MBA 705 - MINSUN KIM EXAM 3 QUESTIONS
Corporate-level strategy - Answer -highest level of decision formulated by the highest
level of management team (CEO and top managers) of the company
CEOS and top managers ask questions such as - Answer -- which business unit(s)
should we have?
-How should we support and enhance the value of each business as a whole?
Business Unit Managers ask questions such as - Answer --How individual business
units compete and win in their own individual market?
Operational managers ask questions such as - Answer -How to improve the
effectiveness and efficiencies of operations?
What are the Three Corporate Level Strategies? - Answer -Growth Strategy (increase
in size)
Stability Strategy (Retain current size)
Retrenchment strategy (decrease in size)
Internal Growth - Answer -accomplished when a firm increases its revenues, production
capacity, and workforce
External Growth - Answer -when two firms merge or one acquires the other
Acquisition - Answer -a form of merger whereby one firm purchases another, often with
a combination of cash and stock
Merger - Answer -occurs when two or more firms, usually of roughly similar sizes,
combine into one through an exchange of stock
Shortcoming of a merger or acquisition - Answer -1. The acquiring firm pays a premium
2. Top managers of the acquired firm often depart the organization
3. Building a common culture after layoffs can be complicated
Five forms of External Growth - Answer -1. Horizontal integration
2. Horizontal related diversification
3. Conglomerate (unrelated) diversification
4. Vertical integration
5. Strategic Alliances
Horizontal (related) integration - Answer -When a firm acquires other companies in the
same line of business. Doing so allows a firm operating in a single industry to grow
rapidly without moving into other industries
, Horizontal (Related) Diversification - Answer -When a firm acquires a business outside
its present scope of operation, but with similar or related core competencies, the firm's
key capabilities and collective learning skills that are fundamental to its strategy,
performance, and long-term profitability.
e.g. McDonald's diversified their menu selection, diversified in areas that are related on
some basic variable. The 3 menu items share common resources and common
customer segments
Why does a company pursue the horizontal (related) diversification? - Answer -It is
because it can create synergy using the same supplies and resources, the same
marketing and distribution channels, and advertising multiple services simultaneously
Conglomerate (unrelated) diversification - Answer -When a corporation acquires a
business in an unrelated industry to reduce cyclical fluctuations in cash flows or
revenues
-it can increase complexity and requires managers to understand each of the core
technologies and special requirements of the individual units. This often reduces the
effectiveness of management
Vertical Integration - Answer -merging various stages of activities in the distribution
channel. Includes:
Forward integration
Backward integration
Backward Integration - Answer -when a firm acquires its suppliers (i.e., expanding
"upstream")
Forward Integration - Answer -when a firm acquires its buyers (i.e., expanding
"downstream")
Strategic Alliances (Partnerships) - Answer -occur when two or more firms agree to
share the costs, risks, and benefits associated with pursuing new business opportunities
Advantage of a Strategic Alliance - Answer -- it minimizes increases in the
organizational bureaucracy
-It allows a firm to share in the benefits of the alliance without bearing all of the costs
Stability Strategy - Answer -attempts to maintain the present size and scope of
operations
Stability strategy may be more attractive than growth strategy when: - Answer -1.
Industry growth is slow or non-existent
2. Costs associated with growth exceed its benefits
3. Growth may place great constraints on quality, marketing efforts, and customer
service
4. There is an increased competitive pressure associated with growth
Corporate-level strategy - Answer -highest level of decision formulated by the highest
level of management team (CEO and top managers) of the company
CEOS and top managers ask questions such as - Answer -- which business unit(s)
should we have?
-How should we support and enhance the value of each business as a whole?
Business Unit Managers ask questions such as - Answer --How individual business
units compete and win in their own individual market?
Operational managers ask questions such as - Answer -How to improve the
effectiveness and efficiencies of operations?
What are the Three Corporate Level Strategies? - Answer -Growth Strategy (increase
in size)
Stability Strategy (Retain current size)
Retrenchment strategy (decrease in size)
Internal Growth - Answer -accomplished when a firm increases its revenues, production
capacity, and workforce
External Growth - Answer -when two firms merge or one acquires the other
Acquisition - Answer -a form of merger whereby one firm purchases another, often with
a combination of cash and stock
Merger - Answer -occurs when two or more firms, usually of roughly similar sizes,
combine into one through an exchange of stock
Shortcoming of a merger or acquisition - Answer -1. The acquiring firm pays a premium
2. Top managers of the acquired firm often depart the organization
3. Building a common culture after layoffs can be complicated
Five forms of External Growth - Answer -1. Horizontal integration
2. Horizontal related diversification
3. Conglomerate (unrelated) diversification
4. Vertical integration
5. Strategic Alliances
Horizontal (related) integration - Answer -When a firm acquires other companies in the
same line of business. Doing so allows a firm operating in a single industry to grow
rapidly without moving into other industries
, Horizontal (Related) Diversification - Answer -When a firm acquires a business outside
its present scope of operation, but with similar or related core competencies, the firm's
key capabilities and collective learning skills that are fundamental to its strategy,
performance, and long-term profitability.
e.g. McDonald's diversified their menu selection, diversified in areas that are related on
some basic variable. The 3 menu items share common resources and common
customer segments
Why does a company pursue the horizontal (related) diversification? - Answer -It is
because it can create synergy using the same supplies and resources, the same
marketing and distribution channels, and advertising multiple services simultaneously
Conglomerate (unrelated) diversification - Answer -When a corporation acquires a
business in an unrelated industry to reduce cyclical fluctuations in cash flows or
revenues
-it can increase complexity and requires managers to understand each of the core
technologies and special requirements of the individual units. This often reduces the
effectiveness of management
Vertical Integration - Answer -merging various stages of activities in the distribution
channel. Includes:
Forward integration
Backward integration
Backward Integration - Answer -when a firm acquires its suppliers (i.e., expanding
"upstream")
Forward Integration - Answer -when a firm acquires its buyers (i.e., expanding
"downstream")
Strategic Alliances (Partnerships) - Answer -occur when two or more firms agree to
share the costs, risks, and benefits associated with pursuing new business opportunities
Advantage of a Strategic Alliance - Answer -- it minimizes increases in the
organizational bureaucracy
-It allows a firm to share in the benefits of the alliance without bearing all of the costs
Stability Strategy - Answer -attempts to maintain the present size and scope of
operations
Stability strategy may be more attractive than growth strategy when: - Answer -1.
Industry growth is slow or non-existent
2. Costs associated with growth exceed its benefits
3. Growth may place great constraints on quality, marketing efforts, and customer
service
4. There is an increased competitive pressure associated with growth
