63) When calculating the weighted industry attractiveness scores, we find the more intensely
competitive an industry is
A) the lower the attractiveness weighting for that industry.
B) the higher the attractiveness weighting for that industry.
C) suggests the resources are beyond the parent company’s reach.
D) suggests the industry attractiveness measures have been incorrectly weighted.
E) the more likely the company’s profit and revenues will be intensive.
64) What hurdles are present in calculating industry attractiveness scores?
A) deciding on the appropriate weights for the attractiveness measures
B) different analysts use different weights for the different attractiveness measures
C) gaining sufficient command of the industry to assign more accurate and objective ratings
D) deciding the impact of strategic fits to unrelated and related diversification
E) deciding whether a business is related or unrelated
65) For a diversified company to be a strong performer
A) a substantial portion of its revenues and expenses must come from business units with
relatively low attractiveness scores.
B) its principal business must be in industries with a good outlook for growth and above-average
profitability.
C) its business units in high attractiveness score industries should be candidates for divesture.
D) its business units must operate within the favorable aspects of their industry environment.
E) its business units must have a popular image, even if the performance of their products does
not greatly satisfy buyer expectations.
66) Assessments of how a diversified company’s subsidiaries compare in competitive strength
should be based on such factors as
A) vulnerability to seasonal and cyclical downturns, vulnerability to driving forces, and
vulnerability to fluctuating interest rates and exchange rates.
B) relative market share, the ability to match or beat rivals on key product attributes, brand
image and reputation, costs relative to competitors, and the ability to benefit from strategic fits
with sister businesses.
C) the appeal of its strategy, the relative number of competitive capabilities, the number of
products in each business’s product line, which businesses have the highest/lowest market shares,
and which businesses earn the highest/lowest profits before taxes.
D) the ability to hurdle barriers to entry, value chain attractiveness, and business risk.
E) cost reduction potential, customer satisfaction potential, and comparisons of annual cash
flows from operations.
67) Huawei has hired you to calculate its relative share of the global mobile phone market. How
would you conduct this analysis?
A) by dividing Huawei’s percentage share of total industry sales volume by the percentage share
held by its largest rival.
B) by adjusting Huawei’s revenue share up or down by a factor proportional to whether their
quality/customer service factors are above/below industry averages.
C) by dividing Huawei’s market share (based on dollar volume) by the industry-average market
share.
D) by identifying Huawei’s cash cows, which have big relative market shares (above 1.0), and
cash hogs, which have low relative market shares (below 0.5).
E) by subtracting the industry-average market share (based on revenue) from Huawei’s market
share to highlight relative share above/below the industry average. This amount is a better
indicator of a business’s competitive strength than is just looking at the firm’s market share
percentage.
68) Calculating quantitative competitive strength ratings for each of a diversified company’s
business units involves
A) determining each industry’s key success factors, rating the ability of each business to be
successful on each industry KSF, and adding the individual ratings to obtain overall measures of
each business’s ability to compete successfully.
B) identifying the competitive forces facing each business, rating the strength of these
competitive forces industry by industry, and then ranking each business’s ability to be profitable,
given the strength of the competition it faces.
C) selecting a set of competitive strength measures, weighting the importance of each measure,
rating each business on each strength measure, multiplying the strength ratings by the assigned
weight to obtain a weighted rating, adding the weighted ratings for each business unit to obtain
an overall competitive strength score, and using the overall competitive strength scores to
evaluate the competitive strength of all the businesses, both individually and as a group.
D) determining which businesses possess good strategic fit with other businesses, identifying the
portion of the value chain where this fit occurs, and evaluating the strength of the competitive
advantage attached to each of the strategic fits to get an overall measure of competitive
advantage potential. Businesses with the highest/lowest competitive advantage potential have the
most/least competitive strength.
E) rating the caliber of each business’s strategic and resource fit, weighting the importance of
each type of strategic/resource fit, calculating weighted strategic/resource fit scores, and adding
the weighted ratings for each business to obtain an overall strength score for each business unit
that indicates whether the company has adequate strategic/resource fits to be a strong market
contender in each of the industries where it competes.
