Question 1

Which one 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 do not require additional investments to sustain their operations. Instead, companies should focus on investing in new or existing businesses that have the potential to generate higher future cash flows or invest in ways to strengthen or grow existing businesses.

Question 2

Corporate strategy options for already diversified companies include:

Accepted Answer

All of these options are valid strategies that already diversified companies can pursue depending on their current situation and goals. Broadening the business scope through new acquisitions can help the company enter new markets and diversify its revenue streams. Divesting weak-performing businesses can free up resources to focus on stronger areas and improve overall profitability. Restructuring can be a way to transform the company's business lineup and adapt to changing market conditions. Pursuing growth opportunities within the existing business lineup can leverage existing strengths and capabilities to drive innovation and market share. Ultimately, the best strategy (or combination of strategies) will depend on factors such as the company's financial situation, competitive landscape, and long-term goals.

Question 3

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

Accepted Answer

Checking for value chain match-ups to transfer skills or technology is more about strategic fit rather than resource fit. Resource fit focuses on financial and managerial resources.

Question 4

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 answer of Which of the following is NOT a...

Question 5

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

Accepted Answer

All of these reasons are valid motivations for a diversified company to broaden its business scope. A company may have transferable resources or capabilities that can be leveraged in new businesses, it may want to boost sales and profits through new ventures, it may want to lessen vulnerability to external threats, or it may want to strengthen its current businesses through acquisitions.

Question 6

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

Accepted Answer

Good resource fit exists when the different businesses within a diversified company's lineup have complementary resource requirements at different points along the value chain and add to the company's overall resource strengths. The presence of solid parenting capabilities without spreading itself too thin also ensures a good resource fit. Option A, C, D, and E all contain some truth, but they do not fully capture the concept of resource fit.

Question 7

What is a possible cause of a diversified company overusing its resources and capabilities?

Accepted Answer

When a company goes on an acquisition spree, it may overextend its resources and capabilities as it tries to integrate and manage multiple new businesses simultaneously.

Question 8

A "cash cow" type of business:

Accepted Answer

A "cash cow" type of business generates more cash than it needs to fund its operation, growth and reinvestment. It usually has a steady demand for its products or services and operates in a mature industry with low growth rates. This excess cash flow can be used to pay dividends, reduce debt or invest in other areas of the business.

Question 9

Besides financial cash flow considerations,there are two other factors to consider in assessing whether a diversified company's businesses exhibit good financial fit,namely:

Accepted Answer

The answer of Besides financial cash flow considerations,there are two...

Question 10

Which one 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 account not only the industry attractiveness or competitive strength of a particular business, but also its potential for growth and alignment with the overall strategy of the diversified company. The nine-cell matrix provides a useful framework for assessing these factors and making informed decisions about resource allocation.

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

The answer of What is the business term given for...

Question 12

The option of sticking with the current business lineup makes sense when:

Accepted Answer

The option of sticking with the current business lineup makes sense when the company's present portfolio of businesses offers attractive growth opportunities and can be counted on to create economic value for shareholders. This means that the company has a competitive advantage in its current businesses and can continue to generate growth and profitability. It does not necessarily mean that the company cannot pursue new opportunities, but it suggests that the current businesses are strong enough to support the company's growth and profitability goals.

Question 13

Checking a diversified firm's business portfolio for the competitive advantage potential of cross-business strategic fits entails consideration of:

Accepted Answer

Checking for cross-business strategic fits involves examining whether there are valuable relationships between the value chains of sister business units and what opportunities they present to reduce costs, share use of a potent brand name, create new capabilities via cross-business collaboration, or transfer skills, technology or intellectual capital from one business to another. This analysis focuses on identifying potential synergies and leveraging them to create a competitive advantage. Option A and C are important considerations but only offer partial insights into the competitive advantage potential of cross-business strategic fits. Option B and E may be relevant, but do not focus specifically on the cross-business strategic fits.

Question 14

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

Accepted Answer

The answer of A portfolio approach to managing a company's...

Question 15

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

Accepted Answer

Good resource fit means that the businesses have matching resource requirements and add to the company's overall resource strengths. This can be achieved when the parent has adequate corporate resources to support its business needs and add value. Option A is incorrect because businesses being cash cows does not necessarily mean they have a good resource fit. Option C is incorrect because profitability alone does not determine resource fit. Option D is incorrect because large internal cash flows do not necessarily mean a good resource fit. Option E is incorrect because exact matching of resource requirements is unlikely and may not result in a good resource fit.

Question 16

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 is the definition of an internal capital market, where a diversified company can allocate capital within its own business units to optimize growth and returns.

Question 17

The options for allocating a diversified company's financial resources include:

Accepted Answer

All of the options listed are viable choices for allocating a diversified company's financial resources, and the best choice(s) will depend on the company's specific circumstances, goals, and priorities. For example, a company may choose to make acquisitions if it wants to enter new markets or diversify its product offerings, while investing in current businesses may be more appropriate if the company wants to strengthen its existing operations. Long-range R&D ventures could be useful in opening up new market opportunities. On the other hand, paying off debt, increasing dividends, building cash reserves, or repurchasing shares may be more appropriate if the company is seeking to increase shareholder value or improve its financial stability. Ultimately, the company's management team will need to carefully evaluate each option and determine the best approach based on the company's unique situation.

Question 18

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 and share repurchasing are actions related to financial management, rather than strategic options for improving overall performance through business scope and diversification.

Question 19

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

The answer of Once a company has diversified into a...

Question 20

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

Accepted Answer

The tests for resource fit include assessing whether the company has adequate financial strength to fund its different businesses and maintain a healthy credit rating, whether a business contributes to achieving corporate performance targets, whether the company has or can develop sufficient resource strengths and competitive capabilities to be successful in each of the businesses it has diversified into. However, the test of whether excess cash flows generated by cash cow businesses are sufficient to cover negative cash flows of cash hog businesses is not a test for resource fit as it relates to financial performance only and does not necessarily consider the strategic fit of the businesses.

Quiz 8: Corporate Strategy: Diversification and the Multibusiness Company