Chapter 8 Management 490
Problems can occur when corporate management makes decisions for businesses they do not know. A very small number of unanticipated problems or mistakes can have a major negative effect on corporate earnings. Most management teams are not capable of effectively managing a diversified group of unrelated businesses.
Which of the following statements are true of unrelated diversification?
Boosting managerial compensation, reducing earnings volatility, and risk reduction
Which of the following would be misguided reasons for pursuing unrelated diversification?
exploiting the common use of a well-known brand name. sharing costs between by combining their related value chain activities into a single operation. Transferring specialized expertise from the value chain of one business to another
Examples of opportunities for strategic fit include
the transfer of expertise in quality control, the consolidation of production into a smaller number of plants, the sharing of cost-efficient production methods
Examples of strategic fit in manufacturing include:
costs relative to competitors' costs. Relative market share. Ability to match or beat rivals on key product attributes.
Factors that can be used to quantify the competitive strengths of a diversified company's business subsidiaries include:
restructure its business lineup
If a company has poorly chosen acquisitions that are underperforming expectations, it is a good idea to:
internal development
If the question of critical resources and capabilities demonstrates that a company has or can easily lease all of the materials necessary to start a new business, it will probably do so by:
They are big enough to significantly contribute to the parent company's bottom line, they are in an industry with attractive growth potential, they meet corporate targets for profitability and return on investment
In an unrelated diversification strategy, managers must make sure acquisitions candidates have which of the following characteristics?
competition intensity should be heavily weighted
In calculating industry attractiveness scores, :
the company's existing businesses match the company's diversification strategy. The existing business lineup provides ample opportunity for growth, the current lineup reliably creates economic value for shareholders.
It makes sense to stick closely with a diversified company's present business lineup when:
much of its revenues and profits should be derived from business units with comparatively high attractiveness scores
in order for a diversified company to perform well:
general resources
Resources whose use is applied across a wide range of industry types are known as:
Focusing corporate resources on businesses in a few, carefully selected industries, getting out of businesses that are competitively weak, and eliminating businesses that have poor strategic fit
Retrenching to a narrower diversification base can include which of the following?
internal capital market
a diversified company can add value by shifting capital from business units generating free cash flow to those needing capital to grow by having a strong:
umbrella brands
Corporate brands that do not have a connotation of any specific type of product are known as:
the company can adequately fun all its businesses while keeping a good credit rating, the company can create enough internal cash flow to provide the capital required by its businesses, each individual business sufficiently contribute to meeting companywide performance targets
A company has good financial resource fit if:
the company can create enough internal cash flow to provide the capital required by its businesses, each individual business sufficiently contributes to meeting companywide performance targets, the company can adequately fund all its businesses while keeping a good credit rating
A company has good financial resource fit if:
above 6.7 are strong market contenders in their industries
Business units with competitive-strength ratings:
their value chains exhibit competitively important cross-business commonalities
Businesses are said to be related when:
cooperating with common supply chain partners, obtaining volume discounts on incoming components, sharing logistical resources
Businesses with strategic fit in supply chain activities are able to perform better together by:
obtaining an established company
Companies practicing unrelated diversification overwhelmingly enter new businesses by:
a parenting advantage
Diversified companies that are able to create more value in their businesses than other diversified companies have what is called:
should be explored when a single-business company encounters dwindling opportunities in its principal business.
Diversifying into new industries:
market size and projected growth rate. Emerging threats and opportunities. The presence of cross-industry strategic fit
Quantitative industry-attractiveness scores can be calculated based on:
allows cross-business sharing of resources that enable value chain activities.
Strategic fit:
Investing in ways to strengthen or grow existing businesses. Funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses. Making acquisitions to establish positions in new industries or to complement existing businesses.
Strategic options for allocating company financial resources include which of the following?
True
T/F: Strategic uses of corporate resources should usually take precedence over financial options
False
T/F: The benefits of cross-business strategic fit follow naturally once a company can diversify into related businesses.
can be placed into four broad categories of action
The crafting of strategic moves to improve a diversified company's overall performance:
cash flow and investment characteristics vary among businesses.
The portfolio approach to financial revolves around the fact that:
tend to have more overall failures than successes
Unrelated diversification strategies
tend to have more overall failures than successes.
Unrelated diversification strategies:
can create only a small amount of competitive advantage beyond that which can be created by the individual businesses acting alone
Unrelated diversification strategy:
adhere to the existing business lineup
When a company's existing businesses provide opportunities for growth and produce economic value for shareholders, it makes sense to:
retrench to a narrower diversification base
When a company's management decides that it needs to concentrate on a smaller number of businesses, it is a good strategy to:
resource fit
When a firm with a related diversification strategy has businesses that match specialized resource requirements at points along their value chains that are critical for the business's market success, they are said to have :
Will leveraging a potent umbrella brand or corporate image strengthen the businesses and increase sales? How much competitive value will come from the cross-business transfer of skills, technology, or intellectual capital? Are the cost savings associated with economies of scope likely to give one or more businesses a cost-based advantage?
Which questions can be answered by determining the competitive value of strategic fit in diversified companies?
