MGT 499 Chapter 10

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A company should pursue related diversification instead of unrelated diversification when the company's a. core skills are applicable to a wide variety of industrial and commercial situations. b. core skills are highly specialized and have few applications outside the core business. c. top managers are skilled at acquiring and turning around poorly run enterprises. d. main objective is to maximize its growth. e. free cash flow is high enough that it has funds available for investment.

core skills are applicable to a wide variety of industrial and commercial situations.

Which of the following is NOT necessary for a successful acquisition? a. Good bidding strategy b. Clear strategic rationale for making the acquisition c. Quick completion of the acquisition d. Thorough pre-acquisition screening e. Post-acquisition audit to review the process and discuss ways to improve it

Quick completion of the acquisition

Miller Brewing, which was acquired by Philip Morris, was related to the parent company's tobacco business because it was possible to create important marketing commonalities. Both beer and tobacco are mass market consumer goods in which brand positioning, advertising, and product development skills are crucial to create successful new products. This is an example of which of the following? a. Transferring competencies b. Leveraging competencies c. General organizational competencies d. Economies of scope e. Organizational design skills

Transferring competencies

When is acquisition considered a favored entry mode to enter a new industry? a. When a company wants to pursue internal venturing b. When a company lacks distinctive competencies to compete in a new industry c. When the industry is protected by low barriers to entry d. When a company wants to wait years to build a market leadership position e. When a company has a distinctive competitive advantage

When a company lacks distinctive competencies to compete in a new industry

When might it be beneficial for a company to pursue unrelated diversification? a. When it has superior strategic capabilities to keep bureaucratic costs under control b. When it can apply its competencies across a greater number of industries c. When each business unit's functional competencies have few useful applications across industries d. When it can achieve coordination between business units e. When maximizing the number of useful applications across products and services

When each business unit's functional competencies have few useful applications across industries

Which of the following is an ill-advised justification that a business adopts to justify diversification? a. The strategy would allow a company to save themselves from the drawbacks of risk pooling. b. Entry into new industries will rescue the core business and lead to long-term growth and profitability. c. It decreases the range of threats the company encounters and gives more time to managers had to spend dealing with these threats. d. Business cycles of different industries are inherently easy to predict, so it is likely that a diversified company will find that an economic downturn affects only one of its business units. e. Growth creates value for stockholders and growth is the objective of a diversification strategy.

Entry into new industries will rescue the core business and lead to long-term growth and profitability.

Which of the following is NOT a way to use diversification to increase profitability? a. The use of general organizational competencies to increase the performance of all a company's business units b. Trying to leverage competencies to create business units in new industries c. Sharing resources between business units to realize synergies or economies of scope d. Transfer competencies between business units in different industries e. Evaluate business units to determine which needs to be shut down to give more time and attention to more successful units

Evaluate business units to determine which needs to be shut down to give more time and attention to more successful units

A company realizes that its diversification into a new industry is leading to a loss of focus and transparency. What should the company do in this situation? a. Continue with the diversification strategy. b. Exit the industry and allow the business to operate on its own. c. Merge with another company in the same industry. d. Ignore the issues and focus on increasing profits. e. Sell the entire company.

Exit the industry and allow the business to operate on its own.

Which of the following statements concerning research and development is correct? a. Exploratory research is more important than development research. b. Development research is more important than exploratory research. c. Exploratory research is directed toward commercialization of a new technology. d. Development research advances basic science. e. Exploratory research and development research are needed for internal new venturing.

Exploratory research and development research are needed for internal new venturing.

What is one potential disadvantage of diversification? a. It can lead to a loss of focus and transparency. b. It always leads to financial loss. c. It prevents the development of new products. d. It results in a company being unable to enter new markets. e. It hinders the adoption of new technologies.

It can lead to a loss of focus and transparency.

The three main types of diversification strategies are a. acquisitions, joint ventures, and divestments. b. acquisitions, mergers, and buyouts. c. acquisitions, internal new ventures, and joint ventures. d. related acquisitions, unrelated acquisitions, and mergers. e. joint ventures, strategic alliances, and long-term contracts.

acquisitions, internal new ventures, and joint ventures.

