~corporate strategy:DIVERSIFICATION~

بسم الله الرحمن الرحيم

Salam to whom might be reading this entry right now..of course la if I’m writing in English, the topic would be on darling strategic management.hehe..today I’ll review on corporate strategy: diversification n the multibusiness company. But in a Q&A format..correct answers given under but try to answer first before u look at the answers given ok..have fun answering dear all.

1. The task of crafting corporate strategy for a diversified company encompasses is:

A. picking the new industries to enter and deciding on the means of entry.

B. initiating actions to boost the combined performance of the businesses the firm entered.

C. pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage.

D. establishing investment priorities and steering corporate resources into the most attractive business units.

E. All of these.

2. Diversification becomes a relevant strategic option when a company:

A. spots opportunities to expand into industries whose technologies and products complement its present business.

B. can leverage existing competencies and capabilities by expanding into industries where these same resource strengths are key success factors and valuable competitive assets.

C. has a powerful and well-known brand name that can be transferred to the products of other businesses and thereby used as a lever for driving up the sales and profits

D. can open up new avenues for reducing costs by diversifying into closely related businesses

E. All of these.

3. The three tests for judging whether a particular diversification move can create value for shareholders are

A. the attractiveness test, the profitability test, and the shareholder value test.

B. the strategic fit test, the competitive advantage test, and the return on investment test.

C. the resource fit test, the profitability test, and the shareholder value test.

D. the attractiveness test, the cost-of-entry test, and the better-off test.

E. the shareholder value test, the cost-of-entry test, and the profitability test.

4. The cost-of-entry test for evaluating whether diversification into a particular industry is likely to build shareholder value involves:

A. determining whether a newly entered business presents opportunities to cost-efficiently transfer competitively valuable skills or technology from one business to another.

B. determining whether the cost to enter the target industry will strain the company’s credit rating.

C. considering whether a company’s costs to enter the target industry are low enough to allow for good profits or so high that potential profits would be eroded.

D. determining whether the cost to enter the target industry will raise or lower the company’s total profits.

E. determining whether the cost a company incurs to enter the target industry will raise or lower production costs.

5. The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves:

A. assessing whether the diversification move will make the company better off because it will produce a greater number of core competencies.

B. assessing whether the diversification move will make the company better off by improving its balance sheet strength and credit rating.

C. assessing whether the diversification move will make the company better off by spreading shareholder risks across a greater number of businesses and industries.

D. evaluating whether the diversification move will produce a 1 + 1 = 3 outcome such that the company’s different businesses perform better together than apart and the whole ends up being greater than the sum of the parts.

E. assessing whether the diversification move will benefit shareholders due to gains in earnings per share and faster stock price appreciation.

6. Acquisition of an existing business is an attractive strategy option for entering a promising new industry because it is:

A. an effective way to hurdle entry barriers, is usually quicker than trying to launch a brand-new start-up operation, and allows the acquirer to move directly to the task of building a strong position in the target industry.

B. less expensive than launching a new start-up operation, thus passing the cost-of-entry test.

C. is a less risky way of passing the attractiveness test.

D. is more likely to result in passing the shareholder value test, the profitability test, and the better-off test.

E. offers the prospect of gaining an immediate competitive advantage in the new industry thus ensure that the diversification move will pass the competitive advantage test for building shareholder value.

7. Which one of the following is not a factor that makes it appealing to diversify into a new industry by forming an internal start-up subsidiary to enter and compete in the target industry?

A. When internal entry is cheaper than entry via acquisition.

B. When a company possesses the skills and resources to overcome entry barriers and there is ample time to launch the business and compete effectively.

C. When adding new production capacity will not adversely impact the supply demand balance in the industry by creating oversupply conditions.

D. When the industry is growing rapidly and the target industry is comprised of several relatively large and well-established firms.

E. When incumbent firms are likely to be slow or ineffective in combating a new entrant’s efforts to crack the market.

8. A joint venture is an attractive way for a company to enter a new industry when:

A. the pool of attractive acquisition candidates in the target industry is relatively small.

B. it needs better access to economies of scope in order to be cost-competitive.

C. the industry is growing slowly and adding too much capacity too soon could create oversupply conditions.

D. the firm has no prior experience with diversification and the industry is on the verge of explosive growth.

E. the opportunity is too risky or complex for a company to pursue alone, a company lacks some important resources or competencies and needs a partner to supply them, and/or a company needs a local partner in order to enter a desirable business in a foreign country.

9. Which of the following is an important appeal of a related diversification strategy?

A. Related diversification is an effective way of capturing valuable financial fit benefits.

B. Related diversification offers more competitive advantage potential than does unrelated diversification.

C. Related diversification offers significant opportunities to strongly differentiate a company’s product offerings from those of rivals.

D. Related diversification is more likely to pass the cost-of-entry test and the capital gains test than unrelated diversification.

E. Related diversification is typically more profitable than unrelated diversification, which is a major factor in helping related diversification pass the attractiveness test.

10. Strategic fit between two or more businesses exists when one or more activities comprising their respective value chains present opportunities

A. to transfer expertise or technology or capabilities from one business to another.

B. for cross-business use of a common brand name.

C. to lower costs by combining the performance of the related value chain activities of different businesses.

D. for cross-business collaboration to build valuable new resource strengths and competitive capabilities.

E. All of these.

11. What makes related diversification an attractive strategy is:

A. the ability to broaden the company’s product line.

B. the opportunity to convert cross-business strategic fits into competitive advantages over business rivals whose operations don’t offer comparable strategic fit benefits.

C. the potential for improving the stability of the company’s financial performance.

D. the ability to serve a broader spectrum of buyer needs.

E. the added capability it provides in overcoming the barriers to entering foreign markets.

12. Economies of scope:

A. are cost reductions that flow from operating in multiple related businesses.

B. arise only from strategic fit relationships in the production portions of the value chains of sister businesses.

C. are more associated with unrelated diversification than related diversification.

D. are present whenever diversification satisfies the attractiveness test and the cost-of-entry test.

E. arise mainly from strategic fit relationships in the distribution portions of the value chains of unrelated businesses.

13. A strategy of diversifying into unrelated businesses:

A. is aimed at achieving good financial fit (whereas related diversification aims at good strategic fit).

B. is the best way for a company to pass the attractiveness test in choosing which types of businesses industries to enter.

C. discounts the importance of strategic fit benefits and instead focuses on building and managing a group of businesses capable of delivering good financial performance irrespective of the industries these businesses are in.

D. concentrates on diversifying into businesses where a company can leverage use of a well-known brand name in ways that create added value for shareholders.

E. generally offers more competitive advantage potential than related diversification.

14. With an unrelated diversification strategy, the types of companies that make particularly acquisition targets are:

A. struggling companies with good turnaround potential, undervalued companies that can be acquired at a bargain price, and companies that have bright growth prospects but are short on investment capital.

B. companies offering the biggest potential to reduce labor costs.

C. cash cow businesses with excellent financial fit.

D. companies that are market leaders in their respective industries.

E. companies that are employing the same basic type of competitive strategy as the parent corporation’s existing businesses.

15. The procedure for evaluating the pluses and minuses of a diversified company’s strategy includes

A. assessing the attractiveness of the industries the company has diversified into.

B. assessing the competitive strength of each business the company has diversified into to see which ones are the strongest/weakest contenders in their respective industries.

C. ranking the performance prospects of the various businesses from best to worst and determining the priorities for resource allocation.

D. checking the competitive advantage potential of cross-business strategic fits and also checking whether the firm’s resources fit the needs of its present business lineup.

E. All of these.

16. 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, ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors, and ability to benefit from strategic fits with sister businesses.

C. the appeal of its strategy, relative number of competitive capabilities, the number of products in each businesses 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.

17. Checking a diversified firm’s business portfolio for the competitive advantage potential of cross-business strategic fits entails consideration of:

A. whether the parent’s company’s competitive advantages are being deployed to maximum advantage in each of its business units.

B. whether the competitive strategies employed in each business act to reinforce the competitive power of the strategies employed in the company’s other businesses.

C. whether the competitive strategies in each business possess good strategic fit with the parent company’s corporate strategy.

D. the extent to which there are competitively valuable relationships between the value chains of sister business units and what opportunities they present to reduce costs, share use of a potent brand name, create competitively valuable new capabilities via cross-business collaboration, or transfer skills or technology or intellectual capital from one business to another.

E. how compatible the competitive strategies of the various sister businesses are and whether these strategies are properly aimed at achieving the same kind of competitive advantage.

18. A “cash cow” type of business:

A. generates unusually high profits and returns on equity investment.

B. is so profitable that it has no long-term debt.

C. generates positive cash flows over and above its internal requirements, thus providing a corporate parent with cash flows that can be used for financing new acquisitions, investing in cash hog businesses, and/or paying dividends.

D. is a business with such a strong competitive advantage that it generates big profits, big returns on investment, and big cash surpluses after dividends are paid.

E. has good strategic fit with a cash hog business.

19. Corporate strategy options for diversified companies include

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. All of these.

20.Corporate restructuring strategies:

A. involve making radical changes in a diversified company’s business lineup, divesting some businesses and acquiring new ones so as to put a new face on the company’s business lineup.

B. entails 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 boost the company’s growth and profitability.

ANSWERS: EEDCE ADEBE BACAE BCCEA

MAY ALLAH BLESS US ALL TODAY AND ALWAYZ