Chapter 6 - BUS 195 Exam 2

At Cooper Industries, there are few similarities in the products it makes or the industries in which it completes. The corporate office adds value through such activities as superb human resource practices and budgeting systems. This is an example of __________________. A. using related diversification to achieve value by leveraging core competencies to attain economies of scope B. using related diversification to achieve value by leveraging core competencies to acquire market power C. using unrelated diversification to achieve value through portfolio management in order to acquire financial synergies D. using unrelated diversification to achieve value through restructuring and parenting

D. using unrelated diversification to achieve value through restructuring and parenting

A car manufacturer controls its own system of dealerships to ensure retail outlets for its products. This is an example of backward integration.

False

Through joint ventures, firms can directly acquire the assets and competencies of other firms.

False

When firms diversify into related businesses, the primary potential benefits come from horizontal relationships, which are businesses sharing intangible and tangible resources.

False

28. McKesson, a large distribution company, sells many product lines such as pharmaceuticals and liquor through its super warehouses. This is an example of ____________. A. using related diversification to achieve value by sharing activities to create economies of scope B. using related diversification to achieve value by leveraging core competencies to create market power C. using unrelated diversification to create value by managing its portfolio to create financial synergies D. using unrelated diversification to create value by managing its portfolio to create restructuring advantages

A. using related diversification to achieve value by sharing activities to create economies of scope

Which of the following statements regarding internal development as a means of diversification is FALSE? A. Many companies use internal development to extend their product or service offers. B. An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services. C. The firm is able to capture wealth created without having to share the wealth with alliance partners. D. Firms can often develop products or services at a lower cost, if they rely on their own resources instead of external funding.

B. An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services.

The primary means by which a firm can diversify are __________, _________, and ________. A. mergers and acquisitions; differentiation; overall cost leadership B. mergers and acquisitions; joint ventures and strategic alliances; internal development C. joint ventures and strategic alliances; integration of value chain activities; acquiring human capital D. mergers and acquisitions; internal development; differentiation

B. mergers and acquisitions; joint ventures and strategic alliances; internal development

The Cisco acquisition of Pure Digital Technologies, the parent of the Flip video camera, failed because __________________. A. Cisco had valuable competencies B. the Flip division of Cisco was slow and less responsive to market pressures C. consumers continued to purchase the camera D. Cisco had good vision of the market

B. the Flip division of Cisco was slow and less responsive to market pressures

Vertical integration is attractive when ____________. A. internal administrative costs are higher than transaction costs B. transaction costs are higher than internal administrative costs C. transaction costs and internal administrative costs are equal D. search costs are higher than monitoring costs

B. transaction costs are higher than internal administrative costs

In the BCG Matrix, a business that has a low market share in an industry characterized by high market growth is termed a ____________. A. Star B. Cash Cow C. Question Mark D. Dog

C. Question Mark

An antitakeover tactic in which existing shareholders have the option to buy additional shares of stock at a discount to the current market price is called ______. A. greenmail B. a golden parachute C. a poison pill D. scorched earth

C. a poison pill

Divesting of businesses can accomplish many different objectives, except _______. A. enabling managers to focus their efforts more directly on the core businesses of the firm B. providing the firm with more resources to spend on more attractive alternatives C. dispersing manager focus D. raising cash to help fund existing businesses

C. dispersing manager focus

The risks of vertical integration include all of the following EXCEPT: A. costs and expenses associated with increased overhead and capital expenditures. B. problems associated with unbalanced capacities along the value chain. C. lack of control over valuable assets. D. additional administrative costs associated with managing a more complex set of activities.

C. lack of control over valuable assets.

In the BCG Growth Share Matrix, the suggested strategy for Stars is to ________. A. milk them to finance other businesses B. invest large sums to gain a good market share C. maintain position and after the market growth slows use the business to provide cash flow D. not invest in them and to shift cash flow to other businesses

C. maintain position and after the market growth slows use the business to provide cash flow

According to Michael Porter, there is a tremendous allure to _________. It is the big play, the dramatic gesture. With one stroke of the pen you can add billions to size, get a front-page story, and create excitement in markets. A. strategic alliances and joint ventures B. internal development C. mergers and acquisitions D. differentiation strategies

