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Chapter 6—Corporate-Level Strategy
TRUE/FALSE
1. In 2005, Gillette was acquired by Proctor & Gamble (P&G). This is an example of business level
strategic action initiated by P&G.
ANS: F PTS: 1 DIF: Easy REF: 153

OBJ: 06-01 TYPE: application
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Strategy | Dierdorff &
Rubin: Strategic & systems skills
2. A business-level strategy indicates product markets and businesses in which the firm should compete.
ANS: F PTS: 1 DIF: Medium REF: 154

OBJ: 06-01 TYPE: knowledge
Rubin: Managing strategy & innovation
3. If the businesses in the corporate portfolio are not worth more under the management of the
corporation than they would be under any other ownership, then the corporate-level strategy has failed.
ANS: T PTS: 1 DIF: Medium REF: 155

OBJ: 06-01 TYPE: comprehension
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Creation of Value | Dierdorff
& Rubin: Managing strategy & innovation
4. A major advantage of diversification is that overall monitoring costs are reduced, since each separate
business comes under the control of corporate headquarters.

Rubin: Managing administration & control
5. Successful product diversification is expected to increase the variability in the firm’s profitability,
since the earnings are generated from several different business units.

& Rubin: Managing administration & control
6. All of Krispy Kreme’s revenues come from its one main product, doughnuts. It can be considered a
classic example of a firm following a constrained strategy.
ANS: F PTS: 1 DIF: Easy REF: 155-156

7. Revenues for United Parcel Service (UPS) are derived from the following business segments: 74
percent from U.S. package delivery operations, 17 percent from international package delivery, and 9
percent from non-packaging operations. The best description of the corporate level strategy of UPS is
unrelated diversification.

NOT: AACSB: Reflective Thinking Skills | Management: Strategy | Dierdorff & Rubin: Managing
strategy & innovation
8. Related linked firms share more resources and assets between their businesses than do related
constrained firms.
ANS: F PTS: 1 DIF: Medium REF: 156-157

9. Lapworth Industries diversifies by buying companies in unrelated industries. Lapworth probably has a
strategy to create value through organizational synergy.

NOT: AACSB: Reflective Thinking Skills | Management: Strategy | Dierdorff & Rubin: Managing
10. A high number of opportunities to share activities among companies in a diversified organization is
called high operational relatedness.
ANS: T PTS: 1 DIF: Easy REF: 157-159

11. Blocking competitors through multipoint competition is a strategy used by related diversified firms to
create value.
ANS: T PTS: 1 DIF: Medium REF: 158 (Table 6.1) | 161

Rubin: Managing the task environment
12. PepsiCo uses its own distribution system to deliver multiple Pepsi branded beverage products. Pepsi
recently acquired Gatorade and delivers these products using the Pepsi distribution system. This use of
Pepsi’s outbound logistics is an example of activity sharing.
ANS: T PTS: 1 DIF: Medium REF: 159-160

13. P&G acquired Gillette Co. and created the Crest Pro-Health label by combining P&G’s Crest with
Gillette’s Oral-B brands. This is an example of achieving synergies through sharing activities.
ANS: T PTS: 1 DIF: Medium REF: 159-160 | 153
14. Economies of scope are cost savings resulting from a firm successfully leveraging, either through
sharing or transferring, some of its capabilities and competencies developed in one business to another
business.

15. In a money-making effort, a small private university has decided to institute consulting services using
its business faculty as consultants whose services would be sold to clients. This university is
attempting to use its faculty to gain economies of scope.
ANS: T PTS: 1 DIF: Hard REF: 160

16. When firms share activities across units, they are often able to achieve increased value.

& Rubin: Strategic & systems skills
17. Corporate level core competencies are resources and capabilities held within specific business units
within the corporate portfolio.

18. Market power exists when a firm is able to sell its products above the existing competitive level or
decrease the costs of its primary and support activities below the competitive level, or both.

19. Equator, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It
plans to move one of its key managers from its plant in St. Louis to Ireland. This can be considered a
method of transferring corporate-level core competencies.
ANS: T PTS: 1 DIF: Medium REF: 160-161

20. As product markets become worldwide, we can expect that multipoint competition will decrease.

21. Vertical integration exists when a company produces its own inputs (forward integration) or owns its
own source of output distribution (backward integration).

22. Partial vertical integration is not practical because it involves excessive levels of coordination between
internal company units and outside contractors.

