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BUSI 400 Homework 3 Strategic Formation Assignment solutions complete answers
BUSI 400 Homework 3 Strategic Formation Assignment solutions complete answers
Overall cost leadership is a generic strategy unlike others that does not require a tight set of interrelated tactics.
An example of a firm applying the overall cost leadership generic strategy in a value-chain activity would be to automate the production assembly line to reduce scrappage from quality errors.
The experience curve is a factor central to an overall cost leadership strategy and refers to how business learns to increase costs as it gains experience with production processes.
The five-forces model suggests that with intense competition an overall low-cost position will not enable a firm to achieve above-average returns.
Factors that lead to a low-cost position also provide substantial entry barriers to substitute and new products as is demonstrated by the retailer, Aldi, whose focus on minimizing costs across the entire operation permits it to position well against competitors such as Walmart.
If the overall cost leadership strategy is to provide sustainable competitive advantage, all activities in the value-chain need to be evaluated including the relationships among the value-chain activities.
A firm can differentiate itself in a support activity by purchasing high-quality components to enhance product image as Apple does with its laptop computers.
Zappos sells shoes. Its CEO, Tony Hsieh, considers the core element of its differentiation advantage to be its variety of shoes.
Combination strategies, such as integrating overall low cost and differentiation, makes it easier for rivals to duplicate or imitate because it is harder for the primary firm to provide value.
Airlines such as Emirates exploit the profit pool for competitive advantage by adding fees for a variety of services such as access to airport lounges.
A pitfall of integrated overall cost leadership and differentiation is underestimating the expenses associated with coordinating value-creating activities in the extended value chain.
Once established, competitive advantages last forever whether the firm is in a high technology environment or not.
A platform business is like a matchmaker in that it can bring together buyers and sellers. An example of a successful platform provider is Facebook. By attracting and retaining users through expanding services it differentiates itself from more narrowly-focused competitors such as Twitter.
A platform business such as Airbnb leverages data analytics to differentiate its offer from that of competitors such as VRBO.
The market life cycle should be used for short-run forecasting because it provides a conceptual framework for understanding what changes typically occur over the life of an industry.
An important advantage of first movers in a market is that they may establish brand recognition that may later serve as an important switching cost.
Given the attractiveness of premium pricing during the growth stage of the market life cycle, managers should emphasize short-term results to increase profits.
A need for turnaround occurs only during the maturity or declining stage of the life cycle.
Few turnarounds require firms to analyze both the external and internal environments relevant to their firm.
Piecemeal productivity improvements can be used by a mature business in need of a turnaround.
In the department store industry, sales at Nordstrom are declining but increasing at Nordstrom Rack. This is because Nordstrom is responding to customer expectations for lower costs.
In declining industries, competition is fierce and profit margins are always low.
Firms achieve and sustain differentiation advantages and attain above-average performance when their price premiums do not exceed the extra costs incurred in being unique.
A differentiator will always seek out ways of distinguishing itself from similar competitors to justify price premiums greater than the costs incurred by differentiating.
The primary aim of strategic management at the business level is
A) maximizing risk to return trade-offs through diversification.
B) maximizing differentiation of products and/or services.
C) achieving competitive advantage.
D) achieving a low-cost position.
Primary value chain activities that involve the effective layout of receiving dock operations (inbound logistics) and support value chain activities that include expertise in process engineering (technology development) characterize which generic strategy?
A) differentiation
B) differentiation focus
C) stuck-in-the-middle
D) overall cost leadership
A manufacturing business pursuing cost leadership is likely to
A) focus on a narrow market segment.
B) use advertising to build brand image.
C) put heavy emphasis on product engineering.
D) rely on experience effects to raise efficiency.
One aspect of using a cost leadership strategy is that experience effects may lead to lower costs. Experience effects are achieved by
A) spreading out a given expense or investment over a greater volume.
B) hiring more experienced personnel.
C) repeating a process until a task becomes easier.
D) competing in an industry for a long time.
With experience, unit costs of production decline as ________ increases in most industries.
A) costs
B) volume
C) output
D) price
Research has consistently shown that firms that achieve both cost leadership and differentiation advantages tend to perform
A) at about the same level as firms that achieve either cost or differentiation advantages.
B) about the same as firms that are stuck-in-the-middle.
C) higher than firms that achieve either a cost or a differentiation advantage.
D) lower than firms that achieve differentiation advantages but higher than firms that achieve cost advantages.
Global logistics firms such as DHL Supply Chain and Global Forwarding or C. H. Robinson Worldwide compete using an overall cost leadership strategy in primary activities such as
A) effective layout of receiving dock operations.
B) effective use of automated technology to reduce scrappage rates.
C) minimize costs associated with employee turnover through effective policies.
D) standardized accounting practices to minimize personnel required.
Overhead costs associated with the number of layers of management in a firm are part of the ________ activities of the value chain.
A) human resources management
B) firm infrastructure
C) operations
D) marketing and sales
Primark, a fashion retailer, has found a way to keep its cost structure lower than its rivals by leveraging streamlined logistics, a low marketing budget, and negotiating bargain prices from its suppliers. They are using a(n) ________ strategy.
A) differentiation
B) overall cost leadership
C) focus
D) broad differentiation
Aldi, a discount supermarket retailer, has grown from its German base to the rest of Europe, Australia, and the United States by replicating a simple business format. Aldi limits the number of products in each category to ensure product turn, to ease stocking shelves, and to increase its power over supplier. This is an example of an overall cost leadership strategy because it
A) gives them competitive advantage by decreasing productivity.
B) gives them competitive advantage by tight cost and overhead control.
