Deck 8: Corporate Strategy: Diversification and the Multibusiness Company

Question 1

Diversification into new industries deserves strong consideration when

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

Answer 1

E

Question 2

Which one of the following is not a factor that makes it appealing to diversify into a new industry by forming an internal start-up 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 needed to compete effectively and there is ample time to launch the business
C)When adding new production capacity will not adversely impact the supply/demand balance in the industry
D)When the industry is growing rapidly and the target industry consists 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

Answer 2

D

Question 3

A joint venture is an attractive way for a company to enter a new industry when

A)the firm is missing some essential skills or capabilities or resources and needs a partner to supply the missing expertise and competencies or fill the resource gaps.
B)the firm needs access to economies of scope and good financial fits in order to be cost-competitive.
C)it is uneconomical for the firm to achieve economies of scope on its own initiative.
D)the firm has no prior experience with diversification.
E)the firm has not built up a hoard of cash with which to finance a diversification effort.

Answer 3

A

Question 4

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

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

Question 5

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

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 view 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

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

A)industry 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 7

Diversification merits strong consideration whenever a single-business company

A)has integrated backward and forward as far as it can.
B)faces diminishing market opportunities and stagnating sales in its principal business.
C)has achieved industry leadership in its main line of business.
D)encounters declining profits in its mainstay business.
E)faces strong competition and is struggling to earn a good profit.

Question 8

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 9

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

A)enhanced industry attractiveness.
B)enhanced shareholder value.
C)boosting performance of the existing business.
D)lowered cost of entry.
E)diminishing market opportunities and stagnating sales in a firm's principal business.

Question 10

Diversification ought to be considered when a

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

Question 11

Acquisition of an existing business is an attractive strategy option for entering a promising new industry because it

A)is an effective way to hurdle entry barriers,is usually quicker than trying to launch a new start-up operation,and allows the acquirer to move directly to the task of building a strong position in the target industry.
B)is less expensive than launching a new start-up operation,thus passing the cost-of-entry test.
C)is a less risky way of passing the attractiveness test.
D)is more likely to result in passing the shareholder value test,the profitability test,and the better-off test.
E)offers 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 12

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

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

Question 13

A joint venture is an attractive way for a company to enter a new industry when

A)the pool of attractive acquisition candidates in the target industry is relatively small.
B)the firm needs better access to economies of scope in order to be cost-competitive.
C)the industry is growing slowly and adding too much capacity too soon could create oversupply conditions.
D)the firm has no prior experience with diversification and the industry is on the verge of explosive growth.
E)the opportunity is too risky or complex for the company to pursue alone or when the company lacks some important resources or competencies and needs a partner to supply them.

Question 14

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

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

Question 15

Apple Inc.'s decision to acquire Beats Electronics and Beats Music in 2014 for $3 billion rather than enter into a joint venture with that company was an attractive strategy option for entering a promising new industry in headphones and streaming music services because it

A)was an effective way to hurdle entry barriers,was quicker than trying to launch a brand-new start-up or joint venture operation,and allowed Apple Inc.to move directly to the task of building a strong position in the target industry.
B)offered Apple Inc.the prospect of gaining an immediate competitive advantage in the new industry and thus helps ensure that the diversification move could pass the competitive advantage test for building shareholder value.
C)was less expensive for Apple Inc.than launching a new start-up operation,thus passing the cost-of-entry test.
D)was more likely to result in Apple Inc.'s passing the shareholder value test,the profitability test,and the better-off test.
E)would have entailed divulging sources of competitive advantage such as trade secrets,confidential financial information,and proprietary processes that Apple is unwilling or unable to share.

Question 16

Which one 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 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 17

Diversifying into a new industry by forming a new internal subsidiary to enter and compete in the target industry is attractive when

A)all of the potential acquisition candidates are losing money.
B)it is impractical to outsource most of the value chain activities that have to be performed in the target business/industry.
C)there is ample time to launch the new business from the ground up.
D)the company has built up a hoard of cash with which to finance a diversification effort.
E)none of the companies already in the industry is an attractive strategic alliance partner.

Question 18

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 19

Which of the following statements about corporate diversification is incorrect?

