question

Corporate-level strategies are strategies a firm uses to diversify its operations from a single business competing in a single market into several product markets and, most commonly, into several businesses. a. True b. False

answer

b

question

If the businesses in the corporate portfolio are not worth more under the management of the corporation than they would be under any other ownership, then the corporate-level strategy has failed. a. True b. False

answer

a

question

An effective corporate strategy creates aggregate returns across all businesses that exceed what those returns would be without the strategy and contributes to the firm's strategic competitiveness and ability to earn above- average returns. a. True b. False

answer

a

question

A major advantage of diversification is that overall monitoring costs are reduced, since each separate business comes under the control of corporate headquarters. a. True b. False

answer

b

question

Successful product diversification is expected to increase the variability in the firm's profitability since the earnings are generated from several different business units. a. True b. False

answer

b

question

All of Krispy Kreme's revenues come from its one main product, doughnuts. It can be considered a classic example of a firm following a related constrained strategy. a. True b. False

answer

b

question

Revenues for United Parcel Service (UPS) are derived from the following business segments: 60 percent from U.S. package delivery operations, 22 percent from international package delivery, and 18 percent from non- packaging operations. The best description of the corporate level strategy of UPS is unrelated diversification. a. True b. False

answer

b

question

Related linked firms share more resources and assets between their businesses than do related constrained firms. a. True b. False

answer

b

question

Compared with related constrained firms, related linked firms share fewer resources and assets between their businesses, concentrating instead on transferring knowledge and core competencies between the businesses. a. True b. False

answer

a

question

United Technologies, Textron, Samsung, and Hutchison Whampoa Limited are examples of diversified firms that have no relationships between their businesses. These firms all use the strategy of unrelated diversification. a. True b. False

answer

a

question

A firm uses a corporate-level diversification strategy for a variety of reasons all of which have to do with ways to create value. a. True b. False

answer

b

question

Decisions to expand a firm's portfolio of businesses to reduce managerial risk can have a positive effect on the firm's value. a. True b. False

answer

b

question

Antitrust regulation, tax laws, and low performance are all value-neutral reasons why firms engage in diversification. a. True b. False

answer

a

question

Procter & Gamble (P&G) has a paper towel and baby diaper business that both use paper products. This is an example of value created through the sharing of activities. a. True b. False

answer

a

question

Economies of scope are cost savings resulting from a firm successfully leveraging, either through sharing or transferring, some of its capabilities and competencies developed in one business to another business. a. True b. False

answer

a

question

In a money-making effort, a small private university has decided to institute consulting services using its business faculty as consultants whose services would be sold to clients. This university is attempting to use its faculty to gain economies of scope. a. True b. False

answer

a

question

When firms share activities across units, they are often able to achieve increased value. a. True b. False

answer

a

question

Firms using the related constrained strategy share activities in order to create value. a. True b. False

answer

a

question

Firms that sold off related units in which resource sharing was a possible source of economies of scope have been found to produce lower returns than those that sold off businesses unrelated to the firm's core businesses. a. True b. False

answer

a

question

Firms seeking to create value through corporate relatedness use the related constrained strategy. a. True b. False

answer

b

question

Equator, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It plans to move one of its key managers from its plant in St. Louis to Ireland. This can be considered a method of transferring corporate-level core competencies. a. True b. False

answer

a

question

Market power exists when a firm is able to sell its products above the existing competitive level or decrease the costs of its primary and support activities below the competitive level, or both. a. True b. False

answer

a

question

Firms using a related diversification strategy may gain market power when successfully using their related constrained or related linked strategy. a. True b. False

answer

a

question

Vertical integration allows the firm to gain market power as the firm develops the ability to save on its operations, avoid market costs, improve product quality, and possibly protect its technology from rivals. a. True b. False

answer

a

question

Vertical integration exists when a company produces its own inputs (forward integration) or owns its own source of output distribution (backward integration). a. True b. False

answer

a

question

Google's diversification could lead the firm toward a related linked strategy and give the firm advantages in multipoint competition with competitors such as Facebook and Microsoft (Chapter 6 Strategic Focus). a. True b. False