It can be misguided if the growth is not profitable growth
Which statement is true concerning the pursuit of growth through unrelated diversification?
a dominant-business enterprise
A diversified company in which one core business accounts for 50% to 80% of total revenues and other businesses account for the remainder is known as:
in supply chain activities, in customer service activities, and at various points along the value chain
Cross-business strategic fit can exist:
is important in evaluating their related diversification strategies.
Determining the competitive value of strategic fit in diversified companies:
critical resources and capabilities
Determining whether the materials needed to start a business can be readily obtained by a company is an example of answering the strategy-based question of:
yields added long-term economic value for shareholders
Diversification is not really viewed as a success unless it:
When the company has too many businesses in slowly growing or declining industries, when the interest owed on large debts is greatly reducing profitability, when the market shares of one or more major business units are decreasing because of superior competition
For which of the following conditions is restructuring a diversified company's business lineup an attractive course of action?
pass the industry attractiveness test
In order to be a good market for a company to be in, an industry should:
negotiate favorable acquisitions prices, do a superior job of corporate parenting via high-level managerial oversight. Diversify into industries where the businesses can produce consistently good earnings and return on investment
In order to pass the three tests of corporate advantage, executives must:
sticking closely with the existing business lineup and pursuing opportunities that those businesses present, divesting certain businesses and retrenching to a narrower base of business operations, widening the company's business scope by making new acquisitions in new industries.
The broad categories of action for crafting strategic moves to improve a diversified company's overall performance include:
sticking closely with the existing business lineup and pursuing opportunities that those businesses present. Divesting certain businesses and retrenching to a narrower base of business operations. Widening the company's business cope by making new acquisitions in new industries.
The broad categories of action for crafting strategic moves to improve a diversified company's overall performance include:
restructuring
The process of overhauling and streamlining the operations of a business is referred to as:
is especially important when credit it tight.
The redistribution of excess cash flow by parent companies from some businesses to others:
A core business lacks accumulated resources to deal with the competitive environment of the businesses into which it has diversified. A mismatch exists between a diversifying company's competitive assets and the key success factors of an industry in which it is expanding. A company's resources are stretched thin in order to assimilate and oversee many new businesses in a short time.
Which of the following are circumstances that indicate a poor fit of nonfinancial resources in a diversified company?
There are often excessive premiums, there can be high integration costs, integration of the company into the existing firm can be time consuming
Which of the following are drawbacks of acquisition?
Which of the company's industries are most attractive? Does each industry the company has diversified into represent a good market the company to be in? how appealing is the whole group of industries in which the company has invested?
Which of the following are questions to ask when evaluating industry attractiveness?
Retrenching to a narrower scope of diversification by divesting poorly performing businesses. Sticking closely with the existing business lineup and pursuing opportunities presented by these businesses, broadening the scope of diversification by entering additional industries
Which of the following are strategic options for increasing a corporation's overall success?
A strongly performing diversified company's primary businesses should be in industries with high growth potential, if a company's scores are all above 5, it probably operates in an attractive group of industries, industries that score much less than five are unlikely to be attractive
Which of the following are true concerning the interpretation of industry-attractiveness scores?
Cross-business strategic fit benefits are possible only through a strategy of related diversification the more a company's businesses are related, the greater the company's opportunity to turn strategic fit into competitive advantage. It builds shareholder value in ways that are not possible through stocl ownership in a variety of industries
Which of the following are true in using cross-business strategic fit to create gains in profitability and shareholder value?
They are usually short-lived, ending as soon as the partners decide to part ways
Which of the following is true about joint ventures?
The further below 1 a business unit's relative market share is, the weaker its competitive strength and market position with its rivals
Which of the following is true concerning relative market share?
They come directly from strategic fit along the value chains of related businesses.
Which of the following is true of economies of scope?
It must give shareholders value that they cannot get by purchasing different stocks on their own, it must add long-term economic value for shareholders
Which of the following statements are true about a successful diversification effort?
Parent companies can deliver funds that would otherwise be unavailable owing to poor market conditions. There is increased opportunity to add shareholder value because managers are privy to internal information unavailable to external financiers. Cross-business allocation cab be especially advantageous during times of financial market crises
Which of the following statements are true concerning the cross-business allocation of financial resources by parent companies?
Cash cows have limited growth but are a valuable financial resource. Business units in quickly expanding industries are often cash hogs. The portfolio approach relies on the premise that cash flow and investment traits vary among different businesses.
Which of the following statements are true concerning the portfolio approach to ensuring financial fit?
A company's resources can be overtaxed by making many acquisitions and calling on management to oversee many businesses quickly. The broader the diversification, the greater the concern that corporate executives are overburdened trying to parent too many companies. If a company's strategy is closely tied to moving technologies from existing businesses to new ones, it must develop more resources to supply them.
Which of the following statements are true concerning whether a company has sufficient nonfinancial resources?
They are a distinct concept from economies of scale. They result from strategic fit among related businesses, allowing the sharing of resources among diversified businesses. They are available only to firms engaging in related diversification.
Which of the following statements are true of economies of scope?
Combination related-unrelated diversification strategies are attractive to companies with a mix of valuable competitive assets, some companies are narrowly diversified around two to five related or unrelated businesses, some multibusiness enterprises are diversified into unrelated areas but have a group of related businesses within each area.
Which of the following statements are true of multibusiness diversification strategies?