Question 1

A company's top managers do not need to have entrepreneurial capabilities for diversification to increase profitability.

Accepted Answer

A) True 
 B)False  False

Question 2

Which of the following may be true for a company pursuing a strategy of unrelated diversification rather than a strategy of related diversification?

Accepted Answer

A)   The company must achieve coordination between business units.
B)   The company has narrow organizational competencies.
C)   The company has superior strategic management and organizational design.
D)   The company has no bureaucratic costs that arise from the number of businesses in its portfolio.
E)   The company has no difficulty in keeping its corporate managers informed about the complexities of each business. C

Question 3

Identify and discuss the profitability justifications for pursuing a multibusiness model based on diversification.

Accepted Answer

Diversification is the process of entering new industries, distinct from a company's core or distinct industry, using a multibusiness model based on finding ways to use the company's distinctive competencies to increase the value of products in those industries to customers, and thus a company's long-run profitability.
Diversification can increase profitability when managers transfer competencies between business units in different industries. This is usually done by companies that acquire others that share some sort of commonality.
Diversification can increase profitability when managers leverage competencies to create business units in new industries. This is based on the idea that a source of competitive advantage in one industry may be a source of competitive advantage in another industry.
Diversification can increase profitability when managers share resources between business units to realize synergies or economies of scope. Sharing resources allows a company to realize cost-saving or differentiation advantages.
Diversification can increase profitability when managers utilize product bundling. Product bundling allows a company to expand its product line and offer customers a package of related products.
Diversification can increase profitability when managers utilize general organizational competencies that increase the performance of all of a company's business units. These competencies are found in top management and transcend businesses; they may include factors such as entrepreneurial skills, capabilities in organizational design, and strategic capabilities.

Question 4

Tom Smith is a top manager at a diversified company that has been tasked to identify inefficient, poorly managed companies in other industries and then acquire and restructure them to improve their performance and increase the profitability of the total corporation. Which of the following would be a strategy Tom might take to increase the performance of one of these newly acquired companies?

Accepted Answer

A)   Top managers of the acquired company are trained in more aggressive management techniques.
B)   The new top-management team consolidates assets and terminates staff to reduce the cost structure.
C)   The management team recommits to traditional strategies.
D)   All bonuses and incentive programs are terminated.
E)   The acquiring company uses the established goals to evaluate and review employees at all levels.

Question 5

Companies with strong track records of success at internal new venturing excel at research and development.

Accepted Answer

A) True 
 B)False

Question 6

A possible cause for restructuring is that investors see highly diversified companies as less attractive investments and perceive a multibusiness company as being riskier than a company that operates in one industry,

Accepted Answer

A) True 
 B)False

Question 7

Transferring competencies involves taking a distinctive competency developed by a business unit in one industry and implanting it in a business unit operating in another industry.

Accepted Answer

A) True 
 B)False

Question 8

What are the two general types of diversification, and when would one be preferred over the other?

Accepted Answer

The answer of What are the two general types of...

Question 9

Miller Brewing, which was acquired by Philip Morris, was related to the parent company's tobacco business because it was possible to create important marketing commonalities: both beer and tobacco are mass market consumer goods in which brand positioning, advertising, and product development skills are crucial to create successful new products. This is an example of which of the following?

Accepted Answer

A)   Transferring competencies
B)   Leveraging competencies
C)   General organizational competencies
D)   Economies of scope
E)   Organizational design skills

Question 10

The "better off" test evaluates whether the company's diversification strategy makes the company more valuable than before diversification.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following seems to be a major determinant of a new venture's success?

Accepted Answer

A)   Large-scale entry into the target industry designed to build market share
B)   Cautious small-scale entry into the target industry so that the company can assess the probable outcome of the venture without losing too much money
C)   A low level of integration between the marketing and research and development functions of the venturing company
D)   Supporting many new venture projects in the hope that one will succeed
E)   Killing the new venture if it does not show a profit after the end of the third year

Question 12

The use of distinctive competencies in precision mechanics, fine optics, and electronic imaging by Canon to enter into a new business in a new industry to produce laserjet printers is an example of leveraging competencies.

