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Exam 6: Corporate-Level Strategy

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Question 31

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During the 1990s top executives of Titanic, Inc., followed a pattern of aggressive acquisitions and diversification. Now, Titanic is performing poorly and earning below average returns. Lusitania, a large conglomerate firm, is in the final stages of purchasing Titanic. Lusitania has announced that it will fire Titanic's current top executives. The Titanic executives may not be worried about their impending job loss if they

A) plan to take poison pills.
B) have golden parachutes.
C) have silver handcuffs.
D) have ironclad contracts.

E) None of the above
F) All of the above

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Question 32

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The ultimate test of the value of a corporate-level strategy is whether the

A) corporation earns a great deal of money.
B) top management team is satisfied with the corporation's performance.
C) businesses in the portfolio are worth more under the management of the company in question than they would be under any other ownership.
D) businesses in the portfolio increase the firm's financial returns.

E) A) and D)
F) C) and D)

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Question 33

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Diversification strategies can be used with both value-creating and value-neutral objectives.

The use of poison pills increases the chance that a poorly performing firm will be taken over.

Large diversified businesses often face what is known as the "conglomerate discount." This discount means that investors

United Technologies, Textron, Samsung, and Hutchison Whampoa Limited are examples of diversified firms that have no relationships between their businesses. These firms all use the strategy of unrelated diversification.

In making a decision to diversify, managers should use value-creating reasons or face the risk that their firms will be acquired and they could lose their jobs. Which of the following is a value-creating reason to diversify?

Antitrust regulation, tax laws, and low performance are all value-neutral reasons why firms engage in diversification.

Case Scenario : Syco. Syco is a diversified company that has six primary lines of business. Fifty percent of its revenues and 18 percent of its profits come from retailing. Most of its retail outlets are discount department stores that serve as anchor tenants for large suburban shopping malls. The remaining businesses are broken out as follows: Insurance accounts for 30 percent of revenues and 50 percent of profits; consumer credit card operations are 6 percent of sales and 17 percent of profits; 5 percent of revenues and 6 percent of profits come from its stock brokerage business; commercial and residential real estate operations generate 4 percent of sales and 8 percent of profits; finally, 5 percent of revenues and 1 percent of profits come from its online portal business. The company's management states that all these businesses are essential to its competitive future. -(Refer to the above Case Scenario ) Develop a logical argument that would lead you to describe Syco's diversification type as related linked and another logical argument that Syco's diversification type is related constrained. For both the related linked and for the related constrained arguments, what product, technological, or distribution activities might link these businesses together? Part 2: Would you describe either of the logical arguments you developed in response to Part 1 as a good corporate strategy?

Revenues for United Parcel Service (UPS) come from the following business segments: 61 percent from U.S. package delivery operations, 22 percent from international package delivery, and 17 percent from non-packaging operations. Which best describes the corporate level strategy of UPS?

The basic types of operational economies through which firms seek value from economies of scope are

What are the five categories of businesses based on level of diversification?

Corporate-level strategies are strategies a firm uses to diversify its operations from a single business competing in a single market into several product markets and, most commonly, into several businesses.

One of the challenges facing Foster's Group in the Opening Case were problems in implementing the sharing of activities between the beer and wine businesses. This is a common risk for firms using the ______________diversification strategy.

A firm uses a corporate-level diversification strategy for a variety of reasons all of which have to do with ways to create value.

Low performance is associated with increased diversification.

Case Scenario : Walt Disney Company. Walt Disney Company is famed for its creativity, strong global brand, and uncanny ability to take service and experience businesses to a higher level. In the 1970s, the company realized nearly 90% of its revenues from its cartoons and the Disneyland theme park in Anaheim, CA. By the beginning of the 21st Century, Disney had not only opened up more parks and ramped up its output of animated films, it had also diversified into many businesses well beyond its traditional core of high-quality cartoon animation and theme parks. For instance, the Disney empire diversified vertically and horizontally into retail (The Disney Store, since licensed to The Children's Place) , cruise lines, theaters, motels, and the Disney Press. It also moved into new product offerings such as sports franchises, TV networks (ABC and ESPN) and stations, Miramax, Broadway shows (Beauty and the Beast) , and vacation clubs. International growth included EuroDisney and Hong Kong Disney and new releases of TV shows, videos, and movies worldwide. Indeed, while many of Disney's businesses had some tie to Mickey Mouse, only about 28% of total revenues now came directly from its parks. -(Refer to the above Case Scenario ) What level and type of diversification best characterized Disney at the beginning of the 21st Century?

Differentiate between corporate-level and business-level strategies and give examples of each.

Foster's Group discussed in the Opening Case is an example of a firm following the related constrained diversification strategy (i.e., different businesses that are highly related).

Companies in emerging markets frequently use the unrelated diversification strategy because of the absence of a "soft infrastructure" in those markets.