MGO 403 FINAL EXAM QUESTIONS WITH
COMPLETE ANSWERS
Corporate-Level Strategy - ANSWER actions a firm takes to gain a competitive advantage
by selecting and managing a group of different businesses competing in different
product markets
Business Strategy Decisions - ANSWER how to position the firm within the industry, how
to develop resources and capabilities that provide a competitive advantage
Corporate Strategy Decisions - ANSWER - structure: division, system, process
- how to create value: reduce costs
- firm boundaries: level of diversification
- time of expansion
- mode of expansion: internally, acquisition, alliances
Organizing a Multi-Business Firm - ANSWER flow of financial capital, flow of human
resources, flow of knowledge and capabilities, use of tangible resources, decision rights,
monitoring systems, incentive systems, IT systems
Corporate-level Strategy's Value - ANSWER The degree to which the businesses in the
portfolio are worth more under the management of the company than they would be
under other ownership
,Low levels of diversification - ANSWER Single Business - 95% or more of revenue comes
from a single business.
Dominant Business - Between 70% and 95% of revenue comes from a single business.
Moderate to high levels of diversification - ANSWER -related constrained: less than 70%
of revenue comes from the dominant business, and all businesses share product,
technological, and distribution linkages (e.g., P&G)
-related linked (mixed related and unrelated): less than 70% of revenue comes from the
dominant business, and there are only limited links between businesses (e.g., J&J; GE)
Very High Levels of Diversification - ANSWER Unrelated: Less than 70% of revenue
comes from the dominant business, and there are no common links between businesses
Reasons for Diversification - ANSWER -Value-Creating Diversification
-Value-Neutral Diversification
-Value-Reducing Diversification
Value-Creating Diversification - ANSWER - economies of scope (related diversification):
cost savings that the firm creates by successfully sharing some of its resources and
capabilities or transferring one or more corporate-level core competencies that were
developed in one of its business to another of its businesses
, Operational relatedness in sharing activities: - ANSWER -created by sharing either a
primary activity such as inventory delivery systems or a support activity such as
purchasing
-activity sharing requires sharing strategic control over business units
activity sharing may create risk because business-unit ties create links between outcomes
Corporate relatedness in transferring skills or corporate core competencies among units:
- ANSWER -link different businesses through managerial and technological knowledge,
experience, and expertise
-eliminates resource duplication in the need to allocate resources for a second unit to
develop a competence that already exists in another unit
-provides intangible resources that are difficult for competitors to understand and
imitate
·
-gives the unit receiving it an immediate competitive advantage over its rivals
market power (related diversification) - ANSWER when a firm is able to sell its products
above the existing competitive level or to reduce the costs of its primary and support
activities below the competitive level, or both
Multipoint Competition - ANSWER two or more diversified firms simultaneously
COMPLETE ANSWERS
Corporate-Level Strategy - ANSWER actions a firm takes to gain a competitive advantage
by selecting and managing a group of different businesses competing in different
product markets
Business Strategy Decisions - ANSWER how to position the firm within the industry, how
to develop resources and capabilities that provide a competitive advantage
Corporate Strategy Decisions - ANSWER - structure: division, system, process
- how to create value: reduce costs
- firm boundaries: level of diversification
- time of expansion
- mode of expansion: internally, acquisition, alliances
Organizing a Multi-Business Firm - ANSWER flow of financial capital, flow of human
resources, flow of knowledge and capabilities, use of tangible resources, decision rights,
monitoring systems, incentive systems, IT systems
Corporate-level Strategy's Value - ANSWER The degree to which the businesses in the
portfolio are worth more under the management of the company than they would be
under other ownership
,Low levels of diversification - ANSWER Single Business - 95% or more of revenue comes
from a single business.
Dominant Business - Between 70% and 95% of revenue comes from a single business.
Moderate to high levels of diversification - ANSWER -related constrained: less than 70%
of revenue comes from the dominant business, and all businesses share product,
technological, and distribution linkages (e.g., P&G)
-related linked (mixed related and unrelated): less than 70% of revenue comes from the
dominant business, and there are only limited links between businesses (e.g., J&J; GE)
Very High Levels of Diversification - ANSWER Unrelated: Less than 70% of revenue
comes from the dominant business, and there are no common links between businesses
Reasons for Diversification - ANSWER -Value-Creating Diversification
-Value-Neutral Diversification
-Value-Reducing Diversification
Value-Creating Diversification - ANSWER - economies of scope (related diversification):
cost savings that the firm creates by successfully sharing some of its resources and
capabilities or transferring one or more corporate-level core competencies that were
developed in one of its business to another of its businesses
, Operational relatedness in sharing activities: - ANSWER -created by sharing either a
primary activity such as inventory delivery systems or a support activity such as
purchasing
-activity sharing requires sharing strategic control over business units
activity sharing may create risk because business-unit ties create links between outcomes
Corporate relatedness in transferring skills or corporate core competencies among units:
- ANSWER -link different businesses through managerial and technological knowledge,
experience, and expertise
-eliminates resource duplication in the need to allocate resources for a second unit to
develop a competence that already exists in another unit
-provides intangible resources that are difficult for competitors to understand and
imitate
·
-gives the unit receiving it an immediate competitive advantage over its rivals
market power (related diversification) - ANSWER when a firm is able to sell its products
above the existing competitive level or to reduce the costs of its primary and support
activities below the competitive level, or both
Multipoint Competition - ANSWER two or more diversified firms simultaneously
