Question 1

Which of the following is NOT an erroneous rationale for unrelated diversification?

Accepted Answer

A)  risk reduction by spreading the company's investments over a set of diverse industries 
B)  expectations for rapid or continuous growth 
C)  stabilize earnings, i.e. market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses 
D)  managerial motives including the prospects for higher compensation 
E)  growth by acquisition of an undervalued company at a bargain price can deliver enhanced shareholder value 
A)  risk reduction by spreading the company's investments over a set of diverse industries 
B)  expectations for rapid or continuous growth 
C)  stabilize earnings, i.e. market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses 
D)  managerial motives including the prospects for higher compensation 
E)  growth by acquisition of an undervalued company at a bargain price can deliver enhanced shareholder value

Question 2

Under what circumstances might a diversified firm choose to divest one or more of its businesses?

Accepted Answer

Candidates for divestiture in a corporat

Question 3

To test whether a particular diversification move has good prospects for creating added shareholder value, corporate strategists should use

Accepted Answer

A)  profit test, the competitive strength test, the industry attractiveness test, and the capital gains test. 
B)  better-off test, the competitive advantage test, the profit expectations test, and the shareholder value test. 
C)  barrier-to-entry test, the competitive advantage test, the growth test, and the stock price effect test. 
D)  strategic fit test, the industry attractiveness test, the growth test, the dividend effect test, and the capital gains test. 
E)  attractiveness test, the cost of entry test, and the better-off test. 
A)  profit test, the competitive strength test, the industry attractiveness test, and the capital gains test. 
B)  better-off test, the competitive advantage test, the profit expectations test, and the shareholder value test. 
C)  barrier-to-entry test, the competitive advantage test, the growth test, and the stock price effect test. 
D)  strategic fit test, the industry attractiveness test, the growth test, the dividend effect test, and the capital gains test. 
E)  attractiveness test, the cost of entry test, and the better-off test.

Question 4

An economy of scope is BEST illustrated by being able to eliminate or reduce costs by

Accepted Answer

A)  combining related value-chain activities of different businesses into a single operation. 
B)  performing all of the value chain activities of related sister businesses at the same location. 
C)  extending the firm's scope of operations over a wider geographic area. 
D)  expanding the size of a company's manufacturing plants. 
E)  having more value chain activities performed in-house rather than outsourcing them. 
A)  combining related value-chain activities of different businesses into a single operation. 
B)  performing all of the value chain activities of related sister businesses at the same location. 
C)  extending the firm's scope of operations over a wider geographic area. 
D)  expanding the size of a company's manufacturing plants. 
E)  having more value chain activities performed in-house rather than outsourcing them.

Question 5

Which of the following is NOT a good candidate for divestiture in a corporate restructuring effort?

Accepted Answer

A)  business units that lack strategic fit with the businesses to be retained 
B)  weak performers 
C)  businesses in unattractive industries 
D)  businesses that are cash hogs or that lack other types of resource fit 
E)  businesses compatible with the company's revised diversification strategy 
A)  business units that lack strategic fit with the businesses to be retained 
B)  weak performers 
C)  businesses in unattractive industries 
D)  businesses that are cash hogs or that lack other types of resource fit 
E)  businesses compatible with the company's revised diversification strategy

Question 6

Initiating actions to boost the combined performance of the corporation's collection of businesses includes all of the following strategic options, EXCEPT

Accepted Answer

A)  sticking closely with the existing business lineup and pursuing available opportunities. 
B)  broadening the scope of diversification by entering additional industries. 
C)  divesting some businesses and retrenching to a narrower collection of businesses. 
D)  restructuring the entire company by adding and removing businesses to improve overall performance. 
E)  refocusing the existing businesses on new substitute product-line opportunities outside the existing industry framework. 
A)  sticking closely with the existing business lineup and pursuing available opportunities. 
B)  broadening the scope of diversification by entering additional industries. 
C)  divesting some businesses and retrenching to a narrower collection of businesses. 
D)  restructuring the entire company by adding and removing businesses to improve overall performance. 
E)  refocusing the existing businesses on new substitute product-line opportunities outside the existing industry framework.

