Chapter 8
E
For an unrelated diversification strategy to produce financial results above that of stand-alone entities, executives must: A diversify into businesses that can produce consistently good earnings and returns on investment and . thereby satisfy the attractiveness test. B. negotiate favorable acquisition prices (to satisfy the cost-of-entry test). Cdo a superior job of corporate parenting via high-level managerial oversight and resource sharing, . financial resource allocation and portfolio management, or restructuring underperforming businesses (to satisfy the better-off test). D. satisfy the attractiveness test, the cost-of-entry test, and the better-off test. E. All of these.
E
Generally internal development of a new business has appeal, except when: A. the parent company has most of the required skills and resources required to compete effectively. B. there is ample time to launch the business. C. the startup does not have to compete on a head-to-head basis with powerful, bigger rivals. D. adding new production capacity will not affect supply-demand balances. E. incumbent firms are likely to be fast or effective in preempting a new entrant's efforts to crack the market.
A
If entry barriers are low and the industry is populated by small firms, internal development may be the preferred mode of entry. But if entry barriers cannot be overcome readily, then the only feasible entry route may be through a(n): A. acquisition of a well-established company. B.acquisition and joint venture, although the former is more an uncertain choice due to a lack of industry experience the company has. C. joint venture, because it calls for sharing the risks. D. acquisition entry because the acquiring firm constrains the barriers to entry. E. joint venture since the firm can gain valuable industry experience.
B
In companies pursuing a strategy of unrelated diversification: A.the main basis for competitive advantage and improved shareholder value is an increased ability to achieve economies of scope. Beach business is on its own in trying to build a competitive edge and the consolidated performance of . the businesses is likely to be no better than the sum of what the individual businesses could achieve if they were independent. Cthere is a strong chance that the combined competitive advantages of the various businesses will . produce a 1 + 1 = 3 performance outcome as opposed to just a 1 + 1 = 2 performance outcome. D. the main basis for improved shareholder value is strong cross-business financial fits. E. the main basis for improved shareholder value is an increased ability to achieve economies of scale in the businesses it has entered.
A
In diversified companies with unrelated businesses, the strategic attention of top executives tends to be focused on: A. screening acquisition candidates and evaluating the pros and cons of keeping or divesting existing businesses. B. identifying acquisition candidates that can pass the better-off test. C. identifying opportunities to achieve greater economies of scope. D. identifying opportunities to acquire businesses that can benefit from using the parent company's potent brand name. E. identifying acquisition candidates that can pass the capital gains test.
A
In terms of strategy making, what is the difference between a one-business company and a diversified company? 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. All of these.
B
In unrelated businesses, they: 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 relationships at the value chain level. C. perform better than just the sum of its individual businesses. D. will always have several key suppliers in common. E. employ production methods that create economies of scale.
E
Initiating actions to boost the combined performance of the corporation's collection of businesses requires the following strategic options, EXCEPT for: A. sticking closely with the existing business lineup and pursuing available opportunities. B. broadening the scope of diversification by entering additional industries. C. divesting some businesses and retrenching to a narrower collection of businesses. D. restructuring the entire company by adding and removing businesses to improve overall performance. E. refocusing the existing businesses on new substitute product-line opportunities outside the existing industry framework
A
Internal development of a new business subsidiary has become an increasingly important means for entering a desirable new business when: A. the company has ample time and adequate resources to launch the new internal startup business from the ground up. B. there is a small pool of desirable acquisition candidates. C. the target industry is growing rapidly and no good joint venture partners are available. D. all of the potential acquisition candidates are losing money. E. the target industry is comprised of several relatively large and well-established firms.
B
What is the term that relates to whenever one or more activities constituting the value chains of different businesses are sufficiently similar as to present opportunities for cross-business sharing or transferring of the resources and capabilities that enable these activities? A. Resource activities fit. B. Strategic fit. C. Value proposition fit. D. Cross-border simulation fit. E. Transfer opportunity fit.
B
A benefit of manufacturing-related value chain matchups is: A. to segregate manufacturing methods. B. the ability to squeeze production into a smaller number of plants and significantly reduce overall production costs. C. the ability to eliminate leverage with vendors in purchasing its supplies. D. the chance to share in an increase in manufacturing costs. E. None of these
A
A big advantage of related diversification is that: Ait 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. it is less capital intensive and usually more profitable than unrelated diversification. C. it involves diversifying into industries having the same kinds of key success factors. D. it is less risky than either vertical integration or unrelated diversification due to lower capital requirements. E. it passes the industry attractiveness test and thus offers the best route to 2 + 2 = 4 benefits.
