Multiple Ques.

Part A: Multiple Choice Questions 1. Igor Ansoff conducted extensive research a. management by objective on acquisitions b y American companies b. value chain analysis between 1948 and 1968. He found that c. gap analysis acquisitions based on a rational strategy d. generic strategy analysis fared far better than those that were based on _ ________ ___ ___. 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 chain 2. Which of the following goes against Igor Ansoff's strategic success paradigm? 7. Which of the fo llowing is not a generic competitive strategy proposed by Michael a. There is no universal success fo rmula for firms. Porter? b. The level of turbulence in the environment a. Cost leadership determines the strategy req uired for the b. Value chain success of a firm. c. Differentiation c. The aggressiveness of a strategy should be d. Focus aligned with the turb ulence in the enviro nment to optimize a firm’s success. 8. George Stalk, Philip Evans, and Lawrence E. Schulman proposed four basic d. Internal capability variables -- cognitive, principles of capabilities -based psychological, political, anthropological, competition. Which of the following is not and sociological variables -- do not play one of those principles? any role in a firm’s success. a. The building blocks of corporate strategy 3. Henry Mintzberg advocated a more are products and markets, and not business humane 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 consistently b. drafting strategy provide superior value to the customer. c. designing strategy c. Companies create these capabilities by d. choreographing strategy making strategic investments in a support infrastructure that links together and

Peter Drucker’s significant contribution to 4. transcends traditional Strategic Bu siness business strategy was the introduction of Units (SBUs) and functions. the concept of __________________. d. Because capabilities necessarily cross a. the five forces functions, the champion of a capabilitiesb. management b y objective based strategy is the CEO. c. value chain analysis 9. According to C. K. Prahalad and Gary d. gap analysis Hamel, corporations should view themselves as a portfolio of core 5. Michael Porter proposed the use of competencies rather than as a portfolio of _____________ of an organization’s businesses. Fro m the following options, internal processes, and the interactions identify the statements that correctly between different functions, to determine describe 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 as production 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, emergent competitiveness depends o n its ability to b. emergent, intended build core competencies faster than c. intended, realized competitors and at a lower cost. d. failed, intended iii. A core competence in a company must have the potential to provide access to a 13. At the __ ____________, strategies are d evised in an attempt to exploit the firm’s variety of markets and make a contribution to preconceived consumer benefits of the distinctive competencies by developing long-term plans for business operations. end product. a. corporate level iv. A core competence must be difficult for a competitor to copy. b. functional level c. business level a. Only i and iii d. none of the above b. 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-market 10. _____________ refers to the purpose an area take place? organization strives to achieve. a. Corporate level a. Strategic intent b. Functional level b. Company profile c. Business level c. Strategy d. Board Level d. Policy 15. Of the following, who play an important 11. Gary Hamel and C. K. Prahalad role in the success of products and services popularized the co ncept of competitive and in increasing the market share of strategy as leverage, in the context of a single product/market firms? resource-scarce firm facing a ‘wealthy a. Functional level managers rival’. Which of the following is not one b. Corporate level managers of the premises that help us to understand c. Business level managers this concept and its relevance to strategic management? d. a, b, and c a. Great differences do exist between 16. A syndrome in which the senior managers different firms in the market in terms of are collectively deluding themselves ab out

the competitive impact they can generate the organization’s condition is known as with a given amount of resources. ________. b. Resource constraints are necessarily an a. Vested interest impo rtant impediment to the achievement b. Kidding themselves of glo bal leadership. c. Lack of awareness c. The resource allocation task of management has received too much d. Resistance to change attention as compared to the task of 17. Which of the fo llowing elements of resource leverage. strategic management identifies the d. Leverage-based efficiency gains come strategic factors that may d etermine the primarily fro m raising the numerator in future 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 the d. Strategy implementatio n company’s operations. 18. SWOT analysis is often used in iii. The company profile is determined as an enviro nmental scanning. SWOT is an outcome of internal analysis of the acronym for strengths, weaknesses, company. opportunities, and threats. These are respectively _______, ________, a. Only i and ii ________, and ________ to the b. Only i and iii organization. c. Only ii and iii a. internal, external, internal, external d. i, ii, and iii b. internal, internal, external, external 24. The ______________ of a company sets c. external, external, internal, internal the company apart fro m other companies d. external, internal, external, internal in the same area of business. 19. Defining the company mission, specifying a. vision objectives, and developing strategies are a b. mission part of the ____________ process. c. profile a. enviro nmental scanning d. external environment b. strategy formulation 25. Environmental scanning is a stud y of the c. strategy implementation external environment, focusing on bo th the d. evaluation and co ntrol _________ and the ___ ___ _____ enviro nments. 20. Which of the following options puts strategies and policies into action through a. social, operating programs, budgets, and procedures? b. remote, operating a. Environmental scanning c. social, political b. Strategy formulation d. remote, political c. Strategy implementatio n 26. 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. vision handled by ____________ , except when b. mission drastic company-wide changes are needed. c. company profile a. midd le level managers

d. external environment b. directors c. top level managers 27. A ___________________ is a statement of d. stakeholders means that indicates the methods to be used to achieve the company’s overall 22. __________ provides a valuable objectives. opportunity for organizational learning. It a. functional strategy also pinpoints the weaknesses of strategic plans implemented earlier. b. business strategy a. Environmental scanning c. operating strategy b. Strategy formulation d. grand strategy c. Strategy implementatio n 28. Opportunities that are compatib le with the d. Evaluation and control company’s mission are identified as desired opportunities. Further choosing 23. Identify the statements that hold true with from the list of desired opportunities regard 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 to d. strategic management existing problems. 29. Which strategy provides a means for d. It helps the company to be better prepared achieving a compan y’s annual/short -term for evaluation. objectives? a. Organizational strateg y 34. ____________________ is useful when the environment is changin g rapidly and it b. Business strategy is important to build a consensus befo re c. Operating strategy committing the entire co mpany to a d. Corporate strategy specific strategy. a. Adaptive mode 30. For larger organizations, as the b. Planning made enviro nments become more ___________, c. Entrepreneurial mode decisions become increasingly d. Logical incrementalism ________________ to make. a. certain, complex and difficult 35. Which of the following is not a b. 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 broad 31. In the case of the entrepreneurial mode, range of stakeholders. which of the following statements is not c. Strategic management entails a single time correct ? 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’s b. 36. An organization’s ______ ___ __ and opportunities. ___________ act as guidelines for strategy c. Problems associated with strategy formulation. implementation are given top priority. a. objective, vision d. Its dominant goal is the growth of the b.

vision, missio n organization. c. vision, goal 32. The ________________ is characterized d. mission, objective by reactive solutions to existing problems. This type of decision-making results in a 37. A well-co nceived vision has two main components -- ___________ and fragmented strategy and incremental __________. improvements. a. ideology, organization purpose a. adaptive mode b. customer needs, plans b. planning mode c. goals, envisioned future c. entrepreneurial mode d. core ideology, envisioned futu re d. logical incrementalism 38. In the case of the vision of a company, 33. In the case of the planning mode, which of which 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 future minimized. c. competitive arenas b. The vision needs to be communicated d. source of competitive advantage effectively as a first step to its actual 43. ________ ___ ____ is the creed of the implementation. 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 mission effective. b. Company philosophy d. The vision of the company should also try c. Company vision to streamline and relate the personal goals d. Company goal of employees with organizational goals to the extent possible. 44. _______________ responsibilities involve the widely-held beliefs about behavior in a 39. A ___________ statement describes the society. product, the market, and the technological a. Econo mic areas of emphasis for the business, and b. Legal forms the firm’s _______________. c. Ethical a. mission, reason for existence d. Discretionary b. objective, strategy 45. _________________ responsibilities refer c. vision, plan to the purely voluntary obligations that a d. goal, policy corporation assumes, such as philanthropic contributions and training the unemployed. 40. The fundamental assumptions on which a mission statement is b ased include: a. economic b. legal i. 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 or 46. The _________ ____ _ involves factors that delivery. provide many challenges a particular firm iv. the public image sought. faces when attempting to attract or acquire essential resources or when striving to a. Only i, ii, and iii profitably market its goods and services in b. 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 environment 41. _________________ is a statement of the d. social environment role that a co mpany will seek to adopt and the description of what the company hopes 47. Which of the following is not a factor to accomplish as a means to gauge future coming under the remote environment? success. a. Social a. Fund amental intention b. Political b. View of the future c. Customer c. Competitive arenas d. Econo mical d. 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 in where the company will compete are society. referred to as its ____________________. 7

