Chapter 6

Question 1

Corporate-level Strategy

Answer 1

a strategy that focuses on gaining long term revenue, profits, and market value through managing operations in multiple businesses

Question 2

Diversification

Answer 2

the process of firms expanding their operations by entering new businesses

Question 3

Related Diversification

Answer 3

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

Question 4

economies of scope

Answer 4

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

Question 5

Core competencies

Answer 5

a firm’s strategic resources that reflect the collective learning in an organization

Question 6

sharing activities

Answer 6

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

Question 7

market power

Answer 7

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

Question 8

pooled negotiating power

Answer 8

the improvement in bargaining position relative to suppliers and customers

Question 9

vertical integration

Answer 9

an expansion or extension of the firm by integrating preceding or successive product processes

Question 10

transaction cost perspective

Answer 10

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

Question 11

unrelated diversification

Answer 11

HIERARCHICAL/VERTICAL RELATIONSHIPS- a firm entering a different business that has little horizontal interaction with other businesses of a firm

Question 12

parenting advantage

Answer 12

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.

Question 13

restructuring

Answer 13

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 the management, reducing payroll, and unnecessary sources of expenses, changing strategies, and infusing the new business with technologies, processes, and reward systems.

Question 14

acquisitions

Answer 14

the incorporation of one firm into another through purchases

Question 15

mergers

Answer 15

the combining of two or more firms into one new legal entity

Question 16

divestment

Answer 16

the exit of a business from a firm’s portfolio

Question 17

strategic alliance

Answer 17

a cooperative relationship between two or more firms

Question 18

joint ventures

Answer 18

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

Question 19

internal development

Answer 19

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

Question 20

managerial motives

Answer 20

managers acting in their self-interest rather than to maximize long-term shareholder value

Question 21

growth for growth’s sake

Answer 21

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

Question 22

egotism

Answer 22

managers actions to shape their firms’ strategies to serve their selfish interests rather than to maximize shareholder value

Question 23

antitakeover tactics

Answer 23

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

Question 24

greenmail

Answer 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

Question 25

poison pill

Answer 25

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

Question 26

golden parachute

Answer 26

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

Question 27

Asset restructuring

Answer 27

involves the sale of unproductive assets, or even whole lines of businesses, that are peripheral.

Question 28

Capital restructuring

Answer 28

involves changing the debt-equity mix, or the mix between different classes of debt or equity

Question 29

Management restructuring

Answer 29

involves changes in the composition of the top management team, organizational structure, and reporting relationships.