Part A: Multiple Choice Questions
1. Igor Ansoff conducted extensive research a. management by objectiveon acquisitions b y American companies b. value chain analysisbetween 1948 and 1968. He found that c. gap analysisacquisitions based on a rational strategy
d. generic strategy analysisfared far better than those that were basedon _ ________ ___ ___. 6. Which of the following is not a theory
introduced by Michael Po rter?a. strategic intent
b. opportunistic decisions a. Generic strategies
c. strategic analysis b. Five fo rces model
d. strategic choice c. Gap analysis
d. Value chain2. Which of the following goes against Igor
Ansoff's strategic success paradigm? 7. Which of the fo llowing is not a genericcompetitive strategy proposed by Michaela. There is no universal success fo rmula for
firms. Porter?
b. The level of turbulence in the environment a. Cost leadershipdetermines the strategy req uired for the b. Value chainsuccess of a firm. c. Differentiation
c. The aggressiveness of a strategy should bed. Focus
aligned with the turb ulence in theenviro nment to optimize a firm’s success. 8. George Stalk, Philip Evans, and Lawrence
E. Schulman proposed four basicd. Internal capability variables -- cognitive,principles of capabilities -basedpsychological, political, anthropological,competition. Which of the following is notand sociological variables -- do not playone of those principles?any role in a firm’s success.
a. The building blocks of corporate strategy3. Henry Mintzberg advocated a more
are products and markets, and not businesshumane approach to strategy fo rmulation
processes.and implementation. This was called
b. Competitive success d epends on_________.transforming a compan y’s key processes
a. crafting strategy into strategic capabilities that consistentlyb. drafting strategy provide superior value to the customer.c. designing strategy c. Companies create these capabilities byd. choreographing strategy making strategic investments in a support
infrastructure that links together andPeter Drucker’s significant contribution to4. transcends traditional Strategic Bu sinessbusiness strategy was the introduction of Units (SBUs) and functions.the concept of __________________.
d. Because capabilities necessarily crossa. the five forces functions, the champion of a capabilities-b. management b y objective based strategy is the CEO.
c. value chain analysis9. According to C. K. Prahalad and Gary
d. gap analysisHamel, corporations should viewthemselves as a portfolio of core5. Michael Porter proposed the use ofcompetencies rather than as a portfolio of_____________ of an organization’sbusinesses. Fro m the following options,internal processes, and the interactionsidentify the statements that correctlybetween different functions, to determinedescribe this concept of core competence.how and where value could be added.
Business Strategy
i. A core competence represents the 12. When we speak of strategy as plans for the
collective learning in the organization, future, we refer to a/an _____ ________especially on how to coordinate diverse strategy. When we speak of strategy asproduction skills and integrate multiple actions taken, we refer to a/an
streams of technologies. ___________ strategy.
ii. In the long run, an organization’s a. realized, emergentcompetitiveness depends o n its ability to b. emergent, intendedbuild core competencies faster than c. intended, realizedcompetitors and at a lower cost.
d. failed, intendediii. A core competence in a company must
have the potential to provide access to a 13. At the __ ____________, strategies ared evised in an attempt to exploit the firm’svariety of markets and make a contribution
to preconceived consumer benefits of the distinctive competencies by developinglong-term plans for business operations.end product.
a. corporate leveliv. A core competence must be difficult for acompetitor to copy. b. functional level
c. business levela. Only i and iii
d. none of the aboveb. Only i, iii, and iv
c. Only ii, iii, and iv 14. At which organizational level does the
d. i, ii, iii, and iv formulation of a multifunctional strategy
for a single industry or product-market10. _____________ refers to the purpose an area take place?
organization strives to achieve.a. Corporate level
a. Strategic intentb. Functional level
b. Company profilec. Business level
c. Strategyd. Board Level
d. Policy15. Of the following, who play an important
11. Gary Hamel and C. K. Prahalad role in the success of products and servicespopularized the co ncept of competitive and in increasing the market share ofstrategy as leverage, in the context of a single product/market firms?resource-scarce firm facing a ‘wealthy
a. Functional level managersrival’. Which of the following is not one
b. Corporate level managersof the premises that help us to understandc. Business level managersthis concept and its relevance to strategic
management? d. a, b, and c
a. Great differences do exist between16. A syndrome in which the senior managers
different firms in the market in terms ofare collectively deluding themselves ab out
the competitive impact they can generatethe organization’s condition is known as
with a given amount of resources.________.
b. Resource constraints are necessarily ana. Vested interest
impo rtant impediment to the achievementb. Kidding themselvesof glo bal leadership.
c. Lack of awarenessc. The resource allocation task ofmanagement has received too much d. Resistance to changeattention as compared to the task of
17. Which of the fo llowing elements ofresource leverage.strategic management identifies thed. Leverage-based efficiency gains comestrategic factors that may d etermine theprimarily fro m raising the numerator infuture of a firm?productivity ratios rather than from
reducing the deno minator. a. Evaluation and control
4
Part A
b. Environmental scanning i. Vision is a description of what the
organization is trying to do and to become.c. Strategy formulation
ii. Mission identifies the scope of thed. Strategy implementatio ncompany’s operations.
18. SWOT analysis is often used in iii. The company profile is determined as anenviro nmental scanning. SWOT is an outcome of internal analysis of theacronym for strengths, weaknesses, company.opportunities, and threats. These are
respectively _______, ________, a. Only i and ii________, and ________ to the b. Only i and iiiorganization.
c. Only ii and iiia. internal, external, internal, external
d. i, ii, and iiib. internal, internal, external, external
24. The ______________ of a company setsc. external, external, internal, internalthe company apart fro m other companiesd. external, internal, external, internalin the same area of business.
19. Defining the company mission, specifying a. visionobjectives, and developing strategies are a
b. missionpart of the ____________ process.
c. profilea. enviro nmental scanning
d. external environmentb. strategy formulation
25. Environmental scanning is a stud y of thec. strategy implementationexternal environment, focusing on bo th the
d. evaluation and co ntrol_________ and the ___ ___ _____
enviro nments.20. Which of the following options putsstrategies and policies into action through a. social, operatingprograms, budgets, and procedures? b. remote, operating
a. Environmental scanning c. social, political
b. Strategy formulation d. remote, political
c. Strategy implementatio n26. The ________________ depicts the
d. Evaluation and control q uantity and quality of the company’s
financial, human, and physical resources.21. The implementation of strategy is typicall y
a. visionhandled by ____________ , except whenb. missiondrastic company-wide changes are needed.
c. company profilea. midd le level managersd. external environmentb. directors
c. top level managers 27. A ___________________ is a statement ofd. stakeholders means that indicates the methods to be
used to achieve the company’s overall22. __________ provides a valuable
objectives.opportunity for organizational learning. It
a. functional strategyalso pinpoints the weaknesses of strategicplans implemented earlier. b. business strategy
a. Environmental scanning c. operating strategy
b. Strategy formulation d. grand strategy
c. Strategy implementatio n28. Opportunities that are compatib le with the
d. Evaluation and controlcompany’s mission are identified as
desired opportunities. Further choosing23. Identify the statements that hold true withfrom the list of desired opportunitiesregard to strategic components
5
Business Strategy
results in the identification of poten tial a. Appro priate information for situation
options. This process is kno wn as analysis is gathered unsystematically.__________. b. A few feasible alternative strategies are
a. strategic analysis developed and the most appropriate
strategy is selected.b. strategic choice
c. external environment analysis c. It encompasses a proactive search for
opportunities but not a reactive solution tod. strategic managementexisting problems.
29. Which strategy provides a means ford. It helps the company to be better prepared
achieving a compan y’s annual/short -termfor evaluation.
objectives?
a. Organizational strateg y 34. ____________________ is useful when
the environment is changin g rapidly and itb. Business strategyis important to build a consensus befo rec. Operating strategycommitting the entire co mpany to ad. Corporate strategyspecific strategy.
a. Adaptive mode30. For larger organizations, as the
b. Planning madeenviro nments become more ___________,c. Entrepreneurial modedecisions become increasinglyd. Logical incrementalism________________ to make.
a. certain, complex and difficult 35. Which of the following is not ab. uncertain, simp ler and easy characteristic of strategic decision making?
c. uncertain, complex and difficult a. Strategic management integrates various
d. certain, multifaceted and easy functions.
b. Strategic management considers a broad31. In the case of the entrepreneurial mode,
range of stakeholders.which of the following statements is not
c. Strategic management entails a single timecorrect ?
horizo n.a. In this mode, strategies are framed by one d. Strategic management is concerned with
powerful individual. both efficiency and effectiven ess.It focuses solely on the organization’sb.
36. An organization’s ______ ___ __ andopportunities.___________ act as guidelines for strategy
c. Problems associated with strategyformulation.
implementation are given top priority.a. objective, visiond. Its dominant goal is the growth of theb. vision, missio norganization.c. vision, goal
32. The ________________ is characterized d. mission, objectiveby reactive solutions to existing problems.
This type of decision-making results in a 37. A well-co nceived vision has two maincomponents -- ___________ andfragmented strategy and incremental__________.improvements.
a. ideology, organization purposea. adaptive mode
b. customer needs, plansb. planning mode
c. goals, envisioned futurec. entrepreneurial mode
d. core ideology, envisioned futu red. logical incrementalism
38. In the case of the vision of a company,33. In the case of the planning mode, which ofwhich of the following statement is false ?the follo wing statements holds true ?
6
Part A
a. The vision needs to be specific so that the a. fundamental intention
scope for different interpretations is b. view of the futureminimized. c. competitive arenas
b. The vision needs to be communicated d. source of competitive advantageeffectively as a first step to its actual
43. ________ ___ ____ is the creed of theimplementation.organization, and reflects the basic beliefs,
c. The vision should ignore the concerns of values, and aspirations of the firm.external stakeholders in order to be a. Company missioneffective.
b. Company philosophyd. The vision of the company should also try c. Company vision
to streamline and relate the personal goalsd. Company goal
of employees with organizational goals to
the extent possible. 44. _______________ responsibilities involve
the widely-held beliefs about behavior in a39. A ___________ statement describes the society.
product, the market, and the technologicala. Econo mic
areas of emphasis for the business, andb. Legal
forms the firm’s _______________.c. Ethical
a. mission, reason for existenced. Discretionary
b. objective, strategy
45. _________________ responsibilities referc. vision, planto the purely voluntary obligations that ad. goal, policycorporation assumes, such as philanthropiccontributions and training the unemployed.40. The fundamental assumptions on which a
mission statement is b ased include: a. economic
b. legali. the basic type of p roduct or service to be
offered. c. ethical
ii. the managerial philosophy of the firm. d. discretionary
iii. the technology to be used in production or46. The _________ ____ _ involves factors that
delivery.provide many challenges a particular firm
iv. the public image sought. faces when attempting to attract or acquireessential resources or when striving to
a. Only i, ii, and iii profitably market its goods and services inb. Only i, ii, and iv the immediate competitive situation.
c. Only i, iii, and iv a. operating environment
d. i, ii, iii, and iv b. remote environment
c. economic environment41. _________________ is a statement of the
d. social environmentrole that a co mpany will seek to adopt and
the description of what the company hopes47. Which of the following is not a factor
to accomplish as a means to gauge future coming under the remote environment?success.
a. Sociala. Fund amental intention
b. Politicalb. View of the future c. Customerc. Competitive arenas d. Econo micald. Source of co mpetitive advantage
48. The _______________ of an organization
42. The businesses and regions/geographies is constituted by the values, beliefs,attitudes, opinions, and lifestyles inwhere the company will compete aresociety.referred to as its ____________________.
7
Business Strategy
a. economic environment 53. Existing firms in an industry so metimes
enjoy advantages that are not available tob. social environmentnew entrants. These advantages arise fromc. political environmentthe effects of the ________________.d. legal environment
a. customer profile49. The customer profile for an organization is
b. economies of scalebuilt based on the information relating to:
c. experience curvei. demographic profile
d. none of the aboveii. geographic profile
iii. psychographic profile 54. When switching costs are absent and there
is a slowdown in industrial growth, what isiv. buying profilethe expected impact on the intensity of
a. Only i, ii, and iii rivalry in the industry?b. Only i, ii, and iv
a. Intensity of rivalry will increase.c. Only i, iii, and iv
b. Intensity of rivalry will decrease.d. i, ii, iii, and iv
c. Intensity of rivalry will remain the same.
50. New entrants to an industry often take the d. Intensity of rivalry may either increase oracquisitions route. This is because the decrease.entry of new firms in an industry results in
55. According to Michael Porter, buyers area/an __________.powerful whena. increase in profit
i. there are many bu yers but the suppliers areb. decline in profitabilityfew and large.c. increase in market share
ii. they purchase in large quantities.d. decrease in rivalrythe supplier’s industry depends on theiii.
51. Which of the following is not a barrier for buyers for a large percentage of its totala new entrant entering a particular orders.industry?
iv. it is economically feasible for the buyers toa. Market share purchase the input from several companiesb. Economies of scale at a time.c. Product differentiation
a. Only i, ii, and iiid. Government policyb. Only i, ii, and iv
52. XYZ Ltd has been a soft drink major in c. Only i,. iii, and ivnorthern India for the last two decades
d. Only ii, iii, and ivwith four popular brands. No other softdrink giant has been ab le to make a dent in 56. The ______________ increases theXYZ’s market share. DEF Ltd is a
suppliers’ profitability when themultinational giant that has been given
___________ are able to dictate the pricegovernment subsidy to set up its unit here
that the _________ must pay for thebut is still not able to create a niche for
product.itself. This is because along with
a. high bargaining power of buyers,distribution, production scale, andsuppliers, b uyermarketin g, XYZ Ltd. has created entry
barriers which are almost impenetrable b. low bargainin g power of buyers, buyers,through __ ______. supplier
a. capital requirements c. low bargaining po wer of suppliers, buyers,
b. product differentiation supplier
c. government policy d. high bargaining power of sup pliers,
suppliers, b uyerd. economies of scale
8
Part A
57. The growing demand fro m either new c. Internal analysis
customers or additional purchases by d. Value chain analysisexisting customers tends to
62. ______________ are used as indicators of________________ among the companiesa firm’s ability to meet its short -termbecause increased requirement for thefinancial obligations.products creates opportunities for
companies to expand. a. Liquidity ratios
a. increase rivalry b. Leverage ratios
b. reduce rivalry c. Activity ratios
c. terminate rivalry d. Profitability ratios
d. have no effect on rivalry63. The ___________ indicates the pro portion
o f a firm’s capital being contributed by58. To create a favorable position against theowners and outside creditors.five competitive forces, an effective
competitive strategy takes offensive or a. leverage ratiodefensive action. This involves: b. activity ratio
i. anticipating shifts in the factors underlying c. liquidity ratiothe forces and responding to them. d. profitability ratio
ii. positioning the firm so that its capabilities64. Which of the fo llowing statements isprovide the best defense against the
false ?existing array of competitive forces.
iii. ignoring the balance of comp etitive forces a. Financial analysis is a standardized orthat affect the firm’s relative position. mechanical process.
b. Financial data can provide an insight intoa. Only i and ii
the future when analyzed prop erly in ab. Only i and iii
strategic context.c. Only ii and iii
c. Even non-profit institutions must pay theird. i, ii, and iii bills on time to continue o perations.
d. Info rmation in financial statements is59. Differentiation in products can be achievedhistorical and often derived from athrough __ ____________.relatively distant past.a. brand loyalty
b. product promotion 65. The _________ ____ __ function either
c. innovation supplements a product-oriented effo rt or
improves the production processes.d. product distribution
a. production60. The basic objective of the __________ is
b. marketingto ensure that the outp uts produced have ac. research and developmentvalue that exceeds the combined costs of
the inputs and the transformation process. d. accounting
a. marketin g function66. Process R&D attempts to reduce the
b. production function __________ of operations and seeksc. finance function constant _____ ___ ___ through mored. research and development function efficient processes.
a. time, product innovations61. __________ is an important tool used tob. costs, improvement in qualityassess the strength of an organization
within its industry and to measure its c. costs, product innovationsperformance in comparison with past years d. time, increase in revenuesand its competitors in the industry.
67. The human reso urce management functiona. Gap analysisincludes major responsibilities like:
b. Financial analysis
9
Business Strategy
i. designing and analyzing jobs. 72. The factors of assessment of the marketing
and sales function includ e:ii. management d evelopment.
iii. managing employee co mpensation and i. innovation in sales promo tion andbenefits. advertising.
iv. career management. ii. promptness of attention to customer
complaints.a. Only i, ii, and iii
iii. evaluation of alternate distributionb. Only i, ii, and iv
channels.c. Only i, iii, and iv
iv. motivation and competence of the salesd. i, ii, iii, and iv
force.
68. In value chain analysis, _____ ___ __ anda. Only i, ii, and iii
____________ are assessed by dividing ab. Only i, ii, and ivbusiness into a number of linked activities,
each of which may produce value for the c. Only i, iii, and ivcustomer. d. Only ii, iii, and iv
a. strengths, weaknesses73. Which of the fo llowing statements isb. opportunities, threats
false ?c. opportunities, weaknesses
a. Timeliness and efficiency of delivery ofd. strengths, threatsfinished goods and services is a factor of
69. Which of the following options is not a assessment of outbound logistics.primary activity in a value chain? b. The efficiency of finished good s
a. Operations warehousing activities is a factor ofassessment of operatio ns.b. General administration
c. A factor for assessment of marketing andc. Outbound logisticssales activity is the effectiveness of marketd. Inbound lo gisticsresearch to identify customer segments and
70. The value chain framework is useful for needs.managers in particular because: d. The ability to provide replacement parts
i. it clearly highlights the importance of and repair services is a factor ofcustomer value. assessment of customer service.
ii. it provides a sense of direction to74. The factors of assessment of operationsmanagers by offering a generic checklist of
activity are:what to analyze when assessing a firm.
iii. it indicates that everything an organization i. efficiency o f plant layout and work-flowdoes cannot be managed to improve the design.firm’s overall ability to create value. ii. effectiveness of production co ntrol
systems to improve quality and reducea. Only i and iicost.b. Only i and iii
iii. appropriate automation of productionc. Only ii and iiiprocesses.d. i, ii, and iii
iv. soundness of material and inventory71. Which o f the follo wing is not a factor of contro l systems.
assessment of marketing and salesactivity? a. Only i, ii, and iii
a. Development of an image of quality and a b. Only i, ii, and ivfavorable reputation
c. Only i, iii, and ivb. Extent of brand lo yalty among customers
d. Only ii, iii, and ivc. Extent of market dominance within the
market segment or overall market 75. Which of the following are the factors of
assessment of hu man resourced. Ability to provide replacement parts andmanagement?repair services
10
Part A
i. Effectiveness of procedures for recruiting, a. more, less, more
training, and promoting all levels of b. more, more, moreemployees c. less, more, less
ii. Appropriateness of reward systems for d. less, less, lessmotivating and challenging employees
iii. Quality of laboratories and other facilities80. The ______________ is a strategy that
iv. Levels of emplo yee motivation and jobprovides the basic strategic direction at thesatisfactio ncorporate level.
a. Only i, ii, and iii a. grand strategyb. Only i, ii, and iv b. functional strategyc. Only i, iii, and iv c. business level strategyd. Only ii, iii, and iv d. operating strategy
76. Which o f the follo wing is not a factor of 81. The main rationale for __ ___ ____ __assessment of technology development? strategy is that the firm thoroug hly
a. Quality of working relationships between develops and exploits its experience in aR&D personnel and other d epartments delimited competitive arena.
b. Qualification and experience of labo ratory a. market penetrationtechnicians and scientists
b. vertical integrationc. Relationship s with public policy makers
c. market developmentand interest groups
d. product developmentd. Ability of the work enviro nment to
encourage creativity and innovation 82. When a firm is pursuing the marketpenetration (concentration) strategy, the77. ________ are important for anstrategic alternative that focus on theorganization as they provide direction,customer will include ________.serve as standards, and also serve as
motivato rs. i. differentiating the product from itscompetitorsa. Objectives
ii. increasing usage by present customersb. Mission statementsiii. increasing p urchase frequencyc. Grand strategies
iv. expanding shelf spaced. Functional strategies
a. Only i, ii, and iii78. Which of the following statements withreference to objectives is true? b. Only i, ii, and iv
a. Strategic managers must ensure that c. Only i, iii, and ivobjectives are communicated to all d. Only ii, iii, and ivmembers of the organizatio n.
83. ______________ allows firms to practiceb. Each emp lo yee needs to understand onlya form of concentrated growth byhis/her individual objectives. Ho w theyidentifying new uses for existing productsrelate to the overall objectives is notand new demographically,his/her concern.psychographically, and geographically
c. Objectives do not require changes even ifdefined markets.the organization and the environment in
a. Market developmentwhich a firm o perates change.
b. Product developmentd. Objectives can relate either to the past orto the future. c. Forward integration
d. Horizontal integration79. While descending the hierarchy, objectives
become __________ abstract, ______ ___ 84. ______________ takes place when a firmenduring, and ___________ encompassing takes up a function previously provided byin the total organizational context. a supplier.
11
Business Strategy
a. Forward integration 89. The product strategy of the marketing
function in a firm deals with:b. Vertical integration
a. gross profit margin, media, and level ofc. Backward integrationmarket coverage.d. Horizontal integration
b. key distribution channels, key promotion85. Conglo merate diversification leads to: priorities and ap proaches, and priority
geographic areas.i. an increase in risk s, particularly forbusinesses that operate in industries c. key contributors to profitab ility, productsubject to rapid technological change. image, and consumer need .
ii. economies of large-scale operations. d. sales force organizationiii. financial stab ility and increased profits.