23. Many manufacturing firms are de-integrating and moving to independent supplier networks.

24. Contract manufacturers who manage their customers’ entire product line, and offer services ranging
from inventory management to delivery and after-sales services are prime examples of vertical
integration.
ANS: F PTS: 1 DIF: Hard REF: 162

25. Contract manufacturers who manage their customers’ entire product line, and offer services ranging
from inventory management to delivery and after-sales services are prime examples of virtual
integration.

26. Virtual integration tends to erode the relationships between suppliers and customers as personal
contacts are replaced with impersonal electronic communications.

27. A company that tries to balance both operational and corporate relatedness and fails risks incurring
diseconomies of scope.

28. Firms with both operational and corporate relatedness are favorites of investment analysts because the
transparency and clarity of their financial statements clearly show the value-creation resulting from the
combination of multiple businesses.

29. An unrelated diversification strategy can create value through two types of financial economies, (1)
efficient internal capital allocations and (2) purchasing other firms, restructuring their assets, and
selling them.

30. A significant benefit of an internal capital market is limiting competitors’ access to information about
the performance of the individual businesses within the corporation.

Rubin: Strategic & systems skills
31. In a diversified firm, capital allocation can be adjusted according to more specific criteria than is
possible with external market allocation of capital.

32. Unrelated diversification has been the norm for the most successful firms in many industrialized
countries such as Germany, Italy, and France.
ANS: T PTS: 1 DIF: Hard REF: 166

NOT: AACSB: Multicultural & Diversity | Management: Strategy | Dierdorff & Rubin: Managing
33. One limitation of an unrelated diversification strategy is that synergies gained from internal financial
economies can be matched in all markets, both developed and developing.

34. Companies in emerging markets prefer to use related constrained diversification because it allows the
firm to concentrate on a few core competencies which it can share among the sister organizations.

NOT: AACSB: Multicultural & Diversity | Management: Strategy | Dierdorff & Rubin: Managing
35. When implementing a restructuring strategy a company would do best by focusing on mature,
low-technology businesses.

36. Since the 1950s, U.S. government policy regarding antitrust concerns has remained constant.

37. Corporate tax laws, rather than tax laws affecting individuals, have had the most impact on the firm’s
use of free cash flows for investment in acquisitions.

OBJ: 06-06
NOT: AACSB: Business Knowledge & Analytical Skills | Dierdorff & Rubin: Managing strategy &
innovation
38. Low performance is associated with increased diversification.

39. Performance continues to increase as diversification increases from single business to unrelated
diversification.
ANS: F PTS: 1 DIF: Medium REF: 170 (Figure 6.3)

40. Synergy exists when the value created by business units working together exceeds the value that those
same units create working independently.
ANS: T PTS: 1 DIF: Easy REF: 171

41. Related diversification by a firm tends to reduce a manager’s executive compensation, whereas
unrelated diversification tends to increase it because the firm has moved into new industries.

42. If managers diversify a firm in a way that does not produce value, the firm risks capital market
intervention.
ANS: T PTS: 1 DIF: Medium REF: 172 | 173 (Figure 6.4)

43. Golden parachutes protect managers from the negative consequences of over-diversifying a firm.
ANS: T PTS: 1 DIF: Easy REF: 172

44. Without strict governance mechanisms, the majority of executives will act in their own self-interest
rather than acting as positive stewards of firm resources.

45. Boards of directors have been shown to be ineffective governance mechanisms and are being replaced
by the market for corporate control.
ANS: F PTS: 1 DIF: Medium REF: 172-173

