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BUSINESS ENVIRONMENT IIBMS EXAM ANSWER PROVIDED

BUSINESS ENVIRONMENT IIBMS EXAM ANSWER PROVIDED

Attempt Any Four Case Study

Case Study 1 : Structuring global companies

 

As the chapter illustrates, to carry out their activities in pursuit of their objectives, virtually all organisations adopt some form of organisational structure. One traditional method of organisation is to group individuals by function or purpose, using a departmental structure to allocate individuals to their specialist areas (e.g. Marketing, HRM and so on ). Another is to group activities by product or service, with each product group normally responsible for providing its own functional requirements. A third is to combine the two in the form of a matrix structure with its vertical and horizontal flows of responsibility and authority, a method of organisation much favoured in university Business Schools.

What of companies with a global reach: how do they usually organise them-
selves?

Writing in the Financial Times in November 2000 Julian Birkinshaw, Associate Professor of Strategic and International Management at London Business School, identifies four basic models of global company structure:

  • The International Division – an arrangement in which the company establishes a
    separate division  to  deal  with  business  outside  its  own  country.  The
    International Division would typically be concerned with tariff and trade issues,
    foreign agents/partners and other aspects involved in selling overseas. Normally
    the division does not make anything itself, it is simply responsible for interna-
    tional sales. This arrangement tends to be found in medium-sized companies
    with limited international sales.

The Global Product Division – a product-based structure with managers responsible
for their product line globally. The company is split into a number of global busi-
nesses arranged by product (or service) and usually overseen by their own
president. It has been a favoured structure among large global companies such as
BP, Siemens and 3M.

  • The Area Division – a geographically based structure in which the major line of
    authority lies with the country (e.g. Germany) or regional (e.g. Europe) manager who
    is responsible for the different product offerings within her/his geographical area.
    ● The Global Matrix – as the name suggests a hybrid of the two previous structural
    types. In the global matrix each business manager reports to two bosses, one
    responsible for the global product and one for the country/region. As we indi-
    cated in the previous edition of this book, this type of structure tends to come
    into and go out of fashion. Ford, for example, adopted a matrix structure in the
    later 1990s, while a number of other global companies were either streamlining
    or dismantling theirs (e.g. Shell, BP, IBM).

As Professor Birkinshaw indicates, ultimately there is no perfect structure and organisations tend to change their approach over time according to changing circumstances,  fads,  the  perceived  needs  of  the  senior  executives  or  the predispositions of powerful individuals. This observation is no less true of universities than it is of traditional businesses.

Case study questions

  1. Professor Birkinshaw’s article identifies the advantages and disadvantages of being a global business. What are his major arguments?

 

  1. In your opinion what are likely to be the key factors determining how a global company will organise itself?

 

Case 2 : Resource prices

 

As we saw in Chapter 1, resources such as labour, technology and raw materials
constitute inputs into the production process that are utilised by organisations to
produce outputs. Apart from concerns over the quality, quantity and availability of
the different factors of production, businesses are also interested in the issue of
input prices since these represent costs to the organisation which ultimately have
to be met from revenues if the business is to survive. As in any other market, the
prices of economic resources can change over time for a variety of reasons, most, if
not all, of which are outside the direct control of business organisations. Such fluc-
tuations in input prices can be illustrated by the following examples:

  • Rising labour costs – e.g. rises in wages or salaries and other labour-related costs
    (such as pension contributions or healthcare schemes) that are not offset by
    increases in productivity or changes in working practices. Labour costs could rise
    for a variety of reasons including skills shortages, demographic pressures, the
    introduction of a national minimum wage or workers seeking to maintain their
    living standards in an inflationary period.
  • Rising raw material costs – e.g. caused by increases in the demand for certain raw
    materials and/or shortages (or bottlenecks) in supply. It can also be the result of
    the need to switch to more expensive raw material sources because of customer
    pressure, environmental considerations or lack of availability.
  • Rising energy costs – e.g. caused by demand and/or supply problems as in the oil
    market in recent years, with growth in India and China helping to push up
    demand and coinciding with supply difficulties linked to events such as the war
    in Iraq, hurricanes in the Gulf of Mexico or decisions by OPEC.
    ● Increases in the cost of purchasing new technology/capital equipment – e.g.
    caused by the need to compete with rivals or to meet more stringent government
    regulations in areas such as health and safety or the environment.

As the above examples illustrate, rising input prices can be the result of factors operating at both the micro and macro level and these can range from events which are linked to natural causes to developments of a political, social and/or economic kind. While many of these influences in the business environment are uncontrollable, there are steps business organisations can (and do) often take to address the issue of rising input prices that may threaten their competitiveness. Examples include the following:

  • Seeking cheaper sources of labour (e.g. Dyson moved its production of vacuum
    cleaners to the Far East).
  • Abandoning salary-linked pension schemes or other fringe benefits (e.g. com-
    pany cars, healthcare provisions, paid holidays).
  • Outsourcing certain activities (e.g. using call centres to handle customer com-
    plaints, or outsourcing services such as security, catering, cleaning, payroll, etc.). ● Switching raw materials or energy suppliers (e.g. to take advantage of discounts

by entering into longer agreements to purchase).

 

  • Energy-saving measures (e.g. through better insulation, more regular servicing of
    equipment, product and/or process redesign).
  • Productivity gains (e.g. introducing incentive schemes).

In addition to measures such as these, some organisations seek cost savings through
divestment of parts of the business or alternatively through merger or takeover
activity. In the former case the aim tends to be to focus on the organisation’s core
products/services and to shed unprofitable and/or costly activities; in the latter the
objective is usually to take advantage of economies of scale, particularly those asso-
ciated with purchasing, marketing, administration and financing the business.

 

 

Case study questions

  1. If a company is considering switching production to a country where wage costs
    are lower, what other factors will it need to take into account before doing so?

 

  1. Will increased environmental standards imposed by government on businesses
    inevitably result in higher business costs?

 

Case 3 : Government and business – friend or foe?

 

As we have seen, governments intervene in the day-to-day working of the economy
in a variety of ways in the hope of improving the environment in which industrial
and commercial activity takes place. How far they are successful in achieving this
goal is open to question. Businesses, for example, frequently complain of over-
interference  by  governments  and  of  the  burdens  imposed  upon  them  by
government legislation and regulation. Ministers, in contrast, tend to stress how
they have helped to create an environment conducive to entrepreneurial activity
through the different policy initiatives and through a supportive legal and fiscal
regime. Who is right?

While there is no simple answer to this question, it is instructive to examine the
different surveys which are regularly undertaken of business attitudes and condi-
tions in different countries. One such survey by the European Commission – and
reported by Andrew Osborn in the Guardian on 20 November 2001 – claimed that
whereas countries such as Finland, Luxembourg, Portugal and the Netherlands
tended to be regarded as business-friendly, the United Kingdom was perceived as
the most difficult and complicated country to do business with in the whole of
Europe. Foreign firms evidently claimed that the UK was harder to trade with than
other countries owing to its bureaucratic procedures and its tendency to rigidly
enforce business regulations. EU officials singled out Britain’s complex tax formali-
ties, employment regulations and product conformity rules as particular problems
for foreign companies – criticisms which echo those of the CBI and other represen-
tative bodies who have been complaining of the cost of over-regulation to UK firms
over a considerable number of years.

The news, however, is not all bad. The Competitive Alternatives study (2002) by
KPMG of costs in various cities in the G7 countries, Austria and the Netherlands
indicated that Britain is the second cheapest place in which to do business in the
nine industrial countries (see www.competitivealternatives.com). The survey, which
looked at a range of business costs – especially labour costs and taxation -, placed
the UK second behind Canada world-wide and in first place within Europe. The
country’s strong showing largely reflected its competitive labour costs, with manu-
facturing costs estimated to be 12.5 per cent lower than in Germany and 20 per
cent lower than many other countries in continental Europe. Since firms frequently
use this survey to identify the best places to locate their business, the data on rela-
tive costs are likely to provide the UK with a competitive advantage in the battle for
foreign inward investment (see Mini case, above).

 

Case study questions

  1. How would you account for the difference in perspective between firms who often
    complain of government over-interference in business matters and ministers who
    claim that they have the interests of business at heart when taking decisions?

 

  1. To what extent do you think that relative costs are the critical factor in determining
    inward investment decisions?

 

 

Case 4 : The end of the block exemption

 

As we have seen in the chapter, governments frequently use laws and regulations to promote competition within the marketplace in the belief that this has significant benefits for the consumer and for the economy generally. Such interventions occur not only at national level, but also in situations where governments work together to provide mutual benefits, as in the European Union’s attempts to set up a ‘Single Market’ across the member states of the EU.

While few would deny that competitive markets have many benefits, the search
for increased competition at national level and beyond can sometimes be
restrained by the political realities of the situation, a point underlined by a previous
decision of the EU authorities to allow a block exemption from the normal rules of
competition in the EU car market. Under this system, motor manufacturers operat-
ing within the EU were permitted to create networks of selective and exclusive dealerships and to engage in certain other activities normally outlawed under the competition provisions of the single market. It was argued that the system of selective and exclusive distribution (SED) benefited consumers by providing them with a cradle-to-grave service, alongside what was said to be a highly competitive supply situation within the heavily branded global car market.

Introduced in 1995, and extended until the end of September 2002, the block
exemption was highly criticised for its impact on the operation of the car market in
Europe. Following a critical report by the UK competition authorities in April 2000,
the EU published a review (in November 2000) of the workings of the existing
arrangement for distributing and servicing cars, highlighting its adverse conse-
quences for both consumers and retailers and signalling the need for change. Despite
intensive lobbying by the major car manufacturers, and by some national govern-
ments, to maintain the current rules largely intact, the European Commission
announced its intention of replacing the block exemption regulation when it expired
in September, subject of course to consultation with interested parties.

In essence the Commission’s proposals aimed to give dealers far more independ-
ence from suppliers by allowing them to solicit for business anywhere in the EU
and to open showrooms wherever they want; they would also be able to sell cars
supplied by different manufacturers under the same roof. The plan also sought to
open up the aftersales market by breaking the tie which existed between sales and
servicing. The proposal was that independent repairers would in future be able to
get greater access to the necessary spare parts and technology, thereby encouraging
new entrants to join the market with reduced initial investment costs.

While these proposals were broadly welcomed by groups representing consumers
(e.g. the Consumer Association in the UK), some observers felt that the planned
reforms did not go far enough to weaken the power of the suppliers over the market
(see e.g. the editorial in the Financial Times, 11 January 2002). For instance it
appeared to be the case that while manufacturers would be able to supply cars to
supermarkets and other new retailers, they would not be required by law to do so,
suggesting that a market free-for-all was highly unlikely to emerge in the foreseeable
future. Equally the Commission’s plans appeared to do little to protect dealers from
threats to terminate their franchises should there be a dispute with the supplier.

In the event the old block exemption scheme expired at the end of September
2002 and the new rules began the next day. However, the majority of the provisions
under the EC rules did not come into effect until the following October (2003) and
the ban on ‘location clauses’ – which limit the geographical scope of dealer opera-
tions – only came into effect two years later. Since October 2005 dealers have been
free to set up secondary sales outlets in other areas of the EU, as well as their own
countries. This is expected to stengthen competition between dealers across the
Single Market to the advantage of consumers (e.g. greater choice and reduced prices).

 

 

Case study questions

  1. Can you suggest any reasons why the European Commission was willing to grant
    the block exemption in the first place, given that it ran counter to its proposals for
    a Single Market?

 

  1. Why might the new reforms make cars cheaper for European consumers?

 

Case 5 : The sale of goods on the Internet

 

The sale of consumer goods on the Internet (particularly those between European member states) raises a number of legal issues. First, there is the issue of trust, with-
out which the consumer will not buy; they will need assurance that the seller is genuine, and that they will get the goods that they believe they have ordered.
Second, there is the issue of consumer rights with respect to the goods in question: what rights exist and do they vary across Europe? Last, the issue of enforcement: what happens should anything go wrong?

 

Information and trust

Europe recognises the problems of doing business across the Internet or telephone
and it has attempted to address the main stumbling blocks via Directives. The
Consumer Protection (Distance Selling) Regulations 2000 attempts to address the
issues of trust in cross-border consumer sales, which may take place over the
Internet (or telephone). In short, the consumer needs to know quite a bit of infor-
mation, which they may otherwise have easy access to if they were buying face to
face. Regulation 7 requires inter alia for the seller to identify themselves and an
address must be provided if the goods are to be paid for in advance. Moreover, a
full description of the goods and the final price (inclusive of any taxes) must also
be provided. The seller must also inform the buyer of the right of cancellation available under Regulations 10-12, where the buyer has a right to cancel the contract for seven days starting on the day after the consumer receives the goods or services. Failure to inform the consumer of this right automatically extends the period to three months. The cost of returning goods is to be borne by the buyer, and the seller is entitled to deduct the costs directly flowing from recovery as a restocking fee. All of this places a considerable obligation on the seller; however, such data should stem many misunderstandings and so greatly assist consumer faith and confidence in non-face-to-face sales.

Another concern for the consumer is fraud. The consumer who has paid by
credit card will be protected by section 83 of the Consumer Credit Act 1974, under
which a consumer/purchaser is not liable for the debt incurred, if it has been run
up by a third party not acting as the agent of the buyer. The Distance Selling
Regulations extend this to debit cards, and remove the ability of the card issuer to
charge the consumer for the first £50 of loss (Regulation 21). Moreover, section 75
of the Consumer Credit Act 1974 also gives the consumer/buyer a like claim against
the credit card company for any misrepresentation or breach of contract by the
seller. This is extremely important in a distance selling transaction, where the seller
may disappear.

 

What quality and what rights?

The next issue relates to the quality that may be expected from goods bought over
the Internet. Clearly, if goods have been bought from abroad, the levels of quality
required in other jurisdictions may vary. It is for this reason that Europe has
attempted to standardise the issue of quality and consumer rights, with the
Consumer Guarantees Directive (1999/44/EC), thus continuing the push to encour-
age cross-border consumer purchases. The implementing Sale and Supply of Goods
to Consumer Regulations 2002 came into force in 2003, which not only lays down
minimum quality standards, but also provides a series of consumer remedies which
will be common across Europe. The Regulations further amend the Sale of Goods
Act 1979. The DTI, whose job it was to incorporate the Directive into domestic law
(by way of delegated legislation) ensured that the pre-existing consumer rights were
maintained, so as not to reduce the overall level of protection available to con-
sumers. The Directive requires goods to be of ‘normal’ quality, or fit for any
purpose made known by the seller. This has been taken to be the same as our pre-
existing ‘reasonable quality’ and ‘fitness for purpose’ obligations owed under
sections 14(2) and 14(3) of the Sale of Goods Act 1979. Moreover, the pre-existing
remedy of the short-term right to reject is also retained. This right provides the
buyer a short period of time to discover whether the goods are in conformity with
the contract. In practice, it is usually a matter of weeks at most. After that time has
elapsed, the consumer now has four new remedies that did not exist before, which
are provided in two pairs. These are repair or replacement, or price reduction or
rescission. The pre-existing law only gave the consumer a right to damages, which
would rarely be exercised in practice. (However, the Small Claims Court would
ensure a speedy and cheap means of redress for almost all claims brought.) Now
there is a right to a repair or a replacement, so that the consumer is not left with an
impractical action for damages over defective goods. The seller must also bear the
cost of return of the goods for repair. So such costs must now be factored into any

business sales plan. If neither of these remedies is suitable or actioned within a ‘rea-
sonable period of time’ then the consumer may rely on the second pair of
remedies. Price reduction permits the consumer to claim back a segment of the pur-
chase price if the goods are still useable. It is effectively a discount for defective
goods. Rescission permits the consumer to reject the goods, but does not get a full
refund, as they would under the short-term right to reject. Here money is knocked
off for ‘beneficial use’. This is akin to the pre-existing treatment for breaches of
durability, where goods have not lasted as long as goods of that type ought reason-
ably be expected to last. The level of compensation would take account of the use
that the consumer has (if any) been able to put the goods to and a deduction made
off the return of the purchase price. However, the issue that must be addressed is as
to the length of time that goods may be expected to last. A supplier may state the
length of the guarantee period, so a £500 television set guaranteed for one year
would have a life expectancy of one year. On the other hand, a consumer may
expect a television set to last ten years. Clearly, if the set went wrong after six
months, the consumer would only get £250 back if the retailer’s figure was used,
but would receive £475 if their own figure was used. It remains to be seen how this
provision will work in practice.

One problem with distance sales has been that of liability for goods which arrive
damaged. The pre-existing domestic law stated that risk would pass to the buyer once
the goods were handed over to a third-party carrier. This had the major problem in
practice of who would actually be liable for the damage. Carriers would blame the
supplier and vice versa. The consumer would be able to sue for the loss, if they were
able to determine which party was responsible. In practice, consumers usually went
uncompensated and such a worry has put many consumers off buying goods over the
Internet. The Sale and Supply of Goods to Consumer Regulations also modify the
transfer of risk, so that now the risk remains with the seller until actual delivery. This
will clearly lead to a slight increase in the supply of goods to consumers, with the
goods usually now being sent by insured delivery. However, this will avoid the prob-
lem of who is actually liable and should help to boost confidence.

 

Enforcement

Enforcement for domestic sales is relatively straightforward. Small-scale consumer
claims can be dealt with expeditiously and cheaply under the Small Claims Court.
Here claims under £5000 for contract-based claims are brought in a special court
intended to keep costs down by keeping the lawyers’ out of the court room, as a vic-
torious party cannot claim for their lawyers’ expenses. The judge will conduct the
case in a more ‘informal’ manner, and will seek to discover the legal issues by ques-
tioning both parties, so no formal knowledge of the law is required. The total cost of
such a case, even if it is lost, is the cost of issuing the proceedings (approximately

10 per cent of the value claimed) and the other side’s ‘reasonable expenses’. Expenses
must be kept down, and a judge will not award value which has been deliberately run
up, such first-class rail travel and stays in five star hotels. Residents of Northampton
have hosted a trial of an online claims procedure, so that claims may now be made
via the Internet. (www.courtservice.gov.uk outlines the procedure for MCOL, or
Money Claims Online.) Cases will normally be held in the defendant’s court, unless the complainant is a consumer and the defendant a business.

 

Enforcement is the weak point in the European legislation, for there is, as yet, no
European-wide Small Claims Court dealing with transnational European transac-
tions. The consumer is thus forced to contemplate expensive civil action abroad in a
foreign language, perhaps where no such small claims system exists – a pointless
measure for all but the most expensive of consumer purchases. The only redress lies
in EEJ-Net, the European Extra-Judicial Network, which puts the complainant in
touch with any applicable professional or trade body in the supplier’s home member
state. It does require the existence of such a body, which is unlikely if the transac-
tion is for electrical goods, which is one of the most popular types of Internet
purchase. Therefore, until Europe provides a Euro Small Claims Court, the consumer
cross-border buyer may have many rights, but no effective means of enforcement.
Until then it would appear that section 75 of the Consumer Credit Act 1974, which
gives the buyer the same remedies against their credit card company as against the
seller, is the only effective means of redress.

 

Case study questions

  1. Consider the checklist of data which a distance seller must provide to a consumer
    Is this putting too heavy a burden on sellers?

 

  1. Is a consumer distance buyer any better off after the European legislation?
  2. Are there any remaining issues that must be tackled to increase European cross-
    border consumer trade?

SHIPPING MANAGEMENT IIBMS EXAM ANSWER PROVIDED

SHIPPING MANAGEMENT IIBMS EXAM ANSWER PROVIDED

 

Shipping Management Marks: 100
Note: Solve any 8 Questions (10 marks each)
1. Explain in detail Strengths, Weaknesses, Opportunities and Threats in Shipping Management?
2. Explain in detail Issues affecting maintenance and materials management in shipping?
3. What do you mean by Shipping Pools? Also mention other sources of uncertainty in volatility of earnings?
4. Explain in your words the use of “Information Technology” in the field of Shipping.
5. What do you mean by EDI? Explain with its advantages and disadvantages?
6. Explain in your words various parties involved in the Shipping Industry.
7. Write detailed note on “Maritime Law”
8. Explain in detail Management of Container Terminals?
9. Explain in your words the issues on which Shipowner should commit himself to the nation?
10. Explain hedging with freight futures?

