Test Bank For Crafting and Executing Strategy Concepts 22nd Edition Arthur Thompson JR A Strickland III John Gamble Margaret Peteraf Full Download

Test Bank for Crafting and Executing Strategy: Concepts, 22nd Edition, Arthur Thompson Jr, A
Test Bank for Crafting and Executing Strategy:

Concepts, 22nd Edition, Arthur Thompson Jr, A.
Strickland III, John Gamble, Margaret Peteraf
To download the complete and accurate content document, go to:

https://testbankbell.com/download/test-bank-for-crafting-and-executing-strategy-conc
epts-22nd-edition-arthur-thompson-jr-a-strickland-iii-john-gamble-margaret-peteraf/
Visit TestBankBell.com to get complete for all chapters

Crafting and Executing Strategy, 22e (Thompson)
Chapter 8 Corporate Strategy
1) Anna and Martha are owners and managers of A&M, a limited liability corporation (LLC) that
provides a wide array of services: mailing, notary services, packaging and pickup for UPS and
FedEx, as well as faxing and document scanning. Anna and Martha have asked you, as their
consultant, to consider whether or not they might want to diversify into financial planning due to
the increasing number of retirees moving into their community. How would you advise Anna
and Martha to proceed?
A) Remain on course, but only if your single-business company can achieve profitable growth
opportunities in its present industry.
B) A&M needs to develop a corporate-wide strategy.
C) A&M needs to develop a multiline strategy.
D) A&M needs to consider diversification opportunities into financial planning if you have
encountered diminishing market opportunities and stagnating sales in your principal business.
E) Remain on course, but only if A&M encounters enhanced market opportunities and increasing
sales in its principal business.
Answer: D
Explanation: As long as a single-business company can achieve profitable growth opportunities
in its present industry, there is no urgency for Anna and Martha to pursue diversification.
However, A&M's opportunities for growth can become limited if its current industry becomes
competitively unattractive. Thus, diversifying into new, faster-growing industries like financial
planning for retirees always merits strong consideration whenever a single-business company
encounters diminishing market opportunities and stagnating sales in its principal business.
Difficulty: 2 Medium
Topic: Define Corporate Diversification, Evaluate the Types of Corporate Diversification, and
Understand How It Can Enhance Shareholder Value
Learning Objective: 08-01 When and how business diversification can enhance shareholder
value.
Bloom's: Apply
AACSB: Analytical Thinking
Accessibility: Keyboard Navigation
1
Copyright © 2020 McGraw-Hill Education. All rights reserved.
No reproduction or distribution without the prior written onsent of McGraw-Hill Education.
2) Imagine you are the CEO of a regional ride-sharing company considering diversification into
meal delivery services. How would you determine whether or not your diversification strategy
would be successful?
A) Diversification would result in increased ease of entry into new market locations.
B) Diversification would result in increased performance of the existing business.
C) Diversification would result in increased switching costs for customers.
D) Diversification would result in enhanced industry attractiveness.
E) Diversification would result in enhanced shareholder value.
Answer: E
Explanation: Crafting a diversified company's overall corporate strategy is aimed at creating
enhanced shareholder value, that is, value that shareholders could not capture on their own by
spreading their investments across the stocks of companies in different industries.
value.
Bloom's: Apply
3) Diversification ought to be considered when a

A) company is under pressure to create a more attractive and cost-efficient value chain.
B) company begins to encounter diminishing growth prospects in its mainstay business.
C) company's profits are being squeezed and it needs to increase its net profit margins and return
on investment.
D) company lacks sustainable competitive advantage in its present business.
E) company has run out of ways to achieve a distinctive competence in its present business.
Answer: A
Explanation: Diversifying into new industries always merits strong consideration whenever a
single-business company encounters diminishing market opportunities and stagnating sales in its
principal business.
value.
Bloom's: Analyze
2
4) Diversifying into new businesses can be considered a success only if it
A) results in increased profit margins and bigger total profits.
B) builds shareholder value.
C) helps a company escape the rigors of competition in its present business.
D) leads to the development of a greater variety of distinctive competencies and competitive
capabilities.
E) helps the company overcome the barriers to entering additional foreign markets.
Answer: B
Explanation: Diversification cannot be considered a success unless it results in added
shareholder value—value that shareholders cannot capture on their own by spreading their
investments across the stocks of companies in different industries.
value.
Bloom's: Understand
5) It becomes particularly urgent for a company to consider diversification when there are
A) opportunities to leverage existing competencies and capabilities by expanding into businesses
where these same resources are key success factors and valuable competitive assets.
B) diminishing market opportunities and stagnating sales in its principal business.
C) opportunities to lower costs by entering closely related businesses.
D) opportunities 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) needs to avoid putting all of its "eggs" in one industry basket.
Answer: B
Explanation: Diversifying into new industries always merits strong consideration whenever a
single-business company encounters diminishing market opportunities and stagnating sales in its
principal business.
value.
Bloom's: Understand
3
6) To create value for shareholders via diversification, a company must
A) get into new businesses that are profitable.
B) diversify into industries that are growing rapidly.
C) spread its business risk across various industries by only acquiring firms that are strong
competitors in their respective industries.
D) diversify into businesses that can perform better under a single corporate umbrella than they
could perform operating as independent, stand-alone businesses.
E) diversify into businesses that have either key success factors or value chains that are similar to
its present businesses.
Answer: D
Explanation: Diversification cannot be considered a success unless it results in added
shareholder value—value that shareholders cannot capture on their own by spreading their
investments across the stocks of companies in different industries.
value.
Bloom's: Understand
7) How would you explain the difference between a one-business company and a diversified
company?
A) The first uses a business-level strategy, while the second uses a set of business strategies and
a corporate strategy.
B) The first uses a business-level strategy, while the second uses a corporate-wide strategy.
C) The first uses an operating strategy, while the second uses a business-line strategy.
D) The first uses a functional strategy, while the second uses a business-line strategy.
E) The first uses a single-line strategy, while the second uses a multiline strategy.
Answer: A
Explanation: In a one-business company, managers have to come up with a plan for competing
successfully in only a single industry environment—labeled as business strategy (or business-
level strategy). But in a diversified company, the strategy-making challenge involves developing
a set of business strategies, one for each industry arena in which the diversified company
operates and a companywide (or corporate) strategy for improving the performance of the
company's overall business lineup.
value.
Bloom's: Analyze
4
8) The task of crafting a company's overall corporate strategy for a diversified company
encompasses all of the following except
A) picking the new industries to enter and deciding on the means of entry.
B) initiating actions to boost the combined performance of the corporation's collection of
businesses.
C) pursuing opportunities to leverage cross-business value chain relationships and strategic fit
into competitive advantage.
D) establishing investment priorities and steering corporate resources into the most attractive
business units.
E) divesting well-performing businesses.
Answer: E
Explanation: Strategic options for improving the corporation's overall performance include
retrenching to a narrower scope of diversification by divesting poorly performing businesses, not
well-performing businesses.
Difficulty: 1 Easy
value.
Bloom's: Remember
AACSB: Knowledge Application
5
9) You are the general manager of a regional HR staffing company. What strategic consideration
would be LEAST likely to influence your decision to diversify your firm into new, related or
unrelated business services?
A) making a selection among new industries to enter and deciding on the means of entry
B) analyzing and settling on the appropriate value chain for each business the company has
entered
C) leveraging cross-business value chain relationships and strategic fit to achieve a competitive
advantage
D) establishing investment priorities and steering corporate resources into the most attractive
business units
E) taking actions to boost the combined performance of any new lines of business the firm has
entered
Answer: B
Explanation: Choosing the appropriate value chain for each business the company has entered is
not one of the elements of crafting corporate strategy for a diversified company.
Difficulty: 3 Hard
value.
Bloom's: Apply
10) The decision to pursue diversification requires management to resolve which industries to
enter and whether to enter, and includes such decisions as the following, except
A) selecting the appropriate value chain operating practices to improve the financial outlook.
B) starting a business from the ground up.
C) acquiring a company already established in the target industry.
D) forming a joint venture or partnership with another company.
E) structuring a strategic alliance with another company to take advantage of the opportunity.
Answer: A
Explanation: The decision to pursue business diversification requires that management decide
which new industries to enter and whether to enter by starting a new business from the ground
up, acquiring a company already in the target industry, or forming a joint venture or strategic
alliance with another company.
Difficulty: 1 Easy
value.
Bloom's: Remember
6
11) When Disney acquired Marvel Comics on August 31, 2009, for $4.24 billion, management
needed to determine whether or not there were opportunities to strengthen the business, which
includes all of the following considerations, except
A) the transferring of valuable resources and capabilities from one business to another.
B) combining related value chain activities of different businesses to achieve lower costs.
C) forcing cultural independence, operating diversity, and sophisticated analytical responsibility
on the businesses to ensure compatibility with the corporate overhead identity.
D) sharing the use of powerful and well-respected brand names across multiple businesses.
E) encouraging knowledge-sharing and collaborative activity among the businesses.
Answer: C
Explanation: Forcing cultural independence, operating diversity, and sophisticated analytical
responsibility on the businesses are not tasks for leveraging cross-business value chain
relationships into competitive advantage. When Disney acquired Marvel Comics, management
saw to it that Marvel's iconic characters, such as Spiderman, Iron Man, and the Black Widow,
were shared with many of the other Disney businesses, including its theme parks, retail stores,
motion picture division, and video game business.
Difficulty: 3 Hard
Topic: Related Diversification vs. Unrelated Diversification
value.
Bloom's: Analyze
7
12) When pharmacy chain CVS Health announced a $69 billion merger with the health insurance
giant Aetna late in 2017, top management of CVS needed to weigh a number of strategic
considerations except
A) CVS's opportunities to pursue rapid growth strategies in its most promising businesses.
B) CVS's opportunities to initiate profit improvements or turnaround strategies for weak-
performing businesses showing potential.
C) CVS's opportunities to divest other unattractive businesses.
D) CVS's opportunities to pursue debt reduction to lower its debt/equity ratio while maintaining
asset levels.
E) CVS's opportunities to pursue divestiture of businesses that did not fit into the company's
longer term plans.
Answer: D
Explanation: Strategic uses of corporate financial resources should usually take precedence over
strictly financial considerations (see Figure 8.5) unless there is a compelling reason to strengthen
the firm's balance sheet or better reward shareholders. The pursuit of debt reduction
opportunities that can lower the debt/equity ratio while maintaining asset levels is not one of the
rapid growth strategies for a company.
Difficulty: 3 Hard
Topic: Tools for Analyzing Diversification Strategies
value.
Bloom's: Apply
13) Initiating actions to boost the combined performance of the corporation's collection of
businesses includes all of the following strategic options, except
A) sticking closely with the existing business lineup and pursuing available opportunities.
B) broadening the scope of diversification by entering additional industries.
C) divesting some businesses and retrenching to a narrower collection of businesses.
D) restructuring the entire company by adding and removing businesses to improve overall
performance.
E) refocusing the existing businesses on new substitute product-line opportunities outside the
existing industry framework.
Answer: E
Explanation: Initiating actions to boost the combined performance of the corporation's collection
of businesses does not include the option of refocusing the existing businesses on new substitute
product-line opportunities outside the existing industry framework.
Difficulty: 1 Easy
value.
Bloom's: Remember
8
14) On July 27, 2018, shareholders of the Walt Disney Company and 21st Century Fox agreed to
a $71.3 billion purchase plan that gave Disney the bulk of the Fox media empire, substantially
altering the entertainment landscape. What was LEAST likely among Disney's considerations in
completing its acquisition of Fox?
A) expanding into industries whose technologies and products complemented its present media
and entertainment businesses.
B) leveraging existing resources and capabilities by expanding into related industries where these
same resource strengths were key success factors and valuable competitive assets.
C) purchasing a powerful and well-known brand name that could 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) opening up new avenues for reducing costs by diversifying into closely related businesses
such as direct-to-consumer streaming of media content.
E) expanding into additional businesses that unlock possibilities for a comprehensive cost
enhancement strategy.
Answer: E
Explanation: Expanding into additional businesses that unlock possibilities for a comprehensive
cost enhancement strategy is not a relevant strategic option for a company for diversification.
Difficulty: 3 Hard
value.
Bloom's: Apply
15) The three tests for judging whether a particular diversification move can create value for
shareholders are the
A) attractiveness test, the profitability test, and the shareholder value test.
B) strategic fit test, the competitive advantage test, and the return-on-investment test.
C) resource fit test, the profitability test, and the shareholder value test.
D) attractiveness test, the cost of entry test, and the better-off test.
E) shareholder value test, the cost of entry test, and the profitability test.
Answer: D
Explanation: To build shareholder value, any business diversification strategy should pass the
three Tests of Corporate Advantage: the industry attractiveness test, the cost of entry test, and the
better-off test.
Difficulty: 1 Easy
value.
Bloom's: Remember
9
16) To test whether a particular diversification move has good prospects for creating added
shareholder value, corporate strategists should use the
A) profit test, the competitive strength test, the industry attractiveness test, and the capital gains
test.
B) better-off test, the competitive advantage test, the profit expectations test, and the shareholder
value test.
C) barrier-to-entry test, the competitive advantage test, the growth test, and the stock price effect
test.
D) strategic fit test, the industry attractiveness test, the growth test, the dividend effect test, and
the capital gains test.
E) attractiveness test, the cost of entry test, and the better-off test.
Answer: E
Explanation: To build shareholder value, any business diversification strategy should pass the
three Tests of Corporate Advantage: the industry attractiveness test, the cost of entry test, and the
better-off test.
Difficulty: 1 Easy
value.
Bloom's: Remember
17) 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
A) make the company better off because it will produce a greater number of core competencies.
B) make the company better off by improving its balance sheet strength and credit rating.
C) make the company better off by spreading shareholder risks across a greater number of
businesses and industries.
D) 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.
E) help each business earn exactly what they were earning before coming under the same
corporate umbrella.
Answer: D
Explanation: Diversification does not result in added long-term value for shareholders unless it
produces a 1 plus 1 equal to 3 effect, whereby the businesses perform better together as part of
the same firm than they could have performed as independent companies.
value.
Bloom's: Understand
10
18) A company can best accomplish diversification into new industries by
A) outsourcing most of the value chain activities that have to be performed in the target
business/industry.
B) acquiring a company already operating in the target industry, creating a new business from
scratch, or forming a joint venture with one or more companies to enter the target industry.
C) integrating forward or backward into the target industry.
D) shifting from a strategic group comprised mostly of single-business companies to a strategic
group comprised of diversified companies.
E) employing an offensive strategy with new product innovation as its centerpiece.
Answer: B
Explanation: A company can achieve diversification by acquiring an existing company, starting
up a new business from scratch, or forming a joint venture with one or more companies to enter
new businesses. In every case, however, the decision to diversify must start with a strong
economic justification for doing so.
Difficulty: 1 Easy
value.
Bloom's: Remember
11
19) Apple's $3 billion acquisition of Beats Electronics and Beats Music in 2014 was an attractive
strategy option for entering promising new industries in headphones and streaming music
services because it
A) was an effective way to hurdle entry barriers, is usually quicker than trying to launch a brand-
new startup operation, and allows the acquirer to move directly to the task of building a strong
position in the target industry.
B) was less expensive than launching a new startup operation, thus passing the cost of entry test.
C) offered a challenging opportunity to train new resources and revive a sagging business even if
does not offer great prospects for growth, profitability, or return on investment.
D) was more likely to result in passing the shareholder value test, the profitability test, and the
better-off test.
E) offered 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.
Answer: A
Explanation: Acquisition of an existing business offers an effective way to hurdle such entry
barriers as acquiring technological know-how, establishing supplier relationships, achieving
scale economies, building brand awareness, and securing adequate distribution. However, the
industry to be entered through diversification must be structurally attractive, have resource
requirements that match those of the parent company, and offer good prospects for growth,
profitability, and return on investment.
value.
Bloom's: Understand
12
20) In April 2017, PetSmart agreed to make the largest e-commerce acquisition in history to
date, putting a deal in place to snatch up fast-growing pet food and product site Chewy. com for
$3.35 billion. The acquisition premium for this particular deal can be calculated as the amount by
which the price PetSmart offered for Chewy.com exceeded the
A) fair market value of similar companies in the same geographic locale as Chewy.com.
B) preacquisition market value of Chewy.com.
C) comparable value of similar companies to Chewy.com within the same market.
D) amount paid as a down payment for Chewy.com that was to be held in escrow until closing.
E) difference between the amount that was offered for Chewy.com and the amount that was held
in escrow to complete the deal.
Answer: B
Explanation: An acquisition premium, or control premium, is the amount by which the price
offered exceeds the preacquisition market value of the target company.
value.
Bloom's: Apply
21) What is the name of the process for developing new businesses as an outgrowth of a
company's established business operations?
A) corporate venturing
B) value chain integration
C) resource capability process
D) diversification activity capabilities
E) business launch
Answer: A
Explanation: Corporate venturing (or new venture development) is the process of developing
new businesses as an outgrowth of a company's established business operations. It is also
referred to as corporate entrepreneurship or intrapreneurship since it requires entrepreneurial like
qualities within a larger enterprise.
Difficulty: 1 Easy
value.
Bloom's: Remember
13
22) Tanisha is CEO of a multinational corporate event planning firm. What would make it
unappealing to her to consider diversification into a new industry such as lodging by forming an
internal startup subsidiary to enter and compete in the target industry?
A) when internal entry is cheaper than entry via acquisition
B) when a company possesses the skills and resources to overcome entry barriers and there is
ample time to launch the business and compete effectively
C) when adding new production capacity will not adversely impact the supply demand balance in
the industry by creating oversupply conditions
D) when the industry is growing rapidly and the target industry is comprised 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
Answer: D
Explanation: Generally, internal development of a new business has appeal only when (1) the
parent company already has in-house most of the resources and capabilities it needs to piece
together a new business and compete effectively; (2) there is ample time to launch the business;
(3) the internal cost of entry is lower than the cost of entry via acquisition; (4) adding new
production capacity will not adversely impact the supply–demand balance in the industry; and
(5) incumbent firms are likely to be slow or ineffective in responding to a new entrant's efforts to
crack the market. If the target lodging industry is already comprised of several relatively large
and well-established firms, it will not be appealing for Tanisha's company to form an internal
startup and enter and compete in the same industry.
Difficulty: 3 Hard
value.
Bloom's: Apply
14
23) The big dilemma an acquisition-minded firm faces is whether to
A) focus on building brand awareness or establishing supplier relationships.
B) pay a premium price for a successful company or buy a struggling company at a bargain
price.
C) strive for scale economies or to acquire technical know-how to customize production.
D) focus on building brand awareness or striving for scale economies.
E) focus on acquiring technical know-how or outsourcing production.
Answer: B
Explanation: Acquisition offers an effective way to hurdle such entry barriers as acquiring
technological know-how, establishing supplier relationships, achieving scale economies,
building brand awareness, and securing adequate distribution. The big dilemma an acquisition-
minded firm faces is whether to pay a premium price for a successful company or to buy a
struggling company at a bargain price.
value.
Bloom's: Understand
24) The transaction costs of completing a business agreement or deal of some sort, over and
above the price of the deal, can include all of the following except
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) the premium cost.
Answer: E
Explanation: Transaction costs are the costs of completing a business agreement or deal, over
and above the price of the deal. They can include the costs of searching for an attractive target,
the costs of evaluating its worth, bargaining costs, and the costs of completing the transaction,
but not the premium cost. This is because the price of the deal includes the acquisition premium
cost over the share price of the target company.
value.
Bloom's: Understand
15
25) The essential requirement for different businesses to be "related" is that
A) their value chains exhibit competitively valuable cross-business commonalities.
B) the products of the different businesses are bought by many of 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 they employ both entail economies of scale.
Answer: A
Explanation: Businesses are said to be related when their value chains exhibit competitively
important cross-business commonalities.
Learning Objective: 08-02 How cross-business strategic fit in related diversification can
contribute to each business's competitive advantage.
Bloom's: Understand
26) Unrelated businesses

