Competitors often cut their prices. Declining products often take a large share of time and financial resources relative to their worth. Changes in customer tastes or technology decrease product demand.

Firms that sell products in a declining industry are often affected by which of the following competitor actions?

A company's market power may decrease if some of their rivals merge. Prospects are limited if all competitors remain. Sales and profits may increase if one or more competitors exit the industry.

Which of the following is one of the best-known portfolio management frameworks?

Boston Consulting Group's growth/share matrix

Which of the following are two challenges of the introduction stage of the industry life cycle?

Developing the product and finding a way to get users to try it. Generating enough exposure so the product emerges as the "standard" by which all rivals' products are evaluated

Which of the following are true about engaging in internal development?

Difficulties with combining companies' value-chain activities and merging cultures are not an issue. Firms often develop new products or services at relatively lower costs. Value is created by the company internally, thus it does not have to share the wealth with alliance partners.

Which of the following is a firm able to do when it successfully enters a new category with a breakaway product?

It is able to redefine its competition.

Which of the following is an example of how managerial motives can erode value creation?

Managers who act in their own self-interest.

Which of the following statements about growth for growth's sake are correct?

Many high-tech firms have suffered from the negative impact of uncontrolled growth. CEOs often have huge incentives for increasing the size of their firm. CEOs are especially driven to pursue acquisitions.

A firm's core competencies include which of the following?

Marketing diverse products and services Integrating multiple streams of technologies Coordinating diverse production skills

A turnaround strategy is most likely to occur during which of the following industry stages?

Maturity & Decline

is the corporate office's intervention in a new business that substantially changes the assets, capital structure, and/or management of the business unit.

Restructuring

______ is when firms in a turnaround situation discontinue product lines that are either only marginally profitable or are losing money and focus on a few core profitable areas.

Selective product and market pruning

Which of the following statements about shareholders and managers are true?

Shareholders expect managers to act in the best interest of shareholders. Shareholders expect managers to maximize long-term shareholder value. Shareholders expect managers to be rational beings.

Which of the following are criteria that a core competency must meet in order to create value for a corporation?

The core competency must have a part in at least one way in which a corporation's different businesses are similar. The core competency must enhance competitive advantage(s) by creating superior customer value. The core competencies must be difficult for competitors to imitate or find substitutes.

A poison pill is also known as ______.

a shareholder rights plan

Which of the following are examples of the risks of vertical integration?

additional administrative costs associated with managing a more complex set of activities. loss of flexibility resulting from large investments. problems associated with unbalanced capacities along the value chain.

Coordinating the different stages of the value chain that become internalized within the firm results in an increase in ______ costs.

administrative

One reason a company would use a maintaining strategy for a declining stage product would be ______.

because the potential exists to continue to earn revenues and profits.

Sharing activities can potentially provide which of the following two payoffs?

cost savings revenue enhancements

One reason for a company to use a harvesting strategy for a declining product is to ______.

earn as much profit as possible by quickly reducing costs in the value chain's primary and support activities

When managers attempt to shape a firm's strategy to serve their selfish interests rather than maximizing long-term shareholder value, they are guilty of ______.

egotism

Which of the following are examples of piecemeal productivity improvements?

increasing capacity utilization benchmarking specific activities against industry leaders improving employee productivity reengineering business processes

Which of the following are characteristics of the decline stage of the industry life cycle?

increasing price competition falling sales and profits industry consolidation

Which of the following are characteristics of the growth stage?

increasing sales revenues growing competition financing complementary value-chain activities developing brand recognition

Exiting the market

involves dropping the product from a firm's portfolio.

Harvesting

involves obtaining as much profit as possible and requires that costs be reduced quickly.

Consolidation

involves one firm acquiring at a reasonable price the best of the surviving firms in an industry.

Strategic alliance

is a cooperative relationship between two or more firms.

Vertical integration

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

Internal development

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

Merger

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

Divestment

is the exit of a business from a company's portfolio.

Pooled negotiating power

is the improvement in bargaining position relative to suppliers and customers.

Acquisition

is the incorporation of one firm into another through a purchase.

Piecemeal productivity improvements

is when firms in a turnaround situation seek to eliminate costs and improve productivity through small gains that accumulate over a period of time.

Joint venture

is when two or more firms contribute equity to form a new legal entity.

Sharing activities

is when value-chain activities of two or more businesses are performed by only one of the businesses.

Growth for growths sake

is/are a result of managers' actions to grow the size of their firms not to increase long-term profitability but to serve managerial self-interest.

Examples of a gasoline retailer gaining economies of scope by going into alternative sources of fueling vehicles include which of the following?

leveraging its purchasing operations with suppliers leveraging its favorable reputation and staff's expertise sharing unused space or capacity with another business unit

Related diversification

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

Reverse positioning strategy

offer products with fewer product attributes and lower prices, in contrast to the industry tendency to continuously augment products as part of the product life cycle.

Parenting advantage is the ______.

positive contributions of the corporate office to a new business as a result of the expertise and support provided

In addition to preventing a hostile takeover, greenmail ______.

protects the jobs of the target firm's management