MGMT 485W CH 6
Usually, a company is classified as a single-business firm when revenues generated from its core business area are greater than __________ percent.
95
Which of the following acquisitions would be considered the LEAST related?
An upscale "white-tablecloth" restaurant chain acquires a travel agency.
To ensure the quality of its almond butters, Rally's Roasters owns the almond groves in which all of its almonds are grown. Rally's almond butters are sold in supermarkets as well as specialty food stores throughout the country. Rally's makes use of what type of integration?
Backward
Economies of scope
Cost Savings of a firm created 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.
Revenues for United Parcel Service (UPS) come from the following business segments: 60 percent from U.S. package delivery operations, 22 percent from international package delivery, and 18 percent from non-packaging operations. Which of the following best describes the corporate-level strategy of UPS?
Dominant business
In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify?
Economies of scope
Synergy
Exist when the value created by business units working together exceeds the value that those same units create working independently
Which of the following is a value-reducing reason for diversification?
Expanding the business portfolio in order to diversify managerial employment risk
Luxury Linens (LL) manufactures a line of luxury bed linens. LL's products can be purchased only through the company's web site. This ownership of output distribution is known as what type of integration?
Forward
S&E is a financial services firm with a reputation for its management ability. It has recently diversified into several additional service businesses without first acquiring an established brand-name business. This type of diversification strategy is known as what type of venture?
Greenfield
Which of the following is NOT a limitation directly relating to vertical integration?
Imitation of core technology by potential competitors
Progressive Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare, and only two brick plants in the United States make this type of brick. Progressive Steel owns one of these brick plants and buys all of its production. The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick. This significantly reduces the production cost of this type of brick. Which of the following statements is true?
Progressive Steel has less flexibility now than if it were not vertically integrated.
Which of the following reasons for diversification is MOST likely to increase the firm's value?
Reducing costs through business restructuring
Which of the following statements is true?
Related constrained firms share more tangible resources and activities between businesses than do related linked firms.
Corporate level strategy
Specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing and different product markets.
Which of the following is NOT a governance mechanism that may limit managerial tendencies to over diversify?
Surveillance technologies
Which of the following resources is more likely to create value in the diversification process?
Tacit knowledge
Equator, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It plans to transfer one of its key managers from its plant in St. Louis to Ireland. Which of the following is the major threat to Equator's plan to transfer competencies from itself to the Irish firm?
The St. Louis manager may quit Equator in order to remain in St. Louis.
Which of the following makes high-technology firms and service-based firms risky as restructuring candidates?
They are dependent on human resources.
Dragonfly, publisher of children's books, has purchased White Rabbit, another publisher of children's books. Both companies' books are sold to the same retail stores and schools. Their content is different because Dragonfly produces children's literature, whereas White Rabbit focuses on child-level nonfiction scientific and nature topics. Which of the following statements is probably true about this acquisition?
This is a horizontal acquisition.
Which of the following firms would MOST likely be a successful candidate for acquisition and restructuring?
Tire manufacturer established in 1910
During a financial downturn, a firm may consider diversification as a value-neutral defensive strategy to protect itself against what?
Uncertain future cash flows
Which of the following types of diversification is MOST likely to create value through financial economies?
Unrelated
An office management firm has developed a system for efficiently organizing small medical and dental practices both through proprietary software and through unique training programs for staff. It has recently acquired a firm specializing in providing management services for veterinary practices. The office management firm is hoping to:
achieve economies of scope.
Research has shown that horizontal acquisitions:
are able to use activity sharing to successfully create economies of scope.
Financial economies
are cost savings realized through improved allocations of Financial Resources based on investment inside or outside the firm
Certain regulatory changes (such as antitrust regulation and tax laws) create incentives or disincentives for diversification that:
are value-neutral
Advanced Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare, and only two brick plants in the United States make this type of brick. Advanced Steel has decided to buy one of these brick plants. This is an example of
backward integration.
The ultimate test of the value of a corporate-level strategy is whether the:
businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership.
Among the value-neutral incentives to diversify, some come from the firm's external environment while others are internal to the firm. External incentives to diversify include:
changes in antitrust regulations and tax laws.
The risk for firms that follow the unrelated diversification strategy in developed economies is that:
competitors can imitate financial economies more easily than they can replicate the value gained from the economies of scope developed through operational relatedness and corporate relatedness.
Corporate level competencies
complex set of resources and capabilities that link different businesses primarily through managerial and technological knowledge experience and expertise
The more links among businesses, the more __________ is the level of diversification.
constrained
A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT:
corporate can direct the acquisition of other firms with innovative products instead of allocating capital to research and development.
Firms seek to create value from economies of scope through all of the following EXCEPT:
de-integration.
The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be:
discounted by investors.
Multipoint competition occurs when:
diversified firms compete against each other in several markets.
Firms that have selected a related diversification corporate-level strategy seek to exploit:
economies of scope between business units.
Vertical integration
exist when a company produces its own inputs( backward integration) or its own source of output distribution( forward integration)
Successful unrelated diversification through restructuring is typically accomplished by:
focusing on mature, low-technology businesses
During the 1990s, top executives of Titanic, Inc., followed a pattern of aggressive acquisitions and diversification. Now, Titanic is performing poorly and earning below average returns. Lusitania, a large conglomerate firm, is in the final stages of purchasing Titanic. Lusitania has announced that it will fire Titanic's current top executives. The Titanic executives may not be worried about their impending job loss if they:
have golden parachutes.