A) sell products from the different businesses to much the same types of buyers and retail
outlets.
B) have dissimilar value chains and resource requirements with no competitively important
cross-business commonalities at the value chain level.
C) perform better than just the sum of the individual businesses.
D) will always have several key suppliers in common.
E) employ production methods that create economies of scale.
Answer: B
Explanation: Unrelated businesses have dissimilar value chains and resource requirements, with
no competitively important cross-business commonalities at the value chain level.
Difficulty: 1 Easy
value.
Bloom's: Remember
16
27) Procter & Gamble's acquisition of Gillette was integral to a corporate diversification strategy
for building the company around businesses
A) with strategic fit with respect to key value chain activities and competitive assets.
B) that are highly independent, proficient, and efficient operating firms.
C) with strategic fit across separate value chain activities that drive each business.
D) that can also include unrelated businesses with dissimilar resource requirements.
E) that have dissimilar value chain activities with no cross-business commonalities.
Answer: A
Explanation: See Figure 8.6. Procter & Gamble's strategic intent was to acquire businesses that
would complement and strengthen the market position and competitive capabilities of business in
industries where the company already had a stake. As stated in the text, a related corporate
diversification strategy involves building the company around businesses where there is good
strategic fit across corresponding value chain activities. Strategic fit exists whenever one or more
activities constituting the value chains of different businesses are sufficiently similar to present
opportunities for cross-business sharing or transferring of the resources and capabilities that
enable these activities. In Procter & Gamble's case a very important and highly motivating factor
for adding new businesses via the acquisition of Gillette was to complement and strengthen the
market position and competitive capabilities of one or more of the company's present businesses
and share common distribution channels for those acquired brands.
Bloom's: Analyze
17
28) Related corporate diversification does not necessarily provide opportunities
A) for transferring expertise, technology, and other capabilities from one business to another.
B) for reducing costs on advertising by leveraging use of a competitively powerful brand name.
C) to exploit a first-mover strategy and capture valuable financial fits.
D) for cross-business collaboration to create valuable new competencies and capabilities.
E) to share other resources (besides brands) that support corresponding value chain activities
across businesses.
Answer: C
Explanation: Related diversification is based on value chain matchups with respect to key value
chain activities—those that play a central role in each business's strategy and that link to its
industry's key success factors. Such matchups facilitate the sharing or transfer of the resources
and capabilities that enable the performance of these activities and underlie each business's quest
for competitive advantage. By facilitating the sharing or transferring of such important
competitive assets, related diversification can elevate each business's prospects for competitive
success.
Bloom's: Understand
18
29) Strategic fit between two or more businesses exists when one or more activities comprising
their respective value chains present opportunities
A) to prevent the transfer of expertise or technology or capabilities from one business to another.
B) to independently preserve common brand names from cross-business usage.
C) to increase costs by combining the performance of the related value chain activities of
different businesses.
D) for cross-business collaboration to build valuable new resource strengths and competitive
capabilities.
E) to maintain business value chain activities separate and apart from one business to another to
protect company independence.
Answer: D
Explanation: A related diversification strategy involves building the company around businesses
where there is good strategic fit across corresponding value chain activities. Strategic fit exists
whenever one or more activities constituting the value chains of different businesses are
sufficiently similar to present opportunities for cross-business sharing or transferring of the
resources and capabilities that enable these activities.
Bloom's: Understand
30) One strategic fit-based approach to related diversification would be to

