Question 1

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

Accepted Answer

The answer of Compared with diversification based on intangible resources,...

Question 2

Describe the primary reasons a firm pursues increased diversification.

Accepted Answer

The answer of Describe the primary reasons a firm pursues...

Question 3

What are the managerial motives to diversify?

Accepted Answer

The answer of What are the managerial motives to diversify?...

Question 4

Research suggests that _______________has decreased while ___________has increased possibly due to the restructuring that took place in the 1990s and early twenty-first century.
A) forward vertical integration; backward vertical integration
B) backward vertical integration; forward vertical integration
C) related diversification; unrelated diversification
D) unrelated diversification; related diversification

Accepted Answer

The answer of Research suggests that _______________has decreased while ___________has...

Question 5

The downside of synergy in a diversified firm is
A) increasing independence of businesses.
B) the reduction of activity sharing.
C) excessive focus on risky innovation.
D) the loss of flexibility.

Accepted Answer

The downside of synergy in a diversified firm is the loss of flexibility. When a company diversifies its operations, it can become locked into certain strategies, processes, and structures that make it difficult to adapt to changing market conditions. This loss of flexibility can be particularly problematic when it comes to innovation, as companies may be less willing or able to take risks that could impact the performance of other business units. Ultimately, this can limit the potential for growth and reduce the overall effectiveness of the diversified firm.

Question 6

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

Accepted Answer

The answer of What is the effect of a firm's...

Question 7

Which of the following is NOT a governance mechanism that may limit managerial tendencies to over-diversify?
A) the market for corporate control
B) the Board of Directors
C) surveillance technologies
D) executive compensation practices

Accepted Answer

Surveillance technologies are not typically used as a governance mechanism to limit managerial tendencies to over-diversify. The other options, the market for corporate control, the Board of Directors, and executive compensation practices, are all commonly used governance mechanisms to limit managerial overdiversification.

Question 8

Case Scenario : Syco.
Syco is a diversified company that has six primary lines of business. Fifty percent of its revenues and 18 percent of its profits come from retailing. Most of its retail outlets are discount department stores that serve as anchor tenants for large suburban shopping malls. The remaining businesses are broken out as follows: Insurance accounts for 30 percent of revenues and 50 percent of profits; consumer credit card operations are 6 percent of sales and 17 percent of profits; 5 percent of revenues and 6 percent of profits come from its stock brokerage business; commercial and residential real estate operations generate 4 percent of sales and 8 percent of profits; finally, 5 percent of revenues and 1 percent of profits come from its online portal business. The company's management states that all these businesses are essential to its competitive future.
-(Refer to the above Case Scenario ) Why might there be so much variability among the proportion of sales versus profitability contributed by each of the businesses? Does this mean that Syco is more successful in its insurance business than in its retail business?

Accepted Answer

The answer of Case Scenario : Syco.
Syco is a diversified...

Question 9

During the 1990s top executives of Titanic, Inc., followed a pattern of aggressive acquisitions and diversification. Now, Titanic is performing poorly and earning below average returns. Lusitania, a large conglomerate firm, is in the final stages of purchasing Titanic. Lusitania has announced that it will fire Titanic's current top executives. The Titanic executives may not be worried about their impending job loss if they
A) plan to take poison pills.
B) have golden parachutes.
C) have silver handcuffs.
D) have ironclad contracts.

Accepted Answer

Golden parachutes are commonly used in executive contracts to provide financial compensation and benefits if the executive is terminated due to a change in ownership or control of the company. Therefore, if the Titanic executives have golden parachutes, they may not be worried about their impending job loss.

Question 10

In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify?
A) economies of scope
B) desire for increased compensation
C) reduced managerial risk
D) low performance

Accepted Answer

Economies of scope refer to cost savings and increased efficiency achieved through the sharing of resources or capabilities across different product lines or businesses. This can lead to increased profits and value for the company. Desire for increased compensation and reduced managerial risk are not value-creating reasons for diversification, and low performance may actually be a reason to focus on improving the current business rather than diversifying.

Question 11

Managerial motives to seek diversification include a desire to
A) improve their marketability to other firms.
B) effectively use corporate resources.
C) provide higher returns to corporate stakeholders.
D) increase their compensation.

Accepted Answer

The answer of Managerial motives to seek diversification include a...

