Self-Graded Chapter Quiz(See related pages)Results ReporterOut of 20 questions, you answered 5 correctly with a final grade of 25% 5 correct (25%) 15 CORRECT (75%) 0 unanswered (0%) Your Results: The correct answer for each question is indicated by a . 1 CORRECT 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 fit 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 CORRECT Important reasons for a company to consider diversification include _______________ A) a desire to avoid putting all of its “eggs” in one industry basket. B) diminishing market opportunities and stagnating sales in its principal business. C) opportunities to leverage existing competencies and capabilities by expanding into businesses where these same resources are key success factors and valuable competitive assets. D) an opportunity to lower costs by entering closely related businesses and/or an opportunity 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) All of these. 3 CORRECT To judge whether a particular diversification move has good potential for building added shareholder value, the move should pass the following tests: 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. 4 CORRECT The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves _______________ A) evaluating whether the diversification move will produce a 1 + 1 = 3 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. B) assessing whether the diversification move will make the company better off by increasing its resources and competitive capabilities. C) evaluating whether the diversification move will make the company better off by making it less subject to the bargaining power of customers and/or suppliers. D) assessing whether the diversification move will make the company better off by increasing its profit margins and returns on investment. E) All of these. 5 CORRECT Which of the following does not accurately describe entering a new business via acquisition, internal development, or a joint venture? A) The big dilemma of entering an industry via acquisition of an existing company is whether to pay a premium price for a successful company or to buy a struggling company at a bargain price. B) 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 usually requires less capital than entering an industry via internal start-up. C) Acquisition is the most popular means of diversifying into another industry, has the advantage of being quicker than trying to launch a brand-new operation, and offers an effective way to hurdle entry barriers. D) Joint ventures are an attractive way to enter new businesses when the opportunity is too complex, uneconomical, or risky for one company to pursue alone, when the opportunities in a new industry require a broader range of competencies and know-how than a company can marshal on its own, and/or when it aids entry into a foreign market. E) The big drawbacks to entering a new industry via internal development 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 CORRECT The defining characteristic of related diversification (as opposed to unrelated diversification) is _______________ A) that the businesses the company has diversified into are utilizing similar competitive strategies. B) the presence of cross-business value chain relationships and strategic fits. C) that each business the company has diversified into has very similar core competencies and competitive capabilities. D) that the company has about the same number of cash cow businesses as it does cash hog businesses. E) the existence of cross-industry resource fits and similar key success factors from industry to industry. 7 CORRECT The strategic appeal of related diversification is that _______________ A) it allows a firm to reap the competitive advantage benefits of skills transfer, lower costs (due to economies of scope), cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities. B) it is less capital intensive than unrelated diversification because related diversification emphasizes getting into cash cow businesses (as opposed to cash hog 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 facilitates the achievement of greater economies of scale since the company only enters those businesses that serve the same types of buyer groups and/or buyer needs. 8 CORRECT Which of the following is the best example of related diversification? A) A manufacturer of golf shoes diversifying into the production of fishing rods and fishing lures. B) A homebuilder acquiring a building materials retailer. C) A steel producer acquiring a manufacturer of farm equipment. D) A producer of snow skis and ski boots acquiring a maker of ski apparel and accessories (outerwear, goggles, gloves and mittens, helmets and toboggans). E) A publisher of college textbooks acquiring a publisher of magazines. 9 CORRECT 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 value chain. E) are like economies of scale and arise from being able to lower costs via a larger volume operation. 10 CORRECT Cross-business strategic fits can exist _______________ A) in the R&D and technology portion of the value chains of related businesses. B) in the supply chain portion of the value chains of related businesses. C) in the manufacturing or production portions of the value chains of related businesses. D) in the sales and marketing portion of the value chains of related businesses. E) All of the above, cross-business strategic fits can exist anywhere along the values chains of related businesses. 11 CORRECT The defining characteristic of unrelated diversification (as opposed to related diversification) is _______________ A) the presence of cross-business resource fit (whereas the defining characteristic of related diversification is the presence of cross-business strategic fit). B) that the value chains of different businesses are so dissimilar that no competitively valuable cross-business relationships are present (in other words, the value chains of a company’s businesses offer no opportunities to benefit from skills or technology transfer across businesses, economies of scope, cross-business use of a powerful brand name, and/or cross-business collaboration in creating stronger competitive capabilities). C) the presence of cross-business strategic fit (whereas the defining characteristic of related diversification is the presence of cross-business resource fit). D) that the company’s businesses are in different industries. E) the presence of cross-business financial fit. 12 CORRECT 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 resources test. B) Checking for strategic fit and resource fit. C) Ranking the performance prospects of the businesses from best to worst and determining what the corporate parent’s priority should be in allocating resources to its various businesses. D) Assessing the attractiveness of the industries the company has diversified into, both individually and as a group. E) Assessing the competitive strength of the company’s business units and determining how many are strong contenders in their respective industries. 