Chapter 10

At its simplest level, a joint venture may be thought of as a(n

Corporate partner

To be commercially successful, new products must be developed with ____ utmost in mind.

Customer requirements

Companies that base their diversification strategy on transferring competencies tend to acquire new businesses that are ____ to their existing business activities.

D. Related

In which of the following industry environments are new ventures most likely to be favored over acquisitions as a means of entering a new business area?

a. An embryonic industry

Which of the following seems to be a major determinant of a new venture's success?

a. Large-scale entry into the target industry designed to build market share, even when such entry involves significant short-term losses

Which of the following statements is not generally true of a diversification strategy based on the realization of economies of scope?

a. The head office evaluates each business unit as a stand-alone operation.

Joint ventures

a. are an alternative to new ventures.

A company should pursue related diversification

a. core skills are applicable to a wide variety of industrial and commercial situations.

General organizational competencies are found

a. in the skills of a company's top managers and functional experts.

A company should pursue unrelated diversification instead of related diversification when

a. its core skills are highly specialized and have few applications outside its core business.

Which of the following entry strategies should be used when SPEED is an important consideration?

b. Acquisition

Product bundling refers to

b. a complete package of related products.

New ventures

b. are often preferred by technology-based companies.

Diversification may dissipate value if it is wrongly based on

b. pooling risks.

The three main types of diversification strategies are

c. Acquisitions, internal new ventures, and joint ventures.

Which of the following is not a guideline for a successful acquisition?

c. Completing the acquisition quickly

New ventures are likely to be preferred compared to acquisitions when

c. a company's business model is based on using its technology to innovate new kinds of products for related markets.

A diversification strategy based on resource sharing

c. can help a company to realize economies of scope.

An internal new venture is the most appropriate strategic choice when

c. the firm has competencies that can be leveraged.

Diversification is sometimes pursued by a company for the wrong reasons. Which of the following is a faulty justification for diversification?

All

Which of the following reasons can make a diversification strategy an unwise course of action for a company to pursue?

All of these

Leveraging competencies involves taking a distinctive competency developed by a business unit in one industry to create

B. A new business in a DIFFERENT INDUSTRY

The greater the number of business units in a company's portfolio, the ____ it is for corporate managers to remain informed about the complexities of each business.

B. More difficult

Which diversification strategy is based on the idea that the company creates value by applying the distinctive competencies it developed in one line of business to another business activity?

B. related diversification

A company considering entering an industry that is in the mature stage of its life cycle would generally prefer which of the following entry strategies?

C Acquisitions

When a company has cash in excess of the amount needed to maintain a competitive advantage in its core business, it will most likely pursue

C. Diversification

Which of the following is not a reason for the failure of an acquisition to generate the gains originally expected of it?

E. Overestimation of the potential costs of realizig synergies

What is the process of transferring resources to and creating a new business unit in a new industry called?

E. internal new venting

When McDonald's introduced the McCafe, it began offering a new product that was not available in traditional McDonald's stores. The introduction of the McCafe is an example of which of the

Economies of scope

T or F Research evidence suggests that small-scale entry into a new business is the best way for an internal venture to succeed.

False

T or F A laundromat and a pool hall together invest in a new store, where customers can wash their clothes and play pool while waiting. This is an example of an internal new venture.

False

T or F At Burger King, multiple items such as a cheeseburger, french fries, and a drink are combined together to create a complete meal. This is an example of diversification.

False

T or F Firms with superior strategic capabilities can create profitable new business units at a much higher rate than most other companies can

False

T or F For diversification to increase profitability, a company's top managers must have superior entrepreneurial capabilities.

False

T or F Free cash flow refers to additional funds from a government stimulus program

False

T or F If a company's core skills are highly specialized and have few applications outside the core business, then a company should pursue a related diversification strategy.