A company should pursue unrelated diversification instead of related diversification when a. its core skills are highly specialized and have few applications outside its core business. b. the company's top managers are skilled at acquiring and turning around poorly run enterprises. c. its core technological skills are applicable to a wide variety of industrial and commercial situations. d. it wants to maximize growth. e. the bureaucratic costs of implementation do not exceed the value that can be created by realizing economies of scope.

its core skills are highly specialized and have few applications outside its core business.

When Philip Morris used its distinctive competencies in product development, consumer marketing, and brand positioning to help develop their new acquisition of Miller Brewing from small brewery to number two in market share, it is referred to as a. sharing resources and capabilities. b. leveraging competencies. c. economies of scale. d. economies of scope.

leveraging competencies.

At Burger King, multiple items such as a cheeseburger, french fries, and a drink are combined to create a complete meal. This is an example of a. diversification. b. leveraging competencies. c. product bundling. d. general organizational competencies.

product bundling

What is a joint venture? a. A merger of two companies b. A collaboration between two or more companies to create a new business c. A company's acquisition of another company d. A company's diversification into a new industry e. A company's decision to enter a new market

A collaboration between two or more companies to create a new business

In which of the following cases are bureaucratic costs likely to be lowest? a. A vertically integrated company with five divisions that pursues full integration b. A company with five divisions that pursues related diversification based on economies of scope c. A company with five divisions that pursues related diversification based on transferring competencies d. A company with five divisions that pursues unrelated diversification based on acquisitions and restructuring e. A company with twenty divisions that pursues taper integration

A company with five divisions that pursues unrelated diversification based on acquisitions and restructuring

What is the difference between a spinoff and a carve-out? a. A spinoff is a partial divestiture of a business, while a carve-out is when a corporation makes a division or subsidiary of the firm into a separate legal entity. b. A spinoff results in a cash inflow to the corporate parent, while a carve-out results in no cash inflow. c. A spinoff is a tax-free transaction to the company and its shareholders, while a carve-out is not. d. A spinoff is followed by a split-off, while a carve-out is not. e. A spinoff is when a parent company sells some portion of a business unit to outside investors, while a carve- out is when a corporation makes a division or subsidiary of the firm into a separate legal entity.

A spinoff is when a parent company sells some portion of a business unit to outside investors, while a carve- out is when a corporation makes a division or subsidiary of the firm into a separate legal entity.

In 2007, Google bought YouTube. This is an example of which of the following means to enter a new industry? a. Partnership b. Strategic alliance c. Joint venture d. Acquisition e. Merger

Acquisition

Sara Lee Corp., a clothing firm, purchased Platex Apparel Inc. This purchase helped to make Sara Lee Corp. one of the largest makers of women's apparel in the United States. Sara Lee Corp. utilized which type of strategy? a. Unrelated diversification b. Competency leverage c. Economies of scope d. Acquisition

Acquisition

Which of the following is an example of how a company pursuing related diversification can use strong technological commonalities between new and existing business units to increase its competitive advantage? a. A clothing company expands into the food industry to leverage its expertise in supply chain management. b. A car manufacturer acquires a software company to transfer its expertise in digital innovation. c. A telecommunications company enters the healthcare industry to share its expertise in consumer service. d. A cosmetics company buys a hotel chain to bundle its products with hotel services. e. An electronics company acquires a home appliance company to modify and enhance the features of its products.

An electronics company acquires a home appliance company to modify and enhance the features of its products.

What is an internal capital market? a. An internal capital market is a situation whereby corporate headquarters assesses the performance of business units and allocates money across them. b. An internal capital market is an arbitrage strategy whereby managers make money by making better investment decisions within the firm than the external capital market would. c. An internal capital market is a market with a less efficient capital market where conglomerates may create significant value. d. An internal capital market is a situation where cash generated by units that are profitable but have poor investment opportunities within their business is used to cross-subsidize businesses that need cash. e. An internal capital market is a strategy of unrelated diversification where firms own unrelated businesses and attempt to increase their value through the use of general organizational competencies.

An internal capital market is a situation whereby corporate headquarters assesses the performance of business units and allocates money across them.

