The primary means by which a firm can diversify are __________, _________, and ________.

Research shows that the vast majority of acquisitions results in value creation rather than value destruction.

FALSE
Research shows that the vast majority of acquisitions result in value destruction rather than value creation.

The Hewlett-Packard and Autonomy merger in 2011 is an example of a successful merger.

FALSE
In 2012, Hewlett-Packard wrote off $9 billion of the $11 billion it paid for Autonomy, a software company that it purchased one year earlier. After they purchased it, HP realized that the Autonomy accounting statements were not accurate resulting in a nearly 80 percent drop in the value of Autonomy once those accounting irregularities were corrected.

Many acquisitions ultimately result in divestiture.

TRUE
Many acquisitions ultimately result in divestiture, that is, an admission that things did not work out as planned. In fact, some years ago, a writer for Fortune magazine lamented that studies show that 33 percent to 50 percent of acquisitions are later divested, giving corporate marriages a divorce rate roughly comparable to that of men and women.

At times, the only other people who may have benefited from a merger-acquisition were the shareholders of the acquired firms.

TRUE
At times, the only other people who may have benefited were the shareholders of the acquired firms or the investment bankers who advise the acquiring firm, because they collect huge fees upfront regardless of what happens afterward.

Reasons for acquisition failure include: ineffective integration of the acquisition, too high of a premium paid for the common stock of the target company, or inability to understand how the assets of the acquired firm would fit with the lines of business of the existing company.

TRUE
Research shows that the vast majority of acquisitions result in value destruction rather than value creation. Many large multinational firms have also failed to effectively integrate their acquisitions, paid too high a premium for the common stock of the acquired firm, or were unable to understand how the assets of the acquired firm would fit with their own lines of business.

Corporate-level strategy focuses on gaining short-term revenue through managing operations in multiple businesses.

FALSE
Corporate-level strategy focuses on gaining long-term revenue, profits, and market value through managing operations in multiple businesses.

All diversification moves, including those involving mergers and acquisitions, erode performance

FALSE
Not all diversification moves, including those involving mergers and acquisitions, erode performance. For example, acquisitions in the oil industry, such as the British Petroleum purchases of Amoco and Arco, are performing well as is the Exxon-Mobil merger. MetLife was able to dramatically expand its global footprint by acquiring Alico, a global player in the insurance business from AIG in 2010 when AIG was in financial distress.

Diversification initiatives must be justified by the creation of value for shareholders.

TRUE
Diversification initiatives, whether through mergers and acquisitions, strategic alliances and joint ventures, or internal development, must be justified by the creation of value for shareholders. They typically are successful when they introduce synergy.

When firms diversify into unrelated businesses, the primary potential benefits are horizontal relationships, i.e., businesses sharing tangible and intangible resources.

FALSE
When a corporation diversifies into unrelated businesses, the primary potential benefits are derived largely from hierarchical relationships, which is value creation derived from the corporate office. Horizontal relationships are the primary benefit of diversification into related businesses.

When firms diversify into related businesses, the primary potential benefits come from horizontal relationships, which are businesses sharing intangible and tangible resources.

TRUE
A firm may diversify into related businesses. Here, the primary potential benefits to be derived come from horizontal relationships; that is, businesses sharing intangible resources (e.g., core competencies such as marketing) and tangible resources (e.g., production facilities, distribution channels).

Benefits derived from horizontal and hierarchical relationships are mutually exclusive.

FALSE
Benefits derived from horizontal (related diversification) and hierarchical (unrelated diversification) relationships are not mutually exclusive. Many firms that diversify into related areas benefit from information technology expertise in the corporate office. Similarly, unrelated diversifiers often benefit from the best practices of sister businesses even though their products, markets, and technologies may differ dramatically.

Economies of scope are cost savings from leveraging core competencies or sharing unrelated activities among businesses in a corporation.

FALSE
Economies of scope are cost savings from leveraging core competencies or sharing related activities among businesses in a corporation.

Cooper Industries has followed a successful strategy of related diversification. There are few similarities in the products it makes or the industries in which it competes.

