Question

The two biggest drawbacks or disadvantages of unrelated diversification are:___________.

a. the difficulties of passing the cost-of-entry test and the ease with which top managers can make the mistake of diversifying into businesses where competition is too intense.
b. the difficulties of capturing financial fit and having insufficient financial resources to spread business risk across many different lines of business.
c. demanding managerial requirements and limited competitive advantage potential that cross-business strategic fit provides.
d. ending up with too many cash hog businesses and too much diversity among the competitive strategies of the businesses it has diversified into.
e. the difficulties of achieving economies of scope and conflicts/incompatibility among the competitive strategies of the company's different businesses.

Answer 1

The primary disadvantages of unrelated diversification are demanding managerial requirements and limited competitive advantage potential. Management can become overextended in managing diverse industries with few synergies. Additionally, a lack of financial fit and underestimated competition can threaten business stability and profitability.

Step-by-step explanation:

The two biggest drawbacks or disadvantages of unrelated diversification are: c. demanding managerial requirements and limited competitive advantage potential that cross-business strategic fit provides. Unrelated diversification can often lead to a scenario where management is stretched thin due to the need to understand and run businesses in completely different industries, which can be highly demanding. Moreover, the potential for achieving competitive advantage through strategic fit across these diverse businesses is generally low, as there are few if any, synergies to be leveraged.

Another key concern is that unrelated businesses may not support one another leading to a lack of financial fit, potentially draining resources from more profitable divisions. Additionally, competition in new industries may be underestimated, resulting in businesses facing stronger rivals with better or cheaper products. This could decrease profits, and in extreme cases, lead to business failure, affecting many stakeholders including workers and managers.

Answer 2

c. demanding managerial requirements and limited competitive advantage potential that cross-business strategic fit provides.

Step-by-step explanation:

An unrelated diversification can be defined as a situation in which an existing business or company enters or invest in an entirely new business or industry that do not have any similarity whatsoever with its original business or product line. For example, an automobile manufacturing company that decides to acquire or invest in a clothing or shoe business.

Hence, the two biggest drawbacks or disadvantages of unrelated diversification are demanding managerial requirements and limited competitive advantage potential that cross-business strategic fit provides.

Also, the difficulties in successfully managing a collection of unrelated different business and having minimal competitive advantage potential over its rivals in the industry that cross-business strategic fit provides is another disadvantage of unrelated diversification