Why do some managers resist divestiture? a. Because they prefer a flexible and risk averse culture b. Because they want to hold onto businesses that have been kept of the corporation for a long time c. Because they feel that businesses should be kept together regardless of their core strategy d. Because they fear that divestiture will lead to a drain on management time and investor funds e. Because they want to create value for shareholders

Because they want to hold onto businesses that have been kept of the corporation for a long time

In which of the following stages of successful acquisition is timing an essential component? a. Learning from experience b. Identification and screening c. Bidding strategy d. Integration e. Elimination of any duplication of facilities or functions

Bidding strategy

Which of the following is NOT a reason that explains the relatively high failure rate of internal new ventures? a. Businesses choose a small-scale entry strategy, which often means they fail to build the market share necessary for long-term success. b. A company is marketing a product based on a technology for which there is no demand. c. The company fails to correctly position or differentiate the product in the market to attract customers. d. A company tries to increase their chances of introducing successful products by establishing too many internal new-venture divisions. e. Companies are focused on and excel at R&D in which they help to advance basic science and discover important commercial applications for it.

Companies are focused on and excel at R&D in which they help to advance basic science and discover important commercial applications for it.

A company that wants to benefit from transferring competencies and sharing resources between its existing and new business units should pursue which diversification strategy? a. Related diversification b. Unrelated diversification c. Business-level diversification d. Vertical integration e. Forward integration

Related diversification

In order to make a successful acquisition, which of the following would occur after a detailed assessment of the potential acquisition's strengths and weaknesses? a. Generation of significant value from the experience of the acquisition process b. Eliminating any duplication of facilities or functions c. Integration of the acquired company into its operations and quickly develop a viable multibusiness model d. Targeting an identification and pre-acquisition screening e. Developing and initiating a bidding strategy

Developing and initiating a bidding strategy

Which of the following reasons can make a diversification strategy an unwise course of action for a company to pursue? a. Steady industry conditions b. Varying firm-specific conditions c. Diversification for pooling risks d. Decreasing bureaucratic costs e. Greater differentiation of products

Diversification for pooling risks

Which strategy is based upon a company's decision to enter one or more new industries to leverage its existing distinctive competencies and business model? a. Market penetration strategy b. Market development strategy c. Product development strategy d. Diversification strategy e. Cost leadership strategy

Diversification strategy

Stanley's services firm wants to enter an embryonic market, but it doesn't have enough cash to purchase the required assets. Which of the following strategies would you recommend to Stanley? a. Diversify through acquisition. b. Do not diversify at all. c. Diversify with an internal new venture. d. Diversify with a joint venture. e. Diversify through vertical integration.

Diversify with a joint venture.

Which of the following is a potential disadvantage of related diversification? a. Higher bureaucratic costs than unrelated diversification b. Difficulty achieving coordination between business units c. Limited ability to create value in multiple industries d. Lack of opportunities to leverage competencies e. Siloing of business units leading to decreased profitability

Higher bureaucratic costs than unrelated diversification

Bob's Running Shoes acquired Fleet Feet about six months ago. Due to the differences in processes and cultures of the two companies, it has taken a long time to adopt a common management and financial control system. They share information and personnel but have had difficulty in creating a common culture. Management is threatening to leave because the employees do not like the acquiring company's way of operating. Which of the following acquisition pitfalls does this scenario describe? a. Integrating the acquired company b. Overestimating economic benefits c. The expense of acquisitions d. Inadequate pre-acquisition screening e. Agency problems

Integrating the acquired company

What are the three different ways companies can implement a diversification strategy? a. Internal new ventures, divestment, and mergers b. Divestment, acquisitions, and joint ventures c. Acquisitions, joint ventures, and horizontal integration d. Internal new ventures, acquisitions, and joint ventures e. Joint ventures, mergers, and horizontal integration

Internal new ventures, acquisitions, and joint ventures

Company A is contemplating the creation of a new-venture division in an embryonic industry. Why is a joint venture considered an appropriate method to enter this new industry? a. It allows the company to make a huge investment necessary to develop the set of value-chain activities required to make and sell products in the new industry. b. It allows the company to purchase an established leading company in the emerging industry. c. It allows the company to share the risks and costs associated with establishing a business unit in the new industry with another company. d. It allows the company to bear the costs and risks of developing new products on its own. e. It allows the company to merge its activities into one company.

