California State University-Fullerton MGMT 449 Final Exam ||
Error-free Answers 100%.
Diversification correct answers Initiatives must create value for shareholders through:
- Mergers and acquisitions
- Strategic alliances
- Joint ventures
- Internal development
Diversification should create synergy
- Business 1 plus Business 2 equals more than two.
A firm may diversify into RELATED businesses correct answers - Benefits derive from
horizontal relationships:
- Sharing intangible resources such as core competencies in marketing
- Sharing tangible resources such as production facilities, distribution channels via vertical
integration
A firm may diversify into UNRELATED businesses correct answers Benefits derive from
hierarchical relationships
-Value creation derived from the corporate office
-Leveraging support activities in the value chain
Related diversification correct answers enables a firm to benefit from horizontal relationships
across different businesses
Economies of scope correct answers Allow businesses to:
- Leverage core competencies
- Sharing related activities
,- Enjoy greater revenues, enhance differentiation.
Related businesses gain MARKET POWER by: correct answers pooled negotiating power and
vertical integration
Core Competencies correct answers Reflect the collective learning in organizations. Can lead to
the creation of value and synergy if:
- They create superior customer value.
- The value-chain elements in separate businesses require similar skills
- They are difficult for competitors to imitate or find substitutes for
Corporations can also achieve synergy by SHARING ACTIVITIES across their business units
correct answers Sharing tangible and value-creating activities can provide payoffs:
- Cost savings through elimination of jobs, facilities and related expenses, or economies of
scale>
- Revenue enhancements through increased differentiation and sales growth.
Market Power correct answers Can lead to the creation of value and synergy through:
- Pooled Negotiating Power: gaining greater bargaining power with suppliers and customers
- Vertical Integration: a firm becomes its own supplier or distributor through Backward
Integration and Forward Integration
Related Diversification: Vertical Integration, Issues: correct answers - Is the company satisfied
with the quality of the value that its present suppliers and distributors are providing?
- Are there activities in the industry value chain presently being outsourced or performed
independently by others that are viable source of future profits?
- Is there a high level of stability in the demand for the organization's product?
- Does the company have the necessary competencies to execute the vertical integration
strategies?
,- Will the vertical integration initiatives have potential negative impacts on the firm's
stakeholders?
Transaction Cost Perspective correct answers Every market transaction involves some
transaction costs:
- Search costs
- Negotiating costs
- Contract costs
- Monitoring costs
- Enforcement costs
- Need for transaction specific investments
- Administrative costs
Unrelated Diversification correct answers Enables a firm to benefit from vertical or hierarchical
relationships between the corporate office and individual business units through:
- The corporate Parenting Advantage (providing competent central functions)
- Restructuring to redistribute assets (asset, capital, and management restructuring)
- Portfolio Management (BCG growth/share matrix)
Parenting correct answers Allows the corporate office to create value through management
expertise and competent central functions
In RESTRUCTURING parent intervenes correct answers - Asset restructuring involves the sale
of unproductive assets
- Capital restructuring involves changing the debt-equity mix, adding debt or equity
- Management restructuring involves changes in the top management team, organizational
structure, and reporting relationships
, Portfolio Management correct answers Involves a better understanding of the competitive
position of an overall portfolio or family businesses by:
- Suggesting strategic alternatives for each business
- Identify priorities for the allocation of resources
- Using Boston Consulting Group's (BCG) growth/share matrix
Unrelated Diversification: Limitations of Portfolio Management correct answers - SBU are
compared on only 2 dimensions and each SBU is considered a standalone entity
+ Are these the only factor that really matter?
+ Can every unit be accurately compared on that basis? What about possible synergies?
- An oversimplified graphical model is not substitute for managers' experience
- Following strict and simplistic rules for resource allocation can be detrimental to a firm's long-
term viability
Goal of Diversification correct answers Diversification can reduce variability in revenues and
profits over time. However,
- Stockholders can diversify portfolios at a much lower cost/
- Stockholders don't have to worry about integrating the acquisition into their portfolio
- Economic cycles are difficult to predict, so why diversify?
Choice to diversify most be part of an overall diversification strategy
Means of Diversification correct answers Diversification can be accomplished via:
- Mergers and acquisition
- Divestments
- Pooling resources of other companies with a firm's own resource base through strategic
alliances and joint ventures.
- Internal development through corporate entrepreneurship or new venture development
Reasons for Diversification Failures correct answers Acquisition can destroy value by:
Error-free Answers 100%.