13 CORRECT Calculating quantitative attractiveness ratings for the industries a company has diversified into involves _______________ A) determining the strength of the five competitive forces in each industry, calculating the ability of the company to overcome or contend successfully with each force, and obtaining overall measures of the firm’s ability to compete successfully in each of its industries. B) determining each industry’s average profit margins, calculating how far the firm’s profit margins are above/below the industry averages, and then using these values to draw conclusions about industry attractiveness. C) rating the attractiveness of each industry’s strategic and resource fit, summing the attractiveness scores, and determining whether the overall scores for the industries as a group are appealing or not. D) selecting a set of industry attractiveness measures, weighting the importance of each measure (with the sum of the weights adding to 1. 0), 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 evaluate the attractiveness of all the industries, both individually and as a group. E) identifying each industry’s average price, rating the difficulty of charging an above-average price in each industry, and deciding whether the company’s prospects for being able to charge above-average prices make the industry attractive or unattractive. 14 CORRECT The basic purpose of calculating competitive strength scores for each of a diversified company’s business units is to _______________ A) determine which business unit has the greatest number of resources, competencies, and competitive capabilities and which one has the least. B) assess how strongly positioned each business unit is in its industry and the extent to which it already is or can become a strong market contender. C) rank each business unit’s strategic fit from highest to lowest. D) rank each business unit’s resource fit from highest to lowest. E) rank each business unit’s strategy from best to worst. 15 CORRECT The nine-cell industry attractiveness-competitive strength matrix _______________ A) is a valuable tool for ranking a company’s different businesses from best to worst based on strategic fit. B) shows which of a diversified company’s businesses have good/poor resource fit. C) indicates which businesses have the highest/lowest economies of scale and which have the highest/lowest economies of scope. D) uses quantitative measures of industry attractiveness and competitive strength to plot each business’s location on the matrix—the thesis underlying the matrix is that there are good reasons to concentrate the company’s resources on those businesses having relatively strong competitive positions in industries with relatively high attractiveness and to invest minimally or even divest those businesses with relatively weak competitive positions in industries with relatively low attractiveness. E) pinpoints which of a diversified company’s businesses are resource-rich cash cows and which are resource-poor cash hogs. 16 CORRECT Checking a diversified company’s business lineup for the competitive advantage potential of cross-business strategic fits involves searching for and evaluating how much benefit a diversified company can gain from value chain matchups that present _______________ A) opportunities to combine the performance of certain activities, thereby reducing costs and capturing economies of scope. B) opportunities to transfer skills, technology, or intellectual capital from one business to another, thereby leveraging use of existing resources. C) opportunities to share use of a well-respected brand name. D) opportunities for sister businesses to collaborate in creating valuable new competitive capabilities (such as enhanced supply chain management capabilities, quicker first-to-market capabilities, or greater product innovation capabilities). E) All of the above. 17 CORRECT Checking a diversified company’s business lineup for resource fit does not involve which one of the following “tests”? A) Determining whether a company has or can develop the specific resources and competitive capabilities needed to be successful in each of its businesses. B) Determining whether recently acquired businesses are acting to strengthen the company’s resource base and competitive capabilities or whether they are causing its competitive and managerial resources to be stretched too thin. C) Determining whether each business adequately contributes to achieving companywide performance targets. D) Determining whether the company has enough cash hog businesses to supply capital to its cash cow businesses. E) Determining whether the company has adequate financial strength to fund the needs of its various businesses and maintain a healthy credit rating. 18 CORRECT Ranking a diversified company’s businesses in terms of priority for resource allocation and new capital investment _______________ A) should be done chiefly on the basis of appealing industry attractiveness and resource fit and secondarily on the basis of competitive strength and strategic fit with other businesses. B) entails arraying the various businesses 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 solid and appealing strategic fits and resource fits. D) should be based chiefly on relative market share, recent profitability, 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 and generate positive cash flows. 19 CORRECT Once a firm has diversified and established itself in several different businesses, then its main strategic alternatives include all but which one of the following? A) Broadening the firm’s business scope by diversifying into additional businesses. B) Shifting from a multiple-country to a global strategy. 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) Sticking closely with the existing business lineup and pursuing the opportunities these businesses present. E) Divesting some businesses and retrenching to a narrower base of business operations. 20 CORRECT Corporate restructuring strategies _______________ A) focus on broadening the scope of diversification to include a larger number of businesses and boost the company’s growth and profitability. B) involve rightsizing the company’s labor force to reduce the costs of salaries and benefits. C) are directed at achieving a 1 + 1 = 3 effect from the company’s diversification strategy. D) focus on crafting initiatives to restore a diversified company’s money-losing businesses to profitability. E) 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.