 

The Indian Institute of Business Management & Studies
Subject: Managerial Economics Marks: 100
1
Attempt Any Four Case Study
CASE – 1 Dabur India Limited: Growing Big and Global
Dabur is among the top five FMCG companies in India and is positioned successfully on the
specialist herbal platform. Dabur has proven its expertise in the fields of health care, personal care,
homecare and foods.
The company was founded by Dr. S. K. Burman in 1884 as small pharmacy in Calcutta (now
Kolkata), India. And is now led by his great grandson Vivek C. Burman, who is the Chairman of Dabur
India Limited and the senior most representative of the Burman family in the company. The company
headquarters are in Ghaziabad, India, near the Indian capital New Delhi, where it is registered. The
company has over 12 manufacturing units in India and abroad. The international facilities are
located in Nepal, Dubai, Bangladesh, Egypt and Nigeria.
S.K. Burman, the founder of Dabur, was trained as a physician. His mission was to provide
effective and affordable cure for ordinary people in far-flung villages. Soon, he started preparing
natural remedies based on Ayurved for diseases such as Cholera, Plague and Malaria. Due to his
cheap and effective remedies, he became to be known as ‘Daktar’ (Indianised version of ‘doctor’).
And that is how his venture Dabur got its name—derived from Daktar Burman.
The company faces stiff competition from many multi national and domestic companies. In the
Branded and Packaged Food and Beverages segment major companies that are active include
Hindustan Lever, Nestle, Cadbury and Dabur. In case of Ayurvedic medicines and products, the major
competitors are Baidyanath, Vicco, Jhandu, Himani and other pharmaceutical companies.
Vision, Mission and Objectives
Vision statement of Dabur says that the company is “dedicated to the health and well being of every
household”. The objective is to “significantly accelerate profitable growth by providing comfort to
others”. For achieving this objective Dabur aims to:
 Focus on growing core brands across categories, reaching out to new geographies, within and
outside India, and improve operational efficiencies by leveraging technology.
 Be the preferred company to meet the health and personal grooming needs of target consumers
with safe, efficacious, natural solutions by synthesising deep knowledge of ayurveda and herbs
with modern science.
 Be a professionally managed employer of choice, attracting, developing and retaining quality
personnel.
 Be responsible citizens with a commitment to environmental protection.
 Provide superior returns, relative to our peer group, to our shareholders.
Chairman of the company
Vivek C. Burman joined Dabur in 1954 after completing his graduation in Business Administration
from the USA. In 1986 he was appointed Managing Director of Dabur and in 1998 he took over as
Chairman of the Company.
The Indian Institute of Business Management & Studies
Subject: Managerial Economics Marks: 100
2
Under Vivek Burman’s leadership, Dabur has grown and evolved as a multi-crore business house
with a diverse product portfolio and a marketing network that traverses the whole of India and more
than 50 countries across the world. As a strong and positive leader, Vivek C. Burman has motivated
employees of Dabur to “do better than their best”—a credo that gives Dabur its status as India’s most
trusted nature-based products company.
Leading brands
More than 300 diverse products in the FMCG, Healthcare and Ayurveda segments are in the product
line of Dabur. List of products of the company include very successful brands like Vatika, Anmol,
Hajmola, Dabur Amla Chyawanprash, Dabur Honey and Lal Dant Manjan with turnover of Rs.100
crores each.
Strategic positioning of Dabur Honey as food product, lead to market leadership with over 40%
market share in branded honey market; Dabur Chyawanprash is the largest selling Ayurvedic
medicine with over 65% market share. Dabur is a leader in herbal digestives with 90% market share.
Hajmola tablets are in command with 75% market share of digestive tablets category. Dabur Lal Tail
tops baby massage oil market with 35% of total share.
CHD (Consumer Health Division), dealing with classical Ayurvedic medicines has more than 250
products sold through prescription as well as over the counter. Proprietary Ayurvedic medicines
developed by Dabur include Nature Care Isabgol, Madhuvaani and Trifgol.
However, some of the subsidiary units of Dabur have proved to be low margin business; like
Dabur Finance Limited. The international units are also operating on low profit margin. The
company also produces several “me – too” products. At the same time the company is very popular in
the rural segment.
Questions
1. What is the objective of Dabur? Is it profit maximisation or growth maximisation? Discuss.
2. Do you think the growth of Dabur from a small pharmacy to a large multinational company is
an indicator of the advantages of joint stock company against proprietorship form?
Elaborate.
The Indian Institute of Business Management & Studies
Subject: Managerial Economics Marks: 100
3
CASE – 2 IT Industry: Checkered Growth
IT industry is now considered as vital for the development of any economy. Developing countries
value the importance of this industry due to its capacity to provide much needed export earnings and
support in the development of other industries. Especially in Indian context, this industry has
assumed a significant position in the overall economy, due to its exemplary potentials in creating
high value jobs, enhancing business efficiency and earning export revenues. The IT revolution has
brought unexpected opportunities for India, which is emerging as an increasingly preferred location
for customised software development. Experts are estimating the global IT industry to grow to
US$1.6 million over the coming six years and exports to reach Rs. 2000 billion by 2008. It is
envisaged that Indian IT industry, though a very small portion of the global IT pie, has tremendous
growth prospects.
Stock Taking
The decade of 1970 may be taken as the stage of introduction of the Indian IT industry. The early
years were marked by 75 per cent of software development taking place overseas and the rest 25 per
cent in India. Exports of Indian software until the mid-1970s was mainly Eastern Europe, followed by
US. Tata Consultancy Services (TCS) was among the pioneers in selling its services outside India, by
working for IBM Labs in the US. The hardware segment lagged behind its software counterpart. With
instances of exports worth US$ 4 million in 1980, the software segment of the industry has shown an
uneven profile. It was not until 1980s that vigorous and sustained growth in software exports begun,
as MNCs like Texas Instruments started to take serious interest in India as a centre of software
production. Destinations of export also underwent changes, with US dominating the main export
market with 75 per cent of the exports. The IT Enabled Services (ITeS) segment, however, had not
emerged at this stage.
It was also during the mid to late 1980s that computer firms shifted focus from mainframe
computers (the mainstay of MNCs) to Personal Computers (PCs). In March 1985, Minicomp installed
the first ever PC at CSI, Delhi; this changed the entire industry for good. With the entry of networking
and applications like CAD/CAM, PC sales soared in 1987-88, touching 50,000 units.
From a modest growth in the mid-1980s software exports moved up to Rs. 3.8 billion in 1991-92.
Since then, it grew at an incredible rate, up to 115 per cent in 1993. The hardware could also register
an annual growth of 40 per cent in this period, backed by a surging demand for PCs and networking.
Growth of the industry was also driven by the emergence and rapid growth of the ITeS segment.
IT sector’s share of GDP rose steadily in this period, rate of increase being the highest at 44.91 per
cent in 2000-01. It was in the same year that the size of the total IT market was the biggest in the
decade, at Rs. 56,592 crore. The overall IT market was also found to increase till 2000-01. The overall
IT market was also found to increase till 2000-01, with the only exception of 1998-99. The domestic
market also showed an overall increase till 2000-01, registering a spectacular CAGR of 50.39 per
cent. Aggregate output of software and services also increased in this period, though at an uneven
rate. Of approximately $1 billion worth of sales in 1991-1992, domestic hardware sales constituted
37.2 per cent (13.4 per cent growth over the previous year), exports of hardware 6.6 per cent.
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During 2000-01 the growth in the hardware segment was driven mainly by PCs, which
contributed about 58 per cent of the total hardware market. This period also witnessed the
phenomenon of increasing share of Tier 2 and cities in PC sales, thereby indicating PC penetration
into the hinterland. PC shipments had increased by 35 per cent every year from 1997 till 2000-01
when it reached 1.8 million PCs. The commercial PC market saw a growth of 23.5 per cent mainly
due to slashing of prices by major vendors.
It was in 2001-02 that the industry had a sharp fall in rate of growth of its share of GDP to 5.90
per cent, from 44.91 per cent in the previous year. The total IT market also showed a fall in growth
rate from 56.42 per cent in 2000-01 to a mere 16.24 per cent in the next year, growing further at the
rate of 16.25 per cent in the next year. Software export was also affected, registering a low growth of
28.74 per cent and failed to maintain its growth rate of 65.30 per cent in the previous year. It got
further lowered to 26.30 per cent in 2002-03. CAGR of total output of software and services (in Rs.
crore) came down to 25.61 in 2001-02 and further to 25.11 in 2002-03. The domestic market
showed a steep decline in growth to 3 per cent in 2001-02 from an outstanding 50.39 per cent in
2000-01. It could, however, recover by growing at 4.11 per cent in the next year.
Table 1: Indian IT Industry: 1996-97 to 2002-03
Year A* B* C* D* E*
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
1.22
1.45
1.87
2.71
2.87
3.09
18,641
25,307
36,179
56,592
65,788
76,482
3,900
6,530
10,940
17,150
28,350
36,500
46,100
6,594
10,899
16,879
23,980
37,350
47,532
59,472
9,438
12,055
14,227
18,837
28,330
29,181
30,382
*A: share of GDP of the Indian IT market, B: size of the Indian IT market (in Rs. crore), C: software
and services exports (in Rs. crore), D: size of software and services (in Rs. crore), E: size of the
domestic market (in Rs. crore)
Questions
1. Try to identify various stages of growth of IT industry on basis of information given in the
case and present a scenario for the future.
2. Study the table given. Apply trend projection method on the figures and comment on the
trend.
3. Compute a 3 year moving average forecast for the years 1997-98 through 2003-04.
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CASE – 3 Outsourcing to India: Way to Fast Track
By almost any measure, David Galbenski’s company Contract Counsel was a success. It was a
company Galbenski and a law school buddy, Mark Adams, started in 1993; it helps companies find
lawyers on a temporary contract basis. The growth over the past five years had been furious.
Revenue went from less than $200,000 to some $6.5 million at the end of 2003, and the company
was placing thousands of lawyers a year.
At then the revenue growth began to flatten; the company grew just 8% in 2004 despite a
robust market for legal services estimated at about $250 billion in the United States alone.
Frustrated and concerned, Galbenski stepped back and began taking a hard look at his business.
Could he get it back on the fast track? “Most business books say that the hardest threshold to cross
is that $10 million sales mark,” he says. “I knew we couldn’t afford to grow only 10% a year. We
needed to blow right through that number.”
For that to happen, Galbenski knew he had to expand his customer base beyond the Midwest
into large legal supermarkets such as Boston, New York, and Washington, D.C. He also knew that in
doing so, he could run into stiff competition from larger publicly traded rivals. Contract Counsel’s
edge has always been its low price, Clients called when dealing with large-scale litigation or
complicated merger and acquisition deals, either of which can require as many as 100 lawyers to
manage the discovery process and the piles of documents associated with it. Contract Counsel’s
temps cost about $75 an hour, roughly half of what a law firm would charge, which allowed the
company to be competitive despite its relatively small size. Galbenski was counting on using the
same strategy as he expanded into new cities. But would that be enough to spur the hyper growth
that he craved for?
At that time, Galbenski had been reading quite a bit about the growing use of offshore
employees. He knew companies like General Electric, Microsoft and Cisco were saving bundles by
setting up call and data centers in India. Could law firms offshore their work? Galbenski’s mind
raced with possibilities. He imagined tapping into an army of discount-priced legal minds that
would mesh with his existing talent pool in the U.S. The two work forces could collaborate over the
Web and be productive on a 24-7 basis. And the cost could be massive.
Using offshore workers was a risk, but the payoff was potentially huge. Incidentally Galbenski
and his eight-person management team were preparing to meet for their semiannual review
meeting. The purpose of the two-day event was to decide the company’s goals for the coming year.
Driving to the meeting, Galbenski struggled to figure out exactly what he was going to say. He was
still undecided about whether to pursue an incremental and conservative national expansion or
take a big gamble on overseas contractors.
The Decision
The next morning Galbenski kicked off the management meeting. Galbenski laid out the facts as he
saw them. Rather than look at just the next five years of growth, look at the next 20, he said. He
cited a Forrester Research prediction that some 79,000 legal jobs, totaling $5.8 billion in wages,
would be sent offshore by 2015. He challenged his team to be pioneers in creating a new industry,
rather than stragglers racing to catch up. His team applauded. Returning to the office after the
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meeting, Galbenski announced the change in strategy to his 20 full-timers.
Then he and his team began plotting a global action plan. The first step was to hire a company
out of Indianapolis, Analysts International, to start compiling a list of the best legal services
providers in countries where people had comparatively strong English skills. The next phase was
vetting the companies in person. In February 2005, just three months after the meeting in Port
Huron, Galbenski found himself jetting off on a three months trip to scout potential contractors in
India, Dubai, and Sri Lanka. Traveling to cities like Bangalore, Chennai and Hyderabad, he
interviewed executives from more than a dozen companies, investigating their day-to-day
operations firsthand.
India seemed like the best bet. With more than 500 law schools and about 200,000 law
students graduating each year, it had no shortage or attorneys. What amazed Galbenski, however,
was that thanks to the Web, lawyers in India had access to the same research tools and case
summaries as any associate in the U.S. Sure, they didn’t speak American English. “But they were
highly motivated, highly intelligent, and extremely process-oriented,” he says. “They were also
eager to tackle the kinds of tasks that most new associated at law firms look down upon” such as
poring over and coding thousands of documents in advance of a trial. In other words, they were
perfect for the kind of document-review work he had in mind.
After a return visit to India in August 2005, Galbenski signed a contract with two legal services
companies: QuisLex, in Hyderabad, and Manthan Services in Bangalore. Using their lawyers and
paralegals, Galbenski figured he could cut his document-review rates to $50 an hour. He also
outsourced the maintenance of the database used to store the contact information for his
thousands of contractors. In all, he spent about 12 months and $250,000 readying his newly global
company. Convincing U.S. based clients to take a chance on the new service hasn’t been easy. In
November, Galbenski lined up pilot programs with four clients (none of which are ready to
publicise their use of offshore resources). To help get the word out, he launched a website
(offshore-legal-services.com), which includes a cache of white papers and case studies to serve as a
resource guide for companies interested in outsourcing.
Questions
1. As money costs will decrease due to decision to outsource human resource, some real costs
and opportunity costs may surface. What could these be?
2. Elaborate the external and internal economies of scale as occurring to Contract Counsel.
3. Can you see some possibility of economies of scope from the information given in the case?
Discuss.
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CASE – 4 Indian Stock Market: Does it Explain Perfect Competition?
The stock market is one of the most important sources for corporates to raise capital. A stock
exchange provides a market place, whether real or virtual, to facilitate the exchange of securities
between buyers and sellers. It provides a real time trading information on the listed securities,
facilitating price discovery.
Participants in the stock market range from small individual investors to large traders, who can
be based anywhere in the world. Their orders usually end up with a professional at a stock exchange,
who executes the order. Some exchanges are physical locations where transactions are carried out
on a trading floor. The other type of exchange is of a virtual kind, composed of a network of
computers and trades are made electronically via traders.
By design a stock exchange resembles perfect competition. Large number of rational profit
maximisers actively competing with each other, trying to predict future market value of individual
securities comprises the main feature of any stock market. Important current information is almost
freely available to all participants. Price of individual security is determined by market forces and
reflects the effect of events that have already occurred and are expected to occur. In the short run it
is not easy for a market player to either exit or enter; one cannot exit and enter for few days in those
stocks which are under no delivery. For example Tata Steel was in no delivery from 29/10/07 to
02/11/07. Similarly one cannot enter or exit on those stocks which are in upper or lower circuit for
few regular trading sessions. Therefore a player has to depend wholly on market price for its profit
maximizing output (in this case stock of securities). In the long run players may exit the market if
they are not able to earn profit, but at the same time new investors are attracted by rise in market
price.
As on 01/11/07 total market capital at Bombay Stock Exchange (BSE) is $1589.43 billion (source:
Business Standard, 1/11/2007); out of this individual investors account for only $100bn. In spite of
the fact that individual investors exist in a very large number, their capital base is less than 7% of
total market capital; rest of capital is owned by foreign institutional investor and domestic
institutional investors (FIIs and DIIs), which are very small in number. Average capital owned by a
single large player is huge in comparison to small investor. This situation seems to have prompted Dr
Dash of BSE to comment ‘The stock market activity is increasingly becoming more centralised,
concentrated and non competitive, serving interest of big players only.” Table 2 shows the impact of
change in FII on National Stock Exchange movement during three different time periods.
Table 2: Impact of FIIs’ Investment on NSE
Wave
Date
Nifty
close
Change in
Nifty
Index
FLLS Net
Investment
(Rs.Cr.)
Change in Market
Capitalisation
(Rs.Cr.)
Wave 1
From
To
17/05/04
26/10/05
1388.75
2408.50
1019.75
59520
5,40,391
Wave 2
From
To
27/10/05
11/05/06
2352.90
3701.05
1348.15
38258
6,20,248
Wave 3
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From
To
12/05/06
13/06/06
3650.05
2663.30
-986.75
-9709
-4,60,149
By design, an Indian Stock Market resembles perfect competition, not as a complete description
(for no markets may satisfy all requirements of the model) but as an approximation.
Questions
1. Is stock market a good example of perfect competition? Discuss.
2. Identify the characteristics of perfect competition in the stock market setting.
3. Can you find some basic aspect of perfect competition which is essentially absent in stock
market?
CASE – 5 The Indian Audio Market
The Indian audio market pyramid is featured by the traditional radios forming its lower bulk.
Besides this, there are four other distinct segments: mono recorders (ranking second in the
pyramid), stereo recorders, midi systems (which offer the sound amplification of a big system, but at
a far lower price and expected to grow at 25% per year) and hi-fis (minis and micros, slotted at the
top end of the market).
Today the Indian audio market is abound with energy and action as both national and
international majors are trying to excel themselves and elbow the others, ushering in new concepts,
like CD sound, digital tuners, full logic tape deck, etc. The main players in the Indian audio market are
Philips, BPL and Videocon. Of these, Philips is one of the oldest and is considered at the leading
national brands. In fact it was the first company to introduce a range of international products such
as CD radio cassette recorder, stand alone CD players and CD mini hi-fi systems. With the easing of
the entry barriers, a number of new international players like Panasonic, Akai, Sansui, Sony, Sharp,
Goldstar, Samsung and Aiwa have also entered the arena. This has led to a sea of changes in the
industry and resulted in an expanded market and a happier customer, who has access to the latest
international products at competitive prices. The rise in the disposable income of the average Indian,
especially the upper-income section, has opened up new vistas for premium products and has
provided a boost to companies to launch audio systems priced as high as Rs. 50,000 and beyond.
Pricing across Segments
Super Premium Segment: This segment of the market is largely price-insensitive, as consumers are
willing to pay a premium in order to obtain products of high quality. Sonodyne has positioned itself
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in this segment by concentrating on products that are too small for large players to operate in
profitably. It has launched a range of systems priced between Rs. 30,000 to Rs. 60,000. National
Panasonic has launched its super premium range of systems by the name of Technics.
Premium Segment: Much of the price game is taking place in this segment, in which systems are
priced around Rs. 25,000. Even the foreign players ensure that the pricing is competitive. Entry
barriers of yester years compelled the demand by this segment to be partially met by the grey
market. With the opening up of the market, the premium segment is witnessing a rapid growth and is
currently estimated to be worth Rs. 30 crores. Growth of this segment is also being driven by
consumers who want to upgrade their old music systems. Another major stimulating factor is the
plethora of financing options available, bringing more and more consumers to the market.
Philips has understood the Indian listener well enough to dictate the basic principles of
segmentation. It projects its products as high quality at medium price. In fact, Philips had
successfully spotted an opportunity in the wide price gap between portable cassette players and hi-fi
systems and pioneered the concept of a midi system (a three-in-one containing radio, tape deck and
amplifier in one unit). Philips has also realised that there is a section of the rich consumer which
values not just power but also clarity and is willing to pay for it. The pricing strategy of Philips was to
make the most of its image as a technology leader. To this end, it used non-price variables by
launching of a range of state of art machines like the FW series, and CD players. Moreover, it came up
with the punch line in its advertisements as, “We Invent For You”.
BPL stands second only to Philips in the audio market and focuses on technology as its USP. Its
kingpin in the marketing mix is its high technology superior quality product. It is thus at being the
product-quality leader. BPL’s proposition of fidelity is translated in its punchline for its audio
systems as, ‘e-fi your imagination’ (d-fi stands for digital fidelity). The company follows a market
skimming strategy. When a new product was launched, it was placed in the top end of the market,
and priced accordingly. The company offers a range of products in all price segments in the market
without discounting the brand.
Another major player, Videocon, has managed to price its products lower even in the premium
segment. The success of the Powerhouse (a 160 watt midi launched by Philips in 1990) had
prompted Videocon to launch the Select Sound range of midi stereo systems at a slightly lower price.
At the premium end, Videocon is making efforts to upgrade its image to being “quality-driven” by
associating itself with the internationally reputed brand name of Sansui from Japan, and following a
perceived value pricing method.
Sony is another brand which is positioning itself as a premium product and charges a higher price
for the superior quality of sound it offers. Unlike indulging into price wars, Sony’s ad-campaigns
project the message that nothing can beat Sony in the quality and intensity of sound. National
Panasonic is another player that has three products in the top end of the market, priced in the Rs.
21,000 to Rs. 32,000 range.
Monos and Stereos: Videocon has 21% share I the overall audio market, but has been a major
player only in personal stereos and two-in-ones. Its history is written with instances where it has
offered products of similar quality, but at much lower prices than its competitors. In fact, Videocon
launched the Sansui brand of products with a view to transform its image from that of being a
manufacturer of cheap products to that of being a company that primes quality, and also to obtain a
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share of the hi-fi segment. Sansui is being positioned as a premium brand, targeting the higher
middle, upper income groups and also the sensitive middle class Indian consumer.
The objective of Philips in this segment is to achieve higher sales volumes and hence its strategy
is to expand its range and have a product in every segment of the market. The pricing method used
by Philips in this segment is providing value for money.
National Panasonic offers products in the lower end of the market, apart from the top of the
range. In fact, it reduced the price of one of its small two-in-ones from Rs. 3,500 to Rs. 2,400, with the
logic that a forte in the lower end of the market would help in building brand reliability across a
wider customer base. The company is also guided by the logic that operating in the price sensitive
region of the market will help it reach optimum levels of efficiency. Panasonic has also entered the
market for midis.
These apart, there also exists a sector in the Indian audio industry, with powerful regional brands
in mono and stereo segments, having a market share of 59% in mono recorders and 36% in stereo
recorders. This sector has a strong influence on price performance.
Questions
1. What major pricing strategies have been discussed in the case? How effective these strategies
have been in ensuring success of the company?
2. Is perceived value pricing the dominant strategy of major players?
3. Which products have reached maturity stage in audio industry? Do you think that product
bundling can be effectively used for promoting sale of these products?


