The two biggest drawbacks or disadvantages of unrelated diversification are
A)the difficulties of passing the cost of entry test and the ease with which top managers can make the mistake of diversifying into businesses where competition is too intense.
B)the difficulties of capturing financial fit and having insufficient financial resources to spread business risk across many different lines of business.
C)the demanding managerial requirements and the limited competitive advantage potential due to lack of cross-business strategic fit benefits.
D)ending up with too many cash hog businesses and too much diversity among the competitive strategies of the businesses it has diversified into.
E)the difficulties of achieving economies of scope and conflicts/incompatibility among the competitive strategies of the company's different businesses.

Question

Quizplus · Accepted Answer

Unrelated diversification involves entering into businesses that are different from the company's current operations. This presents two major drawbacks: first, there is a demanding managerial requirement to oversee multiple unrelated businesses. Second, there is limited competitive advantage potential due to the lack of cross-business strategic fit benefits. In other words, because the businesses are unrelated, there may be little to no benefit from sharing resources or knowledge between them, which can limit the potential for cost savings or other synergies.

The Two Biggest Drawbacks or Disadvantages of Unrelated Diversification Are