Bài tập Chương 5: Diversification strategies and corporate relatedness môn Business Strategy and Policy | Đại học kinh tế Quốc dân

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Chapter 5: Corporate-level strategy
A common criticism that applies to many portfolio models is that they are based on the past T instead of the future.
A company that tries to balance both operational and corporate relatedness and fails risks T
incurring diseconomies of scope
A firm uses a corporate-level diversification strategy for a variety of reasons all of which have to F do with ways to create value.
A major advantage of diversification is that overall monitoring costs are reduced, since each F
separate business comes under the control of corporate headquarters.
A significant benefit of an internal capital market is limiting competitors' access to information T
about the performance of the individual businesses within the corporation
A significant benefit of an internal capital market is that corporate headquarters has access to T
detailed and accurate information regarding the performance of the company's portfolio and can
thus make better capital allocation decisions.
Acquisitions are a common type of merger T
Al of Krispy Kreme's revenues come from its one main product, doughnuts. It can be considered F
a classic example of a firm following a related constrained strategy.
An effective corporate strategy creates aggregate returns across all businesses that exceed T
what those returns would be without the strategy and contributes to the firm's strategic
competitiveness and ability to earn above- average returns
An unrelated diversification strategy can create value through two types of financial economies: T
(1) efficient internal capital allocations, and (2) purchasing other firms, restructuring their assets, and selling them.
Antitrust regulation, tax laws, and low performance are all value-neutral reasons why firms T engage in diversification.
Compared with related constrained firms, related linked firms share fewer resources and assets T
between their businesses, concentrating instead on transferring knowledge and core
competencies between the businesses.
Concentration is the most complex corporate-level strategy F
Contract manufacturers who manage their customers' entire product line, and offer services F
ranging from inventory management to delivery and after-sales services are prime examples of vertical integration. lOMoAR cPSD| 58511332
Corporate-level strategies are strategies a firm uses to diversify its operations from a single F
business competing in a single market into several product markets and, most commonly, into several businesses
Decisions to expand a firm's portfolio of businesses to reduce managerial risk can have a F
positive effect on the firm's value
Direction setting is a major corporate-level strategic management responsibility. T
Economies of scope are cost savings resulting from a firm successfully leveraging, either through T
sharing or transferring, some of its capabilities and competencies developed in one business to another business
Equator, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in T
Ireland. It plans to move one of its key managers from its plant in St. Louis to Ireland. This can be
considered a method of transferring corporate-level core competencies.
Financial economies are cost savings realized through improved allocations of financial T
resources based on investments inside or outside the firm.
Firms seeking to create value through corporate relatedness use the related constrained F strategy.
Firms that sold off related units in which resource sharing was a possible source of economies of T
scope have been found to produce lower returns than those that sold off businesses unrelated to the firm's core businesses.
Firms using a related diversification strategy may gain market power when successfully using T
their related constrained or related linked strategy.
Firms using the related constrained strategy share activities in order to create value. T
Firms with both operational and corporate relatedness are favorites of investment analysts F
because thetransparency and clarity of their financial statements clearly show the value-creation
resulting from the combination of multiple businesses
GE (discussed in the Chapter 6 Opening Case) is an example of a firm following the related F
constrained diversification strategy (i.e., different businesses that are highly related).
GE (discussed in the Chapter 6 Opening Case) is an example of a firm that used its corporate F
strategy to achieve competitive advantage by selecting and managing a group of different
businesses competing in different product markets lOMoAR cPSD| 58511332
Google's diversification could lead the firm toward a related linked strategy and give the firm T
advantages and multipoint competition with competitors such as Facebook and Microsoft (Chapter 6 Strategic Focus).
Google's increasing use of a vertical integration strategy is in line with the extensive use of that F
strategy by many manufacturing firms.
If the businesses in the corporate portfolio are not worth more under the management of the T
corporation than they would be under any other ownership, then the corporate-level strategy has failed
In a diversified firm, capital allocation can be adjusted according to more specific criteria than is T
possible with external market allocation of capital.
In a money-making effort, a small private university has decided to institute consulting services T
using its business faculty as consultants whose services would be sold to clients. This university
is attempting to use its faculty to gain economies of scope.
