Test Bank For Strategic Management Concepts and Cases 2nd Edition Dyer

Test Bank for Strategic Management Concepts and Cases 2nd Edition Dyer
Test Bank for Strategic Management Concepts and

Cases 2nd Edition Dyer
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Package Title: Chapter 6, Testbank
Course Title: Dyer, SM 2e
Chapter Number: 6
Question type: Multiple Choice
1) The search for competitive advantage within a single industry, market, or line of business
best defines the term _________.
a) complementary service strategy

b) corporate strategy
c) business unit strategy
d) cost advantage strategy
Answer: c
Difficulty: Easy
Section Reference 1: Corporate Versus Business Unit Strategy
Learning Objective 1: Describe how a corporate strategy differs from a business unit level
strategy.
Bloomcode: Knowledge
Standard 1 : AACSB || Analytic
2) Venus Inc. is a large firm that sells several healthcare products such as bathing soaps,
shampoos, body creams, and baby products. Each of these products has its own customer
base. Individually, each of these products has upheld unique approaches to establish and
maintain competitive advantage over its own rival companies that sell similar products.
Which of the following strategies does Venus Inc. use for its products?
a) Business unit strategy

b) Global marketing strategy
c) Corporate strategy
d) Economic spending strategy
Answer: a
Difficulty: Hard
strategy.
Bloomcode: Application
3) Rest & Sleep Inc. is a mattress manufacturing firm. By manufacturing related products
such as bed covers, comforters and quilts, and pillows, it has gained significant competitive
advantage as it has managed to create profits in all these markets as well. Rest & Sleep
creates a challenge for the other companies in the market by providing unique value through
its customer services and warranties. Which of the following terms best describes what Rest
& Sleep Inc. is practicing?
a) Market penetration
b) Business unit strategy
c) Corporate strategy
d) Unrelated diversification
Answer: c
Difficulty: Hard
strategy.
4) Movement into adjacent markets by a firm along its own value chain can be best termed
_________.
a) vertical integration
b) horizontal specialization
c) horizontal diversification
d) unrelated diversification
Answer: a
Difficulty: Easy
strategy.
5) Brentwood Industries, a furniture company, bought a supplier factory that creates raw
materials for the whole range of products Brentwood manufactures. Brentwood has made
sure not to look for outside sources for providing the company’s raw materials. Brentwood
Industries is practicing _________.
a) market penetration
b) unrelated diversification
c) vertical integration
d) horizontal diversification
Answer: c
Difficulty: Hard
strategy.
6) Pisces Corp. is an apparel manufacturing company. It purchased a few of its raw material
suppliers and set up their factories close to the clothing stores so that the company does not
have to invest on transportation charges. This is an example of _________.
a) downward diversification
b) forward integration
c) backward integration
Answer: c
Difficulty: Hard
strategy.
7) Markus United Inc., a soap manufacturing company, maintained strategic advantage over
other companies by retaining profits in a unique way. The company bought a few distributors
in order to improve efficiency and cut down transportation costs while distributing its
products to retail stores. The company generated more profits than its competitors this way.
This is an example of _________.
a) horizontal diversification
b) backward integration
c) forward integration
d) horizontal specialization
Answer: c
Difficulty: Hard
strategy.
8) Movement by a firm along its own value chain in the direction of sales, service, or
warranty operations is termed _________.
a) horizontal specialization
b) backward integration
Answer: c
Difficulty: Easy
strategy.
9) The movement into an adjacent, or unrelated, market that is not along a firm’s own value
chain defines the term _________.
a) horizontal diversification
b) vertical specialization
d) backward integration
Answer: a
Difficulty: Easy
strategy.
10) Marble Cakes Inc., after serving a good number of customers in its home state, has set up
business in three other states with additional menu options of cupcakes, donuts, and coffees
to generate new customers. This has enabled the company to successfully maintain its
corporate strategy. Marble Cakes Inc. is engaging in _________.
b) horizontal specialization
c) vertical specialization
Answer: d
Difficulty: Hard
strategy.
11) Pluto Corp. has been manufacturing hardware materials for its existing customer base for
several years. Recently, the company introduced a new line of electronic products to its
customers. Pluto Corp. is engaging in _________.
b) market penetration
c) value based initiative
Answer: d
Difficulty: Hard
strategy.
12) Which of the following statements is true of a corporate strategy?
a) It refers to a management strategy that focuses solely on the professional behavior and
attitudes of a company’s employees.
b) It entails competing in a core industry or business and also operating in adjacent
businesses or markets.
c) It entails competing exclusively with large and well-established firms to increase
competitive advantage.
d) It refers to the overall strategy that helps a company recruit the right type of employees for
the right type of job.
Answer: b
Difficulty: Medium
strategy.
Bloomcode: Comprehension
13) Which of the following is an example of a horizontal diversification?
a) A new company selling a new product in the market