Business Strategy a. economic environment 53. Existing firms in an industry so metimes enjoy advantages that are not available to b. social environment new entrants. These advantages arise from c. political environment the effects of the ________________. d. legal environment a. customer profile 49. The customer profile for an organization is b. economies of scale built based on the information relating to: c. experience curve i. demographic profile d. none of the above ii. geographic profile iii. psychographic profile 54. When switching costs are absent and there is a slowdown in industrial growth, what is iv. buying profile the 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 or acquisitions route. This is because the decrease. entry of new firms in an industry results in 55. According to Michael Porter, buyers are a/an __________. powerful when a. increase in profit i. there are many bu yers but the suppliers are b. decline in profitability few and large. c. increase in market share ii. they purchase in large quantities. d. decrease in rivalry the supplier’s industry depends on the iii. 51. Which of the following is not a barrier for buyers for a large percentage of its total a new entrant entering a particular orders. industry? iv. it is economically feasible for the buyers to a. Market share purchase the input from several companies b. Economies of scale at a time. c. Product differentiation a. Only i, ii, and iii d. Government policy b. Only i, ii, and iv 52. XYZ Ltd has been a soft drink major in

c. Only i,. iii, and iv northern India for the last two decades d. Only ii, iii, and iv with four popular brands. No other soft drink giant has been ab le to make a dent in 56. The ______________ increases the XYZ’s market share. DEF Ltd is a suppliers’ profitability when the multinational giant that has been given ___________ are able to dictate the price government subsidy to set up its unit here that the _________ must pay for the but 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, and suppliers, b uyer marketin 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 uyer d. 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 analysis existing customers tends to 62. ______________ are used as indicators of ________________ among the companies a firm’s ability to meet its short -term because increased requirement for the financial 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 rivalry 63. The ___________ indicates the pro portion o f a firm’s capital being contributed by 58. To create a favorable position against the owners and outside creditors. five competitive forces, an effective competitive strategy takes offensive or a. leverage ratio defensive action. This involves: b. activity ratio i. anticipating shifts in the factors underlying c. liquidity ratio the forces and responding to them. d. profitability ratio ii. positioning the firm so that its capabilities 64. Which of the fo llowing statements is provide 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 or that affect the firm’s relative position. mechanical process. b. Financial data can provide an insight into a. Only i and ii the future when analyzed prop erly in a b. Only i and iii strategic context. c. Only ii and iii c. Even non-profit institutions must pay their d. i, ii, and iii bills on time to continue o perations. d. Info rmation in financial statements is 59. Differentiation in products can be achieved historical and often derived from a through __ ____________. 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. production 60. The basic objective of the __________ is b.

marketing to ensure that the outp uts produced have a c. research and development value that exceeds the combined costs of the inputs and the transformation process. d. accounting a. marketin g function 66. Process R&D attempts to reduce the b. production function __________ of operations and seeks c. finance function constant _____ ___ ___ through more d. research and development function efficient processes. a. time, product innovations 61. __________ is an important tool used to b. costs, improvement in quality assess the strength of an organization within its industry and to measure its c. costs, product innovations performance in comparison with past years d. time, increase in revenues and its competitors in the industry. 67. The human reso urce management function a. Gap analysis includes 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 and benefits. advertising. iv. career management. ii. promptness of attention to customer complaints. a. Only i, ii, and iii iii. evaluation of alternate distribution b. Only i, ii, and iv channels. c. Only i, iii, and iv iv. motivation and competence of the sales d. i, ii, iii, and iv force. 68. In value chain analysis, _____ ___ __ and a. Only i, ii, and iii ____________ are assessed by dividing a b. Only i, ii, and iv business into a number of linked activities, each of which may produce value for the c. Only i, iii, and iv customer. d. Only ii, iii, and iv a. strengths, weaknesses 73. Which of the fo llowing statements is b. opportunities, threats false ? c. opportunities, weaknesses a. Timeliness and efficiency of delivery of d. strengths, threats finished 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 of assessment of operatio ns. b. General administration c. A factor for assessment of marketing and c. Outbound logistics sales activity is the effectiveness of market d. Inbound lo gistics research 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 of customer value. assessment of customer service. ii. it provides a sense of direction to 74. The factors of assessment of operations managers 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-flow

does 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 reduce a. Only i and ii cost. b. Only i and iii iii. appropriate automation of production c. Only ii and iii processes. d. i, ii, and iii iv. soundness of material and inventory 71. Which o f the follo wing is not a factor of contro l systems. assessment of marketing and sales activity? a. Only i, ii, and iii a. Development of an image of quality and a b. Only i, ii, and iv favorable reputation c. Only i, iii, and iv b. Extent of brand lo yalty among customers d. Only ii, iii, and iv c. Extent of market dominance within the market segment or overall market 75. Which of the following are the factors of assessment of hu man resource d. Ability to provide replacement parts and management? repair services 10

Part A i. Effectiveness of procedures for recruiting, a. more, less, more training, and promoting all levels of b. more, more, more employees c. less, more, less ii. Appropriateness of reward systems for d. less, less, less motivating and challenging employees iii. Quality of laboratories and other facilities 80. The ______________ is a strategy that iv. Levels of emplo yee motivation and job provides the basic strategic direction at the satisfactio n corporate level. a. Only i, ii, and iii a. grand strategy b. Only i, ii, and iv b. functional strategy c. Only i, iii, and iv c. business level strategy d. 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 a R&D personnel and other d epartments delimited competitive arena. b. Qualification and experience of labo ratory a. market penetration technicians and scientists b. vertical integration c. Relationship s with public policy makers c. market development and interest groups d. product development d. Ability of the work enviro nment to encourage creativity and innovation 82. When a firm is pursuing the market penetration (concentration) strategy, the 77. ________ are important for an strategic alternative that focus on the organization as they provide direction, customer will include ________. serve as standards, and also serve as motivato rs. i. differentiating the product from its competitors a. Objectives ii. increasing usage by present customers b. Mission statements iii. increasing p urchase frequency c. Grand strategies iv. expanding shelf space d. Functional strategies a. Only i, ii, and iii 78. Which of the following statements with reference to objectives is true? b. Only i, ii, and iv

a. Strategic managers must ensure that c. Only i, iii, and iv objectives are communicated to all d. Only ii, iii, and iv members of the organizatio n. 83. ______________ allows firms to practice b. Each emp lo yee needs to understand only a form of concentrated growth by his/her individual objectives. Ho w they identifying new uses for existing products relate to the overall objectives is not and new demographically, his/her concern. psychographically, and geographically c. Objectives do not require changes even if defined markets. the organization and the environment in a. Market development which a firm o perates change. b. Product development d. Objectives can relate either to the past or to the future. c. Forward integration d. Horizontal integration 79. While descending the hierarchy, objectives become __________ abstract, ______ ___ 84. ______________ takes place when a firm enduring, and ___________ encompassing takes up a function previously provided by in 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 of c. Backward integration market coverage. d. Horizontal integration b. key distribution channels, key promotion 85. Conglo merate diversification leads to: priorities and ap proaches, and priority geographic areas. i. an increase in risk s, particularly for businesses that operate in industries c. key contributors to profitab ility, product subject to rapid technological change. image, and consumer need . ii. economies of large-scale operations. d. sales force organization iii. financial stab ility and increased profits. 90. In the ________ strategy, gross profit a. Only i and ii margin is a key consideration. b. Only i and iii a. product c. Only ii and iii b. price d. i, ii, and iii c. place d. promotion 86. Divestiture and liquidation are examples of ________ strategies. 91. Under a cost-oriented approach, pricing a. growth decisions are centered on _________ with b. retrenchment acceptable markup or target price ranges. c. diversification a. consumer demand d. integration b. total cost c. incremental cost 87. _____________ clarify the grand strategy d. competitor prices and provide specific details about the management of key functional areas in the 92. Which of the following statements are near future. true? a. Functional strategies i. 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 lead d. Mission and vision to higher internal financing. iii. Lower dividends to the shareholders lead 88. Which of the following statements is/are to lower internal financing. false ? iv.

