Test Papers

Model Test 1

Time: 3 Hours Total Points: 100

Part A: Basic Concepts (30 Points)

Answer all the questions. Each question carries one point.

1. Which of the following are the key a. Only i and iiielements of Igor Ansoff s strategic success b. Only i, iii, and ivparadigm?

c. Only ii, iii, and ivi. The level of turbulence in the environment

d. i, ii, iii, and ivdetermines the strategy req uired for thesuccess of a firm. 3. Organizations often fail to develop a sound

ii. The aggressiveness of the strategy sho uld strategic management perspective. Whichbe aligned with the turbulence in the of the fo llowing are the correct reasons forenviro nment to optimize the firm s its failure?success.

i. Lack of awareness amo ng the topiii. The threat of potential competitors sho uldmanagement about the firm s competitivebe assessed.position

iv. The management s capabilities should beii. Excessive involvement in everydayaligned with the environment to op timize

operationsthe firm s success.

iii. No personal interest of the manager in thea. Only i, ii, and iii functioning of the businessb. Only i, ii, and iv

a. Only i and iic. Only i, iii, and iv

b. Only i and iiid. Only ii, iii, and iv

c. Only ii and iii2. According to Tarun Khanna and Krishna

d. i, ii, and iiiPalepu, it may not be appropriate fororganizations in emerging markets to focus

4. Feedback is a very important part of theon serving their markets with a restriction

___________ stage as it provides anthat it should be based on a portfolio of

opportunity to revise or correct decisionscore competencies. Instead, diversified

made in the earlier stages of strategicbusiness gro ups are better suited for

management.developing markets. Identify the reasonsgiven by Khanna and Palepu in defense of a. strategy formulationthis recommendation for diversification.

b. evaluation and control

i. In emerging markets, companies incur c. strategy imp lementationlower costs on building brands than their d. enviro nmental scanningcounterparts in developed countries.

ii. Companies must adapt their strategies to 5. In which of the following modes offit a country s product, capital, labor strategic decision -making, are themarkets, and the regulatory system. strategies predominantly formulated by

iii. Well-diversified conglo merates can one individual?

provide the flexibility needed for labora. Entrepreneurial mode

markets.b. Planning mode

iv. Conglo merates are in a better position toc. Adaptive modedeal with rigid labor laws and u niond. Logical incrementalism modedemands in developing countries.

Part D

6. The two main components of an assessment of the primary activity calledorganization s ________ are „core _______.ideology and „envisioned future .

a. customer servicea. mission b. firm infrastructureb. vision c. inbound logisticsc. objective d. procurementd. grand strategy

12. Which of the following statements with7. The products of ABC Limited are regarded reference to organizational objectives is

as “safe” products and those of DEF false?Limited as “quality” products. This

a. Objectives give a direction to all functionsassociation will be called as ___________.

and plans of an organization.

a. company philosoph y b. Objectives are an essential part of a plan

b. company self concept and relate to the future.

c. public image c. Objectives are sacrosanct and a change inthe situatio n will not have a bearing ond. company goalthem; they will stay constant.

8. ___________________ act(s) as a barrier d. In an organization, there is usually aagainst firms which consider entering an hierarchy of objectives.industry with a smaller manufacturing

capacity. 13. When a firm s long -term strategy is based

on gro wth through the acquisition of onea. Product differentiation

or more similar firms operating at the sameb. Economies of scale stage of the production-marketing chain,c. Capital requirements its grand strategy is called _________.

d. Government policya. horizo ntal integration

b. vertical integration9. ______________ is importantstrategically, as it brings ab out changes in c. backward integratio nthe structural sources of competition. d. forward integration

a. Positioning14. The place strategy of the marketing

b. Industrial evolution function in a firm deals with:c. Diversification

a. type of product, co nsumer need, and targetd. Remote environment

segments.

10. Which of the follo wing statements holds b. key d istribution channels, prioritygeographic areas, and level of markettrue with respect to financial ratios?coverage.

a For the profit margin, low ratios arec. key contributors to profitab ility, product

superior to high ratios.image, and consumer need .

b The total asset turnover ratio measures thed. advertising and communication priorities,company s ability to generate sales fo r a

and media.given level of assets.

c In return o n equity, for a given level of 15. What are the implications of a firm with areturns, a low value may indicate a hig her well-differentiated product portfoliolevel of financial leverage. pricing its p roducts significantly higher

d The average collection period ratio than those of its co mpetitors?

measures the leverage levels o f a firm.a. The firm will not beco me market leader;

will enjoy a higher than average return.11. The efficiency of raw material storageb. The firm will become market leader; willactivities and the soundness of the material

and inventory control system are factors of enjoy a higher than average return.

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Business Strategy

c. The firm will not beco me market leader; ii. lowering the seller s cost o r lowering thewill enjoy a lo wer than average return. seller s performance

d. The firm will become market leader; will lowering the buyer s cost or raising theiii.enjoy a lower than average return. b uyer s performance

16. The criteria of ____________ assess the a. Only ipractical implementatio n and working of b. Only iistrategy.

c. Only iii

a. suitability d. Only i and iii

b. feasibility21. The cost behavior of value activities are

c. acceptability determined by cost drivers, which include:d. excellence

i. location.

17. With reference to the BCG matrix, the ii. market share.investment requirements of _________ are iii. the pattern of cap acity utilization.greater than the revenues they generate.

iv. linkages.They have a large relative market share in

a fast growing market. a. Only i, ii, and iii

b. Only i, ii, and iva. dogsc. Only i, iii, and ivb. cash cowsd. i, ii, iii, and ivc. stars

d. question marks 22. SmileBaby Pvt. Ltd. manu factures toys for

babies. The overall activities of the18. An opportunity refers to a very favorable

company are organized into varioussituation in the firm s environment. Some

departments like Design, Production,opportunities for a firm may be:

Marketing, Sales, Customer Service,Administratio n, and Accounts. What typei. identification of a new market segmen t.of organization structure has the companyii. positive changes in the regulatoryadop ted?enviro nment.

iii. slow market growth rate. a. Matrix

iv. improved buyer or supplier relationships. b. Functional

c. Divisionala. Only i, ii, and iii

d. Horizontalb. Only i, ii, and iv

23. Which of the following statements cannotc. Only i, iii, and ivbecome a b elief or the theme that shapesd. Only ii, iii, and ivthe organizatio nal culture o f a progressive

19. The usefulness of a product increases firm?through its superior ___________, which

a. Growth and profits are essential to ain turn results in huge profits for the

company s healthy financial position.organization.

b. Info rmal communicatio n is important.a. production process c. People have to be inspired to do their best,b. product design whatever their ability.

c. marketin g strategy d. The marketing functio n is the mostimportant in a firm.d. none of the above

In today s dynamic environment , past24.20. Competitive advantage can be created for asuccess can rarely guarantee a satisfactoryfirm by ____________.performance in the future. To survive

lowering the buyer s cost or raising thei. organizations have/need to:seller s cost

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Part D

i. reappraise their structures, products, and 28. Investment bankers are important to a

processes. successful divestiture because they:

ii. ensure that they are quicker to reach the i. help in the identification of potentialmarket. purchasers.

iii. stick to their current practices and need not ii. approach potential bu yers on anlearn from competitor practices.

anonymous basis.iv. be innovative, flexible, and capable of iii. will always buy out the project.

handling rapid changes.iv. assist in the negotiating process.

a. Only i, ii and iiia. Only i, ii, and iii

b. Only ii, iii and ivb. Only i, ii, and iv

c. Only i, iii and ivc. Only i, iii, and iv

d. Only i, ii and ivd. i, ii, iii, and iv

25. __________ achieves performance29. An imp roved competitive effectiveness inimprovements by redesigning operational

existing products and services will comeprocesses, maximizin g the value-addedvia changes in competitive strategies andcontent, and minimizing all costs.system and management roles. This can be

a. Gap analysis achieved by:b. Capital restructuring

i. empowerment.c. Reverse engineering

ii. performance management.d. Re-engineering

iii. time and motion stud y.

26. The motives behind initiating a joint iv. new policies.

venture include:a. Only i, ii, and iii

i. to share the investment expenses. b. Only i, ii, and ivii. to obtain learning experience. c. Only ii, iii, and iviii. to reduce the investment outlay.

d. i, ii, iii, and iviv. to share the risk.

30. Which o f the following are policies anda. Only i, ii, and iii

practices that companies can follow inb. Only i, ii, and iv order to strengthen their competitivec. Only i, iii, and iv position and rectify their weaknesses?

d. i, ii, iii, and ivi. Seek long-term investors and give them a

voice in governance27. Firms Fragranz Ltd. and Enchanta Ltd. are

in the same industry, both manufacturing Delink managers co mpensation fro m theii.and selling perfumes. Fragranz Ltd . has a firm s comp etitive positiongood retail network whereas Enchanta Ltd.

iii. Enhance worker training programshas a good R&D department and a good

iv. Increase funding fo r basic researchproduction facility. When the two firmsmerge, it will be known as a ___ ___ __.

a. Only i, ii, and iii

a. horizontal merger b. Only i, ii, and iv

b. vertical merger c. Only i, iii, and ivc. pure conglomerate merger d. Only ii, iii, and ivd. product extension conglomerate merger

275

Part B: Caselets (50 Points)

Caselet 1: Dabur’s Growth Strategy in India

Dabur India Ltd. (Dabur), a leading Indian fast moving consu mer goods (FMCG) company, was

established in 1884 as a small pharmacy based in Calcutta (now Kolkata). Since then, it had goneon to become a Rs. 22 billion company (as of 2007). Its product range included Toothpastes and1

Toothpowder (Dabur Red and Lal Dant Manjan), Hair Oils (Vatika), Shampoos (Vatika),

Digestives (Hajmola), Fruit Juices (Real), Nature Care Isabgol, Medicated Oils, Ayurvedic

products (such as Churnas , Asav Arishtas , Ras Rasaynas, and Chyawanp rash ), and Honey. It hadtwo major strategic business units – Consumer Care Division and Consumer Health Division. Its

products were produced in 13 manufacturing locations in Nepal, Nigeria, Egypt, Dubai, andBangladesh, and its products were sold in more than 50 countries. 2

The company had adopted a combination of the organic and inorganic routes in fueling its growth.

Organically, the company started serving the southern region of the co untry in 2002, which was3neglected earlier, to increase its sales . Further, it enhanced its product portfolio in the various

product categories. For instance, Homemade cooking pastes like ginger, garlic, tomato puree, etc.,

were added to the fo od business.

On the inorganic growth front, the co mpany acquired the Balsara group of companies in 2005.This acquisition gave Dabur new brands in toothpaste (Promise, Babool, and Meswak), mo squito

repellants (Odomos), toilet cleaners (Sani Fresh), and air freshners (Odonil). The acquired

toothpaste business balanced the oral care products portfolio as Dabur s sales came fro m thenorthern and the eastern parts of the country while Balsara s were from the southern and the

western parts of the country. Analysts felt that the co mbined manufacturing facilities were alsolikely to yield synergistic effects for Dabur. Besides, the acquisition was expected to result inexploiting economies of scale in marketing, sales, and distribution.

4Dabur was a market leader in herbal digestives, branded honey, and Chyawanprash , and had a5significant share of 26% in baby oil in 2007. The company had more than 30 brands in its

portfolio. Some analysts saw this as a cause for concern. They said that the company should focus

on a few champion brands. Otherwise, its efforts to sustain so many products and brands would bedissipated. This line of thought was substantiated by the fact that Dab ur was not a category leader

in any of the consumer products category where it was present.

For instance, in the toothpaste market, as of 2007, the compan y s market share was just 8% againstColgate Palmolive India s nearly 48%, though it had four brands. 6 Analysts were of the opinionthat Dabur sho uld discard products whose volumes were not gro wing fast enough to delivermargins. In the shampoos market, the company s brand Vatika had a market share of just 5% as of

2007 with a turnover of approximately Rs. 1.2 billion, though it had been in existence for 107years. The company intended to double its turnover by focusing on sachets. Ho wever, analysts felt

that it would not be easy for the company to do so in light of the growing competition fro m FMCG

www.dabur.com1

www.dabur.com2

P.T. Jyothi Dutta, “Dabur Upbeat on Growth Strategy,” February 13, 2002.3

www.dabur.com4

“Dabur to Concentrate on Baby Oil Segment,” www.financialexpress.com, April 1, 2008.5

Shobhana Subramanian, “The Dabur Strategy, Will it Work?” www.rediff.com, February 6, 2007.6

Shobhana Subramanian, “The Dabur Strategy, Will it Work?” www.rediff.com, Februar y 6, 2007.7

Part D

giants Hindustan Unilever Ltd. and Procter and Gamble Co. Ltd. Due to its small market share,

analysts believed that Vatika would not be able to negotiate with the big retailers and consequ entlyits profit margins would suffer.

The management at Dabur, however, contended that it had two umbrella brands -- Dabur and

Vatika -- which were being promoted aggressively and consolidated. Further, the company s focus

was to be present in as man y categories as possible, as long as they offered an herbal platform,even if the company s relative market share in those categories is small.

Questions for Discussion:

1. Comment on the growth strategy adopted by Dabur.

2. Dabur followed a strategy of creating multiple brands to pursue growth. What are yo ur viewson the resource utilization as per the adopted growth strategy? Give reasons in support of your

answer.

Caselet 2: Restructuring the TATA Group

The TATA Group, one of the oldest business groups of India, was started b y Jamsetji Tata in 18688as a trading house. Although the group was one of the largest in the country, it was considered to

be slow and bureaucratic till Ratan Tata (Tata) took o ver as its chairman in 1991. At the time Tatatook over, the Tata Group was involved in many businesses and had a presence in nearly everyindustry. There were over 250 companies in its portfolio – steel, tea, cement, oil mills, cosmetics,9

chemicals, power, automobiles, paints, pharmaceuticals, etc. Some industry watchers felt that theTata Group was on the way to disintegratio n, with po werful CEOs running some of the Group

companies as their own fiefdoms, challenging the core structure of the Group. Over a p eriod offour years from 1991, Tata managed to oust most of these CEOs, and bring in fresh talent toreplace the senior executives in the Group companies.

To bring in greater focus, Tata started offloading businesses that he felt did not fit in with hisvision for the Group. In 1998, the Group sold the 50 percent stake it had in the pharmaceuticalcompany Merind (including Tata Pharma), Wockhardt . In 1999, the Tata Gro up sold its 2810

11percent stake in paint co mpany Go odlass Nerolac to Kansai . The same year, Lakmé, a cosmetics12company, was sold to Hindustan Lever Ltd. (renamed Hindustan Unilever Ltd. in 2007). In 1999-

2000, the Group also exited the cement industry by selling its stake in cement company ACC toGujarat Ambuja Cements (renamed Ambuja Cements in 2007).

In order to create a single brand image, all the Group companies, which earlier had individual

logos, began to use one co mmon logo in 1999. Some of the Group companies were also renamed .The Tata Group started spo nso ring major events such as music concerts b y Bob Dylan and ZubinMehta, and tennis tournaments, where the new logo was prominently displayed.

Tata s plan for the Group envisaged two broad directions for gro wth. One was the internationalroute, where the Group plan ned to expand the markets for its existing products. The other targetedthe emerging mass market in India through product development and innovation. Starting in the

year 2000, with the acquisition of Tetley Tea, the Tata Group continued acquiring manycompanies including Corus, Natsteel Asia, General Chemical Industrial Products, Tyco GlobalNetwo rks, and the Jaguar and Land Rover brands.

“Tata s Turnover Touches Rs.1.5 L cr,” http://timesofindia.indiatimes.com, February 1, 2007.8

Shifra Menezes , “Ratan Tata : Tending it Like a Tata,” www.domain-b.com.9

Wockhardt is a global pharmaceutical and biotechnology company with its headquarters in India and has10

15 manufacturing plants in India, the UK, France, Ireland, and USA. (Source : wockhardtin.com)

Kansai Paint Co. Ltd. is a Japanese paint company whose principal activity is to manufacture and sell11

paints. The company has operations in the UK, USA, Canada, China, Thailand, Taiwan, Singapore, thePhilippines, Indonesia, Malaysia, India, Korea, Mexico, and Japan. (Source: www.kansai.co.jp)

Hindustan Unilever Ltd. is India s largest fast moving consumer products company.12

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Business Strategy

The restructuring undertaken by Tata had certain clear objectives, which were that a Group

company in any industry must be the industry leader and occupy one of the top three positions init; the returns must be greater than the cost of capital, and the business of the company must havethe potential for high growth and be globally competitive. Cost cutting, productivity

improvements, and capital efficiency were emphasized in the restructuring exercise taken up at the1 3Group co mpanies.

