Answer & Question : IBM leverages its competencies in computing technology to provide health care services. This is an example of a core competence being used across dissimilar businesses within the same corporation

21.

IBM leverages its competencies in computing technology to provide health care services. This is an example of a core competence being used across dissimilar businesses within the same corporation.

TRUE

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: it 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 it must be difficult for competitors to imitate or find substitutes for it. With Watson, the unique computer developed by IBM that processes natural language, they were able to leverage their computing expertise (core competence) to solve important medical problems and thus become medical experts.

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

22.

Sharing activities across business units can provide two primary benefits: cost savings and revenue enhancements.

TRUE

Corporations also 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. Sharing activities can provide two primary payoffs: cost savings and revenue enhancements.

23.

When sharing activities across business units, a company can attain the highest cost savings when it acquires another from the same industry in the same country.

TRUE

Cost savings are generally highest when one company acquires another from the same industry in the same country. Cost savings come from many sources, including the elimination of jobs, facilities, and related expenses that are no longer needed when functions are consolidated, or from economies of scale in purchasing.

24.

If a corporation is to achieve synergy by sharing activities across its business units, it is not important to compromise on the design or performance of an activity that is to be shared.

FALSE

Sharing activities inevitably involve costs that the benefits must outweigh such as the greater coordination required to manage a shared activity. Even more important is the need to compromise on the design or performance of an activity so that it can be shared. For example, a salesperson handling the products of two business units must operate in a way that is usually not what either unit would choose if it were independent. If the compromise erodes unit effectiveness, then sharing may reduce rather than enhance competitive advantage.

25.

Shared activities among businesses in a corporation do not always have a positive effect on a differentiation strategy of a corporation.

TRUE

Sharing activities among businesses in a corporation can have a negative effect on a corporation. For example, when Ford owned Jaguar, they found that customers had lower perceived value of Jaguar automobiles when they found that the entry-level Jaguar shared its basic design with and was manufactured in the same production plant as the Ford Mondeo, a European midsize car. Perhaps, it is not too surprising that Jaguar was divested by Ford in 2008.

26.

Starbucks acquired the baker chain, La Boulange, with the intention of selling the bakery products at its coffee cafes. The increased market exposure for La Boulange is an example of a revenue enhancing benefit that can arise from the differentiation strategy.

TRUE

Often an acquiring firm and its target may achieve a higher level of sales growth together than either company could on its own. For example, Starbucks recently acquired a small bakery chain, La Boulange, and intends to sell La Boulange products at Starbucks cafes nationally. In leveraging Starbucks national retail chain, La Boulange will be able to dramatically expand its market exposure and sales much beyond its current 19-store West Coast market.

27.
(p. 209)

Market power refers to cost savings from leveraging core competencies or sharing activities among the businesses in a corporation.

FALSE

Market power refers to the ability of the firm to profit through restricting or controlling supply to a market or coordinating with other firms to reduce investment.

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 Market Power

28.

The two principal means by which firms achieve synergy through market power are pooled negotiating power and corporate parenting.

FALSE

The two principal means by which firms achieve synergy through market power are pooled negotiating power (the improvement in bargaining position relative to suppliers and customers) and vertical integration (an expansion or extension of the firm by integrating preceding or successive production processes).

29.

Similar businesses working together or the affiliation of a business with a strong parent can strengthen the bargaining position of a company relative to suppliers and customers.

TRUE

Similar businesses working together or the affiliation of a business with a strong parent can strengthen the bargaining position of an organization relative to suppliers and customers and enhance its position relative to its competitors.

30.

Although acquiring related businesses can enhance the bargaining power of a corporation, there is a risk of retaliation by competitors that can result in a diminishing of the desired bargaining power.

TRUE

When PepsiCo diversified into the fast-food industry with its acquisitions of Kentucky Fried Chicken, Taco Bell, and Pizza Hut, it clearly benefited from its position over these units that served as a captive market for its soft-drink products. However, many competitors, such as McDonalds, refused to consider PepsiCo as a supplier of its own soft-drink needs because of competition with Pepsi divisions in the fast-food industry. McDonalds did not want to subsidize the enemy. Thus, although acquiring related businesses can enhance corporation bargaining power, the corporation must be aware of the potential for retaliation.

31.

An oil refinery secures land leases and develops its own drilling capacity to ensure a constant supply of crude oil. This is an example of forward integration.

