Exam for Strategic Management Part VIII

145. Which of the following statements about the introduction stage of the market life cycle is true? A. It produces relatively large, positive cash flows. B. Strong brand recognition seldom serves as an important switching cost. C. Market share gains by pioneers are usually easily sustained for many years. D. Products offered by pioneers may be perceived as differentiated because they are new. In the introduction stage, products are unfamiliar to consumers. Market segments are not well defined, and product features are not clearly specified. 146. In the __________ stage of the industry life cycle, the emphasis on product design is very high, the intensity of competition is low, and the market growth rate is low. A. growth B. maturity C. introduction D. decline In the introduction stage, products are unfamiliar to consumers. Market segments are not well defined, and product features are not clearly specified. The early development of an industry typically involves low sales growth, rapid technological change, operating losses, and the need for strong sources of cash to finance operations. Since there are few players and not much growth, competition tends to be limited. 147. The growth stage of the industry life cycle is characterized by A. in-kind competition (from the same type of product). B. premium pricing. C. a growing trend to compete on the basis of price. D. retaliation by competitors whose customers are stolen. The growth stage is the second stage of the product life cycle, characterized by strong increases in sales and growing competition. 148. In the __________ stage of the industry life cycle, there are many segments, competition is very intense, and the emphasis on process design is high. A. growth B. introduction C. decline D. maturity In the maturity stage of the industry life cycle, there are many segments, competition is very intense, and the emphasis on process design is high. 149. In a given market, key technology no longer has patent protection, experience is not an advantage, and there is a growing need to compete on price. What stage of its life cycle is the market in? A. introduction B. growth C. maturity D. decline In the maturity stage of the industry life cycle, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. Advantages based on efficient manufacturing operations and process engineering become more important for keeping costs low as customers become more price sensitive. It also becomes more difficult for firms to differentiate their offerings, because users have a greater understanding of products and services. 150. A market that mainly competes on the basis of price and has stagnant growth is characteristic of what life cycle stage? A. introduction B. growth C. maturity D. decline In the maturity stage of the industry life cycle, aggregate industry demand softens. As markets become saturated, there are few new adopters. Rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. 151. As markets mature, A. costs continue to increase. B. application for patents increase. C. differentiation opportunities increase. D. there is increasing emphasis on efficiency. In the maturity stage of the industry life cycle, advantages based on efficient manufacturing operations and process engineering become more important for keeping costs low as customers become more price sensitive. 152. The size of pricing and differentiation advantages between competitors decreases in which stage of the market life cycle? A. introduction B. growth C. maturity D. decline In the maturity stage of the industry life cycle, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. It also becomes more difficult for firms to differentiate their offerings, because users have a greater understanding of products and services. 153. Which of the following is most often true of mature markets? A. Some competitors enjoy a significant operating advantage due to increasing experience effects. B. The market supports premium pricing, which attracts additional competitors. C. Advantages that cannot be duplicated by other competitors are difficult to achieve. D. The magnitude of pricing differences and product differentiation is larger than in the growth stage. In the maturity stage of the industry life cycle, rivalry among existing rivals intensifies because of fierce price competition at the same time that expenses associated with attracting new buyers are rising. It also becomes more difficult for firms to differentiate their offerings, because users have a greater understanding of products and services. 154. In the __________ stage of the industry life cycle, there are few segments, the emphasis on process design is low, and the major functional areas of concern are general management and finance. A. introduction B. growth C. decline D. maturity In the decline stage of the industry life cycle, there are few segments, the emphasis on process design is low, and the major functional areas of concern are general management and finance. 155. The most likely time to pursue a harvest strategy is in a situation of A. high growth. B. strong competitive advantage. C. mergers and acquisitions. D. decline. Four basic strategies are available in the decline phase: maintaining, harvesting, exiting, or consolidating. 