Q1. 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 fit 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.
Q2. 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 resources are key
success factors and valuable competitive assets.
D) an opportunity to lower costs by entering closely related
businesses and/or an opportunity to transfer a powerful and well-respected
brand name to the products of other businesses and thereby increase the sales
and profits of these newly entered businesses.
E) All of these.
Q3. 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.
Q4. The better-off test for evaluating whether a particular
diversification move is likely to generate added value for shareholders
involves _______________
A) evaluating whether the diversification move will produce
a 1 + 1 = 3 outcome such that the company’s different businesses perform better
together than apart and the whole ends up being greater than the sum of the
parts.
B) assessing whether the diversification move will make the
company better off by increasing its resources and competitive capabilities.
C) evaluating whether the diversification move will make the
company better off by making it less subject to the bargaining power of customers
and/or suppliers.
D) assessing whether the diversification move will make the
company better off by increasing its profit margins and returns on investment.
E) All of these.
Q5. Which of the following does not accurately describe
entering a new business via acquisition, internal development, 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.
D) Joint ventures are an attractive way to enter new
businesses when the opportunity is too complex, uneconomical, or risky for one
company to pursue alone, when the opportunities in a new industry require a
broader range of competencies and know-how than a company can marshal on its
own, and/or when it aids entry into a foreign market.
E) The big drawbacks to entering a new industry via internal
development 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.
Q6. The defining characteristic of related diversification
(as opposed to unrelated diversification) is _______________
A) that the businesses 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.
Q7. 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 since the company only enters those businesses that serve the same types
of buyer groups and/or buyer needs.
Q8. 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.
Q9. 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) are like economies of scale and arise from being able to
lower costs via a larger volume operation.
Q10, 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; cross-business strategic fits can exist
anywhere along the values chains of related businesses.
Q11. 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).
B) that the value chains of different businesses are so
dissimilar that no competitively valuable cross-business relationships are
present (in other words, the value chains of a company’s businesses offer no
opportunities to benefit from skills or technology transfer across businesses,
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 (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.
Q12. 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 resources test.
B) Checking for strategic fit and resource fit.
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.
Q13. 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.
B) determining each industry’s average profit margins,
calculating how far the firm’s profit margins are above/below the industry
averages, and then using these values to draw conclusions about industry
attractiveness.
C) rating the attractiveness of each industry’s strategic
and resource fit, 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
1.0), rating each industry on each attractiveness measure, multiplying the
industry ratings by the assigned weight to obtain a weighted rating, adding the
weighted ratings for each industry to obtain an overall industry attractiveness
score, and using the overall industry attractiveness scores to evaluate the
attractiveness of all the industries, both individually and as a group.
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.
Q14. 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
resources, 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 each business unit’s strategic fit from highest to
lowest.
D) rank each business unit’s resource fit from highest to
lowest.
E) rank each business unit’s strategy from best to worst.
Q15. The nine-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.
B) shows which of a diversified company’s businesses have
good/poor resource fit.
C) indicates which businesses have the highest/lowest
economies of scale and which have the highest/lowest economies of scope.
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.
Q16. Checking a diversified company’s business lineup 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 matchups 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.
Q17. 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 resources 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 thin.
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.
Q18. 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.
Q19.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 multiple-country to a global strategy.
C) Restructuring the company’s business lineup with a
combination of divestitures and new acquisitions to put a whole new face on the
company’s business makeup.
D) Sticking closely with the existing business lineup and
pursuing the opportunities these businesses present.
E) Divesting some businesses and retrenching to a narrower
base of business operations.
Q20. Corporate restructuring strategies _______________
A) focus on broadening the scope of diversification to
include a larger number of businesses and boost the company’s growth and
profitability.
B) involve rightsizing the company’s labor force to reduce
the costs of salaries and benefits.
C) are directed at achieving a 1 + 1 = 3 effect from the
company’s diversification strategy.
D) focus on crafting initiatives to restore a diversified
company’s money-losing businesses to profitability.
E) involve making radical changes in a diversified company’s
business lineup, divesting some businesses and acquiring new ones so as to put
a new face on the company’s business lineup.
