Q&A Hero

Q: According to the school of ethical universalism, A. concepts of what constitutes ethical behavior and unethical behavior are dictated by subjectively provable moral principles but not by objectively provable moral principles. B. concepts of right and wrong are universal within countries/societies but not across countries or cultures. C. concepts of what is ethical and what is unethical are universal and absolute, leaving no room for deviation from country to country or circumstance to circumstance. D. to the extent there is common moral agreement about right and wrong actions and behaviors across multiple cultures and countries, there exists a set of universal ethical standards to which all societies, all companies, and all individuals can be held accountable. E. all societies and countries are obligated to apply universally defined ethical principles of right and wrong as set forth in the Global Code of Ethical Behavior adopted by 150 nations of the world.

Q: The contentions that (1) many of the same standards of what's ethical and what's unethical resonate with peoples of most cultures, societies, and religions and (2) to the extent there is common moral agreement about right and wrong actions, there exist a set of common ethical standards to which organizations and individuals can be held accountable are defining beliefs of A. the school of ethical relativism. B. the school of ethical universalism. C. integrated social contracts theory. D. the School of Morally Correct Thinking and Behavior in Paris, France. E. the Global Code of Ethical and Social Morality developed in 1925 at a worldwide convention of distinguished religious clerics.

Q: Notions of right and wrong, fair and unfair, moral and immoral, ethical and unethical A. vary enormously from religion to religion and country to country across the world. B. are present in all societies, organizations, and individuals. C. ultimately depend on the circumstancesnothing is really black or white when it comes to ethical standards. D. are governed mainly by the thinking and writings of religious clerics at the School of Morally Correct Thinking and Behavior in Geneva, Switzerland. E. ultimately depend on a person's own values and beliefs.

Q: The costs incurred when ethical wrongdoing is done fall into three specific categories and include all except A. intangible costs such as legal and investigative costs incurred by the company. B. internal administrative costs associated with ensuring future compliance. C. intangible costs such as customer defections. D. less visible costs such as costs of complying with often harsher government regulation. E. visible costs to shareholders such as lower stock price.

Q: A company's unethical behavior may result in the following except A. buyers will shun the company. B. the company will have difficulty recruiting and retaining talented employees. C. the company risks damage to shareholders in the form of lost revenues, higher costs, and lower profits and the company's reputation will suffer. D. the company will have to deal with the Sarbanes-Oxley Act of 2002, which requires the company remove the tarnished employees. E. All of these.

Q: The consequences of pursuing a strategy that has unethical or shady components include A. lower stock prices. B. customer defections and loss of reputation. C. incurring potentially large legal and investigative costs, government fines, and civil penalties. D. the costs of providing remedial education and ethics training to company personnel. E. All of these.

Q: A company's strategy needs to be ethical because A. of the dangers that top management will get embarrassed if the company's unethical behavior is publicly exposed. B. a strategy that is unethical not only damages the company's reputation but it can also have costly consequences. C. everyone is an ethics watchdog and somebody is sure to blow the whistle on the company's unethical behavior. D. of the risks of getting caught and prosecuted by governmental authorities if an unethical strategy is used. E. unethical strategies are inconsistent with or else weaken the corporate culture.

Q: Which one of the following is not one of the major drivers of unethical managerial behavior? A. Intense competitive pressures B. Overzealous pursuit of personal gain, wealth, and other selfish interests C. A company culture that puts the profitability and good business performance ahead of ethical behavior D. Heavy pressures on company managers to meet or beat earnings targets E. The attitude among management that "the business of business is business, not ethics"

Q: Unethical business behavior tends to be driven by such factors as A. a managerial mind-set that "the business of business is business, not ethics." B. overzealous pursuit of personal gain, wealth, and other selfish interests. C. a company culture that puts the profitability and good business performance ahead of ethical behavior. D. heavy pressures on company managers to meet or beat earnings targets. E. All of these.

