Exam 8: Corporate Strategy: Diversification and the Multi-Business Company

A) utilize activity-based costing and benchmarking to determine the funding needs of each business unit.
B) first consider the strength of funding proposals presented by managers of each division or business unit.
C) give priority for funding to cash-hog businesses.
D) put business units with the brightest profit and growth prospects and solid strategic and resource fits at the top of the investment priority list.
E) always make the company's business units with strong resource strengths and competitive capabilities the central focus of funding initiatives.

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A) when a diversified company has businesses that are weakly positioned in their respective industries and are struggling to earn a decent return on investment
B) when a diversified company has too many cash cows
C) when one or more businesses are cash hogs with questionable long-term potential
D) when businesses in once-attractive industries have badly deteriorated
E) when a diversified company has businesses that have little or no strategic or resource fits with the "core" businesses that management wishes to concentrate on

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A) each business is a cash cow.
B) a company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company's overall resource strengths.
C) each business is sufficiently profitable to generate an attractive return on invested capital.
D) each business unit produces large internal cash flows over and above what is needed to build and maintain the business.
E) the resource requirements of each business exactly match the resources the company has available.

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The four main strategic alternatives a d...

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A) is an effective way to hurdle entry barriers,is usually quicker than trying to launch a new start-up operation,and allows the acquirer to move directly to the task of building a strong position in the target industry.
B) is less expensive than launching a new start-up operation,thus passing the cost-of-entry test.
C) is a less risky way of passing the attractiveness test.
D) is more likely to result in passing the shareholder value test,the profitability test,and the better-off test.
E) offers 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.

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A) is making money,whereas a cash hog business is losing money.
B) generates enough profits to pay off long-term debt,whereas a cash hog business does not.
C) generates positive retained earnings,whereas a cash hog business produces negative retained earnings.
D) produces large internal cash flows over and above what is needed to build and maintain the business,whereas the internal cash flows of a cash hog business are too small to fully fund its operating needs and capital requirements.
E) generates very large increases in sales revenues,whereas a cash hog business has declining sales revenues and chronic deficiencies of working capital.

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A) Stick closely with the existing business lineup.
B) Restructure the company's business lineup.
C) Craft new initiatives to build or enhance the company's reputation.
D) Divest some businesses and retrench to a narrower diversification base.
E) Broaden the diversification base.

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A) evaluating the attractiveness of industries the company has diversified into and the competitive strength of each of its business units.
B) evaluating the strategic fits and resource fits among the various sister businesses.
C) 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.
D) using the results of the prior analytical steps as a basis for crafting new strategic moves to improve the company's overall performance.
E) All of these choices are correct.

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A) is aimed at achieving good financial fit (whereas related diversification aims at good strategic fit) .
B) is the best way for a company to pass the attractiveness test in choosing which types of businesses/industries to enter.
C) discounts the importance of strategic fit and instead focuses on building and managing a group of businesses in attractive industries that can acquired on financial terms that allow for acceptable returns on investment.
D) concentrates on diversifying into businesses where a company can leverage use of a well-known brand name in ways that create added value for shareholders.
E) generally offers more competitive advantage potential than related diversification.

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A) is useful for helping decide which businesses should have high,average,and low priorities in allocating 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) indicates the relative size of the businesses.

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A) have a quantitative basis for identifying which businesses have large/small competitive advantages or competitive disadvantages vis-à-vis the rivals in their respective industries.
B) have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's revenue growth.
C) compare resource strengths and weaknesses,business by business.
D) have a quantitative basis for rating them from strongest to weakest in contending for market leadership in their respective industries.
E) have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's profitability.

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A) an excessive debt burden with interest costs that eat deeply into profitability.
B) a business lineup that consists of too many businesses competing in slow-growth,declining,or low-margin industries.
C) a lineup containing too many competitively weak businesses.
D) ill-chosen acquisitions that haven't lived up to expectations.
E) All of these choices are correct.

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A) has a distinctive competence in its related businesses.
B) has a clear path to achieving 1 + 1 = 3 synergy gains in shareholder value.
C) has a clear path to global market leadership in the industries where it has related businesses.
D) passes the value chain test and the profit expectations test for building shareholder value.
E) achieves economies of scale and passes the reduced-costs test for crafting a diversification strategy capable of creating added shareholder value.

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A) reduce risk by spreading the company's investments over a set of truly diverse industries
B) enable a company to achieve rapid or continuous growth
C) stabilize earnings; that is,market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses
D) provide benefits to managers such as high compensation and reduction in employment risk
E) all of these choices are correct.

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A) involve making radical changes in a diversified company's business lineup,divesting some businesses,and acquiring new ones so as to put a 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 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 boost the company's growth and profitability.

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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 the company 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.

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A) making acquisitions to establish positions in new businesses or to complement existing businesses
B) concentrating most of a company's financial resources in cash cow businesses and allocating little or no additional resources to cash hog 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

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