Question 1

The nine-cell attractiveness-strength matrix provides clear, strong logic for considering using
A) only industry attractiveness in allocating resources and investment capital to its different businesses.
B) only business strength in allocating resources and investment capital to the different businesses.
C) both industry attractiveness and business strength in allocating resources and investment capital to its different businesses.
D) both industry attractiveness and product strength in allocating resources and investment capital to its different businesses.
E) both resource fit and product strength in allocating resources and investment capital to its different businesses.

Accepted Answer

The nine-cell attractiveness-strength matrix considers both industry attractiveness and business strength in allocating resources and investment capital to different businesses. This matrix helps to evaluate which business units are worth investing in and which ones need divestment. It provides a clear, strong logic for making decisions based on the external attractiveness of the industry and the internal strength of the business. Therefore, option C is the best choice.

Question 2

A weighted industry attractiveness assessment is generally analytically superior to an unweighted assessment because
A) a weighted ranking identifies which industries offer the best/worst long-term profit prospects.
B) an unweighted ranking doesn't discriminate between strong and weak industry driving forces and industry competitive forces.
C) it does a more accurate job of singling out which industry key success factors are the most important.
D) an unweighted ranking doesn't help identify which industries have the easiest and hardest value chains to execute.
E) the various measures of attractiveness are not likely to be equally important in determining overall attractiveness.

Accepted Answer

The answer of A weighted industry attractiveness assessment is generally...

Question 3

A diversified company's business units exhibit good resource fit when
A) each business is a cash cow.
B) its businesses add to a company's overall resource strengths and have matching resource requirements and/or when the parent has adequate corporate resources to support its business needs and add value.
C) each business is sufficiently profitable to generate an attractive return on invested capital.
D) each business unit produces large internal cash flows over and above what is needed to build and maintain the business.
E) the resource requirements of each business exactly match the company's available resources.

Accepted Answer

Good resource fit occurs when a diversified company's businesses add to the company's overall resource strengths and have matching resource requirements, or when the parent company has adequate corporate resources to support its business needs and add value. It is not solely about each business being a cash cow or generating large internal cash flows. Profitability is also important but not the sole factor determining resource fit. The resource requirements do not necessarily have to exactly match the company's available resources, but there should be a match in strengths and needs.

Question 4

Calculating quantitative competitive strength ratings for each of a diversified company's business units involves
A) determining each industry's key success factors, rating the ability of each business to be successful on each industry KSF, and adding the individual ratings to obtain overall measures of each business's ability to compete successfully.
B) identifying the competitive forces facing each business, rating the strength of these competitive forces industry by industry, and then ranking each business's ability to be profitable, given the strength of the competition it faces.
C) selecting a set of competitive strength measures, weighting the importance of each measure, rating each business on each strength measure, multiplying the strength ratings by the assigned weight to obtain a weighted rating, adding the weighted ratings for each business unit to obtain an overall competitive strength score, and using the overall competitive strength scores to evaluate the competitive strength of all the businesses, both individually and as a group.
D) determining which businesses possess good strategic fit with other businesses, identifying the portion of the value chain where this fit occurs, and evaluating the strength of the competitive advantage attached to each of the strategic fits to get an overall measure of competitive advantage potential. Businesses with the highest/lowest competitive advantage potential have the most/least competitive strength.
E) rating the caliber of each businesses strategic and resource fit, weighting the importance of each type of strategic/resource fit, calculating weighted strategic/resource fit scores, and adding the weighted ratings for each business to obtain an overall strength score for each business unit that indicates whether the company has adequate strategic/resource fits to be a strong market contender in each of the industries where it competes.

Accepted Answer

Option C outlines a detailed process of selecting competitive strength measures, assigning weights, rating each business, and calculating weighted ratings to obtain an overall competitive strength score for each business unit. This method allows for a comprehensive analysis of each business as well as a comparison across the company's portfolio of business units. Options A and B focus on specific factors or forces but do not provide an overall measure of competitive strength. Option D only considers strategic fit and does not take into account other factors that may contribute to a business's competitive strength. Option E is similar to Option D and also does not provide a comprehensive measure of competitive strength.

