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

Question 1

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

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.

Answer 1

E

Question 2

Diversification becomes a relevant strategic option for a company EXCEPT when it

A) spots opportunities to expand into industries whose technologies and products complement its present business.
B) leverages existing resources and capabilities by expanding into industries where these same resource strengths are key success factors and valuable competitive assets.
C) has a powerful and well-known brand name that can be transferred to the products of other businesses and thereby used as a lever for driving up the sales and profits of such businesses.
D) can open up new avenues for reducing costs by diversifying into closely related businesses.
E) expands into additional businesses that unlock possibilities for a comprehensive cost enhancement strategy.

Answer 2

E

Question 3

Diversification into new industries deserves strong consideration when a

A) single-business company can achieve profitable growth opportunities in its present industry.
B) single-business company needs to develop a corporate-wide strategy.
C) single-business company needs to develop a multi-line strategy.
D) single-business company encounters diminishing market opportunities and stagnating sales in its principal business.
E) multiple-business company encounters enhanced market opportunities and increasing sales in its principal business.

Answer 3

D

Question 4

In terms of strategy making, what is the difference between a one-business company and a diversified company?

A) The first uses a business-level strategy, while the second uses a set of business strategies and a corporate strategy.
B) The first uses a business-level strategy, while the second uses a corporate-wide strategy.
C) The first uses an operating strategy, while the second uses a business-line strategy.
D) The first uses a functional strategy, while the second uses a business-line strategy.
E) The first uses a single-line strategy, while the second uses a multi-line strategy.

Question 5

The task of crafting a company's overall corporate strategy for a diversified company encompasses all of the following EXCEPT

A) picking the new industries to enter and deciding on the means of entry.
B) initiating actions to boost the combined performance of the corporation's collection of businesses.
C) pursuing opportunities to leverage cross-business value chain relationships and strategic fit into competitive advantage.
D) establishing investment priorities and steering corporate resources into the most attractive business units.
E) divesting well-performing businesses.

Question 6

An acquisition premium is the amount by which the price offered for an existing business exceeds the

A) fair market value of similar companies in the same geographic locale.
B) preacquisition market value of the target company.
C) comparable value of similar companies within the same market.
D) amount paid as a down payment to be held in escrow until closing.
E) difference between the amount that was offered and the amount that is escrowed.

Question 7

It becomes particularly urgent for a company to consider diversification when there are

A) opportunities to leverage existing competencies and capabilities by expanding into businesses where these same resources are key success factors and valuable competitive assets.
B) diminishing market opportunities and stagnating sales in its principal business.
C) opportunities to lower costs by entering closely related businesses.
D) opportunities to transfer a powerful and well-respected brand name to the products of other businesses and thereby increase the sales and profits of these newly entered businesses.
E) needs to avoid putting all of its "eggs" in one industry basket.

Question 8

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

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 fit into competitive advantage
D) establishing investment priorities and 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 9

Diversification into a new industry cannot be considered a success unless it results in

A) easing the means of entry.
B) boosting performance of the existing business.
C) lowered cost of entry.
D) enhanced industry attractiveness.
E) enhanced shareholder value.

Question 10

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

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.

Question 11

Establishing investment priorities and steering corporate resources into the most attractive business units typically requires the company to decide on all of the following options, EXCEPT

A) the pursuit of rapid growth strategies in its most promising businesses.
B) initiating profit improvement or turnaround strategies in weak-performing businesses with potential.
C) the divestiture of unattractive businesses.
D) the pursuit of debt reduction opportunities that can lower the debt/equity ratio while maintaining asset levels.
E) the divestiture of businesses that do not fit into the company's longer term plans.

Question 12

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

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 13

Diversifying into new businesses can be considered a success only if it

A) results in increased profit margins and bigger total profits.
B) builds shareholder value.
C) helps a company escape the rigors of competition in its present business.
D) leads to the development of a greater variety of distinctive competencies and competitive capabilities.
E) helps the company overcome the barriers to entering additional foreign markets.

Question 14

A company can best accomplish diversification into new industries by

A) outsourcing most of the value chain activities that have to be performed in the target business/industry.
B) acquiring a company already operating in the target industry, creating a new business from scratch, or forming a joint venture with one or more companies to enter the target industry.
C) integrating forward or backward into the target industry.
D) shifting from a strategic group comprised mostly of single-business companies to a strategic group comprised of diversified companies.
E) employing an offensive strategy with new product innovation as its centerpiece.

