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| 1 | |
Which one of the following is not one of the elements of crafting corporate strategy for a diversified company? |
| | A) | Picking the new industries to enter and deciding on the means of entry |
| | B) | Initiating actions to boost the combined performance of the businesses the firm has entered |
| | C) | Standardizing the resource fits across the group of businesses the company has diversified into |
| | D) | Establishing investment priorities and steering corporate resources into the most attractive business units |
| | E) | Pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage |
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| 2 | |
Important reasons for a company to consider diversification include |
| | A) | a desire to avoid putting all of its "eggs" in one industry basket. |
| | B) | dimming growth opportunities in its present business. |
| | C) | attractive opportunities to transfer its resources, expertise, and capabilities to other industries. |
| | D) | an ability to lower costs by entering closely-related businesses and/or ability to transfer the company's well-respected brand name to the products of other businesses and thereby increase the sales and profits of newly-acquired or start-up businesses. |
| | E) | All of these. |
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| 3 | |
For diversification to result in added shareholder value |
| | A) | the company's profits and return on shareholder equity must be higher after diversification than before diversification. |
| | B) | the company must end up operating in a greater number of geographic markets after the diversification than before. |
| | C) | all of the businesses a firm diversifies into must generate positive cash flows. |
| | D) | the businesses a company has diversified into must perform better as part of the same firm than they could have performed as independent, stand-alone companies. |
| | E) | diversification must lead to bigger sales and market shares than could have been achieved without diversification. |
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| 4 | |
To judge whether a particular diversification move has good potential, analysts should apply |
| | A) | the attractiveness test, the barrier-to-entry test, and the growth test. |
| | B) | the strategic fit test, the resource fit test, and the profitability test. |
| | C) | the barrier-to-entry test, the growth test, and the shareholder value test. |
| | D) | the attractiveness test, the cost-of-entry test, and the better-off test. |
| | E) | the resource fit test, the strategic fit test, the profitability test, and the shareholder value test. |
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| 5 | |
Which of the following is not accurate as concerns entering a new business via acquisition, internal start-up, or a joint venture? |
| | A) | 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 is usually less expensive than entering an industry via internal start-up. |
| | B) | One of the problems of using acquisitions to enter a new business is finding an acquisition candidate that can be purchased at a price that satisfies the cost-of-entry test. |
| | C) | Acquisition is the most popular means of diversifying into another industry, has the advantage of quicker entry into the target market (as compared to internal start-up), and poses the problem of whether to buy a successful company at a premium price or a struggling company at a bargain price. |
| | D) | Joint ventures are an attractive way to enter new businesses when the opportunity is too risky or complex for a company to proceed on its own, when pooling the resources and competencies of two or more independent organizations produces a venture arrangement with more of the capabilities needed to be a strong competitor, and/or when it aids entry into a foreign market. |
| | E) | The big drawbacks to entering a new industry via internal start-up include the costs of overcoming entry barriers, building an organization from the ground up, and the extra time it takes to build a strong and profitable competitive position. |
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| 6 | |
The defining characteristic of related diversification (as opposed to unrelated diversification) is |
| | A) | that each business the company has diversified into are utilizing similar competitive strategies. |
| | B) | the presence of cross-business value chain relationships and strategic fits. |
| | C) | that each business the company has diversified into has very similar core competencies and competitive capabilities. |
| | D) | that the resource strengths of the different businesses are approximately the same. |
| | E) | the existence of cross-business resource fits. |
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| 7 | |
The strategic appeal of related diversification is that |
| | A) | 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. |
| | B) | it is less capital intensive than unrelated diversification because related diversification emphasizes getting into cash cow businesses (as opposed to cash hog businesses). |
| | C) | it involves diversifying into industries having the same kinds of key success factors. |
| | D) | it is less risky than unrelated diversification because it avoids the acquisition of cash hog businesses. |
| | E) | it facilitates the achievement of greater economies of scale by entering only those businesses that serve the same types of buyer groups and/or buyer needs. |
