Chapter #6

Question 1

The process of firms expanding their operations by entering new businesses.

Answer 1

Diversification

Question 2

A firm entering a different business in which it can benefit from leveraging core competencies, sharing activities, or building market power.

Answer 2

Related Diversification

Question 3

Cost savings from leveraging core competencies or sharing related activities among businesses in a corporation.

Answer 3

Economies of Scope

Question 4

A firm’s strategic resources that reflect the collective learning in the organization.

Answer 4

Core Competencies

Question 5

Having activities of two or more businesses’ value chains done by one of the businesses.

Answer 5

Sharing Activities

Question 6

Firms’ abilities to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment.

Answer 6

Market Power

Question 7

The improvement in bargaining position relative to suppliers and customers.

Answer 7

Pooled Negotiating Power

Question 8

An expansion or extension of the firm by integrating preceding or successive production processes.

Answer 8

Vertical Integration

Question 9

A perspective that the choice of a transaction’s governance structure, such a vertical integration or market transaction, is influenced by transaction costs, including search, negotiating, contracting, monitoring, and enforcement costs associated with each choice.

Answer 9

Transaction Cost Perspective

Question 10

A firm entering a different business that has little horizontal interaction with other businesses of a firm.

Answer 10

Unrelated Diversification

Question 11

The positive contributions of the corporate office to a new business as a result of expertise and support provided and not as a result of substantial changes in assets, capital structure, or management.

Answer 11

Parenting Advantage

Question 12

The intervention of the corporate office in a new business that substantially changes the assets, capital structure, and/or management, including selling off parts of the business, changing management, reducing payroll and unnecessary sources of expenses, changing strategies, and infusing the new business with new technologies, processes, and reward systems.

Answer 12

Restructuring

Question 13

A method of assessing the competitive position of a portfolio of businesses within a corporation, (b) suggesting strategic alternatives for each business, and (c) identifying priorities for the allocation of resources across the business.

Answer 13

Portfolio Management

Question 14

The incorporation of one firm into another through purchase.

Answer 14

Acquisitions

Question 15

The combining of two or more firms into one new legal entity.

Answer 15

Mergers

Question 16

The exit of a business from a firm’s portfolio.

Answer 16

Divestment

Question 17

A cooperative relationship between two or more firms.

Answer 17

Strategic Alliance

Question 18

New entities formed within a strategic alliance in which two or more firms, the parents, contribute equity to form the new legal entity.

Answer 18

Joint Ventures

Question 19

Entering a new business through investment in new facilities, often called corporate entrepreneurship and new venture development.

Answer 19

Internal Development

Question 20

Managers acting in their own self-interest rather than to maximize long-term shareholder value.

Answer 20

Managerial Motives

Question 21

Managers’ actions to grow the size of their firms not to increase long-term profitability but to serve managerial self-interest.

Answer 21

Growth for Growth’s Sake

Question 22

Managers’ actions to shape their firms’ strategies to serve their selfish interest rather than to maximize long-term shareholder value.

Answer 22

Egotism

Question 23

Managers’ actions to avoid losing wealth or power as a result of a hostile takeover.

Answer 23

Antitakeover Tactics

Question 24

A payment by a firm to a hostile party for the firm’s stock at a premium, made when the firm’s management feels that the hostile party is about to make a tender offer.

Answer 24

Greenmail

Question 25

A prearranged contract with managers specifying that, in the vent of a hostile takeover, the target firm’s managers will be paid a significant severance package.

Answer 25

Golden Parachute

Question 26

Used by a company to give shareholders certain rights in the event of a takeover by another firm.

Answer 26

Poison Pill