In the Chapter 6 Opening Case, GE achieved growth and diversification through mergers and T acquisitions.
It can be difficult for investors to actual y observe the value created by a firm (such as Walt T
Disney) as it shares activities and transfers core competencies.
Management of resources is a major corporate-level strategic management responsibility. T
Managers sometimes choose to diversify because they are motivated by power, income, and T status.
Many manufacturing firms are de-integrating and moving to independent supplier networks. T
Market power exists when a firm is able to sell its products above the existing competitive level or T
decrease the costs of its primary and support activities below the competitive level, or both
Market saturation is one possible reason for firms to abandon their concentration strategies. T
Most acquisitions are financially beneficial to the shareholders of the acquiring firm. F
Procter & Gamble (P&G) has a paper towel and baby diaper business that both use paper T
products. This is an example of value created through the sharing of activities.
Related linked firms share more resources and assets between their businesses than do related F constrained firms lOMoAR cPSD| 58511332
Revenues for United Parcel Service (UPS) are derived from the following business segments: 60 F
percent from U.S. package delivery operations, 22 percent from international package delivery,
and 18 percent from non- packaging operations. The best description of the corporate level
strategy of UPS is unrelated diversification.
Successful product diversification is expected to increase the variability in the firm's profitability F
since the earnings are generated from several different business units
Synergy among businesses is created instantly if they are related to each other. F
Transaction cost economics is used primarily to determine when unrelated diversification is F appropriate.
United Technologies, Textron, Samsung, and Hutchison Whampoa Limited are examples of T
diversified firms that have no relationships between their businesses. These firms all use the
strategy of unrelated diversification.
Vertical integration allows the firm to gain market power as the firm develops the ability to save T
on its operations,avoid market costs, improve product quality, and possibly protect its technology from rivals
Vertical integration exists when a company produces its own inputs (forward integration) or owns T
its own source of output distribution (backward integration).
When firms share activities across units, they are often able to achieve increased value T
1. Which of the following is typically a corporate-level strategy formulation responsibility?
A. Establishment of short-term operating goals
B. Choice of generic strategy for each business unit
C. Selection of businesses in which to compete
D. Direct supervision of research and development programs E. None of the above
2. As corporate-level strategies develop, any of the following strategies might be expected to
directly follow a concentration strategy except: A. Vertical integration B. Diversification of markets
C. Diversification of products/services
D. Diversification of resource conversion processes (technologies) E. Restructuring
3. Which of the following is not considered a corporate-level strategy? A. Differentiation B. Concentration C. Related diversification lOMoAR cPSD| 58511332 D. Unrelated diversification
