Question Paper

Business Policy & Strategy (MB311) : October 2002

Part A : Basic Concepts (30 Points)

1.

A strategy that describes a companys overall direction in terms of its general attitude toward
growth and management of its various businesses and product lines is known as
a.
b.
c.
d.
e.

2.

Peter Drucker
Tom Peters
Milton Friedman
Archie Carroll
Michael Porter.

Technological variables in the societal environment include

a.
b.
c.
d.
e.

6.

Transformational leadership
Executive leadership
Managerial leadership
Prospective leadership
Proactive leadership.

A traditional view of business responsibility was proposed by

a.
b.
c.
d.
e.

5.

Strategy formulation
Strategy implementation
Strategy control
Strategy manipulation
Strategy direction.

The directing of activities towards the accomplishment of corporate objectives is referred to

as
a.
b.
c.
d.
e.

4.

Business strategy
Functional strategy
Corporate strategy
Firm strategy
Directional Strategy.

The process by which strategies and policies are put into action through the development of
programs, budgets, and procedures is known as
a.
b.
c.
d.
e.

3.

This part consists of questions with serial number 1 - 30.

Answer all questions.
Each question carries one point.
Maximum time for answering Part A is 30 Minutes.

Inflation rates
Patent protection
Tax laws
Rate family formation
Protection rights.

Which of the following forces regulate the exchange of materials, money, energy, and
information?
a.
b.
c.
d.
e.

Economic
Technological
Political-legal
Sociocultural
Technocommercial.

7.

The speed with which other firms can understand the relationship of resources and
capabilities supporting a successful firms strategy is known as
a.
b.
c.
d.
e.

8.

The connections between the way one value activity is performed and the cost of
performance of another activity are known as
a.
b.
c.
d.
e.

9.

Durability
Imitability
Replicability
Transparency
Delicacy.

Explicit knowledge
Tacit knowledge
Linkages
Respected activities
Protractor knowledge.

Which of the following is not a criticism against the SWOT analysis?

a.
b.
c.
d.
e.

The generation of lengthy lists

Ambiguity of words and phrases
No weights to reflect priorities
Multiple levels of analysis
All of the above.

10. Unique market opportunity that is available only for a particular time is known as
a.
b.
c.
d.
e.

Strategic niche
Strategic window
Strategic nuance
Multiple window
Multiple niche.

11. The examination of corporate strategy in terms of the companys orientation towards growth
is known as
a.
b.
c.
d.
e.

Corporate parenting
Directional strategy
Portfolio analysis
Corporate synopsis
Secondary strategy.

12. When a company grants rights to another company to open a retail store, using the
franchisers name and operations, this is referred to as
a.
b.
c.
d.
e.

Franchising
Exporting
Licensing
Production sharing
Partnering.

13. The opportunity to skim the cream from the top of the demand curve with a high price while
the product is novel and competitors are few can be referred to as
a.
b.
c.
d.
e.

Parallel pricing
Sole pricing
Skim pricing
Penetration pricing
Demand pricing.

14. Parts grouped into manufacturing families to produce a wide variety of mass-produced items
form the
a.
b.
c.
d.
e.

Connected manufacturing system

Dedicated manufacturing system
Flexible manufacturing system
Transfer manufacturing system
Coordinated manufacturing system.

15. The sum total of the activities and choices required for the execution of a strategic plan is
referred to as
a.
b.
c.
d.
e.

Strategy formulation
Strategy implementation
Strategy manipulation
Strategy evaluation
Strategy direction.

16. The various activities that must be carried out to complete a corporations programs are
known as
a.
b.
c.
d.
e.

Procedures
Budgets
Programs
Techniques
Reviews.

17. Hiring new people with new skills, firing people with inappropriate skills, and training
existing employees are a part of the function of
a.
b.
c.
d.
e.

Directing
Staffing
Motivating
Leading
Participating.

18. A challenge-oriented executive whose responsibility is to save a company is known as a(n)

a.
b.
c.
d.
e.

Turnaround specialist
Dynamic industry expert
Analytical portfolio manager
Cautious profit planner
Strategic director.

19. The difference between the pre-strategy and post-strategy value for the business is referred to
as
a.
b.
c.
d.
e.

Market value added

Economic value added
Strategy value added
Market driven philosophy
Differential value.

20. The confusion of means with ends and occurs when activities originally intended to help
managers attain corporate objectives become ends in themselves is known as the
phenomenon of
a.
b.
c.
d.
e.

Goal displacement
Short-term orientation
Long-term orientation
Cognitive dissonance
Target achievement.

