Chapter 6

Question 1

Diversification

Answer 1

The process of firms expanding their operations by entering new businesses

Question 2

Related Businesses (Horizontal relationships)

Answer 2

Sharing tangible and intangible resources

Question 3

Unrelated businesses (hierarchical relationships)

Answer 3

Value creation drives from corporate office. Leveraging support activities in the value chain

Question 4

Related Diversification

Answer 4

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

Question 5

Economies of scope

Answer 5

Cost savings from leveraging core competencies or sharing related activities among businesses in a corporation. 
Leverage or reuse key resources
Favorable reputation
Expert staff
Management skills
Efficient purchasing operations
Existing manufacturing facilities

Question 6

Core competencies

Answer 6

A firms strategic resources that reflect the collective learning in the organization

Question 7

Sharing activities

Answer 7

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

Question 8

Market Power

Answer 8

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

Question 9

Pooled negotiating power

Answer 9

The improvement in bargaining position relative to suppliers and customers

Question 10

Vertical integration

Answer 10

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

Question 11

Forward/backward integration

Answer 11

Raw materials –> manufacturing of final product –> distribution

Question 12

Stages in the Raw Material to Consumer Value Chain

Answer 12

Raw Materials –> intermediate manufacturer –> assembly –> distribution –> end user

Question 13

Transaction Cost Perspective

Answer 13

The choice of transactions governance structure, is influenced by transaction costs, such as search, negotiating, contracting, monitoring

Question 14

Unrelated Diversification

Answer 14

A firm entering a different business that has little horizontal interaction with other businesses of a firm. Primary drive to do this is to increase profits

Question 15

Parenting Advantages

Answer 15

The positive contributions of the corporate office to a new business as a result of expertise and support provided

Question 16

Restructuring

Answer 16

The intervention of the corporate office in a new business that substantially changes the assets, capital structure and/or management

Question 17

Portfolio Management

Answer 17

Assessing the competitive position of a portfolio of businesses within a corporation, suggesting strategic alternatives for each business, identifying priorities for the allocation of resources across the businesses

Question 18

Cash cows

Answer 18

Generate cash.
High market shares in low growth industries.
Fund investments in stars and question marks

Question 19

Question marks

Answer 19

Compete in high growth industries but have low market share

Is it worth spending the cash to turn into star?

Question 20

Stars

Answer 20

Businesses of the future

High growth rate, high market share

Question 21

Dogs

Answer 21

Consume cash. Weak market share, low growth industries. Analysts suggest that these be divested

Question 22

Market Entry Strategies

Acquisition:

Answer 22

A strategy through which one organization buys a controlling interest in another organization with the intent of making the acquired firm a subsidiary business within its own portfolio

Question 23

Market Entry Strategies

Licensing:

Answer 23

A strategy where the organization purchases the right to use technology, process, etc.

Question 24

Market Entry Strategies

Joint Venture:

Answer 24

A strategy where an organization joins with another organization to form a new organization

Question 25

Reasons for making acquisitions

Answer 25

Increase market power
Overcome Entry barriers 
Cost of new product development 
Increase speed to market
Lower risk compared to developing new products 
Increase Diversification 
Reshape firms competitive scope
Learn and develop new capabilities

Question 26

Problems with Acquisitions

Answer 26

Integration difficulties (integrate culture)
Inadequate evaluation of target
Large or extraordinary debt
Inability to achieve synergy (one of the biggest problems)
Too much Diversification
Managers overly focused on acquisitions
Resulting firm is too large