b) An old company increasing its supply of existing products
c) A company acquiring its raw materials from many parts of the world
d) A new company trying to reintroduce an old product with improved advertising tactics
Answer: a
Difficulty: Medium
strategy.
14) Which of the following is a defining feature of firms that practice related-constrained
diversification?
a) They earn more than 70 percent of their revenues from their main line of business and the
rest from businesses located along the value chain.
b) They earn less than 70 percent of their revenues from their main line of business and their
other lines of business share product, technological, and distribution linkages with the main
business.
c) They operate in related markets, but fewer linkages exist between the new and existing
markets than the elements create separately.
d) They earn more than 95 percent of the revenues from a single line of business.
Answer: b
Difficulty: Medium
Section Reference 1: Creating Value Through Diversification
Learning Objective 1: Identify the six ways in which a company may create value through
diversification, and the advantages of each source. Be able to evaluate a diversified
company’s ability to create value using one or more of these sources.
15) A dominant vertical business differs from a dominant business in that a dominant
business ________.
a) earns 30 percent of its revenue from businesses located along the value chain of its main
line of business
b) earns 30 percent of its revenue from business lines across different value chains
c) earns less than 70 percent of its revenue from its main line of business
d) earns more than 95 percent of its revenue from its main line of business
Answer: b
Difficulty: Medium
16) Which of the following statements is true of a dominant vertical business?
a) It earns less than 70 percent of its revenue from its main line of business.
b) It earns more than 95 percent of revenue from its main line of business.
c) It earns 30 percent of its revenue from business lines across different value chains.
d) It earns 30 percent of its revenue from businesses located along the value chain.
Answer: d
Difficulty: Medium
17) Sparkle LLC, a beverage industry, earns almost all of its profits only by selling
beverages. Sparkle LLC can be best categorized as a _________.
a) single business
b) diversified business
c) dominant vertical business
d) dominant business
Answer: a
Difficulty: Hard
18) The main focus of Neptune Corp. is to sell apparel, which amounts to 70 percent of its
revenue. It also runs warehouses, distribution centers, and logistics as additional businesses
that generate the rest of the 30 percent of the earnings. Which level of diversification is
followed by Neptune Corp.?
a) Single business
b) Dominant business
c) Related-linked business
d) Dominant vertical business
Answer: d
Difficulty: Hard
19) Virgo Inc. earns less than 70 percent of its revenue from manufacturing computers. It
recently started manufacturing tablets. The company made use of existing technology and
materials and decided to distribute the tablets through the same distributors used for its
computers. In this scenario, Virgo Inc. chose _________.
a) related-constrained diversification
b) related-linked diversification
c) unrelated-constrained diversification
d) unrelated-linked diversification
Answer: a
Difficulty: Hard
20) Saturn Inc. is an e-commerce company that sells home appliances. The firm recently
started selling its line of packaged food items online. In this scenario, Saturn Inc. chose
_________.
a) unrelated-linked diversification
b) related-constrained diversification
c) unrelated-constrained diversification
d) related-linked diversification
Answer: d
Difficulty: Hard
21) Azure LLC is a toy manufacturing company. The company has recently started
manufacturing industrial wiring for construction companies. In this scenario, Azure LLC has
chosen _________.
a) related diversification
c) related-linked diversification
d) related-constrained diversification
Answer: b
Difficulty: Hard
22) Zia, the CEO of Indigo Corp., states that it is essential to diversify the company into new
markets and to create new products. She believes that it is important and profitable to tap new
customer bases and challenging markets as this experience will help the company grow
financially as well as expand its knowledge base on strategic management. Which of the
following statements strengthens Zia’s belief?
a) Moderate diversification pays off but very high levels of diversification will lead to lower
levels of performance.
b) The company will not be able to provide the same value and customer satisfaction when
segmented.
