Term
Companies that concentrate on just one industry may miss out on opportunities to increase their profitability by leveraging their distinctive competencies to make and sell products in new industries.
a. True
b. False |
|
Definition
|
|
Term
Diversification is the process of a company entering new industries distinct from its core industry, using a multibusiness model.
a. True
b. False |
|
Definition
|
|
Term
Free cash flow refers to additional funds from a government stimulus program.
a. True
b. False |
|
Definition
|
|
Term
If a company's core skills are highly specialized and have few applications outside the core business, then a company should pursue a related diversification strategy.
a. True
b. False |
|
Definition
|
|
Term
Intel is an example of a company that moved from a related diversification strategy to a concentration strategy.
a. True
b. False |
|
Definition
|
|
Term
If a company generates free cash flow, that money technically belongs to shareholders.
a. True
b. False |
|
Definition
|
|
Term
Transferring competencies across industries involves taking a distinctive competency developed in one industry and implanting it in an existing business unit in another industry.
a. True
b. False |
|
Definition
|
|
Term
A 100-year-old industrial giant, 3M serves as an example of how a company can leverage technology to create successful new business.
a. True
b. False |
|
Definition
|
|
Term
A company should pursue related diversification only to enhance the competitive position of its core business.
a. True
b. False |
|
Definition
|
|
Term
Economies of scope arise when one or more of a diversified company's business units are able to realize cost-saving or differentiation advantages because they can more effectively pool, share, and utilize resources or capabilities.
a. True
b. False |
|
Definition
|
|
Term
Multipoint competition occurs when companies compete against each other in different industries.
a. True
b. False |
|
Definition
|
|
Term
Firms with superior strategic capabilities can create profitable new business units at a much higher rate than most other companies can.
a. True
b. False |
|
Definition
|
|
Term
For diversification to increase profitability, a company's top managers must have superior entrepreneurial capabilities.
a. True
b. False |
|
Definition
|
|
Term
One way a diversified company can increase its profitability is by acquiring inefficient or poorly managed companies and then restructuring them to improve their performance.
a. True
b. False |
|
Definition
|
|
Term
An advantage of related diversification is that it allows a company to quickly gain entry into a new industry where barriers are high.
a. True
b. False |
|
Definition
|
|
Term
Companies with a strong track record of internal new venturing generally excel at research and development.
a. True
b. False |
|
Definition
|
|
Term
A company can increase the probability of success of an internal venture by constructing efficient scale manufacturing facilities ahead of demand.
a. True
b. False |
|
Definition
|
|
Term
An advantage of unrelated diversification is that competencies can be shared and leveraged throughout the value chain activities.
a. True
b. False |
|
Definition
|
|
Term
An appropriate reason to diversify is to pool the risk from several business ventures in order to create a more stable income stream.
a. True
b. False |
|
Definition
|
|
Term
Internal new ventures can generally be executed far more quickly than acquisitions.
a. True
b. False |
|
Definition
|
|
Term
Research evidence suggests that small-scale entry into a new business is the best way for an internal venture to succeed.
a. True
b. False |
|
Definition
|
|
Term
A laundromat and a pool hall together invest in a new store, where customers can wash their clothes and play pool while waiting. This is an example of an internal new venture.
a. True
b. False |
|
Definition
|
|
Term
Much of Tyco's growth in earnings in the early 1990s was driven by joint venturing.
a. True
b. False |
|
Definition
|
|
Term
Critics of Tyco's financial performance in the late 1990s argued that company officials were inflating the profitability of Tyco's operating units.
a. True
b. False |
|
Definition
|
|
Term
A joint venture allows a company to share the risks and costs associated with establishing a new business unit with another company.
a. True
b. False |
|
Definition
|
|
Term
Research suggests that companies that acquire many businesses over time become expert in this process and so can generate significant value from their acquisitions.
a. True
b. False |
|
Definition
|
|
Term
The coordination required to realize value from a diversification strategy based on transferring, sharing, or leveraging competencies is a major source of bureaucratic costs.
a. True
b. False |
|
Definition
|
|
Term
The higher the number of business units in a company's portfolio, the more difficult it is for corporate managers to remain informed about the complexities of each business.
