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

Question

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  
 B 
 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  
 D 
 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  
 A 
 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.

4  
 C 
 4. It can be inferred from the passage that the original intention of the growth/share matrix was to

A. indicate which smaller companies were successes and thus good buys for corporations
B. counter the chaos of the heyday of acquisition and diversification of the 1960s and 1970s
C. inform parent companies which of their holdings were doing well in relation to their own fields
D. present companies with a way to counter the faltering of their successes during the energy crisis of 1973
E. alleviate the problems associated with corporations’ underestimation of the amount of debt they could acquire

The Princeton Review Crash Course for the GMAT 2013    (173)

satyakota · Answer

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.

TheNightKing · Answer

GMATNinja 
Can you take a look at OA for question 2?

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!

manass · Answer

SajjadAhmad  please explain q3

Sajjad1994 · Answer

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

KeyurJoshi · Answer

Hi  TheNightKing 
Even I got Q2 wrong but looking back at answer choices I tried to reason with choice A, I dont know if its correct please lmk if my thinking is correct

Actual Debt: USD 100
Underestimated Debt by the matrix: USD 50 (line 27)

So the matrix here  overestimated the risk of debt  leading it to  underestimate the debt amount  WHICH INDEED IS A PROBLEM.

TarPhi · Answer

@Sajjadahmad, can you post the OE for Q2?

TIA

Sajjad1994 · Answer

Official Explanation

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

Difficulty Level:   Hard

Explanation

Since this is an EXCEPT question, keep in mind that four answer choices address the question, and the fifth one, which does not, is the credited response. This question also applies to the passage as a whole, so use each answer choice as your lead words.

A No.  Negative debt was discussed in the second paragraph of the passage.

B No.  Divisions’ relations to each other were also discussed in the  second paragraph.

C No.  Lack of knowledge was addressed at the end of the first paragraph:  “managers had a tool for understanding the relative success of those businesses with whose fields they were unfamiliar.”

D Yes.   “Inability to correctly order division”  was never mentioned as a problem in the passage, and so is a good answer for an EXCEPT question.

E No.  This is summarized in the last sentence of the passage.

Answer: D

naveenpatil1121 · Answer

Hi , I have a question regarding your explanation for option C which says
C. the failure of the matrix to compensate for the lack of knowledge the corporations had about their own holdings.

from passage, The matrix worked by ordering each division according to its position within its industry overall. 
Thus, managers had a tool for understanding the relative success of those businesses with whose fields they were unfamiliar

Basically the passage is saying people now understood if business A is successful (business A being a business they dont know), so IT IS compensating for their lack of knowledge right?
it is a problem that the matrix is solving. How is it failing to do so as in option C?

Kante · Answer

could you please share the QE for question 4?

Sajjad1994 · Answer

No! the passage is not saying that, the passage actually highlights the failure of the growth/share matrix to provide information about the corporation's ability to manage even those divisions it identified as successful. In other words, the matrix did not compensate for the lack of knowledge that corporations had about their own holdings, particularly when it came to their ability to manage their acquisitions effectively. This is discussed in  lines 27-35  of the passage:  "And finally, the matrix was unable to provide information regarding the corporation's ability to manage even those successes identified by the matrix."

So,  option C  is a valid problem associated with the growth/share matrix, and it is mentioned in the passage as one of the limitations of the matrix.

Sajjad1994 · Answer

Explanation

4. It can be inferred from the passage that the original intention of the growth/share matrix was to

Difficulty Level:   Hard

Explanation

A)  This option suggests that the original intention of the growth/share matrix was to identify successful smaller companies that would be good acquisitions for corporations. It implies that the matrix was designed to help corporations make strategic decisions about which divisions or companies to acquire. While the matrix did assess the performance of divisions, it didn't necessarily focus on identifying smaller companies for acquisitions. Instead, it evaluated the performance of existing divisions within a corporation.

B)  This option implies that the matrix was introduced to address the chaotic nature of the acquisition and diversification trends of the 1960s and 1970s. While it is true that the matrix was introduced in response to the rapid acquisition and diversification during that time, its primary purpose was not to counter chaos but to evaluate the performance of existing divisions within corporations and help with decision-making regarding those divisions.

C)  This option accurately reflects the main purpose of the growth/share matrix, as discussed in the passage. The matrix was introduced to help parent companies assess the performance of their various divisions and determine which ones were considered successful, especially in relation to their respective industries or fields.

D)  This option suggests that the matrix was introduced to help companies respond to the challenges of the energy crisis of 1973. While the passage does mention the energy crisis as a backdrop for the introduction of the matrix, the primary purpose of the matrix was to evaluate division performance and identify successes rather than directly countering the effects of the crisis.

E)  This option implies that the matrix was introduced to address issues related to corporations' debt management and their underestimation of debt limits. The passage does mention that the matrix underestimated the amount of debt corporations could safely assume, but this was not the primary focus or intention behind the matrix's introduction. Its primary goal was to assess division performance.

In light of the passage's emphasis,  option C  is the correct choice, as it aligns with the stated purpose of the growth/share matrix.

Answer: C

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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

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