MGT 4335 Ch 7

17) The ability for Nike to manufacture its own shoes and then build stores for distribution is an example of A) forward integration. B) horizontal integration. C) backward integration. D) transferred integration. E) mass integration.

A) forward integration.

21) When a firm internally makes 100% of its key supplies and completely controls its distributors, this is known as A) full integration. B) taper integration. C) mass integration. D) economical integration. E) strategic integration.

A) full integration.

48) Which strategy did Circuit City use in 2008 when it converted its retail stores to cash? A) liquidation B) bankruptcy C) diversification D) divestment E) consolidation

A) liquidation

10) Which of the following strategies was being used when Allied Corporation and Signal Companies formed Allied Signal? A) merger B) strategic alliance C) diversification D) acquisition E) concentration

A) merger

9) Which external growth strategy involves two or more corporations joining in a stock exchange and from which only one corporation survives? A) merger B) strategic alliance C) diversification D) acquisition E) concentration

A) merger

33) Which strategy is considered a timeout? A) pause/proceed-with-caution B) concentration C) contraction D) rebirth E) captive company

A) pause/proceed-with-caution

30) An international study by Bain & Company concluded that the likelihood of a successful acquisition is increased with A) previous experience between an acquirer and a target firm. B) narrowing the number of candidates for acquisition. C) foregoing the time for due diligence. D) limited geographical expansion. E) the addition of capacity levels.

A) previous experience between an acquirer and a target firm.

34) Which strategy is an attempt to artificially support profits when a company's sales are declining by reducing investment and short-term discretionary expenditures? A) profit strategy B) no-change strategy C) turnaround strategy D) concentration strategy E) captive company strategy

A) profit strategy

46) In which strategy does management hope that another company will have the necessary resources and determination to return the company to profitability? A) sell out B) captive company C) liquidation D) bankruptcy E) profit

A) sell out

32) Which family of corporate strategies is often viewed as a lack of strategy? A) stability strategies B) cooperative strategies C) growth strategies D) retrenchment strategies E) competitive strategies

A) stability strategies

67) Concentric diversification is growth into unrelated businesses but may be a very appropriate corporate strategy when a firm has a strong competitive position but industry attractiveness is low.

Answer: FALSE

70) The stability strategies are really a lack of any strategy.

Answer: FALSE

93) According to the BCG Growth-Share Matrix, cash cows are market share leaders typically at the growth stage of their product life cycle and are usually able to generate enough cash to maintain their high share of the market.

Answer: FALSE

14) Ford Motor Company's use of company resources to build its River Rouge Plant outside of Detroit so that iron ore could enter into one end of the plant and a finished automobile could exit out of the other end is called A) vertical growth. B) tapered integration. C) horizontal integration. D) external vertical integration. E) quasi-integration.

A) vertical growth.

13) The most logical growth strategy for a corporation with current product lines with real growth potential in a growing industry is A) concentration. B) conglomerate integration. C) concentric diversification. D) stability. E) retrenchment.

Answer: A

81) The Growth-Share Matrix of the Boston Consulting Group suggests that the excess cash being generated by cash cows should be used to fund A) dogs. B) question marks. C) stars. D) white knights. E) fish.

B) question marks.

25) When Coca Cola contracted with Capgemini to provide accounting and financial services, which strategy was Coca Cola using? A) horizontal growth B) backward integration C) outsourcing D) retrenchment E) diversification

C) outsourcing

100) According to Campbell, Goold, and Alexander, when parent companies create more value than any of their rivals would if they owned the same businesses, they have A) multi-point competition. B) strategic advantage. C) parenting advantage. D) portfolio analysis. E) no real advantage.

C) parenting advantage.

12) Which of the following is not a reason why the growth strategy is so desirable? A) There are more opportunities for advancement and promotion. B) A corporation that experiences successful growth is thought of positively by the marketplace and potential investors. C) A large and growth-oriented corporation has more clout and influence. D) A growing firm can cover up mistakes and inefficiencies because of the increase in cash flow revenue. E) A large and growing firm attracts more acquisition offers.

