Quiz Ch10

A diversification strategy should enable a company or its individual business units to create value in the value chain to:

establish differentiation and increase pricing options.

To fund diversification initiatives, managers of companies use:

free cash flow.

A computer retailer recently established a new computer repair shop separate from its retail stores after recognizing that it had hired many team members capable of diagnosing and repairing computer and IT problems. The computer retailer and its managers have developed this new business through:

transferring competencies.

Being able to apply the company's competencies across a greater number of industries is an advantage of:

a related diversification strategy

A restaurant chain committed to farm-to-table operation purchases a vegetable farm and greenhouse to improve its supply of fresh foods. By purchasing a company with an established competency in raising fresh produce, the restaurant company is entering the food-growing industry by what method?

Acquisition

What is the main difference between a company choosing to pursue an acquisition strategy versus an internal new venture strategy?

An internal new venture is chosen when the company already has the distinctive competency it needs to enter the new industry. In an acquisition, a company does not have the distinctive competency and chooses to purchase a company that does.

A computer software company has been successful in marketing its employee productivity software for construction companies. Which of these conditions presents the best scenario for the company to pursue a related diversification strategy?

Construction companies ask if the company's team is able to provide managed IT services to handle the operation of the software and all other software and hardware.

Which is of these is one of the four steps in evaluating a potential acquisition?

Devising bidding strategy

Which of these companies is pursuing a strategy of unrelated diversification?

GE has a division that manufactures jet engines and another division that operates financial services, including credit cards and credit financing.

Which of the following would have to be true for a company pursuing diversification in order to increase company profitability?

It shares resources between business units to realize synergies or economies of scope

A chemical company that produces fertilizer for farms is partnering with an eco-friendly products group to brand an animal-friendly line of fertilizer that doesn't harm livestock, wild animals, or pets if they ingest it by accident. Both companies will share the costs and risks associated with creating the business. What method are they using to enter the new industry?

Joint venture

What is the advantage of entering a new venture on a large scale rather than a small scale?

Rapidly built brand loyalty

A property management group is interested in diversifying its company to operate properties for low-income housing, but the group members are nervous about the impact on the brand of high-end apartment developments where they have been operating. What strategy should the property management group use to diversify but keep control of both divisions?

Related diversification

Which of the following is an advantage of pursuing an unrelated diversification strategy over a related diversification strategy?

The company doesn't need coordination between business units.

Companies provide customers with new products that are connected or related to their existing products to satisfy customers' needs for a complete package of related products. This is called product bundling. What is the goal of product bundling?

To offer customers lower prices for a premium set of products or services

A company that used to be exclusively a large market grocery retailer has been gradually acquiring other retail businesses including auto parts, hardware, and craft store chains. All of the mentioned retailers were failing family-owned small businesses. By attaching its big brand name and placing key managers in charge of each of the businesses, the company has made all of the new ventures successful. Based on this information, what type of diversification strategy is the company using?

Unrelated diversification

In related diversification, a company's managers seek to establish a business unit in:

a new industry that is related to the company's existing business units by some form of commonality between their value chain functions.

A movie theater business starts a video game arcade using a similar business model. The goal is to diversify its product offerings and transfer its distinctive competencies from operating the movie theater to establishing the video game arcade. Both businesses focus on the consumption of media. This helps the company increase the profitability of the businesses through its:

commonalities.

The multibusiness model of related diversification is based on taking advantage of:

customer base commonalities among the business units.

A company that manufactures brakes for cars has just released a line of all-terrain vehicles. Using the same research and findings from the development of the ATV brakes, the manufacturer is redesigning its car brakes. By sharing the research across the business units for both vehicles, the company is increasing company profitability through:

economies of scope.

Trident's corporate headquarters has assessed the performance of its various unrelated business units. In allocating money across these units, Trident uses its general organizational competencies to:

increase their value through the internal capital market.

Forming more commonalities between business units is beneficial for related diversification because:

it offers more potential to realize profit-enhancing benefits.

A diversification strategy commonly used when two or more companies agree to share resources to create new business in a growth industry is called a(n):

joint venture.

Diversification can increase profitability when strategic managers:

leverage competencies to create business units in new industries.

A makeup retailer is interested in opening a spray tanning salon. Both businesses are related to cosmetics, but their operations are dramatically different. The makeup retailer is successful in its customer loyalty program, which has served as a great marketing technique. The company hopes to implement this same program within the tanning salon business. This is an example of:

leveraging competencies.

To pursue a diversification strategy, managers must have the ability to:

recognize profitable opportunities to enter new industries.

By transferring distinctive competencies from one business unit to another, a company is more likely to have commonalities that lead to:

related diversification.

The process of reorganizing and divesting business units and exiting industries to refocus upon a company's core business and rebuild its distinctive competencies is called:

restructuring.

Diversification is:

the process of entering new industries, distinct from a company's core or original industry, to make new kinds of products for customers in new markets.

Often, internal new ventures fail because:

their market entry is on too small of a scale.