Higher dividends to the shareholders lead i. Specificity in functional strategies adds to lower internal financing. substance, co mpleteness, and meaning to what a specific subunit of the business a. Only i and ii must do. b. Only i and iii ii. Functional strategies clarify for the top c. Only i and iv management 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 functional strategy emphasizes technological strategy, the coordination between innovations and new product development operating units is hindered. as the basis for the firm’s success. a. Only ii a. offensive b. Only iii b. defensive c. Only i and ii c. intended d. 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 market firm makes sustained efforts to reduce leader; it will enjoy a higher than average costs in all areas o f business without return. compro mising on the quality of its b. The firm will become the market leader; it products 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 market successfully adopting the overall cost leader; it will enjoy a lower than average leadership strategy. return. i. The co st structure for the firm would be d. The firm will become the market leader; it lower 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 generic profits 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 cost competitor’s products and services. leadership and differentiation. a. Only i and iii d. A firm pursues focus strategy. b. Only i, ii, and iii 99. For a firm that p ursues the cost leadership c. Only ii, iii, and iv strategy, 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 the a. Technological change methods in which firms control costs when they adopt the overall cost leadership b. Imitation strategy? c. Excessive obsession with cost a. Tight control of overhead costs and minimization expenditure in service, advertising, d. Unexpected inflation in costs research and development, and sales fo rce 100. To overcome the pitfalls of generic b. Focus on small customer accounts strategies, a firm can create a strategic c. Exclusive access to cheap raw materials lock-in, that is, achieve a proprietary and a wide line of products to spread costs position in its industry. Identify the d. High investment in plant and machinery statement that is false with respect to and construction of efficient-scale facilities strategic lock-in. 96. Which of the following is not an a. Lock -in means that other businesses have advantage of adopting the differentiation

to conform to or relate to that standard in strategy? order to prosper, and the architecture of the a. 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 life c. Increases the bargaining power of the cycle. buyers c. The extent of lock-in depends on the d. Creates a perception of uniquen ess about extent to which the firm is dominating the the firm’s products and services market in which it operates. d. When a few firms conform to the 97. What are the implications of a firm with a well-differentiated product portfolio standards, others are also o bliged to do so pricing its products significantly higher and this sets in motion a process whereby than 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. feasibility maintain the right balance between c. acceptability industry advocacy and self-interest, and d. excellence prudently exploit the changing role of suppliers and channel intermediaries. 106. The criterion of _____________ involves not only the consequences of the strategy a. fragmented but also the personal considerations of the b. emerging strategy decisio n makers as they have to c. maturing accept it. d. declining a. suitability 102. In ________ industries, the steps involved b. feasibility in strategy formulation often involve c. acceptability sophisticated cost analysis, rationalizing d. excellence the product mix, co rrect pricing, p rocess innovation and design for manufacture, 107. The consequences of a strategy after its implementation can be identified by buyer selection, and competing analyzing the following factors: internationally. i. the financial position o f the firm in terms a. fragmented of profitability. b. emerging ii. the critical success factors. c. maturing iii. the effect on capital structure. d. declining iv. 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 iii expenditure on the maintenance of b. Only i, ii, and iv facilities, reduce the diversity of the product line, reduce the number of c. Only i, iii, and iv channels emplo yed, eliminate small d. Only ii, iii, and iv customers, and reduce the quality of 108. What provides the basis for comparing the service in terms of d elivery time, speed of relative strengths of different businesses in repair, or sales assistance. In this case, the terms of the strength of their p ositions in firm is said to be adopting a _ ____ ___ their respective markets? strategy. a. The BCG matrix a. leadership b. Value chain analysis b. niche c. The 7S Framework c. harvest d.

The Five Forces Model d. quick divestment 109. With reference to the BCG matrix, which 104. Which of the following is not a class of one of the following represents the best criteria for evaluating a strategic long-run opportunity in a firm’s portfolio? alternative? a. Cash cows a. Criteria of suitability b. Stars b. Criteria of feasibility c. Question marks c. Criteria of acceptability d. Dogs d. Criteria of excellence 110. _______________ have a strong business 105. The criterion of ____________ attempts to position and negligible investment measure the extent to which the proposed requirements and hence the returns fro m strategies fit the situation identified in the these businesses are often more than their strategic 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 and opportunities d. Dogs iv. economies of scale 111. ___________ have a large relative market a. Only i and ii share, and the firms need to invest in them b. Only iii and iv as the industry is still evolving and the market share is also growing. c. Only i, ii, and iv d. Only ii, iii, and iv a. Dogs b. Cash cows 117. What is the potential strength of the GE c. Question marks nine cell planning grid? d. Stars i. It allows for intermediate ranking of business units, between high and low, and 112. ______________ 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 of b. Cash cows strategically relevant variables than the c. Stars BCG matrix. d. Question marks iv. It stresses the channeling of corporate resources to businesses with the greatest 113. 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 iii is 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 iv themselves. d. Only ii, iii, and iv a. Question marks, Stars 118. Strengths are the resources, skills, or other b. Cash cows, Stars advantages the firm enjoys relative to its c. Stars, Question marks competitors. Some of the strengths that a d. Stars, Dogs company may possess are: i. goodwill and image in the market for 114. ____________ have a lo w relative market goods 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 buyers a. Dogs or suppliers. b. Cash cows iv. the discipline, mo rale, attitude, and c. Stars manners of the employees. d. Question marks a. Only i, ii, and iii 115. Which tool of strategic analysis uses b. Only i, ii, and iv multiple factors to assess industry c. Only i, iii, and iv attractiveness and business strength? d. Only ii, iii, and iv a. The GE grid 119. A ______________ is a challenge posed b. The BCG matrix by an unavoidable trend that could lead, in c. The turnaround strategy the absence of purposeful action, to the d. SWOT analysis erosion of the company’s position. a. strength 116. The various business strength factors taken into consideration by the GE grid are: b. weakness 15

Business Strategy c. opportunity c. When making a strategic choice, riskaverse managers lean toward safe, d. threat conservative 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 on d. external factors, the higher will be the a. Entry of resourceful multinational range and flexibility of its strategic choice. companies/competitors b. Decreased b argaining power of key buyers 125. A firm can gain differentiation advantage or 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 iii unfavorab le environment, then it should b. Only i, ii, and iv use its current strengths to build long-term c. Only i, iii, and iv opportunities 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 strategy production, marketing and sales, and c. turnaround strategy service. All these four functions are d. defensive strategy referred to as ________________. a. primary activities 122. If a firm faces major threats from the b. maintenance activities enviro nment and is constrained by critical internal weaknesses, then it should support c. support activities a/an __________________. d. secondary activities a. aggressive strategy 127. By designing and developing an efficient b. diversification strategy production process, ___ ____ ________ c. turnaround strategy costs can be ______________. This provides a ______________ advantage to d. defensive strategy the firm in the long run. 123. The ____________ a strategy becomes, a. production, minimized, competitive the ___________ it is to rep lace it with a b. production, maximized , cost new one, even under changed c.

marketing, minimized, competitive circumstances. d. marketing, maximized, cost a. simpler, harder 128. A firm operating in related industries can b. more complex, harder create a _________ advantage b y c. more successful, harder exploiting the ___________ among the d. more unsuccessful, more difficult industries. a. competitive, independence 124. Which of the following statements is false regarding strategic cho ice? b. focus, inter-relationships c. competitive, inter-relationships a. Attitudes toward risk exert considerable influence on strategic choice. d. cost, independence b. When making a strategic choice, risk129. The objective of the _____ ________ oriented managers are attracted to ward department is to ___________ superior opportunistic strategies with higher quality goods at the __________ possible payoffs. cost. 16

Part A a. marketin g, market, highest c. A firm influences the buyer not only through its product but also through its b. research, produce, lowest logistical system. c. service, supply, highest A firm influences the buyer’s performance d. d. production, manufacture, lowest by influencing the supplier value chain. 130. Marketing and ________ activities help 134. In _______________ scope, the emphasis increase the perceived value of a product is on the variety of products and the types through __ _________ and ____________. of buyers. a. production, pricing, promotions a. segment b. finance, promotions, distribution b. vertical c. production, distribution, advertising c. geographic d. sales, brand positioning, advertising d. industry 131. The materials management function of a 135. _______________ scope allows a firm to company controls the transmission of share value activities across different regions. physical materials throughout the value chain, fro m procurement to production and a. Segment distribution. The value creation here b. Vertical dep ends upon the efficiency with which c. Geographic the material management function d. Industry ________________. 136. _________________ scope refers to the i. 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. Vertical a. Only i, ii, and iii c. Geographic b. Only i, ii, and iv d. Industry c. Only i, iii, and iv d. i, ii, iii, and iv 137. Which of the following statements are true? 132. Which of the following constitute the i. 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 operations iii. Control systems without broadening the firm. iv. Top management iii. Coalitions besto w the cost and a. Only i and iii differentiation advantages of vertical linkages without the firm having to go in b. Only i and iv for vertical integration. c. Only i, ii, and iv d. Only i, iii, and iv a. Only i and ii b. Only ii and iii 133. Which of the following statements is c. Only i and iii false ? 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 the b. A firm’s differentiation does not depend relatio nship between ________ ________ on how its value chain is related to the and the _______________. buyer’s value chain. 17

