Learn Smart 8 Flashcards
Which of the following are benefits of acquisition?
- it allows access to hard to find resources and capabilities that work well with those of acquiring company
- it is quicker than trying to launch a new operation
- it is a useful way to get over entry barriers, such as building brand awareness
When a firm with a related diversification strategy has businesses that match specialized resource requirements at points along their value chains that are critical for the business’s market success, they are said to have
resource fit
Which of the following statements are true of multi business diversification strategies
- combination related-unrelated diversification strategies are attractive to companies with a mix of valuable competitive assets
- some companies are narrowly diversified around two to five related or unrelated business
- Some multibusiness enterprises are diversified into unrelated areas but have a group of related businesses within each area
Which of the following are terms that refer to diversification by stating a new business subsidiary from scratch
- internal development
- corporate venturing
- new venture development
The crafting of strategic moves to improve a diversified company’s overall performance
can be placed into four broad categories of action
The nine-cell attractiveness-strength matrix makes a case for a company to take which of the following actions
- to remove resources from ventures that are low in attractiveness and strength unless they offer superior profit or cash flow opportunity
- to concentrate resources in business that possess higher degrees of attractiveness and competitive strength
- to be cautious about investing in companies located intermediately on the grid
Choosing how best to enter a new business
depends partially on determining the least costly mode of entry
Which of the following are drawbacks of acquisition
- there are often excessive premiums
- there can be high integration costs
- integration of the company into the existing firm can be time consuming
Internal development of a new business is a good idea which of the following conditions are met
- The parent company has the in house resources needed to launch the company
- there is plenty of time to start the business
- it is cheaper to enter internally than through an acquisition
The decision to diversify should begin with
an economic justification
cross-business strategic fit can exist
- in supply chain activities
- in customer service activities
- at various points along the value chain
Corporate brands that do not have a connotation of any specific type of product are known as
umbrella brands
Diversified companies that are able to create more value in their businesses than other diversified companies have what is called
a parenting advantage
Diversification is not really viewed as a success unless it
yields added long term economic value for shareholders
Which of the following are strategic options for increasing a for corporations overall success?
-broadening the scope of diversification by entering additional industries
- retrenching to a narrower scope of diversification by divesting poorly performing businesses
- sticking closely with the existing business lineup and pursuing opportunities presented by these businesses
Companies practicing unrelated diversification overwhelming enter new business by
obtaining an establishment company
Which of the following would be misguided reasons for pursuing unrelated diversification?
- Reducing earnings volatility
- risk reduction
- boosting managerial compensation
Which of the following statements are true concerning the ranking of a diversified company’s units from best to worst
- Future revenue and earnings for fast-growing industries usually look superior to those for slow-growing industries
- The position of different businesses in the nine-cell matrix is a good criteria for identifying high-opportunity and low opportunity businesses
- the rankings help high level executives prioritize businesses for
Businesses with strategic fit in supply chain activities are able to perform better together by
- sharing logistical resources
- obtaining volume discounts on incoming components
- cooperating with common supply chain partners
After a evaluating the strength, attractiveness, and fit of a diversified company’s strategy, the next move is to
rank the performance potential of the businesses
the steps involved in creating a diversified company’s corporate strategy include
- establishing investment priorities
- picking new industries to enter and the means for entering them
- leveraging cross-business value chain relationships into competitive advantage
the broad categories of action for crafting strategic movies to improve a diversified company’s overall performance include
- widening the companys business scope by making new acquisitions in new industries
- divesting certain businesses and trenching to a narrower base of business operations
- sticking closely with the existing business lineup and pursuing opportunities that those businesses present
Diversifying into new industries
should be explored when a single business company encounters dwindling opportunities in its principal business
which of the following statements are true about a successful diversification effort
- it must add long term economic value for shareholders
- it must give shareholders value that they cannot get by purchasing different stocks on their own
In an unrelated diversification strategy, managers must ,make sure acquisition candidates have which of the following characteristics
- they are in an industry with attractive growth potential
- they are big enough to significantly contribute to the parent company’s bottom line
- they meet corporate targets for profitability and return on investment
A good resource fit would include solid parenting capabilities in companies that pursue which of the following
an unrelated diversification strategy
in order to be a good market for a company to be in, an industry should
pass the industry attractiveness test
the process of overhauling and streamlining the operations of a business is referred to as
restructuring
Which of the following statements are true concerning the portfolio approach to ensuring financial fit?
- business units in quickly expanding industries are often cash hogs
- cash cows have limited growth but are a valuable financial resource
- the profolio approach relies on the premise that cash flows and investment traits vary among different businesses
For which of the following conditions is restructuring a diversified company’s business lineup an attractive course of action
- when the market shares of one or more major business units are decreasing because of superior competition
- when the interest owed on large debts is greatly reducing profitability
- when the company has too many businesses in slowly growing or declining industries
Which of the following are the ways a company can enter a new business ?
- acquisition
- joint ventures
- internal startup
In calculating industry attractiveness scores,
competition intensity should be heavily weighted
Which of the following statements are true of unrelated diversification?
- problems can occur when corporate management makes decisions for businesses they do not know well
- a very small number of unanticipated problems or mistakes can have a major negative effect on corporate earnings
- most management teams are not capable of effectively managing a diversified group of unrelated businesses.
it makes sense to stick closely with a diversified companys present business lineup when
- the existing business lineup provides ample opportunity for growth
- the company’s existing businesses match the company’s diversification strategy
- The current lineup reliability creates economic value for shareholders
Companies practicing unrelated diversification overwhelmingly enter new businesses by
obtaining an established company
The means of entering a new business by buying an existing business is referred to as
acquisition
Which of the following are true in using cross business strategic fit to create gains in profitability and shareholder value?
- It builds shareholder value in ways that are not possible through stock ownership in a variety of industries
- The more a company’s businesses are related, the greater the company’s opportunity to turn strategic fit into competitive advantage
- cross-business strategic fit benefits are possible only through a strategy of related diversification
strategic fit
allows cross-business sharing of resource that enable value chain activities
Which of the following statements are true concerning whether a company has sufficient non-financial resources
- if a company’s strategy is closely tied to moving technologies from existing businesses to new ones, it must develop more resources to supply them
- the broader the diversification, the greater the concern that corporate executes are overburdened trying to parent too many companies
- a company’s resource can be overtaxed by making acquisitions and calling on managing to oversee many businesses quickly
Which of the following raitings concerning interpretation of competitive strength scores are correct?
- business units with ratings above 6.7 are strong makret contenders in their industries
- businesses with ratings in the 3.3. to 6.7 range have moderate competitive strength
- businesses with ratings below 3.3 are in competitively weak market positions
Determining whether the premium required to make an acquisition will be worth the extra value gained is an example of answering the question of
comparative cost
unrelated diversification
- provides very general, lowvalue for the subsidiaries
- rarely performs better than the sum of what the individual business units could achieve independently
- provides a limited potential for competitive advantage
Factors that can be used to quantify the competitive strengths of a diversified company’s business subsidiaries include
- ability to match or beat rivals on key product attributes
- relative market share
- costs relative to competitors costs
Retrenching to a narrower diversification base can include which of the following?
- eliminating businesses that have poor strategic fit
- focusing corporate resources on businesses in a few, carefully selected industries
- getting out of businesses that are competitively
Determining if there are obstacles that block a new company from gaining a foothold and thriving in an industry is an example of answering the strategy based question of
entry barriers
which of the following are circumstances that indicate a poor fit of nonfinancial resources in a diversified company
- a mismatch exists between a diversifying companys competitive asets and the key success factors of an industry into which it is expanding
- a core business lacks accumulated resources to deal with the competitive environment of the business into which it has diversified
- a companys resources are stretched thin in order to assimilate and oversee many new businesses in a short time
which of the following statements are true of a nine-cell matrix
- the horizontal axis is divided into regions for strongr, average, and high numbers represent low competitive strength
- overall attractiveness and strength scores are used to plot business units, which are displayed as bubbles
- the vertical axis is divided into regions for high, medium, and low attractiveness
What questions can be answered by determining the competitive value of strategic fit in diversified companies ?
- how much competitive value will come from the cross-business transfer of skills, technology, or intellectual capital?
- will leveraging a potent umbrella brand or corporate image strengthen the businesses and increse sales?
- are the cost savings associated with economies of scope likely to give one or more businesses a cost-based advantage
When a companys management decides that it needs to concentrate on a smaller number of businesses, it is a good strategy to
retrench to a narrower diversification base
Resources whose use is applied across a wide range of industry types are known as
general resources
when a company’s existing businesses provide opportunities for growth and produce economic value for shareholders
adhere to the existing business lineup
a company
can diversify into related businesses, unrelated businesses or both
a company has good financial resource fit if
- each individual business sufficiently contributes to meeting company wide performance targets
- the company can adequately fund all its businesses while keeping in a good credit rating
- the company can create enough internal cash flow to provide the capital required by its businesses
determining whether the materials needed to start a business can be readily obtained by a company is an example of answering the strategy-based question of
critical resources and capabilities
Examples of opportunities for strategic fit include
- transferring specialized expertise from the value chain of one business to another
- sharing costs between businesses by combining their related value chain activities into a single operation
- exploiting the common use of a well-known brand name
Examples of strategic fit in manufacturing include
- the consolidation of production into a smaller number of plants
- the transfer of expertise in quality control
- the sharing of cost efficient production methods
In answering the question of comparative costs, acquisitions transactions costs include which of the following
- identifying potential targets
- evaluating potential targets
- negotiating a price
which of the following statements are true of specialized resources?
- their usefulness is limited in applications beyond those which they were created to serve
- they are leveraged in related diversification
- their value is evident only when they are used in very specific businesses and industries
Examples of strategic fit in sales and marketing include
- using a single sales force
- reducing billing costs by using common promotional tie-ins
- promoting products on the same website
The three strategy options for pursuing diversification are
- diversifying into unrelated businesses
- diversifying into related businesses
diversifying into both related and unrelated businesses
Which of the following statements are true concerning the cross business allocation of financial resources by parent companies
- parent companies can deliver funds that would otherwise be unavailable owing to poor market conditions
- there is increased opportunity to add shareholder value because managers are privet to internal information unavailable to external financiers
- cross-business allocation can be especially advantageous during times of financial market crisis