21. A person who generates a new idea and supports it through many organizational obstacles is
known as a(n)
a.
b.
c.
d.
e.

Sponsor
Product champion
Technology champion
Orchestrator
Process specialist.

22. An organizational design appropriate for a new business with a great deal of strategic
importance and low operational relatedness is called
a.
b.
c.
d.
e.

New product business development

Micro new ventures department
Special business unit
Direct integration
Indirect integration.

23. Focusing on opportunities and not on problems, highlights the important entrepreneurial
characteristic of
a.
b.
c.
d.
e.

A sense of urgency that makes them action oriented

Ability to identify potential venture opportunities
A detailed knowledge of the industry keys to success
Access to outside assistance
All of the above.

24. The problem of obtaining customers and delivering the promised product or service relates to
the small business development substage of
a.
b.
c.
d.
e.

Survival
Existence
Success
Take-off
Decline.

25. A strategy in which top management retains all decision-making authority so that low-level
managers cannot take any actions to which the sponsors may object is called
a.
b.
c.
d.
e.

Offensive centralization
Defensive centralization
Conglomerate diversification
Concentric diversification
Vertical diversification.

26. A program which has the purpose of subsidizing primary service programs is called
a.
b.
c.
d.
e.

Strategic privatization
Strategic maneuvering
Strategic piggybacking
Strategic centralization
Strategic killing.

27. The calculation and analysis of ratios from data in financial statements is known as
a.
b.
c.
d.
e.

Investment analysis
Ratio analysis
Revenue analysis
Income analysis
Financial analysis.

28. One of the profitability ratios is

a.
b.
c.
d.
e.

Gross profit margin

Current ratio
Debt to equity ratio
Dividend payout ratio
Asset ratio.

29. The first step in the strategic decision making process is

a.
b.
c.
d.
e.

To review corporate governance

To evaluate current performance results
To analyze strategic factors
To scan and assess the internal corporate environment
To review the projected business plan.

30. One of the first steps in analyzing financial statements is to

a.
b.
c.
d.
e.

Compare historical statements over time

Calculate changes that occur in individual categories from year to year
Adjust for inflation
Scrutinize historical income statements and balance sheets
Provide smooth operationally sound budget plan.
END OF PART A

Part B : Caselets (50 Points)

This part consists of questions with serial number 1 8.

Answer all questions.
Points are indicated against each question.
Detailed workings should form part of your answer.
Do not spend more than 110 - 120 minutes on Part B.

Caselet 1
Read the following caselet carefully and answer the following questions:
1. Who are Boeing's and Airbus' customers? Comment on bargaining power of customers in the airline
industry.
2.

(6 points)
What are Porter's three generic strategies for competition within an industry? Relate them to product
development by the two companies. Which of them does the Sonic Cruiser strategy by Boeing represent?
What about Airbus' plan for the 380X?

3.

(7 points)
What is the time frame for airliner product design? Is it a fixed interval? Is product design a tactical
competence or a core competence for Boeing?
(6 points)

Competitive Strategy Moves for Boeing

Introducing new products into a marketplace can be a response to changes in the competitive landscape. When
evaluating the demand for new products, and in deciding whether and how to commercialize new product
offerings, firms have to consider how long the demand for a given product will last, as well as how much initial
demand they will face. Every product line has a different life cycle (compare washing machines to transistor
radios, for example), so some products have to be developed and sold over short time-spans. But there are also
products that have very long product development phases, lasting for years or even decades. The airline industry
is characterized by longer phases.
As the leading manufacturer of jet airliners, Boeing has long been locked in competition with Airbus Industries,
a European company. Started as a consortium of European defense manufacturers, Airbus has been increasingly
successful with its line of jets, meeting Boeing face-to-face in most product categories, but especially in smalland medium-size segments. Any airline, wherever it operates in the world, is quite likely to have jets from both
companies in their fleet. One product category where Airbus has less success is in the jumbo category, in which
passenger loads of 300 or more are suitable for trans-Atlantic or trans-Pacific flight. Boeing initiated this product
category in the 1970s with its successful 747 series.
Early in 2001, Airbus announced its plans to enter this category with a new airplane, the A380, as a
superjumbo with seats for 550 passengers. Boeing promptly announced that it would re-design the 747-400
the largest model of the 747 as the 747X, adding additional passenger capacity. Things changed, however: a
few months later, Boeing announced a different strategy, choosing to target a market sector that was not based
on size, but on speed and distance instead.
Their solution is a Sonic Cruiser, which is expected to have around 250 seats, only a medium size. What it
lacks in seats is compensated by improvements in speed and distance. It will be able to fly farther and faster, thus
making it possible for trans-oceanic customers to get directly to their destination city from major hubs in the
U.S. or Europe, or directly to the ultimate destinations in Asia and Australia. Trans-oceanic flight inevitably
requires multiple flights and stops. Boeing perceives that passengers will prefer direct flights. Adding thousands
of miles to its range and using more powerful engines will make the Cruiser more suitable for airlines to meet
the demands of more specific and narrowly defined travel segments.
Thinking About the Future!
In the complex aviation market, there is interaction between airline manufacturers, airliners, airports and civil
aviation authority, labor, and travel customers - each with its own stakeholders. Each of these very different
groups work towards greater mobility for goods and services, at a lower cost, and each would also like to harvest
the benefit that they desire most for their efforts! For the businesses, it will be profit, return on investment, and
6