MULTIPLE CHOICE
1. In 2005, P&G, whose products include Crest toothpaste and Tide laundry detergent, purchased
Gillette. Gillette itself had multiple businesses, including a range of products including electric
toothbrushes, razors and batteries. Which of the following reflects the acquisition?
a. It is unrelated diversification for P&G because Gillette consists of more than one business
unit.
b. It is unrelated diversification for Gillette because P&G consists of more than one business
unit.
c. It is related diversification for P&G because the product lines for both firms are consumer
products sold through similar channels.
d. It is related diversification for Gillette because the product lines for both firms are
consumer products sold through similar channels.
ANS: C PTS: 1 DIF: Medium REF: 153-154
2. Brinker International operates restaurants in several different segments of the casual dining market.
Their brands include Chili’s Grill & Bar, Romano’s Macaroni Grill, and On the Border. Brinker’s
corporate level strategy is best described as
a. a relatively high level of diversification.
b. an example of product diversification.
c. an example of unrelated diversification.
d. an example of a corporate entity that should manage its firms using the efficient internal
capital market allocation approach.
ANS: B PTS: 1 DIF: Medium REF: 154-166
3. On the most basic level, corporate-level strategy is concerned with ____ and how to manage these
businesses.
a. whether the firm should invest in global or domestic businesses
b. what product markets and businesses the firm should be in
c. whether the portfolio of businesses should generate immediate above-average returns or
should be troubled businesses which will create above-average returns only after
restructuring
d. whether to integrate backward or forward.
ANS: B PTS: 1 DIF: Medium REF: 154
4. The ultimate test of the value of a corporate-level strategy is whether the

a. corporation earns a great deal of money.
b. top management team is satisfied with the corporation's performance.
c. businesses in the portfolio are worth more under the management of the company in
question than they would be under any other ownership.
d. businesses in the portfolio increase the firm’s financial returns.
ANS: C PTS: 1 DIF: Medium REF: 155
5. The more “constrained” the relatedness of diversification,

a. the fewer the linkages between the businesses within the portfolio owned by the firm.
b. the wider the variation in the portfolio of businesses owned by the firm.
c. the more links there are among the businesses owned by an organization.
d. the lower the proportion of total organizational revenue derived from the
dominant-business.
ANS: C PTS: 1 DIF: Hard REF: 155
6. Wm. Wrigley Jr. Company once made only chewing gum. When Wrigley bought Life Savers (a line of
candy mints) and Altoids (a line of breadth mints) from Kraft, chewing gum then constituted less than
95 percent of revenues. Thus, Wrigley
a. was moving away from its traditional single-business strategy toward a dominant strategy.
b. was moving away from its traditional dominant strategy toward a related-linked strategy.
c. became a conglomerate since Life Savers and Altoids are unrelated businesses.
d. probably planned to restructure these companies and sell them off.
ANS: A PTS: 1 DIF: Medium REF: 155-156
7. Usually a company is classified as a single business firm when revenues generated by the dominant
business are greater than ____ percent.
a. 99
b. 95
c. 90
d. 70
ANS: B PTS: 1 DIF: Medium REF: 155 | 158 (Figure 6.1)
8. The more direct connections among businesses, the more ____ is the relatedness of the diversification.
a. linked
b. constrained
c. integrated
d. intense
ANS: B PTS: 1 DIF: Hard REF: 155
& Rubin: Strategic & systems skills
9. A firm that earns less than 70% of revenue from its dominant business and has direct connections
between its businesses is engaging in ____ diversification.
a. unrelated
b. related constrained
c. related linked
d. dominant-business
ANS: B PTS: 1 DIF: Medium REF: 156 | 158 (Figure 6.1)
10. Revenues for United Parcel Service (UPS) come from the following business segments: 74 percent
from U.S. package delivery operations, 17 percent from international package delivery, and 9 percent
from non-packaging operations. Which best describes the corporate level strategy of UPS?
a. Single-business
b. Dominant business
c. Related-constrained
d. Related-linked
ANS: B PTS: 1 DIF: Hard REF: 155-157 | 158 (Figure 6.1)
11. Which acquisition would be considered the LEAST related?

a. a candy manufacturer purchases a chemical laboratory specializing in food flavorings
b. a chain of garden centers acquires a landscape architecture firm
c. a hospital acquires a long-term care nursing home
d. an upscale “white-tablecloth” restaurant chain acquires a travel agency
ANS: D PTS: 1 DIF: Easy REF: 156-157
12. The lowest level of diversification is the ____ level.

