Question 1

Which of the following statements about corporate diversification is incorrect?

Accepted Answer

A)  Creating added value for shareholders via diversification requires building a multibusiness company where the whole is greater than the sum of its parts. 
B)  Diversification moves that satisfy all three diversification tests have the greatest potential to grow shareholder value over the long term. 
C)  The more attractive an industry's prospects are for growth and good long-term profitability,the less expensive it can be to enter. 
D)  Diversification cannot be considered a success unless it results in added shareholder value-value that shareholders cannot capture for themselves by spreading their investments across the stocks of companies in different industries. 
E)  Shareholder value is not created by diversification unless it passes the "better off" or "1 + 1 = 3 test." 
A)  Creating added value for shareholders via diversification requires building a multibusiness company where the whole is greater than the sum of its parts. 
B)  Diversification moves that satisfy all three diversification tests have the greatest potential to grow shareholder value over the long term. 
C)  The more attractive an industry's prospects are for growth and good long-term profitability,the less expensive it can be to enter. 
D)  Diversification cannot be considered a success unless it results in added shareholder value-value that shareholders cannot capture for themselves by spreading their investments across the stocks of companies in different industries. 
E)  Shareholder value is not created by diversification unless it passes the "better off" or "1 + 1 = 3 test."

Question 2

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

Accepted Answer

The answer of Under what circumstances might a diversified firm...

Question 3

Carefully explain the difference between a strategy of related diversification and a strategy of unrelated diversification.

Accepted Answer

Related diversification and unrelated di

Question 4

Which one of the following is not one of the elements of crafting corporate strategy for a diversified company?

Accepted Answer

A)  picking new industries to enter and deciding on the means of entry 
B)  choosing the appropriate value chain for each business the company has entered 
C)  pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage 
D)  steering corporate resources into the most attractive business units 
E)  initiating actions to boost the combined performance of the businesses the firm has entered 
A)  picking new industries to enter and deciding on the means of entry 
B)  choosing the appropriate value chain for each business the company has entered 
C)  pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage 
D)  steering corporate resources into the most attractive business units 
E)  initiating actions to boost the combined performance of the businesses the firm has entered

Question 5

When evaluating strategic fit benefits that related diversification can deliver,one must keep in consideration a number of factors.Which one is not relevant?

Accepted Answer

A)  Shareholder value stemming from a diversified business cannot be replicated by simply owning a diversified portfolio of stocks. 
B)  The capture of cross-business strategic fits benefits is possible only through related diversification. 
C)  Cross-business strategic fit benefits are not automatically realized; the benefits materialize only after management has successfully pursued internal actions to capture them. 
D)  Shareholder value is created when the diversified company's profitability exceeds expectations. 
E)  Related diversification is the process of holding the stock of many businesses in a portfolio. 
A)  Shareholder value stemming from a diversified business cannot be replicated by simply owning a diversified portfolio of stocks. 
B)  The capture of cross-business strategic fits benefits is possible only through related diversification. 
C)  Cross-business strategic fit benefits are not automatically realized; the benefits materialize only after management has successfully pursued internal actions to capture them. 
D)  Shareholder value is created when the diversified company's profitability exceeds expectations. 
E)  Related diversification is the process of holding the stock of many businesses in a portfolio.

Question 6

Which of the following is a diversified business with one major "core" business and a collection of small related or unrelated businesses?

Accepted Answer

A)  broadly diversified enterprise 
B)  narrowly diversified enterprise 
C)  multibusiness enterprise 
D)  high-compensation/low-risk enterprise 
E)  dominant business enterprise 
A)  broadly diversified enterprise 
B)  narrowly diversified enterprise 
C)  multibusiness enterprise 
D)  high-compensation/low-risk enterprise 
E)  dominant business enterprise

Question 7

As a rule,all the industries represented in a diversified company's business portfolio should be judged on such attractiveness factors as

Accepted Answer

A)  market size and projected growth rate. 
B)  emerging opportunities and threats,the intensity of competition,and the degree of industry uncertainty and business risk. 
C)  resource requirements and the presence of cross-industry strategic fits. 
D)  seasonal and cyclical factors,industry profitability,and whether an industry has significant social,political,regulatory,and environmental problems. 
E)  All of these choices are correct. 
A)  market size and projected growth rate. 
B)  emerging opportunities and threats,the intensity of competition,and the degree of industry uncertainty and business risk. 
C)  resource requirements and the presence of cross-industry strategic fits. 
D)  seasonal and cyclical factors,industry profitability,and whether an industry has significant social,political,regulatory,and environmental problems. 
E)  All of these choices are correct.

