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STR 581: Ch 8: Corporate Strategy
The steps involves in creating a diversified company's corporate strategy include ______ - ✔ ✔ 1. picking new industries to enter and the means for entering them
- establishing investment priorities
- leveraging cross-business value chain relationships into competitive advantage
Diversifying into new industries ____ - ✔ ✔ should be explored when a single business company encounters dwindling opportunities in its principal business
Diversification is not really viewed as a success unless it ____. - ✔ ✔ yields added long-term economic value for shareholders
What are the three tests of corporate advantage? - ✔ ✔ 1. the industry attractiveness test
- the cost of entry test
- the better off test
The means of entering a new business by buying an existing business is referred to as ______. - ✔ ✔ acquisition
Which of the following are strategic options for increasing a corporation's overall success? - ✔ ✔ 1. broadening the scope of diversification by entering additional industries
- sticking closely with the existing business lineup and pursuing opportunities presented by these businesses
- retrenching to a narrower scope of diversification by divesting poorly performing businesses
Which of the following are drawbacks of acquisition? - ✔ ✔ 1. there can be high integration costs
- integration of the company into the existing firm can be time consuming
- there are often excessive premiums
The decision to diversity should begin with _____ - ✔ ✔ an economic justification
Which of the following statements are true about a successful diversification effort? - ✔ ✔ 1. it must give shareholders value that they cannot get by purchasing different stocks on their own
- it must add long term economic value for shareholders
Which of the following are terms that refer to diversification by starting a new business subsidiary from scratch? - ✔ ✔ 1. corporate venturing
- internal development
- new venture development
The potential for an existing company can a new business to function better together following diversification than they would individually is part of the _____. - ✔ ✔ better off test
Entering a new business via a joint venture can be useful in which of the following situations? - ✔ ✔
- when an opportunity is too complicated or risky for one company to attempt alone
- when an opportunity in a new industry requires more know how than one company has alone
- when diversification entails operations in a foreign country
Which of the following are the ways a company can enter a new business? - ✔ ✔ 1. acquisition
- joint ventures
- internal starup
Which of the following are terms that refer to diversification by starting a new business subsidiary from scratch? - ✔ ✔ 1. corporate venturing
- internal development
- new venture development
If the question of entry barriers demonstrates that barriers against a company entering an industry cannot be readily overcome, the company will probably choose entry via ____. - ✔ ✔ acquisition
Which of the following are among the four questions that need to be asked when determining how best to enter a new business? - ✔ ✔ 1. Is speed an important factor in the firm's chance for successful entry?
- Which is the least costly mode of entry, given the company's objectives?
- Are there entry barriers to overcome?
Determining whether the materials needed to start a business can be readily obtained by a company is an example of answering the strategy-based question of _____. - ✔ ✔ critical resources and capabilities
Internal development of a new business is a good idea when which of the following conditions are met?
- ✔ ✔ 1. The parent company has the in-house resources needed to launch the company
- It is cheaper to enter internally than through an acquisition
- There is plenty of time to start the business
If the question of speed determines that fast movers can grab long-term advantages, the preferred mode of diversification is likely to be ____. - ✔ ✔ acquisition
Which of the following is true about joint ventures? - ✔ ✔ they are usually short lives, ending as soon as the partners decide to part ways
In answering the question of comparative costs, acquisition transaction costs include which of the following? - ✔ ✔ 1. evaluating potential targets
- negotiating a price
- identifying potential targets
Determining if there are obstacles that black a new company from gaining a foothold and thriving in an industry is an example of answering the strategy-based question of ______. - ✔ ✔ entry barriers
Choosing how best to enter a new business ______. - ✔ ✔ depends partially on determining the least costly mode of entry
If the question of critical resources and capabilities demonstrates that a company has or can easily lease all of the material necessary to start a new business, it will probably do so by _____. - ✔ ✔ internal development
Determining how rapidly an industry is changing is crucial to answering the question of ______ when choosing a mode of entry. - ✔ ✔ speed
Which of the following are true of related businesses? - ✔ ✔ 1. They can be combined to perform better than the sum of the individual businesses
- They have similar resources and capabilities
- They have compatible value chain activities.
