STR 581: Ch 8: Corporate Strategy

Business units with competitive-strength ratings ____.

above 6.7 are strong market contenders in their industries

True or false: Strategic uses of corporate resources should usually take precendee over financial options.

true

Which of the following statements are true about a successful diversification effort?

1. it must give shareholders value that they cannot get by purchasing different stocks on their own 2. it must add long term economic value for shareholders

A company ____.

can diversify into related business, unrelated businesses, or both

For which of the following conditions is restructuring a diversified company's business lineup an attractive course of action?

1. When the interest owed on large debts is greatly reducing profitability 2. When the company has too many businesses in slowly growing or declining industries 3. When the market shares of one of more major business units are decreasing because of superior competition.

A diversified company's base can be broadened by ____.

acquiring more businesses and building positions in new industries

If the question of speed determines that fast movers can grab long-term advantages, the preferred mode of diversification is likely to be ____.

acquisition

When a company's existing businesses provide opportunities for growth and produce economic value for shareholders, it makes sense to _____.

adhere to the existing business lineup

The potential for an existing company can a new business to function better together following diversification than they would individually is part of the _____.

better off test

The redistribution of excess cash flow by parent companies from some businesses to others _______.

is especially important when credit is tight

In order for a diversified company to perform well ______.

much of its revenues and profits should be derived from business units with comparatively high attractiveness scores

Companies practicing unrelated diversification overwhelmingly enter new businesses by ______.

obtaining an established company

After a evaluating the strength, attractiveness, and fit of a diversified company's strategy, the next move is to ____.

rank the performance potential of the business

The portfolio approach to financial fit revolves around the fact that ____.

cash flow and investment characteristics vary among businesses

In calculating industry attractiveness scores ____.

competition intensity should be heavily weighted

Determining whether the materials needed to start a business can be readily obtained by a company is an example of answering the strategy-based question of _____.

critical resources and capabilities

Determining if there are obstacles that black a new company from gaining a foothold and thriving in an industry is an example of answering the strategy-based question of ______.

entry barriers

A diversified company can add value by shifting capital from business units generating free cash flow to those needing capital to grow by having a strong ___.

internal capital market

Determining how rapidly an industry is changing is crucial to answering the question of ______ when choosing a mode of entry.

speed

Unrelated diversification strategies ____.

tend to have more overall failures than successes

Which of the following statements are true concerning the portfolio approach to ensuring financial fit?

1. The portfolio approach relies on the premise that cash flow and investment traits vary among different businesses 2. Cash cows have limited growth but are a valuable financial resource 3. Business units in quickly expanding industries are often cash hogs

Examples of strategic fit in manufacturing include ____.

1. The sharing of cost-efficient production methods 2. The transfer of expertise in quality control 3. The consolidation of production into a smaller number of plants

Factors that can be used to quantify the competitive strengths of a diversified company's business subsidiaries include ____.

1. ability to match or beat rivals on key product attributes 2. costs relative to competitors' costs 3. relative market share

In answering the question of comparative costs, acquisition transaction costs include which of the following?

1. evaluating potential targets 2. negotiating a price 3. identifying potential targets

Retrenching to a narrower diversification base can include which of the following?

1. getting out of businesses that are competitively weak 2. focusing corporate resources on businesses in a few, carefully selected industries 3. eliminating businesses that have poor strategic fit

Strategic options for allocating company financial resources include which of the following?

1. investing in ways to strengthen or grow existing businesses 2. making acquisitions to establish positions in new industries or to complement existing businesses 3. funding long range R&D ventures aimed at opening market opportunities in new or existing businesses

Diversified companies that are able to create more value in their businesses than other diversified companies have what is called ____.

a parenting advantage

Strategic fit ____.

allows cross-business sharing of resources that enable value chain activities

Strategic fit _____

allows cross-business sharing of resources that enable value chain activities

The crafting of strategic moves to improve a diversified company's overall performance _____.

can be placed into four broad categories of action

Businesses are said to be related when ____

their value chains exhibit competitively important cross-business commonalities

Diversification is not really viewed as a success unless it ____.

yields added long-term economic value for shareholders

The redistribution of excess cash flow by parent companies from some businesses to others ________.

is especially important when credit is tight

Which statement is true concerning the pursuit of growth through unrelated diversification?

it can be misguided if the growth is not profitable growth

Strategic analysis of diversified companies ______.

builds on the same ideas and techniques used for analyzing single-business companies

In order to be a good market for a company to be in, an industry should ____.

pass the industry attractiveness test

Restructuring a business _____.

1. Often entails transferring experienced managers to the newly acquired business 2. Usually occurs when a diversified company acquires a new business that is underperforming 3. Generally involves liquidating underutilized assets

Which of the following are true of related businesses?

