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What Level of Diversification is this: 95% of Total Revenue
Ex: Crocs (primary sells foam clogs, they do sell things like Jibbitz but a majority of revenue comes from crocs
Single Business
What Level of Diversification is this: 70-95% of Total Revenue comes form a single business
Ex: USPS, a majority of its revenue (82%) is for delivery business but the other 18% over non-package business (stamps?)
Dominant Business
What are benefits of a dominant or single business?
They develop capabilities useful for their specific markets and offer superior products and services.
They can achieve economies of scale and use resources efficiently.
What Level of Diversification is this: Less than 70% Revenue comes from a single business and ALL businesses share product, technological and distribution linkage
Ex: BIC razors, pens, lighters (They all have that plastic connection and disposable cheap type vibe, so they share all of that in common)
Related Constrained
What Level of Diversification is this: less than 70% of
revenue comes from the dominant business, and there
are only limited competency links between businesses
Ex: In class Tailgate scenario like Academy, they sell grills, stuff for sports, TVs, they all kinda share that purpose of Tailgating but they donât share any type of production (you canât make a TV with the stuff you make a cooler from )
Related Linked
What Level of Diversification is this: Less than 70% of revenue comes from the dominant business, and there are no common links between businesses.
Ex: GE, General Electric which makes anything from lightbulbs to jet engines
Unrelated Diversification AKA Conglomerate (holding company)
______ are actions a firm takes to gain a competitive advantage by selecting and managing a group of different businesses competing in different product markets
Corporate Level Strategy
What are economies of scope?
A) Revenue increases that occur when a firm enters unrelated markets
B) Cost savings that occur when a firm transfers capabilities and competencies developed in one business to another
C) Benefits gained from focusing on a single-product line
D) Cost reductions achieved by cutting employee benefits
Cost savings that occur when a firm transfers capabilities and competencies developed in one business to another
_____ is the set of mechanisms used to manage relationships among stakeholders and to determine and control the strategic direction and performance of organizations
Corporate Governance
If I am a common shareholder in todayâs world, am I willing to be a little more risky or a little less risky?
More risky, because your portfolio is typically not all in one stock (you most likely have a diversified portfolio) and you can afford for one of your stocks to not do so well. You would WANT the company to be more risky and so you get higher returns
Q: What is the definition of Normative Ethics Creep?
A) The study of ethical theories that define what is morally right or wrong
B) Gradually evolving a concept already accepted as ethically sound to introduce new ideas under its existing ethical framework
C) The rejection of traditional ethical values in favor of modern interpretations
D) The process of simplifying ethical debates to avoid disagreement
Gradually evolving a concept already accepted as ethically sound to introduce new ideas under its existing ethical framework
The more sub-concepts that are added to a definition, the more areas there are for people to strongly,even vehemently disagree with each other. It goes back to the old (humorous) adage ââNever talk about politics or religion at a social gathering
What is the definition of Normative Ethics?
A) The study of how people behave in different moral situations
B) The analysis of ethical dilemmas in historical contexts
C) The branch of philosophical ethics that investigates how one ought to act in a moral sense
D) The rejection of moral absolutes in favor of relative truths
The branch of philosophical ethics that investigates how one ought to act in a moral sense
It relates to when people tell you what you should or shouldnât do (what is ârightâ and âwrongâ
What is the Definition of Sustainability by the United Nations in 1987?
âMeeting the needs of the present without compromising the ability of future generations to meet their own needs.â
What was the NEW Definition of Sustainability created by Deloitte in 1992?
 Adopting business strategies and activities that meet the needs of the enterprise and its stakeholders today while protecting, sustaining, and enhancing the human and natural resources that will be needed in the future.Â
What significant changes were included in the Deloitte Definition of sustainability (1992)?
A) Added focus on reducing business involvement and prioritizing individuals' needs
B) Included stakeholders and emphasized protecting, sustaining, and enhancing human and natural resources in a general sense
C) Shifted entirely to individual-focused resource needs without regard for stakeholders
D) Removed the emphasis on long-term resource management to focus on short-term goals
Included stakeholders and emphasized protecting, sustaining, and enhancing human and natural resources in a general sense
Q: What does it mean to advocate in the context of ethical behavior?
A) To suggest or encourage a course of action without enforcing it
B) To impose rules with legal consequences
C) To develop personal opinions without sharing them
D) To enforce strict compliance with laws and regulations
To suggest or encourage a course of action without enforcing it
Theres a difference between me saying hey don't do that that's not right, (advocating) versus me saying you absolutely canât do that because Iâll fine you/got to jail
Q: What is the definition of Corporate-Level Strategy?
A) Actions a firm takes to operate within a single product market
B) Actions a firm takes to gain competitive advantage by managing multiple businesses in different product markets
C) Strategies for improving individual product performance within one market
D) The process of focusing only on a firmâs core business
Actions a firm takes to gain competitive advantage by managing multiple businesses in different product markets
Q: What is the main goal of Corporate-Level Strategy?
A) To reduce competition in a single market
B) To ensure all resources are focused on a single business area
C) To gain competitive advantage by selecting and managing diverse businesses in different product markets
D) To merge unrelated businesses without seeking market advantages
To gain competitive advantage by selecting and managing diverse businesses in different product markets
Q: Which of the following is an example of value-creating diversification?
