Question 1

Briefly discuss when it makes good strategic sense for a company to consider diversification.

Accepted Answer

The answer of Briefly discuss when it makes good strategic...

Question 2

The tests of whether a diversified company's businesses exhibit resource fit do not include whether

Accepted Answer

The tests of resource fit focus on the ability of the company to allocate resources effectively across its different businesses to create value. As such, the excess cash flows generated by cash cow businesses and the financial strength to fund different businesses are important factors. However, the availability of cash to pay dividends without borrowing money is not directly related to resource fit as it does not necessarily address the optimal allocation of resources. Option B and E are also important factors in assessing resource fit as they focus on the contribution of individual businesses to corporate goals and the ability of the company to be successful in different markets.

Question 3

The options for allocating a diversified company's financial resources include all of the following except

Accepted Answer

The given options for allocating a diversified company's financial resources include making acquisitions, investing in existing businesses, funding R&D ventures, paying off debt and building cash reserves. The only option that is not mentioned is decreasing dividend payments and/or selling shares of stock. Therefore, option E is the correct answer.

Question 4

Corporate restructuring strategies

Accepted Answer

Corporate restructuring strategies involve making major changes in a company's business lineup, which may include divesting some businesses and/or acquiring others, to significantly alter the company's business portfolio.

Question 5

Moves to improve a diversified company's overall performance do not include

Accepted Answer

Retaining weak-performing businesses to sustain a wide base of operations typically does not improve a diversified company's overall performance. It can drain resources and focus away from more profitable areas.

Question 6

Imagine that you have been hired by Bill Newlands, President and COO of Constellation Brands (CB), to review the beverage company's diversified portfolio of businesses. Of the analytical tools that you could use to assess CB's business lineup for adequate resource fit, which one would you not be likely to use?

Accepted Answer

Option C is incorrect because it misrepresents the concept of synergy in strategic management. The correct expression for synergy is "1 + 1 = 3," implying that the combined value and performance of two companies will be greater than the sum of their separate individual parts.

Question 7

Barbara Rentler, CEO of Ross Stores, Inc. (parent company of Ross Dress for Less and dd's Discount retail chains)is considering broadening her company's business scope, by building positions in new related or unrelated businesses. Ms. Rentler would be advised to pursue a diversification strategy for all of the following reasons except

Accepted Answer

Increasing top management's compensation is not a valid reason for pursuing a diversification strategy. The other reasons listed all have valid justifications for diversifying the company's business scope.

Question 8

Once a company has diversified into a collection of related or unrelated businesses and concludes that some strategy adjustments are needed, which one of the following is not one of the main strategy options that a company can pursue?

Accepted Answer

Crafting new initiatives designed to build or enhance the reputation and image of the company is not directly a strategy option for adjusting a diversified company's business lineup. The main strategy options typically involve changes to the company's portfolio of businesses, such as divesting, acquiring new businesses, or altering the level of diversification, rather than focusing on reputation and image enhancements.

Question 9

Conditions that may make corporate restructuring strategies appealing include all of the following except

Accepted Answer

A business lineup consisting of too many cash cow businesses may not be a condition that makes corporate restructuring strategies appealing. Cash cow businesses are those that generate steady cash flows and require low investment, making them attractive to keep within the portfolio. Therefore, restructuring may not be necessary for such businesses.

Question 10

Deploying a diversified company's financial resources would normally not involve

Accepted Answer

Investing financial resources solely in "cash cow" businesses, which are already generating positive cash flows, would not involve deploying diversified company's financial resources. The other options, including acquiring new businesses, funding R&D projects, paying down debt, increasing dividends, repurchasing shares of stock, and investing in existing businesses, all involve deploying financial resources in a diversified manner.

Question 11

The strategic options to improve a diversified company's overall performance do not include which of the following categories of actions?

Accepted Answer

Increasing dividend payments and/or repurchasing shares of the company's stock is a financial strategy, rather than a strategic option to improve a diversified company's overall performance. The other options listed all involve changes to the company's business operations and should lead to improved performance.

