Question 1

Firms using the unrelated-diversified multiproduct strategy dominate the private sector in Latin American countries, Korea, China, and India.

Accepted Answer

Firms using the unrelated-diversified multiproduct strategy do dominate the private sector in Latin American countries, Korea, China, and India.

Question 2

Firms using the unrelated strategy emphasize operational competencies to create economies of scope.

Accepted Answer

Firms using the unrelated diversification strategy typically do not seek to create economies of scope through operational competencies but rather aim to maximize value through financial economies and corporate parenting by managing a portfolio of businesses that may not share operational similarities.

Question 3

In general, it is easier to create financial economies by restructuring the assets of firms in high-technology business than firms in low-technology businesses.

Accepted Answer

High-technology businesses often have assets that are intangible and based on intellectual property, making it more challenging to restructure for financial economies compared to low-technology businesses, which may have more tangible assets.

Question 4

The highest level of diversification is

Accepted Answer

The highest level of diversification is unrelated diversification, which means a company enters into industries or markets that are not related to its current business. This type of diversification carries the highest level of risk but also has the potential for the highest level of return. Related constrained and related linked diversification strategies involve entering into industries or markets that are related in some way to the company's current business, and unconstrained diversification is not a recognized type of diversification strategy.

Question 5

Firms use multiproduct strategies to diversify for all of the following reasons except

Accepted Answer

Developing economies of scale is not a primary reason for diversification through multiproduct strategies. Economies of scale are achieved through increased production levels of a single product or service, not through diversification into multiple products or services.

Question 6

Large firms in the U.S. are most likely to use the dominant business multiproduct strategy.

Accepted Answer

Large firms in the U.S. are more likely to use a related or unrelated diversification strategy rather than a dominant business strategy, which involves focusing on a single product or service.

Question 7

The external capital market allocates resources to divisions according to their probability of generating excess returns on the firm's borrowed financial capital in the competitive form of the M-form organizational structure.

Accepted Answer

The external capital market allocates resources based on the overall performance and prospects of the firm, not specifically to its divisions. The internal capital market within a firm, especially in an M-form (multidivisional form) organization, is responsible for allocating resources to its divisions based on their performance and potential to generate excess returns.

Question 8

Restructuring can create financial economies when a firm buys another company's assets with the intention of selling them as soon as it finds ways to make the assets more productive.

Accepted Answer

This is true, as restructuring can involve acquiring assets at a lower cost and then improving their productivity to subsequently sell them at a higher price. This can lead to financial economies for the firm.

Question 9

Valve-Tech manufactures valves for pipelines for the oil industry. The company has been in this business for the past 35 years, and focuses exclusively on valves. As a specialist in all variety of valves for oil pipelines, it is widely known and respected in the oil industry. Valve-Tech is an example of a ____ multiproduct strategy.

Accepted Answer

Valve-Tech's focus exclusively on valves for oil pipelines indicates a single product (valves) strategy, making it an example of a single business multiproduct strategy.

Question 10

If a domestic firm using a dominant-business multiproduct strategy decides to market its products internationally, it will move to a multidivisional structure.

Accepted Answer

A firm moving to market its products internationally does not necessarily change to a multidivisional structure due to international expansion alone. The decision to adopt a multidivisional structure is influenced by factors such as the need for greater management focus on diverse product lines, geographic dispersion, and the complexity of operations, rather than simply international marketing.

Question 11

Textron's success can be traced to its use of the unrelated diversification multiproduct strategy.

Accepted Answer

Textron's success can be attributed to its use of the unrelated diversification multiproduct strategy, through which it has expanded into various industries including aerospace, defense, industrial, and finance, reducing its dependence on any one product or market. This has enabled Textron to manage risk and capitalize on growth opportunities across multiple markets.

Question 12

Strategic business units are found in related linked diversification strategies.

Accepted Answer

Strategic business units (SBUs) are typically found in related linked diversification strategies. In this strategy, a company diversifies into related businesses that can benefit from shared resources and capabilities, but still maintain some degree of autonomy and focus as distinct SBUs. This allows the company to pursue different opportunities and manage risk across multiple markets or products.

Question 13

Loganfield Papers generates 80% of its revenues from its extensive line of papers for watercolor artists. The remaining 20% of its revenues come from a line of specialty papers it sells to printers of greeting cards. This company is using the unrelated diversification multiproduct strategy.

Accepted Answer

Loganfield Papers is using a related diversification strategy since both product lines involve paper products, albeit for different applications (watercolor art and greeting cards), indicating a commonality in their core business rather than a completely unrelated diversification.

Question 14

Bell Tower Productions produces educational videos for use in private religious-based elementary schools. This generates approximately 80 percent of Bell Tower's revenues. As a side line, the company also produces videos for use by churches for Sunday school classes and church summer camps. Bell Tower is using the ____ diversification multiproduct strategy.

Accepted Answer

Bell Tower Productions is using the dominant business multiproduct strategy because the majority of its revenues (80%) come from a single line of business, which is producing educational videos for private religious-based elementary schools, while it also engages in a secondary line of business by producing videos for churches.

Question 15

The sharing of tangible resources among businesses within an SBU is easier than transferring intangible core competencies among the same businesses.

Accepted Answer

Tangible resources, such as equipment or materials, can be physically transferred between businesses within an SBU. However, intangible core competencies, such as knowledge or expertise, are more difficult to transfer and may require significant investment in training and communication.

Question 16

Divisional managers bear the main responsibility for insuring that managers do not over-diversify the organization.

Accepted Answer

The main responsibility for ensuring that managers do not over-diversify the organization typically lies with top management or the board of directors, as they set the overall strategy and direction for the company. Divisional managers focus more on their specific segments.

Question 17

Multiproduct strategies apply to diversified manufacturers, not to organizations which provide services.

Accepted Answer

This statement is false. Multiproduct strategies can also be applied to organizations that provide services such as airlines, banks, and hotels. These types of companies can offer a variety of services to their customers, each with their own pricing and promotional strategies.

Question 18

A poorly-performing SBU in a firm using the unrelated-diversification multiproduct strategy is liable to be disciplined by being allocated fewer resources.

Accepted Answer

In the unrelated-diversification multiproduct strategy, SBUs are evaluated individually and assigned resources based on their performance. A poorly-performing SBU is likely to receive fewer resources as a form of discipline, while a well-performing SBU may receive more resources to further strengthen its position.

Question 19

A key objective of division heads in the SBU form of the M-form structure is to determine whether two or more divisions' resources could be combined to create an intangible capability that could become a core competence.

Accepted Answer

The answer of A key objective of division heads in...

Question 20

Because less than 70 percent of its sales revenues come from any one business and because some resources and activities that are needed to produce and sell products and services in different markets are shared across businesses, Hewlett-Packard is using the ____ multiproduct strategy.

Accepted Answer

Hewlett-Packard is using a related constrained multiproduct strategy because less than 70 percent of its sales revenues come from any one business and because some resources and activities that are needed to produce and sell products and services in different markets are shared across businesses. The related constrained strategy involves diversifying into businesses where there are some similarities in the technology, production processes, distribution channels, or customers.

Quiz 6: Multiproduct Strategies