a. single business
b. dominant-business
c. related constrained
d. unrelated
ANS: A PTS: 1 DIF: Easy REF: 155-157 | 158 (Table 6.1)
13. The main difference between the related constrained level of diversification and the related linked
level of diversification is
a. the percentage of total organizational profitability that comes from the dominant business.
b. the level of resources and activities shared among the businesses.
c. whether the diversification is vertical or horizontal.
d. whether the diversification is value-creating or value-neutral.
ANS: B PTS: 1 DIF: Hard REF: 156-157
14. The term “conglomerates” refers to firms using the ____ diversification strategy.
a. unrelated
b. related constrained
c. related linked
d. global
15. GE has recently reorganized from eleven businesses down to six core businesses. The purpose of this
reorganization is to transfer core competencies in different types of technologies among GE’s
businesses. This is an example of
a. increasing market power through vertical integration.
b. efficient internal capital allocation.
c. a focus on financial economies.
d. increasing corporate relatedness.
ANS: D PTS: 1 DIF: Medium REF: 156-157
16. Which of the following reasons for diversification is most likely to increase the firm’s value?
a. increasing managerial compensation
b. reducing costs through business restructuring
c. taking advantage of changes in tax laws
d. conforming to antitrust regulation
ANS: B PTS: 1 DIF: Medium REF: 158 (Table 6.1)
17. Which of the following is a value-reducing reason for diversification?

a. enhancing the strategic competitiveness of the entire company
b. expanding the business portfolio in order to reduce managerial employment risk
c. gaining market power relative to competitors
d. conforming to antitrust regulation
ANS: B PTS: 1 DIF: Medium REF: 158 (Table 6.1)
18. An office management firm has developed a system for efficiently organizing small medical and
dental practices both through proprietary software and through unique training programs for staff. It
has recently acquired a firm specializing in providing management services for veterinary practices.
The office management firm is hoping to
a. achieve economies of scope.
b. implement vertical integration.
c. achieve financial economies through an unrelated acquisition.
d. acquire specialized talent from the veterinary management company.
ANS: A PTS: 1 DIF: Medium REF: 159
19. Firms that have selected a related diversification corporate-level strategy seek to exploit
a. control shared among business-unit managers.
b. economies of scope between business units.
c. the favorable demand of buyers.
d. market power.
20. Firms seek to create value from economies of scope through all of the following EXCEPT
a. activity sharing.
b. skill transfers.
c. transfers of corporate core competencies.
d. de-integration.
ANS: D PTS: 1 DIF: Easy REF: 159
21. The basic types of operational economies through which firms seek value from economies of scope are
a. synergies between internal and external capital markets.
b. the leveraging of individual tangible resources.
c. the sharing of primary and support activities.
d. joint ventures and outsourcing.
22. Operational relatedness is created by ____ activities within the ____.

a. sharing; value chain
b. sharing; value chain
c. transferring; value chain
d. transferring; capabilities
23. The acquisition of Gillette Co. by Procter & Gamble will probably result in activity sharing because
P&G has a reputation for technology transfer: the ability to take technology used in one brand and
apply it to another brand. This is an example of
a. operational relatedness.
b. corporate relatedness.
c. vertical integration.
d. virtual integration.
24. Which of the following is TRUE?

a. Conglomerates no longer exist in the U.S. business scene, but are common in emerging
markets.
b. Unrelated diversified firms seek to create value through economies of scope.
c. The sharing of intangible resources, such as know-how, between firms is a type of
operational sharing in related diversifications.
d. Related linked firms share more tangible resources and activities between businesses than
do related constrained firms.
ANS: D PTS: 1 DIF: Hard REF: 159-160
25. Research has shown that horizontal acquisitions

a. tend to have disappointing financial results in the long run.
b. are being replaced by virtual acquisitions.
c. result in lower levels of performance than unrelated acquisitions.
d. are able to use activity sharing to successfully create economies of scope.
ANS: D PTS: 1 DIF: Medium REF: 160
26. A noted professional art academy has founded an “artists and friends” travel company specializing in
tours for artists to scenic locales, using its faculty as traveling teachers. In addition, the art academy
has purchased a framing company to both make frames for academy art works, but also to sell
museum-quality framing services to the public. The art academy is engaging in diversification based
on ____ relatedness.
a. operational
b. corporate
c. intellectual
d. constrained
ANS: A PTS: 1 DIF: Hard REF: 160
27. Dragonfly Publishers of children’s books has purchased White Rabbit, another publisher of children’s
books. Both companies’ books are sold to the same retail stores and schools. Their content is different,
since Dragonfly produces children’s literature, whereas White Rabbit focuses on child-level scientific
and nature topics. Which of the following statements is probably TRUE about this acquisition?
a. This is a horizontal acquisition.
b. This is an example of virtual integration.
c. Dragonfly is beginning to build a conglomerate.
d. Economies of scope are unlikely to result from this acquisition.
28. The purchasing of firms in the same industry is called:
a. unrelated diversification.
b. vertical integration.
c. networking the organization.
d. horizontal acquisition.
ANS: D PTS: 1 DIF: Easy REF: 160
29. In related linked diversified firms, ____ are a complex set of resources that link the different
businesses through managerial and technological knowledge, experience, and expertise.
a. corporate core competencies
b. strategies
c. support activities
d. intangible assets
30. The drawbacks to transferring competencies by moving key people into new management positions
include all EXCEPT
a. the people involved may not want to move.
b. managerial competencies are not easily transferable to different organizational cultures.
c. managers with these skills are expensive.
d. top-level managers may resist having these key people transferred.
Rubin: Managing human capital
31. Multipoint competition occurs when

