AEM 2601 - prelim 2 || with 100% Errorless Answers.

corporate vs business strategy: Which business should we be in? How should we compete within a given business? correct answers corporate: which business should we be in business: how should we compete within a given business What are the three motives for diversification? correct answers 1) Growth 2) Risk Spreading 3) Value Creation explain how growth is a motivation for diversification correct answers the desire to escape stagnant or declining industries is a powerful motive for diversification explain how risk spreading is a motivation for diversification correct answers diversification reduces the variance of profit flows explain how value creation is a motivation for diversification correct answers for diversification to create shareholder value, putting different businesses under common ownership must increase their total profitability Porter's Three Essential Tests correct answers 1) attractiveness test 2) cost of entry test 3) better-off test Why couldn't Old Navy and GAP split up? correct answers because strategy is sticky. too costly and complex to split into two diff companies - Costly to split from one merged entity - may not overcome value it could create - Potentially growth wasn't all that promising after COVID due to slower growth of Old Navy VG: related vs unrelated diversification correct answers related: + similar competitive position + similar life cycle stage unrelated: - unrelated markets Fuji: identify how/if they are diversified correct answers diversified into skincare Fuji: 3 essential tests correct answers Attractiveness: moderate pass; lots of competitors but high-end cosmetics make good margins Cost of entry: can be difficult to get into stores, but entry is thru subsidiary (not acquisition)