Crafting and Executing Strategy, 22e (Thompson)
Chapter 8 Corporate Strategy
1) Anna and Martha are owners and managers of A&M, a limited liability corporation (LLC) that
provides a wide array of services: mailing, notary services, packaging and pickup for UPS and
FedEx, as well as faxing and document scanning. Anna and Martha have asked you, as their
consultant, to consider whether or not they might want to diversify into financial planning due to
the increasing number of retirees moving into their community. How would you advise Anna
and Martha to proceed?
A) Remain on course, but only if your single-business company can achieve profitable growth
opportunities in its present industry.
B) A&M needs to develop a corporate-wide strategy.
C) A&M needs to develop a multiline strategy.
D) A&M needs to consider diversification opportunities into financial planning if you have
encountered diminishing market opportunities and stagnating sales in your principal business.
E) Remain on course, but only if A&M encounters enhanced market opportunities and increasing
sales in its principal business.
2) Imagine you are the CEO of a regional ride-sharing company considering diversification into
meal delivery services. How would you determine whether or not your diversification strategy
would be successful?
A) Diversification would result in increased ease of entry into new market locations.
B) Diversification would result in increased performance of the existing business.
C) Diversification would result in increased switching costs for customers.
D) Diversification would result in enhanced industry attractiveness.
E) Diversification would result in enhanced shareholder value.
3) Diversification ought to be considered when a
A) company is under pressure to create a more attractive and cost-efficient value chain.
B) company begins to encounter diminishing growth prospects in its mainstay business.
C) company’s profits are being squeezed and it needs to increase its net profit margins and return
on investment.
D) company lacks sustainable competitive advantage in its present business.
E) company has run out of ways to achieve a distinctive competence in its present business.
4) Diversifying into new businesses can be considered a success only if it
A) results in increased profit margins and bigger total profits.
B) builds shareholder value.
C) helps a company escape the rigors of competition in its present business.
D) leads to the development of a greater variety of distinctive competencies and competitive
capabilities.
E) helps the company overcome the barriers to entering additional foreign markets.
5) It becomes particularly urgent for a company to consider diversification when there are
A) opportunities to leverage existing competencies and capabilities by expanding into businesses
where these same resources are key success factors and valuable competitive assets.
B) diminishing market opportunities and stagnating sales in its principal business.
C) opportunities to lower costs by entering closely related businesses.
D) opportunities to transfer a powerful and well-respected brand name to the products of other
businesses and thereby increase the sales and profits of these newly entered businesses.
E) needs to avoid putting all of its “eggs” in one industry basket.
6) To create value for shareholders via diversification, a company must
A) get into new businesses that are profitable.
B) diversify into industries that are growing rapidly.
C) spread its business risk across various industries by only acquiring firms that are strong
competitors in their respective industries.
D) diversify into businesses that can perform better under a single corporate umbrella than they
could perform operating as independent, stand-alone businesses.
E) diversify into businesses that have either key success factors or value chains that are similar to
its present businesses.
7) How would you explain the difference between a one-business company and a diversified
company?
A) The first uses a business-level strategy, while the second uses a set of business strategies and
a corporate strategy.
B) The first uses a business-level strategy, while the second uses a corporate-wide strategy.
C) The first uses an operating strategy, while the second uses a business-line strategy.
D) The first uses a functional strategy, while the second uses a business-line strategy.
E) The first uses a single-line strategy, while the second uses a multiline strategy.
8) The task of crafting a company’s overall corporate strategy for a diversified company
encompasses all of the following except
A) picking the new industries to enter and deciding on the means of entry.
B) initiating actions to boost the combined performance of the corporation’s collection of
businesses.
C) pursuing opportunities to leverage cross-business value chain relationships and strategic fit
into competitive advantage.
D) establishing investment priorities and steering corporate resources into the most attractive
business units.
E) divesting well-performing businesses.
9) You are the general manager of a regional HR staffing company. What strategic consideration
would be LEAST likely to influence your decision to diversify your firm into new, related or
unrelated business services?
A) making a selection among new industries to enter and deciding on the means of entry
B) analyzing and settling on the appropriate value chain for each business the company has
entered
C) leveraging cross-business value chain relationships and strategic fit to achieve a competitive
advantage
D) establishing investment priorities and steering corporate resources into the most attractive
business units
E) taking actions to boost the combined performance of any new lines of business the firm has
entered
10) The decision to pursue diversification requires management to resolve which industries to
enter and whether to enter, and includes such decisions as the following, except
A) selecting the appropriate value chain operating practices to improve the financial outlook.
B) starting a business from the ground up.
C) acquiring a company already established in the target industry.
D) forming a joint venture or partnership with another company.
E) structuring a strategic alliance with another company to take advantage of the opportunity.
11) When Disney acquired Marvel Comics on August 31, 2009, for $4.24 billion, management
needed to determine whether or not there were opportunities to strengthen the business, which
includes all of the following considerations, except
A) the transferring of valuable resources and capabilities from one business to another.
B) combining related value chain activities of different businesses to achieve lower costs.