It allows the company to share the risks and costs associated with establishing a business unit in the new industry with another company.

Which diversification strategy is based on the idea that the company creates value by applying the distinctive competencies it developed in one line of business to another line of business? a. A technology acquisition strategy b. Related diversification c. A restructuring strategy d. Total diversification e. A taper diversification strategy

Related diversification

Which of the following is an advantage of unrelated diversification? a. It allows a company to use any general organizational competency it possesses to increase the overallperformance of all its different industry divisions. b. It can allow a company to cross-subsidize businesses that need cash and have strong promise for long-run profitability. c. It can result in superior performance and profitability if the strategic managers have the special skills needed to manage many companies in diverse industries. d. It allows a company to obtain benefits from transferring competencies, leveraging competencies, sharing resources, and bundling products. e. It enables a company to establish a business unit in a new industry that is related to its existing business units.

It can result in superior performance and profitability if the strategic managers have the special skills needed to manage many companies in diverse industries.

Which of the following is NOT an effect of an extensively diversified company with multiple business units? a. It leads managers to base important resource-allocation decisions on a superficial analysis of each business unit's competitive position. b. It makes it easier for corporate managers to remain informed about the complexities of each business. c. Managers simply do not have the time to assess the business model of each unit. d. The distance from the day-to-day operations may catch corporate managers unaware of information that is hidden by business-unit managers who want to protect their own jobs. e. As organizational problems increase, the time and effort spent by top managers to solve them increases bureaucratic costs and cancels out the profit-enhancing advantages of pursuing diversification.

It makes it easier for corporate managers to remain informed about the complexities of each business.

Which of the following statements is false? a. Joint ventures are preferable to acquisitions when the new business is related to the existing business. b. Acquisitions are preferable to new ventures when speed is important. c. Joint ventures are generally preferable to acquisitions when entry barriers are high. d. Acquisitions can be both a reason for corporate decline and part of a turnaround strategy. e. New ventures are preferable to acquisitions in the embryonic stage of the industry life cycle.

Joint ventures are generally preferable to acquisitions when entry barriers are high.

What are the disadvantages of joint ventures as a method for companies to enter new industries? a. Joint ventures require that both partner companies share in the profits if it succeeds. b. Joint venture partners may have different business models. c. Joint ventures can lead to the unintentional leak of proprietary information across companies. d. Joint ventures require that both partner companies share in the profits if it succeeds, and joint venture partners may have different business models or time horizons. e. Joint ventures require that both partner companies share in the profits if it succeeds, joint venture partners may have different business models or time horizons, and joint ventures can lead to the unintentional leak of proprietary information across companies.

Joint ventures require that both partner companies share in the profits if it succeeds, joint venture partners may have different business models or time horizons, and joint ventures can lead to the unintentional leak of proprietary information across companies.

What are the three reasons often put forward to explain the relatively high failure rate of internal new ventures? a. Small-scale entry, poor commercialization, and poor implementation b. Large-scale entry, poor commercialization, and poor implementation c. Small-scale entry, good commercialization, and good implementation d. Large-scale entry, good commercialization, and good implementation e. Small-scale entry, poor commercialization, and good implementation

Large-scale entry, poor commercialization, and poor implementation

The use of distinctive competencies in precision mechanics, fine optics, and electronic imaging by Canon to enter into a new business in a new industry to produce laserjet printers is an example of which strategy? a. Leveraging competencies b. Economies of scope c. Commonality d. Transferring competencies

Leveraging competencies

Microsoft's relationships and experiences in the computer industry and expertise in managing industries surrounding external networks led them to create new business units in the video game, online portal, and search engine industries. This is an example of which of the following? a. Sharing resources and capabilities b. Leveraging competencies to create a new business c. Transferring competencies across businesses d. Utilizing general organizational competencies e. Economies of scope