90. In the ________ strategy, gross profita. Only i and ii margin is a key consideration.
b. Only i and iii a. productc. Only ii and iii b. priced. i, ii, and iii c. place
d. promotion86. Divestiture and liquidation are examples of
________ strategies.91. Under a cost-oriented approach, pricing
a. growth decisions are centered on _________ withb. retrenchment acceptable markup or target price ranges.
c. diversification a. consumer demandd. integration b. total cost
c. incremental cost87. _____________ clarify the grand strategyd. competitor pricesand provide specific details about the
management of key functional areas in the92. Which of the following statements are
near future.true?
a. Functional strategiesi. A high dividend payo ut ratio may lead to
b. Critical success factors lower stock prices.c. Corporate strategies
ii. Lower dividends to the shareholders leadd. Mission and vision to higher internal financing.
iii. Lower dividends to the shareholders lead88. Which of the following statements is/areto lower internal financing.false ?
iv. Higher dividends to the shareholders leadi. Specificity in functional strategies addsto lower internal financing.substance, co mpleteness, and meaning to
what a specific subunit of the businessa. Only i and iimust do.b. Only i and iiiii. Functional strategies clarify for the topc. Only i and ivmanagement how functional managers
intend to implement the grand strategy d. Only ii and iv
successfully.93. A/An ________ research and develop men t
iii. Due to specificity in the functionalstrategy emphasizes technologicalstrategy, the coordination betweeninnovations and new product developmentoperating units is hindered.as the basis for the firm’s success.
a. Only ii a. offensiveb. Only iii b. defensivec. Only i and ii c. intendedd. Only i and iii d. realized
12
Part A
94. In the overall cost leadership strategy, a a. The firm will not b eco me the marketfirm makes sustained efforts to reduce leader; it will enjoy a higher than averagecosts in all areas o f business without return.compro mising on the quality of its b. The firm will become the market leader; itproducts and services. From the following will enjoy a higher than average return.options, identify the benefits of
c. The firm will not b eco me the marketsuccessfully adopting the overall cost
leader; it will enjoy a lower than averageleadership strategy.
return.i. The co st structure for the firm would be
d. The firm will become the market leader; itlower than that of its competitors.
will enjoy a lo wer than average return.ii. The firm can price the product at the same
level as a competitor and earn higher 98. With reference to Michael Porter’s genericprofits due to its lo wer costs. competitive strategies, in which of the
iii. The firm can reduce its prices to build following cases is a ‘stuck in the middle’volumes and emerge as the market leader. situation likely to occur?
iv. The firm’s products and services are a. A firm pursues cost leadership strategy.perceived by the customers and consumers
b. A firm pursues differentiation strategy.as distinct and unique from its
c. A firm simultaneou sly attempts both costcompetitor’s products and services.leadership and differentiation.
a. Only i and iii d. A firm pursues focus strategy.
b. Only i, ii, and iii99. For a firm that p ursues the cost leadership
c. Only ii, iii, and ivstrategy, the risk of ‘redundancy of past
d. i, ii, iii, and iv investments and learning’ is associated
with which of the following events?95. Which o f the following is not one of thea. Technological changemethods in which firms control costs when
they adopt the overall cost leadership b. Imitationstrategy? c. Excessive obsession with cost
a. Tight control of overhead costs and minimizationexpenditure in service, advertising, d. Unexpected inflation in costsresearch and development, and sales fo rce
100. To overcome the pitfalls of genericb. Focus on small customer accountsstrategies, a firm can create a strategicc. Exclusive access to cheap raw materialslock-in, that is, achieve a proprietaryand a wide line of products to spread costsposition in its industry. Identify thed. High investment in plant and machinerystatement that is false with respect toand construction of efficient-scale facilitiesstrategic lock-in.
96. Which of the following is not an a. Lock -in means that other businesses haveadvantage of adopting the differentiation to conform to or relate to that standard instrategy?
order to prosper, and the architecture of thea. Creates customer loyalty fo r the firm’s industry is b uilt around the do minant
products and services player.b. Allows the firm to price its products higher b. The lock-in is likely to come in more
than those of its co mpetitors easily in the maturity stage of a market lifec. Increases the bargaining power of the cycle.
buyersc. The extent of lock-in depends on the
d. Creates a perception of uniquen ess aboutextent to which the firm is dominating the
the firm’s products and servicesmarket in which it operates.
d. When a few firms conform to the97. What are the implications of a firm with awell-differentiated product portfolio standards, others are also o bliged to do so
pricing its products significantly higher and this sets in motion a process wherebythan those of its co mpetitors? the lock-in beco mes firm.
13
Business Strategy
101. In ____ ____ industries, a firm has the a. suitability
opportunity to shape industry structure, b. feasibilitymaintain the right balance between c. acceptabilityindustry advocacy and self-interest, and
d. excellenceprudently exploit the changing role of
suppliers and channel intermediaries. 106. The criterion of _____________ involves
not only the consequences of the strategya. fragmentedbut also the personal considerations of theb. emergingstrategy decisio n makers as they have to
c. maturingaccept it.
d. declininga. suitability
102. In ________ industries, the steps involved b. feasibility
in strategy formulation often involve c. acceptabilitysophisticated cost analysis, rationalizing d. excellencethe product mix, co rrect pricing, p rocessinnovation and design for manufacture, 107. The consequences of a strategy after its
implementation can be identified bybuyer selection, and competinganalyzing the following factors:internationally.
i. the financial position o f the firm in termsa. fragmentedof profitability.b. emerging
ii. the critical success factors.c. maturingiii. the effect on capital structure.
d. decliningiv. the level of acceptability of cultural
103. In declining industries, a firm may changes within the organization.severely curtail new investment, minimize
a. Only i, ii, and iiiexpenditure on the maintenance ofb. Only i, ii, and ivfacilities, reduce the diversity of the
product line, reduce the number of c. Only i, iii, and ivchannels emplo yed, eliminate small d. Only ii, iii, and ivcustomers, and reduce the quality of
108. What provides the basis for comparing theservice in terms of d elivery time, speed ofrelative strengths of different businesses inrepair, or sales assistance. In this case, theterms of the strength of their p ositions infirm is said to be adopting a _ ____ ___their respective markets?strategy.
a. The BCG matrixa. leadershipb. Value chain analysisb. nichec. The 7S Frameworkc. harvestd. The Five Forces Modeld. quick divestment
109. With reference to the BCG matrix, which104. Which of the following is not a class of
one of the following represents the bestcriteria for evaluating a strategic
long-run opportunity in a firm’s portfolio?alternative?
a. Cash cowsa. Criteria of suitability
b. Starsb. Criteria of feasibility
c. Question marksc. Criteria of acceptability
d. Dogsd. Criteria of excellence
110. _______________ have a strong business105. The criterion of ____________ attempts to position and negligible investment
measure the extent to which the proposed requirements and hence the returns fro mstrategies fit the situation identified in the these businesses are often more than theirstrategic analysis. investment requirements.
14
Part A
a. Cash cows i. knowledge of cu stomers and markets
b. Stars ii. caliber of management
c. Question marks iii. emerging industry threats andopportunitiesd. Dogs
iv. economies of scale111. ___________ have a large relative market
a. Only i and iishare, and the firms need to invest in themb. Only iii and ivas the industry is still evolving and the
market share is also growing. c. Only i, ii, and iv
d. Only ii, iii, and iva. Dogs
b. Cash cows 117. What is the potential strength of the GEc. Question marks nine cell planning grid?d. Stars i. It allows for intermediate ranking of
business units, between high and low, and112. ______________ have a small relative
between strong and weak.market share in a high growth market.
ii. It is simple and easily manageable.a. Dogs
iii. It incorporates a much wider variety ofb. Cash cows
strategically relevant variables than thec. Stars BCG matrix.d. Question marks iv. It stresses the channeling of corporate
resources to businesses with the greatest113. There are only a few __________ which probability of achieving competitive
are able to gro w into ___ ____ ___ ___ advantage and superior performance.because the stage of growth in the industry
a. Only i, ii, and iiiis characterized by a lot of uncertainty that
results fro m changes in technologies, b. Only i, ii, and iv
distribution chan nels, and the p layers c. Only i, iii, and ivthemselves. d. Only ii, iii, and iv
a. Question marks, Stars118. Strengths are the resources, skills, or other
b. Cash cows, Starsadvantages the firm enjoys relative to its
c. Stars, Question marks competitors. Some of the strengths that ad. Stars, Dogs company may possess are:
i. goodwill and image in the market for114. ____________ have a lo w relative marketgoods and services.share in an intensely competitive mature
ii. access to the best distribution network.industry characterized by low profits.iii. increased bargaining power o f key buyersa. Dogs
or suppliers.b. Cash cows
iv. the discipline, mo rale, attitude, andc. Stars
manners of the employees.d. Question marks
a. Only i, ii, and iii115. Which tool of strategic analysis uses b. Only i, ii, and iv
multiple factors to assess industry c. Only i, iii, and ivattractiveness and business strength?
d. Only ii, iii, and iva. The GE grid
119. A ______________ is a challenge posedb. The BCG matrixby an unavoidable trend that could lead, in
c. The turnaround strategythe absence of purposeful action, to the
d. SWOT analysis erosion of the company’s position.
a. strength116. The various business strength factors takeninto consideration by the GE grid are: b. weakness
15
Business Strategy
c. opportunity c. When making a strategic choice, risk-averse managers lean toward safe,d. threatconservative strategies with reasonable,
120. Which of the following is not a threat to a highly probab le returns.firm’s environment? The greater the firm’s dependence ond.
external factors, the higher will be thea. Entry of resourceful multinationalrange and flexibility of its strategic choice.companies/competitors
b. Decreased b argaining power of key buyers 125. A firm can gain differentiation advantageor suppliers by:
c. Quick rate of obsolescence due to major i. procuring high q uality raw materials.technological change ii. having a superior product design.
d. Adverse changes in government policies, iii. superior sales force utilization.rules, and regulatio ns iv. having a responsive order entry system.
121. If a firm with key strengths faces an a. Only i, ii, and iiiunfavorab le environment, then it should
b. Only i, ii, and ivuse its current strengths to build long-term
c. Only i, iii, and ivopportunities and follow a
d. Only ii, iii, and iv________________.
a. liquidation strateg y 126. Value add ition occurs in four functions,namely, research and development,b. diversification strategyproduction, marketing and sales, and
c. turnaround strategyservice. All these four functions are
d. defensive strategy referred to as ________________.
a. primary activities122. If a firm faces major threats from theb. maintenance activitiesenviro nment and is constrained by critical
internal weaknesses, then it should support c. support activities
a/an __________________. d. secondary activities
a. aggressive strategy127. By designing and developing an efficient
b. diversification strategy production process, ___ ____ ________c. turnaround strategy costs can be ______________. This
provides a ______________ advantage tod. defensive strategythe firm in the long run.
123. The ____________ a strategy becomes, a. production, minimized, competitivethe ___________ it is to rep lace it with a
b. production, maximized , costnew one, even under changed
c. marketing, minimized, competitivecircumstances.
d. marketing, maximized, costa. simpler, harder
128. A firm operating in related industries canb. more complex, hardercreate a _________ advantage b y
c. more successful, harderexploiting the ___________ among the
d. more unsuccessful, more difficult industries.
a. competitive, independence124. Which of the following statements is false
regarding strategic cho ice? b. focus, inter-relationships
c. competitive, inter-relationshipsa. Attitudes toward risk exert considerable
influence on strategic choice. d. cost, independence
b. When making a strategic choice, risk-129. The objective of the _____ ________
oriented managers are attracted to warddepartment is to ___________ superior
opportunistic strategies with higherquality goods at the __________ possible
payoffs. cost.
16
Part A
a. marketin g, market, highest c. A firm influences the buyer not onlythrough its product but also through itsb. research, produce, lowestlogistical system.
c. service, supply, highestA firm influences the buyer’s performanced.d. production, manufacture, lowestby influencing the supplier value chain.
130. Marketing and ________ activities help134. In _______________ scope, the emphasis
increase the perceived value of a productis on the variety of products and the types
through __ _________ and ____________.of buyers.
a. production, pricing, promotions a. segmentb. finance, promotions, distribution b. verticalc. production, distribution, advertising c. geographic
d. sales, brand positioning, advertising d. industry
131. The materials management function of a 135. _______________ scope allows a firm tocompany controls the transmission of share value activities across different
regions.physical materials throughout the value
chain, fro m procurement to production and a. Segmentdistribution. The value creation here b. Verticaldep ends upon the efficiency with which c. Geographicthe material management function
d. Industry________________.
136. _________________ scope refers to thei. procures the raw materials.potential inter-relationship s among the
ii. delivers the final product.value chains required to compete in related
iii. is used to increase the productio n time. industries.iv. is carried out in lowering the costs. a. Segment
b. Verticala. Only i, ii, and iiic. Geographicb. Only i, ii, and ivd. Industryc. Only i, iii, and iv
d. i, ii, iii, and iv 137. Which of the following statements aretrue?
132. Which of the following constitute thei. Thro ugh coalitions, a firm gets an
infrastructure of an organization?opportunity to share its activities witho ut
i. Organization structure entering new ind ustry segments,geographic areas, or related industries.ii. Operations
ii. Coalitions broaden the scope of operationsiii. Control systemswithout broadening the firm.iv. Top management
iii. Coalitions besto w the cost anda. Only i and iii differentiation advantages of vertical
linkages without the firm having to go inb. Only i and ivfor vertical integration.c. Only i, ii, and iv
d. Only i, iii, and iv a. Only i and ii
b. Only ii and iii133. Which of the following statements is
c. Only i and iiifalse ?d. i, ii, and iii
a. A firm creates value when it creates a
competitive advantage for the buyer. 138. The basis for defining relevant business
unit boundaries is provided by theb. A firm’s differentiation does not dependrelatio nship between ________ ________on how its value chain is related to theand the _______________.buyer’s value chain.
17
Business Strategy
a. competitive scope, value chain a. Only i and ii
b. Only i and iiib. industry scope, market chain
c. Only ii and iiic. geographic scope, production chain
d. i, ii, and iiid. segment scope, sales chain
143. In any manufacturing firm, the139. An organizational structure thatintroduction of sophisticated information_____________ itself from/with the valuesystems and automated pro cesses leads tochain of a firm can ensure an enduringa/an ___ ____ _ in direct costs and a/an
competitive advantage to the firm.________________ in indirect costs.
a. isolatesa. increase, increase
b. alignsb. increase, decrease
c. demarcates c. decrease, decreased. separates d. decrease, increase
140. For the purpose of cost analysis, the 144. Which of the following is not a costdisaggregation of the generic value chain driver?into individual value activities should a. Interrelationshipsreflect:
b. Breadth of product linei. the size and growth of the cost represented c. Timing
by the activity. d. Discretionary policiesii. the cost behavior of the activity. 145. __________________ result from the
iii. the competitor differences in performing ability to perform activities efficiently at athe activity. larger volume, or from the ability to write
off grad ually the co st of intangibles sucha. Only i and ii as advertising and R&D over a greater
sales volume.b. Only i and iii
a. Learningc. Only ii and iii
b. Econo mies of scaled. i, ii, and iii
c. Diseconomies of scale141. In value analysis, the recasting of the
d. Spilloversaccounting records must often be done to
match _ ____________ with 146. As scale _____________ beyo nd a point,________________ rather than with complexity, costs, and coordination
_______________, and that may lead to________, particularly in areas such asdiseco no mies of scale in a value activity.overhead and purchased inputs.
a. increases, d ecreasea. costs, value activities, accountingb. decreases, increaseclassifications
c. increases, increaseb. costs, accounting classifications, valued. decreases, decreaseactivities
c. assets, value activities, accounting 147. The mechanisms through which linkagesclassifications within the value chain lead to opportunities
d. assets, accounting classifications, value for cost red uction are:activities i. coordination of activities.
ii. evaluation of activities.142. The cost of each value activity can beiii. optimization of activities.separated into which of the follo wing
categories?a. Only i and ii
i. Purchased operating inputs b. Only i and iiiii. Human reso urce costs c. Only ii and iiiiii. Assets by major category d. i, ii, and iii
18
Part A
148. Which of the following are the results of a. Only i, ii, and iiithe interplay of cost drivers over time, as a b. Only i, iii, and ivfirm grows or as ind ustry conditions
c. Only ii, iii, and ivchange?
d. i, ii, iii, and ivi. Cost behavior
ii. Cost dynamics 153. Which of the following statements aboutdrivers of uniqueness is true ?iii. Cost leadership
i. A series of basic drivers analogous to thea. Only i and ii cost drivers determines a firm’sb. Only i and iii uniqueness in a value activity.c. Only ii and iii ii. The firm can make itself unique by
d. i, ii, and iii creating a product image in the minds ofthe customers due to its existence for a
149. According to _______________, in long time.add ition to analyzing cost behavior at a
iii. The uniq ueness o f a value activity maypoint in time, a firm must consider how the
stem from sharing it with sister businessabsolute and relative cost o f value
units.activities will change over time______________ its strategy. a. Only i and ii
a. cost dynamics, independent of b. Only i and iiib. cost dynamics, depending on c. Only ii and iiic. cost leadership, independent of d. i, ii, and iiid. cost leadership, depending on
154. A successful differentiator puts his/her150. Which o f the following is not a common efforts into creating a value for
source of cost dynamics? _____________ by providing them with a__________ quality product that yields aa. Industry growthprice premium in excess of th e extra cost.b. Differential scale sensitivity
a. buyers, lowc. Differential technological changeb. suppliers, highd. Economies of scalec. buyers, high
151. Firms in assessing and acting upon cost d. suppliers, lowposition, make common errors, such as:
155. Use criteria is one of the types of buyeri. ignoring procurement.purchase criteria that depend on the actual
ii. focusing exclusively on the cost ofand perceived value for the buyer. Which
manufacturing activities.of the follo wing options is not a use
iii. overlooking indirect or small activities. criterion?iv. focusing on cross subsidy.
a. product quality
b. product featuresa. Only i, ii, and iii
c. delivery timeb. Only i, ii, and ivd. packagingc. Only i, iii, and iv
d. i, ii, iii and iv 156. Given the dynamic and competitivebusiness environment, which of the
152. Policies are made by firms about what tofollowing statements is incorrect?
perform and how to perform them. Policya. Organization structure facilitates bothchoices that lead to uniqueness include:
vertical and horizontal flow ofi. product features and performance offered.
information.ii. services provided.
b. Organization structure decides howiii. intensity of an activity adop ted. individual employees should be teamed toiv. content of an activity. form sub-groups.
19
Business Strategy
c. Organization structure should be designed 159. The matrix organization structure tries tointegrate the desired features of thewith efficiency of performance as the solefunctional structure and divisionalaim.structure. This organization structured. Organization structure is affected by bothwould be useful if ________________.contextual and structural dimensio ns of the
i. organizations have a limited product range.organization.
ii. a high degree of interaction is required157. Match the following structural dimensions between the functions.
of o rganization design with theiriii. the req uirement for expertise and skills in
respective definitions.a specific field is important.
Structural dimensionsa. Only i and ii
i. Formalizationb. Only i and iii
ii. Specializationc. Only ii and iii
iii. Professionalismd. i, ii, and iii
iv. Centralization160. Horizontal organization structure helps in
Definitions preventing rigidity and
departmentalization existing in traditionalp. The extent of dividing the organizationalvertical structures by grouping managersactivities into sub -groupsand employees into synergistic teams for
q. The level of formal education of the problem-solving. Which o f the followingemployees is not a drawback of this structure?
r. The extent to which written rules and a. More time is taken by the organization torecords are maintained in the organization identify core processes.
s. The level in the hierarchy which has theb. It becomes necessary to change the
decision-making authority organizational culture, job structure andt. The distribution of people into different function, and performance measurement
functions and departments system.
c. Due to the presence of dual authority, therea. i/p, ii/t, iii/r, iv/q
is a higher chance of conflicts arising.b. i/q, ii/r, iii/s, iv/p
d. There is the possibility that specializationc. i/r, ii/p, iii/q, iv/s of emplo yees in specific functions may bed. i/s, ii/q, iii/t, iv/r hampered.