156. Research shows that which one of the following is not a strategy used by firms engaged in successful turnarounds? A. asset and cost surgery B. selective product and market pruning C. piecemeal productivity improvements D. global expansion A study of 260 mature businesses in need of a turnaround identified three strategies used by successful companies: asset and cost surgery, selective product and market pruning, and piecemeal productivity improvements. 157. Piecemeal productivity improvements during a turnaround typically do not involve A. business process reengineering. B. increased capacity utilization. C. benchmarking. D. expansion of company product market scope. Piecemeal productivity improvements include improving business processes by reengineering them, benchmarking specific activities against industry leaders, encouraging employee input to identify excess costs, increasing capacity utilization, and improving employee productivity. 158. Which of the following is not a reason for the successful turnaround HSN experienced by 2014 under CEO Mindy Grossman? A. engaging stakeholders in the discussion B. redesigning the employee lineup C. redesigning the company offerings D. making all best efforts to offer something for everyone Key to it all is staying focused on what HSN strategy is and who its customers are. Grossman stated that they are not trying to be Amazon, all things to all people. 159. Proctor and Gamble announced that it would sell off or close down up to 100 of its brands. This is an example of which turnaround strategy used by successful companies? A. asset and cost surgery B. selective product and market pruning C. piecemeal productivity improvements D. global expansion Most mature or declining firms have many product lines that are losing money or are only marginally profitable. One strategy is to discontinue such product lines and focus all resources on a few core profitable areas. 160. Outright sales or sale and leaseback free up considerable cash and improve returns. This is an example of which turnaround strategy used by successful companies? A. asset and cost surgery B. selective product and market pruning C. piecemeal productivity improvements D. global expansion Very often, mature firms tend to have assets that do not produce any returns. These include real estate, buildings, and so on. Outright sales or sale and leaseback free up considerable cash and improve returns. Investment in new plants and equipment can be deferred. Firms in turnaround situations try to aggressively cut administrative expenses and inventories and speed up collection of receivables. 161. Improving business processes by reengineering them, benchmarking specific activities against industry leaders, encouraging employee input to identify excess costs, increasing capacity utilization, and improving employee productivity lead to a significant overall gain. These are examples of which turnaround strategy used by successful companies? A. asset and cost surgery B. selective product and market pruning C. piecemeal productivity improvements D. global expansion There are many ways in which a firm can eliminate costs and improve productivity. Although individually these are small gains, they cumulate over a period of time to substantial gains. Improving business processes by reengineering them, benchmarking specific activities against industry leaders, encouraging employee input to identify excess costs, increasing capacity utilization, and improving employee productivity lead to a significant overall gain. 162. Most turnarounds require a firm to carefully analyze its relevant environments. The _______ analysis leads to identification of market segments or customer groups that may still find the product attractive. A. external B. internal C. global D. environmental Most turnarounds require a firm to carefully analyze the external and internal environments. The external analysis leads to identification of market segments or customer groups that may still find the product attractive. 163. Most turnarounds require a firm to carefully analyze its relevant environments. ________ analysis results in actions aimed at reduced costs and higher efficiency. A. External B. Internal C. Global D. Environmental Most turnarounds require a firm to carefully analyze the external and internal environments. Internal analysis results in actions aimed at reduced costs and higher efficiency. Ch6 Multiple Choice Questions 61. The Cisco acquisition of Pure Digital Technologies, the parent of the Flip video camera, failed because A. Cisco had valuable competencies. B. the Flip division of Cisco was slow and less responsive to market pressures. C. consumers continued to purchase the camera. D. Cisco had good vision of the market. In large, widely diversified firms, decision making can become slow and remote to market conditions. Cisco competes in a wide range of markets and had nearly 60 decision making groups in its structure, with several layers separating John Chambers, the CEO of Cisco, from the individual markets. In such a large and diversified firm, the decision making in a small division with only 400 million USD in sales, 1 percent of the overall sales of Cisco, was not the top priority of corporate managers. Stephen Baker, an analyst with NPD Group, said that Cisco was never really committed to the product. As a result, Flip was slower and less responsive to market pressures than it was when it was an entrepreneurial firm. 62. Which of the following is not a reason for merger and acquisition failures? A. The acquiring company pays a premium for the common stock of the target company. B. Top executives act in their best interests rather than those of the shareholders. C. The acquired company assets are poorly integrated into the acquiring company business lines. D. The acquisition leads to value creation. Research shows that the vast majority of acquisitions result in value destruction rather than value creation. Many large multinational firms have also failed to effectively integrate their acquisitions, paid too high a premium for the common stock of the target company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business. At times, top executives may not have acted in the best interests of shareholders. The motive for the acquisition may have been to enhance the power and prestige of the executive rather than to improve shareholder returns. 