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 20

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

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

Question 21

A diversified company that leverages the strategic fits of its related businesses into competitive advantage

A)selects the appropriate value chain operating practices to improve the financial outlook.
B)has a clear path to achieving 1 + 1 = 3 synergy gains in shareholder value.
C)has a clear path to divesting its best-performing businesses.
D)achieves economies of scale and passes the reduced-costs test for crafting a diversification strategy capable of creating added shareholder value.
E)forces cultural independence,operating diversity,and sophisticated analytical responsibility on the businesses to ensure compatibility with the overall corporate identity.

Question 22

One of the suggested advantages of an unrelated diversification strategy is that it

A)expands a firm's competitive advantage opportunities to include a wider array of businesses.
B)spreads the stockholders' risks across a group of truly diverse businesses.
C)increases strategic fit opportunities and the potential for a 1 + 1 = 3 outcome on the bottom line.
D)results in having more cash cow businesses than cash hog businesses.
E)facilitates capturing the financial fits among sister businesses (as compared to a strategy of related diversification).

Question 23

Opportunities for cross-business strategic fit exist

A)in R&D and technology activities only.
B)in supply chain activities only.
C)in sales and marketing activities only.
D)in production and distribution activities only.
E)anywhere along the respective value chains of related businesses;no one place is best.

Question 24

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

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 25

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

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

Question 26

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 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 27

The essential requirement for different businesses to be related is that

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 28

The greatest dilemma that an acquisition-minded firm faces is whether to

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

Question 29

The types of companies that make particularly attractive acquisition targets when employing an unrelated diversification strategy are

A)cash cow businesses that provide excellent financial fit.
B)companies that are market leaders in their respective industries.
C)financially distressed 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.
D)companies that offer the greatest potential to reduce labor costs.
E)companies that employ the same basic type of competitive strategy as the parent corporation's existing businesses.

Question 30

Cross-business strategic fits are unlikely to be derived from

A)transferring competitively valuable resources,expertise,technological know-how,or other capabilities from one business to another.
B)cost sharing between separate businesses whose activities can be combined.
C)brand sharing between business units that have common customers or that draw upon common core competencies.
D)sharing common administrative and customer service infrastructure.
E)activities along the value chain that cannot be shared by different businesses

Question 31

What makes related diversification an attractive strategy is the

A)ability to meet the "what's in it for us?" test.
B)potential to stabilize the company's financial performance.
C)opportunity to convert the competitive advantage potential into 1 + 1 = 3 gains in shareholder value.
D)potential to escape the power of buyers and suppliers.
E)potential to more easily hurdle the barriers to entering foreign markets.

Question 32

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

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

Question 33

Economies of scope

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 34

Which of the following does not accurately describe entering a new business via acquisition,internal development,or a joint venture?

A)Acquisition is generally the most profitable way to enter a new industry,tends to be more suitable for an unrelated diversification strategy than a related diversification strategy,and usually requires less capital than entering an industry via internal start-up.
B)Acquisition is the most popular means of diversifying into another industry,has the advantage of being quicker than trying to launch a brand-new operation,and offers an effective way to hurdle entry barriers.
C)The big dilemma of entering an industry via acquisition of an existing company is whether to pay a premium price for a successful company or to buy a struggling company at a bargain price.
D)The big drawbacks to entering a new industry via internal development include the costs of overcoming entry barriers,building an organization from the ground up,and the extra time it takes to build a strong and profitable competitive position.
E)Joint ventures are an attractive way to enter new businesses when the opportunity is too complex,uneconomical,or risky for one company to pursue alone,when the opportunities in a new industry require a broader range of competencies and know-how than a company can marshal on its own,and/or when it aids entry into a foreign market.

Question 35

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

A)acquire rival firms that have broader product lines so as to give the company access to a wider range of buyer groups.
B)acquire companies in forward distribution channels (wholesalers and/or retailers).
C)expand into foreign markets where the firm currently does no business.
D)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.
E)diversify into foreign markets where the firm has unrelated businesses.

