A) the excess cash flows generated by cash cow businesses are sufficient to cover the negative cash flows of its cash hog businesses.
B) a business adequately contributes to achieving the corporate parent's performance targets.
C) the company has adequate financial strength to fund its different businesses and maintain a healthy credit rating.
D) the corporate parent has sufficient cash to fund the needs of its individual businesses and pay dividends to shareholders without having to borrow money.
E) the corporate parent has or can develop sufficient resource strengths and competitive capabilities to be successful in each of the businesses it has diversified into.
G) A) and D)
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- Acquisition is the most popular means of diversifying into another industry. Not only is it quicker than trying to launch a new operation, but it also offers an effective way to hurdle such entry barriers as acquiring technological know-how, establishing supplier relationships, achieving scale economies, building brand awareness, and securing adequate distribution.
- Achieving diversification through internal development involves starting a new business subsidiary from scratch. Generally, internal development of a new business has appeal only when (1) the parent company already has in-house most of the resources and capabilities it needs to piece together a new business and compete effectively; (2) there is ample time to launch the business; (3) the internal cost of entry is lower than the cost of entry via acquisition; (4) adding new production capacity will not adversely impact the supply-demand balance in the industry; and (5) incumbent firms are likely to be slow or ineffective in responding to a new entrant's efforts to crack the market.
- Entering a new business via a joint venture can be useful in at least three types of situations. First, a joint venture is a good vehicle for pursuing an opportunity that is too complex, uneconomical, or risky for one company to pursue alone. Second, joint ventures make sense when the opportunities in a new industry require a broader range of competencies and know-how than a company can marshal on its own. Third, companies sometimes use joint ventures to diversify into a new industry when the diversification move entails having operations in a foreign country.
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A) determine which industry is the biggest and fastest growing.
B) get in position to rank the industries from most competitive to least competitive.
C) provide a basis for drawing analysis-based conclusions about the attractiveness of the industries a company has diversified into, both individually and as a group, and further to provide an indication of which industries offer the best and worst long-term prospects.
D) ascertain which industries have the easiest-to-achieve key success factors.
E) rank the attractiveness of the various industry value chains from best to worst.
G) A) and B)
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A) selecting the appropriate value chain operating practices to improve the financial outlook.
B) starting a business from the ground up.
C) acquiring a company already established in the target industry.
D) forming a joint venture or partnership with another company.
E) structuring a strategic alliance with another company to take advantage of the opportunity.
G) A) and E)
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A) those companies with a mix of valuable competitive assets, covering the spectrum from generalized to specialized resources and capabilities.
B) those large multibusiness firms, sometimes called conglomerates, because they have a unique capability designed to stabilize earnings.
C) companies with a portfolio of product choices for buyer-related behavior.
D) corporate managers who take on risks without performing due diligence.
E) corporate managers who want to play the corporate parent role without fiduciary responsibility.
G) B) and E)
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A) each business is a cash cow.
B) its businesses add to a company's overall resource strengths and have matching resource requirements and/or when the parent has adequate corporate resources to support its business needs and add value.
C) each business is sufficiently profitable to generate an attractive return on invested capital.
D) each business unit produces large internal cash flows over and above what is needed to build and maintain the business.
E) the resource requirements of each business exactly match the company's available resources.
G) A) and C)
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A) when the business is worth more to another company than to the parent company
B) when the business is a cash cow
C) when the business provides valuable strategic or resource fits for another company
D) when shareholders would be better served if the company sells the business for a generous premium
E) when the business lacks the cross-boundary presence of shared values and cultural compatibility
G) D) and E)
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A) ongoing declines in the market shares of one or more major business units that are falling prey to more market-savvy competitors.
B) a business lineup that consists of too many slow-growth, declining, low-margin, or competitively weak businesses.
C) an excessive debt burden with interest costs that eat deeply into profitability.
D) ill-chosen acquisitions that haven't lived up to expectations.
E) a business lineup that consists of too many cash cow businesses.
G) C) and D)
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A) fair market value of similar companies in the same geographic locale.
B) preacquisition market value of the target company.
C) comparable value of similar companies within the same market.
D) amount paid as a down payment to be held in escrow until closing.
E) difference between the amount that was offered and the amount that is escrowed.
G) C) and D)
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Strategic moves to improve a diversified...View Answer
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A) Businesses with high industry attractiveness ratings should be given top priority and those with low industry attractiveness ratings should be given low priority.
B) Business subsidiaries with the brightest profit and growth prospects, attractive positions on the nine-cell matrix, and solid strategic and resource fits generally should head the list for corporate resource support.
C) The positions of each business in the nine-cell attractiveness-strength matrix should govern resource allocation.
D) Businesses with the most strategic and resource fits should be given top priority and those with the fewest strategic and resource fits should be given low priority.
E) Businesses with high competitive strength ratings should be given top priority and those with low competitive strength ratings should be given low priority.
G) B) and C)
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A) Strategic fit between two businesses exists when the management know-how accumulated in one business is transferable to the other.
B) Strategic fit exists when two businesses present opportunities to economize on marketing, selling, and distribution costs.
C) Competitively valuable cross-business strategic fits are what enable related diversification to produce a synergistic performance outcome.
D) Strategic fit is primarily a by-product of unrelated diversification and exists when the value chain activities of unrelated businesses possess economies of scope and good financial fit.
E) Strategic fit exists when a company can transfer its brand-name reputation to the products of a newly acquired business and add to the competitive power of the new business.
G) C) and D)
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A) the least risky way to diversify is to seek out businesses that are leaders in their respective industry.
B) the best companies to acquire are those that offer the greatest economies of scope rather than the greatest economies of scale.
C) the best way to build shareholder value is to acquire businesses with strong cross-business financial fit.
D) any company that can be acquired on good financial terms and that has satisfactory growth and earnings potential represents a good acquisition and a good business opportunity.
E) the task of building shareholder value is better served by seeking to stabilize earnings across the entire business cycle than by seeking to capture cross-business strategic fits.
G) A) and D)
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B) False
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True
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A) struggling companies with good turnaround potential, undervalued companies that can be acquired at a bargain price, and companies that have bright growth prospects but are short on investment capital.
B) companies offering the biggest potential to reduce labor costs.
C) cash cow businesses with excellent financial fit.
D) companies that are market leaders in their respective industries.
E) companies that employ the same basic type of competitive strategy as the parent corporation's existing businesses.
G) C) and D)
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A related diversification strategy invol...View Answer
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A) attractiveness test, the profitability test, and the shareholder value test.
B) strategic fit test, the competitive advantage test, and the return-on-investment test.
C) resource fit test, the profitability test, and the shareholder value test.
D) attractiveness test, the cost of entry test, and the better-off test.
E) shareholder value test, the cost of entry test, and the profitability test.
G) A) and B)
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A) the costs of searching for an attractive target.
B) the costs of evaluating its worth.
C) bargaining costs.
D) the costs of completing the transaction.
E) the premium cost.
G) B) and E)
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A) Scale refers to the magnitude or size of the operation, while scope refers to the reach of defined savings within the value chain.
B) Scale refers to the extent of change, while scope refers to the possibilities of change.
C) Scale is about dimensions, while scope is about the capacity available for production capabilities.
D) Scale refers to cost savings that accrue directly from larger-sized operations, while scope stems directly from strategic fit along the value chains of related businesses.
E) Scale and scope mean the same thing and the only difference is the extent of cost savings accrued from unrelated businesses in each.
G) A) and B)
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D
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Sometimes, companies need to complement ...View Answer
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