B
A company can best accomplish diversification into new industries by: A. outsourcing most of the value chain activities that have to be performed in the target business/ industry. Bacquiring a company already operating in the target industry, creating a new business subsidiary to . compete in the target industry, or forming a joint venture with another company to enter the target industry. C. integrating forward or backward into the target industry. D shifting from a strategic group comprised mostly of single-business companies to a strategic group . comprised of diversified companies. E. employing an offensive strategy with new product innovation as its centerpiece
C
A company is said to have what type of strategic fit when businesses can perform better together than apart because of potential cost savings in sharing the same warehouse facilities or using many of the same wholesale distributors and retail dealers to access customers? A. A strategic fit in sales and marketing activities. B. A strategic fit in customer service activities. C. A distribution-related strategic fit. D. A manufacturing-related strategic fit. E. A strategic fit in R&D and technology activities.
C
A company pursuing a related diversification strategy would likely address the issue of what additional industries/businesses to diversify into by: A. locating businesses with well-known brand names and large market shares. B. identifying industries with the least competitive intensity. C.identifying an attractive industry whose value chain has good strategic fit with one or more of the firm's present businesses. D.identifying businesses with the potential to diversify the number and types of different activities in the firm's value chain makeup. E. locating new businesses with high degrees of financial fit with its present businesses.
A
A diversified company has a parenting advantage when: Ait 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 it is more able than other companies to create the positive collaborative within its portfolio for . different specialty groups and geographic locations. C. it results in supporting short-term economic shareholder value. D. managing a set of fundamentally similar business operations inside fundamentally similar industries and environments. E. All of these.
B
A diversified company that leverages the strategic fits of its related businesses into competitive advantage: A. has a distinctive competence in its related businesses. B. has a clear path to achieving 1 + 1 = 3 gains in shareholder value. C. has a clear path to global market leadership in the industries where it has related businesses. D. passes the value chain test and the profit expectations test for building shareholder value. E.achieves economies of scope and passes the reduced-costs test for crafting a diversification strategy capable of creating added shareholder value.
A
A joint venture is an attractive way for a company to enter a new industry when: A a firm is missing some essential skills, capabilities, or resources and needs a partner to supply the . missingexpertiseandcompetenciesorfilltheresourcegaps. B. it needs access to economies of scope and good financial fits in order to be cost-competitive. C. it is uneconomical for the firm to achieve economies of scope on its own initiative. D. the firm has no prior experience with diversification. E. it has not built up a hoard of cash with which to finance a diversification effort
E
A joint venture is an attractive way for a company to enter a new industry when: A. the pool of attractive acquisition candidates in the target industry is relatively small. B. it needs better access to economies of scope in order to be cost-competitive. C. the industry is growing slowly and adding too much capacity too soon could create oversupply conditions. D. the firm has no prior experience with diversification and the industry is on the verge of explosive growth. Ethe opportunity is too risky or complex for a company to pursue alone, a company lacks some important resources or competencies and needs a partner to supply them, and/or a company needs a local partner in order to enter a desirable business in a foreign country.
A
A key issue in companies pursuing an unrelated diversification strategy is: A. how wide a net to cast in building a portfolio of unrelated businesses. B whether to keep or divest businesses whose technological approaches do not match the overall . technology and R&D strategy of the corporation. C.how quickly to divest businesses whose competitive strategies do not closely match the competitive strategies of sister businesses. D.whether to build shareholder value via paying higher dividends or via actions aimed at increasing the company's stock price. E whether to acquire new businesses that offer the potential for achieving greater economies of scope . or businesses that offer the potential for achieving greater economies of scale.
B
A matchup is defined as the: A. joining of two businesses to form an unlikely marriage of equals. Bsharing or transfer of the competitively important resources and capabilities that enable the . performance of these activities and underlie each business's quest for competitive advantage. C. combination of key resource factors that are aligned with industry standards. D. Refocusing of the business to take advantage of matching the current market opportunities. E. All of these.
C
A popular strategy for entering new businesses and accomplishing diversification is: A.forming a joint venture with another company to enter the target industry because it reduces the need for strategic know-how. B. undertaking an internal startup because the company has existing tried and true resource capabilities. Cacquisition of an existing business because it is quicker than trying to launch a brand-new company . and it also offers an effective way to hurdle many entry barriers. D.forming a strategic alliance with another company to enter the target industry because it eliminates or simplifies the entry barriers. E. None of these
A
A related diversification strategy involves building the company around businesses: A. with strategic fit with respect to key value chain activities and competitive assets. B. that are highly independent, proficient, and efficient operating firms. C. with separate value chain activities that drive each business. D. that are ripe for cross-business distribution and allotment. E. All of these.