Leveraging competencies to create a new business

Which of the following is a potential advantage of pursuing unrelated diversification? a. Lower bureaucratic costs than related diversification b. Ability to apply competencies across a greater number of industries c. Superior strategic capabilities to keep bureaucratic costs under control d. Strong functional competencies with useful applications across industries e. Minimizing the need for regulatory oversight

Lower bureaucratic costs than related diversification

Given that a firm has a strong competency in online search, what industry could the company diversify into to leverage this strength, as Google did? a. Merchandise b. Online video content creation c. Online travel booking d. Retail e. Drop shipping

Online travel booking

What is one reason why diversification may lead to a loss of competitive advantage? a. The inability of top managers to recognize profitable opportunities to enter new industries b. The lack of competency or commitment of a company's new leaders c. Rapid and unpredictable changes in the environment d. Bureaucratic costs e. Limits on the ability to fulfill orders

Rapid and unpredictable changes in the environment

What is the main difference between related diversification and unrelated diversification? a. Related diversification focuses on transferring and leveraging competencies between business units, while unrelated diversification does not. b. Related diversification is a corporate-level strategy, while unrelated diversification is a business-level strategy. c. Unrelated diversification involves establishing a business unit in a new industry that is related to a company's existing business units, while related diversification does not. d. Unrelated diversification is based on taking advantage of strong technological, manufacturing, marketing, and sales commonalities between new and existing business units, while related diversification is not. e. Related diversification aims to increase the value of the company through an internal capital market, while unrelated diversification does not.

Related diversification focuses on transferring and leveraging competencies between business units, while unrelated diversification does not.

What are the three ways a firm can exit businesses or assets? a. Sell-offs, spinoffs, and mergers b. Carve-outs, sell-offs, and mergers c. Carve-outs, spinoffs, and mergers d. Sell-offs, spinouts, and carve-outs e. Mergers, spinouts, and carve-outs

Sell-offs, spinouts, and carve-outs

What is the relationship between scale of entry and profitability for successful small-scale and large-scale ventures? a. Successful small-scale entry generates greater returns in the long term. b. Successful large-scale entry generates greater returns in the short run. c. Successful large-scale entry generates greater returns in the long term. d. Successful small-scale entry generates greater returns in the short run. e. There is no clear relationship between scale of entry and profitability.

Successful large-scale entry generates greater returns in the long term.

Some managers have hard-to-define governance skills that are required to manage different business units in a way that enables these units to perform better than they would if they were independent companies. Which of the following general organizational competencies helps business-unit managers probe for information and helps them think through strategic problems? a. Entrepreneurial capabilities b. Capabilities in organizational design c. Superior strategic management capabilities d. Sharing resources and capabilities e. Leveraging competencies to create a new business

Superior strategic management capabilities

What is the main source of bureaucratic costs in a diversified organization? a. The inability of top managers to maintain control over their multibusiness models b. The amount of coordination required to realize value from a diversification strategy c. The need to reduce overall costs in order to increase profitability d. The use of administrative employees e. Red tape associated with government filings of multiple organizational units

The amount of coordination required to realize value from a diversification strategy

Why does diversification often fail to boost profitability? a. The benefits created by the strategy are exceeded by the bureaucratic costs of diversification. b. Corporate diversification is not an effective way to pool risks. c. Entry into new industries cannot rescue a core business that is in trouble. d. De-diversification can often occur as a result of the company's efforts. e. The sheer number of businesses in the diversification make managing them unreasonable.

The benefits created by the strategy are exceeded by the bureaucratic costs of diversification.

Which of the following is instrumental in increasing the probability of a joint venture's success? a. The companies share complementary skills or distinctive competencies. b. The companies' bidding strategy is well-developed and timed correctly. c. The duplication of facilities or functions is eliminated, and any unwanted business units are divested. d. Companies have a strong competency in the R&D unit and devote funding for continuing research. e. There is large-scale entry.

The companies share complementary skills or distinctive competencies

If a company overestimates potential synergies from a diversification strategy, what can be the potential outcome? a. The company can lose its key strengths. b. The company can increase its profits significantly. c. The company will definitely go bankrupt. d. The company will become a market leader. e. The company will have no notable changes.

The company can lose its key strengths.