Question 7

Strategic fit between two or more businesses exists when one or more activities comprising their respective value chains present opportunities

Accepted Answer

A)  to prevent the transfer of expertise or technology or capabilities from one business to another. 
B)  to independently preserve common brand names from cross-business usage. 
C)  to increase costs by combining the performance of the related value chain activities of different businesses. 
D)  for cross-business collaboration to build valuable new resource strengths and competitive capabilities. 
E)  to maintain business value chain activities separate and apart from one business to another to protect company independence. 
A)  to prevent the transfer of expertise or technology or capabilities from one business to another. 
B)  to independently preserve common brand names from cross-business usage. 
C)  to increase costs by combining the performance of the related value chain activities of different businesses. 
D)  for cross-business collaboration to build valuable new resource strengths and competitive capabilities. 
E)  to maintain business value chain activities separate and apart from one business to another to protect company independence.

Question 8

Which of the following is NOT a factor that makes it appealing to diversify into a new industry by forming an internal startup subsidiary to enter and compete in the target industry?

Accepted Answer

A)  when internal entry is cheaper than entry via acquisition 
B)  when a company possesses the skills and resources to overcome entry barriers and there is ample time to launch the business and compete effectively 
C)  when adding new production capacity will not adversely impact the supply demand balance in the industry by creating oversupply conditions 
D)  when the industry is growing rapidly and the target industry is comprised of several relatively large and well-established firms 
E)  when incumbent firms are likely to be slow or ineffective in combating a new entrant's efforts to crack the market 
A)  when internal entry is cheaper than entry via acquisition 
B)  when a company possesses the skills and resources to overcome entry barriers and there is ample time to launch the business and compete effectively 
C)  when adding new production capacity will not adversely impact the supply demand balance in the industry by creating oversupply conditions 
D)  when the industry is growing rapidly and the target industry is comprised of several relatively large and well-established firms 
E)  when incumbent firms are likely to be slow or ineffective in combating a new entrant's efforts to crack the market

Question 9

One strategic fit based approach to related diversification would be to

Accepted Answer

A)  diversify into new industries that present opportunities to transfer specialized expertise, technological know-how, or other valuable resources and capabilities from one business's value chain to another's. 
B)  diversify into foreign markets where the firm has unrelated businesses. 
C)  acquire rival firms that have broader product lines so as to give the company access to a wider range of buyer groups. 
D)  acquire companies in forward distribution channels (wholesalers and/or retailers). 
E)  expand into foreign markets where the firm currently does no business. 
A)  diversify into new industries that present opportunities to transfer specialized expertise, technological know-how, or other valuable resources and capabilities from one business's value chain to another's. 
B)  diversify into foreign markets where the firm has unrelated businesses. 
C)  acquire rival firms that have broader product lines so as to give the company access to a wider range of buyer groups. 
D)  acquire companies in forward distribution channels (wholesalers and/or retailers). 
E)  expand into foreign markets where the firm currently does no business.

Question 10

What factors should management consider when ranking business units and setting a priority for resource allocation?

Accepted Answer

As a rule, business subsidiaries with (1

Question 11

With a strategy of unrelated diversification, an acquisition is deemed to have potential if it

Accepted Answer

A)  can achieve at least existing profit margins into the near future. 
B)  has the opportunity to generate positive buzz in the industry, even if it may not be able to contribute to the parent firm's bottom line. 
C)  can pass the industry attractiveness test and the cost of entry test, and if it has good prospects for profit growth. 
D)  can pass at least the industry attractiveness test if not the cost of entry test. 
E)  can add economic value for managers. 
A)  can achieve at least existing profit margins into the near future. 
B)  has the opportunity to generate positive buzz in the industry, even if it may not be able to contribute to the parent firm's bottom line. 
C)  can pass the industry attractiveness test and the cost of entry test, and if it has good prospects for profit growth. 
D)  can pass at least the industry attractiveness test if not the cost of entry test. 
E)  can add economic value for managers.

Question 12

Which of the following is NOT a part of checking a diversified company's business units for cross-business competitive advantage potential?

Accepted Answer

A)  ascertaining the extent to which business units have value chain match-ups that offer opportunities to combine the performance of related value chain activities and reduce costs 
B)  ascertaining the extent to which business units have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another 
C)  ascertaining the extent to which business units are making maximum use of the parent company's competitive advantages 
D)  ascertaining the extent to which business units have value chain match-ups that offer opportunities to create new competitive capabilities or to leverage existing resources 
E)  ascertaining the extent to which business units present opportunities to share use of a well-respected brand name 
A)  ascertaining the extent to which business units have value chain match-ups that offer opportunities to combine the performance of related value chain activities and reduce costs 
B)  ascertaining the extent to which business units have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another 
C)  ascertaining the extent to which business units are making maximum use of the parent company's competitive advantages 
D)  ascertaining the extent to which business units have value chain match-ups that offer opportunities to create new competitive capabilities or to leverage existing resources 
E)  ascertaining the extent to which business units present opportunities to share use of a well-respected brand name

Question 13

Identify and briefly discuss each of the three tests for determining whether diversification into a new business is likely to build shareholder value.