c) Diversification will create a loss of revenue if the parent company decides to segment itself
to different markets.
d) Diversification will reduce the company’s overall cost of producing goods and services.
Answer: d
Difficulty: Hard
Bloomcode: Analyze
Standard 1 : AACSB || Reflective Thinking
23) Elegant Meals Inc., a company that owns a chain of restaurants, sells dinnerware to its
customers who fancy them. Since their restaurants are known for their interior designs, they
also sell home décor products. By selling these products, Elegant Meals Inc. caters to a(n)
_________.
a) entertainment market
b) capital market
c) adjacent market
d) global market
Answer: c
Difficulty: Hard
24) Winter Sources Inc., an apparel manufacturer, recently opened a retail store in its unused
office space to sell the excess material produced. In this way, the company generated extra
profits. The unused space that was available to Winter Sources Inc. is an example of
_________.
a) kanban
b) kaizen
c) hubris
d) slack
Answer: d
Difficulty: Hard
25) Jupiter LLC is a manufacturer of leather items. The board of directors of Jupiter realized
that it is better to produce handbags and shoes together rather than in two separate factories.
This way, the company can reduce its production costs. This scenario best illustrates a(n)
_________.
a) related-linked diversification
c) economy of scope
d) economy of scale
Answer: c
Difficulty: Hard
26) Summer Technologies Inc. is proud of its managerial personnel who have been able to
create unique value for the company. These people have been engaged in coming up with
strategic activities that enabled Summer Technologies to grow and establish itself as a
reliable brand. This set of abilities of the Summer Technologies personnel can most
accurately be termed _________.
a) management skill
b) employee expertise
c) collective wisdom
d) explicit knowledge
Answer: a
Difficulty: Hard
27) Aquarius Corp., a consumer goods company, offers a chain of products that includes food
and beverages, beauty care products, apparels, and home décor. By offering these goods,
Aquarius creates more value for itself than it would have if it had sold these products
individually. This practice by Aquarius Corp. can be referred to as _________.
a) imitation
b) synergy
c) a merger
d) an acquisition
Answer: b
Difficulty: Hard
28) Spring Resources LLC creates unique value by establishing a learning organization that
coordinates various production tactics and assimilates different types of technologies. This
knowledge is distributed to the entire organization so that its branches can adapt and perform
according to their own markets. These tactics and technologies distributed throughout the
organization that create value for Spring Resources LLC are termed _________.
a) inimitability practices
b) prestige development
c) core competencies
d) dominant logic
Answer: c
Difficulty: Hard
29) Galaxy Corp. is a manufacturing company that aims to provide value to its customers by
identifying sources of revenue, the intended customer base, products and processes, and
details of financing. This method that Galaxy Corp. wants to adopt is termed _________.
a) a plan of action
b) a business model
c) dominant logic
d) prestige development
Answer: b
Difficulty: Hard
30) Even though companies offer varied products and provide unique value to their
customers, they have similar barriers to face when entering into a host country due to policies
set up by the country’s government. The similarities shared by the companies in the way they
set up business in the country are an example of a(n) _________.
a) plan of action
b) passive judgment
c) dominant logic
d) imitation
Answer: c
Difficulty: Hard
31) Which of the following is an ancient Greek word for excessive pride, arrogance, or
overconfidence that is used to refer to the actions of managers when they diversify or make
acquisitions based on their own experience or gut feelings rather than on solid data and
research?
a) Kanban
b) Hubris
c) Agora
d) Kaizen
Answer: b
Difficulty: Easy
32) Stacy works as a manager at Daffodils Corp., a manufacturing firm that has not been
performing well. Despite the availability of research materials and databases, she uses her
own experience to make acquisitions because she is usually very confident about the success
of her plans. This attitude of Stacy can be termed _________.
a) hubris
b) selfishness
c) solipsism
d) megalomania
Answer: a
Difficulty: Hard
33) Amber Corp., a jute manufacturing company, wants to diversify into the food industry. In
order to do so, the board of directors decides to move some of its existing resources,
expertise, and technology to set the base of the food unit. The market analysts at Amber
