Question 1

A company should pursue unrelated diversification instead of related diversification when:
A) its core skills are highly specialized and have few applications outside its core business.
B) the company's top managers are skilled at acquiring and turning around poorly run enterprises.
C) its core technological skills are applicable to a wide variety of industrial and commercial situations.
D) it wants to maximize growth.
E) the bureaucratic costs of implementation do not exceed the value that can be created by realizing economies of scope.

Accepted Answer

Unrelated diversification is a strategy in which a company enters into businesses that are not related to its existing products or markets. This strategy is suitable for companies whose core skills are highly specialized and have few applications outside their core business. In such cases, pursuing related diversification may not make sense as the company's specialized skills may not be applicable to other businesses. Rather, pursuing unrelated diversification can help the company leverage its financial resources and managerial expertise across a range of businesses, thereby limiting risks and maximizing returns.

Question 2

A strategy based on diversification may fail to add value because companies:
A) seek to achieve differentiation instead of low cost.
B) diversify into areas in which they have some knowledge and miss out on profitable opportunities in other areas.
C) make acquisitions rather than develop new technologies on their own.
D) incur bureaucratic costs that exceed the value created by the strategy.
E) seek to achieve a low-cost position instead of differentiation.

Accepted Answer

Diversification involves expanding into new areas and can often lead to added bureaucratic costs, such as the need for increased management and coordination. These costs may outweigh the potential benefits of diversification and can ultimately fail to add value to the company.

Question 3

Which of the following statements concerning research and development is correct?
A) Exploratory research is more important than development research.
B) Development research is more important than exploratory research.
C) Exploratory research is directed toward commercialization of a new technology.
D) Development research advances basic science.
E) Exploratory research and development research are needed for internal new venturing.

Accepted Answer

Exploratory research and development research are both important for internal new venturing, or the process of creating new products or businesses within an existing company. Exploratory research is focused on identifying new opportunities and understanding customer needs, while development research builds upon existing knowledge to create new products or improve existing ones. Both types of research are necessary for successful innovation within a company. Choices A, B, C, and D are all incorrect statements about the importance and focus of different types of research and development.

Question 4

Which of the following entry strategies should be used when speed is an important consideration?
A) Internal new venture
B) Acquisition
C) Joint venture
D) Unrelated diversification
E) Related diversification

Accepted Answer

Acquisition is often the fastest way to enter a new market or industry because it allows a company to quickly gain access to new products, services, or market share by purchasing an existing company.

Question 5

New ventures are a more attractive strategy than acquisitions when:
A) entry barriers are high.
B) exit barriers are high.
C) a company's business model is based on using its technology to innovate new kinds of products for related markets.
D) it needs to move fast to establish a presence in an industry, commonly an embryonic or growth industry.
E) the company must make the huge investment necessary to develop the set of value-chain activities required to make and sell products in the new industry.

Accepted Answer

New ventures are more attractive when a company focuses on innovation and leveraging its technology to create new products for related markets, as this aligns with developing new capabilities and exploring new opportunities.

Question 6

Diversification may dissipate value if it is wrongly based on:
A) realizing economies of scope.
B) rescuing core business.
C) transferring competencies.
D) acquisitions and restructuring.
E) leveraging existing competencies.

Accepted Answer

Diversification should not be used as a way to rescue a failing core business. This can result in the dissipation of value as resources are spread too thin, and the company may not have the necessary expertise or resources to succeed in a new market. It is important for diversification to be based on leveraging existing competencies or transferring competencies to new markets in order to create synergies and realize economies of scale or scope. Acquisitions and restructuring can also be effective if they are part of a strategic plan for diversification.

Question 7

A company should pursue related diversification instead of unrelated diversification when the company's:
A) core skills are applicable to a wide variety of industrial and commercial situations.
B) core skills are highly specialized and have few applications outside the core business.
C) top managers are skilled at acquiring and turning around poorly run enterprises.
D) main objective is to maximize its growth.
E) free cash flow is high enough that it has funds available for investment.

Accepted Answer

Pursuing related diversification makes more sense when a company's core skills are applicable to a wide variety of industrial and commercial situations because it allows the company to leverage its existing capabilities and experience. This reduces the risk and cost associated with entering new markets and can improve the chances of success. Unrelated diversification, on the other hand, involves entering businesses that are not related to the company's core competencies, which can be more difficult to manage and lead to inefficient use of resources.

Question 8

If a company is to increase the probability of a new product's commercial success, the company must foster close links between:
A) marketing and sales.
B) engineering and advertising.
C) quality assurance and inventory management.
D) research and development (R&D) and marketing.
E) accounting and industrial engineering.

Accepted Answer

Foster close links between research and development and marketing is the best choice because R&D is responsible for developing the new product and marketing is responsible for promoting it to customers. By having close links, R&D can understand what customers are looking for in a new product, and marketing can help determine the best way to promote the product. This can increase the chances of the product's commercial success.

Question 9

In which of the following industry environments are acquisitions most likely to be favored over new ventures?
A) An embryonic industry
B) An industry in its later stages of growth
C) An industry passing through the shakeout stage
D) A mature industry
E) A declining industry

Accepted Answer

The answer of In which of the following industry environments...

Question 10

The greater the number of business units in a company's portfolio, the ____ it is for corporate managers to understand the complexities of each business.
A) easier
B) more difficult
C) less important
D) less expensive
E) more meaningless

Accepted Answer

With an increase in the number of business units, the complexity of managing them also increases. This makes it more difficult for corporate managers to understand the complexities of each business.

Question 11

The three main types of diversification strategies are:
A) acquisitions, joint ventures, and divestments.
B) acquisitions, mergers, and buy outs.
C) acquisitions, internal new ventures, and joint ventures.
D) related acquisitions, unrelated acquisitions, and mergers.
E) joint ventures, strategic alliances, and long-term contracts.