Q: The major drivers of unethical business behavior include A. greed, pervasive managerial immorality, and a general lack of scruples on the part of top executives regarding how customers and suppliers should be treated. B. corporate cultures that put the bottom line ahead of ethics, heavy pressures on company managers to meet or beat performance targets, and overzealous or obsessive pursuit of wealth accumulation, power, status, and other selfish interests. C. widespread managerial belief in the ethical relativism school of thinking. D. an aversion to ethical correctness on the part of top executives and a belief that unethical behavior is unimportant and probably won't be discovered. E. intense competitive pressures.

Q: Ethical principles as they apply to business conduct and business decisions A. deal chiefly with a company's standards about what is right and wrong insofar as the conduct of its business is concerned and about what behaviors are expected of company personnel. B. deal chiefly with the behaviors that a company's board of directors expects of all company personnel in both their conduct on the job and their conduct off the job. C. involve the rules a company's top management and board of directors make about "what is right" and "what is wrong." D. are not materially different from ethical principles in general. E. are generally less stringent than the ethical principles for society at large because it is well understood that businesses should not be expected to operate any differently from what the law requires of them.

Q: The results of strategies that cannot pass the test of moral scrutiny often are manifested in A. sharp drops in stock prices. B. devastating public relations hits. C. sizable fines. D. criminal indictment and convictions of company executives. E. All of these.

Q: Ethical principles in business A. deal chiefly with the actions and behaviors required to operate companies in a socially responsible manner. B. deal chiefly with the rules each company's top management and board of directors make about "what is right" and "what is wrong." C. are not materially different from ethical principles in general. D. are generally less stringent than the ethical principles for society at large. E. are generally more stringent than the ethical principles for society at large.

Q: Business ethics concerns A. developing a consensus among companies worldwide as to what ethical principles that businesses should be expected to observe in the course of conducting their operations. B. what ethical behaviors should be expected of company personnel in the course of doing their jobs. C. the application of ethical principles and standards to business activities, behavior, and decisions. D. developing a special set of ethical standards for businesses to observe in conducting their affairs. E. picking and choosing among the consensus ethical standards of society to arrive at a set of ethical standards that apply directly to operating a business.

Q: The businesses in a diversified company's lineup exhibit good resource fit when A. the resource requirements of each business exactly match the resources the company has available. B. individual businesses add to a company's resource strengths and when a company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin. C. each business generates just enough cash flow annually to fund its own capital requirements and thus does not require cash infusions from the corporate parent. D. each business unit produces sufficient cash flows over and above what is needed to build and maintain the business, thereby providing the parent company with enough cash to pay shareholders a generous and steadily increasing dividend. E. there are enough cash cow businesses to support the capital requirements of the cash hog businesses.

Q: A diversified company's business units exhibit good resource fit when A. each business is a cash cow. B. a company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company's overall resource strengths. C. each business is sufficiently profitable to generate an attractive return on invested capital. D. each business unit produces large internal cash flows over and above what is needed to build and maintain the business. E. the resource requirements of each business exactly match the resources the company has available.

Q: Checking a diversified firm's business portfolio for the competitive advantage potential of cross-business strategic fits entails consideration of A. whether the parent 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, 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.

Q: In a diversified company, the competitive advantage potential of cross-business strategic fit is greater when A. the business lineup includes a number of cash cows. B. valuable opportunities exist to transfer skills, technology, or intellectual capital from one business to another, combine the performance of related activities, or share the use of a well-respected brand name across multiple products or service categories. C. the strategy maps of the various business units converge. D. businesses included in the corporate portfolio compete in fast-growing industries. E. competition is less intense and driving forces are relatively weak.

Q: In analyzing the nine-cell matrix, those businesses in the three cells in the lower right corner of the matrix A. are typically weak performers and have the lowest claim on corporate resources. B. typically are prime candidates for divesture. C. are destined for squeezing out the maximum cash flows. D. typically have dimmer profit outlooks than those in the middle with medium resource priority. E. All of these.

