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 iii
elements of Igor Ansoff s strategic success
b.
Only i, iii, and iv
paradigm?
c.
Only ii, iii, and iv
i.
The level of turbulence in the environment
d.
i, ii, iii, and iv
determines the strategy req uired for the
success of a firm.
3.
Organizations often
fail
to develop a sound
ii.
The aggressiveness of the strategy sho uld
strategic management perspective. Which
be aligned with the turbulence in the
of the fo llowing are the correct reasons for
enviro nment to optimize the firm s
its failure?
success.
i.
Lack of awareness amo ng the top
iii.
The threat of potential competitors sho uld
management about the firm s competitive
be assessed.
position
iv.
The management s capabilities should be
ii.
Excessive involvement in everyday
aligned with the environment to op timize
operations
the firm s success.
iii.
No personal interest of the manager in the
a.
Only i, ii, and iii
functioning of the business
b.
Only i, ii, and iv
a.
Only i and ii
c.
Only i, iii, and iv
b.
Only i and iii
d.
c.
Only ii and iii
2.
According to Tarun Khanna and Krishna
d.
i, ii, and iii
Palepu, it may
not
be appropriate for
organizations in emerging markets to focus
4.
Feedback is a very important part of the
on serving their markets with a restriction
___________ stage as it provides an
that it should be based on a portfolio of
opportunity to revise or correct decisions
core competencies. Instead, diversified
made in the earlier stages of strategic
business gro ups are better suited for
management.
developing markets. Identify the reasons
given by Khanna and Palepu in defense of
a.
strategy formulation
this recommendation for diversification.
b.
evaluation and control
i. In emerging markets, companies incur
c.
strategy imp lementation
lower costs on building brands than their
d.
enviro nmental scanning
counterparts in developed countries.
ii. Companies must adapt their strategies to
5.
In which of the following modes of
fit a country s product, capital, labor
strategic decision -making, are the
markets, and the regulatory system.
strategies predominantly formulated by
iii. Well-diversified conglo merates can
one individual?
provide the flexibility needed for labor
a.
Entrepreneurial mode
markets.
b.
Planning mode
iv. Conglo merates are in a better position to
c.
Adaptive mode
deal with rigid labor laws and u nion
d.
Logical incrementalism mode
demands in developing countries.
Part D
6.
The two main components of an
assessment of the primary activity called
organization s ________ are „core
_______.
ideology and „envisioned future .
a.
customer service
a.
mission
b.
firm infrastructure
b.
vision
c.
inbound logistics
c.
objective
d.
procurement
d.
grand strategy
12.
Which of the following statements with
7.
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 functions
association 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 in
the situatio n will not have a bearing on
d.
company goal
them; they will stay constant.
8.
___________________ act(s) as a barrier
d.
In an organization, there is usually a
against 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 one
a.
Product differentiation
or more similar firms operating at the same
b.
Economies of scale
stage of the production-marketing chain,
c.
Capital requirements
its grand strategy is called _________.
d.
Government policy
a.
horizo ntal integration
b.
vertical integration
9.
______________ is important
strategically, as it brings ab out changes in
c.
backward integratio n
the structural sources of competition.
d.
forward integration
a.
Positioning
14.
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 target
d.
Remote environment
segments.
10.
Which of the follo wing statements
holds
b.
key d istribution channels, priority
geographic areas, and level of market
true
with respect to financial ratios?
coverage.
a
For the profit margin, low ratios are
c.
key contributors to profitab ility, product
superior to high ratios.
image, and consumer need .
b
The total asset turnover ratio measures the
d.
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 a
returns, a low value may indicate a hig her
well-differentiated product portfolio
level 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 storage
b.
The firm will become market leader; will
activities and the soundness of the material
and inventory control system are factors of
enjoy a higher than average return.
273
Business Strategy
c.
The firm will not beco me market leader;
ii.
lowering the seller s cost o r lowering the
will 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 the
iii.
enjoy a lower than average return.
b uyer s performance
16.
The criteria of ____________ assess the
a.
Only i
practical implementatio n and working of
b.
Only ii
strategy.
c.
Only iii
a.
suitability
d.
Only i and iii
b.
feasibility
21.
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 iv
a.
dogs
c.
Only i, iii, and iv
b.
cash cows
d.
i, ii, iii, and iv
c.
stars
d.
question marks
22.
SmileBaby Pvt. Ltd. manu factures toys for
babies. The overall activities of the
18.
An opportunity refers to a very favorable
company are organized into various
situation 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 type
i.
identification of a new market segmen t.
of organization structure has the company
ii.
positive changes in the regulatory
adop ted?
enviro nment.
iii.
slow market growth rate.
a.
Matrix
iv.
improved buyer or supplier relationships.
b.
Functional
c.
Divisional
a.
Only i, ii, and iii
d.
Horizontal
b.
Only i, ii, and iv
23.
Which of the following statements
cannot
c.
Only i, iii, and iv
become a b elief or the theme that shapes
d.
the 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 a
in 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 most
important in a firm.
d.
none of the above
In today s dynamic environment , past
24.
20.
Competitive advantage can be created for a
success can rarely guarantee a satisfactory
firm by ____________.
performance in the future. To survive
lowering the buyer s cost or raising the
i.
organizations have/need to:
seller s cost
274
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 potential
market.
purchasers.
iii.
stick to their current practices and need not
ii.
approach potential bu yers on an
learn 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 iii
a.
Only i, ii, and iii
b.
Only ii, iii and iv
b.
Only i, ii, and iv
c.
Only i, iii and iv
c.
Only i, iii, and iv
d.
Only i, ii and iv
d.
i, ii, iii, and iv
25.
__________ achieves performance
29.
