ch 8 gba
The options for allocating a diversified company's financial resources include all of the following EXCEPT:
.decreasing dividend payments and/or selling shares of stock.
Which of the following is a diversified business with one major "core" business and a collection of small related or unrelated businesses?
A dominant business enterprise
Which of the following is NOT a part of checking a diversified company's business units for cross-business competitive advantage potential?
Ascertaining the extent to which business units are making maximum use of the parent company's competitive advantages
Which of the following is the BEST guideline for deciding what the priorities should be for allocating resources to the various businesses of a diversified company?
Business subsidiaries with the brightest profit and growth prospects, attractive positions on the nine-cell matrix, and solid strategic and resource fits generally should head the list for corporate resource support.
Which of the following is NOT a good candidate for divestiture in a corporate restructuring effort?
Businesses compatible with the company's revised diversification strategy
What is the business term given for a company that generates cash flows over and above its internal requirements and can provide the corporate parent with funds for reinvestment?
Cash cow
Which of the following is NOT one of the elements of crafting corporate strategy for a diversified company?
Choosing the appropriate value chain for each business the company has entered
What is the name of the process for developing new businesses as an outgrowth of a company's established business operations?
Corporate venturing
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?
Craft new initiatives designed to build/enhance the reputation and image of the company
What hurdles are present in calculating industry attractiveness scores?
Deciding whether a business is related or unrelated
Which of the following is NOT part of the task of checking a diversified company's business lineup for adequate resource fit?
Determining whether opportunity exists for achieving 1 + 1 = 2 outcomes
Which one of the following is NOT an important aspect of evaluating the merits of a diversified company's strategy?
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
The strategic options to improve a diversified company's overall performance do NOT include which of the following categories of actions?
Increasing dividend payments to shareholders and/or repurchasing shares of the company's stock
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?
Internal capital market
Which of the following is NOT a reasonable option for deploying a diversified company's financial resources?
Investing financial resources in cash cow businesses until they show enough strength to generate positive cash flows
Which of the following is NOT one of the appeals of related diversification?
It is particularly well-suited for the use of first-mover strategies and capturing valuable financial fits.
Which of the prime examples of strategic fit opportunities below are NOT related business activities?
Overhauling and streamlining the operations of the business by refocusing value chain activities toward businesses that can provide a superior job of parenting
What is the difference between economies of scale and economies of scope?
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.
Which of the following statements about cross-business strategic fit in a diversified enterprise is NOT accurate?
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.
What does a competitive strength score above 5 tell us about a diversified company's position in the market?
That its business units are all fairly strong market contenders in their respective industries
Which of the following is NOT a contributing reason for businesses with strategic fit in R&D or technology activities to perform better together?
The ability to continue using existing processes
In terms of strategy making, what is the difference between a one-business company and a diversified company?
The first uses a business-level strategy, while the second uses a set of business strategies and a corporate strategy.
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?
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
What makes related diversification an attractive strategy?
The opportunity to convert cross-business strategic fit into competitive advantage over business rivals whose operations don't offer comparable strategic fit benefits
Which of the following rationales for pursuing unrelated diversification is likely to increase shareholder value?
To restructure an underperforming business
In which of the following instances is retrenching to a narrower diversification base NOT likely to be an attractive or advisable strategy for a diversified company?
When a diversified company has too many cash cows
When should a business NOT be divested?
When the business is a cash cow
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?
When the industry is growing rapidly and the target industry is comprised of several relatively large and well-established firms
Conditions that may make corporate restructuring strategies appealing include all of the following EXCEPT:
a business lineup that consists of too many cash cow businesses.
When a corporate parent creates an independent company and divests it by distributing to its stockholders new shares in the business, it is called:
a spinoff.
Retrenching to a narrower diversification base is:
a strategy that allows a diversified firm's energies to be concentrated on building strong positions in a smaller number of businesses rather the stretching its resources and managerial attention too thinly across many businesses.
A company can best accomplish diversification into new industries by:
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.
The basic premise of unrelated diversification is that:
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.
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:
are cash cows and which ones are cash hogs.
Economies of scope:
are cost reductions that flow from operating in multiple related businesses.
Acquisition is an effective way to hurdle all of the following entry barriers EXCEPT:
avoiding the costs of doing due diligence.
The nine-cell attractiveness-strength matrix provides clear, strong logic for considering using:
both industry attractiveness and business strength in allocating resources and investment capital to its different businesses.
cash hog
business generates cash flows that are too small to fully fund its growth; it thereby requires cash infusions to provide additional working capital and finance new capital investment
cash cow
business that generates cash flows over and above its internal requirements, thus providing a corporate parent with funds for investing in cash hog businesses, financing new acquisitions, or paying dividends
Retrenching to a narrower diversification base can be attractive or advisable EXCEPT when:
business units are cash cows with promising futures.
Relative market share is:
calculated by dividing a company's percentage share of total industry sales volume by the percentage share held by its largest rival.
With a strategy of unrelated diversification, an acquisition is deemed to have potential if it:
can pass the industry attractiveness test and the cost-of-entry test, and if it has good prospects for profit growth.
An economy of scope is BEST illustrated by being able to eliminate or reduce costs by:
combining related value-chain activities of different businesses into a single operation.
One strategic fit based approach to related diversification would be to:
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.
Strategies to restructure a diversified company's business lineup involve:
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.
