Question 1

Which one of the following is not a reasonable option for deploying a diversified company's financial resources?

Accepted Answer

A)  Making acquisitions to establish positions in new businesses or to complement existing businesses 
B)  Concentrating most of a company's financial resources in cash cow businesses and allocating little or no additional resources to cash hog businesses until they show enough strength to generate positive cash flows 
C)  Funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses 
D)  Paying down existing debt, increasing dividends, or repurchasing shares of the company's stock 
E)  Investing in ways to strengthen or grow existing businesses 
A)  Making acquisitions to establish positions in new businesses or to complement existing businesses 
B)  Concentrating most of a company's financial resources in cash cow businesses and allocating little or no additional resources to cash hog businesses until they show enough strength to generate positive cash flows 
C)  Funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses 
D)  Paying down existing debt, increasing dividends, or repurchasing shares of the company's stock 
E)  Investing in ways to strengthen or grow existing businesses

Question 2

The two biggest drawbacks or disadvantages 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 3

A strategy of diversifying into unrelated businesses

Accepted Answer

A)  is aimed at achieving good financial fit (whereas related diversification aims at good strategic fit). 
B)  is the best way for a company to pass the attractiveness test in choosing which types of businesses/industries to enter. 
C)  discounts the importance of strategic fit and instead focuses on building and managing a group of businesses in attractive industries that can acquired on financial terms that allow for acceptable returns on investment. 
D)  concentrates on diversifying into businesses where a company can leverage use of a well-known brand name in ways that create added value for shareholders. 
E)  generally offers more competitive advantage potential than related diversification. 
A)  is aimed at achieving good financial fit (whereas related diversification aims at good strategic fit). 
B)  is the best way for a company to pass the attractiveness test in choosing which types of businesses/industries to enter. 
C)  discounts the importance of strategic fit and instead focuses on building and managing a group of businesses in attractive industries that can acquired on financial terms that allow for acceptable returns on investment. 
D)  concentrates on diversifying into businesses where a company can leverage use of a well-known brand name in ways that create added value for shareholders. 
E)  generally offers more competitive advantage potential than related diversification.

Question 4

Which of the following is an important appeal of a related diversification strategy?

Accepted Answer

A)  Represents an effective way of capturing valuable financial fit benefits 
B)  Offers opportunities to transfer skills, expertise, technical know-how, or other capabilities from one business to another 
C)  Offers significant opportunities to strongly differentiate a company's product offerings from those of rivals 
D)  Is more likely to pass the cost-of-entry test and the capital gains test than unrelated diversification 
E)  Is typically more profitable than unrelated diversification, which is a major factor in helping related diversification pass the attractiveness test 
A)  Represents an effective way of capturing valuable financial fit benefits 
B)  Offers opportunities to transfer skills, expertise, technical know-how, or other capabilities from one business to another 
C)  Offers significant opportunities to strongly differentiate a company's product offerings from those of rivals 
D)  Is more likely to pass the cost-of-entry test and the capital gains test than unrelated diversification 
E)  Is typically more profitable than unrelated diversification, which is a major factor in helping related diversification pass the attractiveness test

Question 5

The attractiveness test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whether

Accepted Answer

A)  conditions in the target industry allow for profits and return on investment that is equal to or better than that of the company's present business(es). 
B)  the potential diversification move will boost the company's competitive advantage in its existing business. 
C)  shareholders will viewed the contemplated diversification move as attractive. 
D)  key success factors in the target industry are attractive. 
E)  there are attractive strategic fits between the value chains of the company's present businesses and the value chain of the new business it is considering entering. 
A)  conditions in the target industry allow for profits and return on investment that is equal to or better than that of the company's present business(es). 
B)  the potential diversification move will boost the company's competitive advantage in its existing business. 
C)  shareholders will viewed the contemplated diversification move as attractive. 
D)  key success factors in the target industry are attractive. 
E)  there are attractive strategic fits between the value chains of the company's present businesses and the value chain of the new business it is considering entering.

Question 6

In analyzing the nine-cell matrix, those businesses in the three cells in the lower right corner of the matrix

Accepted Answer

A)  Are typically weak performers and have the lowest claim on corporate resources. 
B)  typically are prime candidates for divesture. 
C)  are destined for squeezing out the maximum cash flows. 
D)  typically have dimmer profit outlooks than those in the middle with medium resource priority. 
E)  All of these. 
A)  Are typically weak performers and have the lowest claim on corporate resources. 
B)  typically are prime candidates for divesture. 
C)  are destined for squeezing out the maximum cash flows. 
D)  typically have dimmer profit outlooks than those in the middle with medium resource priority. 
E)  All of these.