The restructuring witnessed the creation of a Tata Business Excellence Model (TBEM), a Group

Executive Office (GEO), and a Group Corporate Center (GCC). The TBEM was a qualityinitiative of the group structured on the lines of the Malco lm Baldridge awards for quality .14

Business Review Committees were formed under the TBEM to serve as the formal interface

between the Group and the companies, and they reviewed the strategic direction of the companies.

The TBEM had a threefold focus, namely, to contribute to marketplace success by delivering valueto customers, improving organizational effectiveness and capabilities, and facilitate organizational

and personal learning.

The GEO aimed to make the Tata Group synergistic by strengthening the relationsh ip between theGroup and its companies. The GEO reviewed the Group s business portfolio, and defined and

reviewed its business activities. The GEO played a central role in the restructuring efforts at the

Group as it analyzed and reviewed the unique value added by a co mpany to the Group and alsohow the Group added unique value to a co mpany. The GEO also initiated certain changes such as a

central human resource system, central financial coordination, and standardized managementinformation systems in the Group. 15

The GCC acted as an ideation center for the Group initiatives. It reviewed the broad policy issues

relating to the growth o f Tata companies and entry into new business areas. The GEO and the16GCC determined the overall strategy and the direction of the Group.


1. Analyze the restructuring efforts at the TATA Group, and the role played by Ratan Tata inrestructuring the group.

2. Comment on the institutional mechanisms that were created for strategic and o perationalcontrol of the performance of the TATA Group.

Part C: Applied Theory (20 points)

1. Narendra Menon was heading an SBU of a multinational company. In recognition of hisabilities and the results he achieved, he was promoted to a corporate level position, withadd itional responsibilities. How is his role at the corpo rate level going to be different from thatat the business level?

2. To help managers analyze the environment effectively, Michael E. Porter developed aframework known as the Five Forces model. These five forces play a vital role in shaping thecompany s future. Analyze the „degree of rivalry in the context of the Indian aviationindustry.

3. Orient Fans, a leading player in the fans industry, has diversified into room heaters. Explainwhy firms take up such diversification.

Justin Wood, “Magna Tata,” www.cfoasia.com, Dece mber 2005/ January 200613

The Malcolm Baldrige National Quality Award is given by the US National Institute of Standards and14

Technology.

www.tata.com15

www.tata.com16

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Model Test 2



Answer all the questions. Each question carries one point.

1. Which of the following is not a generic c. ii, i, iv, iii

competitive strategy proposed by Michael d. iv, i, iii, iiPorter?

4. The _____________ consists of evaluatinga. Cost leadership all the conditions and forces that affect anb. Diversification o rganization s strategic options and

c. Differentiation defines its competitive situation.

d. Focus a. internal analysis

b. strategic choice2. Gary Hamel and C. K. Prahalad believedthat the capacity for resource leverage is c. external environment analysis

the ultimate selection mechanism, d. strategic managementseparating the victorious from the victims

5. Match the following terms with theirin prolonged battles for industryadvantages:leadership. From the following options,

identify the ways to realize resource i. Entrepreneurial modeleverage.

ii. Logical incrementalism

iii. Planning modei. Concentrating resources on key strategic

goalsp. Strategies can be formulated and

ii. Complementing resources of one type withimplemented speedily.

those of another to create more valueq. Helps the company to b e better p repared

iii. Efficiently accumulating resources andfor environmental uncertainties.

conserving those reso urcesr. Useful when the environment is changing

iv. Reco vering, that is, minimizing the timerapidly and it is important to build a

between expenditure and paybackconsensus before committing the entirecompany to a specific strategy .a. Only i and iii

b. Only i, iii, and iv a. i/p, ii/q, iii/rc. Only ii, iii, and iv b. i/r, ii/p, iii/qd. i, ii, iii, and iv c. i/p, ii/r, iii/q

d. i/q, ii/r, iii/p3. There are four basic elements in the

process of strategic management. Arrange6. From the following options, identify the

them in the order in which they arecharacteristics of a good mission

executed.statement.

i. Strategy formulationi. It defines the business that the company

ii. Environmental scanning wants to be in, not necessarily the one it isiii. Evaluation and control in.

iv. Strategy implementation ii. It is relevant only for the firm sshareholders.

a. i, ii, iii, iviii. It seeks to clarify the purpose of the

b. i, iii, iv, ii organization - why it exists.

Business Strategy

a. Only i and ii 11. Which of the following are factors ofassessment of a firm s infrastructure?b. Only i and iii

i. Public image and corporate citizenshipc. Only ii and iiiii. Relations with trade unionsd. i, ii, and iii

iii. Quality of the strategic planning system toachieve corporate objectives7. What is the nature of ethical responsibility

and that of discretionary respo nsibility? iv. Levels of emplo yee motivation and job

satisfactio n.a. Ethical responsibility is obligatory whereas

discretionary responsibility is voluntary. a. Only i and ii

b. Only i and iiib. Ethical responsibility is voluntary whereas

c. Only ii and ivdiscretionary responsibility is obligatory.

d. Only iii and ivc. Both are obligatory in nature

d. Both are voluntary in nature 12. The objectives at the lower level of thehierarchy require __________ resources,

8. Rivalry in an industry intensifies when oneinvolve commitment from __________

or more firms make an effort to increaseorganizational members, and are

their market share. The intensity of the ___________ readily measurable.rivalry dep ends upon

a. fewer, more, feweri. the threat of new entrants. b. more, fewer, fewer

ii. the slowd own in industrial growth. c. fewer, fewer, more

iii. the lack of differentiation among the d. fewer, more, more

products of the different players.13. ____________________ is diversification

iv. the absence of switching cost. into a new business area that has no

obvious connection with any of thea. Only i, ii, and iii

company s existing business areas.b. Only i, ii, and iv

a. Concentric diversificationc. Only i, iii, and iv

b. Conglomerate diversificationd. Only ii, iii, and iv c. Horizontal diversification

d. Horizontal integration9. The ______________ ______ process

considers the firm s resources; the 14. When the pricing app roach is market-business the firm is in; its objectives, oriented, pricing is based on ___________.policies, and plans; and how well they a. consumer demandhave been achieved.

b. competitor pricesa. strategic choice c. total costs

b. value chain d. level of market coverage

c. internal analysis15. In ________ industries, the steps involved

d. external analysis in strateg y formulation often involvesophisticated cost analysis, rationalizing

10. Business units that adopt __________the product mix, co rrect pricing, process

strategies emphasize process R&D,innovation and design for manufacture,

whereas businesses that adopt _ ___ ____ __ buyer selection, and competingstrategies emphasize product R&D. internationally.

a. differentiation, low-cost a. fragmented

b. low-cost, differentiatio n b. emerging

c. maturingc. high-cost, differentiation

d. decliningd. differentiation, high-cost

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Part D

16. __________ displays the po sition of b. Thro ugh learning, the right moves can bebusiness units on a graph showing market implemented in a shorter time, leading togrowth rate against their market share lowering of costs.relative to competitors. c. Existing wage levels and tax rates differ

a. The 7S Framework markedly by country and region within a

country.b. The GE nine cell matrix

d. The important factor in inbound log isticalc. The BCG matrixcost is the location relative to buyersd. Gap analysiswhereas the outbound logistical cost is

17. Organizations concentrate on recovering as affected by the location relative tomuch as possible from _________ in terms suppliers.of returns on investment and they oftenundertake ruthless cost cutting. 22. Maestro Media is a UK-based media and

a. Dogs entertainment co mpany. The company is

b. Cash cows divided into five business units and each ofthese units has their own set ofc. Starsperformance targets. Corporate strategy,d. Question marksbrand management, technology, etc.,

18. If a business faces impressive market related activities are carried out at theopportunity, but is constrained by internal headquarters, while its subsidiaries locatedweaknesses, then the firm s focus should in different countries are given thebe on a/an _______________. freed om to formulate their own local

a. aggressive strategy strategies. What type of an organizationb. diversification strategy structure has the company ado pted?c. turnaround strategy a. Matrix organization structured. defensive strategy b. Hybrid organization structure

c. Functional organization structure19. The service function contributes value tothe organization by ________. d. Divisional organization structure

a. solving the process-related problems of the23. The ____________ a compan y s culture

supplier.becomes and the ___________ that culture

b. solving the product-related problems of the is directed toward the internalcustomer. stakeholders, the ____________ the

c. solving the process-related problems of the company uses policy manuals, procedures,manufacturer. and regulations to enforce discipline and

d. solving the product-related problems of the norms.vendor.

a. weaker, mo re, more

20. A firm with a________ scope of b. stronger, more, lessoperations streamlines its value activities c. weaker, mo re, lessbetween a firm and its suppliers, channels,

d. stronger, less, moreand buyers.

a. segment 24. Which of the following benchmarking

strategies aims at imp roving a company sb. verticaloverall performance b y studying the longc. geographicterm strategies and approaches adopted by

d. industrysuccessful „best practice companies?

21. Which of the follo wing statements is false? a. Reengineering

a. Sometimes the first mover gains an b. Process benchmarking

advantage from being among the first to c. Strategic benchmarkingtake a particular action. d. Performance benchmarking

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Business Strategy

25. A _____________ approach to redesigning be identified, the seller is left with little

seeks a fundamental re-think of the way negotiating leverage.the product or service is delivered, and iv. In order to divest through initial publicinvolves designing new pro cesses from offerings (IPOs), the market conditionsscratch. should b e favorable in terms of an appetite

a. clean sheet for IPOs.b. systematic

a. Only i, ii, and iiic. processb. Only i, ii, and ivd. productc. Only i, iii, and iv

26. Which of the following are the reasons ford. i, ii, iii and iv

the failure of a joint venture?

29. Arrange the following steps of Quinn si. Agreements on alternative approaches toIncremental Model for managing strategicachieve the basic objectives of the jointchange in the correct sequence:venture.

i. Strategic leaders will seek to legitimize theii. Refusal b y managers possessing expertisenew strategies by lending authority toin one company to share knowledge withthem.their counterparts in the joint venture.

ii. Strategic leaders will then generateiii. Inability of parent companies to shareawareness of the desired change within thecontrol, or compromise on difficult issues.organization.

iv. Critical issues of b usiness policy and long-iii. Strategic leaders will develop their

term strategies of individual bu sinessinformation channels, both within andfirms.outside the organization, and will draw on

a. Only i, ii, and iii these by using the formal systems.

b. Only i, ii, and iv iv. The new strategy may be floated as a

minor change to minimize resistance.c. Only i, iii, and iv

d. Only ii, iii, and iv a. i, ii, iii, iv

b. iv, ii, iii, i27. The merger o f an oil company engaged in

exploration and pro duction with another c. ii, iv, i, iii

oil company engaged in refining and d. iii, ii, i, ivmarketin g is an example of a ________.

30. Which of the following factors have madea. horizontal merger

the workforce much more heterogeneousb. vertical merger today than at an y time in the past?c. product extension conglomerate merger i. Localization

d. geographic extension conglomerate merger ii. Increase in the life span of the population

iii. Influx of workers into new careers and28. Which of the fo llowing statement/s aboutoccupationsthe selling process is/are true?

iv. Influx of women into organizationsi. The process of competitive bidding is most

effective when man y potential buyers have a. Only i, ii, and iiibeen identified and they have diverse

b. Only i, ii, and ivstrategic objectives.

c. Only i, iii, and ivii. Sequential selling is an acceptable selling

d. Only ii, iii, and ivmethod, if the primary objective is the deal

structure and better price.

iii. If, in the process of identifying poten tial

buyers, only one prospective purchaser can

282


Caselet 1: The Kodak-Fuji Duel

The Japanese photo major, Fuji Photo Film (Fuji) first entered the US market in 1964 as a supplier

of private label film and established its first subsidiary in 1965 . Since the beginning , Fuji focusedon providing quality and innovative products to its US consumers. Fuji felt that it made morestrategic sense to follow the New York based, Eastman Kodak Co mpany s (Kodak) lead, avoidattracting Kodak s attention, and not take any steps that would provoke Kodak s retaliation. The

company focused on building its market share in the US by adopting strategies to get the share ofweaker US comp etitors rather than that of Kod ak. Slo wly but steadily, Fuji entered theprofessional market and also made efforts to build its credibility in the larger amateur market. In

1970, Fuji introduced a faster film with brighter colors, which was what professional and seriousamateur photographers were looking for. In 1972, Fuji began to market its film under its ownbrand name in several camera stores. In an attempt to gain more market recognition, Fuji providedbuyers of Japanese cameras with free film rolls.

In 1976, Fuji introduced the 40 0-speed color film that was faster than any of the films made byKodak during that time. In the follo wing year, Fuji reduced the prices of its print p aper. In 1978,

Fuji expanded its distribution to drug stores, supermarkets, and discount chains.

In 1983, Fuji brought out a new high -resolution film in two speeds. Kod ak responded byintroducing a similar film and offering it in four speeds. By now, Fuji realized that it would beunable to outsmart Kodak. Ho wever, the company believed that by buildin g its repu tation forquality products and offering products at prices lower than that of Kodak, it could gain significant

market share in the long run. The important element of Fuji s strategy was to ensure that itsproducts were 100% compatible with Kodak cameras and Kodak film, thereb y allowing price-consciou s consumers to substitute Fuji film for Kodak.

The Japanese threat began to mount when Fuji became the official film for the 1984 SummerOlympics in Los Angeles, California. This sponsorship agreemen t helped Fuji gain internationalrecognitio n. After it lost the sponsorship agreement, Kodak realized that Fuji could be a potential

threat to it. Accepting Fuji s challenge, Kodak also engaged itself in constant price wars with Fujito gain valuable market share in the US. Kodak took the challenge a step further by strengtheningits presence in Japan, the world s second largest market for photographic products after the US.

Fuji took considerable interest in pursuing research and development (R&D) to introduce newtechnology that wo uld enable it to produce innovative prod ucts to drive sales further. The companyspent 7% of its revenues on R&D annually. This helped Fuji to maintain its competitive advantage

as it was able to introduce new products that customers needed. In 1986, Fuji became the firstcompany to introduce one-time-use cameras. Kodak did not offer a similar product thus giving Fujithe image of a company that introduced more co nsumer-oriented and innovative products. In theearly 1990s, Fuji steadily gained market share as more consumers preferred to use Fuji s film, as

the color was brighter and the processing speed was faster.

In 1997, Fuji reduced prices by 50% on its multiple roll film packs and even sold four rolls of filmfor just $4.99. Fuji s prices were three times lower than those of Kodak fo r the same product. This

reduction in prices resulted in a dro p of Kodak s market share in the US from 80.1% in 1996 to74.7% in 1997.

In response to this move, Ko dak also slashed its prices. However, the company once again could

not cut its prices steep ly as this reduced its profit margins from its mo st profitable business offilms. During the late 1990s, Kodak s top management was in great dilemma whethe r to reduce

Business Strategy

prices significantly to match Fuji s levels and thus risk the profitability of its most lucrative films

business, or to keep quiet and see its market share contin ue to erode. However in 1988, Kodakgrabbed the opportunity to sponsor the Olympics resulting in the sponsorship battles and marketing

rivalry between Fuji and Kodak.

Though Kodak entered the Japanese market in 1905, the company never took the Japanese marketseriously. In the early 1980s, Japan emerged as the second largest market in p hotographic

products. Due to the rising competition from Fuji in the US, Kodak decided to strengthen itscompetitive position in Japan.

In 1977, Kodak strengthened its control o ver the distribution and marketing efforts of its Japanesearm Nagase & Co. In the following year, the company formed a joint venture company namedKodak-Nagase. Later, Kodak converted the import divisio n of Nagase into its own subsidiary and

was renamed as Kodak -Japan. Tying up with the Japanese partner helped Kodak to have access to60,000 camera stores up from the initial 30,000 stores in Japan. It gave Kodak access to more shelfspace to display its products. However, Kodak could not get into the stores, which marketed Fujiproducts exclu sively.