Question 12

PepsiCo divested its group of fast-food restaurant businesses (KFC, Pizza Hut, and Taco Bell)to Yum! Brands in order to allow PepsiCo to focus on its core soft drink and snack-food businesses. A useful guide to determine whether or when to divest a business subsidiary is to ask,

Accepted Answer

The best question to ask before divesting a business is "If we were not in this business today, would we want to get into it now?" This helps to evaluate the current market and potential for growth or decline in the industry, and whether divestment is the best option for the company's overall strategy.

Question 13

Corporate strategy options for already diversified companies include all of the following except

Accepted Answer

Pursuing certain acquisitions that have done badly or haven't quite lived up to expectations is not a recommended strategy. This option is not viable as it does not align with the goal of maximizing shareholder value and can lead to poor financial performance. The other options listed are valid corporate strategy options for already diversified companies.

Question 14

When should a business not be divested?

Accepted Answer

A business should not be divested when it is a cash cow, meaning it generates consistent cash flow that the company can use to invest in other areas, support operations, or return value to shareholders. Divesting a cash cow could deprive the company of important financial resources.

Question 15

When General Electric created an independent health care division and divested it in June 2018 by distributing to GE's stockholders new shares in the new business, the strategic action was termed

Accepted Answer

The strategic action described is a spin-off, which involves creating a new, independent business unit and distributing ownership shares to existing shareholders. This allows the parent company to focus on its core operations while allowing the spun-off entity to pursue its own strategic goals and objectives.

Question 16

Retrenching to a narrower diversification base is

Accepted Answer

Retrenching to a narrower diversification base allows a diversified firm's energies to be concentrated on building strong positions in a smaller number of businesses, rather than stretching its resources and managerial attention too thinly across many businesses. This strategy is particularly useful for a company facing competitive pressures in several of its businesses, sluggish growth, and recession. It helps the company to focus and become more efficient in its operations.

Question 17

Management's ranking of business units and establishing a priority for resource allocation should

Accepted Answer

Management should prioritize business units with the brightest profit and growth prospects and solid strategic and resource fits at the top of the investment priority list. This approach aligns with the company's overall goals and objectives and ensures that resources are allocated to the areas with the greatest potential for success. Other factors such as resource strengths, competitive capabilities, funding proposals, and cash requirements may be considered, but they should not override the importance of focusing on profitable growth opportunities. Utilizing activity-based costing and benchmarking can also provide valuable insights into the funding needs of each business unit, but they should not be the sole determinant of resource allocation priorities.

Question 18

What is the BEST guideline for deciding what the priorities should be for allocating resources to the various businesses of a diversified company?

Accepted Answer

The best guideline for deciding what priorities should be for allocating resources to the various businesses of a diversified company is to prioritize those with the brightest profit and growth prospects, attractive positions on the nine-cell matrix, and solid strategic and resource fits. This will ensure that resources are being allocated to businesses that have the potential to perform well in the future, which will ultimately benefit the entire company. Other factors, such as industry attractiveness and competitive strength, can also be taken into consideration, but they should not be the primary determinants of resource allocation.

Question 19

Strategies to restructure a diversified company's business lineup involve

Accepted Answer

The best strategy to restructure a diversified company's business lineup is to divest low-performing businesses that do not fit and acquire new ones where opportunities are more promising to put a new face on the company's business makeup. Focusing on restoring the profitability of money-losing businesses or broadening the scope of diversification is not a guaranteed way to improve a diversified firm's overall performance. Revamping the value chains and strategies of different businesses may be necessary, but it is not necessarily the best approach to restructure a diversified company.

Question 20

Unlikely candidates for divestiture in a corporate restructuring effort are

Accepted Answer

Businesses that are compatible with the company's revised diversification strategy are unlikely candidates for divestiture because they align with the company's long-term goals and objectives.

Quiz 8: Corporate Strategy