Strategy Chapter 8

Different businesses are said to be unrelated when: a. they have dissimilar value chains, containing no competitively useful cross-business relationships or strategic fits. b. the businesses utilize different types of production technologies and production processes. c. the products of the different businesses are highly dissimilar. d. the products of the different businesses satisfy very different buyer needs. e. they are in different industries.

a

A big advantage of related diversification is that a. it is less capital intensive and usually more profitable than unrelated diversification b. it offers ways for a firm to realize 1 + 1 = 3 benefits because the value chains of the different businesses present competitively valuable cross-business relationships c. it is less risky than unrelated diversification d. it involves diversifying into industries having the same kinds of industry attractiveness factors e. it passes the industry fit test and thus offers the best route 1 + 1 = 2 benefits

b

A diversified company's business units exhibit good resource fit when: a. when the company's profitable business units have sufficient earnings and cash flows to cover the losses and negative cash flows of its unprofitable businesses, with enough cash left over to cover the company's dividend payments, capital expenditures, and debt repayments. b. a company has the resources to adequately support the requirements of its entire group of businesses without spreading itself too thin and when individual businesses add to a company's overall resource strengths. c. the sum of the resource requirements of each business equal or exceed the total amount of resources the company has available. d. when the number of cash cow businesses equals the number of cash hog businesses. e. the total amount of capital the company has available to deploy to its various businesses is equal to or greater than the sum of the capital requirements of each business.

b

For there to be reasonable expectations of producing added longterm shareholder value, a move to diversify into a new business must pass which of the following tests? a. The revenue growth test, the industry competitiveness test, and the capital investment test. b. The attractiveness test, the cost of entry test, and the better-off test. c. The risk avoidance test, the industry attractiveness test, and the customer fit test. d. The resource availability test, the revenue growth test, and the industry fit test. e. The better-off test, the competitive advantage test, and the profit expectations test.

b

The top level executive task of crafting a diversified company's overall or corporate strategy does not include which one of the following? a. Initiating actions to boost the combined performance of the businesses the firm has entered 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 fits into competitive advantage d. Picking new industries to enter and deciding whether to enter the industry by starting a new business from the ground up, acquiring a company already in the target industry, or forming a joint venture or strategic alliance with another company e. Evaluating the growth and profitability prospects for each business and then investing aggressively in the most promising businesses with the best prospects, investing cautiously in businesses with just average prospects, and divesting businesses with unacceptable prospects

b

Based on the information presented in figure 8.1, which of the following would not be something to look for in identifying a diversified company's strategy? a. Recent management actions to strengthen the company's positions in existing businesses and to divest weak businesses b. Whether the company's diversification is based narrowly in a few industries or broadly in many industries and whether the businesses the company has diversified into are related, unrelated, or a mixture of both c. The generic competitive strategy each business is employing d. Whether the scope of the company's operations is mostly domestic, increasingly multinational, or global

c

economies of scope: a. stem from cost-saving efficiencies that arise when sister business operate over a wider geographic area. b. arise mainly from scale economy efficiencies in the production and distribution portions of the value chains of unrelated businesses. c. are cost reductions that flow from operating in multiple businesses. d. are present whenever diversification satisfies the attractiveness test and the cost-of-entry test. e. are the single biggest benefit of pursuing unrelated diversification.

c

Which of the following are negatives or disadvantages of pursuing unrelated diversification strategies? a. Reduced competitive strength in each of the unrelated business the company has diversified into and lost market opportunities because of having too few cash cow businesses b. Conflicts/incompatibility among the competitive strategies of the company's different businesses and increased likelihood that the company's financial resources will be spread thinly over too many different lines of business c. Greater volatility in earnings and return on capital investment and reduced competitive strength because corporate resources are spread thinly over too many different lines of business d. No potential for competitive advantage beyond any benefits of corporate parenting and what each individual business can generate on its own e. Ending up with too many cash cow businesses and increased risk associated with operating in too many unrelated businesses and industries

d

A business unit's location in the nine-cell industry attractiveness-competitive strength matrix? a. pinpoints whether it enjoys a competitive advantage in its respective industry or whether and how much it suffers from competitive disadvantage. b. signals whether it is a market share leader in its respective industry or whether it has a moderate or weak market share. c. determines whether it has a high-performing strategy that should be continued, a moderately good strategy that needs fine-tuning, or a weak-performing strategy that needs major overhaul. d. identifies which business units are cash hogs and which are cash cows. e. signals whether each business's priority for receiving new investment capital and other resources from its corporate parent should be high, medium, or low.