1. They can be combined to perform better than the sum of the individual businesses 2. They have similar resources and capabilities 3. They have compatible value chain activities.

Which of the following are true of related businesses?

1. They have similar resources and capabilities 2. They have compatible value chain activities 3. They can be combined to perform better than the sum of the individual businesses

Which of the following ratings concerning interpretation of competitive strength scores are correct?

1. Businesses with rating below 3.3 are in competitively weak market positions 2. Businesses with rating in the 3.3 to 6.7 range have moderate competitive strength 3. Business units with ratings above 6.7 are strong market contenders in their industries

The broad categories of action for crafting strategic moves to improve a diversified company's overall performance include ____.

1. Divesting certain businesses and retrenching to a narrower base of business operations 2. Sticking closely with the existing business lineup and pursuing opportunities that those businesses present 3. Widening the company's business scope by making new acquisitions in new industries

Which of the following statements are true concerning the ranking of a diversified company's business units from best to worst?

1. Future revenue and earnings for fast growing industries usually look superior to those for slow growing industries 2. The rankings help high level executives prioritize businesses for resource support and capital investment 3. The position of different businesses in the nine-cell matrix is a good criteria for identifying high opportunity and low opportunity businesses

It makes sense to stick closely with a diversified company's present business lineup when ____.

1. The existing business lineup provides ample opportunity for growth 2. The current lineup reliably creates economic value for shareholders 3. The company's existing businesses match the company's diversification strategy

Which of the following are included in the strategic fit of sales and marketing?

1. reducing billing costs by using common promotional tie ins 2. using a single sales force 3. promoting products on the same website

Which of the following is true concerning relative market share?

The further below 1 a business unit's relative market share is, the weaker its competitive strength and market position with its rivals

True or false: One method of broadening a company's diversification base is to add businesses that will complement and strengthen the market position of businesses in industries where the company already has a stake.

True

A diversified company in which one core business accounts for 50% to 80% of total revenues and other businesses account for the remainder is known as _______.

a dominant business enterprise

When a firm with a related diversification strategy has businesses that match specialized resource requirements at points along their value chains that are critical for the business's market success, they are said to have ____.

resource fit

If a company has poorly chosen acquisitions that are underperforming expectations, it is a good idea to _____.

restructure the business lineup

The process of overhauling and streamlining the operations of a business is referred to as ______.

restructuring

When a company's management decides that it needs to concentrate on a smaller number of businesses, it is a good strategy to ____.

retrench to a narrower diversification base

Diversifying into new industries ____

should be explored when a single business company encounters dwindling opportunities in its principal business

Corporate brands that do not have a connotation of any specific type of product are known as ____.

umbrella brands

Which of the following are among the four questions that need to be asked when determining how best to enter a new business?

1. Is speed an important factor in the firm's chance for successful entry? 2. Which is the least costly mode of entry, given the company's objectives? 3. Are there entry barriers to overcome?

Which of the following statements are true of a nine-cell matrix?

1. Overall attractiveness and strength scores are used to plot business units, which are displayed as bubbles 2. The horizontal axis is divided into regions for strong, average, and weak competitive strength 3. The vertical axis is divided into regions for high, medium, and low attractiveness

Which of the following statements are true concerning the cross-business allocation of financial resources by parent companies?

1. Parent companies can deliver funds that would otherwise be unavailable owing to poor market conditions 2. There is increased opportunity to add shareholder value because managers are privy to internal information unavailable to external financiers 3. Cross-business allocation can be especially advantageous during times fo financial market crises

Which of the following statements are true of unrelated diversification?

1. Problems can occur when corporate management makes decisions for businesses they do not know well 2. A very small number of unanticipated problems or mistakes can have a major negative effect on corporate earnings 3. Most management teams are not capable of effectively managing a diversified group of unrelated businesses.

Which of the following statements are true of multibusiness diversification strategies?

1. Some companies are narrowly diversified around two to five related or unrelated businesses 2. Some multi business enterprises are diversified into unrelated areas but have a group of related businesses within each area 3. Combination related-unrelated diversification strategies are attractive to companies with a mix of valuable competitive assets.

Which of the following statements are true concerning whether a company has sufficient non financial resources?

1. The broader the diversification, the greater the concern that corporate executives are overburdened trying to parent too many companies 2. A company's resources can be overtaxed by making many acquisitions and calling on management to oversee many businesses quickly 3. If a company's strategy is closely tied to moving technologies from existing businesses to new ones, it must develop more resources to supply them

Internal development of a new business is a good idea when which of the following conditions are met?