answer

a

question

Google increasing use of a vertical integration strategy is in line with the extensive use of that strategy by many manufacturing firms. a. True b. False

answer

b

question

Many manufacturing firms are de-integrating and moving to independent supplier networks. a. True b. False

answer

a

question

Contract manufacturers who manage their customers' entire product line, and offer services ranging from inventory management to delivery and after-sales services are prime examples of vertical integration. a. True b. False

answer

b

question

A company that tries to balance both operational and corporate relatedness and fails risks incurring diseconomies of scope. a. True b. False

answer

a

question

Firms with both operational and corporate relatedness are favorites of investment analysts because the transparency and clarity of their financial statements clearly show the value-creation resulting from the combination of multiple businesses. a. True b. False

answer

b

question

It can be difficult for investors to actually observe the value created by a firm (such as Walt Disney) as it shares activities and transfers core competencies. a. True b. False

answer

a

question

Financial economies are cost savings realized through improved allocations of financial resources based on investments inside or outside the firm. a. True b. False

answer

a

question

An unrelated diversification strategy can create value through two types of financial economies: (1) efficient internal capital allocations, and (2) purchasing other firms, restructuring their assets, and selling them. a. True b. False

answer

a

question

A significant benefit of an internal capital market is that corporate headquarters has access to detailed and accurate information regarding the performance of the company's portfolio and can thus make better capital allocation decisions. a. True b. False

answer

a

question

A significant benefit of an internal capital market is limiting competitors' access to information about the performance of the individual businesses within the corporation. a. True b. False

answer

a

question

In a diversified firm, capital allocation can be adjusted according to more specific criteria than is possible with external market allocation of capital. a. True b. False

answer

a

question

The "conglomerate discount" occurs in large, highly diversified businesses and results from analysts not knowing how to value the vast array of large businesses with complex financial reports. a. True b. False

answer

a

question

In spite of the challenges associated with it, a number of firms continue to use the unrelated diversification strategy, especially in Europe and in emerging markets. a. True b. False

answer

a

question

One advantage of an unrelated diversification strategy in a developed economy is that competitors cannot easily imitate the financial economies, whereas they can easily replicate the value gained through the use of a related diversification strategy. a. True b. False

answer

b

question

Companies in emerging markets frequently use the unrelated diversification strategy because of the absence of a "soft infrastructure" in those markets. a. True b. False

answer

a

question

When implementing a restructuring strategy, a company would do best by focusing on mature, low-technology businesses rather than high-technology or service businesses. a. True b. False

answer

a

question

Companies creating financial economies through restructuring typically focus on high-technology businesses primarily because these firms are human-resource dependent. a. True b. False

answer

b

question

Diversification strategies can be used with both value-creating and value-neutral objectives. a. True b. False

answer

a

question

Different incentives to diversify sometimes exist, and the quality of a firm's resources may permit only diversification that is value neutral rather than value creating. a. True b. False

answer

a

question

Since the 1950s, U.S. government policy regarding antitrust concerns has remained constant. a. True b. False

answer

b

question

Corporate tax laws, rather than tax laws affecting individuals, have had the most impact on the firm's use of free cash flows for investment in acquisitions. a. True b. False

answer

b

question

Low firm performance is associated with increased diversification. a. True b. False

answer

a

question

Performance continues to increase as diversification increases from single business to unrelated diversification. a. True b. False

answer

b

question

Synergy exists when the value created by business units working together exceeds the value that those same units create working independently. a. True b. False

answer

a

question

Compared to diversification that is grounded in intangible resources, diversification based on financial resources only is more visible to competitors and thus more imitable and less likely to create value on a long-term basis. a. True b. False

answer

a

question

Research evidence shows that increased firm size and greater levels of diversification are correlated with increased executive compensation. a. True b. False

answer

a

question

If managers diversify a firm in a way that does not produce value, the firm risks capital market intervention. a. True b. False

answer

a

question

Golden parachutes protect managers from the negative consequences of over-diversifying a firm. a. True b. False

answer

a

question

Without strict governance mechanisms, the majority of executives will act in their own self-interest rather than acting as positive stewards of firm resources. a. True b. False

