Strategic Management and Business Policy: Strategic Management and Business Policy - Chapter 7 Flashcards

Corporate strategy deals primarily with the choice of direction for the firm as a whole and the management of its business or product portfolio.

Corporate parenting is the coordination of cash flow among units.

The most widely pursued corporate directional strategies are those designed to achieve growth.

A merger is a transaction involving two or more corporations in which stock is exchanged, but from which only one corporation survives.

The two basic growth strategies are concentration and strategic alliances.

Vertical integration is going backward on an industry's value chain.

Vertical integration is the degree to which a firm operates vertically in multiple locations on an industry's value chain from extracting raw materials to manufacturing to retailing.

Backward integration is often more profitable than forward integration.

BP and Royal Dutch Shell are examples of fully integrated firms because they internally make 100% of their key supplies and completely control their distributors.

With taper integration, a firm internally makes 100% of its key supplies and completely controls its distributors.

An example of forward quasi-integration would be a large pharmaceutical firm that acquires part interest in a drugstore chain in order to guarantee that its drugs have access to the distribution channel.

A long-term contract is considered vertical integration.

Horizontal growth can be achieved by expanding the firm's products into other geographic locations and/or by increasing the range of products and services offered to current markets.

Exporting grants rights to another company to open a retail store using the franchiser's name and operating system.

Forming a joint venture between a foreign corporation and a domestic company is the most popular strategy used to enter a new country.

A relatively quick way to move into an international area is through greenfield development.

Turnkey operations are typically contracts for the construction of operating facilities in exchange for a fee.

Management contracts are common when a host government expropriates part or all of a foreign-owned company's holdings in its country.

Synergy is the concept that two businesses operating within a company will generate more profits together than they could separately by common use of technology, customers, distribution, managerial skills, or product similarity.

Concentric diversification is growth into unrelated businesses.

Conglomerate diversification is diversifying into an industry unrelated to its current one.

If a new business is very similar to that of the acquiring firm, it adds little new to the corporation and only marginally improves performance.

The stability strategies are really a lack of any strategy.

Stability strategies can be very useful in the short run, but they can be dangerous if followed for too long.

When Sony's CEO, Howard Stringer, eliminated 10,000 jobs and closed 11 plants, he was addressing the contraction phase of the turnaround strategy.

According to the BCG Growth Share Matrix, cash cows are market share leaders typically at the growth stage of their product life cycle and are usually able to generate enough cash to maintain their high share of the market.

According to the BCG Growth Share Matrix, dogs should be either sold off or managed carefully for the small amounts of cash they can generate.

The GE Business Screen is based on long-term industry attractiveness and business strength/competitive position.

A limitation of the BCG Growth Share Matrix is the questionable link between market share and profitability.

One limitation of portfolio analysis is that it provides an illusion of scientific rigor.

Corporate parenting views the corporation in terms of resources and capabilities that can be used to build business unit value as well as generate synergies across business units.

In multipoint competition, large multi-business corporations compete against other large multi-business firms in a number of markets.

Which strategy specifies the firm's overall direction in terms of its general orientation toward growth, the industries or markets in which it competes, and the manner in which it coordinates activities and transfers resources among business units?

A) corporate

B) functional

C) divisional

D) organizational

E) business

Which kind of corporate strategy deals with the firm's overall orientation toward growth?

1. A) portfolio strategy
2. B) directional strategy
3. C) parenting strategy
4. D) cooperative strategy
5. E) functional strategy

Answer: B

Which kind of corporate strategy deals with the manner in which the firm coordinates activities and builds corporate synergies through resource sharing and development?

A) portfolio strategy

B) directional strategy

C) parenting strategy

D) cooperative strategy

E) functional strategy

Which one of the following directional strategies is most frequently used in corporations?

A) stability

B) consolidation

C) growth

D) retrenchment

E) expansion

Which external growth strategy involves two or more corporations joining in a stock exchange and from which only one corporation survives?