1. The parent company has the in-house resources needed to launch the company 2. It is cheaper to enter internally than through an acquisition 3. There is plenty of time to start the business

Which of the following statements are true of economies of scope?

1. They are a distinct concept from economies of scale 2. They result from strategic fit among related businesses, allowing the sharing of resources among diversified businesses 3. They are available only to firms engaging in related diversification

Which of the following statements are true of specialized resources?

1. They are leverages in related diversification 2. Their value is evident only when they are used in very specific businesses and industries 3. Their usefulness is limited in applications beyond those which they were created to serve.

In an unrelated diversification strategy, managers must make sure acquisition candidates have which of the following characteristics?

1. They meet corporate targets for profitability and return on investment 2. They are big enough to significantly contribute to the parent company's bottom line 3. They are in an industry with attractive growth potential

Which of the following actions should a company consider according to the nine-cell attractiveness-strength matrix?

1. To be cautious about investing in companies located intermediately on the grid 2. To concentrate resources in businesses that possess higher degrees of attractiveness and competitive strength 3. To remove resources from ventures that are low in attractiveness and strength unless they offer superior profit or cash flow opportunity

Which of the following are among the four questions that need to be asked when determining how best to enter a new business?

1. Which is the least costly mode of entry, given the company's objectives 2. Are there entry barriers to overcome? 3. Is speed an important factor in the firm's chances for successful entry?

Which of the following are strategic options for increasing a corporation's overall success?

1. broadening the scope of diversification by entering additional industries 2. sticking closely with the existing business lineup and pursuing opportunities presented by these businesses 3. retrenching to a narrower scope of diversification by divesting poorly performing businesses

Which of the following are terms that refer to diversification by starting a new business subsidiary from scratch?

1. corporate venturing 2. internal development 3. new venture development

In order to pass the three tests of corporate advantage, executives must _____.

1. diversify into industries where the businesses can produce consistently good earning and return on investment 2. do a superior job of corporate parenting via high-level managerial oversight 3. negotiate favorable acquisition prices

The three strategy options for pursuing diversification are ____.

1. diversifying into both related and unrelated businesses 2. diversifying into unrelated businesses 3. diversifying into related businesses

Examples of opportunities for strategic fit include ______.

1. exploiting the common use of a well-known brand name 2. transferring specialized expertise from the value chain of one business to another 3. sharing costs between businesses by combining their related value chain activities into a single operation

Which of the following are questions to ask when evaluating industry attractiveness?

1. how appealing is the whole group of industries in which the company has invested? 2. does each industry the company has diversified into represent a good market for the company to be in? 3. Which of the company's industries are most attractive?

Cross business strategic fit can exist ____

1. in supply chain activities 2. in customer service activities 3. at various points along the value chain

Which of the following are true in using cross business strategic fit to create gains in profitability and shareholder value?

1. it builds shareholder value in ways that are not possible through stock ownership in a variety of industries 2. The more a company's businesses are related, the greater the company's opportunity to turn strategic fit into competitive advantage 3. Cross-business strategic fit benefits are possible only though a strategy of related diversification.

Which of the following are true of the nine cell attractiveness-strength matrix?

1. it helps diversified companies allocate resources among their businesses 2. it identifies the business strength of businesses 3. it identifies the industry attractiveness of businesses

Which of the following are benefits of acquisition?

1. it is a useful way to get over entry barriers, such as building brand awareness 2. it is quicker than trying to launch a new operation 3. it allows access to hard to find resources and capabilities that work well with those of the acquiring company

Which of the following allow businesses with strategic fit in supply chain activities perform better together?

1. obtaining volume discounts on incoming components 2. sharing logistical resources 3. cooperating with common supply chain partners

The steps involves in creating a diversified company's corporate strategy include ______

1. picking new industries to enter and the means for entering them 2. establishing investment priorities 3. leveraging cross-business value chain relationships into competitive advantage

Unrelated diversification ___.

1. rarely performs better than the sum of what the individual business unit should achieve independently 2. provides a limited potential for competitive advantage 3. provides very general, low-value resources for the subsidiaries

Which of the following would be misguided reasons for pursuing unrelated diversification?

1. reducing earning volatility 2. boosting managerial compensation 3. risk reduction

A company has good financial resource fit if ____.

1. the company can create enough internal cash flow to provide the capital required by its businesses 2. the company can adequately fund all its businesses while keeping a good credit rating 3. each individual business sufficiently contributes to meeting companywide performance targets

What are the three tests of corporate advantage?

1. the industry attractiveness test 2. the cost of entry test 3. the better off test

Which of the following are drawbacks of acquisition?