a. True
b. False |
|
Definition
|
|
Term
The three main types of diversification strategies are
a. Acquisitions, joint ventures, and divestments.
b. Acquisitions, mergers, and buy outs.
c. Acquisitions, internal new ventures, and joint ventures.
d. Related acquisitions, unrelated acquisitions, and mergers.
e. Joint ventures, strategic alliances, and long-term contracts. |
|
Definition
| c. Acquisitions, internal new ventures, and joint ventures. |
|
|
Term
Free cash flow is defined as
a. money in a company's bank account.
b. government funds given to a company for meeting Environmental Protection Agency (EPA) regulations.
c. additional funds donated by stockholders.
d. cash in excess of that required to fund investments in the company's industry and to meet any debt commitments.
e. money borrowed by the company that requires no interest payments. |
|
Definition
| d. cash in excess of that required to fund investments in the company's industry and to meet any debt commitments. |
|
|
Term
The role of managers with respect to corporate-level strategy is to
a. identify which resources provide distinctive capabilities.
b. identify which industries a company should compete in to maximize long-run profit.
c. identify which of the company's businesses has a sustainable source of competitive advantage.
d. position the firm within its industry.
e. strengthen a company's core competitive competencies.
|
|
Definition
| b. identify which industries a company should compete in to maximize long-run profit. |
|
|
Term
A focus on using or recombining existing competencies or building new competencies to enter new markets helps managers think strategically about how industry boundaries
a. tend to remain static over time.
b. might change over time.
c. completely disappear over five-year spans.
d. are not important.
e. none of these choices. |
|
Definition
| b. might change over time. |
|
|
Term
Companies that base their diversification strategy on transferring competencies tend to acquire new businesses that are ____ to their existing business activities.
a. unrelated
b. not comparable
c. opposed
d. related
e. identical |
|
Definition
|
|
Term
Leveraging competencies involves taking a distinctive competency developed by a business unit in one industry to create
a. a new business unit in the same industry.
b. a new business unit in a different industry.
c. a new industry.
d. a new market segment.
e. new customers in the same industry. |
|
Definition
| b. a new business unit in a different industry. |
|
|
Term
Product bundling refers to
a. preparation of products for shipment.
b. a complete package of related products.
c. a method of stocking products efficiently.
d. an inventory procedure for ensuring effective counting of products.
e. a package of unrelated products.
|
|
Definition
| b. a complete package of related products. |
|
|
Term
General organizational competencies refer to competencies
a. existing in individual business units.
b. existing in individual functional units.
c. existing in the industry in which a company operates.
d. that can be procured in the marketplace.
e. that transcend individual functions or business units. |
|
Definition
| e. that transcend individual functions or business units. |
|
|
Term
What is the process of transferring resources to and creating a new business unit in a new industry called?
a. External new venturing
b. Exportation of resources
c. Intrapreneuring
d. Risk avoidance
e. Internal new venturing |
|
Definition
| e. Internal new venturing |
|
|
Term
When a company has cash in excess of the amount needed to maintain a competitive advantage in its core business, it will most likely pursue
a. taper integration.
b. full integration.
c. diversification.
d. long-term contracts.
e. strategic alliances. |
|
Definition
|
|
Term
Which diversification strategy is based on the idea that the company creates value by applying the distinctive competencies it developed in one line of business to another business activity?
a. A technology acquisition strategy
b. Related diversification
c. A restructuring strategy
d. Total diversification
e. A taper diversification strategy |
|
Definition
| b. Related diversification |
|
|
Term
Which of the following statements is not generally true of a diversification strategy based on the realization of economies of scope?
a. The head office evaluates each business unit as a stand-alone operation.
b. The strategy allows a company to realize cost economies from sharing manufacturing facilities, distribution channels, advertising campaigns, and research and development costs among business units.
c. The strategy may allow a company to use shared resources more intensively, thereby realizing economies of scale.
d. Managers must be aware of the costs of coordination.
