Corporate Strategy: Vertical Integration and Diversification

Question 1

What is strategy in a business context?

Answer 1

A set of actions and choices a company can and will make.

Question 2

What are the three dimensions for a firm to consider where to compete?

Answer 2

1. New products and services
2. New geographies
3. New capabilities

Question 3

What is corporate parenting advantage?

Answer 3

The ability to leverage a firm’s advantages, such as new TV shows or merchandise, to reinforce the success of projects.

Question 4

What are the boundaries of a firm in corporate strategy?

Answer 4

1. Vertical integration
2. Diversification
3. Geographic scope

Question 5

Define core competencies in a business.

Answer 5

Knowledge and skills that give a company a competitive advantage.

Question 6

What is the difference between economies of scale and economies of scope?

Answer 6

Economies of scale focus on cost reduction through increased production, while economies of scope focus on quality and performance through diversified products/services.

Question 7

What are transaction costs?

Answer 7

Costs associated with economic exchanges that are not always represented in financial statements.

Question 8

What is the “Make or Buy” decision?

Answer 8

A decision-making process regarding whether to produce in-house or purchase from the market based on cost comparisons.

Question 9

What is licensing in business?

Answer 9

Selling or receiving exclusive rights to use knowledge in exchange for royalties

Question 10

What are strategic alliances?

Answer 10

Voluntary arrangements between firms that involve sharing knowledge, resources, and capabilities.

Question 11

Why do firms enter strategic alliances?

Answer 11

To strengthen competitive position, enter new markets, hedge against uncertainty, access complementary assets, and learn new capabilities.

Question 12

What is vertical integration?

Answer 12

Ownership of inputs or distribution channels within a company’s value chain.

Question 13

What are the two types of vertical integration?

Answer 13

Backward integration (owning inputs) and forward integration (owning distribution channels).

Question 14

What are the benefits of vertical integration?

Answer 14

Lowering costs, improving quality, facilitating scheduling, and securing critical supplies.

Question 15

When does vertical integration make sense?

Answer 15

When there are issues with raw materials or to enhance customer experience.

Question 16

Define diversification in business.

Answer 16

Expanding the range of products or services or geographic locations a company operates in.

Question 17

What are the types of corporate diversification?

Answer 17

1. Single business
2. Dominant business
3. Related diversification (constrained and linked)
4. Unrelated diversification (conglomerate)

Question 18

What is restructuring in a business context?

Answer 18

The process of reorganizing and divesting business units to refocus on core competencies.

Question 19

What is the Boston Consulting Group (BCG) growth-share matrix?

Answer 19

A framework that helps businesses analyze their portfolio of products and decide on strategies based on market share and growth potential.

Question 20

What are the four categories in the BCG matrix?

Answer 20

1. Cash Cows
2. Dogs
3. Stars
4. Question Marks

Question 21

What should be the strategy for a Cash Cow?

Answer 21

Maintain the strategy as it has high market share and stable cash flow.

Question 22

What should be the strategy for a Dog?

Answer 22

Consider harvesting, divesting, or walking away as it has low market share and low growth potential.

Question 23

What should be the strategy for a Star?

Answer 23

Maintain or invest for growth as it has high market share and high growth opportunities.

Question 24

What should be the strategy for a Question Mark?

Answer 24

Monitor performance closely and decide whether to increase market share or harvest/divest, as it has low market share but high growth potential.