E) A large and growing firm attracts more acquisition offers.

11) Which external growth strategy was demonstrated when Procter & Gamble completely absorbed Gillette? A) merger B) strategic alliance C) diversification D) concentration E) acquisition

E) acquisition

44) The strategy which takes place in three basic phases of contraction, consolidation, and rebirth is A) merger. B) liquidation. C) integration. D) divestment. E) turnaround.

E) turnaround.

36) When P&G sold off half of its brands and consolidated others, it was following which retrenchment strategy? A) divestment B) sell-out C) contraction D) captive company E) liquidation

A) divestment

63) Horizontal growth is achieved through internal development and not external means.

Answer: FALSE

83) According to the BCG Growth-Share Matrix, products that typically bring in far more money than is needed for maintenance of their market share are called A) cash cows. B) lost leaders. C) dogs. D) question marks. E) stars.

A) cash cows.

7) What are the three key issues that corporate strategy addresses?

1. The firm's overall orientation toward growth, stability, and retrenchment (directional strategy). 2. The industries or markets in which the firm competes through its products and business units (portfolio analysis). 3. The manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units (parenting strategy).

35) In which phase of a turnaround strategy does the firm attempt to "stop the bleeding" with a general, across-the-board cutback in size and costs? A) contraction B) consolidation C) captive company D) rebirth E) divestment

A) contraction

1) Which strategy specifies the firm's overall direction in terms of its general orientation toward growth, the industries or markets in which it competes, and the manner in which it coordinates activities and transfers resources among business units? A) corporate B) functional C) divisional D) organizational E) business

A) corporate

18) A disadvantage of vertical integration is that it A) creates exit barriers. B) improves coordination of activities. C) decreases demand for the firm's products and services. D) creates entry barriers. E) avoids time consuming tasks.

A) creates exit barriers.

37) ________ seeks to perpetuate a firm while ________ terminates the firm. A) Bankruptcy; liquidation B) Captive company; bankruptcy C) Bankruptcy; contraction D) Rebirth; bankruptcy E) Liquidation; sell off

A) Bankruptcy; liquidation

45) Which one of the following is characteristic of a firm that has chosen a captive company strategy? A) It is most appropriate for a company with a strong competitive position in a growing industry. B) The firm increases the scope of its functional activities. C) The firm gains a certainty of sales and production in return for becoming heavily dependent upon another firm for at least 75% of its sales. D) The captive company acts as an angel to another firm. E) It is the first phase for the company to execute a turnaround strategy.

A) It is most appropriate for a company with a strong competitive position in a growing industry.

49) Which one of the following is not a characteristic of a firm that has chosen a captive company strategy? A) It is most appropriate for a company with a strong competitive position in a growing industry. B) The firm reduces its functional activities to reduce costs. C) The firm gains a certainty of sales and production in return for becoming heavily dependent upon another firm for at least 75% of its sales. D) One of its customers makes up a large percentage of the company's sales and wants the company to keep operating as its supplier. E) Management desperately seeks an "angel" to guarantee the company's continued existence.

A) It is most appropriate for a company with a strong competitive position in a growing industry.

31) Studies reveal that over one-half to two-thirds of acquisitions are failures primarily because A) the premiums paid were too high for the firm to earn their cost of capital. B) due diligence was not conducted. C) the premiums were too high to finance and resulted in bankruptcy. D) there were unresolved management conflicts. E) there was a clash of management philosophies.

A) the premiums paid were too high for the firm to earn their cost of capital.

20) In many cases, ________ integration is more profitable than ________ integration. A) forward; backward B) vertical; backward C) backward; vertical D) backward; forward E) mass; forward

Answer: D

5) Corporate parenting is the coordination of cash flow among units.

Answer: FALSE

52) The two basic growth strategies are concentration and strategic alliances.

Answer: FALSE

57) With taper integration, a firm internally makes 100% of its key supplies and completely controls its distributors.

Answer: FALSE

59) A long-term contract is considered vertical integration.