158. Identify the characteristics of a divisional 161. The organization structure which combinesorganization structure. the features o f functional, divisional, and
horizo ntal structures is called a hybridi. Each business unit independently handlesstructure. Which o f the following are thea separate product, market, or geo graphiccharacteristics of a hybrid organization?location.
i. It gives scope for different ways ofii. An employee reports simultaneously tothinking.two different supervisors.
ii. It leads to rigidity and thus fails iniii. There is higher adaptability to change dueadapting to changes in the market.to the small size of each business unit.
iii. It promotes a participative style ofiv. The structure is characterized by highermanagement.decentralization as the decision-makin g
authority rests with the business unit iv. It leads to a slowdown in the decision-making process.managers.
a. Only i, ii, and iii a. Only i and ii
b. Only i and iiib. Only i, iii, and iv
c. Only ii, iii, and iv c. Only ii, iii, and iv
d. Only iii and ivd. i, ii, iii, and iv
20
Part A
162. For the research and development (R&D) 165. Alfred Chandler did a landmark study inunderstanding the choice of structure as adep artment of a fast moving consumerfunction of strategy. He studied largegoods company, a budget is decided eachcorporations over an extended time periodyear but costs tend to vary every yearand found a common strategy-structuredep ending on the volume of tasks. Whilesequence which is:keeping within the budgetary limits, the
i. improved profitability and strategyR&D head tries to maximize the servicesexecution.offered to the production and marketing
ii. a shift to an organizatio nal structure moredep artments o f the company. In this case,in line with the strategy’s needs .the R&D department is a typical example
iii. choice of a new strategy.of a ________.iv. emergence of ad ministrative problems;a. cost center
decline in p erformance.b. standard cost center
a. i, ii, iii, ivc. discretionary expense centerb. iii, iv, ii, id. revenue centerc. ii, i, iv, iii
163. HotMobile Telecom is one o f the leading d. iv, ii, iii, itelecom service providers in India. It
166. An organization’s culture is a/anoperates exclusive retail stores under the__________, ever-present theme thatbrand name The Hot Shoppe. The Hotprovides meaning, direction, and the basis
Shop pe managers are responsible for thefor ____________.
level of revenue, but are not responsiblea. tangible, action
for the costs of the phones and servicesb. intangible, actionoffered to the customer. These stores are ac. tangible, missionvital contact point between the customerd. intangible, visionand the company and they provide
valuab le customer feedback. As a part of 167. The McKinsey 7-S framewo rk highlightsthe responsibility structure within the importance of _ ____________ leadingHotMobile Telecom, The Hot Shoppe to the __________ of the organization as astores are ________ centers. whole.
a. cost a. skills, systems
b. profit b. systems, culture
c. strategy, culturec. revenue
d. shared values, cultured. investment
168. The purpose(s) of organizational culture164. With regard to the relationship between
is/are:strategy and structure, which of the
a. Only internal integrationfollowing statements is true ?b. Only external ad aptation
a. For every industry, there is an idealc. Both internal integration and external
organizational design or structure.adaptation
b. The strategy of a firm must be closelyd. None of the above
aligned with the needs/demands of its169. From the following options, identify thestructure.
three basic determinants of organizationalc. At a macro-level, the organization has toculture.
choose what activities it should performi. The influence of the business environmentamong the activities in its value chain.
in general and the ind ustry in particulard. In practice, the management should ignore
ii. The pattern of assu mptions brought b ythe existing reporting relationships,leaders and managers who join the
personalities, and internal politics, andorganization
choose an organization structure.
21
Business Strategy
iii. The actual experience that people have had b. Structures seem to have a life of their own,particularly in large organizations.in the organization
c. Sheer growth can make restructuringiv. Attention to the details of executionnecessary leading to readjustment of all
a. Only i, ii, and iii cultural forms to unify and coordinate withb. Only i, ii, and iv the current requirements.
d. As firms diversify into numerous related orc. Only i, iii, and ivunrelated products and markets, structurald. Only ii, iii, and ivand cultural change appears to be essential
170. The _________ and ____ ___ __ of an if the organization has to performorganization have more personal meaning effectively.if a member views them as the guiding
_ ____ ___ _ is the leader’s ability to174.principles for appropriate behavior in theinfluence others through personalorganization b y complying with them.magnetism, enthusiasm, and strongly held
a. system, strategyconvictions.
b. style, staffa. Charisma
c. beliefs, valuesb. Expertise
d. style, strategyc. Internal integration
171. Which of the following are typical beliefs d. Discretionthat shape organizational culture?
175. _________ cultures are innovative andi. A belief in being the best.
encourage/reward initiative-taking b yii. A belief in superior quality and service. middle and lower level managers.iii. A belief in the impo rtance of people as a. Adaptive
individuals and a faith in their abilities tob. Inert
make a strong and effective contribution.c. Conservative
iv. A belief in the importance of the details ofd. Top-do wn
execution – the nuts and bolts of doing thejob well. 176. Critical success factors are those factors
which the organization canno t ignore anda. Only i, ii, and iii
it has to control its performance to addressb. Only i, ii, and iv the needs placed on it by these factors.c. Only ii, iii, and iv Which of the following statements is not
true regarding critical success factors?d. i, ii, iii, and iv
a. They are the areas of activity that need172. ________________ is something that most constant and careful attention from
managers will experience due to the management.___________ backgrounds of the
b. They are the few key areas where thingsemployees.
must go right for the b usiness to flourish.a. Cultural diversity, differing c. All industries have a common set ofb. Social d iversity, similar critical success factors irrespective o f their
mission and strategic goals.c. Cultural diversity, similar
d. The number of critical success factorsd. Cultural similarity, differingselected should not be more than five or
173. Which of the following statements is false six.with regard to the linkage of an
177. Performance measures are required for theorganization’s structure to its strategy andorganization to know whether theculture?approach it has taken to address its critical
a. All forms of organization structures are success factors is ap propriate. Match theequally effective in the implementation of following factors in the BPO industry witha strateg y due to many cultural the type o f strategic performance controldiversifications. devise that they refer to.
22
Part A
i. Ability of the BPO to sustain a customer 180. _______________ is based on the premisebase that in all processes including supply,
production, sales and services, one or otherii. First call resolution and response timeorganizations have already achieved
iii. Return on capital employedworld-class competitiveness.
p. Key performance indicators a. BCG Analysisq. Key result indicators b. Strategic analysisr. Critical success factors c. Bench marking
d. Gap Analysisa. i/p, ii/q, iii/r
b. i/q, ii/r, iii/p 181. Arrange the follo wing steps into the
c. i/r, ii/p, iii/q correct sequence of a benchmarkingexercise:d. i/q, ii/p, iii/r
i. Critically evaluate the p ractices followed178. In the implementation of Balanced by high performing companies, and
ScoreCard as a tool for strategic identify the practice that helps and detersperformance control and strategic learning, superior performance.identify the activity to be performed after
ii. Identify, establish, and do documentationclarifying and translating the visio n and
of sp ecific focus areas, key events, andstrategies of the organization.
definitions.a. Communicating and linking strategic iii. Develop an initial action plan to adapt and
objectives and measures implement the practices followed by h ighb. Planning, setting targets, and aligning performance companies.
strategic initiatives iv. Identify best practice companies and usec. Measuring, monitoring, and reporting appropriate data collection tools to collectd. Taking corrective actions for strategic qualitative d ata and learn from the best
performance control practices of different organizations.
a. i, ii, iii, and then iv179. Match the fo llowing types of managementcontrols (based on the object of control) b. ii, iv, i, and then iiiwith their respective descriptions. c. iii, ii, i, and then iv
Type of control d. i, iv, iii, and then ii
i. Action controls 182. Which of the following statements aboutii. Results controls re-en gineering is false ?
iii. Personnel/cultural controls a. It seeks redesign of current processDescription config urations and not just optimization.
b. The focus of organizational processes isp. These controls empower individuals andthe executio n of tasks.groups to use their discretion in doing
c. It focuses on new measures ofwhat they feel are best for theperformance.organization.
d. It stresses customer satisfaction,q. These controls aim at encouragingperformance of processes, and throu ghp utemployees to monitor themselves andefficiency, and not the individual activitiesothers with whom they work.that are part of the process.r. They may be implemented in the form of
limitations p laced on the behavior of 183. While _________ processes make pro miseorganizational personnel and are a form of in the marketplace, __________ processesnegative discipline. actually deliver on those promises.
a. enabling, strategica. i/r, ii/p, iii/q
b. operational, strategicb. i/q, ii/r, iii/p
c. strategic, operationalc. i/q, ii/p, iii/r
d. operational, enablingd. i/r, ii/q, iii/p
23
Business Strategy
184. Redesigning a pro cess involves 189. Which o f the following qualities and skills___________ non-value-adding activities, should an effective strategic leaderand ________ core-value-adding activities. possess?
a. eliminating, eclipse i. The ability to build and control an
b. add ing, simplifying effective team of managers
c. eliminating, streamlining ii. The ability to exercise power and
d. accumulating, streamlining influence, and to create change
iii. Implementation skills185. Firms following a ____________ redesign
iv. Perseverance and persistence in pursuingapp roach map out and attempt tothe mission or vision, plus mental andunderstand an existing process, and thenphysical staminawork through it systematically to create a
new process to deliver the desired result.a. Only i, ii, and iii
a. clean sheetb. Only i, ii, and iv
b. systematicc. Only i, iii, and iv
c. gapd. i, ii, iii, and iv
d. product
190. Which of the following statements about186. The primary role of the strategy team is to
entrepreneurial strategic leaders are true ?ensure that ________ strategies have been
i. They seek out oppo rtunities for change.determined, understood, and supported by
___________ the organization who will be ii. They do not take or are less likely to takeresponsible for implementing them. major risks
a. short-term, suppliers of iii. In relatively unstable environments, they
b. long-term, managers within are successful.
c. short-term, emplo yees ina. Only i and ii
d. long-term, buyers o fb. Only i and iii
187. The responsibilities of the strategy team c. Only ii and iiiinclude:
d. i, ii and iiii. providing direction in the form of a
mission o r purpose. 191. Which of the follo wing criteria should be
considered before taking decisions relatingii. formulating and implementing changes toto choice of course of action?corporate strategies.
iii. managing the business on behalf o f all the i. The attractiveness of each op tionstakeholders. ii. The estimated probabilities of success and
failurea. Only i and iiiii. The extent to which the d ecision maker isb. Only i and iii
prepared to accept the potential lossc. Only ii and iiiassociated with each alternative
d. i, ii, and iiiiv. The degree to which the decision maker is
188. The strategy team monitors and controls likely to affect the success or failure of aoperations, with special reference to: course of action
i. financial results.a. Only i, ii, and iii
ii. quality and pro ductivity.b. Only i, ii, and iviii. innovation.c. Only ii, iii, and iviv. staff development and customer service.d. i, ii, iii, and iv
a. Only i, ii, and iii
b. Only i, ii, and iv 192. Which of the following is not aresponsibility of the board of directors of ac. Only i, iii, and ivcompany?d. i, ii, iii, and iv
24
Part A
a. Authorizing the corporate strategies s. Change in ownership structure
chosen b y the CEOa. i/p, ii/s, iii/q, iv/r
b. Formulating the vision and missionb. i/q, ii/s, iii/p, iv/r
c. Screening and selecting peo ple to fill allc. i/r, ii/p, iii/q, iv/spositions in the organizationd. i/s, ii/p, iii/q, iv/rd. Perform certain legal functions
197. Sell-off is one class of corpo rate193. When there is no degree of involvement ofrestructuring measures. Which of thethe board of directors in the strategicfollowing is false with respect to thismanagement, it is referred to asclass?____________________.
a. Spin-off and equity carve-out result in thea. a phantom boardcreation of a separate legal entity.
b. a rubber stamp boardb. In a split-off, the entire firm is fragmented
c. minimal review b y the boardinto a series of spin-offs.
a. normal participation by the boardc. In a split-up, the parent firm no lon ger
exists.194. When the board of directors acts as arubber stamp, it __ ____ __. d. A divestiture involves the sale of a portio n
a. formally reviews select issues that officers of the firm to a third party.
bring to its attention198. Corporate control is one class of corporate
b. does not know what to dorestructuring measures. Which of the
c. makes final decisions on mission, strategy, following is false with respect to thispolicies, and objectives class?
b. permits officers to make all decisions a. Golden parachutes abolish termination
payments that have to be made to the195. The board of directors questions, approves,
existing management.and makes final decisions on mission,
b. Premium buy-backs are o ften accompaniedcorporate strategy, and policy when thereby a standstill agreement.is _________________ by it in strategic
management. c. Anti-takeover amendments refer to the
changes made in the corporate bylaws ina. phantom involvementan attempt to prevent mergers andb. rubber stamp involvementacquisitions.
c. active participationd. In proxy contests, a group which is
c. normal participationexternal to the firm tries to obtain
representation on the company’s board of196. The various types of corporaterestructuring can be classified into directors.expansio n, sell-offs, corporate control, and
199. Identify the statement that is incorrectchange in ownership structure. Match eachwith respect to the numerator-focusedtype of restructuring listed here with itsapproach to management in an econo mycorrespo nding classification.that is contracting.
Type of restructuringa. Reducing manpower and expenditure
i. Premium bu ybackb. Preserving technological leadership while
ii. Joint venturemaintaining the existing R&D budget
iii. Split-upc. Increasing sales without increasing
iv. Going privateexpenditure on marketing co mmunications
Classification d. Expanding distributio n coverage in a cost-
effective mannerp. Expansio n
q. Sell-off 200. Shamsud Cho wdhury suggested the use ofr. Corporate control a stage theory to understand the turnaround
25
Business Strategy
process. As per this theory, which of the 204. Which of the following characteristics arefollowing is the most co mplex of these taken into account while describing a jointstages? venture?
a. Denominator management i. Contribution of asset to a commonundertaking, by the partners involvedb. Response initiation
ii. Joint property interest in the subject matterc. Transitionof the ventured. Outcome
iii. Contribution of money, property, effort,201. As per the stage theory of turnaround skills, or other assets by the partners
management, which of the following iv. Right of mutual control or management ofstatements are true? the enterprise
i. In the response initiation stage,a. Only i, ii, and iiidiversification, vertical integration, and
divestment are examples of strategic b. Only i, ii, and iv
responses. c. Only i, iii, and iv
ii. In the response initiation stage, short-ru n d. i, ii, iii, and ivtactics aimed at cost-cutting and revenue
205. Which of the fo llowing characteristics isgeneration are examp les o f operatingnot found in a joint venture?responses.
a. Expectation of profit or presence ofiii. The R-extinction perspective suggests that‘adventure’macro or external factors are responsible
for the decline. b. Right to share in the profit
iv. The K-extinction perspective suggests that c. Usual limitation of the objective to a singlethe decline in the firm is due to a reduction undertaking or ad hoc enterprisein resources within the firm, independent d. The number of partners in anyof the external environment. collaboration is confined to two.
a. Only i and ii 206. The motives behind initiating a jointb. Only iii and iv venture are:
c. Only i, ii, and iv i. to share the investment expenses .
d. i, ii, iii, and iv ii. to obtain learning experience.
iii. to increase the investment outlay.202. A combined undertaking or a partnership
iv. share the risk.by two or more firms to create a separate
business enterprise is known as ________. a. Only i, ii, and iii
a. joint collaboration b. Only i, ii, and iv
b. merger c. Only i, iii, and iv
c. joint venture d. i, ii, iii, and iv
d. leveraged buyout207. Anti-trust authorities are more willing to
permit _ _______ rather than _ _________.203. The emphasis of a ____________ is o na. joint ventures, mergerscollabo ration rather than mere exchan ge.b. acquisitions, divestituresWhile exchange simply involves o btaining
something in return for wh at is put in, c. takeovers, mergerscollabo ration involves creating ________. d. mergers, joint ventures
a. joint venture, new value208. Shapur Refinery is a small-scale gold
b. merger, new product refinery company. It is plann ing to initiatec. fair price amendment, new asset gold mining operations in the southern part
of the co untry and is looking for partnersd. golden parachute, new valuefor this project. The Kolkata-based TusharGroup with diverse interests in jewelry
26
Part A
stores, textiles, industrial chemicals, a. Only i, ii, and iiielectronics, and cosmetics has shown b. Only i, ii, and ivinterest in entering into a joint venture
c. Only i, iii, and ivwith Shapur Refinery for starting new gold
d. i, ii, iii, and ivmining operations. What could be theprobable reasons for Tushar Group’s
211. Which of the following is not a reason fordecision? the failure of joint ventures?
i. Tushar Group’s other projects such as a. The contract may b e too flexible andjewelry and electronics may benefit from
permits adjustments in the futurethis project.
b. Lack of co mmitment and time inii. Tushar Group has surplus funds which can
implementing the projectbe invested in this venture.
c. Inability or failure to develop the d esirediii. Tushar Group can, later on, carry out fully-
techno logyowned backward integration
d. Lack of adequate pre-planning for the jointiv. Tushar Group has the specialized skill
venturerequired in starting gold mines, gainedfrom its other projects 212. As per the classificatio n scheme proposed
by Bleeke and Ernst, which of thea. Only ii and iv
following typ es of strategic alliancesb. Only i and ii
(between two organizations) is exp ected toc. Only ii and iii be successful and long-lived instead ofd. Only i, ii, and iii resulting in an early dissolution or
acquisition of one partner by the other?209. Which of the following statements is
a. Collision between two partnersfalse ?b. Alliance of complementary equals
a. Joint ventures have technical taxc. Bootstrap allianceadvantages such as operating loss carry-
over, and benefits of multiple surtax d. Alliance of the weakexemp tions.
213. The success o f an alliance depends onb. If an organization contributes a patent or
three main factors: partner selection,licensable technology to a joint venture,
alliance structure, and the manner in whichthe tax consequences may be less than on
the alliance is managed. From theroyalties earned through a licensing
following options, identify a set ofarrangement.
guidelines for structuring the alliancec. If the joint venture is in the form of a effectively.
corporation, only the assets of thei. The alliance sho uld be designed in such acorporation are at risk; partners’ risks are
way that there is reasonable consistencylimited only to the extent of theirwith the strategic objectives of the partnersinvestment.and there is potential for value addition.
d. The risk factor is more crucial in industriesii. Issues such as ‘the mechanisms required towhere the risk of worker, pro duct, or
resolve co nflicts’ sho uld be addressedenvironmental liability is very low.when structuring the alliance.
210. Which of the following reaso ns exp lain theiii. A firm’s risk of giving too much away to
growth of joint ventures?the partner should be reduced to an
i. Augmentation of financial and technical acceptable level.abilities for entering a particular line of
iv. The risk of opportunism by a partnerbusiness
should be guarded against by includingii. Sharing of technological knowledge and
contractual safeguards and/or gettingmanagement skills
credible commitment in advance from theiii. Augmentation of risk involved in the partner.
projecta. Only i and iiiiv. Obtaining distribution channels or raw
materials supply b. Only i, iii, and iv
27
Business Strategy
c. Only ii, iii, and iv a. horizo ntal merger
d. i, ii, iii, and iv b. vertical merger
c. product extension conglomerate merger214. In a/an ______________, two or more
d. pure conglomerate mergerfirms integrate on a co-equal b asis.
a. acquisition 220. Akash Enterprises Ltd is a south India-based soap manufacturing firm with nob. mergerfoothold in the northern part of India. Itc. spin-offhas decid ed to undergo a merger with Ajay
d. takeoverLtd that enjoys a dominant position in the
soaps industry in northern India. A merger215. A merger between two or more firms canbetween the two companies can be calledbe called a horizontal merger ifas a __________.
a. they are operating and competing in thea. geographic extension conglomerate mergersame business environment and are
producing the same product. b. horizo ntal merger
b. they have unrelated business activities. c. product extension conglomerate merger
c. they are in the same ind ustry but at a d. vertical mergerdifferent stage of the value chain.
221. A firm in the declining stage o f thed. the intent is only to acquire a controlling
industry life cycle may undergo a mergerinterest in the other compan y.
i. to ensure survival.
216. Two or more business entities undergo a ii. to increase efficiency and profit margins.horizontal merger in order to iii. for synergy.
i. benefit from large scale operations. iv. to focus on core business.
ii. share resources and skills.a. Only i, ii, and iii
iii. gain corporate control.b. Only i, ii, and iv
iv. derive synergy.c. Only ii, iii, and iv
a. Only i and ii d. Only i, iii, and iv
b. Only i, ii, and iv222. The purpose behind horizontal mergers in
c. Only ii, iii, and iv the _____________ stage is to match thed. i, ii, iii, and iv _____________ and price performance of
other firms -- both domestic and foreign --217. Governments make efforts to regulate by achieving economies of scale in
horizontal mergers as they can_________. research, marketing, and production.a. create a monopoly market a. initial, low costb. increase competition in the market b. growth, high cost
c. increase the number of firms in the market c. maturity, lo w cost
d. increase new product development d. decline, high cost
218. Which of the following is not a reason for 223. Which of the following is not a reason forundertaking a vertical merger? undergoing cross border mergers and
acquisitions?a. To red uce costs of co mmunication
a. Positive government policyb. To coordinate productionb. Cultural differencesc. To achieve greater economies of scalec. Differential labor costd. For better planning of inventory andd. Good source of raw materialsproduction
224. Of the following, which are the two main219. A merger between a firm manufacturingreasons for divestitures, according to thetwo-wheelers and a firm manufacturingstudy done by Linn and Rozeff in 1984?cars is an example of a _________.