Q: The most important strategy-making guidance that comes from drawing a nine-cell industry attractiveness-competitive strength matrix is A. which businesses in the portfolio have the most potential for strategic fit and resource fit. B. why cash cow businesses are more valuable than cash hog businesses. C. that corporate resources should be concentrated on those businesses enjoying both a higher degree of industry attractiveness and competitive strength and that businesses having low competitive strength in relatively unattractive industries should be looked at for possible divestiture. D. which businesses have the biggest competitive advantages and which ones confront serious competitive disadvantages. E. which businesses are in industries with profitable value chains and which are in industries with money-losing value chains.

Q: The nine-cell industry attractiveness-competitive strength matrix A. is useful for helping decide which businesses should have high, average, and low priorities in allocating corporate resources. B. indicates which businesses are cash hogs and which are cash cows. C. pinpoints what strategies are most appropriate for businesses positioned in the three top cells of the matrix but is less clear about the best strategies for businesses positioned in the bottom six cells. D. identifies which sister businesses have the greatest strategic fit. E. indicates the relative size of the firms businesses.

Q: The basic purpose of calculating competitive strength scores for each of a diversified company's business units is to A. rank the business unit from best to worst in terms of potential for cost reduction and profit margin improvement. B. provide a quantitative measure of the overall market strength and competitive standing for each business unit. C. determine which business unit has the greatest number of resource strengths, competencies, and competitive capabilities and which one has the least. D. determine which one has the biggest market share and is growing the fastest. E. rank each business unit's strategy from best to worst.

Q: The value of determining the relative competitive strength of each business a company has diversified into is A. to have a quantitative basis for identifying which businesses have large/small competitive advantages or competitive disadvantages vis--vis the rivals in their respective industries. B. to have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's revenue growth. C. to compare resource strengths and weaknesses, business by business. D. to have a quantitative basis for rating them from strongest to weakest in contending for market leadership in their respective industries. E. to have a quantitative basis for rating them from strongest to weakest in terms of contributing to the corporate parent's profitability.

Q: 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.

Q: When calculating industry attractiveness scores, to produce a valid response it is necessary to A. ensure the appropriate weights are assigned to each measure and that the preparer has sufficient knowledge to rate the industry on each attractiveness measure. B. ensure the weights are assigned evenly so as not to bias the attractiveness scores. C. ensure at least three companies within the industry are clearly well-understood to ensure validated scores. D. be prepared to make an educated guess if the available information is skimpy. E. All of these.

Q: When industry attractiveness ratings are calculated for each of the industries a multibusiness company has diversified into, the results help indicate A. which industries appear to be the most and least attractiveness from the standpoint of the company's long-term performance. B. which industries have attractive key success factors and which industries have unattractive key success factors. C. which industries have the biggest economies of scale and which industries have the greatest economies of scope and the overall potential for cost reduction in the industries as a group. D. which industries are most attractive from the standpoint of long-term growth and the growth prospects of all the industries as a group. E. which industries are most attractive from the standpoint of industry driving forces and competitive forces.

Q: Which of the following is not generally something that ought to be considered in evaluating the attractiveness of a diversified company's business makeup? A. Market size and projected growth rate, industry profitability, and the intensity of competition B. Industry uncertainty and business risk C. The frequency with which strategic alliances and collaborative partnerships are used in each industry, the extent to which firms in the industry utilize outsourcing, and whether the industries a company has diversified into have common key success factors D. Seasonal and cyclical factors, resource requirements, and whether an industry has significant social, political, regulatory, and environmental problems E. The presence of cross-industry strategic fits

Q: As a rule, all the industries represented in a diversified company's business portfolio should be judged on such attractiveness factors as A. market size and projected growth rate. B. emerging opportunities and threats, the intensity of competition, and the degree of industry uncertainty and business risk. C. resource requirements and the presence of cross-industry strategic fits. D. seasonal and cyclical factors, industry profitability, and whether an industry has significant social, political, regulatory, and environmental problems. E. All of these.