answer

b

question

The use of poison pills increases the chance that a poorly performing firm will be taken over. a. True b. False

answer

b

question

Knowing that their firms could be acquired if they are not managed successfully encourages executives to use value-creating diversification strategies. a. True b. False

answer

a

question

Corporate-level strategy is concerned with ______ and how to manage these businesses. a. whether the firm should invest in global or domestic businesses b. what product markets and businesses the firm should be in c. whether the portfolio of businesses should generate immediate above-average returns or should be troubled businesses which will create above-average returns only after restructuring d. whether to integrate backward or forward.

answer

b

question

The ultimate test of the value of a corporate-level strategy is whether the a. corporation earns a great deal of money. b. top management team is satisfied with the corporation's performance. c. businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership. d. businesses in the portfolio increase the firm's financial returns.

answer

c

question

The more "constrained" the relatedness of diversification, a. the fewer the linkages between the businesses within the portfolio owned by the firm. b. the wider the variation in the portfolio of businesses owned by the firm. c. the more links there are among the businesses owned by an organization. d. the lower the proportion of total organizational revenue derived from the dominant business.

answer

c

question

Wm. Wrigley Jr. Company once made only chewing gum. When Wrigley bought Life Savers (a line of candy mints) and Altoids (a line of breath mints) from Kraft, chewing gum then constituted less than 95 percent of revenues. Thus, Wrigley a. was moving away from its traditional single-business strategy toward a dominant strategy. b. was moving away from its traditional dominant strategy toward a related linked strategy. c. became a conglomerate since Life Savers and Altoids are unrelated businesses. d. probably planned to restructure these companies and sell them off.

answer

a

question

Usually a company is classified as a single business firm when revenues generated by the dominant business are greater than ____ percent. a. 99 b. 95 c. 90 d. 70

answer

b

question

The more sharing of resources and activities among businesses, the more diversification. a. linked b. constrained c. integrated d. intense

answer

b

question

A firm that earns less than 70 percent of revenue from its dominant business and has direct connections between its businesses is engaging in ______ diversification. a. unrelated b. related constrained c. related linked d. dominant business

answer

b

question

Revenues for United Parcel Service (UPS) come from the following business segments: 60 percent from U.S. package delivery operations, 22 percent from international package delivery, and 18 percent from non-packaging operations. Which best describes the corporate level strategy of UPS? a. single business b. dominant business c. related constrained d. related linked

answer

b

question

Which acquisition would be considered the LEAST related? a. A candy manufacturer purchases a chemical laboratory specializing in food flavorings. b. A chain of garden centers acquires a landscape architecture firm. c. A hospital acquires a long-term care nursing home. d. An upscale "white-tablecloth" restaurant chain acquires a travel agency.

answer

d

question

The lowest level of diversification is the ______ level. a. single-business b. dominant business c. related constrained d. unrelated

answer

a

question

The main difference between the related constrained level of diversification and the related linked level of diversification is a. the percentage of total organizational profitability that comes from the dominant business. b. the level of resources and activities shared among the businesses. c. whether the diversification is vertical or horizontal. d. whether the diversification is value-creating or value-neutral.

answer

b

question

The Publicis Groupe has three major groups of business (advertising, media, and digital) that share resources and capabilities. Publicis Groupe is using a diversification strategy. a. related linked b. related constrained c. unrelated d. dominant

answer

b

question

The Publicis Groupe uses the digital technology from its digital business to enhance the advertising products in its advertising group. This sharing of activities is characteristic of the ______ diversification strategy. a. related constrained b. related linked c. unrelated d. dominant

answer

a

question

The term "conglomerates" refers to firms using the ______ diversification strategy. a. unrelated b. related constrained c. related linked d. global

answer

a

question

Hutchison Whampoa Limited (HWL) has businesses in ports and related services, telecommunications, property and hotels, retail and manufacturing, and energy and infrastructure. HWL makes no efforts to share activities or transfer core competencies among the businesses. HWL is following a strategy of ______ diversification. a. dominant business b. related constrained c. related linked d. unrelated