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| 8 | |
Which of the following is the best example of related diversification? |
| | A) | A manufacturer of golf shoes diversifying into the production of fishing rods and fishing lures |
| | B) | A homebuilder acquiring a building materials retailer) |
| | C) | A steel producer acquiring a manufacturer of farm equipment |
| | D) | A producer of snow skis and ski boots acquiring a maker of ski apparel and accessories (outerwear, goggles, gloves and mittens, helmets and toboggans |
| | E) | A publisher of college textbooks acquiring a publisher of magazines |
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| 9 | |
Economies of scope |
| | A) | stem from the cost-saving efficiencies of scattering a company's manufacturing/assembly plants over a wider geographic area. |
| | B) | have to do with the cost-saving efficiencies of operating across a bigger portion of an industry's total value chain. |
| | C) | stem from cost-saving strategic fits along the value chains of related businesses. |
| | D) | refer to the cost-savings that flow from being able to combine the value chains of different businesses into a single value chain. |
| | E) | arise from being able to lower costs via a larger volume operation. |
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| 10 | |
Cross-business strategic fits can exist |
| | A) | in the R&D and technology portion of the value chains of related businesses. |
| | B) | in the supply-chain portion of the value chains of related businesses. |
| | C) | in the manufacturing or production portions of the value chains of related businesses. |
| | D) | in the sales and marketing portion of the value chains of related businesses. |
| | E) | All of the above—since cross-business strategic fits can exist anywhere along the values chains of related businesses. |
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| 11 | |
The defining characteristic of unrelated diversification (as opposed to related diversification) is |
| | A) | opportunity to transfer corporate-level managerial and administrative know-how from one business to another. |
| | B) | cross-business value chains with so little in common that there are no opportunities to benefit from cross-business skills or technology transfer, economies of scope, cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities. |
| | C) | the presence of cross-business strategic fit (as opposed to the cross-business resource fit that typifies related diversification). |
| | D) | that the company's businesses are in different industries. |
| | E) | the presence of cross-business financial fit. |
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| 12 | |
Which one of the following is not part of the task of critiquing a diversified company's strategy, assessing its business makeup, and deciding how to improve overall company performance? |
| | A) | Checking whether each business a company has diversified into can pass the profitability test, the capital gains test, the growth rate test, and the resource strength test |
| | B) | Checking for strategic fits and resource fits |
| | C) | Ranking the business units in terms of priority for resource allocation |
| | D) | Evaluating the attractiveness of each industry the company has diversified into |
| | E) | Evaluating each business's competitive strength |
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| 13 | |
The analytical value of developing quantitative ratings of which industries represented in a diversified company's business portfolio are most attractive and which are least attractive is |
| | A) | to determine in fairly precise terms which industries the company has diversified into are characterized by strong competition and which are characterized by relatively weak competitive forces. |
| | B) | to learn how big the differences are in the attractiveness of each industry's key success factors. |
| | C) | to have an objective basis for ranking the industries a company has diversified into from most attractive to least attractive and thus be in a position to discern why some of the industries a company has diversified into are more attractive than others. |
| | D) | to determine which industries have the highest overall growth potential and which are likely to grow slowly. |
| | E) | to obtain a quantitative measure of which industry has the best overall value chain from the standpoint of the company being able to win a competitive advantage. |
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| 14 | |
Developing quantitative measures of competitive strength for each of a diversified company's business units |
| | A) | involves determining the resource make-up and resource strengths of each business's value chain. |
| | B) | involves selecting an appropriate set of strength measures, deciding on appropriate weights for each strength measure, rating each business on each strength measure, and summing the ratings to get an overall strength measure for each business unit. |
| | C) | helps determine each business's relative market share, relative cost position, and contribution to generating economies of scope. |
| | D) | is an objective basis for deciding whether each of the businesses a company has diversified into is a cash hog or a cash cow. |
| | E) | is a precise way of analyzing which of a company's businesses have resource fits versus which ones have strategic fits. |
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| 15 | |
