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1、Chapter 6Corporate-Level StrategyTRUE/FALSE1。In 2005, Gillette was acquired by Proctor & Gamble （P&G). This is an example of business level strategic action initiated by P&G。4。A major advantage of diversification is that overall monitoring costs are reduced， since each separate business comes under
2、the control of corporate headquarters.5。Successful product diversification is expected to increase the variability in the firms profitability， since the earnings are generated from several different business units。11.Blocking competitors through multipoint competition is a strategy used by related d
3、iversified firms to create value.12。PepsiCo uses its own distribution system to deliver multiple Pepsi branded beverage products。 Pepsi recently acquired Gatorade and delivers these products using the Pepsi distribution system. This use of Pepsis outbound logistics is an example of activity sharing。
4、13.PG acquired Gillette Co. and created the Crest ProHealth label by combining PGs Crest with Gillettes Oral-B brands. This is an example of achieving synergies through sharing activities.15。In a moneymaking effort， a small private university has decided to institute consulting services using its bu
5、siness faculty as consultants whose services would be sold to clients。 This university is attempting to use its faculty to gain economies of scope。16。When firms share activities across units， they are often able to achieve increased value.21。Vertical integration exists when a company produces its ow
6、n inputs （forward integration） or owns its own source of output distribution （backward integration)。26.Virtual integration tends to erode the relationships between suppliers and customers as personal contacts are replaced with impersonal electronic communications.29.An unrelated diversification stra
7、tegy can create value through two types of financial economies， (1） efficient internal capital allocations and （2） purchasing other firms， restructuring their assets， and selling them。32。Unrelated diversification has been the norm for the most successful firms in many industrialized countries such a
8、s Germany， Italy， and France。35。When implementing a restructuring strategy a company would do best by focusing on mature, lowtechnology businesses。38.Low performance is associated with increased diversification。39。Performance continues to increase as diversification increases from single business to
9、 unrelated diversification。41。Related diversification by a firm tends to reduce a managers executive compensation， whereas unrelated diversification tends to increase it because the firm has moved into new industries。MULTIPLE CHOICE1。In 2005， P&G， whose products include Crest toothpaste and Tide lau
10、ndry detergent， purchased Gillette。 Gillette itself had multiple businesses, including a range of products including electric toothbrushes， razors and batteries。 Which of the following reflects the acquisition?a.It is unrelated diversification for PG because Gillette consists of more than one busine
11、ss unit.b.It is unrelated diversification for Gillette because PG consists of more than one business unit.c。It is related diversification for PG because the product lines for both firms are consumer products sold through similar channels。d。It is related diversification for Gillette because the produ
12、ct lines for both firms are consumer products sold through similar channels.3。On the most basic level， corporatelevel strategy is concerned with _ and how to manage these businesses。a。whether the firm should invest in global or domestic businessesb。what product markets and businesses the firm should
13、 be inc。whether the portfolio of businesses should generate immediate aboveaverage returns or should be troubled businesses which will create aboveaverage returns only after restructuringd。whether to integrate backward or forward。4。The ultimate test of the value of a corporatelevel strategy is wheth
14、er thea。corporation earns a great deal of money.b。top management team is satisfied with the corporations performance.c.businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership.d。businesses in the portfolio increase the fi
15、rms financial returns.6。Wm。 Wrigley Jr。 Company once made only chewing gum. When Wrigley bought Life Savers (a line of candy mints） and Altoids （a line of breadth mints） from Kraft, chewing gum then constituted less than 95 percent of revenues。 Thus， Wrigleya.was moving away from its traditional sin
16、gle-business strategy toward a dominant strategy。b。was moving away from its traditional dominant strategy toward a related-linked strategy。c。became a conglomerate since Life Savers and Altoids are unrelated businesses。d。probably planned to restructure these companies and sell them off。7.Usually a co
17、mpany is classified as a single business firm when revenues generated by the dominant business are greater than _ percent.a.99b。95c.90d。709.A firm that earns less than 70 of revenue from its dominant business and has direct connections between its businesses is engaging in _ diversification。a。unrela
18、tedb.related constrainedc。related linkedd。dominantbusiness11。Which acquisition would be considered the LEAST related？a.a candy manufacturer purchases a chemical laboratory specializing in food flavoringsb.a chain of garden centers acquires a landscape architecture firmc。a hospital acquires a long-te
19、rm care nursing homed。an upscale “whitetablecloth” restaurant chain acquires a travel agency12。The lowest level of diversification is the _ level.a。single businessb.dominant-businessc.related constrainedd。unrelated13。The main difference between the related constrained level of diversification and th
20、e related linked level of diversification isa.the percentage of total organizational profitability that comes from the dominant business.b。the level of resources and activities shared among the businesses。c。whether the diversification is vertical or horizontal.d。whether the diversification is valuec
21、reating or value-neutral。15.GE has recently reorganized from eleven businesses down to six core businesses. The purpose of this reorganization is to transfer core competencies in different types of technologies among GEs businesses。 This is an example ofa.increasing market power through vertical int
22、egration.b.efficient internal capital allocation。c。a focus on financial economies。d。increasing corporate relatedness.16。Which of the following reasons for diversification is most likely to increase the firms value?a.increasing managerial compensationb。reducing costs through business restructuringc.t
23、aking advantage of changes in tax lawsd。conforming to antitrust regulation17.Which of the following is a valuereducing reason for diversification?a.enhancing the strategic competitiveness of the entire companyb。expanding the business portfolio in order to reduce managerial employment riskc。gaining m
