Crafting and executive strategy
1
Which one of the following is not one of the elements of crafting corporate strategy for a diversified company?
A)
Picking the new industries to enter and deciding on the means of entry
B)
Initiating actions to boost the combined performance of the businesses the firm has entered
C)
Standardizing the resource fits across the group of businesses the company has diversified into
D)
Establishing investment priorities and steering corporate resources into the most attractive business units
E)
Pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage
2
Important reasons for a company to consider diversification include
A)
a desire to avoid putting all of its "eggs" in one industry basket.
B)
dimming growth opportunities in its present business.
C)
attractive opportunities to transfer its resources, expertise, and capabilities to other industries.
D)
an ability to lower costs by entering closely-related businesses and/or ability to transfer the company's well-respected brand name to the products of other businesses and thereby increase the sales and profits of newly-acquired or start-up businesses.
E)
All of these.
3
For diversification to result in added shareholder value
A)
the company's profits and return on shareholder equity must be higher after diversification than before diversification.
B)
the company must end up operating in a greater number of geographic markets after the diversification than before.
C)
all of the businesses a firm diversifies into must generate positive cash flows.
D)
the businesses a company has diversified into perform better as part of the same firm than they could have performed as independent, stand-alone companies.
E)
diversification must lead to bigger sales and market shares than could have been achieved without diversification.
4
To judge whether a particular diversification move has good potential, analysts should apply
A)
the attractiveness test, the barrier-to-entry test, and the growth test.
B)
the strategic fit test, the resource fit test, and the profitability test.
C)
the barrier-to-entry test, the growth test, and the shareholder value test.
D)
the attractiveness test, the cost-of-entry test, and the better-off test.
E)
the resource fit test, the strategic fit test, the profitability test, and the shareholder value test.
5
Which of the following is not accurate as concerns entering a new business via acquisition, internal start-up, or a joint venture?
A)
Acquisition is generally the most profitable way to enter a new industry, tends to be more suitable for an unrelated diversification strategy than a related diversification strategy, and is usually less expensive than entering an industry via internal start-up.
B)
One of the problems of using acquisitions to enter a new business is finding an acquisition candidate that can be purchased at a price that satisfies the cost-of-entry test.
C)
Acquisition is the most popular means of diversifying into another industry, has the advantage of quicker entry into the target market (as compared to internal start-up), and poses the problem of whether to buy a successful company at a premium price or a struggling company at a bargain price.
D)
Joint ventures are an attractive way to enter new businesses when the opportunity is too risky or complex for a company to proceed on its own, pooling the resources and competencies of two or more independent organizations produces a venture arrangement with more of the capabilities needed to be a strong competitor, and it aids entry into a foreign market.
E)
The big drawbacks to entering a new industry via internal start-up include the costs of overcoming entry barriers, building an organization from the ground up, and the extra time it takes to build a strong and profitable competitive position.
6
The defining characteristic of related diversification (as opposed to unrelated diversification) is
A)
that each business the company has diversified into has very similar core competences and competitive capabilities.
B)
the presence of cross-business value chain relationships and strategic fits.
C)
that either the products of the different businesses are very similar or else the different businesses sell to much the same customers.
D)
that the resource strengths of the different businesses are approximately the same.
E)
cross-business resource fits.
7
An advantage of related diversification is that
A)
it offers ways for a firm to realize 1 + 1 = 3 benefits because of competitively valuable value chain matchups.
B)
it is less capital intensive than unrelated diversification because it emphasizes getting into cash cow businesses.
C)
it involves diversifying into industries having the same kinds of key success factors.
D)
it is less risky than unrelated diversification because it avoids the acquisition of cash hog businesses.
E)
it focuses on the same types of buyer groups and buyer needs.
8
Which of the following is the best example of related diversification?
A)
A log homes manufacturer acquiring a firm owning several thousand acres of timber and some logging equipment
B)
A producer of mountain bikes acquiring a maker of bicycle helmets and cycling apparel
C)
A steel producer acquiring a manufacturer of dishwashers
D)
A manufacturer of golf shoes diversifying into the production of fishing lures
E)
A publisher of college textbooks acquiring a publisher of magazines
9
Economies of scope
A)
stem from the cost-saving efficiencies of scattering a company's manufacturing/assembly plants over a wider geographic area.
B)
have to do with the cost-saving efficiencies of operating across a bigger portion of an industry's total value chain.
C)
stem from cost-saving strategic fits along the value chains of related businesses.
D)
refer to the cost-savings that flow from being able to combine the value chains of different businesses into a single, more cost-efficient chain.
E)
arise from being able to produce two or more types of products at a single plant facility.
10
What makes related diversification an attractive strategy is
A)
the ability to expand the company's product offerings and broaden its customer base.
B)
the opportunity to convert cross-business strategic fits into competitive advantage (such opportunity does not exist with unrelated diversification).
C)
increased potential for bigger profit margins and higher returns on investment due to the presence of strong resource fit.
D)
the ability to achieve greater economies of scale and have more profit sanctuaries.
E)
the ability to spread investor risk over a broader range of businesses and industries.
11
The defining characteristic of unrelated diversification (as opposed to related diversification) is
A)
little opportunity to transfer competitively valuable expertise or technological know-how from one business to another.
B)
cross-business financial fit.
C)
the company's businesses are in different industries.