A) mergers

B) strategic alliances

C) diversification

D) acquisitions

E) concentration

Which of the following strategies was being used when Allied Corporation and Signal Companies formed Allied Signal?

A) mergers

B) strategic alliances

C) diversification

D) acquisitions

E) concentration

Which external growth strategy was demonstrated when Procter & Gamble completely absorbed Gillette?

A) mergers

B) strategic alliances

C) diversification

D) concentration

E) acquisitions

Which of the following is NOT a reason why the growth strategy is so desirable?

A) There are more opportunities for advancement and promotion.

B) A corporation that experiences successful growth is thought of positively by the marketplace and potential investors.

C) A large and growth-oriented corporation has more clout and influence.

D) A growing firm can cover up mistakes and inefficiencies because of the increase in cash flow revenue.

E) A large and growing firm attracts more acquisition offers.

The most logical growth strategy for a corporation with current product lines with real growth potential in a growing industry is

A) concentration.

B) conglomerate integration.

C) concentric diversification.

D) stability.

E) retrenchment.

Ford Motor Company's use of company resources to build its River Rouge Plant outside of Detroit so that iron ore could enter into one end of the plant and a finished automobile could exit out of the other end is called

A) vertical growth.

B) tapered integration.

C) horizontal integration.

D) external vertical integration.

E) quasi-integration.

The purpose of vertical growth is to

A) take over a function previously supplied by a former employer.

B) take over a function previously provided by a supplier or by a distributor.

C) acquire a company of similar objective.

D) sell a company encumbered with debt.

E) expand to countries with strong trade alliances.

The purchase of the supplier Carroll's Foods for its hog-growing facilities by Smithfield Foods, the world's largest pork processor, is an example of

A) forward integration.

B) horizontal integration.

C) backward integration.

D) transferred integration.

E) mass integration.

The ability for Nike to manufacture its own shoes and then build stores for distribution is an example of

A) forward integration.

B) horizontal integration.

C) backward integration.

D) transferred integration.

E) mass integration.

A disadvantage of vertical integration is that it

A) creates exit barriers.

B) improves coordination of activities.

C) decreases demand for the firm's products and services.

D) creates entry barriers.

E) avoids time consuming tasks.

An attempt to explain that vertical integration is more efficient than contracting for goods and services in the marketplace when the transaction costs of buying goods on the open market becomes too great has been proposed by

A) population theory.

B) institution theory.

C) freakonomics.

D) transaction cost economics.

E) transaction growth theory.

In many cases, ________ integration is more profitable than ________ integration.

A) forward; backward

B) vertical; backward

C) backward; vertical

D) backward; forward

E) mass; forward

When a firm internally makes 100% of its key supplies and completely controls its distributors, this is known as

A) full integration.

B) taper integration.

C) mass integration.

D) economical integration.

E) strategic integration.

When Bristol-Myers Squibb purchased 17% of ImClone's common stock to gain access to a new drug, it was using which type of integration?

A) full integration

B) long-term contracts

C) backwards integration

D) taper integration

E) quasi integration

A firm's expansion into other geographic locations and/or increasing the range of products and services offered to current markets is called

A) forward vertical growth.

B) diversification.

C) backward vertical growth.

D) captive company strategy.

E) horizontal growth.

Which strategy did Delta choose when it acquired Northwest Airlines to obtain access to Northwest's Asian markets?

A) a retrenchment strategy using horizontal integration through internal means

B) a horizontal integration strategy

C) a stability strategy using concentric diversification

D) a growth strategy using vertical integration through external means

E) a retrenchment strategy using a concentration method

As defined by the text, synergy is the concept

A) that involves adding different products or divisions to the corporation.

B) that supports divestiture of one corporation by another.

C) that two firms can generate more profits together than separately.

D) that a corporation can enter one or more businesses that are necessary to manufacture its own product.

