Strategic Management Chapter 8

Which of the following is not an example of unrelated diversification?

a producer of snow skis and ski boots acquiring a maker of ski apparel and accessories (outerwear, goggles, gloves and mittens, helmets and toboggans)

Economies of scope

stem from cost-saving strategic fits along the value chains of related businesses.

The defining characteristic of unrelated diversification (as opposed to related diversification) is

that the value chains of different businesses are so dissimilar that no competitively valuable cross-business relationships are present (in other words, the value chains of a company's businesses offer no opportunities to benefit from skills or technology transfer across businesses, economies of scope, cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities).

To judge whether a particular diversification move has good potential for building added shareholder value, the move should pass the following tests:

the attractiveness test, the cost-of-entry test, and the better-off test.

When PepsiCo's management was considering the divestiture of a group of fast-food restaurant businesses (KFC, Pizza Hut, and Taco Bell), the following question was most likely asked:

"If we were not in this business today, would we want to get into it now?"

Which of the following does not accurately describe entering a new business via acquisition, internal development, or a joint venture?

Acquisition is generally the most profitable way to enter a new industry, tends to be more suitable for an unrelated diversification strategy than a related diversification strategy, and usually requires less capital than entering an industry via internal start-up.

The procedure for evaluating a diversified company's strategy involves all of the following steps except

a determination of the degree of risk involved with each business unit.

The strategic appeal of related diversification is that it

allows a firm to reap the competitive advantage benefits of skills transfer, lower costs (due to economies of scope), cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities.

The basic purpose of calculating competitive strength scores for each of a diversified company's business units is to

assess how strongly positioned each business unit is in its industry and the extent to which it already is or can become a strong market contender.

Which of the following strategic business units generate operating cash flows over and above internal requirements, thereby providing financial resources that may be used to finance new acquisitions, fund share buyback programs, or pay dividends?

cash cows

Assessing the competitive advantage potential of cross-business strategic fit among the company's various business units involves

examining a company's costs relative to the costs of its chief rivals in the industry.

Which of the following makes acquisition an attractive approach to diversifying into another industry?

if it is quicker than trying to launch a brand-new operation, offers an effective way to hurdle entry barriers, and allows the acquirer to move directly to the task of building a strong position in the target industry

The Nine-Cell Industry Attractiveness-Competitive Strength Matrix

involves assigning quantitative measures of industry attractiveness and competitive strength to plot each business's location on the matrix; the thesis underlying the matrix is that there are good reasons to concentrate the company's resources on those businesses having relatively strong competitive positions in industries with relatively high attractiveness and to invest minimally or even divest those businesses with relatively weak competitive positions in industries with relatively low attractiveness.

Calculating quantitative attractiveness ratings for the industries a company has diversified into involves

selecting a set of industry attractiveness measures, weighting the importance of each measure (with the sum of the weights adding to 1.0), 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.

Once a firm has diversified and established itself in several different businesses, then its main strategic alternatives include all but which one of the following?

shifting from a multiple-country to a global strategy

Ranking a diversified company's businesses in terms of priority for resource allocation and new capital investment

should be done principally on the basis of which businesses offer the best prospects (given their industry attractiveness and competitive strength) and have solid and appealing strategic fits and resource fits.

Imagine that you are advising the CEO of a of a diversified corporate event-planning business that is considering broadening the company's business scope, for example, by building positions in new related or unrelated businesses such as providing corporate campus food services and corporate conference facilities. You would advise the CEO to pursue a diversification strategy for all of the following reasons except

the parent company has enough cash hog businesses to supply capital to its cash cow businesses.

The defining characteristic of related diversification (as opposed to unrelated diversification) is

the presence of cross-business value chain relationships and strategic fits.

As long as a single-business company can achieve profitable growth opportunities in its present industry,

there is no urgency to pursue a diversification strategy.

Imagine that you are the CEO of a multinational corporate consumer food company. What would make it attractive to you to consider related diversification via acquisition rather than unrelated diversification into a new industry, such by forming an internal startup subsidiary to enter and compete in the target industry?

when the incumbent industry enables your company to create strategic fits with the acquired firm in order to exploit cross-business value chain activities and resource similarities that could lead to more efficient production, distribution, and sale of profitable processed food products