answer

d

question

Firms use corporate-level diversification strategies for all the following reasons EXCEPT a. value-creating. b. value-neutral. c. value-reducing. d. value-diversifying

answer

d

question

Which of the following reasons for diversification is most likely to increase the firm's value? a. increasing managerial compensation b. reducing costs through business restructuring c. taking advantage of changes in tax laws d. conforming to antitrust regulation

answer

b

question

Which of the following is a value-reducing reason for diversification? a. enhancing the strategic competitiveness of the entire company b. expanding the business portfolio in order to diversify managerial employment risk c. gaining market power relative to competitors d. conforming to antitrust regulation

answer

b

question

An office management firm has developed a system for efficiently organizing small medical and dental practices both through proprietary software and through unique training programs for staff. It has recently acquired a firm specializing in providing management services for veterinary practices. The office management firm is hoping to a. achieve economies of scope. b. implement vertical integration. c. achieve financial economies through an unrelated acquisition. d. acquire specialized talent from the veterinary management company.

answer

a

question

Firms that have selected a related diversification corporate-level strategy seek to exploit a. control shared among business-unit managers. b. economies of scope between business units. c. the favorable demand of buyers. d. market power.

answer

b

question

Firms seek to create value from economies of scope through all of the following EXCEPT a. activity sharing. b. skill transfers. c. transfers of corporate core competencies. d. de-integration

answer

d

question

The basic types of operational economies through which firms seek value from economies of scope are a. synergies between internal and external capital markets. b. the leveraging of individual tangible resources. c. the sharing of value chain activities and support functions. d. joint ventures and outsourcing.

answer

c

question

Operational relatedness is created by ______ of a. sharing; core competencies. b. sharing; activities. c. transferring; core competencies. d. transferring; activities.

answer

b

question

Procter & Gamble (P&G) has a paper towel and baby diaper business, both of which use paper products. The firm's paper production plant produces inputs for both businesses. P&G most likely uses the ______ diversification strategy to create a. related constrained; operational relatedness. b. related linked; corporate relatedness. c. related constrained; corporate relatedness. d. related linked; operational relatedness.

answer

a

question

Which of the following is TRUE? a. Conglomerates no longer exist in the U.S. business scene, but are common in emerging markets. b. Unrelated diversified firms seek to create value through economies of scope. c. The sharing of intangible resources, such as know-how, between firms is a type of operational sharing in related diversifications. d. Related constrained firms share more tangible resources and activities between businesses than do related linked firms.

answer

d

question

Research has shown that horizontal acquisitions a. tend to have disappointing financial results in the long run. b. are being replaced by virtual acquisitions. c. result in lower levels of performance than unrelated acquisitions. d. are able to use activity sharing to successfully create economies of scope.

answer

d

question

A noted professional art academy has founded an "artists and friends" travel company specializing in tours for artists to scenic locales, using its faculty as traveling teachers. In addition, the art academy has purchased a framing company to both make frames for academy art works, but also to sell museum-quality framing services to the public. The art academy is engaging in diversification based on ______ relatedness. a. operational b. corporate c. intellectual d. constrained

answer

a

question

Dragonfly Publishers of children's books has purchased White Rabbit, another publisher of children's books. Both companies' books are sold to the same retail stores and schools. Their content is different, since Dragonfly produces children's literature, whereas White Rabbit focuses on child-level scientific and nature topics. Which of the following statements is probably TRUE about this acquisition? a. This is a horizontal acquisition. b. This is an example of virtual integration. c. Dragonfly is beginning to build a conglomerate. d. Economies of scope are unlikely to result from this acquisition.

answer

a

question

The purchasing of firms in the same industry is called a. unrelated diversification. b. vertical integration. c. networking the organization. d. horizontal acquisition.

answer

d

question

The ______ diversification strategy creates value in two ways. First, since the core competence has already been developed in one business, the firm does not have to allocate resources to develop it. Second, since the resource is intangible, competitors cannot easily imitate it. a. related constrained b. unrelated c. related linked d. dominant business

answer

c

question

The drawbacks to transferring competencies by moving key people into new management positions include all EXCEPT a. the people involved may not want to move. b. managerial competencies are not easily transferable to different organizational cultures. c. managers with these skills are expensive. d. top-level managers may resist having these key people transferred.