69) The value of determining the relative competitive strength of each business a company has
diversified into is to have a quantitative basis for
A) identifying which businesses have large/small competitive advantages or competitive
disadvantages vis-à-vis the rivals in their respective industries.
B) rating them from strongest to weakest in terms of contributing to the corporate parent’s
revenue growth.
C) comparing resource strengths and weaknesses, business by business.
D) rating them from strongest to weakest in contending for market leadership in their respective
industries.
E) rating them from strongest to weakest in terms of contributing to the corporate parent’s
profitability.
70) Indra Nooyi is CEO of PepsiCo, a diversified consumer products company. What does a
competitive strength score above 5 tell her about PepsiCo’s position in the market?
A) that PepsiCo’s business units are all fairly strong market contenders in their respective
industries
B) that PepsiCo’s units are all fairly weak market contenders in their respective industries
C) that PepsiCo will not likely perform well over the next five years
D) that PepsiCo’s competitive strength score is meaningless unless it is comparable to Coca-
Cola’s competitive strength score
E) that PepsiCo’s rivals will likely prevail in the race to achieve sustainable competitive
advantage
71) The nine-cell industry attractiveness competitive strength matrix
A) is useful for helping decide which businesses should have high, average, and low priorities in
deploying 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) identifies which sister businesses have the highest level of resource fit.
72) One of the most significant contributions to strategy making in diversified companies that the
nine-cell industry attractiveness competitive strength matrix provides is
A) identifying which businesses have strategies that should be continued, which businesses have
strategies that need fine-tuning, and which businesses have strategies that need a major overhaul.
B) that businesses having the greatest competitive strength and that are positioned in the most
attractive industries should have the highest priority for corporate resource allocation and that
competitively weak businesses in relatively unattractive industries should have the lowest
priority and perhaps even be considered for divestiture.
C) pinpointing which strategies are most appropriate for businesses positioned in the four corners
of the matrix (although the matrix reveals little about the best strategies for businesses positioned
in the remainder of the matrix).
D) its ability to pinpoint what kind of competitive advantage or disadvantage each business has.
E) pinpointing which businesses to keep and which ones to divest.
73) The nine-cell attractiveness-strength matrix provides clear, strong logic for considering using
A) only industry attractiveness in allocating resources and investment capital to its different
businesses.
B) only business strength in allocating resources and investment capital to the different
businesses.
C) both industry attractiveness and business strength in allocating resources and investment
capital to its different businesses.
D) both industry attractiveness and product strength in allocating resources and investment
capital to its different businesses.
E) both resource fit and product strength in allocating resources and investment capital to its
different businesses.
74) Checking the competitive advantage potential of cross-business strategic fits in a diversified
company involves evaluating the extent to which sister businesses present opportunities
A) to combine the performance of certain cross-business activities and thereby reduce costs.
B) to transfer skills, technology, or intellectual capital from one business to another.
C) for the company’s different businesses to share use of a well-respected brand name.
D) for sister businesses to collaborate in creating valuable new competitive capabilities.
E) to create a positive image in the industry irrespective of the financial performance of its
businesses.
75) Checking a diversified company’s business portfolio for the competitive advantage potential
of cross-business strategic fits does not involve ascertaining the extent to which sister business
units
A) have value chain match-ups that offer opportunities to combine the performance of related
value chain activities and reduce costs.
B) have value chain match-ups that offer opportunities to transfer skills or technology or
intellectual capital from one business to another.
C) have opportunities to share use of a well-respected brand name.
D) have value chain match-ups that offer opportunities to create new competitive capabilities or
to leverage existing resources.
E) are cash cows and which ones are cash hogs.
76) Michelle Buck, CEO of the Hershey Company has hired you as a consultant to assess her
diversified company’s business units for cross-business competitive advantage potential. Your
assessment would not normally involve ascertaining the extent to which Hershey’s business units
A) have value chain match-ups that offer opportunities to combine the performance of related
value chain activities and reduce costs.
B) have value chain match-ups that offer opportunities to transfer skills or technology or
intellectual capital from one business to another.
C) are making maximum use of the parent company’s competitive advantages.