Business Strategy a. competitive scope, value chain a. Only i and ii b. Only i and iii b. industry scope, market chain c. Only ii and iii c. geographic scope, production chain d. i, ii, and iii d. segment scope, sales chain 143. In any manufacturing firm, the 139. An organizational structure that introduction of sophisticated information _____________ itself from/with the value systems and automated pro cesses leads to chain of a firm can ensure an enduring a/an ___ ____ _ in direct costs and a/an competitive advantage to the firm. ________________ in indirect costs. a. isolates a. increase, increase b. aligns b. increase, decrease c. demarcates c. decrease, decrease d. separates d. decrease, increase 140. For the purpose of cost analysis, the 144. Which of the following is not a cost disaggregation of the generic value chain driver? into individual value activities should a. Interrelationships reflect: b. Breadth of product line i. the size and growth of the cost represented c. Timing by the activity. d. Discretionary policies ii. the cost behavior of the activity. 145. __________________ result from the iii. the competitor differences in performing ability to perform activities efficiently at a the activity. larger volume, or from the ability to write off grad ually the co st of intangibles such a. Only i and ii as advertising and R&D over a greater sales volume. b. Only i and iii a. Learning c. Only ii and iii b. Econo mies of scale d. i, ii, and iii c. Diseconomies of scale 141. In value analysis, the recasting of the d. Spillovers accounting 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 as diseco no mies of scale in a value activity. overhead and purchased inputs. a.

increases, d ecrease a. costs, value activities, accounting b. decreases, increase classifications c. increases, increase b. costs, accounting classifications, value d. decreases, decrease activities c. assets, value activities, accounting 147. The mechanisms through which linkages classifications 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 be iii. optimization of activities. separated into which of the follo wing categories? a. Only i and ii i. Purchased operating inputs b. Only i and iii ii. Human reso urce costs c. Only ii and iii iii. 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 iii the interplay of cost drivers over time, as a b. Only i, iii, and iv firm grows or as ind ustry conditions c. Only ii, iii, and iv change? d. i, ii, iii, and iv i. Cost behavior ii. Cost dynamics 153. Which of the following statements about drivers of uniqueness is true ? iii. Cost leadership i. A series of basic drivers analogous to the a. Only i and ii cost drivers determines a firm’s b. 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 of the 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 may point in time, a firm must consider how the stem from sharing it with sister business absolute 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 iii b. cost dynamics, depending on c. Only ii and iii c. cost leadership, independent of d. i, ii, and iii d. cost leadership, depending on 154. A successful differentiator puts his/her 150. 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 a a. Industry growth price premium in excess of th e extra cost. b. Differential scale sensitivity a. buyers, low c. Differential technological change b. suppliers, high d. Economies of scale c. buyers, high 151. Firms in assessing and acting upon cost d. suppliers, low position, make common errors, such as: 155. Use criteria is one of the types of buyer i. ignoring procurement. purchase criteria that depend on the actual ii. focusing exclusively on the cost of

and 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 features a. Only i, ii, and iii c. delivery time b. Only i, ii, and iv d. packaging c. Only i, iii, and iv d. i, ii, iii and iv 156. Given the dynamic and competitive business environment, which of the 152. Policies are made by firms about what to following statements is incorrect? perform and how to perform them. Policy a. Organization structure facilitates both choices that lead to uniqueness include: vertical and horizontal flow of i. product features and performance offered. information. ii. services provided. b. Organization structure decides how iii. intensity of an activity adop ted. individual employees should be teamed to iv. content of an activity. form sub-groups. 19

Business Strategy c. Organization structure should be designed 159. The matrix organization structure tries to integrate the desired features of the with efficiency of performance as the sole functional structure and divisional aim. structure. This organization structure d. Organization structure is affected by both would 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 required 157. Match the following structural dimensions between the functions. of o rganization design with their iii. the req uirement for expertise and skills in respective definitions. a specific field is important. Structural dimensions a. Only i and ii i. Formalization b. Only i and iii ii. Specialization c. Only ii and iii iii. Professionalism d. i, ii, and iii iv. Centralization 160. Horizontal organization structure helps in Definitions preventing rigidity and departmentalization existing in traditional p. The extent of dividing the organizational vertical structures by grouping managers activities into sub -groups and employees into synergistic teams for q. The level of formal education of the problem-solving. Which o f the following employees is not a drawback of this structure? r. The extent to which written rules and a. More time is taken by the organization to records are maintained in the organization identify core processes. s. The level in the hierarchy which has the b. It becomes necessary to change the decision-making authority organizational culture, job structure and t. The distribution of people into different function, and performance measurement functions and departments system. c. Due to the presence of dual authority, there a. 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 specialization c. i/r, ii/p, iii/q, iv/s of emplo yees in specific functions may be d. i/s, ii/q, iii/t, iv/r hampered. 158. Identify the characteristics of a divisional 161. The organization structure which combines organization structure. the features o f functional, divisional, and horizo ntal structures is called a hybrid i. Each business unit independently handles structure. Which o f the following are the a separate product, market, or geo graphic characteristics of a hybrid organization? location.

i. It gives scope for different ways of ii. An employee reports simultaneously to thinking. two different supervisors. ii. It leads to rigidity and thus fails in iii. There is higher adaptability to change due adapting to changes in the market. to the small size of each business unit. iii. It promotes a participative style of iv. The structure is characterized by higher management. decentralization as the decision-makin g authority rests with the business unit iv. It leads to a slowdown in the decisionmaking process. managers. a. Only i, ii, and iii a. Only i and ii b. Only i and iii b. Only i, iii, and iv c. Only ii, iii, and iv c. Only ii, iii, and iv d. Only iii and iv d. i, ii, iii, and iv 20

Part A 162. For the research and development (R&D) 165. Alfred Chandler did a landmark study in understanding the choice of structure as a dep artment of a fast moving consumer function of strategy. He studied large goods company, a budget is decided each corporations over an extended time period year but costs tend to vary every year and found a common strategy-structure dep ending on the volume of tasks. While sequence which is: keeping within the budgetary limits, the i. improved profitability and strategy R&D head tries to maximize the services execution. offered to the production and marketing ii. a shift to an organizatio nal structure more dep 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, iv c. discretionary expense center b. iii, iv, ii, i d. revenue center c. ii, i, iv, iii 163. HotMobile Telecom is one o f the leading d. iv, ii, iii, i telecom service providers in India. It 166. An organization’s culture is a/an operates exclusive retail stores under the __________, ever-present theme that brand name The Hot Shoppe. The Hot provides meaning, direction, and the basis Shop pe managers are responsible for the for ____________. level of revenue, but are not responsible a. tangible, action for the costs of the phones and services b. intangible, action offered to the customer. These stores are a c. tangible, mission vital contact point between the customer d. intangible, vision and the company and they provide valuab le customer feedback. As a part of 167. The McKinsey 7-S framewo rk highlights the responsibility structure within the importance of _ ____________ leading HotMobile Telecom, The Hot Shoppe to the __________ of the organization as a stores are ________ centers. whole. a. cost a. skills, systems b. profit b. systems, culture c. strategy, culture c. revenue d. shared values, culture d. investment 168. The purpose(s) of organizational culture 164. With regard to the relationship between is/are: strategy and structure, which of the a. Only internal integration following statements is true

? b. Only external ad aptation a. For every industry, there is an ideal c. Both internal integration and external organizational design or structure. adaptation b. The strategy of a firm must be closely d. None of the above aligned with the needs/demands of its 169. From the following options, identify the structure. three basic determinants of organizational c. At a macro-level, the organization has to culture. choose what activities it should perform i. The influence of the business environment among the activities in its value chain. in general and the ind ustry in particular d. In practice, the management should ignore ii. The pattern of assu mptions brought b y the existing reporting relationships, leaders and managers who join the personalities, and internal politics, and organization 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 restructuring iv. Attention to the details of execution necessary leading to readjustment of all a. Only i, ii, and iii cultural forms to unify and coordinate with b. Only i, ii, and iv the current requirements. d. As firms diversify into numerous related or c. Only i, iii, and iv unrelated products and markets, structural d. Only ii, iii, and iv and cultural change appears to be essential 170. The _________ and ____ ___ __ of an if the organization has to perform organization have more personal meaning effectively. if a member views them as the guiding _ ____ ___ _ is the leader’s ability to 174. principles for appropriate behavior in the influence others through personal organization b y complying with them. magnetism, enthusiasm, and strongly held a. system, strategy convictions. b. style, staff a. Charisma c. beliefs, values b. Expertise d. style, strategy c. Internal integration 171. Which of the following are typical beliefs d. Discretion that shape organizational culture? 175. _________ cultures are innovative and i. A belief in being the best. encourage/reward initiative-taking b y ii. 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 to b. Inert make a strong and effective contribution. c. Conservative iv. A belief in the importance of the details of d. Top-do wn execution – the nuts and bolts of doing the job well. 176. Critical success factors are those factors which the organization canno t ignore and a. Only i, ii, and iii it has to control its performance to address b. 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 need 172. ________________ 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 things employees. must go right for the b usiness to flourish. a. Cultural diversity, differing c. All industries have a common set of b. 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 factors d. Cultural similarity, differing selected 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 the organization’s structure to its strategy and organization to know whether the culture? approach it has taken to address its critical a. All forms of organization structures are success factors is ap propriate. Match the equally effective in the implementation of following factors in the BPO industry with a strateg y due to many cultural the type o f strategic performance control diversifications. devise that they refer to. 22

