Understanding Business Strategy Concepts Plus 3rd Edition Ireland Test Bank

Understanding Business Strategy
Concepts Plus 3rd Edition Ireland Test

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Chapter 6 - Multiproduct Strategies
TRUE/FALSE
1. Multiproduct strategies apply to diversified manufacturers, not to organizations which provide

services.
ANS: F PTS: 1 REF: Page 124 OBJ: Learning Objective 1

KEY: Comprehension
MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Managing Strategy &
Innovation
2. Loganfield Papers generates 80% of its revenues from its extensive line of papers for watercolor
artists. The remaining 20% of its revenues come from a line of specialty papers it sells to printers of
greeting cards. This company is using the unrelated diversification multiproduct strategy.

KEY: Application
MSC: AACSB: Reflective Thinking | Management: Strategy | Dierdorff & Rubin: Managing Strategy
& Innovation
3. Strategic business units are found in related linked diversification strategies.
ANS: T PTS: 1 REF: Page 125-128

OBJ: Learning Objective 3 KEY: Comprehension
Innovation
4. Firms using the unrelated-diversified multiproduct strategy dominate the private sector in Latin
American countries, Korea, China, and India.
ANS: T PTS: 1 REF: Page 128 OBJ: Learning Objective 3

KEY: Comprehension
Innovation
5. Large firms in the U.S. are most likely to use the dominant business multiproduct strategy.

KEY: Comprehension
Innovation
6. Firms using the unrelated strategy emphasize operational competencies to create economies of scope.

KEY: Comprehension
Innovation
7. The sharing of tangible resources among businesses within an SBU is easier than transferring
intangible core competencies among the same businesses.
KEY: Comprehension
Innovation
8. Restructuring can create financial economies when a firm buys another company’s assets with the
intention of selling them as soon as it finds ways to make the assets more productive.

KEY: Application
Innovation
9. A poorly-performing SBU in a firm using the unrelated-diversification multiproduct strategy is liable

to be disciplined by being allocated fewer resources.

KEY: Comprehension
Innovation
10. In general, it is easier to create financial economies by restructuring the assets of firms in
high-technology business than firms in low-technology businesses.

KEY: Comprehension
Innovation
11. Divisional managers bear the main responsibility for insuring that managers do not over-diversify the
organization.

KEY: Comprehension
Innovation
12. If a domestic firm using a dominant-business multiproduct strategy decides to market its products
internationally, it will move to a multidivisional structure.

KEY: Comprehension
Innovation
13. A key objective of division heads in the SBU form of the M-form structure is to determine whether
two or more divisions’ resources could be combined to create an intangible capability that could
become a core competence.

KEY: Comprehension
Innovation
14. The external capital market allocates resources to divisions according to their probability of generating
excess returns on the firm’s borrowed financial capital in the competitive form of the M-form
organizational structure.

KEY: Comprehension
Innovation
15. Textron’s success can be traced to its use of the unrelated diversification multiproduct strategy.
ANS: T PTS: 1 REF: Page 142-143

OBJ: Learning Objective 4 KEY: Application
& Innovation
MULTIPLE CHOICE
1. Because less than 70 percent of its sales revenues come from any one business and because some
resources and activities that are needed to produce and sell products and services in different markets
are shared across businesses, Hewlett-Packard is using the ____ multiproduct strategy.
a. related linked c. unrelated diversification
b. related constrained d. dominant business
ANS: B PTS: 1 REF: Page 125 OBJ: Learning Objective 1
KEY: Application
& Innovation
2. Firms use multiproduct strategies to diversify for all of the following reasons except
a. smoothing out revenue and earnings flows.
b. reducing the risk of having a single product line.
c. developing economies of scale.
d. gaining exposure to different technologies.
ANS: C PTS: 1 REF: Page 124-125
Innovation
3. The highest level of diversification is