predict that this unit has a high growth potential. Thus, rather than leaving the new food unit
to grow on its own, the board decides to invest in it as it this will help increase the corporate
value of the company. In this scenario, Amber Corp. is trying to create value by acting as a(n)
_________.
a) adjacent market
b) internal capital market
c) external capital market
d) related-constrained market
Answer: b
Difficulty: Hard
34) A company called Techno Plus LLC experienced a failed acquisition, but the managers of
the company were hesitant to end the venture as they had already invested too much time,
finances, and effort into it. They presumed that everything would work out with a little more
money and time. This attitude of the managers of Techno Plus LLC can be termed
_________.
a) hubris
b) arrogance
c) positive thinking
d) sunk cost fallacy
Answer: d
Difficulty: Hard
35) Lee, the CEO of Libra Inc., decided that the best way to diversify this food processing
company would be to set up its own small-scale beverage producing unit in a new area where
its new products would have high demands. This decision by Lee best reflects a(n)
_________.
a) acquisition
b) greenfield entry
c) brownfield entry
d) merger
Answer: b
Difficulty: Hard
Section Reference 1: Methods of Diversification
Learning Objective 1: Use a portfolio management tool to characterize a company’s different
business units and to evaluate how well a company manages its portfolio.
36) Neon Colors Corp., a well-established apparel industry, increased its corporate value by
purchasing a footwear company as part of its growth strategy. It purchased the footwear
company because developing its own operations and processes would be expensive and time
consuming. This is an example of a(n) _________.
a) merger
b) brownfield entry
c) acquisition
d) greenfield entry
Answer: c
Difficulty: Hard
37) In order to successfully carry out an acquisition, the managers at Pink Inc. prepared a list
of potential target companies that it could purchase. In the next step, the managers evaluated
each prospective company in depth to understand their methods of operations, processes,
procedures, strengths, and limitations in order to choose the best target company. This
process of evaluating the companies is best known as _________.
a) due diligence
b) market intelligence
c) consultation
d) market evaluation
Answer: a
Difficulty: Hard
Section Reference 1: The Acquisition and Integration Process
Learning Objective 1: Explain how a company would choose whether to diversify by
greenfield entry or by acquisition. Explain how a company should decide how tightly to
integrate an acquisition into its current business portfolio.
38) Blue Work LLC, a software company, purchased an electronics and electrical company
and implemented its resources and technologies in the target company. Blue Work changed
the entire culture and brand of the target company and introduced its own culture such that
the identity of the target company disappeared. Blue Work benefitted from this acquisition
and witnessed a significant growth. This type of acquisition is known as a _________.
a) greenfield entry
b) takeover
c) union
d) merger
Answer: b
Difficulty: Hard
39) BestBrew Corp. and True Coffee Inc. were two leading coffee manufacturing firms. They
united and created a whole new firm called True Brew Inc. that used the best customer front-
end and operational back-end processes of the two firms. This union is an example of a
_________.
a) brownfield entry
b) greenfield entry
c) takeover
d) merger
Answer: d
Difficulty: Hard
40) Two firms recently had a bolt-on acquisition. Martha, the managing director of one of
these firms, claims that an integration team is required to decide which tactical elements and
operational functions of the two firms should be strategically integrated and implemented.
She believes having this team will enable fair decisions to be made, thus inculcating a
friendly atmosphere in the new firm. Which of the following statements strengthens Martha’s
claim?
a) Having the team may consume the company’s time and effort, but in the long run, it may
help the company grow.
b) The team members of the two firms may be biased toward their own firms, preventing fair
implementation.
c) The team always makes sound decisions that are based on the integration templates that
managers in the acquiring firm choose.
d) The team helps in deciding which culture will be incorporated in the new entity.
Answer: d
Difficulty: Hard
Bloomcode: Analyze
Standard 1 : AACSB || Reflective Thinking
41) Which of the following statements best describes corporate strategy?
a) It is an approach for creating competitive advantage within a single industry, market, or