An imp roved competitive effectiveness in
improvements by redesigning operational
existing products and services will come
processes, maximizin g the value-added
via changes in competitive strategies and
content, 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 iv
ii.
to obtain learning experience.
c.
iii.
to reduce the investment outlay.
d.
i, ii, iii, and iv
iv.
to share the risk.
30.
Which o f the following are policies and
a.
Only i, ii, and iii
practices that companies can follow in
b.
Only i, ii, and iv
order to strengthen their competitive
c.
Only i, iii, and iv
position and rectify their weaknesses?
d.
i, ii, iii, and iv
i.
Seek long-term investors and give them a
voice in governance
27.
Firms Fragranz Ltd. and Enchanta Ltd. are
in the same industry, both manufacturing
Delink managers co mpensation fro m the
ii.
and selling perfumes. Fragranz Ltd . has a
firm s comp etitive position
good retail network whereas Enchanta Ltd.
iii.
Enhance worker training programs
has a good R&D department and a good
iv.
Increase funding fo r basic research
production facility. When the two firms
merge, 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 iv
c.
pure conglomerate merger
d.
d.
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 gone
on to become a Rs. 22 billion company (as of 2007).
Its product range included Toothpastes and
1
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 had
two major strategic business units – Consumer Care Division and Consumer Health Division. Its
products were produced in 13 manufacturing locations in Nepal, Nigeria, Egypt, Dubai, and
Bangladesh, 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 was
3
neglected 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 the
northern 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 also
likely to yield synergistic effects for Dabur. Besides, the acquisition was expected to result in
exploiting economies of scale in marketing, sales, and distribution.
4
Dabur was a market leader in herbal digestives, branded honey, and Chyawanprash
, and had a
5
significant 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 be
dissipated. 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% against
Colgate Palmolive India s nearly 48%, though it had four brands.
6
Analysts were of the opinion
that Dabur sho uld discard products whose volumes were not gro wing fast enough to deliver
margins. 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 10
7
years.
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.com
1
www.dabur.com
2
P.T. Jyothi Dutta, “Dabur Upbeat on Growth Strategy,” February 13, 2002.
3
www.dabur.com
4
“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 ently
its 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 views
on 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 1868
8
as 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 Tata
took over, the Tata Group was involved in many businesses and had a presence in nearly every
industry. 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 the
Tata 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 of
four years from 1991, Tata managed to oust most of these CEOs, and bring in fresh talent to
replace the senior executives in the Group companies.
To bring in greater focus, Tata started offloading businesses that he felt did not fit in with his
vision for the Group. In 1998, the Group sold the 50 percent stake it had in the pharmaceutical
company Merind (including Tata Pharma), Wockhardt
. In 1999, the Tata Gro up sold its 28
10
11
percent stake in paint co mpany Go odlass Nerolac to Kansai
. The same year, Lakmé, a cosmetics
12
company, 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 to
Gujarat 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 Zubin
Mehta, 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 international
route, where the Group plan ned to expand the markets for its existing products. The other targeted
the 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 many
companies including Corus, Natsteel Asia, General Chemical Industrial Products, Tyco Global
Netwo 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 has
10
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 sell
11
paints. The company has operations in the UK, USA, Canada, China, Thailand, Taiwan, Singapore, the
Philippines, 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
277
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 in
it; the returns must be greater than the cost of capital, and the business of the company must have
the potential for high growth and be globally competitive. Cost cutting, productivity
improvements, and capital efficiency were emphasized in the restructuring exercise taken up at the
13
Group 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 quality
initiative 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 value
to 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 the
Group 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 also
how 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 management
information 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 the
16
GCC 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 in
restructuring the group.
2. Comment on the institutional mechanisms that were created for strategic and o perational
control 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 his
abilities and the results he achieved, he was promoted to a corporate level position, with
add itional responsibilities. How is his role at the corpo rate level going to be different from that
at the business level?
2.
To help managers analyze the environment effectively, Michael E. Porter developed a
framework known as the Five Forces model. These five forces play a vital role in shaping the
company s future. Analyze the „degree of rivalry in the context of the Indian aviation
industry.
3.
Orient Fans, a leading player in the fans industry, has diversified into room heaters. Explain
why firms take up such diversification.
Justin Wood, “Magna Tata,” www.cfoasia.com, Dece mber 2005/ January 2006
13
The Malcolm Baldrige National Quality Award is given by the US National Institute of Standards and
14
Technology.
www.tata.com
15
www.tata.com
16
278
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, ii
Porter?
4.
The _____________ consists of evaluating
a.
Cost leadership
all the conditions and forces that affect an
b.
Diversification
o rganization s strategic options and
c.
Differentiation
defines its competitive situation.
d.
Focus
a.
internal analysis
b.
strategic choice
2.
Gary Hamel and C. K. Prahalad believed
that the capacity for resource leverage is
c.
external environment analysis
the ultimate selection mechanism,
d.
strategic management
separating the victorious from the victims
5.
Match the following terms with their
in prolonged battles for industry
advantages:
leadership. From the following options,
identify the ways to realize resource
i.
leverage.
ii.
Logical incrementalism
iii.
Planning mode
i. Concentrating resources on key strategic
goals
p.
Strategies can be formulated and
ii. Complementing resources of one type with
implemented speedily.
those of another to create more value
q.
Helps the company to b e better p repared
iii. Efficiently accumulating resources and
for environmental uncertainties.
conserving those reso urces
r.
Useful when the environment is changing
iv. Reco vering, that is, minimizing the time
rapidly and it is important to build a
between expenditure and payback
consensus before committing the entire
company to a specific strategy .
a.
Only i and iii
b.
Only i, iii, and iv
a.
i/p, ii/q, iii/r
c.
b.
i/r, ii/p, iii/q
d.
i, ii, iii, and iv
c.
i/p, ii/r, iii/q
d.
i/q, ii/r, iii/p
3.
There are four basic elements in the
process of strategic management. Arrange
6.