market share; human resources and human customers will seek greater service; and competitive and regulated
aviation market institutions attempt to implement policy. Successful competitors need expertise in navigating all
of these waters simultaneously. For Boeing and Airbus, the gamble that they place with their product
development expenditures is billions of dollars in up-front expenditure vs. the uncertain returns from anticipated
sales of the airplane. They are betting on certain circumstances to be present that will be favorable to the success
of their product even though that won't be determined for years down the line. Other airplane manufacturers in
different product categories face similar competitive choices. For example, numerous commuter airlines are
consumers for short-hop, propeller-driven planes to fly less than 500 miles with fewer than 50 passengers. This
system feeds well into the major airlines by flying from those airlines' hubs. Bombardier, Embraer, and other
airplane manufacturers compete in these segments.

Caselet 2
Read the following caselet carefully and answer the following questions:
4. Why are soup sales up after September 11?
(5 points)
5.

Why are increased sales not necessarily a thing to cheer about in Campbell?

6.

How has Progresso been able to take some market share from Campbell over the years?

(7 points)
(7 points)
Campbell's Soup Shipments Rise As Buyers Stock Pantries
Americans purchased plenty of comforting and non-perishable supplies, such as canned soup, after the terrorist
attacks of September 11. Campbell Soup Co. was one of several companies that experienced a surge in sales. For
the three-month period ending October 28, the company's U.S. soup shipments increased six percent over a year
ago-a sharp contrast from its July's announcement of a 3-year turnaround plan to increase soup sales.
However, because some of the sales could be from people stocking up, it leaves a big question mark for
companies like Campbell. Campbell executives seem to be unclear on this issue, as they reported that they were
flying somewhat in the dark over consumer trends and future sales prospects. Increased soup shipments do not
necessarily translate into increased consumption.
In July, CEO Douglas R. Conant laid out a three-year transition plan to resuscitate Campbell. The plan called for
quality improvements to the soup line and a significant increase in marketing outlays, some of which is aimed at
boosting non-soup brands like Prego sauces and Franco-American canned pasta. Campbell's problems arose due
to so-called trade loading in late 1990s, when the company encouraged retailers to buy more soup than they
could reasonably sell. That temporarily improved the company's numbers at the time, but left retailers with
bloated inventories and disappointing sales to consumers.
The fear now is that consumers may be engaging in a similar loading of their own pantries. If that is true, once
again the company can expect the sales to slump sooner or later. The problem is that, unlike retailers, who are
few in number and purchase in huge quantities, consumer data is harder to collect. Campbell's own limited
research on this issue suggests that consumers are indeed consuming what they are buying.
Campbell, for its part, is doing all it can to increase sales, if not consumption. It increased ad and promotional
spending by 20 percent in the quarter, and showered shoppers with coupons and other store promotions. It also
launched a new TV spot for its Chunky brand. All these efforts seem to have paid off, as the company has gained
market share at the expense of General Mills' Progresso. Although Campbell owns roughly 70 percent of market
share in the wet soup category, Progresso has been a tough competitor and has made dents in Campbell's
dominant position for years. Progresso has been taking market share with ready-to-serve soups, unlike
Campbell's traditional soups that are condensed and require adding water. Campbell also has begun to offer
ready-to-serve soups, and for good reason: sales of this variety climbed 17 percent in Campbell's fiscal first
quarter, compared with a one percent increase for the condensed variety. Still, it is clear that the long-term
prospects for the company lie on how closely consumption of soups tracks their sales.
Thinking About the Future!
What are the longer-term actions that Campbell's executives need to take at this time? What lessons does
Progresso's gain in market share over Campbell's over the years have for strategic managers?
Campbell's executives must use the opportunity of increased sales to develop a better relationship with
customers. This is an opportunity to offer soup as a more contemporary offering to a new generation of
consumers, as opposed to something mom used to make. If soups are bought only as comfort foods or as cheap
food, its value will be limited. Campbell's executives would need to reconnect with consumers and provide them
7