Q: A comprehensive evaluation of the group of businesses a company has diversified into involves A. evaluating the attractiveness of industries the company has diversified into and the competitive strength of each of its business units. B. evaluating the strategic fits and resource fits among the various sister businesses. C. ranking the performance prospects of the businesses from best to worst and determining what the corporate parent's priorities should be in allocating resources to its various businesses. D. using the results of the prior analytical steps as a basis for crafting new strategic moves to improve the company's overall performance. E. All of these.

Q: Which of the following is not a major consideration in evaluating the pluses and minuses of a diversified company's strategy? A. Checking whether the company's resources fit the requirements of its present business lineup B. Scrutinizing each industry/business to determine where driving forces are strongest/weakest and how many profitable strategic groups the company has diversified into C. Ranking the performance prospects of the various businesses from best to worst and determining what the corporate parent's priorities should be in allocating resources to its different businesses D. Evaluating the extent of cross-business strategic fits E. Assessing the competitive strength of each business the company has diversified into

Q: 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. C. ranking the performance prospects of the various businesses from best to worst and determining the priorities for resource allocation. D. evaluating the extent of cross-business strategic fits and also checking whether the firm's resources fit the needs of the various businesses the company has diversified into. E. All of these.

Q: Which of the following is a diversified business with one major "core" business and a collection of small related or unrelated businesses? A. Broadly diversified enterprise B. Narrowly diversified enterprise C. Multibusiness enterprise D. High-compensation/low-risk enterprise E. Dominant business enterprise

Q: What rationales for unrelated diversification are not likely to increase shareholder value? A. To reduce risk by spreading the company's investments over a set of truly diverse industries B. To enable a company to achieve rapid or continuous growth C. To chance that market downtrends in some of the company's businesses will be partially offset by cyclical upswings in its other businesses D. To provide benefits to managers such as high compensation and reduction in employment risk E. All of these

Q: The one factor that is not relevant for company managers to worry about when their company has many unrelated firms, especially when they are very diverse is to A. stay abreast of what's happening in each industry and subsidiary. B. pick business-unit heads having requisite combination of managerial skills and know-how to motivate people. C. understand the true value of strategic investment proposals by business-unit managers. D. know what to do if a business unit stumbles. E. rely on the skills and expertise of business-level managers to build competitive advantage.

Q: The two biggest drawbacks or disadvantages of unrelated diversification are A. underemphasizing the importance of resource fit and the strong likelihood of diversifying into businesses that top management does not know all that much about. B. insufficient cash flows to finance so many different lines of business and a lack of uniformity among the strategies of the businesses it has diversified into. C. volatile sales and profits and making the mistake of diversifying into too many cash cow businesses. D. the difficulties of competently managing a set of fundamentally different businesses and having a very limited competitive advantage potential that cross-business strategic fit provides. E. overinvesting in the achievement of economies of scope and the difficulties of achieving a good mix of cash cow and cash hog businesses.

Q: The two biggest drawbacks or disadvantages of unrelated diversification are A. the difficulties of passing the cost-of-entry test and the ease with which top managers can make the mistake of diversifying into businesses where competition is too intense. B. the difficulties of capturing financial fit and having insufficient financial resources to spread business risk across many different lines of business. C. demanding managerial requirements and limited competitive advantage potential that cross-business strategic fit provides. D. Ending up with too many cash hog businesses and too much diversity among the competitive strategies of the businesses it has diversified into. E. the difficulties of achieving economies of scope and conflicts/incompatibility among the competitive strategies of the company's different businesses.

Q: The success of unrelated diversification is dependent upon management's ability to A. acquire new businesses that utilize much the same technology as existing businesses. B. divest businesses whose competitive strategies do not match the overall competitive strategy of the corporation. C. acquire new businesses having attractive distribution-related and customer-related strategic fits with existing businesses. D. spotting bargain-priced companies with big upside potential and then turning around their operations quickly with the aid of the parent company's financial resources and managerial know-how. E. identify potential new acquisition candidates that are cash cows (as opposed to cash hogs).