Answer: FALSE

6) Vertical integration is going backward on an industry's value chain.

Answer: FALSE

76) Discuss the differences among full integration, taper integration, and quasi-integration.

Answer: A firm's level of vertical integration can range from total ownership of the value chain to no ownership at all. Under full integration, a firm itself makes all of its key supplies and completely controls its distributors. With taper integration, a firm itself produces less than half of its requirements and buys the rest from outside suppliers. This is also known as concurrent sourcing. Under quasi-integration, a firm does not make any of its key supplies, but instead buys most of its requirements from outside suppliers that are under its partial control.

74) Why is growth a very attractive strategy?

Answer: A growing flow of revenue into a highly leveraged corporation can create a large amount of organization slack (unused resources) that can be used to quickly resolve problems and conflicts between departments and divisions. Growth also provides a big cushion for turnaround in case a strategic error is made. Larger firms also have more bargaining power than do small firms and are more likely to obtain support from key stakeholders in case of difficulty. A growing firm offers more opportunities for advancement, promotion, and interesting jobs. Growth itself is exciting and ego enhancing for everyone. The marketplace and potential investors tend to view a growing corporation as a "winner" or "on the move." Executive compensation tends to get bigger as an organization increases in size. Large firms are also more difficult to acquire than smaller ones—thus, an executive's job in a large firm is more secure.

78) Define a retrenchment strategy. Discuss the more popular options.

Answer: A retrenchment strategy may be used when a company has a weak competitive position in some or all of its product lines resulting in poor performance—sales are down and profits are becoming losses. The more popular options are the turnaround, becoming a captive company, selling out, bankruptcy, and liquidation. Turnaround strategy emphasizes the improvement of operational efficiency and is probably most appropriate when a corporation's problems are pervasive, but not yet critical. The three phases of a turnaround strategy are contraction, consolidation and rebirth. A captive company strategy is the giving up of independence in exchange for security. If a corporation with a weak competitive position in this industry is unable either to pull itself up by its bootstraps or to find a customer to which it can become a captive company, it may have no choice but to sell out. Bankruptcy involves giving up management of the firm to the courts in return for some settlement of the corporation's obligations. Liquidation is the termination of the firm.

26) Adding a related or complementary product to a corporation's business units is called A) concentration. B) horizontal growth. C) concentric diversification. D) vertical growth. E) conglomerate diversification.

Answer: C

61) Vertical integration is always more efficient than the marketplace.

Answer: FALSE

98) What is portfolio analysis?

Answer: In portfolio analysis, top management views its product lines and business units as a series of investments from which it expects a profitable return. Corporate headquarters is in the role of an internal banker. The product lines/business units form a portfolio of investments that top management must constantly juggle to ensure the best return on the corporation's invested money.

4) Corporate strategy deals primarily with the choice of direction for the firm as a whole and the management of its business or product portfolio.

Answer: TRUE

50) The most widely pursued corporate directional strategies are those designed to achieve growth.

Answer: TRUE

51) A merger is a transaction involving two or more corporations in which stock is exchanged, but from which only one corporation survives.

Answer: TRUE

53) Backward integration is going backward on an industry's value chain.

Answer: TRUE

54) Vertical integration is the degree to which a firm operates vertically in multiple locations on an industry's value chain from extracting raw materials to manufacturing to retailing.

Answer: TRUE

55) Backward integration is often more profitable than forward integration.

Answer: TRUE

56) BP and Royal Dutch Shell are examples of fully integrated firms because they internally make 100% of their key supplies and completely control their distributors.

Answer: TRUE

58) An example of forward quasi-integration would be a large pharmaceutical firm that acquires part interest in a drugstore chain in order to guarantee that its drugs have access to the distribution channel.

Answer: TRUE

60) Horizontal growth can be achieved by expanding the firm's products into other geographic locations and/or by increasing the range of products and services offered to current markets.

Answer: TRUE

62) Some companies have moved away from vertical growth strategies toward cooperative contractual relationships with suppliers and even with competitors.

Answer: TRUE

64) The probability of succeeding by moving into a related business is a function of a company's position in its core business.