A) diversify into new industries that present opportunities to transfer specialized expertise,
technological know-how, or other valuable resources and capabilities from one business's value
chain to another's.
B) diversify into foreign markets where the firm has unrelated businesses.
C) acquire rival firms that have broader product lines so as to give the company access to a wider
range of buyer groups.
D) acquire companies in forward distribution channels (wholesalers and/or retailers).
E) expand into foreign markets where the firm currently does no business.
Answer: A
Explanation: Transferring specialized expertise, technological know-how, or other competitively
valuable strategic assets from one business's value chain to another's is a sound diversification
strategy with a good strategic fit.
Bloom's: Analyze
19
31) Of the following strategic fit opportunities, which choice is not supportive of related business
activities?
A) transferring specialized expertise, technological know-how, or other valuable resources and
capabilities from one business's value chain to another's
B) cost sharing between businesses by combining their related value chain activities into a single
operation
C) overhauling and streamlining the operations of the business by refocusing value chain
activities toward businesses that can provide a superior job of parenting
D) exploiting common use of a well-known brand name
E) sharing other resources (besides brands) that support corresponding value chain activities
across businesses
Answer: C
Explanation: Transferring specialized expertise, technological know-how, or other valuable
resources and capabilities from one business's value chain to another's, cost sharing between
businesses by combining their related value chain activities into a single operation, exploiting
common use of a well-known brand name, and sharing other resources (besides brands) that
support corresponding value chain activities across businesses are all good examples of strategic
fit opportunities.
Bloom's: Understand
20
32) Businesses with strategic fit with respect to their supply chain activities perform better
together because of all of the following except the
A) potential for skills transfer in procuring materials.
B) sharing of resources and capabilities in logistics.
C) benefits of added collaboration with common supply chain partners.
D) added leverage gained with shippers when securing volume discounts on incoming parts and
components.
E) increased allocation and allotment of support activities and specialized resources and
capabilities.
Answer: E
Explanation: Businesses with strategic fit with respect to their supply chain activities can
perform better together because of the potential for transferring skills in procuring materials,
sharing resources and capabilities in logistics, collaborating with common supply chain partners,
and/or increasing leverage with shippers in securing volume discounts on incoming parts and
components.
Bloom's: Understand
21
33) By cutting back operations to match areas of declining demand and moving some operations
overseas, Hewlett-Packard anticipates a reduction in costs of more than $2 billion. But despite
having made significant progress toward being a smaller, more nimble company, significant
challenges in returning to profitability still remain. Hewlett-Packard is a good example of
A) pursuing a strategy of corporate restructuring
B) achievement of cost savings in research and development areas
C) reducing cycle times in getting new products to market
D) strategic fits in R&D or technology development to boost sales in both the parent company
and the diversified businesses
E) strategic fits in innovation to allow for a greater number of new products or processes
Answer: A
Explanation: See Illustration Capsule 8.2. The primary task for Hewlett-Packard is continuing
its corporate restructuring efforts to realign its remaining business units into groups with the best
strategic fit and then redeploying the cash flows from the divested businesses to either pay down
debt or make new acquisitions to strengthen the parent company's business position in the
industries it has chosen to emphasize. The text notes that businesses with strategic fit in R&D or
technology development perform better together than apart because of potential cost savings in
R&D, shorter times in getting new products to market, and more innovative products or
processes. Moreover, technological advances in one business can lead to increased sales for both.
Technological innovations have been the key driver behind the success of several diversified
businesses, while businesses using outdated processes or technologies tend to lag behind or even
fail.
Difficulty: 3 Hard
Topic: Portfolio Analysis and Strategy Decisions
Bloom's: Analyze
22
34) What is the difference between economies of scale and economies of scope?
A) Scale refers to the magnitude or size of the operation, while scope refers to the reach of
defined savings within the value chain.
B) Scale refers to the extent of change, while scope refers to the possibilities of change.
C) Scale is about dimensions, while scope is about the capacity available for production
capabilities.
D) Scale refers to cost savings that accrue directly from larger-sized operations, while scope
stems directly from strategic fit along the value chains of related businesses.
E) Scale and scope mean the same thing and the only difference is the extent of cost savings
accrued from unrelated businesses in each.
Answer: D
Explanation: Economies of scale are cost savings that accrue directly from a larger-sized
operation—for example, unit costs may be lower in a large plant than in a small plant.
Economies of scope, however, stem directly from strategic fit along the value chains of related
businesses, which in turn enables the businesses to share resources or to transfer them from
business to business at low cost.
Bloom's: Analyze
23
35) Cross-business strategic fit in a diversified enterprise is not normally achieved when
A) the management know-how accumulated in one business is transferable to the other.
B) two businesses present opportunities to economize on marketing, selling, and distribution
costs.
C) related diversification produces a synergistic performance outcome.
D) the value chain activities of unrelated businesses possess economies of scope and good
financial fit.
E) 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.
Answer: D
Explanation: Related diversification is an opportunity to convert cross-business strategic fit into
a competitive advantage via (1) transferring skills or knowledge, (2) combining related value
chain activities to achieve lower costs, (3) leveraging the use of a well-respected brand name, (4)
sharing other valuable resources, and (5) using cross-business collaboration and knowledge
sharing to create new resources and capabilities and drive innovation.
Bloom's: Analyze
36) What makes related diversification an attractive strategy?

A) the ability to broaden the company's product line
B) the opportunity to convert cross-business strategic fit into competitive advantage over
business rivals whose operations don't offer comparable strategic fit benefits
C) the potential for improving the stability of the company's financial performance
D) the ability to serve a broader spectrum of buyer needs
E) the added capability it provides in overcoming the barriers to entering foreign markets
Answer: B
Explanation: What makes related diversification an attractive strategy is the opportunity to
convert cross-business strategic fit into a competitive advantage over business rivals whose
operations do not offer comparable strategic-fit benefits.
Bloom's: Understand
24
37) Economies of scope
A) are cost reductions that flow from operating in multiple related businesses.
B) arise only from strategic fit relationships in the production portions of the value chains of
sister businesses.
C) are more associated with unrelated diversification than related diversification.
D) are present whenever diversification satisfies the attractiveness test and the cost of entry test.
E) arise mainly from strategic fit relationships in the distribution portions of the value chains of
unrelated businesses.
Answer: A
Explanation: Economies of scope stem directly from strategic fit along the value chains of
related businesses, which in turn enables the businesses to share resources or to transfer them
from business to business at low cost.
Difficulty: 1 Easy
Bloom's: Remember
38) When discussing "economies of scope," it involves understanding that they

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.
Answer: C
Bloom's: Understand
25
39) An economy of scope is BEST illustrated by being able to eliminate or reduce costs by
A) combining related value-chain activities of different businesses into a single operation.
B) performing all of the value chain activities of related sister businesses at the same location.
C) extending the firm's scope of operations over a wider geographic area.
D) expanding the size of a company's manufacturing plants.
E) having more value chain activities performed in-house rather than outsourcing them.
Answer: A
Bloom's: Understand
40) A big advantage of related diversification is that it

A) 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) is less capital intensive and usually more profitable than unrelated diversification.
C) involves diversifying into industries having the same kinds of key success factors.
D) is less risky than either vertical integration or unrelated diversification due to lower capital
requirements.
E) passes the industry attractiveness test and thus offers the best route to 2 + 2 = 4 benefits.
Answer: A
Explanation: The competitive advantage potential that flows from the capture of strategic fit
benefits is what enables a company pursuing related diversification to achieve 1 + 1 = 3 financial
performance and the hoped-for gains in shareholder value.
Bloom's: Understand
26
41) The basic premise of unrelated diversification is that
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 that 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.
Answer: D
Explanation: With a strategy of unrelated diversification, an acquisition is deemed to have
potential if it passes the industry-attractiveness and cost of entry tests and if it has good prospects
for attractive financial performance.
Learning Objective: 08-03 The merits and risks of unrelated diversification strategies.
Bloom's: Understand
42) With a strategy of unrelated diversification, an acquisition is deemed to have potential if it

A) can achieve at least existing profit margins into the near future.
B) has the opportunity to generate positive buzz in the industry, even if it may not be able to
contribute to the parent firm's bottom line.
C) can pass the industry attractiveness test and the cost of entry test, and if it has good prospects
for profit growth.
D) can pass at least the industry attractiveness test if not the cost of entry test.
E) can add economic value for managers.
Answer: C
Explanation: With a strategy of unrelated diversification, an acquisition is deemed to have
potential if it passes the industry-attractiveness and cost of entry tests and if it has good prospects
for attractive financial performance.
Difficulty: 1 Easy
Bloom's: Remember
27
43) Corporate parenting refers to all of the following except
A) the role that a diversified corporation plays in nurturing its component businesses through the
provision of top management expertise, disciplined control, financial resources, and capabilities.
B) the help subsidiaries receive in performing better when they utilize astute high-level guidance
from corporate executives.
C) the corporation's ability to provide generalized support resources so as to create value by
lowering companywide overhead costs by eliminating duplication of efforts.
D) efforts to capitalize on the umbrella brands and enhance value proposition across businesses.
E) efforts to judiciously segregate funds for each business in such a way that keeps the money
safe and discourages shifting funds across business units.
Answer: E
Explanation: Corporate parenting refers to the role that a diversified corporation plays in
nurturing its component businesses through the provision of top management expertise,
disciplined control, financial resources, and other types of general resources and capabilities such
as long-term planning systems, business development skills, management development
processes, incentive systems, umbrella brands, and an internal capital market capability to allow
judicious cross-business allocation of financial resources.
Difficulty: 1 Easy
Topic: Challenges of Post-Merger Integration
Bloom's: Remember
44) An umbrella brand