D) have value chain match-ups that offer opportunities to create new competitive capabilities or
to leverage existing resources.
E) present opportunities to share use of a well-respected brand name.
77) You have been hired as a consultant by Mary Dillon, CEO of Ulta Beauty, a $5.9 billion
company that is the largest U.S. retailer of cosmetics. CEO Dillon has asked you to consider
several related diversification options for Ulta based on the potential for good resource fits. You
would advise CEO Dillon that a company pursuing related diversification exhibits resource fit
when
A) each new line of business for Ulta could become a cash cow.
B) each new line of business for Ulta would add to a company’s overall resource strengths and
have matching resource requirements and/or could do so when Ulta has adequate corporate
resources to support its business needs and add sufficient value.
C) each new line of business for Ulta could become sufficiently profitable to generate an
attractive return on invested capital.
D) each new line of business for Ulta could generate large internal cash flows over and above
what is needed to build and maintain the business.
E) the resource requirements of each new line of business for Ulta could be synergistic with the
company’s available resources.
78) The businesses in a diversified company’s lineup exhibit good resource fit when
A) the resource requirements of each business exactly match the resources the company has
available.
B) individual businesses have matching resource requirements at points along their value chain
and add to a company’s overall resource strengths and when solid parenting capabilities exist
without spreading itself too thin.
C) each business generates just enough cash flow annually to fund its own capital requirements
and thus does not require cash infusions from the corporate parent.
D) each business unit produces sufficient cash flows over and above what is needed to build and
maintain the business, thereby providing the parent company with enough cash to pay
shareholders a generous and steadily increasing dividend.
E) there are enough cash cow businesses to support the capital requirements of the cash hog
businesses.
79) What is it called when a diversified company can add value by shifting capital from business
units generating free cash flow to those needing additional capital to expand and realize their
growth potential?
A) internal capital market
B) cash cow benefits
C) economic value added
D) shareholder value added
E) transaction cost valuation
80) Mary Barra, CEO of General Motors, has asked you to evaluate the financial resource fit of
its new autonomous (self-driving) vehicle and electric vehicle (EV) divisions. You would advise
CEO Barra that a diversified company’s business units exhibit good financial resource fit when
A) both new divisions are sufficiently profitable to generate an attractive return on invested
capital.
B) the resource requirements of each new division exactly match the company’s available
resources.
C) GM has the resources to adequately support the requirements of its new divisions as a group
without spreading itself too thin because these new divisions have the potential to add to GM’s
overall strengths.
D) each new division produces large internal cash flows over and above what is needed to build
and maintain the business.
E) both new divisions present a cash drain on the legacy car and truck divisions of GM and
should be managed more cost-effectively.
81) Management’s ranking of business units and establishing a priority for resource allocation
should
A) always make the company’s business units with strong resource strengths and competitive
capabilities the central focus of funding initiatives.
B) put business units with the brightest profit and growth prospects and solid strategic and
resource fits at the top of the investment priority list.
C) utilize activity-based costing and benchmarking to determine the funding needs of each
business unit.
D) first consider the strength of funding proposals presented by managers of each division or
business unit.
E) give priority for funding to cash hog businesses.
82) The tests of whether a diversified company’s businesses exhibit resource fit do not include
whether
A) the excess cash flows generated by cash cow businesses are sufficient to cover the negative
cash flows of its cash hog businesses.
B) a business adequately contributes to achieving the corporate parent’s performance targets.
C) the company has adequate financial strength to fund its different businesses and maintain a
healthy credit rating.
D) the corporate parent has sufficient cash to fund the needs of its individual businesses and pay
dividends to shareholders without having to borrow money.
E) the corporate parent has or can develop sufficient resource strengths and competitive
capabilities to be successful in each of the businesses it has diversified into.
83) Imagine that you have been hired by Bill Newlands, President and COO of Constellation
Brands (CB), to review the beverage company’s diversified portfolio of businesses. Of the
analytical tools that you could use to assess CB’s business lineup for adequate resource fit, which
one would you not be likely to use?