with fresh perspectives that integrate the soup category and the Campbell's brand in a way that fits in well with
the lifestyle of current consumers. This is always a challenge for companies with a long history of well-known
brand names. They become victims of their own successful brand, and fail to attract new consumers, as the brand
becomes a constraint. Other companies such as Levi's and Coca-Cola also faced the same challenges, and both
tried to overcome these challenges by new ways to connect their existing brands to current consumers, as well as
by launching other brands that do not have to carry a legacy.
Progresso's success in the marketplace is precisely due to a better tracking of consumer trends by Progresso's
parent, General Mills. One of the premier breakfast cereal companies, General Mills probably picked up on
consumers' lack of time very quickly. They were also smart enough to use that trend to offer products across
other categories that would fit well with consumer needs. Progresso Soup was a very good fit, since ready-toserve soups would further save consumers' time and still offer soup in the comfort of one's home. Campbell
should have seen it coming. Campbell's late entry into this market definitely also played a role in Progresso's
success. Strategic managers must be aware of problems of managing legendary brands, and recognize that failure
to innovate and listen to consumers are very typical problems that are tied to past successes.

Caselet 3
Read the following caselet carefully and answer the following questions:
7. What are the reasons for structuring according to product?
8.

(6 points)
What is the likelihood that the global product structure will be sustainable in the long term? How about in
the short term?

(6 points)
Structure by Country or Structure by Product?
Exide Corporation has gone through a process of creating a structure that meets the needs of a $2.4 billion global
company. Exide's main product line is batteries for storing electric power. Exide was led by chairperson and
CEO Robert A. Lutz, a long-time executive with Chrysler Corporation before its merger with Daimler-Benz in
1998. Since then, Lutz has left Exide to return to the auto business with an executive position at General Motors.
However, the restructuring process as one led by him personally from 1999 to 2001 is described in brief.
The structures of organizations and companies tend to be fluid, rarely lasting in the same exact form for more
than four or five years. Generally, structure follows strategy, and companies frequently go through strategy
changes every few years that result in changes in structure. For example, the Ford Motor Co. had two major reorganizations in the late 1990s into 2000. Procter & Gamble, ABB, and Nestl are other firms that have changed
their global structure in recent years. All of them face a similar challenge, which is whether the overall view of
structure should be one oriented to product and/or business lines, or if it should be oriented to countries and/or
regions. Roughly speaking if a company has three regions and competes in four different product areas, the overriding structure question would be to decide whether product managers would supervise their operations in each
of the three regions, or if country managers would supervise the operations of all four product lines. Exide
operates in Europe, Latin America, and Asia, as well as in the U.S. Its product lines include car batteries, and
industrial batteries of various sizes and for various applications. Its operations include manufacturing, sales, and
distributing, and these activities take place in all regions.
How the change process was difficult to manage, both from a dollars and cents perspective and from a human
relations standpoint. Fundamentally, Lutz observed more problems than benefits in the country-based approach
to managing its business and implemented a structure oriented around six global business units. In this kind of
structure, all activities related to a given kind of business (say, sales of one kind of product) are managed
globally. In the prior, country-based structure, the managers within each country supervised all Exide operations.
Thinking About the Future!
Is there a single answer to the global- or product-based structure? In reality, there can't bethe ultimate answer
is almost always in the middle. There is more than one benefit from each approach that has value. A countrybased approach clearly uses more local knowledge and is more responsive to local conditions. The product-based
approach has benefits of consistency in global brand development and management. Each offers different career
development options for its managers. At Nestl, Peter Brabeck describes the pressures that the global food
company faces in managing conflicting pressures for localization and globalization.

END OF PART B

Part C : Applied Theory (20 Points)

9.

This part consists of questions with serial number 9 - 11.

Answer all questions.
Points are indicated against each question.
Do not spend more than 25 -30 minutes on Part C.

The present status of Hindustan Motors is precarious. The top management feels that there is no need to
panic and still there is lot of room for playing in the automobile market in India. In fact there are records
that suggest a huge export potential for its cars in Europe and African continents. How can a corporation
keep from sliding into the Decline stage of the organizational life cycle?