Which of the following may be true for a company pursuing a strategy of unrelated diversification rather than a strategy of related diversification? a. The company must achieve coordination between business units. b. The company has narrow organizational competencies. c. The company has superior strategic management and organizational design. d. The company has no bureaucratic costs that arise from the number of businesses in its portfolio. e. The company has no difficulty in keeping its corporate managers informed about the complexities of each business.

The company has superior strategic management and organizational design.

Evaluate the scenario where a company's diversification strategy into a new industry did not create additional value. What should be the company's next step? a. The company should invest more resources into the new industry. b. The company should exit the new industry. c. The company should ignore the situation. d. The company should acquire another company in the new industry. e. The company should merge with a competitor.

The company should exit the new industry.

Analyze the scenario where a company decided to diversify into a new industry, but it ended up reducing the firm's transparency in reporting its results. What could be a potential reason for this outcome? a. The company is not familiar with the new industry. b. The company has not properly calculated the risks involved. c. The company's managers failed to provide adequate oversight. d. The company did not consider the customer needs. e. The company has invested in the wrong industry.

The company's managers failed to provide adequate oversight

Which of the following is a factor a company should consider when choosing between related and unrelated diversification? a. The number of business units in its portfolio b. The extent of coordination required between business units c. The ability to apply competencies across industries d. The level of bureaucratic costs associated with each strategy e. The legislation that is regulating each company or asset in the diversification

The level of bureaucratic costs associated with each strategy

Which of the following is considered a negative effect of sharing the risks and costs of developing a new business in a joint venture? a. The main risk is that there is rarely an established leading company in an emerging industry. b. If one partner's skills are more important than the other partner's skills, the partner with more valuable skills may feel they might "give away" profits to the other party because of the 50/50 agreement. c. Partners may have different business models or time horizons which can cause conflict about how the business is run. d. There is a risk of giving away important, company-specific knowledge to its partner, which might then use it to compete with its other partner in the future. e. Conflict can sour the working relationship between the partners and cause the venture to disintegrate.

The main risk is that there is rarely an established leading company in an emerging industry.

Tom Smith, a top manager at a diversified company, has been tasked to identify inefficient, poorly managed companies in other industries. He then is tasked to acquire and restructure them to improve their performance and increase the profitability of the total corporation. Which of the following would be a strategy Tom might take to increase the performance of one of these newly acquired companies? a. Top managers of the acquired company are trained in more aggressive management techniques. b. The new top-management team consolidates assets and terminates staff to reduce the cost structure. c. The management team recommits to traditional strategies. d. All bonuses and incentive programs are terminated. e. The acquiring company uses the established goals to evaluate and review employees at all levels.

The new top-management team consolidates assets and terminates staff to reduce the cost structure.

Which of the following is NOT generally thought of as a potential benefit of spinning off a business? a. It can give the business the independence it needs to be more successful. b. Its stock can trade separately from the corporate parent's stock. c. The parent company receives cash for spinning off the division. d. The spinoff may rise faster in value than the corporate parent's stock value. e. The businesses involved may gain a narrowed focus on their respective business and industries.

The parent company receives cash for spinning off the division.

What is de-diversification? a. The process of expanding the scope of the firm b. The process of exiting businesses and activities that no longer make sense to have under joint ownership c. The process of buying more businesses than sold d. The process of pursuing too much diversification e. The process of breaking apart conglomerates

The process of exiting businesses and activities that no longer make sense to have under joint ownership

Which of the following is the main reason for a company to restructure? a. The stock market has valued the stock lower than the stock of less-diversified companies. b. Innovations in strategic management have diminished the advantages of vertical integration or diversification. c. Fulfilling the need to exit industries to increase profitability split existing businesses into separate, independent companies. d. It is an attempt to boost returns to shareholders by splitting up a multibusiness company into separate, independent parts. e. Diversification has reduced profitability.

The stock market has valued the stock lower than the stock of less-diversified companies.

