Quiz
Strategic Management
Chapter 6
Corporate-Level Strategy
True / False
1.
In the Chapter 6 Opening Case, GE achieved growth and
diversification through mergers and acquisitions.
True
False
2.
GE (discussed in the Chapter 6 Opening Case) is an example of
a firm that used its corporate strategy to achieve competitive
advantage by selecting and managing a group of different
businesses competing in different product markets.
True
False
3.
Corporate-level strategies are strategies a firm uses to diversify
its operations from a single business competing in a single market
into several product markets and, most commonly, into several
businesses.
True
False
4.
If the businesses in the corporate portfolio are not worth more
under the management of the corporation than they would be
under any other ownership, then the corporate-level strategy has
failed.
True
False
5.
Compared with related constrained firms, related linked firms
share fewer resources and assets between their businesses,
concentrating instead on transferring knowledge and core
competencies between the businesses.
True
False
6.
United Technologies, Textron, Samsung, and Hutchison
Whampoa Limited are examples of diversified firms that have no
relationships between their businesses. These firms all use the
strategy of unrelated diversification.
True
False
7.
Antitrust regulation, tax laws, and low performance are all valueneutral reasons why firms engage in diversification.
True
False
8.
Procter & Gamble (P&G) has a paper towel and baby diaper
business that both use paper products. This is an example of
value created through the sharing of activities.
True
False
9.
Economies of scope are cost savings resulting from a firm
successfully leveraging, either through sharing or transferring,
some of its capabilities and competencies developed in one
business to another business.
True
False
10.
When firms share activities across units, they are often able to
achieve increased value.
True
False
11.
Firms using the related constrained strategy share activities in
order to create value.
True
False
12.
Firms seeking to create value through corporate relatedness use
the related constrained strategy.
True
False
13.
Firms using a related diversification strategy may gain market
power when successfully using their related constrained or related
linked strategy.
True
False
14.
Google increasing use of a vertical integration strategy is in line
with the extensive use of that strategy by many manufacturing
firms.
True
False
15.
Financial economies are cost savings realized through improved
allocations of financial resources based on investments inside or
outside the firm.
True
False
In a diversified firm, capital allocation can be adjusted according to
16. more specific criteria than is possible with external market
allocation of capital.
True
False
The "conglomerate discount" occurs in large, highly diversified
17. businesses and results from analysts not knowing how to value
the vast array of large businesses with complex financial reports.
True
False
18.
Companies in emerging markets frequently use the unrelated
diversification strategy because of the absence of a
"soft infrastructure" in those markets.
True
False
19.
Diversification strategies can be used with both value-creating and
value-neutral objectives.
True
False
20.
Different incentives to diversify sometimes exist, and the quality of
a firm's resources may permit only diversification that is value
neutral rather than value creating.
True
False
Multiple Choice
1. As noted in the Chapter 6 Opening Case, GE is now a major player in the "clean
energy" industry such as wind turbines and solar power. A major reason GE moved
in this direction was
a. to narrow the focus of its portfolio around energy-related industries.
b. to overcome and correct its record in environmental issues.
c. to further diversify its portfolio away from services.
d. the clean energy industry was guaranteed to be profitable for the next several
years.
2. GE (Chapter 6 Opening Case) was diversified and manages businesses that
have only a few links between them.
This corporate-level strategy is best described as
diversification.
a. related constrained
b. related linked
c. unrelated
d. conglomerate
3. The ultimate test of the value of a corporate-level strategy is whether the a.
corporation earns a great deal of money.
b. top management team is satisfied with the corporation's performance.
c. businesses in the portfolio are worth more under the management of the
company in question than they would be under any other ownership.
d. businesses in the portfolio increase the firm's financial returns.
4. The more sharing of resources and activities among businesses, the more
diversification.
a. linked
b. constrained
c. integrated
d. intense
5. A firm that earns less than 70 percent of revenue from its dominant business and
has direct connections between its businesses is engaging in
diversification.
a. unrelated
b. related constrained
c. related linked
d. dominant business
6. Which acquisition would be considered the LEAST related?
a. A candy manufacturer purchases a chemical laboratory specializing in food
flavorings. b. A chain of garden centers acquires a landscape architecture firm.
c. A hospital acquires a long-term care nursing home.
d. An upscale "white-tablecloth" restaurant chain acquires a travel agency.
7. The lowest level of diversification is the ______level.
a. single-business
b. dominant business
c. related constrained
d. unrelated
8. The Publicis Groupe has three major groups of business (advertising, media, and
digital) that share resources and capabilities. Publicis Groupe is using a
____
diversification strategy.
a. related linked
b. related constrained
c. unrelated
d. dominant
9. In making a decision to diversify, managers should use value-creating reasons or
face the risk that their firms will be acquired and they could lose their jobs. Which of
the following is a value-creating reason to diversify?
a. economies of scope
b. desire for increased compensation
c. reduced managerial risk
d. low performance
10. Which of the following is NOT a governance mechanism that may limit
managerial tendencies to over-diversify?
a. the market for corporate control b. the Board of Directors
c. surveillance technologies
d. executive compensation practices
11. Managerial motives to seek diversification include a desire to a. improve their
marketability to other firms.
b. effectively use corporate resources.
c. provide higher returns to corporate stakeholders.
d. increase their compensation.
12. Which of the following resources are more likely to create value in the
diversification process?
a. plant and equipment
b. tacit knowledge
c. excess capacity
d. financial resources
13. The Cherrywood Fine Furniture Company finds itself with excess capacity in its
plant and equipment for furniture manufacturing. This excess capacity will be useful
in
a. unrelated diversification.
b. related diversification projects.
c. corporate restructuring.
d. multipoint competition
14. The downside of synergy in a diversified firm is
a. increasing independence of businesses.
b. the reduction of activity sharing.
c. excessive focus on risky innovation.
d. the loss of flexibility.
15. Certain regulatory changes (such as antitrust regulation and tax laws) create
incentives or disincentives for diversification that
a. create value.
b. reduce value.
c. are value-neutral.
d. are managerial motives to diversify.
16. Because of the tax laws of the 1960s and 1970s, when dividends were taxed
more heavily than capital gains, shareholders preferred that corporations
a. pay dividends annually.
b. keep free cash flows for investment in acquisitions.
c. distribute capital gains regularly.
d. increase managerial salaries.
17. Of the value-neutral incentives to diversify, all of the following are internal firm
incentives EXCEPT
a. overall firm risk reduction.
b. uncertain future cash flows.
c. stricter interpretation of antitrust laws.
d. low performance.
18. Among the value-neutral incentives to diversify, some come from the firm's
external environment while others are internal to the firm. External incentives to
diversify include
a. the fact that other firms in an industry are diversifying.
b. pressure from stockholders who are demanding that the firm diversify.
c. changes in antitrust regulations and tax laws.
d. a firm's low performance.
19. Successful unrelated diversification through restructuring is typically
accomplished by
a. focusing on mature, low-technology businesses.
b. a "random walk" of good luck in picking firms to buy.
c. seeking out high technology firms in high-growth industries.
d. a top management team that is not constrained by pre-established ideas of how
the firm's portfolio should be developed.
20. An ability to efficiently allocate capital through an internal market may help the
firm protect the competitive advantages it develops
a. through reduced disclosure to outside parties.
b. by the ability to not report losses to investors.
c. by the ability to increase pay to managers without shareholders being aware.
d. through the ability to reinvest cash in dividends to shareholders.