From the following options, identify the
them in the order in which they are
characteristics of a good mission
executed.
statement.
i.
Strategy formulation
i.
It defines the business that the company
ii.
Environmental scanning
wants to be in, not necessarily the one it is
iii.
Evaluation and control
in.
iv.
Strategy implementation
ii.
It is relevant only for the firm s
shareholders.
a.
i, ii, iii, iv
iii.
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 of
assessment of a firm s infrastructure?
b.
Only i and iii
i.
Public image and corporate citizenship
c.
Only ii and iii
ii.
Relations with trade unions
d.
i, ii, and iii
iii.
Quality of the strategic planning system to
achieve corporate objectives
7.
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 iii
b.
Ethical responsibility is voluntary whereas
c.
Only ii and iv
discretionary responsibility is obligatory.
d.
Only iii and iv
c.
Both are obligatory in nature
d.
Both are voluntary in nature
12.
The objectives at the lower level of the
hierarchy require __________ resources,
8.
Rivalry in an industry intensifies when one
involve commitment from __________
or more firms make an effort to increase
organizational members, and are
their market share. The intensity of the
___________ readily measurable.
rivalry dep ends upon
a.
fewer, more, fewer
i.
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 the
a.
Only i, ii, and iii
company s existing business areas.
b.
Only i, ii, and iv
a.
Concentric diversification
c.
Only i, iii, and iv
b.
Conglomerate diversification
d.
c.
Horizontal diversification
d.
Horizontal integration
9.
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 demand
have been achieved.
b.
competitor prices
a.
strategic choice
c.
total costs
b.
value chain
d.
level of market coverage
c.
internal analysis
15.
In ________ industries, the steps involved
d.
external analysis
in strateg y formulation often involve
sophisticated 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 competing
strategies emphasize product R&D.
internationally.
a.
differentiation, low-cost
a.
fragmented
b.
low-cost, differentiatio n
b.
emerging
c.
maturing
c.
high-cost, differentiation
d.
declining
d.
differentiation, high-cost
280
Part D
16.
__________ displays the po sition of
b.
Thro ugh learning, the right moves can be
business units on a graph showing market
implemented in a shorter time, leading to
growth 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 istical
c.
The BCG matrix
cost is the location relative to buyers
d.
Gap analysis
whereas the outbound logistical cost is
17.
Organizations concentrate on recovering as
affected by the location relative to
much as possible from _________ in terms
suppliers.
of returns on investment and they often
undertake 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 of
these units has their own set of
c.
Stars
performance targets. Corporate strategy,
d.
Question marks
brand management, technology, etc.,
18.
If a business faces impressive market
related activities are carried out at the
opportunity, but is constrained by internal
headquarters, while its subsidiaries located
weaknesses, then the firm s focus should
in different countries are given the
be on a/an _______________.
freed om to formulate their own local
a.
aggressive strategy
strategies. What type of an organization
b.
diversification strategy
structure has the company ado pted?
c.
turnaround strategy
a.
Matrix organization structure
d.
defensive strategy
b.
Hybrid organization structure
c.
Functional organization structure
19.
The service function contributes value to
the organization by ________.
d.
Divisional organization structure
a.
solving the process-related problems of the
23.
The ____________ a compan y s culture
supplier.
becomes and the ___________ that culture
b.
solving the product-related problems of the
is directed toward the internal
customer.
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, less
operations streamlines its value activities
c.
weaker, mo re, less
between a firm and its suppliers, channels,
d.
stronger, less, more
and buyers.
a.
segment
24.
Which of the following benchmarking
strategies aims at imp roving a company s
b.
vertical
overall performance b y studying the long
c.
geographic
term strategies and approaches adopted by
d.
industry
successful „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 benchmarking
take a particular action.
d.
Performance benchmarking
281
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 public
involves designing new pro cesses from
offerings (IPOs), the market conditions
scratch.
should b e favorable in terms of an appetite
a.
clean sheet
for IPOs.
b.
systematic
a.
Only i, ii, and iii
c.
process
b.
Only i, ii, and iv
d.
product
c.
Only i, iii, and iv
26.
Which of the following are the reasons for
d.
i, ii, iii and iv
the failure of a joint venture?
29.
Arrange the following steps of Quinn s
i.
Agreements on alternative approaches to
Incremental Model for managing strategic
achieve the basic objectives of the joint
change in the correct sequence:
venture.
i.
Strategic leaders will seek to legitimize the
ii.
Refusal b y managers possessing expertise
new strategies by lending authority to
in one company to share knowledge with
them.
their counterparts in the joint venture.
ii.
Strategic leaders will then generate
iii.
Inability of parent companies to share
awareness of the desired change within the
control, 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 siness
information channels, both within and
firms.
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.
a.
i, ii, iii, iv
b.
iv, ii, iii, i
27.
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, iv
marketin g is an example of a ________.
30.
Which of the following factors have made
a.
horizontal merger
the workforce much more heterogeneous
b.
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 and
28.
Which of the fo llowing statement/s about
occupations
the selling process is/are true?
iv.
Influx of women into organizations
i.
The process of competitive bidding is most
effective when man y potential buyers have
a.
Only i, ii, and iii
been identified and they have diverse
b.
Only i, ii, and iv
strategic objectives.
c.
Only i, iii, and iv
ii.