Accepted Answer

A) True 
 B)False

Question 13

Which of the following is the main reason for a company to restructure?

Accepted Answer

A)   The stock market has valued the stock the stock of less-diversified companies.
B)   Innovations in strategic management have diminished the advantages of vertical integration or diversification.
C)   Fulfilling the need to exit industries to increase profitability split existing businesses into separate, independent companies.
D)   It is an attempt to boost returns to shareholders by splitting up a multibusiness company into separate, independent parts.
E)   Diversification has reduced profitability.

Question 14

A company should pursue unrelated diversification instead of related diversification when:

Accepted Answer

A)   its core skills are highly specialized and have few applications outside its core business.
B)   the company's top managers are skilled at acquiring and turning around poorly run enterprises.
C)   its core technological skills are applicable to a wide variety of industrial and commercial situations.
D)   it wants to maximize growth.
E)   the bureaucratic costs of implementation do not exceed the value that can be created by realizing economies of scope.

Question 15

Diversification is the process of entering new industries, distinct from a company's core or original industry, to make new kinds of products that can be sold profitably to customers in these new industries.

Accepted Answer

A) True 
 B)False

Question 16

When one or more components of a company's value chain are applicable to a wide variety of industrial and commercial situations, which of the following strategies should a company pursue?

Accepted Answer

A)   Unrelated diversification
B)   Related diversification
C)   A focus strategy
D)   Taper integration
E)   Backward integration

Question 17

Which of the following entry strategies should be used when speed is an important consideration?

Accepted Answer

A)   Internal new venture
B)   Acquisition
C)   Joint venture
D)   Unrelated diversification
E)   Related diversification

Question 18

Managers who have hard-to-define governance skills that are required to manage different business units in a way that enables these units to perform better than they would if they were independent companies, helps probe business-unit managers for information, and helps them think through strategic problems describes which of the following general organizational competencies?

Accepted Answer

A)   Entrepreneurial capabilities
B)   Capabilities in organizational design
C)   Superior strategic management capabilities
D)   Sharing resources and capabilities
E)   Leveraging competencies to create a new business

Question 19

Over time, while large-scale entry is more profitable in the short-run, small-scale entry becomes more profitable in the long-run.

Accepted Answer

A) True 
 B)False

Question 20

Which of the following statements concerning research and development is correct?

Accepted Answer

A)   Exploratory research is more important than development research.
B)   Development research is more important than exploratory research.
C)   Exploratory research is directed toward commercialization of a new technology.
D)   Development research advances basic science.
E)   Exploratory research and development research are needed for internal new venturing.

Exam 10: Corporate-Level Strategy: Related and Unrelated Diversification

A company's top managers do not need to have entrepreneurial capabilities for diversification to increase profitability.

Which of the following may be true for a company pursuing a strategy of unrelated diversification rather than a strategy of related diversification?

Identify and discuss the profitability justifications for pursuing a multibusiness model based on diversification.

Companies with strong track records of success at internal new venturing excel at research and development.

A possible cause for restructuring is that investors see highly diversified companies as less attractive investments and perceive a multibusiness company as being riskier than a company that operates in one industry,

Transferring competencies involves taking a distinctive competency developed by a business unit in one industry and implanting it in a business unit operating in another industry.

What are the two general types of diversification, and when would one be preferred over the other?

The "better off" test evaluates whether the company's diversification strategy makes the company more valuable than before diversification.

Which of the following seems to be a major determinant of a new venture's success?

The use of distinctive competencies in precision mechanics, fine optics, and electronic imaging by Canon to enter into a new business in a new industry to produce laserjet printers is an example of leveraging competencies.

Which of the following is the main reason for a company to restructure?

A company should pursue unrelated diversification instead of related diversification when:

Diversification is the process of entering new industries, distinct from a company's core or original industry, to make new kinds of products that can be sold profitably to customers in these new industries.

When one or more components of a company's value chain are applicable to a wide variety of industrial and commercial situations, which of the following strategies should a company pursue?

Which of the following entry strategies should be used when speed is an important consideration?

Over time, while large-scale entry is more profitable in the short-run, small-scale entry becomes more profitable in the long-run.

Which of the following statements concerning research and development is correct?