a. related constrained c. unrelated
b. related linked d. unconstrained
ANS: C PTS: 1 REF: Page 126 OBJ: Learning Objective 2
KEY: Comprehension
Innovation
4. Valve-Tech manufactures valves for pipelines for the oil industry. The company has been in this
business for the past 35 years, and focuses exclusively on valves. As a specialist in all variety of valves
for oil pipelines, it is widely known and respected in the oil industry. Valve-Tech is an example of a
____ multiproduct strategy.
a. single business c. related constrained
b. dominant business d. related linked
ANS: A PTS: 1 REF: Page 125 OBJ: Learning Objective 2
KEY: Application
& Innovation
5. Bell Tower Productions produces educational videos for use in private religious-based elementary
schools. This generates approximately 80 percent of Bell Tower’s revenues. As a side line, the
company also produces videos for use by churches for Sunday school classes and church summer
camps. Bell Tower is using the ____ diversification multiproduct strategy.
a. single business c. related-diversification
b. dominant business d. unrelated-diversification
KEY: Application
& Innovation
6. Cost savings that the firm accrues when it successfully shares some of its resources and activities or
some of its core competencies between its businesses are called
a. core economies. c. economies of scope.
b. economies of competence. d. economies of scale.
KEY: Knowledge
Innovation
7. When the businesses within an organization share some products, markets, or technologies and each
business generates less than 70 percent of the sales revenue of the organization, the firm is using the
____ diversification multiproduct strategy.
a. related-constrained c. unrelated
b. related-linked d. nondominant
KEY: Knowledge
Innovation
8. In the related-linked diversification strategy, strategic business units (SBUs)

a. share resources, activities, and core competencies within and between SBUs.
b. share resources, activities, and core competencies only with the SBU.
c. share resources, activities, and core competencies only between SBUs.
d. do not share resources, activities, and core competencies among product divisions even
within the SBU.
KEY: Comprehension
Innovation
9. Another term for companies that use the unrelated-diversification multiproduct strategy is
a. combinations. c. global organizations.
b. aggregations. d. conglomerates.
ANS: D PTS: 1 REF: Page 128 OBJ: Learning Objective 4
KEY: Knowledge
Innovation
10. Crested Eagle Enterprises uses the related linked multiproduct strategy. One of its businesses
developed in-depth marketing knowledge of the Northwest region of the U.S. which has traditionally
been a weak spot for Crested Eagle’s businesses. This marketing knowledge is being transferred
throughout Crested Eagle’s businesses through a series of seminars and training courses. This is an
example of
a. operational transference. c. operational relatedness.
b. corporate relatedness. d. competency transference.
KEY: Application
Innovation
11. Firms that use the related linked diversification multiproduct strategy create economies of scope by
achieving ____ relatedness.
a. corporate c. operational
b. competency d. both operational and corporate
KEY: Comprehension
Innovation
12. Fresh from Nature, Inc., has several lines of heat-and-eat frozen foods sold in grocery stores. These
include the Auntie Jean line of American-style casseroles, the Tia Juana line of Mexican foods, and the
Oma Gertie line of German and East European dishes. Fresh from Nature contracts with a dozen
producers of organic beef, pork, and chicken which it provides to all three food lines. This is an
example of ____ relatedness.
a. economic c. operational
b. corporate d. competency
KEY: Application
Innovation
13. A typical risk with resource sharing in the attempt to achieve economies of scope is that
a. supply of the resource may not match the demand for the resource.
b. resources shared internally tend to be more expensive than those acquired externally.
c. the quality of resources generated internally is usually not as high as those acquired
externally.
d. the organization tends to over-rely on internal supplies of resources.
KEY: Comprehension
Innovation
14. Kohl’s sells an array of products while using the ____ multiproduct strategy.
a. related constrained
b. dominant business
c. single business
d. related linked
KEY: Application
& Innovation
15. Firms which have successfully achieved both operational relatedness and corporate relatedness
a. are termed diversified corporations.
b. are unstable because of the difficulty of maintaining this “hybrid” strategy.
c. are difficult for competitors to imitate.
d. rely almost entirely on the transfer of intangible core competencies for their success.
KEY: Comprehension
Innovation
16. In a firm using the unrelated-diversification multiproduct strategy, the organizations’ corporate
headquarters personnel act as ____ for the entire organization.
a. a capital market c. a source of core competencies
b. a coordinator of tangible resources d. a separate SBU
KEY: Comprehension
Innovation
17. Bravissimo Nutriceuticals was bought by MegaVitamin, Inc. Bravissimo was restructured by
MegaVitamin, and resold for a price more than MegaVitamin’s investment. Which of the following
statements is true?
a. This is an example of a successful unrelated-diversification multiproduct strategy by
MegaVitamin.
b. This is an example of a typical conglomerate strategy, such as is practiced in Latin
America.
c. This is an example of a successful related linked diversification strategy by MegaVitamin.
d. This is an example of a failed related constrained diversification strategy by Bravissimo.
KEY: Application
& Innovation
18. The main reason that an internal capital market would generate superior returns for shareholders as
compared with external capital markets is
a. the effective transfer of core competencies within an internal capital market.
b. the increased operational and corporate relatedness generated by an internal capital
market.
c. the improved access to information about SBUs.
d. the higher motivation by managers of SBUs when competing for funds.
Innovation
19. In an organization using the unrelated-diversification multiproduct strategy, if an SBU is performing

