Question 1

The coordination required to realize value from a diversification strategy based on transferring, sharing, or leveraging competencies is a major source of bureaucratic costs.

Accepted Answer

The coordination required to transfer, share, or leverage competencies can add bureaucratic costs to the diversification strategy. Therefore, the statement is true.

Question 2

A company can increase the probability of success of an internal venture by constructing efficient scale manufacturing facilities ahead of demand.

Accepted Answer

By constructing manufacturing facilities ahead of demand, the company can ensure that it is able to meet the demand as soon as it arises. This reduces the waiting time for customers and can improve the overall success of the venture.

Question 3

An advantage of unrelated diversification is that competencies can be shared and leveraged throughout the value chain activities.

Accepted Answer

Unrelated diversification involves entering into a business or industry that is not related to the company's current business or industry, which means there are limited opportunities to share and leverage competencies throughout the value-chain activities.

Question 4

Research fmds that the higher the number of business units in a company's portfolio, the easier it is for corporate managers to remain informed about the complexities of each business.

Accepted Answer

This statement is false. The higher the number of business units in a company's portfolio, the more difficult it becomes for corporate managers to remain informed about the complexities of each business. It can lead to a lack of focus and resources, decreased communication and coordination, and difficulties in identifying and addressing issues.

Question 5

Sara Lee Corp., a clothing firm, purchased Platex Apparel Inc.This purchase helped to make Sara Lee Corp.one of the largest makers of women's apparel in the United States.Sara Lee Corp.utilized an acquisition strategy.

Accepted Answer

The statement correctly describes that Sara Lee Corp. utilized an acquisition strategy to purchase Platex Apparel Inc., making them one of the largest makers of women's apparel in the United States.

Question 6

Free cash flow refers to additional funds from a government stimulus program.

Accepted Answer

Free cash flow refers to the amount of cash a business generates after subtracting expenses and capital expenditures. It is not related to government stimulus programs.

Question 7

If a company generates free cash flow, that money technically belongs to shareholders.

Accepted Answer

Free cash flow is the amount of cash generated by a company that is available for distribution to shareholders after all expenses and investments have been made. Therefore, technically, the free cash flow belongs to the shareholders of the company. However, the company's management may decide to use the free cash flow to pay off debt, invest in new projects or retain it for other purposes.

Question 8

An appropriate reason to diversify is to pool the risk from several business ventures in order to create a more stable
income stream.

Accepted Answer

The answer of An appropriate reason to diversify is to...

Question 9

At Burger King, multiple items such as a cheeseburger, french fries, and a drink are combined together to create a complete meal.This is an example of diversification.

Accepted Answer

The answer of At Burger King, multiple items such as...

Question 10

Companies with a strong track record of internal new venturing generally excel at research and development.

Accepted Answer

Companies with a strong track record of internal new venturing typically have a culture of innovation and investment in research and development, which helps them identify and develop new business opportunities.

Question 11

A company can pursue relative diversification to enhance the competitive position of its core business.

Accepted Answer

Relative diversification involves expanding into businesses that are related to the core business of a company, which can help to enhance its competitiveness in the market. This can include developing new products, entering new markets, or improving existing operations. By leveraging its existing strengths and capabilities, a company can take advantage of new opportunities and reduce its dependence on a single product line or market segment. This can ultimately lead to increased sales, profits, and market share, while also reducing the risk of relying too heavily on a single business.

Question 12

Diversification is the process of a company entering new industries distinct from its core industry, using a multibusiness model.

Accepted Answer

Diversification refers to a company expanding into different industries outside of its core industry, often through a multibusiness model.

Question 13

One way a diversified company can increase its profitability is by acquiring inefficient or poorly managed companies and then restructuring them to improve their performance.

Accepted Answer

By acquiring and restructuring underperforming companies, a diversified company can improve its overall profitability and increase its market share. This is a common strategy used by many diversified companies to grow and generate higher returns for shareholders.

Question 14

Economies of scope arise when one or more of a diversified company's business units are able to realize cost-saving or differentiation advantages because they can more effectively pool, share, and utilize resources or capabilities.

Accepted Answer

This statement accurately describes economies of scope.

Question 15

Firms can create profitable new business units by leveraging their competencies.

Accepted Answer

By leveraging their existing competencies, firms can create new businesses that capitalize on their core strengths, allowing them to enter new markets and generate additional revenue streams. This approach is often considered less risky than pursuing totally new business ventures outside of their established expertise.

Question 16

When a finn does not pay out its free cash flow to its shareholders, the shareholders bear an opportunity cost equal to their next best use of those funds.

Accepted Answer

This statement is true. When a company retains its free cash flow instead of paying it out to shareholders, the shareholders miss out on the opportunity to invest that money in other assets that could generate returns. This is known as the opportunity cost of not receiving a dividend.

Question 17

A company's top managers need not have entrepreneurial capabilities for diversification to increase profitability.

Accepted Answer

Diversification often involves exploring new markets, developing new products, or acquiring new businesses, all of which require entrepreneurial capabilities such as creativity, risk-taking, and innovation. Without such capabilities in top management, diversification strategies may not be executed effectively, leading to lower profitability. Thus, it is important for top managers to possess entrepreneurial capabilities or at least have access to them through appropriate channel such as hiring talented entrepreneurs.

Question 18

If a company's core skills are highly specialized and have few applications outside the core business, then a company should pursue a related diversification strategy.

Accepted Answer

The answer of If a company's core skills are highly...

Question 19

An advantage of a joint venture is that it allows a company to quickly gain entry into a new industry where barriers are high.

Accepted Answer

The answer of An advantage of a joint venture is...

Question 20

Transferring competencies across industries involves taking a distinctive competency developed in one industry and implanting it in an existing business unit in another industry.

Accepted Answer

This is a correct definition of transferring competencies across industries. It is a strategy used by companies to gain a competitive advantage by leveraging their existing strengths and expertise in new markets.

Quiz 10: Corporate-Level Strategy: Related and Unrelated Diversification