Brainscape's Knowledge GenomeTM

Browse over 1 million classes created by top students, professors, publishers, and experts.


See full index

Strat. Chapters 5 & 6 > Chapter 6 > Flashcards

Chapter 6 Flashcards

1
Q

Corporate-level strategies

A

Specifies actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

Strategic positions

A

Positions that are expected to increase the firm’s value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Corporate-level strategies help companies to select…

A

… new strategic positions.

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

What are the two main concerns of corporate-level strategy?

A
  • in what businesses the firm should compete

- how corporate headquarters should manage those businesses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

Product diversification

A
  • primary form of corporate-level strategies

- concerns the scope of the markets and industries in which the firm competes

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What are the outcomes of successful diversification?

A

Expected to:

  • reduce variability in the firm’s profitability
  • provide firms with the flexibility to shift their investments to markets where the greatest returns are possible rather than being dependent on only one or a few markets
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

What can you say about the levels of diversification?

A

More fully diversified firms are classified into related and unrelated categories (unrelated refers to the absence of direct links between businesses)

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

Low levels of diversification

A
  • single business

- dominant business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

Moderate to high levels of diversification

A
  • related constrained

- related linked

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

Very high levels of diversification

A

unrelated

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

Single business

A

95% or more of revenue comes from a single business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

Dominant business

A

between 70% and 95% of revenue comes from a single business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

Related constrained

A

less than 70% of revenue comes from dominant business, and all businesses share product, technological, and distribution linkages

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

Related linked

A

less than 70% of revenue comes from the dominant business, and there are only limited links between businesses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

Unrelated

A

less than 70% of revenue comes from the dominant business, and there are no common links between the businesses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

Advantages of low levels of diversification

A
  • can gain economies of scale and use efficiently the resources
  • therefore, are able to develop capabilities useful for the market
  • finally, can provide better products/services to customers
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

Reasons for diversification

A

Increase the firm’s value by improving its overall performance

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

Can diversification backfire?

A

Diversification can have neutral effects or even reduce a firm’s value

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

How do great levels of diversification reduce managerial risk?

A

If one of the businesses of a diversified firm fails, the top executive of that business does not risk total failure by the corporation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

Give two diversification strategies that can create value

A
  • operational relatedness

- corporate relatedness

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Reasons for value-creating diversification

A
  • economies of scope: related diversification (transferring core competencies, sharing activities)
  • market power: related diversification (vertical integration, blocking competitors through multipoint competition )
  • financial economies: unrelated diversification (efficient internal capital allocation, business restructuring)
How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

Reasons for value-neutral diversification

A
  • tax laws
  • uncertain future CF
  • risk reduction for firms
  • low performance
23
Q

Reasons for value-reducing diversification

A
  • diversifying managerial employment risk

- increasing managerial compensation

24
Q

Economies of scope

A

Cost savings a firm creates by successfully sharing resources and capabilities or transferring one (or more) corporate-level core competencies that were developed in one of its businesses to another of its businesses

25
Q

What is the difference between sharing activities and transferring competencies?

A

The difference is based on how separate resources are jointly used to create economies of scope

26
Q

High OR & Low CR =

A

related constrained diversification

27
Q

High OR & High CR =

A

both operational and corporate relatedness

28
Q

Low OR & Low CR =

A

unrelated diversification

29
Q

Low OR & High CR =

A

related linked diversification

30
Q

Corporate-level core competencies

A

Complex sets of resources and capabilities that link different businesses, primarily through managerial and technological knowledge, experience, and expertise

31
Q

How do the related diversification strategies help firms create value?

A
  • because the expense of developing a core competence has already been incurred in one of the firm’s businesses, transferring this competence to a second business eliminates the need for that business to allocate resources to develop it
  • resource intangibility is a second source of value creation through corporate relatedness. Intangible resources are difficult for competitors to understand and imitate. Because, of this difficulty, the unit receiving a transferred corporate-level competence often gains an immediate competitive advantage
32
Q

Market power

A

Exists when a firm is able to sell its products above the existing competitive level or to reduce the costs of its primary and support activities below the competitive level, or both

33
Q

Multipoint competition

A

Exists when two or more diversified firms simultaneously compete in the same product areas or geographical markets

34
Q

Vertical integration

A

Exists when a company produces its own inputs (backward integration) or owns its own source of output distribution (forward integration)

35
Q

Why can vertically integrated firms better improve product quality and improve or create new technologies than specialized firms?