Question 15

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

A) make the company better off because it will produce a greater number of core competencies.
B) make the company better off by improving its balance sheet strength and credit rating.
C) make the company better off by spreading shareholder risks across a greater number of businesses and industries.
D) produce a synergistic outcome such that the company's different businesses perform better together than apart and the whole ends up being greater than the sum of the parts.
E) help each business earn exactly what they were earning before coming under the same corporate umbrella.

Question 16

Diversification ought to be considered when a

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

Question 17

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

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

Question 18

The decision to pursue diversification requires management to resolve which industries to enter and whether to enter, and includes such decisions as the following, EXCEPT

A) selecting the appropriate value chain operating practices to improve the financial outlook.
B) starting a business from the ground up.
C) acquiring a company already established in the target industry.
D) forming a joint venture or partnership with another company.
E) structuring a strategic alliance with another company to take advantage of the opportunity.

Question 19

To create value for shareholders via diversification, a company must

A) get into new businesses that are profitable.
B) diversify into industries that are growing rapidly.
C) spread its business risk across various industries by only acquiring firms that are strong competitors in their respective industries.
D) diversify into businesses that can perform better under a single corporate umbrella than they could perform operating as independent, stand-alone businesses.
E) diversify into businesses that have either key success factors or value chains that are similar to its present businesses.

Question 20

Apple's $3 billion acquisition of Beats Electronics and Beats Music in 2014 was an attractive strategy option for entering promising new industries in headphones and streaming music services because it

A) was an effective way to hurdle entry barriers, is usually quicker than trying to launch a brand-new startup operation, and allows the acquirer to move directly to the task of building a strong position in the target industry.
B) was less expensive than launching a new startup operation, thus passing the cost of entry test.
C) offered a challenging opportunity to train new resources and revive a sagging business even if does not offer great prospects for growth, profitability, or return on investment.
D) was more likely to result in passing the shareholder value test, the profitability test, and the better-off test.
E) offered the prospect of gaining an immediate competitive advantage in the new industry and thus helps ensure that the diversification move will pass the competitive advantage test for building shareholder value.

Question 21

A big advantage of related diversification is that it

A) offers ways for a firm to realize 1 + 1 = 3 benefits because the value chains of the different businesses present competitively valuable cross-business relationships.
B) is less capital intensive and usually more profitable than unrelated diversification.
C) involves diversifying into industries having the same kinds of key success factors.
D) is less risky than either vertical integration or unrelated diversification due to lower capital requirements.
E) passes the industry attractiveness test and thus offers the best route to 2 + 2 = 4 benefits.

Question 22

The transaction costs of completing a business agreement or deal of some sort, over and above the price of the deal, can include all of the following EXCEPT

A) the costs of searching for an attractive target.
B) the costs of evaluating its worth.
C) bargaining costs.
D) the costs of completing the transaction.
E) the premium cost.

Question 23

Which of the following is NOT a contributing reason for businesses with strategic fit in R&D or technology activities to perform better together?

A) the ability to continue using existing processes
B) cost savings in research and development areas
C) shorter times in getting new products to market
D) increased sales in both the parent company and the diversified businesses
E) a greater number of innovative products or processes

Question 24

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

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 25

Which of the following statements about cross-business strategic fit in a diversified enterprise is NOT accurate?

A) Strategic fit between two businesses exists when the management know-how accumulated in one business is transferable to the other.
B) Strategic fit exists when two businesses present opportunities to economize on marketing, selling, and distribution costs.
C) Competitively valuable cross-business strategic fits are what enable related diversification to produce a synergistic performance outcome.
D) Strategic fit is primarily a by-product of unrelated diversification and exists when the value chain activities of unrelated businesses possess economies of scope and good financial fit.
E) Strategic fit exists when a company can transfer its brand-name reputation to the products of a newly acquired business and add to the competitive power of the new business.

Question 26

One strategic fit based approach to related diversification would be to

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 27

A related diversification strategy involves building the company around businesses

A) with strategic fit with respect to key value chain activities and competitive assets.
B) that are highly independent, proficient, and efficient operating firms.
C) with strategic fit across separate value chain activities that drive each business.
D) that can also include unrelated businesses with dissimilar resource requirements.
E) that have dissimilar value chain activities with no cross-business commonalities.

Question 28

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

A) their value chains exhibit competitively valuable cross-business commonalities.
B) the products of the different businesses are bought by many of 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 they employ both entail economies of scale.