(6 points)
10. Vijaya Bank has a strong presence in South India. It has over 2000 branches in the country. In many South
Indian cities, the bank has branches very near to each other resulting in cannibalization phenomena.
Overall, the bank is not doing well. It has falling net worth since 6 years. The bank has to act very fast to
arrest the further fall of net worth. It had identified that there is lot of flab in the system and the bank had
decided to prune the fat. What are some ways to implement a retrenchment strategy without creating a lot
of resentment and conflict with labor unions?
(7 points)
11. AIL is a company in the Aluminum sheet manufacturing business. Over the years it had identified that there
is no great increase in demand for its products. The top management had decided to, some how, keep the
company afloat and ensure very stable returns year on year to its shareholders. Is stability really a strategy
or just a term for no strategy? Discuss.
(7 points)

END OF PART C
END OF QUESTION PAPER

Suggested Answers
Business Policy & Strategy (MB311) : October 2002
Part A : Basic Concepts
1.

2.

3.

4.

5.

6.

7.

8.

9.

Answer : (c)
Reason : Corporate strategy describes the companys overall direction in terms of its general attitude
toward growth and the management of its various businesses and product lines. Corporate
strategies fit in the three main categories of stability, growth, and retrenchment. Answers a, b, d,
e are incorrect since, business strategy, functional strategy and firm strategy do not deal with the
overall direction of the firm in terms of its general attitude toward growth and management of its
various businesses and product lines.
Answer : (b)
Reason : Strategy implementation is the process by which strategies and policies are put into action
through development of programs, budgets and procedures. Strategy implementation is
conducted by middle and lower management. Answers a, c, d, e are incorrect since, strategy
formulation stage is a prerequisite for implementation and control is the post requisite to
implementation.
Answer : (b)
Reason : Executive leadership directs the activities toward accomplishment of corporate objectives.
Executive leadership sets the tone for the entire corporation. Answers a, c, d, e are incorrect
since, transformational leadership deals with the activities to turnaround a business from wrong
direction to align towards the objectives. Managerial leadership deals those activities pertaining
to operations of the enterprise.
Answer : (c)
Reason : Milton Friedman proposed the traditional view of business responsibility. Milton Friedman
contends that the primary goal of business is profit maximization. Answers a, b, d, e are
incorrect since, they did not propose the traditional view of business responsibility.
Answer : (b)
Reason : Patent protection is a technological variable in the societal environment. Improvements in
technology result in advances in several areas, including the manufacturing, agricultural, and
service sectors. Answers a, c, d, e are incorrect since, inflation rates pertain to economic
environment, and tax laws relate to financial and legal environment.
Answer : (a)
Reason : Economic forces regulate the exchange of materials, money, energy, and information. Economic
forces include GDP trends, unemployment levels, and money supply. Answers b, c, d, e are
incorrect since, technological forces regulate the product environment.
Answer : (d)
Reason : The speed with which other firms can understand the relationship of resources and capabilities
supporting a successful firms strategy is known as transparency. Transparency is a component
of imitability. Answers a, b, c, e are incorrect due to the understandability factor described in the
correct answer.
Answer : (c)
Reason : Linkages enables the firms to establish connections between the way one value activity is
performed and the cost of performance of another activity. The examination of linkages lends
itself to the enhancement of a competitive advantage. Answers a, b, d, e are incorrect since, they
do not tend towards linkages nor establish connections.
Answer : (d)
Reason : a, b, and c are valid criticisms of SWOT. SWOT does not have multiple levels of analysis. The
SWOT analysis has been criticized for the issue that it only accounts for a single level of
analysis. Answers a, b c, e are incorrect due to the explanation given above.