e

Diversifying into related businesses where competitively valuable strategic fit benefits can be captured and turned into a competitive advantage over undiversified competitors and competitors whose own diversification efforts don't offer equivalent strategic-fit benefits? a. b. c. d. e.

e

Economies of scope a. have to do with the cost-saving efficiencies of distributing a firm's product through many different distribution channels simultaneously. b. arise mainly from scale economy efficiencies in the production portions of the value chains of sister businesses. c. stem from the cost-saving efficiencies of operating over a wider geographic area. d. arise from the cost-saving efficiencies of offering customers a bigger choice of models, styles, and product versions. e. stem from strategic fit efficiencies along the value chains of related businesses.

e

Strategic fit between two or more businesses exists whenever one or more activities comprising the value chains of different businesses are sufficiently similar to present opportunities: a. to increase the number of core competencies a company has, lower business risk, and reduce vulnerability to competitive pressures. b. to increase resource fit, brand name fit, industry attractiveness fit. c. to accelerate revenue growth, streamline the value chains of each of the businesses, and lower capital investment requirements. d. to reduce diseconomies of scale and diseconomies of scope. e. for cross-business use of a potent brand name and/or cross-business collaboration to build new or stronger competitive capabilities

e

The difference between a "cash cow" business and a "cash hog" business is that a. a cash cow business has substantially more current assets than current liabilities whereas a cash hog business has substantially more current liabilities than current assets b. a cash cow business is a money-maker whereas a cash hog business is a money-loser c. a cash cow business generates enough profits to cover its debt repayment whereas a cash hog business does not d. a cash cow business generates positive retained earnings whereas a cash hog business produces negative retained earnings e. a cash cow business produces large internal cash flows over and above what is needed to build and maintain the business whereas the internal cash flows of a cash hog business are too small to fully fund its operating needs and capital requirements

e

Which of the following is the best example of unrelated diversification? a. A producer of toothpaste acquiring a maker of shampoos and hair care products. b. A maker of garden hoses acquiring a producer of lawn fertilizers. c. A maker of bedroom furniture buying a maker of patio furniture. d. A newspaper chain acquiring a publisher of magazines. e. A digital camera manufacturer acquiring a maker of athletic footwear.

e

Based on the information in figure 8.1 which of the following would not be something to look for in identifying a diversified company's strategy? a. The generic competitive strategy each business is employing b. The company's approach to allocating investment capital and resources across its present businesses c. Whether the scope of the company's operations is mostly domestic, increasingly multinational, or global d. Whether the company's diversification is based narrowly in a few industries or broadly in many industries and whether the businesses the company has diversified into are related, unrelated, or a mixture of both e. Recent management actions to strengthen the company's positions in existing businesses and to divest weak businesses

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 offering customers a bigger selection of models, styles and product versions to choose from c. Being able to eliminate or reduce costs by expanding the size of a company's manufacturing plants or distribution centers d. Being able to eliminate or reduce costs by performing all of the value chain activities of related sister businesses at the same location e. Being able to eliminate or reduce costs by operating over a wider geographic area

a

Which one of the following is not one of the appeals of unrelated diversification? a. It is quicker and easier to build a competitive advantage over undiversified or less-diversifed companies b. The company's financial resources can be employed to maximum advantage c. To the extent that corporate managers are exceptionally astute at spotting bargain-priced companies with big upside profit potential, shareholder wealth can be enhanced by buying distressed businesses at a low price, turning their operations around fairly quickly with infusions of cash and managerial knowhow supplied by the parent company, and then riding the crest of the profit increases generated by the newly acquired businesses d. Business risk is scattered over a set of truly diverse industries e. Company profitability may prove somewhat more stable over the course of economic upswings and downswings because market conditions in all industries don't move upward or downward simultaneously

a

checking a diversified company's business portfolio for the competitive advantage potential of cross business strategic fits does not involve determining whether sisters business units have value chain matchups that offer opportunities to a. employ the same basic competitive approach and pursue the same type of competitive advantage. b. transfer skills or technology or intellectual capital from one business to another, thereby boosting the performance of the receiving business. c. share use of a highly-regarded brand name. d. reduce costs by combining the performance of certain closely related value chain activities and thereby capture economies of scope. e. collaborate in creating valuable new competitive capabilities.