28
Part A
i. The assets are worth more as part of the iii. timetable for each major phase of thebuyer’s organization than as part of the project.seller’s iv. identification of outside resources
ii. The firm needs to raise working capital or required, such as investment bankers, theirfunds to pay back the debts of the specific tasks, and anticipated costs fororganization their services.
iii. The assets are actively interfering witha. Only i, ii, and iiiother profitable operations o f the sellerb. Only i, iii, and iv
a. Only i and iic. Only ii, iii, and iv
b. Only i and iiid. i, ii, iii, and iv
c. Only ii and iii
229. The offering memorandu m of a divestitured. None of the aboveincludes buyer procedures which
225. According to James C. Van Horne, some comprise:of the main reasons that force companies i. rules as specified by the sellingto divest are:
corporation.i. to gain efficiency.
ii. dates fo r indications of serious interest andii. to refocus on their core business. for initial bid submission.iii. financial losses iii. stipulation about when and where detailediv. tax reasons business reviews will be held.
a. Only i, ii, and iii a. Only i and ii
b. Only i, ii, and iv b. Only i and iiic. Only i, iii, and iv c. Only ii and iiid. i, ii, iii, and iv d. i, ii, and iii
226. An involuntary divestiture usually takes 230. Arrange the elements constituting theplace________________. selling process of a divesting firm in the
a. when the market is saturated correct order.
b. when the regulatory authority passes an i. Holding detailed business reviews with theanti-trust ruling potential purchasers
c. when there is a poor business fit ii. Selecting the type of selling process to beutilizedd. when there is market inefficiency
iii. Negotiating the transaction227. The composition of the core divestiture
iv. Identifying prospective buyersteam will vary d epending on the specificnature of the divestiture and the team will
a. i, ii, iii, ivgenerally include someo ne from the
b. iv, ii, i, iii____________ function.
c. iii, i, iv, iia. divisional finance
d. ii, iv, iii, ib. functional planning
c. divisional marketing 231. Which o f the following is not a method ofd. corporate finance divestiture of a business?
a. Competitive bidding228. The project plan of a divestiture should
b. Sequential sellinginclude:c. Acq uisitioni. identification of the core team and thed. Initial public offeringdetails of the required supplementary
internal resources.232. If correctly managed, the process of _____
ii. specific tasks and responsibilities of each helps produce the highest bidder and theproject participant. best deal structure for the selling firm.
29
Business Strategy
a. competitive bidding 237.Innovation depends on the ___ ____ ___ ___
and ______________ of employees.b. sequential selling
c. fair price amendment a. individual efforts, knowledge
d. initial public offering b. individual efforts, experience
c. collective enterprise, expertise233.Which of the following is not an anti-
d. collective enterprise, beliefstakeover amend ment?
a. Fair price amendments 238.Arrange the steps of the change process inb. Authorization of preferred sto ck the correct sequence:c. Standstill agreement i. Strengthening con sensus for a preferredd. Classified bo ards approach
ii. Recog nition of the need for change234.Which of the following statements isfalse ? iii. Allocating resources to sustain the change
efforta. Organizations that seek to create andsustain competitive advantage should be iv. Stimulating debate about alternative
ready to change and implement the solutions to effect changeproposed changes.
a. i, ii, iii, ivb. Some changes are reactions to threats,
b. iii, i, iv, iiwhereas others are proactive attempts to
seize opp ortunities. c. ii, iv, i, iii
c. The socio-cultural dimension, reflecting d. iv, ii, i, iiisocietal values, determines what kind of
239.Employees should support managers inproducts will be accepted in the market.designing a change initiative andd. Generally, po litical and social events areimplementing it, b ut in certainbeyond the control o f the firms, thereforeorganizations employees withhold suchthey need not respond to such events.support because of :
235.There are several factors that requirei. lack of awareness.
organizations to be receptive to the needii. lack of interest.for change. Such factors are:iii. incompatibility with cherished values.i. the general dynamics and uncertainty ofiv. recognitio n of need for change.economies.
ii. stable technology.a. Only i, ii, and iii
iii. time horizons.b. Only i, ii, and iv
iv. quality, design, and service.c. Only ii, iii, and iv
a. Only i, ii, and iii d. i, ii, iii, and iv
b. Only i, ii, and iv240.In the change process, ______ ____ _ takes
c. Only i ,iii, and ivplace when the intended change is realized
d. i, ii, iii, and iv and the new patterns o f behavior are
institutionalized in the organization.236.The need for a change in the____________ of an organization with a. refreezingreference to different ways of doing thing s b. freezingwill require a change in values, cu lture,
c. vertical integrationand style of management, and is executed
d. horizo ntal integrationthrough __ ___________.
a. mission, organizational development 241.When the strategic leader assumes theb. vision, strategic planning planner/thinker role rather than the do er
c. goal, job enlargement role for strategy implementation, which of
the follo wing statements is true?d. policy, organizational design
30
Part A
a. The strategic leader decides on major i. growth of large pools of liquid funds.
changes of strategy and then considers the ii. efficient capital markets.app ropriate changes in structure,
iii. improved financial, logistics, and businesspersonnel, reward systems, etc., for
management techniques.effectively implementing the strategy.
b. The strategic leader defines the changes of a. Only i and iistrategy and then hands it o ver to b. Only i and iiimanagers for implementation.
c. Only ii and iiic. The strategic leader concentrates on
d. i, ii, and iiiestablishing and communicating a clearmission for the organization. 246.Which o f the following are policies and
d. The strategic leader and senior managers practices that companies can follow inmeet for lengthy discussions with a view order to strengthen their competitiveto formulate proposed strategic changes. position and rectify their weaknesses?
i. Promoting managers with skills in dealing242. ______________ _ implies an ability towith global marketscontrol the situation. People affected by it
perceive its outco me as beneficial. ii. Decrease funding for basic research
a. Obligation iii. Taking a special interest in adherence to
international codes of social responsibilityb. Persuasionand ethicsc. Coercion
d. Inducement a. Only i and ii
b. Only i and iii243.In an organizational context, which of the
following dimensions can be used to c. Only ii and iii
describe political activity? d. i, ii, and iii
i. Legitimate or illegitimate247.In order to strengthen the global
ii. Vertical or lateralcompetitive position of business firms,
iii. Internal or external to the organizationgovernment policies on technology should:
a. Only i and ii i. give national priority to tech nology
leadership.b. Only i and iii
c. Only ii and iii ii. increase tax credits for R&D investments
in industry.d. i, ii, and iii
iii. encourage industries to form consortia for244.Which of the following factors have
developing new technology.played a positive role in the development
iv. provide incentives for entrepreneurs byof a global marketplace?
making changes in capital gain tax laws.i. Political and cultural rigidity of countries
a. Only i, ii, and iiiii. Rapid expansion in merchandise trade
iii. Cost-cutting efforts by firms seeking b. Only i, ii, and iv
competitive advantage c. Only ii, iii, and iviv. Revolution in the communicatio ns d. i, ii, iii, and iv
technology248.Challenges faced b y managers at the start
a. Only i, ii, and iii of the new century are:b. Only i, ii, and iv
i. ecological challenges.c. Only ii, iii, and iv
ii. issues of quality, productivity, and theird. i, ii, iii, and iv relatio nships.
iii. issues dealing with empowerment of the245.Forces responsible for facilitating the riseo rganization’s human resources.of global corporations are:
31
Business Strategy
a. Only i and ii 250.In traditional businesses, outbound
logistics is regarded as a ______ function.b. Only i and iiiBut e-commerce can transform outboundc. Only ii and iiilogistics into their _______.d. i, ii, and iii
a. primary, secondary function249.____________ is transnational, portable,
b. secondary, support functionand can be created everywh ere, fast, and
c. support, core competencecheap.d. core, support functiona. Land
b. Labo r
c. Knowledge
d. Capital
32
Part A: Answers and Explanations
This section contains answers and explanations for the multiple-choice questions in part Agiven earlier in the book
Part A: Answers and Explanations
1. (b) opportunistic decisions
Igor Ansoff found that acquisitions based on a rational strategy fared far better than those that were
based on opportunistic decisions.
2. (d) Internal capability variables -- cognitive, psychological, political, anthropological,and sociolog ical variables -- do not play any role in a firm’s success .
The key elements of Ansoff s paradigm are: there is no universal success formula for all firms.
The level of turbulence in the environment determines the strategy required for the su ccess of afirm. The aggressiveness of the strategy should be aligned with the turbulence in the environmentto optimize the firm s success. The management s capabilities should be aligned with the
enviro nment to optimize the firm s success. Internal capability variables, i.e., cognitive,
psychological, political, anthro pological, and sociological variables, all jointly determine thefirm s success. Since they all jointly determine the firm s success, they are important variables and
cannot be ignored.
3. (a) crafting strategy
Mintzberg added a new dimension to strategic management by bringing the personal side of themanager into the picture. In his first book, The Nature of Managerial Work , (1973 ), he advocated a
more humane approach to strategy formulation and implementation. He called this craftingstrategy.
4. (b) manag ement by objective
Drucker s biggest contribution to business strategy was the introduction of the concept of
management by objective. The five forces model and value chain analysis were proposed byMichael Porter while Igor Ansoff introduced gap analysis.
5. (b) value chain analysis
Porter proposed the use of value chain analysis of an organization s internal processes and the
interactions between different functions, to determine how and where val ue could be added. Healso introduced the generic strategies like focus, cost leadership, and differentiation to reduce the
uncertainties of the competitive environment. Peter Drucker intro duced the concept ofmanagement by o bjective. It transforms the basic assumptions of managing from exercising
control to self-control. Igor Ansoff introduced gap analysis stating that it is the analysis o f the gapbetween where the firm is today and where it wants to reach in terms of aspirations and go als.
6. (c) Gap analysis
Michael Porter introduced generic strategies like focu s, cost leadership, and differentiation for a
firm to achieve co mpetitive advantage. He suggested the study of different components of strategicmanagement such as the environment, in which the company operates, throug h his „five forces
theory. Besides, Porter also proposed the use of value chain analysis of an organization s internalprocesses, and the interactions between different functions, to determine how and where value
could be added. Igor Ansoff introduced gap analysis stating that it is the analysis of the gapbetween where the firm is today and where it wants to reach in terms of aspirations and go als.
7. (b) Value chain
Michael Porter advocated three generic competitive strategies: cost lead ership, differentiation, and
focus, which help the organization to co mpete effectively in the marketplace. Value chain analysis,though introduced b y Po rter, is not a generic competitive strategy.
Business Strategy
8. (a) The building blocks of corporate strategy are products and markets, and not business
processes.
The first principle proposed by Stalk, Evans, and Schulman is that the building blocks of corporatestrategy are not products and markets , but business processes.
9. (d) i, ii, iii, and iv
The first statement defines core competence. The second highlights the importance of corecompetence in the context of an organizatio n s competitiveness. The third and fourth statementslist the tests that are used to identify the core competence in an organization.
10. (a) Strategic intent
The term strategic intent refers to the purpose an organization strives to achieve. Hamel andPrahalad defined strateg ic intent as an ambitious and co mpelling dream that energizes and providesthe emo tional and intellectual energy for the journey into t he future. Co mpany profile depicts the
quantity and quality of the company s financial, human, and physical resources. Strategy refers to
the plans made and the actions taken to enable an organization to fulfill its intended objectives.Policy is a directive or a guideline given to managers and subordinates as a framework to guidetheir thoughts, decisions, and actions while implementing the firm s strategy.
11. (b) Resource constraints are necessarily an important impediment to the achievement of
global leadership.
Resource constraints are not necessarily an important impediment to the achievement of global
leadership. This can also be inferred from the first statement that great differences do existbetween different firms in the market in terms of the comp etitive impact they can generate with agiven amount of resources.
12. (c) intended, realized
Strategy refers to the plans made and actions taken to enable an organization to fulfill its intendedobjectives. When we speak of strategy as plans for the future, we refer to an intended strategy.When we speak of strategy as actions taken, we refer to a realized strateg y. In both cases, we are
considering the efforts directed at fulfilling an organization s purposes. In fact, strategy comprises
the most fundamental ends and means o f an organization. Failed strategies are those which do notresult in the accomplishment of the objectives for which they were crafted and pursued. Emergent
strategies arise from the opportunities thro wn up by the environment, which the strategists did notforesee.
13. (a) corporate level
At the corporate level, strategies are devised in an attemp t to exploit the firm s distinctive
competencies by develop ing long-term plans for business operations. Functional level managersdesign short-term strategies and fix annual objectives in different areas such as research and
development, finance and accounting, marketing, production, operations, and human relations.Business level strateg y involves making decisions about the competitive position of a single
business unit.
14. (c) Business Level
Business level strateg y involves making decisions about the competitive position of a singlebusiness unit. Managers at this level translate the general statements of corporate strategic planners
into exact, concrete, functional objectives and strategies for individual business divisions.Corporate level strategy deals with the selection of the areas of business in which the company is
going to op erate. Functional level managers design short-term strategies and fix annual objectivesin different areas. Board level is the highest level of hierarchy in an organization and the basic
framework or strategies required to run the business are formed here.
36
Part A
15. (a) Functional lev el managers
Functional level managers design sho rt-term strategies and fix annual ob jectives in differentareas such as research and development, finance and accounting, marketing, production,operations, and human relatio ns. They address problems related to the efficiency and effectiveness
of production, success of particular products and services , and increasing their market share and
quality of customer service.
16. (b) Kidding themselves
The “ kidding themselves” syndrome happens when senior managers are collectively deluding
themselves about the organization s condition. Usually this occurs when the senior management
team acts as a tightly-knit group. As there is no flow of either fresh information or newperspectives, the top manag ers tend to hold the same stereotyped views of the business
enviro nment. They reject or ignore or reinterpret any unpleasant information that does not tallywith their own preferred views of the operating environment.
17. (b) Environmental scanning
Environmental scanning invo lves monitoring the environment and evaluating and disseminating
information obtained from the internal and external environments. The aim of environmentalscanning is to identify the strategic factors that may determine the future of the firm. Evaluationand control refer to the processes in which corporate activities and performance results are
compared with the desired performance. Strategy formulatio n refers to the development of long-
term plans for managing opportunities and threats in the external environment, and for utilizing thestrengths and overcoming the weaknesses within the organization. The process by which strategies
are put into action is called strategy implementation.
18. (b) internal, internal, external, external
SWOT analysis is the most commonly used techniq ue for environmental scanning. SWOT is anacronym for the strengths, weaknesses, opportunities, and threats faced by a firm. Strengths and
weaknesses are within the contro l of the top management in the long run, and are therefore,internal to an organ ization. Opportunities and threats are external factors that are ou tside the
control of the organization.
19. (b) strategy formulation
Strategy formulation refers to the develop ment of long -term plans for managing opportunities andthreats in the external en vironment, and for utilizing the strengths and overco ming the weaknesses
within the organization. In order to achieve this objective, the strategist forms the companymission, specifies objectives, and develops strategies.
20. (c) Strategy implementation
The process by which strategies are put into action is called strategy execution/implementation.
Programs, budgets, and procedures are developed in order to implement a strategy.
21. (a) middle level managers
Typically, it is the middle and lower level managers who handle the implementation o f strategyunless drastic company-wide changes are needed. The top management reviews the strategy from
time to time.
22. (d) Evaluation and control
Evaluation and control refer to the processes in which corporate activities and performance resultsare compared with the desired performance. This information is used to take corrective action and
resolve p roblems. It also pinpoints the weaknesses of strategic plans implemented earlier. Thus,this exercise provides a valuab le opportunity for organizatio nal learning.
37
Business Strategy
23. (d) i, ii, and iii
A co mprehensive understanding of strategic components (visio n, mission, company profile,policies, etc.) helps in designing effective plans for the future of the organization. The company svision is a description of what the organization is trying to do and to become. It gives a view of an
organization s future direction and course of business activity. The mission of a company sets the
company apart from other co mpanies in the same area of business. The company profile, which isdetermined by internal analysis of the compan y, depicts the quantity and quality o f the company s
financial, human, and physical resources.
24. (b) mission
The mission of a company sets the company apart from other companies in the same area ofbusiness. It identifies the scope of the company s operations, describes the company s product,
market, and technological areas of thrust, and reflects the values and priorities of its strategicdecision makers. The external environment consists of all the conditions and forces that affect anorganization s strategic op tions and define its competitive situation.
25. (b) remote, operating
Environmental scannin g involves monitoring the environment, and evaluating and disseminatinginformation obtained fro m the internal and external environments. The remote environmentconsists of a set of forces that originate beyond a firm s operating situation. The operating
enviro nment involves factors that provide many of the challenges a particular firm faces when
attempting to attract or acquire essential resources or when striving to profitably market its goodsand services in the immediate competitive situation. Hence, we can say that environmental
scanning is a study of the external environment, focusing o n both remote and operatingenviro nments. The social and political environment is a part of the remote environment itself.
26. (c) company profile
The profile of a company depicts the quantity and quality of its financial, human, and physical
resources. The profile also assesses the strengths and weaknesses of the company s managementand organizational structure. It also analyses the company s past successes and traditional concerns
in the context of the compan y s current capabilities, in an attempt to identify its future capabilities.
27. (d) grand strategy
A grand strategy is a statement of means that indicates the methods to be used to achieve the
company s objectives. It is a unique combination of long -term strategies and provides the
framework for the entire business o f the firm. Functional strategies are specific to the needs of
each functional area and prescribe an integrated action plan for every function. Business level
strategies translate the general statements of corporate strategic planners into exact, concrete,functional objectives and strategies. Operating strategies provide the means for achieving annual
objectives.
28. (b) strategic choice
The entire process of strategic choice is meant to combine long -term objectives and generic and
grand strategies, in order to place the firm in an optimal position in the external environment for
achievement o f the company mission. The strategic choice process involves identifying desiredopportunities that are co mpatible with the company s mission and from the list of desired
opportunities making optimum choices.
29. (c) Operating strategy
Operating strategy provides a company with the means to achieve its short-term objectives. Thecompany budget is coordinated with the needs of the operating strategies to ensure specificity,
practicality, and accountability in the plans. Functio nal strategies are specific to the needs of eachfunctional area and prescribe an integrated action plan for every function. Business level strategies
38
Part A
translate the general statements of corp orate strategic planners into exact, concrete, and functionalobjectives and strategies. Corp orate strategies aim to exploit the firm s distinctive competencies by
developing long-term plans for business operations.
30. (c) uncertain, complex and difficult
Strategic management places a heavy emphasis on strategic decision making. As organizations
grow larger and environments become more uncertain, decisions become increasingly complexand difficult to make.
31. (c) Problems associated with strategy implementation are given top priority.
In the entrepreneurial mode, strategies are framed by one powerful individual. It focuses solely onthe organization s opportunities. Problems associated with strategy are given secondaryimportance . Strategy is formulated based on the founder s own visio n of direction and isexemp lified b y bold decisions. The dominant goal is the growth of the organization. The
disadvantage of this mode is that it does not consider problems that may arise during strategy
implementation. The advantage is the speed with which a strategy can be formulated andimplemented.
32. (a) adaptive mode
The adaptive mode is characterized by reactive solution s to existing problems. This type of
decision making results in a fragmented strategy with incremental improvement. In the planningmode, appropriate information for situational analysis is gathered systematically. Theentrepreneurial mode focuses solely o n the organization s opportunities. In logical incrementalism,
organizations choose an interactive process for probing the future, experimenti ng, and learningfrom a series of incremental commitments.
33. (b) A few feasible alternative strategies are developed and the most appropriate strategy
is selected.
In the planning mode, app ropriate information for situational analysis is gathered systematica lly .A few feasible alternative strategies are developed and the most appropriate strategy is selected.
The planning mod e enco mpasses both a proactive search for opportunities and a reactiv e solution
to existing problems. The planning mode helps the compan y to be better prepared forenvironmental uncertainties .
34. (d) Logical incrementalism
In logical incrementalism, organizations choose an interactive process for probing the future,experimenting, and learning from a series o f incremental commitments. This ap proach is usefulwhen the environment is changing rapidly and it is imp ortant to build a consensus b eforecommitting the entire company to a specific strategy.
35. (c) Strategic management entails a single time horizon
The characteristics of strategic decisions are: strategic management integrates various functions; itconsiders a broad range of stakeholders; it entails multiple time horizons ; it is concerned withboth efficiency and effectiven ess.
36. (b) vision, mission
The vision of a company provides managers with a unity of direction which is not affected byindividual, narrow-minded, and temp orary needs. The vision statement of Microso ft, for example,is “Empower people through great software anytime, anyplace, and on any device.” The missio n
statement is an enduring statement of purp ose for an organization; it refers to the philosophy of thebusiness and serves to build the image of the company in terms of activities currently pursued bythe organization, and its future plans. For instance, the mission statement of Unilever is“Unilever s mission is to ad d Vitality to life. We meet everyday needs for nutrition, hygiene, andpersonal care with brands that help people feel good, look good, and get more out of life.” Hence,we can say an organization s vision and mission act as guidelines for strategy formulation.
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Business Strategy
37. (d) core ideology, envisio ned future
A well-conceived vision has two main components. The first component is core ideology and thesecond is envisio ned future. A good vision defines core ideology (what we stand for and why weexist) that never changes, and sets forth the envisioned future (what we aspire to become, to
achieve, to create) that deman ds significant change and progress.
38. (c) The vision should ignore the concerns of external stakeholders in order to beeffective.
Vision should reflect the concerns of external stakeholders such as shareholders, customers, the
local community, and society in order to be effective. The support of shareholders is necessary to
bring about any major change in the organization.
39. (a) mission, reason fo r existence
A mission statement describes the product, the market, and the technological areas of emphasis for
the business, and forms the firm s reason for existence. An objective is the concrete, specific aim
that the managemen t seeks to achieve for the organization, often within a stated time. The vision ofa company p rovides managers with a u nity of direction that transcends individual, parochial, and
transitory needs. Company goals indicate a desired future state that a company attempts to realize.
40. (d) i, ii, iii, and iv
The mission is based on the following fundamental assumptions: the basic type of product orservice to be offered; the primary markets or custo mer groups to be served; the technology to be
used in prod uction or delivery; the fundamental concern for survival through growth andprofitability; the public image sought; the managerial philosophy of the firm; and the firm s self-concept.
41. (a) Fundamental intention
The key elements of a mission statement are fundamental intention, view of the future, and thesource of competitive advantage. Fundamental intention is a statement of the role that a comp anywill seek to adopt and the description of what the company hopes to accomplish as a means to
gauge future success. View of the future is the anticipated regulatory, competitive, and economic
enviro nment in which the company must co mpete. Competitive arenas are the business andgeographic arenas where the company will compete. The skills that the company will develop to
achieve its vision and a description of how the co mpany intends to succeed are its sources ofcompetitive advantage.
42. (c) Competitive arenas
Competitive arenas are the business and geograp hic arenas where the company will compete. A
firm chooses the geographic locations and the product/market segments where it will operate, andthereby, determines its competitors. For example, a firm manufacturing plastic b ottle may decide
to operate only in Delhi, and hence, it will not face competition from plastic bottle manufacturersoperating only in Hyderabad. Fundamental intention is a statement of the role that a co mpany will
seek to adopt and the d escription of what the company hopes to accomplish as a mean s to gaugefuture success. View of the future is the an ticipated regulatory, competitive, and econo mic
enviro nment in which the company must compete. The skills that the company will develop toachieve its vision and a description of how the co mpany intends to succeed are its sources of
competitive advantage.
43. (b) Company philosophy
Company philosophy and values give a framework/boundary for individ ual actions aimed atachieving corporate goals. A company s philosophy is also known as its creed, and usually forms apart of the company s mission. It reflects or states the basic beliefs, values, aspirations, guiding
principles, and philosophical priorities that the strategic decision-makers are committed to
emphasize in their management of the firm.
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Part A
44. (c) Ethical
Ethical respo nsibilities involve the widely-held beliefs about behavior in a society. Society expectscompanies to adhere to its ethical norms and reacts negatively to what are seen as unethicalpractices. The moral values of a country help shape the country s ethics and they vary from
country to country. Ethical standards define acceptable norms of behavior and firms need to
comply with them. For example in India, cows are considered auspicious by a section of so cietyand slaughtering them is not acceptable. Any firm that sells products which use beef will be
considered to be indulging in unethical practices in India. However, the same practice would beacceptable in America.
45. (d) discretionary
Discretionary responsibilities refer to the purely voluntary obligations that a corporation assu mes,
such as philanthropic contributions and training the unemployed. These are responsibilities whicha firm takes up as its responsibility toward the community or the society in which it operates on apurely voluntary basis. When a firm engages in taking up such responsibi lities, it helps in building
an image of a good corporate citizen for itself.
46. (a) Opera ting environment
The operating environment involves factors that provide many of the challenges a particular firmfaces when attempting to attract o r acquire essential resources or when striving to profitably
market its goods and services in the immediate competitive situation. The factors that are
considered in this environment are competitive position, customer profile, reputation amongsuppliers and creditors, and accessible labo r market. The remote environment consists of a set offorces that originate beyond a firm s operating situation. Prime interest rates, inflation rates, the
general availability of credit, the level of dispo sable income, and the propensity to spend at thenational and international levels influence the strategic planning of the organization and they
constitute the economic environmen t of the organization. The so cial environment of an
organization constitutes the values, beliefs, attitudes, opinions, and lifestyles in society.
47. (c) Customer
The remote environment consists o f a set of fo rces that originate beyond a firm s operating
situation. These forces comprise political, economic, social, technological, and industrial forces
which create opportunities, threats, and constraints to the firm. The customer , on the other hand, isan operating environment factor . The operating environment involves factors that provide many
challenges that a particular firm faces when attempting to attract or acquire essential resources orwhen striving to profitably market its good s and services in the immediate co mpetitive situation.
48. (b) Social environment
The social environment of an organization is constituted by the values, beliefs, attitudes, opinions,
and lifestyles in society. For a company to grow, it is necessary to take advantage of societalchanges. The cultural, demographic, religious, educational, and ethnic conditioning of individuals
in society affects the social environment.
49. (d) i, ii, iii, and iv
The geographic profile indicates where the firm s customers are located , and the firm accordinglymanages its reach to serve the customers. The demographic profile wo uld be in terms of age, sex,
marital status, income, and occupation. The psychographic profile wo uld be in terms of values,attitudes, and lifestyles o f consumers. Buying behavior or patterns are taken into account to sell
more to the customers by increasing usage rates.
50. (b) decline in profitability
New entrants to an industry bring in new capacity and capture market share from existing players.Hence, the market share of all the firms decreases. The result is more players and more
competition. This situation can lead to price wars, which can result in falling returns. This decline
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Business Strategy
in profitability becomes a problem for the new entrants too. That is why new entrants to anindustry often take the „acquisitions route. As the number of competitors in an industry increases,
the rivalry among them also increases with new entrants trying to grab market share and existingfirms trying to maintain it.
51. (a) Market share
The willingness and ability of firms to enter a particular industry depends on the barriers to entry.
There are six such barriers economies of scale, pro duct differentiation, capital requirements,cost disadvantages independent of size, access to distribution channels, and government policy. By
assessing market share of existing competitors, the firm is able to decide the positioning o f variouscompetitors in the market and form a strategy acco rdingly before entering the market. As it is a
new entrant and its market share is nil, it has everything to gain and hence market share does notact as a barrier for new entrants.
52. (b) product differentiation
Product differentiation is the process o f distinguishing one s product from competitors products
available in the market. It helps in making the product more attractive for customers, leading to anincrease in market share. It also becomes difficult for the competito rs to increase their market
share and hence product differentiation beco mes a barrier for any new entrants. In the givenexamp le, DEF Ltd is a multinational giant and is not short of capital. It can easily create economies
of scale, besides which the government has given a subsid y. Hence, these are not the barriers facedby the company.
53. (c) experience curve
Existing firms in an industry sometimes enjoy advantages that are not available to new entrants.
These advantages arise from the effects of the learning curve and the experience curve. As andwhen the company gains experience in the field, its efficiency increases. This relationship between
efficiency and experience forms the experience curve. Similarly, proprietary technology, access tothe best sources of raw materials, assets p urchased at lower prices, government subsidies, and
favorable locations can give competitive advantages to existing firms in an industry.
54. (a) Intensity of rivalry will increase.
Rivalry is usually intense when there are many competitors of similar size; there is a slo wdown inindustrial growth which makes firms keen to grab each other s market share; and there is a lack of
differentiation amo ng the pro ducts of the players. Other reasons for increased rivalry are absenceof switching costs; exit barriers like fixed investments in land, plant, and equipments; and loyalty
of old players to the industry despite low returns. So, intensity of rivalry is expected to increase inthe given situation.
55. (d) Only ii, iii, and iv
According to Porter, the buyers are powerful under the following circumstances: when the
suppliers are many and the buyers are few and large; when the buyers purchase in large quantities;when the supplier s industry depends on the buyers for a large percentage of its total orders; when
the buyers can switch orders between supply co mpanies at a lo w cost, thereby playing companiesoff against each other to force down prices; when it is economically feasible for the buyers to
purchase the input from several co mpanies at a time; and when the buyers can use the threat toprovide for their own needs through vertical integration as a d evice for forcing do wn prices.
56. (d) high bargaining power of suppliers, suppliers, buyer
The high bargaining power of suppliers increases the suppliers profitability when the suppli ers are
able to force the price that the buyer must pay for the product. Bargaining power of the buyers iseffective when the buyers are able to force the price at wh ich the supplier must sell the product.This will reduce the supplier s profitability.
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Part A
57. (b) reduce rivalry
The growing demand from either new customers or additional purchases by existing customerstends to reduce rivalry among the co mpanies because increased requirement for the products bythe customers creates opportunities for companies to expand. Rivalry gets reduced due to growing
demand because companies have a chance of selling more products without affecting profit
margins and the market share of other co mpanies.
58. (a) Only i and ii
In order to create a favorable position against the five comp etitive forces, an effective competitive
strategy takes offensive or defensive action. This involves a number of possible approaches
including positioning the firm so that its capabilities provid e the best defense against the existingarray of competitive forces; influencing the balance of forces through strategic moves, thereby
improving the firm s relative position; and anticipating shifts in the factors underlying the forcesand responding to them, thereby exploiting change b y choosing a strategy approp riate to the newcompetitive balance before rivals recognize it.
59. (c) innov ation
Innovation can raise the differentiation in products. It in volves the use of a new idea or methodwhich would differentiate a firm s products from those of its competitors. A firm which brings outan innovative product usually enjoys the „first mover advantage. Brand loyalty is the allegiance
which customers have toward a particular brand; it is the result of differentiation and not a causefor differentiation. Promotion of the product through various marketing strategies likeadvertisements and discounts is called product promotion. Product distribution aims at increasingthe reach of the product in terms of geo graphical coverage.
60. (b) production function
The basic objective of the production function is to ensure that the o utputs produced have a valuethat exceeds the combined costs o f the inputs and the transformation process. An insight into thefinancial situation of a company will quickly place its financial condition in perspective. An
analysis of the marketing functio n involves the evaluation of the product-market strategy. Theresearch and development function either supplements a product -oriented effort or improves theproduction processes.
61. (b) Financial analysis
Financial analysis is a tool that measures how a co mpany is doing compared to past years and itscompetitors in the industry. It is one of the most important tools for assessing the strength of anorganization within its industry. Gap analysis is the analysis o f the gap between where the firm istoday and where it wants to reach in terms of go als and aspirations. Value chain analysis is b asedon the assumption that a business s basic purpose is to create value for its users and its prod ucts orservices. Internal analysis aims at id entifying the stren gths and weaknesses of the organization. Itdoes not provide an insight into a competitor s strengths or weaknesses.
62. (a) Liquidity ratios
A company s ability to meet its imminent financial obligations is known as liquidity. Liquidityratios are used as indicators of a firm s ability to meet its short -term obligations. Two widely usedliquidity ratios are current ratio and quick ratio. Leverage ratios identify the source o f a firm s
capital, i.e., owners or outside creditors, and the extent of their contribution to the firm s capital.Activity ratios measure a firm s efficiency in generating sales and making collections. Profitability
ratios indicate how effectively a firm is being managed in terms of its ability to generate p rofits.
63. (a) leverage ratio
Leverage ratio s identify the source of a firm s capital, i.e., o wners or outside creditors. Activity
ratios measure a firm s efficiency in generating sales and making collections. Liquidity ratios are
used as indicators of a firm s ability to meet its short -term o bligations, and profitability ratiosindicate how effectively a firm is being managed.
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Business Strategy
64. (a) Financial analysis is a standardized o r mechanical process.
Financial analysis is no t a standardized or mechanical process. It req uires an application of skilland judgment to arrive at conclusio ns about the financial health of an organization. Financial datacan provide an insight into the future when analyzed properly in a strategic context. Even non-
profit institutions must pay their bills on time to continue operations. Information in financial
statements is historical and often derived from a relatively distant past.
65. (c) research and development
The research and development (R&D) function either supplements a product-oriented effort or
improves the production processes. For example, the R&D function of Sony has developed
cordless earphones for its Walkman. This is an example of a product-oriented effort in which anew improved feature is add ed to an existing p roduct. The process R&D effort may lo ok at
improving its production process to reduce wastages from 2% to 1%.
66. (b) costs, improvement in quality
Process R&D attemp ts to reduce the costs of operations and seeks constant improvement in qualitythrough more efficient processes. It is the product R&D which seeks to add new product features
and improvement in product quality. Product innovations are a result of product R&D.
67. (d) i, ii, iii, and iv
The responsibilities of the human resource management function include, b ut are not limited to,the four responsibilities listed in the question.
68. (a) strengths, weaknesses
Value chain analysis is based on the assumption that the basic purpose of a b usiness is to create
value for its users and its products or services. In this method of analysis, strengths and
weaknesses are assessed by dividing a business into a number of linked activities, each of which
may produce value for the customer. For example, the production and selling activities of a firmmanufacturing gas stoves are called primary activities and are assessed separately from human
resource and general ad ministration activities which are seen as secondary or support activities.
Threats and opportunities are thrown up by the enviro nment and the value chain analysis does not
take them into consideratio n.
69. (b) General administration
Primary activities in a value chain are those activities that are involved in the physical creation ofthe product, marketing, and after-sales suppo rt. They can be divided into operations, outb ound
logistics, purchased supplies, inbound logistics, sales, marketing, and services. General
administration pro vides support to all the functional divisions of an organization and is not a
primary activity in the value chain.
70. Only i and ii
The framework of the value chain analysis has certain strengths. First, it clearly highlights theimpo rtance of customer value. Second, it provides a sense of direction to the managers by offering
a generic checklist of what to analyze when assessing a firm. Last, it indicates that everything an
organization does can be managed to improve the firm s overall ability to create value. It stresses
those factors which are predominantly internal to the firm, over which the firm has a high degree
of co ntrol. Thus, the value chain framework is useful for organizations in general and to managers
in particular.
71. (d) Ability to pro vide replacement parts and repair services
Factors of assessment of marketing and sales activity are effectiveness of market research toidentify custo mer segments and needs; innovation in sales pro motion and advertising; evaluation
of alternate distribution channels; development of an image of quality and a favorable rep utation;
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Part A
extent o f brand lo yalty among customers; extent of market dominance within the market segment
or overall market; and motivation and co mpetence o f the sales force. The ability to providereplacement parts and repair services is a factor of assessment of customer service.
72. (c) Only i, iii, and iv
The factors of assessment of the marketing and sales activity are innovation in sales p romotion and
advertising, evaluation of alternate distributio n channels, and the mo tivation and competence ofthe sales force. Promptness of attention to customer complaints is a factor of assessment ofcustomer service and not of the marketing and sales function.
73. (a) The efficiency of finished goods warehousing activities is a factor of assessment of
operations.
The efficiency o f finished goods warehousing activities, and the timeliness and efficiency of thedelivery of finished goods and services are factors of assessment of outbound logistics , and not of
operations. The effectiveness of market research in identifying customer segments and needs is a
factor o f assessment of the marketing and sales activity. The ab ility to provide replacement partsand repair services is a factor of assessment of customer service.
74. (a) Only i, ii, and iii
The efficiency of plant layo ut and work-flow design, the effectiveness o f production control
systems to improve quality and reduce cost, the appropriate automation of production processes,and productivity of equip ment co mpared to that of key competitors are factors of assessment of the
operations activity. Soundness of material and inventory control systems is a factor of assess mentof inbound logistics .
75. (b) Only i, ii, and iv
The factors of assessment of hu man resource management include: effectiveness o f procedures for
recruiting, training, and promoting all levels of employees; approp riateness of reward systems formotivating and challenging employees; and levels o f employee motivation and job satisfactio n,among others. The quality of lab oratories and other facilities is the factor of assessment of
technology development .
76. (c) Relationships with public policy makers a nd interest gro ups
The factors of assessment of technology develop ment are quality of working relationships between
R&D personnel and other departments; qualificatio n and exp erience of laboratory technicians andscientists; and the ability of the work environment to encourage creativity and innovation.
Relationship s with public policy makers and interest groups are a factor of assessment of firminfrastructure .
77. (a) Objectives
An objective is a concrete, specific aim that the management seeks to achieve for the organization,
often within a stated time. For example, the marketing objectives o f a firm might be to increase themarket share from 15% to 18% in the quarter October to December 2009. They provide direction,
serve as standards, and also serve as motivators.
78. (a) Strategic managers must ensure that objectives are co mmunicated to all members of
the organization.
For a firm to be successful, employees should understand how his or her individual objectives
relate to the organizational objectives. Objectives should be flexible in nature and not sacrosanct.A change in the situation or environment has a bearing on them and they should undergo a change
if the environment warrants it. It is true that strategic managers need to ensure that the objectivesare clearly communicated to all the organizational members. Otherwise, there will be a
misdirection of efforts and no yardstick to measure individual and group performance. Ob jectivesare related to plans and to the future (and not the past).
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Business Strategy
79. (d) less, less, less
The objectives in an organization become precise and more specific as we descend the hierarchy ofobjectives. At the lower levels, they relate to a shorter time frame. Hence, they become lessenduring and are narro w in their focus. For example, the objective of the president of a garmen t
manufacturing firm might be to improve return on equity from 15% to 25% over a period of two
years. This may translate into the o bjective for the plant worker of conserving fuel and reducingfuel consumption from 250 liters to 225 liters on a daily basis.
80. (a) grand strategy
The grand strateg y provides the basic strategic direction for the firm at the corporate level. Forexample, the grand strategy of a firm might be to grow using the acquisition route. The firm s
resources and actions are directed in synchronizatio n with this strategy. Business level strategy is
the strategy devised and adop ted by the heads of the strategic business units for their respectivebusiness units. Functional strategy is the strategy designed and followed by the various functionalheads for their respective functio nal domains in an organization. Operating strategy is an
operational strategy adopted at the lower levels of management.
81. (a) market penetration
The main rationale for market penetration (concentration) strategy is that the firm thoroughlydevelops and exploits its experience in a delimited competitive arena. The firm seeks to increase
its market share for present products and services in the present markets through increased
marketin g efforts.
82. (b) Only ii, iii, and iv
Increasing usage by present customers, increasing purchase size or frequency, and expanding shelf
space all focus on the customer, while, differentiating the product from its co mpetitors focuses on
the product.
83. (a) Market development
Market development allows firms to practice a form of concentrated growth by identifying new
uses for existing products and new demographically, psychographically, and geographically
defined markets. For example, when Harvest Gold, a bread manufacturer and seller in Delhi, entersthe Mumbai market, it is following the market development strategy. Similarly, when Parlé
launches a biscuit which is sugar-free for the diabetic segment, then the firm has identified a newunexplored market segment.
84. (c) Backward integration
Backward integration takes place when a firm assumes a function previously fulfilled by a
supplier. For example, when a garment man ufacturer sets up or buys yarn spinning mills to havebetter control over its raw materials, it is called backward integration. This strategy requires
investments and the firm should have substantial resources at its disposal to take it up. It alsoincreases the element of risk faced by a firm if the finished product s market declines and the raw
materials into which the firm had b ackward integrated have no alternative use.
85. (c) Only ii and iii
Conglo merate diversification leads to a reduction of risks , particularly for businesses that operatein industries subject to rapid technological change. Economies of large-scale operations, financial
stability, and increased profits are the benefits of conglomerate diversification. The key principleof conglomerate diversification is that yo u do not put all yo ur eggs in a single basket, meaning
here a single industry or related industries.
86. (b) retrenchment
Divestiture and liquidation are examples of retrenchment strategies. Such strategies are adoptedwhen the firm s survival is at stake.
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Part A
87. (a) Functional strategies
Functional strategies clarify the grand strategy and provide specific details about the managementof key functional areas in the near future. Fu nctional strategies must be consistent with long -termobjectives and the grand strategy. They help in the implementation of the grand strategy.
88. (b) Only iii
Specificity in functional areas adds substance, completeness, and meaning to what a specificsubunit of the business must do. Functio nal strategies clarify for the top management howfunctional managers intend to implement the grand strategy successfully. Due to specificity in
functional strategy, the coo rdination between operating units is facilita ted since areas of
interdependence and potential conflict are clarified.
89. (c) key co ntributors to profitability, product ima ge, and consumer need.
Key contributors to profitability, type of product, product image, and consumer need are the
considerations which influence the product strategy of the marketing function ; hence option (c) is
correct.
90. (b) price
Among the functional strategies in marketing, gross profit margin is a key consideration for the
price strategy.
91. (b) tota l cost
Under a cost-oriented approach, pricing d ecisions are centered on total co st with acceptablemark up o r target price ranges. This strategy is followed by firms when the intensity of the
competition is low in the market and the firms are not engaging in price wars. Consumer demand
is the basis for the market-oriented approach while competitor prices are considered in thecompetition-oriented approach.
92. (d) Only ii and iv
A high dividend payout ratio may lead to high stock prices. Hence statement (i) is no t correct.
Lower dividends to the shareholders lead to hig her internal financing and vice versa. This is so
because, out of the total profits earned, the firm has to decid e how much to retain for internalfinancing and ho w much to pay as dividend. The greater the amount of dividend paid, lesser will
be the amo unt left for internal financing and vice-versa. Hence, statements (ii) and (iv) are correct
and statement (iii) is not correct.
93. (a) offensive
An offensive research and develop ment strategy emphasizes technological innovations and newproduct development as the basis for the firm s success. In the electronics ind ustry, Sony is known
for its offensive research and development strategy.
94. (b) Only i, ii, and iii
Statement iv is false as it is applicable to the differentiation strategy, and not to the overall cost
leadership strategy.
95. (b) Focus on small customer accounts
Firms that adopt the overall co st lead ership strategy seek a large market share, usually b y pursuing
large customer accounts and avoiding small custo mer accounts.
96. (c) Increases the bargaining power of the buyers
When a firm follows the differentiation strategy, its products and services are perceived as unique.This limits (and not increases) the bargaining po wer o f the buyers and allows the firm to price its
products higher than those of its competitors.
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Business Strategy
97. (a) The firm will not become the market leader; it will enjoy a higher than average
return.
When the firm with a well-differentiated product portfo lio prices its products significantly higherthan those of its competitors, it lo ses the opportunity to become the market lead er b y volume.
However, the higher price enables the firm to enjoy higher than average returns.
98. (c) A firm simultaneously attempts both cost leadership and differentiation.
If a firm attempts to ado pt two strategies at the same time, there is a probability that it will fail.Porter refers to this phenomenon as “Getting stuck in the middle”. For example, a firm which is
pursuing overall cost leadership will be cutting co sts in all areas including research and
development. If such a firm decides to adopt differentiation, it will not succeed because newproduct development would not have been carried out due to its efforts at cost minim ization.