C) eliminates the need to compete based on its products.
D) requires the customer to recognize its efforts.
A business that strives for a low-cost advantage must attain a(n) ________ cost advantage over rivals.
A) relative
B) evolutionary
C) absolute
D) potential
A firm typically achieves an absolute cost advantage by offering a ________ product or service to a ________ target market using standardization to derive the greatest benefits from economies of scale and experience.
A) no frills; narrow
B) complex; narrow
C) no frills; broad
D) complex; diverse
Primark, an Irish clothing retailer, uses an overall cost leadership strategy. This could fail if it
A) maintains parity with competitors on low cost.
B) cannot maintain parity on differentiation dimensions requested by customers.
C) exceeds customer expectations.
D) increases its sales prices while maintaining competitor parity.
Zulily, an online retailer, competes with Amazon and other online retailers by
A) maintaining a large inventory of products.
B) running a labor-intensive distribution system.
C) ordering products from vendors to keep in stock until a customer order comes in.
D) keeping little inventory and ordering only when customers purchase a product.
Which type of competitive strategy is characterized by convincing rivals not to enter a price war, protection from customer pressure to lower prices, and the ability to better withstand cost increases from suppliers?
A) differentiation
B) overall low-cost leadership
C) differentiation focus
D) cost leadership focus
An overall low-cost position enables a firm to achieve ________ returns despite strong competition.
A) below average
B) average
C) no
D) above average
An overall low-cost position protects a firm against rivalry from competitors because ________ allow a firm to earn returns even if its competitors eroded their profits through intense rivalry.
A) higher costs
B) higher prices
C) lower costs
D) lower prices
An overall ________ position enables a firm to achieve above-average returns because it protects firms against powerful buyers.
A) differentiation
B) low-cost
C) focused
D) high-cost
A low-cost position permits buyers to exert power to drive ________ prices only to the level of the next most efficient producer.
A) up
B) down
C) increasing
D) decreasing
A low-cost position provides ________ flexibility to cope with demands from powerful suppliers for input cost increases.
A) less
B) decreasing
C) more
D) no
The factors that lead to a low-cost position also provide a substantial ________ barriers position with respect to ________ products introduced by new and existing competitors.
A) entry; substitute
B) exit; primary
C) product; substitute
D) entry; primary
Zulily protects itself from buyer power and intense rivalry from competitors by
A) increasing the bargaining power of its customers.
B) paying close attention to costs.
C) increasing costs.
D) increasing the buyer power.
Which of the following is a risk (or potential pitfall) of cost leadership?
A) Cost cutting in one area of the value chain might increase costs in another.
B) Attempts to stay ahead of the competition may lead to gold plating.
C) Cost differences increase as the market matures.
D) Producers are more able to withstand increases in supplier costs.
A firm can achieve differentiation through all the following means except
A) improving brand image.
B) offering lower prices to frequent customers.
C) better customer service.
D) adding additional product features.
Value-chain support activities that involve excellent applications engineering support (technology development) and facilities that promote a positive firm image (firm infrastructure) characterize which generic strategy?
A) overall cost leadership
B) differentiation focus
C) differentiation
D) stuck-in-the middle
High product differentiation is generally accompanied by
A) higher market share.
B) higher profit margins and lower costs.
C) significant economies of scale.
D) decreased emphasis on competition based on price.
Which of the following is false regarding how a differentiation strategy can help a firm to improve its competitive position relative to the Porter five-forces model?
A) Firms will enjoy high customer loyalty.
B) By increasing firm margins, it avoids the need for a low-cost position.
C) It reduces buyer power because buyers lack comparable alternatives.
D) Supplier power is increased, because suppliers will be able to charge higher prices for their inputs.
A differentiation strategy enables a business to address the five competitive forces by
A) having brand-loyal customers become more sensitive to prices.
B) increasing economies of scale.
C) providing protection against rivalry.
D) serving a broader market segment.
Which of the following is not a potential pitfall of a differentiation strategy?
A) Uniqueness that is not valuable.
B) The price premium is too high.
C) All rivals share a common input or raw material.
D) Perceptions of differentiation may vary between buyers and sellers.
Hardware chains such as Ace and True Value are losing market share to rivals such as Lowe's and Home Depot in spite of them using a focus strategy. Why?
A) Achieving parity on costs for specialty retailers is difficult.
B) They have too broad a product line.
C) They have equivalent purchasing power as the national chains.
D) Their costs are the same as those of the national chains.
Early pioneer in online education, University of Phoenix, has faced increasing challenges from traditional university online programs who are able to offer their programs at the same cost. Which generic strategy has gone wrong?
A) differentiation
B) overall cost leadership
C) focus strategy
D) low cost leadership
Marlin Steel Wire Products is a manufacturer of commodity wire products out of Baltimore, MD. Marlin has many rivals based in China and other emerging markets. The company cannot compete on labor costs so it used a ________ strategy to automate its production and now specializes in high-end products.
A) differentiation
B) overall cost leadership
C) focus strategy
D) low cost leadership
Which statement regarding competitive advantages is true?
A) With an overall cost leadership strategy, firms need not be concerned with parity on differentiation.
B) In the long run, a business with one or more competitive advantages is probably destined to earn normal profits.
C) If several competitors pursue similar differentiation tactics, they may all be perceived as equals in the mind of the consumer.
D) Attaining multiple types of competitive advantage is a recipe for failure.
Porsche has enhanced power over buyers because its strong reputation makes buyers more willing to pay a premium price. This ________ rivalry, since buyers become ________ pricesensitive.
