Question 1

You are the general manager of a regional HR staffing company. What strategic consideration would be LEAST likely to influence your decision to diversify your firm into new, related or unrelated business services?

Accepted Answer

Analyzing and settling on the appropriate value chain for each business the company has entered would be the least likely consideration to influence the decision to diversify. This is because value chain analysis is more relevant to the operational level of a business and may not play a significant role in the strategic decision-making process of diversifying into new business services. The other options listed are all important strategic considerations for diversification.

Question 2

The better-off test for evaluating whether a particular diversification move is likely to generate added value for shareholders involves assessing whether the move will

Accepted Answer

The better-off test evaluates whether a diversification move will generate added value for shareholders. The most effective way to do this is to assess whether the move will produce a synergistic outcome, where the company's different businesses perform better together than apart and the whole ends up being greater than the sum of the parts. This is the primary factor that will make the company better off. A and B are not necessarily the best measures of whether a diversification move will create added value for shareholders. While C may be a factor, it is not as important as the potential for synergy. E is not a desirable outcome for diversification.

Question 3

Diversification ought to be considered when a

Accepted Answer

A

Question 4

Initiating actions to boost the combined performance of the corporation's collection of businesses includes all of the following strategic options, except

Accepted Answer

Refocusing on new substitute product-line opportunities outside the existing industry framework is not typically considered a strategy for boosting the combined performance of a corporation's existing collection of businesses.

Question 5

In April 2017, PetSmart agreed to make the largest e-commerce acquisition in history to date, putting a deal in place to snatch up fast-growing pet food and product site Chewy. com for $3.35 billion. The acquisition premium for this particular deal can be calculated as the amount by which the price PetSmart offered for Chewy.com exceeded the

Accepted Answer

The acquisition premium is the amount by which the price offered for Chewy.com exceeded its preacquisition market value.

Question 6

How would you explain the difference between a one-business company and a diversified company?

Accepted Answer

A one-business company focuses on a single line of business and thus primarily employs a business-level strategy to compete within its specific market. In contrast, a diversified company operates in multiple lines of business, requiring it to use a combination of business strategies for each unit and a corporate strategy to manage and synergize across these different units.

Question 7

To create value for shareholders via diversification, a company must

Accepted Answer

Diversifying into businesses that can perform better under a single corporate umbrella than they could perform operating as independent, stand-alone businesses is the best option to create value for shareholders via diversification. This ensures that the company is able to leverage its resources and capabilities to enhance the performance of the new businesses and generate synergies that can lead to increased profits and competitiveness. Additionally, if the new businesses are complementary to the existing ones, the company can benefit from economies of scope and cross-selling opportunities.

Question 8

The three tests for judging whether a particular diversification move can create value for shareholders are the

Accepted Answer

The three tests for judging whether a particular diversification move can create value for shareholders are the attractiveness test (evaluating the industry attractiveness), the cost of entry test (assessing whether the cost of entry does not capitalize all future profits), and the better-off test (determining whether the diversifying company will be better off through either transferring skills or sharing activities).

Question 9

On July 27, 2018, shareholders of the Walt Disney Company and 21st Century Fox agreed to a $71.3 billion purchase plan that gave Disney the bulk of the Fox media empire, substantially altering the entertainment landscape. What was LEAST likely among Disney's considerations in completing its acquisition of Fox?

Accepted Answer

The least likely consideration for Disney in acquiring Fox was "expanding into additional businesses that unlock possibilities for a comprehensive cost enhancement strategy." The acquisition was more about expanding Disney's content library, brand, and direct-to-consumer streaming capabilities, rather than focusing on cost enhancement strategies.

Question 10

To test whether a particular diversification move has good prospects for creating added shareholder value, corporate strategists should use the

Accepted Answer

The correct answer is E) attractiveness test, the cost of entry test, and the better-off test. These tests evaluate whether the diversification will make the company more competitive and valuable. The attractiveness test assesses the industry's potential, the cost of entry test evaluates the investment needed, and the better-off test determines if the diversification will improve the company's overall position.