FALSE
Cooper Industries has followed a successful strategy of unrelated diversification. There are few similarities in the products it makes or the industries in which it competes; however, the corporate office adds value through such activities as superb human resource practices and budgeting systems.

Related diversification enables a firm to benefit from horizontal relationships across different businesses in the diversified corporation by leveraging core competencies and sharing activities.

TRUE
Related diversification enables a firm to benefit from horizontal relationships across different businesses in the diversified corporation by leveraging core competencies and sharing activities (e.g., production and distribution facilities). This enables a corporation to benefit from economies of scope.

Economies of scope in a related diversification strategy result from the leveraging of core competencies and the sharing of activities such as production.

TRUE
Related diversification enables a firm to benefit from economies of scope, which are cost savings that are derived from leveraging core competencies or sharing related activities among businesses in a corporation. A firm can also enjoy greater revenues if two businesses attain higher levels of sales growth combined than either company could attain independently.

Core competencies do not create value in a business.

FALSE
Core competencies may also be viewed as the glue that binds existing businesses together or as the engine that fuels new business growth. They reflect the collective learning in organizations such as how to coordinate diverse production skills, integrate multiple streams of technologies, and market diverse products and services.

For a core competency to create value and provide a viable basis for synergy among the businesses in a corporation it must at least create superior customer value and it must be difficult to imitate.

TRUE
For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, it must meet three criteria: it must enhance competitive advantage by creating superior customer value; different businesses in the corporation must be similar in at least one important way related to the core competence; and it must be difficult for competitors to imitate or find substitutes for it.

Gillette developed the Fusion and Mach 3 shaving systems that created superior customer value as a result of their core competency in research and development.

TRUE
For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, it must meet three criteria: it must enhance competitive advantage by creating superior customer value; different businesses in the corporation must be similar in at least one important way related to the core competence; and it must be difficult for competitors to imitate or find substitutes for it. Every value-chain activity has the potential to provide a viable basis for building on a core competence. At Gillette, scientists developed the Fusion and Mach 3 after the introduction of the tremendously successful Sensor System because of a thorough understanding of several phenomena that underlie shaving. These include the physiology of facial hair and skin, the metallurgy of blade strength and sharpness, the dynamics of a cartridge moving across skin, and the physics of a razor blade severing hair. Such innovations are possible only with an understanding of such phenomena and the ability to combine such technologies into innovative products. Customers are willing to pay more for such technologically differentiated products.

One of the criteria for a core competence is that the different businesses in the corporation must be similar in at least one important way related to the core competence.

TRUE
For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, it must meet three criteria: it must enhance competitive advantage by creating superior customer value; different businesses in the corporation must be similar in at least one important way related to the core competence; and it must be difficult for competitors to imitate or find substitutes for it.

It is not necessary for a core competence to be difficult to imitate or to be nonsubstitutable.

FALSE
For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, it must meet three criteria: it must enhance competitive advantage by creating superior customer value; different businesses in the corporation must be similar in at least one important way related to the core competence; and it must be difficult for competitors to imitate or find substitutes for it.

IBM leverages its competencies in computing technology to provide health care services. This is an example of a core competence being used across dissimilar businesses within the same corporation.

TRUE
For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, it must meet three criteria: it must enhance competitive advantage by creating superior customer value; different businesses in the corporation must be similar in at least one important way related to the core competence; and it must be difficult for competitors to imitate or find substitutes for it. With Watson, the unique computer developed by IBM that processes natural language, they were able to leverage their computing expertise (core competence) to solve important medical problems and thus become medical experts.

Sharing activities across business units can provide two primary benefits: cost savings and revenue enhancements.

TRUE
Corporations also can achieve synergy by sharing activities across their business units. These include value-creating activities such as common manufacturing facilities, distribution channels, and sales forces. Sharing activities can provide two primary payoffs: cost savings and revenue enhancements.

When sharing activities across business units, a company can attain the highest cost savings when it acquires another from the same industry in the same country.