a. firms have multiple retail outlets.
b. firms have multiple products in their primary industry.
c. diversified firms compete against each other in several markets.
d. firms have diversified portfolios of companies.
NOT: AACSB: Business Knowledge & Analytical Skills | Management: Environmental Influence |
Dierdorff & Rubin: Managing the task environment
32. One method of facilitating the transfer of competencies between firms is to

a. virtually integrate the two firms.
b. transfer key people into new management positions.
c. share support activities, such as purchasing practices.
d. restructure the weaker firm to mirror the structure of the more successful firm.
33. Xanadu, a U.S. manufacturer of pharmaceuticals, has acquired a firm in the same industry in Ireland. It
plans to transfer one of its key managers from its plant in St. Louis to Ireland. What is the major threat
to Xanadu’s plan to transfer competencies from itself to the Irish firm?
a. The St. Louis manager may quit Xanadu in order to remain in St. Louis.
b. American pharmaceutical manufacturing techniques may not transfer to Ireland.
c. Irish managers will refuse to take direction from a foreign executive.
d. The cost of transferring U.S. managers overseas is usually not cost-effective.
34. Acquisitions to increase market power require that the firm have a ____ diversification strategy.
a. unrelated
b. related
c. dominant-business
d. single business
35. When diversification results in two companies, such as UPS and FedEx, simultaneously competing in
numerous markets, this is called ____ competition.
a. multiple
b. multiportal
c. multipoint
d. mutiplicit
ANS: C PTS: 1 DIF: Easy REF: 161
36. Cendant Corporation owns real estate brokerages, relocation services, lodging franchises and online
travel services. It follows a ____ corporate strategy.
a. dominant-business
b. related constrained diversification
c. related linked diversification
d. unrelated diversification
37. Historically, steel manufacturers in the U.S. have been involved in multiple facets of steel production.
This was centered on the actual mill where steel was produced. Most large steel producers also owned
the iron ore and coal mines, which are essential raw materials, and railroads needed to bring the raw
materials to the mill and the finished goods to distribution centers. Steel manufactures were
a. historically integrated.
b. horizontally integrated
c. vertically integrated.
d. virtually integrated.
38. Whirlpool and Maytag have similar product lines. By acquiring Maytag, Whirlpool sought to
a. engage in multipoint competition.
b. increase scale.
c. vertically integrate.
d. virtually integrate.
39. Backward integration occurs when a company

