BUSI 4940: EXAM 3 REVIEW QUESTIONS
Corporate-Level Strategy - Answer -A __________________________ are actions a
firm takes to gain a competitive advantage by selecting and managing a group of
different businesses competing in different product markets
Single Business Diversification - Answer -Low Level of Diversification wherein 95% or
More of revenue comes from a single, core business area.
For example, the McIlhenny Company, producer of Tabasco brand, has maintained its
focus on its family's hot sauce products for seven generations.
Dominant Business Diversification - Answer -Low Level of Diversification wherein
between 70% and 95% of revenue comes from a single business area.
The United Parcel Service (UPS) uses this strategy. Recently UPS generated 63
percent of its revenue from its U.S. package delivery business and 20 percent from its
international package business, with the remaining 17 percent coming from the firm's
non-package business.
Related Constrained Diversification - Answer -Moderate to High Levels of
Diversification wherein Less than 70% of revenue comes from the dominant business,
and all businesses share product, technological, and distribution linkages.
Relaxed Linked Diversification - Answer -Moderate to High Levels of Diversification
wherein Less than 70% of revenue comes from the dominant business, and there are
only limited links between businesses.
Unrelated Diversification - Answer -Very High Levels of Diversification wherein Less
than 70% of revenue comes from the dominant business, and there are no common
identifiable links between businesses.
"Conglomerate"
Reasons for Diversification - Answer -These are...
1. Value-Creating
2. Value-Neutral
3. Value-Reducing
Value-Creating - Answer -Reasons for ______________ Diversification
1. Economies of Scope (related diversification)
2. Match and Increase Market Power (related diversification)
3. Financial Economies (unrelated diversification)
, Value-Neutral - Answer -Reasons for ______________ Diversification
- Anti-trust regulation
- Tax laws
- Low performance
- Uncertain future cash flows
- Risk reduction for firm
- Tangible Resources
- Intangible Resources
Value-Reducing - Answer -Reasons for ______________ Diversification
- Diversifying managerial employment risk
- Increasing managerial compensation
Economies of Scope - Answer -_________________________ are cost savings from
leveraging core competencies or sharing related activities among businesses in a
corporation.
Part of Value-Creating Diversification
Corporate-Level Core Competencies - Answer -____________________ are complex
sets of resources and capabilities that link different businesses, primarily through
managerial and technological knowledge, experience, and expertise.
Market Power (The Good Kind) - Answer -_________________ exists when a firm is
able to:
- Sell its products above the existing competitive level;
- Reduce the costs of its primary and support activities below the competitive level, or
both.
Competitive Advantages are a type of this.
Vertical Integration - Answer -________________________ exists when a company
produces its own inputs (backward integration) or owns its own source of output
distribution (forward integration)
Financial Economies (Unrelated Diversification) - Answer -
________________________ are cost savings realized through improved allocations of
financial resources based on investments inside or outside the firm. Creates value
through two types:
1. Efficient internal capital allocations
2. Purchase of other corporations and the restructuring of their assets "financial
engineering"
Corporate-Level Strategy - Answer -A __________________________ are actions a
firm takes to gain a competitive advantage by selecting and managing a group of
different businesses competing in different product markets
Single Business Diversification - Answer -Low Level of Diversification wherein 95% or
More of revenue comes from a single, core business area.
For example, the McIlhenny Company, producer of Tabasco brand, has maintained its
focus on its family's hot sauce products for seven generations.
Dominant Business Diversification - Answer -Low Level of Diversification wherein
between 70% and 95% of revenue comes from a single business area.
The United Parcel Service (UPS) uses this strategy. Recently UPS generated 63
percent of its revenue from its U.S. package delivery business and 20 percent from its
international package business, with the remaining 17 percent coming from the firm's
non-package business.
Related Constrained Diversification - Answer -Moderate to High Levels of
Diversification wherein Less than 70% of revenue comes from the dominant business,
and all businesses share product, technological, and distribution linkages.
Relaxed Linked Diversification - Answer -Moderate to High Levels of Diversification
wherein Less than 70% of revenue comes from the dominant business, and there are
only limited links between businesses.
Unrelated Diversification - Answer -Very High Levels of Diversification wherein Less
than 70% of revenue comes from the dominant business, and there are no common
identifiable links between businesses.
"Conglomerate"
Reasons for Diversification - Answer -These are...
1. Value-Creating
2. Value-Neutral
3. Value-Reducing
Value-Creating - Answer -Reasons for ______________ Diversification
1. Economies of Scope (related diversification)
2. Match and Increase Market Power (related diversification)
3. Financial Economies (unrelated diversification)
, Value-Neutral - Answer -Reasons for ______________ Diversification
- Anti-trust regulation
- Tax laws
- Low performance
- Uncertain future cash flows
- Risk reduction for firm
- Tangible Resources
- Intangible Resources
Value-Reducing - Answer -Reasons for ______________ Diversification
- Diversifying managerial employment risk
- Increasing managerial compensation
Economies of Scope - Answer -_________________________ are cost savings from
leveraging core competencies or sharing related activities among businesses in a
corporation.
Part of Value-Creating Diversification
Corporate-Level Core Competencies - Answer -____________________ are complex
sets of resources and capabilities that link different businesses, primarily through
managerial and technological knowledge, experience, and expertise.
Market Power (The Good Kind) - Answer -_________________ exists when a firm is
able to:
- Sell its products above the existing competitive level;
- Reduce the costs of its primary and support activities below the competitive level, or
both.
Competitive Advantages are a type of this.
Vertical Integration - Answer -________________________ exists when a company
produces its own inputs (backward integration) or owns its own source of output
distribution (forward integration)
Financial Economies (Unrelated Diversification) - Answer -
________________________ are cost savings realized through improved allocations of
financial resources based on investments inside or outside the firm. Creates value
through two types:
1. Efficient internal capital allocations
2. Purchase of other corporations and the restructuring of their assets "financial
engineering"