Question 11

Imagine you are the CEO of a regional ride-sharing company considering diversification into meal delivery services. How would you determine whether or not your diversification strategy would be successful?

Accepted Answer

Diversification should ultimately enhance shareholder value by leveraging synergies, expanding market reach, and improving financial performance.

Question 12

When Disney acquired Marvel Comics on August 31, 2009, for $4.24 billion, management needed to determine whether or not there were opportunities to strengthen the business, which includes all of the following considerations, except

Accepted Answer

The given options mention various opportunities to strengthen the business after the acquisition of Marvel Comics by Disney. However, out of the given options, option C is the one that does not describe a potential opportunity to strengthen the business. Instead, it describes ways to ensure compatibility with the corporate identity, which is not a primary focus for strengthening the business. Options A, B, D, and E all describe potential opportunities for strengthening the business, such as transferring valuable resources, achieving lower costs, sharing brand names, and encouraging collaboration among businesses.

Question 13

Anna and Martha are owners and managers of A&M, a limited liability corporation (LLC)that provides a wide array of services: mailing, notary services, packaging and pickup for UPS and FedEx, as well as faxing and document scanning. Anna and Martha have asked you, as their consultant, to consider whether or not they might want to diversify into financial planning due to the increasing number of retirees moving into their community. How would you advise Anna and Martha to proceed?

Accepted Answer

If A&M is experiencing diminishing market opportunities and stagnating sales in their current business, diversifying into financial planning could be a strategic move to tap into new growth opportunities, especially with the increasing number of retirees in their community.

Question 14

A company can best accomplish diversification into new industries by

Accepted Answer

Diversification into new industries is best accomplished by acquiring a company already operating in the target industry, creating a new business from scratch or forming a joint venture with one or more companies to enter the target industry. These options provide immediate access to industry-specific knowledge, capabilities, and resources, while also facilitating the development of synergies between the parent company and the new business. Outsourcing value chain activities or shifting strategic groups may not be effective strategies for diversification, while offensive strategies with new product innovations as centerpiece may be too risky and uncertain. Integrating forward or backward can be a viable option, but it may require significant investments in new capabilities and resources, and may not provide immediate benefits.

Question 15

The task of crafting a company's overall corporate strategy for a diversified company encompasses all of the following except

Accepted Answer

Divesting well-performing businesses does not align with the objective of crafting a corporate strategy for a diversified company, which aims to boost the overall performance of the corporation's collection of businesses. Divesting a well-performing business would diminish the diversification of the company, and reduce the potential opportunities for cross-business value chain relationships and strategic fit into competitive advantage.

Question 16

When pharmacy chain CVS Health announced a $69 billion merger with the health insurance giant Aetna late in 2017, top management of CVS needed to weigh a number of strategic considerations except

Accepted Answer

The other options listed are all strategic considerations that top management of CVS would need to weigh in their merger with Aetna. However, pursuing debt reduction is not a strategic consideration listed in the article, and therefore is the best choice.

Question 17

The decision to pursue diversification requires management to resolve which industries to enter and whether to enter, and includes such decisions as the following, except

Accepted Answer

The selection of appropriate value chain operating practices is not a decision related to entering a new industry or pursuing diversification.

Question 18

Diversifying into new businesses can be considered a success only if it

Accepted Answer

Diversifying into new businesses is considered successful if it builds shareholder value, as this indicates the company's overall worth is increasing, benefiting its owners or shareholders.

Question 19

It becomes particularly urgent for a company to consider diversification when there are

Accepted Answer

When a company's principal business faces diminishing market opportunities and stagnating sales, diversification becomes urgent to find new growth avenues and reduce dependency on a single market.

Question 20

Apple's $3 billion acquisition of Beats Electronics and Beats Music in 2014 was an attractive strategy option for entering promising new industries in headphones and streaming music services because it

Accepted Answer

Apple's acquisition of Beats Electronics and Beats Music allowed them to quickly enter the industries of headphones and streaming music services by overcoming entry barriers. This was a quicker option than launching a brand-new startup operation and allowed them to build a strong position in the target industry.

Quiz 8: Corporate Strategy