BUSINESS ENVIRONMENT IIBMS EXAM ANSWER SHEET PROVIDED

BUSINESS ENVIRONMENT IIBMS EXAM ANSWER SHEET PROVIDED

Attempt Any Four Case Study

Case Study 1 : Structuring global companies

 

As the chapter illustrates, to carry out their activities in pursuit of their objectives, virtually all organisations adopt some form of organisational structure. One traditional method of organisation is to group individuals by function or purpose, using a departmental structure to allocate individuals to their specialist areas (e.g. Marketing, HRM and so on ). Another is to group activities by product or service, with each product group normally responsible for providing its own functional requirements. A third is to combine the two in the form of a matrix structure with its vertical and horizontal flows of responsibility and authority, a method of organisation much favoured in university Business Schools.

What of companies with a global reach: how do they usually organise them-
selves?

Writing in the Financial Times in November 2000 Julian Birkinshaw, Associate Professor of Strategic and International Management at London Business School, identifies four basic models of global company structure:

  • The International Division – an arrangement in which the company establishes a
    separate division  to  deal  with  business  outside  its  own  country.  The
    International Division would typically be concerned with tariff and trade issues,
    foreign agents/partners and other aspects involved in selling overseas. Normally
    the division does not make anything itself, it is simply responsible for interna-
    tional sales. This arrangement tends to be found in medium-sized companies
    with limited international sales.

The Global Product Division – a product-based structure with managers responsible
for their product line globally. The company is split into a number of global busi-
nesses arranged by product (or service) and usually overseen by their own
president. It has been a favoured structure among large global companies such as
BP, Siemens and 3M.

  • The Area Division – a geographically based structure in which the major line of
    authority lies with the country (e.g. Germany) or regional (e.g. Europe) manager who
    is responsible for the different product offerings within her/his geographical area.
    ● The Global Matrix – as the name suggests a hybrid of the two previous structural
    types. In the global matrix each business manager reports to two bosses, one
    responsible for the global product and one for the country/region. As we indi-
    cated in the previous edition of this book, this type of structure tends to come
    into and go out of fashion. Ford, for example, adopted a matrix structure in the
    later 1990s, while a number of other global companies were either streamlining
    or dismantling theirs (e.g. Shell, BP, IBM).

As Professor Birkinshaw indicates, ultimately there is no perfect structure and organisations tend to change their approach over time according to changing circumstances,  fads,  the  perceived  needs  of  the  senior  executives  or  the predispositions of powerful individuals. This observation is no less true of universities than it is of traditional businesses.

Case study questions

  1. Professor Birkinshaw’s article identifies the advantages and disadvantages of being a global business. What are his major arguments?

 

  1. In your opinion what are likely to be the key factors determining how a global company will organise itself?

 

Case 2 : Resource prices

 

As we saw in Chapter 1, resources such as labour, technology and raw materials
constitute inputs into the production process that are utilised by organisations to
produce outputs. Apart from concerns over the quality, quantity and availability of
the different factors of production, businesses are also interested in the issue of
input prices since these represent costs to the organisation which ultimately have
to be met from revenues if the business is to survive. As in any other market, the
prices of economic resources can change over time for a variety of reasons, most, if
not all, of which are outside the direct control of business organisations. Such fluc-
tuations in input prices can be illustrated by the following examples:

  • Rising labour costs – e.g. rises in wages or salaries and other labour-related costs
    (such as pension contributions or healthcare schemes) that are not offset by
    increases in productivity or changes in working practices. Labour costs could rise
    for a variety of reasons including skills shortages, demographic pressures, the
    introduction of a national minimum wage or workers seeking to maintain their
    living standards in an inflationary period.
  • Rising raw material costs – e.g. caused by increases in the demand for certain raw
    materials and/or shortages (or bottlenecks) in supply. It can also be the result of
    the need to switch to more expensive raw material sources because of customer
    pressure, environmental considerations or lack of availability.
  • Rising energy costs – e.g. caused by demand and/or supply problems as in the oil
    market in recent years, with growth in India and China helping to push up
    demand and coinciding with supply difficulties linked to events such as the war
    in Iraq, hurricanes in the Gulf of Mexico or decisions by OPEC.
    ● Increases in the cost of purchasing new technology/capital equipment – e.g.
    caused by the need to compete with rivals or to meet more stringent government
    regulations in areas such as health and safety or the environment.

As the above examples illustrate, rising input prices can be the result of factors operating at both the micro and macro level and these can range from events which are linked to natural causes to developments of a political, social and/or economic kind. While many of these influences in the business environment are uncontrollable, there are steps business organisations can (and do) often take to address the issue of rising input prices that may threaten their competitiveness. Examples include the following:

  • Seeking cheaper sources of labour (e.g. Dyson moved its production of vacuum
    cleaners to the Far East).
  • Abandoning salary-linked pension schemes or other fringe benefits (e.g. com-
    pany cars, healthcare provisions, paid holidays).
  • Outsourcing certain activities (e.g. using call centres to handle customer com-
    plaints, or outsourcing services such as security, catering, cleaning, payroll, etc.). ● Switching raw materials or energy suppliers (e.g. to take advantage of discounts

by entering into longer agreements to purchase).

 

  • Energy-saving measures (e.g. through better insulation, more regular servicing of
    equipment, product and/or process redesign).
  • Productivity gains (e.g. introducing incentive schemes).

In addition to measures such as these, some organisations seek cost savings through
divestment of parts of the business or alternatively through merger or takeover
activity. In the former case the aim tends to be to focus on the organisation’s core
products/services and to shed unprofitable and/or costly activities; in the latter the
objective is usually to take advantage of economies of scale, particularly those asso-
ciated with purchasing, marketing, administration and financing the business.

 

 

Case study questions

  1. If a company is considering switching production to a country where wage costs
    are lower, what other factors will it need to take into account before doing so?

 

  1. Will increased environmental standards imposed by government on businesses
    inevitably result in higher business costs?

 

Case 3 : Government and business – friend or foe?

 

As we have seen, governments intervene in the day-to-day working of the economy
in a variety of ways in the hope of improving the environment in which industrial
and commercial activity takes place. How far they are successful in achieving this
goal is open to question. Businesses, for example, frequently complain of over-
interference  by  governments  and  of  the  burdens  imposed  upon  them  by
government legislation and regulation. Ministers, in contrast, tend to stress how
they have helped to create an environment conducive to entrepreneurial activity
through the different policy initiatives and through a supportive legal and fiscal
regime. Who is right?

While there is no simple answer to this question, it is instructive to examine the
different surveys which are regularly undertaken of business attitudes and condi-
tions in different countries. One such survey by the European Commission – and
reported by Andrew Osborn in the Guardian on 20 November 2001 – claimed that
whereas countries such as Finland, Luxembourg, Portugal and the Netherlands
tended to be regarded as business-friendly, the United Kingdom was perceived as
the most difficult and complicated country to do business with in the whole of
Europe. Foreign firms evidently claimed that the UK was harder to trade with than
other countries owing to its bureaucratic procedures and its tendency to rigidly
enforce business regulations. EU officials singled out Britain’s complex tax formali-
ties, employment regulations and product conformity rules as particular problems
for foreign companies – criticisms which echo those of the CBI and other represen-
tative bodies who have been complaining of the cost of over-regulation to UK firms
over a considerable number of years.

The news, however, is not all bad. The Competitive Alternatives study (2002) by
KPMG of costs in various cities in the G7 countries, Austria and the Netherlands
indicated that Britain is the second cheapest place in which to do business in the
nine industrial countries (see www.competitivealternatives.com). The survey, which
looked at a range of business costs – especially labour costs and taxation -, placed
the UK second behind Canada world-wide and in first place within Europe. The
country’s strong showing largely reflected its competitive labour costs, with manu-
facturing costs estimated to be 12.5 per cent lower than in Germany and 20 per
cent lower than many other countries in continental Europe. Since firms frequently
use this survey to identify the best places to locate their business, the data on rela-
tive costs are likely to provide the UK with a competitive advantage in the battle for
foreign inward investment (see Mini case, above).

 

Case study questions

  1. How would you account for the difference in perspective between firms who often
    complain of government over-interference in business matters and ministers who
    claim that they have the interests of business at heart when taking decisions?

 

  1. To what extent do you think that relative costs are the critical factor in determining
    inward investment decisions?

 

 

Case 4 : The end of the block exemption

 

As we have seen in the chapter, governments frequently use laws and regulations to promote competition within the marketplace in the belief that this has significant benefits for the consumer and for the economy generally. Such interventions occur not only at national level, but also in situations where governments work together to provide mutual benefits, as in the European Union’s attempts to set up a ‘Single Market’ across the member states of the EU.

While few would deny that competitive markets have many benefits, the search
for increased competition at national level and beyond can sometimes be
restrained by the political realities of the situation, a point underlined by a previous
decision of the EU authorities to allow a block exemption from the normal rules of
competition in the EU car market. Under this system, motor manufacturers operat-
ing within the EU were permitted to create networks of selective and exclusive dealerships and to engage in certain other activities normally outlawed under the competition provisions of the single market. It was argued that the system of selective and exclusive distribution (SED) benefited consumers by providing them with a cradle-to-grave service, alongside what was said to be a highly competitive supply situation within the heavily branded global car market.

Introduced in 1995, and extended until the end of September 2002, the block
exemption was highly criticised for its impact on the operation of the car market in
Europe. Following a critical report by the UK competition authorities in April 2000,
the EU published a review (in November 2000) of the workings of the existing
arrangement for distributing and servicing cars, highlighting its adverse conse-
quences for both consumers and retailers and signalling the need for change. Despite
intensive lobbying by the major car manufacturers, and by some national govern-
ments, to maintain the current rules largely intact, the European Commission
announced its intention of replacing the block exemption regulation when it expired
in September, subject of course to consultation with interested parties.

In essence the Commission’s proposals aimed to give dealers far more independ-
ence from suppliers by allowing them to solicit for business anywhere in the EU
and to open showrooms wherever they want; they would also be able to sell cars
supplied by different manufacturers under the same roof. The plan also sought to
open up the aftersales market by breaking the tie which existed between sales and
servicing. The proposal was that independent repairers would in future be able to
get greater access to the necessary spare parts and technology, thereby encouraging
new entrants to join the market with reduced initial investment costs.

While these proposals were broadly welcomed by groups representing consumers
(e.g. the Consumer Association in the UK), some observers felt that the planned
reforms did not go far enough to weaken the power of the suppliers over the market
(see e.g. the editorial in the Financial Times, 11 January 2002). For instance it
appeared to be the case that while manufacturers would be able to supply cars to
supermarkets and other new retailers, they would not be required by law to do so,
suggesting that a market free-for-all was highly unlikely to emerge in the foreseeable
future. Equally the Commission’s plans appeared to do little to protect dealers from
threats to terminate their franchises should there be a dispute with the supplier.

In the event the old block exemption scheme expired at the end of September
2002 and the new rules began the next day. However, the majority of the provisions
under the EC rules did not come into effect until the following October (2003) and
the ban on ‘location clauses’ – which limit the geographical scope of dealer opera-
tions – only came into effect two years later. Since October 2005 dealers have been
free to set up secondary sales outlets in other areas of the EU, as well as their own
countries. This is expected to stengthen competition between dealers across the
Single Market to the advantage of consumers (e.g. greater choice and reduced prices).

 

 

Case study questions

  1. Can you suggest any reasons why the European Commission was willing to grant
    the block exemption in the first place, given that it ran counter to its proposals for
    a Single Market?

 

  1. Why might the new reforms make cars cheaper for European consumers?

 

Case 5 : The sale of goods on the Internet

 

The sale of consumer goods on the Internet (particularly those between European member states) raises a number of legal issues. First, there is the issue of trust, with-
out which the consumer will not buy; they will need assurance that the seller is genuine, and that they will get the goods that they believe they have ordered.
Second, there is the issue of consumer rights with respect to the goods in question: what rights exist and do they vary across Europe? Last, the issue of enforcement: what happens should anything go wrong?

 

Information and trust

Europe recognises the problems of doing business across the Internet or telephone
and it has attempted to address the main stumbling blocks via Directives. The
Consumer Protection (Distance Selling) Regulations 2000 attempts to address the
issues of trust in cross-border consumer sales, which may take place over the
Internet (or telephone). In short, the consumer needs to know quite a bit of infor-
mation, which they may otherwise have easy access to if they were buying face to
face. Regulation 7 requires inter alia for the seller to identify themselves and an
address must be provided if the goods are to be paid for in advance. Moreover, a
full description of the goods and the final price (inclusive of any taxes) must also
be provided. The seller must also inform the buyer of the right of cancellation available under Regulations 10-12, where the buyer has a right to cancel the contract for seven days starting on the day after the consumer receives the goods or services. Failure to inform the consumer of this right automatically extends the period to three months. The cost of returning goods is to be borne by the buyer, and the seller is entitled to deduct the costs directly flowing from recovery as a restocking fee. All of this places a considerable obligation on the seller; however, such data should stem many misunderstandings and so greatly assist consumer faith and confidence in non-face-to-face sales.

Another concern for the consumer is fraud. The consumer who has paid by
credit card will be protected by section 83 of the Consumer Credit Act 1974, under
which a consumer/purchaser is not liable for the debt incurred, if it has been run
up by a third party not acting as the agent of the buyer. The Distance Selling
Regulations extend this to debit cards, and remove the ability of the card issuer to
charge the consumer for the first £50 of loss (Regulation 21). Moreover, section 75
of the Consumer Credit Act 1974 also gives the consumer/buyer a like claim against
the credit card company for any misrepresentation or breach of contract by the
seller. This is extremely important in a distance selling transaction, where the seller
may disappear.

 

What quality and what rights?

The next issue relates to the quality that may be expected from goods bought over
the Internet. Clearly, if goods have been bought from abroad, the levels of quality
required in other jurisdictions may vary. It is for this reason that Europe has
attempted to standardise the issue of quality and consumer rights, with the
Consumer Guarantees Directive (1999/44/EC), thus continuing the push to encour-
age cross-border consumer purchases. The implementing Sale and Supply of Goods
to Consumer Regulations 2002 came into force in 2003, which not only lays down
minimum quality standards, but also provides a series of consumer remedies which
will be common across Europe. The Regulations further amend the Sale of Goods
Act 1979. The DTI, whose job it was to incorporate the Directive into domestic law
(by way of delegated legislation) ensured that the pre-existing consumer rights were
maintained, so as not to reduce the overall level of protection available to con-
sumers. The Directive requires goods to be of ‘normal’ quality, or fit for any
purpose made known by the seller. This has been taken to be the same as our pre-
existing ‘reasonable quality’ and ‘fitness for purpose’ obligations owed under
sections 14(2) and 14(3) of the Sale of Goods Act 1979. Moreover, the pre-existing
remedy of the short-term right to reject is also retained. This right provides the
buyer a short period of time to discover whether the goods are in conformity with
the contract. In practice, it is usually a matter of weeks at most. After that time has
elapsed, the consumer now has four new remedies that did not exist before, which
are provided in two pairs. These are repair or replacement, or price reduction or
rescission. The pre-existing law only gave the consumer a right to damages, which
would rarely be exercised in practice. (However, the Small Claims Court would
ensure a speedy and cheap means of redress for almost all claims brought.) Now
there is a right to a repair or a replacement, so that the consumer is not left with an
impractical action for damages over defective goods. The seller must also bear the
cost of return of the goods for repair. So such costs must now be factored into any

business sales plan. If neither of these remedies is suitable or actioned within a ‘rea-
sonable period of time’ then the consumer may rely on the second pair of
remedies. Price reduction permits the consumer to claim back a segment of the pur-
chase price if the goods are still useable. It is effectively a discount for defective
goods. Rescission permits the consumer to reject the goods, but does not get a full
refund, as they would under the short-term right to reject. Here money is knocked
off for ‘beneficial use’. This is akin to the pre-existing treatment for breaches of
durability, where goods have not lasted as long as goods of that type ought reason-
ably be expected to last. The level of compensation would take account of the use
that the consumer has (if any) been able to put the goods to and a deduction made
off the return of the purchase price. However, the issue that must be addressed is as
to the length of time that goods may be expected to last. A supplier may state the
length of the guarantee period, so a £500 television set guaranteed for one year
would have a life expectancy of one year. On the other hand, a consumer may
expect a television set to last ten years. Clearly, if the set went wrong after six
months, the consumer would only get £250 back if the retailer’s figure was used,
but would receive £475 if their own figure was used. It remains to be seen how this
provision will work in practice.

One problem with distance sales has been that of liability for goods which arrive
damaged. The pre-existing domestic law stated that risk would pass to the buyer once
the goods were handed over to a third-party carrier. This had the major problem in
practice of who would actually be liable for the damage. Carriers would blame the
supplier and vice versa. The consumer would be able to sue for the loss, if they were
able to determine which party was responsible. In practice, consumers usually went
uncompensated and such a worry has put many consumers off buying goods over the
Internet. The Sale and Supply of Goods to Consumer Regulations also modify the
transfer of risk, so that now the risk remains with the seller until actual delivery. This
will clearly lead to a slight increase in the supply of goods to consumers, with the
goods usually now being sent by insured delivery. However, this will avoid the prob-
lem of who is actually liable and should help to boost confidence.

 

Enforcement

Enforcement for domestic sales is relatively straightforward. Small-scale consumer
claims can be dealt with expeditiously and cheaply under the Small Claims Court.
Here claims under £5000 for contract-based claims are brought in a special court
intended to keep costs down by keeping the lawyers’ out of the court room, as a vic-
torious party cannot claim for their lawyers’ expenses. The judge will conduct the
case in a more ‘informal’ manner, and will seek to discover the legal issues by ques-
tioning both parties, so no formal knowledge of the law is required. The total cost of
such a case, even if it is lost, is the cost of issuing the proceedings (approximately

10 per cent of the value claimed) and the other side’s ‘reasonable expenses’. Expenses
must be kept down, and a judge will not award value which has been deliberately run
up, such first-class rail travel and stays in five star hotels. Residents of Northampton
have hosted a trial of an online claims procedure, so that claims may now be made
via the Internet. (www.courtservice.gov.uk outlines the procedure for MCOL, or
Money Claims Online.) Cases will normally be held in the defendant’s court, unless the complainant is a consumer and the defendant a business.

 

Enforcement is the weak point in the European legislation, for there is, as yet, no
European-wide Small Claims Court dealing with transnational European transac-
tions. The consumer is thus forced to contemplate expensive civil action abroad in a
foreign language, perhaps where no such small claims system exists – a pointless
measure for all but the most expensive of consumer purchases. The only redress lies
in EEJ-Net, the European Extra-Judicial Network, which puts the complainant in
touch with any applicable professional or trade body in the supplier’s home member
state. It does require the existence of such a body, which is unlikely if the transac-
tion is for electrical goods, which is one of the most popular types of Internet
purchase. Therefore, until Europe provides a Euro Small Claims Court, the consumer
cross-border buyer may have many rights, but no effective means of enforcement.
Until then it would appear that section 75 of the Consumer Credit Act 1974, which
gives the buyer the same remedies against their credit card company as against the
seller, is the only effective means of redress.

 

Case study questions

  1. Consider the checklist of data which a distance seller must provide to a consumer
    Is this putting too heavy a burden on sellers?

 

  1. Is a consumer distance buyer any better off after the European legislation?
  2. Are there any remaining issues that must be tackled to increase European cross-
    border consumer trade?

IIBMS MBA EXAM ANSWER SHEETS PROVIDED

IIBMS MBA EXAM ANSWER SHEETS PROVIDED

Attempt any Ten Questions:

  1. Discuss the role of SEBI in regulating Indian Capital Market.

 

  1. Discuss the basic problems of Industrial finance in India

 

  1. Write short notes on the following (Any Three)
  2. i) Corporate disasters
  3. ii) Corporate ethics

iii) Managers and professionalism

  1. iv) Role played by SEBI in avoiding, corporate disasters, ethics ,and also describe CSR initiatives of corporate world.

 

  1. Explain Principles of Corporate Governance .

 

  1. Explain the Guidelines issued by SEBI towards Corporate Governance.

 

  1. Explain the underlying assumptions of the Black and Scholes option pricing model and why are they needed? Explain in detail Black Scholes option pricing model .

 

  1. Discuss the relationship between the financing decision and investment decision in a firm

 

  1. Discuss RAD and CE approach

 

  1. Explain the advantages of Decision tree approach in investment decisions

 

  1. .Discuss the factors which exercise influence on the demand for working capital in a manufacturing concern

 

  1. Discuss the role of Commercial bank as financial intermediaries

 

  1. What do you mean by share capital? Explain the different forms of share can a company issue?

 

  1. Explain the role of EXIM Bank Financing of exports

 

  1. Explain the relevance which is associated with the financing decision and investment in the organization.

Attempt any Eight questions

  • Explain the role of financial planning in financial management?

 

  • “Wealth maximization is an important objective of financial management.” Explain briefly.

 

  • What is meant by financial management? Explain its role.

 

  • Explain the factors affecting the financing decisions.

 

  • Explain objectives of financial management?

 

 

  • Write a short note on finance function.

 

  • What do you mean by the term “Trading on equity?” How it can be used by an organization?

 

 

  • What is meant by financial management? Explain any EIGHT decisions involved in the financial management.

 

  • Explain by giving any SIX, why capital budgeting decisions are important?

 

 

  • Explain the factors affecting the capital budgeting decisions.

 

  • A company wants to establish a new unit in which a machinery of worth Rs. 100000 is involve. Identify the decision involved in financial management?

 

  • Explain by giving any four reasons, why capital budgeting decisions are important?

Instruction to Candidates:                                                                                                          

Attempt only 5 question.

Q.1       A. What is the importance for managers of ethics, cultural diversity and the changing workplace?

B. What is the major task of the manager according to the contingency approach?
Q.2       A. Who are the stakeholder’s networks and coalitions to influences stakeholders?

