Question 1

Unbalanced capacities that limit cost savings, difficulties in combining specializations, and reduced flexibility are disadvantages associated with
A)strategic alliances.
B)vertical integration.
C)horizontal integration.
D)divestiture.

Accepted Answer

The risks of vertical integration include costs and expenses associated with increased overhead and capital expenditures, loss of flexibility resulting from large investments, problems associated with unbalanced capacities along the value chain, and additional administrative costs associated with managing a more complex set of activities.

Question 2

Vertical integration is attractive when
A)internal administrative costs are higher than transaction costs.
B)transaction costs and internal administrative costs are equal.
C)transaction costs are higher than internal administrative costs.
D)search costs are higher than monitoring costs.

Accepted Answer

If transaction costs are higher than administrative costs, that is, those costs incurred when coordinating the activities elsewhere in the value chain, vertical integration becomes an attractive strategy.

Question 3

A firm should consider vertical integration when
A)the competitive situation is highly volatile.
B)customer needs are evolving.
C)the suppliers of raw materials to the firm are unable to maintain quality standards.
D)the suppliers of the firm willingly cooperate with the firm.

Accepted Answer

A firm should consider vertical integration if the company is not satisfied with the quality of the value that its present suppliers and distributors are providing.

Question 4

Creating value within business units can happen when the corporate office helps subsidiaries make wise choices in their own acquisitions, divestures, and new ventures. This is known as
A)parenting.
B)restructuring.
C)leveraging core competencies.
D)increasing market power.

Accepted Answer

Parent companies create value through management expertise. They improve plans and budgets and provide especially competent central functions such as legal, financial, human resource management, and procurement. They also help subsidiaries make wise choices in their own acquisitions, divestitures, and new internal development decisions.

Question 5

Sharing core competencies is one of the primary potential advantages of diversification. In order for diversification to be most successful, it is important that the
A)products use similar distribution channels.
B)similarity required for sharing core competencies must be in the value chain.
C)target market is the same, even if the products are very different.
D)methods of production are the same.

Accepted Answer

For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, different businesses in the corporation must be similar in at least one important way related to the core competence. It is not essential that the products or services themselves be similar, but at least one element in the value chain must require similar skills in creating competitive advantage.

Question 6

When management uses common production facilities or purchasing procedures to distribute different but related products, they are
A)building on core competencies.
B)achieving process gains.
C)using portfolio analysis.
D)sharing activities.

Accepted Answer

Corporations can achieve synergy by sharing activities across their business units. These include value-creating activities such as common manufacturing facilities, distribution channels, and sales forces.

Question 7

In the BCG Matrix, a business that has a low market share in an industry characterized by high market growth is termed a
A)Star.
B)Cash Cow.
C)Question Mark.
D)Dog.

Accepted Answer

Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Question Marks are SBUs competing in high-growth industries but having relatively weak market shares. Resources should be invested in them to enhance their competitive positions.

Question 8

Transaction costs include all of the following costs except
A)agency costs.
B)negotiating costs.
C)search costs.
D)monitoring costs.

Accepted Answer

Transaction costs are the sum of search costs, negotiation costs, contracting costs, monitoring costs, and enforcement costs. These transaction costs can be avoided by internalizing the activity, in other words, by producing the input in-house.

Question 9

Portfolio management frameworks, such as the BCG matrix, share which of the following characteristics?
A)Businesses are plotted on a 3-dimensional grid.
B)Grid dimensions are based on external environments and internal capabilities-market positions.
C)Position in the matrix suggests a need for sharing synergies.
D)They are most helpful in helping businesses develop types of competitive advantage.

Accepted Answer

Portfolio models are overly simplistic, consisting of only two dimensions (growth and market share). They view each business as separate, ignoring potential synergies across businesses.

Question 10

When using a BCG matrix, a business that currently holds a large market share in a rapidly growing market and has minimal or negative cash flow would be known as a
A)Star.
B)Dog.
C)Cash Cow.
D)Question Mark.

Accepted Answer

Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Stars are SBUs competing in high-growth industries with relatively high market shares. These firms have long-term growth potential and should continue to receive substantial investment funding.

Question 11

In managing the corporate portfolio, the BCG matrix would suggest that
A)Dogs should be invested in to increase market share and become Cash Cows.
B)Stars are in low growth markets and can provide excess cash to fund other opportunities.
C)Cash Cows require substantial cash outlays to maintain market share.
D)Question Marks can represent future Stars if their market share is increased.

Accepted Answer

Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Question Marks are SBUs competing in high-growth industries but having relatively weak market shares. Resources should be invested in them to enhance their competitive positions, potentially making them Stars.

Question 12

Creating value within business units can happen when a firm tries to find and acquire either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. This action is known as
A)restructuring.
B)leveraging core competencies.
C)parenting.
D)sharing activities.

Accepted Answer

In restructuring, the corporate office tries to find poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. The parent intervenes, often selling off parts of the business; changing the management; reducing payroll and unnecessary sources of expenses; changing strategies; and infusing the company with new technologies, processes, or reward systems.

