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.
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
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.
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.
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
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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.
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
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.
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.
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
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
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
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.
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
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.
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
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.
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.
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.