Chapter 6

Which of the following are true about engaging in internal development? (Check all that apply.)

-Firms often develop new products or services at relatively lower costs. -Value is created by the company internally, thus it does not have to share the wealth with alliance partners. -Difficulties with combining companies' value-chain activities and merging cultures are not an issue.

Which of the following are potential disadvantages of internal development? (Check all that apply.)

-Firms that diversify through internal development often must develop critical capabilities. -Firms may miss an opportunity due to the process being time-consuming.

Which of the following are among the issues that should be considered in deciding whether to vertically integrate? (Check all that apply.)

-How stable is the demand for the company's products or services? -Does the company have the necessary competencies to execute the vertical integration strategies? -Will the vertical integration initiative have potential negative impacts on the firm's stakeholders? -Are suppliers and distributors providing the level of quality and value expected?

Which of the following are among the four actions that McKinsey suggested management should take to promote successful acquisition integration? (Choose all that apply.)

-Institutionalize new behaviors and ways of operating. -Protect the base business. -Commit full management effort to the change.

Which of the following are true about cost savings from sharing activities? (Check all that apply.)

-It is the most common type of synergy and easiest to estimate. -Cost savings from sharing activities may come from many sources, including eliminating jobs and facilities.

Which of the following statements about growth for growth's sake are correct?

-Many high-tech firms have suffered from the negative impact of uncontrolled growth. -CEOs are especially driven to pursue acquisitions. -CEOs often have huge incentives for increasing the size of their firm.

A firm's core competencies include which of the following? (Check all that apply.)

-Marketing diverse products and services -Coordinating diverse production skills -Integrating multiple streams of technologies

Which of the following issues are related to the takeover premium of a merger or acquisition? (Check all that apply.)

-Performance hurdles are increased due to the premium price. -The premium is often 30% or higher. -Two times out of three the acquiring firm's stock price drops once the deal is made public.

Which of the following statements about shareholders and managers are true? (Check all that apply.)

-Shareholders expect managers to maximize long-term shareholder value. -Shareholders expect managers to be rational beings. -Shareholders expect managers to act in the best interest of shareholders.

Which of the following are criteria that a core competency must meet in order to create value for a corporation? (Check all that apply.)

-The core competency must enhance competitive advantage(s) by creating superior customer value. -The core competency must have a part in at least one way in which a corporation's different businesses are similar. -The core competencies must be difficult for competitors to imitate or find substitutes.

Which of the following are ways that synergy is created through the use of unrelated diversification? (Check all that apply.)

-The corporate office adds value by allocating resources throughout the entire corporation to optimize corporate profitability goals. -The parent company restructures the acquired business. -The corporate office contributes through parenting.

Which of the following statements regarding unrelated diversification are correct? (Check all that apply.)

-The corporate office enhances value by establishing human resource practices and financial controls for each business unit. -Potential benefits are derived from vertical (hierarchical) relationships. -Synergy is created through business units' interactions with the corporate office.

Which of the following are limitations with portfolio models like the Boston Consulting Group matrix? (Check all that apply.)

-The symbols themselves (cow, dog, question market, and star) oversimplify a business unit's position in the market. -It can lead to troublesome and overly simplistic prescriptions. -The reliance on "strict rules" regarding resource allocation across business units can be detrimental to a firm's long-term viability.

Which of the following are potential limitations of mergers and acquisitions? (Check all that apply.)

-There are often many organizational cultural issues that doom any benefits. -Competitors can often imitate advantages realized or copy synergies that result from mergers and acquisitions. -There is often a high premium for acquiring a company. -Managers sometimes acquire companies because of their ego instead of making a sound business decision.

Which of the following are some problems with using portfolio models? (Check all that apply.)

-They compare business units on only two dimensions. -The approach views each business unit as a standalone entity that ignores synergy, sharing, etc. -There is a belief that every business unit can be accurately compared on two dimensions.

Which of the following are motives for and benefits of using mergers and acquisitions as a strategy? (Check all that apply.)

-They provide the opportunity to attain synergy by leveraging core competencies, sharing activities, and building market power. -They provide a means for companies to enter new market segments. -They are faster than building internal resources from scratch. -They help obtain valuable resources that can help expand product and service offerings.

