When evaluating strategic fit benefits that related diversification can deliver, one must keep in consideration a number of factors. Which one is not relevant?
A) Shareholder value stemming from a diversified business cannot be replicated by simply owning a diversified portfolio of stocks.
B) The capture of cross-business strategic fits benefits is possible only through related diversification.
C) Cross-business strategic fit benefits are not automatically realized; the benefits materialize only after management has successfully pursued internal actions to capture them.
D) Shareholder value is created when the diversified company's profitability exceeds expectations.
E) Related diversification is the process of holding the stock of many businesses in a portfolio.
E) Related diversification is the process of holding the stock of many businesses in a portfolio.
There are three things to bear in mind here regarding the potential strategic fit benefits of related diversification: (1) capturing cross-business strategic fit via related diversification builds shareholder value in ways that shareholders cannot replicate by simply owning a diversified portfolio of stocks, (2) the capture of cross-business strategic-fit benefits is possible only through related diversification, and (3) the benefits of cross-business strategic fit are not automatically realized—the benefits materialize only after management has successfully pursued internal actions to capture them.
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