Sm Exam 3 - Part 1

34 Questions | Total Attempts: 866

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Strategy Quizzes & Trivia

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Questions and Answers
  • 1. 
    Corporate strategy is concerned with:
    • A. 

      Where a firm chooses to compete i.e. in which industries

    • B. 

      How a firm chooses to compete in a specific industry

    • C. 

      Why a firm chooses to compete or not

    • D. 

      Answers a and b

  • 2. 
    Corporate strategy is concerned with:
    • A. 

      The scope of a firm's products

    • B. 

      The scope of a firm's activities

    • C. 

      The scope of a firm's structure and corporate governance system

    • D. 

      The firm's geographical scope

  • 3. 
    What is the difference between a firm's geographical scope and its vertical scope?
    • A. 

      The first describes the regions of the world where the firm is present and the second the stages of the industry value chain which the firm performs itself

    • B. 

      The first describes the number of countries and the second the number of horizontal businesses where the firm is present

    • C. 

      The two are highly inter-related

    • D. 

      It's not always clear what the difference is

  • 4. 
    The starting point for strategy is usually:
    • A. 

      What business(es) are we in?

    • B. 

      How much profit do we want to make?

    • C. 

      Who are the customers?

    • D. 

      Should we be doing something else?

  • 5. 
    As a firm progresses, it is invariably the case that it expands its scope:
    • A. 

      In terms of its product, geographic and vertical scope

    • B. 

      In terms of its geographic and vertical scope

    • C. 

      In terms of its geographic and product scope

    • D. 

      This is not true. Some firms narrow some aspects of their scope, or voluntarily even break up

  • 6. 
    The main concepts to determine the scope of a firm's activities are:
    • A. 

      Economies of scope

    • B. 

      Transaction costs

    • C. 

      Corporate complexity

    • D. 

      All of the above

  • 7. 
    Economies of scope and economies of scale both relate to lower average cost but:
    • A. 

      Economies of scale refer to cost-advantage from higher volume of a single product

    • B. 

      Economies of scope refer to cost-advantage from spreading a common cost over multiple products

    • C. 

      Answers a and b

    • D. 

      None of the above

  • 8. 
    The existence of economies of scope are likely to lead a company to:
    • A. 

      Reduce the number of industries and/or products it's directly involved in

    • B. 

      Expand the scope of its activities in some relevant way

    • C. 

      Create a brand

    • D. 

      Not worry too much about fixed costs

  • 9. 
    Although economies of scope refer to spreading cost, this is not the case for brand extension:
    • A. 

      Because a brand doesn't cost anything - it's an asset

    • B. 

      Because although the brand costs money, this does not appear in the accounts

    • C. 

      Because the brand is to do with the marketing department, not production cost

    • D. 

      It IS still true for brand extension, since creating and maintaining a brand does cost a lot e.g. in advertising

  • 10. 
    A company in a mature industry which is good at cost-reduction is exhibiting:
    • A. 

      Economy of scale through better use of fixed assets

    • B. 

      Potential for economy of scope based on organisational or managerial capability

    • C. 

      Potential for economy of scope based on intangible resources

    • D. 

      No potential for economy of scope

  • 11. 
    Adam Smith, the famous economist, called the market mechanism:
    • A. 

      A necessary evil

    • B. 

      The invisible hand

    • C. 

      The visible hand

    • D. 

      The iron fist in the velvet glove

  • 12. 
    A significant determining factor on whether a firm conducts an activity internally is:
    • A. 

      Whether the transaction costs of buying in the activity in the market exceed the administrative cost of doing it themselves

    • B. 

      Whether transaction costs in the market of buying in the activity exceed the administrative cost buying it in

    • C. 

      How reliable their workforce is, compared with an external supplier's reliability

    • D. 

      None of the above

  • 13. 
    Increased corporate complexity because of expanded scope is caused by:
    • A. 

      The need for managers to understand a wider range of businesses

    • B. 

