BAD 4013 Exam 2 questions with
complete solutions A+ rated
I/O model suggest that above-average returns are earned when - correct answer ✔✔you
study/implement:
1. external environment
2. attractive industry
3. strategy formulation
4. assets and skills
5. strategy implementation
corporate level strategy - correct answer ✔✔- deciding what markets the company should operate in
that- look at how to leverage the core competencies of the firm into different industries
ex. diversification, alliances, mergers
business level strategy - correct answer ✔✔- how the company will compete in a single marke
tex. cost leadership, differentiation
Unrelated Diversification - correct answer ✔✔AKA Conglomerate Diversification- there are no common
links between businesses
- leverage your financial economy of scope to pounce on undervalued or distressed players
Related Diversification - correct answer ✔✔AKA Concentric Diversification- all products share product,
technological, and distribution similarities (lesser extent with related linked)
- leverage an economy of scope (operational & strategic relatedness)
Diversification and Performance relationship - correct answer ✔✔- curvilinear relationship
LOW PERFORMANCE: dominant business & unrelated diversification
HIGH PERFORMANCE: related constrained
,reasons firms use an acquisition strategy to achieve strategic competitiveness - correct answer
✔✔Related diversification
-Economies of scope
-Market power motives
Unrelated diversification
-Financial economies of scope
Economies of scope - correct answer ✔✔represent cost savings attributed to entering an additional
business and sharing activities or using capabilities and core competencies developed in another
business that can be transferred to a new business without significant additional costs.
Operational relatedness
Strategic Relatedness
Operational relatedness - correct answer ✔✔-in sharing activities; in transferring skills or corporate core
competencies among units (eliminates duplication and provides intangible resources) Synergies:
diversifying into businesses whose value chains possess competitively valuable "strategic fits" with the
value chain(s) of the present business(es).
-Problem of operational relatedness:- the benefits in terms of economies of scope may be dwarfed by
the administrative costs involved in their exploitation.
Strategic Relatedness - correct answer ✔✔synergies at the corporate level deriving from the ability to
apply common management capabilities to different businesses
Market power - correct answer ✔✔-the level of influence that a company has on determining market
price, either for a specific product or generally within its industry
-Blocking competitors through multipoint competition (mutual forbearance)
, Reasons for diversification that are value-neutral with respect to strategic competitiveness: - correct
answer ✔✔-to avoid violations of antitrust regulations
-to take advantage of tax incentives
-to overcome low performance
-to reduce the uncertain of future cash flows
Managerial motives for diversification (value reducing): - correct answer ✔✔-to diversify managerial
employment risk
-to increase managerial compensation (an economy of scope that accrues to managers at the expense of
equity holders)
Diversification is capable of increasing shareholder value if it passes these tests: - correct answer
✔✔Industry attractiveness test
-Produces good ROE
-Favorable competitive positions
-Will be profitable over long term
The Cost of Entry Test :
-the cost of entry must not capitalize all future profits.
The Better-Off Test:
-either the new unit must gain competitive advantage from its link with the company, or vice-versa. (i.e.
some form of "synergy" must be present)
Drawbacks of Unrelated Diversification - correct answer ✔✔-Difficulties of competently managing many
diverse businesses
-Lack of strategic fit which can be leveraged into competitive advantage
-Consolidated performance of unrelated businesses tends to be no better than sum of individual
businesses on their own
-Promise of greater sales-profit stability seldom realized
complete solutions A+ rated
I/O model suggest that above-average returns are earned when - correct answer ✔✔you
study/implement:
1. external environment
2. attractive industry
3. strategy formulation
4. assets and skills
5. strategy implementation
corporate level strategy - correct answer ✔✔- deciding what markets the company should operate in
that- look at how to leverage the core competencies of the firm into different industries
ex. diversification, alliances, mergers
business level strategy - correct answer ✔✔- how the company will compete in a single marke
tex. cost leadership, differentiation
Unrelated Diversification - correct answer ✔✔AKA Conglomerate Diversification- there are no common
links between businesses
- leverage your financial economy of scope to pounce on undervalued or distressed players
Related Diversification - correct answer ✔✔AKA Concentric Diversification- all products share product,
technological, and distribution similarities (lesser extent with related linked)
- leverage an economy of scope (operational & strategic relatedness)
Diversification and Performance relationship - correct answer ✔✔- curvilinear relationship
LOW PERFORMANCE: dominant business & unrelated diversification
HIGH PERFORMANCE: related constrained
,reasons firms use an acquisition strategy to achieve strategic competitiveness - correct answer
✔✔Related diversification
-Economies of scope
-Market power motives
Unrelated diversification
-Financial economies of scope
Economies of scope - correct answer ✔✔represent cost savings attributed to entering an additional
business and sharing activities or using capabilities and core competencies developed in another
business that can be transferred to a new business without significant additional costs.
Operational relatedness
Strategic Relatedness
Operational relatedness - correct answer ✔✔-in sharing activities; in transferring skills or corporate core
competencies among units (eliminates duplication and provides intangible resources) Synergies:
diversifying into businesses whose value chains possess competitively valuable "strategic fits" with the
value chain(s) of the present business(es).
-Problem of operational relatedness:- the benefits in terms of economies of scope may be dwarfed by
the administrative costs involved in their exploitation.
Strategic Relatedness - correct answer ✔✔synergies at the corporate level deriving from the ability to
apply common management capabilities to different businesses
Market power - correct answer ✔✔-the level of influence that a company has on determining market
price, either for a specific product or generally within its industry
-Blocking competitors through multipoint competition (mutual forbearance)
, Reasons for diversification that are value-neutral with respect to strategic competitiveness: - correct
answer ✔✔-to avoid violations of antitrust regulations
-to take advantage of tax incentives
-to overcome low performance
-to reduce the uncertain of future cash flows
Managerial motives for diversification (value reducing): - correct answer ✔✔-to diversify managerial
employment risk
-to increase managerial compensation (an economy of scope that accrues to managers at the expense of
equity holders)
Diversification is capable of increasing shareholder value if it passes these tests: - correct answer
✔✔Industry attractiveness test
-Produces good ROE
-Favorable competitive positions
-Will be profitable over long term
The Cost of Entry Test :
-the cost of entry must not capitalize all future profits.
The Better-Off Test:
-either the new unit must gain competitive advantage from its link with the company, or vice-versa. (i.e.
some form of "synergy" must be present)
Drawbacks of Unrelated Diversification - correct answer ✔✔-Difficulties of competently managing many
diverse businesses
-Lack of strategic fit which can be leveraged into competitive advantage
-Consolidated performance of unrelated businesses tends to be no better than sum of individual
businesses on their own
-Promise of greater sales-profit stability seldom realized