line of business.
b) It refers to a firm's strategy of selling existing products to new customers.
c) It refers to a firm's strategy of selling new services to new customers.
d) It is an approach for creating value and competitive advantages through participation in
several different industries and markets.
Answer: d
Difficulty: Medium
strategy.
42) Which of the following statements defines a dominant business?
a) A firm earning more than 95 percent of the revenues from a single line of business
b) A firm that earns more than 70 percent of its revenue from its main line of business and the
rest from businesses located along the value chain
c) A firm that earns more than 70 percent of its revenue from its main line of business and the
remainder from other lines across different value chains
d) A firm that operates in related markets, but fewer linkages exist between the new and
existing markets than the elements create separately
Answer: c
Difficulty: Medium
43) Which of the following statements represents related-constrained diversification?
a) A firm earning more than 95 percent of the revenues from a single line of business
b) A firm that earns more than 70 percent of its revenue from its main line of business and the
rest from businesses located along the value chain
c) A firm that earns less than 70 percent of its revenue from its main line of business and
whose other lines of business share product, technological, and distribution linkages with the
main business
d) A firm that earns more than 70 percent of its revenue from its main line of business and the
remainder from other lines across different value chains
Answer: c
Difficulty: Medium
44) Diversification adds value if ________.
a) the combined businesses deliver the same value every time to new or existing customers as
before diversification
b) the combined businesses reduce the firm's overall cost of producing goods or services
c) expansion into an adjacent business requires fewer resources and capabilities
d) expansion into an adjacent business requires reducing the existing production capacity
Answer: b
Difficulty: Medium
45) Slack refers to _________.
a) a lag in the production

