Firms following an unrelated diversification strategy can reduce their overall risk when:
A)resources are allocated among many businesses with different risk profiles
B)they limit their growth by acquiring only successful companies
C)synergies are developed among the business units
D)management refuses to purchase businesses outside their sphere of expertise or knowledge

Question

Quizplus · Accepted Answer

By allocating resources among many businesses with different risk profiles, firms following an unrelated diversification strategy can reduce the overall risk of their portfolio. If one business is underperforming or experiencing higher risk, the firm can rely on the performance of its other businesses in order to balance out its overall risk. This diversification strategy is sometimes referred to as "spray and pray" because the firm acquires a variety of businesses in order to spread its risk. Limiting growth, developing synergies among business units, or refusing to purchase businesses outside of one's expertise or knowledge do not necessarily reduce overall risk, although they may offer other benefits.

Firms Following an Unrelated Diversification Strategy Can Reduce Their Overall