Question 1

If a company wants to enter a market that is developing very quickly and does not have the time to develop the required competencies, internal venturing is a better choice than acquisition.

Accepted Answer

Acquisition is often a faster route for a company to enter a rapidly developing market because it allows the company to immediately obtain the necessary competencies, resources, and market position, whereas internal venturing requires time to build these from the ground up.

Question 2

Product bundling refers to:

Accepted Answer

Product bundling refers to offering a package of related products together, often at a discounted price, to encourage customers to purchase multiple items at once.

Question 3

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?

Accepted Answer

Related diversification involves expanding into businesses that are related to the company's current operations, such as applying the same skills and competencies to a new product line or market. The goal is to create synergy between the existing and new businesses and generate value through shared resources and knowledge.

Question 4

Over time, while large-scale entry is more profitable in the short-run, small-scale entry becomes more profitable in the long-run.

Accepted Answer

The profitability of large-scale versus small-scale entry depends on various factors, including market conditions, competition, and operational efficiencies, rather than a general rule of short-term versus long-term profitability.

Question 5

Tom Smith is a top manager at a diversified company that has been tasked to identify inefficient, poorly managed companies in other industries and then acquire and restructure them to improve their performance and increase the profitability of the total corporation. Which of the following would be a strategy Tom might take to increase the performance of one of these newly acquired companies?

Accepted Answer

Tom has been tasked with acquiring and restructuring poorly managed companies to improve their performance and profitability. One effective strategy for achieving this goal is to consolidate assets and terminate staff to reduce costs. This can help streamline operations, eliminate inefficiencies, and create a more lean and productive organization. While training top managers in more aggressive management techniques or using established goals to review employees can also be helpful, they may not be enough to address deep-seated problems within the company's structure and operations. Recommitting to traditional strategies or terminating all bonuses and incentive programs are unlikely to be effective strategies for improving performance, as they do not address the underlying issues that are causing the company to underperform in the first place.

Question 6

Miller Brewing, which was acquired by Philip Morris, was related to the parent company's tobacco business because it was possible to create important marketing commonalities: both beer and tobacco are mass market consumer goods in which brand positioning, advertising, and product development skills are crucial to create successful new products. This is an example of which of the following?

Accepted Answer

Transferring competencies refers to the ability to apply skills and capabilities from one business area to another, as seen in the marketing commonalities between beer and tobacco.

Question 7

Microsoft's relationships and experiences in the computer industry and expertise in managing industries surrounding external networks led them to create new business units in the video game, online portal, and search engine industries. This is an example of which of the following?

Accepted Answer

Microsoft leveraged its competencies in the computer industry and managing external networks to create new business units in the video game, online portal, and search engine industries.

Question 8

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.

Accepted Answer

This is an example of a joint venture, where two separate entities collaborate to create a new business entity, sharing resources, risks, and rewards.

Question 9

A possible cause for restructuring is that investors see highly diversified companies as less attractive investments and perceive a multibusiness company as being riskier than a company that operates in one industry,

Accepted Answer

Investors often prefer companies that focus on one industry or business, as they perceive them as having a clearer strategy and a lower level of risk compared to highly diversified companies. As a result, multibusiness companies may choose to restructure in order to simplify their operations and be seen as more attractive to investors.

Question 10

Free cash flow is defined as:

Accepted Answer

Free cash flow is the amount of cash a company has left over after all its expenses, capital expenditures, and debt payments have been paid. It represents the cash available for the company to use for growth opportunities, such as acquisitions, dividend payments, share repurchases, or debt reduction, and is calculated as operating cash flow minus capital expenditures. Therefore, the correct choice is D – cash amounts that exceed what is required to fund new investments in the company's current business and meet existing debt commitments. None of the other options correctly describe free cash flow.

Question 11

Which of the following is NOT a way to use diversification to increase profitability?

Accepted Answer

Shutting down a business unit is not a form of diversification. The other options all involve diversification strategies.

Question 12

Which of the following describes when diversification to obtain economies of scope is possible?

Accepted Answer

Economies of scope are possible when there are significant commonalities between one or more value-chain functions in a company's different business units or divisions that result in synergies which increase profitability. This allows the company to benefit from sharing competencies and resources across different parts of the organization.

Question 13

Which of the following statements is NOT generally true of a diversification strategy based on the realization of economies of scope?

Accepted Answer

A diversification strategy based on the realization of economies of scope typically requires the head office to evaluate each business unit not only as a standalone operation but also in relation to the potential synergies and complementarities that the different units have with one another. Therefore, statement A is not generally true.

Question 14

Managers who have hard-to-define governance skills that are required to manage different business units in a way that enables these units to perform better than they would if they were independent companies, helps probe business-unit managers for information, and helps them think through strategic problems describes which of the following general organizational competencies?

Accepted Answer

These activities are indicative of superior strategic management capabilities, as they involve overseeing various business units in a cohesive manner that enhances their performance, strategic thinking, and information management, all of which are key aspects of strategic management.

Question 15

Which of the following involves taking a distinctive competency developed by a business unit in one industry and implanting it in a business unit operating in another industry?

Accepted Answer

Transferring competencies involves taking a distinctive competency developed in one business unit and implanting it in another unit operating in a different industry. Sharing resources and capabilities and leveraging competencies refer to utilizing the same resources and competencies across different business units within the same industry. Product bundling involves selling two or more products together as a single combined unit. Strategic management capabilities refer to the ability of a firm to effectively develop and execute its strategic plans.

Question 16

When Coca-Cola decided to use its successful marketing experience and global distribution network to buy Colombia Pictures and get into the business of making movies, which of the following ways of pursuing a multibusiness model based on diversification was it utilizing?

Accepted Answer

The answer of When Coca-Cola decided to use its successful...

Question 17

How is the acquisition of new business related to existing business activities in situations where company leaders base their diversification strategy on transferring competencies?

Accepted Answer

When a company leaders base their diversification strategy on transferring competencies, the acquisition of new business is related to existing business activities. The company seeks to leverage their existing competencies, skills, and knowledge to enter into new business areas where they can use their existing capabilities to create value. This approach allows the company to capitalize on its existing strengths and minimize the risk associated with entering into new markets or industries.

Question 18

Which of the following may be true for a company pursuing a strategy of unrelated diversification rather than a strategy of related diversification?

Accepted Answer

Unrelated diversification involves a company expanding into industries that are not related to its current industry or markets. This strategy may require superior strategic management and organizational design to manage the diverse businesses effectively, as it does not rely on the synergies between related business units that a related diversification strategy would.

Question 19

Which of the following is NOT a general organizational competency?

Accepted Answer

Entrepreneurial capabilities, organizational design capabilities, strategic capabilities, and commonality are all considered general organizational competencies. Product bundling, on the other hand, is a specific marketing strategy rather than a broad organizational competency.

Question 20

Research suggests that organizations that acquire many companies over time become expert in this process and can generate significant value from their experience of the acquisition process.

Accepted Answer

Studies have shown that companies that engage in a high volume of acquisitions over time tend to become more skilled at the process, leading to more successful and profitable deals. This is often due to their ability to leverage their experience and knowledge to identify potential risks and opportunities, negotiate better terms, and effectively integrate acquired companies into their existing operations.

Quiz 10: Corporate-Level Strategy: Related and Unrelated Diversification