What should senior management's primary motivation be for implementing a diversification strategy?
to create shareholder value
________ 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
_______ refers to a firm's strategic resources that reflect the collective learning in the organization.
Core competencies
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
_______ is when value-chain activities of two or more businesses are performed by only one of the businesses.
Sharing activities
The process of firms expanding their operations by entering new businesses is called
diversification
One way of achieving cost savings by sharing activities among business units is to apply economies of _____ in purchasing.
scale
Companies that implement a related diversification strategy may benefit from which of the following? (Check all that apply.)
economies of scope
leveraging core competencies and sharing activities
horizontal relationships across different businesses in the diversified corporation
A firm's core competencies include which of the following? (Check all that apply.)
Integrating multiple streams of technologies
Coordinating diverse production skills
Marketing diverse products and services
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 competencies must be difficult for competitors to imitate or find substitutes.
The core competency must have a part in at least one way in which a corporation's different businesses are similar.
The core competency must enhance competitive advantage(s) by creating superior customer value.
Firms pursuing differentiation strategies might engage in ______, such as using a shared order-processing system.
sharing activities
Sharing activities can potentially provide which of the following two payoffs? (Check all that apply.)
revenue enhancements
cost savings
Which of the following are the two types of market power?
vertical integration
pooled negotiating power
Which of the following are true about cost savings from sharing activities? (Check all that apply.)
Cost savings from sharing activities may come from many sources, including eliminating jobs and facilities.
It is the most common type of synergy and easiest to estimate.
_______ 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
When a company incorporates more processes toward the original source of raw materials, it is called ______ integration.
backward
______ refers to a firm's strategic resources that reflect the collective learning in the organization.
Core competencies
Which of the following are examples of the risks of vertical integration? (Check all that apply.)
additional administrative costs associated with managing a more complex set of activities
loss of flexibility resulting from large investments
problems associated with unbalanced capacities along the value chain
While sharing activities may decrease costs, increase revenues, and enhance product differentiation, it sometimes can have an unintended negative effect, such as Blan
k
lowered perceptions of the product's quality and prestige
Which of the following are transaction-related costs, according to the transaction cost perspective? (Check all that apply.)
costs associated with creating the contract
costs associated with monitoring and enforcing the terms of the contract
costs associated with negotiating terms
costs due to the searching for and purchase of inputs from an outside source
______ refers to firms' abilities to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment.
Market power
Which of the following are ways that synergy is created through the use of unrelated diversification? (Check all that apply.)
The corporate office contributes through parenting.
The corporate office adds value by allocating resources throughout the entire corporation to optimize corporate profitability goals.
The parent company restructures the acquired business.
One way to increase negotiating power with suppliers is
for similar business units to work together and pool their raw material procurement
Which of the following are ways that parent companies create value through their management expertise? (Check all that apply.)
providing consulting on business units' acquisitions, divestitures, and new internal development decisions
improving plans and budgets
providing central functions such as human resource management and procurement
______ is an expansion or extension of the firm by integrating preceding or successive production processes.
Vertical integration
Which of the following are quadrants in the Boston Consulting Group's portfolio matrix? (Check all that apply.)
question mark
dog
cash cow
Which of the following are benefits of vertical integration? (Check all that apply.)
proprietary access to new technologies
protection and control over valuable assets
simplified procurement and administrative procedures
a secured supply of raw materials or distribution channels
______ is a perspective where every market transaction involves specific costs.
Transaction cost
The primary goal in selecting the best means of diversification should be which vehicle will
create the greatest value for shareholders
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.
Synergy is created through business units' interactions with the corporate office.
Potential benefits are derived from vertical (hierarchical) relationships.
Mergers and acquisitions have been especially popular in high-technology and knowledge-based industries, because Blan
k
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
they help companies to get to market very quickly
Parenting advantage is the
positive contributions of the corporate office to a new business as a result of the expertise and support provided
Which of the following is one of the best-known portfolio management frameworks?
Boston Consulting Group's growth/share matrix
Which of the following are among the four actions that McKinsey suggested management should take to promote successful acquisition integration? (Choose all that apply.)
Commit full management effort to the change.
Institutionalize new behaviors and ways of operating.
Protect the base business.
Which of the following are examples of the risks of vertical integration? (Check all that apply.)
additional administrative costs associated with managing a more complex set of activities
loss of flexibility resulting from large investments
problems associated with unbalanced capacities along the value chain
Which of the following are objectives that divesting a business can accomplish for the parent? (Check all that apply.)
enabling managers to focus on the firm's core businesses
providing the firm with more resources to spend on attractive alternatives
raising cash to help fund existing businesses
Which of the following are ways a firm can achieve the benefits of diversification? (Check all that apply.)
mergers and acquisitions
internal development
strategic alliances or joint ventures
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 motives for and benefits of using mergers and acquisitions as a strategy? (Check all that apply.)
They provide a means for companies to enter new market segments.
They help obtain valuable resources that can help expand product and service offerings.
They provide the opportunity to attain synergy by leveraging core competencies, sharing activities, and building market power.
They are faster than building internal resources from scratch.
A(n) _____ is when two or more firms contribute equity to form a new legal entity.
Joint Venture
Which of the following are ways that parent companies create value through their management expertise? (Check all that apply.)
providing consulting on business units' acquisitions, divestitures, and new internal development decisions
improving plans and budgets
providing central functions such as human resource management and procurement
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
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
______ is entering a new business through investment in new facilities. It is often called corporate entrepreneurship and new venture development.
Internal development
______ is the exit of a business from a company's portfolio.
Divestment
Which statement is true about dealing with potential buyers during divestiture?
Develop a narrative to convince each buyer of the benefit to them
Which of the following statements about shareholders and managers are true? (Check all that apply.)
Shareholders expect managers to act in the best interest of shareholders.
Shareholders expect managers to maximize long-term shareholder value.
Shareholders expect managers to be rational beings.
A(n) ______ is a cooperative relationship between two or more firms.
strategic alliance
_____ 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
Which of the following are advantages of cooperative business relationships? (Choose all that apply.)
reduced value chain costs
development of new technologies
access to new markets
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 Blank
egotism
Which of the following are true about engaging in internal development? (Check all that apply.)
Difficulties with combining companies' value-chain activities and merging cultures are not an issue.
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.
Which of the following are antitakeover tactics that managers use? (Check all that apply.)
golden parachute
greenmail
poison pill
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
______ 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
Which of the following is an example of how managerial motives can erode value creation?
Managers who act in their own self-interest.
A(n) ______ 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
Which of the following statements about growth for growth's sake are correct?
CEOs often have huge incentives for increasing the size of their firm.
Many high-tech firms have suffered from the negative impact of uncontrolled growth.
CEOs are especially driven to pursue acquisitions.
Which of the following are traits of a healthy ego? (Check all that apply.)
clearheadedness
ability to cope with change
confidence
______ are managers' actions to avoid losing wealth or power as a result of a hostile takeover.
Antitakeover tactics
In addition to preventing a hostile takeover, greenmail
protects the jobs of the target firm's management
The main purpose of a golden parachute is to protect
top managers' income if they lose their jobs due to a hostile takeover
______ 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