C
A strategy of diversifying into unrelated businesses: A. is aimed at achieving good financial fit, whereas related diversification aims at good strategic fit. B. is the best way for a company to pass the attractiveness test in choosing which types of businesses/ industries to enter. Cdiscounts the importance of strategic fit benefits and instead focuses on building and managing a . group of businesses capable of delivering good financial performance irrespective of the industries these businesses are in. Dconcentrates on diversifying into businesses where a company can leverage use of a well-known . brandnameinwaysthatcreateaddedvalueforshareholders. E. generally offers more competitive advantage potential than related diversification.
A
Acquisition of an existing business is an attractive strategy option for entering a promising new industry because it: Ais 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. is less expensive than launching a new startup operation, thus passing the cost-of-entry test. C. is a less risky way of passing the attractiveness test. D. is more likely to result in passing the shareholder value test, the profitability test, and the better-off test. Eoffers 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.
A
An acquisition premium is the amount by which the price offered for an existing business exceeds: A. the pre-acquisition market value of the target company. B. the fair market value of similar companies in the same geographic locale. C. the comparable value of similar companies within the same market. D. the amount paid as a down payment to be held in escrow until closing. E. the difference between the amount that was offered and the amount that is escrowed.
A
An umbrella brand: A. is a generalized resource that can be leveraged in unrelated diversification. B. is a brand name that can steer a narrow assortment of business types. C. represents a public disclosure spotlighting the corporate image. D. represents an overall corporate marker covering its overriding image of sustainability and responsibility. E. is a specialized resource designed to influence profit growth.
E
Corporate parenting refers: Ato 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. to the help subsidiaries receive in performing better when they utilize astute high-level guidance from corporate executives. C to 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. To efforts to capitalize on the umbrella brands and enhance value proposition across businesses. E. All of these.
A
Because unrelated diversification strategies at their best have only limited potential for creating long- term economic value for shareholders, it is essential that management: A. not compound the problem by taking a misguided approach toward unrelated diversification. B. adopt a strategic approach to unrelated diversification that appends reduced shareholder value. C. rely solely on leveraging generalized resources and the expertise of corporate executives. D. attempt related diversification strategies only. E. All of these.
D
Businesses are said to be "related" when: A. they have several key suppliers and several key customers in common. B. their value chains have the same number of primary activities. C. their products are both sold through retailers. Dtheir value chains possess competitively valuable cross-business relationships that present . opportunities to transfer resources from one business to another, combine similar activities and reduce costs, share use of a well-known brand name, and/or create mutually useful resource strengths and capabilities. E. many consumers buy the products/services of both businesses
E
Businesses with strategic fit with respect to their supply chain activities perform better together because of all of the following EXCEPT: A. the potential for skills transfer in procuring materials. B. the sharing of resources and capabilities in logistics. C. the benefits of added collaboration with common supply chain partners. D. the added leverage gained with shippers when securing volume discounts on incoming parts and components. E. the increased allocation and allotment of support activities and specialized resources and capabilities.
A
Capturing cross-business strategic fit benefits via a strategy of related diversification builds: A shareholder value in ways that shareholders cannot undertake by simply owning a portfolio of . stocks in companies in different industries. B. shareholder value by eliminating the opportunity for weak performing firms to survive. C. firms that struggle to attain economies of scale and scope to a heightened level of effectiveness. D. firms that develop synergistic capabilities that can be transferred to rivals. E. All of these.
C
Creating added value for shareholders via diversification requires building a multibusiness company where the whole is greater than the sum of the parts—an outcome known as: A. computation effect. B. value generation. C. synergy outcome. D. value depth. E. definitive value
E
Cross-business strategic fits can be found: A. in unrelated as well as related businesses and in the markets of foreign countries as well as in domestic markets. B. only in businesses whose products/services satisfy the same general types of buyer needs and preferences. C. mainly in either technology-related activities or sales and marketing activities. D. chiefly in the R&D portions of the value chains of unrelated businesses. E. anywhere along the respective value chains of related businesses.
B
Diversification becomes a relevant strategic option in all but which one of the following situations? A.When a company spots opportunities to expand into industries whose technologies and products complement its present business. B. When a company is only earning a low profit margin in its principal business. C. When a company has a powerful and well-known brand name that can be transferred to the products of other businesses and thereby used as a lever for driving up the sales and profits of such businesses. D. When a company can open up new avenues for reducing costs by diversifying into closely related businesses. E. When a company can leverage existing competencies and capabilities by expanding into industries where these same resource strengths are key success factors and valuable competitive assets.