Question 29

Businesses with strategic fit with respect to their supply chain activities perform better together because of all of the following EXCEPT the

A) potential for skills transfer in procuring materials.
B) sharing of resources and capabilities in logistics.
C) benefits of added collaboration with common supply chain partners.
D) added leverage gained with shippers when securing volume discounts on incoming parts and components.
E) increased allocation and allotment of support activities and specialized resources and capabilities.

Question 30

Unrelated businesses

A) sell products from the different businesses to much the same types of buyers and retail outlets.
B) have dissimilar value chains and resource requirements with no competitively important cross-business commonalities at the value chain level.
C) perform better than just the sum of the individual businesses.
D) will always have several key suppliers in common.
E) employ production methods that create economies of scale.

Question 31

Which of the prime examples of strategic fit opportunities below are NOT related business activities?

A) transferring specialized expertise, technological know-how, or other valuable resources and capabilities from one business's value chain to another's
B) cost sharing between businesses by combining their related value chain activities into a single operation
C) overhauling and streamlining the operations of the business by refocusing value chain activities toward businesses that can provide a superior job of parenting
D) exploiting common use of a well-known brand name
E) sharing other resources (besides brands) that support corresponding value chain activities across businesses

Question 32

What is the name of the process for developing new businesses as an outgrowth of a company's established business operations?

A) corporate venturing
B) value chain integration
C) resource capability process
D) diversification activity capabilities
E) business launch

Question 33

The big dilemma an acquisition-minded firm faces is whether to

A) focus on building brand awareness or establishing supplier relationships.
B) pay a premium price for a successful company or buy a struggling company at a bargain price.
C) strive for scale economies or to acquire technical know-how to customize production.
D) focus on building brand awareness or striving for scale economies.
E) focus on acquiring technical know-how or outsourcing production.

Question 34

What makes related diversification an attractive strategy?

A) the ability to broaden the company's product line
B) the opportunity to convert cross-business strategic fit into competitive advantage over business rivals whose operations don't offer comparable strategic fit benefits
C) the potential for improving the stability of the company's financial performance
D) the ability to serve a broader spectrum of buyer needs
E) the added capability it provides in overcoming the barriers to entering foreign markets

Question 35

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?

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 36

Which of the following is NOT one of the appeals of related diversification?

A) It can offer opportunities for transferring expertise, technology, and other capabilities from one business to another.
B) It can offer opportunities for reducing costs on advertising by leveraging use of a competitively powerful brand name.
C) It is particularly well-suited for the use of first-mover strategies and capturing valuable financial fits.
D) It may present opportunities for cross-business collaboration to create valuable new competencies and capabilities.
E) It can facilitate sharing of other resources (besides brands) that support corresponding value chain activities across businesses.

Question 37

When discussing "economies of scope," it involves understanding that they

A) stem from the cost-saving efficiencies of operating over a wider geographic area.
B) have to do with the cost-saving efficiencies of distributing a firm's product through many different distribution channels simultaneously.
C) stem from cost-saving strategic fits along the value chains of related businesses.
D) refer to the cost savings that flow from operating across all or most of an industry's value chain activities.
E) arise from the cost-saving efficiencies of having a wide product line and offering customers a big selection of models and styles to choose from.

Question 38

Economies of scope

A) are cost reductions that flow from operating in multiple related businesses.
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 39

What is the difference between economies of scale and economies of scope?

A) Scale refers to the magnitude or size of the operation, while scope refers to the reach of defined savings within the value chain.
B) Scale refers to the extent of change, while scope refers to the possibilities of change.
C) Scale is about dimensions, while scope is about the capacity available for production capabilities.
D) Scale refers to cost savings that accrue directly from larger-sized operations, while scope stems directly from strategic fit along the value chains of related businesses.
E) Scale and scope mean the same thing and the only difference is the extent of cost savings accrued from unrelated businesses in each.

Question 40

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

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 41

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

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 42

The two biggest drawbacks or disadvantages of unrelated diversification are

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 many different businesses and being without the added source of competitive advantage that cross-business strategic fit provides.
E) over-investing in the achievement of economies of scope and the difficulties of achieving a good mix of cash cow and cash hog businesses.