Which of the following statements is NOT generally true of a diversification strategy based on the realization of economies of scope? a. The strategy requires the head office to evaluate each business unit as a stand-alone operation. b. The strategy allows a company to realize cost economies among business units. c. The strategy may allow a company to use shared resources more intensively, thereby realizing economies of scale. d. The strategy requires managers to be aware of the costs of coordination. e. The strategy requires close coordination among different business units.

The strategy requires the head office to evaluate each business unit as a stand-alone operation.

Which of the following is NOT a reason why highly diversified companies are seen as less attractive investments to investors? a. They often don't have multibusiness models that justify their participation in many different industries. b. The complexity of the financial statements of highly diversified enterprises disguises the performance of individual business units. c. They are riskier than companies that operate in one industry. d. CEOs often pursue growth for its own sake, reducing profitability. e. They have a limited ability to pivot resources when market conditions change.

They have a limited ability to pivot resources when market conditions change.

Why do managers often refuse to recognize that their diversification strategy is failing? a. They lack the competency or commitment necessary to pursue diversification successfully. b. They make up reasons to keep their collection of businesses together. c. They are unwilling to divest unprofitable businesses. d. They are emotionally tied to the strategy. e. They lack the competency or commitment necessary to pursue diversification successfully, they make up reasons to keep their collection of businesses together, they are unwilling to divest unprofitable businesses, and they are emotionally tied to the strategy.

They lack the competency or commitment necessary to pursue diversification successfully, they make up reasons to keep their collection of businesses together, they are unwilling to divest unprofitable businesses, and they are emotionally tied to the strategy.

Which of the following is NOT a reason for a company to divest a business or asset? a. To unlock higher value on the stock market b. To operate more flexibly as an independent company c. To address upside opportunities d. To address downside threats e. To focus more on the core competencies of the business

To address upside opportunities

What is the role of marketing in internal new venturing? a. To advance basic science and discover important commercial applications for it b. To work with R&D scientists to continually develop and improve the business model and strategies c. To foster close links between R&D and manufacturing to ensure cost-effectiveness d. To identify the most important customer requirements for a new product and communicate these requirements to scientists e. To oversee the development of new products from inception to market introduction

To identify the most important customer requirements for a new product and communicate these requirements to scientists

Which of the following involves taking a distinctive competency developed by a business unit in one industry and implanting it in a business unit operating in another industry? a. Sharing resources and capabilities b. Leveraging competencies c. Transferring competencies d. Product bundling e. Strategic management capabilities

Transferring competencies

When Coca-Cola decided to use its successful marketing experience and global distribution network to buy Colombia Pictures and get into the business of making movies, which of the following ways of pursuing a multibusiness model based on diversification was it utilizing? a. Sharing resources and capabilities b. Leveraging competencies to create a new business c. Transferring competencies across businesses d. Utilizing general organizational competencies e. Economies of scope

Transferring competencies across businesses

When is internal new venturing typically used? a. When a company possesses one or more distinctive competencies in its core business model that can be leveraged or recombined to enter a new industry b. When a company wants to enter a new industry through acquisitions c. When a company wants to enter a new industry through joint ventures d. When a company wants to enter an established industry e. When a company wants to enter a newly emerging industry

When a company possesses one or more distinctive competencies in its core business model that can be leveraged or recombined to enter a new industry

When might a spinoff be a better option than a sell-off for a firm? a. When the division is in an industry with better growth prospects than the overall corporate portfolio b. When the division is generating strong cash flow c. When the division is not generating enough cash flow d. When the division is underperforming compared to the rest of the firm e. When the division is over-diversified

When the division is in an industry with better growth prospects than the overall corporate portfolio

Which of the following describes when diversification to obtain economies of scope is possible? a. When there are significant commonalities between one or more value-chain functions in a company's different business units or divisions that result in synergies which increase profitability b. The sharing of competencies will result in increased costs which will cause a streamlining of one or more of a company's new or existing business units c. When the advantages of sharing competencies will exceed the costs and risks created d. Product bundling allows a company to satisfy customers' needs for a complete package of related products but makes it more difficult to achieve economies of scope e. When the costs of coordination necessary to achieve synergies within a company are higher than the value that can be created by such a strategy

When there are significant commonalities between one or more value-chain functions in a company's different business units or divisions that result in synergies which increase profitability


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