a

Calculating quantitative competitive strength ratings for each of a diversified company's business units involves: a. selecting a set of competitive strength measures, using a scale of 1 to 10 to rate how strong each business is on each strength measure, summing a business unit's strength rating on all the various measures, and using the overall competitive strength scores to rank each business unit's strategy from best to worst and to forecast its relative market share. b. selecting a set of competitive strength measures, weighting the importance of each measure, rating each business on each strength measure, multiplying the strength ratings by the assigned weight to obtain a weighted rating, summing the weighted ratings for each business unit to obtain an overall competitive strength score, and using the overall competitive strength scores to evaluate the competitive strength of the business units, both individually and as a group. c. determining which businesses possess good strategic fit with other businesses, identifying the portion of the value chain where this fit occurs, and evaluating the strength of the competitive advantage attached to each of the strategic fits to get an overall measure of competitive advantage potential—businesses with the highest/lowest competitive advantage potential have the most/least competitive strength. d. identifying the competitive forces facing each business, using a scale of 1 to 10 to rate the strength of these competitive forces facing each business unit in its respective industry, and then ranking each business unit's future profit prospects from best to worst, given the strength of the competition it faces. e. rating the caliber of each businesses strategic and resource fits, weighting the importance of each type of strategic/resource fit, calculating weighted strategic/resource fit scores, and summing the weighted ratings for each business to obtain an overall strength score for each business unit that indicates the degree to which that business unit has adequate strategic/resource fits to be a strong market contender in its industry.

b

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 and have very appealing market opportunities. b. any company that can be acquired on good financial terms and that has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity. c. the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale. d. the best way to build shareholder value is to acquire businesses with strong cross-business financial fit. e. the task of building shareholder value is best served by diversifying into businesses with the greatest competitive advantage potential.

b

The two biggest drawbacks or disadvantages of pursuing unrelated diversification strategies are: a. added difficulty in capturing financial fit and a lack of financial resources to spread business risk across many product categories and market segments. b. demanding managerial requirements and no potential for competitive advantage beyond any benefits of corporate parenting and what each individual business can generate on its own. c. increased business risk and too much diversity among the kinds of administrative support and services that must be supplied to the unrelated businesses it has diversified into. d. demanding managerial requirements and conflicts/incompatibility among the competitive strategies of the company's different businesses. e. the difficulties of passing the cost-of-entry test and greater risk of diversifying into businesses where unexpectedly intense competition dampens profit margins.

b

When industry attractiveness ratings are calculated for each of the industries a multi-business company has diversified into, the results help indicate a. which industries have the biggest/smallest economies of scale and which industries have the biggest/smallest economies of scope. b. which of the industries the company has diversified into are most attractive and least attractive and the overall appeal of the whole group of industries the company has diversified into. c. which industries are most attractive from the standpoint of having favorable industry driving forces and weak competitive pressures. d. whether the group of industries the company operates in is sufficiently attractive to give the company excellent prospects for achieving sustainable competitive advantage. e. which industries have easy-to-achieve key success factors and which industries have hard-to-achieve key success factors

b

Which one of the following is not among the conditions that make restructuring a diversified company's business lineup an appealing strategic option? a. When the emergence of new technologies threaten the survival of one or more important business units b. When the company lacks a strong global brand name and lacks the managerial know-how and technological expertise needed to achieve economies of scope c. When a diversified company' has too many businesses in slow-growth, declining, low-margin, or otherwise unattractive industries d. When its financial performance is being squeezed or eroded by ill-chosen acquisitions that haven't lived up to expectations e. When its financial performance is being squeezed or eroded by ongoing declines in the market shares of one or more major business units that are falling prey to more market-savvy competitors

b

Which one of the following is the best guideline for deciding what the priorities should be for allocating resources to the various businesses of a diversified company? a. Businesses with high competitive strength ratings should be given top priority and those with low competitive strength ratings should be given low priority b. Business subsidiaries with the brightest profit and growth prospects, appealing positions in the 9-cell attractiveness-strength matrix, and solid strategic and resource fits should receive top priority for allocation of corporate resources. c. Business units with the most strategic and resource fits should be given top priority and those with the fewest strategic and resource fits should be given low priority. d. Business units with good-to-excellent past performance as concerns sales growth, profit growth, contribution to company earnings, return on capital invested in the business, and cash flow from operations should be given top priority and businesses with weak or inconsistent past performance should be given low priority. e. Businesses with high industry attractiveness ratings should be given top priority and those with low industry attractiveness ratings should be given low priority.