Accepted Answer

To build shareholder value, any business

Question 14

Two important negatives of unrelated diversification are

Accepted Answer

A)  underemphasizing the importance of resource fit and the strong likelihood of diversifying into businesses that top management does NOT know all that much about. 
B)  insufficient cash flows to finance so many different lines of business and a lack of uniformity among the strategies of the businesses it has diversified into. 
C)  volatile sales and profits and making the mistake of diversifying into too many cash cow businesses. 
D)  the difficulties of competently managing a set of fundamentally different businesses and having a very limited competitive advantage potential that cross-business strategic fit provides. 
E)  overinvesting in the achievement of economies of scope and the difficulties of achieving a good mix of cash cow and cash hog businesses. 
A)  underemphasizing the importance of resource fit and the strong likelihood of diversifying into businesses that top management does NOT know all that much about. 
B)  insufficient cash flows to finance so many different lines of business and a lack of uniformity among the strategies of the businesses it has diversified into. 
C)  volatile sales and profits and making the mistake of diversifying into too many cash cow businesses. 
D)  the difficulties of competently managing a set of fundamentally different businesses and having a very limited competitive advantage potential that cross-business strategic fit provides. 
E)  overinvesting in the achievement of economies of scope and the difficulties of achieving a good mix of cash cow and cash hog businesses.

Question 15

The options for allocating a diversified company's financial resources include all of the following EXCEPT

Accepted Answer

A)  making acquisitions to establish positions in new businesses or to complement existing businesses. 
B)  investing in ways to strengthen or grow existing businesses. 
C)  funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses. 
D)  paying off existing debt and building cash reserves. 
E)  decreasing dividend payments and/or selling shares of stock. 
A)  making acquisitions to establish positions in new businesses or to complement existing businesses. 
B)  investing in ways to strengthen or grow existing businesses. 
C)  funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses. 
D)  paying off existing debt and building cash reserves. 
E)  decreasing dividend payments and/or selling shares of stock.

Question 16

Calculating quantitative competitive strength ratings for each of a diversified company's business units involves

Accepted Answer

A)  determining each industry's key success factors, rating the ability of each business to be successful on each industry KSF, and adding the individual ratings to obtain overall measures of each business's ability to compete successfully. 
B)  identifying the competitive forces facing each business, rating the strength of these competitive forces industry by industry, and then ranking each business's ability to be profitable, given the strength of the competition it faces. 
C)  selecting a set of competitive strength measures, weighting the importance of each measure, rating each business on each strength measure, multiplying the strength ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each business unit to obtain an overall competitive strength score, and using the overall competitive strength scores to evaluate the competitive strength of all the businesses, both individually and as a group. 
D)  determining which businesses possess good strategic fit with other businesses, identifying the portion of the value chain where this fit occurs, and evaluating the strength of the competitive advantage attached to each of the strategic fits to get an overall measure of competitive advantage potential. Businesses with the highest/lowest competitive advantage potential have the most/least competitive strength. 
E)  rating the caliber of each businesses strategic and resource fit, weighting the importance of each type of strategic/resource fit, calculating weighted strategic/resource fit scores, and adding the weighted ratings for each business to obtain an overall strength score for each business unit that indicates whether the company has adequate strategic/resource fits to be a strong market contender in each of the industries where it competes. 
A)  determining each industry's key success factors, rating the ability of each business to be successful on each industry KSF, and adding the individual ratings to obtain overall measures of each business's ability to compete successfully. 
B)  identifying the competitive forces facing each business, rating the strength of these competitive forces industry by industry, and then ranking each business's ability to be profitable, given the strength of the competition it faces. 
C)  selecting a set of competitive strength measures, weighting the importance of each measure, rating each business on each strength measure, multiplying the strength ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each business unit to obtain an overall competitive strength score, and using the overall competitive strength scores to evaluate the competitive strength of all the businesses, both individually and as a group. 
D)  determining which businesses possess good strategic fit with other businesses, identifying the portion of the value chain where this fit occurs, and evaluating the strength of the competitive advantage attached to each of the strategic fits to get an overall measure of competitive advantage potential. Businesses with the highest/lowest competitive advantage potential have the most/least competitive strength. 
E)  rating the caliber of each businesses strategic and resource fit, weighting the importance of each type of strategic/resource fit, calculating weighted strategic/resource fit scores, and adding the weighted ratings for each business to obtain an overall strength score for each business unit that indicates whether the company has adequate strategic/resource fits to be a strong market contender in each of the industries where it competes.