Q: Which of the following is not one of the suggested appeals of an unrelated diversification strategy? A. The ability to spread business risk over truly diverse businesses (as compared to related diversification, which is limited to spreading risk only among businesses with strategic fit) B. An ability to employ the company's financial resources to maximum advantage by investing in whatever industries/businesses offer the best profit prospects C. Superior top management ability to cope with the wide variety of problems encountered in managing a broadly diversified group of businesses D. A potential for achieving somewhat more stable corporate sales and profits over the course of economic upswings and downswings (to the extent the company diversifies into businesses whose ups and downs tend to occur at different times) E. The potential to grow shareholder value by investing in bargain-priced companies with big upside profit potential

Q: One of the suggested advantages of an unrelated diversification strategy is that it A. expands a firm's competitive advantage opportunities to include a wider array of businesses. B. spreads the stockholders' risks across a group of truly diverse businesses. C. increases strategic fit opportunities and the potential for a 1 + 1 = 3 outcome on the bottom line. D. results in having more cash cow businesses than cash hog businesses. E. facilitates capturing the financial fits among sister businesses (as compared to a strategy of related diversification).

Q: With an unrelated diversification strategy, the types of companies that make particularly attractive acquisition targets are A. financially distressed 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.

Q: The basic premise of unrelated diversification is that A. the least risky way to diversify is to seek out businesses that are leaders in their respective industry. B. the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale. C. the best way to build shareholder value is to acquire businesses with strong cross-business financial fit. D. any company that can be acquired on good financial terms and that has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity. E. the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits.

Q: Different businesses are said to be "unrelated" when A. they are in different industries. B. the products of the different businesses are not bought by the same types of buyers or sold in the same types of retail stores. C. the products of the different businesses satisfy different buyer needs. D. the businesses have different supply chains and different types of suppliers. E. there is an absence of competitively valuable strategic fits between their respective value chains.

Q: 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 and instead focuses on building and managing a group of businesses in attractive industries that can acquired on financial terms that allow for acceptable returns on investment. 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.

Q: The essential requirement for different businesses to be "related" is that A. their value chains possess competitively valuable cross-business fit relationships. B. the products of the different businesses are bought by much the same types of buyers. C. the products of the different businesses are sold in the same types of retail stores. D. the businesses have several key suppliers in common. E. the production methods that they employ both entail economies of scale.

Q: When evaluating strategic fit benefits that related diversification can deliver one must keep in consideration a number of factors. Which one is not relevant? A. Shareholder value stemming from a diversified business cannot be replicated by simply owning a diversified portfolio of stocks. B. The capture of cross-business strategic fits benefits is possible only through related diversification. C. Cross-business strategic fit benefits is not automatically realized; the benefits materialize only after management has successfully pursued internal actions to capture them. D. Shareholder value is created when the diversified company's profitability exceeds expectations. E. Related diversification is the process of holding the stock of many businesses in a portfolio.

Q: A diversified company that leverages the strategic fits of its related businesses into competitive advantage A. has a distinctive competence in its related businesses. B. has a clear path to achieving 1 + 1 = 3 synergy gains in shareholder value. C. has a clear path to global market leadership in the industries where it has related businesses. D. passes the value chain test and the profit expectations test for building shareholder value. E. achieves economies of scope and passes the reduced-costs test for crafting a diversification strategy capable of creating added shareholder value.

Q: What makes related diversification an attractive strategy is A. the ability to broaden the company's product line. B. the opportunity to convert the competitive advantage potential into 1 + 1 = 3 gains in shareholder value. 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.

Q: Economies of scope A. are cost reductions that flow from cost-saving strategic fits along the value chains of related businesses in the business lineup of a multibusiness corporation. 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.

Q: Cross-business strategic fits can be found A. in unrelated as well as related businesses and in the markets of foreign countries as well as in domestic markets. B. only in businesses whose products/services satisfy the same general types of buyer needs and preferences. C. mainly in either technology-related activities or sales and marketing activities. D. chiefly in the R&D portions of the value chains of unrelated businesses. E. anywhere along the respective value chains of related businesses.