In the late 1970s, Kodak formed several joint ventures and strategic alliances with many Japanesepartners. One such company was Bandai, a leading Japanese toy manufacturer, with which Ko dakestablished a co-branding arrangement to sell single-use cameras. Kodak set up its own R&Dcenter and opened a technical assistance center to help customers. The company conducted anannual Kodak Symposium in which the audience included university professors and researchers,and the major customers and companies with which Kodak had strategic alliances in Japan.

In 1980, Kodak came out with the concept of “minilabs” at certain retail outlets in Japan. Kodakentered into an agreement with the world s leading manufacturer of minilabs equipment, Noritsu

Koki. In the early 1980s, Kodak introduced many new p roducts in the Japanese market and alsoreduced the prices of so me of its products as a challenge to Fuji s leadership. Kodak introduced the“panoramic disposable camera,” which was not present in Fuji s product range. Kodak

aggressively marketed the panoramic camera, as the Japanese were fond of taking pictures in largegroups. A group photograph outdoors was not possible with the help of conventional cameras inthose days.

In the mid-1980s, Kodak increased efforts to gain greater control over the distribution of its ownproducts. Fuji s products were sold through 216,000 retail outlets. Approximately, 15 % (33,000)retail outlets accounted for 75% of Fuji s sales. By 1985, Kodak controlled around 15 0 labs for

photograp hic paper in Japan whereas Fuji controlled 250 labs.

In 1986 , Kodak advertised heavily in the media to increase its popularity. The comp anyconstructed a huge yellow sign symbolizing Kodak s name, which took man y years to complete

and put it in downtown Tokyo. In August 1986, Kodak leased the only available blimp in Japanand decorated it with bright yellow colo r with its trademark and name. It was placed in fro nt of theFuji headquarters in Tokyo.

In response to Fuji s price-cutting strategies in the US, Kodak also decided to slash the prices ofsome o f its products in Japan. Ko dak sold its new range of photographic film named Kodacolor

VR at 38.3% less than the market price of other available films in Japan. In the late 198 0s, Kodakintroduced waterproof disposable cameras. Initially, the consumers complained about certainshortco mings in its design. Kod ak emplo yed a team of engineers, finance, and marketing people torectify the problems.

In 1994, Kodak came out with a new pro duct, a single-use camera, called Falcon. The product wasso named because Kodak s d evelopment team wanted it to resemble a bird of prey attacking rivalproducts. Kodak advertised this product rather unconventionally in the Japanese market.

However, in spite of all its efforts to increase its market share in Japan, on the whole Kod ak failedto get good retail acceptance and faced problems like low trial rate and low brand recall among the

Japanese co nsumers.

In 1999, Kodak and Fuji had the same market share of 70% in their respective home countries andhad an almost equal market share in the rest of the world (each had 1/3 of the world market share).

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In 1999, Fuji had 18.8% market share in the US while Kodak s share in Japan was hoveringaround 7%. It remains to be seen how well Kodak and Fuji would be able to sustain theirrespective market shares in the future.

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Business Strategy


1. Examine the strategies adopted by Fuji to enter the US market, compete with Kod ak, andbuild its presence. In your opinion, what were the reasons for Fuji s success in the US?

2. How did Kodak attempt to challenge Fuji s market leadership in Japan? What could have beenthe reasons for Kodak s relatively poor performance in Japan?

Caselet 2: The Turnaround of Bata India

Bata India Limited (Bata), the largest footwear retailer in India, an nounced a p rofit o f Rs. 4741

million on a sales turnover of Rs. 8.9 billion for the year 2007. The profit was attributed to the2

sales gro wth achieved by the opening of new stores and the benefits derived fro m the restructuring

exercises that the company had undertaken. The sales growth was expected to be sustained by theopening o f more stores and the repositioning of the „Bata brand. The restructuring efforts were in

the direction of reducing raw material costs and by offering a Voluntary Retirement Scheme(VRS) to its workers.

Analysts felt that Bata had come a long way from 2002 , when it had reported losses to the tune ofRs. 74.1 million on a turnover of Rs. 7.04 billion. The reasons attributed to the bad performance3

during 2002 and 2003 were multifold and included lower consumer demand and an overallslowdown in the footwear industry. Further, Bata s cost of production was high and its marketing

effort was weak. Its brand image reflected value for money (utilitarian) and not fashion or beingtrend y. This led to its customers shifting to other brands which were trendier and more fashionable.Hence, though Bata was the biggest player in the Indian shoe market enjoying a strong brandrecall, it incurred losses. 4

Analysts pointed out that Bata could have addressed the first p roblem of cost by outsourcing the

products while the second required that the company focus on marketing with renewed vigor.

During the year 2003, Bata chose and adopted a four-layered retail structure to address thecustomer profile of a geographic region with matching products. The company introduced newretailing formats Flagship stores, City stores, and Family and Bazaar stores to cater to differentmarket segments. This ensured that the product offerings in different geographic locations werenot the same. For instance, the product offerings in the suburbs were different from those in up-

market areas. The Flagship and City stores sold a large range of brands, along with an array ofaccessories such as wallets, handbags, and shoe-care products. This was similar to Bata sEuropean retail strategy. Bata also established Supersto res, a new format, where around 1,000different designs of footwear could be disp layed. 5

In addition to this, the company utilized its international technology to enhance the product

development capabilities and to create new product portfolios to match a wide range of prices. Thecompany focused on so me of its brands like Power, Bubblegummers, Marie Claire, and HushPuppies, to make these brands more appealing to the higher end of the market.

Arou nd the same period, Bata realized that the retail boom was occurring in the no rthern part ofIndia and in a strategic move relocated its head office operations from Kolkata (West Bengal) toGurgaon, a city in Haryana (a state in North India) bordering Delhi. This was expected to help6

Bata India Limited is the largest footwear retailer in India . It is a part of the Lausanne, Switzerland-based1

family-owned shoe company, Bata Shoes.

Jaidev Majumdar, “Bata to Focus on Institutional Sales, Retail Ventures,” www.hindustantimes.com, June2

19, 2008.

Kausik Datta, “Change of Sole: Bata to be a Marketing Entity,” www.rediff.com, June 4, 2003.3

“Bata India Bats up a Poor Score,” www.rediff.com, April 21, 2003.4

“Sales Growth, Restructuring Drove Bottom Line: Bata India,” www.indiaearnings.com, July 28, 2006.5

Shelley Singh, “Out of Kolkata, Bata Reboots in Gurgaon,” businessworld.com, December 29, 2003.6

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Part D

Bata imp rove its focus o n market penetration and shift its orientatio n from manufacturing tomarketin g. When its head office o perations were located in West Bengal, labor unrest in themanufacturing facilities located in the state had had a substantial impact on the overall operationsof the organization. To focus more on marketing, the company shifted its head office to Gurgaon

along with the activities -- commercial, retail, exports, management information systems, andwholesale.

In 2004, the company introduced trendy international styles for women, men, and children. This

helped in building a modern and stylish image for the co mpany. The co mpany streamlined itsdistribution network to support its focused marketing effort in the year 2004. It converted three ofits wholesale depots to „Cash-n-Carry formats and made investments in its logistics and

7distribution systems, to improve them. This was to be reflected in the modernization of the retailnetwork through the development of a state-of-the-art integrated retail management system in

8partnership with Infosys Technologies Ltd. Further, investments were made in IT to integrate

abo ut 150 stores for real time information capturing. The result was that a new trendy fashionablefootwear range was reaching the outlets every week.

To turn around the co mpany, Bata also took some other measures. Sixty unv iable stores wereclosed down and the outstanding payments of the wholesale segment were reduced to 45 days from126 days. Further, emphasis was placed on reducing the operational expenses in 2004. In order to9

reduce costs, manufacturing was relocated to tax holiday states such as Himachal Pradesh and10Uttaranchal.

Simultaneously, since the company was overstaffed it offered Voluntary Retirement Scheme to its11workers in 2004, and 1,46 9 employees opted for the scheme. The company also developed a

variable pay structure in Bata stores to align the remuneration costs with the business volu mes.Bata was able to convince the unions to enter into an agreement for capping Dearness Allowance

and this helped it in keeping the major fixed remuneration costs down.

In 2006, Bata decided to create its presence in shopping malls on the one hand and to explore thefranchisee model on the other. It went ahead with the shop -in-shop experience in a multi-branded

store. In the following year, it unveiled a 10,000 sq ft Mega Store at Vadodara (in the WesternIndian sate of Gujarat). This store was spread across 4 floors and displayed a range of international

1 2fashion footwear. Customers were offered a choice of 800 designs.

In 2006, the company posted a modest profit and the growth trend continued in 2007. As of 2008,

the company had 1,200 Bata stores in the country an d was expecting to cross the Rs. 10 billionturnover mark in the near future. And it was clear that Bata was not ready to let anything come in13

its way. For instance, in February 2007, it suspended 180 emplo yees and 23 shop managers in

Mumb ai because they refused to extend their working hours and keep shops open seven days a14week.

“Bata India Goes for a Makeover: Revamps Pr oduct Portfolio,” www.agencyfaqs.com, December, 2004.7

Infosys Technologies Ltd. is one of the leading Indian Information Technology (IT) and consulting service8

providers.

Shammi Pande, Soul Searcher, http://businesstoday.digitaltoday.in, July 17, 20079

“Bata India Lines up Slew of Measures to Ride Retail Boom,” www.thehindubusinessline.com, June 28,10

2005.

“Bata India to Tap Rural Market,” www.hindu.com, June 28, 2005.11

“Bata India Revamps its Retail Strategy,” www.moneycontrol.com, November 26, 2007.12

Teejesh N.S. Behl, “Booting Up Again,” http://businesstoday.digitaltoday.in, May 29, 2008.13

“ Bata India Suspends 180 Staff,” www.thehindubusinessline.com, February 24, 2007.14

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Business Strategy

In order to maintain its growth momentum, Bata aimed to open 200 new stores by 2010 and15explore institutional markets such as hospitals, hotels, and defense establishments . Bata also

intended to launch clothing products by the end of 200 8. In January 2008, Bata and Reliance1 6

Industries Ltd. announced a tie-up that would enab le Reliance to retail its labels through the17

1,200 Bata stores in the country. Bata, on its part, would be provided with exclusive space in all1 8Reliance Footprint stores, which were being rolled out in the co untry.


In your opinion, what were the factors that contributed to Bata Ind ia s ability to turn itself1.around from a loss-making company into a profit-mak ing one?

2. What was the new retailing strategy followed by Bata India, and to what extent do you think itplayed a role in the co mpany s turnaround? What were the critical success factors for the new

retailing strategies to succeed?


1. Social environment is an important element in the external environ ment. Social environmenthas an influence on the organization as it creates threats and opportunities. With the help of an

examp le, discuss how wrong assessment of the social environment can lead to problems fororganizations.

2. A technology strategy is concerned with a firm s approach to the development and use oftechnology. This strategy plays a key role in developing an overall competitive strategy, and

hence needs to be consistent with the other value activities of an organization. Explain any ITcompany s technology strategy.

3. When companies face hostile takeovers, they resort to defense tactics. The target company can

use many strategies to defend itself against a takeover attack. Illustrate anti-takeover defensewith a suitable example.

Sambit Saha, “Bata Strategy to Extend Retail Reach,” www.telegr aphindia.com, March 31, 2006.15

K.V.Kurmanath, “Bata India Plans Foray into Clothing,” www.thehindubusinessline.com, October 15,16

2007.

Reliance Industries Ltd. is the largest private sector enterprise in India . (Source: www.ril.com).17

“Reliance Ties up with Bata for New Footwear Line,” www.datamonitor.com, January 2, 2008.18

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Model Test 3



Answer all the questio ns. Each question carries one point.

1. George Stalk, Philip Evans, and Lawrence ii. It assesses the strengths and weaknesses ofE. Schulman proposed four basic the company s management.principles of capabilities -based iii. It analyzes the company s past successes.competition. Which of the following is not It ignores the quality of the co mpany siv.one of those principles?

human and physical resources.

a. The building blocks of corporate strategya. Only iii

are not products and markets but businessb. Only iv

processes.c. Only i and iib. Competitive success d epends o nd. Only ii and ivtransforming a company s key processes

into strategic capabilities that consistently5. In which mode of strategy formulationprovide superior value to the customer.

does an organization choose an interactivec. Companies create these capabilities b y

process for probing the future,making strategic investments in a support

experimenting, and learning from a seriesinfrastructure that links together andof incremental commitments?transcends traditional Strategic Bu siness

Units (SBUs) and functions. a. Adaptive moded. The champion of a capabilities -based b. Planning mode

strategy is the Vice President – Humanc. Entrepreneurial mode

Resources.d. Logical incrementalism mode

2. ___________ strategy is concerned with6. The anticipated regulatory, competitive,using generic strategies such as cost

leadership, differentiation, and focus to and economic environment in which thecreate a competitive advantage. company must compete is its

____________.a. Corporate level

b. Functional level a. fundamental intention

c. Business level b. view of the future

d. Operational level c. competitive arenas

d. source of competitive advantage3. Tools such as surveys, secondary research,and open forums are emp loyed in ______.

7. Match the factors with their environmenta. enviro nmental scanning

i. Technologicalb. strategy formulation

ii. Competitorsc. strategy implementation

iii. Econo micd. evaluation and co ntrol

iv. Suppliers4. Identify the statement(s) that is/are wrong

with regard to the company profile. p. Remote environment

q. Operating environmenti. It depicts the quantity and quality of thecompany s financial resources.

a. i/p, ii/p, iii/p, iv/q

Business Strategy

b. i/p, ii/q, iii/p, iv/q iii. develop their own network for consumerfeedback.c. i/q, ii/p, iii/p, iv/p

iv. have their own facilities for providing pre-d. i/q, ii/q, iii/q, iv/psales and po st-sales service/feedback.

8. The bargaining power o f suppliersa. Only i, ii, and iiiincreases and they become powerful whenb. Only i, ii, and ivi. the p roduct that they sell has few

substitutes and is important to the buyer. c. Only i, iii, and iv

ii. a single industry is the major customer for d. i, ii, iii, and ivthe suppliers.

13. ___________ help in the implementationiii. when the products in the industry are

of the grand strategy by organizing andhighly differentiated and it is costly for a

activating specific sub-units (marketing,buyer to switch from one supplier to

finance, production, etc.) of the company.another

a. Functional strategiesa. Only i and ii b. Critical success factorsb. Only i and iii c. Corporate strategiesc. Only ii and iii d. Mission and visiond. i, ii, and iii

14. In the overall cost leadership strategy, a9. The _________________ recognizes that firm makes sustained efforts to reduce

inventory is usually less liquid than other costs in all areas of business withoutcurrent assets. compro mising on the quality of its

a. profitability ratio products and services. From the following

options, identify the benefits ofb. quick ratiosuccessfully ad opting the overall costc. leverage ratioleadership strategy.

d. activity ratioi. The cost structure for the firm would be

10. In value chain analysis, _____ ____ ____ __ lower than that of its competitors.are those activities that are involved in the ii. The firm can p rice the product at the samephysical creation of the product, level as a competitor and earn highermarketin g, and after-sales support. profits due to its lower costs.

a. support activitiesiii. The firm can reduce its prices to build

b. secondary activities volumes and emerge as the market lead er.c. primary activities iv. The firm s products and services ared. basic activities perceived by the customers and consumers

as distinct and unique from its11. A factor of assessment of pro curement is competitor s products and services.

________.

a. the quality of laboratories and other a. Only i and iii

facilities b. Only i, ii, and iii

b. development of criteria for lease-versus- c. Only ii, iii, and ivpurchase decisions d. i, ii, iii, and iv

c. app ropriateness o f reward systems for15. Which of the following statements is falsemotivating and challenging employees

regard ing strategic choice?d. ability to obtain relatively low-cost fundsa. Attitudes toward risk exert considerablefor capital expenditure and working capital

influence on strategic choice.

12. Firms ad opt the strategy of forward b. When making a strategic choice, risk-integration to : averse managers are attracted toward

i. achieve more control over sales prices and opportunistic strategies with higherlevels of output. payoffs.

ii. improve their competitive position .

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Part D

c. When safe, conservative strategies are 20. Which of the following statements arechosen, the managers expect reasonable, true?highly probable returns. i. Thro ugh coalitions, a firm gets anThe greater the firm s dependence ond. opportunity to share its activities witho utexternal factors, the lower will be the entering new ind ustry segments,range and flexibility of its strategic choice. geographic areas, or related industries.

ii. Coalitions broaden the scope of operations16. With reference to the BCG matrix, whichwithout broadening the firm.business unit holds a large relative market

iii. Coalitions besto w the cost andshare in a mature and slow-gro wingdifferentiation advantages of verticalindustry?linkages without the firm having to go ina. Dogfor vertical integratio n.

b. Cash cow

c. Question mark a. Only i and ii

d. Star b. Only ii and iii

c. Only i and iii17. Arrange the following steps in the correctd. i, ii, and iiiorder to plot the business units on the GE

nine cell planning grid.21. Signaling criteria is o ne of the typ es of

i. The key factors needed for success in each buyer purchase criteria that depend on thebusiness unit are selected.

actual and perceived value for the buyer.ii. A criterion is selected to rate the industry Which of the following factors are

for each business unit. included in signaling criteria?The firm s future portfolio is plotted,iii. i. Brand imageassuming that present corporate and

ii. Delivery timebusiness strategies remain unchanged.

iii. Packagingiv. Each business unit s current position isiv. Advertisingplotted on a matrix.

a. Only i, ii, and iiia. i, ii, iii, iv

b. Only i, iii, and ivb. ii, i, iv, iii

c. Only i, ii, and ivc. iii, iv, i, iid. Only ii, iii and ivd. i, iii, iv, ii

22. Which of the following statements18. A firm can gain a cost advantage fromdescribing investment centers is incorrect?i. a low-cost physical distribution system.

a. Managers of investment centers areii. a responsive sales order entry system.motivated to make the optimum utilization

iii. superior sales force utilization.of resources under their contro l.

iv. an efficient assembly process.b. Investment centers are held responsib le for

overall economic performance.a. Only i, ii, and iiic. The performance of the investment centersb. Only i, ii, and iv

is measured with respect to ROI, ROCE,c. Only i, iii, and iv

and EVA.d. Only ii, iii, and iv

d. The managers of investment centers havecontro l over investments but not on inputs19. ________ is important because it providesand outputs.the basic framework within which all the

other value creating activities take place. 23. Indicators to assess the power of externala. Firm infrastructure stakeholders include:

b. Material management i. Status

c. Service ii. Claim on resourcesd. Operations iii. Negotiating arrangements

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Business Strategy

iv. Symbols d. mature, declining

28. Which of the following factors make aa. Only i, ii, and iiifirm a desirable candidate for acquisition

b. Only i, ii, and ivand vulnerable to a takeover?

c. Only ii, iii, and iv i. A high stock price compared to assetd. Only i, iii, and iv replacement cost or their potential earning

power24. Generic benchmarking is used by

ii. A highly liquid balance sheet with largecompanies to improve their processes oramounts of excess cash, a valuableactivities by benchmarking with other

companies from ____________ b usiness securities portfolio, and a significantlysectors or areas of activity but involved in unused debt capacity___________ functions or work processes.

iii. Good cash flow relative to current stocka. similar, similar pricesb. similar, different iv. Relatively small stock holdings under thec. different, similar control o f the incumbent management.d. different, different

a. Only i, ii, and iii25. The balanced scorecard answers some

b. Only i, iii, and ivbasic questions. They are:c. Only ii, iii, and ivi. What must shareholders do for us?d. i, ii, iii, and ivii. How do custo mers see us?

iii. What must we excel at? 29. Politics is an essential part of the processiv. Can we continue to improve and create of strategic change. In this regards, which

value? of the following statements is false?

a. Only i, ii and iii a. To use politics to promo te effective

change, the organization must create ab. Only i, ii and ivpower balance among the variousc. Only i, iii and ivdivisions/ functions so that a single persond. Only ii, iii and ivdominates the enterprise.

26. The companies forming a strategic allianceb. Senior managers can use the tools of

face some advantages and disadvantages.implementation to design an organizationalFrom the follo wing list, identify one of thestructure for creating a power b alance thatpossible disadvantages of forming afacilitates change.strategic alliance.

a. Provide competitors with a lo w-cost route c. Strong hierarchical control by the CEO canto new technology and markets create the organizational context in which

b. Facilitate entry into foreign markets politics can facilitate the change process.

c. Share the costs and risks associated with d. The strategic manager should learn as todeveloping new products and processes how to manage politics and power to

d. Establish technological standards for the further corporate interests.industry that ultimately benefit the firms

30. Organizations that want to maintain27. Conglo merate acquisition s of firms in

leadership in the economy and the_______ industries are undertaken totechno logy that will predominate in theutilize the accumulating cash position offuture need to give enough consid eration_________ firms in declining industriesto the ____________ position ofwhose internal flow of funds exceeds the

investment req uirements of their knowledge professionals and theirtraditional lines of business. _____________.

a. growth, mature a. social, valuesb. mature, growing b. demographic, religionc. declining, gro wing c. geographic, culture

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Part D


d. competitive, nationality

Caselet 1: Marico: Emerging Indian Global Competitor

Marico Ltd. (Marico), a leading Ind ian business group in consu mer products and services, posted asales revenue of Rs. 1 9 billion in the year 2007 -08. The group had been able to achieve success by1

following a path of differentiation in all its product and service offerings. In addition to thedomestic market, Marico s products were sold in Bangladesh, the Middle East, Egypt, and South

Africa.

The group s p roducts included food products (including edible refined oils), hair oils, post wash

hair care, anti lice treatment, coconut oil, and fabric care products. In the skin care solutions,Marico was present through Kaya Skin Clinics (Kaya) and the Sundari range of Spa skin care

products. In the food products, the comp any had the Saffola range of products. Marico s portfolioof hair oils comprised Parachute, Hair & Care, Nihar, and Shanti Amla hair oil.

Saffola was one o f the first brands in the co untry to equate health consciousness with cooking oil.It leveraged on heart problems and po sitioned itself as an ed ible oil which lowered the risk of a

heart attack b y reducing cholesterol. In order to stay in tune with the changing tastes andpreferences of the customer, Saffola came in three variants, Saffola Gold, New Saffo la, and

Saffola Tasty Blend. The Saffola brand was extend ed to salt and sugar management andcholesterol management products. The focus across all the food products was on health and

wellness, and it was this focus that the company used to differentiate itself from the competition.

Marico established Kaya skin care clinics to take advantage of the opportunities presented by the

Indian beauty industry, which stoo d at US$ 3 billion as of 2007. Starting with 11 clinics in the2

year 2005 , the number of clinics had multiplied to 65 (56 in India and 9 in the Middle East) by3

2007. According to analysts, Kaya had filled a void in the country for skin clinics and helped4

make people look good. Kaya had also expanded its services through „Skin Zones , which were

information kiosks located at shopping malls that offered skin care co unseling. Experts attributed

Kaya s success to the personalization of services for the customer and the holistic so lutions

offered. Kaya s popular services were laser hair reduction and acne scar and pigmentation5 6reduction. Kaya had also started selling a range of hypoallergenic products for sensitive skin . In

72007, Kaya Life was launched to pro vide holistic weight loss solutions. . The weight loss solutions

centered around lifestyle counseling, meal planning, exercises, and body shaping.

In 2003, Marico acquired the Sundari range o f luxury ayurvedic skin products. Sundari was an

established brand in the US and consisted of 20 products that sold at spas, high end stores, and on

the Internet. In 2006, Marico acquired Hair Code and Fiancee in Egypt and the two brands gave it

“Marico Maintains All Round Growth,” www.marico.com, April 24, 2008.1

Debdatta Das, “Beauty Industry to Get a Face Lift,” www.thehindubusinessline.com, February 15, 2007.2

Swetha Kannan, “Not Just Skin Deep,” www.thehindubusinessline.com, July 6, 2006.3

“Marico Maintains All Round Growth,” www.marico.com, April 24, 2008.4

Hypoallergenic cosmetics are products that manufacturers claim would produce fewer allergic reactions5

than other cosmetic products.

“Kaya Skin Clinic Unveils New Skincare Products,” www.thehindubusinessline.com, March 12, 2005.6

“Marico Launches Kaya Life Center,” www.financialexpress.com, June 8, 2007.7

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Business Strategy

8a market share of more than 50 percent in the Egyptian hair care market. In the same year, Marico

acquired Manjal, a herbal bath soap brand established in Kerala, and the brands Camelia,

Magnolia, and Aromatic in Bangladesh to enter the Banglad esh market. In 2007, Marico acquired9

the consumer division of Enaleni Pharmaceuticals, a South African business firm present in hair

care. 10

Marico was also a dominant player in the hair oil segment in India with its brands Parachute and

Nihar. In 2003, Marico entered the shampoos market and positioned itself on the „naturals1 1platform . It also introduced shampoos for children in the age b racket 4 to 12 years.

According to analysts, Marico had emerged as a proactive organization by recognizing the needs

of the market and capitalizing on the opportunities, whether it be in the edible oils, skin care, o r

hair care segment. It was ranked among one of the eight companies in Standard & Poor s list of12Global Challenger co mpanies in the year 2007.


1. In your opinion, what are the factors responsible for the success of Marico Ltd.?

2. What, according to you, are the likely challenges that Marico Ltd. will face in the future?

Caselet 2: The Decline of General Motors

General Motors Corporation (GM) reported an annual loss of US$ 38.7 billio n for the year 2007. 13

The losses could be attributed to multiple factors. When GM was doing well, it had given generoushealthcare facilities to its existing and former employees. The high wages paid by it were alsohaving an impact on the company s bottom line. It had entered into an agreement with theworker s union which prevented it fro m closing do wn factories and reducing wages even when it

was facing difficulties. GM was also unable to come out with new attractive models of cars andhad been losing market share to Japanese mo tor companies such as Toyota, Nissan, and Honda forsmall and medium-size cars and to BMW and Mercedes in the premium segment.

GM had been the market leader in the US till 1980, with a market share of 46 percent. However,

with the entry of foreign car manufacturers, GM began to face intense competition and it lost, Standard and Poor s downgrad ed GM s debt14market share to these new players. In the year 2005

15to junk status. The loss incurred by GM in 200 7 was despite a four point turnaround p lan adopted16by the company in 2005. The four areas of focus were healthcare cost reductions, improvement

in product portfolio, renewed focus o n sales and marketing, and capacity reduction. The healthcarecost reductions were expected to reduce GM s retiree healthcare liabilities by app roximately 25%,

amounting to about US$ 15 billion. The focus on improving the product po rtfolio was centered onfull-sized pickups and SUVs. The renewed focus on sales and marketing revolved aroundimproving retail sales. As a part of capacity reduction, GM stop ped o perations in a total of nineassembly, stamping, and power train facilities , and three service and parts operations facilities.

“Marico Buys Hair Care Brand Hair Code,” www.thehindubusinessline.com , December 21, 2006.8

“Marico Acquires Soap Brand Manjal in Kerala,” www.domain -b.com, January 3, 2006.9

“Marico Buys Enaleni Arm for Rs 52 cr,” www.timesofindia.indiatimes.com, November 1, 2007.10

Purvita Chatterjee, “Marico Extends Parachute Brand to Shampoos,” www.thehindubusinessline.com,11

October 21, 2003.

www.marico.com12

Nick Bunkley, “GM Offers More Buyouts After $722 Million Loss,” www.iht.com, February 12, 200813

Micheline Maynard, “G.M. Posts Worst Loss Since 1992,” www.nytimes.com, Januar y 27, 200614

T Thomas, “ The Story Behind General Motor s Fall,” www.rediff.com, Januar y 27, 200615

“GM North America s Four Point Turnaround Plan,” www.theautochannel.com, November 21 200516

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One of the reasons for GM s poor performance was its inability to come out with fuel efficient cars

to counter the rising oil prices. This led to an erosion of market share to the Japanese automobilecompanies. Further, while GM was concentrating on its sports utility vehicles, its competitorsfocused on imp roving and upgrading the small and medium-size cars.

The focus areas for 2008 for GM included developing new products, building strong brands anddistribution channels, pursuing co st reduction initiatives, focusing on emerging markets, andmaximizing the global business benefits.

As a p art of its restructuring efforts, GM was planning to introduce new products like the PontiacG8 and Chevrolet Traverse in the American market, and Opel Insignia in Europe. GM alsointended to align its seven US brands into four distinct dealer channels with a view to enhance

dealer profitability. The four channels would be Chevrolet, Saturn, Buick / Pontiac/GMC, andCadillac/ Hummer/SAAB.

In order to become cost competitive, GM had worked to ward achieving its global target ofreducing the automotive structural costs to belo w 30% o f its revenues and stated that it was on thepath of reducing it to 25% b y 2010. GM intended to reduce annual American labor costs by an17

add itional estimated US$ 5 billion by 2011. The reduction was expected to result from theimplementation of a new labor contract signed with United Auto Workers in 2007.

While cutting co sts, GM outlined its strategy to achieve manufacturing capacity utilizatio n of100% in countries with high labor costs and its aggressive plans to grow in emerging markets o fChina, India, Brazil, and Russia.


1. What, in your opinion, were the difficulties faced by General Motors? What were theinitiatives taken to turn around the organization in 2 005 and 2008?

2. What are the lesso ns which we can learn from the performance of General Motors?


1. The elements of operating environment are competitive position, customer profile, reputationamong suppliers and creditors, and accessible labor market. Customer profile is one of the

significant elements because customers are the ones who generate profits for themanufacturer. Discuss, with the help of an example, how firms benefit by appropriate analysis

and understanding of the customer profile.

2. Diversification is the process of entering different industries either to exploit untapped

potential or to minimize the risk of changing business trends. If a firm acq uires firms withoperations in related industries, it is called concentric diversification. The objective of such

diversification is to exploit synergistic possibilities. Give an example of an organization thathas used concentric diversification strategy to further its business interests.

3. A firm derives competitive advantage from value creating activities such as designing,producing, marketing, and delivering. Efficiency in these activities can lend either cost

advantage or differentiation advantage to the firm. Give an example of an organizatio n thathas used efficiency in any of these activities to succeed in the marketplace. Explain ho w it

could manage this success.

“GM Details Turnaround Progress; Outlines Priorities for 2008,” www.domain-b.com, January 18, 200817

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Model Test 1

Part A: Basic Concepts (Answers and Explanations)

1. (b) Only i, ii, and iv

The key elements of Anso ff s paradigm are: the level of turbulence in the environment determines

the strategy required for the success of a firm, the aggressiveness o f the strategy should be aligned

with the turbulence in the environment to o ptimize the firm s success, and the management s

capabilities should be aligned with the environment to optimize the firm s success. Potentialcompetitors are tho se who are no t operating in the firm s industry but are creating a tremendo us

competition for companies in their industry through their capabilities. Assessing the threat of

potential competitors is not a part of Ansoff s strategic success paradigm.

2. (c) Only ii, iii, and iv

Statement (i) is false. In emerging markets (d eveloping countries), there is a dearth of information

in product markets due to three reaso ns: poor communication infrastructure; absence of a

mechanism to corroborate the claims made by sellers; and no resolution mechanism if the product

does not deliver on its promise. As there is lack of in formation in emerging markets, companies

incur higher costs for building brands than their counterparts in develo ped countries.

3. (a) Only i and ii

Organizations often fail to develop a sound strategic management perspective for a variety ofreasons. Some of these reaso ns are: lack of awareness within the top management team about the

organization s real operating situation; the “kidding themselves” syndrome that happens whensenior managers are collectively deluding themselves about the organization s condition; etc. Themanagers’ vested interests also play havoc with strategic planning, and excessive involvement ineveryday operational problems lead s to inefficient strategic plans. This over-emphasis on routine

activities leaves organizations no time to study emerg ing trends and to think about future plans.

4. (b) evaluation and control

Feedback is defined as the post implementation result of a strategy which is collected as inputs forfuture decision-making. It is a very important part of the evaluation process as it provides the

company with an opportunity to revise or correct decisions made in the earlier stages.

5. (a) Entrepreneurial mode

In the entrepreneurial mode, strategies are formulated based on the founder s own visio n of

direction and are exemplified by bold d ecisions. Hence, in this mode, strategies are predominantlyformulated by one powerful individual. In the plan ning mode, appropriate information forsituational analysis is gathered systematically. A few feasible alternative strategies are developedand the most appropriate strateg y is selected. The adaptive mode is characterized by reactivesolutions to existing problems. This mode of decision-making results in a fragmented strategy with

incremental improvement. The lo gical incrementalism mode is a synthesis of all these threeapp roaches.

6. (b) vision

A well-conceived vision has two main components. The first component is core ideology and thesecond is envisio ned future. A good vision defines core ideology (what we stand for and why we

Business Strategy

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.

7. (c) public image

Customers associate certain qualities with certain companies and this creates an image about thecompany. This image is called its public image. In the given example, the products of ABCLimited are regard ed as “safe products” and those of DEF Limited as “quality products.” This is

the image these companies have in the eyes of the consumers or the general public and so it iscalled their public image. The idea that the organization/firm must “know itself” is the essence ofthe term „company self-concept .

8. (b) Econo mies of scale

Firms realize economies of scale as the o utput o f the manufacturing units increases. Theymanufacture goods at a lower average cost compared to other manufacturers with lower levels of

output. The economies of scale act as a barrier again st firms which consid er entering an industry

with a smaller manufacturing capacity.

9. (b) Industrial evolution

Industrial evolution is important strategically because evolution brings about changes in thestructural sources of competition. The company that creates a paradigm shift in the ind ustry canexploit the changed situation to its advantage.

10. (b) The total asset turnover ratio measures the company’s ability to generate sales for a

given lev el of assets.

In the case of the profit margin, high ratios are superior to low ratios; but with return on equity, a

high value may indicate a higher level of financial leverage for a given level of profits. The totalasset turno ver ratio measures the company s ability to generate sales for a given level of assets.

The average collection period is an activity ratio and not a leverage ratio.

11. (c) inbound logistics

The factors of assessment of inbound logistics are soundness of material and inventory controlsystem and the efficiency of raw material storage activities. Factors of assessment of custo mer

service are the ability to provide replacement parts and repair services, the q uality of customereducation and training, promp tness of attention to customer complaints, appropriateness o f

warranty and guarantee policies, and the means to solicit custo mer inputs for productimprovements. Firm infrastructure and procurement are support activities and not primary

activities.

12. (c) Objectives are sacrosanct and a change in the situation will not have a bearing on

them; they will sta y co nstant.

Objectives should be flexib le in nature and not sacrosanct. A change in the situation or

enviro nment has a bearing on them and they should undergo a change, if the environment warrantsit. For example, if there is a sudden spurt fro m 10,000 to 20,000 units in the mo nthly demand for a

particular type of product manufactured b y a firm, then the production and sales objectives shouldbe revised accordingly. Otherwise, the firm will lose out on the profits to be generated from the

sale of the additional 10,000 units.

13. (a) horizontal integration

When a firm s long -term strategy is based on growth through the acquisition of one or moresimilar firms operating at the same stage of the production -marketing chain, its grand strategy iscalled as horizontal integration. For example, Mittal Steel s acquis ition o f Arcelor is an example of

horizontal integration. Another example is the acquisition of Tetley by Tata Tea.

14. (b) key distribution channels, priority geographic areas, and level of market coverage.

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Key distribution channels, priority geographic areas, and level of market coverage are some of the

considerations for place strategy; hence option (b) is correct.

15. (a) The firm will not beco me market leader; will enjoy a higher than average return.

When the firm with a well-diversified product portfolio prices its products significantly higher than

those of its competitors, it loses the opportunity to become the market leader by volume. However,

the higher price enables the firm to enjoy higher than average returns.

16. (b) feasibility

The criteria of feasibility assess the practical implementation and working of strategy. Forexamp le, if the industry of electronic products is in a growth stage, then the strategyrecommendation would be that firms should follow market development or product strategy or

both. However, if the firm s financial resources are limited, then it would not be feasible for it to

take up both the strategies simultaneously.

17. (c) stars

Stars have a large relative market share in fast gro wing markets or industries. Often, theinvestment requirements of Stars are greater than the revenues they generate.


An opportunity refers to a very favorable situation in the firm s environment. Some opportunities

for a firm may be: identification of a new market segment, positive changes in the regulatoryenviro nment, slow rate of technological changes, and improved buyer or supplier relationships. Aslow market growth rate is an unfavorable enviro nment situation for the firm and it may lead to

intense rivalry in the industry. Hence, it is a threat for a firm and not an opportunity.

19. (b) product design

Research and development activities are related to the designing of products and productionprocesses. The usefulness of a product increases through its superior product design, which in turn,

results in hu ge profits for the organization. For example, the single door refrigerator was

redesigned into a do uble doo r refrigerator. Similarly, frost-free refrigerators were also the result ofa superior product design.

20. (d) Only iii

A firm creates value when it creates a competitive advantage for its buyer or its seller. If the firm is

the seller, and it is able to lower the cost of its prod ucts for the buyer (custo mer), then it will have acompetitive advantage. If the firm is the seller, the competitive advantage can be created by raisingthe seller s performance in terms of improved custo mer support, better reach, etc. If the productsof the seller lead to a better perfo rmance of the buyer s products, it will lead to a competitive

advantage for both the supplier and the buyer. For example, the supplier of transistors, whichreplaced the tube technology in TV sets, improved the performance of TV sets which were the

products of their bu yers. This also led to an increased demand for their transistors.

21. (c) Only i, iii, and iv

The cost behavior of value activities is determined by cost drivers. Market share is built throughmarketin g efforts and is not a cost driver. The ten major cost d rivers are: econo mies of scale;

learning; the pattern of capacity utilizatio n; linkages; interrelationships; integration; timing;discretionary policies; location; and institutional factors.

22. (b) Functional

The functional organization structure is characterized by people being grouped based on their

expertise and skills. In the given instance, SmileBaby Pvt. Ltd. is organized into various

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dep artments like Designing department, Production department, Marketing department, Sales

dep artment, and Customer Service department. Therefore, it has adopted the functionalorganization structure. In the divisio nal structure, divisions are formed based on an organization sproduct range, the specific markets which the organization caters to, or the geographic locations in

which it operates. The matrix organization structure tries to integrate the desired features of the

functional structure (say, technical specialization) and divisional structure (say, marketresponsiveness, p roduct innovation, or project delivery). In a horizontal structure, the emphasis is

on teams which direct themselves.

23. (d) The marketing function is the most important in a firm.

Organizational culture is shaped by the following: a belief that growth and pro fits are essential toa company s healthy financial position; belief in the importance of informal communication; b elief

in inspiring people to do their best, whatever be their ability; the belief in superior quality and

service, etc. In a progressive firm, which is growth-oriented, the belief that all functional areas are

equally important goes on to form the belief o r theme that shapes the organizational culture.

24. (d) Only i, ii and iv

To survive in the p resent d ynamic environment, organizatio ns have to reappraise their structures,

products, and processes. They need to ensure that they are quicker to reach the market and are

innovative, flexible, and are capable of handling rapid changes. To achieve this they need to adapt

the best practices followed in the industry. In today s volatile environment, competitive moves

should be carefully monito red and a firm sho uld quickly learn from the competitor practices and

adapt itself to either replicate the competitor moves or should develop better moves than the

competitor. For example, if the competitor launches two new variants of a product, then the firm

should be able to launch at least two new product variants in a short period of time.

25. (d) Re-engineering

Re-engineering starts with a careful study o f why a p rocess is being follo wed. It shifts the focus of

a business process from tasks to its outcome . It uses information technology not to execute a task

but to achieve better integration of linked business processes and thereby maximize the value

add ed content.

26. (d) i, ii, iii, and iv

Joint ventures are stimulated for a number of motives. The primary motive for starting a jo int

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 obtained is a second strong motive fo r 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.

27. (a) horizontal merger

Horizontal mergers take place where the two merging compan ies produce similar products in the

same industry. There are different reasons for companies entering into horizontal mergers like

achieving economies of scale, reaching larger markets, achieving an enhanced product portfolio,

and exploiting the different strengths of the two firms. In this example, both the firms are in the

perfume ind ustry and perform the same functions. Hence their merger is a horizontal merger.


Investment bankers in addition to providing the necessary professional expertise that may be

lacking in a firm for selling a co rporation can be particularly helpful in a number of other areas

impo rtant to a successful divestiture like identification of potential purchasers; approaching

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potential buyers on an anonymous basis; assisting in the structuring of the deal; and assisting in the

negotiating process. Investment ban kers are professionals wh o help the selling firm in identifying

the purchaser for its assets and do not buy out the project.


An improved competitive effectiveness in existing products and services will come via changes incompetitive strategies and system and management roles. This can be achieved by empo werment,

management b y objectives, performance management, and new job descriptions and policies.


Policies and practices followed by companies in order to strengthen their competitive position andrectify their weaknesses should link managers compen sation to the firm s competitive position.

This will help in motivating the managers to improve the competitive position of the organizationand will also provide a good yardstick for measuring managers performance. Organizations whichdo not link managers co mpensation with the firm s competitive position could experi ence

lethargy on the part of the managers or decline in organizational performance.

Part B: Caselets (Suggested Answers)

Caselet 1: Dabur’s Growth Strategy in India

1. A company can achieve gro wth in two ways: organic and inorganic. In organic growth, the

company focuses on developing new products, entering new geographic areas, and penetratingexisting markets more effectively. In inorganic growth, a company acquires companies, business

units, or brands. Dabur adop ted a mix of organic and inorganic growth strategies. It fo cused onexpanding its product-market portfolio on one hand , and went in for acquisitions on the other.

In terms of organic growth, Dabur went in for both geographic diversification and productdiversification. In geo graphic diversification, it penetrated the southern region of the country to

achieve higher sales and exported to overseas markets. It also established manufacturing facilitiesoverseas to serve the global markets. In product diversification, it expanded the product portfolio

by adding new products. For example, in the food business, it introduced cooking pastes.

The inorganic growth route that Dabur adopted was in the form of acquisition of Balsara, which

gave it a presence in new product areas and also provided it with more b rands in existing areas.Meswak, Babool, and Promise are the new product additions to the toothpaste product line. Od onil

gave the company a presence in the air freshener market, Odo mos in the mosquito repellantmarket, and Sani Fresh in the toilet cleaner market. These additions will add to the growth impetus

of the company as economies of scale and synergistic effects are likely to result.

2. Dabur has adop ted the growth strategy of creating brands in the herbal category, be it in

toothpastes, hair oil, or digestives. It has focused on being present in as many categories aspossible as long as it is on the herb al platform, irrespective of the size of market share enjoyed by

the brand. This has resulted in the creation of more than 30 brand s and small market shares forthose brands.

Instead of following this approach, the company had the option of focusing on only a few brandsand consolidating the growth of those brands. However, the risk there wo uld have been stiff

competition from multinationals like Hindustan Unilever Limited for the category of shampoos,toothpaste, and soaps; and from Johnson and Johnson for baby oil. Vatika, which had been in

existence for 10 years, still enjoyed only a 5% market share.

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Business Strategy

Though analysts criticize the company on the ground that its resources should have been expended

only on a few brands, the fact is that the resources have been focused on only two brands, namely,Dabur and Vatika. Whether it is Glucose D, Gulabari, Hajmola, Isabgol, Red Toothpaste, or Babyoil (Lal Tel), these brand names are prefixed with Dabur and the corporate brand is emp hasized in

its marketing campaigns. Similarly, when it comes to hair care and personal wash products, the

Vatika brand is emphasized for product promotion and brand buildin g. As a result, the resources o fthe company are channelized through two umbrella brands Dabur and Vatika over more than

30 products. This is an appropriate resource allo cation strategy for the company.

Caselet 2: Restructuring the TATA Group

1. The restructuring efforts at the TATA Group focused on two important aspects:

To enhance the agility and global competitiveness of the group co mpanies, and

To restructure the group s business portfolio.

Before Ratan Tata took over as the group chairman, the group companies were considered slow

and bureaucratic. Further, they were present in almost every industry, and there was no clear visionbehind the presence of the group companies in diverse sectors such as oil, cosmetics, cement,

paints, and pharmaceuticals. Accordingly, Ratan Tata divested himself of those co mpanies whichoperated in sectors where he did not see a fit with the group s vision.

In order to create a single brand image, the group companies started using a common logo. Further,the restructuring efforts involved the replacement of certai n CEOs who were running the group

companies like their fiefdoms.

Ratan Tata played a central and key role in the restructuring efforts at the group.

He was instrumental in the gro up s focus on a new strategic direction toward o verseas acquisitions.

He outlined that for a compan y to stay in the group:

it should be the market leader.

it should occupy o ne of the top three positions in its industry.

the business of the company should have potential for high growth .

it should be globally competitive.

yhe returns must be greater than the cost of capital.

Ratan Tata championed the Tata Business Excellence Model (TBEM) which focused on quality.The Group Executive Office and the Group Corporate Center were created to provide an overall

strategic direction to the group companies.

2. The restructuring efforts at the TATA Group were accompanied by the creation of threeinstitutional mechanisms for strategic and operational control of the group s performance. The

Group Corporate Center (GCC) was focused on new b usiness areas for achieving growth, theGroup Executive Office (GEO) balanced the Group s business portfolio in terms of financialinvestments and divestments, and the Tata Business Excellence Model (TBEM) aimed at making

the group companies more competitive.

The TBEM was instrumental in making the group companies quality conscious and ensuring thatthe products and services of the group co mpanies met the highest quality standards and deliveredsuperior value to customers. It aimed to enhance the strategic capabilities of the organization andbuild a learning organization. The Business Review co mmittees formed under the model served asthe formal interface between the group and the companies and reviewed the strategic direction of

each company.

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Part D

The GEO reviewed the group s business portfolio and decided on which businesses to invest inand which businesses the group should divest itself of. It analyzed and reviewed the unique valuecontribution by the company to the group and also ho w the group was contributing to thecompany. It aimed to make the group more synergistic by strengthening the relationship between

the group and its companies.

The GCC was responsible for the group s entry into new business areas and reviewed the broadpolicy issues relatin g to the growth of gro up companies. It acted as an ideation center for the group

initiatives.

Part C: Applied Theory Answers

Answer 1

Usually, there are three levels of hierarchy in the strategic decision-making process. The top level

is the corporate level. The second and third levels are business level and functional level,respectively. Narendra Menon was elevated from the business level to the corporate level. At

corporate level, his responsibilities include overseeing the overall financial performance of thecompany. He also needs to focus on non-financial performance which includes fulfillment of its

social responsibilities and improvement of the corporate image of the co mpany. Narendra is alsorequired to set corporate objectives and fo rmulate strategies for individual businesses and

functional areas of these businesses.

His role was quite different when he was heading an SBU. His responsibilities included translating

the strategies and programs generated by the top management into concrete objectives forindividual business divisions or SBUs. He had to determine the firm s competitive stance in the

selected product market arena and identify the most promising market segments in the businessportfolio.

Answer 2

The Five Forces that shape the competitive po sition of an industry are:

i. The risk of new entry by potential co mpetitors.

ii. The degree of rivalry among established companies within an industry.

iii. The bargaining power of buyers.

iv. The bargaining power of suppliers.

v. The threat of substitute products.

In the Indian airline industry, the intensity of rivalry is high. To lure customers, there is stiffcompetition among the players -- the full-service carriers as well as the no-frills carriers. Price

cutting and promotional schemes exemplify the intensity of rivalry. Co mpanies are also try ing todifferentiate on the basis of service offered.

An important reason for the high intensity of rivalry is that the pro duct being sold is a service that

cannot be inventoried. So airlines prefer a higher passenger load factor, even if it means there is a

reduction in the revenue and margin per seat.

Further, given the limited airport infrastructure and the high cost o f fuel (as a portion of operating

costs), there is less distinction between the full-service carriers and the low-cost carriers in termsof their cost structure. So, the price differential between the rates charged by these two groups is

not as significant as in the US or the UK.

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Business Strategy

As the industry becomes unattractive, a trend of consolidation may dampen this intensity of rivalry

among the remaining players.

Answer 3

The diversification adopted by Orient Fans is known as concentric diversification, wherein thefirm diversifies into a related industry. The relatedness may be in terms of technolog y, markets, or

products.

Specifically, concentric diversificatio n is adopted:

when the organization is competing in a slow growth industry.

when new, but related products could be offered at highly competitive prices.

when new, but related products have seaso nal sales levels that counterbalance anorganization s existing peaks and valleys in sales.

when an o rganization s products are in the decline stage of the product life cycle.

The fans are sold p redominantly in the summer months while room heaters are sold in the winter

months. This indicates clearly that Orient Fans has gone in for diversification into room heaters tocounterbalance its sales in summer and winter months. Further, the distribution network req uired

to sell fans and room heaters is common.

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Model Test 2

Part A: Basic Concepts (Answers and Explanations)

1. (b) Diversification

Michael Porter advocated three generic competitive strategies: cost leadership, differentiation, and

focus, which help an organization to compete effectively in the marketplace. Diversification is a

grand strategy, and not one of Porter s generic competitive strategies.


The four statements outline the set of ways by which an organization can realize resource leverage.

3. (c) ii, i, iv, iii

There are four basic elements in the process of strategic management: environmental scanning,

strategy formulation, strategy implementation, and evaluation and control. Environmental scanning

involves monitoring and evaluating the environment, after which a strategy is formulated. After

formulation, the strategy is implemented. It is then evaluated to see whether the desired ends have

been achieved and control is exercised to take corrective steps, if any.

4. (c) external environment analysis

The external environment analysis consists of an evaluation of all the conditions and forces that

affect an organization s strategic options and define its competitive situation. Internal analysis

enables a firm to identify its strengths and weaknesses. The strategic choice process involves

identifying desired opportunities that are compatible with the company s mission and making the

optimum choices from the list of desired opportunities. Strategic management is the set of

decisions and actions resulting in the formulation and implementation of strategies designed to

achieve the objectives of an organization.

5. (c) i/p, ii/r, iii/q

The advantage o f entrepreneurial mod e is the speed with which a strategy can be formulated and

implemented. The planning mode helps the company to be better prepared for environmental

uncertainties. Lo gical incrementalism is useful when the environment is changing rapidly and it is

impo rtant to build a consensus before committing the entire co mpany to a specific strategy.

6. (b) Only i and iii

The characteristics of a good mission statement are: it differentiates the company from its

competitors; it defines the business that the company wants to be in, not necessarily the one it is in;

it is inspiring in nature; it is relevant to all the sta keholders in the firm, not just shareho lders and

managers. A good mission statement also attempts to ensure that the organization behavior

conforms to the promises made by defining the purpose for which the firm exists. It seeks to

clarify the purpo se of the organization – why it exists.

7. (a) Ethical responsibility is obligatory whereas discretionary responsibility is voluntary.

Ethical respo nsibilities involve the widely-held beliefs about behavior in a society. Society expectscompanies to adhere to its ethical norms and reacts negatively to what are seen as unethicalpractices. Discretionary responsibilities refer to the purely voluntary ob ligations that a corporationassumes, such as p hilanthropic contributions and training the unemplo yed. Therefore, ethicalresponsibilities are obligatory whereas discretionary responsibilities are purely voluntary.

Business Strategy

8. (d) Only ii, iii, and iv

Rivalry in an industry occurs when one or more firms make an effort to increase their market

share. This can lead to price wars, advertising battles, launches of new products, and increased

customer services and warranties. Some firms gain the upp er hand through intense rivalry, while

their co mpetitors suffer a fall in market share. The intensity of rivalry depends upo n many factors.

Rivalry is usually intense when there are many competitors of similar size; there is a slowdown inindustrial growth which makes firms keen to grab each other s market share; and there is a lack of

differentiation amo ng the pro ducts of the players. Other reasons for increased rivalry are absence

of switching cost; exit barriers like fixed investments in land, plant, and equipments; and loyalty of

old players to the industry d espite low returns. The prospective entrants are still not a part of the

industry and hence the threat of new entrants does not contribute to the rivalry prevalent in the

industry.

9. (c) internal analysis

The internal analysis process considers the firm s resources; the business the firm is in; its

objectives, po licies, and plans; and how well they have been achieved. The strategic choice process

involves identifying desired opportunities provided by the environ ment and selecting the optimumchoices. Value chain analysis focuses on creating value for the firm s users and its products and

services. External analysis evaluates a firm s external en vironment over which it has little or no

control and includes competitors, the government, customers, and suppliers.

10. (b) low-cost, differentiation

The two areas of R&D are product R&D and process R&D. Product R&D is concerned with

innovations or improvements in the firm s products. Process R&D attempts to reduce the costs of

operations and seeks constant improvement in quality through more efficient processes. Hence,

business units that adopt low-cost strategies emphasize process R&D, whereas businesses that

ado pt differentiation strategies emphasize product R&D.


The factors of assessment of a firm s infrastructure includ e the quality of the strategic planning

system to achieve corpo rate objectives, public image, and corporate citizenship, among others. The

levels of emp loyee motivation and job satisfaction, and relations with trade unions are factors of

assessment of human resource management.

12. (c) fewer, fewer, more

At the lower levels of the hierarchy, fewer resources are required since the objectives become

more specific and precise; they involve a commitment from fewer organizational members since

they are narro w in focus and are more readily measurable. For example, the objective of the

production supervisor of a firm will be focused only on a small team of workers whom he/she

leads and the resources that the team makes use of. On the other hand, the objectives of the

production head will enco mpass all the plants the firm has at various locatio ns and involves

utilizing all the employees engaged at the p lants.

13. (b) Conglomerate diversification

Conglo merate d iversification involves diversification into a new business area that has no relationto any of the company s existing business areas. For example, the Tata Group has business lines

ranging from Tata Salt to Tata Steel, to Tata Motors which manu factures automobiles, to Tata

Consultancy Services which provides information technology services. Another example is

Mitsubishi Corporation of Japan which has business lines as varied as banking and securities;

construction; machinery; metal products; information, commun ication, and IT; elderly care;

textiles and apparel; travel and recreation; and resources and energy.

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Part D

14. (a) consumer dema nd

Consumer demand is the basis for the market-oriented approach to pricing. This is a strategy

followed by a firm when a newly innovated product having superior technology is launched and is

readily accepted b y the market. This is also done to create an aspiration amo ng consumers to own

the product. For example, the pricing o f the LCD TVs and high-end mobile phones is done on the

basis of the consumer demand. Consumer demand is also kept in view by a firm which is looking

at generating high volumes of sales by o ffering the products at discounted prices, for example, Big

Bazaar.

15. (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, rationalizing the product mix, correct pricing, process innovation and

design for manufacture, buyer selection, and competing internationally.

16. (c) The BCG matrix

The BCG matrix displays the position of business units on a graph sho wing the market growth rate

against their market share relative to the co mpetitors. It helps a firm to identify the different

strategies which need to be followed in respect of different business entities. For example, consider

a firm which has two business entities, one dealing in garments and the other in shaving p roducts.

If the garments business of the firm has a growing relative market share and the market growth rate

is also high, it would be classified as a Star business and the firm will invest more resources in

such a business line. If the relative market share o f the shaving products business is high and the

market growth rate is low, it will be treated as a Cash Cow, and used for generating cash surpluses

which will be used for investment in Stars.

17. (a) Dog s

A Dog does not need much investment but it ties up capital that co uld be invested in industries

with better returns. Hence, organizations concentrate on recovering as much as possible from these

units in terms of returns on investment and often undertake ruthless cost cutting in these business

lines. For example, Dunlop Limited is a Dog business line for the Ruia group, and proceeds from

the sale of non -core assets of the company have been transferred to Dunlop Properties, Dunlop

Infrastructure, Dunlop Estates, and Bhartiya Hotels.

18. (c) turnaround strategy

If any business faces an impressive market opportunity but is co nstrained by internal weaknesses,then the firm s fo cus should be on eliminating the internal weaknesses so that it can effectively

pursue the market opportunity and fo llow a turnaround strategy. This strateg y involves pruning

product lines, reducing employee strength, reducing wastages, improving manpower utilization

rates, etc. For example, Bharat Cooking Coal Ltd. turned around its operations to report a profit of

Rs. 2.03 billion in 2005 -06 as compared to a loss of Rs. 9.59 billion during 2004-05.

19. (b) solving the product-related problems of the customer.

The service function contributes value to the organization by solving the product-related problems

of the customer. It aims at eliminating the defects or problems which develop in the product when

it is used over a period o f time. Examples of this kind of defect are the burnout of a fan s motor, or

defects which may develop in the compressor of a refrigerator, or the problems associated with the

gear box in a car. The service function efficiency is measured by the speed with which th e

customer co mplaint is responded to and the speed with which the defect is eliminated with least

inconvenience being caused to the customer.

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Business Strategy

20. (b) vertical

A firm with a vertical scope o f operations streamlines its value activities between a firm and its

suppliers, channels, and buyers. This refers to the extent of activities that are performed in-house.

For example, a TV manufacturer may produce the picture tubes internally or may procure them

from outsid e supp liers. Further, the firm may have its own after sales service network or may train

the employees of the distributors (a channel partner) to provide the after-sales service. The vertical

scope aims at either reducing the costs of the activities or enhancing the differentiation which afirm enjoys.

21. (d) The important factor in inbound logistical cost is the location relative to buyers

whereas the outbound logistical cost is affected by the location relative to suppliers.

The important factor in inbo und logistical cost is the location relative to suppliers whereas the

outbound logistical cost is affected b y the location relative to buyers. The inbound logistics deals

with reducin g the cost of movement of material fro m the suppliers to the firm and aims at

optimizing it by buying at the right time and in the right quantities. It is in the d omain of outbound

logistics of a firm to supply its outputs in the right quantities at the right time at the optimal coststo the buyers .

22. (b) Hybrid organization structure

The hybrid organization structure is usually a combination of the functional, divisional, or

horizontal structures. In the given instance, Maestro Media has adopted a hybrid organization

structure. The company has ad opted the type of h ybrid structure that combines functional and

divisional structures. In this structure, an organization is divided into smaller divisions each with

their o wn functional set up. The most impo rtant functions of a specific division are decentralized

while those that are common to the entire organization are centralized.

23. (b) stronger, more, less

The stronger a co mpany s culture becomes and the more that culture is directed toward the internal

stakeholders, the less the company uses policy manuals, o rganizational charts, and detailed rules,

procedures, and regulations to enforce discipline and norms. The main reason is that the guiding

values inherent in the culture clearly convey what every employee is supp osed to do in most

situations.

24. (c) Strategic benchmarking

Strategic benchmarking aims at improving a company s overall performance by studying the long -

term strategies and approaches that helped the „best practice companies to succeed. It involves

examining the core co mpetencies, product/service developmen t, and innovatio n strategies of such

companies. Performance benchmarking is used by companies to compare their po sitions with

respect to the performance characteristics of their key products and services. Process

benchmarking is used by companies to improve sp ecific key processes and operations with the

help of best practice organizations involved in performing similar work or offering similar

services.

25. (a) clean sheet

A clean sheet approach seeks a fundamental re-think of the way the product or service is d elivered,

and involves designing new processes from scratch. Wh ile redesigning, it does not take into

account the existing processes at all, rather it considers new methods which create additional value

for the business, often by introducing technology into the process. For example, in outbound

logistics, a firm may redesign the system by introducing network techno logy to establish online

links between the customers (Distributors) inventory system and the firm s dispatch systems. Itmight also introduce shipment tracking systems for the customer. This would result in a

fundamental redesign of the outbound logistics system.

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Part D

26. (d) Only ii, iii and iv

Reasons for the failure of joint ventures are: failure to reach an agreement on alternativeapp roaches to achieve the basic o bjectives of the joint venture; refusal by managers possessing

expertise in one company to share knowledge with their counterparts in the joint venture; inabilityof parent companies to share control, or comp romise on difficult issues; and critical issues of

business policy and lon g-term strategies of individual business firms.

27. (b) vertical merger

When firms in the same industry but in different stages of the value chain merge, it is called a

vertical merger. In the given example, the merger between an oil company engaged in explorationand production with another oil co mpany engaged in refining and marketing is an example of a

vertical merger. Refining and marketing are forward steps in the oil business after oil explorationand pro duction. If two firms operating and co mpeting in the same business activity merge, it isknown as a horizontal merger. When two firms from unrelated industries merge, it is known as a

conglomerate merger.


The process of competitive bidding is the most effective when many potential b uyers have been

identified and when the potential buyer list contains diverse strategic objectives. Sequential sellingis an acceptable selling method if the primary objectiv e is to get out of business with secondary

importance being attached to the price and deal structure . If, in the process of identifyingpotential buyers, only one prospective purchaser can be identified, the seller is left with little

negotiating leverage. In ord er to divest throu gh initial public offerings (IPOs), the marketconditions should be favorable in terms of an appetite fo r IPOs.

29. (d) iii, ii, i, iv

Acco rding to Quinn s Incremental Mo del, first, strategic leaders will develop their info rmatio n

channels, both within and outside the organization, and will draw on these using the formal

systems. Strategic leaders will then generate awareness of the desired change within theorganization. After this, they will seek to legitimize the new strategies by lending authority to

them. Next, the new strategies may be floated as minor change or as an experiment to minimizeresistance. Steps are taken to remove or minimize opposition. In the initial period, the strategy will

be flexible, so that changes can be mad e in light of trials. The principle of learning b y doing ispracticed by strategic leaders. Finally, the proposed changes will be formalized and ideally

accepted within the organization.

30. (d) Only ii, iii, and iv

Wo rkforce diversity is an issue that managers today must learn to deal with. Various factors suchas globalization, increase in the life span o f the population, influx o f workers into new careers and

occupations, and influx of women into organizations have made the workforce much moreheterogeneous than at any time in the past.


Caselet 1: The Kodak-Fuji Duel

To compete with Kodak, Fuji s long-term strategy in the US was to exploit its technological and1.execution strengths to provide products of comparable quality or superior technology in the US

market at a lower price. Essentially, it followed a cost leadership strategy.

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Business Strategy

Initially, it avoided direct confrontation with Kodak, which was the market leader in the US. It first

targeted the market for photographic film used by p rofessional photographers and serious amateurphotograp hers. Further, it remained a private lab el film supplier for eight years from the time of itsentry; it started marketing film under its own brand name only in 1972.

Sometimes, Fuji outpaced Kodak in technological terms and product innovation. For examp le, it

introduced faster film with brighter colors in 1970.

One of Fuji s strong points was that it always conducted adequate research and development

(R&D) to find out what consu mers needed and wanted. Fuji spent 7% of its profits on R&Dannually. This enabled it to give consumers what they needed.

In 1976, Fuji introduced the 40 0-speed color film that was faster than any of the films made by

Kodak during that time. Fuji became very popular among consumers because of its greater speed.

Following this launch, man y photo finishers began to switch to Fuji s photographic paper and

other photo processing supplies.

Kodak s products were 15 -20% more exp ensive than those of Fuji. Fuji was able to gain

considerable market share in the US by reducing the prices of its products. However, Kodak could

not engage in price cuts for long since it resulted in reduced profit margins.

Fuji also adopted the sponsorship strategy to enter the US market. Fuji was selected as the official

film fo r the 1984 Summer Olympics in Los Angeles, California. This sponsorship agreement

helped Fuji get worldwide recognition, and especially to strengthen its brand image in the US.

In 1986, Fuji was the first comp any to launch one-time-use cameras. Kodak could not come outwith a similar product. Thus Fuji strengthened its position relative to Kodak by providing

consumers with innovative prod ucts.

Fuji s market share increased fro m less than 10% in 1993 to 17% in 1998. Thus, d ue to its overall

cost leadership, innovative products, intelligent sponsoring and advertising, aggressive marketing,

and technological excellence, Fuji successfully established itself in the US market.

2. Though Kodak had entered Japan in 1905, it took the Japanese market seriously only when thecountry emerged as the second largest market in p hotographic products after the US. With rising

competition from Fuji in the US, Kodak decided to strengthen its co mpetitive position in Japan.

Kodak decided to strengthen its control over the distribution and marketing efforts of its Japanese

arm, Nagase & Co. In the following year, the company formed a joint venture company named

Kodak-Nagase. Later, Kodak converted the import divisio n of Nagase into its own subsidiary and

named it Kodak-Jap an.

After setting up a subsidiary, Kodak increased its workforce to 4,500 from a mere 12. Kodak tied

up with a Japanese partner and this helped it to access shelf space to display its products in 60,000

camera stores in Japan. However, Kodak could not get into many stores which marketed Fuji

products exclu sively.

Kodak also introduced several innovative and technologically superior products in Japan. In 1980,Kodak came out with the concept of „minilabs at certain retail outlets in Japan. For this purpos e,

Kodak entered into an agreement with Noritsu Koki, the world s leading manufacturer of

„minilabs equipment. Even though the price was a little high, „minilabs gave Kod ak a

competitive advantage over Fuji since films could be p rocessed much faster at the “minilabs” than

in conventional photo processing laboratories.

Kodak also introd uced the „panoramic disposable cameras , a p roduct which was not available in

Fuji s product range. Kodak s research pointed out that the Japanese liked to take pictures in large

groups but that it was not possible to take a gro up photograph using conven tional cameras in tho se

days. Ko dak aggressively marketed the panoramic camera and it became a huge success in Japan.

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Part D

In response to Fuji s price-cutting strategies in the US, Ko dak also decided to slash the prices of

some o f its products in Japan. Ko dak sold its new range of photographic film named KodacolorVR at 38.3% less than the market price of other available films in Japan. In the late 1980s, Kodakintroduced waterproof disposable cameras.

Kodak also advertised heavily to develop brand awareness amo ng the Japanese consumers.

However, in spite of all its efforts to increase its market share in Japan, on the whole the companyfailed to get good retail acceptance and faced problems like low trial rate and lo w brand recall

among the Japanese consumers. Kodak had a mere 7% market share in Japan.

An important reason for Kodak s failure to build a significant share in the Japanese market couldbe the closed Japanese distribution system for photograp hic films and other products, whichfavored Fuji. Another important reason could be the Japanese go vernment s trade barriers, which

would have prevented Kodak fro m competing effectively in Japan.

Caselet 2: The Turnaround of Bata India

1. Bata India took several initiatives to reduce costs, increase revenues, reposition its brand, anddeliver greater value to customers. Together, these initiatives helped to turn the company s

performance around.

Bata India had been incurring losses due to high cost of production and weak marketing efforts. Inorder to reduce its high co sts of manu facturing, the co mpany relocated its manufacturing facilities

to tax holiday states like Himachal Pradesh and Uttaranchal. It also took up a Volun taryRetirement Scheme in order to reduce its labor costs. It decided to close do wn seventy o f its stores

which were unviable and took steps to reduce credit to wholesalers. Efforts were made to reducethe operational expenses, and a variable pay structure was introduced in the stores to align the

remu neration expenses with business volumes. In February 2007, the company suspended 180employees and 23 shop managers as they refused to extend their working hours and did no t agree

to keep the shops open seven days a week.

Bata s brand image in 2003 pertained to value-for-money products and not to fashionable or trendy

products. As a result, the company was losing its customers. In o rder to address this problem, thecompany utilized its international techno logy to enhance its product development abilities andcreated new product portfolios to match a wide range o f prices. It shifted the co mpany s focus

from manufacturing to marketing, and relocated its head office to Gurgaon where the retail sector

was booming.

In 2004, the compan y introduced trendy international styles for ladies, men, and kids which helped

in creating a modern and stylish image for the company. The company streamlined its distributionnetwork to support its focused marketing effort in the same year, and its investments in

information technology ensured that trendy and fashionable footwear was reaching th e outletsevery week.

The company also converted three o f its wholesale depots to „Cash -n-Carry formats and made

investments to improve its logistics and distribution systems. It modernized its retail network by

developing a state-of-the-art integrated retail management system in partnership with InfosysTechnologies Ltd.

2. The new retailing structure adopted by Bata was a four-layered retail structure aimed atadd ressing the customer profile of a geographic region with matching products. The four formats

were Flagsh ip stores, City stores, Family stores, and Bazaar stores. These retail formats wereexpected to cater to different customer segments. The Flagship and City stores sold a large range

of brands, along with an array of accessories like wallets, handbags, and shoe-care products. The

company also established Superstores where around 1,000 different designs of footwear could bebought.

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Business Strategy

Bata modernized its retail network by developing a state-of-the-art retail management system and

investments were made in information tech nology to integrate about 150 stores for real-timeinformation sharing. Bata also established a presence in shopping malls and tied up with RelianceRetail whereby Bata s products would be available in Reliance Footprint stores.

The retail strategy helped the company achieve a remarkable turnaround, as it enabled the

company to segment its customers appropriately and po sition its products accordingly. The criticalsuccess facto rs for the new retailing strategy to succeed were multifold and included issues like

strong brand po sition and brand recall for the comp any, availability of resources to invest in retailoutlets, and ability to provide trend y and fashionable products to the new retail formats.

The strong brand position and recall helped the company win back customers when the new retail

formats were launched as the customers were aware of the brand and found the new formats

attractive and appealing.

The availability o f financial resources enabled the company to take up the establishment o f new

format stores. If the company did not possess financial resources, then the establishment of newformat stores -- like the 10,000 square feet store in Vadodara -- wo uld not have been possible.

The strong product technologies available with the compan y s parent that provided for trendy and

fashionable products also had a role to play in the compan y s turnaround. If the new format stores

had carried old product portfolios, then the company would not have met with success.


Answer 1

For a company to grow, it is necessary to analyze the elements of social environment, such asvalues, beliefs, attitudes, opinions, and lifestyles. These are developed in individuals through theircultural, eco logical, demographic, religious, educational , and ethnic conditioning. The demand for

vario us styles, books, leisure activities, products and services changes according to changes insocial values. Wrong assessment of these social values can lead to serious problems for thecompanies. The initial failure of Michigan-based Kellogg Company (Kellogg), the world s leadingproducer of cereals and convenience foods, in the Indian market is a good example of theimpo rtance of social en vironment for formulating strategies.

Launched in September 199 4, Kellogg s initial offerings in India included cornflakes, wheat

flakes, and Basmati rice flakes. Despite offering good quality products and being supported by thetechnical, managerial, and financial resources of its parent, Kellogg s products failed in the Indianmarket. Even a high-profile launch, backed by hectic media activity, failed to make an impact onthe marketplace.

Kellogg realized that getting Indian consumers to accept its products wo uld be difficult. It bankedheavily on the quality of its crispy flakes. But pouring hot milk on the flakes made them sog gy.Indians always boiled their milk and consumed it warm or lukewarm, unlike in the West. Theyalso liked to add sugar to their milk. When Kellogg s flakes were put in hot milk, they becamesoggy and did not taste good. If one tried having them with cold milk, it was not sweet enough

because the sugar did not dissolve easily in cold milk. The rice and wheat versions did not do well.In fact, some consumers even referred to the rice flakes as rice cornflakes.

For breakfast, a typical, average middle-class Indian family consumed milk, biscuits, bread, butter,jam o r local food p reparations like idlis and parathas. According to analysts, a major reason forKellogg s failure was the fact that the taste of its products did not suit Indian breakfast habits.Kellogg s sources were, ho wever, quick to assert that the company was not trying to change these

habits; the idea was only to launch its products on the health platform and make consumers see thebenefit of this healthier alternative.

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Part D

Another reason for the low demand was the premium pricing adopted by the company. In mostThird World countries, pricing is believed to play a dominant role in the demand for any prod uct.But Kellogg did not share this view. It had also decided to focus only on the premium and midd le-level retail stores because of the belief that it could not maintain uniform quality of service if it

offered its products at a larger number of shops. What Kellogg seemed to have overlooked wasthat this decision put large sections of the Indian population out of its reach.

Answer 2

Technology affects industry in many ways. It can intensify competition and also erase thecompetitive advantage of well-established firms. A technology strateg y addresses issues like: thetype of technologies a company should develop, the need to seek leadership in those technolo gies,and the role of technology licensing. Hence, techno logy strategy is important for an y company ssuccess.

Intel strives to develop technologies that deliver leading-ed ge performance products at lower costs.It ensures this by increasing the number of circuits on a single silicon chip and allowing forproducts that have higher performance as well as added features. As part of its technology strategy,Intel introduced the Intel Centrino mobile technology, which was designed to provide o utstandingperformance, extended battery life, new thin and ligh t form factors, and seamless wireless

connectivity.

Intel strives to be one generation ahead of the competition in R&D, manu facturing technology, andkey products, thereby exceeding customer expectations, capturing design wins, and increasingprofitability. The co mpany plans to make its revenue and profitability gro w through leadership intechnology products, manu facturing, and the power of the Intel brand.

Answer 3

LVMH had begun stalking Gucci since the beginning of January 1999 by acquiring more th an 5%of its shares. By the end of January 1999, LVMH s stake in Gucci had increased to 34%.

t hOn January 27 , 1999, Arnault (Chairman of LVMH Group) arranged a meeting with De Sole,(President of Gucci) at which he proposed that, since he was now o ne o f Gucci s largest

shareholders, he b e allo wed to name a director to its board. De Sole, however, believed thatArnault s people should not be put o n the Gucci board since they were from the rival fashion house

Louis Vuitton. De Sole could not afford to let them have access to inside information regardingstore space, publicity, and designers.

Gucci was determined to stop the hostile takeover attempts of LVMH at any cost. This was thesole motive behind using the p oison pill and white knight mechanisms. The ESOP (employee stock

option plan) and the Pinault-Printemps-Redoute (PPR) deals may thus be seen as a takeovertarget s efforts to defend itself. Both moves hampered LVMH s plans to contro l Gucci. De Sole

knew that Arnault, with his financial strength, could buy all the shares Gucci might issue in thefuture.

All additional shares had to be in such a form that LVMH could not acquire them. The ESOP dealwas a logical solution to Gucci s prob lems.

1Later, Gucci revealed that 83% of the ESOPs were given to De Sole and Tom Ford (Ford) . Thisfact was concealed from the shareholders, violating the principles of transparency. As a strategy,

this move made sen se, and under the Dutch law, the company did not have to reveal the ESOPdetails to the shareholders. However, from an ethical point of view, the move amounted to a breach

of confidence of the sharehold ers.

Tom Ford (Ford), an actor-model, with a degree in interior architecture and some experience in fashion1

design, joined Gucci for its designing needs and was a major factor behind its success.

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Business Strategy

The stake sell-off to PPR was also aimed at thwarting LVMH s takeover attempts, resulti ng inLVMH s stake going down to 22% from 34%. LVMH opposed this deal, and claimed that Gucci

was denying it the basic right of a major shareholder to have a board nominee. Though, in theensuing legal battle, at first the PPR deal was declared void, later on it was approved. Gucci srejection of the open offer made by LVMH was also a part of its defense strategy.

Gucci was averse to becoming a partner of LVMH, largely because of its reservations aboutArnault s way of running his companies. De Sole and Fo rd had said that they would leave Gucci, ifArnault succeeded in his attempts. In the luxury fashion goo ds business, brand eq uity was the mostimpo rtant thing. And the brand equity of a fashion label invariably meant the designer behind it, inthis case, Ford. Had Ford left Gucci, it could have spelt disaster for the company. Thus, from astrategic perspective, Gucci seems to be justified in averting takeover by LVMH.

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Model Test 3

Part A: Basic Concepts (Answ ers and Explanations)

1. (d) The champion of a capabilities-based strategy is the Vice President – Human

Resources.

The fourth principle proposed by Stalk, Evans, and Schulman is: because capab ilities necessarily

cross function, the champ ion of a capabilities-based strategy is the Chief Executive Officer (CEO).

2. (c) Business level

Business level strategy is concerned with using generic strategies such as cost leadership,

differentiation, and focus to create a co mpetitive ad vantage. Corporate level strategy is concerned

with the objectives of the organization, the ways in which business will be integrated and

managed, the develop ment of synergies b y coordinating and sharing different resources, and

investment of financial resources across business units. Functional level managers address

problems related to the efficiency and effectiveness of production, success of particular products

and services in increasing their market share, and quality of custo mer service.

3. (a) enviro nmenta l scanning

Environmental scanning invo lves monitoring the en vironment and evaluating and disseminating

information obtained from the internal and external environments. Tools such as secondary

research, surveys, questionnaires, focus group s, and open forums can be emp loyed in

enviro nmental scanning.

4. (b) Only iv

The profile of a company depicts the quantity and quality of the compan y s financial, human ,

and physical resources. It assesses the strengths and weaknesses of the company s management

and organizational structure. It also analyzes the company s past successes and traditional concerns

in the context of its current capabilities, in an attempt to identify its future capabilities.

5. (d) Logical incrementalism mode

In the logical incrementalism mode of strategy formulation, an organizatio n chooses an interactive

process for probing the future, experimenting, and learning from a series of incremental

commitments. This approach is useful when the environment is changing rapidly and it is

impo rtant to build a consensus before committing the entire company to a specific strategy.

6. (b) view of the future

View of the future is the anticipated regulatory, competitive, and economic environment in which

the company must compete.

7. (b) i/p, ii/q, iii/p, iv/q

The remote environment consists of a set of forces that originate beyond a firm s operating

situation. These comprise political, econo mic, social, technological, and industrial forces which

create opportunities, threats, and constraints for the firm. The operating env ironment involves

factors that p rovide many challenges that a particular firm faces when attempting to attract or

acquire essential resources or when striving to profitab ly market its goods and services in the

immediate competitive situation. The factors that are considered in this environment are

competitive position, customer pro file, reputation among suppliers and creditors, and accessible

labor market.

Business Strategy


Supp liers are po werful under the following circumstances: when the pro duct that they sell has fewsubstitutes and is important to the purchasing company or buyer; when no single industry is amajor customer for the suppliers, i.e., the supplier sells to a variety of industries and no industry isin a position to influence the supply price; when products in the industry are d ifferentiated to suchan extent that they are not easily substitutable and it is costly for a buyer to switch from onesupplier to another; when the supplier can use the threat of vertically integrating forward; andwhen the buying co mpanies cannot use the threat of vertically integrating backward.

9. (b) quick ratio

The quick ratio recognizes that inventory is usually less liquid than other current assets. In the caseof long production processes, inventory may not provide much liquidity because it cannot beturned into cash immediately. Profitability ratios indicate ho w effectively a firm is being managedin terms of its ability to generate profits. Leverage ratios identify and evaluate the source of afirm s capital, i.e., o wners or outside creditors. Activity ratios measure a firm s efficiency ingenerating sales and makin g collections.

10. (c) primary activities

Value chain analysis divides a firm s activities into two major categories, i.e. , primary and supportactivities. Primary activities are those activities that are involved in the physical creation of the

product, marketing, and after-sales support. Support activities assist the primary activities byproviding the infrastructure that allows them to take place on an ongoing basis.

11. (a) develo pment of criteria for lease-versus-purchase decisions

A factor of assessment of procurement is the development of criteria for lease-versus-purchasedecisions. The quality of laboratories and o ther facilities is a factor of assessmen t for technologydevelopment. The ability to obtain relatively low-cost funds for capital expenditure and workingcapital is a factor of assessment for firm infrastructure. The appropriateness of reward systems formotivating and challenging employees is a factor of assessment of human resource management.


Firms adopt the strategy of forward integration to achieve more control over sales prices and levels

of output, impro ve their competitive position, develo p their own network for consumer feedback,and have their own facilities for providing pre-sales and post-sales service/feedback. Throughforward integration, the firm moves forward in the distribution chain and comes closer to the endconsumer. This helps it to monitor the prices of its products better as well as to fine tune its levelsof output.

13. (a) Functional strategies

Functional strategy helps in th e implementatio n of the grand strategy by organizing and activatingspecific sub -units (marketing, finance, production, etc.) of the company. For example, the grandstrategy of a firm might be to go in for diversification. The organization s production strategy andmarketin g strategy have to be modified acco rdingly.

14. (b) Only i, ii, and iii

Statement iv is false as it is applicable to the differentiation strategy, and n ot to the overall costleadership strategy.

15. (b) When making a strategic choice, risk-averse manag ers are attra cted toward

opportunistic strategies with higher payoffs.

When making a strategic choice, risk-averse managers lean toward safe, conservative strategies

with reasonable, highly probable returns. Only risk-oriented managers are attracted to wardopportunistic strategies with higher payoffs.

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16. (b) Cash cow

Cash cows are business units that hold a large relative market share in a mature and slow-gro wing

industry. For example, in the slow-growing newsprint and paper industry, as per the CMIE Report

for July 2007, Ballarpur Industries Ltd., the paper division of the Thapar group, grew at 16.64%

with an annual sales volume of Rs. 5.5 billion. This is an example of a Cash cow, where, in a slow

growing ind ustry, the business line enjo ys a market lead ership status.