A) is a generalized resource that can be leveraged in unrelated diversification.
B) is a brand name that can steer a narrow assortment of business types.
C) represents a public disclosure spotlighting the corporate image.
D) represents an overall corporate marker covering its overriding image of sustainability and
responsibility.
E) is a specialized resource designed to influence profit growth.
Answer: A
Explanation: An umbrella brand is a corporate brand name that can be applied to a wide
assortment of business types. As such, it is a type of general resource that can be leveraged in
unrelated diversification.
Difficulty: 1 Easy
Bloom's: Remember
28
45) A diversified company has a parenting advantage when it
A) is more able than other companies to boost the combined performance of its individual
businesses through its high-level guidance, general oversight, and other corporate-level
contributions.
B) is more able than other companies to create positive collaboration within its portfolio for
different specialty groups and geographic locations.
C) results in supporting short-term economic shareholder value.
D) manages a set of fundamentally similar business operations inside fundamentally similar
industries and environments.
E) avoids acquiring undervalued companies and thus reduces risks.
Answer: A
Explanation: Corporate parenting refers to the role that a diversified corporation plays in
nurturing its component businesses through the provision of top management expertise,
disciplined control, financial resources, and other types of general resources and capabilities such
as long-term planning systems, business development skills, management development
processes, incentive systems, umbrella brands, and an internal capital market capability to allow
judicious cross-business allocation of financial resources.
Bloom's: Understand
46) Should a company pursue an unrelated diversification strategy, the types of companies that
make particularly attractive acquisition targets would be
A) struggling companies with good turnaround potential, undervalued companies that can be
acquired at a bargain price, and companies that have bright growth prospects but are short on
investment capital.
B) companies offering the biggest potential to reduce labor costs.
C) cash cow businesses with excellent financial fit.
D) companies that are market leaders in their respective industries.
E) companies that employ the same basic type of competitive strategy as the parent corporation's
existing businesses.
Answer: A
Explanation: Struggling companies with good turnaround potential, undervalued companies that
can be acquired at a bargain price, and companies with bright growth prospects but short on
investment capital are all attractive acquisition targets for a company with an unrelated
diversification strategy.
Bloom's: Understand
29
47) The two biggest drawbacks or disadvantages of unrelated diversification are
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) the demanding managerial requirements and the limited competitive advantage potential due
to lack of cross-business strategic fit benefits.
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.
Answer: C
Explanation: Besides demanding managerial requirements, unrelated diversification offers only
a limited potential for competitive advantage beyond what each individual business can generate
on its own. Unlike a related diversification strategy, unrelated diversification provides no cross-
business strategic fit benefits that allow each business to perform its key value chain activities in
a more efficient and effective manner.
Bloom's: Understand
48) For an unrelated diversification strategy to produce financial results above that of stand-
alone entities, executives must do all of the following except
A) diversify into businesses that can produce consistently good earnings and returns on
investment and thereby satisfy the attractiveness test.
B) negotiate favorable acquisition prices (to satisfy the cost of entry test).
C) 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).
D) satisfy the attractiveness test, the cost of entry test, and the better-off test.
E) leverage the cross-business strategic fit advantage effectively.
Answer: E
Explanation: Given the absence of cross-business strategic fit with which to create competitive
advantages, an unrelated diversification strategy ultimately hinges on the ability of the parent
company to improve its businesses (and make the combination better off) via other means.
Bloom's: Understand
30
49) The two biggest drawbacks or disadvantages of unrelated diversification are
A) underemphasizing the importance of resource fit and the strong likelihood of diversifying into
businesses that top management does not know all that much about.
B) insufficient cash flows to finance so many different lines of business and a lack of uniformity
among the strategies of the businesses it has diversified into.
C) volatile sales and profits and making the mistake of diversifying into too many cash cow
businesses.
D) the difficulties of competently managing many different businesses and being without the
added source of competitive advantage that cross-business strategic fit provides.
E) over-investing in the achievement of economies of scope and the difficulties of achieving a
good mix of cash cow and cash hog businesses.
Answer: D
Explanation: Besides demanding managerial requirements, unrelated diversification offers only
a limited potential for competitive advantage beyond what each individual business can generate
on its own. Unlike a related diversification strategy, unrelated diversification provides no cross-
business strategic fit benefits that allow each business to perform its key value chain activities in
a more efficient and effective manner.
Bloom's: Understand
50) Which of the following rationales for pursuing unrelated diversification is likely to increase
shareholder value?
A) to reduce risk by way of spreading the company's investments over a set of truly diverse
industries
B) to enable a company to achieve rapid or continuous growth
C) to chance that market downtrends in some of the company's businesses will be partially offset
by cyclical upswings in its other businesses
D) to provide benefits to managers such as high compensation and reduced unemployment risk
E) to restructure an underperforming business
Answer: E
Explanation: Risk reduction, rapid growth, stabilization of earnings, and managerial motives are
misguided reasons for pursuing unrelated diversification to increase shareholder value.
Bloom's: Understand
31
51) Two important negatives of unrelated diversification are
A) underemphasizing the importance of resource fit and the strong likelihood of diversifying into
businesses that top management does not know all that much about.
B) insufficient cash flows to finance so many different lines of business and a lack of uniformity
among the strategies of the businesses it has diversified into.
C) volatile sales and profits and making the mistake of diversifying into too many cash cow
businesses.
D) the difficulties of competently managing a set of fundamentally different businesses and
having a very limited competitive advantage potential that cross-business strategic fit provides.
E) overinvesting in the achievement of economies of scope and the difficulties of achieving a
good mix of cash cow and cash hog businesses.
Answer: D
Explanation: Unrelated diversification strategies have two important negatives that undercut the
pluses: very demanding managerial requirements and limited competitive advantage potential
due to the absence of cross-business strategic fit.
Bloom's: Understand
32
52) The one factor that company executives need not worry about when their company is
managing many diverse, unrelated firms is to
A) stay abreast of what's happening in each industry and subsidiary.
B) pick business-unit heads having the requisite combination of managerial skills and know-how
to motivate people.
C) understand the true value of strategic investment proposals by business-unit managers.
D) know what to do if a business unit stumbles.
E) "manage by the numbers"—that is, keep a close track on the financial and operating results of
each subsidiary.
Answer: B
Explanation: The greater the number of businesses a company is operating in and the more
diverse those businesses are, the more difficult it is for corporate managers to: (1) stay abreast of
what's happening in each industry and each subsidiary; (2) pick business-unit heads having the
requisite combination of managerial skills and know-how to drive gains in performance; (3) tell
the difference between those strategic proposals of business-unit managers that are prudent and
those that are risky or unlikely to succeed; (4) know what to do if a business unit stumbles and its
results suddenly head downhill; and (5) "manage by the numbers"—that is, keep a close track on
the financial and operating results of each subsidiary and assume that the heads of the various
subsidiaries have most everything under control so long as the latest key financial and operating
measures look good.
Bloom's: Understand
33
53) A sound justification for unrelated diversification is that
A) doing so can result in risk reduction by spreading a company's investments over a set of
diverse industries
B) doing so can meet expectations for rapid or continuous growth
C) doing so can stabilize earnings, i.e., market downtrends in some of the company's businesses
will be partially offset by cyclical upswings in its other businesses
D) doing so can support managerial motives including the prospects for higher compensation
E) doing so can deliver enhanced shareholder value if an undervalued company can be purchased
at a bargain price
Answer: E
Explanation: Management sometimes undertakes a strategy of unrelated diversification for the
wrong reasons: (1) risk reduction by spreading the company's investments over a set of diverse
industries; (2) expectations for rapid or continuous growth; (3) earnings stabilization, i.e. market
downtrends in some of the company's businesses will be partially offset by cyclical upswings in
its other businesses; (4) managerial motives including the prospects for higher compensation—
diversification for this reason alone is far more likely to reduce shareholder value than to
increase it. The premise of acquisition-minded corporations is that growth by acquisition can
deliver enhanced shareholder value through upward-trending corporate revenues and earnings
and a stock price that on average rises enough year after year to amply reward and please
shareholders. Three types of acquisition candidates are usually of particular interest: (1)
businesses that have bright growth prospects but are short on investment capital, (2) undervalued
companies that can be acquired at a bargain price, and (3) struggling companies whose
operations can be turned around with the aid of the parent company's financial resources and
managerial know-how.
Difficulty: 3 Hard
Bloom's: Understand
34
54) Kjirstin is the general manager of Labcon USA, a diversified laboratory equipment design
and manufacturing business with one major "core" business that accounts for 60 percent of the
company's total worldwide revenues and the remainder, a collection of small related or unrelated
businesses. She would define Labcon USA as a ________ enterprise.
A) broadly diversified
B) narrowly diversified
C) multibusiness
D) high-compensation/low-risk
E) dominant business
Answer: E
Explanation: Some diversified companies are really dominant-business enterprises. That is, one
major "core" business accounts for 50 to 80 percent of total revenues and a collection of small
related or unrelated businesses accounts for the remainder.
Difficulty: 3 Hard
Bloom's: Apply
55) Which of the following is a diversified business with one major "core" business and a
collection of small related or unrelated businesses?
A) a broadly diversified enterprise
B) a narrowly diversified enterprise
C) a multibusiness enterprise
D) a high-compensation/low-risk enterprise
E) a dominant business enterprise
Answer: E
Explanation: A dominant-business enterprise has one major "core" business that accounts for 50
to 80 percent of total revenues and a collection of small related or unrelated businesses that
account for the remainder.
Learning Objective: 08-04 The analytic tools for evaluating a company's diversification strategy.
Bloom's: Understand
35
56) There is ample room for companies to customize their diversification strategies and be
defined as being either narrowly or broadly diversified, and when combination related-unrelated
diversification strategy options are adopted, they have particular appeal to
A) those companies with a mix of valuable competitive assets, covering the spectrum from
generalized to specialized resources and capabilities.
B) those large multibusiness firms, sometimes called conglomerates, because they have a unique
capability designed to stabilize earnings.
C) companies with a portfolio of product choices for buyer-related behavior.
D) corporate managers who take on risks without performing due diligence.
E) corporate managers who want to play the corporate parent role without fiduciary
responsibility.
Answer: A
Explanation: Combination related-unrelated diversification strategies have particular appeal for
companies with a mix of valuable competitive assets, covering the spectrum from general to
specialized resources and capabilities.
Bloom's: Understand
36
57) On June 26, 2018, CEO John Flannery of General Electric Company (GE) announced that
the company planned to spin off its healthcare business and divest its stake in oil-services firm
Baker Hughes. The slimmed-down company would re-focus on jet engines, power plants and
renewable energy. What was not an important consideration for CEO Flannery when evaluating
the merits of this diversified company's new strategy?
A) assessing the competitive strength of each business GE had previously diversified into
B) determining which business units were cash cows and which ones were cash hogs, and then
evaluating how soon GE's cash hogs could be transformed into cash cows
C) analyzing the strategic fits and resource fits among the various sister businesses
D) assessing the attractiveness of the industries GE had previously diversified into, both
individually and as a group
E) ranking the performance prospects of the current portfolio of GE businesses from best to
worst and deciding what priority to give each of the company's business units in allocating
resources
Answer: B
Explanation: Evaluating industry attractiveness, evaluating business unit competitive strength,
determining the competitive value of strategic fit in diversified companies, checking for resource
fit, ranking business units and assigning a priority for resource allocation, and crafting new
strategic moves to improve overall corporate performance are all important aspects for a
diversified company's strategy.
Difficulty: 3 Hard
Bloom's: Analyze
37
58) 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
A) market size and projected growth rate.
B) emerging opportunities and threats, and the intensity of competition.
C) resource requirements and the presence of cross-industry strategic fits.
D) seasonal and cyclical factors, industry profitability, and whether an industry has significant
social, political, regulatory, and environmental problems.
E) the utility of the products for consumers from all age groups.
Answer: E
Explanation: Market size and projected growth rate, the intensity of competition, emerging
opportunities and threats, the presence of cross-industry strategic fit, resource requirements,
social, political, regulatory, and environmental factors, and industry profitability are some
measures for gauging industry attractiveness.
Bloom's: Understand
59) In the process of evaluating the attractiveness of a multibusiness (diversified) company's

business lineup, an analyst would generally not consider
A) market size and projected growth rate, industry profitability, and the intensity of competition
B) industry uncertainty and business risk
C) 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
D) resource requirements, and whether an industry has significant social, political, regulatory,
and environmental problems
E) the presence of cross-industry strategic fits and matching resource requirements to the parent
company
Answer: C
Explanation: Market size and projected growth rate, the intensity of competition, emerging
opportunities and threats, the presence of cross-industry strategic fit, resource requirements,
social, political, regulatory, and environmental factors, and industry profitability are some
measures for gauging industry attractiveness.
Difficulty: 3 Hard
Bloom's: Analyze
38
60) Calculating quantitative attractiveness ratings for the industries a company has diversified
into involves
A) determining each industry's key success factors, calculating the ability of the company to be
successful on each industry KSF, and obtaining overall measures of the firm's ability to compete
successfully in each of its industries based on the combined KSF ratings.
B) determining each industry's competitive advantage factors, calculating the ability of the
company to be successful on each competitive advantage factor, and obtaining overall measures
of the firm's ability to achieve sustainable competitive advantage in each of its industries based
on the combined competitive advantage factor ratings.
C) selecting a set of industry attractiveness measures, weighting the importance of each measure,
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 interpret the attractiveness of all the industries, both individually and as a group.
D) rating the attractiveness of each industry's strategic and resource fits, summing the
attractiveness scores, and determining whether the overall scores for the industries as a group are
appealing or not.
E) identifying each industry's average profitability, rating the difficulty of achieving average
profitability in each industry, and deciding whether the company's prospects for above-average
profitability are attractive or unattractive, industry by industry.
Answer: C
Explanation: Calculating quantitative competitive strength ratings for each of a diversified
company's business units involves selecting a set of competitive strength measures, weighting
the importance of each measure, rating each business on each strength measure, and multiplying
the strength ratings by the assigned weight to obtain a weighted rating. The sum of the weighted
ratings across all the strength measures provides a quantitative measure of a business unit's
overall market strength and competitive standing.
Difficulty: 3 Hard
Bloom's: Understand
39
61) The chief purpose of calculating quantitative industry attractiveness scores for each industry
a company has diversified into is to
A) determine which industry is the biggest and fastest growing.
B) get in position to rank the industries from most competitive to least competitive.
C) provide a basis for drawing analysis-based conclusions about the attractiveness of the
industries a company has diversified into, both individually and as a group, and further to
provide an indication of which industries offer the best and worst long-term prospects.
D) ascertain which industries have the easiest-to-achieve key success factors.
E) rank the attractiveness of the various industry value chains from best to worst.
Answer: C
Explanation: Calculating quantitative industry attractiveness scores for each industry helps in
ranking the performance prospects of the businesses from best to worst and determining what the
corporate parent's priorities should be in allocating resources to its various businesses.
Bloom's: Understand
62) A weighted industry attractiveness assessment is generally analytically superior to an

unweighted assessment because
A) a weighted ranking identifies which industries offer the best/worst long-term profit prospects.
B) an unweighted ranking doesn't discriminate between strong and weak industry driving forces
and industry competitive forces.
C) it does a more accurate job of singling out which industry key success factors are the most
important.
D) an unweighted ranking doesn't help identify which industries have the easiest and hardest
value chains to execute.
E) the various measures of attractiveness are not likely to be equally important in determining
overall attractiveness.
Answer: E
Explanation: Each attractiveness measure is assigned a weight reflecting its relative importance
in determining an industry's attractiveness, since not all attractiveness measures are equally
important.
Bloom's: Understand
40
63) When calculating the weighted industry attractiveness scores, we find the more intensely
competitive an industry is
A) the lower the attractiveness weighting for that industry.
B) the higher the attractiveness weighting for that industry.
C) suggests the resources are beyond the parent company's reach.
D) suggests the industry attractiveness measures have been incorrectly weighted.
E) the more likely the company's profit and revenues will be intensive.
Answer: A
Explanation: Industries where competitive pressures are relatively weak are more attractive than
industries where competitive pressures are strong. Therefore, the more intensely competitive an
industry is, the lower the attractiveness rating for that industry.
Bloom's: Analyze
64) What hurdles are present in calculating industry attractiveness scores?

