Question 1

Strategies to restructure a diversified company's business lineup involve

Accepted Answer

A)  revamping the value chains of each of a diversified company's businesses. 
B)  focusing on restoring the profitability of its money-losing businesses and thereby improving the company's overall profitability. 
C)  revamping the strategies of its different businesses, especially those that are performing poorly. 
D)  divesting low-performing businesses that do not fit and acquiring new ones where opportunities are more promising to put a new face on the company's business makeup. 
E)  broadening the scope of diversification to include a larger number of smaller and more diverse businesses.

Question 2

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

Accepted Answer

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 3

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

Accepted Answer

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 4

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

Accepted Answer

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 5

The two biggest drawbacks or disadvantages of unrelated diversification are

Accepted Answer

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 6

Which is the better approach to diversification-a strategy of related diversification or a strategy of unrelated diversification? Explain and support your answer.

Accepted Answer

The answer of Which is the better approach to diversification-a...

Question 7

The nine-cell industry attractiveness competitive strength matrix

Accepted Answer

A)  is useful for helping decide which businesses should have high, average, and low priorities in 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 8

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

Accepted Answer

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 9

Briefly explain the relevance of quantitatively measuring the competitive strength of each business in a diversified company's business portfolio and determining which business units are strongest and weakest. List the six steps involved in the process.

Accepted Answer

The answer of Briefly explain the relevance of quantitatively measuring...

Question 10

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

Accepted Answer

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 11

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

Accepted Answer

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 12

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

Accepted Answer

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 13

Why has corporate restructuring become a popular strategy at many diversified companies over the past decade?

Accepted Answer

The answer of Why has corporate restructuring become a popular...

Question 14

A company that is already diversified may choose to broaden its business scope by building positions in new related or unrelated businesses because of all of the following EXCEPT

Accepted Answer

A)  it has resources or capabilities that are eminently transferable to other related or complementary businesses. 
B)  the company's growth is sluggish and it wants the sales and profit boost that a new business can provide. 
C)  management wants to lessen the company's vulnerability to seasonal or recessionary influences or to threats from emerging new technologies, legislative regulations, and new product innovations that alter buyer preferences and resource requirements. 
D)  it wants to make new acquisitions to strengthen or complement some of its present businesses, market positioning, and competitive capabilities. 
E)  its top management wants to increase its compensation.

Question 15

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

Accepted Answer

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 16

Discuss the pros and cons of a strategy of unrelated diversification.

Accepted Answer

The answer of Discuss the pros and cons of a...

Question 17

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

Accepted Answer

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 18

What is the relevance of quantitatively measuring the competitive strength of each business in a diversified company's business portfolio and determining which business units are strongest and weakest?

Accepted Answer

The answer of What is the relevance of quantitatively measuring...

Question 19

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

Accepted Answer

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 with a combination of divestitures and acquisitions to put a whole new face on the company's business makeup 
D)  pursuing multinational diversification and striving to globalize the operations of several of the company's business units 
E)  divesting weak-performing businesses and retrenching to a narrower base of business operations

Question 20

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

Accepted Answer

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

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