a. produces its own inputs.
b. owns its own source of distribution of outputs.
c. is concentrated in a single industry.
d. is divesting unrelated businesses.
40. PorkPride Foods produces hams and other meat products. It owns hog raising operations. This is an
example of a ____ business.
a. de-integrated
b. vertically integrated
c. totally integrated
d. horizontally integrated
41. A company pursuing vertical integration can gain market power over its competitors through all of the
following EXCEPT
a. improved process innovation.
b. savings on operations costs.
c. improved product quality.
d. avoidance of market costs.
42. Which of the following is NOT a limit directly relating to vertical integration?
a. bureaucratic costs
b. the loss of flexibility through investment in specific technologies
c. capacity balance and coordination problems from changes in demand
d. imitation of core technology by potential competitors
ANS: D PTS: 1 DIF: Hard REF: 162
43. Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high
temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare
and only two brick plants in the U.S. make this type of brick. Specialty Steel has decided to buy one of
these brick plants. This is an example of
a. backward integration.
b. forward integration.
c. horizontal integration.
d. virtual integration.
44. Specialty Steel, Inc., needs a particular type of brick to line its kilns in order to safely achieve the high
temperatures needed for the unusually strong steel it produces. The clay to make this brick is very rare
and only two brick plants in the U.S. make this type of brick. Specialty Steel owns one of these brick
plants and buys all of its production. The other brick manufacturer has recently developed an
inexpensive new technology whereby ordinary clay can be used to make this fire brick. This
significantly reduces the production cost of this type of brick.
a. Specialty Steel has less flexibility now than if it were not vertically integrated.
b. This is an example of a capacity balance problem.
c. This is a result of conflicts of interest between the managers of the brick plant and the
executives of Specialty Steel.
d. The market power of Specialty Steel has been de-integrated.
45. The use of e-commerce to allow firms to reduce the costs of processing transactions while improving
their supply-chain management skills and tightening the control of their inventories is beginning to
replace
a. outsourcing.
b. unrelated diversification.
c. de-integration.
d. vertical integration.
46. Disney has been successful both in the sharing of activities among divisions and in the transfer of
knowledge among divisions. Disney can be said to have created
a. dynamic stability.
b. inimitable competencies.
c. cross-fertilization.
d. synthesis.
47. The value of the assets of a firm using a diversification strategy to create both operational and
corporate relatedness tend to be
a. discounted by investors.
b. inflated by investors.
c. completely ignored by investors.
d. highly valued by investors.
48. Firms are increasingly moving away from ____ integration and toward ____ integration.
a. virtual; vertical
b. virtual; virtuous
c. virtuous; vertical
d. vertical; virtual
49. When a firm simultaneously practices operational relatedness and corporate relatedness,
a. it is difficult for investors to observe the value created by the firm.
b. the firm is likely to be overvalued by investors.
c. the firm will suffer from diseconomies of scope which outweigh cost savings generated.
d. the firm is seeking to create value through financial economies.
50. Which type of diversification is most likely to create value through financial economies?
a. related constrained
b. operational and corporate relatedness
c. unrelated
d. related linked.
ANS: C PTS: 1 DIF: Easy REF: 163
51. Luxottica is a sunglass manufacturer which has traditionally served the fashion segment. Luxottica
recently purchased Oakley, Inc., a manufacturer of sunglasses in the sportswear segment. The potential
synergies from this acquisition include
a. Operational relatedness.
b. Corporate relatedness.
c. Both operational and corporate relatedness.
d. Neither operational nor corporate relatedness.
ANS: C PTS: 1 DIF: Medium REF: 163 | 164
52. An ability to efficiently allocate capital through an internal market may help the firm protect the
competitive advantages it develops
a. through reduced disclosure to outside parties.
b. by the ability to not report losses to investors.
c. by the ability to increase pay to managers without shareholders being aware.
d. through the ability to reinvest cash in dividends to shareholders.
53. A firm practicing unrelated diversification can make better capital allocations to its subsidiary
businesses than the external capital market can for all the following reasons EXCEPT
a. corporate headquarters can change managerial incentives.
b. corporate headquarters has more complete information about the subsidiary businesses
than the external capital market.
c. the firm can acquire other firms with innovative products instead of allocating capital to
research and development.
d. the firm can make strategic changes in its subsidiary businesses.
54. Stock markets apply a “conglomerate discount” of 20% on unrelated diversified firms. This means that
investors
a. understand that the financial efficiencies of this strategy automatically make these stocks
worth 20% more than their current market valuation.
b. believe that the value of conglomerates is 20% less than the value of the sum of their parts.
c. discount the expected future earnings of conglomerates by 20%.
d. have found that over time, conglomerates earn 20% more than the component companies
would have earned independently.
55. Successful unrelated diversification through restructuring is typically accomplished by
a. focusing on mature, low-technology businesses.
b. a “random walk” of good luck in picking firms to buy.
c. seeking out high technology firms in high growth industries.
d. a top management team that is not constrained by pre-established ideas of how the firm’s
portfolio should be developed.
ANS: A PTS: 1 DIF: Easy REF: 166
56. The risk for firms that follow the unrelated diversification strategy in developed economies is that
a. external investors tend to dump the stocks of conglomerates during economic downturns.
b. conglomerates are typically owned by one powerful entrepreneur and do not survive
his/her retirement or death.
c. government regulations, especially in Europe, have periodically forced the dissolution of
conglomerates.
d. competitors can imitate financial economies more easily than they imitate economies of
scope.
ANS: D PTS: 1 DIF: Hard REF: 166
57. What is the similarity between high-technology firms and service-based firms that makes them risky as
restructuring candidates?
a. They are human-resource dependent.
b. They have few tangible assets.
c. Both types of firm rely on financial economies.
d. The demand for their products is highly sensitive to economic downturns.
58. Which of the following firms would be the most likely to be a successful candidate for acquisition and
restructuring?
a. a medical practice
b. a management consulting firm that has a tradition of long term client-consultant
relationships
c. a tire manufacturer established in 1910
d. a start-up communications technology firm
59. External incentives to diversify include