A

Because they have access to more information and knowledge that are complementary

36
Q

Limitations of vertical integration

A
  • an outside supplier may produce the product at a lower cost. As a result, internal transactions from vertical integration may be expensive and reduce profitability relative competitors
  • bureaucratic costs can be present with vertical integration, it may reduce the firm’s flexibility
  • changes in demand create capacity balance and coordination problems
37
Q

Some firms simultaneously seek operational and corporate relatedness to create economies of scope. This ability is difficult for competitors to understand and learn how to imitate. What happens if the cost of realizing both types of relatedness is higher than its benefits?

A

There is diseconomies because the cost of organization and incentive structure is very expensive.

38
Q

Financial economies

A

Costs savings realized through improved allocations of financial resources based on investments inside or outside the firm

39
Q

Two informational advantages of firms with internal capital markets

A
  • information provided to capital markets through annual reports and other sources emphasize positive prospects and outcomes. External sources of capital have a limited ability to understand the operational dynamics within large organizations
  • although a firm must spread information, that information also becomes simultaneously available to the firm’s current and potential competitors. Competitors might attempt to duplicate a firm’s value-creating strategy with insights gained by studying such information
40
Q

Restructuring of assets

A

Financial economies can also be created when firms learn how to create value by buying, restructuring, and then selling the restructured companies’ assets in the external market — difficult, involves huge trade-off

41
Q

Where does the incentive to diversify come from?

A
  • external environment: antitrust laws, tax laws

- internal incentives: low performance, uncertain cash flows, reduction of risk

42
Q

Antitrust regulations and laws
60s and 70s: (…)
80s and after: (…)

A
  • 60&70s: prohibited mergers that created market power, as a result encouraged mergers of conglomerate
  • 80s: antitrust laws lessened
43
Q

Conglomerate

A

Firm which has unrelated businesses

44
Q

Research shows that (…) returns are related to (…) of diversification.

A
  • low

- greater levels

45
Q

What commonly happens to diversified firms pursuing economies of scope?

A

Have often investments that are too inflexible to realize synergy among business units

46
Q

What happens when a firm increases its relatedness among business units? Why?
What may happen as a result?

A

It increases its risk of corporate failure because synergy produces joint interdependence among businesses that constraints the firm’s flexibility to respond.
This may force two basic decisions:
- the firm may reduce its level of technological change by operating in environments that are more certain
- the firm may constrain its level of activity sharing and renounce potential benefits of synergy

47
Q

Which type or resources is better at facilitating diversification?

A

Both tangible and intangible resources facilitate diversification but they vary in their ability to create value

48
Q

Tangible resources

A
  • Include the plant and equipment necessary to produce a product and tend to be less-flexible assets
  • May create resource interrelationships, defined as activity sharing
49
Q

Is it better to have related or unrelated businesses when having too much tangible resources?

A

Related, because any excess capacity often can be used only for closely related products, especially those requiring highly similar manufacturing technologies

50
Q

Which resources is more flexible in facilitating diversification?

A

Intangible

51
Q

What are the two main motives for top-level executives to diversify their firm beyond value-creating and value neutral levels?

A
  • increased compensation (high diversified firms are more complex thus more difficult to lead –> more compensation)
  • reduced managerial risk
52
Q

The level of diversification with the greatest potential positive effects is based on:

A
  • the effects of the interaction of resources
  • managerial motives
  • incentives on the adoption of particular diversification strategies
53
Q

Managerial employment risk

A

Manager’s risk of job loss, loss of compensation and/or loss of reputation

Strat. Chapters 5 & 6 (2 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2024 Bold Learning Solutions. Terms and Conditions