Top manager participation in and overseeing the activities required for making
acquisitions can divert managerial attention from other matters that are necessary for
long-term competitive success.
a. True
b. False
After a leveraged buyout, typically occur(s).
a. selling of assets
b. further rounds of acquisitions
c. due diligence
d. private synergy
Companies without the core competencies in their value chain activities and support
functions are still able to implement successfully a either a cost leadership or a
differentiation strategy, although they cannot implement an integrated cost
leadership/differentiation strategy.
a. True
b. False
The way that U.S. corporate boards of directors are presently structured, they have little
influence on the unethical behavior of top management.
a. True
b. False
Reverse engineering is characteristic of
a. first movers.
b. fast-cycle markets.
c. market leaders.
d. price predators.
The firm’s core ideology motivates the firm’s employees through the company’s
heritage.
a. True
b. False
In the past, companies had a preference for insiders to fill top-level management
positions because of the desire for continuity and a continuing commitment to the firm’s
current vision, mission, and chosen strategies.
a. True
b. False
Stock option repricing where the strike price value of the option has been lowered from
its original position sometimes happens when firm performance is poor.
a. True
b. False
Caterpillar’s payment of a 32 percent premium for the acquisition of Bucyrus in 2011
and subsequent need to issue more stock illustrates the acquisition problem of
a. integration difficulties.
b. inability to achieve synergy.
c. large or extraordinary debt.
d. managers overly focused on acquisitions.
A strategy in which firms work together to achieve a shared objective is a
a. functional-level strategy.
b. business-level strategy.
c. corporate-level strategy.
d. cooperative strategy.
A company that tries to balance both operational and corporate relatedness and fails
risks incurring diseconomies of scope.
a. True
b. False
Each of the following is a rationale for acquisitions EXCEPT
a. achieving greater market power.
b. overcoming significant barriers to entry.
c. increasing speed of market entry.
d. positioning the firm for a tactical competitive move.
Firms are more likely to enter a market through acquisition when high product loyalty
is present in the industry.
a. True
b. False
Successfully implementing a cost leadership strategy requires
a. freedom from constraining rules.
b. centralization of authority.
c. communication between functional silos.
d. sharing of competencies among divisions.
When rival firms compete aggressively by trying to attract competitors’ customers, this
might be an indication of
a. an industry with low exit barriers.
b. increasing economies of scale.
c. slow industry growth.
d. high bargaining power among buyers.
A product’s value is created by each of the following EXCEPT
a. high cost and highly differentiated features.
b. low cost.
c. highly differentiated features.
d. low cost and highly differentiated features.
Technology is a critical resource for helping organizations learn how to continually
innovate.
a. True
b. False
All of the following are ways that a good or service can be differentiated EXCEPT
a. responsive customer service.
b. perceived prestige and status.
c. economies of scale and efficient operations.
d. engineering design and performance.
Acme Valves, Inc., has been a successful player in the oil field supply industry in the
last 15 years. Acme maintained its traditional strategy and product characteristics over
this time period. However, Acme has experienced declines in sales and profits over the
last four quarters. The CEO of Acme should
a. continue with the proven strategy because its returns over the long run are important.
b. focus on improving efficiency of production and cost control.
c. conduct an analysis of the external environment.
d. immediately begin making incremental adjustments to the traditional business
strategy in an effort to improve sales.
Innovation is the means by which the entrepreneur creates wealth.
a. True
b. False
CaseScenario2:JewellCompany.
Jewell Company (JC) is a $2 billion diversified manufacturer and marketer of simple
household items, cookware, and hardware. In the early 1950s, JC’s business consisted
solely of manufactured curtain rods that were sold through hardware stores and retailers
like Sears. Since the 1960s however, the company has diversified extensively through
acquisition into such businesses as paintbrushes, writing pens, pots and pans, and
hairbrushes. Over 90 percent of its growth can be attributed to these many small
acquisitions, whose performance it improved tremendously through aggressive
restructuring and its corporate emphasis on cost-cutting and cost controls. While JC’s
sixteen different lines of business may appear quite different, they all share the common
characteristics of being staple manufactured items and sold primarily through volume
retail channels like Walmart, Target, and Kmart. Because JC operates each line of
business autonomously (separate manufacturing, R&D, and selling responsibilities for
each line), it is perhaps best described as pursuing a related linked diversification
strategy. The common linkages are both internal (accounting systems, product
merchandising skills, and acquisition competency) and external (distribution channel of
volume retailers). JC is presently contemplating the acquisition of Plastico, a $3 billion
U.S.-based manufacturer of flexible plastic products like trash cans, reheatable and
freezable food containers, and a broad range of other plastic storage containers designed
for home and office use. While Plastico has been highly innovative (over 80 percent of
its growth has come from internal new product development), it has had difficulty
controlling costs and is losing ground against powerful customers like Walmart. JC
believes that the market power it wields with retailers like Walmart will help it turn
Plastico’s prospects around.