63. Corporate-level strategy focuses on A. gaining long-term revenue. B. gaining short-term profits. C. decreasing business locations. D. managing investment bankers and their interests. Corporate-level strategy focuses on gaining long-term revenue, profits, and market value through managing operations in multiple businesses. 64. An acquisition that results in ______________ indicates that expectations were not met. A. expansion B. divestiture C. cost savings D. increased sales Many acquisitions ultimately result in divestiture, which is an admission that things did not work out as planned. In fact, some years ago, a writer for Fortune magazine lamented that studies show 33 percent to 50 percent of acquisitions are later divested, giving corporate marriages a divorce rate roughly comparable to that of men and women. 65. In 2012, Microsoft admitted to a major _________ mistake when it wrote off essentially the entire 6.2 billion USD it paid for a digital advertising firm, aQuantive, that it purchased in 2007. A. expansion B. divestiture C. cost savings D. acquisition In 2012, Microsoft admitted to a major acquisition mistake when it wrote off essentially the entire 6.2 billion USD it paid for a digital advertising firm, aQuantive, that it purchased in 2007. 66. If a multinational firm is unable to understand how the acquired company's assets would fit with their own lines of business, this can lead to A. expansion. B. divestiture. C. cost savings. D. acquisition. Research shows that a majority of acquisitions of public corporations result in value destruction rather than value creation. Many large multinational firms have also failed to effectively integrate their acquisitions, paid too high a premium for the common stock of the company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business. 67. If a multinational firm paid too high a premium for the common stock of the company, this can lead to A. expansion. B. cost savings. C. divestiture. D. acquisition. Research shows that a majority of acquisitions of public corporations result in value destruction rather than value creation. Many large multinational firms have also failed to effectively integrate their acquisitions, paid too high a premium for the common stock of the company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business. 68. If a multinational company's motive for the acquisition may have been to enhance executive powers and prestige rather than to improve shareholder return, this can lead to A. divestiture. B. cost savings. C. expansion. D. acquisition. Research shows that a majority of acquisitions of public corporations result in value destruction rather than value creation. Top executives may not have acted in the best interests of shareholders. That is, the motive for the acquisition may have been to enhance executive powers and prestige rather than to improve shareholder returns. 69. If a multinational firm fails to effectively integrate their acquisitions, this can result in A. cost savings. B. divestiture. C. expansion. D. further acquisition. Research shows that a majority of acquisitions of public corporations result in value destruction rather than value creation. Many large multinational firms have also failed to effectively integrate their acquisitions, paid too high a premium for the common stock of the company, or were unable to understand how the assets of the acquired firm would fit with their own lines of business. 70. One of the reasons it is said that only the investment banker wins when a company is acquired is that they A. assure the newly acquired company will be successful. B. continue to work with the two companies involved. C. collect huge up-front fees regardless of the outcome afterwards. D. monitor the progress of both companies for long term growth. Research shows that a majority of acquisitions of public corporations result in value destruction rather than value creation. At times, the only other people who may have benefited were the shareholders of the acquired firms or the investment bankers who advise the acquiring firm, because they collect huge fees up front regardless of what happens afterward. 71. Diversification initiatives include all of the following except A. mergers and acquisitions. B. strategic alliances. C. shareholder development. D. joint ventures. Diversification initiatives, whether through mergers and acquisitions, strategic alliances and joint ventures, or internal development, must be justified by the creation of value for shareholders. 