A) deciding on the appropriate weights for the attractiveness measures
B) different analysts use different weights for the different attractiveness measures
C) gaining sufficient command of the industry to assign more accurate and objective ratings
D) deciding the impact of strategic fits to unrelated and related diversification
E) deciding whether a business is related or unrelated
Answer: E
Explanation: Each attractiveness measure is assigned a weight reflecting its relative importance
in determining an industry's attractiveness, since not all attractiveness measures are equally
important. Because of a degree of subjectivity involved in the measurement, it is not easy to
accurately calculate industry attractiveness scores.
Bloom's: Understand
41
65) For a diversified company to be a strong performer
A) a substantial portion of its revenues and expenses must come from business units with
relatively low attractiveness scores.
B) its principal business must be in industries with a good outlook for growth and above-average
profitability.
C) its business units in high attractiveness score industries should be candidates for divesture.
D) its business units must operate within the favorable aspects of their industry environment.
E) its business units must have a popular image, even if the performance of their products does
not greatly satisfy buyer expectations.
Answer: B
Explanation: Above-average profitability on a consistent basis is a signal of competitive
advantage, and therefore its principal business must be in industries with a good outlook for
growth and above-average profitability.
Bloom's: Understand
66) Assessments of how a diversified company's subsidiaries compare in competitive strength

should be based on such factors as
A) vulnerability to seasonal and cyclical downturns, vulnerability to driving forces, and
vulnerability to fluctuating interest rates and exchange rates.
B) relative market share, the ability to match or beat rivals on key product attributes, brand
image and reputation, costs relative to competitors, and the ability to benefit from strategic fits
with sister businesses.
C) the appeal of its strategy, the relative number of competitive capabilities, the number of
products in each business's product line, which businesses have the highest/lowest market shares,
and which businesses earn the highest/lowest profits before taxes.
D) the ability to hurdle barriers to entry, value chain attractiveness, and business risk.
E) cost reduction potential, customer satisfaction potential, and comparisons of annual cash
flows from operations.
Answer: B
Explanation: Relative market share, the ability to match or beat rivals on key product attributes,
brand image and reputation, costs relative to competitors' costs, and the ability to benefit from
strategic fits with other business units are some factors used in quantifying the competitive
strengths of a diversified company's business subsidiaries.
Bloom's: Understand
42
67) Huawei has hired you to calculate its relative share of the global mobile phone market. How
would you conduct this analysis?
A) by dividing Huawei's percentage share of total industry sales volume by the percentage share
held by its largest rival.
B) by adjusting Huawei's revenue share up or down by a factor proportional to whether their
quality/customer service factors are above/below industry averages.
C) by dividing Huawei's market share (based on dollar volume) by the industry-average market
share.
D) by identifying Huawei's cash cows, which have big relative market shares (above 1.0), and
cash hogs, which have low relative market shares (below 0.5).
E) by subtracting the industry-average market share (based on revenue) from Huawei's market
share to highlight relative share 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.
Answer: A
Explanation: A business unit's relative market share is defined as the ratio of its market share to
the market share held by the largest rival firm in the industry, with market share measured in unit
volume, not dollars.
Difficulty: 3 Hard
Bloom's: Apply
43
68) Calculating quantitative competitive strength ratings for each of a diversified company's
business units involves
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 business's strategic and resource fit, 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.
Answer: C
Explanation: Calculating quantitative competitive strength ratings for each of a diversified
company's business units involves selecting a set of competitive strength measures, weighting
the importance of each measure, rating each business on each strength measure, and multiplying
the strength ratings by the assigned weight to obtain a weighted rating. The sum of the weighted
ratings across all the strength measures provides a quantitative measure of a business unit's
overall market strength and competitive standing.
Difficulty: 3 Hard
Bloom's: Understand
44
69) The value of determining the relative competitive strength of each business a company has
diversified into is to have a quantitative basis for
A) identifying which businesses have large/small competitive advantages or competitive
disadvantages vis-à-vis the rivals in their respective industries.
B) rating them from strongest to weakest in terms of contributing to the corporate parent's
revenue growth.
C) comparing resource strengths and weaknesses, business by business.
D) rating them from strongest to weakest in contending for market leadership in their respective
industries.
E) rating them from strongest to weakest in terms of contributing to the corporate parent's
profitability.
Answer: D
Explanation: Doing an appraisal of each business unit's strength and competitive position in its
industry provides a basis for ranking the units from competitively strongest to competitively
weakest and sizing up the competitive strength of all the business units as a group. Business units
with competitive-strength ratings above 6.7 (on a scale of 1 to 10) are strong market contenders
in their industries. Businesses with ratings in the 3.3-to-6.7 range have moderate competitive
strength vis-à-vis rivals. Businesses with ratings below 3.3 are in competitively weak market
positions. If a diversified company's business units all have competitive-strength scores above 5,
it is fair to conclude that its business units are all fairly strong market contenders in their
respective industries.
Bloom's: Understand
45
70) Indra Nooyi is CEO of PepsiCo, a diversified consumer products company. What does a
competitive strength score above 5 tell her about PepsiCo's position in the market?
A) that PepsiCo's business units are all fairly strong market contenders in their respective
industries
B) that PepsiCo's units are all fairly weak market contenders in their respective industries
C) that PepsiCo will not likely perform well over the next five years
D) that PepsiCo's competitive strength score is meaningless unless it is comparable to Coca-
Cola's competitive strength score
E) that PepsiCo's rivals will likely prevail in the race to achieve sustainable competitive
advantage
Answer: A
Explanation: If a diversified company's business units all have competitive-strength scores
above 5, it is fair to conclude that its business units are all fairly strong market contenders in
their respective industries.
Bloom's: Understand
71) The nine-cell industry attractiveness competitive strength matrix