Part A i. Ability of the BPO to sustain a customer 180. _______________ is based on the premise base that in all processes including supply, production, sales and services, one or other ii. First call resolution and response time organizations have already achieved iii. Return on capital employed world-class competitiveness. p. Key performance indicators a. BCG Analysis q. Key result indicators b. Strategic analysis r. Critical success factors c. Bench marking d. Gap Analysis a. 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 benchmarking exercise: d. i/q, ii/p, iii/r i. Critically evaluate the p ractices followed 178. In the implementation of Balanced by high performing companies, and ScoreCard as a tool for strategic identify the practice that helps and deters performance control and strategic learning, superior performance. identify the activity to be performed after ii. Identify, establish, and do documentation clarifying and translating the visio n and of sp ecific focus areas, key events, and strategies 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 igh b. Planning, setting targets, and aligning performance companies. strategic initiatives iv. Identify best practice companies and use c. Measuring, monitoring, and reporting appropriate data collection tools to collect d. 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 iv 179. Match the fo llowing types of management controls (based on the object of control) b. ii, iv, i, and then iii with 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 about ii. Results controls re-en gineering is false ? iii. Personnel/cultural controls a. It seeks redesign of current process Description config urations and not just optimization. b. The focus of organizational processes is

p. These controls empower individuals and the executio n of tasks. groups to use their discretion in doing c. It focuses on new measures of what they feel are best for the performance. organization. d. It stresses customer satisfaction, q. These controls aim at encouraging performance of processes, and throu ghp ut employees to monitor themselves and efficiency, and not the individual activities others 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 mise organizational personnel and are a form of in the marketplace, __________ processes negative discipline. actually deliver on those promises. a. enabling, strategic a. i/r, ii/p, iii/q b. operational, strategic b. i/q, ii/r, iii/p c. strategic, operational c. i/q, ii/p, iii/r d. operational, enabling d. 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 leader and ________ 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 skills 185. Firms following a ____________ redesign iv. Perseverance and persistence in pursuing app roach map out and attempt to the mission or vision, plus mental and understand an existing process, and then physical stamina work through it systematically to create a new process to deliver the desired result. a. Only i, ii, and iii a. clean sheet b. Only i, ii, and iv b. systematic c. Only i, iii, and iv c. gap d. i, ii, iii, and iv d. product 190. Which of the following statements about 186. 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 take responsible 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 in a. Only i and ii d. long-term, buyers o f b. Only i and iii 187. The responsibilities of the strategy team c. Only ii and iii include: d. i, ii and iii i. providing direction in the form of a mission o r purpose. 191. Which of the follo wing criteria should be considered before taking decisions relating ii. formulating and implementing changes to to choice of course of action? corporate strategies. iii. managing the business on behalf o f all the i. The attractiveness of each op tion stakeholders. ii. The estimated probabilities of success and

failure a. Only i and ii iii. The extent to which the d ecision maker is b. Only i and iii prepared to accept the potential loss c. Only ii and iii associated with each alternative d. i, ii, and iii iv. The degree to which the decision maker is 188. The strategy team monitors and controls likely to affect the success or failure of a operations, 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 iv iii. innovation. c. Only ii, iii, and iv iv. 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 a responsibility of the board of directors of a c. Only i, iii, and iv company? d. i, ii, iii, and iv 24

Part A a. Authorizing the corporate strategies s. Change in ownership structure chosen b y the CEO a. i/p, ii/s, iii/q, iv/r b. Formulating the vision and mission b. i/q, ii/s, iii/p, iv/r c. Screening and selecting peo ple to fill all c. i/r, ii/p, iii/q, iv/s positions in the organization d. i/s, ii/p, iii/q, iv/r d. Perform certain legal functions 197. Sell-off is one class of corpo rate 193. When there is no degree of involvement of restructuring measures. Which of the the board of directors in the strategic following is false with respect to this management, it is referred to as class? ____________________. a. Spin-off and equity carve-out result in the a. a phantom board creation of a separate legal entity. b. a rubber stamp board b. In a split-off, the entire firm is fragmented c. minimal review b y the board into a series of spin-offs. a. normal participation by the board c. In a split-up, the parent firm no lon ger exists. 194. When the board of directors acts as a rubber 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 attention 198. Corporate control is one class of corporate b. does not know what to do restructuring measures. Which of the c. makes final decisions on mission, strategy, following is false with respect to this policies, and objectives class? b. permits officers to make all decisions a. Golden parachutes abolish termination payments that have to be made to the 195. The board of directors questions, approves, existing management. and makes final decisions on mission, b. Premium buy-backs are o ften accompanied corporate strategy, and policy when there by a standstill agreement. is _________________ by it in strategic management. c. Anti-takeover amendments refer to the changes made in the corporate bylaws in a. phantom involvement an attempt to prevent mergers and b. rubber stamp involvement acquisitions. c. active participation d. In proxy contests, a group which is c. normal participation external to the firm tries to obtain representation on the company’s board of 196. The various types of corporate restructuring can be classified into directors.

expansio n, sell-offs, corporate control, and 199. Identify the statement that is incorrect change in ownership structure. Match each with respect to the numerator-focused type of restructuring listed here with its approach to management in an econo my correspo nding classification. that is contracting. Type of restructuring a. Reducing manpower and expenditure i. Premium bu yback b. Preserving technological leadership while ii. Joint venture maintaining the existing R&D budget iii. Split-up c. Increasing sales without increasing iv. Going private expenditure on marketing co mmunications Classification d. Expanding distributio n coverage in a costeffective manner p. Expansio n q. Sell-off 200. Shamsud Cho wdhury suggested the use of r. 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 are following is the most co mplex of these taken into account while describing a joint stages? venture? a. Denominator management i. Contribution of asset to a common undertaking, by the partners involved b. Response initiation ii. Joint property interest in the subject matter c. Transition of the venture d. 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 of statements are true? the enterprise i. In the response initiation stage, a. Only i, ii, and iii diversification, 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 iv tactics aimed at cost-cutting and revenue 205. Which of the fo llowing characteristics is generation are examp les o f operating not found in a joint venture? responses. a. Expectation of profit or presence of iii. 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 single the decline in the firm is due to a reduction undertaking or ad hoc enterprise in resources within the firm, independent d. The number of partners in any of the external environment. collaboration is confined to two. a. Only i and ii 206. The motives behind initiating a joint b. 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 buyout 207. Anti-trust authorities are more willing to permit _ _______ rather than _ _________. 203. The emphasis of a ____________ is o n a. joint ventures, mergers collabo ration rather than mere exchan ge. b. acquisitions, divestitures While exchange simply involves o btaining something in return for wh at is put in, c. takeovers, mergers collabo ration involves creating ________. d. mergers, joint ventures a. joint venture, new value 208. Shapur Refinery is a small-scale gold b. merger, new product refinery company. It is plann ing to initiate c. fair price amendment, new asset gold mining operations in the southern part of the co untry and is looking for partners d. golden parachute, new value for this project. The Kolkata-based Tushar Group with diverse interests in jewelry 26

Part A stores, textiles, industrial chemicals, a. Only i, ii, and iii electronics, and cosmetics has shown b. Only i, ii, and iv interest in entering into a joint venture c. Only i, iii, and iv with Shapur Refinery for starting new gold d. i, ii, iii, and iv mining operations. What could be the probable reasons for Tushar Group’s 211. Which of the following is not a reason for decision? the failure of joint ventures? i. Tushar Group’s other projects such as a. The contract may b e too flexible and jewelry and electronics may benefit from permits adjustments in the future this project. b. Lack of co mmitment and time in ii. Tushar Group has surplus funds which can implementing the project be invested in this venture. c. Inability or failure to develop the d esired iii. Tushar Group can, later on, carry out fullytechno logy owned backward integration d. Lack of adequate pre-planning for the joint iv. Tushar Group has the specialized skill venture required in starting gold mines, gained from its other projects 212. As per the classificatio n scheme proposed by Bleeke and Ernst, which of the a. Only ii and iv following typ es of strategic alliances b. Only i and ii (between two organizations) is exp ected to c. Only ii and iii be successful and long-lived instead of d. 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 partners false ? b. Alliance of complementary equals a. Joint ventures have technical tax c. Bootstrap alliance advantages such as operating loss carryover, and benefits of multiple surtax d. Alliance of the weak exemp tions. 213. The success o f an alliance depends on b. If an organization contributes a patent or three main factors: partner selection, licensable technology to a joint venture, alliance structure, and the manner in which the tax consequences may be less than on the alliance is managed. From the royalties earned through a licensing following options, identify a set of arrangement. guidelines for structuring the alliance c. If the joint venture is in the form of a effectively. corporation, only the assets of the i. The alliance sho uld be designed in such a corporation are at risk; partners’ risks are way that there is reasonable consistency limited only to the extent of their with the strategic objectives of the partners investment. and there is potential for value addition. d. The risk factor is more crucial in industries