Question 43

The two biggest drawbacks or disadvantages of unrelated diversification are

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) the demanding managerial requirements and the limited competitive advantage potential due to lack of cross-business strategic fit benefits.
D) ending up with too many cash hog businesses and too much diversity among the competitive strategies of the businesses it 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 44

As a rule, the key indicators of industry attractiveness, for all the industries represented in a diversified company's business portfolio, should NOT be measured on such attractiveness factors as

A) market size and projected growth rate.
B) emerging opportunities and threats, and the intensity of competition.
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) the utility of the products for consumers from all age-groups.

Question 45

Which of the following is NOT generally something that ought to be considered in evaluating the attractiveness of a multibusiness (diversified) company's business makeup?

A) market size and projected growth rate, industry profitability, and the intensity of competition
B) industry uncertainty and business risk
C) the frequency with which strategic alliances and collaborative partnerships are used in each industry, and the extent to which firms in the industry utilize outsourcing
D) resource requirements, and whether an industry has significant social, political, regulatory, and environmental problems
E) the presence of cross-industry strategic fits and matching resource requirements to the parent company

Question 46

Calculating quantitative attractiveness ratings for the industries a company has diversified into involves

A) determining each industry's key success factors, calculating the ability of the company to be successful on each industry KSF, and obtaining overall measures of the firm's ability to compete successfully in each of its industries based on the combined KSF ratings.
B) determining each industry's competitive advantage factors, calculating the ability of the company to be successful on each competitive advantage factor, and obtaining overall measures of the firm's ability to achieve sustainable competitive advantage in each of its industries based on the combined competitive advantage factor ratings.
C) selecting a set of industry attractiveness measures, weighting the importance of each measure, rating each industry on each attractiveness measure, multiplying the industry ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each industry to obtain an overall industry attractiveness score, and using the overall industry attractiveness scores to interpret the attractiveness of all the industries, both individually and as a group.
D) rating the attractiveness of each industry's strategic and resource fits, summing the attractiveness scores, and determining whether the overall scores for the industries as a group are appealing or not.
E) identifying each industry's average profitability, rating the difficulty of achieving average profitability in each industry, and deciding whether the company's prospects for above-average profitability are attractive or unattractive, industry by industry.

Question 47

Two important negatives of unrelated diversification are

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 48

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

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

Question 49

There is ample room for companies to customize their diversification strategies and be defined as being either narrowly or broadly diversified, and when combination related-unrelated diversification strategy options are adopted, they have particular appeal to

A) those companies with a mix of valuable competitive assets, covering the spectrum from generalized to specialized resources and capabilities.
B) those large multibusiness firms, sometimes called conglomerates, because they have a unique capability designed to stabilize earnings.
C) companies with a portfolio of product choices for buyer-related behavior.
D) corporate managers who take on risks without performing due diligence.
E) corporate managers who want to play the corporate parent role without fiduciary responsibility.

Question 50

With an unrelated diversification strategy, the types of companies that make particularly attractive acquisition targets are

A) struggling companies with good turnaround potential, undervalued companies that can be acquired at a bargain price, and companies that have bright growth prospects but are short on investment capital.
B) companies offering the biggest potential to reduce labor costs.
C) cash cow businesses with excellent financial fit.
D) companies that are market leaders in their respective industries.
E) companies that employ the same basic type of competitive strategy as the parent corporation's existing businesses.

Question 51

Which of the following rationales for pursuing unrelated diversification is likely to increase shareholder value?

A) to reduce risk by way of spreading the company's investments over a set of truly diverse industries
B) to enable a company to achieve rapid or continuous growth
C) to chance that market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses
D) to provide benefits to managers such as high compensation and reduced unemployment risk
E) to restructure an underperforming business

Question 52

The basic premise of unrelated diversification is that

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 that 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 53

Which one of the following is NOT an important aspect of evaluating the merits of a diversified company's strategy?

A) assessing the competitive strength of each business the company has diversified into
B) determining which business units are cash cows and which ones are cash hogs, and then evaluating how soon the company's cash hogs can be transformed into cash cows
C) evaluating the strategic fits and resource fits among the various sister businesses
D) assessing the attractiveness of the industries the company has diversified into, both individually and as a group
E) ranking the performance prospects of the businesses from best to worst and deciding what priority to give each of the company's business units in allocating resources

Question 54

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

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 55

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

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

Question 56

A diversified company has a parenting advantage when it

A) is more able than other companies to boost the combined performance of its individual businesses through its high-level guidance, general oversight, and other corporate-level contributions.
B) is more able than other companies to create positive collaboration within its portfolio for different specialty groups and geographic locations.
C) results in supporting short-term economic shareholder value.
D) manages a set of fundamentally similar business operations inside fundamentally similar industries and environments.
E) avoids acquiring undervalued companies and thus reduces risks.

