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In the early 1970s, a new system of organizing the grow- ing acquisiti

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In the early 1970s, a new system of organizing the grow- ing acquisiti  [#permalink]

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New post Updated on: 03 Oct 2019, 21:22
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New Project RC Butler 2019 - Practice 2 RC Passages Everyday
Passage # 82, Date : 13-MAR-2019
This post is a part of New Project RC Butler 2019. Click here for Details


In the early 1970s, a new system of organizing the grow-
ing acquisitions of corporations was introduced. Called the
growth/share matrix, this tool seemed to operate on the
most logical of assumptions: Corporations should sell off
(5) their losing divisions as determined by the divisions’
positions on the matrix, and retain and increase those
divisions that the matrix considered successful.

According to the Harvard Business Review, the Boston
Consulting Group (BCG) introduced the matrix in response
(10) to corporations that had entered the heyday of acquisition
and diversification of the 1960s and early 1970s, and subse-
quently faltered with the energy crisis of 1973. The matrix
worked by ordering each division according to its position
within its industry overall. Thus, managers had a tool for un-

(15) derstanding the relative success of those businesses with
whose fields they were unfamiliar. Enthusiasm over the
matrix and its simplicity and apparent logic obscured one of
the problems inherent in the initial situation: the wide range
of acquisitions these corporations had purchased.

(20) The matrix evaluated the performance of the divisions in
terms of their competitiveness within their fields and their
cash value, but failed to analyze the relationships among di-
visions that made up a corporation's holdings. For instance,
a corporation that owned a newspaper chain and a paper
(25) mill would be advised to consider more than just the
relation of the paper mill's performance to that of other mills.
Beyond this, the matrix underestimated the amount of debt
a corporation could safely assume. And finally, the matrix
was unable to provide information regarding the corporation's
(30) ability to manage even those successes identified by
the matrix.

Simply having a number of separately competitively suc-
cessful companies does not ensure that companies will be
able to support their owners without proper management
(35) and understanding. Despite the clarity and effectiveness of
the growth/share matrix as a tool for determining divisions’
performance, it could not long compensate for the difficul-
ties present in the initial situation it sought to alleviate: that
of corporations believing that their particular management
(40) styles would function effectively for any type of smaller
business they might acquire.


1. Which of the following best describes the main idea of the passage?

A. The growth/share matrix was a failure as an acquisition research tool, and hurt many corporations.
B. The growth/share matrix, though eagerly embraced at first, could not completely solve the problems it sought to address.
C. Corporations that acquire holdings that are both overly diversified and unrelated will not succeed in the business world.
D. Management style should be of primary concern when a corporation is deciding which divisions to retain and which to divest.
E. No one corporate tool can ever compensate for a lack of management skills and well-thought-out acquisition planning.



2. According to the passage, all of the following were problems associated with corporations’ reliance on the growth/share matrix EXCEPT

A. the overestimation by the matrix of the negative effect that debt might have on a corporation.
B. not considering divisions’ relation to one another within each corporation’s holdings.
C. the failure of the matrix to compensate for the lack of knowledge the corporations had about their own holdings.
D. the matrix’s inability to correctly order divisions within their overall industries.
E. the matrix’s lack of focus on a corporation’s ability to manage its acquisitions.



3. It can be inferred from the passage that the author suggests which of the following concerning some corporations during the energy crisis of 1973?

A. The troubles of these corporations were related to problems of conforming their management styles to their new holdings.
B. Lack of fuel led many companies to have trouble powering their acquisitions.
C. Corporations’ reliance on the growth/share matrix led them to mismanage their holdings.
D. Overenthusiastic buying of smaller companies left many corporations unwieldy and difficult to manage.
E. Too little diversification forced companies to find a tool to estimate the relative success of companies with whose fields they were unfamiliar.



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Originally posted by SajjadAhmad on 13 Mar 2019, 03:04.
Last edited by SajjadAhmad on 03 Oct 2019, 21:22, edited 1 time in total.
Updated - Complete topic (788).
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Re: In the early 1970s, a new system of organizing the grow- ing acquisiti  [#permalink]

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New post 26 Mar 2019, 00:07
2
Q1- B- Explanation-
Enthusiasm over the matrix and its simplicity and apparent logic obscured one of the problems inherent in the initial situation: the wide range of acquisitions these corporations had purchased.-> This statement shows that people liked the matrix at first but then the subsequent paragraph starts undermining it and brings out the drawbacks
Q2- D - Explanation
The matrix's failure to analyse the relationship among divisions is described but not about ordering the divisions within their overall industries.

Q3- A-

Management thought they had a tool to understand the business they were not aware of but the last para clarifies that the management style to the new holdings was the drawback of the matrix.
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Re: In the early 1970s, a new system of organizing the grow- ing acquisiti  [#permalink]

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New post 17 Sep 2019, 16:41
GMATNinja
Can you take a look at OA for question 2?

Quote:
2. According to the passage, all of the following were problems associated with corporations’ reliance on the growth/share matrix EXCEPT
A. the overestimation by the matrix of the negative effect that debt might have on a corporation.
B. not considering divisions’ relation to one another within each corporation’s holdings.
C. the failure of the matrix to compensate for the lack of knowledge the corporations had about their own holdings.
D. the matrix’s inability to correctly order divisions within their overall industries.
E. the matrix’s lack of focus on a corporation’s ability to manage its acquisitions.


Line 12 says : The matrix worked by ordering each division according to its position within its industry overall.
Line 27 says: Beyond this, the matrix underestimated the amount of debt a corporation could safely assume.

Am I missing something? Should OA be A?

Thank you and Sorry for the tag!
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Re: In the early 1970s, a new system of organizing the grow- ing acquisiti  [#permalink]

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New post 17 Sep 2019, 17:35
SajjadAhmad please explain q3
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Re: In the early 1970s, a new system of organizing the grow- ing acquisiti  [#permalink]

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New post 17 Sep 2019, 22:45
Official Explanation


3. It can be inferred from the passage that the author suggests which of the following concerning some corporations during the energy crisis of 1973?

Difficulty Level: 750

Explanation

Read closely around the words energy crisis of 1973. Remember that the credited response must be a paraphrase. Refer to the passage if you need to.

A. Yes. This is stated in the final sentence of the passage.

B. No. This answer choice confuses two notions of “powering.”

C. No. Mismanagement due to the growth/share matrix and the matrix itself came into play only after 1973.

D. This is never specifically related to the energy crisis of 1973.

E. No. The problem was not one of the lack of diversification, but rather too much.

Answer: A


Hope it helps

manass wrote:
SajjadAhmad please explain q3

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Re: In the early 1970s, a new system of organizing the grow- ing acquisiti   [#permalink] 17 Sep 2019, 22:45
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