B. What is Milton Friedman’s position on corporate social responsibility?

Q.3       A. What does globalization mean for managers?

B. Why is entrepreneurship important?

Q.4       A. What is multiculturalism, and where does it come from?

B. What themes unite Deming’s Fourteen Points?

Q.5       A. What are some examples in modern world politics that can be explained by game theory and or chaos theory?

B. How did our current concept of strategy develop?
Q.6       A. What are the seven factors in the Seven-S model?

B. What problems do you think might arise in working through a virtual corporation to satisfy organizational goals?

C. What is the “zone of indifference”?

Instruction to Candidates:
1) Section – A is Compulsory.
2) Attempt any Four questions from Section – B.

Section – A
Q1)         a) What is the significance of human resource management in the present business environment?

b)            What do you mean by job analysis?

c)             What is the purpose of induction?

d)            What is the need for job rotation?

e)             What is meant by career planning?

f)             Distinguish between structured and unstructured interviews.

g)            What is human resource development?

h)            What are the objectives of incentives?

i)              Differentiate between wages and salary.

j)              What is meant by employee empowerment?

Section – B
Q2)         What kind of new trends in human resource development have taken place as a result of globalization and technological advancement? Discuss.

Q3)         What is job specification? How is it different from job description? Explain with the help of a specimen how is it prepared?

Q4)         What is the importance of selection? Briefly explain the process of selection.

Q5)         Discuss the benefits of promotion. Should it be based on seniority or merit? Give reasons

Q6)         Discuss the need for training in an industrial organization. Explain the various types of training programs prevalent in the industry.

Q7)         What is the significance of performance appraisal in an organization. Explain the criteria to be used for measurement of performance.
Instructions :

(1) All questions are compulsory.

 (3) Draw diagrams wherever necessary.

Q.1)       Explain in detail Recardo’s Theory based on Comparative Advantage of International Trade.

OR

Q.1)       Give the meaning of International Corporations. Explain the role and importance of Multi-national Corporations in International Business.

Q.2)       What is Foreign Exchange Market ? State advantages and disadvantages of Fixed Exchange Rate System.

OR

Q.2)       Give the differences between the Balance of Trade and Balance of Payments.

Q.3)       What is WTO ? Explain its structure and functions.

OR

Q.3)       What is Special Economic Zones (SEZ) ? Explain role of Special Economic Zones (SEZ) in International Business.

Q.4)       Explain in detail Foreign Trade Policy of India (2004-09).

OR

Q.4)       Explain in detail Positive and Negative Impact of NAFTA.

Q.5)       Write short notes : (Any Four)

(a)          European Union (E.U.)

(b)          SAARC

(c)           World Bank

(d)          Role of IMF

(e)          Nature of International Business Environment

(f)           Spot and Forward Exchange Markets

Answer any Six out of Eight.

 

1 )           (a) Explain the scope of managerial economics.

(b) Discuss the relationship with other areas in economics in detail.

2)            (a) Explain the practices of managerial theories of firm in economics.

(b) Discuss behavioural theories of firm in detail.

3 )           (a) What is time perspective in economics?

(b) Discuss discounting principle in detail.

(c) How to deal risk and uncertainty? Explain.

4)            (a) Briefly explain how price is determined under demand versus supply analysis.

(b) Explain marketing research approaches to demand estimation.

5 )           (a) Explain the prince and output determination under global competitiveness.

(b) Explain production function with two variables.

6 )           Explain the following:

(a) Cost concept.

(b) Short run versus long run costs.

(c) Average cost curve.

(d) Overall cost leadership.

7)            (a) What are the fundamental features of oligopoly competition?

(b) How do you determine price of product under oligopoly competition?

8)            (a) Explain the nature & scope of profit management.

(b) Explain in detail about cost-volume profit analysis.

SECTION A

Answer any THREE out of Five.

1 )           Define marketing. Discuss in detail the evolution of different concepts of marketing.

2)            What do you understand by the term marketing strategy?

3 )           Explain how marketing strategy differs in case of consumer goods and industrial goods.

4)            What is meant by Buyer Behavior? Bring out the social factors influencing buyer behavior.

5)            State the qualities of a goods advertisement.

6)            What are the advantages of training the salesman? http://www.vidyarthiplus.com

SECTION B

Answer any FOUR out of Seven.

1)            Explain stages in product life cycle.

2)            Explain importance of market segmentation.

3)            What are the factors affecting pricing and explain them?

4)            What are the sources of recruiting the salesman?

5)            Explain factors to be considered while pricing a new product.

6)            Explain concept of branding and point out its significance.

7 )           What are the different modes of transport? How is transport important in marketing

Attempt any Eight Questions:

 

 

  1. Illustrate the emerging concepts in competition and segmentation?

 

  1. Explain PEST framework with the help of an example of your choice from the Indian marketing

    Environment?

 

  1. Illustrate An off’s matrix and TOWS analysis?

 

  1. Explain the significance of marketing strategy for soft drink manufacturers: say Coca-Cola and

    Pepsi Cola and Pepsi cola in India. Discuss their strategies in depth?

 

  1. Explain developing and testing a brand with the help of an example of your choice from the Indian

    Marketing environment?

 

  1. Explain the role of strategic marketing in handling implicit collusion with the help of an example

     Of your choice?

 

  1. Comment on the new corporate governing e-laws and their significance for Indian corporate

     Houses?

 

  1. Elucidate new business practices followed by Indian firms after the advent of customer-

     Friendly technologies?

 

  1. Illustrate the successful growth and diversification strategies adopted by the Indian irms like ICICI

      Bank and Tata Steel recently?

 

  1. Elucidate critical factors in selecting the right Relationship marketing strategy for an Indian

       Software firm say, Infosys in Europe and Middle –east countries ?

 

 

 

 

 

 


CORPORATE FINANCE IIBMS EXAM ANSWER PROVIDED

CORPORATE FINANCE IIBMS EXAM ANSWER PROVIDED

Attempt any Ten Questions:

  1. Discuss the role of SEBI in regulating Indian Capital Market.

 

  1. Discuss the basic problems of Industrial finance in India

 

  1. Write short notes on the following (Any Three)
  2. i) Corporate disasters
  3. ii) Corporate ethics

iii) Managers and professionalism

  1. iv) Role played by SEBI in avoiding, corporate disasters, ethics ,and also describe CSR initiatives of corporate world.

 

  1. Explain Principles of Corporate Governance .

 

  1. Explain the Guidelines issued by SEBI towards Corporate Governance.

 

  1. Explain the underlying assumptions of the Black and Scholes option pricing model and why are they needed? Explain in detail Black Scholes option pricing model .

 

  1. Discuss the relationship between the financing decision and investment decision in a firm

 

  1. Discuss RAD and CE approach

 

  1. Explain the advantages of Decision tree approach in investment decisions

 

  1. .Discuss the factors which exercise influence on the demand for working capital in a manufacturing concern

 

  1. Discuss the role of Commercial bank as financial intermediaries

 

  1. What do you mean by share capital? Explain the different forms of share can a company issue?

 

  1. Explain the role of EXIM Bank Financing of exports

 

  1. Explain the relevance which is associated with the financing decision and investment in the organization.

 


MANAGERIAL ECONOMICS – IIBMS EXAM ANSWER

           

 MANAGERIAL ECONOMICS – IIBMS EXAM ANSWER

     IIBMS QUESTION PAPER

                Subject – Managerial Economics

                                 Marks – 100

 

 

Attempt Any Four Case Study

 

CASE – 1   Dabur India Limited: Growing Big and Global

 

Dabur is among the top five FMCG companies in India and is positioned successfully on the specialist herbal platform. Dabur has proven its expertise in the fields of health care, personal care, homecare and foods.

The company was founded by Dr. S. K. Burman in 1884 as small pharmacy in Calcutta (now Kolkata), India. And is now led by his great grandson Vivek C. Burman, who is the Chairman of Dabur India Limited and the senior most representative of the Burman family in the company. The company headquarters are in Ghaziabad, India, near the Indian capital New Delhi, where it is registered. The company has over 12 manufacturing units in India and abroad. The international facilities are located in Nepal, Dubai, Bangladesh, Egypt and Nigeria.

S.K. Burman, the founder of Dabur, was trained as a physician. His mission was to provide effective and affordable cure for ordinary people in far-flung villages. Soon, he started preparing natural remedies based on Ayurved for diseases such as Cholera, Plague and Malaria. Due to his cheap and effective remedies, he became to be known as ‘Daktar’ (Indianised version of ‘doctor’). And that is how his venture Dabur got its name—derived from Daktar Burman.

The company faces stiff competition from many multi national and domestic companies. In the Branded and Packaged Food and Beverages segment major companies that are active include Hindustan Lever, Nestle, Cadbury and Dabur. In case of Ayurvedic medicines and products, the major competitors are Baidyanath, Vicco, Jhandu, Himani and other pharmaceutical companies.

 

 

 

Vision, Mission and Objectives

 

Vision statement of Dabur says that the company is “dedicated to the health and well being of every household”. The objective is to “significantly accelerate profitable growth by providing comfort to others”. For achieving this objective Dabur aims to:

  • Focus on growing core brands across categories, reaching out to new geographies, within and outside India, and improve operational efficiencies by leveraging technology.
  • Be the preferred company to meet the health and personal grooming needs of target consumers with safe, efficacious, natural solutions by synthesising deep knowledge of ayurveda and herbs with modern science.
  • Be a professionally managed employer of choice, attracting, developing and retaining quality personnel.
  • Be responsible citizens with a commitment to environmental protection.
  • Provide superior returns, relative to our peer group, to our shareholders.

 

Chairman of the company

 

Vivek C. Burman joined Dabur in 1954 after completing his graduation in Business Administration from the USA. In 1986 he was appointed Managing Director of Dabur and in 1998 he took over as Chairman of the Company.

Under Vivek Burman’s leadership, Dabur has grown and evolved as a multi-crore business house with a diverse product portfolio and a marketing network that traverses the whole of India and more than 50 countries across the world. As a strong and positive leader, Vivek C. Burman has motivated employees of Dabur to “do better than their best”—a credo that gives Dabur its status as India’s most trusted nature-based products company.

 

Leading brands

 

More than 300 diverse products in the FMCG, Healthcare and Ayurveda segments are in the product line of Dabur. List of products of the company include very successful brands like Vatika, Anmol, Hajmola, Dabur Amla Chyawanprash, Dabur Honey and Lal Dant Manjan with turnover of Rs.100 crores each.

Strategic positioning of Dabur Honey as food product, lead to market leadership with over 40% market share in branded honey market; Dabur Chyawanprash is the largest selling Ayurvedic medicine with over 65% market share. Dabur is a leader in herbal digestives with 90% market share. Hajmola tablets are in command with 75% market share of digestive tablets category. Dabur Lal Tail tops baby massage oil market with 35% of total share.

CHD (Consumer Health Division), dealing with classical Ayurvedic medicines has more than 250 products sold through prescription as well as over the counter. Proprietary Ayurvedic medicines developed by Dabur include Nature Care Isabgol, Madhuvaani and Trifgol.

However, some of the subsidiary units of Dabur have proved to be low margin business; like Dabur Finance Limited. The international units are also operating on low profit margin. The company also produces several “me – too” products. At the same time the company is very popular in the rural segment.

Questions

 

  1. What is the objective of Dabur? Is it profit maximisation or growth maximisation? Discuss.
  2. Do you think the growth of Dabur from a small pharmacy to a large multinational company is an indicator of the advantages of joint stock company against proprietorship form? Elaborate.

 

CASE – 2   IT Industry: Checkered Growth

 

IT industry is now considered as vital for the development of any economy. Developing countries value the importance of this industry due to its capacity to provide much needed export earnings and support in the development of other industries. Especially in Indian context, this industry has assumed a significant position in the overall economy, due to its exemplary potentials in creating high value jobs, enhancing business efficiency and earning export revenues. The IT revolution has brought unexpected opportunities for India, which is emerging as an increasingly preferred location for customised software development. Experts are estimating the global IT industry to grow to US$1.6 million over the coming six years and exports to reach Rs. 2000 billion by 2008. It is envisaged that Indian IT industry, though a very small portion of the global IT pie, has tremendous growth prospects.

 

Stock Taking

 

The decade of 1970 may be taken as the stage of introduction of the Indian IT industry. The early years were marked by 75 per cent of software development taking place overseas and the rest 25 per cent in India. Exports of Indian software until the mid-1970s was mainly Eastern Europe, followed by US. Tata Consultancy Services (TCS) was among the pioneers in selling its services outside India, by working for IBM Labs in the US. The hardware segment lagged behind its software counterpart. With instances of exports worth US$ 4 million in 1980, the software segment of the industry has shown an uneven profile. It was not until 1980s that vigorous and sustained growth in software exports begun, as MNCs like Texas Instruments started to take serious interest in India as a centre of software production. Destinations of export also underwent changes, with US dominating the main export market with 75 per cent of the exports. The IT Enabled Services (ITeS) segment, however, had not emerged at this stage.

It was also during the mid to late 1980s that computer firms shifted focus from mainframe computers (the mainstay of MNCs) to Personal Computers (PCs). In March 1985, Minicomp installed the first ever PC at CSI, Delhi; this changed the entire industry for good. With the entry of networking and applications like CAD/CAM, PC sales soared in 1987-88, touching 50,000 units.

From a modest growth in the mid-1980s software exports moved up to Rs. 3.8 billion in 1991-92. Since then, it grew at an incredible rate, up to 115 per cent in 1993. The hardware could also register an annual growth of 40 per cent in this period, backed by a surging demand for PCs and networking. Growth of the industry was also driven by the emergence and rapid growth of the ITeS segment.

IT sector’s share of GDP rose steadily in this period, rate of increase being the highest at 44.91 per cent in 2000-01. It was in the same year that the size of the total IT market was the biggest in the decade, at Rs. 56,592 crore. The overall IT market was also found to increase till 2000-01. The overall IT market was also found to increase till 2000-01, with the only exception of 1998-99. The domestic market also showed an overall increase till 2000-01, registering a spectacular CAGR of 50.39 per cent. Aggregate output of software and services also increased in this period, though at an uneven rate. Of approximately $1 billion worth of sales in 1991-1992, domestic hardware sales constituted 37.2 per cent (13.4 per cent growth over the previous year), exports of hardware 6.6 per cent.

During 2000-01 the growth in the hardware segment was driven mainly by PCs, which contributed about 58 per cent of the total hardware market. This period also witnessed the phenomenon of increasing share of Tier 2 and cities in PC sales, thereby indicating PC penetration into the hinterland. PC shipments had increased by 35 per cent every year from 1997 till 2000-01 when it reached 1.8 million PCs. The commercial PC market saw a growth of 23.5 per cent mainly due to slashing of prices by major vendors.

It was in 2001-02 that the industry had a sharp fall in rate of growth of its share of GDP to 5.90 per cent, from 44.91 per cent in the previous year. The total IT market also showed a fall in growth rate from 56.42 per cent in 2000-01 to a mere 16.24 per cent in the next year, growing further at the rate of 16.25 per cent in the next year. Software export was also affected, registering a low growth of 28.74 per cent and failed to maintain its growth rate of 65.30 per cent in the previous year. It got further lowered to 26.30 per cent in 2002-03. CAGR of total output of software and services (in Rs. crore) came down to 25.61 in 2001-02 and further to 25.11 in 2002-03. The domestic market showed a steep decline in growth to 3 per cent in 2001-02 from an outstanding 50.39 per cent in 2000-01. It could, however, recover by growing at 4.11 per cent in the next year.

 

 

Table 1: Indian IT Industry: 1996-97 to 2002-03

 

Year A* B* C* D* E*
1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

 

 

1.22

1.45

1.87

2.71

2.87

3.09

 

 

18,641

25,307

36,179

56,592

65,788

76,482

 

3,900

6,530

10,940

17,150

28,350

36,500

46,100

 

6,594

10,899

16,879

23,980

37,350

47,532

59,472

 

9,438

12,055

14,227

18,837

28,330

29,181

30,382

 

 

*A: share of GDP of the Indian IT market, B: size of the Indian IT market (in Rs. crore), C: software and services exports (in Rs. crore), D: size of software and services (in Rs. crore), E: size of the domestic market (in Rs. crore)

 

 

Questions

 

1.                  Try to identify various stages of growth of IT industry on basis of information given in the case and present a scenario for the future.
2.                  Study the table given. Apply trend projection method on the figures and comment on the trend.
3.                  Compute a 3 year moving average forecast for the years 1997-98 through 2003-04.

 

 

 

 

 

 

 

 

 

 

CASE – 3   Outsourcing to India: Way to Fast Track

 

By almost any measure, David Galbenski’s company Contract Counsel was a success. It was a company Galbenski and a law school buddy, Mark Adams, started in 1993; it helps companies find lawyers on a temporary contract basis. The growth over the past five years had been furious. Revenue went from less than $200,000 to some $6.5 million at the end of 2003, and the company was placing thousands of lawyers a year.

At then the revenue growth began to flatten; the company grew just 8% in 2004 despite a robust market for legal services estimated at about $250 billion in the United States alone. Frustrated and concerned, Galbenski stepped back and began taking a hard look at his business. Could he get it back on the fast track? “Most business books say that the hardest threshold to cross is that $10 million sales mark,” he says. “I knew we couldn’t afford to grow only 10% a year. We needed to blow right through that number.”

For that to happen, Galbenski knew he had to expand his customer base beyond the Midwest into large legal supermarkets such as Boston, New York, and Washington, D.C. He also knew that in doing so, he could run into stiff competition from larger publicly traded rivals. Contract Counsel’s edge has always been its low price, Clients called when dealing with large-scale litigation or complicated merger and acquisition deals, either of which can require as many as 100 lawyers to manage the discovery process and the piles of documents associated with it. Contract Counsel’s temps cost about $75 an hour, roughly half of what a law firm would charge, which allowed the company to be competitive despite its relatively small size. Galbenski was counting on using the same strategy as he expanded into new cities. But would that be enough to spur the hyper growth that he craved for?

At that time, Galbenski had been reading quite a bit about the growing use of offshore employees. He knew companies like General Electric, Microsoft and Cisco were saving bundles by setting up call and data centers in India. Could law firms offshore their work? Galbenski’s mind raced with possibilities. He imagined tapping into an army of discount-priced legal minds that would mesh with his existing talent pool in the U.S. The two work forces could collaborate over the Web and be productive on a 24-7 basis. And the cost could be massive.

Using offshore workers was a risk, but the payoff was potentially huge. Incidentally Galbenski and his eight-person management team were preparing to meet for their semiannual review meeting. The purpose of the two-day event was to decide the company’s goals for the coming year. Driving to the meeting, Galbenski struggled to figure out exactly what he was going to say. He was still undecided about whether to pursue an incremental and conservative national expansion or take a big gamble on overseas contractors.

 

The Decision

 

The next morning Galbenski kicked off the management meeting. Galbenski laid out the facts as he saw them. Rather than look at just the next five years of growth, look at the next 20, he said. He cited a Forrester Research prediction that some 79,000 legal jobs, totaling $5.8 billion in wages, would be sent offshore by 2015. He challenged his team to be pioneers in creating a new industry, rather than stragglers racing to catch up. His team applauded. Returning to the office after the meeting, Galbenski announced the change in strategy to his 20 full-timers.

Then he and his team began plotting a global action plan. The first step was to hire a company out of Indianapolis, Analysts International, to start compiling a list of the best legal services providers in countries where people had comparatively strong English skills. The next phase was vetting the companies in person. In February 2005, just three months after the meeting in Port Huron, Galbenski found himself jetting off on a three months trip to scout potential contractors in India, Dubai, and Sri Lanka. Traveling to cities like Bangalore, Chennai and Hyderabad, he interviewed executives from more than a dozen companies, investigating their day-to-day operations firsthand.

India seemed like the best bet. With more than 500 law schools and about 200,000 law students graduating each year, it had no shortage or attorneys. What amazed Galbenski, however, was that thanks to the Web, lawyers in India had access to the same research tools and case summaries as any associate in the U.S. Sure, they didn’t speak American English. “But they were highly motivated, highly intelligent, and extremely process-oriented,” he says. “They were also eager to tackle the kinds of tasks that most new associated at law firms look down upon” such as poring over and coding thousands of documents in advance of a trial. In other words, they were perfect for the kind of document-review work he had in mind.

After a return visit to India in August 2005, Galbenski signed a contract with two legal services companies: QuisLex, in Hyderabad, and Manthan Services in Bangalore. Using their lawyers and paralegals, Galbenski figured he could cut his document-review rates to $50 an hour. He also outsourced the maintenance of the database used to store the contact information for his thousands of contractors. In all, he spent about 12 months and $250,000 readying his newly global company. Convincing U.S. based clients to take a chance on the new service hasn’t been easy. In November, Galbenski lined up pilot programs with four clients (none of which are ready to publicise their use of offshore resources). To help get the word out, he launched a website (offshore-legal-services.com), which includes a cache of white papers and case studies to serve as a resource guide for companies interested in outsourcing.

Questions

 

1.                  As money costs will decrease due to decision to outsource human resource, some real costs and opportunity costs may surface. What could these be?
2.                  Elaborate the external and internal economies of scale as occurring to Contract Counsel.
3.                  Can you see some possibility of economies of scope from the information given in the case? Discuss.

 

CASE – 4   Indian Stock Market: Does it Explain Perfect Competition?

 

The stock market is one of the most important sources for corporates to raise capital. A stock exchange provides a market place, whether real or virtual, to facilitate the exchange of securities between buyers and sellers. It provides a real time trading information on the listed securities, facilitating price discovery.