Sequential selling is an acceptable selling
d.
method, 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 focused
on providing quality and innovative products to its US consumers. Fuji felt that it made more
strategic sense to follow the New York based, Eastman Kodak Co mpany s (Kodak) lead, avoid
attracting 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 of
weaker US comp etitors rather than that of Kod ak. Slo wly but steadily, Fuji entered the
professional 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 serious
amateur photographers were looking for. In 1972, Fuji began to market its film under its own
brand name in several camera stores. In an attempt to gain more market recognition, Fuji provided
buyers 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 by
Kodak 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 by
introducing a similar film and offering it in four speeds. By now, Fuji realized that it would be
unable to outsmart Kodak. Ho wever, the company believed that by buildin g its repu tation for
quality 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 its
products 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 Summer
Olympics in Los Angeles, California. This sponsorship agreemen t helped Fuji gain international
recognitio 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 Fuji
to gain valuable market share in the US. Kodak took the challenge a step further by strengthening
its 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 new
technology that wo uld enable it to produce innovative prod ucts to drive sales further. The company
spent 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 first
company to introduce one-time-use cameras. Kodak did not offer a similar product thus giving Fuji
the image of a company that introduced more co nsumer-oriented and innovative products. In the
early 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 film
for 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 to
74.7% 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 of
films. 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, Kodak
grabbed 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 market
seriously. 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 its
competitive position in Japan.
In 1977, Kodak strengthened its control o ver 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
was renamed as Kodak -Japan. Tying up with the Japanese partner helped Kodak to have access to
60,000 camera stores up from the initial 30,000 stores in Japan. It gave Kodak access to more shelf
space to display its products. However, Kodak could not get into the stores, which marketed Fuji
products exclu sively.
In the late 1970s, Kodak formed several joint ventures and strategic alliances with many Japanese
partners. One such company was Bandai, a leading Japanese toy manufacturer, with which Ko dak
established a co-branding arrangement to sell single-use cameras. Kodak set up its own R&D
center and opened a technical assistance center to help customers. The company conducted an
annual 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. Kodak
entered 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 also
reduced 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 large
groups. A group photograph outdoors was not possible with the help of conventional cameras in
those days.
In the mid-1980s, Kodak increased efforts to gain greater control over the distribution of its own
products. 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 any
constructed 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 Japan
and decorated it with bright yellow colo r with its trademark and name. It was placed in fro nt of the
Fuji headquarters in Tokyo.
In response to Fuji s price-cutting strategies in the US, Kodak also decided to slash the prices of
some 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, Kodak
introduced waterproof disposable cameras. Initially, the consumers complained about certain
shortco mings in its design. Kod ak emplo yed a team of engineers, finance, and marketing people to
rectify the problems.
In 1994, Kodak came out with a new pro duct, a single-use camera, called Falcon. The product was
so named because Kodak s d evelopment team wanted it to resemble a bird of prey attacking rival
products. 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 failed
to 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 and
had an almost equal market share in the rest of the world (each had 1/3 of the world market share).
284
Part D
In 1999, Fuji had 18.8% market share in the US while Kodak s share in Japan was hovering
around 7%.
It remains to be seen how well Kodak and Fuji would be able to sustain their
respective market shares in the future.
285
Business Strategy
1.
Examine the strategies adopted by Fuji to enter the US market, compete with Kod ak, and
build 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 been
the 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. 474
1
million on a sales turnover of Rs. 8.9 billion for the year 2007.
The profit was attributed to the
2
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 the
opening 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 of
Rs. 74.1 million on a turnover of Rs. 7.04 billion.
The reasons attributed to the bad performance
3
during 2002 and 2003 were multifold and included lower consumer demand and an overall
slowdown 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 being
trend 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 brand
recall, 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 the
customer profile of a geographic region with matching products. The company introduced new
retailing formats Flagship stores, City stores, and Family and Bazaar stores to cater to different
market segments. This ensured that the product offerings in different geographic locations were
not 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 of
accessories such as wallets, handbags, and shoe-care products. This was similar to Bata s
European retail strategy. Bata also established Supersto res, a new format, where around 1,000
different 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. The
company focused on so me of its brands like Power, Bubblegummers, Marie Claire, and Hush
Puppies, 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 of
India and in a strategic move relocated its head office operations from Kolkata (West Bengal) to
Gurgaon, a city in Haryana (a state in North India) bordering Delhi.
This was expected to help
6
Bata India Limited is the largest footwear retailer in India . It is a part of the Lausanne, Switzerland-based
1
family-owned shoe company, Bata Shoes.
Jaidev Majumdar, “Bata to Focus on Institutional Sales, Retail Ventures,” www.hindustantimes.com, June
2
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
286
Part D
Bata imp rove its focus o n market penetration and shift its orientatio n from manufacturing to
marketin g. When its head office o perations were located in West Bengal, labor unrest in the
manufacturing facilities located in the state had had a substantial impact on the overall operations
of 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, and
wholesale.
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 its
distribution network to support its focused marketing effort in the year 2004. It converted three of
its wholesale depots to „Cash-n-Carry formats and made investments in its logistics and
7
distribution systems, to improve them.
This was to be reflected in the modernization of the retail
network through the development of a state-of-the-art integrated retail management system in
8
partnership 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 fashionable
footwear range was reaching the outlets every week.
To turn around the co mpany, Bata also took some other measures. Sixty unv iable stores were
closed down and the outstanding payments of the wholesale segment were reduced to 45 days from
126 days. Further, emphasis was placed on reducing the operational expenses in 2004.
In order to
9
reduce costs, manufacturing was relocated to tax holiday states such as Himachal Pradesh and
10
Uttaranchal.
Simultaneously, since the company was overstaffed it offered Voluntary Retirement Scheme to its
11
workers 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 the
franchisee 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 Western
Indian sate of Gujarat). This store was spread across 4 floors and displayed a range of international
12
fashion 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 billion
turnover mark in the near future.
And it was clear that Bata was not ready to let anything come in
13
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 a
14
week.
“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 service
8
providers.
Shammi Pande, Soul Searcher, http://businesstoday.digitaltoday.in, July 17, 2007
9
“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
287
Business Strategy
In order to maintain its growth momentum, Bata aimed to open 200 new stores by 2010 and
15
explore 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 Reliance
16
Industries Ltd.
announced a tie-up that would enab le Reliance to retail its labels through the
17
1,200 Bata stores in the country. Bata, on its part, would be provided with exclusive space in all
18
Reliance 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 itself
1.