a. the fact that other firms in an industry are diversifying.
b. pressure from stockholders who are demanding that the firm diversify.
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Strategic Management Competitiveness

and Globalization Concepts 8th Edition

Strategic Management Concepts Competitiveness And

Strategic Management Concepts Competitiveness and

Strategic Management Concepts Competitiveness and

Strategic Management Concepts Competitiveness and

Strategic Management Concepts and Cases Competitiveness

Strategic Management Concepts and Cases Competitiveness

Strategic Management Concepts and Cases Competitiveness

Strategic Management Concepts and Cases Competitiveness

ANS: F PTS: 1 DIF: Easy REF: 153

ANS: F PTS: 1 DIF: Medium REF: 154

ANS: T PTS: 1 DIF: Medium REF: 155

ANS: F PTS: 1 DIF: Medium REF: 155

ANS: F PTS: 1 DIF: Easy REF: 155

ANS: F PTS: 1 DIF: Easy REF: 155-156

ANS: F PTS: 1 DIF: Medium REF: 156

ANS: F PTS: 1 DIF: Medium REF: 156-157

ANS: F PTS: 1 DIF: Medium REF: 157

ANS: T PTS: 1 DIF: Easy REF: 157-159

ANS: T PTS: 1 DIF: Medium REF: 158 (Table 6.1) | 161

ANS: T PTS: 1 DIF: Medium REF: 159-160

ANS: T PTS: 1 DIF: Medium REF: 160

ANS: T PTS: 1 DIF: Hard REF: 160

ANS: T PTS: 1 DIF: Medium REF: 160

ANS: F PTS: 1 DIF: Medium REF: 160

ANS: T PTS: 1 DIF: Medium REF: 161

ANS: T PTS: 1 DIF: Medium REF: 160-161

ANS: F PTS: 1 DIF: Medium REF: 161

ANS: F PTS: 1 DIF: Medium REF: 162

ANS: F PTS: 1 DIF: Easy REF: 162

ANS: T PTS: 1 DIF: Medium REF: 162

ANS: F PTS: 1 DIF: Hard REF: 162

ANS: T PTS: 1 DIF: Medium REF: 162

ANS: F PTS: 1 DIF: Medium REF: 162

ANS: T PTS: 1 DIF: Medium REF: 163

ANS: F PTS: 1 DIF: Hard REF: 163

ANS: T PTS: 1 DIF: Medium REF: 163

ANS: T PTS: 1 DIF: Medium REF: 165

ANS: T PTS: 1 DIF: Medium REF: 165

ANS: T PTS: 1 DIF: Hard REF: 166

ANS: F PTS: 1 DIF: Hard REF: 166

ANS: F PTS: 1 DIF: Hard REF: 166

ANS: T PTS: 1 DIF: Medium REF: 166

ANS: F PTS: 1 DIF: Medium REF: 168

ANS: F PTS: 1 DIF: Medium REF: 168

38. Low performance is associated with increased diversification.

ANS: T PTS: 1 DIF: Medium REF: 169

ANS: F PTS: 1 DIF: Medium REF: 170 (Figure 6.3)

ANS: T PTS: 1 DIF: Easy REF: 171

ANS: F PTS: 1 DIF: Medium REF: 172

ANS: T PTS: 1 DIF: Medium REF: 172 | 173 (Figure 6.4)

ANS: T PTS: 1 DIF: Easy REF: 172

ANS: F PTS: 1 DIF: Easy REF: 172

ANS: F PTS: 1 DIF: Medium REF: 172-173

4. The ultimate test of the value of a corporate-level strategy is whether the

5. The more “constrained” the relatedness of diversification,

11. Which acquisition would be considered the LEAST related?

12. The lowest level of diversification is the ____ level.

22. Operational relatedness is created by activities within the .