Q: The best place to look for cross-business strategic fits is A. in R&D and technology activities. B. in supply chain activities. C. in sales and marketing activities. D. in production and distribution activities. E. anywhere along the respective value chains of related businessesno one place is best.

Q: One strategic fit-based approach to related diversification would be to A. diversify into new industries that present opportunities to combine value chain activities of two or more businesses to lower costs. B. diversify into those industries where the same kinds of driving forces and competitive forces prevail, thus allowing use of much the same competitive strategy in all of the businesses a company is in. C. acquire rival firms that have broader product lines so as to give the company access to a wider range of buyer groups. D. acquire companies in forward distribution channels (wholesalers and/or retailers). E. expand into foreign markets where the firm currently does no business.

Q: Which of the following is an important appeal of a related diversification strategy? A. Represents an effective way of capturing valuable financial fit benefits B. Offers opportunities to transfer skills, expertise, technical know-how, or other capabilities from one business to another C. Offers significant opportunities to strongly differentiate a company's product offerings from those of rivals D. Is more likely to pass the cost-of-entry test and the capital gains test than unrelated diversification E. Is typically more profitable than unrelated diversification, which is a major factor in helping related diversification pass the attractiveness test

Q: Businesses are said to be "related" when A. they have several key suppliers and several key customers in common. B. their value chains have the same number of primary activities. C. their products are both sold through retailers. D. their value chains possess competitively valuable cross-business relationships that present opportunities to transfer skills and capabilities from one business to another, share resources or facilities to reduce costs, share use of a well-known brand name, and/or create mutually useful resource strengths and capabilities. E. many consumers buy the products/services of both businesses.

Q: The essential requirement for different businesses to be "related" is that A. their value chains possess competitively valuable cross-business relationships. B. the products of the different businesses are bought by much the same types of buyers. C. the products of the different businesses are sold in the same types of retail stores. D. the businesses have several key suppliers in common. E. the productions methods that they employ both entail economies of scale.

Q: 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 or when a company lacks some important resources or competencies and needs a partner to supply them.

Q: A joint venture is an attractive way for a company to enter a new industry when A. a firm is missing some essential skills or capabilities or resources and needs a partner to supply the missing expertise and competencies or fill the resource gaps. B. it needs access to economies of scope and good financial fits in order to be cost-competitive. C. it is uneconomical for the firm to achieve economies of scope on its own initiative. D. the firm has no prior experience with diversification. E. it has not built up a hoard of cash with which to finance a diversification effort.

Q: Diversifying into a new industry by forming a new internal subsidiary to enter and compete in the target industry is attractive when A. all of the potential acquisition candidates are losing money. B. it is impractical to outsource most of the value chain activities that have to be performed in the target business/industry. C. there is ample time to launch the new business from the ground up. D. the company has built up a hoard of cash with which to finance a diversification effort. E. none of the companies already in the industry are attractive strategic alliance partners.

Q: 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 needed to compete effectively and there is ample time to launch the business C. When adding new production capacity will not adversely impact the supply/demand balance in the industry 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

Q: Acquisition of an existing business is an attractive strategy option for entering a promising new industry because it A. is an effective way to hurdle entry barriers, is usually quicker than trying to launch a new start-up operation, and allows the acquirer to move directly to the task of building a strong position in the target industry. B. is 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 and thus helps ensure that the diversification move will pass the competitive advantage test for building shareholder value.

Q: The most popular strategy for entering new businesses and accomplishing diversification is A. forming a joint venture with another company to enter the target industry. B. internal start-up. C. acquisition of an existing business already in the chosen industry. D. forming a strategic alliance with another company to enter the target industry. E. None of these; strategic alliances and joint ventures are equally popular and rank well ahead of acquisition and internal start-up in terms of frequency of use.