Question 5

Assessments of how a diversified company's subsidiaries compare in competitive strength should be based on such factors as
A) vulnerability to seasonal and cyclical downturns, vulnerability to driving forces, and vulnerability to fluctuating interest rates and exchange rates.
B) relative market share, the ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors, and the ability to benefit from strategic fits with sister businesses.
C) the appeal of its strategy, the relative number of competitive capabilities, the number of products in each business's product line, which businesses have the highest/lowest market shares, and which businesses earn the highest/lowest profits before taxes.
D) the ability to hurdle barriers to entry, value chain attractiveness, and business risk.
E) cost reduction potential, customer satisfaction potential, and comparisons of annual cash flows from operations.

Accepted Answer

The factors mentioned in choice B, including relative market share, ability to match or beat rivals on key product attributes, brand image and reputation, costs relative to competitors, and ability to benefit from strategic fits with sister businesses, are more directly related to the competitive strength of the subsidiaries than the factors mentioned in the other options.

Question 6

Which of the following is NOT a part of checking a diversified company's business units for cross-business competitive advantage potential?
A) ascertaining the extent to which business units have value chain match-ups that offer opportunities to combine the performance of related value chain activities and reduce costs
B) ascertaining the extent to which business units have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another
C) ascertaining the extent to which business units are making maximum use of the parent company's competitive advantages
D) ascertaining the extent to which business units have value chain match-ups that offer opportunities to create new competitive capabilities or to leverage existing resources
E) ascertaining the extent to which business units present opportunities to share use of a well-respected brand name

Accepted Answer

Checking for cross-business competitive advantage potential involves looking for synergies and opportunities between business units, not just maximizing the use of the parent company's competitive advantages.

Question 7

The businesses in a diversified company's lineup exhibit good resource fit when
A) the resource requirements of each business exactly match the resources the company has available.
B) individual businesses have matching resource requirements at points along their value chain and add to a company's overall resource strengths and when solid parenting capabilities exist without spreading itself too thin.
C) each business generates just enough cash flow annually to fund its own capital requirements and thus does not require cash infusions from the corporate parent.
D) each business unit produces sufficient cash flows over and above what is needed to build and maintain the business, thereby providing the parent company with enough cash to pay shareholders a generous and steadily increasing dividend.
E) there are enough cash cow businesses to support the capital requirements of the cash hog businesses.

Accepted Answer

Good resource fit is achieved when individual businesses have matching resource requirements at points along their value chain and add to a company's overall resource strengths, and when solid parenting capabilities exist without spreading itself too thin. This ensures that the resources of the parent company can be used to support and strengthen the individual businesses in its lineup.

Question 8

For a diversified company to be a strong performer
A) a substantial portion of its revenues and expenses must come from business units with relatively low attractiveness scores.
B) its principal business must be in industries with a good outlook for growth and above-average profitability.
C) its business units in high attractiveness score industries should be candidates for divesture.
D) its business units must operate within the favorable aspects of their industry environment.
E) its business units must have a popular image, even if the performance of their products does not greatly satisfy buyer expectations.

Accepted Answer

For a diversified company to be a strong performer, its principal business must be in industries with a good outlook for growth and above-average profitability. This will ensure that the company's overall performance is strong, even if some of its business units may not be performing well in less attractive industries. It is not necessary to divest business units in high attractiveness score industries, and popular image is not a significant factor in determining a company's overall performance. Finally, it is important for all business units to operate within the favorable aspects of their industry environment, but this alone is not sufficient for strong overall performance.

Question 9

The value of determining the relative competitive strength of each business a company has diversified into is to have a quantitative basis for
A) identifying which businesses have large/small competitive advantages or competitive disadvantages vis-à-vis the rivals in their respective industries.
B) rating them from strongest to weakest in terms of contributing to the corporate parent's revenue growth.
C) comparing resource strengths and weaknesses, business by business.
D) rating them from strongest to weakest in contending for market leadership in their respective industries.
E) rating them from strongest to weakest in terms of contributing to the corporate parent's profitability.

Accepted Answer

The answer of The value of determining the relative competitive...

