Question 1

Over the past 30 years:

Accepted Answer

A) Firms have had to refocus to be profitable 
B) Diversification has been unprofitable 
C) The trend has been to refocus on the core business 
D) All of the above 
A) Firms have had to refocus to be profitable 
B) Diversification has been unprofitable 
C) The trend has been to refocus on the core business 
D) All of the above C

Question 2

Bringing different businesses under a single ownership in theory:

Accepted Answer

A) Creates value for shareholders 
B) Does not create value for shareholders, by itself 
C) Has negative impact on the creation of shareholders' value, by itself 
D) Creates value for shareholders if the cash flows of the businesses are not correlated 
A) Creates value for shareholders 
B) Does not create value for shareholders, by itself 
C) Has negative impact on the creation of shareholders' value, by itself 
D) Creates value for shareholders if the cash flows of the businesses are not correlated B

Question 3

What does diversification over time show us?

Accepted Answer

Over time, the "diversification pendulum" has swung away from intensive diversification to a trend toward concentration, and greatly reduced levels of diversification.
The diversification era took place approximately between 1950 and 1980, when it was an important source of corporate growth. A new corporate form, the conglomerate, emerged in the 1970s, through multiple and unrelated acquisitions. A common idea among managers was to not consider industry specific knowledge as critical for the success of a diversified firm, because techniques of financial and strategic management would compensate for the absence of such knowledge and experience.
After 1980, the trend reversed and diversification decreased, due mainly to three factors:
a) a shift in corporate goals from growth to profitability
b) inefficiencies of corporate management, within a conglomerate, during turbulent economic times
c) the emergence of new strategic thinking about the conditions under which unrelated diversification may be profitable and desirable, and the development of new approaches based on the construction of competitive advantages derived from a firm's resources and capabilities
This evolution demonstrates the power of the "general thinking" in the managerial field, the variations of positions firms take in regard to diversification across geographies and time, and the fact that most firms in fact "test" managerial practices, and then use the result as a lesson to change them. No one really knows in advance which managerial practice is going to be successful.

Question 4

CAPM theory indicates that:

Accepted Answer

A) Combining several firms under one owner may offset specific risk, but has no effect on systematic risk 
B) A diversified portfolio should only be undertaken by corporate finance specialists 
C) Spreading risk through diversification may benefit only stakeholders other than shareholders 
D) A and c above 
A) Combining several firms under one owner may offset specific risk, but has no effect on systematic risk 
B) A diversified portfolio should only be undertaken by corporate finance specialists 
C) Spreading risk through diversification may benefit only stakeholders other than shareholders 
D) A and c above

Question 5

Which firms in low-growth and cash-flow rich industries could have been tempted by diversification?

Accepted Answer

A) Mittal Steel 
B) 3M 
C) Oil and tobacco firms 
D) Microsoft 
A) Mittal Steel 
B) 3M 
C) Oil and tobacco firms 
D) Microsoft

Question 6

Does diversification confer market power?

Accepted Answer

The increase of market power and the eli

Question 7

One reason for the refocusing after 1980 was the slowdown in growth highlighting the inadequate profitability of firms whose CEOs had hitherto pursued growth as a primary objective

Accepted Answer

A) True 
 B)False

Question 8

Under the Porter model, it really only matters that the combined firm is better-off than had acquirer and acquiree remained separate.

Accepted Answer

A) True 
 B)False

Question 9

The emphasis of large companies in the era 1950-80 was on:

Accepted Answer

A) Spreading risk through involvement in a portfolio of businesses, often unrelated 
B) Overall sales growth 
C) Growth in the overall size of the firm e.g. employees, assets 
D) All of the above 
A) Spreading risk through involvement in a portfolio of businesses, often unrelated 
B) Overall sales growth 
C) Growth in the overall size of the firm e.g. employees, assets 
D) All of the above

Question 10

The distinction between the respective definitions of related and unrelated businesses:

Accepted Answer

A) Is always clear 
B) Is extremely confusing 
C) Is somewhat unclear, and is a matter of context and judgment 
D) Is a moot point 
A) Is always clear 
B) Is extremely confusing 
C) Is somewhat unclear, and is a matter of context and judgment 
D) Is a moot point

Question 11

The primary reasons for diversification during the period prior to 1980 were growth and risk reduction

Accepted Answer

A) True 
 B)False

Question 12

Research shows that firms with exceptional performance are characterized by:

Accepted Answer

A) Strict financial discipline 
B) Rigorous analysis and valuation 
C) A willingness to close or sell existing businesses 
D) All of the above 
A) Strict financial discipline 
B) Rigorous analysis and valuation 
C) A willingness to close or sell existing businesses 
D) All of the above

Question 13

Conglomerates are:

Accepted Answer

A) Multiple related businesses under the umbrella of a single corporate parent 
B) Large firms characterized by inefficiencies and large corporate staff 
C) Highly diversified firms, generally created by multiple and unrelated acquisitions 
D) Large firms, but with no core business 
A) Multiple related businesses under the umbrella of a single corporate parent 
B) Large firms characterized by inefficiencies and large corporate staff 
C) Highly diversified firms, generally created by multiple and unrelated acquisitions 
D) Large firms, but with no core business

Question 14

The better-off test addresses:

Accepted Answer

A) The extent of the potential retaliation from incumbents 
B) The effect of the combination of the R&D activities together 
C) The effect of the combination of the production activities together 
D) The potential for several businesses managed as one to be more profitable than if they continued to be operated separately 
A) The extent of the potential retaliation from incumbents 
B) The effect of the combination of the R&D activities together 
C) The effect of the combination of the production activities together 
D) The potential for several businesses managed as one to be more profitable than if they continued to be operated separately

Question 15

On the whole, diversified firms can be profitable up to a certain level of diversification, beyond which the management of highly diversified firms becomes unwieldy

Accepted Answer

A) True 
 B)False

Question 16

The text claims that economies of scope must be supported by potential transaction cost savings:

Accepted Answer

A) This is true. The firm itself must be able to save on transaction costs 
B) This is true - however, the saving could be on behalf of the firms' customers. This would work too. 
C) This is not quite true. Transaction cost savings are nice to have, but not necessary 
D) This is untrue. The text is mistaken. 
A) This is true. The firm itself must be able to save on transaction costs 
B) This is true - however, the saving could be on behalf of the firms' customers. This would work too. 
C) This is not quite true. Transaction cost savings are nice to have, but not necessary 
D) This is untrue. The text is mistaken.

Question 17

Several decades of empirical evidence indicates that the relationship between diversification and performance:

Accepted Answer

A) Still appears mixed 
B) Has been proved as fully positive 
C) Is not consistent nor is it systematic 
D) Still does not make sense 
A) Still appears mixed 
B) Has been proved as fully positive 
C) Is not consistent nor is it systematic 
D) Still does not make sense

Question 18

"What business are we in?" is a question that:

Accepted Answer

A) Is the starting point of strategy 
B) Is the basis for a firm's identity 
C) Both a and b 
D) Neither a or b 
A) Is the starting point of strategy 
B) Is the basis for a firm's identity 
C) Both a and b 
D) Neither a or b

Question 19

What are "shared service organizations"?

Accepted Answer

A) Organizational entities providing administrative and technical services to diverse businesses 
B) Organizational entities shared between different independent firms 
C) Governmental agencies that provide services to small businesses and start-ups 
D) Professional service firms such as accountants 
A) Organizational entities providing administrative and technical services to diverse businesses 
B) Organizational entities shared between different independent firms 
C) Governmental agencies that provide services to small businesses and start-ups 
D) Professional service firms such as accountants

Question 20

The growth objective can be negative for a firm. Why?

