Diversification merits strong consideration whenever a single-business company

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Ch 8

15. The three tests for judging whether a particular diversification move can create value for shareholders are the A. attractiveness test, the profitability test, and the shareholder value test.
B. strategic fit test, the competitive advantage test, and the return-on-investment test.
C. resource fit test, the profitability test, and the shareholder value test.
D. attractiveness test, the cost of entry test, and the better-off test.
E. shareholder value test, the cost of entry test, and the profitability test.

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

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

Acquisition of an existing business offers an effective way to hurdle such entry barriers as acquiring technological know-how, establishing supplier relationships, achieving scale economies, building brand awareness, and securing adequate distribution. However, the industry to be entered through diversification must be structurally attractive, have resource requirements that match those of the parent company, and offer good prospects for growth, profitability, and return on investment.

. 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.

Corporate parenting refers to the role that a diversified corporation plays in nurturing its component businesses through the provision of top management expertise, disciplined control, financial resources, and other types of general resources and capabilities such as long-term planning systems, business development skills, management development processes, incentive systems, umbrella brands, and an internal capital market capability to allow judicious cross-business allocation of financial resources.

the frequency with which strategic alliances and collaborative partnerships are used in each industry, and the extent to which firms in the industry utilize outsourcing

Market size and projected growth rate, the intensity of competition, emerging opportunities and threats, the presence of cross-industry strategic fit, resource requirements, social, political, regulatory, and environmental factors, and industry profitability are some measures for gauging industry attractiveness.

60. Calculating quantitative attractiveness ratings for the industries a company has diversified into involves
A. determining each industry's key success factors, calculating the ability of the company to be successful on each industry KSF, and obtaining overall measures of the firm's ability to compete successfully in each of its industries based on the combined KSF ratings. B. determining each industry's competitive advantage factors, calculating the ability of the company to be successful on each competitive advantage factor, and obtaining overall measures of the firm's ability to achieve sustainable competitive advantage in each of its industries based on the combined competitive advantage factor ratings.
C. selecting a set of industry attractiveness measures, weighting the importance of each measure, rating each industry on each attractiveness measure, multiplying the industry ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each industry to obtain an overall industry attractiveness score, and using the overall industry attractiveness scores to interpret the attractiveness of all the industries, both individually and as a group.
D. rating the attractiveness of each industry's strategic and resource fits, summing the attractiveness scores, and determining whether the overall scores for the industries as a group are appealing or not.
E. identifying each industry's average profitability, rating the difficulty of achieving average profitability in each industry, and deciding whether the company's prospects for above-average profitability are attractive or unattractive, industry by industry.

66. 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, the ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors, and the ability to benefit from strategic fits with sister businesses.
C. the appeal of its strategy, the relative number of competitive capabilities, the number of products in each business's 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.

68. Calculating quantitative competitive strength ratings for each of a diversified company's business units involves
A. determining each industry's key success factors, rating the ability of each business to be successful on each industry KSF, and adding the individual ratings to obtain overall measures of each business's ability to compete successfully.
B. identifying the competitive forces facing each business, rating the strength of these competitive forces industry by industry, and then ranking each business's ability to be profitable, given the strength of the competition it faces.
C. selecting a set of competitive strength measures, weighting the importance of each measure, rating each business on each strength measure, multiplying the strength ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each business unit to obtain an overall competitive strength score, and using the overall competitive strength scores to evaluate the competitive strength of all the businesses, both individually and as a group.
D. determining which businesses possess good strategic fit with other businesses, identifying the portion of the value chain where this fit occurs, and evaluating the strength of the competitive advantage attached to each of the strategic fits to get an overall measure of competitive advantage potential. Businesses with the highest/lowest competitive advantage potential have the most/least competitive strength.
E. rating the caliber of each businesses strategic and resource fit, weighting the importance of each type of strategic/resource fit, calculating weighted strategic/resource fit scores, and adding the weighted ratings for each business to obtain an overall strength score for each business unit that indicates whether the company has adequate strategic/resource fits to be a strong market contender in each of the industries where it competes.

Is diversification a competitive advantage?

Which type of diversification strategy can often give a company the most profit?

Which of the following is the best example of related diversification?

What makes related diversification an attractive strategy is?