Question 1

Internal venturing is a more attractive strategy than acquisitions when:

Accepted Answer

Internal venturing is a more attractive strategy than acquisitions when a company's business model is based on using its technology or design skills to innovate new kinds of products and enter related markets or industries. Acquisitions may not align with the company's expertise and may not result in the desired outcomes. Internal venturing, on the other hand, allows the company to leverage its existing capabilities and knowledge to explore new opportunities.

Question 2

A company should pursue unrelated diversification instead of related diversification when:

Accepted Answer

If a company's core skills are highly specialized and have few applications outside its core business, pursuing unrelated diversification would be more feasible and effective than related diversification. This is because related diversification involves leveraging the company's existing skills and resources to expand into related industries, which would not be possible if the company's skills are highly specialized and have limited applications. Pursuing unrelated diversification would allow the company to leverage its financial resources and managerial skills to explore new business opportunities that are not related to its core business.

Question 3

The three main types of diversification strategies are:

Accepted Answer

Diversification strategies involve a company expanding into new areas or industries. Acquisitions, internal new ventures, and joint ventures are three main types of strategies used for diversification. Acquisitions involve buying another company, internal new ventures refer to starting a new business within the company, and joint ventures involve partnering with another company to pursue new opportunities.

Question 4

Which of the following is NOT a reason that explains the relatively high failure rate of internal new ventures?

Accepted Answer

This option does not list a reason that explains the relatively high failure rate of internal new ventures. Rather, it explains a potential strength of companies.

Question 5

In order to make a successful acquisition, which of the following would occur after a detailed assessment of the potential acquisition's strengths and weaknesses?

Accepted Answer

The answer of In order to make a successful acquisition,...

Question 6

If a company is to increase the probability of a new product's commercial success, the company must foster close links between:

Accepted Answer

In order for a new product to succeed commercially, it is important for R&D and marketing to work closely together. R&D can develop the product to meet customer needs, while marketing can help identify and understand those needs and develop a strategy to effectively reach and persuade potential customers. This collaboration helps ensure that the product is not only technologically sound, but also meets the needs of the target market and is effectively communicated to them.

Question 7

Which of the following is NOT an effect of an extensively diversified company with multiple business units?

Accepted Answer

An extensively diversified company with multiple business units makes it difficult for corporate managers to remain informed about the complexities of each business, not easier.

Question 8

A strategy based on diversification may fail to add value because companies:

Accepted Answer

The main reason why a diversification strategy may fail to add value is due to the bureaucratic costs incurred by the company, which end up exceeding the value created by the strategy. These costs can arise from the need to integrate different businesses, cultures, and systems, which can lead to delays, conflicts, and inefficiencies. The other options are not necessarily reasons why a diversification strategy would fail, although they may impact its success to some extent.

Question 9

Which of the following reasons can make a diversification strategy an unwise course of action for a company to pursue?

Accepted Answer

The answer of Which of the following reasons can make...

Question 10

Which of the following is a justification that a business adopts to justify diversification?

Accepted Answer

Justifying diversification by stating that it will rescue the core business and lead to long-term growth and profitability is a common reason for businesses to diversify. This is because entering new industries can help a company spread its risk and access new sources of revenue, allowing it to grow and remain profitable in the long run.

Question 11

Which of the following is considered a negative effect of sharing the risks and costs of developing a new business in a joint venture?

Accepted Answer

The answer of Which of the following is considered a...

Question 12

Which of the following entry strategies should be used when speed is an important consideration?

Accepted Answer

Acquisition is often the fastest way to enter a new market or industry because it allows a company to quickly gain access to new products, services, or market share by purchasing an existing company.

Question 13

A company should pursue related diversification instead of unrelated diversification when the company's:

Accepted Answer

Pursuing related diversification allows a company to leverage its core skills and knowledge across different industries or markets, which enhances its competitive advantage and increases the chances of success. If a company's core skills are highly specialized and have few applications outside of the core business (B), it may be more difficult to find related diversification opportunities, and unrelated diversification may be more appropriate. Similarly, if the company's top managers are skilled at acquiring and turning around poorly run enterprises (C), they may be better suited for unrelated diversification, where they can apply their turnaround skills to different industries. However, maximizing growth (D) or having high free cash flow (E) does not necessarily dictate the type of diversification strategy a company should pursue.

Question 14

Bob's Running Shoes has acquired Fleet Feet about six months ago. Due to the differences in processes and cultures of the two companies, it has taken a long time to adopt a common management and financial control system. They share information and personnel but have had difficulty in creating a common culture. Management is threatening to leave because the employees do not like the acquiring company's way of operating. Which of the following acquisition pitfalls does this scenario describe?

Accepted Answer

The scenario describes the acquisition pitfall of integrating the acquired company. The challenges they are facing in creating a common management and financial control system and a common culture after six months of acquisition are indicative of the difficulties in integrating two companies with different processes and cultures. The threat of management leaving due to differences in operating styles further highlights the integration challenges. Therefore, the best choice is A.

Question 15

When one or more components of a company's value chain are applicable to a wide variety of industrial and commercial situations, which of the following strategies should a company pursue?

Accepted Answer

Related diversification allows a company to apply components of its value chain to a variety of industries, while still maintaining some synergy among its different business units. This strategy can lead to economies of scope, increased market power, and reduced business risk. Unrelated diversification, focus strategy, taper integration, and backward integration may not be as effective in this situation.

Question 16

Which of the following seems to be a major determinant of a new venture's success?

Accepted Answer

The answer of Which of the following seems to be...

Question 17

A company considering entering an industry that is in the mature stage of its life cycle would generally prefer which of the following entry strategies?

Accepted Answer

When a company enters an industry in its mature stage, it is likely that many of the existing firms have relatively stable market positions, established brand names, and economies of scale that make it difficult for new entrants to secure a foothold. In such an environment, acquisitions offer the most attractive entry strategy. By acquiring one or more existing firms, the entrant can leapfrog the initial stages of the life cycle, leverage existing capabilities and resources, and enter the market with a presence that otherwise would not be available. Joint ventures, new ventures, long-term contracting, and taper integration are less attractive options in this context because they are all less likely to yield the benefits of scale and scope that the acquiring company is seeking.

Question 18

In which of the following cases are bureaucratic costs likely to be lowest?

Accepted Answer

The answer of In which of the following cases are...

Question 19

In which of the following industry environments are acquisitions MOST likely to be favored over new ventures?

Accepted Answer

The answer of In which of the following industry environments...

Question 20

Which of the following statements concerning research and development is correct?

Accepted Answer

Exploratory research and development research are both important for internal new venturing, as exploratory research helps to identify new opportunities and development research helps to turn those opportunities into new products or processes. Both types of research are necessary for innovation and growth within a company.

Quiz 10: Corporate-Level Strategy: Related and Unrelated Diversification