e. The strategy requires close coordination among different business units. |
|
Definition
| a. The head office evaluates each business unit as a stand-alone operation. |
|
|
Term
Which of the following may be true for a company pursuing a strategy of unrelated diversification rather than a strategy of related diversification?
a. The company does not have to achieve coordination between business units.
b. The company has broad organizational competencies that can be transferred.
c. The company has superior strategic management and organizational design.
d. All of these choices.
e. None of these choices. |
|
Definition
|
|
Term
A company pursuing a multibusiness model based on diversification may justify this strategy for what reason(s)?
a. Transfer competencies
b. Reserve competencies
c. Resource sharing
d. Product bundling
e. All of these choices |
|
Definition
|
|
Term
A diversification strategy based on resource sharing
a. entails a company creating value by applying the distinctive competencies it developed in one line of business to another line of business.
b. requires the development of new business-level strategies.
c. can help a company to realize economies of scope.
d. is a valid way of supporting the generic business-level strategy of differentiation.
e. increases the accountability of units. |
|
Definition
| c. can help a company to realize economies of scope. |
|
|
Term
General organizational competencies are found
a. in the skills of a company's top managers and functional experts.
b. at low levels in the organization.
c. among technology professionals.
d. within a company's strategic core.
e. in an organization's tangible resources. |
|
Definition
| a. in the skills of a company's top managers and functional experts. |
|
|
Term
Which of the following is not a general organizational competency?
a. Entrepreneurial capabilities
b. Capabilities in organizational design
c. Superior strategic capabilities
d. Product bundling
e. All of these choices |
|
Definition
|
|
Term
A company should pursue related diversification instead of unrelated diversification when the company's
a. core skills are applicable to a wide variety of industrial and commercial situations.
b. core skills are highly specialized and have few applications outside the core business.
c. top managers are skilled at acquiring and turning around poorly run enterprises.
d. main objective is to maximize growth.
e. free cash flow is high enough that it has funds available for investment. |
|
Definition
| a. core skills are applicable to a wide variety of industrial and commercial situations. |
|
|
Term
A company should pursue unrelated diversification instead of related diversification when
a. its core skills are highly specialized and have few applications outside its core business.
b. the company's top managers are skilled at acquiring and turning around poorly run enterprises.
c. its core technological skills are applicable to a wide variety of industrial and commercial situations.
d. it wants to maximize growth.
e. the bureaucratic costs of implementation do not exceed the value that can be created by realizing economies of scope. |
|
Definition
| a. its core skills are highly specialized and have few applications outside its core business. |
|
|
Term
When one or more components of a company's value chain are applicable to a wide variety of industrial and commercial situations, which of the following strategies should a company pursue?
a. Unrelated diversification
b. Related diversification
c. A focus strategy
d. Taper integration
e. Backward integration |
|
Definition
| b. Related diversification |
|
|
Term
A strategy based on diversification may fail to add value because companies
a. seek to achieve differentiation instead of low cost.
b. diversify into areas in which they have some knowledge and miss out on profitable opportunities in other areas.
c. make acquisitions rather than develop new technologies on their own.
d. incur bureaucratic costs that exceed the value created by the strategy.
e. seek to achieve cost leadership instead of differentiation. |
|
Definition
| d. incur bureaucratic costs that exceed the value created by the strategy. |
|
|
Term
Diversification may dissipate value if it is wrongly based on
a. realizing economies of scope.
b. pooling risks.
c. transferring competencies.
d. acquisitions and restructuring.
e. leveraging existing competencies. |
|
Definition
|
|
Term
In which of the following cases are bureaucratic costs likely to be lowest?
a. A vertically integrated company with five divisions that pursues full integration
b. A company with five divisions that pursues related diversification based on economies of scope
c. A company with five divisions that pursues related diversification based on transferring competencies
d. A company with five divisions that pursues unrelated diversification based on acquisitions and restructuring
e. A company with twenty divisions that pursues taper integration |
|
Definition
| d. A company with five divisions that pursues unrelated diversification based on acquisitions and restructuring |
|
|
Term
New ventures are likely to be preferred compared to acquisitions when
a. entry barriers are high.
b. exit barriers are high.
c. a company's business model is based on using its technology to innovate new kinds of products for related markets.