Question 8

What makes related diversification an attractive strategy is the

Accepted Answer

A)  ability to broaden the company's product line. 
B)  opportunity to convert the competitive advantage potential into 1 + 1 = 3 gains in shareholder value. 
C)  potential for improving the stability of the company's financial performance. 
D)  ability to serve a broader spectrum of buyer needs. 
E)  added capability it provides in overcoming the barriers to entering foreign markets. 
A)  ability to broaden the company's product line. 
B)  opportunity to convert the competitive advantage potential into 1 + 1 = 3 gains in shareholder value. 
C)  potential for improving the stability of the company's financial performance. 
D)  ability to serve a broader spectrum of buyer needs. 
E)  added capability it provides in overcoming the barriers to entering foreign markets.

Question 9

A diversified company's business units exhibit good financial resource fit when

Accepted Answer

A)  each business is a cash cow. 
B)  a company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company's overall strengths. 
C)  each business is sufficiently profitable to generate an attractive return on invested capital. 
D)  each business unit produces large internal cash flows over and above what is needed to build and maintain the business. 
E)  the resource requirements of each business exactly match the company's available resources. 
A)  each business is a cash cow. 
B)  a company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company's overall strengths. 
C)  each business is sufficiently profitable to generate an attractive return on invested capital. 
D)  each business unit produces large internal cash flows over and above what is needed to build and maintain the business. 
E)  the resource requirements of each business exactly match the company's available resources.

Question 10

Different businesses are said to be "unrelated" when

Accepted Answer

A)  they are in different industries. 
B)  the products of the different businesses are not bought by the same types of buyers or sold in the same types of retail stores. 
C)  the products of the different businesses satisfy different buyer needs. 
D)  the businesses have different supply chains and different types of suppliers. 
E)  there is an absence of competitively valuable strategic fits between their respective value chains. 
A)  they are in different industries. 
B)  the products of the different businesses are not bought by the same types of buyers or sold in the same types of retail stores. 
C)  the products of the different businesses satisfy different buyer needs. 
D)  the businesses have different supply chains and different types of suppliers. 
E)  there is an absence of competitively valuable strategic fits between their respective value chains.

Question 11

What is meant by the term resource fit as it applies to evaluating a diversified company's business lineup?

Accepted Answer

The answer of What is meant by the term resource...

Question 12

The two biggest drawbacks or disadvantages of unrelated diversification are

Accepted Answer

A)  the difficulties of passing the cost-of-entry test and the ease with which top managers can make the mistake of diversifying into businesses where competition is too intense. 
B)  the difficulties of capturing financial fit and having insufficient financial resources to spread business risk across many different lines of business. 
C)  demanding managerial requirements and the limited competitive advantage potential that cross-business strategic fit provides. 
D)  ending up with too many cash hog businesses and too much diversity among the competitive strategies of the businesses the company has diversified into. 
E)  the difficulties of achieving economies of scope and conflicts/incompatibility among the competitive strategies of the company's different businesses. 
A)  the difficulties of passing the cost-of-entry test and the ease with which top managers can make the mistake of diversifying into businesses where competition is too intense. 
B)  the difficulties of capturing financial fit and having insufficient financial resources to spread business risk across many different lines of business. 
C)  demanding managerial requirements and the limited competitive advantage potential that cross-business strategic fit provides. 
D)  ending up with too many cash hog businesses and too much diversity among the competitive strategies of the businesses the company has diversified into. 
E)  the difficulties of achieving economies of scope and conflicts/incompatibility among the competitive strategies of the company's different businesses.

