Chapter 8 BSG

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Economies of scope

are cost-saving efficiencies that stem directly from strategic fits along the value chains of related businesses.


Checking a diversified company's business portfolio for the competitive advantage potential of cross-business strategic fits does not involve determining whether sister business units have value chain match-ups that offer opportunities to

Employ the same basic competitive approach and pursue the same type of competitive advantage.


The top-level executive task of crafting a diversified company's overall or corporate strategy does not include which one of the following?

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


The three tests for judging whether a particular diversification move can create added long-term value for shareholders are

The industry attractiveness test, the cost-of-entry test, and the better-off test.


Retrenching to a narrower diversification base

has the advantage of enabling a company to strive for better long-term performance by concentrating on building strong positions in a small number of core businesses and industries and avoiding the mistake of diversifying so broadly that resources and management attention are stretched thinly across many businesses.


The difference between a "cash-cow" business and a "cash hog" business is that

A cash cow business produces large internal cash flows over and above what is needed to build and maintain the business whereas the internal cash flows of a cash hog business are too small to fully fund its operating needs and capital requirements.


Diversifying into related businesses where competitively valuable strategic fit benefits can be captured and turned into a competitive advantage over business rivals whose operations do not offer comparable strategic-fit benefits

is what fuels 1+1=3 gains in shareholder value--the necessary outcome for satisfying the better-off test and proving the business merit of a company's diversification effort.


Using relative market share to assess a business's competitive strength is analytically superior to straight percentage measures of market share because relative market share

is a better indicator of competitive strength than is a simple percentage measure of market share--for instance, a company with a 20% market share is in a much stronger competitive position if its largest rival has a market share of 10% (which means its relative market share is 2.0) that it is if its largest rival has a 30% market share (in which case the company's relative market share is only 0.67).


Which of the following is not part of the procedure for evaluating the pluses and minuses of a diversified company's strategy and deciding what actions to take to improve the company's performance?

Conducting a SWOT analysis of each business the company has diversified into.


Which of the following are negatives or disadvantages of pursuing unrelated diversification strategies?

No potential for competitive advantage beyond any benefits of corporate parenting and what each individual business can generate on its own.


Which one of the following is not one of the appeals of unrelated diversification?

it is quicker and easier to build a competitive advantage over undiversified or less-diversified companies.

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