C. mergers and acquisitions

Creating value within business units can happen when a firm tries to find and acquire either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. This is action is known as ______. A. parenting B. leveraging core competencies C. restructuring D. sharing activities

C. restructuring

When management uses common production facilities or purchasing procedures to distribute different but related products, they are ________________. A. building on core competencies B. achieving process gains C. sharing activities D. using portfolio analysis

C. sharing activities

For a core competence to be a viable basis for the corporation strengthening a new business unit, there are three requirements. Which one of the following is not one of these requirements? A. The competence must help the business gain strength relative to its competition. B. The new business must be similar to existing businesses to benefit from a core competence. C. The collection of competencies should be unique, so that they cannot be easily imitated. D. The new business must have an established large market share.

D. The new business must have an established large market share.

Portfolio management matrices are applied to what level of strategy? A. departmental level B. business level C. international level D. corporate level

D. corporate level

Antitakeover tactics include all of the following EXCEPT _________. A. greenmail B. poison pills C. golden parachutes D. golden handcuffs

D. golden handcuffs

Cooperative relationships such as __________ have potential advantages such as entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies. A. joint ventures B. mergers C. acquisitions D. joint ventures and strategic alliances

D. joint ventures and strategic alliances

A Cash Cow, in the BCG framework, refers to a business that has _______________. A. high market growth and relatively high market share B. relatively low market share and low market growth C. relatively low market share and high market growth D. low market growth and relatively high market share

D. low market growth and relatively high market share

A firm should consider vertical integration when ___________. A. the competitive situation is highly volatile B. customer needs are evolving C. the suppliers of the firm willingly cooperate with the firm D. the suppliers of raw materials to the firm are often unable to maintain quality standards

D. the suppliers of raw materials to the firm are often unable to maintain quality standards

Core competencies do not create value in a business.

False

Corporate-level strategy focuses on gaining short-term revenue through managing operations in multiple businesses.

False

Economies of scope are cost savings from leveraging core competencies or sharing unrelated activities among businesses in a corporation.

False

Greenmail is an offer by a company, threatened by takeover, to offer its stock at a reduced price to a third party.

False

If a corporation is to achieve synergy by sharing activities across its business units, it is not important to compromise on the design or performance of an activity that is to be shared.

False

It is not necessary for a core competence to be difficult to imitate or to be nonsubstitutable.

False

One of the obligatory aspects of strategic alliances is the dependence on written contracts to delimit responsibilities and enforce compliance.

False

The Hewlett-Packard and Autonomy merger in 2011 is an example of a successful merger.

False

The two principal means by which firms achieve synergy through market power are pooled negotiating power and corporate parenting.

False

Corporate-level strategy focuses on _____________. A. gaining long-term revenue B. gaining short-term profits C. decreasing business locations D. managing investment bankers and their interests

A. gaining long-term revenue

Vertical integration is attractive when market transaction costs are higher than internal administrative costs.

True

Although acquiring related businesses can enhance the bargaining power of a corporation, there is a risk of retaliation by competitors that can result in a diminishing of the desired bargaining power.

True

An advantage of internal development is that firms do not have to combine activities across the value chains of many companies and merge company cultures.

True

An advantage of mergers and acquisitions is that they can enable a firm to rapidly enter new product markets.

True

At times, the only other people who may have benefited from a merger-acquisition were the shareholders of the acquired firms.

True

Diversification initiatives must be justified by the creation of value for shareholders.

True

Gillette developed the Fusion and Mach 3 shaving systems that created superior customer value as a result of their core competency in research and development.

True

Portfolio management matrices generally consist of two axes that reflect industry or market growth and the market share of a business.

True

Related diversification enables a firm to benefit from horizontal relationships across different businesses in the diversified corporation by leveraging core competencies and sharing activities.

True

Restructuring requires the corporate office to find either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change.

True

Sharing activities across business units can provide two primary benefits: cost savings and revenue enhancements.

True

Starbucks acquired the baker chain, La Boulange, with the intention of selling the bakery products at its coffee cafes. The increased market exposure for La Boulange is an example of a revenue enhancing benefit that can arise from the differentiation strategy.

True

The main reason that automobile manufacturers have increased the amount of outsourced inputs is because of the importance of boom and bust cycles in the industry.

True