D)
the resources strengths of one business are not similar to the resource strengths of another business.
E)
that the value chains of the different businesses have little in common from the standpoint of offering competitive advantage opportunities.
12
Which one of the following is not part of the task of critiquing a diversified company's strategy, assessing its business makeup, and deciding how to improve overall company performance?
A)
Checking whether each business a company has diversified into can pass the profitability test, the capital gains test, the growth rate test, and the resource strength test
B)
Checking for strategic fits and resource fits
C)
Ranking the business units in terms of priority for resource allocation
D)
Evaluating the attractiveness of each industry the company has diversified into
E)
Evaluating each business's competitive strength
13
The analytical value of developing quantitative ratings of which industries represented in a diversified company's business portfolio are most attractive and which are least attractive is
A)
to determine in fairly precise terms which industries the company has diversified into are characterized by strong competition and which are characterized by relatively weak competitive forces.
B)
to learn how big the differences are in the attractiveness of each industry's key success factors.
C)
being able to rank the industries in terms of which ones offer the company the greatest long-term opportunity and which ones offer the least long-term opportunity and thus draw objective conclusions about how and why some of the industries a company has diversified into are more attractive than others.
D)
to determine which industries have the highest overall growth potential and which are likely to be the slowest-growing industries.
E)
to obtain a quantitative measure of which industry has the best overall value chain from the standpoint of the company being able to win a competitive advantage.
14
Developing quantitative measures of competitive strength for each of a diversified company's business units involves
A)
determining the make-up of each business's value chain.
B)
selecting an appropriate set of strength measures, deciding on appropriate weights for each strength measure, rating each business on each strength measure, and summing the ratings to get an overall strength measure for each business unit.
C)
using the strength measures to determine each business's relative market share and relative cost position.
D)
using the strength measures to determine each business's status as a cash hog or a cash cow.
E)
All of these.
15
The 9-cell industry attractiveness-business strength matrix
A)
shows clearly which business units enjoy the highest relative market share and which have the lowest.
B)
indicates which businesses have good strategic fit and good resource fit and, also, which ones have the best long-term profit prospects and which have the worst profit prospects.
C)
helps identify which businesses have the highest/lowest economies of scale and which have the highest/lowest economies of scope.
D)
uses quantitative measures of long-term industry attractiveness and business strength/competitive position to plot each business's location and stresses the merits of concentrating the company's resources on those businesses having relatively strong competitive positions in industries with relatively high long-term attractiveness.
E)
indicates which of a diversified company's businesses are cash cows and which are cash hogs.
16
Strategic fit analysis of a diversified company's business portfolio involves evaluating whether
A)
certain business units have competitively valuable value chain match-ups that offer opportunities to reduce costs (by combining the performance of related activities) and/or to transfer technology or intellectual capital from one business to another.
B)
each business unit's strategy matches well with industry key success factors and whether the various businesses have compatible and complementary resource strengths and competitive capabilities.
C)
each business's strategic objectives and strategy match up well with and are compatible with the strategic objectives and strategy of other businesses in the portfolio.
D)
certain business units present opportunities to leverage use of a sister business's well-known and competitively powerful brand name and/or to collaborate in creating new capabilities or resource strengths.
E)
Both A and D.
17
Resource fit analysis of a diversified company's business portfolio involves evaluating whether
A)
certain business units add to a company's resource strengths (either financially or strategically) and whether the company has adequate resources to support its businesses as a group without stretching itself too thin.
B)
certain business are oversupplied or undersupplied with resources and whether the company can increase its profitability by divesting its cash hog businesses and reinvesting the proceeds in acquiring "star" caliber cash cow businesses.
C)
which resources of which business units are most useful in contributing to the kind of competitive advantage the diversified company is trying to build.
D)
the company has enough cash hog businesses to supply capital to its cash cow businesses.
E)
the company's different businesses have similar core competences.
18
Ranking a diversified company's businesses in terms of priority for resource allocation and new capital investment
A)
should be done principally on the basis of relative long-term industry attractiveness and resource fit and secondarily on the basis of competitive strength and strategic fit with other businesses.
B)
entails arraying the various business from the biggest cash hog down to the biggest cash cow; big cash hogs get the highest priority for resource allocation and big cash cows get the lowest priority.
C)
should be done principally on the basis of which businesses offer the best prospects (given their industry attractiveness and competitive strength) and, also, have the most solid strategic and resource fits.
D)
should be based chiefly on relative competitive strength, recent performance, and potential for achieving cash cow status.
E)
should be based primarily on cross-business resource fit considerations, each business unit's relative market share, and each business's projected ability to cover its debt payments.
19
Once a firm has diversified and established itself in several different businesses, then its main strategic alternatives include
A)
broadening the firm's business base by diversifying into additional businesses.
B)
retrenching to a narrower business base by divesting some of its present businesses.
C)
restructuring the company's business lineup and putting a whole new face on the company's business makeup.
D)
multinational diversification.
E)
All of the above.
20
A multinational diversification strategy can be particularly attractive to a diversified company because it allows the company to pursue maximum competitive advantage potential via actions to
A)
fully capture economies of scale and cross-business economy of scope opportunities.
B)
gain the benefits of both cross-business and cross-country collaboration and coordination.
C)
exploit use of a competitively powerful brand name.
D)
transfer competitively valuable resources from one business to another and one country to another.
E)
All of these.