Q&A Hero

Q: When firms diversify into unrelated businesses, the primary potential benefits are horizontal relationships, i.e., businesses sharing tangible and intangible resources.

Q: Diversification initiatives must be justified by the creation of value for shareholders.

Q: All diversification moves, including those involving mergers and acquisitions, erode performance.

Q: Corporate-level strategy focuses on gaining short-term revenue through managing operations in multiple businesses.

Q: Reasons for acquisition failure include: ineffective integration of the acquisition, too high of a premium paid for the common stock of the target company, or inability to understand how the assets of the acquired firm would fit with the lines of business of the existing company.

Q: At times, the only other people who may have benefited from a merger-acquisition were the shareholders of the acquired firms.

Q: Many acquisitions ultimately result in divestiture.

Q: The Hewlett-Packard and Autonomy merger in 2011 is an example of a successful merger.

Q: Research shows that the vast majority of acquisitions results in value creation rather than value destruction.

Q: Discuss how the potential benefits of diversification may be adversely affected by conflicts between manager interests and stockholder interests. Hint: Egotism, growth for the sake of growth, antitakeover tactics.

Q: (p. 226-228) Strategic alliances are arrangements in which two firms join forces and form a cooperative partnership. Discuss the advantages and disadvantages of strategic alliances as well as guidelines for reducing conflict between the partners.

Q: (p. 224-226) Discuss some of the potential benefits of divestment.

Q: Summarize the advantages and disadvantages of mergers and acquisitions as a means of diversification.

Q: Explain the uses and limitations of portfolio management matrices such as the growth-share matrix developed by the Boston Consulting Group (BCG).

Q: What are the primary benefits and risks associated with unrelated diversification?

Q: Explain how transaction cost analysis can provide insights into vertical integration decisions.

Q: What are some of the key issues to take into account when considering whether or not to vertically integrate?

Q: Briefly explain the advantages and disadvantages of vertical integration.

Q: What are the primary benefits and risks associated with related diversification?

Q: Antitakeover tactics include all of the following EXCEPT _________. A. greenmail B. poison pills C. golden parachutes D. golden handcuffs

Q: The term golden parachute refers to _________. A. a clause requiring that huge dividend payments be made upon takeover B. pay given to executives fired because of a takeover C. financial inducements offered by a threatened firm to stop a hostile suitor from acquiring it D. managers of a firm in a hostile takeover approaching a third party about making the acquisition

Q: An antitakeover tactic in which existing shareholders have the option to buy additional shares of stock at a discount to the current market price is called ______. A. greenmail B. a golden parachute C. a poison pill D. scorched earth

Q: The antitakeover tactic, _______, is when a firm offers to buy shares of their stock from a company (or individual) planning to acquire their firm at a higher price than the unfriendly company paid for it. A. golden parachute B. poison pill C. greenmail D. scorched earth

Q: According to Michael Porter, there is a tremendous allure to _________. It is the big play, the dramatic gesture. With one stroke of the pen you can add billions to size, get a front-page story, and create excitement in markets. A. strategic alliances and joint ventures B. internal development C. mergers and acquisitions D. differentiation strategies

Q: Internal development may be time consuming and, therefore, firms may forfeit the benefits of speed that growth through __________ and __________ can provide. A. strategic alliances; joint ventures B. strategic alliances; mergers C. mergers; acquisitions D. mergers; strategic alliances

Q: Which of the following statements regarding internal development as a means of diversification is FALSE? A. Many companies use internal development to extend their product or service offers. B. An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services. C. The firm is able to capture wealth created without having to share the wealth with alliance partners. D. Firms can often develop products or services at a lower cost, if they rely on their own resources instead of external funding.

Q: Which of the following is not part of a good guideline list for managing strategic alliances? A. establishing a clear understanding between partners B. not shortchanging your partner C. relying primarily on a contract to make the joint venture work D. working hard to ensure a collaborative relationship between partners

Q: Cooperative relationships such as __________ have potential advantages such as entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies. A. joint ventures B. mergers C. acquisitions D. joint ventures and strategic alliances

Q: Verizon Wireless and ILS Technology have a _________ whereby Verizon integrates technology developed by ILS to improve its machine-to machine (M2M) data transmission systems. M2M systems allow firms to securely transmit data to and from various devices. A. joint diversification B. divestment C. strategic alliance D. global integration

Q: Divesting of businesses can accomplish many different objectives, except _______. A. enabling managers to focus their efforts more directly on the core businesses of the firm B. providing the firm with more resources to spend on more attractive alternatives C. dispersing manager focus D. raising cash to help fund existing businesses

Q: The downsides or limitations of mergers and acquisitions include all of the following EXCEPT: A. Premiums that are frequently paid to acquire a business are expensive. B. Difficulties exist in integrating the activities and resources of the acquired firm into on-going operations. C. There can be many cultural issues that can doom an otherwise promising acquisition. D. It is a slow means to enter new markets and acquire skills and competences.

