Question 1

What makes related diversification an attractive strategy?

Accepted Answer

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 2

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

Accepted Answer

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 3

Corporate strategy options for already diversified companies include all of the following EXCEPT

Accepted Answer

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 with a combination of divestitures and new acquisitions to put a whole new face on the company's business makeup. 
D)  pursuing growth opportunities within the existing business lineup. 
E)  pursuing certain acquisitions even if they have done badly or haven't quite lived up to expectations.

Question 4

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

Accepted Answer

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 5

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

Accepted Answer

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 6

When a corporate parent creates an independent company and divests it by distributing to its stockholders new shares in the business, it is called

Accepted Answer

A)  a spinoff. 
B)  a wholly-owned subsidiary. 
C)  a functional divesture. 
D)  fully-diluted stock. 
E)  a restructure.

Question 7

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

Accepted Answer

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 8

Diversification ought to be considered when a

Accepted Answer

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 9

Which of the following is NOT part of the task of checking a diversified company's business lineup for adequate resource fit?

Accepted Answer

A)  determining whether the excess cash flows generated by cash cow businesses are sufficient to cover the negative cash flows of its cash hog businesses 
B)  determining whether recently acquired businesses are acting to strengthen a company's resource base and competitive capabilities or whether they are causing its competitive and managerial resources to be stretched too thinly across its businesses 
C)  determining whether opportunity exists for achieving 1 + 1 = 2 outcomes 
D)  determining whether the company has adequate financial strength to fund its different businesses and maintain a healthy credit rating 
E)  determining 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

Question 10

Corporate parenting refers to all of the following EXCEPT

Accepted Answer

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 11

A big advantage of related diversification is that it

Accepted Answer

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 12

Carefully explain the difference between and the rationale for selecting a strategy of related diversification and/or a strategy of unrelated diversification.

Accepted Answer

The answer of Carefully explain the difference between and the...

Question 13

Identify and explain the meaning and strategic significance of each of the following terms. a) Related diversification
b) Strategic fit
c) Economies of scope
d) Retrenching
e) Unrelated diversification

Accepted Answer

The answer of Identify and explain the meaning and strategic...

Question 14

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

Accepted Answer

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 15

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

Accepted Answer

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 16

A diversified company has a parenting advantage when it

Accepted Answer

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 17

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

Accepted Answer

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

Question 18

Unrelated businesses

Accepted Answer

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 19

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

Accepted Answer

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 20

Explain the difference between a cash cow business and a cash hog business.

Accepted Answer

The answer of Explain the difference between a cash cow...

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