10

10. Answer : (b)

Reason : A strategic window is a unique market opportunity that is available only for a particular time and
is served by the competitors as soon as possible. The first firm through a strategic window can
occupy a propitious niche and discourage competition. Answers a, c, d, e are incorrect due to the
above explanation.
11. Answer : (b)
Reason : Directional strategy emphasizes the companys orientation towards growth. One issue of
directional strategy is the company's growth strategies. Answers a, c, d, e are incorrect due to the
explanation as given for directional strategy.
12. Answer : (a)
Reason : Granting rights to another is through franchising. The franchisee pays the franchiser a percentage
of its sales as a royalty. Answers b, c, d, e are incorrect, since others forms do not grant rights.
13. Answer : (c)
Reason : Skimming (in terms of price) the market means high price for a novel product with few
competitors. Skim pricing may be an appropriate option for new-product pioneers. Answers a, b,
d, e are incorrect since they do not form part of the explanation.
14. Answer : (c)
Reason : Flexible manufacturing system uses various grouped parts to produce wide variety of mass
produced items. Flexibility allows for more efficiency in operations. Answers a, b, d, e are
incorrect since others do not produce wide variety of mass produced items through various
grouping of parts.
15. Answer : (b)
Reason : Strategy implementation stage deals with the requirements after formulation. Strategy
implementation is a key part of strategic management. Answers a, c, d, e are incorrect since they
do not deal with the stage after formulation.
16. Answer : (a)
Reason : Procedures are the activities that must be carried out to complete a strategic program. Procedures
ensure that the operations will be consistent over time. Answers b, c, d, e are incorrect since,
they do not form the activities to complete a strategic program.
17. Answer : (b)
Reason : Staffing function deals with people skill sets, hiring, firing and training. The implementation of
strategy affects human resource management priorities and a different use of personnel.
Answers a, c, d, e are incorrect since they do not deal with the functions related to people.
18. Answer : (a)
Reason : Turnaround specialist is a challenge oriented executive who shoulders the responsibility to save
a company. Weak companies in a relatively attractive industry may hire a turnaround specialist
to save the company. Answers b, c, d, e are incorrect since, they do not form the challenge
orientation nor shoulder the responsibility to save a company.
19. Answer : (b)
Reason : Economic Value Added is a concept that measures the difference between pre and post strategy
implementation. EVA may replace ROI as the standard performance measure. Answers a, c, d, e
are incorrect as they do not measure the difference between pre and post strategy.
20. Answer : (a)
Reason : Goal displacement refers to the concept of confusion of means with ends. Two types of goal
displacement are behavior substitution and suboptimization. Answers b, c, d, e are incorrect
since the concept is confusion of means and ends is goal displacement.
21. Answer : (b)
Reason : Product champion supports it through many organizational obstacles. Answers a, c, d, e are
incorrect since they do not pertain to the question in discussion.
22. Answer : (c)
Reason : Special business unit has great deal of strategic importance and low operational relatedness to
the existing business. The special business unit should have specific objectives and time
horizons. Answers a, b, d, e are incorrect since the options do not have high strategic importance
and low operational relation to the existing business.
11

23. Answer : (b)

Reason : The entrepreneurial characteristic that makes an entrepreneur focus on opportunities and not on
the problem is the ability to identify potential venture opportunities. Entrepreneurs are goal
oriented and have a strong impact on the emerging culture of an organization. Answer a, c, d, e
are incorrect since they do not pertain to the question in discussion.
24. Answer : (b)
Reason : Existence deals with problem of obtaining customers and delivering the promised product or
service in a small business development stage. The organizational structure in the existence
substage is simple. Answers a, c, d, e are incorrect since they do not pertain to the question in
discussion.
25. Answer : (b)
Reason : Defensive centralization deals with retaining all decision making authority at the top
management level. The top management of a not-for-profit organization must always be alert to
the sponsors' view of an organizational activity. Answers a, c, d, e are incorrect since they do
not pertain to retention of all decision making authority at the top management level.
26. Answer : (c)
Reason : Strategic piggybacking deals with subsidizing the primary service programs. The program is
related typically in some manner to the not-for-profit's mission. Answers a, b, d, e are incorrect.
27. Answer : (b)
Reason : Ratio analysis deal with the calculation of ratios in the financial analysis. Ratio analysis is done
to identify possible financial strengths or weaknesses. Answers a, c, d, e are incorrect since they
deal with other than ratios.
28. Answer : (a)
Reason : Gross profit margin deals with gross profit figures of the profit and loss statement. Gross profit
margin indicates the total margin available to cover other expenses beyond cost of goods sold,
and still yield a profit. Answers b, c, d, e are incorrect since others do not deal with gross profit
figures.
29. Answer : (b)
Reason : The first step in the strategic decision making process is to evaluate current performance results.
One way to evaluate performance is to examine profitability. Answers a, c, d, e are incorrect
since the first step to review the existing and then proceed to take strategic decisions.
30. Answer : (d)
Reason : The first step is to scrutinize historical income statements and balance sheets. Historical income
statements and balance sheet statements provide most of the data needed for financial analysis.
Answers a, b, c, e are incorrect since they are not pertaining to the first step.

12

Part B : Problems (MB-311)

1.

