Magma, Inc., acquired Vulcan, Inc., 3 years ago. Effective integration of the two
companies’ culture was never achieved, and the two firms’ assets were not
complementary. It is very likely that Magma will
a. go public through an IPO.
b. review the due diligence information collected before the acquisition.
c. restructure.
d. review its tactical-level strategies.
Which of the following is NOT a governance mechanism that may limit managerial
tendencies to over-diversify?
a. the market for corporate control
b. the Board of Directors
c. surveillance technologies
d. executive compensation practices
Traditionally, leveraged buyouts were used as a restructuring strategy to correct
managerial mistakes or because the firm’s managers were making decisions that
primarily served their own interests rather than those of the shareholders.
a. True
b. False
The strategy of Citigroup under CEO Sanford Weill was to create a “financial
supermarket” where customers shop for a variety of financial services within the same
company. This strategy was executed via a series of acquisitions but ultimately failed.
This situation was the result of
a. Citigroup’s managers focusing too much on acquisitions at the expense of managing
their existing businesses.
b. key managers leaving from the acquired firms, which left the firms with inferior
management talent.
c. the firm becoming too vertically integrated.
d. the firm becoming too focused on its core businesses.
Tools such as ______ help the firm focus on its core competencies as the source of its
competitive advantages.
a. marketing
b. manufacturing
c. outsourcing
d. imitation
A licensing agreement
a. results in two firms agreeing to share the risks and the resources of a new venture.
b. is best way to protect proprietary technology from future competitors.
c. allows a foreign firm to purchase the rights to manufacture and sell a firm’s products
within a host country.
d. can be greatly impacted by currency exchange rate fluctuations.
James Abercrombie has a thriving consulting firm specializing in training boards of
directors in decision-making skills. Mr. Abercrombie has had striking success in
reducing conflict and hostility among directors and allowing boards to develop more
cohesiveness. Mr. Abercrombie is considering expanding his consulting practice
overseas. Which of the following statements is most likely to be TRUE?
a. Mr. Abercrombie will have a large market in Japan because the culture highly values
consensus decision making.
b. Japanese firms will have little interest in Mr. Abercrombie’s specialty because these
skills are already practiced at a high level.
c. German firms will not be interested in Mr. Abercrombie’s services because the
German system of decision making is based on authority and few conflicts emerge.
d. Mr. Abercrombie should find significant need for his services in companies in
transitional economies.
Which of the following, identified in an analysis of the general environment, is an
opportunity for an entrepreneur who wishes to open a business providing “Fitness for
Life” physical conditioning services (strength, balance, and flexibility training) in a city
of 100,000 people?
a. The average age of the population in his community is high.
b. The level of unemployment in his community is high.
c. A chiropractor and two independent physical therapists are located in his community.
d. The average education level of the population in his community is low.
Briefly compare and contrast corporate governance in the United States, Germany, and
Japan, and China.
Executive compensation is a governance mechanism that seeks to align managers’ and
owners’ interests through all of the following EXCEPT
a. bonuses.
b. long-term incentives such as stock options.
c. salary.
d. penalties for inadequate firm performance.
Which of the following will increase the probability that a lower-level manager will
become a successful strategic leader?
a. Appointing many outside board members.
b. Increasing the firm’s sales.
c. Increasing the homogeneity of the top management team.
d. Training and development programs.
Interpersonal relationships, trust, friendships, and a firm’s reputation are all examples of
complex social phenomena that make capabilities easy to imitate.
a. True
b. False
A(n) occurs when one firm buys a controlling, or 100 percent interest, in another firm.
a. merger
b. acquisition
c. spin-off
d. restructuring
Tacit collusion is not explicitly illegal in the United States even though it results in
higher prices for consumers.
a. True
b. False
What is organizational culture? What must strategic leaders do to develop and sustain
an effective organizational culture?
What are the five categories of businesses based on level of diversification?
Define strategic competitiveness and above-average returns. What is the relationship
between strategic competitiveness and returns on investment?
CaseScenario1:SycoInc.(SI).