What difficulties might you expect JC to encounter related to its acquisition of Plastico?
CaseScenario3:BarracudaInc.
Barracuda Inc. has diversified beyond its early base as a lamp fixture manufacturer into
multiple hardware and plumbing fixture products that it sells to professionals (i.e.,
plumbers and electricians) and through the large volume do-it-yourself (DIY) stores
like The Home Depot and Lowe’s. While this successful growth has been achieved
primarily through acquisition, the company tends to let the acquired businesses run
independently. It has done so by looking to fragmented industries to acquire small firms
with efficient operations and good management teams. It then grows these businesses
through a combination of internal cash flow and debt, and directs new sales to the
professional and DIY channels. Barracuda has been particularly successful in the faucet
segment, which it practically reinvented though such technological innovations as the
washerless faucet, and marketing innovations like branding and good-better-best
merchandising. Barracuda has leveraged this merchandising strategy across its
businesses and, coupled with the explosive growth of the DIY channel, is spectacularly
profitable with a net profit after tax (NPAT) of 18 percent. The firm’s management is
looking to broaden its revenue base and has identified the home furnishings business as
sharing many characteristics with faucets, prior to Barracuda’s entry into faucets. It
plans to enter this industry through large-scale acquisitions. The landscape of the U.S.
home furnishings manufacturing industry consists of many players, none with
controlling share, and serious issues of overcapacity. There are presently 2500 home
furnishings firms, and only 600 of those have over 15 employees. Average NPAT is
between 4 and 5 percent, which also reflects the fact that few firms have good
managers. While the industry is still primarily composed of single-business family-run
firms, which manufacture furniture domestically, imports are
increasing at a fairly rapid rate. Some of the European imports are leaders in
contemporary design. Relatively large established firms are also diversifying into the
home furnishings industry via acquisition. Supplier firms to the home furnishings
industry are in relatively concentrated industries (like lumber, steel, and textiles), and
therefore typically offer fewer accommodations to the small furniture manufacturers.
Retailers, the intermediate customer of the home furnishings industry, are becoming
increasingly concentrated and the few large, successful furniture companies actually
have their own stores or have dedicated showrooms in the larger department stores.
Customers have many products to choose from, at many different price points, and few
home furnishing products beyond those of the larger companies have established
brands. Also, customers can switch easily among high and low-priced furniture and
other discretionary expenditures (spanning plasma TVs to the choice of postponing any
furniture purchase entirely).
Why would Barracuda consider acquisition as its preferred mode of entry into
furniture?
CaseScenario1:HeartsongLLC.
Heartsong LLC is a designer and manufacturer of replacement heart valves based in
Peoria, Illinois. While a relatively small company in the medical devices field, it has
established a worldwide reputation as the provider of choice high-quality, leading-edge
artificial heart valves. Most of its products are sold to large regional hospital systems
and research hospitals. Specialty heart centers are another emerging, but fast-growing,
market for its valves. While Heartsong would like to grow quickly, its growth is
constrained by the need to finance larger production runs and then carry this additional
inventory. For products like those of Heartsong, vendors typically do not collect
payment until the unit is actually used in surgery. Moreover, heart valves are usually
required on short notice, which means that they must be either onsite, or inventoried at
a nearby location. If nearby, then transport of the unit to a hospital or heart center
occurs within a matter of hours, and sometimes minutes. For this reason, accelerated
growth would require Heartsong to both finance increased production of its heart valves
and carry increased levels of inventory that are in fact sitting on its customers’ shelves.
In fact, inventory-carrying cost is its single largest cost outside of research and
development. While profitable growth is necessary if Heartsong is to continue
extending its competitive advantage through increasingly greater investments in basic
heart valve R&D, it is not clear that the company can internally support all these
increased financial commitments (R&D, manufacturing, and inventory). Doc Watson,
the CEO of Heartsong, is considering an outside contractor, EdFex, to handle the
inventorying, warehousing, and delivery of its valves. EdFex has secure, high-tech
warehouses in most major population centers around the country, and can ensure
delivery of a product to these markets from its warehouses in less than one hour.
What value-chain activities appear to underlie Heartsong’s competitive advantage?
Discuss how a cost leadership strategy can allow a firm to earn above-average returns
in spite of strong competitive forces. Address each of the five competitive forces.
What are the incentives for firms to use international strategies? What are the three
basic benefits firms can derive by moving into international markets?
What are the three basic benefits of international strategies?
Identify and define the two different types of network strategies.
Identify and describe the three major parts of the external environment. What is the
purpose for a firm to collect information about these aspects of its environment?
Hypercompetition is a characteristic of the current competitive landscape. Define
hypercompetition and identify its primary drivers. How can organizations survive in a
hypercompetitive environment?