d. the company needs more mega-opportunities.
e. the industry is in the mature stage of the industry life cycle. |
|
Definition
| c. a company's business model is based on using its technology to innovate new kinds of products for related markets. |
|
|
Term
New ventures
a. should be killed if they don't make a profit within three years.
b. are often preferred by technology-based companies.
c. are preferred compared to acquisitions when entry barriers are high.
d. are less risky than acquisitions.
e. are best when the company is entering the industry on a small scale. |
|
Definition
| b. are often preferred by technology-based companies. |
|
|
Term
Which of the following statements concerning research and development is correct?
a. Exploratory research is more important than development research.
b. Development research is more important than exploratory research.
c. Exploratory research is directed toward commercialization of a new technology.
d. Development research advances basic science.
e. Companies with a strong record of internal new venturing excel at both types of research. |
|
Definition
| e. Companies with a strong record of internal new venturing excel at both types of research. |
|
|
Term
In which of the following industry environments are new ventures most likely to be favored over acquisitions as a means of entering a new business area?
a. An embryonic industry
b. An industry in its later stages of growth
c. An industry passing through the shakeout stage
d. A mature industry
e. A declining industry |
|
Definition
|
|
Term
To be commercially successful, new products must be developed with ____ utmost in mind
a. manufacturing requirements
b. engineering technology
c. customer requirements
d. sales techniques
e. technical requirements |
|
Definition
|
|
Term
If a company is to increase the probability of a new product's commercial success, the company must foster close links between
a. marketing and sales.
b. engineering and advertising.
c. quality assurance and inventory management.
d. research and development (R&D) and marketing.
e. accounting and industrial engineering. |
|
Definition
| d. research and development (R&D) and marketing. |
|
|
Term
Which of the following seems to be a major determinant of a new venture's success?
a. Large-scale entry into the target industry designed to build market share, even when such entry involves significant short-term losses
b. Cautious small-scale entry into the target industry so that the company can assess the probable outcome of the venture without losing too much money
c. A low level of integration between the marketing and the research and development functions of the venturing company
d. Supporting many new venture projects in the hope that one will succeed
e. Killing the new venture if it does not show a profit after the end of the third year |
|
Definition
| a. Large-scale entry into the target industry designed to build market share, even when such entry involves significant short-term losses |
|
|
Term
An internal new venture is the most appropriate strategic choice when
a. an industry is mature.
b. the firm will enter on a small scale.
c. the firm has competencies that can be leveraged.
d. speed of entry is the most important consideration.
e. there is strong pressure for quick profitability. |
|
Definition
| c. the firm has competencies that can be leveraged. |
|
|
Term
Which of the following entry strategies should be used when speed is an important consideration?
a. Internal new venture
b. Acquisition
c. Joint venture
d. Unrelated diversification
e. Related diversification |
|
Definition
|
|
Term
A company considering entering an industry that is in the mature stage of its life cycle would generally prefer which of the following entry strategies?
a. Joint ventures
b. New ventures
c. Acquisitions
d. Long-term contracting
e. Taper integration |
|
Definition
|
|
Term
Acquisitions often fail because of
a. poor commercialization.
b. too much preacquisition screening, which increases the time it takes to enter a market.
c. large-scale entry.
d. differences in corporate culture.
e. slowness in establishing significant market presence. |
|
Definition
| d. differences in corporate culture. |
|
|
Term
Which of the following is not a reason for the failure of an acquisition to generate the gains originally expected of it?
a. Poor postacquisition integration
b. Overestimation of the potential gains to be derived from synergy
c. The high cost of making acquisitions
d. Lack of preacquisition screening
e. Overestimation of the potential costs of realizing synergies |
|
Definition
| e. Overestimation of the potential costs of realizing synergies |
|
|
Term
Which of the following is (are) the probable consequence(s) of an inability to integrate two divergent corporate cultures after an acquisition?
a. High management turnover
b. Damaging political tensions between the management of the acquired and acquiring companies
c. An inability to realize potential gains from synergies
d. All of these choices
e. None of these choices |
|
Definition
|
|
Term
What accounts for the high failure rate of all new products that reach the marketplace?