Boeing's and Airbus' customers are the airline service providers like the Air India, Singapore Airlines,
British Airways, Jet Airways, etc. Major airline service providers use either Boeing or Airbus
manufactured airplanes. Other manufacturers of airplanes are Bombardier, Embraer and other small
manufacturers.
The bargaining power of customers depends on their ability to force down prices, bargain for higher quality
or more services, play competitors against each other. The customer or a group of customers is powerful if
some of the following factors hold true:

A customer purchases a large portion of the sellers product or service

A customer has the potential to integrate backward by producing the product itself
Alternate suppliers are plentiful because the product is standard or undifferentiated

Changing suppliers costs very little

The purchased product represents a high percentage of a customers costs, thus providing an incentive
to shop around for a lower price
A customer earns low profits and is thus very sensitive to costs and service differences
The purchased product is unimportant to the final quality or price of a customers products or services
and thus can be easily substituted without affecting the final product adversely
In light of the above discussion, the bargaining power of the customers tends to be weak. However,
major airline service providers have formed consortiums to promote their operations better. In light of
that fact, the bargaining power of these airline service providers tends to be strong.

2.

Porter's three generic strategies for competition within an industry are:

Cost Leadership
Differentiation
Focus
Porter argues that to be successful, a company must achieve one of the generic competitive strategies.
Otherwise, the company is stuck in the middle of the competitive marketplace with no competitive
advantage and is doomed to below-average performance. Although Porter agrees that it is possible for a
company to achieve low cost and differentiation simultaneously, he argues that this state is often
temporary. However, Porter does admit that many different kinds of potentially profitable competitive
strategies exist. Although there is generally room for only one company to successfully pursue the mass
market cost leadership because it is so dependent on achieving dominant market share, there is room for
an almost unlimited number of differentiation and focus strategies depending on the range of possible
desirable features and the number of identifiable market niches.
Quality, alone, has eight different dimensions each with the potential of providing a product with a
competitive advantage.
Most entrepreneurial ventures follow focus strategies. The successful ones differentiate their product from
those of other competitors in the areas of quality and service, and they focus the product on customer needs
in a segment of the market, thereby achieving a dominant share of that part of the market. Adopting
guerrilla warfare tactics, these companies go after opportunities in market niches too small to justify
retaliation from the market leaders.
So, no one competitive strategy is guaranteed to achieve success. Each of the generic strategies has its risk.
Both of the major industry players in airplane manufacturing have different generic strategies at different
points of time. Their competitive tactics involve timing tactics and market location tactics too.
Boeings Sonic Cruiser represents a Differentiation and Focus strategy for a first mover (or pioneer)
advantage. The product is for a different market niche and focused towards a market segment. On the
other hand, Airbus' 380X is represented by cost leadership and focus strategy for achieving cost leadership
in production of larger airplanes with a focus for a general market.

3.

Time frame for airplane manufacturing design and development takes place for longer phases. They extend
for years or ever decades. There is no fixed interval time for design and development of an airplane. As
and when the manufacturers identify the potential niches in the market they tend to cater to that market with
a new product design and development of an airplane for such market niche in the shortest possible time
interval to have the first mover advantage.
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Core competence of airplane design and development depends on three tests:

Customer Value The competency must make a disproportionate contribution to customer perceived value.
Competitor Unique The competency must be unique and superior to competitor capabilities.
Extendibility The competency must be something that can be used to develop new products or services or
enter new markets.
Tactical competency on the other hand involves:
Timing Tactics When to Compete First mover advantage industry leader, gain learning curve effect to
move towards cost leadership position, earn temporary high profits, and set industry standards. Late mover
advantage imitates technological advances of others (R&D costs low), and keeps risks down.
Market Location Tactics Where to Compete Offensive Tactics Defensive Tactics
4.

Societal Environment comprises of

Economic forces that regulate the exchange of materials, money, energy and information
Technological forces that generate problem-solving inventions
Political-legal forces that allocate power and provide constraining and protecting laws and regulations
Sociocultural forces that regulate the values, mores, and customs of society.
The economic factors have influenced the Americans that there might be an increase in prices of general
consumption products. Therefore, the consumers might have increased the purchasing of these soups that
they normally require in their pantries. The sociocultural factors have influenced them to work harder and
be more productive to regain the loss making them to compensate their time loss with ready to eat foods.
Above all, the promotions that the company had undertaken had made a dent into the perceptions of the
consumer, thereby increasing the sales of these soups in the quarter. Promotions are short-term tactical
programs that promote the companys products for a specific time frame to boost the sales.

5.

Increased sales are not a thing to cheer at Campbells because; there was a time when the company in 1990s
has stocked up inventories in the channel that eventually did not sell. Temporary increase in sales does
take place but the channel partners return the unsold stock to the company making the company reverse its
profits in the subsequent period. However, that was a problem with inventory in the channel at that point of
time. Presently, the company had identified that the soups it sold to the channel are liquidated to the end
consumers and that there is a real consumption of these soups in more quantity at the consumer level.
However, the company was worried that these soups sold to the consumers have been stocked up by the
consumers in their pantries. Thus, either there would be purchase returns by these consumers or a future
slump in sales due to current lower actual consumption. However, the promotional campaign undertaken
by the company suggests that the consumers have really consumed these soups that they had purchased and
there could be lower impact of sales returns in the subsequent period.

