Anda di halaman 1dari 32

1.

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

ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.01 -Differentiate between multibusiness models based on related
and unrelated diversification
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

2. Free cash flow refers to additional funds from a government stimulus program.
a. True
b. False

ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.01 -Differentiate between multibusiness models based on related
and unrelated diversification
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

3. If a company generates free cash flow, that money technically belongs to shareholders.
a. True
b. False

ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.01 -Differentiate between multibusiness models based on related
and unrelated diversification
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
4. 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.
a. True
b. False

ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.01 -Differentiate between multibusiness models based on related
and unrelated diversification
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

5. 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.
a. True
b. False

ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.01 -Differentiate between multibusiness models based on related
and unrelated diversification
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thinking
KEYWORDS: Bloom's: Application

6. 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.
a. True
b. False

ANSWER: True
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: SMIA.HILL.15.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thinking
KEYWORDS: Bloom's: Application
7. Transferring competencies across industries involves taking a distinctive competency developed in one industry and
implanting it in an existing business unit in another industry.
a. True
b. False

ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

8. Firms can create profitable new business units by leveraging their competencies.
a. True
b. False

ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

9. A company's top managers need not have entrepreneurial capabilities for diversification to increase profitability.
a. True
b. False

ANSWER: False
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: SMIA.HILL.15.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Knowledge
10. 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.
a. True
b. False

ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

11. 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.
a. True
b. False

ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

12. A company can pursue relative diversification to enhance the competitive position of its core business.
a. True
b. False

ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension
13. 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.
a. True
b. False

ANSWER: True
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

14. An advantage of unrelated diversification is that competencies can be shared and leveraged throughout the value
chain activities.
a. True
b. False

ANSWER: False
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

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

ANSWER: False
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension
16. The coordination required to realize value from a diversification strategy based on transferring, sharing, or leveraging
competencies is a major source of bureaucratic costs.
a. True
b. False

ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

17. 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.
a. True
b. False

ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

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

ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
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.
a. True
b. False

ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

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

ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

21. Internal new ventures can generally be executed far more quickly than acquisitions.
a. True
b. False

ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
22. Research evidence suggests that srnall-scale entry into a new business is the best way for an internal venture to
succeed.
a. True
b. False

ANSWER: False
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

23. Research suggests that companies that acquire many businesses over time become expert in this process and so can
generate significant value from their acquisitions.
a. True
b. False

ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

24. A joint venture allows a company to share the risks and costs associated with establishing a new business unit with
another company.
a. True
b. False

ANSWER: True
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
25. A laundromat and a pool hall together invest in a new store, where customers can wash their clothes and play pool
while waiting. This is an example of an internal new venture.
a. True
b. False

ANSWER: False
POINTS: I
DIFFICULTY: Moderate
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thinking
KEYWORDS: Bloom's: Application

26. Free cash flow is defined as:


a. money in a company's bank account.
b. government funds given to a company for meeting Environmental Protection Agency (EPA) regulations.
c. additional funds donated by stockholders.
d. cash in excess of that required to fund investments in the company's industry and to meet any debt
commitments.
e. cash borrowed by the company that requires no interest payments.

ANSWER: d
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.01 -Differentiate between multibusiness models based on related
and unrelated diversification
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

27. The managers of most companies often consider when they are generating free cash flow.
a. taper integration
b. full integration
c. diversification
d. long-term contracts
e. strategic alliances

ANSWER: c
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.01 -Differentiate between multibusiness models based on related
and unrelated diversification
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension
28. Which diversification strategy is based on the idea that the company creates value by applying the distinctive
competencies it developed in one line of business to another business activity?
a. A technology acquisition strategy
b. Related diversification
c. A restructuring strategy
d. Total diversification
e. A taper diversification strategy

ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.01 -Differentiate between multibusiness models based on related
and unrelated diversification
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

29. When McDonald's introduced the McCafe, it began offering a new product that was not available in traditional
McDonald's stores. The introduction of the McCafe is an example of which of the following?
a. Transferring competencies
b. Diversification
c. Commonality
d. Economies of scope
e. Bureaucratic costs

ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.01 -Differentiate between multibusiness models based on related
and unrelated diversification
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thinking
KEYWORDS: Bloom's: Comprehension

30. Companies that base their diversification strategy on transferring competencies tend to acquire new businesses that
are to their existing business activities.
a. unrelated
b. not comparable
c. opposed
d. related
e. identical

ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
31. Leveraging competencies involves taking a distinctive competency developed by a business unit in one industry to
create:
a. a new business unit in the same industry.
b. a new business unit in a different industry.
c. lower costs in various business units.
d. differentiation in various business units.
e. new customers in the same industry.

ANSWER: b
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

32. Product bundling refers to:


a. preparation of products for shipment.
b. a complete package of related products.
c. a method of stocking products efficiently.
d. an inventory procedure for ensuring effective counting of products.
e. a package of unrelated products.

ANSWER: b
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
33. Economies of scope can be defmed as:
a. competencies that result from the skills of a company's top managers that help every business unit within a
company perform at a higher level than it could if it operated as a separate or independent company.
b. some kind of skill or competency that when shared by two or more business units allows them to operate
more effectively and create more value for customers.
c. the process of taking a distinctive competency developed by a business unit in one industry and implanting it in
a business unit operating in another industry.
d. the process of taking a distinctive competency developed by a business unit in one industry and using it to
create a new business unit in a different industry.
e. the synergies that arise when one or more of a diversified company's business units are able to lower costs or
increase differentiation because they can more effectively pool, share, and utilize expensive resources or
capabilities.

ANSWER: e
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

34. involves taking a distinctive competency developed by a business unit in one industry and implanting it in a
business unit operating in another industry.
a. Sharing resources and capabilities
b. Leveraging competencies
c. Transferring competencies
d. Product bundling
e. Strategic management capabilities

ANSWER: c
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
35. General organizational competencies are found:
a. in the skills of a company's top managers and functional experts.
b. at low levels among the workers and other employees in the organization.
c. exclusively among technology professionals.
d. in feedback given by customers.
e. in changes occurring within an industry.

ANSWER: a
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

36. Which of the following is not a general organizational competency?


a. Entrepreneurial capabilities
b. Capabilities in organizational design
c. Superior strategic capabilities
d. Product bundling
e. Commonality

ANSWER: d
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

37. Economies of scope typically involve:


a. sharing resources by business units.
b. acquiring resources from outside a company.
c. utilizing resources in limited quantities by specific business units.
d. acquiring resources from another business unit in a company.
e. utilizing resources to develop a new business unit.

ANSWER: a
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
38. Miller Brewing was related to Philip Morris's tobacco business because it was possible to create important
marketing commonalities: both beer and tobacco are mass market consumer goods in which brand positioning,
advertising, and product development skills are crucial to create successful new products. This is an example of
which of the following?
a. Transferring competencies
b. Leveraging competencies
c. General organizational competencies
d. Economies of scope
e. Organizational design skills

ANSWER: a
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

39. Which of the following statements is not generally true of a diversification strategy based on the realization of
economies of scope?
a. The strategy requires the head office to evaluate each business unit as a stand-alone operation.
b. The strategy allows a company to realize cost economies among business units.
c. The strategy may allow a company to use shared resources more intensively, thereby realizing economies of
scale.
d. The strategy requires managers to be aware of the costs of coordination.
e. The strategy requires close coordination among different business units.

ANSWER: a
POINTS: I
DIFFICULTY: Moderate
LEARNING OBJECTIVES: SMIA.HILL.l5.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension
40. Which of the following may be true for a company pursuing a strategy of unrelated diversification rather than a
strategy of related diversification?
a. The company has to achieve coordination between business units.
b. The company has narrow organizational competencies.
c. The company has superior strategic management and organizational design.
d. The company has no bureaucratic costs that arise from the number of businesses in its portfolio.
e. The company has no difficulty in keeping its corporate managers informed about the complexitities of each
business.

ANSWER: c
POINTS: I
DIFFICULTY: Moderate
LEARNING OBJECTIVES: SMIA.HILL.l5.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

41. 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.

ANSWER: a
POINTS: I
DIFFICULTY: Moderate
LEARNING OBJECTIVES: SMIA.HILL.l5.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension
42. 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.

ANSWER: a
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: SM1A.HILL.15.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

43. 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

ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SM1A.HILL.15.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension
44. 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.

ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

45. 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.

ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
46. 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

ANSWER: d
POINTS: 1
DIFFICULTY: Moderate
LEARNING OBJECTIVES: SMIA.HILL.15.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

47. 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. eas1er
b. more difficult
c. less important
d. less expensive
e. more meaningless

ANSWER: b
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
48. 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 finn-specific conditions
c. Diversification for pooling risks
d. Decreasing bureaucratic costs
e. Greater differentiation of products

ANSWER: c
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

49. 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.

ANSWER: c
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
50. New ventures are likely to be preferred compared to 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.

ANSWER: c
POINTS: I
DIFFICULTY: Moderate
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

51. 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 preferred 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.

ANSWER: b
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Technology
KEYWORDS: Bloom's: Knowledge
52. 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.

ANSWER: e
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

53. In which of the following industry envirornnents 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

ANSWER: a
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

54. 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

ANSWER: c
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
55. 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

ANSWER: e
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

56. 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.

ANSWER: d
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
57. Which of the following seems to be a major determinant of a new venture's success?
a. Large-scale entry into the target industry designed to build market share, even when such entry involves
significant short-term losses
b. Cautious small-scale entry into the target industry 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

ANSWER: a
POINTS: I
DIFFICULTY: Moderate
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

58. 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.

ANSWER: c
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
59. 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

ANSWER: b
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

60. 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

ANSWER: c
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension
61. Acquisitions often fail because of:
a. poor commercialization.
b. pre-acquisition screening that increases the time it takes to enter a market.
c. large-scale entry.
d. differences in corporate culture.
e. slowness in establishing significant market presence.

ANSWER: d
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

62. Which of the following is not a reason for the failure of an acquisition to generate the gains originally expected of it?
a. Poor post-acquisition integration
b. Overestimation of the potential gains to be derived from synergy
c. The high cost of making acquisitions
d. Lack of pre-acquisition screening
e. Overestimation of the potential costs of realizing synergies

ANSWER: e
POINTS: I
DIFFICULTY: Moderate
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension
63. Which of the following is the probable consequence of an inability to integrate two divergent corporate cultures after
an acquisition?
a. Low management turnover
b. Poor commercialization of the product
c. An inability to realize potential gains from synergies
d. The stock of highly diversified companies is valued lower
e. Risks are shared by all

ANSWER: c
POINTS: I
DIFFICULTY: Moderate
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

64. Which of the following is not a necessity for a successful acquisition?


a. A good bidding strategy
b. A clear strategic rationale for making the acquisition
c. Quick completion of the acquisition
d. Thorough pre-acquisition screening
e. Post-acquisition audit to review the process and discuss ways to improve it

ANSWER: c
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension
65. Joint ventures:
a. are an alternative to new ventures.
b. are attractive when speed is important.
c. are attractive when entry barriers are high.
d. should be done on a small scale.
e. reduce the risk of loss of proprietary knowledge.

ANSWER: a
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge

66. Which of the following statements is false?


a. Joint ventures are preferable to acquisitions when the new business is related to the existing business.
b. Acquisitions are preferable to new ventures when speed is important.
c. Joint ventures are generally preferable to acquisitions when entry barriers are high.
d. Acquisitions can be both a reason for corporate decline and part of a turnaround strategy.
e. New ventures are preferable to acquisitions in the embryonic stage of the industry life cycle.

ANSWER: c
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension
67. Stanley's services finn wants to enter an embryonic market, but it doesn't have enough cash to purchase the required
assets. Which of the following strategies would you recommend to Stanley?
a. DiversifY through acquisition
b. Do not diversifY at all
c. DiversifY with an internal new venture
d. DiversifY with a joint venture
e. DiversifY through vertical integration

ANSWER: d POINTS:
I
DIFFICULTY: Challenging
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thinking
KEYWORDS: Bloom's: Application

68. What is perhaps the most important reason why acquisitions made by a company fail?
a. The expense of the acquisition
b. The timing of the acquisition
c. Management's unwillingness to expend the necessary effort to make the acquisition work effectively
d. Incompetence on the part of workers in the acquired finn
e. Difficulties in coordinating manufacturing activities

ANSWER: a
POINTS: I
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Knowledge
69. At its simplest level, a joint venture may be thought of as:
a. a merger of two companies.
b. an acquisition of a smaller company by a larger company.
c. a form of strategic outsourcing.
d. a sign of weakness on the part of one of the companies.
e. pool of resources by two or more firms to create new business.

ANSWER: e
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Comprehension

70. In 2007, Google bought YouTube. This is an example of which of the following?
a. Partnership
b. Strategic alliance
c. Joint venture
d. Acquisition
e. Merger

ANSWER: d
POINTS: 1
DIFFICULTY: Easy
LEARNING OBJECTIVES: SMIA.HILL.15.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thinking
KEYWORDS: Bloom's: Comprehension
71. Identify and discuss the profitability justifications for pursuing a multibusiness model based on diversification.

ANSWER: Diversification is the process of entering new industries, distinct from a company's core
industry, using a multibusiness model based on fmding ways to use the company's
distinctive competencies to increase the value of products in those industries to
customers, and thus a company's long-run profitability.
Diversification can increase profitability when managers transfer competencies
between business units in different industries. This is usually done by companies that
acquire others that share some sort of commonality.
Diversification can increase profitability when managers leverage competencies to
create business units in new industries. This is based on the idea that a source of
competitive advantage in one industry may be a source of competitive advantage in
another industry.
Diversification can increase profitability when managers share resources between
business units to realize economies of scope. Sharing resources allows a company to
realize cost-saving or differentiation advantages.
Diversification can increase profitability when managers utilize product bundling.
Product bundling allows a company to expand its product line and offer customers a
package of related products.
Diversification can increase profitability when managers use it to reduce rivalry in one
or more industries. This may occur if entry into an industry keeps a competitor in
check.
Diversification can increase profitability when managers utilize general organizational
competencies that increase the performance of all of a company's business units.
These competencies are found in top management and transcend businesses; they may
include factors such as entrepreneurial skills, capabilities in organizational design, and
strategic capabilities.
POINTS: I
DIFFICULTY: Challenging
LEARNING OBJECTIVES: SMIA.HILL.l5.10.01 -Differentiate between multibusiness models based on related
and unrelated diversification
SMIA.HILL.l5.10.02- Explain the five primary ways in which diversification can
increase company profitability
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Synthesis
72. What are the two general types of diversification and when would one be preferred over the other?

ANSWER: Diversification can take one of two forms: related or unrelated. Related diversification
refers to establishing a business unit in a new industry that is related to a company's
existing business units by some kind of linkage or commonality between one or more
components of each business unit's value chain. Unrelated diversification refers to the
movement into new industries to capture the profit-enhancing advantages of implanting
general organizational competencies in new business units and perhaps to capture the
benefits of multipoint competition.
A company would pursue related diversification if the company's competencies can be
applied across a greater number of industries and the company has superior strategic
capabilities that allow it to keep bureaucratic costs under control. A company would
pursue unrelated diversification when each business unit's functional competencies
have few useful applications across industries but its top management has superior
strategic capabilities and good organizational design skills to build distinctive
competencies and keep bureaucratic costs under control.
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: SMIA.HILL.l5.10.03 -Discuss the conditions that lead managers to pursue related
diversification versus unrelated diversification and explain why some companies pursue
both strategies
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Analysis
73. Differentiate between joint venture and acquisition as a method to enter new industries. Discuss the advantages and
disadvantages associated with each.

ANSWER: Acquisition is when a companies uses its capital resources to purchase another company
whereas joint venture refers to two or more companies agree to pool their resources to create
new business.
Advantages of acquisition-
-quicker way for a company to establish significant market presence
-less risk than internal new ventures
-attractive way to enter an industry that is protected by high barriers
Disadvantages of acquisition-
- companies frequently experience management problems when they attempt to integrate a
different company organizational structure and culture into their own
- companies often overestimate the potential economic benefits
-tend to be so expensive that they do more increase future profitability
-companies are often negligent in screening acquisition targets
Advantages of joint venture-
-allows companies to share the risk and costs
disadvantages of joint venture-
-must share the profits
-can create bad working relationships because of unequal effort but the same profits are
shared
-two companies may have different business models or time horizons
-may give away new or significant knowledge to their partner that could become a competitor
in the future.
POINTS: 1
DIFFICULTY: Challenging
LEARNING OBJECTIVES: SMIA.HILL.l5.10.04- Describe the three methods companies use to enter new
industries-internal new venturing, acquisitions, and joint ventures-and discuss the
advantages and disadvantages associated with each of these methods
NATIONAL STANDARDS: United States- BUSPROG: Reflective Thin- BUSPROG: Analytic
KEYWORDS: Bloom's: Analysis