Chapter 8 Smartbook

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 ________________.

A dominant-business enterprise

Diversified companies that are able to create more value in their businesses that other diversified companies have is called ______________.

A parenting advantage

Which of the following statements are true of unrelated diversification?

A very small number of unanticipated problems or mistakes can have a major negative effect on corporate earnings, problems can occur when corporate management makes decisions for businesses they do not know well, and most management teams are not capable of effectively managing a diversified group of unrelated businesses

Business units with competitive-strength ratings _____________.

About 6.7 are strong market contenders in their industries

A diversified company's base can be broadened by ______________.

Acquiring more businesses and building positions in new industries

If the question of entry barriers demonstrates that barriers against a company entering an industry cannot be readily overcome, the company will probably choose entry via ______________.

Acquisition

The means of entering a new business by buying an existing business is referred to as ______________.

Acquisition

When a company's existing businesses provide opportunities for growth and produce economic value for shareholders, it makes sense to ________________.

Adhere to the existing business lineup

The decision to diversify should begin with _____________.

An economic justification

A good resource fit would include solid parenting capabilities in companies that pursue which of the following?

An unrelated diversification strategy

What questions can be answered by determining the competitive value of strategic fit in diversified companies?

Are the cost savings associated with economies of scope likely to give one or more businesses a cost-based advantage? 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?

Where can cross-business strategic fit exist?

At various points along the value chain, in supply chain activities, and in customer service activities

Strategic analysis of diversified companies _______________.

Builds on the same ideas and techniques used for analyzing single-business companies

Which of the following ratings concerning interpretation of competitive-strength scores are correct?

Businesses with ratings in the 3.3 to 6.7 range have moderate competitive strength, business units with ratings above 6.7 are strong market contenders in their industries, and businesses with ratings below 3.3 are in competitively weak market positions

The crafting of strategic moves to improve a diversified company's overall performance _____________.

Can be placed into four broad categories of action

The portfolio approach to financial fit revolves around the fact that ____________.

Cash flow and investment characteristics vary among businesses

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 _____________.

Critical resources and capabilities

Choosing how best to enter a new business _______________.

Depends partially on determining the least costly most of entry

Steps involved in assessing the positive and negative aspects of a diversified company's strategy and determining how to improve performance include which of the following?

Determining if the firm's resources fit the requirements of its current business lineup, evaluating the individual and group attractiveness of the industries the company has diversified into, and determining the competitive strength of the company's business units

In order to pass the three tests of corporate advantage, what must executives do?

Do a superior job of corporate parenting via high-level managerial oversight, negotiate favorable acquisition prices, and diversify into industries where the businesses can produce consistently good earnings and return on investment

A company has good financial resource fit when which of the following conditions are met?

Each individual business sufficiently contributes to meeting companywide performance targets, the company can adequately fund all its businesses while keeping a good credit rating, and the company can create enough internal cash flow to provide the capital required by its businesses

Retrenching to a narrower diversification base can include which of the following?

Eliminating resources that have poor strategic fit; focusing corporate resources on businesses in a few, carefully selected industries; and getting out of businesses that are completely weak

Determining if there are obstacles that block a new company from gaining a foothold and thriving in an industry is an example of answering the strategy-based question of ______________.

Entry barriers

Which of the following statements are true concerning the ranking of a diversified company's business units from best to worst?

Future revenue and earnings for fast-growing industries usually look superior to those for slow-growing industries, the position of different businesses in the nine-cell mixture is a good criteria for identifying high-opportunity and low-opportunity businesses, and the rankings help high-level executives prioritize businesses for resource support and capital investment

Which of the following are drawbacks of acquisition?

Integration of the company into the existing firm can be time consuming, there can be high integration costs, and there are often excessive premiums

A diversified company can add value by shifting capital from business units generating free to those needing capital to grow by having a strong _____________.

Internal capital market

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 _______________.

Internal development

Which of the following are terms that refer to diversification by starting a new business subsidiary from scratch?

Internal development, corporate venturing, and new venture development

Determining the competitive value of strategic fit in diversified companies _____________.

Is important in evaluating their related diversification strategies

Which of the following are among the four questions that need to be asked when determining how best to enter a new business?

Is speed an important factor in the firm's chances for successful entry? Are there entry barriers to overcome? Which is the least costly mode of entry, given the company's objective's?

Which statement is true concerning strategic fit?

It allows cross-business sharing of resources that enable value chain activities

Which statement is true concerning the pursuit of growth through unrelated diversification?

It can be misguided if the growth is not profitable growth

Which of the following are true of the nine-cell attractiveness-strength matrix?

It identifies the industry attractiveness of businesses, it identifies the business strength of businesses, and it helps diversified companies allocate resources among their businesses

Which of the following are benefits of acquisition?

It is a useful way to get over entry barriers, such as building brand awareness; it is quicker than trying to launch a new operation; and it allows access to hard-to-find resources and capabilities that work well with those of the acquiring company

Which of the following statements are true about a successful diversification effort?

It must add long-term economic value for shareholders, and it must give shareholders value that they cannot get by purchasing different stocks on their own

Which of the following are the ways a company can enter a new business?

Joint ventures, acquisition, and internal startup

Which are examples of strategic fit in R&D and technology activities?

