Question 1

What might induce an already diversified company to enter additional businesses and broaden its diversification base?

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Question 2

What are the advantages and benefits of using an industry attractive-business strength matrix to evaluate a diversified company's lineup of businesses?

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Question 3

What is the industry attractiveness test? How is it used to evaluate a diversified company's business lineup? Why is it relevant?

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Question 4

What factors should management consider when ranking business units and setting a priority for resource allocation?

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Question 5

Which is the better approach to diversification-a strategy of related diversification or a strategy of unrelated diversification? Explain and support your answer.

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Question 6

Discuss the pros and cons of a strategy of unrelated diversification.

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Question 7

What is meant by the term "resource fit," as it applies to evaluating a diversified company's business lineup?

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Question 8

Explain the difference between a cash cow business and a cash hog business.

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Question 9

Explain the relevance of the following as they relate to building shareholder value via diversification. a. the industry attractiveness test
b. the cost of entry test
c. the better-off test

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Question 10

Identify and briefly discuss each of the three tests for determining whether diversification into a new business is likely to build shareholder value.

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Question 11

An additional, and often very important motivating factor for adding new businesses is to complement and strengthen the market position and competitive capabilities of one or more of its present businesses. Explain and give three examples.

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Question 12

Carefully explain the difference between and the rationale for selecting a strategy of related diversification and/or a strategy of unrelated diversification.

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Question 13

What are the four main strategic paths that a diversified company can employ to improve the performance of its overall business lineup?

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Question 14

What is the relevance of quantitatively measuring the competitive strength of each business in a diversified company's business portfolio and determining which business units are strongest and weakest?

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Question 15

Briefly explain the relevance of quantitatively measuring the competitive strength of each business in a diversified company's business portfolio and determining which business units are strongest and weakest. List the six steps involved in the process.

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Question 16

What is meant by the term strategic fit? What are the advantages of pursuing strategic fit and matchups in choosing which industries to diversify into?

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Question 17

The attractiveness test is the most important test for determining whether diversification into a new business is likely to result in 1 + 1 = 3 increases in shareholder value (as opposed to simply a 1 + 1 = 2 type of increase). True or false? Justify and explain your answer.

Accepted Answer

Diversifying into a new business must offer potential for the company's existing businesses and the new business to perform better together under a single corporate umbrella than they would perform operating as independent, stand-alone businesses-an effect known as synergy. For example, let's say that company A diversifies by purchasing company B in another industry. If A and B's consolidated profits in the years to come prove no greater than what each could have earned on its own, then A's diversification won't provide its shareholders with any added value. Company A's shareholders could have achieved the same 1 + 1 = 2 result by merely purchasing stock in company B. Diversification does not result in added long-term value for shareholders unless it produces a 1 + 1 = 3 effect, whereby the businesses perform better together as part of the same firm than they could have performed as independent companies.

Question 18

Identify and briefly discuss each of the three options for entering new businesses. What are the driving choice parameters for entry into new businesses and which one is the most popular in the sense of being used most frequently?

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