Question 13

Assessments of how a diversified company's subsidiaries compare in competitive strength should be based on such factors as

Accepted Answer

A)  vulnerability to seasonal and cyclical downturns,vulnerability to driving forces,and vulnerability to fluctuating interest rates and exchange rates. 
B)  relative market share,ability to match or beat rivals on key product attributes,brand image and reputation,costs relative to competitors,and ability to benefit from strategic fits with sister businesses. 
C)  the appeal of its strategy,relative number of competitive capabilities,the number of products in each businesses product line,which businesses have the highest/lowest market shares,and which businesses earn the highest/lowest profits before taxes. 
D)  the ability to hurdle barriers to entry,value chain attractiveness,and business risk. 
E)  cost reduction potential,customer satisfaction potential,and comparisons of annual cash flows from operations. 
A)  vulnerability to seasonal and cyclical downturns,vulnerability to driving forces,and vulnerability to fluctuating interest rates and exchange rates. 
B)  relative market share,ability to match or beat rivals on key product attributes,brand image and reputation,costs relative to competitors,and ability to benefit from strategic fits with sister businesses. 
C)  the appeal of its strategy,relative number of competitive capabilities,the number of products in each businesses product line,which businesses have the highest/lowest market shares,and which businesses earn the highest/lowest profits before taxes. 
D)  the ability to hurdle barriers to entry,value chain attractiveness,and business risk. 
E)  cost reduction potential,customer satisfaction potential,and comparisons of annual cash flows from operations.

Question 14

A cash hog type of business

Accepted Answer

A)  is one that is losing money and requires cash infusions from its corporate parent to continue operations. 
B)  generates cash flows that are too small to fully fund its operations and growth,and so must receive cash infusions from outside sources to cover working capital and investment requirements. 
C)  generates negative cash flows from internal operations and thus requires cash infusions from its corporate parent to report a profit. 
D)  is a business growing so rapidly that it does not have the funds to cover its short- and long-term debt obligations. 
E)  is one that has more current liabilities than current assets and faces a liquidity crisis due to declining sales revenues and declining profitability. 
A)  is one that is losing money and requires cash infusions from its corporate parent to continue operations. 
B)  generates cash flows that are too small to fully fund its operations and growth,and so must receive cash infusions from outside sources to cover working capital and investment requirements. 
C)  generates negative cash flows from internal operations and thus requires cash infusions from its corporate parent to report a profit. 
D)  is a business growing so rapidly that it does not have the funds to cover its short- and long-term debt obligations. 
E)  is one that has more current liabilities than current assets and faces a liquidity crisis due to declining sales revenues and declining profitability.

Question 15

The one factor that company executives need not worry about when their company is managing many diverse,unrelated firms is

Accepted Answer

A)  staying abreast of what's happening in each industry and subsidiary. 
B)  picking business-unit heads who have the requisite combination of managerial skills and know-how to motivate people. 
C)  understanding the true value of strategic investment proposals by business-unit managers. 
D)  knowing what to do if a business unit stumbles. 
E)  "managing by the numbers"-that is,keeping a close track on the financial and operating results of each subsidiary. 
A)  staying abreast of what's happening in each industry and subsidiary. 
B)  picking business-unit heads who have the requisite combination of managerial skills and know-how to motivate people. 
C)  understanding the true value of strategic investment proposals by business-unit managers. 
D)  knowing what to do if a business unit stumbles. 
E)  "managing by the numbers"-that is,keeping a close track on the financial and operating results of each subsidiary.

Question 16

The essential requirement for different businesses to be "related" is that

Accepted Answer

A)  their value chains possess competitively valuable cross-business relationships. 
B)  the products of the different businesses are bought by much the same types of buyers. 
C)  the products of the different businesses are sold in the same types of retail stores. 
D)  the businesses have several key suppliers in common. 
E)  the production methods that they employ both entail economies of scale. 
A)  their value chains possess competitively valuable cross-business relationships. 
B)  the products of the different businesses are bought by much the same types of buyers. 
C)  the products of the different businesses are sold in the same types of retail stores. 
D)  the businesses have several key suppliers in common. 
E)  the production methods that they employ both entail economies of scale.