A) increases; more
B) lessens; more
C) lessens; less
D) increases; less
A firm following a focus strategy must focus on
A) governmental regulations.
B) a market segment or group of segments.
C) rising cost of inputs.
D) avoiding entering international markets.
Which of the following is not a potential pitfall of a focus strategy?
A) Erosion of cost advantages can arise within the narrow segment.
B) Product/service offerings that are highly focused are subject to competition from new entrants.
C) Focusers can become too focused to satisfy buyer needs.
D) All rivals share a common input or raw material.
At one CVS drugstore, a four-pack of Energizer AA batteries was on sale at 2.99 USD compared with a Duracell four-pack at 4.59 USD. The Duracell market share dropped 2 percent in a recent two-year period, and its profits declined over 30 percent. Why did this happen?
A) The price differential was too high.
B) The market for batteries is saturated.
C) The customer perceived the products to be different.
D) There are valid alternatives for batteries.
The text discusses three approaches to combining overall cost leadership and differentiation competitive advantages. Which of the following is not one of these three approaches?
A) automated and flexible manufacturing systems
B) deriving benefits from highly-focused and high-technology markets
C) exploiting the profit pool concept for competitive advantage
D) coordinating the extended value chain by way of information technology
A ________ can be defined as the total profits in an industry at all points along the industry value chain.
A) profit maximizer
B) revenue enhancer
C) profit pool
D) profit outsourcing
Which of the following is not a potential pitfall of an integrated overall low cost and differentiation strategy?
A) Firms that target too large a market that causes unit costs to increase.
B) Firms that underestimate the expenses associated with coordinating value-creating activities in the extended value chain.
C) Firms that fail to attain both strategies may end up with neither and become stuck-in-the- middle.
D) Firms that miscalculate sources of revenue and profit pools in the company industry.
Mass customization permits companies to manufacture unique products in relatively ________ quantities at ________ costs.
A) large; higher
B) large; lower
C) small; higher
D) small; lower
Andersen Windows lowered costs, enhanced quality and variety, and improved its response time to customers by
A) creating a new paper-based catalog.
B) creating an interactive computer version of its paper catalogs.
C) creating an integrated computer system of catalogs, products, orders, and manufacturing.
D) creating a manufacturing system for ordering parts.
A risk for a firm that tries to attain both cost and differentiation advantages is that it can be stuck in the middle. An example of this is supermarkets because their ________ structure is ________ than discount retailers, and customers do not value their products and services as being high-end such as those offered by Whole Foods.
A) cost; higher
B) price; higher
C) price; lower
D) cost; lower
Indochino is a retailer of male clothing that sells custom-made suits online and in brick-and-mortar stores. They use ________ operations to outcompete traditional retailers.
A) traditional
B) unscaled
C) scaled
D) reverse
Indochino uses sophisticated technology to improve the efficiency of its operations and boost its sales. It collects information on a(n) ________ basis on ________ trends to optimize the selections of cloth purchases and the promotions it offers on its website and in its stores.
A) systematic; reject
B) ongoing; sales
C) frequent; material
D) systematic; material
Many firms have achieved success by integrating activities throughout the extended value chain by using ________ to link their own value chain with the value chains of their customers and suppliers.
A) customization
B) information technology
C) human resources
D) competitive advantage
Outside the flight experience itself, airlines are generating revenue by charging fees for credit cards, frequent-flyer programs, and access to airport lounges. This serves to
A) increase competition.
B) expand the profit pool.
C) provide better customer service.
D) satisfy regulators.
Waze, a GPS Navigation app, relies on inputs from users to provide information on traffic conditions and uses artificial intelligence to develop algorithms for each user, tailoring the route map for that user at that particular moment. This is an example of
A) a focused strategy.
B) an overall cost leadership strategy.
C) unscaling to create a combination strategy.
D) exploiting the profit pool.
Underestimating expenses associated with coordinating value-creating activities in the extended value chain can be a result of ________ integration of cost leadership and differentiation.
A) good
B) poor
C) intentional
D) structured
Which of the following is not a reason for the possible erosion of company competitive advantage?
A) rapid change in technology
B) globalization
C) actions by rivals from within and outside of the industry
D) company commitment to innovation
Atlas Door created competitive advantage by reducing the time to receive and process an order and through installing a just-in-time logistics operation. Which of the following is not a reason for their favorable position relative to the five forces of industry competition?
A) The service was easily imitable.
B) It created high entry barriers for new entrants.
C) The integration of many company value-chain activities provided causal ambiguity and path dependency.
D) It exerted power over its customers.
BlackBerry lost its competitive advantage by 2016 because it
A) did not deliver innovations to respond to changing market demand.
B) developed a highly performant just-in-time delivery system.
C) did not reward its employees.
D) let suppliers have dominant power.
Company competitive advantages can be eroded by all the following except
A) rapid changes in technology.
B) globalization.
C) actions by rivals within the industry.
D) actions by workers outside of the industry.
Barnes and Noble lost its market share in book retailing to Amazon. It tried to regain market share by offering a similar electronic reader, the Nook, to the Amazon Kindle series. This demonstrates that Barnes and Noble lacked
A) a short-term strategy.
B) a company-wide strategy.
C) a sustainable competitive advantage.
D) good suppliers.
Atlas Door tightly controlled logistics so that it always shipped only fully complete orders to construction sites. In regard to the five forces model, which of the following is a reason this might give them competitive advantage?
A) It helps to reduce the threat of new entrants.
B) It created low entry barriers for new entrants.
C) It created a high threat of substitution.
D) It gave more power to buyers.