E) that two functional areas of a corporation can coordinate their work as a team.

Adding a related or complementary product to a corporation's business units is called

A) concentration.

B) horizontal growth.

C) concentric diversification.

D) vertical growth.

E) conglomerate diversification.

Growth through diversification out of an industry into an unrelated industry is called

A) concentration.

B) horizontal growth.

C) concentric diversification.

D) vertical growth.

E) conglomerate diversification.

Which strategy might be the most likely when management realizes that the current industry is unattractive and that the firm lacks outstanding skills that it could easily transfer to related products or services in other industries?

A) concentration

B) horizontal growth

C) concentric diversification

D) vertical growth

E) conglomerate diversification

With conglomerate diversification, the focus is on

A) product-market synergy.

B) sound investment and value-oriented management.

C) employee satisfaction.

D) similar product offerings.

E) market demand.

An MNC uses which international strategy for entering a foreign market by simply shipping goods produced in the company's home country to other countries for marketing to minimize risk and to experiment with a specific product?

A) licensing

B) joint ventures

C) exporting

D) production sharing

E) acquisitions

An MNC uses which international strategy for entering a foreign market by associating itself with a firm in the host country or a government agency in that country to combine resources and expertise needed for the development of a new product or technologies?

A) licensing

B) joint ventures

C) production sharing

D) exporting

E) acquisitions

One benefit of a U.S. company entering a joint venture with an international firm is that it

A) reduces the risks of expropriation by host country officials.

B) enhances the policy of the host country's takeover of the firm.

C) promotes skepticism among other countries not involved in the merger.

D) encourages competitors to work with the company.

E) increases revenues by 20%.

An MNC uses which international strategy for entering a foreign market by purchasing another company already operating in the area developing synergistic benefits gained from acquiring strong complementary product lines and a good distribution network?

1. A) licensing
2. B) joint ventures
3. C) production sharing
4. D) exporting
5. E) acquisitions

In international dealings, greenfield development is

1. A) a way in which an MNC may contract with a foreign government or local firm to trade raw materials for certain resources belonging to the MNC.
2. B) a way in which an MNC can take total control of operations by acquiring a firm already established in the host country.
3. C) when a corporation chooses to build a facility from scratch allowing it the freedom to design the plant, choose suppliers, and hire its workforce.
4. D) when an MNC has a large amount of management talent available and chooses to use its personnel to assist a firm in a host country for a specified fee and period of time.
5. E) contracting for construction of operating facilities in exchange for a fee.

An MNC uses which international strategy for entering a foreign market by combining the higher labor skills and technology available in the developed countries with the lower cost labor available in the developing countries?

A) licensing

B) joint ventures

C) production sharing

D) exporting

E) acquisitions

In international dealings, turnkey operations are

A) a way in which an MNC may contract with a foreign government or local firm to trade raw materials for certain resources belonging to the MNC.

B) a way in which an MNC can take total control of operations by either starting a business from scratch or acquiring a firm already established in the host country.

C) when a corporation chooses to build a facility from scratch allowing it the freedom to design the plant, choose suppliers, and hire a workforce.

D) when an MNC has a large amount of management talent available and chooses to use its personnel to assist a firm in a host country for a specified fee and period of time.

E) contracting for construction of operating facilities in exchange for a fee.

Management contracts are used in international dealings

A) as a way in which an MNC may contract with a foreign government or local firm to trade raw materials for certain resources belonging to the MNC.

B) as a way in which an MNC can take total control of operations by either starting a business from scratch or acquiring a firm already established in the host country.

C) when a corporation chooses to build a facility from scratch allowing it the freedom to design the plant, choose suppliers, and hire a workforce.

D) when an MNC has a large amount of management talent available and chooses to use its personnel to assist a firm in a host country for a specified fee and period of time.

E) when an MNC typically contracts for construction of operating facilities in exchange for a fee.