b

Calculating quantitative attractiveness ratings for the industries a company has diversified into involves: a. rating the attractiveness of each industry's strategic and resource fits, summing the attractiveness scores, and determining whether the overall scores for the industries as a group are attractive or not. b. determining each industry's competitive advantage factors, calculating the ability of the company to be successful on each competitive advantage factor, and obtaining overall measures of the firm's ability to achieve sustainable competitive advantage in each of its industries based on the combined competitive advantage factor ratings. c. selecting a set of industry attractiveness measures, weighting the importance of each measure, rating each industry on each attractiveness measure, multiplying the industry ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each industry to obtain an overall industry attractiveness score, and using the overall industry attractiveness scores to evaluate the attractiveness of all the industries, both individually and as a group. d. identifying each industry's likely growth potential, rating the difficulty of actually achieving this growth potential, and deciding whether the company's growth prospects are attractive or unattractive, industry-by-industry. e. determining each industry's key success factors, calculating the ability of the company to be successful on each industry KSF, and obtaining overall measures of the firm's ability to compete successfully in each of its industries based on the combined KSF ratings.

c

Diversification becomes a prime strategic option in all but which one of the following situations? a. 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 b. When a company spots opportunities to expand into industries whose technologies and/or products complement its present business c. When a company has more resource deficiencies than resource strengths in its principal business d. When diversifying into closely related businesses opens new avenues for reducing costs e. When a company can leverage existing competencies and capabilities by expanding into businesses where these same resource strengths are key success factors and valuable competitive assets

c

Using quantitative measures of industry attractiveness and competitive strength to plot each businesses location on the 9-cell industry attractiveness-competitive strength matrix: a. pinpoints which of a diversified company's business units are cash cows (those in the three diagonal cells) and which ones are cash hogs (those in the three cells in the lower-right corner of the matrix). b. is useful for ranking a company's different business units from best to worst based on how much resource fit each unit has with its sister businesses. c. provides valuable guidance in deploying corporate resources to the various business units--in general, a diversified company's prospects for good overall performance are enhanced by concentrating corporate resources and strategic attention on those business units positioned in the three cells in the upper left portion of the attractiveness-strength matrix. d. is useful for ranking a company's different business units from best to worst based on how much strategic fit each unit has with its sister businesses. e. is useful for identifying which business units have the biggest/smallest economies of scale and which have the biggest/smallest economies of scope.

c

Which of the following is not a part of checking a diversified company's business units for cross-business strategic fits with competitive advantage potential? a. Determining the extent to which sister business units have value chain matchups that present opportunities to collaborate in creating valuable new competitive capabilities. b. Determining the extent to which sister business units have value chain matchups that present opportunities to transfer skills, technology, or intellectual capital from one business to another and thereby boost the performance of the receiving business. c. Determining whether the diversified company has enough cash cow business units to cover the negative cash flows of its cash hog business units. d. Determining the extent to which sister business units have value chain matchups that present opportunities for the company's different businesses to share use of a highly-regarded brand name. e. Determining the extent to which sister business units have value chain matchups that present opportunities to reduce costs by combining the performance of certain value chain activities and thereby capture economies of scope.

c

Which of the following is not part of the procedure for evaluating the pluses and minuses of a diversified company's strategy and deciding what actions to take to improve the company's performance? a. Checking the company's present business lineup for both resource fit and cross-business strategic fits b. Ranking 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 c. Assessing the attractiveness of the industries the company has diversified into, both individually and as a group d. Assessing the competitive strength of each business the company has diversified into and drawing a nine-cell matrix to simultaneously portray industry attractiveness and business unit competitive strength e. Conducting a SWOT analysis of each business the company has diversified into

c

Which of the following is the best example of unrelated diversification? a. A maker of bedroom furniture buying a maker of patio furniture. b. A producer of toothpaste acquiring a maker of shampoos and hair care products. c. A digital camera manufacturer acquiring a maker of athletic footwear. d. A newspaper chain acquiring a publisher of magazines. e. A maker of garden hoses acquiring a producer of lawn fertilizers.