answer

b

question

Multipoint competition occurs when a. firms have multiple retail outlets. b. firms have multiple products in their primary industry. c. diversified firms compete against each other in several markets. d. firms have diversified portfolios of companies.

answer

c

question

One method of facilitating the transfer of competencies between firms is to a. virtually integrate the two firms. b. transfer key people into new management positions. c. share support activities, such as purchasing practices. d. restructure the weaker firm to mirror the structure of the more successful firm.

answer

b

question

Xanadu, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It plans to transfer one of its key managers from its plant in St. Louis to Ireland. What is the major threat to Xanadu's plan to transfer competencies from itself to the Irish firm? a. The St. Louis manager may quit Xanadu in order to remain in St. Louis. b. American pharmaceutical manufacturing techniques may not transfer to Ireland. c. Irish managers will refuse to take direction from a foreign executive. d. The cost of transferring U.S. managers overseas is usually not cost-effective.

answer

a

question

Acquisitions to increase market power require that the firm have a(n) ______ diversification strategy. a. unrelated b. related c. dominant-business d. single-business

answer

b

question

When diversification results in two companies, such as UPS and FedEx, simultaneously competing in the same product areas or geographic markets, this is called ______ competition. a. multiple b. multiportal c. multipoint d. multiplicit

answer

c

question

Virgin Group successfully transfers its marketing core competence across airlines, cosmetics, music, drinks, mobile phones, health clubs, and a number of other businesses. Virgin follows a(n) ______ diversification corporate strategy. a. dominant-business b. related constrained c. related linked d. unrelated

answer

c

question

The Mars acquisition of the Wrigley assets was part of its related constrained diversification and added market share to the Mars/Wrigley integrated firm. It allowed Mars to gain ______ because it could sell its products above the market level or reduce its costs below the market level. a. multipoint competition b. virtual integration c. market power d. vertical integration

answer

c

question

Backward integration occurs when a company a. produces its own inputs. b. owns its own source of distribution of outputs. c. is concentrated in a single industry. d. is divesting unrelated businesses.

answer

a

question

PorkPride Foods produces hams and other meat products. It owns hog raising operations. This is an example of a ______ business. a. de-integrated b. vertically integrated c. totally integrated d. horizontally integrated

answer

b

question

A company pursuing vertical integration can gain market power over its competitors through all of the following EXCEPT a. improved adjustment to technological changes. b. savings on operations costs. c. improved product quality. d. avoidance of market costs.

answer

a

question

Which of the following is NOT a limitation directly relating to vertical integration? a. bureaucratic costs b. the loss of flexibility through investment in specific technologies c. capacity balance and coordination problems from changes in demand d. imitation of core technology by potential competitors

answer

d

question

Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the United States make this type of brick. Specialty Steel has decided to buy one of these brick plants. This is an example of a. backward integration. b. forward integration. c. horizontal integration. d. virtual integration

answer

a

question

Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the United States make this type of brick. Specialty Steel owns one of these brick plants and buys all of its production. The other brick manufacturer has recently developed an inexpensive new technology whereby ordinary clay can be used to make this fire brick. This significantly reduces the production cost of this type of brick. a. Specialty Steel has less flexibility now than if it were not vertically integrated. b. This is an example of a capacity balance problem. c. This is a result of conflicts of interest between the managers of the brick plant and the executives of Specialty Steel. d. The market power of Specialty Steel has been de-integrated.

answer

a

question

Walt Disney Company has successfully used related diversification to create value by a. sharing activities. b. sharing activities and transferring core competencies. c. transferring core competencies. d. efficient internal capital allocation and restructuring.

answer

b

question

The value of the assets of a firm using a diversification strategy to create both operational and corporate relatedness tend to be a. discounted by investors. b. inflated by investors. c. completely ignored by investors. d. highly valued by investors.