In evaluating the sustainability of the Atlas Door competitive advantages over the long run, it is important to evaluate the ability of rivals to
A) easily imitate its strategy.
B) communicate with its customers.
C) consistently overprice their products.
D) find new suppliers.
Atlas Door created competitive advantages in overall low cost and differentiation by creating ________ among value-chain activities.
A) substitutes
B) advantages
C) disadvantages
D) linkages
Atlas Door relies on technologies that are rather well known and non-proprietary. This opens it up to the potential of
A) imitation by rivals.
B) customer abandonment.
C) increased supplier power.
D) government regulation.
Which of the following reasons is not a reason that Atlas Door could lose competitive advantage?
A) Its technologies are non-proprietary.
B) A rival easily could hire away its talented employees.
C) A new rival with a strong resource base could undercut its prices.
D) It has strong power over its distributors.
Rivals would find it difficult to challenge Atlas Door in the short run because of
A) strong customer loyalty.
B) low barriers to entry.
C) high threat of substitution.
D) low buyer switching costs.
Rivals would find it difficult to challenge Atlas Door in the short run because of
A) weak customer loyalty.
B) high barriers to entry.
C) high threat of substitution.
D) low buyer switching costs.
Which of these statements regarding the industry life cycle is true?
A) Partial power of the market life cycle is its ability to serve as a short-run forecasting device.
B) Trends suggested by the market life cycle model are generally not reversible or repeatable.
C) It points out the need to maintain a differentiation advantage and a low cost advantage.
D) It is important for company generic strategies, functional areas, value-creating activities, and overall objectives.
Which of the following statements about the introduction stage of the market life cycle is true?
A) It produces relatively large, positive cash flows.
B) Strong brand recognition seldom serves as an important switching cost.
C) Market share gains by pioneers are usually easily sustained for many years.
D) Products offered by pioneers may be perceived as differentiated because they are new.
In the ________ stage of the industry life cycle, the emphasis on product design is very high, the intensity of competition is low, and the market growth rate is low.
A) growth
B) maturity
C) introduction
D) decline
The growth stage of the industry life cycle is characterized by
A) in-kind competition (from the same type of product).
B) premium pricing.
C) a growing trend to compete on the basis of price.
D) retaliation by competitors whose customers are stolen.
In the ________ stage of the industry life cycle, there are many segments, competition is very intense, and the emphasis on process design is high.
A) growth
B) introduction
C) decline
D) maturity
In a given market, key technology no longer has patent protection, experience is not an advantage, and there is a growing need to compete on price. What stage of its life cycle is the market in?
A) introduction
B) growth
C) maturity
D) decline
A market that mainly competes on the basis of price and has stagnant growth is characteristic of what life cycle stage?
A) introduction
B) growth
C) maturity
D) decline
As markets mature,
A) costs continue to increase.
B) application for patents increase.
C) differentiation opportunities increase.
D) there is increasing emphasis on efficiency.
The size of pricing and differentiation advantages between competitors decreases in which stage of the market life cycle?
A) introduction
B) growth
C) maturity
D) decline
Which of the following is most often true of mature markets?
A) Some competitors enjoy a significant operating advantage due to increasing experience effects.
B) The market supports premium pricing, which attracts additional competitors.
C) Advantages that cannot be duplicated by other competitors are difficult to achieve.
D) The magnitude of pricing differences and product differentiation is larger than in the growth stage.
In the ________ stage of the industry life cycle, there are few segments, the emphasis on process design is low, and the major functional areas of concern are general management and finance.
A) introduction
B) growth
C) decline
D) maturity
97) The most likely time to pursue a harvest strategy is in a situation of
A) high growth.
B) strong competitive advantage.
C) mergers and acquisitions.
D) decline.
Research shows that which one of the following is not a strategy used by firms engaged in successful turnarounds?
A) asset and cost surgery
B) selective product and market pruning
C) piecemeal productivity improvements
D) global expansion
Piecemeal productivity improvements during a turnaround typically do not involve
A) business process reengineering.
B) increased capacity utilization.
C) benchmarking.
D) expansion of company product market scope.
Proctor and Gamble announced that it would sell off or close down up to 100 of its brands. This is an example of which turnaround strategy used by successful companies?
A) asset and cost surgery
B) selective product and market pruning
C) piecemeal productivity improvements
D) global expansion
Outright sales or sale and leaseback free up considerable cash and improve returns. This is an example of which turnaround strategy used by successful companies?
A) asset and cost surgery
B) selective product and market pruning
C) piecemeal productivity improvements
D) global expansion
Improving business processes by reengineering them, benchmarking specific activities against industry leaders, encouraging employee input to identify excess costs, increasing capacity utilization, and improving employee productivity lead to a significant overall gain. These are examples of which turnaround strategy used by successful companies?
A) asset and cost surgery
B) selective product and market pruning
C) piecemeal productivity improvements
D) global expansion
Most turnarounds require a firm to carefully analyze its relevant environments. The ________ analysis leads to identification of market segments or customer groups that may still find the product attractive.
A) external
B) internal
C) global
D) environmental
Most turnarounds require a firm to carefully analyze its relevant environments. ________ analysis results in actions aimed at reduced costs and higher efficiency.
A) External
B) Internal
C) Global
D) Environmental
Nordstrom plans to grow by driving traffic to their stores though the integration of ________ and ________ operations with its service culture.
A) technology; sales
B) marketing; innovative
C) technology; innovative
D) marketing; sales
According to the Issue for Debate, increasing technology for connecting with customers is one of the solutions that Nordstrom settled on to increase foot traffic to its full-service stores. They have foregone ________ to finance these new solutions.