E
Diversification becomes a relevant strategic option when a company does all of the following EXCEPT for when it: A. spots opportunities to expand into industries whose technologies and products complement its present business. B leverages existing resources and capabilities by expanding into industries where these same resource . strengths are key success factors and valuable competitive assets. Chas a powerful and well-known brand name that can be transferred to the products of other . businesses and thereby used as a lever for driving up the sales and profits of such businesses. D. can open up new avenues for reducing costs by diversifying into closely related businesses. E. expands into additional businesses that unlock possibilities for a comprehensive cost enhancement strategy
B
Diversification merits strong consideration whenever a single-business company: A. has integrated backward and forward as far as it can. B. is faced with diminishing market opportunities and stagnating sales in its principal business. C. has achieved industry leadership in its main line of business. D. encounters declining profits in its mainstay business. E. faces strong competition and is struggling to earn a good profit.
A
What is the name of the process for developing new businesses as an outgrowth of a company's established business operations? A. Corporate venturing, corporate entrepreneurship, or intrapreneurship. B. Value chain integration. C. Resource capability process. D. Diversification activity capabilities. E. All of these.
C
Diversification ought to be considered when: A. a company's profits are being squeezed and it needs to increase its net profit margins and return on investment. B. a company lacks sustainable competitive advantage in its present business. C. a company begins to encounter diminishing market growth and stagnating sales prospects in its mainstay business. D. a company has run out of ways to achieve a distinctive competence in its present business. E. a company is under the gun to create a more attractive and cost-efficient value chain.
C
Diversifying into a new industry by forming a new internal subsidiary to enter and compete in the target industry is attractive when: A. all of the potential acquisition candidates are losing money. B. it is impractical to outsource most of the value chain activities that have to be performed in the target business/industry. C. there is ample time to launch the new business from the ground up and entry barriers can be hurdled at acceptable cost. D. the company has built up a hoard of cash with which to finance a diversification effort. E. none of the companies already in the industry are attractive strategic alliance partners.
B
Diversifying into new businesses is justifiable only if it: A. results in increased profit margins and bigger total profits. B. builds added long-term economic shareholder value by building a synergistic multibusiness company. 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.
A
Economies of scope: A. are cost reductions that flow from operating in multiple related businesses. B. arise only from strategic fit relationships in the production portions of the value chains of sister businesses. C. are more associated with unrelated diversification than related diversification. D. are present whenever diversification satisfies the attractiveness test and the cost-of-entry test. E. arise mainly from strategic fit relationships in the distribution portions of the value chains of unrelated businesses.
D
Establishing investment priorities and steering corporate resources into the most attractive business units typically requires the company to decide on various options, EXCEPT for: 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 divesture of unattractive businesses. D. the pursuit of debt reduction opportunities that can lower the debt/equity ratio while maintaining asset levels. E. the divesture of businesses that do not fit into the company's longer term plans
B
One appealing aspect of unrelated diversification is that it: A. expands a firm's competitive advantage opportunities to include a wider array of businesses. B. spreads the business risk across a group of truly diverse industries. C. increases strategic fit opportunities and the potential for a 1 + 1 = 3 outcome on the bottom line. D. results in having more cash cow businesses than cash hog businesses. E. facilitates capturing the financial fits among sister businesses (as compared to a strategy of related diversification).
A
One strategic fit based approach to related diversification would be to: Adiversify 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. Bdiversify into those industries where the same kinds of driving forces and competitive forces prevail, . thus allowing use of much the same competitive strategy in all of the businesses a company is in. C. acquire rival firms that have broader product lines so as to give the company access to a wider range of buyer groups. D. acquire companies in forward distribution channels (wholesalers and/or retailers). E. expand into foreign markets where the firm currently does no business.
E
The task of crafting a company's overall corporate strategy for a diversified company encompasses: A. picking the new industries to enter and deciding on the means of entry. B. initiating actions to boost the combined performance of the businesses the firm has entered. 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. All of these.
D
Strategic fit between two or more businesses exists when one or more activities comprising their respective value chains present opportunities: A. to prevent the transfer expertise or technology or capabilities from one business to another. B. to independently preserve common brand names from cross-business usage. C. to increase costs by combining the performance of the related value chain activities of different businesses. D. for cross-business collaboration to build valuable new resource strengths and competitive capabilities. E. maintain business value chain activities separate and apart from one business to another to protect company independence.