False

T or F Reasearch finds that the higher the number of business units in a company's portfolio, the easier it is for corporate managers to remain informed about the complexities of each business

False

T or F An advantage of unrelated diversification is that competencies can be shared and leveraged throughout the value chain activities.

False

T or F An appropriate reason to diversify is to pool the risk from several business ventures in order to create a more stable income stream.

False

T or F Internal new ventures can generally be executed far more quickly than acquisitions.

False

c. Joint ventures are generally preferable to acquisitions when entry barriers are high.

False

When one or more components of a company's value chain are applicable to a wide variety of industrial and commercial situations, which of the following strategies should a company pursue?

Related Diversification

What is perhaps the most important reason why acquisitions made by a company fail?

The expense of the acquisition

Miller Brewing was related to Philip Morris's tobacco business because it was possible to create important maketing commonalities: both beer and tobacco are mass market consumer goods in which brand positioning, advertising, and product development skills are crucial to create successful new products. This is an example of which of the following?

Tranfering competencies

T or F A 100-year-old industrial giant, 3M serves as an example of how a company can leverage technology to create successful new business.

True

T or F A company can increase the probability of success of an internal venture by constructing efficient scale manufacturing facilities ahead of demand.

True

T or F A company should pursue related diversification only to enhance the competitive position of its core business.

True

T or F A joint venture allows a company to share the risks and costs associated with establishing a new business unit with another company.

True

T or F An advantage of related diversification is that it allows a company to quickly gain entry into a new industry where barriers are high.

True

T or F Diversification is the process of a company entering new industries distinct from its core industry, using a multibusiness model.

True

T or F Economies of scope arise when one or more of a diversified company's business units are able to realize cost-saving or differentiation advantages because they can more effectively pool, share, and utilize resources or capabilities.

True

T or F If a company generates free cash flow, that money technically belongs to shareholders.

True

T or F Research suggests that companies that acquire many businesses over time become expert in this process and so can generate significant value from their acquisitions

True

T or F Sara Lee Corp., a baking firm, purchased Platex Apparel Inc. This purchase helped to make Sara Lee Corp. one of the largest makers of women's apparel in the United States. Sara Lee Corp. utilized a diversification strategy

True

T or F Transferring competencies across industries involves taking a distinctive competency developed in one industry and implanting it in an existing business unit in another industry

True

T or F Companies with a strong track record of internal new venturing generally excel at research and development.

True

T or F One way a diversified company can increase its profitability is by acquiring inefficient or poorly managed companies and then restructuring them to improve their performance.

True

T or F The coordination required to realize value from a diversification strategy based on transferring, sharing, or leveraging competencies is a major source of bureaucratic costs.

True

In which of the following cases are bureaucratic costs likely to be lowest?

d. A company with five divisions that pursues unrelated diversification based on acquisitions and restructuring

In 2007, Google bought YouTube. This is an example of which of the following?

d. Acquisition

Which of the following is (are) the probable consequence(s) of an inability to integrate two divergent corporate cultures after an acquisition?

d. All of these

Which of the following may be true for a company pursuing a strategy of unrelated diversification rather than a strategy of related diversification?

d. All of these

Stanley's services firm wants to enter an embryonic market, but it doesn't have enough cash to purchase the required assets. Which of the following strategies would you recommend to Stanley?

d. Diversify with a joint venture

Which of the following is NOT a general organizational competency?

d. Product bundling

Free cash flow is defined as

d. cash in excess of that required to fund investments in the company's industry and to meet any debt commitments.

Acquisitions often fail because of....

d. differences in corporate culture.

A strategy based on diversification may fail to add value because companies

d. incur bureaucratic costs that exceed the value created by the strategy.

If a company is to increase the probability of a new product's commercial success, the company must foster close links between

d. research and development (R&D) and marketing.

Which of the following statements concerning research and development is correct?

e. Companies with a strong record of internal new venturing excel at both types of research.

General organizational competencies refer to competencies

e. that transcend individual functions or business units.

Economies of scope typically involve

sharing resources by business units