poorly, it will either be disciplined by headquarters changing its resource allocation or it will be
a. partitioned. c. absorbed.
b. divested. d. dissolved.
KEY: Comprehension
Innovation
20. Managerial motives to diversify their organizations include all except

a. to increase their compensation by increasing the organization’s size.
b. to reduce the risk of total failure of the firm.
c. to reduce the challenge of managing the organization.
d. to make their job more secure.
KEY: Comprehension
Innovation
21. The main check on managerial desires to over-diversify the firm is/are the
a. external capital markets. c. shareholders.
b. internal capital market. d. board of directors.
KEY: Comprehension
Innovation
22. The ____ M-form structure uses horizontal integration so that resources and activities can be shared
among product divisions.
a. cooperative c. competitive
b. SBU form d. collaborative
KEY: Knowledge
Innovation
23. Temporary teams or task forces that cross organizational divisions are most likely to be used in the
____ version of the M-form structure.
a. SBU form c. competitive
b. cooperative d. collaborative
ANS: B PTS: 1 REF: Page 135-136
Innovation
24. Profit centers are a dominant feature of the ____ form of the M-form structure.
b. collaborative d. SBU
ANS: D PTS: 1 REF: Page 136-137
Innovation
25. In the SBU form of the M-form structure, headquarters staff use ____ controls to evaluate the
performance of each SBU.
a. strategic c. financial
b. marketing d. operational
Innovation
26. Firms using the unrelated-diversification multiproduct strategy use the ____ form of the M-form
structure.
a. competitive c. cooperative
b. SBU d. collaborative
KEY: Comprehension
Innovation
27. Division managers in the ____ form of the M-form structure would have very little contact with one
another and would have little or no motivation to form relationships across divisions.
b. SBU d. collaborative
KEY: Comprehension
Innovation
ESSAY
1. Explain the differences among the following levels of diversification in terms of the two
value-creating strategies: related constrained, related linked, and unrelated. Define the two
value-creating strategies.
ANS:
The two value creating strategies of diversification are operational and corporate relatedness.
Operational relatedness involves sharing resources and activities between businesses. Corporate
relatedness involves transferring core competencies between some of the organizations businesses
through corporate headquarters. The related constrained strategy uses high levels of operational
relatedness and low levels of corporate relatedness. The related linked strategy uses high levels of
corporate relatedness and low levels of operational relatedness. The unrelated strategy relies on neither
type of relatedness.
PTS: 1 REF: Page 129-131
OBJ: Learning Objective 2 | Learning Objective 3 | Learning Objective 4
KEY: Comprehension
MSC: AACSB: Analytic | Management: Strategy | Dierdorff & Rubin: Strategic & Systems Skills
2. Explain the difference between the unrelated diversification strategy and the two
related-diversification strategies in terms of how they create the economies that make them successful.
ANS:
The related-diversification strategies rely on economies of scope which they generate through either
operational relatedness or corporate relatedness. A few firms simultaneously seek both operational and
corporate relatedness, although this is very difficult and few firms achieve it. Both operational and
corporate relatedness are based on sharing either of resources or of core competencies. Unrelated
diversification strategies seek financial economies, and the divisions in these types of firms operate
separately competing for capital in the organization’s internal capital market.
PTS: 1 REF: Page 128-133