6.

A strategic type is a category of firms based on a common strategic orientation and a combination of
structure, culture, and processes consistent with that strategy. Competing firms within a single industry can
be categorized on the basis of their general strategic orientation into one of the four basic types:
Defenders focus on improving the efficiency of their existing operations.
Prospectors focus on product innovation and market opportunities. They tend to emphasize creativity
over efficiency.
Analyzers operate in at least two different product-market areas, one stable and one variable. In the
stable areas, efficiency is emphasized. In the variable areas, innovation is emphasized.
Reactors lack a consistent strategy-structure-culture relationship.
Progresso had made use of the prospector and analyzer type of strategy over the years. They identified the
lack of time in consumers market opportunity and came up with an innovative ready to serve soup that
gels well with their stable product category of ready to serve breakfast cereals.
Progresso had made use of differentiation and focus approaches of generic strategies too over the years.

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7.

A basic dilemma a MNC faces is how to organize authority centrally so that it operates as a vast
interlocking system that achieves synergy, and at the same tome decentralize authority so that local
managers can make the decisions necessary to meet the demands of the local market or host government.
To deal with this problem, MNCs tend to structure themselves either along product groups or geographic
areas. They may even combine both in a matrix structure.
Product-group structure enables the company to introduce and manage a similar line of products around the
world. This enables the corporation to centralize decision making along product lines and to reduce costs.

8.

The geographic-area structure allows the company to tailor products to regional differences and to achieve
regional coordination. This decentralizes decision making to the local subsidiaries. As industries move
from being multidomestic to more globally integrated, MNCs are increasingly switching from the
geographic-group structure to the product-group structure. By placing groups which will perform similar
work in the same location, they will be able to share information, ideas, and resources more redealy and
move critical information throughout the organization.
Simultaneous pressures for decentralization to be locally responsive and centralization to be maximally
efficient are causing interesting structural adjustments in most large corporations. This is what is meant by
think globally, act locally. Companies are attempting to decentralize those operations that are culturally
oriented and closest to the customers manufacturing, marketing, and human resources. At the same time,
the companies are consolidating less visible internal functions, such as research and development, finance,
and information systems, where there can be significant economies of scale.

Part C: Applied Theory

9.

Even though a companys strategy may still be sound, its aging structure, culture, and processes may be
such that they prevent the strategy from being executed properly thus the company moves into decline.
However, a revival phase may occur sometime during the maturity or decline stages. The corporations life
cycle can be extended by managerial and product innovations. This often occurs during the implementation
of a turnaround strategy. Unless a company is able to resolve the critical issues facing it in the decline
stage, it is likely to move into corporate death also known as bankruptcy. A corporation might
nevertheless rise like a phoenix from its own ashes and live again under the same or a different name. The
company may be reorganized or liquidated, depending on individual circumstances.
The key is to be able to identify indications that a firm is in the process of changing stages and to make the
appropriate strategic and structural adjustments to ensure that corporate performance is maintained or even
improved.

10. Downsizing sometimes known as rightsizing refers to planned elimination of positions or jobs. This
program is often used to implement retrenchment strategies. The following issues need to be discussed for
successful downsizing:
Elimination of unnecessary work instead of making across the board cuts.
Contract out work that others can do cheaper.
Plan for long run efficiencies.
Communicate the reasons for actions.
Invest in the remaining employees.
Develop value added jobs to balance out job elimination.
11. Stability strategies A corporation may choose stability over growth by continuing its current activities
without any significant change in direction. Although sometimes viewed as a lack of strategy, the stability
family of corporate strategies can be appropriate for a successful corporation operating in a reasonably
predictable environment. They are very popular with small business owners who have found a niche and
are happy with their success and the manageable size of their firms. Stability strategies can be very useful
in the short run, but they can be dangerous if followed for too long.
Some of the more popular of these stability strategies are:
Pause/Proceed with Caution Strategy it is a temporary strategy to be used until the environment becomes
more hospitable or to enable a company to consolidate its resources after prolonged rapid growth.

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No Change Strategy a choice to continue current operations and policies for the foreseeable future. The
strategy is more to do with if the corporation has probably found a reasonably profitable and stable niche
for its products.
Profit Strategy to do nothing new in a worsening situation. Act as though the companys problems are
only temporary. Management defers investments and or cuts expenses to stabilize profits during this
situation.

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