Exam 6: Corporate-Level Strategy

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 make frames for academy art works, and to sell museum-quality framing services to the public. The art academy is engaging in diversification based on ____ relatedness.

Free cash flows are:

What are the managerial motives to diversify?

A company that tries to balance both operational and corporate relatedness and fails, risks incurring diseconomies of scope.

What are the two ways that an unrelated diversification strategy can create value?

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:

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

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.

Corporate-level strategy is concerned with ____ and how to manage these businesses.

Which type of diversification is most likely to create value through financial economies?

Firms seek to create value from economies of scope through all of the following EXCEPT:

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.

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.

Which of the following is TRUE?

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.

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.

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:

The more sharing of resources and activities among businesses, the more ____ is the relatedness of the diversification.

What is the effect of a firm's low performance on the pursuit of diversification?

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: