Which of the following is not one of the appeals of diversifying into unrelated businesses

Diversification is a growth strategy that involves entering into a new market or industry - one that your business doesn't currently operate in - while also creating a new product for that new market.

Different types of diversification strategies

There are several different types of diversification:

• Horizontal diversification is when you acquire or develop new products or services that are complementary to your core business and appeal to your current customers. For example, an ice-cream business adds a new type of confectionary into its product line. You may require new technology, skills or marketing approach to diversify in this way.


• Concentric diversification involves adding new products that have technological or marketing synergies with existing product lines or industries, but appeal to new customers. For example, a PC manufacturer starts producing laptops. You may be able to leverage your existing technologies, equipment and marketing to diversify in this way.


• Conglomerate diversification occurs when you add new products or services that are entirely different from and unrelated to your core business. For example, a film studio opening up an entertainment park. The risks are high, as this approach requires you not only to enter a new market, but also to sell to a new consumer base.


• Vertical diversification or integration is when you expand in a backward or forward direction along the production chain of your product. In this approach, you may control more than one stage of the supply chain. For example, a film distributor produces its own content, or a technology manufacturer opens its own retail store.

Deciding how and when to diversify will require:

• detailed market research for the new product or service
• a thorough assessment of customer needs
• a clear product development strategy and market testing
• sales, marketing and supply chain operations able to cope with the added demands

See how to diversify your business.

Advantages and disadvantages of diversification

There are pros and cons to each of the different diversification strategies. A successful diversification can help you:

• increase sales and revenue
• grow market share
• find new revenue streams
• achieve higher margins compared to existing products
• limit the impact of changes in the market

On the other hand, diversification will incur development, sales and marketing costs. It will also require additional skills, management and operational resources. If these demands exceed the potential revenue and profit gains, diversification can put your business at risk. For example:

• diverting funds and resources into diversification may limit potential growth in core areas of your business
• lack of knowledge or expertise in the new industry or markets may lead to costly delays or mistakes
• diversifying too quickly may cause you to lose track or dilute your core products or services
• if you stretch your resources too widely, you may struggle to provide a consistent level of service, which can lead to dissatisfaction and customer losses

In general, diversifying with similar products or services and selling them to a familiar customer base is less risky than some other business growth strategies, such as creating a product for a completely new market. Diversification can be a great way to maintain business stability. It allows you to hedge your bets and, if one of your markets or products fails, you have another to back you up until you recover.

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

2

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.

3

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

4

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.

5

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.

6

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.

7

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.

8

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).

9

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.

10

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.

11

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.