99. (a) Technological change
Risk Events o f Cost Leadership:
Event Risk
Technological Makes past investments and learning redundant
change
Imitatio n Late entrants achieve the advantage of low cost learning and
investing in mo dern research and development facilities
Inadequate Ignoring customer needs due to excessive obsession with costcustomer minimization
orientation
Unexpected Inability to offset differentiation through cost leadership
inflation in costs
100. (b) The lo ck-in is likely to come in more ea sily in the maturity stage of a market lifecycle.
The timing of dominance is a crucial factor for a firm to achieve strategic lock -in. The lock-in islikely to come in more easily in the early stages of a market life cycle as compared to mature
markets.
101. (b) emerging
In emerging industries, the fundamental rules of the competition change d ue to environmentalchanges and industry evolution. This situation offers bo th risks and opportunities for firms and the
strategic degree of freedom is at its highest.
102. (c) maturing
In maturing industries, firms learn from the strategic mistakes committed in the growth stage andtake corrective actio n. For such industries, the step s involved in strategy formulation often involve
sophisticated cost analysis, ratio nalizing the product mix, correct pricing, process innovation anddesign for manufacture, buyer selection, and competing internationally.
103. (c) harvest
In declining industries, the harvest strategy is follo wed in order to optimize the cash flows from the
business.
104. (d) Criteria of excellence
For evaluating strategic alternatives, all criteria can be classified into three groups, i.e., the criteriaof suitability, feasibility, and acceptability. The criterion of suitability attempts to measure the
extent to which the proposed strategies fit the situation id entified in the strategic analysis. The
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Part A
criterion of feasibility assesses the practical imp lementation and working of the strategy. The
criterion of acceptability involves not only the consequences of the strategy but also the personalconsiderations of the strategy decision maker, as he/she has to accept it. Excellence is somethingfor which a firm strives and is not a class of criteria for evaluating a strategic alternative.
105. (a) suitability
The criteria of suitability attemp ts to measure the extent to which the proposed strategies fit theenviro nmental situation identified in the strategic analysis. For example, a firm with a business lineof pre-co oked convenience food, which is facing a mature market and is a market leader, is
following the strateg y of growth by spending huge amounts on market development and p roduct
development. Based on the criterion of suitability, it may be concluded that the firm is followingthe wrong strategy as the market is maturing, and that it should cut back on its spending on market
development and product development as the market is at a mature stage and the firm is alreadythe market lead er.
106. (c) acceptability
Acceptability involves not only the consequences of the strategy but also the personalconsiderations of the strategy decision makers, as they have to accept it. For example, the vicepresident marketing o f a firm which intends to follow a concentration strategy can choose betweenmarket development and product development. The decision on the strategy chosen will also be
influenced b y the personal consid erations of the vice president in terms of whether he/she is riskaverse or a risk lover, and his/her p ast experiences in terms of whether he/she was more successfulin using the market development o r the product development strategy.
107. (c) Only i, iii, and iv
An analysis of the following factors will help in identifying the consequences of the strategy afterits implementation: the financial position of the firm in terms of p rofitability; the effect on capital
structure; and the level of acceptability of cu ltural changes within the organization. The criticalsuccess factors needed for success is not a factor based on which the consequences of the strategyare analyzed.
108. (a) The BCG matrix
The BCG matrix provides a framework for allocating resources among different business units andallows o ne to compare man y business units. The BCG matrix evaluates the performance of a
business unit o n two parameters, namely relative market share and market growth rate. In valuechain analysis, strengths and weaknesses are assessed by dividin g a business into a number oflinked activities, each of which may prod uce value for the customer. The 7S Framework comprisesstrategy, structure, systems, style, staff, skills, and shared values. The Five Forces Model evaluatesthe industry structure in terms of the threat of new entrants, the bargaining power of buyers, thebargaining power of suppliers, the rivalry among existing players, and the threat of substituteproducts.
109. (b) Stars
Stars are those business units that have a large relative market share in fast growing markets or
industries. Firms need to invest in Stars as the industry is still emerging and the market share isalso gro wing. Hence, they represent the best long -run opportunity in a firm s portfolio. Forexample, in a growing tobacco export market, if a firm s tobacco exports division records high
market share, it will be treated as a Star business. Cash cows hold a large market share in a mature
and slow-growing industry. These businesses have a strong business position and negligibleinvestment requirements and hence the returns fro m these businesses are often more than their
investment requirements. Question marks have a small relative market share in a high growthmarket. They demand significant investment because their cash needs are high, a norm in a
growing industry. Dogs have low relative market share in an intensely competitive mature industrycharacterized b y lo w profits. A Dog does not need much of investment, but it ties up capital that
could be invested in industries with better returns.
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Business Strategy
110. (a) Cash cows
Cash cows have a strong business position and negligible investment requirements and hence thereturns from these businesses are often more than their investment requirements. For example, ifthe home detergent industry in India grows at a slo w pace and the home detergent powder division
of Hindustan Unilever Limited enjoys the market leader position, it would be treated as a Cash
co w. Firms need to invest in Stars as the industry is still emerging and market share is alsogrowing. Often, the investment requirements of Stars are greater than the revenues they generate.
Question marks demand significant investment because their cash needs are high, a norm in agrowing industry. A Dog does no t need much o f an investment but it ties up capital that could beinvested in industries with better returns.
111. (d) Stars
Stars have a large relative market share, and the firms need to invest in them as the industry is stillemerging and the market share is also gro wing. For example, in the Indian mobile industry, Airtelis the Star business line for the Bharti group. This is because the Indian telecom industry has been
growing at a good pace since its deregulation in the late 1990s. To expand its telecom business
further and retain or increase its market share, Bharti needs to invest more in the near future.
112. (d) Question marks
Question marks have a small relative market share in a high growth market. However, because the
market is growing at a high rate, they represent a go od opportunity for investment. There is,
however, no certainty that the high market growth rate will be sustained over a long period as theindustry is still emerging. There is also a possibility that the firm may not be able to keep up with
the gro wth rates of the market because the fund requirements are huge and the competitivepressures may also increase because the industry attracts new players due to high growth rates.
113. (a) Question marks, Stars
Question marks demand a significant investment because their cash needs are high, a norm in a
growing industry. As the market is growing rapidly, acquiring market share is easier than in amature market. Ho wever, the stage of growth in the industry is characterized by a lot of
uncertainty that results from changes in techno logies, distribution channels, and the playersthemselves. Hence, there are only a few Question marks that are able to grow into Stars.
114. (a) Dog s
Dogs have a lo w relative market share in an intensely competitive mature industry characterized
by low profits. Cash cows hold a large relative market share in a mature and slow-growingindustry. Stars have a large relative market share in fast growing markets or industries. Quest ion
mark s have a small relative market share in a high growth market.
115. (a) The GE grid
The GE nine cell model uses multiple factors to assess industry attractiveness and businessstrength. This model is a nine cell matrix and evaluates business entities on the parameters of
industry attractiveness and business strength. The industry attractiveness is determined by thevariables of market size and growth rate, industry p rofit margins, co mpetitive intensity,
seasonality, technology conditions, social, environmental, and legal and human impacts. Thebusiness strengths are determined by the firm s relative market share, its profit margins, its ability
to compete on price and quality, its knowledge of the custo mer and market, competitive strengthsand weaknesses, caliber of management, and technological capability.
116. (c) Only i, ii, and iv
The GE grid uses multiple factors to assess business strength. Some of the business strength
factors taken into consideration are: knowledge of customers and markets, caliber of management,and the economies of scale which a firm enjoys. Emerging industry threats and opportunities is an
industry attractiveness variable and not a business strength variable.
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Part A
117. (c) Only i, iii, and iv
The GE nine cell planning grid helps in placing a business unit in one of the nine cells of thematrix, based on its industry attractiveness and business strength scores. The potential strengths ofthe grid are: it allo ws for intermediate ranking between high and low and between strong and
weak; it incorporates a much wider variety o f strategically relevant variables than the BCG matrix;
and it stresses the channeling of corporate resources to businesses with the greatest probability ofachieving co mpetitive advantage and superior performance. The GE grid is a complicated and
cumbersome p rocess and not a simple and easily manageable process.
118. (b) Only i, ii, and iv
Strengths are the resources, skills, or other advantages the firm enjoys relative to its competitors.Some of the strengths that a company may po ssess are: goodwill and image in the market for
goods and services; access to the best distribution network; the discipline, morale, attitude, andmanners of the employees; and market leadership. Increased bargaining power o f key buyers orsuppliers is a threat for an organization and not strength.
119. (d) threa t
A threat refers to an extremely unfavorable situation in the firm s en vironment. It is a challenge
posed by an unavoidable tren d that could lead, in the absence of p urposeful action, to the erosionof the co mpany s position. For example, when a country s government deregulates and liberalizes
its p olicy on the entry of MNCs, domestic firms will face a strong threat from the MNC products
which would be of superior quality and priced very competitively. The purposeful action in such asituation for a do mestic firm could be to enter into a joint venture with ano ther MNC to serve the
local markets or to enhance its own competitiveness by installing state o f the art machinery, reducewastages, cut costs, and strengthen its research and development division and distribution network.
120. (b) Decreased bargaining power of key buyers or suppliers
A threat refers to an extremely unfavorable situation in the firm s environment. Some threats to a
firm may be: entry of resourceful multinational companies/comp etitors, increased bargainingpower of key b uyers or suppliers, a quick rate of obsolescence due to major technological changes ,
and adverse changes in government policies, rules, and regulations. The decreased bargainin gpower of key buyers or suppliers is an opportunity and not a threat.
121. (b) diversification strategy
According to the SWOT analysis, if a firm with key strengths faces an unfavorable environment,
then it should use the strengths to build long-term oppo rtunities and follow a diversificationstrategy. In diversification, the firm expand s its operations by entering into related but distinct
businesses (concentric diversification) or completely unrelated markets (conglomeratediversification). For examp le, a firm manufacturing shaving cream and lotions enters the shaving
razors market (concentric diversification) o r enters the writing instruments industry (conglomeratediversification).
122. (d) defensive strategy
If a firm faces major threats from the environment and is constrained by critical internalweaknesses, then it should pursue defensive strategies. The firm s critical weaknesses combined
with the major threats presen ted by the environment will prevent the co mpany from following
aggressive strategies. The defensive strategies should focus on eliminating the firm s weaknessesfirst as they are elements within the firm s control.
123. (c) more successful, harder
The more successful the strategy beco mes, the hard er it is to replace it with a new one, even under
changed circu mstances. Often, the firm s strategists are the architects of the strategies used earlier.Owing to their familiarity with and commitment to p ast strategy, both lower level managers and
top-level managers show an inclination toward their continuity and are resistant to change.
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Business Strategy
124. (d) The greater the firm’s dependence on external factors, the higher will be the range
and flexibility of its strategic choice.
The greater the firm s dependence on external factors, the lower will be the range and flexibility ofits strategic choice. For example, the Indian mob ile industry in the initial stages was highly
regulated, which reduced the range and flexibility of strategic choice which a firm could enjoy.
125. (b) Only i, ii, and iv
A firm can gain a differentiation advantage by procurin g high quality raw materials, having asuperior product design, o r a responsive order entry system. The high quality of raw materials used
will improve the quality of the product and hence will differentiate the firm s products. A superior
product design will make either the product look attractive, add new features, or make it easy touse, thereb y differentiating the product. A responsive order entry system will imp rove the
responsiveness of the firm to its customers, thereby differentiating the firm s marketing services.Superior sales force utilization will give a cost advantage to the firm and not a differentiationadvanta ge .
126. (a) primary activities
Value activities can be classified into two categories: primary and support activities. Primary
activities can be further classified into four categories. They are research and development,production, marketing and sales, and service. The contribution of these activities to the valueadd ition of a prod uct is direct and high. Therefore, they are regarded as primary activities. Forexamp le, research and develo pment leads to either new features being added to an existing productor new improved products being developed; both provide a higher value to the customers. Highvolumes of output achieved by production and the lo wer wastages achieved help in directly
lowering the cost per unit of prod uction. Marketing and sales, and service are the functions whichare closest to the customer, and the more they are able to satisfy the customers, the greater will bethe value attributed to the firm s products by the cu stomers.
127. (a) production, minimized, competitive
By designing and developing an efficient production process, production costs can be minimized.An efficient production process helps in better utilization of raw materials, decreases the time-motions of an activity thereby reducing the manpower requirements, improves the manpowerutilizatio n rates by appropriate scheduling and sequencing of work, and reduces wastages. Theselead to a lowering of per unit costs, and provide a competitive advantage to the firm in the longrun.
128. (c) competitive, inter-relationships
A firm operating in related industries can create a competitive advantage by exploiting the inter-
relationships among the industries. For examp le, Pepsi has different divisions, namely, the softdrinks division, the mineral water division (Aquafina), the fruit juices division (Tropicana), and
Pepsi foods (Kurkure, Frito Lays). The water purification plants can be utilized commo nly forAquafina, the fruit juices, and the soft drinks. The firm can also make bundled offers o f its
products.
129. (d) production, manufacture, lowest
The production function is concerned with manufacturing goods or services. The product deliveredcan be physical goods or a service. The objective of the production department is to manufacture
superior quality goods at the lowest possible price. The production department strives to achievethe advantages of economies of scale in its production processes.
130. (d) sales, brand positioning, advertising
Marketing and sales activities help increase the perceived value of a product through brand
positioning and advertising. Brand positioning aims at creating and occupying space in the mindsof the customers. If a brand is positioned as a high end product, like Dove soaps or Van Heusen
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Part A
shirts, or Rolex watches, it increases the perceived value of the product. Advertising helps in
reinforcing the brand positioning and the perceived value of the product. Both brand positioningand advertising are a part o f the marketin g and sales activities.
131. (b) Only i, ii, and iv
The materials management function o f the co mpany controls the transmission of p hysical materials
throughout the value chain, from procurement to production and distribution. The value creationhere depends upon the efficiency with which the material management function is carried out tolower the costs incurred on procuring the inp uts (raw materials, consumable store, spares, etc.) and
in delivering the final product. The lowering of costs takes place by identifying cheaper sources of
supply which meet the quality norms, improving material handling efficiencies, distributing in theright mix at the right time, etc.
132. (d) Only i, iii, and iv
Organization structure, control systems, and the culture of the co mpany together co mprise the
infrastructure of an organization. The top management should also be considered as a part of theinfrastructure of the comp any as it influences the structure, control systems, and culture of the
organization. Operations is a type of primary activity.
133. (b) A firm’s differentiation does not depend on how its value chain is related to thebuyer’s value chain.
A firm influences the buyer not only through its product but also through its logistical system,
sales force, applications engineering group, and order entry system. It creates value when it createsa co mpetitive advantage for the buyer. The firm s differentiation depends on how its value chainis related to the buyer s value chain. Here the firm is the s upplier. For example, the ability of Sona
Koyo Steerings to produce high quality car steerings like power steerings is the differentiation
which it provides to companies like Maruti Ud yo g Ltd. This differentiation will be of use only ifMaruti has the ability to adapt the product design of its cars to fit power steerings. The productdesign activity is a part of Maruti Udyog Ltd s value chain activity. Hence the advantage of
differentiation of a supplier firm depends on how its value chain is related to the buyer s valuechain. A firm influences the buyer s performance by influencing its value chain.
134. (a) segment
In segment scope, the emphasis is on the variety of products and the types of buyers. A firm canemploy different fo cus strateg ies while serving different product or buyer segments. For example,
a computer firm may need a particular value chain to serve sop histicated mainframe computerbuyers with in-house servicing capabilities, and it might decide on a different value chain to serve
Home PC users.
135. (c) Geographic
Geographic scope allows a firm to share value activities across different regions. This refers to therange of regions, countries, or groups of countries in which a firm operates with a well-directed
strategy. For example, Canon develops and manufactures copiers primarily in Japan, but sells andservices them separately in many countries. Cano n s operations in different countries gains cost
advantages from sharing technology develop ment and manufacturing instead of performing theseactivities separately in each country.
136. (d) Industry
Industry scope refers to the potential inter-relationships among the value chains required to
compete in related industries. A shared logistical system may allow a firm to reap economies ofscale. Fo r example, a shared sale force offering related products like Dabur s Hajmola and Dabur sChayvanprash can improve the salesperson s effectiveness with the buyer and enhance
differentiation. Or a shared sales force of Epso n offering printers, scanners, projectors, and point ofsales equipment can improve the salesperson s effectiveness.
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Business Strategy
137. (d) i, ii, and iii
Through coalitions, a firm gets an opportunity to share its activities without en tering new industrysegments, geographic areas, or related industries. Co alitions broaden the scope of operationswithout broadening the firm. Coalitions also besto w the cost and differentiation advantages of
vertical linkages without the firm having to go in for vertical integratio n. Coalitions aim at making
use of the capabilities of the two partners in the best possible way and achieve synergistic effectsthrough the coalition.
138. (a) competitive scope, value chain
The basis for defining relevant business unit boundaries is provided by the relationship between
competitive scope and the value chain. The co mpetitive scope can be defined in terms of the typeof product varieties produced and markets served, the range of regions or countries in which a firm
operates with a coordinated strategy, the ran ge of related industries in which a firm operat es with acoo rdinated strategy, and the extent to which activities are performed in-house. For example, theextent to which a firm integrates backward or forward will define the boundaries in terms of the
value chain. A firm which manufactures read ymade garments integrates backward to set up a cloth
mill. In such an event, its competitive scope is defined by the backward integration and the valuechain will extend the firm s industry fro m readymade garments to the textile industry as well. This
will result in the expansion of the business unit boundary.
139. (b) aligns
An organizational structure that aligns itself with the value chain of a firm can ensure an enduringcompetitive advantage to the firm. For example, the structure should ensure that the inbound
logistics activities are closely tied in with the production activities and the o utbound logistics withthe marketing activities. The structure should also ensure that there is a flo w of informatio n fromthe sales and service to the research and development activities so that the feedback on co mpetitor
moves with reference to new product improvement can be provided. This will ensure that the
vario us and diverse firm activities are well co ordinated and that the firm go es on to become highlyresponsive to the market. It will also help it to gain a competitive advantage.
140. (d) i, ii, and iii
For the purp ose of cost analysis, the disaggregation of the generic value chain into individual value
activities should reflect: the size and growth of the cost represented by the activity; the costbehavior of the activity; and the competitor differences in performing the activity. Different
activities have different costs associated with them. For example, within the sales activities, thesalesman s co mmission will have a different percentage contribution to the total costs as compared
to the cost of distribution channel partners to the total costs. To exercise cost control, the managersshould keep in view the size of the activity cost and the manner in which it is growin g with anincrease in the associated activity. For example, with increased sales, the salesman s commissio n
will increase but the money spent on advertising will get spread over a larger volume of o utput and
the per unit cost of advertising will come do wn.
141. (a) costs, value activities, accounting classifications
The recasting of the accounting reco rds must o ften be done to match costs with value activitiesrather than with accounting classifications, particularly in areas such as overhead and p urchasedinputs. The accounting methodology has the objective of evaluating the firm s financial
performance as of a specific date or for a period of time whereas value analysis analyzes and
evaluates the costs incurred on a particular activity and its ability to create value for the customers.It aims at lo wering the costs incurred on account of an activity or improves its value creation
ability. Take for example, information technology costs, which are treated as overheads byaccounting. The value analysis will look at how information technology can lead to more value for
the custo mer as for example, creating a website through which the firm can reach global marketswith its product portfolio.
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Part A
142. (d) i, ii and iii
The cost of each value activity can be separated into three categories: purchased operating inputs,
human resource costs, and assets by major category. The three categories listed are distinct from
each other and a cost can be easily classified into any one of these categories. For example, raw
materials will get classified into purchased operating input costs, the training imparted to
employees will get classified as human resource co sts, and any machinery or building purchased
will get classified into assets by major category.
143. (d) decrease, increase
The direct cost in any manufacturing firm gets reduced b y the introduction of sophisticated
information systems and automated processes but it lead s to an increase in indirect costs. The
automated p rocesses reduce manpo wer requirements o n a process line, thereby reducing
manpower costs. They also result in better utilization of raw material by lowering wastages. For
examp le, in a readymad e garments industry, consider the washing process line. If it is a manual
process, it may require 5 persons to produce 50 washed clothes per hour. If this gets automated, a
single person can supervise the automated process line and produce 100 washed clothes per hour
thereby resulting in increased productivity and a reduction in the cost of four workers. However,
this requires purchase of equipment for the washing of clothes, which will increase the indirect
costs.
144. (b) Breadth of product line
The cost behavior of value activities is determined b y ten major cost drivers. They are economies
of scale, learning, the pattern of capacity utilization, linkages, interrelationships, integration,
timing, discretionary policies, location, and institutional factors. The breadth of the product line is
not a cost d river. For example, in a biscuit manufacturing company, the same plant and equipment
is made use of for manufacturing salt biscuits and sweet biscuits. Similarly, in a soft drinks
company like Coca Cola, the same plant is made use of for manu facturing Coca Cola, Fanta,
Sprite, Thumps Up, and Limca. As the extension o f the product line does not lead to any
substantial increase in cost, the breadth of the product line is not a cost driver.
145. (b) Econo mies of scale
Economies of scale result from the ability to perform activities efficiently at a larger volume, or
from the ability to write off gradually the cost of intangibles such as advertising and R&D over a
greater sales volume. It can be the outcome of efficiencies in the actual operation of an activity at a
higher scale as well as from less than prop ortional increases in the infrastructure or overhead
needed to support an activity as it grows. For example, the infrastructure costs in a b auxite mine go
up much less with increased scale.