Participants in the stock market range from small individual investors to large traders, who can be based anywhere in the world. Their orders usually end up with a professional at a stock exchange, who executes the order. Some exchanges are physical locations where transactions are carried out on a trading floor. The other type of exchange is of a virtual kind, composed of a network of computers and trades are made electronically via traders.

By design a stock exchange resembles perfect competition. Large number of rational profit maximisers actively competing with each other, trying to predict future market value of individual securities comprises the main feature of any stock market. Important current information is almost freely available to all participants. Price of individual security is determined by market forces and reflects the effect of events that have already occurred and are expected to occur. In the short run it is not easy for a market player to either exit or enter; one cannot exit and enter for few days in those stocks which are under no delivery. For example Tata Steel was in no delivery from 29/10/07 to 02/11/07. Similarly one cannot enter or exit on those stocks which are in upper or lower circuit for few regular trading sessions. Therefore a player has to depend wholly on market price for its profit maximizing output (in this case stock of securities). In the long run players may exit the market if they are not able to earn profit, but at the same time new investors are attracted by rise in market price.

As on 01/11/07 total market capital at Bombay Stock Exchange (BSE) is $1589.43 billion (source: Business Standard, 1/11/2007); out of this individual investors account for only $100bn. In spite of the fact that individual investors exist in a very large number, their capital base is less than 7% of total market capital; rest of capital is owned by foreign institutional investor and domestic institutional investors (FIIs and DIIs), which are very small in number. Average capital owned by a single large player is huge in comparison to small investor. This situation seems to have prompted Dr Dash of BSE to comment ‘The stock market activity is increasingly becoming more centralised, concentrated and non competitive, serving interest of big players only.” Table 2 shows the impact of change in FII on National Stock Exchange movement during three different time periods.

 

Table 2: Impact of FIIs’ Investment on NSE

 

 

Wave

 

 

Date

 

 

Nifty

close

 

Change in Nifty Index

 

FLLS Net Investment

(Rs.Cr.)

 

Change in Market Capitalisation

(Rs.Cr.)

Wave 1

From

To

 

17/05/04

26/10/05

 

1388.75

2408.50

 

 

1019.75

 

 

59520

 

 

5,40,391

Wave 2

From

To

 

27/10/05

11/05/06

 

2352.90

3701.05

 

 

1348.15

 

 

38258

 

 

6,20,248

Wave 3

From

To

 

12/05/06

13/06/06

 

3650.05

2663.30

 

 

-986.75

 

 

-9709

 

 

-4,60,149

 

By design, an Indian Stock Market resembles perfect competition, not as a complete description (for no markets may satisfy all requirements of the model) but as an approximation.

 

 

 

 

 

Questions

 

  1. Is stock market a good example of perfect competition? Discuss.
  2. Identify the characteristics of perfect competition in the stock market setting.
  3. Can you find some basic aspect of perfect competition which is essentially absent in stock market?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASE – 5   The Indian Audio Market

 

The Indian audio market pyramid is featured by the traditional radios forming its lower bulk. Besides this, there are four other distinct segments: mono recorders (ranking second in the pyramid), stereo recorders, midi systems (which offer the sound amplification of a big system, but at a far lower price and expected to grow at 25% per year) and hi-fis (minis and micros, slotted at the top end of the market).

Today the Indian audio market is abound with energy and action as both national and international majors are trying to excel themselves and elbow the others, ushering in new concepts, like CD sound, digital tuners, full logic tape deck, etc. The main players in the Indian audio market are Philips, BPL and Videocon. Of these, Philips is one of the oldest and is considered at the leading national brands. In fact it was the first company to introduce a range of international products such as CD radio cassette recorder, stand alone CD players and CD mini hi-fi systems. With the easing of the entry barriers, a number of new international players like Panasonic, Akai, Sansui, Sony, Sharp, Goldstar, Samsung and Aiwa have also entered the arena. This has led to a sea of changes in the industry and resulted in an expanded market and a happier customer, who has access to the latest international products at competitive prices. The rise in the disposable income of the average Indian, especially the upper-income section, has opened up new vistas for premium products and has provided a boost to companies to launch audio systems priced as high as Rs. 50,000 and beyond.

 

Pricing across Segments

 

Super Premium Segment: This segment of the market is largely price-insensitive, as consumers are willing to pay a premium in order to obtain products of high quality. Sonodyne has positioned itself in this segment by concentrating on products that are too small for large players to operate in profitably. It has launched a range of systems priced between Rs. 30,000 to Rs. 60,000. National Panasonic has launched its super premium range of systems by the name of Technics.

 

Premium Segment: Much of the price game is taking place in this segment, in which systems are priced around Rs. 25,000. Even the foreign players ensure that the pricing is competitive. Entry barriers of yester years compelled the demand by this segment to be partially met by the grey market. With the opening up of the market, the premium segment is witnessing a rapid growth and is currently estimated to be worth Rs. 30 crores. Growth of this segment is also being driven by consumers who want to upgrade their old music systems. Another major stimulating factor is the plethora of financing options available, bringing more and more consumers to the market.

Philips has understood the Indian listener well enough to dictate the basic principles of segmentation. It projects its products as high quality at medium price. In fact, Philips had successfully spotted an opportunity in the wide price gap between portable cassette players and hi-fi systems and pioneered the concept of a midi system (a three-in-one containing radio, tape deck and amplifier in one unit). Philips has also realised that there is a section of the rich consumer which values not just power but also clarity and is willing to pay for it. The pricing strategy of Philips was to make the most of its image as a technology leader. To this end, it used non-price variables by launching of a range of state of art machines like the FW series, and CD players. Moreover, it came up with the punch line in its advertisements as, “We Invent For You”.

BPL stands second only to Philips in the audio market and focuses on technology as its USP. Its kingpin in the marketing mix is its high technology superior quality product. It is thus at being the product-quality leader. BPL’s proposition of fidelity is translated in its punchline for its audio systems as, ‘e-fi your imagination’ (d-fi stands for digital fidelity). The company follows a market skimming strategy. When a new product was launched, it was placed in the top end of the market, and priced accordingly. The company offers a range of products in all price segments in the market without discounting the brand.

Another major player, Videocon, has managed to price its products lower even in the premium segment. The success of the Powerhouse (a 160 watt midi launched by Philips in 1990) had prompted Videocon to launch the Select Sound range of midi stereo systems at a slightly lower price. At the premium end, Videocon is making efforts to upgrade its image to being “quality-driven” by associating itself with the internationally reputed brand name of Sansui from Japan, and following a perceived value pricing method.

Sony is another brand which is positioning itself as a premium product and charges a higher price for the superior quality of sound it offers. Unlike indulging into price wars, Sony’s ad-campaigns project the message that nothing can beat Sony in the quality and intensity of sound. National Panasonic is another player that has three products in the top end of the market, priced in the Rs. 21,000 to Rs. 32,000 range.

 

Monos and Stereos: Videocon has 21% share I the overall audio market, but has been a major player only in personal stereos and two-in-ones. Its history is written with instances where it has offered products of similar quality, but at much lower prices than its competitors. In fact, Videocon launched the Sansui brand of products with a view to transform its image from that of being a manufacturer of cheap products to that of being a company that primes quality, and also to obtain a share of the hi-fi segment. Sansui is being positioned as a premium brand, targeting the higher middle, upper income groups and also the sensitive middle class Indian consumer.

The objective of Philips in this segment is to achieve higher sales volumes and hence its strategy is to expand its range and have a product in every segment of the market. The pricing method used by Philips in this segment is providing value for money.

National Panasonic offers products in the lower end of the market, apart from the top of the range. In fact, it reduced the price of one of its small two-in-ones from Rs. 3,500 to Rs. 2,400, with the logic that a forte in the lower end of the market would help in building brand reliability across a wider customer base. The company is also guided by the logic that operating in the price sensitive region of the market will help it reach optimum levels of efficiency. Panasonic has also entered the market for midis.

These apart, there also exists a sector in the Indian audio industry, with powerful regional brands in mono and stereo segments, having a market share of 59% in mono recorders and 36% in stereo recorders. This sector has a strong influence on price performance.

 

 

Questions

 

  1. What major pricing strategies have been discussed in the case? How effective these strategies have been in ensuring success of the company?
  2. Is perceived value pricing the dominant strategy of major players?
  3. Which products have reached maturity stage in audio industry? Do you think that product bundling can be effectively used for promoting sale of these products?

 

 

 

 


INDUSTRAIL MANAGEMENT – IIBMS EXAM ANSWER PROVIDED

INDUSTRAIL MANAGEMENT – IIBMS EXAM ANSWER PROVIDED

Note: Solve any 8 Questions

 

 

  1. To compare three sites, the various factors are listed, as given below. Select the optimal location and give reasons for your choice:

 

  Site A

Rs.

Site B

Rs.

Site C

Rs.

Rent 20,000 10,000 10,000
Labour 1,35,000 1,30,000 1,60,000
Freight Charges 81,000 64,000 28,000
Taxes Nil 3,500 2,000
Power 6,000 6,000 6,000
Community attitude Indifferent Want business Indifferent
Employee Housing Excellent Adequate Poor

 

 

  1. What are the principal considerations for location of:
  1. Steel industry around Bihar
  2. Zinc smelter Plant at Udaipur (Rajasthan)
  • Plastic industry in Bombay
  1. Khetri Copper Project in Rajasthan
  2. Textile industry at Bombay and Ahmedabad
  3. Sugar industry in Maharashtra and U.P.
  • Glass and Bangle industry at Firozabad
  • Woollen carpets at Mirzapur
  1. Silken sarees at Kanjiwaram ( Tamil Nadu )
  2. YMCA Institute of Engineering at Faridabad
  3. Indian Oil Refinery at Mathura
  • Iron foundaries at Agra
  • Brass sheet industry at Moradabad
  • Bed sheet industry at Sholapur.
  1. Escort Tractors Ltd. At Faridabad.

 

  1. a. What do you understand by “Centralised Production Planning and Control”?   Give its advantages.

 

  1. What is the position of P.P.C. in a works organization? Show it with the help of a chart.

 

  1. a. What do you understand by the ‘Follow up’ function of production planning and control? Explain

 

  1. Give a specimen of “Gantt Chart” which is normally used in the production planning and control department and describe briefly how it could be used for checking the actual progress of a job against the schedule

 

 

  1. a. What are the various Indirect Expenses which are essential in estimating the total cost? Explain

 

  1. What do you understand by depreciation? Explain

 

 

  1. a. What is the purpose of Work Measurement? Enumerate its uses

 

  1. What are the various allowances considered in Time Study?

 

  1. Define “Rating”. What is its necessity?

 

 

  1. a. What are the techniques of work measurement? Explain each of them briefly.

 

  1. Why is a job broken down into elements and what are the general rules for selection of elements?

 

 

  1. a. How ‘management functions’ differ from ‘administrative functions’ specially in the context of ‘differentiation’ and ‘integration’ activities involved in realising the organizational objectives?

 

  1. Distinguish between ‘formal’ and ‘informal’ type of communication system.

 

  1. Considering a manufacturing organization as a ‘socio-technical’ system indicate how the four principal functions of management are interrelated.

 

  1. a. Explain the assumption underlying PERT and CPM network models applied in Project Management.

 

  1. How is PERT different from CPM? Explain their fields of application

 

  1. A project is composed of seven activities whose time estimates are listed in the following table. Activities are identified by their beginning(i) and ending(j) mode numbers:

 

Activity Estimated duration in weeks
I j Optimistic Most Likely Pessimistic
1 2 1 1 7
1 3 1 4 7
1 4 2 2 8
2 5 1 1 1
3 5 2 5 14
4 6 2 5 0
5 6 3 6 15

 

  1. Draw the project network and identify all paths for its completion.
    1. Find the expected duration and variance for the project
  • Calculate the early and let occurrence time for each mode. Calculate expected project length.
  1. Calculate the stack for each activity

 

 

  1. What are the basic differences between
  1. Operation process chart
  2. Flow process chart
  • Flow diagram, and
  1. String Diagram.

 

Draw sample charts with a specific product in mind to explain the characteristics of these techniques of Work Study.


HUMAN RESOURCE MANAGEMENT – IIBMS EXAM ANSWER SHEETS PROVIDED

HUMAN RESOURCE MANAGEMENT – IIBMS EXAM ANSWER SHEETS PROVIDED

 

Note: Solve any 4 Cases Study’s

 

CASE: I    Conceptualise and Get Sacked

 

HSS Ltd. is a leader in high-end textiles having headquarters in Bangalore.

The company records a turnover of Rs 1,000 cr. Plus a year. A year back, HSS set up a unit at Hassan (250 km away from Bangalore) to spin home textiles. The firm hired Maniyam as GM-HR and asked him to operationalise the Hassan unit.

Maniyam has a vision. Being a firm believer in affirmative actions, he plans to reach out to the rural areas and tap the potentials of teenaged girls with plus two educational background. Having completed their 12th standard, these girls are sitting at homes, idling their time, watching TV serials endlessly and probably dreaming about their marriages. Junior colleges are located in their respective villages and it is easy for these girls to get enrolled in them. But degree colleges are not nearby. The nearest degree college is minimum 10 km and no parents dare send their daughters on such long distances and that too for obtaining degrees, which would not guarantee them jobs but could make searching for suitable boys highly difficult.

These are the girls to whom Maniyam wants to reach out. How to go about hiring 1500 people from a large number who can be hired? And Karnataka is a big state with 27 districts. The GM-HR studies the geography of all the 27 districts and zeroes in on nine of them known for backwardness and industriousness.

Maniyam then thinks of the principals of Junior Colleges in all the nine districts as contact persons to identify potential candidates. This route is sure to ensure desirability and authenticity of the candidates. The girls are raw hands. Except the little educational background, they know nothing else. They need to be trained. Maniyam plans to set up a training centre at Hassan with hostel facilities for new hires. He even hires Anil, an MBA from UK, to head the training centre.

All is set. It is bright day in October 2006. MD and the newly hired VP-HR came to Hassan from Bangalore. 50 principals from different parts of the nine districts also came on invitation from Maniyam and Anil. Discussions, involving all, go on upto 2 PM. At that time, MD and VP-HR ask Maniyam to meet them at the guest house to discuss some confidential matter.

In this meeting, Maniyam is told that his style of functioning does not jell with the culture of HSS. He gets the shock of life. He responds on expected by submitting his papers.

Back in his room, Maniyam wonders what has gone wrong. Probably, the VP-HR being the same age as he is, is feeling jealous and insecure since the MD has all appreciation for the concept and the way things are happening. Maniyam does not have regrets. On the contrary he is happy that his concept is being followed though he has been sacked. After all, HSS has already hired 500 girls. With Rs 3,000 plus a month each, these girls and their parents now find it easy to find suitable boys.

 

 

Question:

 

  1. What mad the MD change his mind and go against Maniyam? What role might the VP-HR have played in the episode?
  2. If you were Maniyam, what would you do?

 

 

 

 

CASE: II  A Tale of Twists and Turns

 

Rudely shaken, Vijay came home in the evening. He was not in a mood to talk to his wife. Bolted inside, he sat in his room, lit a cigarette, and brooded over his experience with a company he loved most.

Vijay, an M.Com and an ICWA, joined the finance department of a Bangalore-based electric company (Unit 1), which boasts of an annual turnover of Rs. 400 crores. He is smart, intelligent, but conscientious. He introduced several new systems in record-keeping and was responsible for cost reduction in several areas. Being a loner, Vijay developed few friends in and outside the organization. He also missed promotions four times though he richly deserved them.

G.M. Finance saw to it that Vijay was shifted to Unit 2 where he was posted in purchasing. Though purchasing was not his cup of tea, Vijay went into it whole hog, streamlined the purchasing function, and introduced new systems, particularly in vendor development. Being honest himself, Vijay ensured that nobody else made money through questionable means.

After two years in purchasing, Vijay was shifted to stores. From finance to purchasing to stores was too much for Vijay to swallow.

He burst out before the unit head, and unable to control his anger, Vijay put in his papers too. The unit head was aghast at this development but did nothing to console Vijay. He forwarded the papers to the V.P. Finance, Unit 1.

The V.P. Finance called in Vijay, heard him for a couple of hours, advised him not to lose heart, assured him that his interests would be taken care of and requested him to resume duties in purchasing Unit 2. Vijay was also assured that no action would be taken on the papers he had put in.

Six months passed by. Then came the time to effect promotions. The list of promotees was announced and to his dismay, Vijay found that his name was missing. Angered, Vijay met the unit head who coolly told Vijay that he could collect his dues and pack off to his house for good. It was great betrayal for Vijay.

 

Question:

 

  1. What should Vijay do?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASE: III  Mechanist’s Indisciplined Behaviour

 

Dinesh, a machine operator, worked as a mechanist for Ganesh, the supervisor. Ganesh told Dinesh to pick up some trash that had fallen from Dinesh’s work area, and Dinesh replied, “I won’t do the janitor’s work.”

Ganesh replied, “when you drop it, you pick it up”. Dinesh became angry and abusive, calling Ganesh a number of names in a loud voice and refusing to pick up the trash. All employees in the department heard Dinesh’s comments.

Ganesh had been trying for two weeks to get his employees to pick up trash in order to have cleaner workplace and prevent accidents. He talked to all employees in a weekly departmental meeting and to each employee individually at least once. He stated that he was following the instructions of the general manager. The only objection came from Dinesh.

Dinesh has been with the company for five years, and in this department for six months. Ganesh had spoken to him twice about excessive alcoholism, but otherwise his record was good. He was known to have quick temper.

This outburst by Dinesh hurt Ganesh badly, Ganesh told Dinesh to come to the office and suspended him for one day for insubordination and abusive language to a supervisor. The decision was within company policy, and similar behaviours had been punished in other departments.

After Dinesh left Ganesh’s office, Ganesh phoned the HR manager, reported what he had done, and said that he was sending a copy of the suspension order for Dinesh’s file.

 

Question:

 

  1. How would you rate Dinesh’s behaviour? What method of appraisal would you use? Why?
  2. Do you assess any training needs of employees? If yes, what inputs should be embodied in the training programme?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASE: IV   A Case of Misunderstood Message

 

Indane Biscuits is located in an industrial area. The biscuit factory employs labour on a daily basis. The management does not follow statutory regulations, and are able to get away with violations by keeping the concerned inspectors in good books.

The factory has a designated room to which employees are periodically called either to hire or to fire.

On the National Safety Day, the Industries Association, of which Indane Biscuits is a member, decided to celebrate collectively at a central place. Each of the member was given a specific task. The Personnel Manager, Indane Biscuits, desired to consult his supervisors and to inform everybody through them about the safety day celebrations. He sent a memo requesting them to be present in the room meant for hiring and firing. As soon as the supervisors read the memo, they all got panicky thinking that now it was their turn to get fired. They started having ‘hush-hush’ consultations. The workers also learnt about it, and since they had a lot of scores to settle with the management they extended their sympathy and support to the supervisors. As a consequence, everybody struck work and the factory came to a grinding halt.

In the meantime, the personnel manager was unaware of the developments and when he came to know of it he went immediately and tried to convince the supervisors about the purpose of inviting them and the reason why that particular room was chosen. To be fair to the Personnel Manager, he selected the room because no other room was available. But the supervisors and the workers were in no mood to listen.

The Managing Director, who rushed to the factory on hearing about the strike, also couldn’t convince the workers.

The matter was referred to the labour department. The enquiry that followed resulted in all irregularities of the factory getting exposed and imposition of heavy penalties. The Personnel Manager was sacked.  The factory opened after prolonged negotiations and settlements.

 

Question:

 

  1. In the case of the Indane Biscuits, bring out the importance of ‘context’ and ‘credibility’ in communication.
  2. List the direct and indirect causes for the escalation of tension at Indane Biscuits.
  3. If you were the Personnel Manager what would you do?

 

 

 

 

 

 

 

 

 

 

 

 

CASE: V  Rise and Fall

 

Jagannath (Jaggu to his friends) is an over ambitious young man. For him ends justify means.

With a diploma in engineering. Jaggu joined, in 1977, a Bangalore-based company as a Technical Assistant. He got himself enrolled as a student in a evening college and obtained his degree in engineering in 1982. Recognising his improved qualification, Jaggu was promoted as Engineer-Sales in 1984.

Jaggu excelled himself in the new role and became the blue-eyed boy of the management. Promotions came to him in quick succession. He was made Manager-Sales in 1986 and Senior Manager-Marketing in 1988.

Jaggu did not forget his academic pursuits. After being promoted as Engineer-Sales, he joined an MBA (part-time) programme. After completing MBA, Jaggu became a Ph.D. scholar and obtained his doctoral degree in 1989.

Functioning as Senior Manager-Marketing, Jaggu eyed on things beyond his jurisdiction. He started complaining Suresh—the Section Head and Phahalad the Unit Chief (both production) with Ravi, the EVP (Executive-Vice President). The complaints included delay in executing orders, poor quality and customer rejections. Most of the complaints were concocted.

Ravi was convinced and requested Jaggu to head the production section so that things could be straightened up there. Jaggu became the Section head and Suresh was shifted to sales.

Jaggu started spreading wings. He prevailed upon Ravi and got sales and quality under his control, in addition to production. Suresh, an equal in status, was now subordinated to Jaggu. Success had gone to Jaggu’s head. He had everything going in his favour—position, power, money and qualification. He divided workers and used them as pawns. He ignored Prahalad and established direct link with Ravi. Unable to bear the humiliation, Prahalad quit the company. Jaggu was promoted as General Manager. He became a megalomaniac.

Things had to end at some point. It happened in Jaggu’s life too. There were complaints against him. He had inducted his brother-in-law, Ganesh, as an engineer. Ganesh was by nature corrupt. He stole copper worth Rs.5 lakh and was suspended. Jaggu tried to defend Ganesh but failed in his effort. Corruption charges were also leveled against Jaggu who was reported to have made nearly Rs.20 lakh himself.