More innovative products, cost savings in R&D, and innovation in production processes

Companies practicing unrelated diversification enter new businesses by _____________.

Obtaining an established company

Which of the following allow businesses with strategic fit in supply chain activities perform better together?

Obtaining volume discounts on incoming components, sharing logistical resources, and cooperating with common supply chain partners

In order to be a good market for a company to be in, an industry should _______________.

Pass the industry attractiveness test

Which of the following are steps in creating a diversified company's corporate strategy?

Picking new industries to enter and the means for entering them, leveraging cross-business value chain relationships into competitive advantage, and initiating actions to boast the combined performance of the company's collection of businesses

After evaluating the strength, attractiveness, and fit of a diversified company's strategy, the next move is to ______________.

Rank the performance potential of the businesses

Which are factors that can be used to quantify the competitive strengths of a diversified company's business subsidiaries?

Relative market share, ability to match or beat rivals on key product attributes, and costs relative to competitors' costs

Which of the following actions should a company consider, according to the nine-cell attractiveness-strength matrix?

Remove resources from ventures that are low in attractiveness and strength unless they offer superior profit or cash flow opportunity

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 ______________.

Resource fit

When a company's management decides that it needs to concentrate on a smaller number of businesses, it is a good strategy to _____________.

Retrench to a narrower diversification base

Which of the following would be misguided reasons for pursuing unrelated diversification?

Risk reduction, reducing earnings volatility, and boosting managerial compensation

Which are examples of strategic fit in supply chain activities?

Sharing resources and capabilities in logistics, and transferring skills in procuring materials

Diversifying into new industries ______________.

Should be explored when a single-business company encounters dwindling opportunities in its principal business

Which of the following statements are true of multi-business diversification strategies?

Some multi-business enterprises are diversified into unrelated areas but have a group of related businesses within each area, combination related-unrelated diversification strategies are attractive to companies with a mix of vulnerable competitive assets, and some companies are narrowly diversified around two to five related or unrelated businesses

Which of the following are strategic options for increasing a corporation's overall success?

Sticking closely with the existing business lineup and pursuing opportunities presented by these businesses, retrenching to a narrower scope of diversification by divesting poorly performing businesses, and broadcasting the scope of diversification by entering additional industries

Unrelated diversification strategies ______________.

Tend to have more overall failures than successes

When does it make sense to stick closely with a diversified company's present business lineup?

The current lineup reliably creates economic value for shareholders, the company's existing businesses match the company's diversification strategy, and the existing business lineup provides ample opportunity for growth

Which of the following is true concerning relative market share?

The further below 1 a business unit's relative market share is, the weaker its competitive strength and market position with its rivals

Internal development of a new business is a good idea when which of the following conditions are met?

The parent company has the in-house resources needed to launch the company, it is cheaper to enter internally than through an acquisition, and there is plenty of time to start the business

Which of the following statements are true concerning the portfolio approach to ensuring financial fit?

The portfolio approach relies on the premise that cash flow and investment traits vary among different businesses, cash cows have limited growth but are a valuable financial resource, and business units in quickly expanding industries are often cash hogs

Businesses are said to be related when ______________.

Their value chains exhibit competitively important cross-business commonalities

Which of the following statements are true of economies of scope?

They are a distinct concept from economies of scale; they are available only to firms engaging in related diversification; and they result from strategic fit among related businesses, allowing the sharing of resources among diversified businesses

In an unrelated diversification strategy, managers must make sure acquisition candidates have which of the following characteristics?

They are big enough to significantly contribute to the parent company's bottom line, they are in an industry with attractive growth potential, and they meet corporate targets for profitability and return on investment

Which of the following is true about joint ventures?

They are usually short-lived, ending as soon as the partners decide to part ways

Which of the following is true of economies of scope?

They come directly from strategic fit along the value chains of related businesses

Which of the following are the true statements concerning related businesses?

They have similar resources and capabilities, they have compatible value chain activities, and they can be combined to perform better than the sum of the individual businesses

Which are examples of opportunities for strategic fit?

Transferring specialized expertise from the value chain of one business to another, sharing costs between businesses by combining their related value chain activities into a single operation, and exploiting the common use of a well-known brand name

One method of broadening a company's diversification base is to add businesses that will completement and strengthen the market position in businesses in industries where the company already has a stake.

True

Corporate brands that do not have a connotation of any specific type of product are known as _____________

Umbrella brands

Corporate parents effectively contribute to the success of their businesses by ______________.

Utilizing popular umbrella brands

Entering a new business via a joint venture can be useful in which of the following situations?

When an opportunity is too complicated or risky for one company to attempt alone, when an opportunity in a new industry requires more know-how than one company has alone, and when diversification entails operations in a foreign country

Which of the following are questions to ask when evaluating industry attractiveness?

Which of the company's industries are most attractive? How appealing is the whole group of industries in which the company has invested? Does each industry the company has diversified into represent a good market for the company to be in?

Which are broad categories of action for crafting strategic moves to improve a diversified company's overall performance?

Widening the company's business scope by making new acquisitions in new industries, sticking closely with the existing business lineup and pursuing opportunities that those businesses present, and divesting certain businesses and retrenching to a narrower base of business operations

Diversification is not really viewed as a success unless it _______________.

Yields added long-term economic value for shareholders