1. there can be high integration costs 2. integration of the company into the existing firm can be time consuming 3. there are often excessive premiums

Internal development of a new business is a good idea when which of the following conditions are met?

1. there is plenty of time to start the business 2. it is cheaper to enter internally than through an acquisition 3. the parent company has the in house resources needed to launch the company

Corporate parents effectively contribute to the success of their businesses by _____.

1. utilizing popular umbrella brands 2. providing general resources that lower their operating costs

If the question of entry barriers demonstrates that barriers against a company entering an industry cannot be readily overcome, the company will probably choose entry via ____.

acquisition

If the question of entry barriers demonstrates that barriers against a company entering an industry cannot be readily overcome, the company will probably choose entry via _____.

acquisition

The means of entering a new business by buying an existing business is referred to as ______.

acquisition

The decision to diversity should begin with _____

an economic justification

A good resource fit would include solid parenting capabilities in companies that pursue which of the following?

an unrelated diversification strategy

Unrelated diversification strategy ____.

can create only a small amount of competitive advantage beyond that which can be created by the individual businesses acting alone

Determining whether the premium required to make an acquisition will be worth the extra value gained is an example of answering the question of _____.

comparative cost

Resources whose use is applied across a wide range of industry types are known as _____.

general resources

When a firm with a related diversification strategy has businesses that match specialized resource requirements at points along their value chains that are critical for the business's market success, they are said to have ___/

resource fit

Which of the following is true about joint ventures?

there are usually short-lives, ending as soon as partners decide to part ways

Which of the following is true about joint ventures?

they are usually short lives, ending as soon as the partners decide to part ways

Which of the following is true of economies of scope?

they come directly from strategic fit along the value chains of related businesses

Which of the following are the ways a company can enter a new business?

1. acquisition 2. joint ventures 3. internal starup

What questions can be answered by determining the competitive value of strategic fit in diversified companies?

1. Will leveraging a potent umbrella brand or corporate image strengthen the businesses and increase sales? 2. how much competitive value will come from the cross-business transfer of skills, technology, or intellectual capital? 3. Are the cost savings associated with economies of scope likely to give one or more businesses a cost-based advantage?

Determining whether the materials needed to start a business can be readily obtained by a company is an example of answering the strategy based question of ____.

critical resources and capabilities

Determining whether the materials needed to start a business can be readily obtained by a company is an example of answering the strategy based question of ______.

critical resources and capabilities

Choosing how best to enter a new business ____

depends partially on determining the least costly mode of entry

Choosing how best to enter a new business ______.

depends partially on determining the least costly mode of entry

Determining if there are obstacles that block a new company from gaining a foothold and thriving in an industry is an example of answering the strategy based question of _____.

entry barriers

True or false: The benefits of cross-business strategic fit follow naturally once a company can diversity into related businesses.

false

If the question of critical resources and capabilities demonstrates that a company has or can easily lease all of the material necessary to start a new business, it will probably do so by _____.

internal development

If the question of critical resources and capabilities demonstrates that a company has or can easily lease all of the materials necessary to start a new business, it will probably do so by _____.

internal development

Determining the competitive value of strategic fit in diversified companies _____.

is important in evaluating their related diversification strategies

Which of the following are circumstances that indicate a poor fit of non financial resources in a diversified company?

1. A company's resources are stretched thin in order to assimilate and oversee many new businesses in a short time 2. A mismatch exists between a diversifying company's competitive assets and the key success factors of an industry into which it is expanding 3. A core business lacks accumulated resources to deal with the competitive environment of the businesses into which it has diversified

Steps involved in assessing the positive and negative aspects of a diversified company's strategy and determining how to improve performance include which of the following?

1. Determining if the firm's resources fit the requirements of its current business lineup 2. Determining the competitive strength of the company's business units 3. Evaluating the individual and group attractiveness of the industries the company has diversified into

Quantitative industry-attractiveness scores can be calculated based on _____.

1. Emerging threats and opportunities 2. Market size and projected growth rate 3. The presence of cross-industry strategic fit

Which of the following are true concerning the interpretation of industry-attractiveness scores?

1. Industries that score much less than five are unlikely to be attractive 2. A strongly performing diversified company's primary businesses should be in industries with high growth potential 3. If a company's scores are all above 5, it probably operates in an attractive group of industries

In a nine-cell matrix ______.

1. Industry attractiveness is plotted on the vertical axis 2. each axis is divided into three regions 3. competitive strength is plotted on the horizontal axis

Entering a new business via a joint venture can be useful in which of the following situations?

1. when an opportunity is too complicated or risky for one company to attempt alone 2. when an opportunity in a new industry requires more know how than one company has alone 3. when diversification entails operations in a foreign country