Q: The primary means by which a firm can diversify are __________, _________, and ________. A. mergers and acquisitions; differentiation; overall cost leadership B. mergers and acquisitions; joint ventures and strategic alliances; internal development C. joint ventures and strategic alliances; integration of value chain activities; acquiring human capital D. mergers and acquisitions; internal development; differentiation

Q: All of the following are limitations (or downsides) of the BCG (Boston Consulting Group) matrix EXCEPT: A. Every business cannot be accurately measured and compared on the two dimensions. B. It takes a dynamic view of competition which can lead to overly complex analyses. C. It views each business as a stand-alone entity and ignores the potential for synergies across businesses. D. While easy to comprehend, the BCG matrix can lead to some troublesome and overly simplistic prescriptions.

Q: In the BCG Growth Share Matrix, the suggested strategy for Stars is to ________. A. milk them to finance other businesses B. invest large sums to gain a good market share C. maintain position and after the market growth slows use the business to provide cash flow D. not invest in them and to shift cash flow to other businesses

Q: In managing the corporate portfolio, the BCG matrix would suggest that __________. A. Dogs should be invested in to increase market share and become Cash Cows B. Stars are in low growth markets and can provide excess cash to fund other opportunities C. Cash Cows require substantial cash outlays to maintain market share D. Question Marks can represent future Stars if their market share is increased

Q: A Cash Cow, in the BCG framework, refers to a business that has _______________. A. high market growth and relatively high market share B. relatively low market share and low market growth C. relatively low market share and high market growth D. low market growth and relatively high market share

Q: Portfolio management frameworks, such as the BCG matrix, share which of the following characteristics? A. Businesses are plotted on a 3-dimensional grid. B. Grid dimensions are based on external environments and internal capabilities/market positions. C. Position in the matrix suggests a need for sharing synergies. D. They are most helpful in helping businesses develop types of competitive advantage.

Q: In the BCG Matrix, a business that has a low market share in an industry characterized by high market growth is termed a ____________. A. Star B. Cash Cow C. Question Mark D. Dog

Q: When using a BCG matrix, a business that currently holds a large market share in a rapidly growing market and has minimal or negative cash flow would be known as a __________. A. Cash Cow B. Dog C. Star D. Question Mark

Q: Portfolio management matrices are applied to what level of strategy? A. departmental level B. business level C. international level D. corporate level

Q: According to the text, corporate restructuring includes A. capital restructuring, asset restructuring, and technology restructuring B. global diversification, capital restructuring, and asset restructuring C. management restructuring, financial restructuring, and procurement restructuring D. capital restructuring, asset restructuring, and management restructuring

Q: Creating value within business units can happen when a firm tries to find and acquire either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. This is action is known as ______. A. parenting B. leveraging core competencies C. restructuring D. sharing activities

Q: Creating value within business units can happen when the corporate office helps subsidiaries make wise choices in their own acquisitions, divestures, and new ventures. This is known as ________. A. restructuring B. parenting C. leveraging core competencies D. increasing market power

Q: Vertical integration is attractive when ____________. A. internal administrative costs are higher than transaction costs B. transaction costs are higher than internal administrative costs C. transaction costs and internal administrative costs are equal D. search costs are higher than monitoring costs

Q: Transaction costs include all of the following costs EXCEPT A. search costs B. negotiating costs C. agency costs D. monitoring costs

Q: A firm should consider vertical integration when ___________. A. the competitive situation is highly volatile B. customer needs are evolving C. the suppliers of the firm willingly cooperate with the firm D. the suppliers of raw materials to the firm are often unable to maintain quality standards

Q: Unbalanced capacities that limit cost savings, difficulties in combining specializations, and reduced flexibility are disadvantages associated with ___________. A. strategic alliances B. divestment C. horizontal integration D. vertical integration

Q: The risks of vertical integration include all of the following EXCEPT: A. costs and expenses associated with increased overhead and capital expenditures. B. problems associated with unbalanced capacities along the value chain. C. lack of control over valuable assets. D. additional administrative costs associated with managing a more complex set of activities.

Q: Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input into its manufacturing process. This is an example of ______________. A. leveraging core competencies B. sharing activities C. pooled negotiating power D. vertical integration

Q: When management uses common production facilities or purchasing procedures to distribute different but related products, they are ________________. A. building on core competencies B. achieving process gains C. sharing activities D. using portfolio analysis

Q: Sharing core competencies is one of the primary potential advantages of diversification. In order for diversification to be most successful, it is important that _____________. A. the similarity required for sharing core competencies must be in the value chain, not in the product B. the products use similar distribution channels C. the target market is the same, even if the products are very different D. the methods of production are the same

Q: For a core competence to be a viable basis for the corporation strengthening a new business unit, there are three requirements. Which one of the following is not one of these requirements? A. The competence must help the business gain strength relative to its competition. B. The new business must be similar to existing businesses to benefit from a core competence. C. The collection of competencies should be unique, so that they cannot be easily imitated. D. The new business must have an established large market share.

