BUSN 489 FINAL EXAM QUESTIONS WITH COMPLETE
ANSWERS
Chapter 6 - ANSWER
Corporate Level Strategy - ANSWER specifies actions a firm takes to gain a competitive
advantage by selecting and managing a group of different businesses competing in
different product markets.
-what business to be in?
-How to organize?
An effective corporate strategy is one where the aggregate returns of the firm's
portfolio of business is greater than it would be if all the firms were separate unrelated
entities - ANSWER
single business strategy - ANSWER 95% or more of revenue comes from a single
business.
Dominant Business strategy - ANSWER Between 70% and 95% of revenue comes from a
single business.
Related Constrained Diversification - ANSWER Less than 70% of revenue comes from
the dominant business, and all businesses share product, technological, and
distribution linkages.
Related linked Diversification(mixed related and unrelated): - ANSWER Less than 70% of
revenue comes from the dominant business, and there are only limited links between
businesses.
Unrelated Diversification - ANSWER Less than 70% of revenue comes from the dominant
business, and there are no common links between businesses.
,Performance and Level of Diversification - ANSWER Dominant Business = medium
performance
Related Constrained=High performance
Unrelated Diversification=Medium performance
Why do firms diversify? - ANSWER To create or capture value:
-economies of scope
-market power
-financial economies
Other:
-neutralize threats
-tax or regulation related reasons
-avoid other negative outcomes, like layoffs
-Benefit top managers
-reduce risk
Economies of Scope(related diversification) - value creating - ANSWER are 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.
**difficult to implement effectively and links outcomes between businesses(increases
risk)
-Sharing activities
-Transferring core competencies
, Market Power(related diversification) - value creating - ANSWER 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.
-Blocking competitors through multipoint competition
-Vertical integration
Multipoint competition - ANSWER exists when two or more diversified firms
simultaneously compete in the same product areas or geographical markets.
Benefits: improved position in one market may translate into broader strength
Drawbacks: Increased complexity of competition, organization
ex. competition across nat'l borders, auto industry
Financial Economies(unrelated diversification) - value creating - ANSWER -Efficient
internal capital allocation
-Business restructuring
Value Neutral Diversification - ANSWER -Antitrust regulation - limits marketpower,
vertical integration. need new market to grow in
-Tax laws - discourage divident pmts in favor of capital gains, invest more but where?
-Low performance
-Uncertain future cash flows
-Risk reduction for firm
-Tangible resources
-Intangible resources
ANSWERS
Chapter 6 - ANSWER
Corporate Level Strategy - ANSWER specifies actions a firm takes to gain a competitive
advantage by selecting and managing a group of different businesses competing in
different product markets.
-what business to be in?
-How to organize?
An effective corporate strategy is one where the aggregate returns of the firm's
portfolio of business is greater than it would be if all the firms were separate unrelated
entities - ANSWER
single business strategy - ANSWER 95% or more of revenue comes from a single
business.
Dominant Business strategy - ANSWER Between 70% and 95% of revenue comes from a
single business.
Related Constrained Diversification - ANSWER Less than 70% of revenue comes from
the dominant business, and all businesses share product, technological, and
distribution linkages.
Related linked Diversification(mixed related and unrelated): - ANSWER Less than 70% of
revenue comes from the dominant business, and there are only limited links between
businesses.
Unrelated Diversification - ANSWER Less than 70% of revenue comes from the dominant
business, and there are no common links between businesses.
,Performance and Level of Diversification - ANSWER Dominant Business = medium
performance
Related Constrained=High performance
Unrelated Diversification=Medium performance
Why do firms diversify? - ANSWER To create or capture value:
-economies of scope
-market power
-financial economies
Other:
-neutralize threats
-tax or regulation related reasons
-avoid other negative outcomes, like layoffs
-Benefit top managers
-reduce risk
Economies of Scope(related diversification) - value creating - ANSWER are 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.
**difficult to implement effectively and links outcomes between businesses(increases
risk)
-Sharing activities
-Transferring core competencies
, Market Power(related diversification) - value creating - ANSWER 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.
-Blocking competitors through multipoint competition
-Vertical integration
Multipoint competition - ANSWER exists when two or more diversified firms
simultaneously compete in the same product areas or geographical markets.
Benefits: improved position in one market may translate into broader strength
Drawbacks: Increased complexity of competition, organization
ex. competition across nat'l borders, auto industry
Financial Economies(unrelated diversification) - value creating - ANSWER -Efficient
internal capital allocation
-Business restructuring
Value Neutral Diversification - ANSWER -Antitrust regulation - limits marketpower,
vertical integration. need new market to grow in
-Tax laws - discourage divident pmts in favor of capital gains, invest more but where?
-Low performance
-Uncertain future cash flows
-Risk reduction for firm
-Tangible resources
-Intangible resources