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 it
played 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 environment
has 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 for
organizations.
2.
A technology strategy is concerned with a firm s approach to the development and use of
technology. 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 IT
company 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 defense
with 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
288
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 of
E. 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 s
iv.
one of those principles?
human and physical resources.
a.
The building blocks of corporate strategy
a.
Only iii
are not products and markets but business
b.
Only iv
processes.
c.
Only i and ii
b.
Competitive success d epends o n
d.
Only ii and iv
transforming a company s key processes
into strategic capabilities that consistently
5.
In which mode of strategy formulation
provide superior value to the customer.
does an organization choose an interactive
c.
Companies create these capabilities b y
process for probing the future,
making strategic investments in a support
experimenting, and learning from a series
infrastructure that links together and
of incremental commitments?
transcends traditional Strategic Bu siness
Units (SBUs) and functions.
a.
Adaptive mode
d.
The champion of a capabilities -based
b.
Planning mode
strategy is the Vice President – Human
c.
Resources.
d.
Logical incrementalism mode
2.
___________ strategy is concerned with
6.
The anticipated regulatory, competitive,
using generic strategies such as cost
leadership, differentiation, and focus to
and economic environment in which the
create 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 advantage
3.
Tools such as surveys, secondary research,
and open forums are emp loyed in ______.
7.
Match the factors with their environment
a.
enviro nmental scanning
i.
Technological
b.
strategy formulation
ii.
Competitors
c.
strategy implementation
iii.
Econo mic
d.
evaluation and co ntrol
iv.
Suppliers
4.
Identify the statement(s) that
is/are wrong
with regard to the company profile.
p.
Remote environment
q.
Operating environment
i.
It depicts the quantity and quality of the
company 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 consumer
feedback.
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/p
sales and po st-sales service/feedback.
8.
The bargaining power o f suppliers
a.
Only i, ii, and iii
increases and they become powerful when
b.
Only i, ii, and iv
i.
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 iv
the suppliers.
13.
___________ help in the implementation
iii.
when the products in the industry are
of the grand strategy by organizing and
highly 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 strategies
a.
Only i and ii
b.
Critical success factors
b.
Only i and iii
c.
Corporate strategies
c.
Only ii and iii
d.
Mission and vision
d.
i, ii, and iii
14.
In the overall cost leadership strategy, a
9.
The _________________ recognizes that
firm makes sustained efforts to reduce
inventory is usually less liquid than other
costs in all areas of business without
current assets.
compro mising on the quality of its
a.
profitability ratio
products and services. From the following
options, identify the benefits of
b.
quick ratio
successfully ad opting the overall cost
c.
leverage ratio
leadership strategy.
d.
activity ratio
i. 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 same
physical creation of the product,
level as a competitor and earn higher
marketin g, and after-sales support.
profits due to its lower costs.
a.
support activities
iii. 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 are
d.
basic activities
perceived by the customers and consumers
as distinct and unique from its
11.
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.
purchase decisions
d.
i, ii, iii, and iv
c.
app ropriateness o f reward systems for
15.
Which of the following statements is false
motivating and challenging employees
regard ing strategic choice?
d.
ability to obtain relatively low-cost funds
a.
Attitudes toward risk exert considerable
for 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 higher
levels of output.
payoffs.
ii.
improve their competitive position .
290
Part D
c.
When safe, conservative strategies are
20.
Which of the following statements are
chosen, the managers expect reasonable,
true?
highly probable returns.
i.
Thro ugh coalitions, a firm gets an
The greater the firm s dependence on
d.
opportunity to share its activities witho ut
external 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 operations
16.
With reference to the BCG matrix, which
without broadening the firm.
business unit holds a large relative market
iii.
Coalitions besto w the cost and
share in a mature and slow-gro wing
differentiation advantages of vertical
industry?
linkages without the firm having to go in
a.
Dog
for 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 iii
17.
Arrange the following steps in the correct
d.
i, ii, and iii
order 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 the
business 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 image
assuming that present corporate and
ii.
Delivery time
business strategies remain unchanged.
iii.
Packaging
iv.
Each business unit s current position is
iv.
Advertising
plotted on a matrix.
a.
Only i, ii, and iii
a.
i, ii, iii, iv
b.
Only i, iii, and iv
b.
ii, i, iv, iii
c.
Only i, ii, and iv
c.
iii, iv, i, ii
d.
Only ii, iii and iv
d.
i, iii, iv, ii
22.
Which of the following statements
18.
A firm can gain a cost advantage from
describing investment centers is incorrect?
i.
a low-cost physical distribution system.
a.
Managers of investment centers are
ii.
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 iii
c.
The performance of the investment centers
b.
Only i, ii, and iv
is measured with respect to ROI, ROCE,
c.
Only i, iii, and iv
and EVA.
d.
d.
The managers of investment centers have
contro l over investments but not on inputs
19.
________ is important because it provides
and outputs.
the basic framework within which all the
other value creating activities take place.
23.
Indicators to assess the power of external
a.
Firm infrastructure
stakeholders include:
b.
Material management
i.
Status
c.
Service
ii.
Claim on resources
d.
Operations
iii.
Negotiating arrangements
291
Business Strategy
iv.
Symbols
d.
mature, declining
28.
Which of the following factors make a
a.
Only i, ii, and iii
firm a desirable candidate for acquisition
b.
Only i, ii, and iv
and vulnerable to a takeover?
c.
i.
A high stock price compared to asset
d.
Only i, iii, and iv
replacement cost or their potential earning
power
24.
Generic benchmarking is used by
ii.