FALSE

This is an example of backward integration. Vertical integration occurs when a firm becomes its own supplier or distributor. The firm incorporates more processes toward the original source of raw materials (backward integration) or toward the ultimate consumer (forward integration).

32.

A car manufacturer controls its own system of dealerships to ensure retail outlets for its products. This is an example of backward integration.

FALSE

This is an example of forward integration. Vertical integration occurs when a firm becomes its own supplier or distributor. The firm incorporates more processes toward the original source of raw materials (backward integration) or toward the ultimate consumer (forward integration).

AACSB: Analytic
Blooms: Apply
Learning Objective: 06-03 How corporations can use related diversification to achieve synergistic benefits through economies of scope and market power.
Level of Difficulty: 3 Hard
Topic: Related Diversification through Market Power

33.

One of the risks of vertical integration is that there may be problems associated with unbalanced capacities along the value chain of a firm.

TRUE

The risks of vertical integration include: the costs and expenses associated with increased overhead and capital expenditures; a loss of flexibility resulting from large investments; problems associated with unbalanced capacities along the value chain; and additional administrative costs associated with managing a more complex set of activities.

34.

The main reason that automobile manufacturers have increased the amount of outsourced inputs is because of the importance of boom and bust cycles in the industry.

TRUE

With the high level of fixed costs in plant and equipment as well as operating costs that accompany endeavors toward vertical integration, widely fluctuating sales demand can either strain resources (in times of high demand) or result in unused capacity (in times of low demand). The cycles of boom and bust in the automobile industry are a key reason why the manufacturers have increased the amount of outsourced inputs.

35.

According to the transaction cost perspective in analyzing vertical integration, every market transaction involves some transaction cost.

TRUE

One approach that has proved very useful in understanding vertical integration is the transaction cost perspective. According to this perspective, every market transaction involves some transaction costs.

36.

Vertical integration is attractive when market transaction costs are higher than internal administrative costs.

TRUE

Decisions about vertical integration are based on a comparison of transaction costs and administrative costs. If transaction costs are higher than administrative costs, vertical integration becomes an attractive strategy.

37.

With unrelated diversification, potential benefits can be gained from vertical or hierarchical relationships; that is, the creation of synergies from the interaction of the corporate office with outside stakeholders.

FALSE

AACSB: Analytic
Blooms: Understand
Learning Objective: 06-04 How corporations can use unrelated diversification to attain synergistic benefits through corporate restructuring; parenting; and portfolio analysis.
Level of Difficulty: 2 Medium
Topic: Unrelated Diversification through Financial Synergies and Parenting

38.

Restructuring requires the corporate office to find either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change.

TRUE

Restructuring is a means by which the corporate office can add value to a business. Here, the corporate office tries to find either poorly performing firms with unrealized potential or firms in industries on the threshold of significant, positive change. The parent intervenes, often selling off parts of the business; changing the management; reducing payroll and unnecessary sources of expenses; changing strategies; and infusing the company with new technologies, processes, reward systems, and so forth.

39.

Portfolio management should be considered as the primary basis for formulating corporate-level strategies.

FALSE

Portfolio management helps achieve a better understanding of the competitive position of an overall portfolio of businesses, to suggest strategic alternatives for each of the businesses, and to identify priorities for the allocation of resources.

40.

Portfolio management matrices generally consist of two axes that reflect industry or market growth and the market share of a business.

TRUE

The Boston Consulting Group (BCG) growth/share matrix is among the best known of the portfolio management tools. In the BCG approach, each of the strategic business units (SBUs) of the firm is plotted on a two-dimensional grid in which the axes are relative market share and industry growth rate.

AACSB: Analytic
Blooms: Remember
Learning Objective: 06-04 How corporations can use unrelated diversification to attain synergistic benefits through corporate restructuring; parenting; and portfolio analysis.
Level of Difficulty: 1 Easy
Topic: Unrelated Diversification through Financial Synergies and Parenting

41.

The acquisition of two or more counter-cyclical businesses is an example of using diversification to reduce risk.

TRUE

One of the purposes of diversification is to reduce the risk that is inherent in the variability in revenues and profits of a firm over time. If a firm enters new products or markets that are affected differently by seasonal or economic cycles, its performance over time will be more stable. For example, a firm that manufactures lawn mowers may diversify into snow blowers in order to even out its annual sales.

42.