The 9-cell industry attractiveness-business strength matrix |
| | A) | is a valuable tool for identifying each business's relative market share and then ranking a company's different businesses from highest to lowest on relative market share. |
| | B) | Is a tool for determining which of a diversified company's businesses have good strategic fit and good resource fit. |
| | C) | helps identify which businesses have the highest/lowest economies of scale and which have the highest/lowest economies of scope. |
| | D) | uses quantitative measures of long-term industry attractiveness and business strength/competitive position to plot each business's location and stresses the merits of concentrating the company's resources on those businesses having relatively strong competitive positions in industries with relatively high long-term attractiveness. |
| | E) | pinpoints which of a diversified company's businesses are cash cows and which are cash hogs. |
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| 16 | |
Checking a diversified company's business line-up for cross-business strategic fits involves evaluating whether |
| | A) | certain business units have competitively valuable value chain match-ups that offer opportunities to reduce costs (by combining the performance of related activities) and/or to transfer technology or intellectual capital from one business to another. |
| | B) | each business unit's strategy matches well with industry key success factors and whether the various businesses have compatible and complementary resource strengths and competitive capabilities. |
| | C) | each business's strategic objectives and strategy match up well with and are compatible with the strategic objectives and strategy of other businesses in the portfolio. |
| | D) | certain business units present opportunities to leverage use of a sister business's well-known and competitively powerful brand name and/or to collaborate in creating new capabilities or resource strengths. |
| | E) | Both A and D. |
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| 17 | |
Checking a diversified company's business lineup for resource fit does not involve which one of the following "tests?" |
| | A) | Determining whether a company has or can develop the specific resource strengths and competitive capabilities needed to be successful in each of its businesses. |
| | B) | Determining whether recently acquired businesses are acting to strengthen the company's resource base and competitive capabilities or whether they are causing its competitive and managerial resources to be stretched too thinly. |
| | C) | Determining whether each business adequately contributes to achieving companywide performance targets. |
| | D) | Determining whether the company has enough cash hog businesses to supply capital to its cash cow businesses. |
| | E) | Determining whether the company has adequate financial strength to fund the needs of its various businesses and maintain a healthy credit rating. |
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| 18 | |
Ranking a diversified company's businesses in terms of priority for resource allocation and new capital investment |
| | A) | should be done principally on the basis of relative long-term industry attractiveness and resource fit and secondarily on the basis of competitive strength and strategic fit with other businesses. |
| | B) | entails arraying the various businesses from the biggest cash hog down to the biggest cash cow; big cash hogs get the highest priority for resource allocation and big cash cows get the lowest priority. |
| | C) | should be done principally on the basis of which businesses offer the best prospects (given their industry attractiveness and competitive strength) and, also, have the most appealing strategic and resource fits. |
| | D) | should be based chiefly on relative competitive strength, recent profitability, and potential for achieving cash cow status. |
| | E) | should be based primarily on cross-business resource fit considerations, each business unit's relative market share, and each business's projected ability to cover its debt payments and generate positive cash flows. |
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| 19 | |
Once a firm has diversified and established itself in several different businesses, then its main strategic alternatives include |
| | A) | broadening the firm's business scope by diversifying into additional businesses. |
| | B) | retrenching to a narrower base of business operations by divesting some of its present businesses. |
| | C) | restructuring the company's business lineup and putting a whole new face on the company's business makeup. |
| | D) | pursuing multinational diversification and striving to globalize the operations of several of the company's business units. |
| | E) | All of the above. |
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| 20 | |
A multinational diversification strategy can be particularly attractive to a diversified company because it allows the company to pursue maximum competitive advantage potential via actions to |
| | A) | fully capture economies of scale and cross-business economy of scope opportunities. |
| | B) | gain the benefits of both cross-business and cross-country collaboration and coordination. |
| | C) | exploit use of a competitively powerful brand name. |
| | D) | transfer competitively valuable resources from one business to another and from one country to another. |
| | E) | All of these. |
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