D
The basic premise of unrelated diversification is that: A. the least risky way to diversify is to seek out businesses that are leaders in their respective industry. B. the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale. C. the best way to build shareholder value is to acquire businesses with strong cross-business financial fit. Dany 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. E the task of building shareholder value is better served by seeking to stabilize earnings across the . entire business cycle than by seeking to capture cross-business strategic fits.
E
The best place to look for cross-business strategic fit is: A. in R&D and technology activities. B. in supply chain activities. C. in sales and marketing activities. D. in production and distribution activities. E. anywhere along the respective value chains of related businesses—no one place is best.
D
The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves: A assessing whether the diversification move will make the company better off because it will produce . a greater number of core competencies. B.assessing whether the diversification move will make the company better off by improving its balance sheet strength and credit rating. C assessing whether the diversification move will make the company better off by spreading . shareholderrisksacrossagreaternumberofbusinessesandindustries. Devaluating whether the diversification 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. E.assessing whether the diversification move will benefit shareholders due to gains in earnings per share and faster stock price appreciation.
C
The big dilemma an aggressive acquisition-minded firm faces is whether: A. to pay a very high premium to convince shareholders and managers of the target company to reject the deal. B. spending the required amount on integrating the firms is worth the effort. C. to pay a premium price for a successful company or to buy a struggling company at a discounted price. D. they have the experience and wherewithal to execute an acquisition's integration plan at below the budgeted plan. E. All of these
C
The cost-of-entry test for evaluating whether diversification into a particular industry is likely to build shareholder value involves: Adetermining whether a newly entered business presents opportunities to cost-efficiently transfer . competitively valuable skills or technology from one business to another. B. determining whether the cost to enter the target industry will strain the company's credit rating. C. considering whether a company's costs to enter the target industry are low enough to allow for good profits or so high that potential profits will be eroded. D. determining whether the cost to enter the target industry will raise or lower the company's total profits. E. determining whether the cost a company incurs to enter the target industry will raise or lower production costs
A
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: A. selecting the appropriate value chain operating practices to improve the financial outlook. B. starting a business from the ground up. C. acquiring a company already established in the target industry. D. forming a joint venture or partnership with another company. E. structuring a strategic alliance with another company to take advantage of the opportunity.
B
The difference between specialized and generalized resources and capabilities is best defined in terms of: A. dedicated and undedicated resources. Badapted use of resources for a specific range of industry and business applications in contrast to . more generalized applications found to be useful across a wide range of industry and business types. C.committed value chain resources and capabilities as opposed to uncommitted resources driving sustainability and competitive advantages. D. attached business uses compared to unattached resources relevant to strategic fit. E. All of these.
A
The essential requirement for different businesses to be "related" is that: A. their value chains exhibit competitively valuable cross-business relationships. 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.
A
The industry attractiveness test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whether: Aconditions in the target industry are sufficiently attractive to permit earning consistently good or . better profits and returns on investment than that of the company's present business(es). B. the potential diversification move will boost the company's competitive advantage in its existing business. C. shareholders will view the contemplated diversification move as attractive. D. key success factors in the target industry are attractive. E there are attractive strategic fits between the value chains of the company's present businesses and the value chain of the new business it is considering entering.
D
The success of unrelated diversification is dependent upon management's ability to: A. acquire new businesses that utilize much the same technology as existing businesses. B. divest businesses whose competitive strategies do not match the overall competitive strategy of the corporation. C. acquire new businesses having attractive distribution-related and customer-related strategic fits with existing businesses. Dspot bargain-priced companies with big upside potential and then turn around their operations . quickly with the aid of the parent company's financial resources and managerial know-how. E. identify potential new acquisition candidates that are cash cows (as opposed to cash hogs).
D
The three tests for judging whether a particular diversification move can create value for shareholders are: A. the attractiveness test, the profitability test, and the shareholder value test. B. the strategic fit test, the competitive advantage test, and the return-on-investment test. C. the resource fit test, the profitability test, and the shareholder value test. D. the attractiveness test, the cost-of-entry test, and the better-off test. E. the shareholder value test, the cost-of-entry test, and the profitability test.
