Strategic Management - Chapter 8

Which of these are key strategic decisions that top-level managers must make in crafting a company's diversification strategy?

-taking action to improve the collective performance of all of the company's businesses -finding ways to leverage cross-business value chain relationships into competitive advantage -investing the company's resources into the most attractive business units -choosing new industries to enter and deciding how to enter those industries

Under which of the following conditions is a joint venture, as a diversification strategy, a strategically good idea?

-when the opportunity involves too much risk or complexity for one company to assume alone -when the opportunities in a new industry require a broader range of capabilities and knowledge than an expansion-minded company has -when the expansion-minded company wants to minimize risk in entering an industry with significant political and regulatory factors

______ are cost reductions stemming from strategic fit along the value chains of related businesses.

Economies of scope

True or false: Because the partners will have shared ownership in the new business, a joint venture is neither a feasible nor effective diversification strategy.

False

______ requires creating a new business subsidiary from its inception.

Internal development

Which of these is a solid justification for pursuing an unrelated diversification strategy?

Management personnel have a high ability to spot low-priced, underperforming companies that could become profitable with some basic guidance.

Which of the following is generally not true of unrelated diversification?

Odds are, the results will be 1+1=3.

______ exists when the value chains of different businesses present opportunities for cross-business skills transfer, cost sharing, or brand-sharing.

Strategic fit

Which of the following statements regarding single-business versus diversified firms is correct?

Strategy-making tends to be more complicated in a diversified firm versus a single-business firm.

Which of the following is an important consideration in evaluating the potential for strategic fit to deliver competitive advantage and shareholder value in a related diversification strategy?

The benefits of cross-business strategic fit are not obtained unless management successfully takes internal actions to reach them. Realizing cross-business strategic fit benefits is possible only through related diversification. Capturing strategic fit through related diversification builds shareholder value in ways that a diversified stock portfolio cannot.

Which of the following most accurately defines related businesses?

The value chains of the businesses possess competitively valuable cross-business relationships.

True or false: Diversification into new industries merits strong consideration when a single-business company encounters diminishing market opportunities and stagnating sales in its principal business.

True

As a strategy for diversification, ______ allows a company to move straight to building a strong market position in the target industry without getting tangled up in launching a start-up.

acquisition

In justifying diversification as a strategy to build shareholder value, the ______ test says that diversifying into a new business must offer potential for the company's existing business and the new business to perform better after consolidation than as stand-alone businesses.

better-off

A ______ company is spread around a wide collection of related businesses, unrelated businesses, or a combination of both.

broadly diversified

Economies of scope

can be the result of a related strategy that allows businesses to share technology, facilities, or a common sales force. are cost reductions stemming from strategic fit along the value chains of related businesses. are important in achieving a cost-based competitive advantage in a related diversification strategy.

Economies of scope in a diversified company

can help the company achieve the 1+1=3 'better off' test.

In justifying diversification as a strategy to build shareholder value, the ______ test says that entering the target industry shouldn't be so costly that it takes away the potential for profitability.

cost-of-entry

Which of these is the last step in evaluating the strategy of a diversified company?

crafting new strategic moves to improve overall corporate performance

Achieving diversification through internal development involves

creating an entirely new business subsidiary within the company.

In a company pursuing unrelated diversification, the objective is to

deliver returns that on average rise enough annually to reward shareholders.

In a ______, one central business accounts for 50 to 80% of total revenues and several smaller businesses contribute the rest.

dominant-business enterprise

In terms of diversification, unrelated businesses are business that

have dissimilar value chains and resource requirements with no competitively valuable cross-business relationships.

Diversification through acquisition of an existing business

helps the acquiring company clear entry barriers to an industry.

Which of these is not one of the steps in evaluating the strategy of a diversified company?

independently evaluating the value chain of each business unit as a stand-alone entity

A single-business firm should strongly consider diversifying into new industries when

marketing opportunities and sales decrease in their primary business.

An unrelated diversification strategy

represents a willingness by senior management to diversify into any industry where there are opportunities to improve financial results. is also called a conglomerate.

Strategic fit among businesses can enhance shareholder value by

sharing facilities or resources to reduce costs. leveraging use of a common brand name. transferring skills and capabilities from one business to another.

Which of the following is not one of the actions needed by corporate executives to succeed in an unrelated diversification strategy?

taking a completely "hands off" approach to let each of the unrelated businesses run itself

Which of the following is the ultimate measure of successful business diversification?

the achievement of added shareholder value

A(n) ______ discounts the importance of cross-business strategic fit, focusing instead on entering businesses that allow the company as a whole to increase earnings.

unrelated diversification strategy

Under which of the following conditions is internal development as a diversification strategy an attractive option?

when adding new production capacity will not adversely impact the supply-demand balance in the industry when the targeted industry has many small firms such that the start-up does not have to compete against large, powerful rivals when the parent company already possesses the skills and resources needed to be competitive

Which of the following best describes a tough decision for a company considering diversification through acquisition?

whether to pay a high price for a successful company or a low price for a struggling company