Unit 6
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What is the performance outcome for firms engaging in related diversification compared to those that are undiversified?

  • Related diversification performs worse than unrelated diversification.
  • There is no significant difference in performance.
  • Undiversified firms achieve higher returns than related diversification firms.
  • Related diversification leads to better performance in terms of returns. (correct)

    • What typically happens to performance when a firm switches from related to unrelated diversification?

  • Performance significantly increases due to better resource allocation.
  • Performance improves as unrelated diversification opens new markets.
  • Performance remains constant as the firm adjusts.
  • Performance declines due to difficulties in creating synergies. (correct)

    • What is a critical factor for the success of related diversification?

  • Minimizing communication across departments.
  • Effective top management coordination and synergy generation. (correct)
  • High levels of product differentiation.
  • Reducing managerial efforts to save costs.

    • What defines vertical integration in a firm?

    <p>Acquiring suppliers and distributors across various production stages.</p> Signup and view all the answers

    Why are there rarely fully integrated firms that cover every stage in the production cycle?

    <p>It is difficult for firms to efficiently manage all stages.</p> Signup and view all the answers

    What is one way to generate synergies in related diversification?

    <p>Sharing resources and capabilities</p> Signup and view all the answers

    Which of the following can be considered as a benefit of transferring knowledge between businesses?

    <p>Attaining sustainable competitive advantages</p> Signup and view all the answers

    The transfer of which of the following is crucial for imbibing businesses with competitive advantages?

    <p>Core competences</p> Signup and view all the answers

    Which factor does NOT contribute to coordination costs in a diversified portfolio?

    <p>Innovation in product design</p> Signup and view all the answers

    In what areas are resources usually shared to create synergies?

    <p>R&amp;D, procurement, and marketing</p> Signup and view all the answers

    What major risk is associated with related diversification?

    <p>Difficulty and cost of generating synergies</p> Signup and view all the answers

    Which activity is LEAST likely to involve shared resources and capabilities?

    <p>Corporate governance</p> Signup and view all the answers

    What must management do to create synergies in related businesses?

    <p>Engage in continued effort</p> Signup and view all the answers

    What best describes unrelated diversification?

    <p>Launching new businesses that have no connection to previous ones.</p> Signup and view all the answers

    Which strategy involves a firm becoming its own supplier?

    <p>Backward vertical integration</p> Signup and view all the answers

    What is the main purpose of restructuring in a firm?

    <p>To reorganize the business portfolio and possibly reduce its size.</p> Signup and view all the answers

    Which option correctly highlights a characteristic of expansion strategy?

    <p>It exploits traditional products and markets.</p> Signup and view all the answers

    What is the primary goal of market penetration?

    <p>To increase sales volume from current and new customers</p> Signup and view all the answers

    Which of the following describes vertical scope in a firm?

    <p>Increasing or decreasing the level of vertical integration.</p> Signup and view all the answers

    What defines related diversification for a firm?

    <p>Launching businesses that share connections with existing offerings.</p> Signup and view all the answers

    Which of the following marketing actions is NOT typically associated with market penetration?

    <p>Launching entirely new product lines to new markets</p> Signup and view all the answers

    In what situation is market penetration considered the right strategy?

    <p>When the industry is experiencing rapid growth</p> Signup and view all the answers

    What does horizontal or product scope involve?

    <p>Maintaining a specialized focus or enlarging the business portfolio.</p> Signup and view all the answers

    What is consolidation in the context of business strategies?

    <p>A process that maintains the current scope without changes.</p> Signup and view all the answers

    Which risk is directly associated with pursuing a market penetration strategy?

    <p>Inability to quickly switch to new activities if conditions change</p> Signup and view all the answers

    What can market penetration help a firm to exploit effectively?

    <p>Competitive advantages like cost leadership</p> Signup and view all the answers

    What is a primary reason that management may prioritize value creation for shareholders?

    <p>To enhance financial returns</p> Signup and view all the answers

    When increasing the frequency of product use, which marketing variable is typically utilized?

    <p>Offering incentives for repeat purchases</p> Signup and view all the answers

    Which factor can lead to the decision to withdraw from a business?

    <p>Poor business performance</p> Signup and view all the answers

    What does product development primarily aim to achieve?

    <p>To keep existing markets while introducing new product characteristics</p> Signup and view all the answers

    What is indicated by a business that does not generate synergies?

    <p>It creates inefficiencies within the firm</p> Signup and view all the answers

    How might a firm increase the quantity of product consumed at once?

    <p>By providing larger package sizes or bulk discounts</p> Signup and view all the answers

    What is one cause of poor results for a business that may necessitate restructuring?