C) forcing cultural independence, operating diversity, and sophisticated analytical responsibility
on the businesses to ensure compatibility with the corporate overhead identity.
D) sharing the use of powerful and well-respected brand names across multiple businesses.
E) encouraging knowledge-sharing and collaborative activity among the businesses.
12) When pharmacy chain CVS Health announced a $69 billion merger with the health insurance
giant Aetna late in 2017, top management of CVS needed to weigh a number of strategic
considerations except
A) CVS’s opportunities to pursue rapid growth strategies in its most promising businesses.
B) CVS’s opportunities to initiate profit improvements or turnaround strategies for weak-
performing businesses showing potential.
C) CVS’s opportunities to divest other unattractive businesses.
D) CVS’s opportunities to pursue debt reduction to lower its debt/equity ratio while maintaining
asset levels.
E) CVS’s opportunities to pursue divestiture of businesses that did not fit into the company’s
longer term plans.
13) Initiating actions to boost the combined performance of the corporation’s collection of
businesses includes all of the following strategic options, except
A) sticking closely with the existing business lineup and pursuing available opportunities.
B) broadening the scope of diversification by entering additional industries.
C) divesting some businesses and retrenching to a narrower collection of businesses.
D) restructuring the entire company by adding and removing businesses to improve overall
performance.
E) refocusing the existing businesses on new substitute product-line opportunities outside the
existing industry framework.
14) On July 27, 2018, shareholders of the Walt Disney Company and 21st Century Fox agreed to
a $71.3 billion purchase plan that gave Disney the bulk of the Fox media empire, substantially
altering the entertainment landscape. What was LEAST likely among Disney’s considerations in
completing its acquisition of Fox?
A) expanding into industries whose technologies and products complemented its present media
and entertainment businesses.
B) leveraging existing resources and capabilities by expanding into related industries where these
same resource strengths were key success factors and valuable competitive assets.
C) purchasing a powerful and well-known brand name that could be transferred to the products
of other businesses and thereby used as a lever for driving up the sales and profits of such
businesses.
D) opening up new avenues for reducing costs by diversifying into closely related businesses
such as direct-to-consumer streaming of media content.
E) expanding into additional businesses that unlock possibilities for a comprehensive cost
enhancement strategy.
15) The three tests for judging whether a particular diversification move can create value for
shareholders are the
A) attractiveness test, the profitability test, and the shareholder value test.
B) strategic fit test, the competitive advantage test, and the return-on-investment test.
C) resource fit test, the profitability test, and the shareholder value test.
D) attractiveness test, the cost of entry test, and the better-off test.
E) shareholder value test, the cost of entry test, and the profitability test.
16) To test whether a particular diversification move has good prospects for creating added
shareholder value, corporate strategists should use the
A) profit test, the competitive strength test, the industry attractiveness test, and the capital gains
test.
B) better-off test, the competitive advantage test, the profit expectations test, and the shareholder
value test.
C) barrier-to-entry test, the competitive advantage test, the growth test, and the stock price effect
test.
D) strategic fit test, the industry attractiveness test, the growth test, the dividend effect test, and
the capital gains test.
E) attractiveness test, the cost of entry test, and the better-off test.
17) The better-off test for evaluating whether a particular diversification move is likely to
generate added value for shareholders involves assessing whether the move will
A) make the company better off because it will produce a greater number of core competencies.
B) make the company better off by improving its balance sheet strength and credit rating.
C) make the company better off by spreading shareholder risks across a greater number of
businesses and industries.
D) produce a synergistic outcome such that the company’s different businesses perform better
together than apart and the whole ends up being greater than the sum of the parts.
E) help each business earn exactly what they were earning before coming under the same
corporate umbrella.
18) A company can best accomplish diversification into new industries by
A) outsourcing most of the value chain activities that have to be performed in the target
business/industry.
B) acquiring a company already operating in the target industry, creating a new business from
scratch, or forming a joint venture with one or more companies to enter the target industry.
C) integrating forward or backward into the target industry.
D) shifting from a strategic group comprised mostly of single-business companies to a strategic
group comprised of diversified companies.
E) employing an offensive strategy with new product innovation as its centerpiece.
19) Apple’s $3 billion acquisition of Beats Electronics and Beats Music in 2014 was an attractive
strategy option for entering promising new industries in headphones and streaming music
services because it
A) was an effective way to hurdle entry barriers, is usually quicker than trying to launch a brand-
new startup operation, and allows the acquirer to move directly to the task of building a strong
position in the target industry.
B) was less expensive than launching a new startup operation, thus passing the cost of entry test.
C) offered a challenging opportunity to train new resources and revive a sagging business even if
does not offer great prospects for growth, profitability, or return on investment.
D) was more likely to result in passing the shareholder value test, the profitability test, and the
better-off test.
E) offered the prospect of gaining an immediate competitive advantage in the new industry and
thus helps ensure that the diversification move will pass the competitive advantage test for
building shareholder value.