A) is useful for helping decide which businesses should have high, average, and low priorities in
deploying 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 highest level of resource fit.
Answer: A
Explanation: The nine-cell attractiveness-strength matrix provides clear, strong logic for why a
diversified company needs to consider both industry attractiveness and business strength in
allocating resources and investment capital to its different businesses. A good case can be made
for concentrating resources in those businesses that enjoy higher degrees of attractiveness and
competitive strength, being very selective in making investments in businesses with intermediate
positions on the grid, and withdrawing resources from businesses that are lower in attractiveness
and strength unless they offer exceptional profit or cash flow potential.
Bloom's: Understand
46
72) One of the most significant contributions to strategy making in diversified companies that the
nine-cell industry attractiveness competitive strength matrix provides is
A) identifying which businesses have strategies that should be continued, which businesses have
strategies that need fine-tuning, and which businesses have strategies that need a major overhaul.
B) that businesses having the greatest competitive strength and that are positioned in the most
attractive industries should have the highest priority for corporate resource allocation and that
competitively weak businesses in relatively unattractive industries should have the lowest
priority and perhaps even be considered for divestiture.
C) pinpointing which strategies are most appropriate for businesses positioned in the four corners
of the matrix (although the matrix reveals little about the best strategies for businesses positioned
in the remainder of the matrix).
D) its ability to pinpoint what kind of competitive advantage or disadvantage each business has.
E) pinpointing which businesses to keep and which ones to divest.
Answer: B
Bloom's: Understand
47
73) The nine-cell attractiveness-strength matrix provides clear, strong logic for considering using
A) only industry attractiveness in allocating resources and investment capital to its different
businesses.
B) only business strength in allocating resources and investment capital to the different
businesses.
C) both industry attractiveness and business strength in allocating resources and investment
capital to its different businesses.
D) both industry attractiveness and product strength in allocating resources and investment
capital to its different businesses.
E) both resource fit and product strength in allocating resources and investment capital to its
different businesses.
Answer: C
Bloom's: Understand
74) Checking the competitive advantage potential of cross-business strategic fits in a diversified
company involves evaluating the extent to which sister businesses present opportunities
A) to combine the performance of certain cross-business activities and thereby reduce costs.
B) to transfer skills, technology, or intellectual capital from one business to another.
C) for the company's different businesses to share use of a well-respected brand name.
D) for sister businesses to collaborate in creating valuable new competitive capabilities.
E) to create a positive image in the industry irrespective of the financial performance of its
businesses.
Answer: E
Bloom's: Understand
48
75) Checking a diversified company's business portfolio for the competitive advantage potential
of cross-business strategic fits does not involve ascertaining the extent to which sister business
units
A) have value chain match-ups that offer opportunities to combine the performance of related
value chain activities and reduce costs.
B) have value chain match-ups that offer opportunities to transfer skills or technology or
intellectual capital from one business to another.
C) have opportunities to share use of a well-respected brand name.
D) have value chain match-ups that offer opportunities to create new competitive capabilities or
to leverage existing resources.
E) are cash cows and which ones are cash hogs.
Answer: E
Bloom's: Understand
49
76) Michelle Buck, CEO of the Hershey Company has hired you as a consultant to assess her
diversified company's business units for cross-business competitive advantage potential. Your
assessment would not normally involve ascertaining the extent to which Hershey's business units
A) have value chain match-ups that offer opportunities to combine the performance of related
value chain activities and reduce costs.
B) have value chain match-ups that offer opportunities to transfer skills or technology or
intellectual capital from one business to another.
C) are making maximum use of the parent company's competitive advantages.
D) have value chain match-ups that offer opportunities to create new competitive capabilities or
to leverage existing resources.
E) present opportunities to share use of a well-respected brand name.
Answer: C
Explanation: The real question for Hershey is how much competitive value can be generated
from its current and prospective strategic fits. Are the cost savings associated with economies of
scope likely to give one or more individual Hershey businesses a cost-based advantage over its
rivals? How much competitive value will come from the cross-business transfer of skills,
technology, or intellectual capital or the sharing of competitive assets? Will leveraging Hershey's
potent umbrella brand or corporate image strengthen the businesses and increase sales
significantly? Will cross-business collaboration to create new competitive capabilities lead to
significant gains in performance? The greater the value of cross-business strategic fit in
enhancing the performance of Hershey's businesses, the more competitively powerful Hershey's
related diversification strategy will become and deliver superior value to its shareholders.
Difficulty: 3 Hard
Bloom's: Analyze
50
77) You have been hired as a consultant by Mary Dillon, CEO of Ulta Beauty, a $5.9 billion
company that is the largest U.S. retailer of cosmetics. CEO Dillon has asked you to consider
several related diversification options for Ulta based on the potential for good resource fits. You
would advise CEO Dillon that a company pursuing related diversification exhibits resource fit
when
A) each new line of business for Ulta could become a cash cow.
B) each new line of business for Ulta would add to a company's overall resource strengths and
have matching resource requirements and/or could do so when Ulta has adequate corporate
resources to support its business needs and add sufficient value.
C) each new line of business for Ulta could become sufficiently profitable to generate an
attractive return on invested capital.
D) each new line of business for Ulta could generate large internal cash flows over and above
what is needed to build and maintain the business.
E) the resource requirements of each new line of business for Ulta could be synergistic with the
company's available resources.
Answer: B
Explanation: A company pursuing related diversification exhibits resource fit when its
businesses have matching specialized resource requirements along their value chains; a company
pursuing unrelated diversification has resource fit when the parent company has adequate
corporate resources (parenting and general resources) to support its businesses' needs and add
value.
Difficulty: 3 Hard
Bloom's: Apply
51
78) The businesses in a diversified company's lineup exhibit good resource fit when
A) the resource requirements of each business exactly match the resources the company has
available.
B) individual businesses have matching resource requirements at points along their value chain
and add to a company's overall resource strengths and when solid parenting capabilities exist
without spreading itself too thin.
C) each business generates just enough cash flow annually to fund its own capital requirements
and thus does not require cash infusions from the corporate parent.
D) each business unit produces sufficient cash flows over and above what is needed to build and
maintain the business, thereby providing the parent company with enough cash to pay
shareholders a generous and steadily increasing dividend.
E) there are enough cash cow businesses to support the capital requirements of the cash hog
businesses.
Answer: B
Explanation: A company pursuing related diversification exhibits resource fit when its
businesses have matching specialized resource requirements along their value chains; a company
pursuing unrelated diversification has resource fit when the parent company has adequate
corporate resources (parenting and general resources) to support its businesses' needs and add
value.
Bloom's: Understand
79) What is it called when a diversified company can add value by shifting capital from business
units generating free cash flow to those needing additional capital to expand and realize their
growth potential?
A) internal capital market
B) cash cow benefits
C) economic value added
D) shareholder value added
E) transaction cost valuation
Answer: A
Explanation: A strong internal capital market allows a diversified company to add value by
shifting capital from business units generating free cash flow to those needing additional capital
to expand and realize their growth potential.
Difficulty: 1 Easy
Bloom's: Remember
52
80) Mary Barra, CEO of General Motors, has asked you to evaluate the financial resource fit of
its new autonomous (self-driving) vehicle and electric vehicle (EV) divisions. You would advise
CEO Barra that a diversified company's business units exhibit good financial resource fit when
A) both new divisions are sufficiently profitable to generate an attractive return on invested
capital.
B) the resource requirements of each new division exactly match the company's available
resources.
C) GM has the resources to adequately support the requirements of its new divisions as a group
without spreading itself too thin because these new divisions have the potential to add to GM's
overall strengths.
D) each new division produces large internal cash flows over and above what is needed to build
and maintain the business.
E) both new divisions present a cash drain on the legacy car and truck divisions of GM and
should be managed more cost-effectively.
Answer: C
Explanation: A portfolio approach to ensuring financial fit among a firm's businesses is based on
the fact that different businesses have different cash flow and investment characteristics. Factors
to consider in assessing the financial resource fit for businesses in a diversified firm's portfolio
are: (1) do individual businesses adequately contribute to achieving companywide performance
targets without spreading resources too thinly, and (2) does the corporation possess adequate
financial strength to fund its different businesses and maintain a healthy credit rating as well as
possess the resources needed to be successful in each of its businesses?
Difficulty: 3 Hard
Bloom's: Apply
53
81) Management's ranking of business units and establishing a priority for resource allocation
should
A) always make the company's business units with strong resource strengths and competitive
capabilities the central focus of funding initiatives.
B) put business units with the brightest profit and growth prospects and solid strategic and
resource fits at the top of the investment priority list.
C) utilize activity-based costing and benchmarking to determine the funding needs of each
business unit.
D) first consider the strength of funding proposals presented by managers of each division or
business unit.
E) give priority for funding to cash hog businesses.
Answer: B
Explanation: Business subsidiaries with the brightest profit and growth prospects, attractive
positions in the nine-cell matrix, and solid strategic and resource fit should receive top priority
for allocation of corporate resources.
Bloom's: Understand
82) The tests of whether a diversified company's businesses exhibit resource fit do not include
whether
A) the excess cash flows generated by cash cow businesses are sufficient to cover the negative
cash flows of its cash hog businesses.
B) a business adequately contributes to achieving the corporate parent's performance targets.
C) the company has adequate financial strength to fund its different businesses and maintain a
healthy credit rating.
D) 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) 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.
Answer: D
Explanation: To exhibit resource fit, it is not critical for a diversified company to check whether
it has sufficient cash to fund the needs of its individual businesses and pay dividends to
shareholders without having to borrow money.
Bloom's: Understand
54
83) Imagine that you have been hired by Bill Newlands, President and COO of Constellation
Brands (CB), to review the beverage company's diversified portfolio of businesses. Of the
analytical tools that you could use to assess CB's business lineup for adequate resource fit, which
one would you not be likely to use?
A) estimating whether the excess cash flows generated by cash cow businesses in CB's portfolio
are sufficient to cover the negative cash flows of its cash hog businesses
B) assessing whether or not CB's recently acquired businesses are acting to strengthen this
company's resource base and competitive capabilities or whether they are causing its competitive
and managerial resources to be stretched too thinly across its businesses
C) determining whether or not the opportunity exists for CB to achieve 1 + 1 = 2 outcomes
among CB's portfolio of brands
D) analyzing whether or not CB has adequate financial strength to fund its different businesses
and maintain a healthy credit rating
E) conducting feasibility studies into whether or not CB possesses or can develop sufficient
resource strengths and competitive capabilities to be successful in each of the businesses it has
diversified into
Answer: C
Explanation: A diversified company should check for opportunities to achieve 1 + 1 = 3
outcomes, not 1 + 1 = 2 outcomes. All of the other analytical tools are relevant in this situation.
Difficulty: 3 Hard
Bloom's: Apply
55
84) What is the BEST guideline for deciding what the priorities should be for allocating
resources to the various businesses of a diversified company?
A) Businesses with high industry attractiveness ratings should be given top priority and those
with low industry attractiveness ratings should be given low priority.
B) Business subsidiaries with the brightest profit and growth prospects, attractive positions on
the nine-cell matrix, and solid strategic and resource fits generally should head the list for
corporate resource support.
C) The positions of each business in the nine-cell attractiveness-strength matrix should govern
resource allocation.
D) Businesses with the most strategic and resource fits should be given top priority and those
with the fewest strategic and resource fits should be given low priority.
E) Businesses with high competitive strength ratings should be given top priority and those with
low competitive strength ratings should be given low priority.
Answer: B
Explanation: As a rule, business subsidiaries with the brightest profit and growth prospects,
attractive positions in the nine-cell matrix, and solid strategic and resource fit should receive top
priority for allocation of corporate resources.
Bloom's: Understand
85) The options for allocating a diversified company's financial resources include all of the
following except
A) making acquisitions to establish positions in new businesses or to complement existing
businesses.
B) investing in ways to strengthen or grow existing businesses.
C) funding long-range R&D ventures aimed at opening market opportunities in new or existing
businesses.
D) paying off existing debt and building cash reserves.
E) decreasing dividend payments and/or selling shares of stock.
Answer: E
Explanation: Ideally, a diversified company will have sufficient financial resources to strengthen
or grow its existing businesses, make any new acquisitions that are desirable, fund other
promising business opportunities, pay off existing debt, and periodically increase dividend
payments to shareholders and/or repurchase shares of stock.
Bloom's: Understand
56
86) Deploying a diversified company's financial resources would normally not involve
A) making acquisitions to establish positions in new businesses or to complement existing
businesses.
B) investing financial resources in cash cow businesses until they show enough strength to
generate positive cash flows.
C) funding long-range R&D ventures aimed at opening market opportunities in new or existing
businesses.
D) paying down existing debt, increasing dividends, or repurchasing shares of the company's
stock.
E) investing in ways to strengthen or grow existing businesses.
Answer: B
Explanation: Ideally, a diversified company will have sufficient financial resources to strengthen
or grow its existing businesses, make any new acquisitions that are desirable, fund other
promising business opportunities, pay off existing debt, and periodically increase dividend
payments to shareholders and/or repurchase shares of stock.
Bloom's: Understand
87) Corporate strategy options for already diversified companies include all of the following
except
A) broadening the company's business scope by making new acquisitions in new industries.
B) divesting weak-performing businesses and retrenching to a narrower base of business
operations.
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) pursuing growth opportunities within the existing business lineup.
E) pursuing certain acquisitions even if they have done badly or haven't quite lived up to
expectations.
Answer: E
Explanation: Corporate strategic options for diversified companies include sticking closely with
the existing business lineup and pursuing the opportunities these businesses present, broadening
the company's business scope by making new acquisitions in new industries, divesting certain
businesses and retrenching to a narrower base of business operations, and restructuring the
company's business lineup and putting a whole new face on the company's business makeup.
Learning Objective: 08-05 What four main corporate strategy options a diversified company can
employ to improve company performance.
Bloom's: Understand
57
88) The strategic options to improve a diversified company's overall performance do not include
which of the following categories of actions?
A) broadening the company's business scope by making new acquisitions in new industries
B) increasing dividend payments to shareholders and/or repurchasing shares of the company's
stock
C) restructuring the company's business lineup with a combination of divestitures and
acquisitions to put a whole new face on the company's business makeup
D) pursuing multinational diversification and striving to globalize the operations of several of the
company's business units
E) divesting weak-performing businesses and retrenching to a narrower base of business
operations
Answer: B
Bloom's: Understand
58
89) Once a company has diversified into a collection of related or unrelated businesses and
concludes that some strategy adjustments are needed, which one of the following is not one of
the main strategy options that a company can pursue?
A) multinational diversification
B) restructure the company's business lineup with a combination of divestitures and new
acquisitions
C) craft new initiatives designed to build/enhance the reputation and image of the company
D) divest some businesses and retrench to a narrower diversification base
E) broaden the diversification base
Answer: C
Bloom's: Understand
59
90) Barbara Rentler, CEO of Ross Stores, Inc. (parent company of Ross Dress for Less and dd's
Discount retail chains) is considering broadening her company's business scope, by building
positions in new related or unrelated businesses. Ms. Rentler would be advised to pursue a
diversification strategy for all of the following reasons except
A) Ross has resources or capabilities that are eminently transferable to other related or
complementary businesses.
B) Ross's growth is sluggish and it wants the sales and profit boost that a new business can
provide.
C) Ross's management wants to lessen the company's vulnerability to seasonal or recessionary
influences or to threats from emerging new technologies, legislative regulations, and new
product innovations that alter buyer preferences and resource requirements.
D) Ross wants to make new acquisitions to strengthen or complement some of its present
businesses, market positioning, and competitive capabilities.
E) Ross's top management wants to increase its compensation.
Answer: E
Explanation: Several motivating factors for broadening Ross's current business via
diversification could be in play. One is sluggish growth that makes the potential revenue and
profit boost of a newly acquired business look attractive. A second is the potential for
transferring resources and capabilities to other related or complementary businesses. A third is
rapidly changing conditions in one or more of a company's core businesses, brought on by
technological, legislative, or demographic changes. A fourth and very important motivating
factor for adding new businesses is to complement and strengthen the market position and
competitive capabilities of one or more of Ross's present businesses.
Bloom's: Apply
60
91) Retrenching to a narrower diversification base is
A) usually the most attractive long-run strategy for a broadly diversified company confronted
with recession, high interest rates, mounting competitive pressures in several of its businesses,
and sluggish growth.
B) a strategy that allows a diversified firm's energies to be concentrated on building strong
positions in a smaller number of businesses rather the stretching its resources and managerial
attention too thinly across many businesses.
C) an attractive strategy option for revamping a diverse business lineup that lacks strong cross-
business financial fit.
D) sometimes an attractive option for deepening a diversified company's technological expertise
and supporting a faster rate of product innovation.
E) a strategy best reserved for companies in poor financial shape.
Answer: B
Explanation: Retrenching to a narrower diversification base is usually undertaken when top
management concludes that its diversification has ranged too far afield and that the company can
improve long-term performance by concentrating on a smaller number of businesses.
Difficulty: 3 Hard
Bloom's: Understand
92) When General Electric created an independent health care division and divested it in June
2018 by distributing to GE's stockholders new shares in the new business, the strategic action
was termed
A) a spin-off.
B) a wholly owned subsidiary.
C) a functional divesture.
D) a satellite business.
E) a dysfunctional restructure.
Answer: A
Explanation: A spin-off is an independent company created when a corporate parent divests a
business either by selling shares to the public via an initial public offering or by distributing
shares in the new company to shareholders of the corporate parent.
Difficulty: 1 Easy
Bloom's: Remember
61
93) Moves to improve a diversified company's overall performance do not include
A) retrenching to a narrower base of business operations.
B) broadening the company's business scope by making new acquisitions in new industries.
C) restructuring the company's business lineup and putting a whole new face on the company's
business makeup.
D) sticking closely to the existing business lineup and pursuing the growth opportunities
presented by these businesses.
E) retaining weak-performing businesses in order to sustain a wide base of business operations.
Answer: E
Explanation: Strategic options to improve a diversified company's overall performance include:
(1) sticking closely with the existing business lineup and pursuing the opportunities these
businesses present; (2) broadening the company's business scope by making new acquisitions in
new industries; (3) divesting some businesses and retrenching to a narrower base of business
operations; and (4) restructuring the company's business lineup and putting a whole new face on
the company's business makeup. It makes no strategic sense to retain weak performers and
thereby sustain a wide base of operations.
Difficulty: 1 Easy
Bloom's: Remember
62
94) PepsiCo divested its group of fast-food restaurant businesses (KFC, Pizza Hut, and Taco
Bell) to Yum! Brands in order to allow PepsiCo to focus on its core soft drink and snack-food
businesses. A useful guide to determine whether or when to divest a business subsidiary is to ask,
A) "Have we missed the opportunity to milk these cash cows?"
B) "If we were not in this business today, would we want to get into it now?"
C) "Can't we derive a parenting advantage with these businesses?"
D) "Do we need to do the math to achieve 1 + 1 = 3 outcomes from these diversified
businesses?"
E) "Will these three businesses pass the ‘cost-of-exit' test?"
Answer: B
Explanation: Sometimes retrenching to a narrower diversification base has to be considered
because market conditions in a once-attractive industry have badly deteriorated. A business can
become a prime candidate for divestiture because it lacks adequate strategic or resource fit,
because it is a cash hog with questionable long-term potential, or because remedying its
competitive weaknesses is too expensive relative to the likely gains in profitability. Sometimes a
company acquires businesses that down the road just do not work out as expected even though
management has tried its best.
Difficulty: 3 Hard
Bloom's: Apply
95) When should a business not be divested?