Accepted Answer

Diversification strategies involve a company expanding into new areas or industries. Acquisitions, internal new ventures, and joint ventures are three main types of strategies used for diversification. Acquisitions involve buying another company, internal new ventures refer to starting a new business within the company, and joint ventures involve partnering with another company to pursue new opportunities.

Question 12

When one or more components of a company's value chain are applicable to a wide variety of industrial and commercial situations, which of the following strategies should a company pursue?
A) Unrelated diversification
B) Related diversification
C) A focus strategy
D) Taper integration
E) Backward integration

Accepted Answer

Related diversification allows a company to leverage its existing capabilities and resources across a range of industries and markets. By applying its value chain components to related industries or markets, the company can achieve synergies and economies of scale while minimizing the risk associated with unrelated diversification.

Question 13

To be commercially successful, new products must be developed with ____ in mind.
A) manufacturing requirements
B) engineering technology
C) customer requirements
D) sales techniques
E) technical requirements

Accepted Answer

To be commercially successful, new products must be developed with customer requirements in mind. It is important to understand what the market wants and needs in order to create a product that will sell well.

Question 14

What is the process of transferring resources to and creating a new business unit in a new industry called?
A) External new venturing
B) Exportation of resources
C) Intrapreneuring
D) Risk avoidance
E) Internal new venturing

Accepted Answer

The process of transferring resources to and creating a new business unit in a new industry is known as internal new venturing. It involves the development and launch of new products or services by an established company in a new market. This process is also called corporate entrepreneurship or strategic entrepreneurship. Options A, B, C, and D are not applicable in this context.

Question 15

Which of the following seems to be a major determinant of a new venture's success?
A) Large-scale entry into the target industry is designed to build market share, even when entry involves significant short-term losses
B) Cautious small-scale entry into the target industry is used so that the company can assess the probable outcome of the venture without losing too much money
C) A low level of integration between the marketing and the research and development functions of the venturing company
D) Supporting many new venture projects in the hope that one will succeed
E) Killing the new venture if it does not show a profit after the end of the third year

Accepted Answer

The answer of Which of the following seems to be...

Question 16

An internal new venture is the most appropriate strategic choice when:
A) an industry is mature.
B) the firm will enter on a small scale.
C) the firm has competencies that can be leveraged.
D) speed of entry is the most important consideration.
E) there is strong pressure for quick profitability.

Accepted Answer

An internal new venture is the most appropriate strategic choice when the firm has competencies that can be leveraged. This means that the firm already possesses the necessary resources, skills, and knowledge to succeed in the new venture, giving them a competitive advantage.

Question 17

New ventures:
A) should be killed if they don't make a profit within three years.
B) are often preferred by technology-based companies.
C) are more attractive compared to acquisitions when entry barriers are high.
D) are less risky than acquisitions.
E) are best when the company is entering the industry on a small scale.

Accepted Answer

Technology-based companies often prefer new ventures because they allow for innovation and development of new products or services, which is crucial in the fast-evolving tech industry.

Question 18

In which of the following cases are bureaucratic costs likely to be lowest?
A) A vertically integrated company with five divisions that pursues full integration
B) A company with five divisions that pursues related diversification based on economies of scope
C) A company with five divisions that pursues related diversification based on transferring competencies
D) A company with five divisions that pursues unrelated diversification based on acquisitions and restructuring
E) A company with twenty divisions that pursues taper integration

Accepted Answer

The answer of In which of the following cases are...

Question 19

Which of the following reasons can make a diversification strategy an unwise course of action for a company to pursue?
A) Steady industry conditions
B) Varying firm-specific conditions
C) Diversification for pooling risks
D) Decreasing bureaucratic costs
E) Greater differentiation of products

Accepted Answer

The answer of Which of the following reasons can make...

Question 20

A company considering entering an industry that is in the mature stage of its life cycle would generally prefer which of the following entry strategies?
A) Joint ventures
B) New ventures
C) Acquisitions
D) Long-term contracting
E) Taper integration

Accepted Answer

Acquisitions allow a company to quickly gain a foothold in a mature industry by acquiring an existing company's resources, knowledge, and customer base. This is beneficial since mature industries may have limited opportunities for growth, making it difficult for a new venture to succeed. Joint ventures and long-term contracting may not provide the immediate entry and market share acquisition as an acquisition would. Taper integration and new ventures would require significant investments in infrastructure and marketing, which may not be practical in a mature industry.

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

A company should pursue unrelated diversification instead of related diversification when:

A strategy based on diversification may fail to add value because companies:

Which of the following statements concerning research and development is correct?

Which of the following entry strategies should be used when speed is an important consideration?

New ventures are a more attractive strategy than acquisitions when:

Diversification may dissipate value if it is wrongly based on:

A company should pursue related diversification instead of unrelated diversification when the company's:

If a company is to increase the probability of a new product's commercial success, the company must foster close links between:

In which of the following industry environments are acquisitions most likely to be favored over new ventures?

The greater the number of business units in a company's portfolio, the ____ it is for corporate managers to understand the complexities of each business.

The three main types of diversification strategies are:

When one or more components of a company's value chain are applicable to a wide variety of industrial and commercial situations, which of the following strategies should a company pursue?

To be commercially successful, new products must be developed with ____ in mind.

What is the process of transferring resources to and creating a new business unit in a new industry called?

Which of the following seems to be a major determinant of a new venture's success?

An internal new venture is the most appropriate strategic choice when:

New ventures:

In which of the following cases are bureaucratic costs likely to be lowest?

Which of the following reasons can make a diversification strategy an unwise course of action for a company to pursue?

A company considering entering an industry that is in the mature stage of its life cycle would generally prefer which of the following entry strategies?