ii. Issues such as ‘the mechanisms required to where the risk of worker, pro duct, or resolve co nflicts’ sho uld be addressed environmental liability is very low. when structuring the alliance. 210. Which of the following reaso ns exp lain the iii. 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 partner business should be guarded against by including ii. Sharing of technological knowledge and contractual safeguards and/or getting management skills credible commitment in advance from the iii. Augmentation of risk involved in the partner. project a. Only i and iii iv. 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 merger 214. In a/an ______________, two or more d. pure conglomerate merger firms integrate on a co-equal b asis. a. acquisition 220. Akash Enterprises Ltd is a south Indiabased soap manufacturing firm with no b. merger foothold in the northern part of India. It c. spin-off has decid ed to undergo a merger with Ajay d. takeover Ltd that enjoys a dominant position in the soaps industry in northern India. A merger 215. A merger between two or more firms can between the two companies can be called be called a horizontal merger if as a __________. a. they are operating and competing in the a. geographic extension conglomerate merger same 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 merger different stage of the value chain. 221. A firm in the declining stage o f the d. the intent is only to acquire a controlling industry life cycle may undergo a merger interest 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 iv 222. The purpose behind horizontal mergers in c. Only ii, iii, and iv the _____________ stage is to match the d. 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 cost b. 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 for undertaking a vertical merger? undergoing cross border mergers and acquisitions? a. To red uce costs of co mmunication a. Positive government policy b. To coordinate production b. Cultural differences c. To achieve greater economies of scale c. Differential labor cost d. For better planning of inventory and d. Good source of raw materials production 224. Of the following, which are the two main 219. A merger between a firm manufacturing reasons for divestitures, according to the two-wheelers and a firm manufacturing study 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 the buyer’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, their funds to pay back the debts of the specific tasks, and anticipated costs for organization their services. iii. The assets are actively interfering with a. Only i, ii, and iii other profitable operations o f the seller b. Only i, iii, and iv a. Only i and ii c. Only ii, iii, and iv b. Only i and iii d. i, ii, iii, and iv c. Only ii and iii 229. The offering memorandu m of a divestiture d. None of the above includes 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 selling to divest are: corporation. i. to gain efficiency. ii. dates fo r indications of serious interest and ii. to refocus on their core business. for initial bid submission. iii. financial losses iii. stipulation about when and where detailed iv. 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 iii c. Only i, iii, and iv c. Only ii and iii d. i, ii, iii, and iv d. i, ii, and iii 226. An involuntary divestiture usually takes 230. Arrange the elements constituting the place________________. 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 the anti-trust ruling potential purchasers c. when there is a poor business fit ii. Selecting the type of selling process to be utilized d. when there is market inefficiency iii. Negotiating the transaction 227. The composition of the core divestiture iv. Identifying prospective buyers team will vary d epending on the specific

nature of the divestiture and the team will a. i, ii, iii, iv generally include someo ne from the b. iv, ii, i, iii ____________ function. c. iii, i, iv, ii a. divisional finance d. ii, iv, iii, i b. functional planning c. divisional marketing 231. Which o f the following is not a method of d. corporate finance divestiture of a business? a. Competitive bidding 228. The project plan of a divestiture should b. Sequential selling include: c. Acq uisition i. identification of the core team and the d. Initial public offering details 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 the project 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, expertise 233.Which of the following is not an antid. collective enterprise, beliefs takeover amend ment? a. Fair price amendments 238.Arrange the steps of the change process in b. Authorization of preferred sto ck the correct sequence: c. Standstill agreement i. Strengthening con sensus for a preferred d. Classified bo ards approach ii. Recog nition of the need for change 234.Which of the following statements is false ? iii. Allocating resources to sustain the change effort a. Organizations that seek to create and sustain competitive advantage should be iv. Stimulating debate about alternative ready to change and implement the solutions to effect change proposed changes. a. i, ii, iii, iv b. Some changes are reactions to threats, b. iii, i, iv, ii whereas others are proactive attempts to seize opp ortunities. c. ii, iv, i, iii c. The socio-cultural dimension, reflecting d. iv, ii, i, iii societal values, determines what kind of 239.Employees should support managers in products will be accepted in the market. designing a change initiative and d. Generally, po litical and social events are implementing it, b ut in certain beyond the control o f the firms, therefore organizations employees withhold such they need not respond to such events. support because of : 235.There are several factors that require i. lack of awareness. organizations to be receptive to the need ii. lack of interest. for change. Such factors are: iii. incompatibility with cherished values. i. the general dynamics and uncertainty of iv. 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 iv 240.In the change process, ______ ____ _ takes c. Only i ,iii, and iv place 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. refreezing reference to different ways of doing thing s b. freezing will require a change in values, cu lture, c. vertical integration and style of management, and is executed d. horizo ntal integration through __ ___________. a. mission, organizational development 241.When the strategic leader assumes the b. 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 business personnel, reward systems, etc., for management techniques. effectively implementing the strategy. b. The strategic leader defines the changes of a. Only i and ii strategy and then hands it o ver to b. Only i and iii managers for implementation. c. Only ii and iii c. The strategic leader concentrates on d. i, ii, and iii establishing and communicating a clear mission for the organization. 246.Which o f the following are policies and d. The strategic leader and senior managers practices that companies can follow in meet for lengthy discussions with a view order to strengthen their competitive to formulate proposed strategic changes. position and rectify their weaknesses? i. Promoting managers with skills in dealing 242. ______________ _ implies an ability to with global markets control 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 responsibility b. Persuasion and ethics c. Coercion d. Inducement a. Only i and ii b. Only i and iii 243.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 illegitimate 247.In order to strengthen the global ii. Vertical or lateral competitive position of business firms, iii. Internal or external to the organization government 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 for 244.Which of the following factors have developing new technology. played a positive role in the development iv. provide incentives for entrepreneurs by of a global marketplace? making changes in capital gain tax laws. i. Political and cultural rigidity of countries a. Only i, ii, and iii ii.

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 iv iv. Revolution in the communicatio ns d. i, ii, iii, and iv technology 248.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 their d. i, ii, iii, and iv relatio nships. iii. issues dealing with empowerment of the 245.Forces responsible for facilitating the rise o 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 iii But e-commerce can transform outbound c. Only ii and iii logistics into their _______. d. i, ii, and iii a. primary, secondary function 249.____________ is transnational, portable, b. secondary, support function and can be created everywh ere, fast, and c. support, core competence cheap. d. core, support function a. 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 A given 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 a firm. The aggressiveness of the strategy should be aligned with the turbulence in the environment to 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 the firm 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 the manager 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 crafting strategy. 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 by Michael 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. He also introduced the generic strategies like focus, cost leadership, and differentiation to reduce the uncertainties of the competitive environment. Peter Drucker intro duced the concept of management 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 gap between 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 strategic management 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 internal processes, 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 gap between 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 corporate strategy 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 core competence in the context of an organizatio n s competitiveness. The third and fourth statements list 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 and Prahalad defined strateg ic intent as an ambitious and co mpelling dream that energizes and provides the 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 guide their 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 exist between different firms in the market in terms of the comp etitive impact they can generate with a given amount of resources. 12. (c) intended, realized Strategy refers to the plans made and actions taken to enable an organization to fulfill its intended objectives. 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 not result 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 not foresee. 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 managers design 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 single business 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 objectives in 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 different areas 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 new perspectives, 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 tally with 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 environmental scanning is to identify the strategic factors that may determine the future of the firm. Evaluation and 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 longterm plans for managing opportunities and threats in the external environment, and for utilizing the strengths 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 an acronym 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 and threats 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 company mission, 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 strategy unless 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 results are 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 s vision 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 is determined 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 of business. 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 strategic decision makers. The external environment consists of all the conditions and forces that affect an organization s strategic op tions and define its competitive situation. 25. (b) remote, operating Environmental scannin g involves monitoring the environment, and evaluating and disseminating information obtained fro m the internal and external environments. The remote environment consists 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 goods and 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 operating enviro 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 management and 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 desired opportunities 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. The company 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 each functional 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 functional objectives 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 complex and 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 on the organization s opportunities. Problems associated with strategy are given secondary importance . Strategy is formulated based on the founder s own visio n of direction and is exemp 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 and implemented. 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 planning mode, appropriate information for situational analysis is gathered systematically. The entrepreneurial mode focuses solely o n the organization s opportunities. In logical incrementalism, organizations choose an interactive process for probing the future, experimenti ng, and learning from 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 for environmental 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 useful when the environment is changing rapidly and it is imp ortant to build a consensus b efore committing 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; it considers a broad range of stakeholders; it entails multiple time horizons ; it is concerned with both efficiency and effectiven ess. 36. (b) vision, mission The vision of a company provides managers with a unity of direction which is not affected by individual, 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 the business and serves to build the image of the company in terms of activities currently pursued by the 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, and personal 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. 39

