Question 1

A portfolio approach to managing a company's financial resource fit is based on:

Accepted Answer

A portfolio approach to managing a company's financial resource fit is based on the fact that different businesses have different cash flow and investment characteristics. By balancing the cash flows and investment characteristics across different business units, a company can effectively manage its financial resources and reduce overall risk. Diversifying risk across a broad spectrum of businesses and acknowledging each business unit's varying degrees of opportunity are also important considerations, but they are not the main basis for a portfolio approach to financial management. The risk/reward concept of financial analysis and acknowledging that each business is financially strong are not directly related to a portfolio approach to financial management.

Question 2

Which of the following is the BEST guideline for deciding what the priorities should be for allocating resources to the various businesses of a diversified company?

Accepted Answer

Business subsidiaries with the brightest profit and growth prospects, attractive positions on the nine-cell matrix, and solid strategic and resource fits generally should head the list for corporate resource support. This approach takes into consideration both the potential for profitability and growth as well as the strategic fit of each business within the company's overall portfolio. The nine-cell matrix also provides a useful framework for assessing each business's position relative to others in terms of industry attractiveness and competitive strengths.

Question 3

Which of the following is NOT a reasonable option for deploying a diversified company's financial resources?

Accepted Answer

Investing financial resources in cash cow businesses until they show enough strength to generate positive cash flows is not a reasonable option for deploying a diversified company's financial resources because cash cow businesses are already generating positive cash flows, and deploying financial resources in such businesses does not create any new opportunities or diversify the company's portfolio. The other options mentioned, including making acquisitions, funding long-range R&D ventures, paying down existing debt, increasing dividends, or repurchasing shares of the company's stock, and investing in ways to strengthen or grow existing businesses are all reasonable options for deploying a diversified company's financial resources.

Question 4

The tests of whether a diversified company's businesses exhibit resource fit do NOT include:

Accepted Answer

The tests of resource fit for a diversified company's businesses do not include 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. This is because the focus of resource fit is on whether the corporate parent has the necessary resources and capabilities to be successful in each of its businesses, not on its cash position.

Question 5

Checking a diversified company's business portfolio for the competitive advantage potential of cross-business strategic fits does NOT involve ascertaining the extent to which sister business units:

Accepted Answer

The question specifically asks about checking for strategic fits that offer competitive advantage potential. Identifying cash cows and cash hogs is important for financial management and resource allocation, but it is not directly related to identifying strategic fits between business units. Therefore, option E is not relevant to the question.

Question 6

Corporate strategy options for already diversified companies include all of the following EXCEPT:

Accepted Answer

Pursuing certain acquisitions even if they have done badly or haven't quite lived up to expectations is not a viable corporate strategy option for already diversified companies as it does not contribute to the overall growth and success of the company. The other options, including broadening the company's business scope, divesting weak-performing businesses, restructuring the business lineup, and pursuing growth opportunities within the existing business lineup, are all viable corporate strategy options for already diversified companies.

Question 7

One of the most significant contributions to strategy making in diversified companies that the nine-cell industry attractiveness competitive strength matrix provides is:

Accepted Answer

The nine-cell industry attractiveness competitive strength matrix provides the significant contribution of prioritizing businesses based on their competitive strength and attractiveness in the industry. This helps in allocating corporate resources effectively, with the highest priority given to businesses that have the greatest competitive strength in attractive industries and divesting competitively weak businesses in relatively unattractive industries.

Question 8

A company that is already diversified may choose to broaden its business scope by building positions in new related or unrelated businesses because of all of the following EXCEPT:

Accepted Answer

Increasing top management's compensation is not a valid reason for a company to broaden its business scope. All other options are valid reasons for diversification.

Question 9

Once a company has diversified into a collection of related or unrelated businesses and concludes that some strategy adjustments are needed,which one of the following is NOT one of the main strategy options that a company can pursue?

Accepted Answer

Crafting new initiatives to build/enhance the company's reputation and image is not a main strategy option for adjusting a company's business lineup in terms of diversification.