Answer: TRUE

65) Companies following a related diversification strategy appear to be higher performers and survive longer than companies with narrower scope following a pure concentration strategy.

Answer: TRUE

66) Strategic managers who adopt a conglomerate diversification strategy are primarily concerned with financial considerations of cash flow or risk reduction.

Answer: TRUE

68) Conglomerate diversification is diversifying into an industry unrelated to its current one.

Answer: TRUE

69) If a new business is very similar to that of the acquiring firm, it adds little new to the corporation and only marginally improves performance.

Answer: TRUE

71) Stability strategies can be very useful in the short run, but they can be dangerous if followed for too long.

Answer: TRUE

72) When Sony's CEO, Howard Stringer, eliminated 10,000 jobs and closed 11 plants, he was addressing the contraction phase of the turnaround strategy.

Answer: TRUE

92) The GE Business Screen is based on long-term industry attractiveness and business strength/competitive position.

Answer: TRUE

94) According to the BCG Growth-Share Matrix, dogs should be either sold off or managed carefully for the small amounts of cash they can generate.

Answer: TRUE

95) According to the BCG Growth-Share Matrix, question marks are also known as "problem children."

Answer: TRUE

96) A limitation of the BCG Growth-Share Matrix is the questionable link between market share and profitability.

Answer: TRUE

97) One limitation of portfolio analysis is that it provides an illusion of scientific rigor.

Answer: TRUE

99) Describe the four categories of the BCG Growth-Share Matrix.

Answer: The four categories of the BCG Growth-Share Matrix are question marks, stars, cash cows, and dogs. Question marks are new products with the potential for success, but they need a lot of cash for development. Stars are market leaders typically at the peak of their product life cycle and are usually able to generate enough cash to maintain their high share of the market and contribute to the company's profits. Cash cows typically bring in far more money than is needed to maintain their market share. In this declining stage of their life cycle, these products are "milked" for cash that will be invested in new question marks. Dogs have low market share and do not have the potential to bring in much cash because they are in unattractive industries. Dogs should be either sold off or managed carefully for the small amount of cash they can generate.

77) Discuss the more popular stability strategies.

Answer: The more popular stability strategies include the pause-proceed with caution, no change, and profit strategies. A pause-proceed with caution strategy is, in effect, a timeout—an opportunity to rest before continuing a growth or retrenchment strategy. It is a deliberate attempt to make only incremental improvements until the particular environmental situation changes. A no change strategy is a decision to do nothing new—a choice to continue current operations and policies for the foreseeable future. This strategy's success depends on a lack of significant change in a firm's situation. A profit strategy is a decision to do nothing new in a worsening situation but instead to act as though the company's problems are only temporary. This strategy is useful only to help a company get through a temporary difficulty.

73) Discuss the three general orientations comprising directional strategy.

Answer: The three general orientations comprising directional strategy (sometimes referred to as grand strategies) are growth, stability, and retrenchment. Growth strategies expand the company's activities. Stability strategies make no change to the company's current activities. Retrenchment strategies reduce the company's level of activities. Having chosen the general orientation (such as growth), a company's managers can select from several more specific corporate strategies such as concentration within one product line/industry or diversification into other products/industries. These strategies are useful both to corporations operating in only one industry with one product line and to those operating in many industries with many product lines.

75) Discuss the two basic growth strategies.

Answer: The two basic growth strategies are concentration on the current product line in one industry and diversification into other product lines in other industries. If a company's product lines have real growth potential, concentration of resources on those product lines makes sense as a strategy for growth. Companies begin thinking about diversification when their growth has plateaued and opportunities for growth in the original business have been depleted.

90) Which of the following is not one of the advantages of portfolio analysis? A) The graphic depiction facilitates communication. B) It provides the basis for impartial objectivity from which to make decisions. C) It encourages top management to evaluate each of the corporation's businesses individually. D) It raises the issue of cash flow availability for use in expansion and growth. E) It stimulates the use of externally oriented data to supplement management's judgment.

