Question 1

The research on diversification in portfolio management indicates that the best approach is probably ____.

Accepted Answer

The research indicates that related diversification, where different investments are related to each other in some way (such as investing in different companies within the same industry), tends to be more effective in reducing risk and maximizing returns than unrelated diversification. Therefore, choice (B) is the best approach.

Question 2

Deutsche Bank became the world's largest bank through mergers with Bankers Trust, a transatlantic banking operation. Since both banking companies had similar core capabilities, this would be classified as an example of ____.

Accepted Answer

The merger between Deutsche Bank and Bankers Trust is an example of related diversification as both banks had similar core capabilities.

Question 3

When Coca-Cola acquired a water-treatment and bottling plant so it could produce and market Dasani brand bottled water, it was an example of ____.

Accepted Answer

Coca-Cola is growing through acquisition of other companies.

Question 4

Which of the following is an example of a common approach to corporate-level strategy?

Accepted Answer

Portfolio strategy and grand strategy are the two common approaches to corporate-level strategy.

Question 5

The ____ is a portfolio strategy that managers use to categorize their corporation's businesses by growth rate and relative market share. This strategy helps them to decide how to invest corporate funds.

Accepted Answer

This is the definition of the BCG matrix.

Question 6

When Clorox Corporation, a manufacturer of bleach and bleach-based cleaning products, acquired Kingsford Charcoal and Prime Choice brand steak sauce; it was an example of ____.

Accepted Answer

Clorox is diversifying away from its bleach-product core into cooking supply and food businesses.

Question 7

McDonald's uses a ____ strategy (a kind of grand strategy) as it increases its profits in France by offering uniquely French products such as Croque McDo, the McDonald's version of a popular French grilled sandwich.

Accepted Answer

A growth strategy is defined as a strategy that focuses on increasing profits, revenues, market share, or the number of places in which the company does business. Here, McDonald's is attempting to increase profits.

Question 8

Companies often choose a ____ strategy when their external environment doesn't change much or after they have struggled with periods of explosive growth.

Accepted Answer

The stability strategy allows the firm an opportunity to catch its breath after a round of explosive growth, and/or to consolidate its market position with customers.

Question 9

Specialized Bicycle Components, Inc. introduced the first major production mountain bike in 1980. Two-thirds of its profits come from the sale of mountain bikes. Specialized bikes have a large share of a fast-growing market. According to the BCG matrix, specialized mountain bikes would be classified as ____.

Accepted Answer

Stars are companies with a large share of a fast-growing market.

Question 10

Companies that are following a ____ strategy would be most likely to try to improve the way in which they sell the same goods or services to the same customers.

Accepted Answer

A stability strategy is defined as focusing on improving the way in which the company sells the same products or services to the same customers.

Question 11

Starbucks, the operator of Starbucks coffeehouses, also markets a line of compilation CDs and other non-coffee items. The making and marketing of the CDs and other non-coffee products would be an example of ____.

Accepted Answer

Coffee and music are completely unrelated businesses.

Question 12

The ____ strategy is analogous to pruning flowers.

Accepted Answer

Retrenchment is aimed at scaling back to a healthy base from which the company can grow. This is analogous to pruning to improve the health of a rose bush.

Question 13

When Clorox Corporation, the manufacturer of bleach and bleach-based cleaning products, acquired Kingsford Charcoal and Prime Choice brand steak sauce; it was an example of ____.

Accepted Answer

Clorox is growing through acquisition of other companies.

Question 14

A ____ strategy is a broad corporate-level strategic plan used to achieve strategic goals and guide the strategic alternatives that managers of individual businesses or subunits may use.

Accepted Answer

This is the definition of a grand strategy.

Question 15

Which of the following statements about portfolio strategy is true?

Accepted Answer

Categorizing businesses can prove dysfunctional because doing so relies on past performance and tends to weaken cash cows. Research evidence does not support the usefulness of acquiring unrelated diversification. Employees in a company labeled a cash cow are likely to feel that the firm is "milking" (rather than growing) their business. The Maslow item is a red herring.

Question 16

In an attempt to stop declining profitability, ICI, a British chemical company, deleted petrochemical products from its production and concentrated on specialty chemicals, a less capital-intensive, less cyclical business. What type of a grand strategy was ICI using?

Accepted Answer

Retrenchment is defined as a strategy that focuses on turning around very poor company performance by shrinking the size or scope of the business. Here, ICI is downscaling from a diversified chemical company to a specialized chemical company.

Question 17

Companies can achieve growth mainly by ____.

Accepted Answer

The two major avenues to growth are: (1) external growth through mergers and acquisitions; or (2) internal growth of existing business(es).

Question 18

Significant cost reductions, layoffs of employees, closing of poorly performing stores, offices, or manufacturing plants, or closing or selling entire lines of products or services would be characteristic of a ____ strategy.

Accepted Answer

All of these actions are associated with shrinking the size or scope of a business.

Question 19

The purpose of a ____ strategy is to turn around very poor company performance by shrinking the size or scope of the business.

Accepted Answer

This is the definition of retrenchment strategy.

Question 20

Which of the following statements is true about how the portfolio strategy can be used to help managers acquire companies that fit well with the rest of their corporate portfolio?

Accepted Answer

It is possible to reduce risk through diversification, particularly through moderate levels of related diversification. However, contrary to the predictions of portfolio strategy, research evidence does not support the usefulness of acquiring unrelated diversification. Categorization of businesses can prove dysfunctional because it relies on past performance and tends to weaken cash cows.

Quiz 6: Organizational Strategy