Exam 8: Corporate Strategy: Diversification and the Multibusiness Company

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 businesses.

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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.

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A) market size and projected growth rate,industry profitability,and the intensity of competition
B) industry uncertainty and business risk
C) 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) presence of cross-industry strategic fits

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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.

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The procedure for evaluating the pluses ...

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A) a multibusiness company encounters enhanced market opportunities and increasing sales in its principal business
B) a single-business company needs to develop a multiline strategy
C) a single-business company needs to develop a corporate-wide strategy
D) a single-business company can achieve profitable growth opportunities in its present industry
E) a single-business company encounters diminishing market opportunities and stagnating sales in its principal business

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Candidates for divestiture in a corporat...

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Strategic moves to improve a diversified...

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A) whether a business adequately contributes to achieving the corporate parent's performance targets.
B) whether the excess cash flows generated by cash cow businesses are sufficient to cover the negative cash flows of its cash hog businesses.
C) whether the corporate parent has or can develop sufficient resource strengths and competitive capabilities to be successful in each of the businesses it has diversified into.
D) whether the company has adequate financial strength to fund its different businesses and maintain a healthy credit rating.
E) whether the corporate parent has sufficient cash to fund the needs of its individual businesses and pay dividends to shareholders without having to borrow money.

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A) ill-chosen acquisitions that have not lived up to expectations.
B) an excessive debt burden with interest costs that eat deeply into profitability.
C) ongoing declines in the market shares of one or more major business units that are falling prey to more market-savvy competitors.
D) a business lineup that consists of too many slow-growth,declining,low-margin,or competitively weak businesses.
E) a business lineup that consists of too many cash cow businesses.

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A) is more able than other companies to create positive collaboration within its portfolio for different specialty groups and geographic locations.
B) is more able than other companies to boost the combined performance of its individual businesses through its high-level guidance,general oversight,and other corporate-level contributions.
C) manages a set of fundamentally similar business operations inside fundamentally similar industries and environments.
D) avoids acquiring undervalued companies and thus reduces risks.
E) results in supporting short-term economic shareholder value.

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A) the pool of attractive acquisition candidates in the target industry is relatively small.
B) the firm 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 the company to pursue alone or when the company lacks some important resources or competencies and needs a partner to supply them.

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A) its top management seeks to lessen the company's vulnerability to seasonal or recessionary influences or to threats from emerging new technologies,legislative regulations,and new product innovations that alter buyer preferences and resource requirements.
B) its top management wants to increase its compensation.
C) its top management wants to make new acquisitions to strengthen or complement some of its present businesses,market positioning,and competitive capabilities.
D) the company's growth is sluggish and it wants the sales and profit boost that a new business can provide.
E) it has resources or capabilities that are eminently transferable to other related or complementary businesses.

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A) ability to meet the "what's in it for us?" test.
B) potential to stabilize the company's financial performance.
C) opportunity to convert the competitive advantage potential into 1 + 1 = 3 gains in shareholder value.
D) potential to escape the power of buyers and suppliers.
E) potential to more easily hurdle the barriers to entering foreign markets.

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A) purchasing a business outright from another company.
B) spinning an unwanted business off as a managerially and financially independent company by selling shares to the investing public via an initial public offering of stock.
C) purchasing a business by selling shares of stock to the investing public or borrowing funds.
D) reinvesting in an unwanted business to make a more financially and managerially stable company.
E) selecting only businesses that have ample resources to compete successfully on their own for sale to another company.

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A) it 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 strengths.
B) cash cow businesses are sufficient to fund its needs to turn cash hogs into potential young stars.
C) self-supporting stars are able to plow their cash flows into funding cash cows.
D) each business is sufficiently profitable to generate an attractive return on invested capital.
E) each business unit produces large internal cash flows over and above what is needed to build and maintain the business.

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A) making acquisitions to establish positions in new businesses or to complement existing businesses.
B) investing in ways to strengthen or grow existing businesses.
C) funding long-range R&D ventures aimed at opening market opportunities in new or existing businesses.
D) allocating resources to businesses with dim or marginal prospects.
E) paying off existing debt,increasing dividends,building cash reserves,or repurchasing shares of the company's stock.

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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,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.

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