1. In terms of strategy making, what is the difference between a one-business company and a diversified company?

A. The first uses a business-level strategy, while the second uses a set of business strategies and a corporate strategy.

B. The first uses a business-level strategy, while the second uses a corporate-wide strategy.

C. The first uses an operating strategy, while the second uses a business-line strategy.

D. The first uses a functional strategy, while the second uses a business-line strategy.

E. All of these.

2. Which one of the following is NOT one of the elements of crafting corporate strategy for a diversified company?

A. Picking new industries to enter and deciding on the means of entry.

B. Choosing the appropriate value chain for each business the company has entered.

C. Pursuing opportunities to leverage cross-business value chain relationships and strategic fit into competitive advantage.

D. Establishing investment priorities and steering corporate resources into the most attractive business units.

E. Initiating actions to boost the combined performance of the businesses the firm has entered.

3. To take advantage of cross-business value chain relationships and strategic fit and turn them into a competitive advantage requires that companies determine whether there are opportunities to strengthen the business, which includes such tasks as the following, EXCEPT:

A. the transferring of valuable resources and capabilities.

B. combining related value chain activities of different businesses to achieve lower costs.

C. forcing cultural independence, operating diversity, and sophisticated analytical responsibility on the businesses to ensure compatibility with the corporate overhead identity.

D. sharing the use of powerful and well-respected brand names across multiple businesses.

E. encouraging knowledge-sharing and collaborative activity among the businesses.

4. Diversification ought to be considered when:

A. a company's profits are being squeezed and it needs to increase its net profit margins and return on investment.

B. a company lacks sustainable competitive advantage in its present business.

C. a company begins to encounter diminishing market growth and stagnating sales prospects in its mainstay business.

D. a company has run out of ways to achieve a distinctive competence in its present business.

E. a company is under the gun to create a more attractive and cost-efficient value chain.

5. The cost-of-entry test for evaluating whether diversification into a particular industry is likely to build shareholder value involves:

A. determining whether a newly entered business presents opportunities to cost-efficiently transfer competitively valuable skills or technology from one business to another.

B. determining whether the cost to enter the target industry will strain the company's credit rating.

C. considering whether a company's costs to enter the target industry are low enough to allow for good profits or so high that potential profits will be eroded.

D. determining whether the cost to enter the target industry will raise or lower the company's total profits.

E. determining whether the cost a company incurs to enter the target industry will raise or lower production costs.

6. Acquisition of an existing business is an attractive strategy option for entering a promising new industry because it:

A. is an effective way to hurdle entry barriers, is usually quicker than trying to launch a brand-new startup operation, and allows the acquirer to move directly to the task of building a strong position in the target industry.

B. is less expensive than launching a new startup operation, thus passing the cost-of-entry test.

C. is a less risky way of passing the attractiveness test.

D. is more likely to result in passing the shareholder value test, the profitability test, and the better-off test.

E. offers the prospect of gaining an immediate competitive advantage in the new industry and thus helps ensure that the diversification move will pass the competitive advantage test for building shareholder value.

7. A joint venture is an attractive way for a company to enter a new industry when:

A. a firm is missing some essential skills, capabilities, or resources and needs a partner to supply the missing expertise and competencies or fill the resource gaps.

B. it needs access to economies of scope and good financial fits in order to be cost-competitive.

C. it is uneconomical for the firm to achieve economies of scope on its own initiative.

D. the firm has no prior experience with diversification.

E. it has not built up a hoard of cash with which to finance a diversification effort.

8. The essential requirement for different businesses to be "related" is that:

A. their value chains exhibit competitively valuable cross-business relationships.

B. the products of the different businesses are bought by many of the same types of buyers.

C. the products of the different businesses are sold in the same types of retail stores.

D. the businesses have several key suppliers in common.

E. the production methods they employ both entail economies of scale.

9. Strategic fit between two or more businesses exists when one or more activities comprising their respective value chains present opportunities:

A. to prevent the transfer expertise or technology or capabilities from one business to another.

B. to independently preserve common brand names from cross-business usage.

C. to increase costs by combining the performance of the related value chain activities of different businesses.

D. for cross-business collaboration to build valuable new resource strengths and competitive capabilities.

E. maintain business value chain activities separate and apart from one business to another to protect company independence.

10. A company pursuing a related diversification strategy would likely address the issue of what additional industries/businesses to diversify into by:

A. locating businesses with well-known brand names and large market shares.

B. identifying industries with the least competitive intensity.

C. identifying an attractive industry whose value chain has good strategic fit with one or more of the firm's present businesses.

D. identifying businesses with the potential to diversify the number and types of different activities in the firm's value chain makeup.

E. locating new businesses with high degrees of financial fit with its present businesses.

11. What is the difference between economies of scale and economies of scope?

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. None of these. Scale and scope mean the same thing and the only difference is the extent to which they have some use-value.

12. With a strategy of unrelated diversification, an acquisition is deemed to have potential if it:

A. can achieve financial returns.

B. has the opportunity to generate positive cash flow.

C. can pass the industry attractiveness test and the cost-of-entry test, and if it has good prospects for profit growth.

D. can generate growth in revenue.

E. can add economic value for managers.