answer

a

question

When a firm simultaneously practices operational relatedness and corporate relatedness, a. it is difficult for investors to observe the value created by the firm. b. the firm is likely to be overvalued by investors. c. the firm will suffer from diseconomies of scope that outweigh cost savings generated. d. the firm is seeking to create value through financial economies.

answer

a

question

Which type of diversification is most likely to create value through financial economies? a. related constrained b. operational and corporate relatedness c. unrelated d. related linked

answer

c

question

An ability to efficiently allocate capital through an internal market may help the firm protect the competitive advantages it develops a. through reduced disclosure to outside parties. b. by the ability to not report losses to investors. c. by the ability to increase pay to managers without shareholders being aware. d. through the ability to reinvest cash in dividends to shareholders.

answer

a

question

A firm practicing unrelated diversification can make better capital allocations to its subsidiary businesses than the external capital market can for all the following reasons EXCEPT a. corporate headquarters can allocate capital according to more specific criteria than is possible with external market allocations. b. corporate headquarters has more complete information about the subsidiary businesses than the external capital market. c. the firm can acquire other firms with innovative products instead of allocating capital to research and development. d. corporate headquarters can more effectively discipline underperforming management teams through resource allocation than can the external market.

answer

c

question

Although a(n) ______ firm, GE (discussed in the Chapter 6 Opening Case) has done an exceptional job of ______ its four major strategic business units. a. related linked; allocating capital across b. related constrained; restructuring c. unrelated; sharing activities across d. unrelated; transferring core competencies across

answer

a

question

Large diversified businesses often face what is known as the "conglomerate discount." This discount means that investors a. understand that the financial efficiencies of this strategy automatically make these stocks worth more than their current market valuation. b. believe that the value of conglomerates is less than the value of the sum of their parts. c. increase the expected future earnings of conglomerates. d. have found that over time, conglomerates earn more than the component companies would have earned independently

answer

b

question

Large diversified businesses often face a ______, which results from analysts not knowing how to value a vast array of large businesses with complex financial reports. a. threat of regulation by the Securities and Exchange Commission b. high CEO turnover c. threat of takeover d. conglomerate discount

answer

d

question

Successful unrelated diversification through restructuring is typically accomplished by a. focusing on mature, low-technology businesses. b. a "random walk" of good luck in picking firms to buy. c. seeking out high technology firms in high-growth industries. d. a top management team that is not constrained by pre-established ideas of how the firm's portfolio should be developed.

answer

a

question

The risk for firms that follow the unrelated diversification strategy in developed economies is that a. external investors tend to dump the stocks of conglomerates during economic downturns. b. conglomerates are typically owned by one powerful entrepreneur and do not survive his/her retirement or death. c. government regulations, especially in Europe, have periodically forced the dissolution of conglomerates. d. competitors can imitate financial economies more easily than they imitate economies of scope.

answer

d

question

What is the similarity between high-technology firms and service-based firms that makes them risky as restructuring candidates? a. They are human-resource dependent. b. They have few tangible assets. c. Both types of firm rely on financial economies. d. The demand for their products is highly sensitive to economic downturns.

answer

a

question

Which of the following firms would be the most likely to be a successful candidate for acquisition and restructuring? a. a medical practice b. a management consulting firm that has a tradition of long term client-consultant relationships c. a tire manufacturer established in 1910 d. a start-up communications technology firm

answer

c

question

Among the value-neutral incentives to diversify, some come from the firm's external environment while others are internal to the firm. External incentives to diversify include a. the fact that other firms in an industry are diversifying. b. pressure from stockholders who are demanding that the firm diversify. c. changes in antitrust regulations and tax laws. d. a firm's low performance.

answer

c

question

Of the value-neutral incentives to diversify, all of the following are internal firm incentives EXCEPT a. overall firm risk reduction. b. uncertain future cash flows. c. stricter interpretation of antitrust laws. d. low performance

answer

c

question

Because of the tax laws of the 1960s and 1970s, when dividends were taxed more heavily than capital gains, shareholders preferred that corporations a. pay dividends annually. b. keep free cash flows for investment in acquisitions. c. distribute capital gains regularly. d. increase managerial salaries.

