The Two Biggest Drawbacks or Disadvantages of Unrelated Diversification Are

question 17

Multiple Choice

The two biggest drawbacks or disadvantages of unrelated diversification are

• A) underemphasizing the importance of resource fit and the strong likelihood of diversifying into businesses that top management does not know all that much about.
• B) insufficient cash flows to finance so many different lines of business and a lack of uniformity among the strategies of the businesses it has diversified into.
• C) volatile sales and profits and making the mistake of diversifying into too many cash cow businesses.
• D) the difficulties of competently managing a set of fundamentally different businesses and having a very limited competitive advantage potential that cross-business strategic fit provides.
• E) overinvesting in the achievement of economies of scope and the difficulties of achieving a good mix of cash cow and cash hog businesses.

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Definitions:

Decentralization

The distribution of decision-making powers from a central authority to local or individual entities within an organization or system.

Internal Price Wars

Competition within an organization or market where divisions or products compete against each other on pricing, potentially eroding overall profitability.

Divisional Income

The earnings generated by a specific division or segment of a company, highlighting its financial performance.

Service Department Expenses

Expenses incurred by the support departments within a company that do not directly contribute to the production of goods or services but are necessary for operation.