Isidore Crocker, CEO of Gotham Engines, is strongly in favor of acquiring Carolina Textiles, a firm in an unrelated industry. Some members of the board of directors are questioning Crocker's motives for the acquisition. They argue that it is not uncommon for CEOs to push for acquisitions because:
higher CEO pay is related to larger organization size.
A company pursuing vertical integration can gain market power over its competitors through all of the following EXCEPT:
improved adjustment to technological changes.
Managerial motives to seek diversification beyond value-creating and value-neutral levels include a desire to:
increase compensation.
When a firm simultaneously practices operational relatedness and corporate relatedness:
it is difficult for investors to identify the value created by the firm.
Because of the tax laws of the 1960s and 1970s, when dividends were taxed more heavily than capital gains, shareholders preferred that corporations:
keep free cash flows for investment in acquisitions
Free cash flows are:
liquid financial assets for which investments in current businesses are no longer economically viable.
The drawbacks to transferring competencies by moving key people into new management positions include all of the following EXCEPT:
managerial competencies are not easily transferable to different organizational cultures.
The Mars acquisition of the Wrigley assets was part of its related constrained diversification and added market share to the Mars/Wrigley integrated firm. It allowed Mars to gain __________ because it could sell its products above the market level or reduce its costs below the market level.
market power
Compared with diversification based on intangible resources, diversification based on financial resources is:
more imitable and less likely to create value on a long-term basis.
The more "constrained" the relatedness of diversification the:
more links there are among the businesses owned by an organization.
As the threat of corporate failure increases due to relatedness between a firm's business units, the firm may decide to:
operate in environments that are more certain.
A noted professional art academy has founded an "artists and friends" travel company specializing in tours for artists to scenic locales, using its faculty as traveling teachers. In addition, the art academy has purchased a framing company to make frames for academy art works, and to sell museum-quality framing services to the public. The art academy is engaging in diversification based on __________ relatedness.
operational
Backward integration occurs when a company:
produces its own inputs.
Acquisitions to increase market power require that the firm have a(n) __________ diversification strategy.
related
A firm that earns less than 70 percent of revenue from its dominant business and has direct connections between its businesses is engaging in __________ diversification.
related constrained
The Publicis Groupe has three major groups of business (advertising, media, and digital) that share resources and activities. The Publicis Groupe is using a(n) __________ diversification strategy.
related constrained
The Publicis Groupe uses the digital technology from its digital business to enhance the advertising products in its advertising group. This sharing of activities is characteristic of the __________ diversification strategy.
related constrained
Procter & Gamble (P&G) has a paper towel and baby diaper business, both of which use paper products. The firm's paper production plant produces inputs for both businesses. P&G MOST likely uses the __________ diversification strategy to create __________.
related constrained; operational relatedness
Cherrywood Fine Furniture Company finds itself with excess capacity in its plant and equipment for furniture manufacturing. This excess capacity will be useful in:
related diversification projects.
The __________diversification strategy creates value in two ways. First, because the core competency has already been developed in one business, the firm does not have to allocate resources to develop it. Second, because the resource is intangible, competitors cannot easily imitate it.
related linked
Virgin Group Ltd. successfully transfers its marketing core competence across airlines, cosmetics, music, drinks, mobile phones, health clubs, and a number of other businesses. Virgin follows a(n) __________ diversification corporate strategy.
related linked
Ties among a firm's businesses create links between outcomes. This is a:
risk associated with activity sharing
The Walt Disney Company has successfully used related diversification to create value by:
sharing activities and transferring core competencies.
Operational relatedness is created by __________ of __________.
sharing; activities
The lowest level of diversification is the __________ level.
single-business
The curvilinear relationship of corporate performance and diversification indicates that:
the highest performing business strategy is related constrained diversification.
The main difference between the related constrained level of diversification and the related linked level of diversification is:
the level of resources and activities shared among the businesses.
The basic types of operational economies through which firms seek value from economies of scope are:
the sharing of value-chain activities and support functions.
Synergy exists when:
the value created by business units working together exceeds the value that those same units create when working independently.
An ability to efficiently allocate capital through an internal market may help the firm protect the competitive advantages it develops:
through reduced disclosure to outside parties.
Hutchison Whampoa Limited (HWL) has businesses in ports and related services, telecommunications, property and hotels, retail and manufacturing, and energy and infrastructure. HWL makes no efforts to share activities or transfer core competencies among the businesses. HWL is following a strategy of __________ diversification.
unrelated
The term "conglomerates" refers to firms using the __________ diversification strategy.
unrelated
Research suggests that __________ has decreased while __________ has increased, possibly due to the restructuring that continued in the 1990s through the early twenty-first century
unrelated diversification; related diversification
Firms use corporate-level diversification strategies for all the following reasons EXCEPT:
value-diversifying.
PorkPride Foods produces hams and other meat products. It owns hog raising operations. This is an example of a business that is:
vertically integrated.
Wm. Wrigley Jr. Company once made only chewing gum. When Wrigley bought Life Savers (a line of candy mints) and Altoids (a line of breath mints) from Kraft, chewing gum then constituted less than 95 percent of revenues. Thus, Wrigley:
was moving away from its traditional single-business strategy toward a dominant strategy
Corporate-level strategy is concerned with __________ and how to manage these businesses.
what product markets and businesses the firm should be in
Multi-point competition
when 2 or more Diversified firms simultaneously compete in the same product areas or geographical markets
Market power
when a firm is able to sell its products above the existing competitive level or to reduce the cost of its primary and support activities below the competitive level or both