Question 7

The nine-cell industry attractiveness-competitive strength matrix

Accepted Answer

A)  is useful for helping decide which businesses should have high, average, and low priorities in allocating corporate resources. 
B)  indicates which businesses are cash hogs and which are cash cows. 
C)  pinpoints what strategies are most appropriate for businesses positioned in the three top cells of the matrix but is less clear about the best strategies for businesses positioned in the bottom six cells. 
D)  identifies which sister businesses have the greatest strategic fit. 
E)  indicates the relative size of the firms businesses. 
A)  is useful for helping decide which businesses should have high, average, and low priorities in allocating corporate resources. 
B)  indicates which businesses are cash hogs and which are cash cows. 
C)  pinpoints what strategies are most appropriate for businesses positioned in the three top cells of the matrix but is less clear about the best strategies for businesses positioned in the bottom six cells. 
D)  identifies which sister businesses have the greatest strategic fit. 
E)  indicates the relative size of the firms businesses.

Question 8

Diversification ought to be considered when

Accepted Answer

A)  a company's profits are being squeezed and it needs to increase its net profit margins and return on investment. 
B)  a company lacks sustainable competitive advantage in its present business. 
C)  a company begins to encounter diminishing growth prospects in its mainstay business. 
D)  a company has run out of ways to achieve a distinctive competence in its present business. 
E)  a company is under the gun to create a more attractive and cost-efficient value chain. 
A)  a company's profits are being squeezed and it needs to increase its net profit margins and return on investment. 
B)  a company lacks sustainable competitive advantage in its present business. 
C)  a company begins to encounter diminishing growth prospects in its mainstay business. 
D)  a company has run out of ways to achieve a distinctive competence in its present business. 
E)  a company is under the gun to create a more attractive and cost-efficient value chain.

Question 9

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 10

In which of the following instances is retrenching to a narrower diversification base not likely to be an attractive or advisable strategy for a diversified company?

Accepted Answer

A)  When a diversified company has businesses that are weakly positioned in their respective industries and are struggling to earn a decent return on investment 
B)  When a diversified company has too many cash cows 
C)  When one or more businesses are cash hogs with questionable long-term potential 
D)  When businesses in once-attractive industries have badly deteriorated 
E)  When a diversified company has businesses that have little or no strategic or resource fits with the "core" businesses that management wishes to concentrate on 
A)  When a diversified company has businesses that are weakly positioned in their respective industries and are struggling to earn a decent return on investment 
B)  When a diversified company has too many cash cows 
C)  When one or more businesses are cash hogs with questionable long-term potential 
D)  When businesses in once-attractive industries have badly deteriorated 
E)  When a diversified company has businesses that have little or no strategic or resource fits with the "core" businesses that management wishes to concentrate on

Question 11

The one factor that is not relevant for company managers to worry about when their company has many unrelated firms, especially when they are very diverse is to

Accepted Answer

A)  stay abreast of what's happening in each industry and subsidiary. 
B)  pick business-unit heads having requisite combination of managerial skills and know-how to motivate people. 
C)  understand the true value of strategic investment proposals by business-unit managers. 
D)  know what to do if a business unit stumbles. 
E)  rely on the skills and expertise of business-level managers to build competitive advantage. 
A)  stay abreast of what's happening in each industry and subsidiary. 
B)  pick business-unit heads having requisite combination of managerial skills and know-how to motivate people. 
C)  understand the true value of strategic investment proposals by business-unit managers. 
D)  know what to do if a business unit stumbles. 
E)  rely on the skills and expertise of business-level managers to build competitive advantage.

Question 12

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 13

Conclusions about what the priorities should be for allocating resources to the various businesses of a diversified company need to be based on such considerations as

Accepted Answer

A)  each business's profit and growth prospects. 
B)  industry attractiveness and competitive strength of the various businesses. 
C)  the degree of strategic fit and resource fit with other business units. 
D)  each business's cash flow characteristics and return on capital invested. 
E)  All of these. 
A)  each business's profit and growth prospects. 
B)  industry attractiveness and competitive strength of the various businesses. 
C)  the degree of strategic fit and resource fit with other business units. 
D)  each business's cash flow characteristics and return on capital invested. 
E)  All of these.

Question 14

The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves

Accepted Answer

A)  assessing whether the diversification move will make the company better off because it will produce a greater number of core competencies. 
B)  assessing whether the diversification move will make the company better off by improving its balance sheet strength and credit rating. 
C)  assessing whether the diversification move will make the company better off by spreading shareholder risks across a greater number of businesses and industries. 
D)  evaluating whether the diversification move offers potential for the company's existing businesses and new businesses to perform better together under a single corporate umbrella. 
E)  assessing whether the diversification move will benefit shareholders due to gains in earnings per share and faster stock price appreciation. 
A)  assessing whether the diversification move will make the company better off because it will produce a greater number of core competencies. 
B)  assessing whether the diversification move will make the company better off by improving its balance sheet strength and credit rating. 
C)  assessing whether the diversification move will make the company better off by spreading shareholder risks across a greater number of businesses and industries. 
D)  evaluating whether the diversification move offers potential for the company's existing businesses and new businesses to perform better together under a single corporate umbrella. 
E)  assessing whether the diversification move will benefit shareholders due to gains in earnings per share and faster stock price appreciation.