OBJ: Learning Objective 3 | Learning Objective 4 KEY: Comprehension
3. Why would CEOs and presidents of organizations seek to diversify beyond the point where the
diversification benefits the organization? What is the main protection for the organization from this
overdiversification?
ANS:
Top managers of organizations are tempted to overdiversify by the fact that the larger the firm, the
more executives are paid. In addition, the more diversified the firm, the less likely all the divisions will
fail simultaneously. This gives the executives more job security, because at least portions of the
organization will survive. The main control on executive temptation to overdiversify is the
organization’s board of directors.
PTS: 1 REF: Page 134 OBJ: Learning Objective 5

KEY: Comprehension
4. What are the three types of M-form structure and which of the diversification multiproduct strategies
does each fit? What key aspect of each structure is appropriate for each strategy?
ANS:
The cooperative M-form structure is suited to the related constrained diversification multiproduct
strategy. The key aspect of this structure is the provision of horizontal linkages that allows sharing of
resources. The SBU form of the M-form structure is suited to the related linked diversification
multiproduct strategy. The key aspect of this structure is the creation of each SBU as a profit center.
The competitive M-form structure is suited to the unrelated-diversification multiproduct strategy. The
key aspect of this structure is the creation of the internal capital market.
PTS: 1 REF: Page 135-138 OBJ: Learning Objective 6

KEY: Comprehension

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Understanding Business Strategy

Concepts Plus 3rd Edition Ireland Test

1. Multiproduct strategies apply to diversified manufacturers, not to organizations which provide

ANS: F PTS: 1 REF: Page 124 OBJ: Learning Objective 1

ANS: F PTS: 1 REF: Page 126 OBJ: Learning Objective 2

3. Strategic business units are found in related linked diversification strategies.

ANS: T PTS: 1 REF: Page 125-128

ANS: T PTS: 1 REF: Page 128 OBJ: Learning Objective 3

ANS: F PTS: 1 REF: Page 128 OBJ: Learning Objective 3

ANS: F PTS: 1 REF: Page 131 OBJ: Learning Objective 4

ANS: T PTS: 1 REF: Page 133 OBJ: Learning Objective 4

9. A poorly-performing SBU in a firm using the unrelated-diversification multiproduct strategy is liable

ANS: T PTS: 1 REF: Page 133 OBJ: Learning Objective 4

ANS: F PTS: 1 REF: Page 134 OBJ: Learning Objective 4

ANS: F PTS: 1 REF: Page 134 OBJ: Learning Objective 5

ANS: F PTS: 1 REF: Page 135 OBJ: Learning Objective 6

ANS: F PTS: 1 REF: Page 135 OBJ: Learning Objective 6

ANS: F PTS: 1 REF: Page 138 OBJ: Learning Objective 6

ANS: T PTS: 1 REF: Page 142-143

3. The highest level of diversification is

8. In the related-linked diversification strategy, strategic business units (SBUs)

19. In an organization using the unrelated-diversification multiproduct strategy, if an SBU is performing

20. Managerial motives to diversify their organizations include all except

PTS: 1 REF: Page 128-133

PTS: 1 REF: Page 134 OBJ: Learning Objective 5

PTS: 1 REF: Page 135-138 OBJ: Learning Objective 6

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