MGMT 490 exam 2 ch 8
What is the benefit of calculating quantitative attractiveness ratings for the industries a diversified company has invested in? Attractiveness ratings help to identify competitively valuable resources and capabilities. Calculating attractiveness ratings is a systematic and reasonably reliable method for ranking a diversified company's industries from most to least attractive. Attractiveness ratings identify which industry has the best/worst value chain matchups from the standpoint of cost reduction potential. Attractiveness ratings help to identify the ability to match or beat rivals on key product attributes. Attractiveness ratings help to identify the opportunities to exercise bargaining leverage with key suppliers or customers and help identify which industry is likely to be the largest/smallest contributor to the company's growth and profitability.
Calculating attractiveness ratings is a systematic and reasonably reliable method for ranking a diversified company's industries from most to least attractive.
Which of the following best describes economies of scope? Economies of scope stem from cost-saving efficiencies of operating overseas. Economies of scope are cost reductions that flow from strategic fit along the value chains of related businesses. Economies of scope accrue from a larger-sized operation. Economies of scope create more value for shareholders just as economies of scale do. Economies of scope arise mainly from strategic fit relationships in the distribution portions of the value chains of unrelated businesses.
Economies of scope are cost reductions that flow from strategic fit along the value chains of related businesses.
Which of the following makes acquisition an attractive approach to diversifying into another industry? 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. It is not time-consuming and allows the firm to realize great profits in the end. It is less expensive, less risky, and more effective than launching a new startup operation. Due diligence and integration can be done easily and at low cost. It satisfies all three diversity tests (industry attractiveness test, cost-of-entry-test, better-off test) to grow shareholder value over the long term.
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.
Which of the following is a prime benefit of a strategy keyed to related diversification? Corporate parents created in related diversification can propel the company's business forward and help them gain ground over their market rivals. Related diversification is less capital intensive and usually less risky than unrelated diversification. Related diversification offers potential 1 + 1 = 3 benefits because of valuable cross-business relationships among the value chains of the corporation's different businesses. Related diversification leads to competitive advantage and increased profitability. Related diversification passes the industry attractiveness test and thus offers the best route to 2 + 2 = 4 benefits.
Related diversification offers potential 1 + 1 = 3 benefits because of valuable cross-business relationships among the value chains of the corporation's different businesses.
Economies of scope are cost reductions that flow from operating in multiple related businesses. arise only from strategic fit relationships in the production portions of the value chains of sister businesses. are more associated with unrelated diversification than related diversification. are present whenever diversification satisfies the attractiveness test and the cost of entry test. arise mainly from strategic fit relationships in the distribution portions of the value chains of unrelated businesses.
are cost reductions that flow from operating in multiple related businesses.
Diversifying into new businesses can be considered a success only if it results in increased profit margins and bigger total profits. builds shareholder value. helps a company escape the rigors of competition in its present business. leads to the development of a greater variety of distinctive competencies and competitive capabilities. helps the company overcome the barriers to entering additional foreign markets.
builds shareholder value.
Which of the following generates 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 hogs cash cows star businesses stars cash dogs
cash cows
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? multinational diversification restructure the company's business lineup with a combination of divestitures and new acquisitions craft new initiatives designed to build/enhance the reputation and image of the company divest some businesses and retrench to a narrower diversification base broaden the diversification base
craft new initiatives designed to build/enhance the reputation and image of the company
Which one of the following is NOT an important aspect of evaluating the merits of a diversified company's strategy? assessing the competitive strength of each business the company has diversified into determining which business units are cash cows and which ones are cash hogs, and then evaluating how soon the company's cash hogs can be transformed into cash cows evaluating the strategic fits and resource fits among the various sister businesses assessing the attractiveness of the industries the company has diversified into, both individually and as a group ranking the performance prospects of the businesses from best to worst and deciding what priority to give each of the company's business units in allocating resources
determining which business units are cash cows and which ones are cash hogs, and then evaluating how soon the company's cash hogs can be transformed into cash cows
A company that is already diversified may choose to broaden its business scope by building positions in new related or unrelated businesses because of all of the following EXCEPT it has resources or capabilities that are eminently transferable to other related or complementary businesses. the company's growth is sluggish and it wants the sales and profit boost that a new business can provide. management wants to lessen the company's vulnerability to seasonal or recessionary influences or to threats from emerging new technologies, legislative regulations, and new product innovations that alter buyer preferences and resource requirements. it wants to make new acquisitions to strengthen or complement some of its present businesses, market positioning, and competitive capabilities. its top management wants to increase its compensation.
its top management wants to increase its compensation.