B) It provides the basis for impartial objectivity from which to make decisions.

24) Which strategy did Delta choose when it acquired Northwest Airlines to obtain access to Northwest's Asian markets? A) a retrenchment strategy using horizontal integration through internal means B) a horizontal integration strategy C) a stability strategy using concentric diversification D) a growth strategy using vertical integration through external means E) a retrenchment strategy using a concentration method

B) a horizontal integration strategy

47) Which strategy involves giving up management of the firm to the courts in return for some settlement of the corporation's obligations? A) liquidation B) bankruptcy C) diversification D) divestment E) consolidation

B) bankruptcy

2) Which kind of corporate strategy deals with the firm's overall orientation toward growth? A) portfolio strategy B) directional strategy C) parenting strategy D) cooperative strategy E) functional strategy

B) directional strategy

39) The controversy surrounding external versus internal growth finds A) external growth appears to be superior financially to internal growth. B) internal growth appears to be superior financially to external growth. C) there appears to be no financial advantage to either. D) acquisitions have a lower survival rate than new internally generated business ventures. E) strategic alliances are superior to both.

B) internal growth appears to be superior financially to external growth.

42) Which strategy is most appropriate for a company in an industry in which the future is expected to continue as an extension of the present? A) horizontal integration strategy B) no change strategy C) retrenchment strategy D) pause/proceed with caution strategy E) profit strategy

B) no change strategy

29) With conglomerate diversification, the focus is on A) product-market synergy. B) sound investment and value-oriented management. C) employee satisfaction. D) similar product offerings. E) market demand.

B) sound investment and value-oriented management.

15) The purpose of vertical growth is to A) take over a function previously supplied by a former employer. B) take over a function previously provided by a supplier or by a distributor. C) acquire a company of similar objective. D) sell a company encumbered with debt. E) expand to countries with strong trade alliances.

B) take over a function previously provided by a supplier or by a distributor.

89) A simple way to portray a corporation's portfolio of investments is by using the A) SWOT Matrix. B) transaction cost economics. C) BCG Growth-Share Matrix. D) SFAS Matrix. E) IFAS Matrix.

C) BCG Growth-Share Matrix.

88) An example of a company that did not blindly follow the prescriptions of a portfolio model was A) Apple. B) Nike. C) General Mills. D) Dell. E) IBM.

C) General Mills.

91) Which of the following is not one of the limitations of portfolio analysis? A) It contains value-laden terminology that can lead to self-fulfilling prophecies. B) It is not difficult: Easy to define product/market segments. C) It relies too heavily on objective judgments. D) It suggests the use of standard strategies which may be impractical or may miss potential opportunities. E) It provides an illusion of scientific rigor.

C) It relies too heavily on objective judgments.

16) The purchase of the supplier Carroll's Foods for its hog-growing facilities by Smithfield Foods, the world's largest pork processor, is an example of A) forward integration. B) horizontal integration. C) backward integration. D) transferred integration. E) mass integration.

C) backward integration.

84) According to the BCG Growth-Share Matrix, those products with low market share in an unattractive industry that do not have the potential to bring in much cash are called A) cash cows. B) lost leaders. C) dogs. D) question marks. E) stars.

C) dogs.

43) Which of the following describes a turnaround strategy? A) a form of divestment and is appropriate when corporate problems can be traced to the poor performance of an SBU or product line B) occurs when the corporation reduces the scope of some of its functional activities and becomes "captive" to another firm C) emphasizes improving operational efficiency and is appropriate when a corporation's problems are pervasive, but not yet critical D) occurs when a corporation liquidates all its assets E) involves adding different products or divisions to the corporation

C) emphasizes improving operational efficiency and is appropriate when a corporation's problems are pervasive, but not yet critical

8) Which one of the following directional strategies is most frequently used in corporations? A) stability B) consolidation C) growth D) retrenchment E) expansion

C) growth

3) Which kind of corporate strategy deals with the manner in which the firm coordinates activities and builds corporate synergies through resource sharing and development? A) portfolio strategy B) directional strategy C) parenting strategy D) cooperative strategy E) functional strategy

C) parenting strategy

79) One of the most popular aids to developing corporate strategy in multi-business corporations that views business units in terms of the cash they generate is called A) PIMS. B) segmentation analysis. C) portfolio analysis. D) industry analysis. E) diversification study.

