Corporate Strategies Continued

Question 1

Superior profits derive from which two sources?

Answer 1

Industry attractiveness & competitive advantage

Question 2

Diversification decision then involve which two questions?

Answer 2

• How attractive is the indusrty to be entered

- Can the firm achieve a competitive advantage

Question 3

What are the three motives for diversification?

Answer 3

1. Growth
2. Risk Spreading
3. Value Creation

Question 4

What are Porter’s 3 Essential tests for diversification?

Answer 4

1. The attractiveness test
2. The cost of entry test
3. The better off test

Question 5

What is the attractiveness test?

Answer 5

diversification must be directed towards attractive industries or potentially attractive ones

Question 6

What is the cost of entry test?

Answer 6

the cost of entry must not capitalise all future profits

Question 7

What is the better off test?

Answer 7

either the new unit must gain competitive advantage from its link with the company, or visa-versa.

Question 8

Draw the GE McKinsey Matrix

Question 9

Advantages of portfolio planning include:

Answer 9

• simple
• big picture focus
• analytically versatile
• can be augmented

Question 10

Disadvantages of portfolio planning include:

Answer 10

• over simplified
• ambiguous
• ignores synergy

Question 11

Draw the BCG matrix