Diversification correct answers Initiatives must create value for shareholders through:
- Mergers and acquisitions
- Strategic alliances
- Joint ventures
- Internal development
Diversification should create synergy
- Business 1 plus Business 2 equals more than two.
A firm may diversify into RELATED businesses correct answers - Benefits derive from
horizontal relationships:
- Sharing intangible resources such as core competencies in marketing
- Sharing tangible resources such as production facilities, distribution channels via vertical
integration
A firm may diversify into UNRELATED businesses correct answers Benefits derive from
hierarchical relationships
-Value creation derived from the corporate office
-Leveraging support activities in the value chain
Related diversification correct answers enables a firm to benefit from horizontal relationships
across different businesses
Economies of scope correct answers Allow businesses to:
- Leverage core competencies
- Sharing related activities
,- Enjoy greater revenues, enhance differentiation.
Related businesses gain MARKET POWER by: correct answers pooled negotiating power and
vertical integration
Core Competencies correct answers Reflect the collective learning in organizations. Can lead to
the creation of value and synergy if:
- They create superior customer value.
- The value-chain elements in separate businesses require similar skills
- They are difficult for competitors to imitate or find substitutes for
Corporations can also achieve synergy by SHARING ACTIVITIES across their business units
correct answers Sharing tangible and value-creating activities can provide payoffs:
- Cost savings through elimination of jobs, facilities and related expenses, or economies of
scale>
- Revenue enhancements through increased differentiation and sales growth.
Market Power correct answers Can lead to the creation of value and synergy through:
- Pooled Negotiating Power: gaining greater bargaining power with suppliers and customers
- Vertical Integration: a firm becomes its own supplier or distributor through Backward
Integration and Forward Integration
Related Diversification: Vertical Integration, Issues: correct answers - Is the company satisfied
with the quality of the value that its present suppliers and distributors are providing?
- Are there activities in the industry value chain presently being outsourced or performed
independently by others that are viable source of future profits?
- Is there a high level of stability in the demand for the organization's product?
- Does the company have the necessary competencies to execute the vertical integration
strategies?
,- Will the vertical integration initiatives have potential negative impacts on the firm's
stakeholders?
Transaction Cost Perspective correct answers Every market transaction involves some
transaction costs:
- Search costs
- Negotiating costs
- Contract costs
- Monitoring costs
- Enforcement costs
- Need for transaction specific investments
- Administrative costs
Unrelated Diversification correct answers Enables a firm to benefit from vertical or hierarchical
relationships between the corporate office and individual business units through:
- The corporate Parenting Advantage (providing competent central functions)
- Restructuring to redistribute assets (asset, capital, and management restructuring)
- Portfolio Management (BCG growth/share matrix)
Parenting correct answers Allows the corporate office to create value through management
expertise and competent central functions
In RESTRUCTURING parent intervenes correct answers - Asset restructuring involves the sale
of unproductive assets
- Capital restructuring involves changing the debt-equity mix, adding debt or equity
- Management restructuring involves changes in the top management team, organizational
structure, and reporting relationships
, Portfolio Management correct answers Involves a better understanding of the competitive
position of an overall portfolio or family businesses by:
- Suggesting strategic alternatives for each business
- Identify priorities for the allocation of resources
- Using Boston Consulting Group's (BCG) growth/share matrix
Unrelated Diversification: Limitations of Portfolio Management correct answers - SBU are
compared on only 2 dimensions and each SBU is considered a standalone entity
+ Are these the only factor that really matter?
+ Can every unit be accurately compared on that basis? What about possible synergies?
- An oversimplified graphical model is not substitute for managers' experience
- Following strict and simplistic rules for resource allocation can be detrimental to a firm's long-
term viability
Goal of Diversification correct answers Diversification can reduce variability in revenues and
profits over time. However,
- Stockholders can diversify portfolios at a much lower cost/
- Stockholders don't have to worry about integrating the acquisition into their portfolio
- Economic cycles are difficult to predict, so why diversify?
Choice to diversify most be part of an overall diversification strategy
Means of Diversification correct answers Diversification can be accomplished via:
- Mergers and acquisition
- Divestments
- Pooling resources of other companies with a firm's own resource base through strategic
alliances and joint ventures.
- Internal development through corporate entrepreneurship or new venture development
Reasons for Diversification Failures correct answers Acquisition can destroy value by:
