[Solved] 1. The tests of whether a diversified company's businesses exhibit... (2024)

1. The tests of whether a diversified company's businesses exhibit resource fit do not include

A. whether one or more businesses soak up a disproportionate share of a corporate parent's financial resources, make subpar or inconsistent bottom-line contributions, are too small to make a material earnings contribution, or are unduly risky (such that the financial well-being of the whole company could be jeopardized in the event such businesses fall upon hard times).

B. whether the corporate parent has sufficient cash on hand and cash flows from operations to fully fund the needs of its individual businesses and pay dividends to shareholders without having to borrow money or incur long-term debt.

c. whether the parent company's resources and capabilities are being stretched too thinly by the resource/capability requirements of one or more of its businesses.

d. whether any of the company's business units are resource deficient--either because certain needed resources and/or capabilities cannot be transferred in or shared with sister businesses or because the missing resources and/or capabilities cannot be supplied by the corporate parent.

e. whether the company has adequate financial strength to fund its different businesses, pursue growth via acquisition, and maintain a healthy credit rating.

2. When industry attractiveness ratings are calculated for each of the industries a multi-business company has diversified into, the results help indicate

a. which industries have attractive key success factors and which industries have unattractive key success factors.

b. the extent to which a diversified company's future overall performance is likely to be dragged down by being in too many unattractive industries (those with slow growth, low profitability, intense competition, or other troubling conditions or characteristics).

c. which industries are most attractive from the standpoint of industry driving forces, the strength of prevailing competitive forces, and overall compatibility with the company's resources and capabilities.

d. whether the company's prospects for being an industry leader are attractive or unattractive, industry-by-industry.

e. whether the company's prospects for achieving sustainable competitive advantage are attractive or unattractive, industry-by-industry.

3. A big advantage of related diversification is that

a. it involves diversifying into industries having the same kinds of competitive forces, driving forces, key success factors, and market synergies.

b. it involves diversifying into industries having closely related market opportunities as well as similar external threats to future profitability

c. it offers ways for a firm to realize 1 + 1 = 3 benefits because the value chains of the different businesses present opportunities for cross-business transfer of competitively valuable resources and capabilities, combining the related value chain activities of separate businesses into a single operation to achieve lower costs, cross-business use of a potent brand name, and/or cross-business collaboration tocreate new competitively valuable resources and capabilities.

d. the different businesses pass the industry attractiveness test and thus offer valuable resource fits and operating fits.

e. the different businesses have excellent strategic fit and resource fit and are positioned close together in the 9-cell industry attractiveness/competitive strength matrix.

4. One of the most significant contributions to strategy-making in diversified companies that the 9-cell industry attractiveness/competitive strength matrix provides is

a. identifying which businesses have strategies that should be continued, which business have strategies that need fine-tuning, and which businesses have strategies that need major overhaul.

b. unique ability to pinpoint what kind of competitive advantage or disadvantage each business has and to determine what percentage of the company's total capital should be invested in each of the various businesses.

c. determining what strategies are most appropriate for businesses positioned in each cell of the matrix.

d. strong logic for fully funding the resource needs of competitively strong businesses in attractive industries, investing selectively in businesses with intermediate positions on the grid, and getting rid of competitively weak businesses in unattractive industries unless they generate sizable cash flows that can be redeployed elsewhere or have traits that contribute to the performance of one or more sister businesses.

e. pinpointing which businesses to divest and which ones to keep.

5. The three tests for judging whether a particular move to diversify into a new business can produce added long-term economic value for shareholders are

a. the industry attractiveness test, the competitive strength test, and the shareholder value test.

b. the shareholder benefit test, the resource-capability test, and the cost-of-entry test.

c. the strategic fit test, the competitive power test, and the revenue/profit growth test.

d. the resource strength test, the growth test, and the profit test.

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

6. Which of the following is not one of the appeals of diversifying into unrelated businesses?

a, The ability to employ company's financial resources to maximum advantage by (1) investing in whatever industries offer the best profit prospects and (2) diverting cash flows from company businesses with lower growth and profit prospects to acquiring and expanding businesses with higher growth and profit potentials.

b. The ability to grow shareholder value by exploiting the business acumen of corporate executives in spotting bargain-priced companies and/or distressed businesses with big upside profit potential, quickly turning around such businesses with infusions of cash and superior managerial know-how, and then either riding the crest of the profit increases generated by these businesses or else enjoying the capital gains of selling rejuvenated businesses for amounts above the purchase price.

c. The relative ease of growing shareholder value by capturing cross-business financial synergies that will quickly drive the company's overall financial performance to higher levels.

d. The merits of scattering business risk over a set of truly diverse industries--unrelated diversification approximates pure diversification because the company's investments are spread over businesses whose technologies and value chain activities bear no close relationship and whose markets are largely disconnected.

e. The potential to better stabilize company profitability over the course of economic upswings and downswings (because market downtrends in some of the company's businesses may be partially offset by cyclical upswings in its other businesses, thus producing somewhat less earnings volatility).

7. When identifying a diversified company's present corporate strategy, which of the following would not be something to look for?

a. Whether the businesses the company has diversified into are related, unrelated, or a mixture of both

b. Recent moves to divest weak business units

c. The company's approach to allocating investment capital and resources across its present businesses

d. Recent moves to strengthen the company's positions in existing businesses, build positions in new industries, and capture the benefits of cross-business value chain relationships

e. Recent actions in one or more business units to switch to a different competitive approach and pursue a different type of competitive advantage

8. Once a company has diversified into a collection of related or unrelated businesses and concludes that some strategy adjustments are needed, which one of the following is not one of the main strategy options that the company can pursue?

a. Stick closely with the existing business lineup and pursue the opportunities these businesses present

b. Broaden the company's business scope by making new acquisitions in new industries

c. Divest certain businesses and retrench to a narrower base of business operations

d. Craft new initiatives to more strongly differentiate the various products/services in each of the company's businesses and thereby enhance the competitive power and reputation of the company's brand name

e. Restructure the company's business lineup and put a whole new face on the company's business makeup