Exam 8: Corporate Strategy: Diversification and the Multibusiness Company

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Businesses are related when their value ...

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A) assessing the utility of the products for consumers from all age-groups.
B) 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.
C) firing corporate managers who take on risks without performing due diligence.
D) evaluating the extent of cross-business strategic fits and checking whether the firm's resources fit the needs of the various businesses the company has diversified into.
E) measuring the frequency with which strategic alliances and collaborative partnerships are used in each industry,and the extent to which firms in the industry utilize outsourcing.

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A) focus on acquiring technical know-how or outsourcing production.
B) strive for scale economies or to acquire technical know-how to customize production.
C) focus on building brand awareness or striving for scale economies.
D) focus on building brand awareness or establishing supplier relationships.
E) pay a premium price for a successful company or buy a struggling company at a bargain price.

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A) the company's present businesses offer attractive growth opportunities and can be counted on to generate good earnings and cash flows for shareholders.
B) companies are seeking multinational diversification.
C) corporate executives are excited about market opportunities.
D) corporate executives are satisfied with current performance of each of their businesses and can use redirect capabilities and resources for expansion opportunities.
E) corporate executives want to divest some businesses and retrench to a narrower diversification base.

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A) has integrated backward and forward as far as it can.
B) faces 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.

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The means of entering new industries and...

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A) the difficulties of passing the cost-of-entry test and the ease with which top managers can make the mistake of diversifying into businesses where competition is too intense.
B) the difficulties of capturing financial fit and having insufficient financial resources to spread business risk across many different lines of business.
C) demanding managerial requirements and the limited competitive advantage potential that cross-business strategic fit provides.
D) ending up with too many cash hog businesses and too much diversity among the competitive strategies of the businesses the company has diversified into.
E) the difficulties of achieving economies of scope and conflicts/incompatibility among the competitive strategies of the company's different businesses.

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A) will make the company better off because it will produce a greater number of core competencies.
B) will make the company better off by improving its balance sheet strength and credit rating.
C) will make the company better off by spreading shareholder risks across a greater number of businesses and industries.
D) offers potential for the company's existing businesses and new businesses to perform better together under a single corporate umbrella.
E) will benefit shareholders due to gains in earnings per share and faster stock price appreciation.

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A) expands a firm's competitive advantage opportunities to include a wider array of businesses.
B) spreads the stockholders' risks across a group of truly diverse businesses.
C) increases strategic fit opportunities and the potential for a 1 + 1 = 3 outcome on the bottom line.
D) results in having more cash cow businesses than cash hog businesses.
E) facilitates capturing the financial fits among sister businesses (as compared to a strategy of related diversification) .

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A) Shareholder value stemming from a diversified business cannot be replicated by simply owning a diversified portfolio of stocks.
B) The capture of cross-business strategic fits benefits is possible only through related diversification.
C) Cross-business strategic fit benefits are not automatically realized;the benefits materialize only after management has successfully pursued internal actions to capture them.
D) Shareholder value is created when the diversified company's profitability exceeds expectations.
E) Related diversification is the process of holding the stock of many businesses in a portfolio.

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A) the business lineup includes a number of cash cows.
B) valuable opportunities exist to transfer skills,technology,or intellectual capital from one business to another,combine the performance of related activities,or share the use of a well-respected brand name across multiple products or service categories.
C) the strategy maps of the various business units converge.
D) businesses included in the corporate portfolio compete in fast-growing industries.
E) competition is less intense and driving forces are relatively weak.

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A) selects the appropriate value chain operating practices to improve the financial outlook.
B) has a clear path to achieving 1 + 1 = 3 synergy gains in shareholder value.
C) has a clear path to divesting its best-performing businesses.
D) achieves economies of scale and passes the reduced-costs test for crafting a diversification strategy capable of creating added shareholder value.
E) forces cultural independence,operating diversity,and sophisticated analytical responsibility on the businesses to ensure compatibility with the overall corporate identity.

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A) each business is a cash cow.
B) a company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company's overall strengths.
C) each business is sufficiently profitable to generate an attractive return on invested capital.
D) each business unit produces large internal cash flows over and above what is needed to build and maintain the business.
E) the resource requirements of each business exactly match the company's available resources.

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A) choosing business-unit heads having the requisite combination of managerial skills and know-how to motivate people.
B) understanding the true value of strategic investment proposals by business-unit managers.
C) knowing what to do if a business unit stumbles.
D) "managing by the numbers"-that is,keeping a close track on the financial and operating results of each subsidiary.
E) staying abreast of what's happening in each industry and subsidiary.

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A) the least risky way to diversify is to seek out businesses that are leaders in their respective industry.
B) the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale.
C) the best way to build shareholder value is to acquire businesses with strong cross-business financial fit.
D) any company that can be acquired on good financial terms and has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity.
E) the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits.

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A) staying abreast of what is happening in each industry and subsidiary.
B) picking business-unit heads who have the requisite combination of managerial skills and know-how to motivate people.
C) understanding the true value of strategic investment proposals by business-unit managers.
D) knowing what to do if a business unit stumbles.
E) "managing by the numbers"-that is,keeping a close track on the financial and operating results of each subsidiary.

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A) their value chains possess competitively valuable cross-business relationships.
B) the products of the different businesses are bought by much the same types of buyers.
C) the products of the different businesses are sold in the same types of retail stores.
D) the businesses have several key suppliers in common.
E) the production methods that they employ both entail economies of scale.

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A) When internal entry is cheaper than entry via acquisition
B) When a company possesses the skills and resources needed to compete effectively and there is ample time to launch the business
C) When adding new production capacity will not adversely impact the supply/demand balance in the industry
D) When the industry is growing rapidly and the target industry consists of several relatively large and well-established firms
E) When incumbent firms are likely to be slow or ineffective in combating a new entrant's efforts to crack the market

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