TRUE
Cost savings are generally highest when one company acquires another from the same industry in the same country. Cost savings come from many sources, including the elimination of jobs, facilities, and related expenses that are no longer needed when functions are consolidated, or from economies of scale in purchasing

If a corporation is to achieve synergy by sharing activities across its business units, it is not important to compromise on the design or performance of an activity that is to be shared.

FALSE
Sharing activities inevitably involve costs that the benefits must outweigh such as the greater coordination required to manage a shared activity. Even more important is the need to compromise on the design or performance of an activity so that it can be shared. For example, a salesperson handling the products of two business units must operate in a way that is usually not what either unit would choose if it were independent. If the compromise erodes unit effectiveness, then sharing may reduce rather than enhance competitive advantage.

Shared activities among businesses in a corporation do not always have a positive effect on a differentiation strategy of a corporation.

TRUE
Sharing activities among businesses in a corporation can have a negative effect on a corporation. For example, when Ford owned Jaguar, they found that customers had lower perceived value of Jaguar automobiles when they found that the entry-level Jaguar shared its basic design with and was manufactured in the same production plant as the Ford Mondeo, a European midsize car. Perhaps, it is not too surprising that Jaguar was divested by Ford in 2008.

Starbucks acquired the baker chain, La Boulange, with the intention of selling the bakery products at its coffee cafes. The increased market exposure for La Boulange is an example of a revenue enhancing benefit that can arise from the differentiation strategy.

TRUE
Often an acquiring firm and its target may achieve a higher level of sales growth together than either company could on its own. For example, Starbucks recently acquired a small bakery chain, La Boulange, and intends to sell La Boulange products at Starbucks cafes nationally. In leveraging Starbucks national retail chain, La Boulange will be able to dramatically expand its market exposure and sales much beyond its current 19-store West Coast market.

(p. 209), Market power refers to cost savings from leveraging core competencies or sharing activities among the businesses in a corporation.

FALSE
Market power refers to the ability of the firm to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment.

The two principal means by which firms achieve synergy through market power are pooled negotiating power and corporate parenting.

FALSE
The two principal means by which firms achieve synergy through market power are pooled negotiating power (the improvement in bargaining position relative to suppliers and customers) and vertical integration (an expansion or extension of the firm by integrating preceding or successive production processes).

Similar businesses working together or the affiliation of a business with a strong parent can strengthen the bargaining position of a company relative to suppliers and customers.

TRUE
Similar businesses working together or the affiliation of a business with a strong parent can strengthen the bargaining position of an organization relative to suppliers and customers and enhance its position relative to its competitors.

Although acquiring related businesses can enhance the bargaining power of a corporation, there is a risk of retaliation by competitors that can result in a diminishing of the desired bargaining power.

TRUE
When PepsiCo diversified into the fast-food industry with its acquisitions of Kentucky Fried Chicken, Taco Bell, and Pizza Hut, it clearly benefited from its position over these units that served as a captive market for its soft-drink products. However, many competitors, such as McDonalds, refused to consider PepsiCo as a supplier of its own soft-drink needs because of competition with Pepsi divisions in the fast-food industry. McDonalds did not want to subsidize the enemy. Thus, although acquiring related businesses can enhance corporation bargaining power, the corporation must be aware of the potential for retaliation.

An oil refinery secures land leases and develops its own drilling capacity to ensure a constant supply of crude oil. This is an example of forward integration.

FALSE
This is an example of backward integration. Vertical integration occurs when a firm becomes its own supplier or distributor. The firm incorporates more processes toward the original source of raw materials (backward integration) or toward the ultimate consumer (forward integration).

A car manufacturer controls its own system of dealerships to ensure retail outlets for its products. This is an example of backward integration.

FALSE
This is an example of forward integration. Vertical integration occurs when a firm becomes its own supplier or distributor. The firm incorporates more processes toward the original source of raw materials (backward integration) or toward the ultimate consumer (forward integration).

One of the risks of vertical integration is that there may be problems associated with unbalanced capacities along the value chain of a firm.