Business Strategy 37. (d) core ideology, envisio ned future A well-conceived vision has two main components. The first component is core ideology and the second is envisio ned future. A good vision defines core ideology (what we stand for and why we exist) 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 be effective. 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 of a 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 or service 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 and profitability; the public image sought; the managerial philosophy of the firm; and the firm s selfconcept. 41. (a) Fundamental intention The key elements of a mission statement are fundamental intention, view of the future, and the source of competitive advantage. Fundamental intention is a statement of the role that a comp any will 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 and geographic 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 of competitive 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, and thereby, 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 manufacturers operating 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 gauge future 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 to achieve 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 at achieving corporate goals. A company s philosophy is also known as its creed, and usually forms a part 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. 40

Part A 44. (c) Ethical Ethical respo nsibilities involve the widely-held beliefs about behavior in a society. Society expects companies to adhere to its ethical norms and reacts negatively to what are seen as unethical practices. 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 ciety and 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 be acceptable 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 which a firm takes up as its responsibility toward the community or the society in which it operates on a purely 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 firm faces 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 among suppliers and creditors, and accessible labo r market. The remote environment consists of a set of forces 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 the national 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, is an 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 or when 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 societal changes. 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 accordingly manages 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 41

Business Strategy in profitability becomes a problem for the new entrants too. That is why new entrants to an industry 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 existing firms 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 various competitors 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 not act 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 an increase 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 given examp 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 faced by 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 and when the company gains experience in the field, its efficiency increases. This relationship between efficiency and experience forms the experience curve. Similarly, proprietary technology, access to the 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 in industrial 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 absence of 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 in the 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 companies off 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 to provide 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 is effective 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. 42

Part A 57. (b) reduce rivalry The growing demand from either new customers or additional purchases by existing customers tends to reduce rivalry among the co mpanies because increased requirement for the products by the 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 existing array 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 forces and responding to them, thereby exploiting change b y choosing a strategy approp riate to the new competitive 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 method which would differentiate a firm s products from those of its competitors. A firm which brings out an 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 cause for differentiation. Promotion of the product through various marketing strategies like advertisements and discounts is called product promotion. Product distribution aims at increasing the 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 value that exceeds the combined costs o f the inputs and the transformation process. An insight into the financial 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. The research and development function either supplements a product -oriented effort or improves the production processes. 61. (b) Financial analysis Financial analysis is a tool that measures how a co mpany is doing compared to past years and its competitors in the industry. It is one of the most important tools for assessing the strength of an organization within its industry. Gap analysis is the analysis o f the gap between where the firm is today and where it wants to reach in terms of go als and aspirations. Value chain analysis is b ased on the assumption that a business s basic purpose is to create value for its users and its prod ucts or services. Internal analysis aims at id entifying the stren gths and weaknesses of the organization. It does 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. Liquidity ratios are used as indicators of a firm s ability to meet its short -term obligations. Two widely used liquidity 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 ratios indicate how effectively a firm is being managed. 43

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 skill and judgment to arrive at conclusio ns about the financial health of an organization. Financial data can provide an insight into the future when analyzed properly in a strategic context. Even nonprofit 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 a new 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 quality through 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 firm manufacturing 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 of the 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 the impo 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 to identify 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; 44

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 provide replacement 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 of the sales force. Promptness of attention to customer complaints is a factor of assessment of customer 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 the delivery 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 parts and 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 ment of 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 for motivating 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 and scientists; 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 firm infrastructure . 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 the market 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 objectives are 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 jectives are related to plans and to the future (and not the past). 45

Business Strategy 79. (d) less, less, less The objectives in an organization become precise and more specific as we descend the hierarchy of objectives. At the lower levels, they relate to a shorter time frame. Hence, they become less enduring 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 reducing fuel 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. For example, 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 respective business units. Functional strategy is the strategy designed and followed by the various functional heads 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 thoroughly develops 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, enters the 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 new unexplored 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 have better 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 also increases 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 operate in industries subject to rapid technological change. Economies of large-scale operations, financial stability, and increased profits are the benefits of conglomerate diversification. The key principle of 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 adopted when the firm s survival is at stake. 46

Part A 87. (a) Functional strategies Functional strategies clarify the grand strategy and provide specific details about the management of key functional areas in the near future. Fu nctional strategies must be consistent with long -term objectives 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 specific subunit of the business must do. Functio nal strategies clarify for the top management how functional 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 acceptable mark 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 the competition-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 internal financing 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 new product 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. 47

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 higher than 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 new product 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 cost customer 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 life cycle. The timing of dominance is a crucial factor for a firm to achieve strategic lock -in. The lock-in is likely 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 environmental changes 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 and take 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 and design 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 criteria of 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 48

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 personal considerations of the strategy decision maker, as he/she has to accept it. Excellence is something for 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 the enviro nmental situation identified in the strategic analysis. For example, a firm with a business line of 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 following the 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 already the market lead er. 106. (c) acceptability Acceptability involves not only the consequences of the strategy but also the personal considerations of the strategy decision makers, as they have to accept it. For example, the vice president marketing o f a firm which intends to follow a concentration strategy can choose between market 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 risk averse or a risk lover, and his/her p ast experiences in terms of whether he/she was more successful in 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 after its 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 critical success factors needed for success is not a factor based on which the consequences of the strategy are analyzed. 108. (a) The BCG matrix The BCG matrix provides a framework for allocating resources among different business units and allows 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 value chain analysis, strengths and weaknesses are assessed by dividin g a business into a number of linked activities, each of which may prod uce value for the customer. The 7S Framework comprises strategy, structure, systems, style, staff, skills, and shared values. The Five Forces Model evaluates the industry structure in terms of the threat of new entrants, the bargaining power of buyers, the bargaining power of suppliers, the rivalry among existing players, and the threat of substitute products. 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 is also gro wing. Hence, they represent the best long -run opportunity in a firm s portfolio. For example, 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 negligible investment 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 growth market. 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 industry characterized 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. 49

Business Strategy 110. (a) Cash cows Cash cows have a strong business position and negligible investment requirements and hence the returns from these businesses are often more than their investment requirements. For example, if the 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 also growing. 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 a growing industry. A Dog does no t need much o f an investment but it ties up capital that could be invested 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 still emerging and the market share is also gro wing. For example, in the Indian mobile industry, Airtel is 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 the industry 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 competitive pressures 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 a mature 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 players themselves. 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-growing industry. 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 business strength. 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 the variables of market size and growth rate, industry p rofit margins, co mpetitive intensity, seasonality, technology conditions, social, environmental, and legal and human impacts. The business 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 strengths and 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. 50

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 the matrix, based on its industry attractiveness and business strength scores. The potential strengths of the 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 of achieving 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, and manners of the employees; and market leadership. Increased bargaining power o f key buyers or suppliers 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 erosion of 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 a situation 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, reduce wastages, 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 bargaining power 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 g power 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 diversification strategy. In diversification, the firm expand s its operations by entering into related but distinct businesses (concentric diversification) or completely unrelated markets (conglomerate diversification). For examp le, a firm manufacturing shaving cream and lotions enters the shaving razors market (concentric diversification) o r enters the writing instruments industry (conglomerate diversification). 122. (d) defensive strategy If a firm faces major threats from the environment and is constrained by critical internal weaknesses, 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 weaknesses first 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. 51

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 of its 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 a superior 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 to use, 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 differentiation advanta 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 value add ition of a prod uct is direct and high. Therefore, they are regarded as primary activities. For examp le, research and develo pment leads to either new features being added to an existing product or new improved products being developed; both provide a higher value to the customers. High volumes 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 which are closest to the customer, and the more they are able to satisfy the customers, the greater will be the 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 timemotions of an activity thereby reducing the manpower requirements, improves the manpower utilizatio n rates by appropriate scheduling and sequencing of work, and reduces wastages. These lead to a lowering of per unit costs, and provide a competitive advantage to the firm in the long run. 128. (c) competitive, inter-relationships A firm operating in related industries can create a competitive advantage by exploiting the interrelationships among the industries. For examp le, Pepsi has different divisions, namely, the soft drinks 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 for Aquafina, 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 delivered can 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 achieve the 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 minds of the customers. If a brand is positioned as a high end product, like Dove soaps or Van Heusen 52

