McKesson, a large distribution company, sells many product lines such as pharmaceuticals and liquor through its super warehouses. This is an example of ____________.

52.

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 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.

AACSB: Analytic Blooms: Understand Learning Objective: 06-01 The reasons for the failure of many diversification efforts. Level of Difficulty: 2 Medium Topic: The Reasons for the Failure of Many Diversification Efforts

53.

Which of the following is not a reason for merger and acquisition failures?    A.  The acquiring company pays too high 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.

AACSB: Analytic Blooms: Understand Learning Objective: 06-01 The reasons for the failure of many diversification efforts. Level of Difficulty: 2 Medium Topic: The Reasons for the Failure of Many Diversification Efforts

54.

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.

AACSB: Analytic Blooms: Understand Learning Objective: 06-01 The reasons for the failure of many diversification efforts. Level of Difficulty: 2 Medium Topic: The Reasons for the Failure of Many Diversification Efforts

55.

Diversification initiatives include all of the following except ___________________.    A.  mergers and acquisitions B.  strategic alliances C.  joint ventures D.  shareholder development 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.

AACSB: Analytic Blooms: Understand Learning Objective: 06-02 How managers can create value through diversification initiatives. Level of Difficulty: 2 Medium Topic: Making Diversification Work: An Overview

56.

McKesson, a large distribution company, sells many product lines such as pharmaceuticals and liquor through its super warehouses. This is an example of ____________.    A.  using related diversification to achieve value by sharing activities to create economies of scope B.  using related diversification to achieve value by leveraging core competencies to create market power C.  using unrelated diversification to create value by managing its portfolio to create financial synergies D.  using unrelated diversification to create value by managing its portfolio to create restructuring advantages In this case, McKesson uses related diversification to create value by sharing activities in order to create economies of scope.

AACSB: Analytic Blooms: Understand Learning Objective: 06-02 How managers can create value through diversification initiatives. Level of Difficulty: 2 Medium Topic: Making Diversification Work: An Overview

57.

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 _______________.    A.  using related diversification to achieve value by pooling negotiating power to achieve market power B.  using related diversification to achieve value by leveraging core competencies to achieve economies of scope C.  using related diversification to achieve value by integrating vertically in order to acquire market power D.  using related diversification to achieve value by integrating vertically in order to attain economies of scope In this case, Shaw Industries uses related diversification to achieve value by integrating vertically in order to acquire market power.

AACSB: Analytic Blooms: Understand Learning Objective: 06-02 How managers can create value through diversification initiatives. Level of Difficulty: 2 Medium Topic: Making Diversification Work: An Overview

58.

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 __________________.    A.  using related diversification to achieve value by leveraging core competencies to attain economies of scope B.  using related diversification to achieve value by leveraging core competencies to acquire market power C.  using unrelated diversification to achieve value through portfolio management in order to acquire financial synergies D.  using unrelated diversification to achieve value through 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.

AACSB: Analytic Blooms: Understand Learning Objective: 06-02 How managers can create value through diversification initiatives. Level of Difficulty: 2 Medium Topic: Making Diversification Work: An Overview

59.

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 the design and production of its miniature card calculators, digital cameras, pocket electronic dictionaries, and other small electronics.

AACSB: Analytic Blooms: Understand Learning Objective: 06-03 How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power. Level of Difficulty: 2 Medium Topic: Related Diversification through Economies of Scope and Revenue Enhancement

60.

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 collection of competencies should be unique, so that they cannot be easily imitated. D.  The new business must have an established large market share. 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.

AACSB: Analytic Blooms: Remember Learning Objective: 06-03 How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power. Level of Difficulty: 1 Easy Topic: Related Diversification through Economies of Scope and Revenue Enhancement