Which of the following are among the Boston Consulting Group's requirements for a business to divest successfully? (Choose all that apply.)

-Time the move correctly. -Practice good communication. -Carefully valuate the business being sold.

Which of the following are benefits of vertical integration? (Check all that apply.)

-a secured supply of raw materials or distribution channels -simplified procurement and administrative procedures -protection and control over valuable assets -proprietary access to new technologies

Which of the following are the three main purposes of portfolio management? (Check all that apply.)

-achieving a better understanding of the competitive position of an overall portfolio of businesses -identifying priorities for allocating resources -suggesting strategic alternatives for each of the businesses

Which of the following are the most likely areas in which firms may employ restructuring? (Choose all that apply.)

-asset restructuring -capital restructuring -management restructuring

Which are elements of management restructuring? (Choose all that apply.)

-changing the structure of the organization -replacing members of top management teams -reorganizing reporting relationships

Which of the following are traits of a healthy ego? (Check all that apply.)

-confidence -clearheadedness -ability to cope with change

Sharing activities can potentially provide which of the following two payoffs? (Check all that apply.)

-cost savings -revenue enhancements

Which of the following are transaction-related costs, according to the transaction cost perspective? (Check all that apply.)

-costs due to the searching for and purchase of inputs from an outside source -costs associated with negotiating terms -costs associated with monitoring and enforcing the terms of the contract -costs associated with creating the contract

Which of the following are advantages of cooperative business relationships? (Choose all that apply.)

-development of new technologies -reduced value chain costs -access to new markets

Which of the following are quadrants in the Boston Consulting Group's portfolio matrix? (Check all that apply.)

-dog -cash cow -question mark

Which of the following are primary potential benefits of diversification into related businesses?

-enhanced market power via pooled negotiating power and vertical integration -sharing of intangible and tangible resources between businesses though horizontal relationships

Which of the following are antitakeover tactics that managers use? (Check all that apply.)

-golden parachute -greenmail -poison pill

Companies that implement a related diversification strategy may benefit from which of the following? (Check all that apply.)

-horizontal relationships across different businesses in the diversified corporation -leveraging core competencies and sharing activities -economies of scope

Which of the following are ways that parent companies create value through their management expertise? (Check all that apply.)

-improving plans and budgets -providing central functions such as human resource management and procurement -providing consulting on business units' acquisitions, divestitures, and new internal development decisions

Which of the following are ways that a company may restructure a newly acquired business unit? (Check all that apply.)

-infusing new technology, processes, and reward systems -selling off parts of the business -changing the management

Examples of a gasoline retailer gaining economies of scope by going into alternative sources of fueling vehicles include which of the following? (Check all that apply.)

-leveraging its favorable reputation and staff's expertise -leveraging its purchasing operations with suppliers -sharing unused space or capacity with another business unit

Which of the following are the two types of market power?

-pooled negotiating power -vertical integration

Which of the following are examples of the risks of vertical integration? (Check all that apply.)

-problems associated with unbalanced capacities along the value chain -loss of flexibility resulting from large investments -additional administrative costs associated with managing a more complex set of activities

Which of the following are objectives that divesting a business can accomplish for the parent? (Check all that apply.)

-providing the firm with more resources to spend on attractive alternatives -raising cash to help fund existing businesses -enabling managers to focus on the firm's core businesses

Which of the following are ways a firm can achieve the benefits of diversification? (Check all that apply.)

-strategic alliances or joint ventures -internal development -mergers and acquisitions

Mergers and acquisitions have been especially popular in high-technology and knowledge-based industries, because ______. (Check all that apply.)

-they help companies to get to market very quickly -they help companies become viable -the industry operates in a highly dynamic environment where changes in the market and technology occur very quickly and unpredictably

____ is the incorporation of one firm into another through a purchase.

Acquisition

____ are managers' actions to avoid losing wealth or power as a result of a hostile takeover.

Antitakeover tactics

Which of the following is one of the best-known portfolio management frameworks?

Boston Consulting Group's growth/share matrix

_____ refers to a firm's strategic resources that reflect the collective learning in the organization.

Core competencies

Which statement is true about dealing with potential buyers during divestiture?

Develop a narrative to convince each buyer of the benefit to them.

