Exam 8: Corporate Strategy: Diversification and the Multibusiness Company

A) whether the excess cash flows generated by cash cow businesses are sufficient to cover the negative cash flows of its cash hog businesses.
B) whether a business adequately contributes to achieving the corporate parent's performance targets.
C) whether the company has adequate financial strength to fund its different businesses and maintain a healthy credit rating.
D) whether the corporate parent has sufficient cash to fund the needs of its individual businesses and pay dividends to shareholders without having to borrow money.
E) whether the corporate parent has or can develop sufficient resource strengths and competitive capabilities to be successful in each of the businesses it has diversified into.

Correct Answer

verified

Show Answer

A) Ascertaining the extent to which sister business units have value chain match-ups that offer opportunities to combine the performance of related value chain activities and reduce costs
B) Ascertaining the extent to which sister business units have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another
C) Ascertaining the extent to which sister business units are making maximum use of the parent company's competitive advantages
D) Ascertaining the extent to which sister business units have value chain match-ups that offer opportunities to create new competitive capabilities or to leverage existing resources
E) Ascertaining the extent to which sister business units present opportunities to share use of a well-respected brand name

Correct Answer

verified

Show Answer

A) calculated by dividing a business's percentage share of total industry sales volume by the percentage share held by its largest rival-it is a better indicator of a business's competitive strength than is a simple percentage measure of market share.
B) calculated by adjusting a company's dollar market share up or down in proportion to whether the company's quality and customer service are above/below industry averages.
C) calculated by dividing a company's market share (based on dollar volume) by the industry-average market share.
D) particularly useful in identifying cash cows and cash hogs-cash cow businesses have big relative market shares (above 1.0) and cash hog businesses have low relative market shares (below 0.5) .
E) calculated by subtracting the industry-average market share (based on dollar volume) from a company's market share to determine how much a company's market share is above/below the industry average-this amount is a better indicator of a business's competitive strength than is just looking at the firm's market share percentage.

Correct Answer

verified

Show Answer

Correct Answer

Answered by ExamLex AI

Strategic fit refers to the alignment be...

View Answer

Show Answer

A) to have a quantitative basis for identifying which businesses have large/small competitive advantages or competitive disadvantages vis-à-vis the rivals in their respective industries.
B) to have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's revenue growth.
C) to compare resource strengths and weaknesses, business by business.
D) to have a quantitative basis for rating them from strongest to weakest in contending for market leadership in their respective industries.
E) to have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's profitability.

Correct Answer

verified

Show Answer

A) Checking whether the company's resources fit the requirements of its present business lineup
B) Scrutinizing each industry/business to determine where driving forces are strongest/weakest and how many profitable strategic groups the company has diversified into
C) Ranking the performance prospects of the various businesses from best to worst and determining what the corporate parent's priorities should be in allocating resources to its different businesses
D) Checking the competitive advantage potential of cross-business strategic fits
E) Assessing the competitive strength of each business the company has diversified into and determining which ones are strong/weak contenders in their respective industries

Correct Answer

verified

Show Answer

A) stem from the cost-saving efficiencies of operating over a wider geographic area.
B) have to do with the cost-saving efficiencies of distributing a firm's product through many different distribution channels simultaneously.
C) stem from cost-saving strategic fits along the value chains of related businesses.
D) refer to the cost-savings that flow from operating across all or most of an industry's value chain activities.
E) arise from the cost-saving efficiencies of having a wide product line and offering customers a big selection of models and styles to choose from.

Correct Answer

verified

Show Answer

A) Pursue multinational diversification
B) Restructure the company's business lineup with a combination of divestitures and new acquisitions
C) Craft new initiatives to build/enhance the reputation of the company's brand name
D) Divest some businesses and retrench to a narrower diversification base
E) Broaden the diversification base

Correct Answer

verified

Show Answer

Correct Answer

verified

Show Answer

A) rank the business unit from best to worst in terms of potential for cost reduction and profit margin improvement.
B) determine how strongly positioned each business unit is in its industry.
C) determine which business unit has the greatest number of resource strengths, competencies, and competitive capabilities and which one has the least.
D) determine which one has the biggest market share and is growing the fastest.
E) rank each business unit's strategy from best to worst.