17. (b) ii, i, iv, iii

To p lot business units on the GE nine cell planning grid, the following four steps need to be

followed . In the first step , a criterion is selected to rate the industry for each business unit. Then to

each industry attractiveness factor, a weight is assigned that reflects its perceived imp ortance as

compared to the other attractiveness factors. The business units are rated o n a scale of 1 (very

unattractive) to 5 (very attractive). In step two, the key factors of success in each business unit are

selected. The business strength/competitive po sition of each business unit is assessed on a scale of

1 (very weak) to 5 (very strong). In step three, each business unit s current position is plotted on amatrix. In the last step, the firm s future portfolio is plotted, assuming that present corporate and

business strategies remain u nchanged. Then, it has to be found if any performance gap exists

between the projected and desired portfolios. If any gap exists, it shou ld serve as a stimulus to

review the corporation s current mission, o bjectives, strategies, and policies.


A firm can gain a cost advantage from a low-cost physical distribution system, superior sales force

utilizatio n, or an efficient assembly process. The low co st physical distribution will b e in the form

of low margins provided to the intermediaries such as wholesalers, distributors, or retailers.

Superior sales force utilization will help in spreading the salesman costs over a larger vo lume of

finished output and hence will reduce the per unit sales cost. An efficient assembly process will

reduce the wastages and time of assembly and hence reduce co sts. A responsive sales order entry

system will help in quickly fulfilling customers orders and will not lead to a cost advantage.

19. (a) Firm infrastructure

Infrastructure is important because it provides the basic framework within which all the other

value creating activities take place. It serves the company s needs and ties its various parts

together; it co nsists of functions or d epartments such as accounting, legal, finance, planning, public

affairs, go vernment relations, quality assurance, and general management.

20. (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 bestow 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 effect s

through the coalition.


Signaling criteria include brand image, packaging, ad vertising, the attractiveness of facilities, and

reputatio n. Signaling involves usage of those criteria which create a p ositive perception in the

mind s of the buyers and predominantly deals with making use of marketing tools. Delivery time, a

use criterion, influences the usage of the product in terms of timeliness of deliveries, and is not a

signaling criterion. Use criteria also include product quality, product features, and ap plications

engineering suppo rt.

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Business Strategy

22. (d) The managers of investment centers have control over investments but not on inputs

and outputs.

Investment centers are held responsible for the overall economic performance in terms of the costincurred, the revenue generated, as well as the associated investment . In investment centers, themanagers have control over the inputs, outputs, and investments . This allo ws and motivates

them to make the b est possible utilization of resources under their control.

23. (d) Only i, iii, and iv

Claim on resources is an ind icator of power of internal stakeholders. The remaining three options,along with resource dependency, are indicators of power of external stakeholders. Resourcedep endency can be measured by the prop ortion of the comp any s business with a single distributor,proportion of the raw material supplied by a supplier to the total raw materials required by thecompany, etc.

24. (c) different, similar

Generic benchmarking is used by companies to improve their processes or activities bybenchmarking with other companies from different business sectors or areas of activity but

involved in similar functions or work processes. For example, Airlines and Hospitals might learnfrom the customer handling practices of Hotels. The three industries are different and there is nocompetition among the firms in the three mentioned industries but all three are service-orientedand aim at delivering cu stomer delight thro ugh better customer orientatio n.

25. (d) Only ii, iii and iv

The balanced scorecard is concerned about how the organization should appear to the shareholdersand not about what shareholders should do for the organization.

26. (a) Provide co mpetitors with a low-cost route to new technology and markets

Statements b, c, and d specify the various advantages of strategic alliances, and not thedisadvantages.

27. (a) growth, mature

Conglo merate acquisitions of firms in growth industries are undertaken to utilize the accumulatingcash position of mature firms in declining indu stries whose internal flow of funds exceeds theinvestment requirements of their traditional lines of business. This is done to have star business

entities in the corporate portfolio on a sustained basis.

28. (c) Only ii, iii, and iv

The factors that make a firm a desirable candidate for acquisition and vulnerable to a takeover are:

a low stock price compared to asset replacement cost or their potential earning power a lowstock price acts as an attraction because if the acq uirer were to acquire the assets from the market it

would be more expensive compared to the cost of acquired equity; a highly liquid balance sheetwith large amounts of excess cash, a valuable securities portfolio, and a significantly unused debt

capacity; good cash flow relative to current sto ck prices; and relatively small stock holdings underthe control of incumbent management.

29. (a) To use politics to promote effective change, the orga nization must create a power

balance among the various divisions/ functions so that a single person dominates theenterprise.

To use politics to pro mote effective change, the organization must create a power balance amongthe various divisions/ functions so that no single person dominates the enterprise. An effective

change is one which does not result in greater prominence or power to any individual; rather thefocus is on integrating the efforts of all individuals in an optimal and synergistic manner.

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Part D

30. (a) social, values

Organizations that want to maintain leadership in the economy and the technology that are going topredominate in the future n eed to give enough consid eration to the social position of the

knowledge professionals and their values . Knowledge workers are driven and motivated by self-esteem and self-actualization needs. Hence, the organizatio n should pay attention to issues like

their social standing and the values which they treasure most. For instance, a scientist emplo yee(knowledge worker) mig ht be seriously concerned about environmental issues, and hence it will be

good strategy by the firm to deploy him on projects which deal with environmental pollutioninstead of product development.


Caselet 1: Marico: Emerging Indian Global Competitor

1. Michael Porter advocated that a firm can achieve success by following a strategy of Overall

Cost Leadership, Differentiation, or Focus. The success achieved by Marico Ltd. can be attributed

to the differentiation pursued by it in its product and service offerings.

In the food segment, it was one of the first companies to equate health related issues with ed ible

oil. It positioned its Saffola brand oil as an edible oil which lowered the risk of heart attack by

lowering the levels of cholesterol. Its Saffola brand was extended to salt and sugar and ch olesterol

management products. It differentiated itself fro m the other brands by focusing on the health and

wellness plank. The brands of Marico -- whether it was Parachute, Nihar, or Med iker -- enjoyed

strong brand loyalties on account of brand building by the company and a sustained focus on

quality.

Marico s Kaya Skin Care clinics filled a void in the beauty industry by providing personalized

services to the customer and holistic solutions, thereby differentiating the service fro m those of

competitors. It also opened Skin Zones -- information kiosks that offered skin care counseling at

malls. Further, it expanded its portfolio of services through Kaya Life Centers by venturing into

weight loss solutions.

Marico capitalized on new growth opportunities. For example, it entered the shamp oos market and

the so aps market. The overseas acquisitions of brands or business u nits also provided impetus to its

growth.

2. The challenges that Marico Ltd. is likely to face emanate from the nature of the fast moving

consumer goods industry, and the strong multinational players like Hindustan Unilever and Pro cter

and Gamble and domestic firms like Dabur operating in it.

Rivalry is intense in the shampoo market and it is not easy to sustain one s position. The same is

true with respect to the soaps market. Customer loyalty shifts depending on the market aggression

of the firms in the industry. Marico will have to adopt an aggressive approach to stay competitive

in the shampoos and the soap markets. The industry has lo w barriers to entry for large players as is

evident by the entry of ITC into the industry.

In the foods segment, the company enjoys brand loyalty and brand recall with reference to its

Saffola brands. However, the same is true only for category A cities and not fo r the semi-urban and

rural markets. The company faces a challenge on how to improve upon its position in the semi-

urban and rural markets.

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Business Strategy

With Kaya skin clinics, the growth has come through the opening of new centers. The challenge

for the co mpany would be to increase the penetration levels of each of the centers to attract more

customers per center and so improve upon the profitability of the centers.

Another challenge for the company is to build upon the Sundari range of products and manage theinternational acquisitions effectively. The acquisitions in Egypt have given it a more than 50

percent share of the Egyptian hair care market; the challenge is to grow it further.

In the future, Marico will have to continue its focus on brand building, emphasize efforts on

strengthening its sales and distrib ution network, focus on effective co st management, and make

efforts to improve organizatio nal efficiencies.

Caselet 2: The Decline of General Motors

1. The difficulties faced by General Motors were two-fold. The first set of difficulties related to its

high employee costs. It faced the burden of high wage rates and the costs associated with the

generous healthcare facilities offered to its emp loyees. It had entered into agreements with labor

unions due to which it could not close factories or reduce wages even when the situation warranted

such measures.

The second set of difficulties faced by General Motors was related to the market in which it

operated . It was unable to come up with new mo dels of cars which were fuel efficient to take on

the competition fro m Japanese companies in light of rising fuel costs.

The turnarou nd plan taken up by GM in 2005 had four areas of focus. They were healthcare cost

reductions, improvements in p roduct portfolio, renewed focu s on sales and marketing, and capacity

reductions.

In 2008, the focus areas for GM included the development of new products, brand -building and

strengthening of distributio n channels, cost reduction initiatives, focus o n emerging markets, and

maximizing the benefits of running a business glob ally.

2. Despite General Motors being one of the largest automobile companies in the world, it had

incurred losses for man y years. From its non-p erformance, we can infer the follo wing lessons:

Size does not make a company immune to decline and even extinction.

When a co mpany and its products are doing well, it should not stop innovating; rather it

should invest more in inno vation to improve product performance and to create new products.

When the co mpany is doing well, it should not become over-generous with employees.

It is sometimes necessary to reject the excessive demands from labor unions and face the

challenge of strikes and disruption rather than yielding to extortionist demands which can ruin

the organization.

It is wise to shift manufacturing operations increasingly to low-cost countries. However, this

needs to be done in a gradual manner with a certain amount of p lanning and preparation to

minimize the risks of discord and disruption.

A company must not be misled by its own success or size into believing that it is

indestructible. Management must develop a sense o f vulnerability and the potential risk of

mortality.

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Part D


Answer 1

It is essential for managers to understand their customers properly and make them loyal to the firm.

To achieve this loyalty, co mpanies should constantly mo nitor their customers psychology andcater to their requirements, whenever necessary, by developing a suitable customer profile and

making it a part of the strategy. While developing a customer profile, managers should properlyplan for the strategic operations, expect changes in the size of markets, forecast d emand

fluctuations, and appropriate allocation of the resources. The construction of the customer p rofileincludes information pertaining to geographic, demographic, psycho graphic, and buyer behavior.The success of Balaji Telefilms is an example of a firm s success due to proper understanding of

the customer s mindset, that is, the audience in this case.

A majority of the soaps running on all the major television channels fro m the late 1990s wereproducts from Balaji Telefilms. The co mpany had b ecome the number one televisio n so ftware

content provider within a few years of its formation. One o f the major reasons underlying thissuccess was Balaji Telefilms selection of content matter th at appealed to a large audience. Indian

television viewers were bored with serials depicting conflicts and convoluted relatio nships. Theywere not looking for serials depicting co mplications as they already experienced enough problems

in their ho mes and careers. The number of channels had increased like never before, with a hugechoice available to the viewers. It thus, became necessary to offer the viewers something they

could personally relate to and identify with. Balaji Telefilms identified this very need of theviewers and swiftly grabbed the prime time slots on all major television channels for its serials.

Research conducted b y Balaji Telefilms revealed that women -centric soaps had very high chances

of succeeding, irrespective of the geographic and cultural differences. Thus, the company focused

on producing serials mainly for this sector. Moreover, FMCG companies, the b iggest sponsors for

television so aps targeted this very segment for their products. Balaji Telefilms gained on this front

as well b y attracting the best o f companies as sponsors for its serials.

Once the company had decided to focus on this segment, it went on to create stories and characters

very close to real life. Besides very strong characterizations, minute d etails such as their clothes

and mannerisms were carefully worked out. Due to all these efforts, the characters in Balaji

Telefilms serials attained stardom and recognitio n like never before and formed an emotional

bond with the viewers. This was enough to sustain the high TRPs and the high advertising

revenues on a continual basis for Balaji Telefilms.

Answer 2

The Ramoji Group, one of the premier b usiness houses, used diversification strategy to exploit

synergies in operating in different businesses. Ramoji Rao, the founder of the business house, is

good at spotting opportunities. Most of his businesses created niche markets. The group started

with Margadarsi Chit Fund Co. in Hyderabad, which gained the trust of millions of people by

2000. As he realized that there were no good hotels in Visakhapatnam, he started the Dolphin

Hotel chain. Similarly, he found that there was no newspaper in Visakhapatnam and started

Eenadu. Eenadu was a related d iversification as Ramoji Rao was already in the print medium withhis “Annadata” magazine aimed at ed ucating farmers. With the number of working women

increasing, Ramoji Rao launched a scheme for manufacture and sale of readymade pickles. Later,

the brand was also extend ed to culinary powders and pastes. Also, through Priya Pickles, he

created employment opportunities for hundreds of women from weaker sectio ns of society.

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Business Strategy

Many of his other businesses like Ushakiron Mo vies, Mayuri Film Distributors, Mayuri Audio ,ETV network, and Ramoji Film City were all related diversifications. When Ramoji Rao enteredthe film industry, he established a distribution co mpany an d an audio cassettes company. He didnot depend on any other distributors or marketing firms for his films. Similarly, he established the

Film City that reduced costs of making films and content for the ETV network. All serials for theETV network were shot in the Film City.

Analysts felt that one of the main reasons for the success o f the group was the synergy thebusinesses derived from one another. There was synergy between the TV and film businesses andthe Film City. The Film City offered all post-production facilities for a film like audio dub bing andediting. It is an asset to the group s films and electronic media business. The color lab of the Film

City is also one of the best studios in the world. Most of the films produced by Ushakiron Moviesare shot at the Film City.

The content for the ETV network, including ETV-Telugu, ETV-Bengali, ETV-Kannada, ETV-Marathi and ETV-Urdu, is produced at the Film City. This reduces the costs considerably for theETV network and Ushakiron Movies. Similarly, there is a synergy between Dolphin Hotels and theFilm City. The hotel chain is extended to the Film City also. All the hotels in different segments in

the Film City are a part of the Dolphin Hotel Chain. Thus, the success of the group can beattributed to shrewd use of synergies between its businesses to exploit opportunities.

Answer 3

DELL Computer Corp oration (DELL) is often credited with bringing about a revolution in thepersonal computer industry. In DELL s direct model, there were no retailers or resellers. Byeliminating intermediaries and managing its inventory and distribution process efficiently, DELLoffered its customers more powerful and customized computers at lower prices than itsco mpetitors. The company kept a maximum o f six days of inventory while most of its competitors

stocked inventory for about 40 days. This enabled Dell to incorporate the latest technology in itsproduct lines far ahead of its competitors.

DELL continuo usly made efforts to provide b etter customer service. Customers could log ontoDell s website to check the status of their orders. They could request for e-mail notification of theirmachine being shipped. DELL s major customers could access customer-specific products and

pricing, and authorized shoppers were allowed to build their own configurations.

DELL introduced Premier Pages, an electronic catalog that allowed corporate customers topurchase DELL machines over the Internet. These pages gave large corpo rate customers access toautomated paperless purchase orders. In order to enhance customer convenience, DELL tied up

with WebMethods, to develop software, which allo wed instantaneous communication within theinternal business systems of DELL s customers. The software helped DELL in e-procurement.

After getting product information fro m Dell.com, a customer could click into his p urchasingsystem and create an electronic requisition. Instantly, a computer-generated purchase order cameto DELL over the Internet. The entire process took 60 seconds. On an average, the product wasdelivered within two days of the order b eing placed. The software helped red uce errors in DELL sprocurement processes from about 200 per million transactions to 10 per million. It also reduced

the cost of processing by about $ 50 for each order.

DELL believed that building supplier relationships was a pre-requisite for the success of its uniquebusiness model. In mid 1998, DELL launched Valuechain.dell.co m, a site which let suppliersknow what DELL s component requirements were at any given moment. This enabled them to

plan their own production schedules accordingly. This also helped improve vendor management asit let DELL exchange information with its suppliers.

Valuechain.dell.com also helped DELL to place orders in real time, instead of relying on daily orweekly batch order transfers. Suppliers co uld also view a „Scorecard that compared the price,performance, and quality of their products with those of their competitors. Parts that failed d uring

production or after sale were tracked o n the extranet and information conveyed to the concernedsupplier. These efforts enabled DELL to achieve a savings of $150 million within two years of thelaunch of Valuechain.dell.com.

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