A) customer service
B) in-store improvements
C) back office infrastructure
D) marketing
Nordstrom significantly cut back on its capital spending in the last years because
A) customers do not care about capital improvements.
B) of pressure from investors to increase profits.
C) mall locations are bringing increased food traffic.
D) investors are more interested in customer service.
Which of the following turnaround strategies is Nordstrom primarily using?
A) selective market pruning
B) piecemeal productivity improvements
C) selective product pruning
D) asset and cost surgery
A turnaround strategy involves reversing performance decline and reinvigorating growth toward profitability. The firm should analyze the external and internal environments carefully. What will the internal analysis reveal?
A) customer groups that find the product attractive
B) market segments that are likely to be interested in the product
C) potential actions for reducing costs
D) locations that would improve traffic
Fortnite game designers purposefully add content to differentiate their products, enticing players to play more and longer on the game platform. Which value chain support activity are they leveraging?
A) procurement
B) firm infrastructure
C) human resource management
D) technology development
Firms used to build efficiently run large-scale operations in order to dominate markets. This gave them cost advantages over rivals, but this also meant they were ________ in responding to market changes and were ________ in their ability to customize their products to specific customer needs.
A) rapid; fast
B) limited; rapid
C) fast; limited
D) slow; limited
________ firms build small-scale operations to meet the needs efficiently of particular customers.
A) Behemoth
B) Unscaled
C) Scaled
D) Hybrid
Duracell, under Berkshire Hathaway, and Energizer, under Edgewell Personal Care Company, continue to succeed in the declining disposable battery industry because they
A) increase prices to increase sales volume.
B) feel less pressure to meet profit expectations under the new owners.
C) focus on cutting costs by streamlining supply chains.
D) focus on cutting costs by ignoring underperforming and less efficient plants.
According to Strategy Spotlight 5.5, which of the following is not a primary reason competitors in the disposable battery industry are succeeding in the declining market?
A) The industry is highly consolidated.
B) Firms now have a diminished degree of pricing flexibility.
C) Competitors have become much more profit-focused.
D) Firms are focused on cutting costs by streamlining supply chains.
In the Issue for Debate, Bon-Ton Stores, Sears, and JC Penney were listed as struggling or in bankruptcy. Which of the following is not a challenge they face?
A) dwindling mall customer traffic
B) inefficient competition
C) a declining middle-class customer base
D) the threat of online retailing
According to Strategy Spotlight 6.3, JAB Holding Co., a Luxembourg-based holding company, uses divestiture to extract value from the many firms it has acquired.
According to the study in Insights from Research on CEO temporal focus and negative media coverage of acquisitions, top managers of firms appear to be sensitive to the evaluation of their decisions by the media and if they received negative evaluations of their acquisitions in one year, they increased their spending on acquisition the following year.
Research shows that most acquisitions of public corporations result in value creation rather than value destruction.
The Hewlett-Packard and Autonomy merger in 2011 is an example of a successful merger.
Many acquisitions ultimately result in divestiture.
Diversification initiatives must be justified by the creation of value for shareholders.
When firms diversify into unrelated businesses, the primary potential benefits are horizontal relationships, i.e., businesses sharing tangible and intangible resources.
Benefits derived from horizontal and hierarchical relationships are mutually exclusive.
For a core competency to create value and provide a viable basis for synergy among the businesses in a corporation, it must at least create superior customer value and it must be difficult to imitate.
Gillette developed the Fusion and Mach 3 shaving systems. These products created superior customer value as a result of the company core competency in research and development.
It is necessary for a core competence to be difficult to imitate and to be non-substitutable.
With unrelated diversification, potential benefits can be gained from vertical or hierarchical relationships; that is, the creation of synergies from the interaction of the corporate office with outside stakeholders.
Restructuring requires the corporate office to find either exceptionally performing firms with realized potential or firms in industries on the threshold of significant, negative change.
Portfolio management should be considered as the primary basis for formulating corporatelevel strategies.
Diversified public corporations, such as Berkshire Hathaway and Virgin Group, create value through management expertise by improving plans and budgets. This is an example of a related diversification strategy.
Portfolio models such as the BCG Portfolio matrix are limited in value because they only compare the SBU on four dimensions.
A disadvantage of mergers and acquisitions is that they can enable a firm to rapidly enter new product markets.
Through joint ventures, firms can directly acquire the assets and competencies of other firms.
The potential advantages of strategic alliances and joint ventures include entering new markets as well as developing and diffusing new technologies.
In recent years, many high-tech firms such as Priceline.com have suffered from the negative impact of uncontrolled growth.
Greenmail is an offer by a company, threatened by takeover, to offer its stock at a reduced price to a third party.
A golden parachute is a prearranged contract with managers specifying that, in the event of a hostile takeover, the target company managers will be paid a significant severance package.
According to the Learning from Mistakes case in Chapter 6, the merger of Newell and Jarden failed because of poor post-merger integration of Jarden.
According to Strategy Spotlight 6.1, Geely, a Chinese auto manufacturer, bought Volvo from Ford in order to improve its designs through the integration of Volvo’s core competencies.
JAB Holding Co., was a diversified holding company. Recently it has been acquiring companies in the beverage and food industries. Why?
A) It wanted to reduce industry rivalry in its existing portfolio.
B) Competition was putting its beauty products out of business.
C) The industrial chemical market had reached declining returns.
D) It wanted to remake itself into a focused, related diversifier.
According to Strategy Spotlight 6.5 Honda now competes by leveraging ________ to develop key technologies.