c

Which one of the following is not one of the ways for a diversified company to build competitive advantage by pursuing a multinational diversification strategy? a. Leveraging use of a well-known and competitively powerful brand name b. Transferring competitively valuable resources from both one business to another and one country to another c. Increased ability to build well-protected profit sanctuaries in those foreign country markets where profit margins are highest d. Fully capturing economies of scale and learning/experience curve effects e. Exploiting opportunities to capture economies of scope arising from cost-saving strategic fits among related businesses

c

Which one of the following is not something that corporate executives must do to succeed in using a strategy of unrelated diversification to produce companywide financial results above and beyond what the businesses could generate operating as stand-alone entities? a. Do an excellent job of negotiating favorable acquisition prices (thereby satisfying the cost-of-entry test) b. Be good at discerning when a business needs to be sold and also in finding buyers who will pay a price higher than the company's net investment in the business c. Focus on acquiring businesses that offer the best opportunities for achieving global market leadership (thereby satisfying the industry attractiveness and competitive strength tests) d. Do a superior job of diversifying into new businesses that can produce consistently good earnings and returns on investment (thereby satisfying the attractiveness test). e. Be shrewd in identifying when to shift resources out of businesses with dim profit prospects and into businesses with above-average prospects for growth and profitability.

c

A "cash hog" type of business a. generates negative cash flows from internal operations and thus requires cash infusions from its corporate parent to report a profit. b. is a business that faces a liquidity crisis due to declining sales revenues and profits. c. is one that is losing money and requires cash infusions from its corporate parent to continue operations. d. is one that generates cash flows that are too small to fully fund its operations and growth--such businesses require periodic cash infusions to fund internal operations and finance capital requirements. e. is one that has substantially more current liabilities than current assets.

d

Businesses are said to be related when: a. they possess industry attractiveness fit, risk avoidance fit, and ability-to-compete fit. b. they possess the same resource strengths and can exploit the same market opportunities. c. they have common suppliers and common customers. d. they possess competitively valuable cross-business value-chain matchups. e. their products exhibit strategic fit, resource fit, and industry attractiveness fit.

d

Diversification ought to be considered when: a. a company's profits are being squeezed and it is unable to boost earnings per share. b. a company lacks sustainable competitive advantage in its present business. c. a company faces an uphill battle in creating a more cost-efficient value chain. d. diversifying into closely-related businesses opens new avenues for reducing costs e. a company has run out of ways to build more resource strengths in its present business.

d

Diversifying into related businesses where competitively valuable strategic fit benefits can be captured and turned into a competitive advantage over undiversified competitors and competitors whose own diversification efforts don't offer equivalent strategic-fit benefits: a. enhances a company's ability to build a valuable portfolio of distinctive competencies, boost its rate of revenue growth and increase earnings per share. b. is a diversified company's clearest and best path to global market leadership in those industries where it operates. c. is essential if a diversified company is to pass the industry attractiveness test. d. is what fuels 1 + 1 = 3 gains in shareholder value--the necessary outcome for satisfying the better-off test and proving the business merit of a company's diversification effort. e. is essential if a diversified company is to pass the value chain test, the profit test and the resource fit test.

d

Diversifying into related businesses where competitively valuable strategic fit benefits can be captured: a. gives a company a clear path to global market leadership in those industries where it has related businesses. b. enhances a company's ability to build a portfolio of distinctive competencies. c. is the key to realizing the highest possible economies of scope and realizing a significantly higher return on capital investment. d. puts sister businesses in position to perform better financially as part of the same company than they could have performed as independent enterprises, thus providing a clear avenue for boosting shareholder value. e. is essential if a diversified company is to pass the value chain test, accelerate its growth in revenues and earnings, and build long-term value for shareholders.

d

In which one of the following instances is diversification not a prime strategic option for a single-business company to consider? a. When it can leverage existing competencies and capabilities by expanding into businesses where these same resource strengths are key success factors and valuable competitive assets b. When it 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 c. When diversifying into closely related businesses opens new avenues for reducing costs d. When it is facing very strong competition from rival companies and is losing money in its current line of business e. When it spots opportunities to expand into industries whose technologies and/or products complement its present business

d

One of the most significant contributions to strategy-making in diversified companies that the 9-cell industry attractiveness/competitive strength matrix provides is: a. pinpointing what strategies are most appropriate for businesses positioned in the four corners of the matrix (although the matrix reveals little about the best strategies for businesses positioned in the remainder of the matrix). b. its ability to pinpoint which businesses have the biggest competitive advantages and which ones confront serious competitive disadvantages. c. identifying which businesses have strategies that should be continued, which business have strategies that need fine-tuning, and which businesses have strategies that need major overhaul. d. that businesses having the greatest competitive strength and positioned in the most attractive industries should have the highest priority for corporate resource allocation and that competitively weak businesses in relatively unattractive industries should have the lowest priority and perhaps even be considered for divestiture. e. ranking a company's different business units from best to worst based on how much strategic fit and resource fit each unit has with its sister businesses.