Question 13

The primary means by which a firm can diversify are __________, _________, and ________.
A)mergers and acquisitions; differentiation; overall cost leadership
B)mergers and acquisitions; joint ventures and strategic alliances; internal development
C)joint ventures and strategic alliances; integration of value chain activities; acquiring human capital
D)mergers and acquisitions; internal development; differentiation

Accepted Answer

There are three basic means of diversification: First, through acquisitions or mergers, corporations can directly acquire company assets and competencies. Second, corporations may agree to pool the resources of other companies with their resource base, commonly known as a joint venture or strategic alliance. Third, corporations may diversify into new products, markets, and technologies through internal development.

Question 14

Portfolio management matrices are applied to what level of strategy?
A)departmental level
B)business level
C)corporate level
D)international level

Accepted Answer

Corporate-level strategy addresses two related issues: what businesses should a corporation compete in and how can these businesses be managed so they create synergy. Portfolio management matrices can be used to improve understanding of the competitive position of a portfolio (or family) of businesses, to suggest strategic alternatives, and to identify priorities for the allocation of resources.

Question 15

Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input into its manufacturing process. This is an example of
A)vertical integration.
B)sharing activities.
C)pooled negotiating power.
D)leveraging core competencies.

Accepted Answer

Shaw Industries, a carpet manufacturer, has attained a dominant position in the industry via a strategy of vertical integration. Shaw has successfully implemented strategies of both forward and backward integration.

Question 16

In the BCG Growth Share Matrix, the suggested strategy for Stars is to
A)milk them to finance other businesses.
B)invest large sums to gain a good market share.
C)maintain position and after the market growth slows use the business to provide cash flow.
D)not invest in them and to shift cash flow to other businesses.

Accepted Answer

Stars are SBUs competing in high-growth industries with relatively high market shares. These firms have long-term growth potential and should continue to receive substantial investment funding. When growth slows, they may become Cash Cows themselves.

Question 17

The risks of vertical integration include all of the following except
A)costs and expenses associated with increased overhead and capital expenditures.
B)lack of control over valuable assets.
C)problems associated with unbalanced capacities along the value chain.
D)additional administrative costs associated with managing a more complex set of activities.

Accepted Answer

The risks of vertical integration include costs and expenses associated with increased overhead and capital expenditures, loss of flexibility resulting from large investments, problems associated with unbalanced capacities along the value chain, and additional administrative costs associated with managing a more complex set of activities.

Question 18

For a core competence to be a viable basis for the corporation strengthening a new business unit, there are three requirements. Which one of the following is not one of these requirements?
A)The competence must help the business gain strength relative to its competition.
B)The new business must be similar to existing businesses to benefit from a core competence.
C)The new business must have an established large market share.
D)The collection of competencies should be unique, so that they cannot be easily imitated.

Accepted Answer

For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, it must meet three criteria: the core competence must enhance competitive advantage by creating superior customer value; different businesses in the corporation must be similar in at least one important way related to the core competence; and the core competencies must be difficult for competitors to imitate or find substitutes for.

Question 19

According to the text, corporate restructuring includes
A)capital restructuring, asset restructuring, and technology restructuring.
B)capital restructuring, asset restructuring, and management restructuring.
C)management restructuring, financial restructuring, and procurement restructuring.
D)global diversification, capital restructuring, and asset restructuring.

Accepted Answer

Restructuring can involve changes in assets, capital structure, or management.

Question 20

A Cash Cow, in the BCG framework, refers to a business that has
A)high market growth and relatively high market share.
B)relatively low market share and low market growth.
C)relatively low market share and high market growth.
D)low market growth and relatively high market share.

Accepted Answer

Each of the four quadrants of the BCG Portfolio grid has different implications for the SBUs that fall into that category. Cash Cows are SBUs with high market shares in low-growth industries. These units have limited long-run potential but represent a source of current cash flows to fund investments in Stars and Question Marks.

Quiz 6: Corporate-Level Strategy: Creating Value Through Diversification

Unbalanced capacities that limit cost savings, difficulties in combining specializations, and reduced flexibility are disadvantages associated with

Vertical integration is attractive when

A firm should consider vertical integration when

Creating value within business units can happen when the corporate office helps subsidiaries make wise choices in their own acquisitions, divestures, and new ventures. This is known as

Sharing core competencies is one of the primary potential advantages of diversification. In order for diversification to be most successful, it is important that the

When management uses common production facilities or purchasing procedures to distribute different but related products, they are

In the BCG Matrix, a business that has a low market share in an industry characterized by high market growth is termed a

Transaction costs include all of the following costs except

Portfolio management frameworks, such as the BCG matrix, share which of the following characteristics?

When using a BCG matrix, a business that currently holds a large market share in a rapidly growing market and has minimal or negative cash flow would be known as a

In managing the corporate portfolio, the BCG matrix would suggest that

Creating value within business units can happen when a firm tries to find and acquire either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. This action is known as

The primary means by which a firm can diversify are ______, _, and ____.

Portfolio management matrices are applied to what level of strategy?

Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input into its manufacturing process. This is an example of

In the BCG Growth Share Matrix, the suggested strategy for Stars is to

The risks of vertical integration include all of the following except

For a core competence to be a viable basis for the corporation strengthening a new business unit, there are three requirements. Which one of the following is not one of these requirements?

According to the text, corporate restructuring includes

A Cash Cow, in the BCG framework, refers to a business that has