146. (c) increases, increase
As scale increases beyond a point, complexity, costs, and coordination increase and that may lead
to disecono mies o f scale in a value activity. The increased output and sales volume may increase
employee compensation or purchased input costs at a rate higher than the increase in the volume of
output and sales. If the economies of scale are the result o f having plants in multiple locations and
an increased breadth of the product line, it may increase the coordination costs substantially and
may even result in diseco no mies of scale.
147. (b) Only i and iii
There are two mechanisms through which linkages within the value chain lead to opportunities for
cost reduction. They are coordination and optimization. The manifestatio n of a linkage between
activities is inventory and reducing inventory is possible by managing the linkage better through
coo rdination. Trad eoff problems can be resolved jointly optimizing the activities that are linked.
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Business Strategy
148. (d) i, ii, and iii
Cost dynamics are the result of the interplay of cost drivers over time, as a firm grows or asindustry co nditions change. Cost drivers are: econo mies of scale, learning, pattern of capacityutilizatio n, linkages, interrelationships, integration, timing, discretionary policies, location, and
institutio nal factors. For example, as a firm grows in size over a period of time, it starts taking
advantage of learning. Besides, due to an increase in its size, economies of scale and good capacityutilizatio n emerge. This leads to influencing the cost behavior for the advantage o f the firm.
However, due to the increase in size, the cost of opening new offices or setting up new plants andthat of manpower goes up. The cost dynamics looks at the effect o f these countervailing costfactors. Cost leadership status arises on account of how a firm manages its cost dynamics.
149. (a) cost dynamics, independent of
According to cost dynamics, in addition to analyzing cost behavior at a po int in time, a firm mustconsider how the absolute and relative cost of value activities will change over time independent ofits strategy. For example, the manp ower co st of engineers will come do wn over time, if the number
of engineering institutes in the co untry multiplies fast. This is independent of the strategy adopted
by the firm to recruit engineers.
150. (d) Econo mies of scale
Economies of scale is a cost driver that determines cost behavior, an d not cost dynamics. The most
common sources of cost dynamics include: ind ustry gro wth, differential scale sensitivity, anddifferential technological change. The growth of an industry affects cost dynamics in many ways.The expansion in the demand for products and services is synonymo us with high industry growthrate, which enables a firm to take advantage of economies of scale, thereby resulting in lowercosts. High industry growth rates will attract more firms to enter the supplier industry of thegrowing industry, thus leading to lower input costs. For example, when the Indian automobile
industry experienced a high growth rate, it resulted in the setting up of a large number o f inputproviders, which led to a decline in input prices for the automobile manufacturers. Differentialscale sensitivity is the difference between the scale sensitivity of two value chains. For example,the value chain of software is more expensive than the value chain of hardware in industries likevideogames and teleco mmunications. In these industries, the costs of creating hardware comesdown substantially with scale but the cost of software in the form of software professionals
required stays largely inelastic in response to scale because upgrades and new software arerequired at a fast pace to stay co mpetitive. Differential scale sensitivity also refers to how sensitivethe costs of a firm are to scale as co mpared to its competitors. Differential technology changerefers to the d ifferences in speed and quantum of technology change in relation to the valueactivities of a firm.
151. (a) Only i, ii, and iii
Firms in assessing and acting upon cost position, make common errors such as: exclusivelyfocusing o n the cost of manufacturing activities, ignoring procurement, overlo oking indirect orsmall activities, having a false perception of cost drivers, failing to exploit linkages, going in forcontradictory cost reduction and unwitting cross subsidy , thin king incrementally, andundermining differentiation. The failure of firms to recognize the existence of segments in whichcosts behave differently makes them often go unwittingly in for cross subsidy.
152. (d) i, ii, iii, and iv
Policy choices that lead to uniqueness include: product features and performance offered; servicesprovided (e.g., cred it terms, speed of delivery or repair); intensity of an activity ad opted (e.g.,amount and rate of advertising spending); content of an activity (e.g., the information provided inorder processing); the technology employed in performing an activity (e.g., precision of machinetools, computerization of ord er processing); quality of inputs procured for an activity (higher
quality o f inp uts would result in a better and differentiated finished product); informationemployed to control an activity (e.g., temperature, pressure, and other variables used to control achemical reaction); and skill and experience level o f personnel employed in an activity.
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Part A
153. (d) i, ii, and iii
A series of basic drivers analogous to the co st drivers determines a firm s uniqueness in a value
activity. For example, the quality of inputs used, the level of auto mation in the production
processes, constant development o f technology innovations, extent of customization to custo mer
needs, etc., are all drivers of uniqueness which a firm can adopt. The firm can make itself unique
by creating a product image in the minds of the custo mers due to its existence for a long time. For
examp le, Lux soaps are id entified as beauty soaps while Dettol is identified as a good antibacterial
and disinfectant. The uniqueness of a value activity may stem from sharing it with sister business
units.
154. (c) buyers, high
A successful differentiator puts his/her efforts into creating a value for buyers by providing them
with a high quality product that yields a price premium in excess of the extra cost. Wh en a firm
differentiates itself by providing a high quality product, it incurs additional costs in terms of higher
input costs, additional research and development expenditure, and so on. The firm is able to
command a price premium for its high quality product which more than offsets the cost of
differentiating. For example, Sony products are perceived as high quality products and they sell at
a price premium as compared to the products of comp etitors.
155. (d) packaging
Use criteria include product quality, prod uct features, delivery time, and applications engineering
support. Packaging aims at ensuring that the material does not get damaged or destroyed during
shipment. It is a signaling criterion which indicates focus on quality by the supplier. Signaling
criteria also include brand image, advertising, the attractiveness of facilities, and reputatio n.
156. (c) Organization structure should be designed with efficiency of performance as the sole
aim.
Organizations in the past existed in a stable environment when they had to perform themselves in
the lo ng run. Efficiency of performance was the main aim around which the organizations were
designed. But, today s environment is dynamic and chaotic which requires the organization to
survive in intense competition. Apart from efficiency, modern organizatio ns should also aim at
effectiveness and continuou s learning.
157. (c) i/r, ii/p, iii/q, iv/s
Formalization, specialization, hierarchy of authority, centralization, professionalism, and personnel
ratios are the various structural d imensions of organization design. Formalization refers to the
extent to which written rules and records are maintained in the organization. Specialization refers
to the extent of dividing the organizational activities into sub -groups. Professio nalism refers to the
level of formal education of the employees. Centralization refers to the level in the hierarchy
which has the decision-making authority. Personnel ratio refers to the distribution of people into
different functions and departments. It is calculated as th e ratio of the number of p eople in a
specific function to the total number of people in the organization.
158. (b) Only i, iii, and iv
In a divisional structure, the divisions are formed based on a company s product r ange, the specific
markets which the company caters to, or the geographic locations in which the company operates.
In such a structure, each division independently handles a separate product, market, or geographic
location. In a matrix structure, an emplo yee reports simultaneously to two different supervisors;
one is the supervisor representing the functional department while the other is the supervisor
representing the division, product, market, geography, or project.
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Business Strategy
159. (a) Only i and ii
A matrix organization structure integrates the features of the functional and the divisional
organization structures. The matrix structure is useful in organizations that have a limited product
range. It is more appropriate in organizations where a high degree of interaction is required
between the functions. A functional organization structure will be useful wh en expertise in a
specific field is required.
160. (c) Due to the presence of dual authority, there is a higher chance of conflicts arising.
Some o f the drawbacks of the organization structure are: it takes more time for the o rganization to
identify core processes; it necessitates the change of organization s culture, job structure and
function, and performance measurement system; it hamp ers the possibility of employee
specialization in specific functions; and it mandates emplo yees to get trained in varied areas in
order to be effective in a horizontal structure. The matrix structure calls for a high degree of
coo peration and coordination among managers. Due to the presen ce of dual authority, there is a
higher chance of conflicts arising and so a lot of time is co nsumed in conflict resolution.
161. (b) Only i and iii
Two important characteristics of a hybrid organization are that there is scope for different ways of
thinking and a participative style of management. These organizations are characterized by quick
decision making; quick adap tability to market changes; and increased spending on research and
development.
162. (c) discretionary expense center
The cost centers of the organization are divided into standard cost centers and discretionary
expense centers. Discretionary expense center is a type of responsibility center usually found in
administrative or R&D departments. The costs in the discretionary expense center tend to vary
from one year to another according to the volu me. In the given situation, the R&D department is
an examp le of a discretionary expense center.
163. (c) revenue
Company-owned retail outlets like The Hot Shoppe stores are a good example of revenue centers.
Such a center is devoted to increasing the net revenue and assumes no responsibility fo r
production. In this center, the outlet manager is responsible for the level o f revenue or output
measured in monetary terms, but is not responsible for the costs of the go ods sold through the
outlet.
164. (c) At a macro-level, the organization has to choose what activities it should perform
among the activities in its value chain.
There is no such thing as an ideal organizational design or structure. Each structure has its own
advantages and disadvan tages. The key activities and resources of an organization are tied together
by its structure. Therefore, the structure must be closely aligned with the needs/demands of the
strategy. At a macro-level, the organization has to cho ose what activities it should perform among
the activities in its value chain. At the micro-level, it should design an internal structure to perform
the chosen set of activities. In practice, the management should keep in mind the existing reporting
relationships, personalities, and internal politics, and judiciously choose an organization structure.
165. (b) iii, iv, ii, i
Over an extended time period, Chandler studied large corporations and found a common strategy-
structure sequence which is: choice of new strategy; emergence of ad ministrative problems;decline in performance; a shift to an organizatio nal structure more in line with the strategy s needs;
and improved profitability and strateg y execution.
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Part A
166. (b) intangible, a ction
An organization s culture is equivalent to an individual s personality. It is an intangible, ever-
present theme that provides meaning, directio n, and the basis for action. Just as personality
influences the behavior of an individual, the culture influences the opinions and actions within a
firm.
167. (d) shared values, culture
The McKinsey 7-S framework comprises structure, systems, style, staff, skills, shared values, and
strategy wh ere shared values form the nucleus of the framework. The framework highlights the
impo rtance of shared values leading to the culture of the organization as a whole. Shared values
are the values which employees by and large believe in and they help in guiding action within the
organization.
168. (c) Both internal integration and external adaptation
According to Richard L. Daft, the purpose of organizational culture is to enable internal integration
and external adap tation.
Purpose Contribution Mechanism
Internal Gives a collective identity to employees and clarifies how
integration employees relate to each other
Contributes to effectiveness of performance by guiding
working relationships, by ensuring communication among
employees, and by allocating po wer and status
Determines what are the accep table norms of behavior at the
workplace
Guides decision making by employees if policies and
proced ures are not laid down clearly on how a p articular
situation should be addressed
External Helps the organization respond to customer needs
adaptation Helps the organization respond to competitors strategies and
tactics
169. (a) Only i, ii, and iii
There are three basic determinants of organizational culture. First, the influence of the business
enviro nment in general and the industry in p articular. For instance, companies in industries
characterized by rapid technological change, such as software, electronic, and computer companies
normally have cultures that strongly value innovation. Second, founders, leaders, and managers
bring a pattern of assumptions with them when they join the organization. These assumptions often
dep end on those individuals own experiences in the culture of the national, regional, ethnic,
religious, occupational, and professional communities to which they belong. Third, the actual
experience people in the organization have had in working out solutions for coping with the basic
problems the organization encounters molds shared assumptions. Taken together, these three
principle sources suggest that the content of culture derives from a combination of prior
assumptio ns and new learning experiences.
170. (c) beliefs, values
An organizational member can simply be aware of the b eliefs and values of the organization
without sharing them personally. The beliefs and values have more personal meaning if the
member views them as the guiding principles for appropriate behavior in the organization b y
complying with them.
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Business Strategy
171. (d) i, ii, iii, and iv
Some typical beliefs that shape organizational culture are: a belief in being the best, a belief in
superior quality and service, a belief in the importance of people as individuals and a faith in their
abilities to make a strong and effective co ntribution, and a belief in the importance of the details of
execution – the nuts and bolts of doing the job well. For example, at Toyo ta, a world leader in
automobiles, all these beliefs shape its organizational culture.
172. (a) Cultural diversity , differing
Cultural diversity, both domestically and internationally, is something that most managers will
experience due to the differing backgrounds of the employees which is the result of global
acquisitions and mergers.
173. (a) All forms of organization structures are equally effective in the implementation of a
strateg y due to many cultural diversifications.
Due to many cultural diversifications, all forms of organization structures are not equally effective
in the implementation of a strategy.
174. (a) Charisma
Influence, an important so urce o f power, arises from personal qualities like charisma of the leader.Charisma is the leader s ability to influence others through personal magnetism, enth usiasm, and
strongly held convictions. Leaders communicate these convictions and their vision for the future
through a dramatic, persuasive manner of speaking. Charismatic leaders create an image of
competence and success.
Their personal magnetism makes them role models fo r their employees, thus influencing the
overall organizational culture. The more the followers admire their leaders, the more likely they
are to accept their leader s values and beliefs.
175. (a) Adaptive
Two distinct cultural settings, namely, adaptive cultures and inert cultures, are observed in many
organizations. Adaptive cultures are those that are innovative and enco urage and reward initiative-
taking by middle and lower level managers. On the other hand, inert cultures are those that are
cautious and conservative, th at do no t value middle and lower level managers taking such action
and may actively discourage such behavior.
176. (c) All industries have a common set of critical success facto rs irrespective of their
mission and strategic goa ls.
John F. Rockart defined critical success factors (CSFs) as the limited number of areas in which
results, if they are satisfactory, will ensure successful competitive performance for the
organization. They are the few key areas where things must go right for the business to flourish.
He also concluded that CSFs are areas of activity that should receive constant and careful attention
from management. For each firm, the critical success factors would be different dependent upon
its mission and strategic goals . A firm should identify a few critical factors that are crucial to the
attainment of strategy, goals, and objectives of an organization. The number of critical success
factors chosen should not be more than five to six.
177. (c) i/r, ii/p, iii/q
For the BPO sector, the ability to sustain the customer base is a critical success factor. The key
performance indicators are day-to-day operations like first call resolution, call quality, service
level, response time, average handle time, and cost per call. Return on capital employed is a key
result indicator.
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Part A
178. (a) Communicating and linking strategic objectives and mea sures
Given the vision, mission, and strategy as inputs, the Balanced ScoreCard serves as a tool forstrategic p erformance control by clarifying the vision and strategy of the organization andarticulating the top management s expectations in terms of clearly defined strategic objectives andassociated measures of performance. To align the organization s objectives with individual
objectives, these strategic objectives and measures are communicated throughout the organization,and also expressed in terms of more d etailed, operational objectives at the departmental level,
group level, or individual level. Once the ind ividual and organizational objectives have beenaligned, a business plan is devised. This helps the organization in creating a link between the short-term goals, long-term objectives, and the financials. The top management continuously monitors
the performance.
179. (a) i/r, ii/p, iii/q
Based on the object of control, management controls can be classified into action controls, resultscontrols, and personnel/cultural controls. Action controls are aimed directly at the actions which
take place at different levels of an o rganization. These controls may be implemented in the form of
behavioral restrictions which are limitations placed on th e behavior of organizational personneland are a form of negative discipline. Results controls are focused on the consequences of actions
taken rather than on the actions themselves. These controls empower individuals and groups to usetheir discretion in d oing what they feel are b est for the organization. Personnel/cultural controlsinfluence the people and the organizational culture, with the expectation that the right people in the
right culture will perform the right actions that will ultimately yield the desired results. These
controls aim at encouraging employees to monitor themselves and others with whom they work forthe organization.
180. (c) Benchmarking
Benchmarking is aimed at identifying one or more firms who have achieved world class
competitiveness in managing supply, production, and sales and services. The idea is to incorp oratethe same practices in one s o wn b usiness to reach the same level of competitiveness. It is possible
that one competitor might have achieved the world class quality in production, while another mighthave achieved world class quality in customer service. The aim is to learn from the best practices
of both the firms and incorporate them in one s o wn firm to emerge as the leader in the industry.
For instance, Pizza Hut aims more at serving Pizzas in a Dine-in mo de while Domino s is known
for world class delivery standard s. In benchmarking, a firm learns from the best practices of both
the firms and incorporates them in their own b usiness processes to emerge as a leader.
181. (b) ii, iv, i, and then iii
A typical benchmarking exercise is a four-stage process involving: Planning stage: identify,
establish, and do documentation of specific focus areas, key events , and definitions; Data
collection: identify best practice companies and using appropriate data collection tools, collect
qualitative data and learn from the best practices of different organizations; Data analysis &
reporting: this stage involves the critical evaluation of practices followed at high performing
companies, and the identificatio n of practices that help and deter superior perfo rmance; andAdaptation: develop an initial action plan to adapt and implement the practices followed by high
performance companies.
182. (b) The focus of organizational processes is the execution of tasks.
Re-engineering seeks redesign of current process configurations and not just optimization. Itfocuses on new measures of performance and stresses customer satisfactio n, performance of
processes, and throughpu t efficiency, and not the individual activities that are part of the process.Reen gineering is concerned with the fundamental business processes that underlie the operations
of an organization. In reengineering, attempts are made to change the focus of organizationalprocess from execution of tasks to the outcome of tasks. For example, manual complain t booking
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Business Strategy
process may be replaced by an integrated automated voice response system with a view to impro ve
consumer response rates. This will change the fo cus of the process from booking complaints tospeedy rectificatio n of consumer co mplaints.
183. (c) strategic, operational
Strategic processes indicate and promise to the markets what value will be delivered by their
products and services. This is done via press releases and interviews by top executives of the firmin the electronic media or with the print media. They are broad in their nature and indicate whetherthe products and services will deliver economical products and services or they will be niche
products or services. They also indicate to a certain extent how their offerings would be similar to
or different from the co mpetitors. Operational processes help an organization to oversee its regularday-to -day functions like winning the customer, satisfying the customer, and supporting the
customer. They are geared towards delivering on the strategic pro mises made to the market.
184. (c) eliminating, streamlining
Redesigning a process involves eliminating non-value-adding activities, and streamlining core-
value-adding activities. The rules followed can be represented by an acronym ESIA: Eliminate allnon-value-addin g activities, Simplify aspects of work where possible, Integrate elements of theprocess, and Automate where appropriate.
185. (b) systematic
A firm following a systematic redesign app roach maps out and attempts to understand, an existingprocess, and then works through it systematically to create a new process to deliver the desiredresult. This may allow some aspects of the existing process to be retained in the new proposedprocess. A clean sheet approach seeks a fundamental re-think of the way the product or service isdelivered, and designs new processes from scratch .
186. (b) long-term, managers within
The key lead ers in the organization, alo ng with the board of directors, can be collectively referredto as the strategy team. The focus of the strategy team is on long-term gro wth and survival. The
long-term strategies (designed to achieve long-term goals) are broken down into sh ort-term
strategies by managers within the organization. Therefore it is essential that long -term strategieshave been determined by the strateg y team, and understood and supp orted by the managers of theorganization. Otherwise, the short-term strategies will not b e in sync with the long-term strategies.
This will result in failure of the long-term strategies.
187. (d) i, ii, and iii
The responsibilities of the strategy team includ e:
to provide direction in the form of a mission or purpose.
to provide policies and guidelines for managers to facilitate the management of operatio ns
and changes in co mpetitive/functional strategies.
to monitor and control operations, with special reference to financial results, productivity,
quality, innovation, customer service, and staff development.
to formulate and implement changes to corporate strategies.
to manage the business on behalf of all the stakeholders.
188. (d) i, ii, iii, and iv
The strategy team monitors and control operations, with special reference to financial results,
productivity, quality, innovation, staff development, and customer service. Financial results andproductivity provid e the strategist with a benchmark to evaluate the ado pted operations. Quality
and innovation help the strategist to monitor and control operations with respect to differentiation.Staff development aims at evaluatin g human resource assets, and the type of customer service
provided helps in mo nitoring and controlling operations relating to custo mer satisfaction.
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Part A
189. (d) i, ii, iii, and iv
The qualities and skills that an effective strategic leader should possess are: the ability to b uild andcontrol an effective team of managers; the ab ility to exercise power and influence and to create
change; implementatio n skills, i.e., how to get things done, which requires drive, decisiveness, and
dynamism; and perseverance and persistence in pursuing the mission or vision, plus mental and
physical stamina.
190. (b) Only i and iii
Strategic leaders who are entrepreneurial will seek out opportunities for change and are willing totake the necessary risks. They are willing to invest in new ideas and products and are willing to
enter unexplored areas of business. Hence, they assume and und ertake majo r risks as compared to
conservative leaders. Entrepreneurial strategic leaders, if successful, create new avenues for
investment for conservative strategic leaders. For example, Sabeer Bhatia created the immensely
successful Hotmail which led other firms to launch internet -based mail services. Due to their
greater ability to assume risk, entrepreneurial strategic leaders are more successful in unstableenviro nments as they find and implement new methods of executing the business in a changing
enviro nment.
191. (d) i, ii, iii, and iv
Taking decisions regarding risk involves all the criteria mentioned in the options.
192. (c) Screening and selecting people to fill all positions in the organization
The board of directors authorizes the corporate strategies chosen b y the CEO. The board ofdirectors formulates and reformulates the mission, objectives, and policies of the organization with
a long-run perspective, thus providing the basis for strategy formulation. The bo ard screens and
selects only the top executives who can fo rmulate and implement strategies. The board of
directors also performs certain legal functions as per the law of the land.