Accepted Answer

A) A mature market could lead managers to invest profits in diversifying, rather than return the value to shareholders to invest elsewhere themselves 
B) Top managers may have an incentive to grow the firm at the expense of long-term profits and shareholder interests 
C) Even without diversification, sales maximisation does not usually lead to profit maximisation 
D) All of the above 
A) A mature market could lead managers to invest profits in diversifying, rather than return the value to shareholders to invest elsewhere themselves 
B) Top managers may have an incentive to grow the firm at the expense of long-term profits and shareholder interests 
C) Even without diversification, sales maximisation does not usually lead to profit maximisation 
D) All of the above

Over the past 30 years:

Bringing different businesses under a single ownership in theory:

What does diversification over time show us?

CAPM theory indicates that:

Which firms in low-growth and cash-flow rich industries could have been tempted by diversification?

Does diversification confer market power?

One reason for the refocusing after 1980 was the slowdown in growth highlighting the inadequate profitability of firms whose CEOs had hitherto pursued growth as a primary objective

Under the Porter model, it really only matters that the combined firm is better-off than had acquirer and acquiree remained separate.

The emphasis of large companies in the era 1950-80 was on:

The distinction between the respective definitions of related and unrelated businesses:

The primary reasons for diversification during the period prior to 1980 were growth and risk reduction

Research shows that firms with exceptional performance are characterized by:

Conglomerates are:

The better-off test addresses:

On the whole, diversified firms can be profitable up to a certain level of diversification, beyond which the management of highly diversified firms becomes unwieldy

The text claims that economies of scope must be supported by potential transaction cost savings:

Several decades of empirical evidence indicates that the relationship between diversification and performance:

"What business are we in?" is a question that:

What are "shared service organizations"?

The growth objective can be negative for a firm. Why?

The Concept of Strategy

Goals, Values and Performance

Industry Analysis: the Fundamentals

Further Topics in Industry and Competitive Analysis

Analyzing Resources and Capabilities

Developing Resources and Capabilities

Organization Structure and Management Systems: the Fundamentals of Strategy Implementation

The Nature and Sources of Competitive Advantage

Cost Advantage

Differentiation Advantage

Industry Evolution and Strategic Change

Technology-Based Industries and the Management of Innovation

Competitive Advantage in Mature Industries

Vertical Integration and the Scope of the Firm

Global Strategies and the Multinational Corporation

Implementing Corporate Strategy: Management of the Multibusiness Firm

Current Trends in Strategic Management

Filters

Exam 16: Diversification Strategy

Over the past 30 years:

Bringing different businesses under a single ownership in theory:

What does diversification over time show us?

CAPM theory indicates that:

Which firms in low-growth and cash-flow rich industries could have been tempted by diversification?

Does diversification confer market power?

One reason for the refocusing after 1980 was the slowdown in growth highlighting the inadequate profitability of firms whose CEOs had hitherto pursued growth as a primary objective

Under the Porter model, it really only matters that the combined firm is better-off than had acquirer and acquiree remained separate.

The emphasis of large companies in the era 1950-80 was on:

The distinction between the respective definitions of related and unrelated businesses:

The primary reasons for diversification during the period prior to 1980 were growth and risk reduction

Research shows that firms with exceptional performance are characterized by:

Conglomerates are:

The better-off test addresses:

On the whole, diversified firms can be profitable up to a certain level of diversification, beyond which the management of highly diversified firms becomes unwieldy

The text claims that economies of scope must be supported by potential transaction cost savings:

Several decades of empirical evidence indicates that the relationship between diversification and performance:

"What business are we in?" is a question that:

What are "shared service organizations"?

The growth objective can be negative for a firm. Why?

The Concept of Strategy

Goals, Values and Performance

Industry Analysis: the Fundamentals

Further Topics in Industry and Competitive Analysis

Analyzing Resources and Capabilities

Developing Resources and Capabilities

Organization Structure and Management Systems: the Fundamentals of Strategy Implementation

The Nature and Sources of Competitive Advantage

Cost Advantage

Differentiation Advantage

Industry Evolution and Strategic Change

Technology-Based Industries and the Management of Innovation

Competitive Advantage in Mature Industries

Vertical Integration and the Scope of the Firm

Global Strategies and the Multinational Corporation

Implementing Corporate Strategy: Management of the Multibusiness Firm

Current Trends in Strategic Management

Filters