Question 17

Economies of scope

Accepted Answer

A)  are cost reductions that flow from cost-saving strategic fits along the value chains of related businesses in the business lineup of a multibusiness corporation. 
B)  arise only from strategic fit relationships in the production portions of the value chains of sister businesses. 
C)  are more associated with unrelated diversification than related diversification. 
D)  are present whenever diversification satisfies the attractiveness test and the cost-of-entry test. 
E)  arise mainly from strategic fit relationships in the distribution portions of the value chains of unrelated businesses. 
A)  are cost reductions that flow from cost-saving strategic fits along the value chains of related businesses in the business lineup of a multibusiness corporation. 
B)  arise only from strategic fit relationships in the production portions of the value chains of sister businesses. 
C)  are more associated with unrelated diversification than related diversification. 
D)  are present whenever diversification satisfies the attractiveness test and the cost-of-entry test. 
E)  arise mainly from strategic fit relationships in the distribution portions of the value chains of unrelated businesses.

Question 18

The most important strategy-making guidance that comes from drawing a Nine-Cell Industry Attractiveness-Competitive Strength Matrix is

Accepted Answer

A)  which businesses in the portfolio have the most potential for strategic fit and resource fit. 
B)  why cash cow businesses are more valuable than cash hog businesses. 
C)  that corporate resources should be concentrated on those businesses enjoying both a higher degree of industry attractiveness and competitive strength and that businesses having low competitive strength in relatively unattractive industries should be looked at for possible divestiture. 
D)  which businesses have the biggest competitive advantages and which ones confront serious competitive disadvantages. 
E)  which businesses are in industries with profitable value chains and which are in industries with money-losing value chains. 
A)  which businesses in the portfolio have the most potential for strategic fit and resource fit. 
B)  why cash cow businesses are more valuable than cash hog businesses. 
C)  that corporate resources should be concentrated on those businesses enjoying both a higher degree of industry attractiveness and competitive strength and that businesses having low competitive strength in relatively unattractive industries should be looked at for possible divestiture. 
D)  which businesses have the biggest competitive advantages and which ones confront serious competitive disadvantages. 
E)  which businesses are in industries with profitable value chains and which are in industries with money-losing value chains.

Question 19

The basic premise of unrelated diversification is that

Accepted Answer

A)  the least risky way to diversify is to seek out businesses that are leaders in their respective industry. 
B)  the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale. 
C)  the best way to build shareholder value is to acquire businesses with strong cross-business financial fit. 
D)  any company that can be acquired on good financial terms and has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity. 
E)  the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits. 
A)  the least risky way to diversify is to seek out businesses that are leaders in their respective industry. 
B)  the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale. 
C)  the best way to build shareholder value is to acquire businesses with strong cross-business financial fit. 
D)  any company that can be acquired on good financial terms and has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity. 
E)  the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits.

Question 20

Which of the following is not one of the suggested appeals of an unrelated diversification strategy?

Accepted Answer

A)  ability to spread business risk over truly diverse businesses (as compared to related diversification,which is limited to spreading risk only among businesses with strategic fit) 
B)  ability to employ the company's financial resources to maximum advantage by investing in whatever industries/businesses offer the best profit prospects 
C)  ability to capture cross-business strategic fit with which to capture added competitive advantage and few managerial demands 
D)  potential for achieving somewhat more stable corporate sales and profits over the course of economic upswings and downswings (to the extent the company diversifies into businesses whose ups and downs tend to occur at different times) 
E)  potential to grow shareholder value by investing in bargain-priced companies with big upside profit potential 
A)  ability to spread business risk over truly diverse businesses (as compared to related diversification,which is limited to spreading risk only among businesses with strategic fit) 
B)  ability to employ the company's financial resources to maximum advantage by investing in whatever industries/businesses offer the best profit prospects 
C)  ability to capture cross-business strategic fit with which to capture added competitive advantage and few managerial demands 
D)  potential for achieving somewhat more stable corporate sales and profits over the course of economic upswings and downswings (to the extent the company diversifies into businesses whose ups and downs tend to occur at different times) 
E)  potential to grow shareholder value by investing in bargain-priced companies with big upside profit potential

Which of the following statements about corporate diversification is incorrect?

