BUSI 4940: EXAM 3 Review Questions
All Answered Correct.
Corporate-Level Strategy - Answer A __________________________ are actions a firm takes
to gain a competitive advantage by selecting and managing a group of different businesses
competing in different product markets
Single Business Diversification - Answer Low Level of Diversification wherein 95% or More of
revenue comes from a single, core business area.
For example, the McIlhenny Company, producer of Tabasco brand, has maintained its focus on
its family's hot sauce products for seven generations.
Dominant Business Diversification - Answer Low Level of Diversification wherein between
70% and 95% of revenue comes from a single business area.
The United Parcel Service (UPS) uses this strategy. Recently UPS generated 63 percent of its
revenue from its U.S. package delivery business and 20 percent from its international package
business, with the remaining 17 percent coming from the firm's non-package business.
Related Constrained Diversification - Answer Moderate to High Levels of Diversification
wherein Less than 70% of revenue comes from the dominant business, and all businesses share
product, technological, and distribution linkages.
Relaxed Linked Diversification - Answer Moderate to High Levels of Diversification wherein
Less than 70% of revenue comes from the dominant business, and there are only limited links
between businesses.
Unrelated Diversification - Answer Very High Levels of Diversification wherein Less than 70%
of revenue comes from the dominant business, and there are no common identifiable links
between businesses.
"Conglomerate"
Reasons for Diversification - Answer These are...
1. Value-Creating
2. Value-Neutral
3. Value-Reducing
, Value-Creating - Answer Reasons for ______________ Diversification
1. Economies of Scope (related diversification)
2. Match and Increase Market Power (related diversification)
3. Financial Economies (unrelated diversification)
Value-Neutral - Answer Reasons for ______________ Diversification
- Anti-trust regulation
- Tax laws
- Low performance
- Uncertain future cash flows
- Risk reduction for firm
- Tangible Resources
- Intangible Resources
Value-Reducing - Answer Reasons for ______________ Diversification
- Diversifying managerial employment risk
- Increasing managerial compensation
Economies of Scope - Answer _________________________ are cost savings from
leveraging core competencies or sharing related activities among businesses in a corporation.
Part of Value-Creating Diversification
Corporate-Level Core Competencies - Answer ____________________ are complex sets of
resources and capabilities that link different businesses, primarily through managerial and
technological knowledge, experience, and expertise.
Market Power (The Good Kind) - Answer _________________ exists when a firm is able to:
- Sell its products above the existing competitive level;
- Reduce the costs of its primary and support activities below the competitive level, or both.
Competitive Advantages are a type of this.
All Answered Correct.
Corporate-Level Strategy - Answer A __________________________ are actions a firm takes
to gain a competitive advantage by selecting and managing a group of different businesses
competing in different product markets
Single Business Diversification - Answer Low Level of Diversification wherein 95% or More of
revenue comes from a single, core business area.
For example, the McIlhenny Company, producer of Tabasco brand, has maintained its focus on
its family's hot sauce products for seven generations.
Dominant Business Diversification - Answer Low Level of Diversification wherein between
70% and 95% of revenue comes from a single business area.
The United Parcel Service (UPS) uses this strategy. Recently UPS generated 63 percent of its
revenue from its U.S. package delivery business and 20 percent from its international package
business, with the remaining 17 percent coming from the firm's non-package business.
Related Constrained Diversification - Answer Moderate to High Levels of Diversification
wherein Less than 70% of revenue comes from the dominant business, and all businesses share
product, technological, and distribution linkages.
Relaxed Linked Diversification - Answer Moderate to High Levels of Diversification wherein
Less than 70% of revenue comes from the dominant business, and there are only limited links
between businesses.
Unrelated Diversification - Answer Very High Levels of Diversification wherein Less than 70%
of revenue comes from the dominant business, and there are no common identifiable links
between businesses.
"Conglomerate"
Reasons for Diversification - Answer These are...
1. Value-Creating
2. Value-Neutral
3. Value-Reducing
, Value-Creating - Answer Reasons for ______________ Diversification
1. Economies of Scope (related diversification)
2. Match and Increase Market Power (related diversification)
3. Financial Economies (unrelated diversification)
Value-Neutral - Answer Reasons for ______________ Diversification
- Anti-trust regulation
- Tax laws
- Low performance
- Uncertain future cash flows
- Risk reduction for firm
- Tangible Resources
- Intangible Resources
Value-Reducing - Answer Reasons for ______________ Diversification
- Diversifying managerial employment risk
- Increasing managerial compensation
Economies of Scope - Answer _________________________ are cost savings from
leveraging core competencies or sharing related activities among businesses in a corporation.
Part of Value-Creating Diversification
Corporate-Level Core Competencies - Answer ____________________ are complex sets of
resources and capabilities that link different businesses, primarily through managerial and
technological knowledge, experience, and expertise.
Market Power (The Good Kind) - Answer _________________ exists when a firm is able to:
- Sell its products above the existing competitive level;
- Reduce the costs of its primary and support activities below the competitive level, or both.
Competitive Advantages are a type of this.