answer

b

question

Free cash flows are a. liquid financial assets for which investments in current businesses are no longer economically viable. b. liquid financial assets that for tax purposes must be reinvested in the firm if not distributed as dividends to shareholders. c. the profits resulting after a restructured firm has been sold. d. dividends that have been distributed to shareholders that are taxed as capital gains.

answer

a

question

Certain regulatory changes (such as antitrust regulation and tax laws) create incentives or disincentives for diversification that a. create value. b. reduce value. c. are value-neutral. d. are managerial motives to diversify.

answer

c

question

The curvilinear relationship of corporate performance and diversification indicates that a. dominant-business corporate strategies tend to be higher performing than related constrained or unrelated business strategies. b. the highest performing business strategy is related constrained diversification. c. the less related the businesses acquired, the higher performing the organization. d. none of the strategies consistently outperforms the others.

answer

b

question

As the threat of corporate failure increases due to relatedness between a firm's business units, firms may decide to a. increase the firm's level of retained resources. b. diversify into less risky environments. c. reduce the level of diversity in its investments. d. pursue unproven product lines.

answer

b

question

Synergy exists when a. cost savings are realized through improved allocations of financial resources based on investments inside or outside the firm. b. two units create value by utilizing market power in their respective industries. c. firms utilize constrained related diversification to build an attractive portfolio of businesses. d. the value created by business units working together exceeds the value the units create when working independently

answer

d

question

The downside of synergy in a diversified firm is a. increasing independence of businesses. b. the reduction of activity sharing. c. excessive focus on risky innovation. d. the loss of flexibility

answer

d

question

The Cherrywood Fine Furniture Company finds itself with excess capacity in its plant and equipment for furniture manufacturing. This excess capacity will be useful in a. unrelated diversification. b. related diversification projects. c. corporate restructuring. d. multipoint competition

answer

b

question

Which of the following resources are more likely to create value in the diversification process? a. plant and equipment b. tacit knowledge c. excess capacity d. financial resources

answer

b

question

Compared with diversification based on intangible resources, diversification based on financial resources is a. less imitable and less likely to create value on a long-term basis. b. more imitable and less likely to create value on a long-term basis. c. less imitable and more likely to create value on a long-term basis. d. more imitable and more likely to create value on a long-term basis.

answer

b

question

Managerial motives to seek diversification include a desire to a. improve their marketability to other firms. b. effectively use corporate resources. c. provide higher returns to corporate stakeholders. d. increase their compensation.

answer

d

question

Isidore Crocker, CEO of Gotham Engines, is strongly in favor of acquiring Carolina Textiles, a firm in an unrelated industry. Some members of the board of directors are questioning Crocker's motives for the acquisition. They argue that it is not uncommon for CEOs to push for acquisitions because a. a successful acquisition will increase the CEO's power over the board of directors. b. making an acquisition is an easier route to increased firm value than is improving the firm's core competencies. c. higher CEO pay is related to larger organization size. d. CEOs nearing retirement seek to create empires to continue their legacy.

answer

c

question

During the 1990s top executives of Titanic, Inc., followed a pattern of aggressive acquisitions and diversification. Now, Titanic is performing poorly and earning below average returns. Lusitania, a large conglomerate firm, is in the final stages of purchasing Titanic. Lusitania has announced that it will fire Titanic's current top executives. The Titanic executives may not be worried about their impending job loss if they a. plan to take poison pills. b. have golden parachutes. c. have silver handcuffs. d. have ironclad contracts.

answer

b

question

Which of the following is NOT a governance mechanism that may limit managerial tendencies to over-diversify? a. the market for corporate control b. the Board of Directors c. surveillance technologies d. executive compensation practices

answer

c

question

In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify? a. economies of scope b. desire for increased compensation c. reduced managerial risk d. low performance

answer

a

question

Research suggests that ______ has decreased while ______ has increased possibly due to the restructuring that took place in the 1990s and early twenty-first century. a. forward vertical integration; backward vertical integration b. backward vertical integration; forward vertical integration c. related diversification; unrelated diversification d. unrelated diversification; related diversification

answer

d

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