Question 17

For an unrelated diversification strategy to produce financial results above that of stand-alone entities, executives must do all of the following EXCEPT

Accepted Answer

A)  diversify into businesses that can produce consistently good earnings and returns on investment and thereby satisfy the attractiveness test. 
B)  negotiate favorable acquisition prices (to satisfy the cost of entry test). 
C)  do a superior job of corporate parenting via high-level managerial oversight and resource sharing, financial resource allocation and portfolio management, or restructuring underperforming businesses (to satisfy the better-off test). 
D)  satisfy the attractiveness test, the cost of entry test, and the better-off test. 
E)  leverage the cross-business strategic fit advantage effectively. 
A)  diversify into businesses that can produce consistently good earnings and returns on investment and thereby satisfy the attractiveness test. 
B)  negotiate favorable acquisition prices (to satisfy the cost of entry test). 
C)  do a superior job of corporate parenting via high-level managerial oversight and resource sharing, financial resource allocation and portfolio management, or restructuring underperforming businesses (to satisfy the better-off test). 
D)  satisfy the attractiveness test, the cost of entry test, and the better-off test. 
E)  leverage the cross-business strategic fit advantage effectively.

Question 18

What are the advantages and benefits of using an industry attractive-business strength matrix to evaluate a diversified company's lineup of businesses?

Accepted Answer

The nine-cell attractiveness-strength ma

Question 19

For a diversified company to be a strong performer

Accepted Answer

A)  a substantial portion of its revenues and expenses must come from business units with relatively low attractiveness scores. 
B)  its principal business must be in industries with a good outlook for growth and above-average profitability. 
C)  its business units in high attractiveness score industries should be candidates for divesture. 
D)  its business units must operate within the favorable aspects of their industry environment. 
E)  its business units must have a popular image, even if the performance of their products does not greatly satisfy buyer expectations. 
A)  a substantial portion of its revenues and expenses must come from business units with relatively low attractiveness scores. 
B)  its principal business must be in industries with a good outlook for growth and above-average profitability. 
C)  its business units in high attractiveness score industries should be candidates for divesture. 
D)  its business units must operate within the favorable aspects of their industry environment. 
E)  its business units must have a popular image, even if the performance of their products does not greatly satisfy buyer expectations.

Question 20

To take advantage of cross-business value chain relationships and strategic fit and turn them into a competitive advantage requires that companies determine whether there are opportunities to strengthen the business, which includes such tasks as all of the following, EXCEPT

Accepted Answer

A)  the transferring of valuable resources and capabilities from one business to another. 
B)  combining related value chain activities of different businesses to achieve lower costs. 
C)  forcing cultural independence, operating diversity, and sophisticated analytical responsibility on the businesses to ensure compatibility with the corporate overhead identity. 
D)  sharing the use of powerful and well-respected brand names across multiple businesses. 
E)  encouraging knowledge-sharing and collaborative activity among the businesses. 
A)  the transferring of valuable resources and capabilities from one business to another. 
B)  combining related value chain activities of different businesses to achieve lower costs. 
C)  forcing cultural independence, operating diversity, and sophisticated analytical responsibility on the businesses to ensure compatibility with the corporate overhead identity. 
D)  sharing the use of powerful and well-respected brand names across multiple businesses. 
E)  encouraging knowledge-sharing and collaborative activity among the businesses.

Which of the following is NOT an erroneous rationale for unrelated diversification?

Under what circumstances might a diversified firm choose to divest one or more of its businesses?

To test whether a particular diversification move has good prospects for creating added shareholder value, corporate strategists should use

An economy of scope is BEST illustrated by being able to eliminate or reduce costs by

Which of the following is NOT a good candidate for divestiture in a corporate restructuring effort?