a. Market entry on too small a scale
b. Poor commercialization of the new-venture product
c. Poor corporate management of the new-venture unit
d. All of these choices
e. None of these choices |
|
Definition
|
|
Term
Which of the following is not a guideline for a successful acquisition?
a. Good bidding strategy
b. A clear strategic rationale for making the acquisition
c. Completing the acquisition quickly
d. Thorough preacquisition screening
e. Postacquisition audit to review the process and discuss ways to improve it
|
|
Definition
| c. Completing the acquisition quickly |
|
|
Term
Joint ventures
a. are an alternative to new ventures.
b. are attractive when speed is important.
c. are attractive when entry barriers are high.
d. should be done on a small scale.
e. reduce the risk of loss of proprietary knowledge. |
|
Definition
| a. are an alternative to new ventures. |
|
|
Term
Which of the following statements is false?
a. Acquisitions are preferable to joint ventures when the new business is unrelated to the existing business.
b. Acquisitions are preferable to new ventures when speed is important.
c. Joint ventures are generally preferable to acquisitions when entry barriers are high.
d. Acquisitions can be both a reason for corporate decline and part of a turnaround strategy.
e. New ventures are preferable to acquisitions in the embryonic stage of the industry life cycle. |
|
Definition
| c. Joint ventures are generally preferable to acquisitions when entry barriers are high. |
|
|
Term
Stanley's services firm wants to enter an embryonic market, but it doesn't have enough cash to purchase the required assets. Which of the following strategies would you recommend to Stanley?
a. Diversify through acquisition
b. Do not diversify at all
c. Diversify with an internal new venture
d. Diversify with a joint venture
e. Diversify through vertical integration |
|
Definition
| d. Diversify with a joint venture |
|
|
Term
In the joint venture between Stephanie's dressmaking shop and Kevin's fabric factory, the partners argue constantly about how to schedule tasks and reward workers. Which of the following disadvantages is Stephanie and Kevin's joint venture experiencing?
a. Joint ventures risk the loss of proprietary information to a partner.
b. Joint venture partners must split the profits of the business.
c. Joint venture partners must share control and decision-making power.
d. Joint ventures are slower to reach profitability than are acquisitions.
e. Joint ventures require less up-front investment than do internal new ventures. |
|
Definition
| c. Joint venture partners must share control and decision-making power. |
|
|
Term
Economies of scope typically involve
a. sharing resources by business units.
b. acquiring resources from outside a company.
c. limited utilization of resources by specific business units.
d. all of these choices.
e. none of these choices. |
|
Definition
| a. sharing resources by business units. |
|
|
Term
The greater the number of business units in a company's portfolio, the ____ it is for corporate managers to remain informed about the complexities of each business.
a. easier
b. more difficult
c. less important
d. less expensive
e. more simplistic |
|
Definition
|
|
Term
What is perhaps the most important reason why acquisitions made by a company fail?
a. The expense of the acquisition
b. The timing of the acquisition
c. Management's unwillingness to expend the necessary effort to make the acquisition work effectively
d. Incompetence on the part of workers in the acquired firm
e. Difficulties in coordinating manufacturing activities |
|
Definition
| a. The expense of the acquisition |
|
|
Term
Which of the following reasons can make a diversification strategy an unwise course of action for a company to pursue?
a. Changing industry conditions
b. Changing firm-specific conditions
c. Diversification for the wrong reasons
d. Increasing bureaucratic costs of diversification
e. All of these choices |
|
Definition
|
|
Term
Diversification is sometimes pursued by a company for the wrong reasons. Which of the following is a faulty justification for diversification?
a. Risk pooling
b. Rescuing the core business from difficulty
c. Growth for growth's sake
d. All of the above
e. None of these choices |
|
Definition
|
|
Term
At its simplest level, a joint venture may be thought of as a(n)
a. merger of two companies.
b. acquisition of a smaller company by a larger company.
c. form of strategic outsourcing.
d. sign of weakness on the part of one of the companies.
e. corporate partnership. |
|
Definition
| e. corporate partnership. |
|
|
