WPC 480 FINAL EXAM STUDY GUIDE
Corporate Level Strategy - Answers - specifies actions a firm takes to gain a competitive
advantage by selecting and managing a group of different businesses competing in
different product markets. (Helps companies to select new strategic positions that are
expected to increase the firm's value.)
Single-business diversification strategy - Answers - corporate level strategy wherein the
firm generates 95% or more of its sales revenue from its core business area.
Dominant-business diversification strategy - Answers - the firm generates between 70%
and 95% of its total revenue within a single business area.
Related constrained diversification strategy - Answers - when the links between the
diversified firm's businesses are rather direct.
Corporate-level core competencies - Answers - complex sets of resources and
capabilities that link different businesses, primarily through managerial and
technological knowledge, experience, and expertise.
Market Power - Answers - exists 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 - Answers - exists when two or more diversified firms
simultaneously compete in the same product areas or geographic markets.
Vertical Integration - Answers - exists when a company produces its own inputs
(backward integration) or owns its own source of output distribution (forward
integration).
Financial economies - Answers - cost savings realized through improved allocations of
financial resources based on investments inside or outside the firm.
Incentives to Diversify - Answers - Antitrust Regulation and Tax Laws, Low Performance,
Uncertain Future Cash Flows, and Synergy and Firm Risk Reduction
Synergy - Answers - exists when the value created by business units working together
exceeds the value that those same units create working independently.
Business Level Strategy - Answers - Selecting strategy (e.g., cost leadership and
differentiation) to compete in individual market
Related linked diversification strategy - Answers - A diversified company with a portfolio
of businesses that have only a few links between them is called a mixed related and
unrelated firm. (Used by firms seeking to create value through corporate relatedness.)
, Unrelated diversification strategy - Answers - A highly diversified firm that has no
relationships between its businesses. (Firms using this strategy are called
conglomerates. )
Economies of Scope - Answers - 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 businesses to another of its
businesses.
Corporate Level Strategy (Companywide) - Answers - Selecting and managing a group
of different businesses competing in different product markets
Diversification - Answers - Do something different, Expand outside of main business,
How is it related to size and risk?
Single Business - Answers - low level of diversification; more than 95% of revenue
comes from a single business
Dominant Business - Answers - between 70% and 95% of revenue come from single
businesses
Related Constrained - Answers - less than 70% of revenue comes from a single
business; businesses share product, technological and distribution linkages
Related linked (mixed related and unrelated) - Answers - less than 70% of revenue
comes from the dominant business
Unrelated Diversification - Answers - Less than 70% of revenue comes from the
dominant business, and there are no common links between businesses
Merger - Answers - a strategy through which two firms agree to integrate their
operations on a relatively coequal basis.
Acquisition - Answers - a strategy through which one firm buys a controlling, or 100%
interest in another firm with the intent of making the acquired firm a subsidiary business
within its portfolio.
Reasons for Acquisitions - Answers - Increased market power, Overcoming entry
barriers, Cost of new product development and increased speed to market, Lower risk
compared to developing new products, Increased diversification, Reshaping the firm's
competitive scope, Learning and developing new capabilities
Problems in Achieving Acquisition Success - Answers - Integration difficulties,
Inadequate evaluation of target, Large or extraordinary debt, Inability to achieve
synergy, Too much diversification, Managers overly focused on acquisitions, Too large
Corporate Level Strategy - Answers - specifies actions a firm takes to gain a competitive
advantage by selecting and managing a group of different businesses competing in
different product markets. (Helps companies to select new strategic positions that are
expected to increase the firm's value.)
Single-business diversification strategy - Answers - corporate level strategy wherein the
firm generates 95% or more of its sales revenue from its core business area.
Dominant-business diversification strategy - Answers - the firm generates between 70%
and 95% of its total revenue within a single business area.
Related constrained diversification strategy - Answers - when the links between the
diversified firm's businesses are rather direct.
Corporate-level core competencies - Answers - complex sets of resources and
capabilities that link different businesses, primarily through managerial and
technological knowledge, experience, and expertise.
Market Power - Answers - exists 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 - Answers - exists when two or more diversified firms
simultaneously compete in the same product areas or geographic markets.
Vertical Integration - Answers - exists when a company produces its own inputs
(backward integration) or owns its own source of output distribution (forward
integration).
Financial economies - Answers - cost savings realized through improved allocations of
financial resources based on investments inside or outside the firm.
Incentives to Diversify - Answers - Antitrust Regulation and Tax Laws, Low Performance,
Uncertain Future Cash Flows, and Synergy and Firm Risk Reduction
Synergy - Answers - exists when the value created by business units working together
exceeds the value that those same units create working independently.
Business Level Strategy - Answers - Selecting strategy (e.g., cost leadership and
differentiation) to compete in individual market
Related linked diversification strategy - Answers - A diversified company with a portfolio
of businesses that have only a few links between them is called a mixed related and
unrelated firm. (Used by firms seeking to create value through corporate relatedness.)
, Unrelated diversification strategy - Answers - A highly diversified firm that has no
relationships between its businesses. (Firms using this strategy are called
conglomerates. )
Economies of Scope - Answers - 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 businesses to another of its
businesses.
Corporate Level Strategy (Companywide) - Answers - Selecting and managing a group
of different businesses competing in different product markets
Diversification - Answers - Do something different, Expand outside of main business,
How is it related to size and risk?
Single Business - Answers - low level of diversification; more than 95% of revenue
comes from a single business
Dominant Business - Answers - between 70% and 95% of revenue come from single
businesses
Related Constrained - Answers - less than 70% of revenue comes from a single
business; businesses share product, technological and distribution linkages
Related linked (mixed related and unrelated) - Answers - less than 70% of revenue
comes from the dominant business
Unrelated Diversification - Answers - Less than 70% of revenue comes from the
dominant business, and there are no common links between businesses
Merger - Answers - a strategy through which two firms agree to integrate their
operations on a relatively coequal basis.
Acquisition - Answers - a strategy through which one firm buys a controlling, or 100%
interest in another firm with the intent of making the acquired firm a subsidiary business
within its portfolio.
Reasons for Acquisitions - Answers - Increased market power, Overcoming entry
barriers, Cost of new product development and increased speed to market, Lower risk
compared to developing new products, Increased diversification, Reshaping the firm's
competitive scope, Learning and developing new capabilities
Problems in Achieving Acquisition Success - Answers - Integration difficulties,
Inadequate evaluation of target, Large or extraordinary debt, Inability to achieve
synergy, Too much diversification, Managers overly focused on acquisitions, Too large