C) portfolio analysis.

38) Research comparing concentric with conglomerate diversification concludes that A) conglomerate diversification is always less profitable than concentric diversification. B) concentric diversification is always less profitable than conglomerate diversification. C) the relationship between relatedness and performance follows an inverted U-shaped curve. D) neither concentric nor conglomerate diversification are ever profitable. E) for optimum effectiveness both conglomerate and concentric diversification should be utilized in tandem.

C) the relationship between relatedness and performance follows an inverted U-shaped curve.

86) Which of the following is not one of the limitations of the BCG Growth-Share Matrix? A) It is too simplistic. B) The link between market share and profitability is questionable. C) Growth rate is only one aspect of industry attractiveness. D) The market leader is ignored in the analysis. E) Small competitors with fast-growing market share are ignored.

D) The market leader is ignored in the analysis.

40) The stability strategy is appropriate for all of the following circumstances EXCEPT A) useful in the short-run but can be dangerous if followed too long. B) most appropriate for reasonably successful corporations in a reasonably predictable environment. C) when a firm is continuing its current activities without a significant change in direction. D) appropriate when the industry is in decline. E) popular with small business owners who have found a niche and are happy with their success.

D) appropriate when the industry is in decline.

87) Underlying the BCG Growth-Share Matrix is the concept of the A) product life cycle. B) industry life cycle. C) market size. D) experience curve. E) industry profitability.

D) experience curve.

41) Which strategy is most appropriate as a temporary strategy to enable a corporation to consolidate its resources after prolonged rapid growth in an industry now facing an uncertain future? A) horizontal integration strategy B) no change strategy C) retrenchment strategy D) pause/proceed with caution strategy E) profit strategy

D) pause/proceed with caution strategy

19) An attempt to explain that vertical integration is more efficient than contracting for goods and services in the marketplace when the transaction costs of buying goods on the open market becomes too great has been proposed by A) population theory. B) institution theory. C) freakonomics. D) transaction cost economics. E) transaction growth theory.

D) transaction cost economics.

28) Which strategy might be the most likely when management realizes that the current industry is unattractive and that the firm lacks outstanding skills that it could easily transfer to related products or services in other industries? A) concentration B) horizontal growth C) concentric diversification D) vertical growth E) conglomerate diversification

E) conglomerate diversification

27) Growth through diversification out of an industry into an unrelated industry is called A) concentration. B) horizontal growth. C) concentric diversification. D) vertical growth. E) conglomerate diversification.

E) conglomerate diversification.

23) A firm's expansion into other geographic locations and/or increasing the range of products and services offered to current markets is called A) forward vertical growth. B) diversification. C) backward vertical growth. D) captive company strategy. E) horizontal growth.

E) horizontal growth.

80) In the Boston Consulting Group's Growth-Share Matrix, the relative competitive position of a product or division is defined as A) its market share. B) its gross sales divided by its market share. C) its market share multiplied by that of its nearest competitor. D) its market share divided by that of the smallest other competitor. E) its market share divided by that of the largest other competitor.

E) its market share divided by that of the largest other competitor.

85) According to the BCG Growth-Share Matrix, the key to success with this model is A) effective management. B) competitive positioning. C) innovative initiative. D) industry growth. E) market share leadership.

E) market share leadership.

22) When Bristol-Myers Squibb purchased 17% of ImClone's common stock to gain access to a new drug, it was using which type of integration? A) full integration B) long-term contracts C) backwards integration D) taper integration E) quasi integration

E) quasi integration

82) According to the BCG Growth-Share Matrix, market leaders that typically are at the peak of their product life cycle and are usually able to generate enough cash to maintain their high share of the market are called A) cash cows. B) lost leaders. C) dogs. D) question marks. E) stars.

E) stars.