Upgrade to remove ads. A company becomes a prime candidate for diversifying under which of the following circumstances: A When it spots opportunities for expanding into industries whose technologies and products complement its present business. B When it has a powerful and well-known brand name that can be transferred to the products of other businesses and thereby used as a lever for driving up the sales and profits of such business.
C When diversifying into additional businesses opens new avenues for reducing costs via cross-business sharing or transfer of competitively valuable resources and capabilities. D When can leverage its collection of resources and capabilities by expanding into businesses where these resources and capabilities are valuable assets. E All of these. To judge whether a particular diversification move has good potential for building added shareholder value, the move should pass the following tests: 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.
B assessing whether the diversification move will make the company better off by increasing its resource strengths and competitive capabilities. D assessing whether the diversification move will make the company better off by increasing its profit margins and returns on investment. Which of the following is not accurate as concerns entering a new business via acquisition, internal start-up, or a joint venture? A The big dilemma of entering an industry via acquisition of an existing company is whether to pay a premium price for a successful company or to buy a struggling company at a bargain price.
B 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. C Acquisition is the most popular means of diversifying into another industry, has the advantage of being quicker than trying to launch a brand-new operation, and offers an effective way to hurdle entry barriers.
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. 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.
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 multiple 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 are like economies of scale and arise from being able to lower costs via a larger volume operation.
The defining characteristic of unrelated diversification as opposed to related diversification is A the presence of cross-business resource fit whereas the defining characteristic of related diversification is the presence of cross-business strategic fit.
C the presence of cross-business strategic fit whereas the defining characteristic of related diversification is the presence of cross-business resource fit. D that the company's businesses are in different industries. E the presence of cross-business financial fit. Calculating quantitative attractiveness ratings for the industries a company has diversified into involves A determining the strength of the five competitive forces in each industry, calculating the ability of the company to overcome or contend successfully with each force, and obtaining overall measures of the firm's ability to compete successfully in each of its industries.
C rating the attractiveness of each industry's strategic and resource fits, summing the attractiveness scores, and determining whether the overall scores for the industries as a group are appealing or not. D selecting a set of industry attractiveness measures, weighting the importance of each measure with the sum of the weights adding to 1. E identifying each industry's average price, rating the difficulty of charging an above-average price in each industry, and deciding whether the company's prospects for being able to charge above-average prices make the industry attractive or unattractive.
The 9-cell industry attractiveness-competitive strength matrix A is a valuable tool for ranking a company's different businesses from best to worst based on strategic fit. D uses 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.
E pinpoints which of a diversified company's businesses are resource-rich cash cows and which are resource-poor cash hogs. 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? A Broadening the firm's business scope by diversifying into additional businesses. B Shifting from a multi-country to a global strategy. C Restructuring the company's business line-up with a combination of divestitures and new acquisitions to put 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 Divesting some businesses and retrenching to a narrower base of business operations. 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.
C Standardizing the resource fits across the group of businesses the company has diversified into. Important reasons for a company to consider diversification include A a desire to avoid putting all of its "eggs" in one industry basket. B diminishing market opportunities and stagnating sales in its principal business.
C opportunities to leverage existing competencies and capabilities by expanding into businesses where these same resource strengths are key success factors and valuable competitive assets attractive. 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 company has about the same number of cash cow businesses as it does cash hog businesses. E the existence of cross-industry resource fits and similar key success factors from industry to industry.
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.
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. 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. 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 performance prospects of the businesses from best to worst and determining what the corporate parent's priority should be in allocating resources to its various businesses D Assessing the attractiveness of the industries the company has diversified into, both individually and as a group E Assessing the competitive strength of the company's business units and determining how many are strong contenders in their respective industries.
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. The basic purpose of calculating competitive strength scores for each of a diversified company's business units is to A determine which business unit has the greatest number of resource strengths, competencies, and competitive capabilities and which one has the least.
B 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. C rank the each business unit's strategic fits from highest to lowest.
D rank the each business unit's resource fits from highest to lowest. E rank each business unit's strategy from best to worst. Checking a diversified company's business line-up for the competitive advantage potential of cross-business strategic fits involves searching for and evaluating how much benefit a diversified company can gain from value chain match-ups that present A opportunities to combine the performance of certain activities, thereby reducing costs and capturing economies of scope.
B opportunities to transfer skills, technology, or intellectual capital from one business to another, thereby leveraging use of existing resources. C opportunities to share use of a well-respected brand name. D opportunities for sister businesses to collaborate in creating valuable new competitive capabilities such as enhanced supply chain management capabilities, quicker first-to-market capabilities, or greater product innovation capabilities. E All of the above.
Checking a diversified company's business lineup for resource fit does not involve which one of the following "tests? 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.
Ranking a diversified company's businesses in terms of priority for resource allocation and new capital investment A should be done chiefly on the basis of appealing 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 solid and appealing strategic fits and resource fits. D should be based chiefly on relative market share, 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. 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 capitalize on opportunities for both cross-business and cross-country collaboration and coordination. C leverage use of a well-known and competitively powerful brand name. D transfer competitively valuable resources both from one business to another and from one country to another. The task of crafting corporate strategy for a diversified company encompasses 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 pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage. D establishing investment priorities and steering corporate resources into the most attractive business units.
Diversification merits strong consideration whenever a single-business company A has integrated backward and forward as far as it can.
B is faced with diminishing market opportunities and stagnating sales in its principal business. C has achieved industry leadership in its main line of business. D encounters declining profits in its mainstay business. E faces strong competition and is struggling to earn a good profit. Diversification becomes a relevant strategic option when a company A spots opportunities to expand into industries whose technologies and products complement its present business.More...