A) estimating whether the excess cash flows generated by cash cow businesses in CB’s portfolio
are sufficient to cover the negative cash flows of its cash hog businesses
B) assessing whether or not CB’s recently acquired businesses are acting to strengthen this
company’s resource base and competitive capabilities or whether they are causing its competitive
and managerial resources to be stretched too thinly across its businesses
C) determining whether or not the opportunity exists for CB to achieve 1 + 1 = 2 outcomes
among CB’s portfolio of brands
D) analyzing whether or not CB has adequate financial strength to fund its different businesses
and maintain a healthy credit rating
E) conducting feasibility studies into whether or not CB possesses or can develop sufficient
resource strengths and competitive capabilities to be successful in each of the businesses it has
diversified into
84) What is the BEST guideline for deciding what the priorities should be for allocating
resources to the various businesses of a diversified company?
A) Businesses with high industry attractiveness ratings should be given top priority and those
with low industry attractiveness ratings should be given low priority.
B) Business subsidiaries with the brightest profit and growth prospects, attractive positions on
the nine-cell matrix, and solid strategic and resource fits generally should head the list for
corporate resource support.
C) The positions of each business in the nine-cell attractiveness-strength matrix should govern
resource allocation.
D) Businesses with the most strategic and resource fits should be given top priority and those
with the fewest strategic and resource fits should be given low priority.
E) Businesses with high competitive strength ratings should be given top priority and those with
low competitive strength ratings should be given low priority.
85) The options for allocating a diversified company’s financial resources include all of the
following except
A) making acquisitions to establish positions in new businesses or to complement existing
businesses.
B) investing in ways to strengthen or grow existing businesses.
C) funding long-range R&D ventures aimed at opening market opportunities in new or existing
businesses.
D) paying off existing debt and building cash reserves.
E) decreasing dividend payments and/or selling shares of stock.
86) Deploying a diversified company’s financial resources would normally not involve
A) making acquisitions to establish positions in new businesses or to complement existing
businesses.
B) investing financial resources in cash cow 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.
87) Corporate strategy options for already diversified companies include all of the following
except
A) broadening the company’s business scope by making new acquisitions in new industries.
B) divesting weak-performing businesses and retrenching to a narrower base of business
operations.
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) pursuing growth opportunities within the existing business lineup.
E) pursuing certain acquisitions even if they have done badly or haven’t quite lived up to
expectations.
88) The strategic options to improve a diversified company’s overall performance do not include
which of the following categories of actions?
A) broadening the company’s business scope by making new acquisitions in new industries
B) increasing dividend payments to shareholders and/or repurchasing shares of the company’s
stock
C) restructuring the company’s business lineup with a combination of divestitures and
acquisitions to put a whole new face on the company’s business makeup
D) pursuing multinational diversification and striving to globalize the operations of several of the
company’s business units
E) divesting weak-performing businesses and retrenching to a narrower base of business
operations
89) Once a company has diversified into a collection of related or unrelated businesses and
concludes that some strategy adjustments are needed, which one of the following is not one of
the main strategy options that a company can pursue?
A) multinational diversification
B) restructure the company’s business lineup with a combination of divestitures and new
acquisitions
C) craft new initiatives designed to build/enhance the reputation and image of the company
D) divest some businesses and retrench to a narrower diversification base
E) broaden the diversification base
90) Barbara Rentler, CEO of Ross Stores, Inc. (parent company of Ross Dress for Less and dd’s
Discount retail chains) is considering broadening her company’s business scope, by building
positions in new related or unrelated businesses. Ms. Rentler would be advised to pursue a
diversification strategy for all of the following reasons except
A) Ross has resources or capabilities that are eminently transferable to other related or
complementary businesses.
B) Ross’s growth is sluggish and it wants the sales and profit boost that a new business can
provide.
C) Ross’s management wants to lessen the company’s vulnerability to seasonal or recessionary
influences or to threats from emerging new technologies, legislative regulations, and new
product innovations that alter buyer preferences and resource requirements.
D) Ross wants to make new acquisitions to strengthen or complement some of its present
businesses, market positioning, and competitive capabilities.
E) Ross’s top management wants to increase its compensation.