Research comparing concentric with conglomerate diversification concludes that

A) conglomerate diversification is always less profitable than concentric diversification.

B) concentric diversification is always less profitable than conglomerate diversification.

C) the relationship between relatedness and performance follows an inverted U-shaped curve.

D) neither concentric nor conglomerate diversification are ever profitable.

E) for optimum effectiveness both conglomerate and concentric diversification should be utilized in tandem.

The controversy surrounding external versus internal growth finds

A) external growth appears to be superior financially to internal growth.

B) internal growth appears to be superior financially to external growth.

C) there appears to be no financial advantage to either.

D) acquisitions have a lower survival rate than new internally generated business ventures.

E) strategic alliances are superior to both.

The stability strategy is appropriate for all of the following circumstances EXCEPT

A) useful in the short-run but can be dangerous if followed too long.

B) most appropriate for reasonably successful corporations in a reasonably predictable environment.

C) when a firm is continuing its current activities without a significant change in direction.

D) appropriate when the industry is in decline.

E) popular with small business owners who have found a niche and are happy with their success.

Which strategy is most appropriate as a temporary strategy to enable a corporation to consolidate its resources after prolonged rapid growth in an industry now facing an uncertain future?

A) horizontal integration strategy

B) no change strategy

C) retrenchment strategy

D) pause/proceed with caution strategy

E) profit strategy

Which strategy is most appropriate for a company in an industry in which the future is expected to continue as an extension of the present?

A) horizontal integration strategy

B) no change strategy

C) retrenchment strategy

D) pause/proceed with caution strategy

E) profit strategy

Which of the following describes a turnaround strategy?

A) a form of divestment and is appropriate when corporate problems can be traced to the poor performance of an SBU or product line

B) occurs when the corporation reduces the scope of some of its functional activities and becomes "captive" to another firm

C) emphasizes improving operational efficiency and is appropriate when a corporation's problems are pervasive, but not yet critical

D) occurs when a corporation liquidates all its assets

E) involves adding different products or divisions to the corporation

The strategy which takes place in two basic phases of contraction and consolidation is

A) merger.

B) liquidation.

C) integration.

D) divestment.

E) turnaround.

Which one of the following is NOT a characteristic of a firm that has chosen a captive company strategy?

A) It is most appropriate for a company with a strong competitive position in a growing industry.

B) The firm reduces its functional activities to reduce costs.

C) The firm gains a certainty of sales and production in return for becoming heavily dependent upon another firm for at least 75% of its sales.

D) One of its customers makes up a large percentage of the company's sales and wants the company to keep operating as its supplier.

E) Management desperately seeks an "angel" to guarantee the company's continued existence.

In which strategy does management hope that another company will have the necessary resources and determination to return the company to profitability?

A) sell out

B) captive company

C) liquidation

D) bankruptcy

E) profit

Which strategy involves giving up management of the firm to the courts in return for some settlement of the corporation's obligations?

A) liquidation

B) bankruptcy

C) diversification

D) divestment

E) consolidation

Which strategy did Circuit City use in 2008 when it converted its retail stores to cash?

A) liquidation

B) bankruptcy

C) diversification

D) divestment

E) consolidation

One of the most popular aids to developing corporate strategy in multi-business corporations that views business units in terms of the cash they generate is called

A) PIMS.

B) segmentation analysis.

C) portfolio analysis.

D) industry analysis.

E) diversification study.

In the Boston Consulting Group's Growth Share Matrix, the relative competitive position of a product or division is defined as

A) its market share.

B) its gross sales divided by its market share.

C) its market share multiplied by that of its nearest competitor.

D) its market share divided by that of the smallest other competitor.

E) its market share divided by that of the largest other competitor.

The Growth Share Matrix of the Boston Consulting Group suggests that the excess cash being generated by cash cows should be used to fund

A) dogs.

B) question marks.

C) stars.

D) white knights.

E) fish.