TRUE
The risks of vertical integration include: the costs and expenses associated with increased overhead and capital expenditures; a loss of flexibility resulting from large investments; problems associated with unbalanced capacities along the value chain; and additional administrative costs associated with managing a more complex set of activities.

The main reason that automobile manufacturers have increased the amount of outsourced inputs is because of the importance of boom and bust cycles in the industry.

TRUE
With the high level of fixed costs in plant and equipment as well as operating costs that accompany endeavors toward vertical integration, widely fluctuating sales demand can either strain resources (in times of high demand) or result in unused capacity (in times of low demand). The cycles of boom and bust in the automobile industry are a key reason why the manufacturers have increased the amount of outsourced inputs.

According to the transaction cost perspective in analyzing vertical integration, every market transaction involves some transaction cost.

TRUE
One approach that has proved very useful in understanding vertical integration is the transaction cost perspective. According to this perspective, every market transaction involves some transaction costs.

Vertical integration is attractive when market transaction costs are higher than internal administrative costs.

TRUE
Decisions about vertical integration are based on a comparison of transaction costs and administrative costs. If transaction costs are higher than administrative costs, vertical integration becomes an attractive strategy.

With unrelated diversification, potential benefits can be gained from vertical or hierarchical relationships; that is, the creation of synergies from the interaction of the corporate office with outside stakeholders.

FALSE
With unrelated diversification, potential benefits can be gained from vertical or hierarchical relationships; that is, the creation of synergies from the interaction of the corporate office with the individual business units.

Restructuring requires the corporate office to find either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change.

TRUE
Restructuring is a means by which the corporate office can add value to a business. Here, the corporate office tries to find either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. The parent intervenes, often selling off parts of the business; changing the management; reducing payroll and unnecessary sources of expenses; changing strategies; and infusing the company with new technologies, processes, reward systems, and so forth.

Portfolio management should be considered as the primary basis for formulating corporate-level strategies.

FALSE
Portfolio management helps achieve a better understanding of the competitive position of an overall portfolio of businesses, to suggest strategic alternatives for each of the businesses, and to identify priorities for the allocation of resources.

Portfolio management matrices generally consist of two axes that reflect industry or market growth and the market share of a business.

TRUE
The Boston Consulting Group (BCG) growth/share matrix is among the best known of the portfolio management tools. In the BCG approach, each of the strategic business units (SBUs) of the firm is plotted on a two-dimensional grid in which the axes are relative market share and industry growth rate.

The acquisition of two or more counter-cyclical businesses is an example of using diversification to reduce risk.

TRUE
One of the purposes of diversification is to reduce the risk that is inherent in the variability in revenues and profits of a firm over time. If a firm enters new products or markets that are affected differently by seasonal or economic cycles, its performance over time will be more stable. For example, a firm that manufactures lawn mowers may diversify into snow blowers in order to even out its annual sales

An advantage of mergers and acquisitions is that they can enable a firm to rapidly enter new product markets.

TRUE
Growth through mergers and acquisitions has been critical to many corporations in a wide variety of high-technology and knowledge-intensive industries. Speed (speed to market, speed to positioning, and speed to becoming a viable company) is critical in such industries. For example, in 2010, Apple acquired Siri Inc. so that they could quickly fully integrate the Siri natural language voice recognition software into iOS, the Apple proprietary operating system

Among the advantages of acquisitions are the expensive premiums that are frequently paid to acquire a business.

FALSE
There are many potential drawbacks or limitations to merger activity. For example, the takeover premium that is paid for an acquisition typically is very high. Two times out of three, the stock price of the acquiring company falls once the deal is made public. Since the acquiring firm often pays a 30 percent or higher premium for the target company, the acquirer must create synergies and scale economies that result in sales and market gains exceeding the premium price.

Through joint ventures, firms can directly acquire the assets and competencies of other firms.

FALSE
Joint ventures represent a special case of alliances, wherein two (or more) firms contribute equity to form a new legal entity.

The potential advantages of strategic alliances and joint ventures include entering new markets as well as developing and diffusing new technologies.

