B AD 4013 Final Review || A+ Graded Solutions.
industrial organization (IO) model of above-average returns correct answers industry in
which firm chooses to compete has a stronger influence on the firm's performance than do
choices made by managers inside the organization
underlying assumptions:
-The external environment is assumed to impose pressure/constraints
-Most firms competing in an industry are assumed to control similar resources
-Resources are highly mobile across firms
-Decision makers are assumed to be rational and acting in the firm's best interest
business level strategy correct answers -focuses on competing in the marketplace
-set of actions concentrated on a narrow piece of the total market
concerned with the choice of product, competitive advantage, customer satisfaction
corporate level strategy correct answers focuses on business growth and profits
concerned with the overall objective and scope of business to fulfil stakeholders expectations
What is diversification? (Related/Unrelated) correct answers Related: CONCENTRIC
DIVERSIFICATION-Less than 70% of revenue comes from dominant business, and all
businesses share technology, product, and distribution linkages
Unrelated: CONGLOMERATE DIVERSIFICATION-Less than 70% of revenue comes from
dominant business and there are no common links between businesses
concentric diversification correct answers A strategy used to add new businesses that produce
related products or are involved in related markets and activities.
conglomerate diversification correct answers a strategy used to add new businesses that
produce unrelated products or are involved in unrelated markets and activities
What is the relationship between diversification and performance? correct answers Related
constrained diversification corporate-level strategy is utilized by a firm that receive less than
70% from one single business
When and why should a company diversify? correct answers Growth
- The desire to escape stagnant or declining industries has powerful motives for
diversification (e.g. tobacco, oil, newspapers).
Risk spreading
- Diversification reduces variance of profit flows
Profit
- For diversification to create shareholder value, bringing together of different businesses
under common ownership & must somehow increase their profitability.
What is vertical integration? correct answers the combination in one company of two or more
stages of production normally operated by separate companies.
, Describe how vertical integration creates value by reducing the threat of opportunism: correct
answers The greater the difficulty of specifying and monitoring contracts, the greater the
advantages for vertical integration
What are the benefits and costs of vertical integration? correct answers Benefits
- The focal firm is able to create synergy with the other firm(s)
- Economies of combined operations
- Economies of internal control and coordination
- Assure supply or demand
- Better quality control and coordination
- Protect proprietary technology
- Gain access to information
- Avoid costs of dealing with the market
- Gain (or offset) market power
Costs
- Differences between stages in optimal scale of operation
- Managing strategically different businesses
- Locks firm deeper into same industry
- Higher capital investment
- Reduced flexibility in responding to demand uncertainty, changes in technology, customer
preferences, etc.
- Sometimes limits the access to outside information/ technology
- Reduced incentives
- Costs of bureaucratic hierarchy
What are alternatives to vertical integration? correct answers Cooperative relationships
- Long term contracts / strategic alliances and joint ventures (strategic alliances can be
viewed as a substitute for vertical integration—without the costs of ownership)
Strategic outsourcing/ may be detrimental when:
- Holdup- company becomes too dependent on specialist provider
- Loss of information- company loses important customer contact or competitive information
Why do firms use an acquisition strategy to achieve strategic competitiveness? correct
answers Reasons for acquisitions:
- Increased market power (horizontal and vertical acquisition)
- Overcoming entry barriers
- Getting access to proprietary products or services
- Access to an established brand name
- Lower risk compared to developing new products
- Learning and developing new capabilities
- Avoiding excessive competition
- Increased diversification
- Cost new product development/increased speed to market
What is due diligence? correct answers The process of evaluating a target firm for
acquisition.
industrial organization (IO) model of above-average returns correct answers industry in
which firm chooses to compete has a stronger influence on the firm's performance than do
choices made by managers inside the organization
underlying assumptions:
-The external environment is assumed to impose pressure/constraints
-Most firms competing in an industry are assumed to control similar resources
-Resources are highly mobile across firms
-Decision makers are assumed to be rational and acting in the firm's best interest
business level strategy correct answers -focuses on competing in the marketplace
-set of actions concentrated on a narrow piece of the total market
concerned with the choice of product, competitive advantage, customer satisfaction
corporate level strategy correct answers focuses on business growth and profits
concerned with the overall objective and scope of business to fulfil stakeholders expectations
What is diversification? (Related/Unrelated) correct answers Related: CONCENTRIC
DIVERSIFICATION-Less than 70% of revenue comes from dominant business, and all
businesses share technology, product, and distribution linkages
Unrelated: CONGLOMERATE DIVERSIFICATION-Less than 70% of revenue comes from
dominant business and there are no common links between businesses
concentric diversification correct answers A strategy used to add new businesses that produce
related products or are involved in related markets and activities.
conglomerate diversification correct answers a strategy used to add new businesses that
produce unrelated products or are involved in unrelated markets and activities
What is the relationship between diversification and performance? correct answers Related
constrained diversification corporate-level strategy is utilized by a firm that receive less than
70% from one single business
When and why should a company diversify? correct answers Growth
- The desire to escape stagnant or declining industries has powerful motives for
diversification (e.g. tobacco, oil, newspapers).
Risk spreading
- Diversification reduces variance of profit flows
Profit
- For diversification to create shareholder value, bringing together of different businesses
under common ownership & must somehow increase their profitability.
What is vertical integration? correct answers the combination in one company of two or more
stages of production normally operated by separate companies.
, Describe how vertical integration creates value by reducing the threat of opportunism: correct
answers The greater the difficulty of specifying and monitoring contracts, the greater the
advantages for vertical integration
What are the benefits and costs of vertical integration? correct answers Benefits
- The focal firm is able to create synergy with the other firm(s)
- Economies of combined operations
- Economies of internal control and coordination
- Assure supply or demand
- Better quality control and coordination
- Protect proprietary technology
- Gain access to information
- Avoid costs of dealing with the market
- Gain (or offset) market power
Costs
- Differences between stages in optimal scale of operation
- Managing strategically different businesses
- Locks firm deeper into same industry
- Higher capital investment
- Reduced flexibility in responding to demand uncertainty, changes in technology, customer
preferences, etc.
- Sometimes limits the access to outside information/ technology
- Reduced incentives
- Costs of bureaucratic hierarchy
What are alternatives to vertical integration? correct answers Cooperative relationships
- Long term contracts / strategic alliances and joint ventures (strategic alliances can be
viewed as a substitute for vertical integration—without the costs of ownership)
Strategic outsourcing/ may be detrimental when:
- Holdup- company becomes too dependent on specialist provider
- Loss of information- company loses important customer contact or competitive information
Why do firms use an acquisition strategy to achieve strategic competitiveness? correct
answers Reasons for acquisitions:
- Increased market power (horizontal and vertical acquisition)
- Overcoming entry barriers
- Getting access to proprietary products or services
- Access to an established brand name
- Lower risk compared to developing new products
- Learning and developing new capabilities
- Avoiding excessive competition
- Increased diversification
- Cost new product development/increased speed to market
What is due diligence? correct answers The process of evaluating a target firm for
acquisition.