On the new-year day of 1993, Jaggu was reverted to his old position—sales. Suresh was promoted and was asked to head production. Roles got reversed. Suresh became the boss to Jaggu.

Unable to swallow the insult, Jaggu put in his papers.

From 1977 to 1993, Jaggu’s career graph has a steep rise and sudden fall. Whether there would be another hump in the curve is a big question.

 

 

Question:

 

  1. Bring out the principles of promotion that were employed in promoting

 

  1. What would you do if you were (i) Suresh, (ii) Prahalad or (iii) Ravi?

 

  1. Bring out the ethical issues involved in Jaggu’s behaviour.

 

 

 

 

CASE: VI   Chairman and CEO Seeking a Solution and Finding It

 

Sitting on 50-plus year old ION Tyres, the Kolkata-based tyres and tubes manufacturing company with a turnover of more than Rs.1,000 crore, both A.K. Mathur, and Raman Kumar, the CEO are searching for solutions to problems which their company started unfolding.

Financial performance of ION Tyres, is poor as reflected in its falling PBT. Performance gap between the top performer in tyres and tubes and ION Tyres ranges from 4 per cent to 5 per cent. The company has aging managerial people and equally old plant and equipment. High cost of production keeps the company in a disadvantaged position. “Boss is always right” culture has permeated everywhere. Common thread binding all the departments is missing. Each department is a stand alone entity.

There are positives nevertheless. ION Tyres and tubes are famous world-wide for durability, and superior quality. The company offers a wide range of bias tyres and tubes catering to all users segments like heavy and light commercial vehicles, motorbikes, scooters, and autos. The firm has state-of-the-art radial plant. The client list of ION comprises several big guns in Indian corporate sector. Tata Motors, Hero Honda, TVS Motors, Mahindra and Mahindra, L&T, Eicher, Swaraj Mazda, Maruti Udyog and Bajaj are the regularly buying ION’s tyres and tubes.

ION seems to have everything going in its favour. It is the market leader in the Indian market enjoying 19 per cent of the market share; manufactures 5.6 m tyres per year, has a network of 50 regional offices with over 4,000 dealers and 180 C&F agents.

Suddenly both Chairman and CEO have realised that there are too many road blocks ahead of them and the journey to be rough and bumpy.

Realisation dawned on Mathur and Raman Kumar way back in 2001 when they both attended a two-day seminar on “Enhancing Organisational Capability through Balanced Scorecard” organised by CII at Kolkotta. The duo had personal talk with Sanjeev Kumar, the then Chairman of CII. They are now convinced that Balanced Score card is ideal performance assessment tool that could be used in ION with greater benefits.

Mathur and Raman Kumar acted fast. They soon organised a workshop on “Balanced Score” to educate in-house managers about the concept and the procedural aspects of its implementation. There was initial resistance to accept the scorecard as the managers felt that they were already burdened since they were busy implementing other quality improvement initiatives. Deliberations in the workshop changed them. They are now convinced and enthusiastic about the positives of the scorecard. They are ready to implement the system.

A two member task force was constituted comprising Director—HRD and G.M.—Strategy and Planning. The task force travelled to all three factories as well as zonal headquarters to unfold the implementation of scorecard. The scorecard principles were implemented successfully from November 2002 and completed by March 2003. Figures 1 to 4 show the scorecards adopted by ION Tyres.

 

 

 

 

 

 

 

 

 

 

 

Financial
“To succeed financially how should we appear to our shareholder Objectives Measure Target Initiatives
To achieve turnover of Rs.1850 crs by FY05 ·      Sales turnover

·      PBIDT

·      To achieve turnover of Rs.1850 crs by FY05

·      PBIDT of Rs.150 crs (FY05)

·      Decrease in conversion cost from Rs.25 to Rs.21/kg in Bhopal plant and Rs.25/kg in Mysore plant

·      Develop acceptable 1000-20 lug tyres

·      Increasing number of sales offices from 180 to 220

·      7 day work week to be introduced at Bhopal plant

·      Improve fuel wastage and ensure lower power

·      VP Technology and MD to initiate technology tie-ups

 

Fig. 1

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer
“To achieve our vision, how should we appear to out customers” Objectives Measure Target Initiatives
Improvement in customer satisfaction ·  Customer satisfaction survey (by external agency) ·      To improve from 65% to 70%

·   Customer engagement at 30%

·    Claim settlement to be reduced from 8 to 2 days

·    Improvement of casing value of used tyres, atleast by 15%

·    Cost per Kilometer of tyre comparable to competitors

 

Fig. 2

 

Outcomes of scorecard implementation have been very encouraging. PBT improved and the gap between ION Tyres and the toppers in the industry reduced by 50 per cent. A transparent and objective performance assessment system came to be kept in place. With inertia and the ennui being broken, both Mathur and Kumar felt galvanized and realised that the road ahead of them was no more bumpy and rough. Thus, solutions to the problems were found.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Learning and Growth
“To achieve our vision, how will we sustain our ability to change an improve” Objectives Measure Target Initiatives
Identification of “high-fliers”; Talents to be identified through development workshops ·      Job enrichment, job enlargement,  job rotation

·      Competency Assessment

·      Potential Appraisals

·   Career planning for the High-Fliers (expected to be around 30 managers)

·   Successions planning for all key positions

·   5 manday’s training/manager/year

·    Move people within same functions, in the first two years and at the year two move them to another function

·    Variable pay component in the ration 1:4 for the “high-fliers”

·    Non-financial rewards

·    Felicitation by company chairman in presence of family members for recognizing extraordinary contributions

 

Fig. 3

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Internal Business Processes
“To satisfy our shareholders and customers, what business processes must we excel at” Objectives Measure Target Initiatives
Introduction of new products in the commercial tyre segment

Reduction of development time

Quarterly reconciliation of accounts receivables from dealers

Annual increases on-time to employees

·  Introduction of 3-4 new products per year in commercial tyre segment

·  Reduction of development time from 18 months to 6 months

·  Achieve 100% reconciliation

·  Annual increases by on time by 1st July

·   Introduction of 3-4 new products per year in commercial tyre segment

·   Reduction of development time from 18 months to 6 months

·   Achieve 100% reconciliation

·   Annual increases by on time by 1st July

·    Regular quarterly review of performance

·    KRA targets to be ready by 1st April

·    European certification for tyres

 

 

Fig.4

Question:

  1. Do you agree with the conclusion drawn at the end of the case that scorecard system has galvanised ION Tyres? In other words, does scorecard system deserve all the credit?
  2. Will quality improvement initiatives clash with scorecard implementation? If yes, how to avoid the clashes?

 

 

 

 

 

 


FINANCIAL MANAGEMENT – IIBMS EXAM ANSWER PROVIDED

             FINANCIAL  MANAGEMENT – IIBMS EXAM ANSWER PROVIDED               

CASE : 01

COOKING LPG LTD

DETERMINATION OF WORKING CAPTIAL

Introduction

Cooking LPG Ltd, Gurgaon, is a private sector firm dealing in the bottling and supply of domestic LPG for household consumption since 1995. The firm has a network of distributors in the districts of Gurgaon and Faridabad. The bottling plant of the firm is located on National Highway – 8 (New Delhi – Jaipur), approx. 12 kms from Gurgaon.  The firm has been consistently performing we.”  and plans to expand its market to include the whole National Capital Region.

The production process of the plant consists of receipt of the bulk LPG through tank trucks, storage in tanks, bottling operations and distribution to dealers.   During the bottling process, the cylinders are subjected to pressurized filling of LPG followed by quality control and safety checks such as weight, leakage and other defects.  The cylinders passing through this process are sealed and dispatched to dealers through trucks.  The supply and distribution section of the plant prepares the invoice which goes along with the truck to the distributor.

Statement of the Problem :

Mr. I. M. Smart, DGM(Finance) of the company, was analyzing the financial performance of the company during the current year.  The various profitability ratios and parameters of the company indicated a very satisfactory performance.  Still, Mr. Smart was not fully content-specially with the management of the working capital by the company.  He could recall that during the past year, in spite of stable demand pattern, they had to, time and again, resort to bank overdrafts due to non-availability of cash for making various payments.  He is aware that such aberrations in the finances have a cost and adversely affects the performance of the company.  However, he was unable to pinpoint the cause of the problem.

He discussed the problem with Mr. U.R. Keenkumar, the new manager (Finance).  After critically examining the details, Mr. Keenkumar realized that the working capital was hitherto estimated only as approximation by some rule of thumb without any proper computation based on sound financial policies and, therefore, suggested a reworking of the working capital (WC) requirement.  Mr. Smart assigned the task of determination of WC to him.

Profile of Cooking LPG Ltd.

1)      Purchases : The company purchases LPG in bulk from various importers ex-Mumbai and Kandla, @ Rs. 11,000 per MT.  This is transported to its Bottling Plant at Gurgaon through 15 MT capacity tank trucks (called bullets), hired on annual contract basis.  The average transportation cost per bullet ex-either location is Rs. 30,000.  Normally, 2 bullets per day are received at the plant.  The company make payments for bulk supplies once in a month, resulting in average time-lag of 15 days.

2)      Storage and Bottling : The bulk storage capacity at the plant is 150 MT (2 x 75 MT storage tanks)  and the plant is capable of filling 30 MT LPG in cylinders per day.  The plant operates for 25 days per month on an average.  The desired level of inventory at various stages is as under.

  • LPG in bulk (tanks and pipeline quantity in the plant) – three days average production / sales.
  • Filled Cylinders – 2 days average sales.
  • Work-in Process inventory – zero.

3)      Marketing : The LPG is supplied by the company in 12 kg cylinders, invoiced @ Rs. 250 per cylinder.  The rate of applicable sales tax on the invoice is 4 per cent.  A commission of Rs. 15 per cylinder is paid to the distributor on the invoice itself.  The filled cylinders are delivered on company’s expense at the distributor’s godown, in exchange of equal number of empty cylinders.  The deliveries are made in truck-loads only, the capacity of each truck being 250 cylinders.  The distributors are required to pay for deliveries through bank draft.  On receipt of the draft, the cylinders are normally dispatched on the same day.  However, for every truck purchased on pre-paid basis, the company extends a credit of 7 days to the distributors on one truck-load.

4)      Salaries and Wages : The following payments are made :

  • Direct labour – Re. 0.75 per cylinder (Bottling expenses) – paid on last day of the month.
  • Security agency – Rs. 30,000 per month paid on 10th of subsequent month.
  • Administrative staff and managers – Rs. 3.75 lakh per annum, paid on monthly basis on the last working day.

5)      Overheads :

  • Administrative (staff, car, communication etc) – Rs. 25,000 per month – paid on the 10th of subsequent month.
  • Power (including on DG set) – Rs. 1,00,000 per month paid on the 7th Subsequent month.
  • Renewal of various licenses (pollution, factory, labour CCE etc.) – Rs. 15,000 per annum paid at the beginning of the year.
  • Insurance – Rs. 5,00,000 per annum to be paid at the beginning of the year.
  • Housekeeping etc – Rs. 10,000 per month paid on the 10th of the subsequent month.
  • Regular maintenance of plant – Rs. 50,000 per month paid on the 10th of every month to the vendors.  This includes expenditure on account of lubricants, spares and other stores.
  • Regular maintenance of cylinders (statutory testing) – Rs. 5 lakh per annum – paid on monthly basis on the 15th of the subsequent month.
  • All transportation charges as per contracts – paid on the 10th subsequent month.
  • Sales tax as per applicable rates is deposited on the 7th of the subsequent month.

6) Sales : Average sales are 2,500 cylinders per day during the year.  However, during the winter months (December to February), there is an incremental demand of 20 per cent.

7) Average Inventories : The average stocks maintained by the company as per its policy guidelines :

  • Consumables (caps, ceiling material, valves etc) – Rs. 2 lakh.  This amounts to 15 days consumption.
  • Maintenance spares – Rs. 1 lakh
  • Lubricants – Rs. 20,000
  • Diesel (for DG sets and fire engines) – Rs. 15,000
  • Other stores (stationary, safety items) – Rs. 20,000

 

8)      Minimum cash balance including bank balance required is Rs. 5 lakh.

9)      Additional Information for Calculating Incremental Working Capital During Winter.

  • No increase in any inventories take place except in the inventory of bulk LPG, which increases in the same proportion as the increase of the demand.  The actual requirements of LPG  for additional supplies are procured under the same terms and conditions from the suppliers.
  • The labour cost for additional production is paid at double the rate during wintes.
  • No changes in other administrative overheads.
  • The expenditure on power consumption during winter increased by 10 per cent.  However, during other months the power consumption remains the same as the decrease owing to reduced production is offset by increased consumption on account of compressors /Acs.
  • Additional amount of Rs. 3 lakh is kept as cash balance to meet exigencies during winter.
  • No change in time schedules for any payables / receivables.
  • The storage of finished goods inventory is restricted to a maximum 5,000 cylinders due to statutory requirements.

 

Suppose you are Mr.Keen Kumar,  the new manager.  What steps will you take for the growth of Cooking LPG Ltd.?

 

 

 

 

 

 

 

 

 

 

CASE : 2

M/S HI-TECH ELECTRONICS

 

M/s. Hi – tech Electronics, a consumer electronics outlet, was opened two years ago in Dwarka, New Delhi. Hard work and personal attention shown by the proprietor, Mr. Sony, has brought success.  However, because of insufficient funds to finance credit sales, the outlet accepted only cash and bank credit cards.  Mr. Sony is now considering a new policy of offering installment sales on terms of 25 per cent down payment and 25 per cent per month for three months as well as continuing to accept cash and bank credit cards.

Mr. Sony feels this policy will boost sales by 50 percent.  All the increases in sales will  be credit sales.  But to follow through a new policy, he will need a bank loan at the rate of 12 percent.  The sales projections for this year without the new policy are given in Exhibit 1.

Exhibit 1 Sales Projections and Fixed costs

Month Projected sales without instalment option Projected sales with instalment option
January Rs. 6,00,000 Rs. 9,00,000
February       4,00,000       6,00,000
March       3,00,000       4,50,000
April      2,00,000     3,00,000
May      2,00,000      3,00,000
June      1,50,000      2,25,000
July      1,50,000      2,25,000
August      2,00,000      3,00,000
September      3,00,000      4,50,000
October      5,00,000      7,50,000
November      5,00,000      15,00,000
December      8,00,000      12,00,000
Total Sales    48,00,000    72,00,000
Fixed cost      2,40,000      2,40,000

 

He further expects 26.67 per cent of the sales to be cash, 40 per cent bank credit card sales on which a 2 per cent fee is paid, and 33.33 per cent on instalment sales.  Also, for short term seasonal requirements, the film takes loan from chit fund to which Mr. Sony subscribes @ 1.8 per cent per month.

Their success has been due to their policy of selling at discount price.  The purchase per unit is 90 per cent of selling price.  The fixed costs are Rs. 20,000 per month.  The proprietor believes that the new policy will increase miscellaneous cost by Rs. 25,000.

The business being cyclical in nature, the working capital finance is done on trade – off basis.  The proprietor feels that the new policy will lead to bad debts of 1 per cent.

(a)    As a financial consultant, advise the proprietor whether he should go for the extension of credit facilities.

(b)    Also prepare cash budget for one year of operation of the firm, ignoring interest.  The minimum desired cash balance & Rs. 30,000, which is also the amount the firm has on January 1.  Borrowings are possible which are made at the beginning of a month and repaid at the end when cash is available.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASE : 3

SMOOTHDRIVE TYRE LTD

 

Smoothdrive Tyre Ltd manufacturers tyres under the brand name “Super Tread’ for the domestic car market.  It is presently using 7 machines acquired 3 years ago at a cost of Rs. 15 lakh each having a useful life of 7 years, with no salvage value.

After extensive research and development, Smoothdrive Tyre Ltd has recently developed a new tyre, the ‘Hyper Tread’ and must decide whether to make the investments necessary to produce and market the Hyper Tread.  The Hyper Tread would be ideal for drivers doing a large amount of wet weather and off road driving in addition to normal highway usage.  The research and development costs so far total Rs. 1,00,00,000.  The Hyper Tread would be put on the market beginning this year and Smoothdrive Tyrs expects it to stay on the market for a total of three years. Test marketing costing Rs. 50,00,000, shows that there is significant market for a Hyper Tread type tyre.

As a financial analyst at Smoothdrive Tyre, Mr. Mani asked by the Chief Financial Officer (CFO), Mr. Tyrewala to evaluate the Hyper-Tread project and to provide a recommendation or whether or not to proceed with the investment.  He has been informed that all previous investments in the Hyper Tread project are sunk costs are only future cash flows should be considered.  Except for the initial investments, which occur immediately, assume all cash flows occur at the year-end.

Smoothedrive Tyre must initially invest Rs. 72,00,00,000 in production equipments to make the Hyper Tread.  They would be depreciated at a rate of 25 per cent as per the written down value (WDV) method for tax purposes.  The new production equipments will allow the company to follow flexible manufacturing technique, that is both the brands of tyres can be produced using the same equipments.  The equipments is expected to have a 7-year useful life and can be sold for Rs. 10,00,000 during the fourth year.  The company does not have any other machines in the block of 25 per cent depreciation.  The existing machines can be sold off at Rs. 8 lakh per machine with an estimated removal cost of one machine for Rs. 50,000.

Operating Requirements

The operating requirements of the existing machines and the new equipment are detailed in Exhibits 11.1 and 11.2 respectively.

Exhibit 11.1 Existing Machines

  • Labour costs (expected to increase 10 per cent annually to account for inflation) :
  • 20 unskilled labour @ Rs. 4,000 per month
  • 20 skilled personnel @ Rs. 6,000 per month.
  • 2 supervising executives @ Rs. 7,000 per month.
  • 2 maintenance personnel @ Rs. 5,000 per month.
    • Maintenance cost :

Years 1-5 : Rs. 25 lakh

Years 6-7 : Rs. 65 lakh

  • Operating expenses : Rs. 50 lakh expected to increase at 5 per cent annually.
  • Insurance cost / premium :

Year 1 : 2 per cent of the original cost of machine

After year 1 : Discounted by 10 per cent.

 

Exhibit 11.2 New production Equipment

  • Savings in cost of utilities : Rs. 2.5 lakh
  • Maintenance costs :

Year 1 – 2 :  Rs. 8 lakh

Year 3 – 4 :  Rs. 30 lakh

  • Labour costs :

9 skilled personnel @ Rs. 7,000 per month

1 maintenance personnel @ Rs. 7,000 per month.

  • Cost of retrenchment of 34 personnel : (20 unskilled, 11 skilled, 2 supervisors and 1 maintenance personnel) : Rs. 9,90,000, that is equivalent to six months salary.
  • Insurance premium

Year 1 : 2 per cent of the purchase cost of machine

After year 1 : Discounted by 10 per cent.

 

         

The opening expenses do not change to any considerable extent for the new equipment and the difference is negligible compared to the scale of operations.

Smoothdrive Tyre intends to sell Hyper Tread of two distinct markets :

  1. The original equipment manufacturer (OEM) market : The OEM market consists primarily of the large automobile companies who buy tyres for new cars. In the OEM market, the Hyper Tread is expected to sell for Rs. 1,200 per tyre. The variable cost to produce each Hyper Tread is Rs. 600.
  2. The replacement market : The replacement market consists of all tyres purchased after the automobile has left the factory. This markets allows higher margins and Smoothdrive Tyre expects to sell the Hyper Tread for Rs. 1.500 per tyre.  The variable costs are the same as in the OEM market.

Smoothdrive Tyre expects to raise prices by 1 percent above the inflation rate.

The variable costs will also increase by 1 per cent above the  inflation rate.  In addition, the Hyper Tread project will incur Rs. 2,50,000 in marketing and general administration cost in the first year which are expected to increase at the inflation rate in subsequent years.

Smoothdrive Tyre’s corporate tax rate is 35 per cent.  Annual inflation is expected to remain constant at 3.25 per cent.  Smoothdrive Tyre uses a 15 per cent discount rate to evaluate new product decisions.

The Tyre Market

Automotive industry analysts expect automobile manufacturers to have a production of 4,00,000 new cars this year and growth in production at 2.5 per year onwards.  Each new car needs four new tyres (the spare tyres are undersized and fall in a different category) Smoothdrive Tyre expects the Hyper Tread to capture an 11  per cent share of the OEM market.

The industry analysts estimate that the replacement tyre market size will be one crore this year and that it would grow at 2 per cent annually.  Smoothdrive Tyre expects the Hyper Tread to capture an 8 per cent market share.

You also decide to consider net working capital (NWC) requirements in this scenario.  The net working capital requirement will be 15 per cent of sales.  Assume that the level of working capital is adjusted at the beginning of the year in relation to the expected sales for the year.  The working capital is to be liquidated at par, barring an estimated loss of Rs. 1.5 crore on account of bad debt. The bad debt will be a tax-deductible expenses.

As a finance analyst, prepare a report for submission to the CFO and the Board of Directors, explaining to them the feasibility of the new investment.

 

 

CASE : 4

COMPUTATION OF COST OF CAPITAL OF PALCO LTD

 

In October 2003, Neha Kapoor, a recent MBA graduate and newly appointed assistant to the Financial Controller of Palco Ltd, was given a list of six new investment projects proposed for the following year.  It was her job to analyse these projects and to present her findings before the Board of Directors at its annual meeting to be held in 10 days.  The new project would require an investment of Rs. 2.4 crore.