d

The basic purpose of calculating competitive strength scores for each of a diversified company's business units is to use the competitive strength scores as a means of: a. ranking each business unit from best to worst in terms of their resource strengths, competencies, and competitive capabilities. b. ranking the business units from best to worst in terms of potential for cost reduction and profit margin improvement. c. rank each business unit's strategy from best to worst. d. ranking the company's business units from competitively strongest to competitively weakest and thereby learn which business units are strong, average, or weak market contenders in their respective industries. e. ranking each business unit's future profit prospects from best to worst.

d

The essential requirement for different businesses to qualify as being "related" is that a. the businesses have supplier fit, customer service fit, and resource fit. b. the products of the different businesses are bought by much the same types of buyers. c. the businesses have production fit, distribution fit, and industry attractiveness fit. d. their value chains possess competitively valuable cross-business relationships that present opportunities for the different businesses to perform better under the same corporate umbrella than they could by operating as stand-alone entities. e. the products of the different businesses are sold in the same types of retail stores.

d

The three tests for judging whether a particular diversification move can create added long-term value for shareholders are: a. the economic value test, the competitive fit test, and the profitability test. b. the attractiveness test, the profit test, and the business fit test. c. the strategic fit test, the competitive advantage test, and the return on investment test. d. the attractiveness test, the cost-of-entry test, and the better-off test. e. the industry competitiveness test, the earnings test, and the return on investment test.

d

The two biggest drawbacks of pursuing unrelated diversification strategies are: a. increased likelihood that the company's financial resources will be spread thinly over too many different lines of business and a lack of uniformity among the strategies of the businesses it has diversified into. b. overspending on efforts to capture economies of scope and difficulty in passing the industry attractiveness test. c. demanding managerial requirements and making the mistake of diversifying into too many cash cow businesses. d. demanding managerial requirements and no potential for competitive advantage beyond what each individual business can generate on its own. e. weak ability to capture resource fits and conflicts/incompatibility among the competitive strategies of the company's different businesses.

d

The value of determining the relative competitive strength of each business a company has diversified into is: a. to have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's revenue growth. b. to compare resource strengths and weaknesses, business by business. c. to have a quantitative basis for identifying which businesses have large/small competitive advantages or competitive disadvantages vis-a-vis the rivals in their respective industries. d. to have a quantitative basis for rating them from strongest to weakest in contending for market leadership in their respective industries. e. to have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's profitability.

d

To create long-term economic value for shareholders by diversifying into one or more new businesses a company must: a. diversify into businesses that pass the industry competitiveness test. the competitive fit test, and the profit test. b. choose to enter only businesses that pass the business risk avoidance test, the strength-of-competition test, and the profitability test. c. diversify into industries that have low business risk, are growing rapidly, and are a good fit with the company's present customer base. d. diversify into businesses that pass the attractiveness test, the cost-of-entry test, and the better-off test. e. choose to enter only businesses that pass the profit test, the customer fit test, and the stock price impact test.

d

Diversifying into related businesses where competitively valuable strategic fit benefits can be captured and turned into a competitive advantage over undiversified competitors and competitors whose own diversification efforts don't offer equivalent strategic-fit benefits? a. enhances a company's ability to build a valuable portfolio of distinctive competencies, boost its rate of revenue growth and increase earnings per share. b. is essential if a diversified company is to pass the value chain test, the profit test and the resource fit test. c. is essential if a diversified company is to pass the industry attractiveness test. d. is a diversified company's clearest and best path to global market leadership in those industries where it operates. e. is what fuels 1 + 1 = 3 gains in shareholder value--the necessary outcome for satisfying the better-off test and proving the business merit of a company's diversification effort.

e

Once a company has diversified into a collection of related or unrelated businesses and concludes that some strategy adjustments are needed, which one of the following is not one of the main strategy options that a company can pursue? a. Restructure the company's business lineup and put a whole new face on the company's business makeup b. Divest certain businesses and retrench to a narrower base of operations c. Pursue multinational diversification and strive to globalize the operations of several of the company's business units. d. Broaden the company's business scope by making new acquisitions in new industries e. Have all of the company's businesses operate under a common brand name and craft new initiatives to build/enhance the reputation of this brand name worldwide

e