A highly liquid balance sheet with large
companies to improve their processes or
amounts of excess cash, a valuable
activities by benchmarking with other
companies from ____________ b usiness
securities portfolio, and a significantly
sectors or areas of activity but involved in
unused debt capacity
___________ functions or work processes.
iii.
Good cash flow relative to current stock
a.
similar, similar
prices
b.
similar, different
iv.
Relatively small stock holdings under the
c.
different, similar
control o f the incumbent management.
d.
different, different
a.
Only i, ii, and iii
25.
The balanced scorecard answers some
b.
Only i, iii, and iv
basic questions. They are:
c.
i.
What must shareholders do for us?
d.
i, ii, iii, and iv
ii.
How do custo mers see us?
iii.
What must we excel at?
29.
Politics is an essential part of the process
iv.
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 a
b.
Only i, ii and iv
power balance among the various
c.
Only i, iii and iv
divisions/ functions so that a single person
d.
Only ii, iii and iv
dominates the enterprise.
26.
The companies forming a strategic alliance
b.
Senior managers can use the tools of
face some advantages and disadvantages.
implementation to design an organizational
From the follo wing list, identify one of the
structure for creating a power b alance that
possible disadvantages of forming a
facilitates change.
strategic alliance.
a.
Provide competitors with a lo w-cost route
c.
Strong hierarchical control by the CEO can
to 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 to
developing 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 maintain
27.
Conglo merate acquisition s of firms in
leadership in the economy and the
_______ industries are undertaken to
techno logy that will predominate in the
utilize the accumulating cash position of
future need to give enough consid eration
_________ firms in declining industries
to the ____________ position of
whose internal flow of funds exceeds the
investment req uirements of their
knowledge professionals and their
traditional lines of business.
_____________.
a.
growth, mature
a.
social, values
b.
mature, growing
b.
demographic, religion
c.
declining, gro wing
c.
geographic, culture
292
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 a
sales revenue of Rs. 1 9 billion in the year 2007 -08.
The group had been able to achieve success by
1
following a path of differentiation in all its product and service offerings. In addition to the
domestic 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 portfolio
of 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 and
preferences 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 and
cholesterol 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 the
2
year 2005
, the number of clinics had multiplied to 65 (56 in India and 9 in the Middle East) by
3
2007.
According to analysts, Kaya had filled a void in the country for skin clinics and helped
4
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 pigmentation
5
6
reduction. Kaya had also started selling a range of hypoallergenic products
for sensitive skin
. In
7
2007, 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 reactions
5
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
293
Business Strategy
8
a 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 acquired
9
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 „naturals
11
platform
. 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 of
12
Global 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 generous
healthcare facilities to its existing and former employees. The high wages paid by it were also
having an impact on the company s bottom line. It had entered into an agreement with the
worker 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 and
had been losing market share to Japanese mo tor companies such as Toyota, Nissan, and Honda for
small 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 debt
14
market share to these new players. In the year 2005
15
to junk status.
The loss incurred by GM in 200 7 was despite a four point turnaround p lan adopted
16
by 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 healthcare
cost 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 on
full-sized pickups and SUVs. The renewed focus on sales and marketing revolved around
improving retail sales. As a part of capacity reduction, GM stop ped o perations in a total of nine
assembly, 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.com
12
Nick Bunkley, “GM Offers More Buyouts After $722 Million Loss,” www.iht.com, February 12, 2008
13
Micheline Maynard, “G.M. Posts Worst Loss Since 1992,” www.nytimes.com, Januar y 27, 2006
14
T Thomas, “ The Story Behind General Motor s Fall,” www.rediff.com, Januar y 27, 2006
15
“GM North America s Four Point Turnaround Plan,” www.theautochannel.com, November 21 2005
16
294
Part D
One of the reasons for GM s poor performance was its inability to come out with fuel efficient cars
to counter the rising oil prices. This led to an erosion of market share to the Japanese automobile
companies. Further, while GM was concentrating on its sports utility vehicles, its competitors
focused on imp roving and upgrading the small and medium-size cars.
The focus areas for 2008 for GM included developing new products, building strong brands and
distribution channels, pursuing co st reduction initiatives, focusing on emerging markets, and
maximizing the global business benefits.
As a p art of its restructuring efforts, GM was planning to introduce new products like the Pontiac
G8 and Chevrolet Traverse in the American market, and Opel Insignia in Europe. GM also
intended to align its seven US brands into four distinct dealer channels with a view to enhance
dealer profitability. The four channels would be Chevrolet, Saturn, Buick / Pontiac/GMC, and
Cadillac/ Hummer/SAAB.
In order to become cost competitive, GM had worked to ward achieving its global target of
reducing the automotive structural costs to belo w 30% o f its revenues and stated that it was on the
path of reducing it to 25% b y 2010.
GM intended to reduce annual American labor costs by an
17
add itional estimated US$ 5 billion by 2011. The reduction was expected to result from the
implementation 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 of
100% in countries with high labor costs and its aggressive plans to grow in emerging markets o f
China, India, Brazil, and Russia.
1. What, in your opinion, were the difficulties faced by General Motors? What were the
initiatives 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, reputation
among suppliers and creditors, and accessible labor market. Customer profile is one of the
significant elements because customers are the ones who generate profits for the
manufacturer. 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 with
operations in related industries, it is called concentric diversification. The objective of such
diversification is to exploit synergistic possibilities. Give an example of an organization that
has 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 that
has 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, 2008
17
295
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. Potential
competitors 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 of
reasons. 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 when
senior managers are collectively deluding themselves about the organization s condition; etc. The
managers’ vested interests also play havoc
with strategic planning, and excessive involvement in
everyday 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 for
future 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 predominantly
formulated by one powerful individual. In the plan ning mode, appropriate information for
situational analysis is gathered systematically. A few feasible alternative strategies are developed
and the most appropriate strateg y is selected. The adaptive mode is characterized by reactive
solutions 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 three
app roaches.