A) Anti-Trust
B) Financial Economies
C) Diversifying Managerial Employment Risk
D) Tax Laws
Financial Economies- Involves cost savings or benefits through efficient allocation of financial resource.
Ex: For example, a company might share financial expertise or resources to improve performance in multiple areas, increasing overall profitability.
Q: What is an example of value-reducing diversification?
A) Market Power
B) Economies of Scope
C) Diversifying Managerial Employment Risk
D) Tax Laws
Diversifying Managerial Employment Risk- Value-reducing diversification happens when managers prioritize their personal interests, such as job security, over shareholder value. By diversifying into unrelated businesses, managers reduce their employment risk (e.g., if one business fails, others may succeed), but this often dilutes focus and resources, reducing overall value for shareholders.
âCost savings that occur when a firm transfers capabilities and competencies developed in one of its businesses to another of its businesses. â Defines what term from this semester?
A) Agency Theory
B) Dominant Business
C) Sustainability Definition by United Nations
D) Economies of Scope
Economies of Scope:
Q: What does market power enable a firm to do?
A) Merge with competitors to eliminate market threats
B) Sell products at higher prices and/or reduce costs below competitors
C) Monopolize industries through restrictive practices
D) Avoid government regulations by being innovative
Sell products at higher prices and/or reduce costs below competitors
Q: How is market power linked to competitive advantage?
A) It allows firms to establish monopolies.
B) It enables firms to eliminate competition entirely.
C) Competitive advantages, such as branding or cost leadership, create forms of market power.
D) It reduces the need for innovation and customer satisfaction.
Competitive advantages, such as branding or cost leadership, create forms of market power.
Q: What does forward integration involve?
A) A firm acquiring competitors to dominate its market segment
B) A firm moving into an adjacent line of business closer to the delivery of its products to end-users
C) A firm outsourcing its production processes to reduce costs
D) A firm partnering with suppliers to improve input quality
A firm moving into an adjacent line of business closer to the delivery of its products to end-users
Imagine a company that manufactures shoes. Normally, this company might produce the shoes and then sell them to retailers, who handle getting the products to customers.
If the shoe manufacturer decides to open its own stores or sell directly online, bypassing the retailers, thatâs ______ integration
Forward Integration because they are one step closer to the customer in the supply chain
Q: What is the primary benefit of efficient internal capital allocations in the context of financial economies?
A) It allows a company to diversify its operations into unrelated industries
B) It improves the use of financial resources within a companyâs own operations to reduce risk and improve returns
C) It facilitates mergers and acquisitions to expand market share
D) It focuses on lowering the cost of goods sold by external suppliers
It improves the use of financial resources within a companyâs own operations to reduce risk and improve returns
Memory updated
Here are some challenging multiple-choice flashcards on Financial Economies:
Q: What does "financial engineering" typically involve?
A) A company restructuring its internal operations to cut costs without acquiring other businesses
B) Acquiring another company or parts of it, and restructuring its assets to realize financial gains
C) Selling off non-core assets to improve liquidity
D) Outsourcing capital allocation to third-party financial advisors
*Hint, Prof referenced Pretty Womenâs ML when talking about this
Acquiring another company or parts of it, and restructuring its assets to realize financial gains (Thatâs what the ML did in Pretty Women)
What are some External Incentives to Diversify, in terms of Diversification?
Antitrust Legislation: Laws in the 1960/70s discouraged mergers that created increased market powder
Tax Laws: Tax Reform Act made dividens more appealing option for investors while making corporate acquisitions and investments in high-performance industries less attractive due to tax changes.
In terms of Separation of Ownership and Managerial Control, Plus Agency Theory:Â
If I am a common shareholder in todayâs world, am I willing to be a little more risky or a little less risky?
More risky, because your portfolio is typically not all in one stock so you want your company to be more risky and make more money.
Professional managers whose wealth is heavily tied into one company would want to be less risky as if something happens to that company, theyâre cooked.
What defines a negative externality in economic terms?
A) When a product or service provides a benefit to the community beyond the immediate consumer
B) When the production or consumption of a product results in a net cost to a third party
C) When a company reduces the cost of production through environmental sustainability
D) When market prices are set to reflect the true cost of production
When the production or consumption of a product results in a net cost to a third party
Q: Which of the following is an example of a negative externality?
A) A factory implementing a recycling program to reduce waste
B) Noise pollution from a construction site disrupting nearby residents
C) A company creating new jobs by expanding operations
D) A community benefiting from a public park built by a private company
Noise pollution from a construction site disrupting nearby residents=
What percent of shares does a Large-Block Shareholder hold?
5 percent - Might not seem like a lot but, if Amazon is worth $3 trillion and you own 5%, that is $150 billion dollars of Amazon that you own
These are characterized as what types of problems:
Principals and agents often have divergent interest and goals.Â
Shareholders lack direct control of large, publicly traded corporations.
****(The gist of ___ Problem) An agent may make decisions that result in the pursuit of goals that conflict with those of the principal.
It is difficult or expensive for the principal to verify that the agent has behaved appropriately.
Agent falls prey to managerial opportunism
Agency Relationship Problems
Note 
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