Q: 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 offers potential for the company's existing businesses and new businesses to perform better together under a single corporate umbrella. E. assessing whether the diversification move will benefit shareholders due to gains in earnings per share and faster stock price appreciation.

Q: 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 so high that the potentials for good profitability and return on investment are 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.

Q: The attractiveness test for evaluating whether diversification into a particular industry is likely to build shareholder value involves determining whether A. conditions in the target industry allow for profits and return on investment that is equal to or better than that of the company's present business(es). B. the potential diversification move will boost the company's competitive advantage in its existing business. C. shareholders will view the contemplated diversification move as attractive. D. key success factors in the target industry are attractive. E. there are attractive strategic fits between the value chains of the company's present businesses and the value chain of the new business it is considering entering.

Q: To test whether a particular diversification move has good prospects for creating added shareholder value, corporate strategists should use A. the profit test, the competitive strength test, and the industry attractiveness test. B. the better-off test, the competitive advantage test, and the profit expectations test. C. the barrier to entry test, the competitive advantage test, and the stock price effect test. D. the strategic fit test, the industry attractiveness test, and the dividend effect test. E. the attractiveness test, the cost-of-entry test, and the better-off test.

Q: 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.

Q: To create value for shareholders via diversification, a company must A. get into new businesses that are profitable. B. diversify into industries that are growing rapidly. C. spread its business risk across various industries by only acquiring firms that are strong competitors in their respective industries. D. diversify into businesses that can perform better under a single corporate umbrella than they could perform operating as independent, stand-alone businesses. E. diversify into businesses that have either key success factors or value chains that are similar to its present businesses.

Q: Diversifying into new businesses can be considered a success only if it A. results in increased profit margins and bigger total profits. B. builds shareholder value. C. helps a company escape the rigors of competition in its present business. D. leads to the development of a greater variety of distinctive competencies and competitive capabilities. E. helps the company overcome the barriers to entering additional foreign markets.

Q: Diversification ought to be considered when A. a company's profits are being squeezed and it needs to increase its net profit margins and return on investment. B. a company lacks sustainable competitive advantage in its present business. C. a company begins to encounter diminishing growth prospects in its mainstay business. D. a company has run out of ways to achieve a distinctive competence in its present business. E. a company is under the gun to create a more attractive and cost-efficient value chain.

Q: Diversification merits strong consideration whenever a single-business company A. has integrated backward and forward as far as it can. B. is faced with diminishing market opportunities and stagnating sales in its principal business. C. has achieved industry leadership in its main line of business. D. encounters declining profits in its mainstay business. E. faces strong competition and is struggling to earn a good profit.

Q: Which one of the following is not one of the elements of crafting corporate strategy for a diversified company? A. Picking new industries to enter and deciding on the means of entry B. Choosing the appropriate value chain for each business the company has entered C. Pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage D. Steering corporate resources into the most attractive business units E. Initiating actions to boost the combined performance of the businesses the firm has entered

Q: The task of crafting corporate strategy for a diversified company encompasses 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 has entered. C. pursuing opportunities to leverage cross-business value chain relationships and strategic fits into competitive advantage. D. steering corporate resources into the most attractive business units. E. All of these.

Q: Under what circumstances might an already diversified company chose to pursue corporate restructuring?

Q: Under what circumstances might a diversified firm choose to divest one of its businesses?

Q: Under what circumstances might an already diversified company chose to enter additional businesses and broaden its diversification base?

Q: What are the four main strategic alternatives a diversified company can employ to improve the performance of its overall business lineup?

Q: What factors should management consider when ranking business units and setting a priority for resource allocation?

Q: Explain the difference between a cash cow business and a cash hog business.

Q: What is meant by the term "resource fit" as it applies to evaluating a diversified company's business lineup?

Q: What is the relevance of quantitatively measuring the competitive strength of each business in a diversified company's business portfolio and determining which business units are strongest and weakest?

Q: What does the industry attractiveness test involve in evaluating a diversified company's business lineup? Why is it relevant?