E. None of the above. These are all corporate-level strategies
4. Which of the following is a strength of a concentration strategy?
A. Product obsolescence will rarely affect a firm pursuing this strategy
B. Executives can develop in-depth knowledge of the business
C. Risk of bankruptcy is minimal
D. Firms pursuing this strategy are rarely acquired by another firm
E. Changes in the environment can dramatically alter profitability
5. Which of the following is a weakness of a concentration strategy?
A. The organization cannot develop a distinctive competence
B. Organizational resources are severely strained
C. External stakeholders are easily confused by the firm’s strategic agenda
D. There is high ambiguity regarding strategic direction E. Uneven cash flow
6. All of the following are reasons that firms pursue vertical integration strategies except:
A. To obtain better or more complete information about supplies or markets
B. Less dependence on one industry
C. Increased control over the quality of supplies
D. Greater opportunities to differentiate a product
E. Reduction of transaction costs
7. In a typical vertical supply chain, the major stage of the industry that immediately follows raw
materials extraction is: A. Wholesaling B. Retailing
C. Final product manufacturing D. Primary manufacturing E. None of these
8. According to the theory of transaction cost economics, a market is likely to fail if:
A. There are a large number of suppliers
B. All parties to the transaction have the same level of knowledge
C. The future is highly uncertain
D. The future is highly certain
E. Assets may be used to produce a variety of products or services
9. What has been observed as the relationship between diversification and firm performance?
A. Moderate levels of diversification provide the highest performance
B. Low levels of diversification provide the highest performance
C. High levels of diversification provide the highest performance
D. Moderate levels of diversification provide the lowest performance E. None of these lOMoAR cPSD| 58511332
10. Related diversification differs from unrelated diversification in which of the following ways?
A. Related diversification is connected to the organization’s dominant business; unrelated diversification is not
B. Unrelated diversification is connected to the organization’s dominant business; related diversification is not
C. Single business firms use related diversification and never use unrelated diversification
D. Single business firms use unrelated diversification and never use related diversification
E. A firm that uses related diversification always uses vertical integration; a firm that uses unrelated
diversification never uses vertical integration
11. When an organization can use the same physical resources for multiple purposes, it is taking advantage of: A. Intangible relatedness
B. Tangible relatedness C. Limited scope
D. Dominant industry relationships E. Goodwill
12. When skills developed in one area can be applied to another area, which of the following results?
A. Intangible relatedness B. Tangible relatedness C. Specialized scope D. Focus E. Goodwill
13. Two organizations or business units have similar management processes, cultures, systems,
and structures. These similarities are best described as: A. Synergy B. Managerial hubris C. Business intelligence D. Tangible relatedness E. Organizational fit
14. One of the advantages of internal venturing is that:
A. It is a fast way to enter new markets
B. It is much less risky than other strategies
C. Proprietary information need not be shared with other companies
D. Profits are shared with other companies E. None of the above
15. Which of the following is most likely to occur as a result of an acquisition?
A. Increase in financial leverage B. Increase in profitability C. Increase in R&D lOMoAR cPSD| 58511332 D. Increase in patents E. Both C and D are correct
16. If all of the businesses of an organization are related to a common “core” business, the
organization is probably pursuing which corporate strategy? A. Prospector B. Cost focus C. Vertical integration D. Defender
E. Related diversification
17. Mergers are more likely to be successful if: A. They are expensive B. They are friendly C. They involve high premiums
D. The managers of the acquired firm leave to make way for new managers
E. There is less money spent on R&D during the first year after acquisition
18. Strategic alliances:
A. Slow the speed of entry into a new field or market
B. Are considered a more risky diversification option than mergers
C. Encourage the entry of new competitors
D. Are often motivated by the desire to share resources across companies
E. Are associated with low levels of administrative costs
19. Strategic alliances:
A. Result in complete control by one firm
B. Incur low administrative costs
C. Entail a risk of opportunism by partners to the venture
D. Are desirable in all environments
E. Typically result in unfavorable stock market reactions
20. Successful strategic alliances are characterized by all of the following except:
A. Careful planning and execution
B. Selection of partners with complementary resources
C. Effective use of coordinating mechanisms
D. Potential for financial economies
E. Selection of an appropriate governance method
21. What is on the two axes of the Boston Consulting Group Matrix? A. Stars and cash cows
B. Business growth rate and relative competitive position
C. Market share and relative competitive position
D. Profitability and business growth rate
E. Business growth rate and cash flow lOMoAR cPSD| 58511332
22. In the Boston Consulting Group Matrix, cash cows:
A. Have high growth rates and low relative market share
B. Have low growth rates and high relative market share
C. Have low growth rates and low relative market share
D. Have high growth rates and high relative market share
E. Have low growth rates and low profitability
23. In the Boston Consulting Group Matrix, stars:
A. Have high growth rates and low relative market share
B. Have low growth rates and high relative market share
C. Have low growth rates and low relative market share
D. Have high growth rates and high relative market share
E. Have low growth rates and low profitability
34. Discuss the major corporate-level strategy formulation responsibilities. How are they
different from business-level strategy formulation responsibilities?
Answer: Corporate-level strategy formulation focuses on the selection of businesses in which
the organization will compete and results in a corporate-level statement of domain, as
reflected in the organizational mission statement. It is particularly relevant to the
management of the entire portfolio of businesses in which the organization may choose to
compete. Corporate-level strategy formulation also determines the relationships between
business units and the ways in which distinctive competencies may be built based on
similarities between the business units. Conversely, business-level strategy formulation
focuses on the short- and long-term strategies and growth of a particular business unit or
division. Corporate-level strategy formulation responsibilities include direction setting,
development of corporate level strategy, selection of businesses and portfolio management,
selection of methods for diversification, and restructuring.
