QUESTION 1

1. An economy of scope is BEST illustrated by being able to eliminate or reduce costs by

combining related value-chain activities of different businesses into a single operation.
performing all of the value chain activities of related sister businesses at the same location.
extending the firm's scope of operations over a wider geographic area.
expanding the size of a company's manufacturing plants.
having more value chain activities performed in-house rather than outsourcing them.

1 points
QUESTION 2
1. A big advantage of related diversification is that 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.
is less capital intensive and usually more profitable than unrelated diversification.
involves diversifying into industries having the same kinds of key success factors.
is less risky than either vertical integration or unrelated diversification due to lower
capital requirements.
passes the industry attractiveness test and thus offers the best route to 2 + 2 = 4
benefits.

1 points
QUESTION 3
1. The nine-cell attractiveness-strength matrix provides clear, strong logic for considering using
only industry attractiveness in allocating resources and investment capital to its
different businesses.
only business strength in allocating resources and investment capital to the different
businesses.
both industry attractiveness and business strength in allocating resources and
investment capital to its different businesses.
both industry attractiveness and product strength in allocating resources and
investment capital to its different businesses.
both resource fit and product strength in allocating resources and investment capital to
its different businesses.

1 points
QUESTION 4
1. Cross-business strategic fit in a diversified enterprise is not normally achieved when
the management know-how accumulated in one business is transferable to the other.
two businesses present opportunities to economize on marketing, selling, and
distribution costs.
related diversification produces a synergistic performance outcome.
the value chain activities of unrelated businesses possess economies of scope and good
financial fit.
 a company can transfer its brand-name reputation to the products of a newly acquired
business and add to the competitive power of the new business.

1 points
QUESTION 5
1. The essential requirement for different businesses to be "related" is that
their value chains exhibit competitively valuable cross-business commonalities.
the products of the different businesses are bought by many of the same types of
buyers.
the products of the different businesses are sold in the same types of retail stores.
the businesses have several key suppliers in common.
the production methods they employ both entail economies of scale.

1 points
QUESTION 6
1. What makes related diversification an attractive strategy?
the ability to broaden the company's product line
the opportunity to convert cross-business strategic fit into competitive advantage over
business rivals whose operations don't offer comparable strategic fit benefits
the potential for improving the stability of the company's financial performance
the ability to serve a broader spectrum of buyer needs
the added capability it provides in overcoming the barriers to entering foreign markets

1 points
QUESTION 7
1. The three tests for judging whether a particular diversification move can create value for
shareholders are the
attractiveness test, the profitability test, and the shareholder value test.
strategic fit test, the competitive advantage test, and the return-on-investment test.
resource fit test, the profitability test, and the shareholder value test.
attractiveness test, the cost of entry test, and the better-off test.
shareholder value test, the cost of entry test, and the profitability test.

1 points
QUESTION 8
1. As a rule, the key indicators of industry attractiveness, for all the industries represented in a
diversified company's business portfolio, should not be measured on such attractiveness
factors as
market size and projected growth rate.
emerging opportunities and threats, and the intensity of competition.
resource requirements and the presence of cross-industry strategic fits.
 seasonal and cyclical factors, industry profitability, and whether an industry has
significant social, political, regulatory, and environmental problems.
the utility of the products for consumers from all age groups.

1 points
QUESTION 9
1. The better-off test for evaluating whether a particular diversification move is likely to
generate added value for shareholders involves assessing whether the move will
make the company better off because it will produce a greater number of core
competencies.
make the company better off by improving its balance sheet strength and credit rating.
make the company better off by spreading shareholder risks across a greater number
of businesses and industries.
produce a synergistic 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.
help each business earn exactly what they were earning before coming under the same
corporate umbrella.

1 points
QUESTION 10
1. For an unrelated diversification strategy to produce financial results above that of stand-
alone entities, executives must do all of the following except
diversify into businesses that can produce consistently good earnings and returns on
investment and thereby satisfy the attractiveness test.
negotiate favorable acquisition prices (to satisfy the cost of entry test).
do a superior job of corporate parenting via high-level managerial oversight and
resource sharing, financial resource allocation and portfolio management, or
restructuring underperforming businesses (to satisfy the better-off test).
satisfy the attractiveness test, the cost of entry test, and the better-off test.
leverage the cross-business strategic fit advantage effectively.