Question 57

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

A) stay abreast of what's happening in each industry and subsidiary.
B) pick business-unit heads having the 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) "manage by the numbers"-that is, keep a close track on the financial and operating results of each subsidiary.

Question 58

Corporate parenting refers to all of the following EXCEPT

A) the role that a diversified corporation plays in nurturing its component businesses through the provision of top management expertise, disciplined control, financial resources, and capabilities.
B) the help subsidiaries receive in performing better when they utilize astute high-level guidance from corporate executives.
C) the corporation's ability to provide generalized support resources so as to create value by lowering companywide overhead costs by eliminating duplication of efforts.
D) efforts to capitalize on the umbrella brands and enhance value proposition across businesses.
E) efforts to judiciously segregate funds for each business in such a way that keeps the money safe and discourages shifting funds across business units.

Question 59

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

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 60

An umbrella brand

A) is a generalized resource that can be leveraged in unrelated diversification.
B) is a brand name that can steer a narrow assortment of business types.
C) represents a public disclosure spotlighting the corporate image.
D) represents an overall corporate marker covering its overriding image of sustainability and responsibility.
E) is a specialized resource designed to influence profit growth.

Question 61

The nine-cell attractiveness-strength matrix provides clear, strong logic for considering using

A) only industry attractiveness in allocating resources and investment capital to its different businesses.
B) only business strength in allocating resources and investment capital to the different businesses.
C) both industry attractiveness and business strength in allocating resources and investment capital to its different businesses.
D) both industry attractiveness and product strength in allocating resources and investment capital to its different businesses.
E) both resource fit and product strength in allocating resources and investment capital to its different businesses.

Question 62

A weighted industry attractiveness assessment is generally analytically superior to an unweighted assessment because

A) a weighted ranking identifies which industries offer the best/worst long-term profit prospects.
B) an unweighted ranking doesn't discriminate between strong and weak industry driving forces and industry competitive forces.
C) it does a more accurate job of singling out which industry key success factors are the most important.
D) an unweighted ranking doesn't help identify which industries have the easiest and hardest value chains to execute.
E) the various measures of attractiveness are not likely to be equally important in determining overall attractiveness.

Question 63

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

A) each business is a cash cow.
B) its businesses add to a company's overall resource strengths and have matching resource requirements and/or when the parent has adequate corporate resources to support its business needs and add value.
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 64

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

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 65

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

A) vulnerability to seasonal and cyclical downturns, vulnerability to driving forces, and vulnerability to fluctuating interest rates and exchange rates.
B) relative market share, the ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors, and the ability to benefit from strategic fits with sister businesses.
C) the appeal of its strategy, the relative number of competitive capabilities, the number of products in each business's 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 66

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

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 67

The businesses in a diversified company's lineup exhibit good resource fit when

A) the resource requirements of each business exactly match the resources the company has available.
B) individual businesses have matching resource requirements at points along their value chain and add to a company's overall resource strengths and when solid parenting capabilities exist without spreading itself too thin.
C) each business generates just enough cash flow annually to fund its own capital requirements and thus does not require cash infusions from the corporate parent.
D) each business unit produces sufficient cash flows over and above what is needed to build and maintain the business, thereby providing the parent company with enough cash to pay shareholders a generous and steadily increasing dividend.
E) there are enough cash cow businesses to support the capital requirements of the cash hog businesses.

Question 68

For a diversified company to be a strong performer

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 69

The value of determining the relative competitive strength of each business a company has diversified into is to have a quantitative basis for

A) identifying which businesses have large/small competitive advantages or competitive disadvantages vis-à-vis the rivals in their respective industries.
B) rating them from strongest to weakest in terms of contributing to the corporate parent's revenue growth.
C) comparing resource strengths and weaknesses, business by business.
D) rating them from strongest to weakest in contending for market leadership in their respective industries.
E) rating them from strongest to weakest in terms of contributing to the corporate parent's profitability.

Question 70

When calculating the weighted industry attractiveness scores, we find the more intensely competitive an industry is

A) the lower the attractiveness weighting for that industry.
B) the higher the attractiveness weighting for that industry.
C) suggests the resources are beyond the parent company's reach.
D) suggests the industry attractiveness measures have been incorrectly weighted.
E) the more likely the company's profit and revenues will be intensive.