35. Why might an organization choose to diversify?
Answer: Organizations diversify for both strategic and personal reasons of top managers. The personal
reasons are connected to the concept of empire building. The larger an organization becomes, the more
lofty the power and status of its leader. Diversification can be used to rapidly expand the organization
and thus expand the power and status of its executives. As power and status increase, salaries and
bonuses for these top executives will also likely increase. These internal motives do not have to be
purely personal. An executive may crave a more interesting and challenging environment, believe that
he or she has mastered the current environment, and see diversification as a way to increase the value
of the firm by expanding its operating environment.
The strategic reasons for diversification are more complex. Organizations may wish to reduce
risk by investing in dissimilar businesses. They may wish to stabilize or improve earnings or
growth. If the cash generated in the firm is greater than that needed for profitable investment
in the firm, the managers may look outside the firm for investment opportunities and thus
increase the value of the firm. Excess debt capacity may also lead managers to pursue the
application of skills to related areas or to the possible generation of synergy and economies
of scope. In general, organizations may diversify to reduce risk, expand opportunities, take
advantage of slack resources, or satisfy managers’ personal goals.
36. What are the requirements for achieving synergy through the combination of businesses?
Answer: The requirements are some form of relatedness and both strategic and
organizational fit. Tangible relatedness means that the organization has the opportunity to use
the same physical resources for multiple purposes. Tangible relatedness can lead to synergy
through resource sharing. For example, if two similar products are manufactured in the same lOMoAR cPSD| 58511332
plant, then they can benefit from operating synergy. Other examples of synergy resulting from tangible relatedness include:
(1) using the same marketing or distribution channels for multiple related products,
(2) buying similar raw materials for related products through a centralized purchasing office to gain purchasing economies,
(3) providing corporate training programs to employees from different divisions who are all engaged in the same type of work,
(4) advertising multiple products simultaneously and
(5) manufacturing in the same plants. Intangible relatedness occurs any time capabilities developed in
one area can be applied to another area. When executed properly, intangible relatedness can result in managerial synergy.
Two types of fit facilitate the creation of synergy: strategic fit and organizational fit. Strategic fit refers
to the effective matching of strategic organizational capabilities. For example, if two organizations in
two related businesses combine their resources, but they are both strong in the same areas and weak in
the same areas, then the potential for synergy is diminished. Once combined, they will continue to
exhibit the same capabilities. However, if one of the organizations is strong in R&D but lacks
marketing power, while the other organization is weak in R&D but strong in marketing, then there is
real potential for both organizations to be better off—if managed properly. Organizational fit occurs
when two organizations or business units have similar management processes, cultures, systems, and
structures. Organizational fit makes organizations compatible, which facilitates resource sharing,
communication, and transference of knowledge and skills. Strategic fit and organizational fit
dramatically increase the likelihood that synergy will be created between two related businesses.
The benefits from synergy have to exceed the costs of creating it. Increasing coordination costs
have the potential to offset potential synergistic gains from related diversification.
37. Which factors have been found to lead to unsuccessful mergers and acquisitions? Which
factors are related to success?
Answer: Researchers have been able to identify factors that seem to be associated with
successful and unsuccessful mergers. Unsuccessful mergers are associated with a large
amount of debt, overconfident or incompetent managers, poor ethics, changes in top
management or the structure of the acquiring organization, inadequate analysis prior to the
deal (due diligence), and diversification away from the core area in which the acquiring firm is strongest.
Successful mergers are related to low-to-moderate amounts of debt, a high level of
relatedness leading to synergy, friendly negotiations (no resistance), a continued focus on the
core business, careful selection of and negotiations with the acquired firm (due diligence), use
of cash as opposed to stock to make the acquisition, and a strong financial position going into
the deal. In addition, researchers have discovered that the largest shareholder gains from
mergers occur when the cultures and the top management styles of the two companies are
similar (organizational fit). Also, sharing resources and activities has been found to be
important to post-merger success. In fact, one study found that it was not until acquiring firms
restructured themselves to take maximum advantage of synergies available through
combining their acquisitions that their true competitive potential was released.