Question 1

The risk for firms that follow the unrelated diversification strategy in developed economies is that:

Accepted Answer

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. 
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.

Question 2

GE is an example of a firm that has used internal capital market allocation as a means of creating value even though it competes using a related linked strategy rather than an unrelated diversification strategy.

Accepted Answer

A) True 
 B)False

Question 3

As the threat of corporate failure increases due to relatedness between a firm's business units, firms may decide to:

Accepted Answer

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. 
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.

Question 4

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

Accepted Answer

A) True 
 B)False

Question 5

Of the value-neutral incentives to diversify, all of the following are internal firm incentives EXCEPT:

Accepted Answer

A)  overall firm risk reduction. 
B)  uncertain future cash flows. 
C)  stricter interpretation of antitrust laws. 
D)  low performance. 
A)  overall firm risk reduction. 
B)  uncertain future cash flows. 
C)  stricter interpretation of antitrust laws. 
D)  low performance.

Question 6

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.

Accepted Answer

A) True 
 B)False

Question 7

Equator, 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 Equator's plan to transfer competencies from itself to the Irish firm?

Accepted Answer

A)  The St. Louis manager may quit Equator 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. 
A)  The St. Louis manager may quit Equator 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.

Question 8

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.

Accepted Answer

A) True 
 B)False

Question 9

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

Accepted Answer

A) True 
 B)False

Question 10

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:

Accepted Answer

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. 
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.

Question 11

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

Accepted Answer

A) True 
 B)False

Question 12

Backward integration occurs when a company:

Accepted Answer

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. 
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.

Question 13

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.

Accepted Answer

A)  dominant-business 
B)  related constrained 
C)  related linked 
D)  unrelated 
A)  dominant-business 
B)  related constrained 
C)  related linked 
D)  unrelated

Question 14

Successful product diversification is expected to increase the variability in the firm's profitability because the earnings are generated from several different business units.

Accepted Answer

A) True 
 B)False

Question 15

Research has shown that horizontal acquisitions

Accepted Answer

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. 
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.

Question 16

Compared with diversification based on intangible resources, diversification based on financial resources is:

Accepted Answer

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. 
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.

Question 17

Successful unrelated diversification through restructuring is typically accomplished by:

Accepted Answer

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. 
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.

Question 18

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

Accepted Answer

A) True 
 B)False

Question 19

The drawbacks to transferring competencies by moving key people into new management positions include all of these EXCEPT:

Accepted Answer

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. 
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.

Question 20

Many manufacturing firms are reducing vertical integration and moving to independent supplier networks.

Accepted Answer

A) True 
 B)False

The risk for firms that follow the unrelated diversification strategy in developed economies is that:

GE is an example of a firm that has used internal capital market allocation as a means of creating value even though it competes using a related linked strategy rather than an unrelated diversification strategy.

As the threat of corporate failure increases due to relatedness between a firm's business units, firms may decide to:

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

Of the value-neutral incentives to diversify, all of the following are internal firm incentives EXCEPT:

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.

Equator, 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 Equator's plan to transfer competencies from itself to the Irish firm?

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.

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 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:

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

Backward integration occurs when a company:

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.

Successful product diversification is expected to increase the variability in the firm's profitability because the earnings are generated from several different business units.

Research has shown that horizontal acquisitions

Compared with diversification based on intangible resources, diversification based on financial resources is:

Successful unrelated diversification through restructuring is typically accomplished by:

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

The drawbacks to transferring competencies by moving key people into new management positions include all of these EXCEPT:

Many manufacturing firms are reducing vertical integration and moving to independent supplier networks.

Strategic Management and Strategic Competitiveness

The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis

The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages

Business-Level Strategy

Competitive Rivalry and Competitive Dynamics

Merger and Acquisition Strategies

International Strategy

Cooperative Strategy

Corporate Governance

Organizational Structure and Controls

Strategic Leadership

Strategic Entrepreneurship

Filters

Exam 6: Corporate-Level Strategy

The risk for firms that follow the unrelated diversification strategy in developed economies is that:

GE is an example of a firm that has used internal capital market allocation as a means of creating value even though it competes using a related linked strategy rather than an unrelated diversification strategy.

As the threat of corporate failure increases due to relatedness between a firm's business units, firms may decide to:

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

Of the value-neutral incentives to diversify, all of the following are internal firm incentives EXCEPT:

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.

Equator, 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 Equator's plan to transfer competencies from itself to the Irish firm?

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.

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 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:

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

Backward integration occurs when a company:

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.

Successful product diversification is expected to increase the variability in the firm's profitability because the earnings are generated from several different business units.

Research has shown that horizontal acquisitions

Compared with diversification based on intangible resources, diversification based on financial resources is:

Successful unrelated diversification through restructuring is typically accomplished by:

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

The drawbacks to transferring competencies by moving key people into new management positions include all of these EXCEPT:

Many manufacturing firms are reducing vertical integration and moving to independent supplier networks.

Strategic Management and Strategic Competitiveness

The External Environment: Opportunities, Threats, Industry Competition, and Competitor Analysis

The Internal Organization: Resources, Capabilities, Core Competencies, and Competitive Advantages

Business-Level Strategy

Competitive Rivalry and Competitive Dynamics

Merger and Acquisition Strategies

International Strategy

Cooperative Strategy

Corporate Governance

Organizational Structure and Controls

Strategic Leadership

Strategic Entrepreneurship

Filters