A) internal strengths
B) market expertise
C) multiple alliances
D) supply chain strength
Which of the following potential advantages of strategic alliances best describes the current Honda solution, according to Strategy Spotlight 6.5?
A) entering new markets
B) reducing manufacturing costs in the value chain
C) developing and diffusing new technologies
D) reducing other costs in the value chain
When PGA and LPGA, golf tours, joined together in a strategic alliance, which of the following best explains the potential advantage?
A) entering new markets
B) increasing administrative costs in the value chain
C) developing and diffusing new technologies
D) reducing costs in the value chain
Zara, a Spanish clothing company, often uses strategic alliances when entering new geographic markets. Which of the following best explains the potential advantage for them?
A) gaining knowledge about different cultures and regulatory environments
B) increasing administrative costs in the value chain
C) developing and diffusing new technologies
D) eliminating costs in the value chain
Ford and VW signed a memorandum of understanding to work together to develop autonomous vehicles. Which of the following best explains the potential advantage for them?
A) entering new markets
B) increasing administrative costs in the value chain
C) developing and diffusing new technologies
D) eliminating costs in the value chain
Disney intends to compete against Netflix, Amazon, and other streaming services by
A) increasing subscription prices.
B) diversifying its operations.
C) teaming up with other suppliers.
D) outsourcing its distribution.
Disney has chosen to discontinue its content distribution agreements with Netflix and Amazon. Why?
A) Traditional cable is increasing its foothold with consumer contracts.
B) Netflix and Amazon are developing their own content.
C) Satellite suppliers are increasing their customer base.
D) Disney does not create its own content.
Chinese automaker, Geely, acquired Volvo from Ford, because it mostly needed the Volvo ________ to compete on the global stage.
A) financial reserves
B) logistics chain
C) core competencies
D) purchasing capabilities
Which of the following is not a reason for merger and acquisition failures?
A) The acquiring company pays a large premium for the common stock of the target company.
B) Top executives act in their best interests rather than those of the shareholders.
C) The acquisition leads to value creation.
D) The acquired company assets are poorly integrated into the acquiring company business lines.
Corporate-level strategy focuses on
A) gaining long-term revenue.
B) gaining short-term profits.
C) decreasing business locations.
D) managing investment bankers and their interests.
An acquisition that results in ________ commonly indicates that expectations were not met.
A) expansion
B) divestiture
C) cost savings
D) increased sales
In 2012, Microsoft admitted to a major ________ mistake when it wrote off essentially the entire 6.2 billion USD it paid for a digital advertising firm, aQuantive, that it purchased in 2007.
A) expansion
B) divestiture
C) acquisition
D) cost savings
Yahoo purchased Tumblr for 1.1 billion in 2013 but wrote off 80 percent of the investment by the middle of 2016. They considered this to be a poor
A) expansion.
B) divestiture.
C) acquisition.
D) cost savings.
AOL purchased Time Warner for 114 billion USD in 2001. By 2003, AOL Time Warner had lost 150 billion USD in market valuation. This is an example of a
A) good expansion.
B) reasonable divestiture.
C) cost savings strategy.
D) failed acquisition.
If a multinational firm is unable to understand how the assets of the acquired company would fit with their own lines of business, this can lead to
A) expansion.
B) divestiture.
C) cost savings.
D) acquisition.
If a multinational firm paid too high a premium for the common stock of the company, this can lead to
A) divestiture.
B) expansion.
C) cost savings.
D) acquisition.
If a multinational firm fails to effectively integrate their acquisitions, this can result in
A) cost savings.
B) further acquisition.
C) expansion.
D) divestiture.
One of the reasons it is said that only the investment banker wins when a company is acquired is that they
A) assure the newly acquired company will be successful.
B) continue to work with the two companies involved.
C) collect huge up-front fees regardless of the outcome afterwards.
D) monitor the progress of both companies for long term growth.
Diversification initiatives include all the following except
A) mergers and acquisitions.
B) strategic alliances.
C) shareholder development.
D) joint ventures.
Polaris, a manufacturer of snowmobiles, motorcycles, watercraft, and off-road vehicles, shares manufacturing operations across its businesses. It also has a corporate research and development facility and staff departments that support all the Polaris operating divisions. This is an example of creating value by using
A) related diversification to acquire market value by leveraging core competencies.
B) related diversification to acquire economies of scope by sharing.
C) unrelated diversification to acquire financial synergies through portfolio management.
D) related diversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting.
Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input to its manufacturing process. This is an example of creating value by using
A) related diversification to acquire market power by pooling negotiating power.
B) related diversification to acquire economies of scope by leveraging core competencies.
C) related diversification to acquire market power by integrating vertically.
D) related diversification to acquire economies of scope by integrating vertically to acquire market power.
At Cooper Industries, there are few similarities in the products it makes or the industries in which it completes. The corporate office adds value through such activities as improving their accounting activities and centralizing union negotiations. This is an example of creating value by using
A) related diversification to acquire economies of scope by leveraging pooled negotiating power.
B) related diversification to acquire market power by leveraging core competencies.
C) unrelated diversification to acquire financial synergies through portfolio management.
D) unrelated diversification to acquire synergies through corporate restructuring and parenting.
The corporate office of Novartis, formerly Ciba-Geigy, acts to improve many key activities, including resource allocation and reward and evaluation systems. This is an example of creating value by using
A) related diversification to achieve value by leveraging pooled negotiating power to attain economies of scope.
B) unrelated diversification to acquire financial synergies through portfolio management.
C) related diversification to acquire market power by leveraging pooled negotiating power.
D) related diversification to acquire parenting synergies through corporate restructuring and parenting.