E
The transaction costs of completing a business agreement or deal of some sort, over and above the price of the deal, can include: A. the costs of searching for an attractive target. B. the costs of evaluating its worth. C. bargaining costs. D. the costs of completing the transaction. E. All of these
D
The two biggest drawbacks or disadvantages of unrelated diversification are: A underemphasizing the importance of resource fit and the strong likelihood of diversifying into . businesses that top management does not know all that much about. B insufficient cash flows to finance so many different lines of business and a lack of uniformity . amongthestrategiesofthebusinessesithasdiversifiedinto. C. volatile sales and profits and making the mistake of diversifying into too many cash cow businesses. Dthe difficulties of competently managing many different businesses and being without the added . source of competitive advantage that cross-business strategic fit provides. E.over-investing in the achievement of economies of scope and the difficulties of achieving a good mix of cash cow and cash hog businesses.
C
The two biggest drawbacks or disadvantages of unrelated diversification are: Athe 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 that cross- business strategic fit provides. 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.
A
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: A those companies with a mix of valuable competitive assets, covering the spectrum from generalized . to specialized resources and capabilities. B.those large multibusiness firms, sometimes called conglomerates, because they have a unique capability designed to stabilize earnings. C. companies with a portfolio of product choices for buyer-related behavior. D. corporate managers who wish to reduce risks and increase revenues. E. All of these.
D
To create value for shareholders via diversification, a company must: A. get into new businesses that are profitable. B. diversify into industries that are growing rapidly. C.spread its business risk across various industries by only acquiring firms that are strong competitors in their respective industries. D. diversify into businesses that can perform better under a single corporate umbrella than they could perform operating as independent, stand-alone businesses. E. diversify into businesses that have either key success factors or value chains that are similar to its present businesses.
A
To identify a diversified company's strategy, one should consider such factors as: Athe extent to which the firm is broadly or narrowly diversified, whether it is pursuing related . or unrelated diversification (or a mixture of both), and the recent moves it has made to divest businesses, acquire new businesses, and strengthen the positions of existing businesses. B. whether the company is focusing on "milking its cash cows" or "feeding its cash hogs." C.the technological proficiencies, labor skill requirements, and functional area strategies characterizing each of the firm's businesses. Deach business's competitive approach—whether it is pursuing a low-cost leadership, differentiation, . best-cost, focused differentiation, or focused low-cost strategy. E. whether it is emphasizing the pursuit of economies of scale or economies of scope.
C
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 the following, EXCEPT: A. the transferring of valuable resources and capabilities. B. combining related value chain activities of different businesses to achieve lower costs. Cforcing cultural independence, operating diversity, and sophisticated analytical responsibility on the . businesses to ensure compatibility with the corporate overhead identity. D. sharing the use of powerful and well-respected brand names across multiple businesses. E. encouraging knowledge-sharing and collaborative activity among the businesses.
E
To test whether a particular diversification move has good prospects for creating added shareholder value, corporate strategists should use: A. the profit test, the competitive strength test, the industry attractiveness test, and the capital gains test. B. the better-off test, the competitive advantage test, the profit expectations test, and the shareholder value test. C. the barrier-to-entry test, the competitive advantage test, the growth test, and the stock price effect test. D. the strategic fit test, the industry attractiveness test, the growth test, the dividend effect test, and the capital gains test. E. the attractiveness test, the cost-of-entry test, and the better-off test.
D
What is the difference between economies of scale and economies of scope? A.Scale refers to the magnitude or size of the operation, while scope refers to the reach of defined savings within the value chain. B. Scale refers to the extent of change, while scope refers to the possibilities of change. C. Scale is about dimensions, while scope is about the capacity available for production capabilities. DScale 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. E. None of these. Scale and scope mean the same thing and the only difference is the extent to which they have some use-value.
B
What makes related diversification an attractive strategy? A. The ability to broaden the company's product line. B The opportunity to convert cross-business strategic fits into competitive advantages 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.
E
What rationales for pursuing unrelated diversification are NOT likely to increase shareholder value? A. In order to reduce risk by way of spreading the company's investments over a set of truly diverse industries. B. To enable a company to achieve rapid or continuous growth. C.To chance that market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses. D. To provide benefits to managers such as high compensation and reduction in employment risk. E. All of these.
A
When all the resources are available or can be easily purchased or leased, the best alternative is to enter the new business opportunity via: A. internal development. B. acquisition. C. joint venture. D. partnership. E. All of these, provided management has expertise.
C
When costs of completing a business agreement (or deal of some sort) are over and above the price of the deal, what are they called? A. Operating costs. B. Expense itemization. C. Transaction costs. D. Servicing costs. E. Entry costs.
C
When discussing "economies of scope," it involves understanding that they: 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.
E
When identifying a diversified company's present corporate strategy, which of the following would NOT be something to look for? A. Recent moves to build positions in new industries. B. The company's approach to allocating investment capital and resources across its present businesses. C. Recent management actions to strengthen the company's positions in existing businesses. D. Recent moves to divest weak or unattractive business units. E. Actions over the past few years to substitute global strategies for multi-country strategies in one or more business units.