Question 36

An acquisition of an unrelated business is deemed to have potential

A)if it is aimed at achieving good financial fit (whereas related diversification aims at good strategic fit).
B)if it can achieve at least existing profit margins into the near future.
C)if it passes the competitive fit,financial fit,strategic relatedness,and value chain maximization tests
D)if it 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.
E)if it can pass the industry attractiveness and cost-of-entry test,and if it has good prospects for profit growth.

Question 37

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

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 38

A strategy of diversifying into unrelated businesses

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 be 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 39

Different businesses are said to be unrelated when

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 40

Economies of scope differ from economies of scale in that

A)scope stems directly from strategic fit along the value chains of related businesses,while scale refers to cost savings that accrue directly from larger-sized operations.
B)scope refers to strategic fits to be gained outside the value chain,while scale refers to the impact of the value chain on operations.
C)scope refers to the reach of defined savings within the value chain,while scale refers to the magnitude or size of the operation itself.
D)scope refers to the possibilities of change,while scale refers to the extent and direction of change.
E)they mean the same thing and the only difference is the extent of cost savings accrued from unrelated businesses in each.

Question 41

The procedure for evaluating the pluses and minuses of a diversified company's strategy includes

A)assessing the utility of the products for consumers from all age-groups.
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)firing corporate managers who take on risks without performing due diligence.
D)evaluating the extent of cross-business strategic fits and checking whether the firm's resources fit the needs of the various businesses the company has diversified into.
E)measuring 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.

Question 42

Calculating quantitative industry attractiveness scores for each industry a company has diversified into

A)permits a ranking of the attractiveness of the various industry value chains,from best to worst.
B)provides 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.
C)helps ascertain which industries have the easiest-to-achieve key success factors and strategic fits.
D)ignores seasonal and cyclical factors,industry profitability,and whether an industry has significant social,political,regulatory,and environmental problems.
E)enables managers to get in position to rank the industries from most competitive to least competitive

Question 43

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 44

The basic purpose of calculating competitive strength scores for each of a diversified company's business units is to

A)rank the business unit from best to worst in terms of potential for cost reduction and profit margin improvement.
B)provide a quantitative measure of the overall market strength and competitive standing for each business unit.
C)determine which business unit has the greatest number of resource strengths,competencies,and competitive capabilities,and which one has the least.
D)determine which one has the biggest market share and is growing the fastest.
E)rank each business unit's strategy from best to worst.

Question 45

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 the company 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 46

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

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

Question 47

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)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 48

The success of unrelated diversification is contingent upon management's ability to

A)acquire new businesses that utilize much the same technology as existing businesses.
B)divest businesses whose competitive strategies do not match the overall competitive strategy of the corporation.
C)acquire new businesses having attractive distribution-related and customer-related strategic fits with existing businesses.
D)identify bargain-priced companies with big upside potential and then turn around their operations quickly with the aid of the parent company's financial resources and managerial know-how.
E)identify potential new acquisition candidates that are cash cows (as opposed to cash hogs).

Question 49

A competitive strength score above five indicates that a diversified company's relative position in the market is characterized by

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

Question 50

When industry attractiveness ratings are calculated for each of the industries a multibusiness company has diversified into,the results help indicate

A)which industries appear to be the most and least attractive from the standpoint of the company's long-term performance.
B)which industries have attractive key success factors and which have unattractive key success factors.
C)which industries have the biggest economies of scale and which have the greatest economies of scope and the overall potential for cost reduction in the industries as a group.
D)which industries are most attractive from the standpoint of long-term growth and the growth prospects of all the industries as a group.
E)which industries are most attractive from the standpoint of industry driving forces and competitive forces.

Question 51

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

A)Enabling a company to achieve rapid or continuous growth
B)Reducing risk by way of spreading the company's investments over a set of truly diverse industries
C)Stabilizing earnings,that is,market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses
D)Providing benefits to managers such as high compensation and reduction in employment risk
E)Restructuring an underperforming business

Question 52

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

A)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.
B)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.
C)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.
D)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 rating.
E)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.

Question 53

A diversified company has a parenting advantage when it

A)is more able than other companies to create positive collaboration within its portfolio for different specialty groups and geographic locations.
B)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.
C)manages a set of fundamentally similar business operations inside fundamentally similar industries and environments.
D)avoids acquiring undervalued companies and thus reduces risks.
E)results in supporting short-term economic shareholder value.