Syco, Inc. (SI) was founded the late 1800s and grew through acquisition from being
primarily a large discount retailer into a highly diversified firm. Beyond retailing (still
SI’s dominant business), by the middle of the 1990s its lines of business included
significant market positions in insurance, consumer credit cards, stock brokerage,
commercial and residential real estate brokerage, and an online Internet portal. Each of
the non-retail businesses was average in its relative industry performance. Consistent
with the decentralized structure at SI and arms-length corporate oversight, each of these
businesses was also rapidly developing their own unique brands and customer
following. However, within a short period of time it became apparent that the retail
business was failing. SI’s vast mall-based department store holdings were suffering
from deferred maintenance and merchandising that did not appear to be popular with its
once large consumer base. At the same time, highly efficient and focused low-cost
competitors like Walmart were beginning to take significant market share from SI. On
the verge of bankruptcy by early 2000, SI’s management chose to sell off its insurance,
real estate, and stock brokerage units; it also spun off its credit card and portal
businesses in separate public offerings.
Syco’s acquisition strategy was appropriate since it would allow the firm to have market
power over its competitors.
As a strategic leader, what actions could you take to establish and emphasize ethical
practices in your firm?
CaseScenario2:ERPInc.
ERP Inc. is a leading provider of enterprise integration software (EIS). EIS allows a
firm to connect and integrate processes across all aspects of its business, regardless of
where they are located around the world. ERPI is a product-focused company, whereas
most competitors in its market space, such as Oracle, operate as ‘solutions companies.”
Oracle and Microsoft have begun to devote considerable resources to the development
of and acquisition of products to compete in the EIS space. Despite these recent threats,
one benefit of its product-focused strategy is that ERPI’s proprietary product is
generally recognized as being 200 percent to 300 percent better than competitors’
software. ERPI estimates it will take two to three years for competitors to develop the
capabilities needed to bring a competing product to market. ERPI invests a considerable
percentage of its profits in basic R&D to support its core products. As evidence of this,
among its competitors the firm maintains the largest in-house programming staff
dedicated solely to the development of advanced enterprise integration software.
Installation and related consulting for EIS typically cost between $100 million and $200
million, with the ERPI software component accounting for about 20 percent of the
installed cost (the remaining 80 percent is spent on the actual installation, not counting
the value of the customer’s time). ERPI’s target market consists of the world’s largest
manufacturing and industrial firms, and it currently enjoys a 60 percent market share.
How valuable, rare, costly to imitate, and nonsubstitutable are ERPI’s capabilities?
What is the importance of international entrepreneurship?
CaseScenario2:Compliance,Inc.
Compliance, Inc. (CI) conducts clinical human and animal trials for the pharmaceutical
and biotechnology industries. Revenues are split evenly between early and late drug
development services and the firm is a leader in the laboratory technologies needed for
such testing. One of CI’s internal quality managers, Sharon Kline, has approached the
CEO with a new business proposal. She would like to see the firm take one of its
in-house software programs and develop it as a leadingÂedge commercial product for
three specific target markets€medical care providers, payers of medical care, like
insurance companies, and suppliers to medical care providers, like pharmaceutical
companies. The features of the software are easy to use and include electronic
distribution, data harvesting, and robust reporting capabilities. With this software
Sharon believes that medical care providers will be able to collect data to market to and
negotiate contracts with payers or employers, profile performance of individual
physicians or practice sites, identify best clinical practices, generate reports that satisfy
regulatory or accreditation requirements for provider sites, and supply professional
societies with data for influencing payer and government policies. Another target
market, insurance companies and other medical services payers, will be able to use the
software to profile performance of individual physicians or practice sites, identify best
clinical practices, generate reports that satisfy regulatory or accreditation requirements,
and collect data to market to and negotiate contracts with employers. Finally, the
software will allow suppliers to medical care providers to assess how products perform
compared to competitor products, assess outcomes in real-world compared to clinical
trial settings, obtain information on provider-specific practice patterns, determine
whether products are being used correctly, get “face- time” with physicians and HMOs,
obtain information on product switching behavior, offer providers a value-added
service, and meet FDA post-marketing surveillance requirements. CI has never
launched such a product before and, even if successful, software is a very different
product than the clinical trials services it provides now. The CEO must determine how
to build and manage this new business for CI.What actions would you recommend that
the CEO undertake to ensure the success of the software venture?