Ch 6

How does diversification and firm size impact top managers of a firm?

. As a firm diversifies, its size increases, as does executive compensation

What are economies of scope?

. Cost savings a firm creates by successfully sharing resources and capabilities or transferring one or more corporate-level core competencies that were developed in one of its businesses to another of its businesses.

What are the two ways an unrelated diversification strategy can create value through financial economies?

. Efficient internal capital allocations and the restructuring of acquired assets

Which of the following would be a motive for top-level executives to diversify their firm beyond value-creating and value-neutral levels?

. Increased compensation and reduced managerial risk

A company is looking to diversify as a way to reduce risk and protect against uncertain future cash flow from its core business. These efforts would most likely have which of the following impacts on the firm's value?

. It would be value-neutral.

Which of the following types of diversification strategies is characterized by less than 70 percent of revenue coming from the dominant business and limited links between businesses?

. Related linked

What is the distinction between value-neutral reasons and value-creating reasons for a firm to diversify?

. Value-neutral reasons seek to help the firm establish a more competitive position, whereas value-creating reasons seek to improve the firm overall.

Intangible resources are more flexible than tangible physical assets in facilitating

. diversification.

Sports Inc. has developed a shoe to compete with Air Jordans. In order to keep up with competitors and minimize competitor market power, the firm decides to sell branded sports equipment as well. By introducing another new business so soon outside of its shoe products, the firm stands to lose value. Sports Inc.'s reason for diversifying itself is to _____ by acquiring a _____.

. neutralize another firm's advantage; similar distribution outlet

In which of the following ways does the availability of tangible and intangible resources affect a firm's ability to create value through diversification?

A resource has rarity and value.

Which of the following represents an example of an external incentive for value-neutral diversification?

An organization forced to pursue a new business unit because of changes in tax laws and regulations

Which of the following is a reason(s) that keeps managers from selfishly diversifying the firm for higher compensation?

Concerns for their reputation and strong managerial talent market

A popular TV network, QTV, wishes to gain a competitive advantage by managing several businesses from its corporate headquarters. Among its goals, QTV hopes to acquire its competitor, RTV, in the process. In this instance, QTV is using which type of strategy?

Corporate-level strategy

External investors allocate capital by taking stakes in businesses with high growth and profitability potential. Which of the following is a disadvantage for external investors?

Limited access to information

A top-level executive of a tire manufacturer is considering diversifying and expanding operations into China, where labor and materials are cheaper. The firm has already diversified itself to double its original number of locations. All of its newest locations have been implemented by the same executive. So far, the return on investment for each of the newer locations is negative. Why might the executive want to open yet another location?

The larger the firm gets, the more compensation the executive will receive, even if no value has been created yet.

Which of the following is a reason why firms with a low level of diversification are often able to earn positive returns?

They can provide superior customer service.

Corporate-level strategy is concerned with which of the following key issues?

What product markets and businesses the firm should compete in and how corporate headquarters should manage those businesses

Which of the following is an advantage of pursuing diversification by entering into a greenfield venture?

a. By taking advantage of intangible resources, such as experience and knowledge of a firm, a new business can be established independently with instant ability to create value using those resources.

What type of financial economy is undertaken to reduce risk among a firm's businesses?

a. Internal capital market allocation

Corporate-level strategy is best described as:

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

Turtlecreek owns a high-end grocery chain, a high-end outdoor gear chain, and a sporting goods chain. Its retail businesses are unrelated; however, the firm hopes to gain an advantage over its competitors by associating its perceived luxury brand with each business. By selecting and managing these various businesses, Turtlecreek is implementing a _____ strategy.

b. corporate-level

A secondhand computer retailer is often mistaken for an IT-help business. As a result, tech-savvy employees of the retailer are often fixing the customers' computer issues when they come into the store. The firm that owns the secondhand computer retailer has decided to diversify and open computer repair shops selling IT services. The retailer is diversifying on the basis of employee knowledge, which is considered a(n) _____ resource.

b. intangible

Apple has been known to sell its products at higher rates than competitors, such as Microsoft, as it has been successful at convincing consumers that Apple products are special and more luxurious in comparison. By accomplishing this, Apple has gained:

b. market power.

A single-business diversification strategy and a dominant-business diversification strategy are both examples of what level of diversification?

c. Low level

Typically, a diversification strategy is used to _____ the firm's value by _____ its overall performance.

increase; improving

As soon as United Parcel Service (UPS) moved into overnight delivery, FedEx's strong point, FedEx bought trucking and ground shipping assets to gain advantage over UPS's strong point. These activities between UPS and FedEx are referred to as:

multipoint competition.

Firms use corporate-level strategies for several reasons, including to:

pursue development of a market.

Glow Makeup is a moderately-diversified firm, as it has three main related businesses, including a skin care business, nail polish business, and facial cosmetic business. Its divisions are composed of different products, but they are all related to cosmetics. As a result, the firm maintains many of the same resources and certain activities within each of its operations. Based on this information, Glow Makeup uses a(n) _____ diversification strategy.

related constrained

A firm owns several businesses, including a personal loan office and a furniture store. Another standalone personal loan office is suffering financially because of the allocation of its assets. The furniture business decides to buy the standalone personal loan business, restructure its assets, and then sell it as operations resume more successfully. This is an example of:

unrelated diversification.

Steeler Manufacturing uses an unrelated diversification strategy throughout its operations. For instance, Steeler has five core businesses, all of which are unrelated. Each of its businesses is large and indicates Steeler's success in implementing an unrelated diversification as a _____ firm.

very highly diversified