b) unused resource capacity
c) reduced production capacity
d) a lack of adequate resources
Answer: b
Difficulty: Medium
46) Which of the following statements is true of slack?
a) Employing slack usually creates value through exploitation.

b) Slack adds value in the form of economies of scale.
c) Slack destroys value through expansion of resources.
d) It refers to the lag in production due to inadequate resources.
Answer: a
Difficulty: Medium
47) In the context of the six Ss, synergy occurs when ________.
a) managers of a company conceptualize the business and make critical human resource
allocation decisions
b) different elements of a system interact in a way that creates more value together than the
elements create separately
c) the combined business delivers the same value every time to new or existing customers as
it did before diversification
d) a company acquires unused redundant resources during an acquisition that expands slack
Answer: b
Difficulty: Medium
48) Under which of the following circumstances does diversification destroy value?
a) When high-powered incentives for managers are provided

b) When resource commonality between the lines of business exists
c) When the new line of business expands the company's capabilities
d) When the new line of business fails to exploit the company's resources
Answer: d
Difficulty: Medium
49) Which of the following statements is true of the sunk cost fallacy?
a) It refers to the decisions made by managers to diversify their corporation because their
competitor diversified first.
b) It is based on the belief of firm managers about the potential of their company's ability to
create value in the adjacent market.
c) It refers to the excessive pride, arrogance, or overconfidence of managers that leads to poor
decisions while making acquisitions.
d) It is the belief of managers that investment in a failed acquisition must continue because
significant amounts have already been invested.
Answer: d
Difficulty: Medium
50) According to the Boston Consulting Group's growth share matrix, cash cows are business
units that _________.
a) have high relative market share but a low growth rate and which can generate large cash
flows
b) combine high share with high growth and which require heavy investments
c) require significant investment and effective strategic management
d) have low share and low growth and which add little profitability to a company
Answer: a
Difficulty: Medium
51) According to the Boston Consulting Group's growth share matrix, which of the following
is true of stars?
a) They are business units that have high share but low growth and which can generate large
cash flows that can be used to fund growth businesses.
b) They are business units that combine high share with high growth and smart managers
should invest heavily in these units to improve their position over time.
c) They are business units that require significant investment and effective strategic
management.
d) They are business units that have low share and low growth and add little profitability to a
company’s overall portfolio businesses.
Answer: b
Difficulty: Medium
52) Identify a limitation of the Boston Consulting group’s growth share matrix.
a) It is complex and difficult to understand.

b) It does not help in evaluating a firm's current portfolio.
c) It does not provide any guidance to the managers of firms about which business units to
invest in and which business units to divest.
d) It says almost nothing about whether a business unit will help the corporation exploit or
expand a company’s resources and capabilities.
Answer: d
Difficulty: Medium
53) Under which of the following conditions should a firm ideally choose greenfield entry?
a) When access to channels is difficult and expensive

b) When a rapid entry is needed to capture an opportunity
c) When the company's brands are not well-known in a new market
d) When the customers in a new market are similar to existing customers
Answer: d
Difficulty: Medium
54) Under which of the following conditions should a firm ideally choose the acquisition
mode of entry?
a) When it can afford to enter new arenas slowly

b) When its industry favors competitors with small scale
c) When its industry is characterized by a steep learning or experience curve
d) When its industry demands standardized knowledge and skills that can be easily gained
Answer: c
Difficulty: Medium
55) Acquisitions may fail to create value because of _________.
a) low acquisition price

b) poor strategic fit
c) loose integration
d) complete due diligence
Answer: b
Difficulty: Medium
Question type: Text Entry
56) In vertical integration, movement in the direction of raw materials is ___.
Answer: backward integration
Difficulty: Easy
strategy.
57) A firm earning more than 95 percent of the revenues from a single line of business is
known as a ___.
Answer: single business
Difficulty: Easy
Question type: Essay
58) What are the mechanisms that help companies in exploiting and/or expanding their
resources and capabilities?
Answer:
Difficulty: Medium
Solution: Exploiting and/or expanding the resources and capabilities usually come through
one of six mechanisms. A mnemonic device of the six Ss helps one remember these
important elements: employing slack, creating synergy, leveraging shared knowledge,
utilizing similar models for success, spreading human and financial capital to its best use, or
providing a stepping stone for the company to a completely new business sector.
59) What does the term adjacent market mean?
Answer:
Difficulty: Medium
strategy.
Solution: An adjacent market is a market or industry that is closely related to markets or
industries a firm currently competes in. The adjacent market may mean selling the firm’s
existing products to new customer groups, bringing new products and services to existing
customers, or selling new products and services to new customers.
60) How does diversification help exploit existing customer-facing resources?
Answer:
Difficulty: Medium
Solution: Diversification allows companies to exploit their existing customer-facing
resources by adding new operational resources and capabilities.
61) Explain the ways in which diversification adds value.
Answer:
Difficulty: Medium
Solution: Diversification adds value when it allows the combined businesses to deliver
greater value and utility to new or existing customers than a firm could without being
diversified. Diversification also adds value if the combined businesses reduce the firm’s
overall cost of producing goods or services. Diversification adds value when expansion into
an adjacent business either exploits the firm’s core and valuable resources and capabilities or
diversification enhances and grows the resource base. Diversification allows companies to
exploit their existing customer-facing resources by adding new operational resources and
capabilities. Diversification also creates value when it helps a company expand its existing
set of resources and capabilities or diversification enables it to prepare for the future.
62) What is a greenfield entry? When should a company use it?
Answer:
Difficulty: Medium
Solution: A greenfield entry is defined as entry into an adjacent market by a firm that opens
its own operation. Greenfield entry makes sense, first and foremost, when companies have
the front-end and back-end resources and capabilities they can immediately exploit to create
value. Greenfield also makes sense when companies can afford to enter new arenas slowly
and at small to moderate investment.
63) What are the two challenges related to acquisition premium that an acquiring firm faces
when acquiring a target firm?
Answer:
Difficulty: Easy
Solution: Acquirers must pay a premium to acquire a target; the premium represents a bet by
the acquirer on its ability to create value through the acquisition. The acquisition premium
creates two challenges for the acquiring firm. First, the larger the premium, the more value
they must actually create to justify the acquisition. Second, given the time value of money,
the larger the premium, the quicker the acquirer must create that value.
64) How does a related-constrained diversification differ from a related-linked

