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Exam 6: Corporate-Level Strategy.

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Question 21

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Corporate-level strategy is concerned with and how to manage these businesses.

A) whether the firm should invest in global or domestic businesses
B) what product markets and businesses the firm should be in
C) whether the portfolio of businesses should generate immediate above-average returns or should be troubled businesses which will create above-average returns only after restructuring
D) whether to integrate backward or forward.

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Question 22

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The basic types of operational economies through which firms seek value from economies of scope are

A) synergies between internal and external capital markets.
B) the leveraging of individual tangible resources.
C) the sharing of value chain activities and support functions.
D) joint ventures and outsourcing.

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Question 23

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

Google increasing use of a vertical integration strategy is in line with the extensive use of that strategy by many manufacturing firms.

GE (discussed in the Chapter 6 Opening Case)is an example of a firm that has used internal capital market allocation as a means of creating value even though it competes using a related linked rather than an unrelated diversification strategy.

Which of the following firms would be the most likely to be a successful candidate for acquisition and restructuring?

Case Scenario 2: Jewell Company. Jewell Company (JC)is a $2 billion diversified manufacturer and marketer of simple household items, cookware, and hardware. In the early 1950s, JC's business consisted solely of manufactured curtain rods that were sold through hardware stores and retailers like Sears. Since the 1960s however, the company has diversified extensively through acquisition into such businesses as paintbrushes, writing pens, pots and pans, and hairbrushes. Over 90 percent of its growth can be attributed to these many small acquisitions, whose performance it improved tremendously through aggressive restructuring and its corporate emphasis on cost-cutting and cost controls. While JC's sixteen different lines of business may appear quite different, they all share the common characteristics of being staple manufactured items and sold primarily through volume retail channels like Walmart, Target, and Kmart. Because JC operates each line of business autonomously (separate manufacturing, R&D, and selling responsibilities for each line), it is perhaps best described as pursuing a related linked diversification strategy. The common linkages are both internal (accounting systems, product merchandising skills, and acquisition competency)and external (distribution channel of volume retailers). JC is presently contemplating the acquisition of Plastico, a $3 billion U.S.-based manufacturer of flexible plastic products like trash cans, reheatable and freezable food containers, and a broad range of other plastic storage containers designed for home and office use. While Plastico has been highly innovative (over 80 percent of its growth has come from internal new product development), it has had difficulty controlling costs and is losing ground against powerful customers like Walmart. JC believes that the market power it wields with retailers like Walmart will help it turn Plastico's prospects around. -(Refer to Case Scenario 2). If Jewell Company is able to transfer its competence in cost-cutting and cost controls to Plastico (which has had difficulty controlling costs),it will have achieved the primary means whereby a related linked diversification strategy creates value.

Walt Disney Company has successfully used related diversification to create value by

Financial economies are cost savings realized through improved allocations of financial resources based on investments inside or outside the firm.

Decisions to expand a firm's portfolio of businesses to reduce managerial risk can have a positive effect on the firm's value.

A significant benefit of an internal capital market is limiting competitors' access to information about the performance of the individual businesses within the corporation.

The curvilinear relationship of corporate performance and diversification indicates that

The "conglomerate discount" occurs in large,highly diversified businesses and results from analysts not knowing how to value the vast array of large businesses with complex financial reports.

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

In a money-making effort,a small private university has decided to institute consulting services 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.

The purchasing of firms in the same industry is called

Of the value-neutral incentives to diversify,all of the following are internal firm incentives EXCEPT

The drawbacks to transferring competencies by moving key people into new management positions include all EXCEPT

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

A significant benefit of an internal capital market is that corporate headquarters has access to detailed and accurate information regarding the performance of the company's portfolio and can thus make better capital allocation decisions.