Question 10

When calculating the weighted industry attractiveness scores, we find the more intensely competitive an industry is
A) the lower the attractiveness weighting for that industry.
B) the higher the attractiveness weighting for that industry.
C) suggests the resources are beyond the parent company's reach.
D) suggests the industry attractiveness measures have been incorrectly weighted.
E) the more likely the company's profit and revenues will be intensive.

Accepted Answer

A more intensely competitive industry would typically have lower profitability and growth potential, which would decrease its attractiveness weighting.

Question 11

A diversified company's business units exhibit good financial resource fit when
A) each business is sufficiently profitable to generate an attractive return on invested capital.
B) the resource requirements of each business exactly match the company's available resources.
C) it has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company's overall strengths.
D) each business unit produces large internal cash flows over and above what is needed to build and maintain the business.
E) each business is sufficiently profitable to generate an attractive return on invested capital

Accepted Answer

Good financial resource fit in a diversified company's business units is achieved when the company has the resources to adequately support the requirements of its businesses as a group without spreading itself too thin and when individual businesses add to a company's overall strengths. Profitability and internal cash flows are important, but alone they do not ensure a good financial resource fit. The requirement match described in option B may not always be possible or desirable. Option E is a duplicate of option A.

Question 12

Relative market share is
A) calculated by dividing a company's percentage share of total industry sales volume by the percentage share held by its largest rival.
B) calculated by adjusting a company's revenue share up or down by a factor proportional to whether their quality/customer service factors are above/below industry averages.
C) calculated by dividing a company's market share (based on dollar volume) by the industry-average market share.
D) particularly useful in identifying cash cows, which have big relative market shares (above 1.0), and cash hogs, which have low relative market shares (below 0.5).
E) calculated by subtracting the industry-average market share (based on revenue) from the company's market share to highlight relative share above/below the industry

Accepted Answer

Relative market share is calculated by dividing a company's percentage share of total industry sales volume by the percentage share held by its largest rival.

Question 13

What does a competitive strength score above 5 tell us about a diversified company's position in the market?
A) that its business units are all fairly strong market contenders in their respective industries
B) that its business units are all fairly weak market contenders in their respective industries
C) that the company will not likely perform well
D) that a company's competitive strength score does not relate to the market position of that business
E) that the company will likely fail

Accepted Answer

A competitive strength score above 5 indicates that the company's business units are all fairly strong market contenders in their respective industries. This suggests that the company is well-diversified and has a strong position in the market.

Question 14

The nine-cell industry attractiveness competitive strength matrix
A) is useful for helping decide which businesses should have high, average, and low priorities in deploying corporate resources.
B) indicates which businesses are cash hogs and which are cash cows.
C) pinpoints what strategies are most appropriate for businesses positioned in the three top cells of the matrix, but is less clear about the best strategies for businesses positioned in the bottom six cells.
D) identifies which sister businesses have the greatest strategic fit.
E) identifies which sister businesses have the highest level of resource fit.

Accepted Answer

The nine-cell industry attractiveness competitive strength matrix is a tool used to help companies decide which businesses should have high, average, and low priorities in deploying corporate resources. It is a strategic planning tool that helps businesses assess their position in the market and decide what strategies are most appropriate to pursue.

Question 15

What hurdles are present in calculating industry attractiveness scores?
A) deciding on the appropriate weights for the attractiveness measures
B) different analysts use different weights for the different attractiveness measures
C) gaining sufficient command of the industry to assign more accurate and objective ratings
D) deciding the impact of strategic fits to unrelated and related diversification
E) deciding whether a business is related or unrelated

Accepted Answer

The answer of What hurdles are present in calculating industry...

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?
A) internal capital market
B) cash cow benefits
C) economic value added
D) shareholder value added
E) derived valuation

Accepted Answer

This concept is known as internal capital market, where a diversified company can allocate capital internally to optimize overall performance and value creation. This allows for efficient use of resources and helps businesses with growth potential to expand while also benefiting from the stable cash flow generated by other business units.