An advantage of mergers and acquisitions is that they can enable a firm to rapidly enter new product markets.

TRUE

Growth through mergers and acquisitions has been critical to many corporations in a wide variety of high-technology and knowledge-intensive industries. Speed (speed to market, speed to positioning, and speed to becoming a viable company) is critical in such industries. For example, in 2010, Apple acquired Siri Inc. so that they could quickly fully integrate the Siri natural language voice recognition software into iOS, the Apple proprietary operating system.

AACSB: Analytic
Blooms: Understand
Learning Objective: 06-05 The various means of engaging in diversification-mergers and acquisitions; joint ventures/strategic alliances; and internal development.
Level of Difficulty: 2 Medium
Topic: The Means to Achieve Diversification

43.

Among the advantages of acquisitions are the expensive premiums that are frequently paid to acquire a business.

FALSE

There are many potential drawbacks or limitations to merger activity. For example, the takeover premium that is paid for an acquisition typically is very high. Two times out of three, the stock price of the acquiring company falls once the deal is made public. Since the acquiring firm often pays a 30 percent or higher premium for the target company, the acquirer must create synergies and scale economies that result in sales and market gains exceeding the premium price.

44.	Through joint ventures, firms can directly acquire the assets and competencies of other firms. FALSE Joint ventures represent a special case of alliances, wherein two (or more) firms contribute equity to form a new legal entity.

AACSB: Analytic
Blooms: Remember
Learning Objective: 06-05 The various means of engaging in diversification-mergers and acquisitions; joint ventures/strategic alliances; and internal development.
Level of Difficulty: 1 Easy
Topic: The Means to Achieve Diversification

45.

The potential advantages of strategic alliances and joint ventures include entering new markets as well as developing and diffusing new technologies.

TRUE

Strategic alliances and joint ventures have many potential advantages. Among these are entering new markets, reducing manufacturing (or other) costs in the value chain, and developing and diffusing new technologies.

46.

One of the obligatory aspects of strategic alliances is the dependence on written contracts to delimit responsibilities and enforce compliance.

FALSE

A strategic alliance is a cooperative relationship between two (or more) firms. Alliances may be either informal or formal, one involving a written contract.

47.

An advantage of a firm entering into a strategic alliance is that it does not have to share the wealth with its partners.

FALSE

Firms that engage in internal development (like corporate entrepreneurship) capture the value created by their own innovative activities without having to share the wealth with alliance partners or face the difficulties associated with combining activities across the value chains of several firms or merging corporate cultures.

48.

An advantage of internal development is that firms do not have to combine activities across the value chains of many companies and merge company cultures.

TRUE

49.

In recent years, many high tech firms such as Priceline.com have suffered from the negative impact of uncontrolled growth.

TRUE

In recent years many high-tech firms have suffered from the negative impact of their uncontrolled growth. Consider, for example, Priceline.com made an ill-fated venture into an online service to offer groceries and gasoline. A myriad of problems, perhaps most importantly a lack of participation by manufacturers, caused the firm to lose more than $5 million a week prior to abandoning these ventures.

AACSB: Analytic
Blooms: Understand
Learning Objective: 06-06 Managerial behaviors that can erode the creation of value.
Level of Difficulty: 2 Medium
Topic: How Managerial Motives Can Erode Value Creation

50.

Greenmail is an offer by a company, threatened by takeover, to offer its stock at a reduced price to a third party.

FALSE

Greenmail is an effort by the target firm to prevent an impending takeover. When a hostile firm buys a large block of outstanding target company stock and the target company management feels that a tender offer is impending, they offer to buy the stock back from the hostile company at a higher price than the unfriendly company paid for it.

AACSB: Analytic
Blooms: Remember
Learning Objective: 06-06 Managerial behaviors that can erode the creation of value.
Level of Difficulty: 1 Easy
Topic: How Managerial Motives Can Erode Value Creation

51.

A golden parachute is a prearranged contract with managers specifying that, in the event of a hostile takeover, the target company managers will be paid a significant severance package.

TRUE

A golden parachute is a prearranged contract with managers specifying that, in the event of a hostile takeover, the target company managers will be paid a significant severance package. Although top managers lose their jobs, the golden parachute provisions protect their income.

Answer & Question

Monday 3 June 2019

IBM leverages its competencies in computing technology to provide health care services. This is an example of a core competence being used across dissimilar businesses within the same corporation

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