diversification?
Answer:
Difficulty: Medium
Solution: A related-constrained diversification occurs when a firm earns less than 70 percent
of its revenue from its main line of business and its other lines of business share product,
technological, and distribution linkages with the main business. A related-linked
diversification occurs when a firm operates in related markets, but fewer linkages exist
between the new and existing markets than the elements create separately.
65) Mention the factors that lead to destroying value through diversification. Explain any
three of them.
Answer:
Test Bank for Strategic Management Concepts and Cases 2nd Edition Dyer
Difficulty: Easy
Solution: Value usually gets destroyed in one of five ways: excessive pride; sunk cost fallacy;
imitative diversification; poor governance and incentives; or the lack of resource
commonality between the lines of business. (Students’ answers may vary.)
Hubris: Managers may diversify based on their own beliefs about the potential of their
company’s ability to create value in the adjacent market. Hubris is an ancient Greek word for
excessive pride, arrogance, or overconfidence. Managers act with hubris when they diversify
or make acquisitions based on their own experience or their gut feelings rather than on solid
data and research.
Sunk Cost Fallacy: Closely related to hubris as a reason why diversification fails is the sunk
cost fallacy, whereby managers believe that their investment in a failed acquisition just needs
more incremental investment in order to succeed. Executives are often reluctant to abandon a
project in which they have already invested so much time and capital; they often move
forward under the assumption that things will turn around with a little more investment.
Imitation: Managers sometimes feel pressure to diversify their corporation when a competitor
diversifies first. The competitor has done due diligence and selected an attractive target for
acquisition, or made a greenfield entry after careful research and planning. Caught off-guard,
a firm might quickly look for a similar acquisition target or hurry to create a similar line of
business. In their rush to respond, managers fail to consider how attractive the target really is,
or if they have the resources and capabilities that make the new market a value adding
adjacency.
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Question type: Multiple Choice

a) complementary service strategy

a) Business unit strategy

12) Which of the following statements is true of a corporate strategy?

13) Which of the following is an example of a horizontal diversification?

a) A new company selling a new product in the market

16) Which of the following statements is true of a dominant vertical business?

41) Which of the following statements best describes corporate strategy?

a) It is an approach for creating competitive advantage within a single industry, market, or

42) Which of the following statements defines a dominant business?

43) Which of the following statements represents related-constrained diversification?

45) Slack refers to _________.

a) a lag in the production

46) Which of the following statements is true of slack?

a) Employing slack usually creates value through exploitation.

a) When high-powered incentives for managers are provided

a) It is complex and difficult to understand.

a) When access to channels is difficult and expensive

a) When it can afford to enter new arenas slowly

55) Acquisitions may fail to create value because of _________.

a) low acquisition price

Question type: Text Entry

56) In vertical integration, movement in the direction of raw materials is ___.

Answer: backward integration

Question type: Essay

59) What does the term adjacent market mean?

60) How does diversification help exploit existing customer-facing resources?

61) Explain the ways in which diversification adds value.

62) What is a greenfield entry? When should a company use it?

64) How does a related-constrained diversification differ from a related-linked

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