3M leverages its competencies in adhesives technologies to many industries, including automotive, construction, and telecommunications. This is an example of creating value by using
A) related diversification to acquire economies of scope by leveraging pooled negotiating power.
B) unrelated diversification to financial synergies through portfolio management.
C) related diversification to acquire economies of scope by leveraging core competencies.
D) unrelated diversification to parenting, restructuring, and financial synergies through restructuring and parenting.
Many leading high-tech firms such as Google, Apple, and Intel have dramatically enhanced their revenues, profits, and market values through a wide variety of diversification initiatives. Which of the following is not such an initiative?
A) acquisitions
B) strategic alliances
C) stockholder enhancement
D) joint ventures
Firms have several choices of diversification initiatives that can be used to create value. Which of the following is not one of them?
A) using related diversification to acquire economies of scope
B) using related diversification to acquire market power
C) using unrelated diversification to acquire financial synergies
D) using related diversification to acquire parenting and restructuring synergies
ConAgra, a diversified food producer, increases its power over suppliers by centrally purchasing huge quantities of packaging materials for all its food divisions. This is an example of using
A) related diversification to acquire economies of scope by leveraging pooled negotiating power.
B) related diversification to acquire market power by leveraging pooled negotiating power.
C) unrelated diversification to acquire financial synergies through portfolio management.
D) unrelated diversification to acquire parenting, restructuring, and financial synergies through restructuring and parenting.
Proctor and Gamble is a large multinational organization that has many business sharing distribution resources. Diversification strategies take advantage of the ________ that exist in their organization.
A) costs
B) employees
C) discontinuities
D) synergies
Microsoft offered in 2016 to buy LinkedIn for 26.2 billion USD which was 50 percent higher than the value for LinkedIn the day before. This high premium offer was necessary for Microsoft to complete ________ initiative.
A) a low cost
B) an internal development
C) a diversification
D) a divestiture
When a firm diversifies into ________ businesses, the primary potential benefits to be derived come from ________ relationships—those businesses that share intangible and tangible resources.
A) related; hierarchical
B) unrelated; hierarchical
C) related; horizontal
D) unrelated; horizontal
When a firm diversifies into ________ businesses, the primary potential benefits to be derived come from ________ relationships where value creation is derived from the corporate office.
A) unrelated; hierarchical
B) related; hierarchical
C) related; horizontal
D) unrelated; horizontal
Casio, a giant electronic products producer, synthesizes it abilities in miniaturization, microprocessor design, material science, and ultrathin precision castings to produce digital watches. It uses the same skills to produce card calculators, digital cameras, and other small electronics. These collective skills are
A) strategic resources.
B) core competencies.
C) shared activities.
D) economies of scope.
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.
Sharing core competencies is one of the primary potential advantages of diversification. For diversification to be most successful, it is important that the
A) products use similar distribution channels.
B) value chains of the firm be similar enough in at least one way to allow for the leveraging of the core competencies of the firm.
C) target market is the same, even if the products are very different.
D) methods of production are the same.
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.
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.
The risks of vertical integration include all 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.
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.
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.
Transaction costs include all the following costs except
A) monitoring costs.
B) negotiating costs.
C) search costs.
D) agency costs.
Vertical integration is attractive when
A) administrative costs are higher than transaction costs.
B) transaction costs are higher than administrative costs.
C) transaction costs and administrative costs are equal.
D) search costs are higher than monitoring costs.
Vertical integration is more likely to be attractive when the end consumer market is
A) volatile.
B) stable.
C) contracting.
D) fragmented.
________ diversification is when a firm enters a different business that has little horizontal interaction with other businesses of a firm.
A) Horizontal
B) Synergistic
C) Related
D) Unrelated
________ is when the corporate office helps subsidiaries make wise choices in their own acquisitions, divestures, and new ventures, thereby creating value within business units.
A) Parenting
B) Restructuring
C) Leveraging core competencies
D) Increasing market power
Diversified public corporations such as Berkshire Hathaway and Virgin Group are examples of companies that create value using
A) deconstruction expertise.
B) parenting expertise.
C) excess personnel.
D) increased market positioning.
________ is 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, thereby creating value within business units.
A) Parenting
B) Leveraging core competencies
C) Restructuring
D) Sharing activities
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.
Asset restructuring involves the sale of ________ assets, or even whole lines of businesses that are peripheral.
A) productive
B) efficient
C) unproductive
D) inefficient
Capital restructuring involves changing the ________ mix.
A) cash
B) human resource
C) debt-equity
D) management
Management restructuring typically involves changes in the composition of the ________, organizational structure, and reporting relationships.
A) middle management team
B) top management team
C) lower management team
D) board of directors
Common steps in management restructuring include all the following except
A) tight financial control.
B) rewards based on meeting short- to medium-term performance goals.
C) penalties for missing short- to medium-term performance goals.
D) reduction in the number of middle-level managers.
Portfolio management matrices are applied to what level of strategy?
A) departmental level
B) business level
C) corporate level
D) international level
Research shows that a key competence of high-performance diversified firms is the ability to
A) hide excess capital.
B) efficiently dispose of excess capital.
C) effectively allocate financial capital.
D) invest internationally.
Portfolio models are used to assist a firm in
A) achieving a portfolio of businesses.
B) unbalancing its portfolio of businesses.
C) achieving a balanced portfolio of businesses.
D) generating excess cash.
When using a BCG matrix, a ________ is a business that currently holds a large market share in a rapidly growing market and has minimal or negative cash flow.
A) star
B) dog
C) cash cow
D) question mark
In the BCG Matrix, a ________ is a business that has a low market share in an industry characterized by high market growth.
