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Test Bank For Foundations in Strategic Management 6th Edition Harrison Download
Test Bank For Foundations in Strategic Management 6th Edition Harrison Download
Chapter 6
Corporate Strategies
TRUE/FALSE QUESTIONS
4. Market saturation is one possible reason for firms to abandon their concentration
strategies.
Answer: T
7. Synergy among businesses is created instantly if they are related to each other.
Answer: F
9. Most acquisitions are financially beneficial to the shareholders of the acquiring firm.
Answer: F
10. A common criticism that applies to many portfolio models is that they are based on
the past instead of the future.
Answer: T
16. All of the following are reasons that firms pursue vertical integration strategies
Chapter 6: Corporate Strategies
except:
A. To obtain better or more complete information about supplies or markets
B. Less dependence on one industry
C. Increased control over the quality of supplies
D. Greater opportunities to differentiate a product
E. Reduction of transaction costs
Answer: B
17. In a typical vertical supply chain, the major stage of the industry that immediately
follows raw materials extraction is:
A. Wholesaling
B. Retailing
C. Final product manufacturing
D. Primary manufacturing
E. None of these
Answer: D
18. According to the theory of transaction cost economics, a market is likely to fail if:
A. There are a large number of suppliers
B. All parties to the transaction have the same level of knowledge
C. The future is highly uncertain
D. The future is highly certain
E. Assets may be used to produce a variety of products or services
Answer: C
19. What has been observed as the relationship between diversification and firm
performance?
A. Moderate levels of diversification provide the highest performance
B. Low levels of diversification provide the highest performance
C. High levels of diversification provide the highest performance
D. Moderate levels of diversification provide the lowest performance
E. None of these
Answer: A
diversification
E. A firm that uses related diversification always uses vertical integration; a firm
that uses unrelated diversification never uses vertical integration
Answer: A
21. When an organization can use the same physical resources for multiple purposes, it is
taking advantage of:
A. Intangible relatedness
B. Tangible relatedness
C. Limited scope
D. Dominant industry relationships
E. Goodwill
Answer: B
22. When skills developed in one area can be applied to another area, which of the
following results?
A. Intangible relatedness
B. Tangible relatedness
C. Specialized scope
D. Focus
E. Goodwill
Answer: A
23. Two organizations or business units have similar management processes, cultures,
systems, and structures. These similarities are best described as:
A. Synergy
B. Managerial hubris
C. Business intelligence
D. Tangible relatedness
E. Organizational fit
Answer: E
C. Increase in R&D
D. Increase in patents
E. Both C and D are correct
Answer: A
26. If all of the businesses of an organization are related to a common “core” business,
the organization is probably pursuing which corporate strategy?
A. Prospector
B. Cost focus
C. Vertical integration
D. Defender
E. Related diversification
Answer: E
30. Successful strategic alliances are characterized by all of the following except:
A. Careful planning and execution
B. Selection of partners with complementary resources
C. Effective use of coordinating mechanisms
D. Potential for financial economies
Chapter 6: Corporate Strategies
31. What is on the two axes of the Boston Consulting Group Matrix?
A. Stars and cash cows
B. Business growth rate and relative competitive position
C. Market share and relative competitive position
D. Profitability and business growth rate
E. Business growth rate and cash flow
Answer: B
ESSAY QUESTIONS
34. Discuss the major corporate-level strategy formulation responsibilities. How are they
different from business-level strategy formulation responsibilities?
Answer: Organizations diversify for both strategic and personal reasons of top
managers. The personal reasons are connected to the concept of empire building. The larger
an organization becomes, the more lofty the power and status of its leader. Diversification
can be used to rapidly expand the organization and thus expand the power and status of its
executives. As power and status increase, salaries and bonuses for these top executives will
also likely increase. These internal motives do not have to be purely personal. An executive
may crave a more interesting and challenging environment, believe that he or she has
mastered the current environment, and see diversification as a way to increase the value of
the firm by expanding its operating environment.
The strategic reasons for diversification are more complex. Organizations may wish to
reduce risk by investing in dissimilar businesses. They may wish to stabilize or improve
earnings or growth. If the cash generated in the firm is greater than that needed for profitable
investment in the firm, the managers may look outside the firm for investment opportunities
and thus increase the value of the firm. Excess debt capacity may also lead managers to
pursue the application of skills to related areas or to the possible generation of synergy and
economies of scope. In general, organizations may diversify to reduce risk, expand
opportunities, take advantage of slack resources, or satisfy managers’ personal goals.
36. What are the requirements for achieving synergy through the combination of
businesses?
Answer: The requirements are some form of relatedness and both strategic and
organizational fit. Tangible relatedness means that the organization has the opportunity to use
the same physical resources for multiple purposes. Tangible relatedness can lead to synergy
through resource sharing. For example, if two similar products are manufactured in the same
plant, then they can benefit from operating synergy. Other examples of synergy resulting
from tangible relatedness include (1) using the same marketing or distribution channels for
multiple related products, (2) buying similar raw materials for related products through a
centralized purchasing office to gain purchasing economies, (3) providing corporate training
programs to employees from different divisions who are all engaged in the same type of
work, (4) advertising multiple products simultaneously and (5) manufacturing in the same
plants. Intangible relatedness occurs any time capabilities developed in one area can be
applied to another area. When executed properly, intangible relatedness can result in
managerial synergy.
Two types of fit facilitate the creation of synergy: strategic fit and organizational fit.
Strategic fit refers to the effective matching of strategic organizational capabilities. For
example, if two organizations in two related businesses combine their resources, but they are
both strong in the same areas and weak in the same areas, then the potential for synergy is
diminished. Once combined, they will continue to exhibit the same capabilities. However, if
Test Bank for Foundations in Strategic Management 6th Edition : Harrison
one of the organizations is strong in R&D but lacks marketing power, while the other
organization is weak in R&D but strong in marketing, then there is real potential for both
organizations to be better off—if managed properly. Organizational fit occurs when two
organizations or business units have similar management processes, cultures, systems, and
structures. Organizational fit makes organizations compatible, which facilitates resource
sharing, communication, and transference of knowledge and skills. Strategic fit and
organizational fit dramatically increase the likelihood that synergy will be created between
two related businesses.
The benefits from synergy have to exceed the costs of creating it. Increasing coordination
costs have the potential to offset potential synergistic gains from related diversification.
37. Which factors have been found to lead to unsuccessful mergers and acquisitions?
Which factors are related to success?
Answer: Researchers have been able to identify factors that seem to be associated with
successful and unsuccessful mergers. Unsuccessful mergers are associated with a large
amount of debt, overconfident or incompetent managers, poor ethics, changes in top
management or the structure of the acquiring organization, inadequate analysis prior to the
deal (due diligence), and diversification away from the core area in which the acquiring firm
is strongest.