20) In April 2017, PetSmart agreed to make the largest e-commerce acquisition in history to
date, putting a deal in place to snatch up fast-growing pet food and product site Chewy. com for
$3.35 billion. The acquisition premium for this particular deal can be calculated as the amount by
which the price PetSmart offered for Chewy.com exceeded the
A) fair market value of similar companies in the same geographic locale as Chewy.com.
B) preacquisition market value of Chewy.com.
C) comparable value of similar companies to Chewy.com within the same market.
D) amount paid as a down payment for Chewy.com that was to be held in escrow until closing.
E) difference between the amount that was offered for Chewy.com and the amount that was held
in escrow to complete the deal.
21) What is the name of the process for developing new businesses as an outgrowth of a
company’s established business operations?
A) corporate venturing
B) value chain integration
C) resource capability process
D) diversification activity capabilities
E) business launch
22) Tanisha is CEO of a multinational corporate event planning firm. What would make it
unappealing to her to consider diversification into a new industry such as lodging by forming an
internal startup subsidiary to enter and compete in the target industry?
A) when internal entry is cheaper than entry via acquisition
B) when a company possesses the skills and resources to overcome entry barriers and there is
ample time to launch the business and compete effectively
C) when adding new production capacity will not adversely impact the supply demand balance in
the industry by creating oversupply conditions
D) when the industry is growing rapidly and the target industry is comprised of several relatively
large and well-established firms
E) when incumbent firms are likely to be slow or ineffective in combating a new entrant’s efforts
to crack the market
23) The big dilemma an acquisition-minded firm faces is whether to
A) focus on building brand awareness or establishing supplier relationships.
B) pay a premium price for a successful company or buy a struggling company at a bargain
price.
C) strive for scale economies or to acquire technical know-how to customize production.
D) focus on building brand awareness or striving for scale economies.
E) focus on acquiring technical know-how or outsourcing production.
24) The transaction costs of completing a business agreement or deal of some sort, over and
above the price of the deal, can include all of the following except
A) the costs of searching for an attractive target.
B) the costs of evaluating its worth.
C) bargaining costs.
D) the costs of completing the transaction.
E) the premium cost.
25) The essential requirement for different businesses to be “related” is that
A) their value chains exhibit competitively valuable cross-business commonalities.
B) the products of the different businesses are bought by many of the same types of buyers.
C) the products of the different businesses are sold in the same types of retail stores.
D) the businesses have several key suppliers in common.
E) the production methods they employ both entail economies of scale.
26) Unrelated businesses
A) sell products from the different businesses to much the same types of buyers and retail
outlets.
B) have dissimilar value chains and resource requirements with no competitively important
cross-business commonalities at the value chain level.
C) perform better than just the sum of the individual businesses.
D) will always have several key suppliers in common.
E) employ production methods that create economies of scale.
27) Procter & Gamble’s acquisition of Gillette was integral to a corporate diversification strategy
for building the company around businesses
A) with strategic fit with respect to key value chain activities and competitive assets.
B) that are highly independent, proficient, and efficient operating firms.
C) with strategic fit across separate value chain activities that drive each business.
D) that can also include unrelated businesses with dissimilar resource requirements.
E) that have dissimilar value chain activities with no cross-business commonalities.
28) Related corporate diversification does not necessarily provide opportunities
A) for transferring expertise, technology, and other capabilities from one business to another.
B) for reducing costs on advertising by leveraging use of a competitively powerful brand name.
C) to exploit a first-mover strategy and capture valuable financial fits.
D) for cross-business collaboration to create valuable new competencies and capabilities.
E) to share other resources (besides brands) that support corresponding value chain activities
across businesses.
29) Strategic fit between two or more businesses exists when one or more activities comprising
their respective value chains present opportunities
A) to prevent the transfer of expertise or technology or capabilities from one business to another.
B) to independently preserve common brand names from cross-business usage.
C) to increase costs by combining the performance of the related value chain activities of
different businesses.
D) for cross-business collaboration to build valuable new resource strengths and competitive
capabilities.
E) to maintain business value chain activities separate and apart from one business to another to
protect company independence.
30) One strategic fit-based approach to related diversification would be to
A) diversify into new industries that present opportunities to transfer specialized expertise,
technological know-how, or other valuable resources and capabilities from one business’s value
chain to another’s.
B) diversify into foreign markets where the firm has unrelated businesses.
C) acquire rival firms that have broader product lines so as to give the company access to a wider
range of buyer groups.
D) acquire companies in forward distribution channels (wholesalers and/or retailers).
E) expand into foreign markets where the firm currently does no business.
31) Of the following strategic fit opportunities, which choice is not supportive of related business
activities?
A) transferring specialized expertise, technological know-how, or other valuable resources and
capabilities from one business’s value chain to another’s
B) cost sharing between businesses by combining their related value chain activities into a single
operation
C) overhauling and streamlining the operations of the business by refocusing value chain
activities toward businesses that can provide a superior job of parenting
D) exploiting common use of a well-known brand name
E) sharing other resources (besides brands) that support corresponding value chain activities
across businesses