TRUE
Strategic alliances and joint ventures have many potential advantages. Among these are entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies.

One of the obligatory aspects of strategic alliances is the dependence on written contracts to delimit responsibilities and enforce compliance.

FALSE
A strategic alliance is a cooperative relationship between two (or more) firms. Alliances may be either informal or formal, one involving a written contract.

An advantage of a firm entering into a strategic alliance is that it does not have to share the wealth with its partners.

FALSE
Firms that engage in internal development (like corporate entrepreneurship) capture the value created by their own innovative activities without having to share the wealth with alliance partners or face the difficulties associated with combining activities across the value chains of several firms or merging corporate cultures.

An advantage of internal development is that firms do not have to combine activities across the value chains of many companies and merge company cultures.

TRUE
Firms that engage in internal development (like corporate entrepreneurship) capture the value created by their own innovative activities without having to share the wealth with alliance partners or face the difficulties associated with combining activities across the value chains of several firms or merging corporate cultures.

In recent years, many high tech firms such as Priceline.com have suffered from the negative impact of uncontrolled growth.

TRUE
In recent years many high-tech firms have suffered from the negative impact of their uncontrolled growth. Consider, for example, Priceline.com made an ill-fated venture into an online service to offer groceries and gasoline. A myriad of problems, perhaps most importantly a lack of participation by manufacturers, caused the firm to lose more than $5 million a week prior to abandoning these ventures.

Greenmail is an offer by a company, threatened by takeover, to offer its stock at a reduced price to a third party.

FALSE
Greenmail is an effort by the target firm to prevent an impending takeover. When a hostile firm buys a large block of outstanding target company stock and the target company management feels that a tender offer is impending, they offer to buy the stock back from the hostile company at a higher price than the unfriendly company paid for it.

A golden parachute is a prearranged contract with managers specifying that, in the event of a hostile takeover, the target company managers will be paid a significant severance package.

TRUE
A golden parachute is a prearranged contract with managers specifying that, in the event of a hostile takeover, the target company managers will be paid a significant severance package. Although top managers lose their jobs, the golden parachute provisions protect their income.

The Cisco acquisition of Pure Digital Technologies, the parent of the Flip video camera, failed because __________________.

A. , Cisco had valuable competencies

B. , the Flip division of Cisco was slow and less responsive to market pressures

C. , consumers continued to purchase the camera

D. , Cisco had good vision of the market

B. , the Flip division of Cisco was slow and less responsive to market pressures

Which of the following is not a reason for merger and acquisition failures?

A. , The acquiring company pays too high a premium for the common stock of the target company.

B. , Top executives act in their best interests rather than those of the shareholders.

C. , The acquired company assets are poorly integrated into the acquiring company business lines.

D. , The acquisition leads to value creation.

D. , The acquisition leads to value creation.

Corporate-level strategy focuses on _____________.

A. , gaining long-term revenue

B. , gaining short-term profits

C. , decreasing business locations

D. , managing investment bankers and their interests

A. , gaining long-term revenue

Diversification initiatives include all of the following except ___________________.

A. , mergers and acquisitions

B. , strategic alliances

C. , joint ventures

D. , shareholder development

D. , shareholder development

McKesson, a large distribution company, sells many product lines such as pharmaceuticals and liquor through its super warehouses. This is an example of ____________.

A. , using related diversification to achieve value by sharing activities to create economies of scope

B. , using related diversification to achieve value by leveraging core competencies to create market power

C. , using unrelated diversification to create value by managing its portfolio to create financial synergies

D. , using unrelated diversification to create value by managing its portfolio to create restructuring advantages

A. , using related diversification to achieve value by sharing activities to create economies of scope

Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input to its manufacturing process. This is an example of _______________.

A. , using related diversification to achieve value by pooling negotiating power to achieve market power

B. , using related diversification to achieve value by leveraging core competencies to achieve economies of scope

C. , using related diversification to achieve value by integrating vertically in order to acquire market power

D. , using related diversification to achieve value by integrating vertically in order to attain economies of scope

C. , using related diversification to achieve value by integrating vertically in order to acquire market power

At Cooper Industries, there are few similarities in the products it makes or the industries in which it completes. The corporate office adds value through such activities as superb human resource practices and budgeting systems. This is an example of __________________.

