The use of poison pills increases the chance that a poorly performing firm will be taken
over.
a. True
b. False
In recent years, the number of individuals who are large-block shareholders have
declined and been replaced by institutional owners such as mutual funds and pension
funds.
a. True
b. False
Ethically responsible companies design and use governance mechanisms that will at
least minimally satisfy stakeholders’ interests.
a. True
b. False
_______ provide information about the results of past actions, but do not communicate
the drivers of the firm’s future performance.
a. Financial controls
a. True
b. False
Capital market stakeholders include
a. industry competitors.
b. shareholders.
c. employees.
d. government regulators.
GE (discussed in the Chapter 6 Opening Case) is an example of a firm that has used
internal capital market allocation as a means of creating value even though it competes
using a related linked rather than an unrelated diversification strategy.
a. True
b. False
In addition to determining new strategic initiatives, top-level managers also develop the
appropriate organizational structure and reward systems of a firm.
a. True
b. False
CaseScenario3:Bunnywac.
Bunnywac is a global producer and seller of batteries for consumer electronics, and
competes primarily by providing battery products equal in performance at a lower price.
The worldwide battery industry suffers from issues of overcapacity and
commoditization, brand segmentation and proliferation, the growing strength of global
retailers, and the low-cost threat of new entrants from Asia. Bunnywac has grown
quickly into one of the leading players in the battery industry primary through
horizontal acquisitions, and is now counted among the top four companies in North and
Latin America. Its presence in Europe and Latin America is negligible. A key factor in
Bunnywac’s rapid growth is its technology outsourcing arrangement with Mats. Mats is
one of Japan’s largest technology holding companies and Bunnywac’s core battery
technology is licensed from Mats. Bunnywac’s license with Mats expires soon and it is
concerned that Mats will not renew it, or will renew it only for a substantial price
premium. Consequently, Bunnywac’s CEO is exploring the possibility of developing its
core technology in-house.
How will Bunnywac’s structure likely need to change if it does begin developing its
core battery technologies in-house?
The most effective defense against a hostile takeover is the poison pill strategy.
a. True
b. False
All of the following describe strategies EXCEPT
a. they are purposeful.
b. they cannibalize the old strategy.
c. they precede the taking of actions to which they apply.
d. they demonstrate a shared understanding of the firm’s vision and mission.
CaseScenario3:BarracudaInc.
Barracuda Inc. is a lamp-fixture manufacturer that is considering an entry strategy into
the U.S. home-furnishings manufacturing industry. The existing landscape consists of
many players but none with a controlling share. There are currently 2,500 home
furnishings firms, and only 600 of those have more than 15 employees. Average net
profit after tax is between 4 and 5 percent. While the industry still primarily comprises
single-business, family-run firms that 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 (such as lumber, steel, and textiles).
Retailers, the intermediate customer of the home-furnishings industry, have been
traditionally very fragmented. Customers have many products to choose from, at many
different price points, and few home-furnishing products have strong brands. Also,
customers can switch easily among high- and low-priced furniture and other
discretionary expenditures (spanning big-screen TVs to the choice of postponing any
furniture purchase entirely).
Using the five-forces framework, summarize the opportunities and threats facing
Barracuda as it considers entry into the home-furnishings manufacturing industry.
Which threats are greatest to current incumbents?
Describe the advantages of integrating cost leadership and differentiation strategies.
What is value? Why is it important?
How have changing conditions in the external environment influenced the type of M &
A activity firms pursue?
What are high exit barriers and how do they affect the competition within an industry?
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).
Given the history of Barracuda, what guidelines would you suggest to management
regarding their acquisition strategy in the home furnishings industry?
CaseScenario2:Raptec
Raptec was incorporated in 1991 and went public on the Nasdaq Stock Market in 1996.
Raptec’s strategy is to become the global leader in innovative storage solutions. Raptec
is an S&P 500 and a Nasdaq Stock Market 100 member. The company’s hardware and
software solutions for eBusiness and Internet applications move, manage, and protect
critical data and digital content. Raptec operates in three principal business segments:
Direct Attached Storage (“DAS”), Storage Networking Solutions (“SNS”) and
Software. These hardware and software products are found in high-performance
networks, servers, workstations, and desktops from the world’s leading OEMs, and are
sold through distribution channels to Internet service providers, enterprises, medium
and small businesses, and consumers. Since the time it went public, Raptec has
experienced rapid growth and consistently profitable operations. In early 2007, the
company announced its plan to spin-off the software segment, subsequently
incorporated as Axio, Inc., in the form of a fully independent and separate company.
Software was Raptec’s most profitable and fastest growing segment. By mid-2007
Raptec had completed the initial public offering of approximately 15 percent of Axio’s
stock, and then distributed the remaining Axio stock to Raptec’s stockholders in a
tax-free distribution.
Prior to the spin-off, how would you go about identifying the respective boundaries of
the Raptec and Axio businesses?
CaseScenario2:B.B.Mangler.
B.B. Mangler is a top U.S. business-to-business distributor of maintenance, repair, and
service equipment, components, and supplies such as compressors, motors, signs,
lighting and welding equipment, and hand and power tools. Its industry is typically
referred to as MRO, an acronym for maintenance, repair, and supplies. MRO products
are typically small and fairly inexpensive (such as light bulbs and washers), but often
needed on short notice. Mangler states its strategy as having the “capacity to offer an
unmatched breadth of lowest-total-cost MRO solutions to business.” Mangler’s GoMRO
sourcing center for indirect spot buys locates products through its database of 8,000
suppliers and 5 million products. Mangler has 388 physical branches in the United
States, including Puerto Rico (90 percent of sales), 184 in Canada, and 5 in Mexico.
Customers include contractors, service and maintenance shops, manufacturers, hotels,
governments, and health care and educational facilities. Mangler also provides
materials-management consulting services.
What opportunities does the Internet provide to Mangler, both domestically and
internationally?
Describe a value chain analysis. How does a value chain analysis help a firm gain
competitive advantage?