6.
(b) vision
A well-conceived vision has two main components. The first component is core ideology and the
second is envisio ned future. A good vision defines core ideology (what we stand for and why we
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 the
company. This image is called its public image. In the given example, the products of ABC
Limited 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 is
called their public image. The idea that the organization/firm must “know itself” is the essence of
the 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. They
manufacture 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 the
structural sources of competition. The company that creates a paradigm shift in the ind ustry can
exploit 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 total
asset 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 control
system 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 customer
education 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 product
improvements. 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 warrants
it. 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 should
be 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 more
similar firms operating at the same stage of the production -marketing chain, its grand strategy is
called 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.
300
Part D
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. For
examp le, if the industry of electronic products is in a growth stage, then the strategy
recommendation 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, the
investment requirements of Stars are greater than the revenues they generate.
18.
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 regulatory
enviro nment, slow rate of technological changes, and improved buyer or supplier relationships. A
slow 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 production
processes. 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 of
a 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 a
competitive advantage. If the firm is the seller, the competitive advantage can be created by raising
the seller s performance in terms of improved custo mer support, better reach, etc. If the products
of 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, which
replaced 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 through
marketin 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
301
Business Strategy
dep artments like Designing department, Production department, Marketing department, Sales
dep artment, and Customer Service department. Therefore, it has adopted the functional
organization structure. In the divisio nal structure, divisions are formed based on an organization s
product 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, market
responsiveness, 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 to
a 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.
28.
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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Part D
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.
29.
An improved competitive effectiveness in existing products and services will come via changes in
competitive 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.
30.
Policies and practices followed by companies in order to strengthen their competitive position and
rectify 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 organization
and will also provide a good yardstick for measuring managers performance. Organizations which
do 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 penetrating
existing 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 on
expanding 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 product
diversification. 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 facilities
overseas 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 repellant
market, 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 as
possible 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 for
those brands.
Instead of following this approach, the company had the option of focusing on only a few brands
and 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 Baby
oil (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 f
the 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 vision
behind 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 which
operated 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 three
institutional 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, the
Group Executive Office (GEO) balanced the Group s business portfolio in terms of financial
investments 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 that
the products and services of the group co mpanies met the highest quality standards and delivered
superior value to customers. It aimed to enhance the strategic capabilities of the organization and
build a learning organization. The Business Review co mmittees formed under the model served as
the 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 in
and which businesses the group should divest itself of. It analyzed and reviewed the unique value
contribution by the company to the group and also ho w the group was contributing to the
company. 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 broad
policy 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 the
company. 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 also
required 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 for
individual 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 business
portfolio.
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 stiff
competition 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 to
differentiate 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 terms
of 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 the
firm 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 an
organization 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 to
counterbalance 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.
2.
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 expects
companies to adhere to its ethical norms and reacts negatively to what are seen as unethical
practices. Discretionary responsibilities refer to the purely voluntary ob ligations that a corporation
assumes, such as p hilanthropic contributions and training the unemplo yed. Therefore, ethical
responsibilities 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 in
industrial growth which makes firms keen to grab each other s market share; and there is a lack of
differentiation amo ng the pro ducts of the players. Other reasons for increased rivalry are absence
of switching 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 optimum
choices. 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.
11.
(b) Only i and iii
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 relation
to 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 a
firm 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 costs
to 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. It
might 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 alternative
app 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; inability
of 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 exploration
and 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 exploration
and pro duction. If two firms operating and co mpeting in the same business activity merge, it is
known as a horizontal merger. When two firms from unrelated industries merge, it is known as a
conglomerate merger.
28.
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 selling
is 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 identifying
potential 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 market
conditions 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 the
organization. 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 minimize
resistance. 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 is
practiced 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 such
as
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 more
heterogeneous 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 and
1.
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 amateur
photograp hers. Further, it remained a private lab el film supplier for eight years from the time of its
entry; 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&D
annually. 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 out
with 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 the
country 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 Kodacolor
VR at 38.3% less than the market price of other available films in Japan. In the late 1980s, Kodak
introduced 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 company
failed 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 could
be the closed Japanese distribution system for photograp hic films and other products, which
favored 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, and
deliver 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. In
order 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 tary
Retirement 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 reduce
the 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 180
employees 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, the
company utilized its international techno logy to enhance its product development abilities and
created 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 distribution
network 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 outlets
every 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 Infosys
Technologies Ltd.
2.
The new retailing structure adopted by Bata was a four-layered retail structure aimed at
add 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 were
expected 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 be
bought.
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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-time
information sharing. Bata also established a presence in shopping malls and tied up with Reliance
Retail 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 critical
success 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 retail
outlets, 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 new
format 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 as
values, beliefs, attitudes, opinions, and lifestyles. These are developed in individuals through their
cultural, eco logical, demographic, religious, educational , and ethnic conditioning. The demand for
vario us styles, books, leisure activities, products and services changes according to changes in
social values. Wrong assessment of these social values can lead to serious problems for the
companies. The initial failure of Michigan-based Kellogg Company (Kellogg), the world s leading
producer of cereals and convenience foods, in the Indian market is a good example of the
impo 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 the
technical, managerial, and financial resources of its parent, Kellogg s products failed in the Indian
market. Even a high-profile launch, backed by hectic media activity, failed to make an impact on
the marketplace.
Kellogg realized that getting Indian consumers to accept its products wo uld be difficult. It banked
heavily 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. They
also liked to add sugar to their milk. When Kellogg s flakes were put in hot milk, they became
soggy 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 for
Kellogg 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 the
benefit 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 most
Third 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 was
that 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 the
competitive advantage of well-established firms. A technology strateg y addresses issues like: the
type 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 s
success.