Determining whether the premium required to make an acquisition will be worth the extra value gained is an example of answering the question of _____. - ✔ ✔ comparative cost
Strategic fit _____ - ✔ ✔ allows cross-business sharing of resources that enable value chain activities
Which of the following are included in the strategic fit of sales and marketing? - ✔ ✔ 1. reducing billing costs by using common promotional tie ins
- using a single sales force
- promoting products on the same website
Resources whose use is applied across a wide range of industry types are known as _____. - ✔ ✔ general resources
Which of the following is true of economies of scope? - ✔ ✔ they come directly from strategic fit along the value chains of related businesses
Cross business strategic fit can exist ____ - ✔ ✔ 1. in supply chain activities
- in customer service activities
- at various points along the value chain
Which of the following are true of related businesses? - ✔ ✔ 1. They have similar resources and capabilities
- They have compatible value chain activities
- They can be combined to perform better than the sum of the individual businesses
Strategic fit ____. - ✔ ✔ allows cross-business sharing of resources that enable value chain activities
Examples of strategic fit in manufacturing include ____. - ✔ ✔ 1. The sharing of cost-efficient production methods
- The transfer of expertise in quality control
- The consolidation of production into a smaller number of plants
Which of the following are true in using cross business strategic fit to create gains in profitability and shareholder value? - ✔ ✔ 1. it builds shareholder value in ways that are not possible through stock ownership in a variety of industries
- The more a company's businesses are related, the greater the company's opportunity to turn strategic fit into competitive advantage
- Cross-business strategic fit benefits are possible only though a strategy of related diversification.
Which of the following statements are true of economies of scope? - ✔ ✔ 1. They are a distinct concept from economies of scale
- They result from strategic fit among related businesses, allowing the sharing of resources among diversified businesses
- They are available only to firms engaging in related diversification
Companies practicing unrelated diversification overwhelmingly enter new businesses by ______. - ✔ ✔ obtaining an established company
Corporate brands that do not have a connotation of any specific type of product are known as ____. - ✔ ✔ umbrella brands
The redistribution of excess cash flow by parent companies from some businesses to others _______. - ✔ ✔ is especially important when credit is tight
True or false: The benefits of cross-business strategic fit follow naturally once a company can diversity into related businesses. - ✔ ✔ false
In an unrelated diversification strategy, managers must make sure acquisition candidates have which of the following characteristics? - ✔ ✔ 1. They meet corporate targets for profitability and return on investment
- Most management teams are not capable of effectively managing a diversified group of unrelated businesses.
The redistribution of excess cash flow by parent companies from some businesses to others ________. - ✔ ✔ is especially important when credit is tight
Unrelated diversification ___. - ✔ ✔ 1. rarely performs better than the sum of what the individual business unit should achieve independently
- provides a limited potential for competitive advantage
- provides very general, low-value resources for the subsidiaries
Which of the following would be misguided reasons for pursuing unrelated diversification? - ✔ ✔ 1. reducing earning volatility
- boosting managerial compensation
- risk reduction
In order to pass the three tests of corporate advantage, executives must _____. - ✔ ✔ 1. diversify into industries where the businesses can produce consistently good earning and return on investment
- do a superior job of corporate parenting via high-level managerial oversight
- negotiate favorable acquisition prices
Unrelated diversification strategies ____. - ✔ ✔ tend to have more overall failures than successes
A diversified company in which one core business accounts for 50% to 80% of total revenues and other businesses account for the remainder is known as _______. - ✔ ✔ a dominant business enterprise
Unrelated diversification strategy ____. - ✔ ✔ can create only a small amount of competitive advantage beyond that which can be created by the individual businesses acting alone
A company ____. - ✔ ✔ can diversify into related business, unrelated businesses, or both
Which statement is true concerning the pursuit of growth through unrelated diversification? - ✔ ✔ it can be misguided if the growth is not profitable growth
Strategic analysis of diversified companies ______. - ✔ ✔ builds on the same ideas and techniques used for analyzing single-business companies
Which of the following are questions to ask when evaluating industry attractiveness? - ✔ ✔ 1. how appealing is the whole group of industries in which the company has invested?
- does each industry the company has diversified into represent a good market for the company to be in?
- Which of the company's industries are most attractive?
Which of the following statements are true of multibusiness diversification strategies? - ✔ ✔ 1. Some companies are narrowly diversified around two to five related or unrelated businesses
- Some multi business enterprises are diversified into unrelated areas but have a group of related businesses within each area
- Combination related-unrelated diversification strategies are attractive to companies with a mix of valuable competitive assets.