72. Polaris, a manufacturer of snowmobiles, motorcycles, watercraft, and off-road vehicles, shares manufacturing operations across its businesses. It also has a corporate research and development facility and staff departments that support all of the Polaris operating divisions. This is an example of using A. B. C. D. related diversification to acquire market value by leveraging core competencies. related diversification to acquire economies of scope by sharing. unrelated diversification to acquire financial synergies through portfolio management. related diversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting. In this case, Polaris uses related diversification to create value by sharing activities in order to create economies of scope. 73. Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input to its manufacturing process. This is an example of using A. related diversification to acquire market power by pooling negotiating power. B. related diversification to acquire economies of scope by leveraging core competencies. C. related diversification to acquire economies of scope by integrating vertically in order to acquire market power. D. related diversification to acquire market power by integrating vertically. In this case, Shaw Industries uses related diversification to achieve value by integrating vertically in order to acquire market power. 74. At Cooper Industries, there are few similarities in the products it makes or the industries in which it completes. The corporate office adds value through such activities as superb human resource practices and budgeting systems. This is an example of using A. related diversification to acquire economies of scope by leveraging pooled negotiating power. B. related diversification to acquire market power by leveraging core competencies. C. unrelated diversification to acquire financial synergies through portfolio management. D. unrelated diversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting. In this case, the corporate office of Cooper Industries adds value to its acquired, unrelated businesses by performing such activities as auditing their manufacturing operations, improving their accounting activities, and centralizing union negotiations. The primary potential benefits of this unrelated diversification strategy are derived largely from hierarchical relationships; that is, value creation derived from the corporate office. 75. Novartis, formerly Ciba-Geigy, uses portfolio management to improve many key activities, including resource allocation and reward and evaluation systems. This is an example of using A. related diversification to achieve value by leveraging pooled negotiating power to attain economies of scope. B. related diversification to acquire market power by leveraging pooled negotiating power. C. unrelated diversification to acquire financial synergies through portfolio management. D. related diversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting. A corporation may diversify into unrelated businesses. Novartis has followed a successful strategy of unrelated diversification. Here, the primary potential benefits are derived largely from hierarchical relationships, that is, value creation derived from the corporate office. Examples of the latter would include leveraging some of the support activities in the value chain. Unrelated diversifiers often benefit from the best practices of sister businesses, even though their products, markets, and technologies may differ dramatically. 76. 3M leverages its competencies in adhesives technologies to many industries, including automotive, construction, and telecommunications. This is an example of using A. related diversification to acquire economies of scope by leveraging pooled negotiating power. B. related diversification to acquire economies of scope by leveraging core competencies. C. unrelated diversification to financial synergies through portfolio management. D. unrelated diversification to parenting, restructuring, and financial synergies through restructuring and parenting. Firms may diversify into related businesses. Here, the primary potential benefits to be derived come from horizontal relationships, that is, businesses sharing intangible resources (e.g., core competencies such as marketing) and tangible resources (e.g., production facilities, distribution channels). In this case EM leverages its core competencies in adhesives technologies in many industries in order to attain economies of scope. 77. Many leading high-tech firms such as Google, Apple, and Intel have dramatically enhanced their revenues, profits, and market values through a wide variety of diversification initiatives. Which of the following is not such an initiative? A. acquisitions B. strategic alliances C. stockholder enhancement D. joint ventures Many leading high-tech firms such as Google, Apple, and Intel have dramatically enhanced their revenues, profits, and market values through a wide variety of diversification initiatives, including acquisitions, strategic alliances, and joint ventures, as well as internal development. 78. Firms have several choices of diversification initiatives that can be used to create value. Which of the following is not one of them? A. using related diversification to acquire economies of scope leveraging pooled negotiating power B. using related diversification to acquire market power by leveraging core competencies C. using unrelated diversification to acquire financial synergies through portfolio management D. using related diversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting They can use unrelated diversification to acquire parenting, restructuring, and financial synergies through corporate restructuring and parenting. 