91) Retrenching to a narrower diversification base is
A) usually the most attractive long-run strategy for a broadly diversified company confronted
with recession, high interest rates, mounting competitive pressures in several of its businesses,
and sluggish growth.
B) a strategy that allows a diversified firm’s energies to be concentrated on building strong
positions in a smaller number of businesses rather the stretching its resources and managerial
attention too thinly across many businesses.
C) an attractive strategy option for revamping a diverse business lineup that lacks strong cross-
business financial fit.
D) sometimes an attractive option for deepening a diversified company’s technological expertise
and supporting a faster rate of product innovation.
E) a strategy best reserved for companies in poor financial shape.
92) When General Electric created an independent health care division and divested it in June
2018 by distributing to GE’s stockholders new shares in the new business, the strategic action
was termed
A) a spin-off.
B) a wholly owned subsidiary.
C) a functional divesture.
D) a satellite business.
E) a dysfunctional restructure.
93) Moves to improve a diversified company’s overall performance do not include
A) retrenching to a narrower base of business operations.
B) broadening the company’s business scope by making new acquisitions in new industries.
C) restructuring the company’s business lineup and putting a whole new face on the company’s
business makeup.
D) sticking closely to the existing business lineup and pursuing the growth opportunities
presented by these businesses.
E) retaining weak-performing businesses in order to sustain a wide base of business operations.
94) PepsiCo divested its group of fast-food restaurant businesses (KFC, Pizza Hut, and Taco
Bell) to Yum! Brands in order to allow PepsiCo to focus on its core soft drink and snack-food
businesses. A useful guide to determine whether or when to divest a business subsidiary is to ask,
A) “Have we missed the opportunity to milk these cash cows?”
B) “If we were not in this business today, would we want to get into it now?”
C) “Can’t we derive a parenting advantage with these businesses?”
D) “Do we need to do the math to achieve 1 + 1 = 3 outcomes from these diversified
businesses?”
E) “Will these three businesses pass the ‘cost-of-exit’ test?”
95) When should a business not be divested?
A) when the business is worth more to another company than to the parent company
B) when the business is a cash cow
C) when the business provides valuable strategic or resource fits for another company
D) when shareholders would be better served if the company sells the business for a generous
premium
E) when the business lacks the cross-boundary presence of shared values and cultural
compatibility
96) Strategies to restructure a diversified company’s business lineup involve
A) revamping the value chains of each of a diversified company’s businesses.
B) focusing on restoring the profitability of its money-losing businesses and thereby improving
the company’s overall profitability.
C) revamping the strategies of its different businesses, especially those that are performing
poorly.
D) divesting low-performing businesses that do not fit and acquiring new ones where
opportunities are more promising to put a new face on the company’s business makeup.
E) broadening the scope of diversification to include a larger number of smaller and more
diverse businesses.
97) Corporate restructuring strategies
A) involve making major changes in a diversified company’s business lineup, divesting some
businesses and/or acquiring others, so as to put a whole 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 up 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
boosting the company’s growth and profitability.
98) Conditions that may make corporate restructuring strategies appealing include all of the
following except
A) ongoing declines in the market shares of one or more major business units that are falling
prey to more market-savvy competitors.
B) a business lineup that consists of too many slow-growth, declining, low-margin, or
competitively weak businesses.
C) an excessive debt burden with interest costs that eat deeply into profitability.
D) ill-chosen acquisitions that haven’t lived up to expectations.
E) a business lineup that consists of too many cash cow businesses.
99) Unlikely candidates for divestiture in a corporate restructuring effort are
A) business units that lack strategic fit with the businesses to be retained
B) weak performers
C) businesses in unattractive industries
D) businesses that are cash hogs or that lack other types of resource fit
E) businesses compatible with the company’s revised diversification strategy
100) Briefly discuss when it makes good strategic sense for a company to consider
diversification.
101) Identify and briefly discuss each of the three tests for determining whether diversification
into a new business is likely to build shareholder value.
102) Capturing cross-business strategic-fit benefits via a strategy of related diversification builds
shareholder value in ways that shareholders cannot undertake by simply owning a portfolio of
stocks of companies in different industries. Provide (1) an example showing how a strategy of
related diversification benefited both companies and (2) an example showing how a strategy of
related diversification did not benefit both companies. On balance, is related diversification a
wise move for a corporation?
103) Explain the relevance of the following as they relate to building shareholder value via
diversification.
a. the industry attractiveness test
b. the cost of entry test
c. the better-off test
104) Identify and briefly discuss each of the three options for entering new businesses. What are
the driving choice parameters for entry into new businesses and which one is the most popular in
the sense of being used most frequently?
105) Carefully explain the difference between and the rationale for selecting a strategy of related
diversification and/or a strategy of unrelated diversification.
106) Which is the better approach to diversification—a strategy of related diversification or a
strategy of unrelated diversification? Explain and support your answer.
107) What is meant by the term “strategic fit”? What are the advantages of pursuing strategic fit
and matchups in choosing which industries to diversify into?
108) Discuss the pros and cons of a strategy of unrelated diversification.
109) 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. Based in
Victor, New York, CB has about 40 facilities and approximately 9,000 employees. The
company has more than 100 brands in its portfolio. Wine brands include Robert Mondavi, Wild
Horse Winery, Clos du Bois, Franciscan Estates, Kim Crawford, Meiomi, Mark West, Ruffino,
and The Prisoner. CB’s beer portfolio includes imported brands such as Corona, Modelo
Especial, Negra Modelo, Pacífico, as well as Ballast Point and Funky Buddha. Spirits brands
include Black Velvet Canadian Whisky, Svedka Vodka, Casa Noble Tequila, and High West
Whiskey. Your task is to quantitatively measure the competitive strength of each business in
CB’s portfolio and determining which business units are strongest and weakest. List the six steps
involved in the process.
110) What is the industry attractiveness test? How is it used to evaluate a diversified company’s
business lineup? Why is it relevant?
111) What is the relevance of quantitatively measuring the competitive strength of each business
in a diversified company’s business portfolio and determining which business units are strongest
and weakest?
112) What are the advantages and benefits of using an industry attractive-business strength
matrix to evaluate a diversified company’s lineup of businesses?
113) What is meant by the term “resource fit” as it applies to evaluating a diversified company’s
business lineup?
114) Explain and provide examples comparing and contrasting cash cow businesses and cash
hog businesses.
115) Why is it pertinent in evaluating a diversified company’s business lineup to rank a
diversified company’s businesses on the basis of their future performance prospects?
116) What factors should management consider when ranking business units and setting a
priority for resource allocation?
117) What are the four main strategic paths that a diversified company can employ to improve
the performance of its overall business lineup?
118) What might induce an already diversified company to enter additional businesses and
broaden its diversification base?
119) An additional, and often very important motivating factor for adding new businesses is to
complement and strengthen the market position and competitive capabilities of one or more of its
present businesses. Explain and provide three examples.
120) Under what circumstances might a diversified firm choose to divest one or more of its
businesses?
121) Why has corporate restructuring become a popular strategy at many diversified companies
over the past decade?
122) Identify and explain the meaning and strategic significance of each of the following terms.
a) Related diversification
b) Strategic fit
c) Economies of scope
d) Retrenching
e) Unrelated diversification