A) star
B) cash cow
C) question mark
D) dog
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.
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.
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.
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.
Which of the following is not a way a corporation tries to create shareholder value in using portfolio strategy approaches?
A) Portfolio analysis provides a snapshot of the businesses in the portfolio of the corporation.
B) The expertise and analytical resources in the corporate office provide guidance in determining firm attractiveness for acquisition.
C) The corporate office is not able to provide financial resources to the business units on favorable terms.
D) The corporate office can provide high-quality review and coaching for the individual businesses.
Which of the following is not a downside of portfolio models used to assist a firm in balancing its portfolio of businesses?
A) Portfolio models compare SBUs on only two dimensions under the assumption that these are the only factors that matter.
B) Portfolio models view each SBU as a stand-alone entity.
C) Portfolio models rely on loose rules regarding resource allocation across the SBUs.
D) The evaluation process risks becoming mechanical and oversimplified.
When Cabot Corporation used the BCG matrix to evaluate its carbon black manufacturing business, the model led them to move away from ________ and to diversify into unrelated businesses listed as stars by the model. This resulted in a decline on return on assets. They eventually returned to carbon black manufacturing and divested the unrelated businesses; resulting in smaller, but more focused firms.
A) the dog quadrant
B) its core market
C) the question mark quadrant
D) semiconductor manufacturing
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
________ is when one firm buys another through a stock purchase, cash or the issuance of debt.
A) An acquisition
B) A merger
C) An unrelated diversification
D) A related diversification
________ is when a new legal entity is formed by a combination or consolidation of two firms.
A) An acquisition
B) A merger
C) An unrelated diversification
D) A related diversification
The Marriott International purchase of Starwood Hotels for 13.6 billion USD is an example of a(n)
A) acquisition.
B) divestiture.
C) unrelated diversification.
D) related diversification.
According to BNP Paribas chief economist, Julia Coronado, when businesses feel confident about the future they are more aggressive in looking for ways to grow and expand their operations. You would expect the volume of mergers and acquisitions to ________ during this period.
A) decrease
B) remain stagnant
C) increase
D) fluctuate downward
Factors that directly affect the merger and acquisition environment include all the following except
A) general economic conditions.
B) level of optimism about the future.
C) currency fluctuations.
D) managerial style.
In 2014, Apple purchased Beats Electronics for billion USD. While Apple valued the product portfolio of Beats, its primary aim was to pull the founders of Beats, Jimmy Iovine and Dr. Dre (aka Andrew Young), into the Apple family. This is an example of acquiring firms using acquisitions to acquire
A) critical financial resources.
B) critical human capital.
C) critical reputation.
D) critical land resources.
The downsides or limitations of mergers and acquisitions include all of the following except
A) it is a slow means to enter new markets and acquire skills and competences.
B) difficulties exist in integrating the activities and resources of the acquired firm into ongoing operations.
C) there can be many cultural issues that can doom an otherwise promising acquisition.
D) premiums that are frequently paid to acquire a business are large.
Divesting of businesses can accomplish many different objectives, except
A) enabling managers to focus their efforts more directly on the core businesses of the firm.
B) providing the firm with more resources to spend on more attractive alternatives.
C) raising cash to help fund existing businesses.
D) dispersing manager focus.
Cooperative relationships such as ________ have potential advantages such as entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies.
A) franchises
B) mergers
C) acquisitions
D) joint ventures and strategic alliances
Which of the following is not part of a good guideline list for managing strategic alliances?
A) establishing a clear understanding between partners
B) not shortchanging your partner
C) relying primarily on a contract to make the joint venture work
D) working hard to ensure a collaborative relationship between partners
Which of the following statements regarding internal development as a means of diversification is false?
A) Many companies use internal development to extend their product or service offers.
B) An advantage of internal development is that it is generally faster than other means of diversification.
C) The firm can capture wealth created without having to share the wealth with alliance partners.
D) Firms can often develop products or services at a lower cost if they rely on their own resources instead of external funding.
Internal development may be time consuming and, therefore, firms may forfeit the benefits of speed that growth through ________ and ________ can provide.
A) strategic alliances; joint ventures
B) strategic alliances; mergers
C) mergers; acquisitions
D) mergers; joint ventures
Firms that choose to diversify through internal development must develop ________ that allow them to move ________ from initial opportunity recognition to market introduction.
A) strategies; slowly
B) capabilities; quickly
C) capabilities; slowly
D) strategies; quickly
According to Michael Porter, there is a tremendous allure to ________. It is the big play, the dramatic gesture. With one stroke of the pen, you can add billions to size, get a front-page story, and create excitement in markets.
A) strategic alliances and joint ventures
B) internal development
C) mergers and acquisitions
D) differentiation strategies
The antitakeover tactic, ________, is when a firm offers to buy shares of their stock from a company (or individual) planning to acquire their firm at a higher price than the unfriendly company paid for it.
A) golden parachute
B) poison pill
C) greenmail
D) scorched earth
________ is an antitakeover tactic in which existing shareholders have the option to buy additional shares of stock at a discount to the current market price.
A) Greenmail
B) A golden parachute
C) A poison pill
D) Scorched earth
The term "golden parachute" refers to
A) a clause requiring that huge dividend payments be made upon takeover.
B) pay given to executives fired because of a takeover.
C) financial inducements offered by a threatened firm to stop a hostile suitor from acquiring it.
D) managers of a firm in a hostile takeover approaching a third party about making the acquisition.
Antitakeover tactics include all the following except
A) greenmail.
B) poison pills.
C) golden parachutes.
D) golden handcuffs.