Question 71

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

A) each business is sufficiently profitable to generate an attractive return on invested capital.
B) the resource requirements of each business exactly match the company's available resources.
C) it 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.
D) each business unit produces large internal cash flows over and above what is needed to build and maintain the business.
E) each business is sufficiently profitable to generate an attractive return on invested capital.

Question 72

Relative market share is

A) calculated by dividing a company's percentage share of total industry sales volume by the percentage share held by its largest rival.
B) calculated by adjusting a company's revenue share up or down by a factor proportional to whether their quality/customer service factors are above/below industry averages.
C) calculated by dividing a company's market share (based on dollar volume) by the industry-average market share.
D) particularly useful in identifying cash cows, which have big relative market shares (above 1.0), and cash hogs, which have low relative market shares (below 0.5).
E) calculated by subtracting the industry-average market share (based on revenue) from the company's market share to highlight relative share above/below the industry

Question 73

What does a competitive strength score above 5 tell us about a diversified company's position in the market?

A) that its business units are all fairly strong market contenders in their respective industries
B) that its business units are all fairly weak market contenders in their respective industries
C) that the company will not likely perform well
D) that a company's competitive strength score does not relate to the market position of that business
E) that the company will likely fail

Question 74

The nine-cell industry attractiveness competitive strength matrix

A) is useful for helping decide which businesses should have high, average, and low priorities in deploying 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) identifies which sister businesses have the highest level of resource fit.

Question 75

What hurdles are present in calculating industry attractiveness scores?

A) deciding on the appropriate weights for the attractiveness measures
B) different analysts use different weights for the different attractiveness measures
C) gaining sufficient command of the industry to assign more accurate and objective ratings
D) deciding the impact of strategic fits to unrelated and related diversification
E) deciding whether a business is related or unrelated

Question 76

What is it called when a diversified company can add value by shifting capital from business units generating free cash flow to those needing additional capital to expand and realize their growth potential?

A) internal capital market
B) cash cow benefits
C) economic value added
D) shareholder value added
E) derived valuation

Question 77

The chief purpose of calculating quantitative industry attractiveness scores for each industry a company has diversified into is to

A) determine which industry is the biggest and fastest growing.
B) get in position to rank the industries from most competitive to least competitive.
C) provide a basis for drawing analysis-based conclusions about the attractiveness of the industries a company has diversified into, both individually and as a group, and further to provide an indication of which industries offer the best and worst long-term prospects.
D) ascertain which industries have the easiest-to-achieve key success factors.
E) rank the attractiveness of the various industry value chains from best to worst.

Question 78

Checking a diversified company's business portfolio for the competitive advantage potential of cross-business strategic fits does NOT involve ascertaining the extent to which sister business units

A) have value chain match-ups that offer opportunities to combine the performance of related value chain activities and reduce costs.
B) have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another.
C) have opportunities to share use of a well-respected brand name.
D) have value chain match-ups that offer opportunities to create new competitive capabilities or to leverage existing resources.
E) are cash cows and which ones are cash hogs.

Question 79

Checking the competitive advantage potential of cross-business strategic fits in a diversified company involves evaluating the extent to which sister businesses present opportunities

A) to combine the performance of certain cross-business activities and thereby reduce costs.
B) to transfer skills, technology, or intellectual capital from one business to another.
C) for the company's different businesses to share use of a well-respected brand name.
D) for sister businesses to collaborate in creating valuable new competitive capabilities.
E) to create a positive image in the industry irrespective of the financial performance of its businesses.

Question 80

One of the most significant contributions to strategy making in diversified companies that the nine-cell industry attractiveness competitive strength matrix provides is

A) identifying which businesses have strategies that should be continued, which businesses have strategies that need fine-tuning, and which businesses have strategies that need a major overhaul.
B) that businesses having the greatest competitive strength and that are positioned in the most attractive industries should have the highest priority for corporate resource allocation and that competitively weak businesses in relatively unattractive industries should have the lowest priority and perhaps even be considered for divestiture.
C) pinpointing which strategies are most appropriate for businesses positioned in the four corners of the matrix (although the matrix reveals little about the best strategies for businesses positioned in the remainder of the matrix).
D) its ability to pinpoint what kind of competitive advantage or disadvantage each business has.
E) pinpointing which businesses to keep and which ones to divest.