A
When speed is of the essence, firms should use an acquisition entry strategy because: A. it is the fastest mode of entry. B. in rapidly changing industries fast movers can secure long-term positioning advantages. C. early movers can gain experienced-based advantages that grow ever larger over time. D. of the importance of establishing an industry standard. E. All of these
A
Which of the following BEST illustrates an economy of scope? A.Being able to eliminate or reduce costs by combining related value-chain activities of different businesses into a single operation. B.Being able to eliminate or reduce costs by performing all of the value chain activities of related sister businesses at the same location. C. Being able to eliminate or reduce costs by extending the firm's scope of operations over a wider geographic area. D. Being able to eliminate or reduce costs by expanding the size of a company's manufacturing plants. E. Being able to eliminate or reduce costs by having more value chain activities performed in-house rather than outsourcing them.
A
Which of the following is NOT a contributing reason for businesses with strategic fit in R&D or technology activities to perform better together? A. The ability to use existing technologies. 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.
B
Which of the following is NOT a major consideration in evaluating the pluses and minuses of a diversified company's strategy? A. Checking whether the company's resources fit the requirements of its present business lineup. BScrutinizing each industry/business to determine where the driving forces are considered strongest/ . weakest and how many profitable strategic groups the company has diversified into. CRanking the performance prospects of the various businesses from best to worst and determining . what the corporate parent's priorities should be in allocating resources to its different businesses. D. Checking the competitive advantage potential of cross-business strategic fits. E Assessing the competitive strength of each business the company has diversified into and determining which ones are strong/weak contenders in their respective industries.
D
Which of the following is NOT among the disadvantages and managerial problems encountered by companies pursuing unrelated diversification strategies? AKnowing so little about the industries in which each business competes, that management is unable . to properly evaluate strategic proposals put forth by business-unit managers. BBeing too unfamiliar with the issues and problems facing each subsidiary to effectively pick . business-unit heads having the requisite combination of managerial skills and know-how. CThe strain it places on corporate-level management in trying to stay on top of fresh industry . developments and the strategic progress and plans of each business subsidiary. D.Ending up with too many cash hog businesses (as compared to related diversification strategies where cash hog businesses are rare). EThe potential that corporate management will not know how to bail out a business subsidiary . that runs into deep trouble—because the company has diversified into businesses that corporate management has little experience or expertise in running.
C
Which of the following is NOT likely to command much strategic attention from the top executives of companies pursuing an unrelated diversification strategy? A. Acquiring new businesses with attractive profit prospects. B Whether existing businesses should be retained or divested based on their ability to meet corporate . targets for profit and returns on investment. C. Looking for new businesses that present good opportunities for achieving economies of scope. DIdentifying acquisition candidates that are financially distressed, can be acquired at a bargain price, . and whose operations can, in management's opinion, be turned around with the aid of the parent company's financial resources and managerial know-how. E. Identifying opportunities to acquire new businesses in industries with bright growth prospects.
C
Which of the following is NOT one of the appeals of an unrelated diversification strategy? AThe ability to spread business risk over truly diverse industries (as compared to related . diversification which is limited to spreading risk only among businesses with strategic fit). B An ability to employ the company's financial resources to maximum advantage by investing in . whateverindustries/businessesofferthebestprofitprospects. C The ability of superior top management to cope with the wide variety of problems encountered in . managingabroadlydiversifiedgroupofbusinesses. DA potential for achieving somewhat more stable corporate sales and profits over the course of . economic upswings and downswings (to the extent the company diversifies into businesses whose ups and downs tend to occur at different times). EThe potential to grow shareholder value by investing in bargain-priced or struggling companies with . big upside profit potential, turning their operations around fairly quickly with infusions of cash and managerial know-how, and then riding the crest of higher profitability.
C
Which of the following is NOT one of the appeals of related diversification? A. It can offer opportunities for transferring expertise, technology, and other capabilities from one business to another. B. It can offer opportunities for reducing costs and for leveraging use of a competitively powerful brand name. C.Related diversification is particularly well-suited for the use of first-mover strategies and capturing valuable financial fits. D. It may present opportunities for cross-business collaboration to create valuable new competencies and capabilities. EThe relatedness among the different businesses provides sharper focus for managing diversification . and a useful degree of strategic unity across the company's various business activities.