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 for
products 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 utstanding
performance, 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, and
key products, thereby exceeding customer expectations, capturing design wins, and increasing
profitability. The co mpany plans to make its revenue and profitability gro w through leadership in
technology 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%.
th
On 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 that
Arnault 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 regarding
store space, publicity, and designers.
Gucci was determined to stop the hostile takeover attempts of LVMH at any cost. This was the
sole 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 takeover
target 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 the
future.
All additional shares had to be in such a form that LVMH could not acquire them. The ESOP deal
was a logical solution to Gucci s prob lems.
1
Later, Gucci revealed that 83% of the ESOPs were given to De Sole and Tom Ford (Ford)
. This
fact 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 ESOP
details 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 fashion
1
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 in
LVMH 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 the
ensuing legal battle, at first the PPR deal was declared void, later on it was approved. Gucci s
rejection 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 about
Arnault s way of running his companies. De Sole and Fo rd had said that they would leave Gucci, if
Arnault succeeded in his attempts. In the luxury fashion goo ds business, brand eq uity was the most
impo rtant thing. And the brand equity of a fashion label invariably meant the designer behind it, in
this case, Ford. Had Ford left Gucci, it could have spelt disaster for the company. Thus, from a
strategic perspective, Gucci seems to be justified in averting takeover by LVMH.
316
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
8.
(b) Only i and iii
Supp liers are po werful under the following circumstances: when the pro duct that they sell has few
substitutes and is important to the purchasing company or buyer; when
no single industry
is a
major customer for the suppliers, i.e., the supplier sells to a variety of industries and no industry is
in a position to influence the supply price; when products in the industry are d ifferentiated to such
an extent that they are not easily substitutable and it is costly for a buyer to switch from one
supplier to another; when the supplier can use the threat of vertically integrating forward; and
when 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 case
of long production processes, inventory may not provide much liquidity because it cannot be
turned into cash immediately. Profitability ratios indicate ho w effectively a firm is being managed
in terms of its ability to generate profits. Leverage ratios identify and evaluate the source of a
firm s capital, i.e., o wners or outside creditors. Activity ratios measure a firm s efficiency in
generating sales and makin g collections.
10.
(c) primary activities
Value chain analysis divides a firm s activities into two major categories, i.e. , primary and support
activities. 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 by
providing 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-purchase
decisions. The quality of laboratories and o ther facilities is a factor of assessmen t for technology
development. The ability to obtain relatively low-cost funds for capital expenditure and working
capital is a factor of assessment for firm infrastructure. The appropriateness of reward systems for
motivating and challenging employees is a factor of assessment of human resource management.
12.
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. Through
forward integration, the firm moves forward in the distribution chain and comes closer to the end
consumer. This helps it to monitor the prices of its products better as well as to fine tune its levels
of output.
13.
(a) Functional strategies
Functional strategy helps in th e implementatio n of the grand strategy by organizing and activating
specific sub -units (marketing, finance, production, etc.) of the company. For example, the grand
strategy of a firm might be to go in for diversification. The organization s production strategy and
marketin 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 cost
leadership 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 ward
opportunistic strategies with higher payoffs.
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Part D
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 a
matrix. 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.
18.
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.
21.
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 cost
incurred, the revenue generated, as well as the associated investment
.
In investment centers, the
managers 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. Resource
dep 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 the
company, etc.
24.
(c) different, similar
Generic benchmarking is used by companies to improve their processes or activities by
benchmarking 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 learn
from the customer handling practices of Hotels. The three industries are different and there is no
competition among the firms in the three mentioned industries but all three are service-oriented
and 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 shareholders
and 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 the
disadvantages.
27.
(a) growth, mature
Conglo merate acquisitions of firms in growth industries are undertaken to utilize the accumulating
cash position of mature firms in declining indu stries whose internal flow of funds exceeds the
investment 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 low
stock 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 sheet
with 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 under
the 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 the
enterprise.
To use politics to pro mote effective change, the organization must create a power balance among
the 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 the
focus 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 to
predominate 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 pollution
instead 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 the
international 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 and
cater 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 properly
plan 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 rofile
includes 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 were
products 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 this
success 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. They
were 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 huge
choice 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 the
viewers 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 with
his “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.
323
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 entered
the film industry, he established a distribution co mpany an d an audio cassettes company. He did
not 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 the
ETV 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 the
businesses derived from one another. There was synergy between the TV and film businesses and
the Film City. The Film City offered all post-production facilities for a film like audio dub bing and
editing. 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 Movies
are 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 the
ETV network and Ushakiron Movies. Similarly, there is a synergy between Dolphin Hotels and the
Film 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 be
attributed 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 the
personal computer industry. In DELL s direct model, there were no retailers or resellers. By
eliminating intermediaries and managing its inventory and distribution process efficiently, DELL
offered its customers more powerful and customized computers at lower prices than its
co 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 its
product lines far ahead of its competitors.
DELL continuo usly made efforts to provide b etter customer service. Customers could log onto
Dell s website to check the status of their orders. They could request for e-mail notification of their
machine 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 to
purchase DELL machines over the Internet. These pages gave large corpo rate customers access to
automated paperless purchase orders. In order to enhance customer convenience, DELL tied up
with WebMethods, to develop software, which allo wed instantaneous communication within the
internal 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 urchasing
system and create an electronic requisition. Instantly, a computer-generated purchase order came
to DELL over the Internet. The entire process took 60 seconds. On an average, the product was
delivered within two days of the order b eing placed. The software helped red uce errors in DELL s
procurement 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 unique
business model. In mid 1998, DELL launched Valuechain.dell.co m, a site which let suppliers
know 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 as
it let DELL exchange information with its suppliers.
Valuechain.dell.com also helped DELL to place orders in real time, instead of relying on daily or
weekly 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 concerned
supplier. These efforts enabled DELL to achieve a savings of $150 million within two years of the
launch of Valuechain.dell.com.
324

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