Question

Diversification ought to be considered at single-business companies when ____

(A) company has run out of ways to achieve a distinctive competence in its present business.
(B) industry conditions take a turn for the worse and are expected to be long-lasting, thus undermining prospects for ongoing gains in revenues and profits.
(C) a company lacks sustainable competitive advantage in its present business.
(D) a company's profits are being squeezed and it needs to increase its net profit margins and return on investment.
(E) a company has more resource/capability weaknesses and competitive deficiencies than it has resource/capability strengths and competitive assets.

Answer 1

Answer:

B is the correct answer.

Explanation:

A single business strategy exists in a company when a company is deriving 95 percent of its revenue from one business activity. If the percentage of revenue from single business activities decreases it is said to be diversifying its strategies. The companies deriving less than 70 percent of its revenue from one activity and its activities are unrelated to each other is a diversified company. There are inherent risks in a single business strategy as negative events could affect the entire business.