_____ is the exit of a business from a company's portfolio.

Divestment

_____ refers to cost savings from leveraging core competencies or sharing related activities among businesses in the corporation.

Economies of scope

True or false: When transaction costs are lower than administrative costs, vertical integration becomes an attractive strategy.

False

____ is a payment by a firm to a hostile party for the firm's stock at a premium, made when the firm's management feels that the hostile party is about to make a tender offer.

Greenmail

____ is/are a result of managers' actions to grow the size of their firms not to increase long-term profitability but to serve managerial self-interest.

Growth for growth's sake

___ is entering a new business through investment in new facilities. It is often called corporate entrepreneurship and new venture development.

Internal development

Which of the following is an example of how managerial motives can erode value creation?

Managers who act in their own self-interest.

______ refers to firms' abilities to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment.

Market power

____ is the combining of two or more firms into one new legal entity.

Merger

_____ are/is used by a company to give shareholders certain rights in the event of takeover by another firm.

Poison pills

_____ is the improvement in bargaining position relative to suppliers and customers.

Pooled negotiating power

______ occurs when a firm enters a different business in which it can benefit from leveraging core competencies, sharing activities, or building market power.

Related diversification

____ is the corporate office's intervention in a new business that substantially changes the assets, capital structure, and/or management of the business unit.

Restructuring

_____ is when value-chain activities of two or more businesses are performed by only one of the businesses.

Sharing activities

_____ is a perspective where every market transaction involves specific costs.

Transaction cost

True or false: Internal development is often more time-consuming than growing through mergers or acquisitions.

True

True or false: Portfolio management tools have been widely used in American corporations.

True

_____ is an expansion or extension of the firm by integrating preceding or successive production processes.

Vertical integration

A poison pill is also known as _____.

a shareholder rights plan

Coordinating the different stages of the value chain that become internalized within the firm results in an increase in ______ costs.

administrative

When a company incorporates more processes toward the original source of raw materials, it is called ______ integration.

backward

When management supports acquisition integration by making necessary structural changes, adding the required elements, and gives the integration the required time, this is called ____ the transformation.

catalyzing

To help create value and build synergy among the businesses of a corporation, the corporation's ______ competences must be difficult for competitors to find substitutes for or to imitate.

core

The primary goal in selecting the best means of diversification should be which vehicle will ____.

create the greatest value for shareholders

The process of firms expanding their operations by entering new businesses is called ____.

diversification

When managers attempt to shape a firm's strategy to serve their selfish interests rather than maximizing long-term shareholder value, they are guilty of ____.

egotism

The Delicioso cookie company in Mexico has long wanted to sell its products outside of its home country. Its managers created a strategic alliance with a chain of coffee shops in southern Africa wherein the coffee shops would promote Delicioso cookies in exchange for deep discounts. What advantage has Delicioso gained through this alliance?

expanding into new markets

One way to increase negotiating power with suppliers is _____.

for similar business units to work together and pool their raw material procurement

_____ is a prearranged contract with managers specifying that, in the event of a hostile takeover, the target firm's managers will be paid a significant severance package.

golden parachute

Firms may diversify into related businesses where the primary potential benefits are derived from ______ relationships that allow for sharing tangible and intangible resources.

horizontal

____ is when two or more firms contribute equity to form a new legal entity.

joint venture

While sharing activities may decrease costs, increase revenues, and enhance product differentiation, it sometimes can have an unintended negative effect, such as _____.

lowered perceptions of the product's quality and prestige

Parenting advantage is the _____.

positive contributions of the corporate office to a new business as a result of the expertise and support provided

In addition to preventing a hostile takeover, greenmail _____.

protects the jobs of the target firm's management

One way of achieving cost savings by sharing activities among business units is to apply economies of _____ in purchasing.

scale

Firms pursuing differentiation strategies might engage in ______, such as using a shared order-processing system.

sharing activities

____ is a cooperative relationship between two or more firms.

strategic alliance

An issue that a firm should consider in deciding to vertically integrate is whether _____.

the initiative has potential negative impacts on the firm's stakeholders

What should senior management's primary motivation be for implementing a diversification strategy?

to create shareholder value

The main purpose of a golden parachute is to protect ____.

top managers' income if they lose their jobs due to a hostile takeover