Correct Answer

verified

Show Answer

A) is useful for helping decide which businesses should have high, average, and low priorities in allocating corporate resources.
B) indicates which businesses are cash hogs and which are cash cows.
C) pinpoints what strategies are most appropriate for businesses positioned in the three top cells of the matrix but is less clear about the best strategies for businesses positioned in the bottom six cells.
D) identifies which sister businesses have the greatest strategic fit.
E) identifies which sister businesses have the greatest resource fit.

Correct Answer

verified

Show Answer

A) When a company spots opportunities to expand into industries whose technologies and products complement its present business.
B) When a company is only earning a low profit margin in its principal business.
C) When a company 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 businesses.
D) When a company can open up new avenues for reducing costs by diversifying into closely related businesses.
E) When a company can leverage existing competencies and capabilities by expanding into industries where these same resource strengths are key success factors and valuable competitive assets.

Correct Answer

verified

Show Answer

A) Recent moves to build positions in new industries
B) The company's approach to allocating investment capital and resources across its present businesses
C) Recent management actions to strengthen the company's positions in existing businesses
D) Recent moves to divest weak or unattractive business units
E) Actions over the past few years to substitute global strategies for multi-country strategies in one or more business units

Correct Answer

verified

Show Answer

A) it offers ways for a firm to realize 1 + 1 = 3 benefits because the value chains of the different businesses present competitively valuable cross-business relationships.
B) it is less capital intensive and usually more profitable than unrelated diversification.
C) it involves diversifying into industries having the same kinds of key success factors.
D) it is less risky than either vertical integration or unrelated diversification due to lower capital requirements.
E) it passes the industry attractiveness test and thus offers the best route to 2 + 2 = 4 benefits.

Correct Answer

verified

Show Answer

A) determining each industry's key success factors, rating the ability of each business to be successful on each industry KSF, and adding the individual ratings to obtain overall measures of each business's ability to compete successfully.
B) identifying the competitive forces facing each business, rating the strength of these competitive forces industry-by-industry, and then ranking each business's ability to be profitable, given the strength of the competition it faces.
C) selecting a set of competitive strength measures, weighting the importance of each measure, rating each business on each strength measure, multiplying the strength ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each business unit to obtain an overall competitive strength score, and using the overall competitive strength scores to evaluate the competitive strength of all the businesses, both individually and as a group.
D) determining which businesses possess good strategic fit with other businesses, identifying the portion of the value chain where this fit occurs, and evaluating the strength of the competitive advantage attached to each of the strategic fits to get an overall measure of competitive advantage potential-businesses with the highest/lowest competitive advantage potential have the most/least competitive strength.
E) rating the caliber of each businesses strategic and resource fits, weighting the importance of each type of strategic/resource fit, calculating weighted strategic/resource fit scores, and adding the weighted ratings for each business to obtain an overall strength score for each business unit that indicates whether the company has adequate strategic/resource fits to be a strong market contender in each of the industries where it competes.

Correct Answer

verified

Show Answer

A) is an effective way to hurdle entry barriers, is usually quicker than trying to launch a brand-new start-up operation, and allows the acquirer to move directly to the task of building a strong position in the target industry.
B) is less expensive than launching a new start-up operation, thus passing the cost-of-entry test.
C) is a less risky way of passing the attractiveness test.
D) is more likely to result in passing the shareholder value test, the profitability test, and the better-off test.
E) offers the prospect of gaining an immediate competitive advantage in the new industry and thus helps ensure that the diversification move will pass the competitive advantage test for building shareholder value.

Correct Answer

verified

Show Answer

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 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 it has diversified into.
E) the difficulties of achieving economies of scope and conflicts/incompatibility among the competitive strategies of the company's different businesses.

Correct Answer

verified

Show Answer

A) the costs of searching for an attractive target.
B) the costs of evaluating its worth.
C) bargaining costs.
D) the costs of completing the transaction.
E) All of these.

Correct Answer

verified

Show Answer