Diversification and the Multibusiness Company (41-60 Answer Key)

41. 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. 42. 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 43. 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. 44. 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. 45. 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 46. 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. 47. 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. 48. 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. 49. 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-à-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. 50. 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. 51. 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. 52. 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. 53. 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. 54. 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. 55. 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. 56. 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. 57. 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. 58. One important dimension of resource fit concerns the potential to generate internal cash flows sufficient to fund capital requirements of its business lineup, termed the firm's A. internal capital market. B. debt policy management. C. liquidity management. D. economic value added. E. All of these. 59. A "cash cow" type of business A. generates unusually high profits and returns on equity investment. B. is so profitable that it has no longterm 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, funding share buyback programs, 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. 60. A "cash hog" type of business A. is one that is losing money and requires cash infusions from its corporate parent to continue operations. B. is one that generates cash flows that are too small to fully fund its operations and growth. C. generates negative cash flows from internal operations and thus requires cash infusions from its corporate parent to report a profit. D. is a business growing so rapidly that it does not have the funds to cover its short- and long-term debt obligations. E. is one that has more current liabilities than current assets and faces a liquidity crisis due to declining sales revenues and declining profitability.