      The need for managers to operate differently to succeed in different businesses

    • C. 

      The extent of the linkages between the various businesses

    • D. 

      All of the above

  • 14. 
    A strategy of unrelated diversification is:
    • A. 

      Always a mistake

    • B. 

      Likely to be less risky than related diversification

    • C. 

      Not always as unrelated as it may seem e.g. the businesses may share some common attributes which can be exploited

    • D. 

      Always the last resort

  • 15. 
    The most often cited benefits of diversification are: 
    • A. 

      Growth, risk reduction and value creation

    • B. 

      Risk reduction and economies of scope

    • C. 

      Value creation and cost reduction

    • D. 

      Cash balancing and risk reduction

  • 16. 
    The managers of firms in low-growth, cash-generative industries often opt for diversification because:
    • A. 

      Shareholders expect managers to go for growth

    • B. 

      Low growth does not look good for managers with an eye on their next job

    • C. 

      Managers must do something positive

    • D. 

      They are often advised to do so by business consultants

  • 17. 
    One common argument against diversification strategies is:
    • A. 

      Managers do not have sufficient understanding of other industries

    • B. 

      Diversification is simply a poor strategy

    • C. 

      Shareholders can invest in other industries themselves, achieving risk-reduction more efficiently

    • D. 

      All of the above

  • 18. 
    A major reason why managers are attracted to diversification is:
    • A. 

      They believe that shareholders expect it of them, to show dynamism

    • B. 

      It sharpens their managerial skills

    • C. 

      Many managers are attracted to the extra complexity of diversification

    • D. 

      The experience may reduce risk, and secure their job; and if not it looks dynamic for securing their next job

  • 19. 
     The primary source of value creation from diversification is likely to be:
    • A. 

      The linkages or synergies between the businesses concerned

    • B. 

      Risk reduction through balancing of counter-cyclical businesses

    • C. 

      Getting a price reduction when purchasing common resource inputs

    • D. 

      Balancing of cash generation, reducing the need to obtain investment finance externally

  • 20. 
    Gaining the advantage from economies of scope requires that:
    • A. 

      A company must internally expand its scope

    • B. 

      A company must usually enter into a licence arrangement

    • C. 

      A company must usually acquire a company who is expert in an additional business

    • D. 

      The firm is be able to spread common cost somehow, either by performing the additional activity internally, or by licensing the resource

  • 21. 
    An internal capital market occurs when:
    • A. 

      A diversified company sets up a finance firm as one of its businesses

    • B. 

      Enough cash generated by one set of internal firms is used by other internal firms in need of cash

    • C. 

      A subsidiary starts a money-lending business, offering loans to other subsidiaries

    • D. 

      External sources of capital become too expensive

  • 22. 
    A major problem associated with internal capital markets is:
    • A. 

      Despite the cost-savings, poor investment decisions tend to be made

    • B. 

      They deny banks much-needed business

    • C. 

      They are illegal in some countries

    • D. 

      The money should have been given to shareholders as dividends

  • 23. 
    An advantage of diversification is a better internal labour market because:
    • A. 

      There's a saving on advertising costs

    • B. 

      There's no commission payable to the internal Human Resources department

    • C. 

      Employees can be transferred rather than hired / fired, and the firm knows these people well

    • D. 

      The firm does not need to invest so much in training new recruits

  • 24. 
    Michael Porter's "attractiveness test" means that a firm considering diversifying into another industry should:
    • A. 

      See that the barriers to entry to that industry are low

    • B. 

      Be able to see a way to make superior profits in that industry

    • C. 

      Also consider how unattractive their existing industry is, by comparison

    • D. 

      See that some firms in that industry have left, leaving space for newcomers

  • 25. 
    Of Michael Porter's 3 tests of whether a proposed diversification will create value, the most important one is usually:
    • A. 

      None. They are all equally important

    • B. 

      The "attractiveness" test

    • C. 

      The "cost of entry" test

    • D. 

      The "better-off" test

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