Question 17

The chief purpose of calculating quantitative industry attractiveness scores for each industry a company has diversified into is to
A) determine which industry is the biggest and fastest growing.
B) get in position to rank the industries from most competitive to least competitive.
C) provide a basis for drawing analysis-based conclusions about the attractiveness of the industries a company has diversified into, both individually and as a group, and further to provide an indication of which industries offer the best and worst long-term prospects.
D) ascertain which industries have the easiest-to-achieve key success factors.
E) rank the attractiveness of the various industry value chains from best to worst.

Accepted Answer

The chief purpose of calculating quantitative industry attractiveness scores is to provide a basis for drawing analysis-based conclusions about the attractiveness of the industries a company has diversified into, both individually and as a group, and further to provide an indication of which industries offer the best and worst long-term prospects. This helps the company make informed decisions about which industries to invest in or divest from. Options A, B, D, and E are either incomplete or incorrect in describing the purpose of calculating quantitative industry attractiveness scores.

Question 18

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
A) have value chain match-ups that offer opportunities to combine the performance of related value chain activities and reduce costs.
B) have value chain match-ups that offer opportunities to transfer skills or technology or intellectual capital from one business to another.
C) have opportunities to share use of a well-respected brand name.
D) have value chain match-ups that offer opportunities to create new competitive capabilities or to leverage existing resources.
E) are cash cows and which ones are cash hogs.

Accepted Answer

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 are cash cows or cash hogs. This information is related to financial performance and does not necessarily indicate the potential for cross-business strategic fits or competitive advantages. The other options (A, B, C, D) all relate to identifying opportunities for value chain match-ups, transferring skills or technology, leveraging resources, or sharing a well-respected brand name.

Question 19

Checking the competitive advantage potential of cross-business strategic fits in a diversified company involves evaluating the extent to which sister businesses present opportunities
A) to combine the performance of certain cross-business activities and thereby reduce costs.
B) to transfer skills, technology, or intellectual capital from one business to another.
C) for the company's different businesses to share use of a well-respected brand name.
D) for sister businesses to collaborate in creating valuable new competitive capabilities.
E) to create a positive image in the industry irrespective of the financial performance of its businesses.

Accepted Answer

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

Question 20

One of the most significant contributions to strategy making in diversified companies that the nine-cell industry attractiveness competitive strength matrix provides is
A) identifying which businesses have strategies that should be continued, which businesses have strategies that need fine-tuning, and which businesses have strategies that need a major overhaul.
B) that businesses having the greatest competitive strength and that are positioned in the most attractive industries should have the highest priority for corporate resource allocation and that competitively weak businesses in relatively unattractive industries should have the lowest priority and perhaps even be considered for divestiture.
C) pinpointing which strategies are most appropriate for businesses positioned in the four corners of the matrix (although the matrix reveals little about the best strategies for businesses positioned in the remainder of the matrix).
D) its ability to pinpoint what kind of competitive advantage or disadvantage each business has.
E) pinpointing which businesses to keep and which ones to divest.

Accepted Answer

The nine-cell industry attractiveness competitive strength matrix helps in identifying which businesses have the greatest competitive strength and are positioned in the most attractive industries, and which businesses are relatively weak and in relatively unattractive industries. This helps in formulating appropriate resource allocation strategies where businesses with high competitive strength and in attractive industries receive the highest priority for resource allocation, and those with low competitive strength and in unattractive industries receive the lowest priority and may be considered for divestiture.

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

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

A weighted industry attractiveness assessment is generally analytically superior to an unweighted assessment because

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

Calculating quantitative competitive strength ratings for each of a diversified company's business units involves

Assessments of how a diversified company's subsidiaries compare in competitive strength should be based on such factors as

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

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

For a diversified company to be a strong performer

The value of determining the relative competitive strength of each business a company has diversified into is to have a quantitative basis for

When calculating the weighted industry attractiveness scores, we find the more intensely competitive an industry is

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

Relative market share is

What does a competitive strength score above 5 tell us about a diversified company's position in the market?

The nine-cell industry attractiveness competitive strength matrix

What hurdles are present in calculating industry attractiveness scores?

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?

The chief purpose of calculating quantitative industry attractiveness scores for each industry a company has diversified into is to

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

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

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