A. , using related diversification to achieve value by leveraging core competencies to attain economies of scope

B. , using related diversification to achieve value by leveraging core competencies to acquire market power

C. , using unrelated diversification to achieve value through portfolio management in order to acquire financial synergies

D. , using unrelated diversification to achieve value through restructuring and parenting

D. , using unrelated diversification to achieve value through restructuring and parenting

For a core competence to be a viable basis for the corporation strengthening a new business unit, there are three requirements. Which one of the following is not one of these requirements?

A. , The competence must help the business gain strength relative to its competition.

B. , The new business must be similar to existing businesses to benefit from a core competence.

C. , The collection of competencies should be unique, so that they cannot be easily imitated.

D. , The new business must have an established large market share.

D. , The new business must have an established large market share.

Sharing core competencies is one of the primary potential advantages of diversification. In order for diversification to be most successful, it is important that _____________.

A. , the similarity required for sharing core competencies must be in the value chain, not in the product

B. , the products use similar distribution channels

C. , the target market is the same, even if the products are very different

D. , the methods of production are the same

A. , the similarity required for sharing core competencies must be in the value chain, not in the product

Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input into its manufacturing process. This is an example of ______________.

A. , leveraging core competencies

B. , sharing activities

C. , pooled negotiating power

D. , vertical integration

D. , vertical integration

The risks of vertical integration include all of the following EXCEPT:

A. , costs and expenses associated with increased overhead and capital expenditures.

B. , problems associated with unbalanced capacities along the value chain.

C. , lack of control over valuable assets.

D. , additional administrative costs associated with managing a more complex set of activities.

C. , lack of control over valuable assets.

Unbalanced capacities that limit cost savings, difficulties in combining specializations, and reduced flexibility are disadvantages associated with ___________.

A. , strategic alliances

B. , divestment

C. , horizontal integration

D. , vertical integration

D. , vertical integration

A firm should consider vertical integration when ___________.

A. , the competitive situation is highly volatile

B. , customer needs are evolving

C. , the suppliers of the firm willingly cooperate with the firm

D. , the suppliers of raw materials to the firm are often unable to maintain quality standards

D. , the suppliers of raw materials to the firm are often unable to maintain quality standards

Vertical integration is attractive when ____________.

A. , internal administrative costs are higher than transaction costs

B. , transaction costs are higher than internal administrative costs

C. , transaction costs and internal administrative costs are equal

D. , search costs are higher than monitoring costs

B. , transaction costs are higher than internal administrative costs

According to the text, corporate restructuring includes

A. , capital restructuring, asset restructuring, and technology restructuring

B. , global diversification, capital restructuring, and asset restructuring

C. , management restructuring, financial restructuring, and procurement restructuring

D. , capital restructuring, asset restructuring, and management restructuring
Restructuring can involve changes in assets, capital structure, or management.

D. , capital restructuring, asset restructuring, and management restructuring

Portfolio management frameworks, such as the BCG matrix, share which of the following characteristics?

A. , Businesses are plotted on a 3-dimensional grid.

B. , Grid dimensions are based on external environments and internal capabilities/market positions.

C. , Position in the matrix suggests a need for sharing synergies.

D. , They are most helpful in helping businesses develop types of competitive advantage.

B. , Grid dimensions are based on external environments and internal capabilities/market positions.

A Cash Cow, in the BCG framework, refers to a business that has _______________.

A. , high market growth and relatively high market share

B. , relatively low market share and low market growth

C. , relatively low market share and high market growth

D. , low market growth and relatively high market share

D. , low market growth and relatively high market share

., In managing the corporate portfolio, the BCG matrix would suggest that __________.

A. , Dogs should be invested in to increase market share and become Cash Cows

B. , Stars are in low growth markets and can provide excess cash to fund other opportunities

C. , Cash Cows require substantial cash outlays to maintain market share

D. , Question Marks can represent future Stars if their market share is increased

D. , Question Marks can represent future Stars if their market share is increased

In the BCG Growth Share Matrix, the suggested strategy for Stars is to ________.