    <p>High internal costs</p> Signup and view all the answers

    What does organizational inertia often lead to in a business context?

    <p>Declining responsiveness to change</p> Signup and view all the answers

    What is the purpose of restructuring in the context of a poorly performing business?

    <p>To potentially revitalize the business</p> Signup and view all the answers

    What is one situation that may arise due to over-diversification of a business portfolio?

    <p>Difficulty in generating synergies</p> Signup and view all the answers

    Which of the following reflects the relationship between corporate strategy and value creation?

    <p>Ineffective strategies can hinder value creation</p> Signup and view all the answers

    What is a potential benefit of vertical integration in an oligopolistic market?

    <p>Increasing market power over non-integrated rivals</p> Signup and view all the answers

    How can a vertically integrated firm manipulate prices effectively?

    <p>Through price squeezing to reduce rivals' margins</p> Signup and view all the answers

    What is a risk associated with vertical integration related to resource commitment?

    <p>Increased overall risk due to resource allocation</p> Signup and view all the answers

    What might be a consequence of higher exit barriers in a vertically integrated firm?

    <p>Difficulty in exiting the industry when necessary</p> Signup and view all the answers

    What does a lack of flexibility in a vertically integrated firm imply?

    <p>Difficulty in adjusting to market changes affecting multiple stages</p> Signup and view all the answers

    What can create significant entry barriers for non-integrated firms in an industry?

    <p>Product differentiation and market power of integrated firms</p> Signup and view all the answers

    What is the main reason for a vertically integrated firm's reduced overall margin?

    <p>A competitive strategy to increase market share</p> Signup and view all the answers

    Which of the following is NOT a risk of vertical integration?

    <p>Simplified logistics due to shared resources</p> Signup and view all the answers

    Study Notes

    Defining the Scope of the Firm

    • Scope of a firm: range of products and markets a firm wants to compete in, and how those businesses relate to each other.
    • This is a key starting point for the firm's strategy and future development.
    • Included in the firm's mission, expressing what's essential for operations.
    • A model with 3 dimensions (Abell's Model):
      • Functions (what the firm does)
      • Customer groups (who the firm serves)
      • Technologies (how the firm operates)

    Defining a Firm's Field of Operations

    • A firm's scope is defined by:
      • Scope of functions: the variety of customer needs met.
      • Scope of customers: target groups based on segmentation criteria (demographics, etc.).
      • Scope of technologies: method of competing (e.g., manufacturing, service delivery).

    Differentiation Between Strategic Segments

    • The degree to which a firm treats different segments differently concerning functions, customers, and technologies.

    Firm Growth and Development

    • Firm growth: increases in size (assets, output, sales, etc.).
    • Growth is an important factor in strategy definition.
    • Firm development: quantitative and qualitative changes in the firm's scope (related to modifications in its activities).
      • Often accompanied by growth, but not always.

    Directions for Development

    • Expansion: Maintaining the current relationship between product/service and market.
    • Diversification: New products and markets; a fresh start.

    Market Penetration

    • Increase the volume of sales by targeting existing customers or looking for new ones.

    Product Development

    • Remaining in the existing market but with products with new or different characteristics.
    • Can be technological innovation or new versions/specifications.

    Market Development

    • Existing products in new markets.
    • Uses existing technological resources and capabilities to sell to new markets.

    Firm Diversification

    • Adding new products and new markets to existing ones.
    • Operates in new competitive environments.
    • Implies new knowledge, techniques, management processes, and systems.
    • One possible outcome is the changing organizational structure.
    • Businesses are similar concerning resources, distribution channels, technologies, and markets.
    • Complementary businesses with common characteristics.

    Unrelated Diversification

    • No relationship between businesses.
    • Diversification is considered an investment portfolio.

    Vertical Integration

    • Entering activities involved in the production cycle of a product or service.

    • Going backward (suppliers) or forward (customers).

    Restructuring Business Portfolio

    • Modifying the firm's scope and potentially divesting from certain businesses.
    • Can stem from management priorities differing from growth or value creation.
    • Reasons for restructuring may include poor performance.

    Business Restructuring

    • Firms withdraw from a business due to poor performance.
    • Reasons for poor performance may have various reasons.
    • There are also opportunities for different actions when restructuring.

    Portfolio Restructuring

    • Redefining the business portfolio.
    • This may involve new or current businesses.

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    Description

    This quiz explores the fundamental concepts of defining a firm's scope, including the range of products, markets, and the relationships between different business functions. It also delves into Abell's Model and how strategic differentiation is applied across various segments. Test your understanding of how firms establish their mission and operational strategies.

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