Q: Casio, a giant electronic products producer, synthesizes it abilities in miniaturization, microprocessor design, material science, and ultrathin precision castings to produce digital watches. It uses the same skills to produce card calculators, digital cameras, and other small electronics. These collective skills are known as _________________. A. core competencies B. strategic resources C. shared activities D. economies of scope

Q: At Cooper Industries, there are few similarities in the products it makes or the industries in which it completes. The corporate office adds value through such activities as superb human resource practices and budgeting systems. This is an example of __________________. A. using related diversification to achieve value by leveraging core competencies to attain economies of scope B. using related diversification to achieve value by leveraging core competencies to acquire market power C. using unrelated diversification to achieve value through portfolio management in order to acquire financial synergies D. using unrelated diversification to achieve value through restructuring and parenting

Q: Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input to its manufacturing process. This is an example of _______________. A. using related diversification to achieve value by pooling negotiating power to achieve market power B. using related diversification to achieve value by leveraging core competencies to achieve economies of scope C. using related diversification to achieve value by integrating vertically in order to acquire market power D. using related diversification to achieve value by integrating vertically in order to attain economies of scope

Q: McKesson, a large distribution company, sells many product lines such as pharmaceuticals and liquor through its super warehouses. This is an example of ____________. A. using related diversification to achieve value by sharing activities to create economies of scope B. using related diversification to achieve value by leveraging core competencies to create market power C. using unrelated diversification to create value by managing its portfolio to create financial synergies D. using unrelated diversification to create value by managing its portfolio to create restructuring advantages

Q: Diversification initiatives include all of the following except ___________________. A. mergers and acquisitions B. strategic alliances C. joint ventures D. shareholder development

Q: Corporate-level strategy focuses on _____________. A. gaining long-term revenue B. gaining short-term profits C. decreasing business locations D. managing investment bankers and their interests

Q: Which of the following is not a reason for merger and acquisition failures? A. The acquiring company pays too high a premium for the common stock of the target company. B. Top executives act in their best interests rather than those of the shareholders. C. The acquired company assets are poorly integrated into the acquiring company business lines. D. The acquisition leads to value creation.

Q: The Cisco acquisition of Pure Digital Technologies, the parent of the Flip video camera, failed because __________________. A. Cisco had valuable competencies B. the Flip division of Cisco was slow and less responsive to market pressures C. consumers continued to purchase the camera D. Cisco had good vision of the market

Q: A golden parachute is a prearranged contract with managers specifying that, in the event of a hostile takeover, the target company managers will be paid a significant severance package.

Q: Greenmail is an offer by a company, threatened by takeover, to offer its stock at a reduced price to a third party.

Q: In recent years, many high tech firms such as Priceline.com have suffered from the negative impact of uncontrolled growth.

Q: An advantage of internal development is that firms do not have to combine activities across the value chains of many companies and merge company cultures.

Q: An advantage of a firm entering into a strategic alliance is that it does not have to share the wealth with its partners.

Q: One of the obligatory aspects of strategic alliances is the dependence on written contracts to delimit responsibilities and enforce compliance.

Q: The potential advantages of strategic alliances and joint ventures include entering new markets as well as developing and diffusing new technologies.

Q: Through joint ventures, firms can directly acquire the assets and competencies of other firms.

Q: Among the advantages of acquisitions are the expensive premiums that are frequently paid to acquire a business.

Q: An advantage of mergers and acquisitions is that they can enable a firm to rapidly enter new product markets.

Q: Discuss some of the effective turnaround strategies.

Q: Explain the advantages of the four alternative strategies of maintaining, harvesting, exiting, and consolidating that are associated with the decline stage of the market life cycle.

Q: Explain how firms can use reverse positioning and breakaway positioning when faced with the maturity phase of the industry life cycle.

Q: The Internet and digital technologies offer opportunities and pitfalls to companies using overall cost leadership, differentiation, and focus strategies. Discuss the statement and provide examples that support your argument.

Q: Explain what factors determine the sustainability of company competitive advantage and provide an example of this in action.

Q: Discuss the uses and limitations associated with the industry life cycle concept as a framework for studying strategy formulation at the business level.

Q: What are the benefits and risks associated with combining overall cost leadership and differentiation strategies?

Q: Discuss the risks associated with each of these forms of competitive advantage: overall cost leadership, differentiation, and focus.

Q: Explain how a differentiation strategy enables a business to address the five competitive forces in such a way that it can enjoy high levels of profitability.

Q: Discuss how a competitive advantage can be attained through differentiation using the value chain concept.