79. ConAgra, a diversified food producer, increases its power over suppliers by centrally purchasing huge quantities of packaging materials for all of its food divisions. This is an example of using A. related diversification to acquire economies of scope by leveraging pooled negotiating power. B. related diversification to acquire market power by leveraging pooled negotiating power. C. unrelated diversification to acquire financial synergies through portfolio management. D. unrelated diversification to acquire parenting, restructuring, and financial synergies through restructuring and parenting. ConAgra uses pooled negotiating power to enhance market power. They do this to increase their power over suppliers by centrally purchasing huge quantities of packaging materials for all of its food divisions. 80. Proctor and Gamble is a large multinational organization that has many business sharing distribution resources. Diversification strategies take advantage of the __________ that exist in their organization. A. costs B. employees C. synergies D. discontinuities Why should companies even bother with diversification initiatives? The answer, in a word, is synergy, derived from the Greek word synergos, which means working together. Firms can also enhance their market power via pooled negotiating power and vertical integration. For example, Procter and Gamble enjoys many synergies from having businesses that share distribution resources. 81. Casio, a giant electronic products producer, synthesizes it abilities in miniaturization, microprocessor design, material science, and ultrathin precision castings to produce digital watches. It uses the same skills to produce card calculators, digital cameras, and other small electronics. These collective skills are known as A. core competencies. B. strategic resources. C. shared activities. D. economies of scope. Core competencies reflect the collective learning in organizations, which is how to coordinate diverse production skills, integrate multiple streams of technologies, and market diverse products and services. In some circumstances, a core competence can create value and provide a viable basis for synergy among the businesses in a corporation. Casio, a giant electronic products producer, synthesizes its abilities in miniaturization, microprocessor design, material science, and ultrathin precision castings to produce digital watches. These are the same skills it applies to design and produce its miniature card calculators, digital cameras, pocket electronic dictionaries, and other small electronics. 82. For a core competence to be a viable basis for the corporation strengthening a new business unit, there are three requirements. Which one of the following is not one of these requirements? A. The competence must help the business gain strength relative to its competition. B. The new business must be similar to existing businesses to benefit from a core competence. C. The new business must have an established large market share. D. The collection of competencies should be unique, so that they cannot be easily imitated. For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, it must meet three criteria: the core competence must enhance competitive advantage by creating superior customer value; different businesses in the corporation must be similar in at least one important way related to the core competence; and the core competencies must be difficult for competitors to imitate or find substitutes for. 83. Sharing core competencies is one of the primary potential advantages of diversification. In order for diversification to be most successful, it is important that the A. products use similar distribution channels. B. similarity required for sharing core competencies must be in the value chain. C. target market is the same, even if the products are very different. D. methods of production are the same. For a core competence to create value and provide a viable basis for synergy among the businesses in a corporation, different businesses in the corporation must be similar in at least one important way related to the core competence. It is not essential that the products or services themselves be similar, but at least one element in the value chain must require similar skills in creating competitive advantage. 84. When management uses common production facilities or purchasing procedures to distribute different but related products, they are A. building on core competencies. B. achieving process gains. C. using portfolio analysis. D. sharing activities. Corporations can achieve synergy by sharing activities across their business units. These include value-creating activities such as common manufacturing facilities, distribution channels, and sales forces. 85. Shaw Industries, a giant carpet manufacturer, increases its control over raw materials by producing much of its own polypropylene fiber, a key input into its manufacturing process. This is an example of A. vertical integration. B. sharing activities. C. pooled negotiating power. D. leveraging core competencies. Shaw Industries, a carpet manufacturer, has attained a dominant position in the industry via a strategy of vertical integration. Shaw has successfully implemented strategies of both forward and backward integration.