Chapter 8

Question 1

Related business

Answer 1

possess competitively valuable cross-business value chain and resource matchups

Question 2

Unrelated business

Answer 2

have dissimilar value chain and resources requirements, with no competitively important cross- business value chain relationship

Question 3

Strategic fit:

Answer 3

exists when value chains of different business present opportunities for cross-business skills, transfer, cost sharing or brand sharing

Question 4

Economies of Scope

Answer 4

are cost reductions stemming from strategic fit along with the value chains of related business, thereby a large scope of operations whereas economies of scale accrue from a larger operations

Question 5

Resource fit:

Answer 5

when its business add to a company’s overall mix of resource and capabilities and when the parent company has sufficient resource to support its entire group of businesses without spreading itself too thin

Question 6

Internal capital market

Answer 6

allows a diversified company to add value by shifting capital from business units generating free cash flow to those needing additional capital to expand and realize their growth potential

Question 7

Cash hogs

Answer 7

generates operating cash flow that are too small to fully fund its operations and growth a cash hog must receive cash infusion from outside sources to cover its working capital and investment requirements

Question 8

Spin off

Answer 8

a business unit divestiture approach that creates an independent company by either selling share to the public via an initial public offering or distributing shares in the new company to shareholders of the corporate parent

Question 9

Corporate restructuring

Answer 9

involve radically altering the business lineup by divesting business that lack strategic fit or are poor performers and acquiring new businesses that offer better promise for enhancing shareholder value.

Question 10

Added Shareholder Value

Answer 10

value that shareholders cannot capture on their own by spreading their investment across the stocks of companies in different industries

Question 11

Economies of scale

Answer 11

are cost saving that accrue directly from a larger operations

Question 12

dominate business enterprises

Answer 12

one major core business accounts for 50 to 80 percent of total revenues and a collection of small related or unrelated business accounts for the remainder

Question 13

narrowly diversified

Answer 13

around a few two to five related or unrelated businesses

Question 14

broadly diversified

Answer 14

around a wide-ranging collection of related business, unrelated businesses or a mixture of both