Question 12

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
A) a successful acquisition will increase the CEO's power over the board of directors.
B) making an acquisition is an easier route to increased firm value than is improving the firm's core competencies.
C) higher CEO pay is related to larger organization size.
D) CEOs nearing retirement seek to create empires to continue their legacy.

Accepted Answer

The answer of Isidore Crocker, CEO of Gotham Engines, is...

Question 13

The Cherrywood Fine Furniture Company finds itself with excess capacity in its plant and equipment for furniture manufacturing. This excess capacity will be useful in
A) unrelated diversification.
B) related diversification projects.
C) corporate restructuring.
D) multipoint competition

Accepted Answer

Excess capacity in plant and equipment for furniture manufacturing can lead to related diversification projects. The company can use its existing resources to expand into related products or services, which can help them to utilize their excess capacity and increase their profitability.

Question 14

Which of the following resources are more likely to create value in the diversification process?
A) Plant and equipment.
B) Tacit knowledge.
C) Excess capacity.
D) Financial resources.

Accepted Answer

Tacit knowledge is unique knowledge and expertise possessed by individuals or groups within an organization that is difficult to replicate, which can give a company a competitive advantage in a new market. Plant and equipment, excess capacity, and financial resources may be helpful in expanding into new markets, but they may not necessarily create value in the diversification process on their own.

Question 15

Synergy exists when
A) cost savings are realized through improved allocations of financial resources based on investments inside or outside the firm.
B) two units create value by utilizing market power in their respective industries.
C) firms utilize constrained related diversification to build an attractive portfolio of businesses.
D) the value created by business units working together exceeds the value the units create when working independently.

Accepted Answer

Synergy is achieved when the whole is greater than the sum of its parts. In business, this means that the value created by business units working together exceeds the value the units create when working independently. Therefore, option D is the correct choice. Option A refers to financial efficiency, option B refers to market power, and option C refers to related diversification, none of which directly relates to the concept of synergy.

Question 16

What are the five categories of businesses based on level of diversification?

Accepted Answer

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Question 17

Differentiate between corporate-level and business-level strategies and give examples of each.

Accepted Answer

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Question 18

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

Accepted Answer

The answer of What are the two ways that an...

Question 19

Case Scenario : Syco.
Syco is a diversified company that has six primary lines of business. Fifty percent of its revenues and 18 percent of its profits come from retailing. Most of its retail outlets are discount department stores that serve as anchor tenants for large suburban shopping malls. The remaining businesses are broken out as follows: Insurance accounts for 30 percent of revenues and 50 percent of profits; consumer credit card operations are 6 percent of sales and 17 percent of profits; 5 percent of revenues and 6 percent of profits come from its stock brokerage business; commercial and residential real estate operations generate 4 percent of sales and 8 percent of profits; finally, 5 percent of revenues and 1 percent of profits come from its online portal business. The company's management states that all these businesses are essential to its competitive future.
-(Refer to the above Case Scenario ) Develop a logical argument that would lead you to describe Syco's diversification type as related linked and another logical argument that Syco's diversification type is related constrained. For both the related linked and for the related constrained arguments, what product, technological, or distribution activities might link these businesses together?
Part 2: Would you describe either of the logical arguments you developed in response to Part 1 as a good corporate strategy?

Accepted Answer

The answer of Case Scenario : Syco.
Syco is a diversified...

Question 20

Describe how diversified firms can use activity sharing and transfer of core competencies to create value.

Accepted Answer

The answer of Describe how diversified firms can use activity...

Quiz 6: Corporate-Level Strategy

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

Describe the primary reasons a firm pursues increased diversification.

What are the managerial motives to diversify?

Research suggests that _____has decreased while _has increased possibly due to the restructuring that took place in the 1990s and early twenty-first century.

The downside of synergy in a diversified firm is

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

Which of the following is NOT a governance mechanism that may limit managerial tendencies to over-diversify?

In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify?

Managerial motives to seek diversification include a desire to

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

The Cherrywood Fine Furniture Company finds itself with excess capacity in its plant and equipment for furniture manufacturing. This excess capacity will be useful in

Which of the following resources are more likely to create value in the diversification process?

Synergy exists when

What are the five categories of businesses based on level of diversification?

Differentiate between corporate-level and business-level strategies and give examples of each.

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

Describe how diversified firms can use activity sharing and transfer of core competencies to create value.