Question 15

The three tests for judging whether a particular diversification move can create value for shareholders are

Accepted Answer

A)  the attractiveness test, the profitability test, and the shareholder value test. 
B)  the strategic fit test, the competitive advantage test, and the return on investment test. 
C)  the resource fit test, the profitability test, and the shareholder value test. 
D)  the attractiveness test, the cost-of-entry test, and the better-off test. 
E)  the shareholder value test, the cost-of-entry test, and the profitability test. 
A)  the attractiveness test, the profitability test, and the shareholder value test. 
B)  the strategic fit test, the competitive advantage test, and the return on investment test. 
C)  the resource fit test, the profitability test, and the shareholder value test. 
D)  the attractiveness test, the cost-of-entry test, and the better-off test. 
E)  the shareholder value test, the cost-of-entry test, and the profitability test.

Question 16

A comprehensive evaluation of the group of businesses a company has diversified into involves

Accepted Answer

A)  evaluating the attractiveness of industries the company has diversified into and the competitive strength of each of its business units. 
B)  evaluating the strategic fits and resource fits among the various sister businesses. 
C)  ranking the performance prospects of the businesses from best to worst and determining what the corporate parent's priorities should be in allocating resources to its various businesses. 
D)  using the results of the prior analytical steps as a basis for crafting new strategic moves to improve the company's overall performance. 
E)  All of the above. 
A)  evaluating the attractiveness of industries the company has diversified into and the competitive strength of each of its business units. 
B)  evaluating the strategic fits and resource fits among the various sister businesses. 
C)  ranking the performance prospects of the businesses from best to worst and determining what the corporate parent's priorities should be in allocating resources to its various businesses. 
D)  using the results of the prior analytical steps as a basis for crafting new strategic moves to improve the company's overall performance. 
E)  All of the above.

Question 17

The difference between a "cash cow" business and a "cash hog" business is that

Accepted Answer

A)  a cash cow business is making money whereas a cash hog business is losing money. 
B)  a cash cow business generates enough profits to pay off long-term debt whereas a cash hog business does not. 
C)  a cash cow business generates positive retained earnings whereas a cash hog business produces negative retained earnings. 
D)  a cash cow business produces large internal cash flows over and above what is needed to build and maintain the business whereas the internal cash flows of a cash hog business are too small to fully fund its operating needs and capital requirements. 
E)  a cash cow business generates very large increases in sales revenues whereas a cash hog business has declining sales revenues and chronic deficiencies of working capital. 
A)  a cash cow business is making money whereas a cash hog business is losing money. 
B)  a cash cow business generates enough profits to pay off long-term debt whereas a cash hog business does not. 
C)  a cash cow business generates positive retained earnings whereas a cash hog business produces negative retained earnings. 
D)  a cash cow business produces large internal cash flows over and above what is needed to build and maintain the business whereas the internal cash flows of a cash hog business are too small to fully fund its operating needs and capital requirements. 
E)  a cash cow business generates very large increases in sales revenues whereas a cash hog business has declining sales revenues and chronic deficiencies of working capital.

Question 18

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

Accepted Answer

A)  The 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)  An ability to employ the company's financial resources to maximum advantage by investing in whatever industries/businesses offer the best profit prospects 
C)  Superior top management ability to cope with the wide variety of problems encountered in managing a broadly diversified group of businesses 
D)  A 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)  The potential to grow shareholder value by investing in bargain-priced companies with big upside profit potential 
A)  The 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)  An ability to employ the company's financial resources to maximum advantage by investing in whatever industries/businesses offer the best profit prospects 
C)  Superior top management ability to cope with the wide variety of problems encountered in managing a broadly diversified group of businesses 
D)  A 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)  The potential to grow shareholder value by investing in bargain-priced companies with big upside profit potential

Question 19

One strategic fit-based approach to related diversification would be to

Accepted Answer

A)  diversify into new industries that present opportunities to combine value chain activities of two or more businesses to lower costs. 
B)  diversify into those industries where the same kinds of driving forces and competitive forces prevail, thus allowing use of much the same competitive strategy in all of the businesses a company is in. 
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 combine value chain activities of two or more businesses to lower costs. 
B)  diversify into those industries where the same kinds of driving forces and competitive forces prevail, thus allowing use of much the same competitive strategy in all of the businesses a company is in. 
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 20