E
Which of the following is a diversified business with one major "core" business and a collection of small related or unrelated businesses? A. A broadly diversified enterprise. B. A narrowly diversified enterprise. C. A multibusiness enterprise. D. A high compensation/low risk enterprise. E. A dominant business enterprise.
B
Which of the following is an important appeal of a related diversification strategy? A. Related diversification is an effective way of capturing valuable financial fit benefits. B. Related diversification offers more competitive advantage potential than does unrelated diversification. C.Related diversification offers significant opportunities to strongly differentiate a company's product offerings from those of rivals. D.Related diversification is more likely to pass the cost-of-entry test and the capital gains test than unrelated diversification. E Related diversification is typically more profitable than unrelated diversification, which is a major . factor in helping related diversification pass the attractiveness test.
D
Which of the following questions does not relate to the choice of how best to enter a new business? A Does the company have all of the resources and capabilities it requires to enter the business through . internaldevelopmentorisitlackingsomecriticalresources? B. Are there entry barriers to overcome? C. Is speed an important factor in the firm's chances for successful entry? D. How much money will the company make in the first year? E. Which is the least costly mode of entry, given the company's objectives?
D
Which of the following statements about cross-business strategic fit in a diversified enterprise is NOT accurate? A Strategic fit between two businesses exists when the management know-how accumulated in one . business is transferable to the other. B. Strategic fit exists when two businesses present opportunities to economize on marketing, selling, and distribution costs. C.Competitively valuable cross-business strategic fits are what enable related diversification to produce a synergistic performance outcome. DStrategic 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. E Strategic fit exists when a company can transfer its brand-name reputation to the products of a newly . acquired business and add to the competitive power of the new business.
C
Which of the prime examples of strategic fit opportunities below are NOT related business activities? A Transferring specialized expertise, technological know-how, or other valuable resources and . capabilitiesfromonebusiness'svaluechaintoanother's. B. Cost sharing between businesses by combining their related value chain activities into a single operation. COverhauling and streamlining the operations of the business by refocusing value chain activities . towardbusinessesthatcanprovideasuperiorjobofparenting. D. Exploiting common use of a well-known brand name. E. Sharing other resources (besides brands) that support corresponding value chain activities across businesses.
D
Which one 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? A. When internal entry is cheaper than entry via acquisition. B When a company possesses the skills and resources to overcome entry barriers and there is ample time to launch the business and compete effectively. C When adding new production capacity will not adversely impact the supply demand balance in the industry by creating oversupply conditions. D.When the industry is growing rapidly and the target industry is comprised of several relatively large and well-established firms. E. When incumbent firms are likely to be slow or ineffective in combating a new entrant's efforts to crack the market.
E
Which one of the following is NOT a procedure for evaluating the pluses and minuses of a diversified company's strategy? A. Assessing the attractiveness of the industries the company has diversified into. B Assessing the competitive strength of each business unit to see which ones are the strongest/weakest . contenders in their respective industries. C.Ranking the performance prospects of the various businesses from best to worst and determining the priorities for resource allocation. DChecking the competitive advantage potential of cross-business strategic fits and also checking . whether the firm's resources fit the needs of its present business lineup. E. Ranking all the company's former strategic moves that were designed to improve overall corporate performance.
B
Which one of the following is NOT one of the elements of crafting corporate strategy for a diversified company? A. Picking new industries to enter and deciding on the means of entry. B. Choosing the appropriate value chain for each business the company has entered. 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. Initiating actions to boost the combined performance of the businesses the firm has entered
A
While acquisitions offer an enticing means for entering a new business, many fail to deliver on their promise, as they: A require successful integration of the culture, systems, and structure of the firm into the acquiring . firm,whichisacostlyandtime-consumingprocess. B. require an in-depth understanding of the firm so as to develop potential strategic responses to the target market. C indicate that the premium paid for the company was far too high for what assets the acquiring firm . purchased,andthereforefailedthecost-of-entrytest. D. require managerial attention at the highest level and this cannot always be provided. E. All of these.
C
With a strategy of unrelated diversification, an acquisition is deemed to have potential if it: A. can achieve financial returns. B. has the opportunity to generate positive cash flow. C. can pass the industry attractiveness test and the cost-of-entry test, and if it has good prospects for profit growth. D. can generate growth in revenue. E. can add economic value for managers.
A
With an unrelated diversification strategy, the types of companies that make particularly attractive acquisition targets are: Astruggling 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. B. companies offering the biggest potential to reduce labor costs. C. cash cow businesses with excellent financial fit. D. companies that are market leaders in their respective industries. E. companies that are employing the same basic type of competitive strategy as the parent corporation's existing businesses.