The task of crafting a company's overall corporate strategy for a diversified company encompasses all of the following EXCEPT:
divesting well-performing businesses.
Corporate parenting refers to all of the following EXCEPT:
efforts to judiciously segregate funds for each business in such a way that keeps the money safe and discourages shifting funds across business units.
Diversification becomes a relevant strategic option for a company EXCEPT when it:
expands into additional businesses that unlock possibilities for a comprehensive cost enhancement strategy.
Strategic fit between two or more businesses exists when one or more activities comprising their respective value chains present opportunities:
for cross-business collaboration to build valuable new resource strengths and competitive capabilities.
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:
forcing cultural independence, operating diversity, and sophisticated analytical responsibility on the businesses to ensure compatibility with the corporate overhead identity.
Unrelated businesses:
have dissimilar value chains and resource requirements with no competitively important cross-business commonalities at the value chain level.
The businesses in a diversified company's lineup exhibit good resource fit when:
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.
Corporate restructuring strategies:
involve making major changes in a diversified company's business lineup, divesting some businesses and/or acquiring others, so as to put a whole new face on the company's business lineup.
An umbrella brand:
is a generalized resource that can be leveraged in unrelated diversification.
Acquisition of an existing business is an attractive strategy option for entering a promising new industry because it:
is 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.
A diversified company has a parenting advantage when it:
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.
The nine-cell industry attractiveness competitive strength matrix:
is useful for helping decide which businesses should have high, average, and low priorities in deploying corporate resources.
A diversified company's business units exhibit good resource fit when:
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.
For a diversified company to be a strong performer:
its principal business must be in industries with a good outlook for growth and above-average profitability.
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:
its top management wants to increase its compensation.
For an unrelated diversification strategy to produce financial results above that of stand-alone entities, executives must do all of the following EXCEPT:
leverage the cross-business strategic fit advantage effectively
A big advantage of related diversification is that it:
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.
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:
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.
The chief purpose of calculating quantitative industry attractiveness scores for each industry a company has diversified into is to:
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.
Corporate strategy options for already diversified companies include all of the following EXCEPT:
pursuing certain acquisitions even if they have done badly or haven't quite lived up to expectations.
The value of determining the relative competitive strength of each business a company has diversified into is to have a quantitative basis for:
rating them from strongest to weakest in contending for market leadership in their respective industries.
Initiating actions to boost the combined performance of the corporation's collection of businesses includes all of the following strategic options, EXCEPT:
refocusing the existing businesses on new substitute product-line opportunities outside the existing industry framework.
Assessments of how a diversified company's subsidiaries compare in competitive strength should be based on such factors as:
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.
Calculating quantitative competitive strength ratings for each of a diversified company's business units involves:
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.
Calculating quantitative attractiveness ratings for the industries a company has diversified into involves:
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.
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:
selecting the appropriate value chain operating practices to improve the financial outlook.
When discussing "economies of scope," it involves understanding that they:
stem from cost-saving strategic fits along the value chains of related businesses.
With an unrelated diversification strategy, the types of companies that make particularly attractive acquisition targets are:
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.
One of the most significant contributions to strategy making in diversified companies that the nine-cell industry attractiveness competitive strength matrix provides is:
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.
The three tests for judging whether a particular diversification move can create value for shareholders are:
the attractiveness test, the cost-of-entry test, and the better-off test.
To test whether a particular diversification move has good prospects for creating added shareholder value, corporate strategists should use:
the attractiveness test, the cost-of-entry test, and the better-off test.
The two biggest drawbacks or disadvantages of unrelated diversification are:
the demanding managerial requirements and the limited competitive advantage potential due to lack of cross-business strategic fit benefits.
The two biggest drawbacks or disadvantages of unrelated diversification are:
the difficulties of competently managing many different businesses and being without the added source of competitive advantage that cross-business strategic fit provides.
A portfolio approach to managing a company's financial resource fit is based on:
the fact that different businesses have different cash flow and investment characteristics.
Businesses with strategic fit with respect to their supply chain activities perform better together because of all of the following EXCEPT:
the increased allocation and allotment of support activities and specialized resources and capabilities.
When calculating the weighted industry attractiveness scores, we find the more intensely competitive an industry is:
the lower the attractiveness weighting for that industry.
An acquisition premium is the amount by which the price offered for an existing business exceeds:
the preacquisition market value of the target company.
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:
the premium cost
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:
the pursuit of debt reduction opportunities that can lower the debt/equity ratio while maintaining asset levels.
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:
the utility of the products for consumers from all age-groups.
A weighted industry attractiveness assessment is generally analytically superior to an unweighted assessment because:
the various measures of attractiveness are not likely to be equally important in determining overall attractiveness.
The essential requirement for different businesses to be "related" is that:
their value chains exhibit competitively valuable cross-business commonalities.
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:
those companies with a mix of valuable competitive assets, covering the spectrum from generalized to specialized resources and capabilities.
Checking the competitive advantage potential of cross-business strategic fits in a diversified company involves evaluating the extent to which sister businesses present opportunities:
to create a positive image in the industry irrespective of the financial performance of its businesses.
The tests of whether a diversified company's businesses exhibit resource fit do NOT include:
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.
A related diversification strategy involves building the company around businesses:
with strategic fit with respect to key value chain activities and competitive assets.