The cost-of-entry test for evaluating whether diversification into a particular industry is likely to build shareholder value involves

Accepted Answer

A)  determining whether a newly entered business presents opportunities to cost-efficiently transfer competitively valuable skills or technology from one business to another. 
B)  determining whether the cost to enter the target industry will strain the company's credit rating. 
C)  considering whether a company's costs to enter the target industry are so high that the potentials for good profitability and return on investment are eroded. 
D)  determining whether the cost to enter the target industry will raise or lower the company's total profits. 
E)  determining whether the cost a company incurs to enter the target industry will raise or lower production costs. 
A)  determining whether a newly entered business presents opportunities to cost-efficiently transfer competitively valuable skills or technology from one business to another. 
B)  determining whether the cost to enter the target industry will strain the company's credit rating. 
C)  considering whether a company's costs to enter the target industry are so high that the potentials for good profitability and return on investment are eroded. 
D)  determining whether the cost to enter the target industry will raise or lower the company's total profits. 
E)  determining whether the cost a company incurs to enter the target industry will raise or lower production costs.

Which one of the following is not a reasonable option for deploying a diversified company's financial resources?

The two biggest drawbacks or disadvantages of unrelated diversification are

A strategy of diversifying into unrelated businesses

Which of the following is an important appeal of a related diversification strategy?

The attractiveness test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whether

In analyzing the nine-cell matrix, those businesses in the three cells in the lower right corner of the matrix

The nine-cell industry attractiveness-competitive strength matrix

Diversification ought to be considered when

The most important strategy-making guidance that comes from drawing a nine-cell industry attractiveness-competitive strength matrix is

In which of the following instances is retrenching to a narrower diversification base not likely to be an attractive or advisable strategy for a diversified company?

The one factor that is not relevant for company managers to worry about when their company has many unrelated firms, especially when they are very diverse is to

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

Conclusions about what the priorities should be for allocating resources to the various businesses of a diversified company need to be based on such considerations as

The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves

The three tests for judging whether a particular diversification move can create value for shareholders are

A comprehensive evaluation of the group of businesses a company has diversified into involves

The difference between a "cash cow" business and a "cash hog" business is that

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

One strategic fit-based approach to related diversification would be to

The cost-of-entry test for evaluating whether diversification into a particular industry is likely to build shareholder value involves

What Is Strategy and Why Is It Important

Charting a Companys Direction: Vision and Mission, Objectives, and Strategy

Evaluating a Companys External Environment

Evaluating a Companys Resources, Cost Position, and Competitiveness

The Five Generic Competitive Strategies

Supplementing the Chosen Competitive Strategy-Other Important Strategy Choices

Strategies for Competing in International Markets

Strategy, Ethics, and Corporate Social Responsibility

Superior Strategy Execution-Another Path to Competitive Advantage

Filters

Exam 8: Corporate Strategy: Diversification and the Multibusiness Company

Which one of the following is not a reasonable option for deploying a diversified company's financial resources?

The two biggest drawbacks or disadvantages of unrelated diversification are

A strategy of diversifying into unrelated businesses

Which of the following is an important appeal of a related diversification strategy?

The attractiveness test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whether

In analyzing the nine-cell matrix, those businesses in the three cells in the lower right corner of the matrix

The nine-cell industry attractiveness-competitive strength matrix

Diversification ought to be considered when

The most important strategy-making guidance that comes from drawing a nine-cell industry attractiveness-competitive strength matrix is

In which of the following instances is retrenching to a narrower diversification base not likely to be an attractive or advisable strategy for a diversified company?

The one factor that is not relevant for company managers to worry about when their company has many unrelated firms, especially when they are very diverse is to

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

Conclusions about what the priorities should be for allocating resources to the various businesses of a diversified company need to be based on such considerations as

The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves

The three tests for judging whether a particular diversification move can create value for shareholders are

A comprehensive evaluation of the group of businesses a company has diversified into involves

The difference between a "cash cow" business and a "cash hog" business is that

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

One strategic fit-based approach to related diversification would be to

The cost-of-entry test for evaluating whether diversification into a particular industry is likely to build shareholder value involves

What Is Strategy and Why Is It Important

Charting a Companys Direction: Vision and Mission, Objectives, and Strategy

Evaluating a Companys External Environment

Evaluating a Companys Resources, Cost Position, and Competitiveness

The Five Generic Competitive Strategies

Supplementing the Chosen Competitive Strategy-Other Important Strategy Choices

Strategies for Competing in International Markets

Strategy, Ethics, and Corporate Social Responsibility

Superior Strategy Execution-Another Path to Competitive Advantage

Filters