Relative market share as a measure of competitive strength is calculated by subtracting the industry-average market share (based on dollar volume) from a company's market share to determine how much a company's market share is above/below the industry average—this amount is a better indicator of a business's competitive strength than is just looking at the firm's market share percentage. dividing the business's percentage share of total industry sales volume by the percentage share held by its largest rival—it is a better indicator of a business's competitive strength than is a simple percentage measure of market share. subtracting the company's market share (based on dollar volume) from the industry-average market share and comparing it to the main competitors. dividing the total market volume by the company's sales in order to determine its relative market share. dividing the business's percentage share of total industry sales volume by the percentage share held by its five largest rivals.
dividing the business's percentage share of total industry sales volume by the percentage share held by its largest rival—it is a better indicator of a business's competitive strength than is a simple percentage measure of market share.
Diversification into a new industry cannot be considered a success unless it results in easing the means of entry. boosting performance of the existing business. lowered cost of entry. enhanced industry attractiveness. enhanced shareholder value.
enhanced shareholder value.
Checking the competitive advantage potential of cross-business strategic fit involves evaluating a diversified company's profitability relative to competitors. examining a company's costs relative to the costs of its chief rivals in the industry. determining if there are opportunities to exploit outsourcing opportunities by a diversified company's lineup of businesses. considering what competitive value can be generated from strategic fit. evaluating how much benefit a diversified company can gain from cross-business value chain matchups and resource sharing.
evaluating how much benefit a diversified company can gain from cross-business value chain matchups and resource sharing.
A "cash hog" type of business generates cash flows that are too small to fully fund its operations and growth. has good resource fit with a cash cow business and is essential to a diversified company's lineup of businesses. generates cash flows exactly matching the demand for operations and growth. is always a candidate for divestiture. generates cash flows over and above its internal requirements.
generates cash flows that are too small to fully fund its operations and growth.
Combination related-unrelated diversification strategies have particular appeal for companies looking to reduce risk by spreading the company's investments over a set of truly diverse industries. focusing on growth for growth's sake to maximize shareholder value. desiring high compensation and reduced employment risk. operating in niche markets where specialized resources and capabilities are needed. having a mix of valuable competitive assets, covering the spectrum from generalized to special resources and capabilities.
having a mix of valuable competitive assets, covering the spectrum from generalized to special resources and capabilities.
The financial options for allocating a diversified company's financial resources do NOT include investing in ways to strengthen or grow existing businesses. making acquisitions to establish positions in new industries or to complement existing businesses. funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses. purchasing competitively weak businesses or businesses in unattractive industries. repurchasing shares of the company's common stock.
purchasing competitively weak businesses or businesses in unattractive industries.
Management's ranking of business units and establishing a priority for resource allocation should always make the company's business units with strong resource strengths and competitive capabilities the central focus of funding initiatives. put business units with the brightest profit and growth prospects and solid strategic and resource fits at the top of the investment priority list. utilize activity-based costing and benchmarking to determine the funding needs of each business unit. first consider the strength of funding proposals presented by managers of each division or business unit. give priority for funding to cash hog businesses.
put business units with the brightest profit and growth prospects and solid strategic and resource fits at the top of the investment priority list.
Corporate restructuring strategies... radically alter the business lineup by divesting poor performers and acquiring new promising businesses. entail reducing the scope of diversification to a smaller number of businesses. entail selling off marginal businesses to free resources for redeployment to the remaining businesses. focus on crafting initiatives to restore a diversified company's money-losing businesses to profitability. focus on broadening the scope of diversification to include a larger number of businesses.
radically alter the business lineup by divesting poor performers and acquiring new promising businesses.
Which of the following is NOT a strategic option for a company that is already diversified? sticking closely with the existing business line when the current business line offers attractive growth opportunities divesting weak-performing businesses and retrenching to a narrower base of business operations broadening the diversification base by adding and acquiring more businesses repurchasing shares of the company's common stock and building cash reserves by investing in short-term securities restructuring the company's business lineup through a mix of divestitures and new acquisitions
repurchasing shares of the company's common stock and building cash reserves by investing in short-term securities
Moves to improve a diversified company's overall performance do NOT include retrenching to a narrower base of business operations. broadening the company's business scope by making new acquisitions in new industries. restructuring the company's business lineup and putting a whole new face on the company's business makeup. sticking closely to the existing business lineup and pursuing the growth opportunities presented by these businesses. retaining weak-performing businesses in order to sustain a wide base of business operations.
retaining weak-performing businesses in order to sustain a wide base of business operations.