Question 54

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

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

Question 55

Which of the following is not generally something that ought to be considered in evaluating the attractiveness of a 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)frequency with which strategic alliances and collaborative partnerships are used in each industry,the extent to which firms in the industry utilize outsourcing,and whether the industries a company has diversified into have common key success factors
D)seasonal and cyclical factors,resource requirements,and whether an industry has significant social,political,regulatory,and environmental problems
E)presence of cross-industry strategic fits

Question 56

When calculating industry attractiveness scores,to produce a valid response it is necessary to

A)master the ability to hurdle barriers to entry,value chain attractiveness,and business risk.
B)calculate the cost reduction potential,customer satisfaction potential,and comparisons of annual cash flows from operations
C)enumerate 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)employ outside analysts to make an educated guess if the available information is skimpy.
E)ensure the appropriate weights are assigned to each measure and that the preparer has sufficient knowledge to rate the industry on each attractiveness measure.

Question 57

Which of the following is not a major consideration in evaluating the pluses and minuses of a diversified company's strategy?

A)Checking whether the company's resources fit the requirements of its present business lineup
B)Scrutinizing each industry/business to determine where driving forces are strongest/weakest and how many profitable strategic groups the company has diversified into
C)Ranking the performance prospects of the various businesses from best to worst and determining what the corporate parent's priorities should be in allocating resources to its different businesses
D)Evaluating the extent of cross-business strategic fits
E)Assessing the competitive strength of each business the company has diversified into

Question 58

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

A)staying abreast of what is 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 59

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,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 60

The Nine-Cell Industry Attractiveness-Competitive Strength Matrix

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 businesses.

Question 61

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

A)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.
B)cash cow businesses are sufficient to fund its needs to turn cash hogs into potential young stars.
C)self-supporting stars are able to plow their cash flows into funding cash cows.
D)each business is sufficiently profitable to generate an attractive return on invested capital.
E)each business unit produces large internal cash flows over and above what is needed to build and maintain the business.

Question 62

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

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 63

Which one of the following is not a rationale for retaining a cash hog business in a diversified company's portfolio?

A)Capital infusions needed from the corporate parent are modest relative to the funds available.
B)There is a decent chance of growing the business into a solid bottom-line contributor.
C)The business is in an industry with low attractiveness and has a weak competitive position in that industry.
D)There is a better than even chance that investing in the cash hog will result in it becoming a star business with a strong or market-leading competitive position in a high growth market and high levels of profitability.
E)The cash hog has a valuable strategic fit with other business units.

Question 64

The strategic options to improve a diversified company's overall performance do not include which of the following categories of actions?

A)Broadening the company's business scope by making new acquisitions in new industries
B)Increasing dividend payments to shareholders and/or repurchasing shares of the company's stock
C)Restructuring the company's business lineup and putting a whole new face on the company's business makeup
D)Sticking closely with the existing business lineup and pursuing opportunities these businesses present
E)Divesting weak-performing businesses and retrenching to a narrower base of business operations

Question 65

A cash hog type of business

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 66

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

A)concentrating resources to bolster unattractive and competitively weak performers in the corporate portfolio.
B)measuring only business strength in allocating resources and investment capital to the different businesses.
C)concentrating resources in only those business units that are destined for squeezing out the maximum cash flows.
D)using both industry attractiveness and business strength measurements in allocating resources and investment capital to a corporation's different businesses.
E)using both resource fit and product strength measurements in allocating resources and investment capital to its different businesses.

Question 67

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

A)the resource requirements of each of its businesses exactly match the resources the company has available.
B)its individual businesses add to a company's resource strengths and when it has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin.
C)each business unit 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

A cash cow type of business

A)generates unusually high profits and returns on equity investment.
B)is so profitable that it has no long-term debt.
C)generates positive cash flows over and above its internal requirements,thus providing a corporate parent with cash flows that can be used for financing new acquisitions,investing in cash hog businesses,funding share buyback programs,and/or paying dividends.
D)is a business with such a strong competitive advantage that it generates big profits,big returns on investment,and big cash surpluses after dividends are paid.
E)has good strategic fit with a cash hog business.