A. , milk them to finance other businesses

B. , invest large sums to gain a good market share

C. , maintain position and after the market growth slows use the business to provide cash flow

D. , not invest in them and to shift cash flow to other businesses

C. , maintain position and after the market growth slows use the business to provide cash flow

All of the following are limitations (or downsides) of the BCG (Boston Consulting Group) matrix EXCEPT:

A. , Every business cannot be accurately measured and compared on the two dimensions.

B. , It takes a dynamic view of competition which can lead to overly complex analyses.

C. , It views each business as a stand-alone entity and ignores the potential for synergies across businesses.

D. , While easy to comprehend, the BCG matrix can lead to some troublesome and overly simplistic prescriptions.

B. , It takes a dynamic view of competition which can lead to overly complex analyses.

., The primary means by which a firm can diversify are __________, _________, and ________.

A. , mergers and acquisitions; differentiation; overall cost leadership

B. , mergers and acquisitions; joint ventures and strategic alliances; internal development

C. , joint ventures and strategic alliances; integration of value chain activities; acquiring human capital

D. , mergers and acquisitions; internal development; differentiation

B. , mergers and acquisitions; joint ventures and strategic alliances; internal development

The downsides or limitations of mergers and acquisitions include all of the following EXCEPT:

A. , Premiums that are frequently paid to acquire a business are expensive.

B. , Difficulties exist in integrating the activities and resources of the acquired firm into on-going operations.

C. , There can be many cultural issues that can doom an otherwise promising acquisition.

D. , It is a slow means to enter new markets and acquire skills and competences.

D. , It is a slow means to enter new markets and acquire skills and competences.

Divesting of businesses can accomplish many different objectives, except _______.

A. , enabling managers to focus their efforts more directly on the core businesses of the firm

B. , providing the firm with more resources to spend on more attractive alternatives

C. , dispersing manager focus

D. , raising cash to help fund existing businesses

C. , dispersing manager focus

Cooperative relationships such as __________ have potential advantages such as entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies.

A. , joint ventures

B. , mergers

C. , acquisitions

D. , joint ventures and strategic alliances

D. , joint ventures and strategic alliances

Which of the following is not part of a good guideline list for managing strategic alliances?

A. , establishing a clear understanding between partners

B. , not shortchanging your partner

C. , relying primarily on a contract to make the joint venture work

D. , working hard to ensure a collaborative relationship between partners

C. , relying primarily on a contract to make the joint venture work

Which of the following statements regarding internal development as a means of diversification is FALSE?

A. , Many companies use internal development to extend their product or service offers.

B. , An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services.

C. , The firm is able to capture wealth created without having to share the wealth with alliance partners.

D. , Firms can often develop products or services at a lower cost, if they rely on their own resources instead of external funding.

B. , An advantage of internal development is that it is generally faster than other means of diversification and firms can benefit from speed in developing new products and services.

Internal development may be time consuming and, therefore, firms may forfeit the benefits of speed that growth through __________ and __________ can provide.

A. , strategic alliances; joint ventures

B. , strategic alliances; mergers

C. , mergers; acquisitions

D. , mergers; strategic alliances

C. , mergers; acquisitions

According to Michael Porter, there is a tremendous allure to _________. It is the big play, the dramatic gesture. With one stroke of the pen you can add billions to size, get a front-page story, and create excitement in markets.

A. , strategic alliances and joint ventures

B. , internal development

C. , mergers and acquisitions

D. , differentiation strategies

C. , mergers and acquisitions

The term golden parachute refers to _________.

A. , a clause requiring that huge dividend payments be made upon takeover

B. , pay given to executives fired because of a takeover

C. , financial inducements offered by a threatened firm to stop a hostile suitor from acquiring it

D. , managers of a firm in a hostile takeover approaching a third party about making the acquisition

B. , pay given to executives fired because of a takeover