Question 1

When a diversified firm concentrates on its core businesses, the market typically values its stock higher. What could one infer from this?

Accepted Answer

A) Stockholders should sell their stocks 
B) Diversified firms cannot be profitable 
C) The market believes that those parts of the diversified firm sold off were being managed so badly they were reducing long term profit prospects 
D) Growing economic turbulence has increased the cost of managing diversified firms 
A) Stockholders should sell their stocks 
B) Diversified firms cannot be profitable 
C) The market believes that those parts of the diversified firm sold off were being managed so badly they were reducing long term profit prospects 
D) Growing economic turbulence has increased the cost of managing diversified firms

Question 2

Diversified firms exhibit two key advantages but only one disadvantage regarding internal capital allocation:

Accepted Answer

A) Therefore, on balance, internal capital markets are
Preferable 
B) This isn't the whole story. Other major
Disadvantages swing the balance the other way 
C) It's not the number of disadvantages, but the
Overall balance which matters 
D) Political processes always outweigh the
Advantages 
A) Therefore, on balance, internal capital markets are
Preferable 
B) This isn't the whole story. Other major
Disadvantages swing the balance the other way 
C) It's not the number of disadvantages, but the
Overall balance which matters 
D) Political processes always outweigh the
Advantages

Question 3

Which is the most efficient: the internal market of diversified firms or the external capital market?

Accepted Answer

A) It depends on the effectiveness of the specific firm's capital allocation process and team. 
B) The internal market 
C) The external market 
D) It remains an unresolved matter requiring more research 
A) It depends on the effectiveness of the specific firm's capital allocation process and team. 
B) The internal market 
C) The external market 
D) It remains an unresolved matter requiring more research

Question 4

The reversal of the trend for diversification around 1980 was probably precipitated by:

Accepted Answer

A) A realisation that CEOs had been operating in their own interests 
B) High interest rates, slow real growth, and lower inflation 
C) Pressure from pension funds 
D) New theories on management thinking from leading academics 
A) A realisation that CEOs had been operating in their own interests 
B) High interest rates, slow real growth, and lower inflation 
C) Pressure from pension funds 
D) New theories on management thinking from leading academics

Question 5

Can economies of scope exist in a very small business?

Accepted Answer

A) No. Only large businesses can be sufficiently large to accrue such benefits 
B) Yes. For example, a village shop which is also a post-office 
C) It is unlikely that the managers of such a small business would understand the theory enough to apply it 
D) Theoretically yes, but they are very rare 
A) No. Only large businesses can be sufficiently large to accrue such benefits 
B) Yes. For example, a village shop which is also a post-office 
C) It is unlikely that the managers of such a small business would understand the theory enough to apply it 
D) Theoretically yes, but they are very rare

Question 6

Porter's three tests help to determine:

Accepted Answer

A) What the level of risk is for a potential diversification 
B) Whether diversification would create shareholders' value 
C) If top managers will benefit from diversification 
D) How the financial markets would react to a diversification 
A) What the level of risk is for a potential diversification 
B) Whether diversification would create shareholders' value 
C) If top managers will benefit from diversification 
D) How the financial markets would react to a diversification

Question 7

How can related vs. unrelated diversification be identified?

Accepted Answer

There are no clear and unambiguous crite

Question 8

Diversification that reduces the risk of bankruptcy is more beneficial to managers than shareholders

Accepted Answer

A) True 
 B)False

Question 9

What are "strategic-level linkages" when discussing diversification?

Accepted Answer

A) The ability to use very different marketing strategies that fit with different countries 
B) The ability to sell similar products 
C) The ability to apply similar strategies, resource allocation procedures, and control systems across the businesses 
D) The ability to maximize the allocation of financial resources across the businesses 
A) The ability to use very different marketing strategies that fit with different countries 
B) The ability to sell similar products 
C) The ability to apply similar strategies, resource allocation procedures, and control systems across the businesses 
D) The ability to maximize the allocation of financial resources across the businesses

Question 10

In practice, internal capital markets tend to allocate funds to subsidise poor performing subsidiaries

Accepted Answer

A) True 
 B)False

Question 11

The primary source of creating competitive advantage from diversification is to:

Accepted Answer

A) Share resources and capabilities across businesses 
B) Share resources across related businesses only 
C) Erect strong barriers to entry around each business 
D) Be able to strongly retaliate against any rival's attack 
A) Share resources and capabilities across businesses 
B) Share resources across related businesses only 
C) Erect strong barriers to entry around each business 
D) Be able to strongly retaliate against any rival's attack

Question 12

Capabilities resting upon the complex skills of specific people or teams are exploited much better through diversification than through external contracts

Accepted Answer

A) True 
 B)False

Question 13

Pharmaceuticals, corporate legal services, and defense contracting are industries:

Accepted Answer

A) That always provide above-average returns 
B) Requiring sophisticated scientific knowledge 
C) Protected by barriers to entry 
D) Protected by barriers to exit 
A) That always provide above-average returns 
B) Requiring sophisticated scientific knowledge 
C) Protected by barriers to entry 
D) Protected by barriers to exit

Question 14

When a diversified firm combines unrelated businesses:

Accepted Answer

A) Research suggests there is an absence of shareholder's benefits 
B) Research indicates there is a shareholder's benefit 
C) Research is inconclusive about benefits to shareholders 
D) Empirical research is required in advance 
A) Research suggests there is an absence of shareholder's benefits 
B) Research indicates there is a shareholder's benefit 
C) Research is inconclusive about benefits to shareholders 
D) Empirical research is required in advance

Question 15

Management thinking in the 1990's began to recognize that:

Accepted Answer

A) Large diversified firms were run by ineffective managers 
B) In hard times, senior managers needed to focus on key capabilities, and preferably have industry-specific experience 
C) Diversified firms should move to developing countries 
D) All of the above 
A) Large diversified firms were run by ineffective managers 
B) In hard times, senior managers needed to focus on key capabilities, and preferably have industry-specific experience 
C) Diversified firms should move to developing countries 
D) All of the above

Question 16

According to Porter, industry attractiveness is not enough to justify diversification. There needs to be additional competitive advantage, and the entry cost should not be more than the profits are worth

Accepted Answer

A) True 
 B)False

Question 17

In theory, the lower risks of a balanced portfolio and the insider knowledge of subsidiaries are arguments in support of the internal capital market of a diversified firm.

Accepted Answer

A) True 
 B)False

Question 18

Which of the two, the individual investor or the firm, can diversify its portfolio at the lowest cost?

Accepted Answer

A) The firm 
B) The individual investor 
C) There is no significant difference 
D) None of the above 
A) The firm 
B) The individual investor 
C) There is no significant difference 
D) None of the above

Question 19

When the business environment becomes turbulent, diversified firms' senior managers:

Accepted Answer

A) Generally lack the skills to deal with the situation 
B) Tend to be unable to react quickly enough through inefficient decision making structures 
C) Turn on each other and play personal politics 
D) Generally are so out of touch that they do not realize anything is wrong 
A) Generally lack the skills to deal with the situation 
B) Tend to be unable to react quickly enough through inefficient decision making structures 
C) Turn on each other and play personal politics 
D) Generally are so out of touch that they do not realize anything is wrong

Question 20

Which of these three tests dominate in most circumstances?

Accepted Answer

A) The attractiveness test 
B) The cost-of-entry test 
C) The better-off test 
D) None of them. 
A) The attractiveness test 
B) The cost-of-entry test 
C) The better-off test 
D) None of them.

When a diversified firm concentrates on its core businesses, the market typically values its stock higher. What could one infer from this?

Diversified firms exhibit two key advantages but only one disadvantage regarding internal capital allocation:

Which is the most efficient: the internal market of diversified firms or the external capital market?

The reversal of the trend for diversification around 1980 was probably precipitated by:

Can economies of scope exist in a very small business?

Porter's three tests help to determine:

How can related vs. unrelated diversification be identified?

Diversification that reduces the risk of bankruptcy is more beneficial to managers than shareholders

What are "strategic-level linkages" when discussing diversification?

In practice, internal capital markets tend to allocate funds to subsidise poor performing subsidiaries

The primary source of creating competitive advantage from diversification is to:

Capabilities resting upon the complex skills of specific people or teams are exploited much better through diversification than through external contracts

Pharmaceuticals, corporate legal services, and defense contracting are industries:

When a diversified firm combines unrelated businesses:

Management thinking in the 1990's began to recognize that:

According to Porter, industry attractiveness is not enough to justify diversification. There needs to be additional competitive advantage, and the entry cost should not be more than the profits are worth

In theory, the lower risks of a balanced portfolio and the insider knowledge of subsidiaries are arguments in support of the internal capital market of a diversified firm.

Which of the two, the individual investor or the firm, can diversify its portfolio at the lowest cost?

When the business environment becomes turbulent, diversified firms' senior managers:

Which of these three tests dominate in most circumstances?

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

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Exam 16: Diversification Strategy

When a diversified firm concentrates on its core businesses, the market typically values its stock higher. What could one infer from this?

Diversified firms exhibit two key advantages but only one disadvantage regarding internal capital allocation:

Which is the most efficient: the internal market of diversified firms or the external capital market?

The reversal of the trend for diversification around 1980 was probably precipitated by:

Can economies of scope exist in a very small business?

Porter's three tests help to determine:

How can related vs. unrelated diversification be identified?

Diversification that reduces the risk of bankruptcy is more beneficial to managers than shareholders

What are "strategic-level linkages" when discussing diversification?

In practice, internal capital markets tend to allocate funds to subsidise poor performing subsidiaries

The primary source of creating competitive advantage from diversification is to:

Capabilities resting upon the complex skills of specific people or teams are exploited much better through diversification than through external contracts

Pharmaceuticals, corporate legal services, and defense contracting are industries:

When a diversified firm combines unrelated businesses:

Management thinking in the 1990's began to recognize that:

According to Porter, industry attractiveness is not enough to justify diversification. There needs to be additional competitive advantage, and the entry cost should not be more than the profits are worth

In theory, the lower risks of a balanced portfolio and the insider knowledge of subsidiaries are arguments in support of the internal capital market of a diversified firm.

Which of the two, the individual investor or the firm, can diversify its portfolio at the lowest cost?

When the business environment becomes turbulent, diversified firms' senior managers:

Which of these three tests dominate in most circumstances?

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