Question 10

The nine-cell industry attractiveness competitive strength matrix:

Accepted Answer

The nine-cell industry attractiveness competitive strength matrix is specifically designed to help organizations decide which of their businesses should have high, average, and low priorities in deploying corporate resources. The matrix evaluates each business unit based on its industry attractiveness and competitive strength, providing insights into which businesses are worth investing in and which may need to be divested. As such, Option A is the best choice. Option B is incorrect as the matrix does not necessarily provide information on cash cows vs. cash hogs. Option C is partially correct, as the matrix is more useful for businesses positioned in the top three cells, but it can still provide valuable insights for the bottom six cells. Options D and E are incorrect as the matrix is not necessarily focused on sibling businesses or resource fit.

Question 11

What is the business term given for a company that generates cash flows over and above its internal requirements and can provide the corporate parent with funds for reinvestment?

Accepted Answer

A company that generates cash flows over and above its internal requirements and can provide the corporate parent with funds for reinvestment is referred to as a cash cow. It is a business term used to describe a product or a business unit that generates significant cash flow and has high market share in a slow-growing or mature industry. These cash cows have a low growth rate but high profitability, which can be used to fund other business areas with high potential for growth.

Question 12

Which of the following is NOT a part of checking a diversified company's business units for cross-business competitive advantage potential?

Accepted Answer

The focus of checking for cross-business competitive advantage potential is on synergies between business units, not on maximizing the use of the parent company's competitive advantages.

Question 13

The nine-cell attractiveness-strength matrix provides clear,strong logic for considering using:

Accepted Answer

The nine-cell attractiveness-strength matrix takes into consideration both industry attractiveness and business strength. This makes it a comprehensive tool for allocating resources and investment capital to the different businesses within a company. By evaluating both factors, companies can make informed decisions about which businesses to invest in and which may need to be divested or restructured.

Question 14

A diversified company's business units exhibit good resource fit when:

Accepted Answer

Good resource fit occurs when a company's business units complement and enhance its overall resources and capabilities. This means that each business unit should have resource requirements that align with the parent company's existing resources and strengths, or that the parent company has adequate resources to support its business needs and add value. The other options may lead to success in certain situations, but B is the most comprehensive and accurate choice.

Question 15

The strategic options to improve a diversified company's overall performance do NOT include which of the following categories of actions?

Accepted Answer

Increasing dividend payments or repurchasing shares of the company's stock may improve the financial performance and shareholder value, but it does not directly address the company's business operations or lineup. The other options - broadening business scope by acquisitions, restructuring business lineup, pursuing multinational diversification, and divesting weak-performing businesses - are all strategic options that can impact the company's overall performance.

Question 16

The businesses in a diversified company's lineup exhibit good resource fit when:

Accepted Answer

Good resource fit occurs when individual businesses within a diversified company have matching resource requirements along their value chain and contribute to the company's overall resource strengths. Additionally, solid parenting capabilities are necessary to effectively manage the diverse businesses without spreading the corporate parent too thin. The other answer choices provide other considerations for evaluating a diversified company's lineup, but do not directly address the concept of resource fit.

Question 17

The options for allocating a diversified company's financial resources include all of the following EXCEPT:

Accepted Answer

The options listed all involve actively allocating financial resources to support the company's growth or stability. Decreasing dividend payments or selling shares of stock may be a consequence of these decisions, but are not an active choice for allocating resources. Therefore, option E is the correct answer.

Question 18

What is it called when a diversified company can add value by shifting capital from business units generating free cash flow to those needing additional capital to expand and realize their growth potential?

Accepted Answer

This concept is known as an internal capital market, where a diversified company can allocate capital across its business units to optimize returns and drive growth. By reallocating capital from cash-generating units to those with growth potential, the company can make better use of its financial resources and enhance shareholder value.

Question 19

Which of the following is NOT part of the task of checking a diversified company's business lineup for adequate resource fit?

Accepted Answer

The task of checking a diversified company's business lineup for adequate resource fit involves assessing financial and managerial resources, not simply achieving additive outcomes like 1 + 1 = 2.

Question 20

Checking the competitive advantage potential of cross-business strategic fits in a diversified company involves evaluating the extent to which sister businesses present opportunities:

Accepted Answer

The answer of Checking the competitive advantage potential of cross-business...

Quiz 8: Corporate Strategy