According to the BCG Growth Share Matrix, market leaders that typically are at the peak of their product life cycle and are usually able to generate enough cash to maintain their high share of the market are called

A) cash cows.

B) lost leaders.

C) dogs.

D) question marks.

E) stars.

According to the BCG Growth Share Matrix, products that typically bring in far more money than is needed for maintenance of their market share are called

A) cash cows.

B) lost leaders.

C) dogs.

D) question marks.

E) stars.

According to the BCG Growth Share Matrix, those products with low market share in an unattractive industry that do NOT have the potential to bring in much cash are called

A) cash cows.

B) lost leaders.

C) dogs.

D) question marks.

E) stars.

According to the BCG Growth Share Matrix, the key to success with this model is

A) effective management.

B) competitive positioning.

C) innovative initiative.

D) industry leadership.

E) market share.

Which of the following is NOT one of the limitations of the BCG Growth Share Matrix?

A) It is too simplistic.

B) The link between market share and profitability is questionable.

C) Growth rate is only one aspect of industry attractiveness.

D) There are too many aspects of overall competitive position included.

E) Small competitors with fast-growing market share are ignored.

Underlying the BCG Growth Share Matrix is the concept of the

A) product life cycle.

B) industry life cycle.

C) market size.

D) experience curve.

E) industry profitability.

An example of a company that did not blindly follow the prescriptions of a portfolio model was

A) Apple.

B) Nike.

C) General Mills.

D) Dell.

E) IBM.

Which of the following is NOT one of the advantages of portfolio analysis?

A) The graphic depiction facilitates communication.

B) It provides the basis for impartial objectivity from which to make decisions.

C) It encourages top management to evaluate each of the corporation's businesses individually.

D) It raises the issue of cash flow availability for use in expansion and growth.

E) It stimulates the use of externally oriented data to supplement management's judgment.

Which of the following is NOT one of the limitations of portfolio analysis?

A) It contains value-laden terminology that can lead to self-fulfilling prophecies.

B) It is not difficult: Easy to define product/market segments.

C) It relies too heavily on objective judgments.

D) It suggests the use of standard strategies which may be impractical or may miss potential opportunities.

E) It provides an illusion of scientific rigor.

Corporate parenting generates corporate strategy by focusing on

A) the core competencies of the parent corporation and on the value created from the relationship between the parent and its units.

B) the cash flow among its business units.

C) whether a business unit should be growing, stabilizing, or retrenching.

D) acquiring distinctive competencies in the marketplace.

E) differentiating its activities into separate units and integrating these activities through complex integrating mechanisms.

According to the text, 75% of a company's market value is derived from its

A) employees.

B) intangible assets.

C) plant assets.

D) joint ventures.

E) licensing agreements.

According to Campbell, Goold, and Alexander, when parent companies create more value than any of their rivals would if they owned the same businesses, they have

A) multi-point competition.

B) strategic advantage.

C) parenting advantage.

D) portfolio analysis.

E) no real advantage.

A corporate strategy that cuts across divisional boundaries to build synergy across business units and to improve the competitive position of one or more business units is called

A) vertical strategy.

B) horizontal strategy.

C) hierarchical strategy.

D) portfolio strategy.

E) pyramid strategy.

When P&G, Kimberly-Clark, and Scott Paper compete with each other in varying combinations of consumer paper products, they are said to be engaging in

A) oligopolistic competition.

B) strategic competition.

C) multipoint competition.

D) laissez-faire competition.

E) horizontal competition.

What are the three key issues that corporate strategy deals with?

Discuss the three general orientations comprising directional strategy?

Why is growth a very attractive strategy?

Discuss the two basic growth strategies.

What are the more popular options for international entry?

Discuss the more popular stability strategies.

Define a retrenchment strategy. Discuss the more popular options.

What is portfolio analysis?

Describe the four categories of the BCG Growth Share Matrix.

Define corporate parenting.