24、arket power relative to competitorsd.conforming to antitrust regulation19。Firms that have selected a related diversification corporatelevel strategy seek to exploita.control shared among business-unit managers。b.economies of scope between business units。c。the favorable demand of buyers.d。market powe
25、r。23.The acquisition of Gillette Co。 by Procter & Gamble will probably result in activity sharing because P&G has a reputation for technology transfer: the ability to take technology used in one brand and apply it to another brand. This is an example ofa.operational relatedness。b。corporate relatedne
26、ss。c。vertical integration.d.virtual integration.25.Research has shown that horizontal acquisitionsa。tend to have disappointing financial results in the long run.b。are being replaced by virtual acquisitions.c.result in lower levels of performance than unrelated acquisitions。d.are able to use activity
27、 sharing to successfully create economies of scope。29.In related linked diversified firms， _ are a complex set of resources that link the different businesses through managerial and technological knowledge, experience, and expertise.a。corporate core competenciesb。strategiesc.support activitiesd.inta
28、ngible assets31.Multipoint competition occurs whena。firms have multiple retail outlets.b.firms have multiple products in their primary industry。c。diversified firms compete against each other in several markets.d.firms have diversified portfolios of companies。32.One method of facilitating the transfe
29、r of competencies between firms is toa.virtually integrate the two firms.b.transfer key people into new management positions.c。share support activities， such as purchasing practices.d。restructure the weaker firm to mirror the structure of the more successful firm。34.Acquisitions to increase market p
30、ower require that the firm have a _ diversification strategy。a.unrelatedb。relatedc.dominantbusinessd.single business35。When diversification results in two companies， such as UPS and FedEx， simultaneously competing in numerous markets, this is called _ competition。a。multipleb。multiportalc.multipointd
31、。mutiplicit39.Backward integration occurs when a companya。produces its own inputs.b。owns its own source of distribution of outputs.c。is concentrated in a single industry.d。is divesting unrelated businesses。43。Specialty Steel， Inc。， needs a particular type of brick to line its kilns in order to safel
32、y achieve the high temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare and only two brick plants in the U.S。 make this type of brick。 Specialty Steel has decided to buy one of these brick plants。 This is an example ofa。backward integration。b.forwa
33、rd integration。c.horizontal integration。d.virtual integration.45.The use of ecommerce to allow firms to reduce the costs of processing transactions while improving their supplychain management skills and tightening the control of their inventories is beginning to replacea。outsourcing。b。unrelated div
34、ersification.c。de-integration.d。vertical integration.46。Disney has been successful both in the sharing of activities among divisions and in the transfer of knowledge among divisions。 Disney can be said to have createda.dynamic stability。b.inimitable competencies.c。cross-fertilization。d.synthesis.48.
35、Firms are increasingly moving away from _ integration and toward _ integration。a。virtual； verticalb。virtual； virtuousc.virtuous； verticald.vertical; virtualANS：DPTS:1DIF：MediumREF：163OBJ：06-04 TYPE： knowledgeNOT:AACSB: Business Knowledge Analytical Skills Management: Strategy | Dierdorff Rubin： Mana
36、ging administration & control50。Which type of diversification is most likely to create value through financial economies?a.related constrainedb.operational and corporate relatednessc。unrelatedd.related linked。55.Successful unrelated diversification through restructuring is typically accomplished bya
37、。focusing on mature， lowtechnology businesses.b.a “random walk” of good luck in picking firms to buy。c.seeking out high technology firms in high growth industries。d。a top management team that is not constrained by pre-established ideas of how the firms portfolio should be developed。56.The risk for f
38、irms that follow the unrelated diversification strategy in developed economies is thata.external investors tend to dump the stocks of conglomerates during economic downturns.b.conglomerates are typically owned by one powerful entrepreneur and do not survive his/her retirement or death。c。government r
39、egulations, especially in Europe， have periodically forced the dissolution of conglomerates.d。competitors can imitate financial economies more easily than they imitate economies of scope.60.All of the following are internal firm incentives to diversify EXCEPTa.overall firm risk reduction。b.uncertain
40、 future cash flows.c。stricter interpretation of antitrust laws。d.low performance。63。Free cash flows area。liquid financial assets for which investments in current businesses are no longer economically viable.b.liquid financial assets that for tax purposes must be reinvested in the firm if not distrib
41、uted as dividends to shareholders.c。the profits resulting after a restructured firm has been sold。d。dividends that have been distributed to shareholders that are taxed as capital gains.66。As the threat of corporate failure increases due to relatedness between a firms business units， firms may decide
42、 toa。increase the firms level of retained resources。b.diversify into less risky environments。c。reduce the level of diversity in its investments。d.pursue unproven product lines.67。Synergy exists whena。cost savings are realized through improved allocations of financial resources based on investments i
43、nside or outside the firm。b.two units create value by utilizing market power in their respective industries。c。firms utilize constrained related diversification to build an attractive portfolio of businesses。d.the value created by business units working together exceeds the value the units create whe
44、n working independently。71。Compared with diversification based on intangible resources， diversification based on financial resources is a。less imitable and less likely to create value on a longterm basis.b。more imitable and less likely to create value on a long-term basis c。less imitable and more li
45、kely to create value on a longterm basis d。more imitable and more likely to create value on a longterm basis ANS：BPTS：1DIF：HardREF：171OBJ:0606 TYPE： comprehensionNOT:AACSB: Business Knowledge Analytical Skills Management： Strategy Dierdorff Rubin: Managing strategy innovation72。Personal motives for
46、managers to seek diversification include a desire toa.improve their marketability to other firms.b.effectively use corporate resources。c。provide higher returns to corporate stakeholders.d。increase their compensation。75。Which of the following is NOT a governance mechanism that may limit managerial tendencies to overdiversify？a.the market for corporate controlb。the Board of Directorsc.surveillance technologiesd。monitoring by ownersESSAY1。Differentiate between corporate-level and businesslevel strategies and give examples of each.2。What are the five catego