          Palco Ltd was founded in 1965 by Late Shri A. V. Sinha. It gained recognition as a leading producer of high quality aluminum, with the majority of its sales being made to Japan.  During the rapid economic expansion of Japan in the 1970s, demand for aluminum boomed, and palco’s sales grew rapidly.  As a result of this rapid growth and recognition of new opportunities in the energy market, Palco began to diversify its products line.  While retaining its emphasis on aluminum production, it expanded operations to include uranium mining and the production of electric generators, and finally, it went into all phases of energy production.  By 2003, Palco’s sales had reached Rs. 14 crore level, with net profit after taxes attaining a record of Rs. 67 lakh.

As Palco expanded its products line in the early 1990s, it also formalized its caital budgeting procedure.  Until 1992, capital investment projects were selected primarily on the basis of the average return on investment calculations, with individual departments submitting these calculations for projects falling within their division.  In 1996, this procedure was replaced by one using present value as the decision making criterion. This change was made to incorporate cash flows rather than accounting profits into the decision making analysis, in addition to adjusting these flows for the time value of money.  At the time, the cost of capital for Palco was determined to be 12 per cent, which has been used as the discount rate for the past 5 years.  This rate was determined by taking a weighted average cost Palco had incurred in raising funds from the capital market over the previous 10 years.

It had originally been Neha’s assignment to update this rate over the most recent 10-year period and determine the net present value of all the proposed investment opportunities using this newly calculated figure.  However, she objected to this procedure, stating that while this calculation gave a good estimate of “the past cost” of capital, changing interest rates and stock prices made this calculation of little value in the present.  Neha suggested that current cost of raising funds in the capital market be weighted by their percentage mark-up of the capital structure.  This proposal was received enthusiastically by the Financial Controller of the Palco, and Neha was given the assignment of recalculating Palco’s cost of capital and providing a written report for the Board of Directors explaining and justifying this calculation.

To determine a weighted average cost of capital for Palco, it was necessary for Neha to examine the cost associated with each source of funding used.  In the past, the largest sources of funding had been the issuance of new equity shares and internally generated funds.  Through conversations with Financial Controller and other members of the Board of Directors, Neha learnt that the firm, in fact, wished to maintain its current financial structure as shown in Exhibit 1.

Exhibit 1 Palco Ltd Balance Sheet for Year Ending March 31, 2003

Assets Liabilities and Equity
Cash

Accounts receivable

Inventories

Total current assets

Net fixed assets

Goodwill

Total assets

Rs.      90,00,000

3,10,00,000

1,20,00,000

5,20,00,000

19,30,00,000

    70,00,000

25,20,00,000

 

Accounts payable

Short-term debt

Accrued taxes

Total current liabilities

Long-term debt

Preference shares

Retained earnings

Equity shares

Total liabilities and equity shareholders fund

 

Rs.      8,50,000

1,00,000

11,50,000

1,20,00,000

7,20,00,000

4,80,00,000

1,00,00,000

  11,00,000

 

25,20,00,000

 

 

She further determined that the strong growth patterns that Palco had exhibited over the last ten years were expected to continue indefinitely because of the dwindling supply of US and Japanese domestic oil and the growing importance of other alternative energy resources.  Through further investigations, Neha learnt that Palco could issue additional equity share, which had a par value of Rs. 25 pre share and were selling at a current market price of Rs. 45.  The expected dividend for the next period would be Rs. 4.4 per share, with expected growth at a rate of 8 percent per year for the foreseeable future.  The flotation cost is expected to be on an average Rs. 2 per share.

 

Preference shares at 11 per cent with 10 years maturity could also be issued with the help of an investment banker with an investment banker with a per value of Rs. 100 per share to be redeemed at par.  This issue would involve flotation cost of 5 per cent.

Finally, Neha learnt that it would be possible for Palco to raise an additional Rs. 20 lakh through a 7 – year loan from Punjab National Bank at 12 per cent.  Any amount raised over Rs. 20 lakh would cost 14 per cent.  Short-term debt has always been usesd by Palco to meet working capital requirements and as Palco grows, it is expected to maintain its proportion in the capital structure to support capital expansion.  Also, Rs. 60 lakh could be raised through a bond issue with 10 years maturity with a 11 percent coupon at the face value.  If it becomes necessary to raise more funds via long-term debt, Rs. 30 lakh more could be accumulated through the issuance of additional 10-year bonds sold at the face value, with the coupon rate raised to 12 per cent, while any additional funds raised via long-term debt would necessarily have a 10 – year maturity with a 14 per cent coupon yield.  The flotation cost of issue is expected to be 5 per cent.  The issue price of bond would be Rs. 100 to be redeemed at par.

In the past, Palco had calculated a weighted average of these sources of funds to determine its cost of capital.  In discussion with the current Financial Controller, the point was raised that while this served as an appropriate calculation for external funds, it did not take into account the cost of internally generated funds.  The Financial Controller agreed that there should be some cost associated with retained earnings and need to be incorporated in the calculations but didn’t have any clue as to what should be the cost.

Palco Ltd is subjected to the corporate tax rate of 40 per cent.

From the facts outlined above, what report would Neha submit to the Board of Directors of palco Ltd ?

 

 

CASE : 5

ARQ LTD

 

ARQ Ltd is an Indian company based in Greater Noida, which manufactures packaging materials for food items.  The company maintains a present fleet of five fiat cars and two Contessa Classic cars for its chairman, general manager and five senior managers.  The book value of the seven cars is Rs. 20,00,000 and their market value is estimated at Rs. 15,00,000.  All the cars fall under the same block of depreciation @ 25 per cent.

A German multinational company (MNC) BYR Ltd, has acquired ARQ Ltd in all cash deal.  The merged company called BYR India Ltd is proposing to expand the manufacturing capacity by four folds and the organization structure is reorganized from top to bottom.  The German MNC has the policy of providing transport facility to all senior executives (22) of the company because the manufacturing plant at Greater Noida was more than 10 kms outside Delhi where most of the executives were staying.

Prices of the cars to be provided to the Executives have been as follows :

Manager (10) Santro King Rs.    3,75,000
DGM and GM (5) Honda City           6,75,000
Director (5) Toyota Corolla           9,25,000
Managing Director (1) Sonata Gold          13,50,000
Chairman (1) Mercedes benz          23,50,000

The company is evaluating two options for providing these cars to executives

Option 1 : The company will buy the cars and pay the executives fuel expenses, maintenance expenses, driver allowance and insurance (at the year – end).  In such case, the ownership of the car will lie with the company.  The details of the proposed allowances and expenditures to be paid are as follows :

  1. a) Fuel expense and maintenance Allowances per month
Particulars Fuel expenses Maintenance allowance
Manager

DGM and GM

Director

Managing Director

Chairman

Rs.    2,500

5,000

7,500

12,000

18,000

Rs.    1,000

1,200

1,800

3,000

4,000

  1. b) Driver Allowance : Rs. 4,000 per month (Only Chairman, Managing Director and Directors are eligible for driver allowance.)
  2. c) Insurance cost : 1 per cent of the cost of the car.

 

The useful life for the cars is assumed to be five years after which they can be sold at 20 per cent salvage value.  All the cars fall under the same block of depreciation @ 25 per cent using written down method of depreciation.  The company will have to borrow to finance the purchase from a bank with interest at 14 per cent repayable in five annual equal instalments payable at the end of the year.

Option 2 : ORIX, The fleet management company has offered the 22 cars of the same make at lease for the period of five years.  The monthly lease rentals for the cars are as follows (assuming that the total of monthly lease rentals for the whole year are paid at the end of each year.

Santro Xing                                        Rs.  9,125

Honda City                                                16,325

Toyota Corolla                                           27,175

Sonata Gold                                              39,250

Mercedes Benz                                          61,250

Under this lease agreement the leasing company, ORIX will pay for the fuel, maintenance and driver expenses for all the cars.  The lessor will claim the depreciation on the cars and the lessee will claim the lease rentals against the taxable income.  BYR India Ltd will have to hire fulltime supervisor (at monthly salary of Rs. 15,000 per month) to manage the fleet of cars hired on  lease. The company will have to bear additional miscellaneous expense of Rs. 5,000 per month for providing him the PC, mobioe phone and so on.

The company’s effective tax rate is 40 per cent and its cost of capital is 15 per cent.

Analyse the financial viability of the two options.  Which option would you recommend ?  Why ?


IIBMS DMS EXAM ANSWER SHEETS

IIBMS DMS EXAM ANSWER SHEETS

The Indian Institute of Business Management & Studies
Subject: Business Law Marks: 100
 Note : – All the Questions Are compulsory
CASE -1 Harvey V/S Facey
Harvey v Facey [1893], is a contract law case decided by the United Kingdom Judicial Committee of the Privy Council on
appeal from the Supreme Court of Judicature of Jamaica. In 1893 the Privy Council held final legal jurisdiction over most of
the British Caribbean. Its importance in case law is that it defined the difference between an offer and supply of
information. The Privy Council held that indication of lowest acceptable price does not constitute an offer to sell. Rather, it
is considered a response to a request for information, specifically a “precise answer to a precise question” about the lowest
acceptable price which the seller would consider.
The case involved negotiations over a property in Jamaica. The defendant, Mr LM Facey, had been carrying on negotiations
with the Mayor and Council of Kingston to sell a piece of property to Kingston City. On 7 October 1893, Facey was traveling
on a train between Kingston and Porus and the appellant, Harvey, who wanted the property to be sold to him rather than
to the City, sent Facey a telegram. It said, “Will you sell us Bumper Hall Pen? Telegraph lowest cash price-answer paid”.
Facey replied on the same day: “Lowest price for Bumper Hall Pen £900.” Harvey then replied in the following words. “We
agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please send us your title deed in order
that we may get early possession.”
Facey, however refused to sell at that price, at which Harvey sued. Harvey had his action dismissed upon first trial
presided over by Justice Curran,(who declared that the agreement as alleged by the Appellants did not denote a concluded
contract) but won his claim on the Court of Appeal, which reversed the trial court decision, declaring that a binding
agreement had been proved. The appellants obtained leave from the Supreme Court of Judicature of Jamaica to appeal to
the Queen in Council (i.e. the Privy Council). The Privy Council reversed the Appeal court’s opinion, reinstating the
decision of Justice Curran in the very first trial and stating the reason for its action.
The Privy Council advised that no contract existed between the two parties. The first telegram was simply a request for
information, so at no stage did the defendant make a definite offer that could be accepted. Lord Morris gave the following
judgment. In the view their Lordships take of this case it becomes unnecessary to consider several of the defences put
forward on the part of the respondents, as their Lordships concur in the judgment of Mr. Justice Curran that there was no
concluded contract between the appellants and L. M. Facey to be collected from the aforesaid telegrams. The first telegram
asks two questions. The first question is as to the willingness of L. M. Facey to sell to the appellants; the second question
asks the lowest price, and the word “Telegraph” is in its collocation addressed to that second question only. L. M. Facey
replied to the second question only, and gives his lowest price. The third telegram from the appellants treats the answer of
L. M. Facey stating his lowest price as an unconditional offer to sell to them at the price named. Their Lordships cannot
treat the telegram from L. M. Facey as binding him in any respect, except to the extent it does by its terms, viz., the lowest
price. Everything else is left open, and the reply telegram from the appellants cannot be treated as an acceptance of an
offer to sell to them; it is an offer that required to be accepted by L. M. Facey. The contract could only be completed if L. M.
Facey had accepted the appellant’s last telegram. It has been contended for the appellants that L. M. Facey’s telegram
should be read as saying “yes” to the first question put in the appellants’ telegram, but there is nothing to support that
contention. L. M. Facey’s telegram gives a precise answer to a precise question, viz., the price. The contract must appear by
the telegrams, whereas the appellants are obliged to contend that an acceptance of the first question is to be implied. Their
Lordships are of opinion that the mere statement of the lowest price at which the vendor would sell contains no implied
contract to sell at that price to the persons making the inquiry. Their Lordships will therefore humbly advise Her Majesty
that the judgment of the Supreme Court should be upheld. The appellants must pay to the respondents the costs of the
appeal to the Supreme Court and of this appeal.
Questions:
1. After Reading above study identify what type of contract between two parties?
2. If there will be no valid contract between parties give the fact and judgement for the same?
The Indian Institute of Business Management & Studies
Subject: Business Law Marks: 100
Case -2 Carlill VS. Carbolic ball company 1893
Carlill v Carbolic Smoke Ball Company [1892] is an English contract law decision by the Court of Appeal, which held an
advertisement containing certain terms to get a reward constituted a binding unilateral offer that could be accepted by
anyone who performed its terms. It is notable for its curious subject matter and how the influential judges
(particularly Lindley and Bowen) developed the law in inventive ways. Carlill is frequently discussed as an introductory
contract case, and may often be the first legal case a law student studies in the law of contract.
The case concerned a flu remedy called the ‘carbolic smoke ball’. The manufacturer advertised that buyers who found it
did not work would be awarded £100, a considerable amount of money at the time. The company was found to have been
bound by its advertisement, which was construed as an offer which the buyer, by using the smoke ball, accepted, creating a
contract. The Court of Appeal held the essential elements of a contract were all present, including offer and
acceptance, consideration and an intention to create legal relations.
The Carbolic Smoke Ball Co. made a product called the “smoke ball” and claimed it to be a cure for influenza and a number
of other diseases. (The 1889–1890 flu pandemic was estimated to have killed 1 million people.) The smoke ball was a
rubber ball with a tube attached. It was filled with carbolic acid (or phenol). The tube would be inserted into a user’s nose
and squeezed at the bottom to release the vapours. The nose would run, ostensibly flushing out viral infections.
The Company published advertisements in the Pall Mall Gazette and other newspapers on November 13, 1891, claiming
that it would pay £100 (equivalent to £11,000 in 2019) to anyone who got sick with influenza after using its product
according to the instructions provided with it.
£100 reward will be paid by the Carbolic Smoke Ball Company to any person who contracts the increasing epidemic
influenza colds, or any disease caused by taking cold, after having used the ball three times daily for two weeks, according
to the printed directions supplied with each ball.
£1000 is deposited with the Alliance Bank, Regent Street, showing our sincerity in the matter.
During the last epidemic of influenza many thousand carbolic smoke balls were sold as preventives against this disease,
and in no ascertained case was the disease contracted by those using the carbolic smoke ball.
One carbolic smoke ball will last a family several months, making it the cheapest remedy in the world at the price, 10s. post
free. The ball can be refilled at a cost of 5s. Address: “Carbolic Smoke Ball Company”, 27, Princes Street, Hanover Square,
London.
Louisa Elizabeth Carlill saw the advertisement, bought one of the balls and used it three times daily for nearly two months
until she contracted the flu on 17 January 1892. She claimed £100 from the Carbolic Smoke Ball Company. They ignored
two letters from her husband, a solicitor. On a third request for her reward, they replied with an anonymous letter that if it
is used properly the company had complete confidence in the smoke ball’s efficacy, but “to protect themselves against all
fraudulent claims”, they would need her to come to their office to use the ball each day and be checked by the secretary.
Carlill brought a claim to court. The barristers representing her argued that the advertisement and her reliance on it was a
contract between the company and her, so the company ought to pay. The company argued it was not a serious contract.
Question :
1. Identify The fact And Judgement From Above Case Study?
2. Explain which characteristics of law of contract is applicable in this case law?
The Indian Institute of Business Management & Studies
Subject: Business Law Marks: 100
Case – 3 A – Bathroom city washed its hands of the problem
Simon Bell, of King’s Lynn, Norfolk, has been battling with Bathroom City, Birmingham, over a cracked bathroom unit for
six months after buying a shower tray, cabinet and basin in March. The delivery did not turn up for a month, despite a
promise that it would arrive within days. Mr. Bell, left, who is a former heating and plumbing engineer, says:
“When the delivery was made I inspected the goods and could see nothing wrong. But because the delivery was so late I
missed my opportunity to fit it immediately.”
It wasn’t until a couple of days later that he noticed a “hairline crack” on the basin when he took it out of the box. He sent a
photograph of the damage to Bathroom City, which said that there was nothing it could do because he had not reported it
within two days of delivery. The company also claimed that it did not look like a manufacturing fault but damage caused
when fitting the taps. However, Consumer Direct says that it is the duty of Bathroom City to prove that it was not
responsible; if it cannot, then the company owes Mr Bell a replacement or repair. Mr. Bell says:
“Bathroom City has refused to budge and my e-mails and letters have been ignored. I have fitted many bathroom suites
over the years and have never broken anything. What’s more, I know that it is impossible to inflict this type of damage
with modern taps.”
After being contacted by Times Money, Bathroom City offered to replace the basin as a goodwill gesture, but maintains
that it has “clear proof” that it did not damage the basin because “Mr. Bell clearly states that when it was delivered he
checked the goods over and found no initial fault”.
Questions :
1. Identify the elements of sale of goods.
2. Identify in which point the case supports or deviates the rules of sale of goods act.
Case – 3 B
The Alpha and Panic worker’s compensation statutes both provide for an award to the surviving spouse of an employee
who is killed on the job and neither statute requires a showing of negligence. The Alpha statute provides for an award
equal to three times the deceased employee’s annual salary, The Panic statute provides for an award of five times annual
salary. In both Alpha and Panic, worker’s compensation claims are heard by commissions that have authority to award
compensation only under the local statute, To the extent that it may be relevant, you may assume that the courts of Alpha
apply the Restatement Second of Conflicts, and the courts of Panic apply the first Restatement. Donna’s attorney has
contacted you because of your expertise in Conflict of Laws. He is smart enough to figure out that the Panic statute would
yield a higher award, but he is concerned because the Panic legislature recently enacted the following statute: Prohibition
of Same-Sex Marriage. Marriages between individuals of the same sex are contrary to public policy and shall be void in this
state. Alpha has no legislation on the subject of same-sex marriages, but the Alpha marriage statute, which has been on the
books since 1846, defines marriage as “the legal union of man and wife.
Questions :
Donna’s attorney is trying to decide whether to file Donna’s worker’s compensation claim in Alpha or Panic. Please advise
him.
The Indian Institute of Business Management & Studies
Subject: Business Law Marks: 100
Case – 4
ISSUE:
SOO Burgers is a prestigious brand in Australia which started a promotional campaign called the “the Fair Dinkum Deal”
and it ascertained that a token has been stuck to each wrapper of the double Decker type of EMU burger. If the customer is
able to assimilate 50 such tickets, they can approach headquarter of the chain to obtain the golden ticket. It also stated that
on scratching of the golden ticket collected, the customers can win a brand-new model of Mazda CX 9.
There were peculiarities arose with respect to the case, especially considering the standpoint of Brett. Brett on getting to
learn about the idea accurately assumed that many customers will not be inspired to a sufficient degree to collect the
ticket. Hence many of the tokens will be disposed of. Brett thus scoured waste bins to gather the tickets disposed of by the
other consumers. In this manner, Brett was able to collect 100 tokens which he took to the headquarters. He found two
golden tickets for the 100 tokens which he took the head office. There while waiting in the reception, an employee of the
company came out and posted a message which stated that the company was sorry for some printing mistake with respect
to the golden tickets. This thus apparently invalidated his attempts to obtain a brand-new car (Birt et al. 2019).
In the second instance, Mickey was sick and admitted in the hospital due to the consumption of 50 burgers to obtain the
tokens attached with them. Mickey got to know from the discussions of the nurses at the hospital that the promotional
offer had got cancelled. Mickey scratched his ticket and found the image of a car and he approached the company SOO
Burgers for obtaining the promised product. The company now wants to understand whether the claims made by Mickey
and Brett are legal or not.
RULES:
The Australian Contract Law ascertains and confirms legal enforcement of promises which are made as part of a bargain
and the parties can enter into a contract freely, forming a legal relationship (). The laws which comprise of the different
types of regulations and rules which are essential for enforcing the conditions with respect to the promises made (Acc.com
2019). In such cases, the salient components of Agreements and resultant Consideration are also considered while
assessing the promises and breach of contracts made by the company. The case study can thus be adjudged based on the
above perspectives. Also, the Anticipatory and Discharge of breaches will aid in understanding whether the claims made
by the customers are valid or not.
ASSUMPTIONS:
Agreement is mutual obligations enforceable by law and elements of contract are the valid offer, adequate consideration
and acceptance (Buscombe 2018). SOO Burgers in the contract made a valid Offer and an Acceptance in which a resilient
and coherent point was reached by both the parties involved. An offer made by a party is a type of communication in
which the party claims to provide something in return in light of the fact that the other party involved fulfils certain
defined terms and conditions. In this case, it has been seen that the SOO Burger made a valid offer to provide the winner of
a golden ticket with a new car provided that the golden ticket on stretching revealed a car. This is a strong case of the
offered promise made by the company to customers who had 50 tokens and a golden ticket with the car. Up till this point,
it can be argued that the case was in favour of Mickey and Brett.
However, a closer assessment reveals that the case is vastly different under some consideration especially compared with
the points of Revocation and Rejection (Howells and Ramsay 2018). While Brett was waiting in the reception for
confirmation the company revoked the offer stating a printing error. The offer was cancelled then and there but Brett can
claim the car to the company as the act of revocation is provided strength by the fact of Rejection, thus effectively
The Indian Institute of Business Management & Studies
Subject: Business Law Marks: 100
eliminating any possibilities of bounding back. Hence it can be seen that since the company has revoked and rejected any
claims, there is very little space for Brett to claim his prize. Also, any revocation made known to the public in a direct or
indirect manner is valid thus making the case even stronger in favour of the company.
Alternately, it can be seen that Mickey on account of being hospitalised claimed no knowledge about the revocation and
approached the company. But since the company has already communicated to the media and general public about the
offer revoked the company is no longer liable to adhere to the claim made by Mickey. They can reject the offer made on
solid grounds that the message was already communicated through valid channels.
There is a minor discrepancy in which Brett met a consumer who had got the car from the company after the notice was
put up. This can be termed as an Actual or Anticipatory breach where the company fulfilled the expectations of one claimer
but refuted the claims made by another. But even then, the claim is weak since the previous person completed a major part
of the procedure before the notice was put up. Hence, claiming the car us nit actually in favour of either of them.
Questions:
1. The Company is not liable to abide by the claim made by customer Brett and Mickey why? Explain with content
the Issue, Fact, and Judgement of the case.
2. What do you mean by anticipatory breach? And in which part of case study this term is used.
The Indian Institute of Business Management & Studies
Subject: Business Law Marks: 100
Case – 5
ISSUE:
The case here involves an employee Sarah operating as the Managing Director of the company for the period of 2 years.
The company Sparkling Pty Ltd has been operating in the vicinity of Tasmania and as per the ASIC. Though officially Sarah
has been logged off, she has been operating as managing director for a sufficient amount of time. There was a clearly
defined contract which stated that Sarah could not execute any transactions on behalf of the company and the company
itself was not allowed to borrow an amount higher than the value of 20,000 dollars. The contract additionally stated that
any transactions would require abject permission from the board of directors belonging to the company. Sarah conducted
the activities of transactions despite having sufficient knowledge about the contract as well as knowledge regarding the
lack of rights provided to her by the company. In the date of December 20th, Sarah went ahead and asked for a loan
of 30,000 for the company is well aware of the restrictions in the aforementioned contract. It can, however, be seen that
the bank had no information regarding the rights of Sarah or the contract of the company. The bank has thus now asked
the Sparkling Company to compensate the loan along with the interest generated over time. Thus, the case discusses
whether the company is obliged to pay the bank the dues in light of the several facts brought to the forefront.
RULES:
As per the Corporation Act formulated in the year of 2001 and also as per the rules stated in the ASIC various divergent
provisions which include the governance and operations of corporate organisations as well as takeovers, buyouts, funds
raising, and financial reporting are considered. In this case, it may be seen that the employee was logged off during the
transaction executed. Thus, as per the ASIC, it is entrusted with the responsibility of protecting the regime of the
concerned investor and also diverse related financial services, for instance, licensing, disclosing of the provisions and the
conduct associated with it (Legislation.gov.au 2019).
ASSUMPTIONS:
As per the laws defined and specific assumptions, there is very little possibility regarding the positive outcome of this case.
Sarah as per the rules of the company was not allowed to execute any transaction without the permission of higher
authorities. Also, an amount greater than 20,000 could not be withdrawn. Sarah did not inform the company and the bank
withdrawing a higher amount of 30,000 dollars. The bank under such a circumstance can easily file a case against the
company stating that they were not aware of the rule soft the contract with respect to Sarah and had no information about
the return logged (Stewart et al. 2018). The bank has a solid rationale for filing a case against the company.
According to the scenario, the outcome would have been decidedly positive if Sarah had informed the higher management
about the transactions. The higher management would have communicated with the bank regarding the contracts existing
in their relationship with Sarah and also about the statements in the return logged. The board is aware of the contract
would have devised a way to repay for the orders (Bennett 2018). The process in this matter would have been more
ethical, authentic eliminating any possible potential for conflicts at a later stage (Bornstein 2019). If Sarah had informed
the bank about the defined policies the institution would have formulated a method for cancelling the orders and the loan.
According to the defined case, it has been clearly enunciated that the loan was taken for the refurbishments and
renovations of the shops. Suing and filing for the case will not find grounds since the bank was not knowledgeable of the
various terms and conditions affiliated with the contract (Barrymore and Ballard 2019). The bank without possessing
sufficient knowledge tendered the loan. The important and relevant information has been suppressed by the employee of
the company.
The Indian Institute of Business Management & Studies
Subject: Business Law Marks: 100
It is no concern of the bank that Sarah was not well-liked among the higher officials and that she was looking for a new job.
The bank is not concerned with the fact that the company has rejected Sarah or was not paying the funds intentionally.
Thus, once the loan has been tendered by the bank there does not exist an iota of consideration for Sparkling. The
company is liable to pay the loan back or even the bank can ask for the compensation from Sarah herself. According to
the Corporation Act of 2001, the company is supposed to pay the loan back with interest to the bank (Buscombe 2018).
Questions:
1. State the terms and conditions of the contract regarding employees of sparkling Pvt Ltd.
2. Why company is legally obliged to pay back the loan taken by Sarah on behalf of the company?