Quantitative industry-attractiveness scores can be calculated based on _____. - ✔ ✔ 1. Emerging threats and opportunities
- Market size and projected growth rate
- The presence of cross-industry strategic fit
The three strategy options for pursuing diversification are ____. - ✔ ✔ 1. diversifying into both related and unrelated businesses
In calculating industry attractiveness scores ____. - ✔ ✔ competition intensity should be heavily weighted
Which of the following are true concerning the interpretation of industry-attractiveness scores? - ✔ ✔
- Industries that score much less than five are unlikely to be attractive
- A strongly performing diversified company's primary businesses should be in industries with high growth potential
- If a company's scores are all above 5, it probably operates in an attractive group of industries
Factors that can be used to quantify the competitive strengths of a diversified company's business subsidiaries include ____. - ✔ ✔ 1. ability to match or beat rivals on key product attributes
- costs relative to competitors' costs
- relative market share
Business units with competitive-strength ratings ____. - ✔ ✔ above 6.7 are strong market contenders in their industries
Which of the following actions should a company consider according to the nine-cell attractiveness- strength matrix? - ✔ ✔ 1. To be cautious about investing in companies located intermediately on the grid
- To concentrate resources in businesses that possess higher degrees of attractiveness and competitive strength
- To remove resources from ventures that are low in attractiveness and strength unless they offer superior profit or cash flow opportunity
In a nine-cell matrix ______. - ✔ ✔ 1. Industry attractiveness is plotted on the vertical axis
- each axis is divided into three regions
- competitive strength is plotted on the horizontal axis
Determining the competitive value of strategic fit in diversified companies _____. - ✔ ✔ is important in evaluating their related diversification strategies
Which of the following are true of the nine cell attractiveness-strength matrix? - ✔ ✔ 1. it helps diversified companies allocate resources among their businesses
- it identifies the business strength of businesses
- it identifies the industry attractiveness of businesses
A good resource fit would include solid parenting capabilities in companies that pursue which of the following? - ✔ ✔ an unrelated diversification strategy
A company has good financial resource fit if ____. - ✔ ✔ 1. the company can create enough internal cash flow to provide the capital required by its businesses
- the company can adequately fund all its businesses while keeping a good credit rating
- each individual business sufficiently contributes to meeting companywide performance targets
What questions can be answered by determining the competitive value of strategic fit in diversified companies? - ✔ ✔ 1. Will leveraging a potent umbrella brand or corporate image strengthen the businesses and increase sales?
- how much competitive value will come from the cross-business transfer of skills, technology, or intellectual capital?
- Are the cost savings associated with economies of scope likely to give one or more businesses a cost- based advantage?
The portfolio approach to financial fit revolves around the fact that ____. - ✔ ✔ cash flow and investment characteristics vary among businesses
Strategic options for allocating company financial resources include which of the following? - ✔ ✔ 1. investing in ways to strengthen or grow existing businesses
- making acquisitions to establish positions in new industries or to complement existing businesses
- funding long range R&D ventures aimed at opening market opportunities in new or existing businesses
The crafting of strategic moves to improve a diversified company's overall performance _____. - ✔ ✔ can be placed into four broad categories of action
Which of the following statements are true concerning the ranking of a diversified company's business units from best to worst? - ✔ ✔ 1. Future revenue and earnings for fast growing industries usually look superior to those for slow growing industries
- The rankings help high level executives prioritize businesses for resource support and capital investment
- The position of different businesses in the nine-cell matrix is a good criteria for identifying high opportunity and low opportunity businesses
When a company's existing businesses provide opportunities for growth and produce economic value for shareholders, it makes sense to _____. - ✔ ✔ adhere to the existing business lineup
True or false: Strategic uses of corporate resources should usually take precendee over financial options.
The broad categories of action for crafting strategic moves to improve a diversified company's overall performance include ____. - ✔ ✔ 1. Divesting certain businesses and retrenching to a narrower base of business operations
- Sticking closely with the existing business lineup and pursuing opportunities that those businesses present
- Widening the company's business scope by making new acquisitions in new industries
When a firm with a related diversification strategy has businesses that match specialized resource requirements at points along their value chains that are critical for the business's market success, they are said to have ____. - ✔ ✔ resource fit
A diversified company's base can be broadened by ____. - ✔ ✔ acquiring more businesses and building positions in new industries
It makes sense to stick closely with a diversified company's present business lineup when ____. - ✔ ✔
- The existing business lineup provides ample opportunity for growth
- The current lineup reliably creates economic value for shareholders
- The company's existing businesses match the company's diversification strategy
When a company's management decides that it needs to concentrate on a smaller number of businesses, it is a good strategy to ____. - ✔ ✔ retrench to a narrower diversification base
If a company has poorly chosen acquisitions that are underperforming expectations, it is a good idea to _____. - ✔ ✔ restructure the business lineup
True or false: One method of broadening a company's diversification base is to add businesses that will complement and strengthen the market position of businesses in industries where the company already has a stake. - ✔ ✔ True
Retrenching to a narrower diversification base can include which of the following? - ✔ ✔ 1. getting out of businesses that are competitively weak
- focusing corporate resources on businesses in a few, carefully selected industries
- eliminating businesses that have poor strategic fit