A) when the business is worth more to another company than to the parent company
B) when the business is a cash cow
C) when the business provides valuable strategic or resource fits for another company
D) when shareholders would be better served if the company sells the business for a generous
premium
E) when the business lacks the cross-boundary presence of shared values and cultural
compatibility
Answer: B
Explanation: A business should be divested when it is worth more to another company than to
the present parent; in such cases, shareholders would be well served if the company sells the
business and collects a premium price from the buyer for whom the business is a valuable fit.
Bloom's: Understand
63
96) Strategies to restructure a diversified company's business lineup involve
A) revamping the value chains of each of a diversified company's businesses.
B) focusing on restoring the profitability of its money-losing businesses and thereby improving
the company's overall profitability.
C) revamping the strategies of its different businesses, especially those that are performing
poorly.
D) divesting low-performing businesses that do not fit and acquiring new ones where
opportunities are more promising to put a new face on the company's business makeup.
E) broadening the scope of diversification to include a larger number of smaller and more
diverse businesses.
Answer: D
Bloom's: Understand
64
97) Corporate restructuring strategies
A) involve making major changes in a diversified company's business lineup, divesting some
businesses and/or acquiring others, so as to put a whole new face on the company's business
lineup.
B) entail reducing the scope of diversification to a smaller number of businesses.
C) entail selling off marginal businesses to free up resources for redeployment to the remaining
businesses.
D) focus on crafting initiatives to restore a diversified company's money-losing businesses to
profitability.
E) focus on broadening the scope of diversification to include a larger number of businesses and
boosting the company's growth and profitability.
Answer: A
Explanation: Corporate restructuring involves making major changes in a diversified company's
business lineup, divesting some businesses and/or acquiring others, so as to put a whole new face
on the company's business lineup.
Bloom's: Understand
65
98) Conditions that may make corporate restructuring strategies appealing include all of the
following except
A) ongoing declines in the market shares of one or more major business units that are falling
prey to more market-savvy competitors.
B) a business lineup that consists of too many slow-growth, declining, low-margin, or
competitively weak businesses.
C) an excessive debt burden with interest costs that eat deeply into profitability.
D) ill-chosen acquisitions that haven't lived up to expectations.
E) a business lineup that consists of too many cash cow businesses.
Answer: E
Explanation: Performing radical surgery or restructuring a company's business lineup is
appealing when its financial performance is being squeezed or eroded by: a serious mismatch
between the company's resources and capabilities and the type of diversification that it has
pursued; too many businesses in slow-growth, declining, low-margin, or otherwise unattractive
industries; too many competitively weak businesses; the emergence of new technologies that
threaten the survival of one or more important businesses; ongoing declines in the market shares
of one or more major business units that are falling prey to more market-savvy competitors; an
excessive debt burden with interest costs that eat deeply into profitability; and ill-chosen
acquisitions that haven't lived up to expectations.
Bloom's: Understand
99) Unlikely candidates for divestiture in a corporate restructuring effort are

A) business units that lack strategic fit with the businesses to be retained
B) weak performers
C) businesses in unattractive industries
D) businesses that are cash hogs or that lack other types of resource fit
E) businesses compatible with the company's revised diversification strategy
Answer: E
Explanation: Businesses compatible with the company's revised diversification strategy need not
be divested in a corporate restructuring effort.
Bloom's: Understand
66
100) Briefly discuss when it makes good strategic sense for a company to consider
diversification.
Answer: Diversification is a sound strategic option when a company can:
• spot opportunities to expand into industries whose technologies and products complement its
present business.
• leverage existing resources and capabilities by expanding into industries where these same
resource strengths are key success factors and valuable competitive assets.
• combine the related value chain activities of different businesses to achieve lower costs.
• boast of a powerful and well-known brand name that can be transferred to the products of other
businesses and thereby be used as a lever for driving up the sales and profits of such businesses.
• open up new avenues for reducing costs by diversifying into closely related businesses.
• encourage knowledge sharing and collaborative activity among the businesses.
value.
Bloom's: Remember
101) Identify and briefly discuss each of the three tests for determining whether diversification
into a new business is likely to build shareholder value.
Answer: To build shareholder value, any business diversification strategy should pass the three
Tests of Corporate Advantage:
• The industry attractiveness test: The industry to be entered through diversification must be
structurally attractive (in terms of the five forces), have resource requirements that match those
of the parent company, and offer good prospects for growth, profitability, and return on
investment.
• The cost-of-entry test: The cost of entering the target industry must not be so high as to exceed
the potential for good profitability.
• The better-off test: Diversifying into a new business must offer potential for the company's
existing businesses and the new business to perform better together under a single corporate
umbrella than they would perform operating as independent, stand-alone businesses—an effect
known as synergy.
value.
Bloom's: Understand
67
102) Capturing cross-business strategic-fit benefits via a strategy of related diversification builds
shareholder value in ways that shareholders cannot undertake by simply owning a portfolio of
stocks of companies in different industries. Provide (1) an example showing how a strategy of
related diversification benefited both companies and (2) an example showing how a strategy of
related diversification did not benefit both companies. On balance, is related diversification a
wise move for a corporation?
Answer: (1) See Illustration Capsule 8.1. The 2015 merger between Kraft Foods and Heinz was
predicated on the idea that the strategic fit between these two companies was such that they
could create more value as a combined enterprise than they could as two separate companies. As
a combined enterprise, Kraft Heinz would be able to exploit its cross-business value chain
activities and resource similarities to more efficiently produce, distribute, and sell profitable
processed food products.
(2) On occasion, a diversification move that seems sensible from a strategic-fit standpoint turns
out to be a poor cultural fit. When several pharmaceutical companies diversified into cosmetics
and perfume, they discovered their personnel had little respect for the "frivolous" nature of such
products compared to the far nobler task of developing miracle drugs to cure the ill. The absence
of shared values and cultural compatibility between the medical research and chemical-
compounding expertise of the pharmaceutical companies and the fashion and marketing
orientation of the cosmetics business was the undoing of what otherwise was diversification into
businesses with technology-sharing potential, product development fit, and some overlap in
distribution channels.
In summary, the greater the relatedness among a diversified company's businesses, the bigger a
company's window for converting strategic fit into competitive advantage. The strategic and
business logic is compelling: Capturing the benefits of strategic fit along the value chains of its
related businesses gives a diversified company a clear path to achieving competitive advantage
over undiversified competitors and competitors whose own diversification efforts don't offer
equivalent strategic-fit benefits. That said, however, the benefits of cross-business strategic fit
are not automatically realized when a company diversifies into related businesses; the benefits
materialize only after management has successfully pursued internal actions to capture them.
Difficulty: 3 Hard
value.
Bloom's: Analyze
68
103) Explain the relevance of the following as they relate to building shareholder value via
diversification.
a. the industry attractiveness test

b. the cost of entry test
c. the better-off test
Answer: In principle, diversification cannot be considered a success unless it results in added

long-term economic value for shareholders. Business diversification stands little chance of
building shareholder value without passing the following three Tests of Corporate Advantage:
a. The industry attractiveness test: The industry to be entered through diversification must be
structurally attractive (in terms of the five forces), have resource requirements that match those
of the parent company, and offer good prospects for growth, profitability, and return on
investment.
b. The cost of entry test: The cost of entering the target industry must not be so high as to exceed
the potential for good profitability. Since the owners of a successful and growing company
usually demand a price that reflects their business's profit prospects, it's easy for such an
acquisition to fail the cost of entry test.
c. The better-off test: Diversifying into a new business must offer potential for the company's
existing businesses and the new business to perform better together under a single corporate
umbrella than they would perform operating as independent, stand-alone businesses.
value.
Bloom's: Understand
69
104) Identify and briefly discuss each of the three options for entering new businesses. What are
the driving choice parameters for entry into new businesses and which one is the most popular in
the sense of being used most frequently?
Answer:
• Acquisition is the most popular means of diversifying into another industry. Not only is it
quicker than trying to launch a new operation, but it also offers an effective way to hurdle such
entry barriers as acquiring technological know-how, establishing supplier relationships,
achieving scale economies, building brand awareness, and securing adequate distribution.
• Achieving diversification through internal development involves starting a new business
subsidiary from scratch. Generally, internal development of a new business has appeal only
when (1) the parent company already has in-house most of the resources and capabilities it needs
to piece together a new business and compete effectively; (2) there is ample time to launch the
business; (3) the internal cost of entry is lower than the cost of entry via acquisition; (4) adding
new production capacity will not adversely impact the supply-demand balance in the industry;
and (5) incumbent firms are likely to be slow or ineffective in responding to a new entrant's
efforts to crack the market.
• Entering a new business via a joint venture can be useful in at least three types of situations.
First, a joint venture is a good vehicle for pursuing an opportunity that is too complex,
uneconomical, or risky for one company to pursue alone. Second, joint ventures make sense
when the opportunities in a new industry require a broader range of competencies and know-how
than a company can marshal on its own. Third, companies sometimes use joint ventures to
diversify into a new industry when the diversification move entails having operations in a foreign
country.
value.
Bloom's: Understand
70
105) Carefully explain the difference between and the rationale for selecting a strategy of related
diversification and/or a strategy of unrelated diversification.
Answer: A related diversification strategy involves building the company around businesses
resources and capabilities that enable these activities. Companies that pursue a strategy of
unrelated diversification generally exhibit a willingness to diversify into any business in any
industry where senior managers see an opportunity to realize consistently good financial results.
contribute to each business's competitive advantage.; 08-03 The merits and risks of unrelated
diversification strategies.
Bloom's: Understand
106) Which is the better approach to diversification—a strategy of related diversification or a