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 positioning and 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 creation here depends upon the efficiency with which the material management function is carried out to lower 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 the right 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 the infrastructure 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 the buyer’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 creates a co mpetitive advantage for the buyer. The firm s differentiation depends on how its value chain is 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 if Maruti has the ability to adapt the product design of its cars to fit power steerings. The product design 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 value chain. 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 can employ 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 computer buyers 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 the range 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 and services 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 these activities 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 of scale. Fo r example, a shared sale force offering related products like Dabur s Hajmola and Dabur s Chayvanprash 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 of sales equipment can improve the salesperson s effectiveness. 53

Business Strategy 137. (d) i, ii, and iii Through coalitions, a firm gets an opportunity to share its activities without en tering new industry segments, geographic areas, or related industries. Co alitions broaden the scope of operations without 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 effects through 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 type of 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 a coo rdinated strategy, and the extent to which activities are performed in-house. For example, the extent 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 value chain 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 enduring competitive 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 with the marketing activities. The structure should also ensure that there is a flo w of informatio n from the 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 highly responsive 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 cost behavior 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, the salesman 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 managers should keep in view the size of the activity cost and the manner in which it is growin g with an increase 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 activities rather than with accounting classifications, particularly in areas such as overhead and p urchased inputs. 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 by accounting. 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 markets with its product portfolio. 54

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. 55

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 as industry co nditions change. Cost drivers are: econo mies of scale, learning, pattern of capacity utilizatio 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 capacity utilizatio 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 and that of manpower goes up. The cost dynamics looks at the effect o f these countervailing cost factors. 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 must consider how the absolute and relative cost of value activities will change over time independent of its 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, and differential 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 growth rate, which enables a firm to take advantage of economies of scale, thereby resulting in lower costs. High industry growth rates will attract more firms to enter the supplier industry of the growing 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 input providers, which led to a decline in input prices for the automobile manufacturers. Differential scale 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 like videogames and teleco mmunications. In these industries, the costs of creating hardware comes down 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 are required at a fast pace to stay co mpetitive. Differential scale sensitivity also refers to how sensitive the costs of a firm are to scale as co mpared to its competitors. Differential technology change refers to the d ifferences in speed and quantum of technology change in relation to the value activities of a firm. 151. (a) Only i, ii, and iii Firms in assessing and acting upon cost position, make common errors such as: exclusively focusing o n the cost of manufacturing activities, ignoring procurement, overlo oking indirect or small activities, having a false perception of cost drivers, failing to exploit linkages, going in for contradictory cost reduction and unwitting cross subsidy , thin king incrementally, and undermining differentiation. The failure of firms to recognize the existence of segments in which costs 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; services provided (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 in order processing); the technology employed in performing an activity (e.g., precision of machine tools, 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); information employed to control an activity (e.g., temperature, pressure, and other variables used to control a chemical reaction); and skill and experience level o f personnel employed in an activity. 56

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. 57

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 strategystructure 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. 58

Part A 166. (b) intangible, a ction An organization s culture is equivalent to an individual s personality. It is an intangible, everpresent 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. 59

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 initiativetaking 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. 60

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 for strategic p erformance control by clarifying the vision and strategy of the organization and articulating the top management s expectations in terms of clearly defined strategic objectives and associated 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 been aligned, a business plan is devised. This helps the organization in creating a link between the shortterm 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, results controls, 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 personnel and 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 use their discretion in d oing what they feel are b est for the organization. Personnel/cultural controls influence 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 for the 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 orate the 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 might have 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; and Adaptation: 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. It focuses 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 organizational process from execution of tasks to the outcome of tasks. For example, manual complain t booking 61

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 to speedy 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 firm in the electronic media or with the print media. They are broad in their nature and indicate whether the 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 regular day-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 corevalue-adding activities. The rules followed can be represented by an acronym ESIA: Eliminate all non-value-addin g activities, Simplify aspects of work where possible, Integrate elements of the process, and Automate where appropriate. 185. (b) systematic A firm following a systematic redesign app roach maps out and attempts to understand, an existing process, and then works through it systematically to create a new process to deliver the desired result. This may allow some aspects of the existing process to be retained in the new proposed process. A clean sheet approach seeks a fundamental re-think of the way the product or service is delivered, 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 referred to 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 strategies have been determined by the strateg y team, and understood and supp orted by the managers of the organization. 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 and productivity 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. 62

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 and control 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 to take 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 unstable enviro 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 of directors 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 to as 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 of members 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 in the 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. 63

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 BuyExchange Offers Acquisitions Backs Split-Offs Share Repurchases Tender Offers Standstill Split-Ups Going Private Agreements Joint Ventures Divestitures Leveraged BuyAnti-takeover Outs Equity 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 the existing management. Golden parachutes involve large termination payments to be made to the existing management. It is a type of anti-takeover amendment that can be made to the corporate bylaws in an attempt to prevent mergers and acquisitions. 199. (a) Reducing manpower and expenditure Reducing manpower and expenditure is typical of the denominator-driven approach to management, 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 four stages. In this stage, the firm experiments with different strategies, structures, cultures, and technologies. 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 perspective suggests that the decline in the firm is due to a red uction in resources within the firm, independent of the external environment. 202. (c) joint venture A combined undertaking or partnership by two or more firms to create a separate busines s enterprise 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 was undertaken by NTPC and ALSTOM for renovation and modernization of power statio ns in India and 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 exchange simply 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 two firms (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 the

Indian 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. 64

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 jewelry stores. 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. 65

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 not permit req uired adjustments in the future; lack of commitment and time in implementing the project; inability o r failure to develop the desired technology; and the lack of ad equate preplanning for the joint venture. 212. (b) Alliance of co mplementary equals A strategic alliance between two strong and complementary partners remains strong during the course of the alliance. The co llision between two partners alliance is exp ected to be short-lived. A bootstrap alliance usually results in the acquisition of the weaker company b y the stronger company. An alliance of the weak usually results in further weakening of both the companies and the alliance fails. 213. (d) i, ii, iii, and iv The four statements describe various guidelines for structuring an alliance effectively to increase its 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 unfriendly and may not be in the interest of the acquired firm. Spin-off is the formation of a new entity by a split from a larger one. 215. (a) they are operating and competing in the same business environment and are producing 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 inct companies operating in the same industry, viz., computers, and the same markets, and offering similar 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 also share 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 red markets and scale economies. As any two firms undergo merger on a co-equal basis and form a new 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 number of 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 ntal mergers. 218. (c) To achieve greater economies of scale There are different reasons for which companies enter into vertical mergers. They are: reducing costs of communication, coordinating production, better planning of inventory and production, and achieving 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 to expand the product portfolio of the merged firm and exploit synergistic effects through the merger. 66

Part A 220. (a) geographic extension conglomerate merger A geographic extension conglomerate merger involves two firms having operations in different geographical areas. The objective is for the merged firm to exploit the distribution and marketing strengths 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 and marketin 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 cost and 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 of demand and production technologies. The firms in such an industry seek to lower costs by achieving 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 these reasons are growth, technology, government policy, differential labor costs, productivity, and source 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 very different 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 that the 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 to a 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 in its 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 it off. 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 a chemical firm enters a range of industries like the ink indu stry, the detergents industry, the paints industry, 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 to refocus 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 to divest. An anti-trust ruling is passed against a firm when it is fou nd that the firm s practices are providing it with an unfair advantage in its industry or that it is betraying the co mmon interest o f the consumer. 67

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. 68

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 Indian society 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. 69

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 changed patterns are accep ted and followed willingly, they are formalized and employees are expected to adhere 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 to managers for implementation. The strategic leader who assumes the planner/thin ker role rather than the doer role limits his/her role to defining the changes of strategy and hands over the implementation responsibility to managers. 242. (d) Inducement Inducement implies an ability to co ntrol the situation. People who are affected by it perceive the outcome 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 time they move. In this context, the situation is controlled and the emp loyees feel positive ab out the moves. 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 /complaint by an employee to a senior manager, bypassing an immediate superior, would be classified as legitimate, vertical, and internal. Threats and attempts of sabotage as a result of political activity are illegitimate. 244. (c) Only ii, iii, and iv The global marketplace has developed because of factors such as gro wth in world domestic product, 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 constraint in 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 igm shifts in the functionality of the product which provides a strategic advantage to the firm. Sony, for instance, 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 recognition for 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 have otherwise considered. Encouraging industries to form co nsortia for developing new tech nology in order 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. 70

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 to any 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 one location to another quickly and cheaply. 250. (c) support, core competence In traditional businesses, outbound logistics is regarded as a support function. But with ecommerce, organizations can create competitive ad vantage through this function. They can transform outbound lo gistics into their core competence. The speed and quality of delivery of the firm s products can become competitive factors for the organization and help it gain advantage over its competitors.