Question 1

A big advantage of related diversification is that it

Accepted Answer

Related diversification offers ways for a firm to realize 1 + 1 = 3 benefits because the value chains of the different businesses present competitively valuable cross-business relationships. This means the different businesses within the firm can share resources, collaborate, and take advantage of synergies to create more value than they could separately. This is a big advantage of related diversification over other diversification strategies.

Question 2

The transaction costs of completing a business agreement or deal of some sort, over and above the price of the deal, can include all of the following EXCEPT

Accepted Answer

The premium cost is not a typical transaction cost associated with completing a business agreement or deal. The other options listed are common transaction costs that can increase the overall cost of completing a business deal.

Question 3

Which of the following is NOT a contributing reason for businesses with strategic fit in R&D or technology activities to perform better together?

Accepted Answer

The ability to continue using existing processes is not a contributing reason for better performance, as strategic fit in R&D or technology activities typically involves innovation and adaptation rather than sticking to existing processes.

Question 4

Strategic fit between two or more businesses exists when one or more activities comprising their respective value chains present opportunities

Accepted Answer

The definition of strategic fit implies that it creates opportunities for cross-business collaboration to build new resource strengths and competitive capabilities, which is described in option D. The other options do not describe a beneficial outcome of strategic fit between businesses.

Question 5

Which of the following statements about cross-business strategic fit in a diversified enterprise is NOT accurate?

Accepted Answer

The statement that strategic fit is primarily a by-product of unrelated diversification is not accurate. In fact, strategic fit is often more valuable in related diversification where businesses share commonalities and can create synergies through joint resource sharing and transfer of knowledge and skills. Unrelated diversification is often pursued for financial reasons such as risk reduction and portfolio diversification rather than strategic fit.

Question 6

One strategic fit based approach to related diversification would be to

Accepted Answer

A strategic fit based approach to related diversification involves diversifying into industries where the firm's specialized expertise, technological capabilities, or other resources can be shared across various businesses. This approach leads to synergies, cost savings, and other strategic benefits from transferring valuable resources and capabilities among related businesses. The other options, such as acquiring rival firms with broader product lines or expanding into unrelated foreign markets, do not necessarily lead to as strong of a strategic fit or synergies as related diversification.

Question 7

A related diversification strategy involves building the company around businesses

Accepted Answer

A related diversification strategy involves building the company around businesses that have strategic fit with respect to key value chain activities and competitive assets, allowing for synergies and shared resources.

Question 8

The essential requirement for different businesses to be "related" is that

Accepted Answer

The essential requirement for businesses to be "related" is that their value chains exhibit competitively valuable cross-business commonalities. This means that there are opportunities for shared activities, resources, and capabilities across the businesses that can create a competitive advantage. Simply sharing suppliers or retail stores is not enough to make businesses "related."

Question 9

Businesses with strategic fit with respect to their supply chain activities perform better together because of all of the following EXCEPT the

Accepted Answer

Increased allocation and allotment of support activities and specialized resources and capabilities is not a reason for better performance due to strategic fit in supply chain activities.

Question 10

Unrelated businesses

Accepted Answer

Unrelated businesses do not have cross-business commonalities at the value chain level, meaning they have dissimilar value chains and resource requirements. This distinguishes them from related businesses, which may have similarities or overlap in their value chains.

Question 11

Which of the prime examples of strategic fit opportunities below are NOT related business activities?

Accepted Answer

The answer of Which of the prime examples of strategic...

Question 12

What is the name of the process for developing new businesses as an outgrowth of a company's established business operations?

Accepted Answer

The process described in the question is known as corporate venturing, which involves developing new businesses as an extension of a company's existing operations. Options B, C, D, and E are not accurate descriptions of this process.

Question 13

The big dilemma an acquisition-minded firm faces is whether to

Accepted Answer

The acquisition-minded firm should consider whether to pay a premium price for a successful company or buy a struggling company at a bargain price. Each option has its advantages and disadvantages, and the firm should analyze the costs and risks associated with each choice. A premium price for a successful company may provide immediate benefits, such as a strong customer base and established brand reputation, but the cost may not generate long-term benefits. On the other hand, a struggling company at a bargain price may require more investment to turn it around, but this could potentially provide more long-term benefits in the form of increased market share and profitability. Ultimately, the firm should weigh the pros and cons of each acquisition opportunity before making a decision.

Question 14

What makes related diversification an attractive strategy?

Accepted Answer

The answer of What makes related diversification an attractive strategy?
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Question 15

Which of the following is NOT a factor that makes it appealing to diversify into a new industry by forming an internal startup subsidiary to enter and compete in the target industry?

Accepted Answer

The other options are all factors that would make it appealing to diversify into a new industry by forming an internal startup subsidiary, but option D suggests that the competition in the target industry is already well-established and may be difficult to penetrate.

Question 16

Which of the following is NOT one of the appeals of related diversification?

Accepted Answer

Related diversification is not particularly well-suited for the use of first-mover strategies and capturing valuable financial fits, making option C the correct answer. Option A, B, D, and E are all appeals of related diversification.

Question 17

When discussing "economies of scope," it involves understanding that they

Accepted Answer

Economies of scope refer to the cost-saving advantages of operating related businesses along the value chains. By sharing resources and capabilities, related businesses can achieve lower costs than if they were separate entities.

Question 18

Economies of scope

Accepted Answer

Economies of scope refer to cost reductions that come from operating in multiple related businesses. This means that a company can save on resources like personnel, facilities, and equipment by being able to use them across multiple business lines. This is distinct from economies of scale, which arise from producing more units of a single product, and economies of agglomeration, which arise from being in close proximity to other businesses in the same industry.

Question 19

What is the difference between economies of scale and economies of scope?

Accepted Answer

Economies of scale refer to cost savings that are directly related to larger-sized operations, while economies of scope stem from strategic fit along the value chains of related businesses. In other words, scale is about the magnitude or size of the operation, while scope is about the savings that come from related business activities.

Question 20

An economy of scope is BEST illustrated by being able to eliminate or reduce costs by

Accepted Answer

An economy of scope is achieved when a company can reduce its costs by combining related value-chain activities of different businesses into a single operation. This allows the company to achieve economies of scale and reduce duplication of efforts, ultimately resulting in lower costs.

Quiz 8: Diversification: Strategies for Managing a Group of Businesses