strategy of unrelated diversification? Explain and support your answer.
Answer: Any approach to diversification is fine as long as it provides a clear avenue for
increasing shareholder value. Diversifying into related businesses where competitively valuable
strategic-fit benefits can be captured puts a company's businesses in position to perform better
financially as part of the company than they could have performed as independent enterprises,
thus providing a clear avenue for increasing shareholder value and satisfying the better-off test.
Where unrelated business are concerned, unless the combination of businesses is more profitable
together under the corporate umbrella than they are apart as independent businesses, the strategy
cannot create economic value for shareholders. And unless it does so, there is no real
justification for unrelated diversification, since top executives have a fiduciary responsibility to
maximize long-term shareholder value for the company's owners (its shareholders).
Bloom's: Evaluate
71
107) What is meant by the term "strategic fit"? What are the advantages of pursuing strategic fit
and matchups in choosing which industries to diversify into?
Answer: A related diversification strategy involves building the company around businesses
resources and capabilities that enable these activities. Related diversification is based on value
chain matchups with respect to key value chain activities—those that play a central role in each
business's strategy and that link to its industry's key success factors.
Bloom's: Understand
108) Discuss the pros and cons of a strategy of unrelated diversification.
Answer: Pros: Where there are opportunities to diversify into any business with potential to
obtain consistently good financial results, it makes a good strategy for unrelated diversification.
Cons: However, unrelated diversification strategies have two important negatives that undercut
the pluses: very demanding managerial requirements and limited competitive advantage potential
due to absence of cross-business strategic fit.
Topic: Corporate Diversification, Types of Corporate Diversification, and Understanding How
It Can Enhance Shareholder Value
Bloom's: Understand
72
109) Imagine that you have been hired by Bill Newlands, President and COO of Constellation
Brands (CB), to review the beverage company's diversified portfolio of businesses. Based in
Victor, New York, CB has about 40 facilities and approximately 9,000 employees. The
company has more than 100 brands in its portfolio. Wine brands include Robert Mondavi, Wild
Horse Winery, Clos du Bois, Franciscan Estates, Kim Crawford, Meiomi, Mark West, Ruffino,
and The Prisoner. CB's beer portfolio includes imported brands such as Corona, Modelo
Especial, Negra Modelo, Pacífico, as well as Ballast Point and Funky Buddha. Spirits brands
include Black Velvet Canadian Whisky, Svedka Vodka, Casa Noble Tequila, and High West
Whiskey. Your task is to quantitatively measure the competitive strength of each business in
CB's portfolio and determining which business units are strongest and weakest. List the six steps
involved in the process.
Answer: Conducting a quantitative appraisal of each of CB's business units' strengths and
competitive positions in their respective industries (primarily wine, beer, and spirits) not only
reveals each business unit's chances for industry success, but also provides a basis for ranking
the units from competitively strongest to weakest. The steps include: (1) evaluating industry
attractiveness, (2) evaluating business unit competitive strength, (3) determining the competitive
value of strategic fit in diversified companies, (4) checking for resource fit, (5) ranking business
units and assigning a priority for resource allocation, and (6) crafting new strategic moves to
improve overall corporate performance are the six steps for evaluating a diversified company's
strategy.
Difficulty: 3 Hard
Bloom's: Apply
73
110) What is the industry attractiveness test? How is it used to evaluate a diversified company's
business lineup? Why is it relevant?
Answer: The industry to be entered through diversification must offer an opportunity for profits
and return on investment that is equal to or better than that of the company's present lineup of
businesses—and this is known as industry attractiveness.
The test for gauging industry attractiveness involves calculating quantitative industry
attractiveness scores based upon the following nine dimensions: (1) market size and projected
growth rate; (2) intensity of competition; (3) emerging opportunities and threats; (4) presence of
cross-industry strategic fit; (5) resource requirements; (6) seasonal and cyclical factors; (7)
social, political, regulatory, and environmental factors; (8) industry profitability; (9) industry
uncertainty and business risk. These dimensions are first assigned numbers from 1 to 10, and are
then weighted to reflect their relative importance.
Two conditions are necessary for an industry attractiveness score to be relevant: (1) deciding on
appropriate weights for the industry attractiveness measures, and (2) for diversified companies
possessing portfolios of business that have strong cross-industry strategic fit.
Difficulty: 3 Hard
Bloom's: Understand
111) What is the relevance of quantitatively measuring the competitive strength of each business
in a diversified company's business portfolio and determining which business units are strongest
and weakest?
Answer: Calculating quantitative industry attractiveness scores for each industry helps in
ranking the performance prospects of the businesses from best to worst and determining what the
corporate parent's priorities should be in allocating resources to its various businesses. A good
case can be made for concentrating resources in those businesses that enjoy higher degrees of
attractiveness and competitive strength, being very selective in making investments in businesses
with intermediate positions on the grid, and withdrawing resources from businesses that are
lower in attractiveness and strength unless they offer exceptional profit or cash flow potential.
Bloom's: Understand
74
112) What are the advantages and benefits of using an industry attractive-business strength
matrix to evaluate a diversified company's lineup of businesses?
Answer: The nine-cell attractiveness-strength matrix provides clear, strong logic for why a
Bloom's: Understand
113) What is meant by the term "resource fit" as it applies to evaluating a diversified company's
business lineup?
Answer: A diversified company exhibits resource fit when its businesses add to a company's
overall mix of resources and capabilities and when the parent company has sufficient resources
to support its entire group of businesses without spreading itself too thin.
Bloom's: Understand
114) Explain and provide examples comparing and contrasting cash cow businesses and cash
hog businesses.
Answer: A cash cow business generates cash flows over and above its internal requirements,
thus providing a corporate parent with funds for investing in cash hog businesses, financing new
acquisitions, or paying dividends. A cash hog business generates cash flows that are too small to
fully fund its growth; it thereby requires cash infusions to provide additional working capital and
finance new capital investment. A popular example is Apple Inc., whose cash cows are Macs,
notebooks, and iPads, whereas its cash hog businesses include services (iTunes, the App Store,
the Mac App Store, Apple Music, iCloud, Apple Pay, and AppleCare) and its newer generation
smartphones and wearables (iPhone and Apple Watch).
Difficulty: 3 Hard
Bloom's: Apply
75
115) Why is it pertinent in evaluating a diversified company's business lineup to rank a
diversified company's businesses on the basis of their future performance prospects?
Answer: Once a diversified company's strategy has been evaluated from the perspective of
industry attractiveness, competitive strength, strategic fit, and resource fit, the next step is to use
this information to rank the performance prospects of the businesses from best to worst. Such
ranking helps top-level executives assign each business a priority for resource support and
capital investment.
Difficulty: 3 Hard
Bloom's: Analyze
116) What factors should management consider when ranking business units and setting a
priority for resource allocation?
Answer: As a rule, business subsidiaries with (1) the brightest profit and growth prospects, (2)
attractive positions in the nine-cell matrix, and (3) solid strategic and resource fit should receive
top priority for allocation of corporate resources.
However, in ranking the prospects of the different businesses from best to worst, it makes good
strategic sense to also consider each business's past performance as concerns sales growth, profit
growth, contribution to company earnings, return on capital invested in the business, and cash
flow from operations. Competitively strong businesses in attractive industries have significantly
better performance prospects than competitively weak businesses in unattractive industries.
Bloom's: Understand
76
117) What are the four main strategic paths that a diversified company can employ to improve
the performance of its overall business lineup?
Answer: Strategic moves to improve a diversified company's overall performance include: (1)
sticking closely with the existing business lineup and pursuing the opportunities these businesses
present; (2) broadening the company's business scope by making new acquisitions in new
industries; (3) divesting some businesses and retrenching to a narrower base of business
operations; and (4) restructuring the company's business lineup and putting a whole new face on
the company's business makeup.
Difficulty: 1 Easy
Bloom's: Remember
118) What might induce an already diversified company to enter additional businesses and
broaden its diversification base?
Answer: Opting to broaden a diversified company's business base is often attributable to (1)
sluggish growth in revenues or profits; (2) vulnerability to seasonality or recessionary influences;
(3) the potential for transferring resources and capabilities to other related businesses; (4)
unfavorable driving forces; or (5) a need to complement and strengthen the market position and
competitive capabilities of one or more of its present businesses.
Bloom's: Understand
77
119) An additional, and often very important motivating factor for adding new businesses is to
complement and strengthen the market position and competitive capabilities of one or more of its
present businesses. Explain and provide three examples.
Answer: Sometimes, companies need to complement and strengthen the market position and
competitive capabilities of one or more of their present businesses. Three relatively recent
examples of companies that made acquisitions with valuable strategic fit between the value chain
activities of the two companies include:
1. In 2014, Apple strengthened its iTunes music business with the $3 billion acquisition of Beats
Electronics and Beats Music, a company that produced headphones and provided streaming
music services.
2. In 2015, Dutch-based Heineken, the world's third-largest brewer, broadened its slow-growing
beer portfolio and increased its geographical reach via a purchase of a 50 percent stake in
California-based Lagunitas Brewing Company, a regional craft brewer whose brands were
growing at 58 percent per year due to changing beer consumption patterns in the United States.
In 2016, Heineken purchased the remaining 50 percent share of Lagunitas Brewing Company.
3. In 2018, shareholders of the Walt Disney Company and 21st Century Fox agreed to a $71.3
billion purchase plan that gave Disney the bulk of the Fox media empire, expanding into
industries whose technologies and products complemented its present media and entertainment
businesses, opening up new avenues for reducing costs by diversifying into closely related
businesses such as direct-to-consumer streaming of media content, and leveraging existing
resources and capabilities by expanding into related industries where these same resource
strengths were key success factors and valuable competitive assets.
Bloom's: Apply
120) Under what circumstances might a diversified firm choose to divest one or more of its
businesses?
Answer: Candidates for divestiture in a corporate restructuring effort typically include not only
weak or up-and-down performers or those in unattractive industries, but also: (1) business units
that lack strategic fit with the businesses to be retained, (2) business units that are cash hogs,
and/or (3) business units in a once-attractive industry that have badly deteriorated.
Bloom's: Understand
78
121) Why has corporate restructuring become a popular strategy at many diversified companies
over the past decade?
Answer: Performing radical surgery or restructuring a company's business lineup has become a
popular strategy at many diversified companies, especially those that had diversified broadly into
many different industries and lines of business. Under some circumstances a diversified
company's financial performance has become squeezed or eroded by a serious mismatch between
the company's resources and capabilities and the type of diversification that it has pursued,
resulting in: (1) too many businesses in slow-growth, declining, low-margin, or otherwise
unattractive industries; (2) too many competitively weak businesses; (3) an excessive debt
burden with interest costs that eat deeply into profitability; and/or (4) ill-chosen acquisitions that
haven't lived up to expectations.
Bloom's: Understand
79
Test Bank for Crafting and Executing Strategy: Concepts, 22nd Edition, Arthur Thompson Jr, A
122) Identify and explain the meaning and strategic significance of each of the following terms.
a) Related diversification
b) Strategic fit
c) Economies of scope
d) Retrenching
e) Unrelated diversification
Answer:
a. Related diversification: Businesses are "related" when their value chains possess competitively
valuable cross-business relationships.
b. Strategic fit: Strategic fit occurs when value chains of different businesses present
opportunities for cross-business combinations such as skills transfer, cost sharing, or brand
sharing.
c. Economies of scope: Economies of scope stem directly from cost-saving strategic fit along the
value chains of related businesses. Such economies are open only to a multibusiness enterprise
and are the result of a related diversification strategy that allows sibling businesses to share
technology, perform R&D together, use common manufacturing or distribution facilities, share a
common sales force or distributor/dealer network, and/or share the same administrative
infrastructure.
d. Retrenching: Evidence indicates that pruning businesses and thereby narrowing a firm's
diversification base in a smaller number of core businesses improves corporate performance.
e. Unrelated diversification: An unrelated diversification strategy discounts the importance of
pursuing cross-business strategic fit and, instead, focuses squarely on entering and operating
businesses in diverse industries that allow the company as a whole to increase its earnings.
Bloom's: Understand
80
Visit TestBankBell.com to get complete for all chapters

Test Bank For Crafting and Executing Strategy Concepts 22nd Edition Arthur Thompson JR A Strickland III John Gamble Margaret Peteraf Full Download

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Test Bank For Crafting and Executing Strategy Concepts 22nd Edition Arthur Thompson JR A Strickland III John Gamble Margaret Peteraf Full Download

Uploaded by

Copyright:

Available Formats

Test Bank for Crafting and Executing Strategy: Concepts, 22nd Edition, Arthur Thompson Jr, A

Test Bank for Crafting and Executing Strategy:

To download the complete and accurate content document, go to:

Visit TestBankBell.com to get complete for all chapters

3) Diversification ought to be considered when a

26) Unrelated businesses

30) One strategic fit-based approach to related diversification would be to

36) What makes related diversification an attractive strategy?

38) When discussing "economies of scope," it involves understanding that they

40) A big advantage of related diversification is that it

42) With a strategy of unrelated diversification, an acquisition is deemed to have potential if it

44) An umbrella brand

59) In the process of evaluating the attractiveness of a multibusiness (diversified) company's

62) A weighted industry attractiveness assessment is generally analytically superior to an

64) What hurdles are present in calculating industry attractiveness scores?

66) Assessments of how a diversified company's subsidiaries compare in competitive strength

71) The nine-cell industry attractiveness competitive strength matrix

95) When should a business not be divested?

99) Unlikely candidates for divestiture in a corporate restructuring effort are

Answer: Diversification is a sound strategic option when a company can:

a. the industry attractiveness test

Answer: In principle, diversification cannot be considered a success unless it results in added

106) Which is the better approach to diversification—a strategy of related diversification or a

108) Discuss the pros and cons of a strategy of unrelated diversification.

Visit TestBankBell.com to get complete for all chapters

You might also like