Question 69

Management's ranking of business units and establishing a priority for resource allocation should

A)utilize activity-based costing and benchmarking to determine the funding needs of each business unit.
B)first consider the strength of funding proposals presented by managers of each division or business unit.
C)give priority for funding to cash-hog businesses.
D)put business units with the brightest profit and growth prospects and solid strategic and resource fits at the top of the investment priority list.
E)always make the company's business units with strong resource strengths and competitive capabilities the central focus of funding initiatives.

Question 70

In a diversified company,the competitive advantage potential of cross-business strategic fit is greater when

A)the business lineup includes a number of cash cows.
B)valuable opportunities exist to transfer skills,technology,or intellectual capital from one business to another,combine the performance of related activities,or share the use of a well-respected brand name across multiple products or service categories.
C)the strategy maps of the various business units converge.
D)businesses included in the corporate portfolio compete in fast-growing industries.
E)competition is less intense and driving forces are relatively weak.

Question 71

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

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 72

Once a company has diversified into a collection of related or unrelated businesses and concludes that some strategy adjustments are needed,which one of the following is not one of the main strategy options that a company can pursue?

A)Stick closely with the existing business lineup.
B)Restructure the company's business lineup.
C)Craft new initiatives to build or enhance the company's reputation.
D)Divest some businesses and retrench to a narrower diversification base.
E)Broaden the diversification base.

Question 73

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

A)is making money,whereas a cash hog business is losing money.
B)generates enough profits to pay off long-term debt,whereas a cash hog business does not.
C)generates positive retained earnings,whereas a cash hog business produces negative retained earnings.
D)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)generates very large increases in sales revenues,whereas a cash hog business has declining sales revenues and chronic deficiencies of working capital.

Question 74

The tests of whether a diversified company's businesses exhibit resource fit do not include

A)whether a business adequately contributes to achieving the corporate parent's performance targets.
B)whether the excess cash flows generated by cash cow businesses are sufficient to cover the negative cash flows of its cash hog businesses.
C)whether the corporate parent has or can develop sufficient resource strengths and competitive capabilities to be successful in each of the businesses it has diversified into.
D)whether the company has adequate financial strength to fund its different businesses and maintain a healthy credit rating.
E)whether the corporate parent has sufficient cash to fund the needs of its individual businesses and pay dividends to shareholders without having to borrow money.

Question 75

Checking a diversified firm's business portfolio for the competitive advantage potential of cross-business strategic fits entails consideration of

A)whether the parent company's competitive advantages are being deployed to maximum advantage in each of its business units.
B)whether the competitive strategies employed in each business act to reinforce the competitive power of the strategies employed in the company's other businesses.
C)whether the competitive strategies in each business possess good strategic fit with the parent company's corporate strategy.
D)the extent to which there are competitively valuable relationships between the value chains of sister business units and what opportunities they present to reduce costs,share use of a potent brand name,or transfer skills or technology or intellectual capital from one business to another.
E)how compatible the competitive strategies of the various sister businesses are and whether these strategies are properly aimed at achieving the same kind of competitive advantage.

Question 76

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

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 resource 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 resources the company has available.

Question 77

Moves to improve a diversified company's overall performance do not include

A)broadening the company's business scope by making new acquisitions in new industries.
B)divesting weak-performing businesses and retrenching to a narrower base of business operations.
C)restructuring the company's business lineup and putting a whole new face on the company's business makeup.
D)sticking closely to the existing business lineup and pursuing the growth opportunities presented by these businesses.
E)selling businesses too late and at too low a price.

Question 78

The strategic and financial options for allocating a diversified company's financial resources do not include

A)making acquisitions to establish positions in new businesses or to complement existing businesses.
B)investing in ways to strengthen or grow existing businesses.
C)funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses.
D)allocating resources to businesses with dim or marginal prospects.
E)paying off existing debt,increasing dividends,building cash reserves,or repurchasing shares of the company's stock.

Question 79

One important dimension of resource fit concerns the potential to generate internal cash flows sufficient to fund capital requirements of its business lineup,termed the firm's

A)internal capital market.
B)debt policy management.
C)liquidity management.
D)economic value added.
E)managerial cost control.

Question 80

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

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.