193. (a) a phantom board
If the bo ard of directors is not at all involved in the strategic management process, it is referred toas a p hantom board. The board s existence is only on paper and it plays no role in the manag ement
of the company. For all practical purposes, the board is non-existent. A phantom board of directors
is created b y a CEO who is autocratic in his/her style of functioning and does not want any
interference b y the board. The creation of such a board is do ne to meet the legal requirements.
Phantom boards are primarily witnessed in closely held companies.
194. (d) permits officers to make all decisions
As a rubber stamp, the degree of involvement of the board of directors in strategic management is
less, and it permits officers to make all decisions. As the term rubber stamp implies, the relevance
of the board is only in terms of its ratification of important strategic issues in order to comply with
the provision of law. The board permits officers to make all decisions and agrees with their
decisions without engaging in any independent analysis. Such a board is normally comprised ofmembers who are either not interested in the firm s business or do not possess any knowledge
abo ut the dynamics of the b usiness, and are on the board fo r purposes of prestige and social
standing.
195. (c) active participation
The board of directors questions, approves, and makes final decisio ns on mission, strategy,
corporate policy, and objectives when it actively participates in strategic management. The board
plays a proactive role in defining the mission, and formulating strategies for achieving growth inthe light of the firm s enviro nment. It also has active board -level committees. In successful firms,
normally there is active participation of the board of directors in strategic management.
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Business Strategy
196. (c). i/r, ii/p, iii/q, iv/s
Forms of Restructuring
Expansion Sell-Offs Corporate Control Changes in
Ownership Structure
Mergers and Spin-Offs Premium Buy- Exchange Offers
Acquisitions BacksSplit-Offs Share RepurchasesTender Offers StandstillSplit-Ups Going Private
AgreementsJoint Ventures Divestitures Leveraged Buy-Anti-takeover OutsEquity Carve-outs Amendments
Proxy Contests
197. (b) In a split-off, the entire firm is fragmented into a series of spin-offs.
In a split-up (and not split-off), the entire firm is fragmented into a series of spin -offs.
198. (a). Golden parachutes abolish termination payments that have to be made to theexisting management.
Golden parachutes involve large termination payments to be made to the existing management. Itis a type of anti-takeover amendment that can be made to the corporate bylaws in an attempt toprevent mergers and acquisitions.
199. (a) Reducing manpower and expenditure
Reducing manpower and expenditure is typical of the denominator-driven approach tomanagement, also referred to as a „belt-tightening program.
200. (c) Transition
The transition stage, the third stage of the turnaro und process, is the most complex of the fourstages. In this stage, the firm experiments with different strategies, structures, cultures, andtechnologies.
201. (a) Only i and ii
Statements iii and iv are false. The K-extinction (and not the R-extinction) perspective suggests
that macro or external factors are responsible for the decline. The R-extinction perspectivesuggests that the decline in the firm is due to a red uction in resources within the firm, independentof the external environment.
202. (c) joint venture
A combined undertaking or partnership by two or more firms to create a separate busines senterprise is known as a joint venture. A joint venture can be taken up for a variety of reasons. An
examp le of a joint venture is NTPC-ALSTOM Power Services Pv t. Ltd . This joint venture wasundertaken by NTPC and ALSTOM for renovation and modernization of power statio ns in Indiaand other SAARC countries. Both promoters contrib uted equally to the promoters equity.
203. (a) jo int venture, new value
The emphasis of a joint venture is on collaboration rather than mere exchange. While exchangesimply involves getting something in return for what is put in, collaboration involves the creation
of new value. A joint venture aims at making use o f the distinct capabilities or resources of the twofirms (in a synergistic way) to create new value. For example, Aditya Bi rla Group and Sun Life of
Canada have entered into a joint venture to serve the Indian market with insurance solutions,mutual funds, and investment planning services. Aditya Birla group alone would not have the
expertise to offer these solutions and Sun Life on its own would be an unknown entity in theIndian market. Accordingly, the two companies came together to take advantage of each other s
capabilities in a synergistic manner and created new value for the Indian investors.
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Part A
204. (d) i, ii, iii, and iv
Characteristics that are taken into account while describing jo int ventures are: contribution of
money, property, effort, knowledge, skill, or other assets to a common undertaking by the partners
involved; joint property interest in the subject matter o f the venture; and the right of mutual contro l
or management of the enterprise.
205. (d) The number of partners in any co llaboration is confined to two.
Characteristics found in a joint venture include: expectation of profit or presence of “adventure”;
right to share in the profit; and usual limitation of the objective to a single undertaking or ad hoc
enterprise. There can be any number of partners in a joint venture; it is not confined to only two.
For example, in a joint venture to set up and run a five star hotel, o ne partner may contribute by
bringing in land, another may offer the franchise name, and the third partner may look after the
operations of the hotel.
206. (b) Only i, ii, and iv
Joint ventures are stimulated for a number of motives. The primary motive for starting a joint
venture is to share investment expenses or to enable a large company rich in cash to invest and
collabo rate with a smaller company that has a product or production idea but lacks funds to pursue
the opportunity. The learning experience that may be o btained is a second strong motive for joint
ventures. Further, a joint venture serves as a method for reducing the investment outlay and
sharing the risks, even for a large comp any.
207. (a) jo int ventures, mergers
Anti-trust authorities are more willing to permit joint ventures rather than mergers. This is because
joint ventures result in an increase in the number of firms while mergers lead to a decrease in the
number of firms which may reduce competitiveness in an ind ustry. Further, joint ventures enable
partners to pool their resources, share risk, and take up large projects, which they would be hesitant
to take up individually.
208. (d) Only i, ii, and iii
Tushar Group might be interested in the venture to enable it to source gold at a low cost for its
jewelry stores and electronics. They may also have surplus funds and find the venture a good route
for investment. Once Tushar Group gains the expertise in gold mining throu gh this venture, it may
itself get into gold mining as a fully-owned venture to enable backward integration for its jewelrystores. Statement (iv) is not correct because Tushar Group s other projects, namely textiles,
jewelry stores, electronics, industrial chemicals, and cosmetics do not co ntribute to the skill
required for gold mining operations.
209. (d) The risk factor is more crucial in industries where the risk of worker, product, or
environmental liability is very low.
The risk factor is more crucial in the industries where the risk of worker, product, or environmental
liability is very high . When workers are unionized, the risk of strikes goes up, posing a liab ility to
the company. If the product has many negative side effects on consumption as in pharmaceutical
products, consumers face a high liability and high associated risks. Manufact uring processes which
are hazardous to the environment involve greater liability and more risk.
210. (b) Only i, ii, and iv
The various reasons for the growth of joint ventures are augmentation of financial and technical
abilities for entering a particular line of business; sharing of technological knowledge and
management skills; desire to reduce the risk involved in the project; and obtaining distribution
channels or raw materials supply.
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Business Strategy
211. (a) The contract ma y be too flexible and permits adjustments in the future
Reasons for the failure of joint ventures are: the contract may be too inflexible and does notpermit req uired adjustments in the future; lack of commitment and time in implementing theproject; inability o r failure to develop the desired technology; and the lack of ad equate pre-
planning for the joint venture.
212. (b) Alliance of co mplementary equals
A strategic alliance between two strong and complementary partners remains strong during thecourse of the alliance. The co llision between two partners alliance is exp ected to be short-lived. Abootstrap alliance usually results in the acquisition of the weaker company b y the strongercompany. An alliance of the weak usually results in further weakening of both the companies andthe alliance fails.
213. (d) i, ii, iii, and iv
The four statements describe various guidelines for structuring an alliance effectively to increaseits probability of success.
214. (b) merger
Mergers can be defined as the integration of two or more firms on a co-equal basis. In mergers,firms pool all their resources together to create a sustainable comp etitive advantage. In a merger,
one of the firms may lose its existence. Unlike mergers, takeovers / acquisitions can be unfriendlyand may not be in the interest of the acquired firm. Spin-off is the formation of a new entity by asplit from a larger one.
215. (a) they are operating and competing in the same business environment and areproducing the same product.
Horizontal mergers take place where the two merging companies produce similar prod ucts in the
same industry. For example, before Co mpaq merged with Hewlett Packard, they were two dist inctcompanies operating in the same industry, viz., computers, and the same markets, and offeringsimilar products and services. This kind of merger is kno wn as a horizontal merger.
216. (b) Only i, ii, and iv
A ho rizontal merger results in a larger firm and thus, greater economies of scale. They may alsoshare resources, skills, and derive synergy. For example, the merger o f an Indian pharmaceutical
firm and a Canadian pharmaceutical company will give the merged entity access to unexplo redmarkets and scale economies. As any two firms undergo merger on a co-equal basis and form anew entity, the need for one to gain corporate control over the other does not arise.
217. (a) create a monopoly market
When two or more co mpanies undergo a horizontal merger, it results in a decrease in the numberof firms in an industry. As a result, competition is reduced and a monopoly market may be created,
due to which the consumer may suffer. Hence, governments make effo rts to regulate horizo ntalmergers.
218. (c) To achieve greater economies of scale
There are different reasons for which companies enter into vertical mergers. They are: reducingcosts of communication, coordinating production, better planning of inventory and production, andachieving better control over the source of inputs and their quality or to be closer to the customer.
Greater economies of scale result from horizontal mergers.
219. (c) product extension conglomerate merger
A product-exten sion merger takes place when firms want to expand to broaden their product lines.Two wheelers and cars are a part of the automobile industry and represent two distinct product
lines requiring different manufacturing facilities. The objective of a product extension merger is toexpand the product portfolio of the merged firm and exploit synergistic effects through the merger.
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Part A
220. (a) geographic extension conglomerate merger
A geographic extension conglomerate merger involves two firms having operations in differentgeographical areas. The objective is for the merged firm to exploit the distribution and marketingstrengths of the two firms in different geographical areas. In the example just seen, Ajay Ltd. can
make use of the distribution network and marketing activities of Akash Enterprises Ltd. in the
southern part of the co untry, and Akash Enterprises Ltd. can take advantage of the distribu tion andmarketin g network of Ajay Ltd. in the northern part of India once the two firms merge.
221. (a) Only i, ii, and iii
A firm in the declining stage of the industry life cycle undertakes horizontal mergers to ensure
survival. Vertical mergers in this stage are carried out to increase efficiency and profit margins,while concentric mergers involving firms in related industries in the declining stage of industry life
cycle provide opportunities for synergy and carry-over of managerial capabilities.
222. (c) maturity, low cost
The purpose behind horizontal and related mergers in the maturity stage is to match the lo w costand price performance of oth er firms, both domestic and foreign, by achievin g economies of scale
in research, marketing, and production. In the maturity stage, the industry is stabilized in terms ofdemand and production technologies. The firms in such an industry seek to lower costs byachieving scale economies to counter the price performance of competitors.
223. (b) Cultural differences
There are various reasons for the gro wth of cross border mergers and acquisitions. So me of thesereasons are growth, technology, government policy, differential labor costs, productivity, andsource of raw materials. However, opposing cultures an d different management styles across
borders often act as barriers in the realization of cross border M&As. For example, a merger
between a French company and a Chinese company will involve understanding of two verydifferent cultures and may act as a deterrent to the merger.
224. (b) Only i and iii
A study done by Linn and Rozeff in 1984 revealed two main reasons for divestitures, i.e., the
assets are worth more as part of the buyer s organization than as part of the seller s and also thatthe assets are actively interfering with other profitable o perations of the seller. For example, one of
the business units o f a firm is a state of the art leather tannery. This unit might be more valuable toa firm like Bata or Liberty shoes and hence they may pay a very go od price for it. Or a firm may
have a milk processing company, a rubber company, a plastic company, and a textile company inits corporate portfolio. If the rubber company is drawin g more attention from the managers
because of the increased comp etitive pressures in the rubber industry, the firm may decide to sell itoff.
225. (b) Only i, ii, and iv
According to James C. Van Horne, so me of the main reasons that force companies to divest are:efficiency gains and refocus, information effect, wealth transfers, and tax reasons. When achemical firm enters a range of industries like the ink indu stry, the detergents industry, the paintsindustry, the paper industry, and the sn ack foods industry, it may result in a loss of focus on the
core business. In such an event, it may decide to sell o ff its paper unit and snack foods unit torefocus on the chemicals line.
226. (b) when the regulatory authority passes an anti-trust ruling
An involuntary divestiture is usually the result of an anti-trust ruling by the government or
regulatory authorities, whereas a voluntary divestiture is a willful d ecision by management todivest. An anti-trust ruling is passed against a firm when it is fou nd that the firm s practices areproviding it with an unfair advantage in its industry or that it is betraying the co mmon interest o fthe consumer.
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Business Strategy
227. (d) corporate finance
The composition o f the core team will vary depending on the specific nature of the d ivestiture and
the team will generally includ e so meo ne who is extremely knowledgeable about the b usiness being
sold and someone from the corporate finance function. If the asset being divested is a sophisticated
plant and machinery, then one of those in charge of production will form p art of the core
divestiture team. On the other hand, if a branch office is being sold, then the property manager will
be in the core divestiture team. The corporate finance manager will know ab out the monetary cost
(after depreciation) of the assets being divested and their market value. Hence he or she is
generally included in the core divestiture team.
228. (d) i, ii, iii, and iv
The project plan of a divestiture should includ e: identification of the core team and supplementary
internal resources that are required; specific task s and responsibilities of each project participant;
identification of outside resources required such as investmen t bankers, their specific tasks, and
anticipated costs for their services; the timetable for each major phase of the project; and an o verall
budget for the project.
229. (d) i, ii, and iii
The o ffering memorandum of a divestiture includes buyer procedures which comprise the rules as
specified by the selling corporation like the selling process to be used , which indicates whether
competitive bidding or so me other process is being used. Dates for indications of serious interest
and for initial bid submission are specified. Apart from stipulating when and where detailed
business reviews will be held, it also sets the date for submission of final bids.
230. (b) iv, ii, i, iii
The four key elements that constitute the selling process of a divesting firm are: identifying
prospective buyers, selecting the type of selling process to be utilized, holding business reviews
with the potential purchasers, and negotiating the transaction and closing of the deal.
231. (c) Acquisition
Acquisition is a method of buying a firm and not of divestiture. There are basically four different
methods of selling a business such as: competitive bidding, sequential selling, one buyer, and
going public (initial public offering). In co mpetitive bidding, buyers compete on the price being
offered fo r the firm s assets or business division. Sequential selling involves first exploring the
route of selling to a known buyer and, if that fails, resorting to comp etitive bidding or any other
mechanism of sale. Initial Public Offer means that companies which are not being publicly trad ed
offer stock to the general public thereby diluting the o wnership rights of the promoters.
232. (a) competitive bidding
The process of competitive bidding helps produce the highest bid der and the best deal structure for
the selling corporation, if correctly managed . In competitive bidding, buyers compete with each
other to acquire the assets that the selling firm is divesting itself of and they try to outbid each
other. This results in high prices for the assets.
233. (c) Standstill agreement
Anti-takeover amendments are amendments to the firm s corporate charter. The various typ es of
anti-takeover amendments are: super majority amendments; fair price amendments; authorization
of preferred stock; and classified boards. A standstill agreement is a voluntary contract in which
the stockholder whose shares have been purchased agrees that he or she will not make further
attempts to take over the company in the future. It is a mechanism for establishing corporate
control and is not an anti-takeover amendment.
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Part A
234. (d) Generally, political and social events are beyond the control of the firms, therefore
they need not respond to such events.
Generally, while po litical and social events are beyond the control o f firms, they cannot affo rd to
ignore such events . For example, the Indian government s decision to become a signatory to the
WTO (World Trade Organization) has led to Indian pharmaceutical firms investing substantially in
research and development activities. Similarly, vegetarianism among particular sections of Indiansociety has led to McDonald s using vegetable o il in its product offerings.
235. (c) Only i, iii, and iv
Factors that require organizations to be receptive to the need for change are: the general dynamics
and uncertainty o f economies; time horizons – as product life cycles shorten, the development time
for new products must shorten which requires change; and quality, design, and service, which must
be responsive to customer perceptions if firms have to gain co mpetitive advantage. If technology
conditions are stable and not witnessing new developments, organizations would not be receptive
to the need for change, as was witnessed in the electronics industry before the liberalization
process started in India. Most of the older TV companies like Crown TV, Televista, Weston,
Bestavision, and Texla, which were major companies when television technology was stable and
were not receptive to the need for change, are now minor players or have been completely
eliminated.
236. (a) mission, organizational development
The need for a change in the mission of an organization with reference to different ways of doing
thing s will require a change in values, culture, and style of management, and is executed through
organizational development. Organization development makes use of techniques like performance
management, workforce remodeling, creating co mmunities of practice, and other collaborative
techniques of learning.
237. (c) collective enterprise, expertise
Innovation depends on the collective enterprise and expertise of employees. Innovation is a result
of a creative process and involves recognition of needs. The recognition of a need may be a
collective or individual process/ act but the ability to create an innovative product which satisfies
the need is a result of the collective enterprise and expertise of the employees. For examp le, the
need for an LCD color TV migh t have been felt b y a single individ ual but creating that product
would have involved the efforts and expertise of a specialized team o f employees.
238. (c) ii, iv, i, iii
The various steps in the change process are: recognition of the need for change; building
organizational awareness for this need; stimulating debate about alternative solutions to effect
change; strengthening consensus for a preferred approach; assigning responsibility; and finally,
allocation of resources to sustain the change effort.
239. (a) Only i, ii, and iii
Reasons for withholding support to a change initiative by employees are: lack of awareness; lack
of interest; and incompatibility with cherished values. A general lack of awareness about either the
changing environmental factors or the benefits of the proposed change will prevent employees
from lending support to the change initiative. If employees are not involved in organization
survival and growth, they will lack interest in the propo sed change initiative as they have become
accustomed to the existing state of affairs. Or, if the propo sed change is not compatible with the
cherished values of the employees, they will not support the change initiative.
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Business Strategy
240. (a) refreezing
In the change process, the first requirement is to defreeze, whereb y employees are trained to
unlearn existing practices and methods. Once they have unlearned these and are open to change,employees are taught new methods and practices and change takes place. Once the changedpatterns are accep ted and followed willingly, they are formalized and employees are expected toadhere to the new practices and methods. This is known as refreezin g.
241. (b) The strategic lea der defines the changes of strategy and then hands it over tomanagers for implementation.
The strategic leader who assumes the planner/thin ker role rather than the doer role limits his/herrole to defining the changes of strategy and hands over the implementation responsibility tomanagers.
242. (d) Inducement
Inducement implies an ability to co ntrol the situation. People who are affected by it perceive theoutcome of the inducement as beneficial. For example, an organizatio n requires its employees to
be mobile and rewards them with salary increases or reimburses relocation expenses every timethey move. In this context, the situation is controlled and the emp loyees feel positive ab out themoves.
243. (d) i, ii, and iii
Political activity can be described in terms of the follo wing dimensions: legitimate or illegitimate;vertical or lateral; and internal or external to the organization. For instance, a suggestion /complaintby an employee to a senior manager, bypassing an immediate superior, would be classified aslegitimate, vertical, and internal. Threats and attempts of sabotage as a result of political activityare illegitimate.
244. (c) Only ii, iii, and iv
The global marketplace has developed because of factors such as gro wth in world domesticproduct, rapid expansion in merchandise trade, cost cutting and increasing product quality by firms
seeking competitive advantage, and revolution in the communications technology. Political and
cultural rigid ity of countries, whereby foreign firms are viewed unfavorably, acts as a constraintin the development of the global marketplace.
245. (d) i, ii, and iii
Forces respo nsible for facilitating the rise of global corporations are: growth of large pools of
liquid funds; efficient capital markets to employ funds q uickly; and imp roved financial, logistics,and business management techniques.
246. (b) Only i and iii
Any firm which aims at imp roving its competitive position by eliminating weaknesses sho uld
increase funding for basic research. Basic research often leads to new inventions and parad igmshifts in the functionality of the product which provides a strategic advantage to the firm. Sony, forinstance, engages in basic research and hence has been able to co me out with products which are
state-of-the-art. Allocating resources for basic research helps in building a q uality -co nscious and
technologically ad vanced company.
247. (a) Only i, ii and iii
Giving national priority to technology leadership and announcing awards and giving recognitionfor the same, help in advancement of technology. Increasing tax credits for R&D investments in
industry enable and encourage companies to engage in R&D activities which they might not haveotherwise considered. Encouraging industries to form co nsortia for developing new tech nology inorder to strengthen the global competitive position of the companies is an important element of
technology policy. Government policy on capital gain tax laws is a financial reform and is not an
aspect o f technological policy.
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Part A
248. (d) i, ii, and iii
Challenges faced by managers at the start o f the new century include ecological challenges, i.e.,the impact of industrial activity o n air, water, and land , global warming, etc.; issues of quality,productivity, and their relationships; and issues dealing with empowerment of the organization s
human resources.
249. (c) Knowledge
Knowledge, unlike any of the traditional key resources like land, labor, and capital, is not tied toany country but is transnational, portable, and can be created everywhere, fast and cheap. The
developments and advancements in information and communications technologies have helped in
integrating widespread and remote locations and have enabled free flow of k no wledge from onelocation to another quickly and cheaply.
250. (c) support, core competence
In traditional businesses, outbound logistics is regarded as a support function. But with e-
commerce, organizations can create competitive ad vantage through this function. They cantransform outbound lo gistics into their core competence. The speed and quality of delivery of thefirm s products can become competitive factors for the organization and help it gain advantage
over its competitors.
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