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

Carefully explain the difference between a strategy of related diversification and a strategy of unrelated diversification.

Which one of the following is not one of the elements of crafting corporate strategy for a diversified company?

When evaluating strategic fit benefits that related diversification can deliver,one must keep in consideration a number of factors.Which one is not relevant?

Which of the following is a diversified business with one major "core" business and a collection of small related or unrelated businesses?

As a rule,all the industries represented in a diversified company's business portfolio should be judged on such attractiveness factors as

What makes related diversification an attractive strategy is the

A diversified company's business units exhibit good financial resource fit when

Different businesses are said to be "unrelated" when

What is meant by the term resource fit as it applies to evaluating a diversified company's business lineup?

The two biggest drawbacks or disadvantages of unrelated diversification are

Assessments of how a diversified company's subsidiaries compare in competitive strength should be based on such factors as

A cash hog type of business

The one factor that company executives need not worry about when their company is managing many diverse,unrelated firms is

The essential requirement for different businesses to be "related" is that

Economies of scope

The most important strategy-making guidance that comes from drawing a Nine-Cell Industry Attractiveness-Competitive Strength Matrix is

The basic premise of unrelated diversification is that

Which of the following is not one of the suggested appeals of an unrelated diversification strategy?

Strategy,Business Models, and Competitive Advantage

Strategy Formulation, Execution, and Governance

Evaluating a Companys External Environment

Evaluating a Company Resources, Capabilities, and Competitiveness

The Five Generic Competitive Strategies

Strength-Ending a Company Competitive Position: Strategic Moves, Timing, and Scope of Operations

Strategies for Competing in International Markets

Ethics,Corporate Social Responsibility,Environmental Sustainability, and Strategy

Super Strategy Execution-Another Path to Competitive Advantage

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Exam 8: Corporate Strategy: Diversification and the Multi-Business Company

Which of the following statements about corporate diversification is incorrect?

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

Carefully explain the difference between a strategy of related diversification and a strategy of unrelated diversification.

Which one of the following is not one of the elements of crafting corporate strategy for a diversified company?

When evaluating strategic fit benefits that related diversification can deliver,one must keep in consideration a number of factors.Which one is not relevant?

Which of the following is a diversified business with one major "core" business and a collection of small related or unrelated businesses?

As a rule,all the industries represented in a diversified company's business portfolio should be judged on such attractiveness factors as

What makes related diversification an attractive strategy is the

A diversified company's business units exhibit good financial resource fit when

Different businesses are said to be "unrelated" when

What is meant by the term resource fit as it applies to evaluating a diversified company's business lineup?

The two biggest drawbacks or disadvantages of unrelated diversification are

Assessments of how a diversified company's subsidiaries compare in competitive strength should be based on such factors as

A cash hog type of business

The one factor that company executives need not worry about when their company is managing many diverse,unrelated firms is

The essential requirement for different businesses to be "related" is that

Economies of scope

The most important strategy-making guidance that comes from drawing a Nine-Cell Industry Attractiveness-Competitive Strength Matrix is

The basic premise of unrelated diversification is that

Which of the following is not one of the suggested appeals of an unrelated diversification strategy?

Strategy,Business Models, and Competitive Advantage

Strategy Formulation, Execution, and Governance

Evaluating a Companys External Environment

Evaluating a Company Resources, Capabilities, and Competitiveness

The Five Generic Competitive Strategies

Strength-Ending a Company Competitive Position: Strategic Moves, Timing, and Scope of Operations

Strategies for Competing in International Markets

Ethics,Corporate Social Responsibility,Environmental Sustainability, and Strategy

Super Strategy Execution-Another Path to Competitive Advantage

Filters