Initiating actions to boost the combined performance of the corporation's collection of businesses includes all of the following strategic options, EXCEPT

Strategic fit between two or more businesses exists when one or more activities comprising their respective value chains present opportunities

Which of the following is NOT a factor that makes it appealing to diversify into a new industry by forming an internal startup subsidiary to enter and compete in the target industry?

One strategic fit based approach to related diversification would be to

What factors should management consider when ranking business units and setting a priority for resource allocation?

With a strategy of unrelated diversification, an acquisition is deemed to have potential if it

Which of the following is NOT a part of checking a diversified company's business units for cross-business competitive advantage potential?

Identify and briefly discuss each of the three tests for determining whether diversification into a new business is likely to build shareholder value.

Two important negatives of unrelated diversification are

The options for allocating a diversified company's financial resources include all of the following EXCEPT

Calculating quantitative competitive strength ratings for each of a diversified company's business units involves

For an unrelated diversification strategy to produce financial results above that of stand-alone entities, executives must do all of the following EXCEPT

What are the advantages and benefits of using an industry attractive-business strength matrix to evaluate a diversified company's lineup of businesses?

For a diversified company to be a strong performer

To take advantage of cross-business value chain relationships and strategic fit and turn them into a competitive advantage requires that companies determine whether there are opportunities to strengthen the business, which includes such tasks as all of the following, EXCEPT

What Is Strategy and Why Is It Important

Leading the Process of Crafting and Executing Strategy

Evaluating a Companys External Environment

Evaluating a Companys Resources and Competitive Position

The Five Generic Competitive Strategies: Which One to Employ

Supplementing the Chosen Competitive Strategy: Other Important Business Strategy Choices

Strategies for Competing in Foreign Markets

Ethical Business Strategies, Social Responsibility, and Environmental Sustainabil ITY

Building an Organization Capable of Good Strategy Execution

Managing Internal Operations: Actions That Promote Good Strategy Execution

Corporate Culture and Leadership: Keys to Good Strategy Execution

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Exam 8: Diversification: Strategies for Managing a Group of Businesses

Which of the following is NOT an erroneous rationale for unrelated diversification?

Under what circumstances might a diversified firm choose to divest one or more of its businesses?

To test whether a particular diversification move has good prospects for creating added shareholder value, corporate strategists should use

An economy of scope is BEST illustrated by being able to eliminate or reduce costs by

Which of the following is NOT a good candidate for divestiture in a corporate restructuring effort?

Initiating actions to boost the combined performance of the corporation's collection of businesses includes all of the following strategic options, EXCEPT

Strategic fit between two or more businesses exists when one or more activities comprising their respective value chains present opportunities

Which of the following is NOT a factor that makes it appealing to diversify into a new industry by forming an internal startup subsidiary to enter and compete in the target industry?

One strategic fit based approach to related diversification would be to

What factors should management consider when ranking business units and setting a priority for resource allocation?

With a strategy of unrelated diversification, an acquisition is deemed to have potential if it

Which of the following is NOT a part of checking a diversified company's business units for cross-business competitive advantage potential?

Identify and briefly discuss each of the three tests for determining whether diversification into a new business is likely to build shareholder value.

Two important negatives of unrelated diversification are

The options for allocating a diversified company's financial resources include all of the following EXCEPT

Calculating quantitative competitive strength ratings for each of a diversified company's business units involves

For an unrelated diversification strategy to produce financial results above that of stand-alone entities, executives must do all of the following EXCEPT

What are the advantages and benefits of using an industry attractive-business strength matrix to evaluate a diversified company's lineup of businesses?

For a diversified company to be a strong performer

To take advantage of cross-business value chain relationships and strategic fit and turn them into a competitive advantage requires that companies determine whether there are opportunities to strengthen the business, which includes such tasks as all of the following, EXCEPT

What Is Strategy and Why Is It Important

Leading the Process of Crafting and Executing Strategy

Evaluating a Companys External Environment

Evaluating a Companys Resources and Competitive Position

The Five Generic Competitive Strategies: Which One to Employ

Supplementing the Chosen Competitive Strategy: Other Important Business Strategy Choices

Strategies for Competing in Foreign Markets

Ethical Business Strategies, Social Responsibility, and Environmental Sustainabil ITY

Building an Organization Capable of Good Strategy Execution

Managing Internal Operations: Actions That Promote Good Strategy Execution

Corporate Culture and Leadership: Keys to Good Strategy Execution

Filters