Deck 9: New Business Development

Question 1

Which of the following is a valid type of contribution a new venture may make to the parent corporation?

A) repositioning existing businesses
B) growth in corporate revenues and earnings
C) corporate risk reduction
D) all of the above

Answer 1

all of the above

Question 2

Which of the following types of contribution of the parent to the new venture is generally questionable?

A) entrepreneurial management skills
B) general management skills
C) financial capital alone
D) none of the above

Answer 2

financial capital alone

Question 3

Which types of new business will a corporation's financial capital contribute the most to?

A) smaller units in mature industries
B) larger businesses in growing industries
C) smaller units in growing industries
D) larger businesses in mature industries

Answer 3

smaller units in growing industries

Question 4

Codifiable capabilities may add less value to a new venture because:

A) they are harder to defend from imitation
B) they are more difficult to transfer than more tacit or intangible resources
C) their benefit to the corporate parent makes them difficult to transfer
D) none of the above

Question 5

A core competence combines which of the following two types of corporate contributions to a business:

A) entrepreneurial skill and core marketing capability
B) risk reduction and technical capability
C) a strong technological platform and entrepreneurial skill
D) financial management and technical capability

Question 6

When the growth demands of a new venture differ from those of the parent's existing businesses:

A) the risk of failure is lower
B) management's experience is less applicable
C) the venture presents a weak opportunity
D) none of the above

Question 7

Which of the following is a determinant of an attractive market for diversification?

A) large ultimate market size
B) strong market growth
C) a favorable future industry structure
D) all of the above

Question 8

Which of the following is not a key task in new venture governance within a corporation?

A) building new coordination and control mechanisms
B) establishment of key relations with outside sources of capital
C) development of appropriate management incentives
D) use of separate resource allocation mechanisms

Question 9

Carve-outs provide a means to accomplish which of the following?

A) provide a means for valuing the venture
B) build entrepreneurial incentives within the firm
C) neither of the above
D) both of the above

Question 10

Which of the following factors or activities are critical determinants of cash flows in the Ongoing Operations stage of an acquisition?

A) risk management
B) due diligence
C) dynamic capabilities
D) integration planning

Question 11

The diversification paths of firms in the same industry vary across countries because countries differ in the institutions that present diversification opportunities.

Question 12

A major risk in using a new venture to reposition existing businesses is that the diversifying firm may not be able to sustain the new venture's market position.

Question 13

Business diversification occurs when a product line is broadened or redesigned.

Question 14

It is generally accepted that, on average, firms can be more efficient as a source of funds for a new business than the external capital markets they replace.

Question 15

As a motivation for diversification, risk reduction should not be subordinated to improving returns in each business unit.

Question 16

The problem of transferring capabilities is more acute for firms diversifying for the first time.

Question 17

Valuation methods for new business units need not be tailored to their markets.

Question 18

Management expertise in designing and implementing a particular strategy within the parent company is potentially valuable for new ventures.

Question 19

In both the turnaround and integration stages of an acquisition, a firm must make a significant contribution to the new unit to justify the diversification move to investors.

Question 20

One explanation for merger waves is shifts in the rules of competition in specific industries.

Question 21

One motivation for diversification is favorable repositioning of the firm's current businesses. What are the potential benefits and risks associated with this motivation?

Question 22

How is the concept of open innovation related to diversification?