Essentials of Strategic Management CH8
Essentials of Strategic Management CH8
Question
Corporate Strategy: Diversification and the Multibusiness
Company- CH8
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 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.
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) 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.
3 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.
4 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.
5 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.
6 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) hat 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.
7 The strategic appeal of related
diversification is that _______________
A)it allows a firm to rap 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.
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.
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) are like economies of scale and arise from
being able to lower costs via a larger volume operation.
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; cross-business strategic
fits can exist anywhere along the values chains of related businesses.
11 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.
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 growh 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.
13 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.
14 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.
15 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.
16 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.
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 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.
18 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.
19 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.
20 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.
Company- CH8
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 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.
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) 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.
3 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.
4 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.
5 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.
6 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) hat 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.
7 The strategic appeal of related
diversification is that _______________
A)it allows a firm to rap 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.
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.
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) are like economies of scale and arise from
being able to lower costs via a larger volume operation.
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; cross-business strategic
fits can exist anywhere along the values chains of related businesses.
11 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.
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 growh 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.
13 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.
14 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.
15 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.
16 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.
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 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.
18 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.
19 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.
20 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.