 

The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
Attempt Any Four Case Study
Case 1: Zip Zap Zoom Car Company
Zip Zap Zoom Company Ltd is into manufacturing cars in the small car (800 cc) segment. It was set up 15 years back and
since its establishment it has seen a phenomenal growth in both its market and profitability. Its financial statements are shown in
Exhibits 1 and 2 respectively.
The company enjoys the confidence of its shareholders who have been rewarded with growing dividends year after year.
Last year, the company had announced 20 per cent dividend, which was the highest in the automobile sector. The company has never
defaulted on its loan payments and enjoys a favorable face with its lenders, which include financial institutions, commercial banks and
debenture holders.
The competition in the car industry has increased in the past few years and the company foresees further intensification of
competition with the entry of several foreign car manufactures many of them being market leaders in their respective countries. The
small car segment especially, will witness entry of foreign majors in the near future, with latest technology being offered to the Indian
customer. The Zip Zap Zoom’s senior management realizes the need for large scale investment in up gradation of technology and
improvement of manufacturing facilities to pre-empt competition.
Whereas on the one hand, the competition in the car industry has been intensifying, on the other hand, there has been a
slowdown in the Indian economy, which has not only reduced the demand for cars, but has also led to adoption of price cutting
strategies by various car manufactures. The industry indicators predict that the economy is gradually slipping into recession.
Exhibit 1 Balance sheet as at March 31,200 x
(Amount in Rs. Crore)
Source of Funds
Share capital 350
Reserves and surplus 250 600
Loans :
Debentures (@ 14%) 50
Institutional borrowing (@ 10%) 100
Commercial loans (@ 12%) 250
Total debt 400
Current liabilities 200
1,200
Application of Funds
Fixed Assets
Gross block 1,000
Less : Depreciation 250
Net block 750
Capital WIP 190
Total Fixed Assets 940
Current assets :
Inventory 200
Sundry debtors 40
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
Cash and bank balance 10
Other current assets 10
Total current assets 260
-1200
Exhibit 2 Profit and Loss Account for the year ended March 31, 200x
(Amount in Rs. Crore)
Sales revenue (80,000 units x Rs. 2,50,000) 2,000.0
Operating expenditure :
Variable cost :
Raw material and manufacturing expenses 1,300.0
Variable overheads 100.0
Total 1,400.0
Fixed cost :
R & D 20.0
Marketing and advertising 25.0
Depreciation 250.0
Personnel 70.0
Total 365.0
Total operating expenditure 1,765.0
Operating profits (EBIT) 235.0
Financial expense :
Interest on debentures 7.7
Interest on institutional borrowings 11.0
Interest on commercial loan 33.0 51.7
Earnings before tax (EBT) 183.3
Tax (@ 35%) 64.2
Earnings after tax (EAT) 119.1
Dividends 70.0
Debt redemption (sinking fund obligation)** 40.0
Contribution to reserves and surplus 9.1
* Includes the cost of inventory and work in process (W.P) which is dependent on demand (sales).
** The loans have to be retired in the next ten years and the firm redeems Rs. 40 crore every year.
The company is faced with the problem of deciding how much to invest in up gradation of its plans and technology. Capital
investment up to a maximum of Rs. 100 crore is required. The problem areas are three-fold.
 The company cannot forgo the capital investment as that could lead to reduction in its market share as technological
competence in this industry is a must and customers would shift to manufactures providing latest in car technology.
 The company does not want to issue new equity shares and its retained earning are not enough for such a large investment.
Thus, the only option is raising debt.
 The company wants to limit its additional debt to a level that it can service without taking undue risks. With the looming
recession and uncertain market conditions, the company perceives that additional fixed obligations could become a cause of financial
distress, and thus, wants to determine its additional debt capacity to meet the investment requirements.
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
Mr. Shortsighted, the company’s Finance Manager, is given the task of determining the additional debt that the firm can raise. He
thinks that the firm can raise Rs. 100 crore worth debt and service it even in years of recession. The company can raise debt at 15 per
cent from a financial institution. While working out the debt capacity. Mr. Shortsighted takes the following assumptions for the
recession years.
a) A maximum of 10 percent reduction in sales volume will take place.
b) A maximum of 6 percent reduction in sales price of cars will take place.
Mr. Shorsighted prepares a projected income statement which is representative of the recession years. While doing so, he
determines what he thinks are the ―irreducible minimum‖ expenditures under recessionary conditions. For him, risk of insolvency is
the main concern while designing the capital structure. To support his view, he presents the income statement as shown in Exhibit 3.
Exhibit 3 projected Profit and Loss account
(Amount in Rs. Crore)
Sales revenue (72,000 units x Rs. 2,35,000) 1,692.0
Operating expenditure
Variable cost :
Raw material and manufacturing expenses 1,170.0
Variable overheads 90.0
Total 1,260.0
Fixed cost :
R & D —
Marketing and advertising 15.0
Depreciation 187.5
Personnel 70.0
Total 272.5
Total operating expenditure 1,532.5
EBIT 159.5
Financial expenses :
Interest on existing Debentures 7.0
Interest on existing institutional borrowings 10.0
Interest on commercial loan 30.0
Interest on additional debt 15.0 62.0
EBT 97.5
Tax (@ 35%) 34.1
EAT 63.4
Dividends —
Debt redemption (sinking fund obligation) 50.0*
Contribution to reserves and surplus 13.4
* Rs. 40 crore (existing debt) + Rs. 10 crore (additional debt)
Assumptions of Mr. Shorsighted
 R & D expenditure can be done away with till the economy picks up.
 Marketing and advertising expenditure can be reduced by 40 per cent.
 Keeping in mind the investor confidence that the company enjoys, he feels that the company can forgo paying dividends in
the recession period.
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
He goes with his worked out statement to the Director Finance, Mr. Arthashatra, and advocates raising Rs. 100 crore of debt to
finance the intended capital investment. Mr. Arthashatra does not feel comfortable with the statements and calls for the company’s
financial analyst, Mr. Longsighted.
Mr. Longsighted carefully analyses Mr. Shortsighted’s assumptions and points out that insolvency should not be the sole criterion
while determining the debt capacity of the firm. He points out the following :
 Apart from debt servicing, there are certain expenditures like those on R & D and marketing that need to be continued to
ensure the long-term health of the firm.
 Certain management policies like those relating to dividend payout, send out important signals to the investors. The Zip Zap
Zoom’s management has been paying regular dividends and discontinuing this practice (even though just for the recession phase)
could raise serious doubts in the investor’s mind about the health of the firm. The firm should pay at least 10 per cent dividend in the
recession years.
 Mr. Shortsighted has used the accounting profits to determine the amount available each year for servicing the debt
obligations. This does not give the true picture. Net cash inflows should be used to determine the amount available for servicing the
debt.
 Net Cash inflows are determined by an interplay of many variables and such a simplistic view should not be taken while
determining the cash flows in recession. It is not possible to accurately predict the fall in any of the factors such as sales volume, sales
price, marketing expenditure and so on. Probability distribution of variation of each of the factors that affect net cash inflow should be
analyzed. From this analysis, the probability distribution of variation in net cash inflow should be analysed (the net cash inflows
follow a normal probability distribution). This will give a true picture of how the company’s cash flows will behave in recession
conditions.
The management recognizes that the alternative suggested by Mr. Longsighted rests on data, which are complex and require
expenditure of time and effort to obtain and interpret. Considering the importance of capital structure design, the Finance Director
asks Mr. Longsighted to carry out his analysis. Information on the behaviour of cash flows during the recession periods is taken into
account.
The methodology undertaken is as follows :
(a) Important factors that affect cash flows (especially contraction of cash flows), like sales volume, sales price, raw materials
expenditure, and so on, are identified and the analysis is carried out in terms of cash receipts and cash expenditures.
(b) Each factor’s behaviour (variation behaviour) in adverse conditions in the past is studied and future expectations are
combined with past data, to describe limits (maximum favourable), most probable and maximum adverse) for all the factors.
(c) Once this information is generated for all the factors affecting the cash flows, Mr. Longsighted comes up with a range of
estimates of the cash flow in future recession periods based on all possible combinations of the several factors. He also estimates the
probability of occurrence of each estimate of cash flow.
Assuming a normal distribution of the expected behaviour, the mean expected value of net cash inflow in adverse conditions
came out to be Rs. 220.27 crore with standard deviation of Rs. 110 crore.
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
Keeping in mind the looming recession and the uncertainty of the recession behaviour, Mr. Arthashastra feels that the firm
should factor a risk of cash inadequacy of around 5 per cent even in the most adverse industry conditions. Thus, the firm should take
up only that amount of additional debt that it can service 95 per cent of the times, while maintaining cash adequacy.
To maintain an annual dividend of 10 per cent, an additional Rs. 35 crore has to be kept aside. Hence, the expected available
net cash inflow is Rs. 185.27 crore (i.e. Rs. 220.27 – Rs. 35 crore)
Question:
Analyse the debt capacity of the company.
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
CASE – 2 GREAVES LIMITED
Started as trading firm in 1922, Greaves Limited has diversified into manufacturing and marketing of high technology
engineering products and systems. The company’s mission is ―manufacture and market a wide range of high quality products, services
and systems of world class technology to the total satisfaction of customers in domestic and overseas market.‖
Over the years Greaves has brought to India state of the art technologies in various engineering fields by setting up
manufacturing units and subsidiary and associate companies. The sales of Greaves Limited has increased from Rs 214 crore in 1990 to
Rs 801 crore in 1997. The sales of Greaves Limited has increased from Rs 214 crore in 1990 to Rs 801 crore in 1997. Profits before
interest and tax (PBIT) of the company increased from Rs 15 crore to Rs 83 crore in 1997. The market price of the company’s share
has shown ups and downs during 1990 to 1997. How has the company performed? The following question need answer to fully
understand the performance of the company:
 Exhibit 1
GREAVES LTD.
Profit and Loss Account ending on 31 March (Rupees in crore)
1990 1991 1992 1993 1994 1995 1996 1997
Sales
Raw Material and Stores
Wages and Salaries
Power and fuel
Other Mfg. Expenses
Other Expenses
Depreciation
Marketing and Distribution
Change in stock
214.38
170.67
13.54
0.52
0.61
11.85
1.85
4.86
1.18
253.10
202.84
15.60
0.70
0.49
15.48
1.72
5.67
3.10
287.81
230.81
18.03
1.11
0.88
16.35
1.52
5.14
4.93
311.14
213.79
37.04
3.80
2.37
25.54
4.62
5.17
0.48
354.25
245.63
37.96
4.43
2.36
31.60
5.99
9.67
– 1.13
521.56
379.83
48.24
6.66
3.57
41.40
8.53
10.81
5.63
728.15
543.56
60.48
7.70
4.84
45.74
9.30
12.44
11.86
801.11
564.35
69.66
9.23
5.49
48.64
11.53
16.98
– 5.87
Total Op Expenses 202.72 239.40 268.91 291.85 338.77 493.41 672.20 731.75
Operating Profit
Other Income
Non-recurring Income
11.61
2.14
1.30
13.70
3.69
2.28
18.90
4.97
0.10
19.29
4.24
10.98
15.48
7.72
16.44
28.15
14.35
0.46
55.95
11.35
0.52
69.36
13.08
1.75
PBIT 15.10 19.67 23.97 34.51 39.64 42.98 65.67 82.64
Interest 5.56 6.77 11.92 19.62 17.17 21.48 28.25 27.54
PBT 9.54 12.90 12.05 14.89 22.47 21.50 37.42 55.10
Tax
PAT
Dividend
Retained Earnings
3.00
6.54
1.80
4.74
3.60
9.30
2.00
7.30
4.90
7.15
2.30
4.85
0.00
14.89
4.06
10.83
4.00
18.47
7.29
11.18
7.00
14.50
8.58
5.92
8.60
28.82
12.85
15.97
15.80
39.30
14.18
25.12
 Exhibit 2
GREAVES LTD.
Balance Sheet (Rupees in crore)
1990 1991 1992 1993 1994 1995 1996 1997
ASSETS
Land and Building
Plant and Machinery
Other Fixed Assets
Capital WIP
Gross Fixed Assets
Less: Accu. Depreciation
Net Tangible Fixed Assets
3.88
11.98
3.64
0.09
19.59
12.91
6.68
4.22
12.68
4.14
0.26
21.30
14.56
6.74
4.96
12.98
4.38
10.25
23.57
15.79
7.78
21.70
33.49
5.18
11.27
71.64
19.84
51.80
30.82
50.78
6.95
34.84
123.39
25.74
97.65
39.71
75.34
8.53
14.37
137.95
33.90
104.05
42.34
92.49
8.87
13.92
157.62
42.56
115.06
43.07
104.45
10.35
14.36
172.23
53.87
118.86
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
Intangible Fixed Assets 0.21 0.19 0.05 4.40 22.03 22.45 20.04 21.11
Net Fixed Assets 6.89 6.93 7.83 56.20 119.68 126.50 135.10 139.97
Raw Materials
Finished Goods
Inventory
Accounts Receivable
Other Receivable
Investments
Cash and Bank Balance
Current Assets
Total Assets
LIABILITIES AND CAPITAL
Equity Capital
Preference Capital
Reserves and Surplus
5.26
29.37
34.63
38.16
32.62
3.55
8.36
117.32
124.21
9.86
0.20
27.60
6.91
33.72
40.63
53.24
40.47
14.95
8.91
158.20
165.13
9.86
0.20
32.57
7.26
38.65
45.91
67.97
49.19
15.15
12.71
190.93
198.76
9.86
0.20
37.42
21.05
53.39
74.44
93.30
24.54
27.58
13.29
233.15
289.35
18.84
0.20
100.35
28.13
52.26
80.39
122.20
59.12
73.50
18.38
353.59
473.27
29.37
0.20
171.03
44.03
58.09
102.12
133.45
64.32
75.01
30.08
404.98
531.48
29.44
0.20
176.88
53.62
69.97
123.59
141.82
76.57
75.07
33.46
450.51
585.61
44.20
0.20
175.41
50.94
64.09
115.03
179.92
107.31
76.45
48.18
526.89
666.86
44.20
0.20
198.79
Net Worth 37.66 42.63 47.48 119.39 200.60 206.52 219.81 243.19
Bank Borrowings
Institutional Borrowings
Debentures
Fixed Deposits
Commercial Paper
Other Borrowings
Current Portion of LT Debt
14.81
4.13
4.77
12.31
0.00
2.33
0.00
19.45
3.43
16.57
14.45
0.00
3.22
0.00
26.51
9.17
19.99
15.03
0.00
3.10
0.08
24.82
38.09
4.56
14.08
0.00
3.18
0.12
55.12
38.76
4.37
15.57
15.00
17.08
15.08
64.97
69.69
4.37
17.75
0.00
1.97
0.02
70.08
89.26
2.92
20.81
0.00
2.36
1.49
118.28
63.60
1.49
19.29
0.00
2.57
1.57
Borrowings 38.35 57.12 73.72 84.61 130.82 158.73 183.94 203.66
Sundry Creditors
Other Liabilities
Provision for tax, etc.
Proposed Dividends
Current Portion of LT Dept
37.52
5.70
3.18
1.80
0.00
49.40
10.16
3.82
2.00
0.00
59.34
10.70
5.14
2.30
0.08
77.27
3.59
0.31
4.06
0.12
113.66
1.42
4.40
7.29
15.08
148.13
1.99
7.70
8.58
0.02
153.63
1.70
12.19
12.85
1.49
179.79
3.04
21.43
14.18
1.57
Current Liabilities 48.20 65.38 77.56 85.35 141.85 166.42 181.86 220.01
TOTAL LIABILITIES
Additional information:
Share premium reserve
Revaluation reserve
Bonus equity capital
124.21
8.51
165.13
8.51
198.76
8.51
289.35
47.69
8.91
8.51
473.27
107.40
8.70
8.51
531.67
107.91
8.50
8.51
585.61
93.35
8.31
23.25
666.86
93.35
8.15
23.25
 Exhibit 3
GREAVES LTD.
Share Price Data
1990 1991 1992 1993 1994 1995 1996 1997
Closing share price (Rs)
Yearly high share price (Rs)
Yearly low share price (Rs)
Market capitalization (Rs crore
EPS (Rs)
Book value (Rs)
27.19
29.25
26.78
65.06
4.79
35.64
34.74
45.28
21.61
67.77
6.82
37.22
121.27
121.27
34.36
236.56
9.73
42.54
66.67
126.33
48.34
274.84
1.93
57.75
78.34
90.00
42.67
346.35
2.66
40.61
71.67
100.01
68.34
316.87
7.16
64.98
47.5
90.00
45.00
210.02
5.03
45.35
48.25
85.00
43.75
213.34
9.01
50.73
Questions
1. How profitable are its operations? What are the trends in it? How has growth affected the profitability of the company?
2. What factors have contributed to the operating performance of Greaves Limited? What is the role of profitability margin,
asset utilization, and non-operating income?
3. How has Greaves performed in terms of return on equity? What is the contribution of return on investment, the way of the
business has been financed over the period?
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
CASE – 3 CHOOSING BETWEEN PROJECTS IN ABC COMPANY
ABC Company, has three projects to choose from. The Finance Manager, the operations manager are discussing and they are not
able to come to a proper decision. Then they are meeting a consultant to get proper advice. As a consultant, what advice you will give?
The cash flows are as follows. All amounts are in lakhs of Rupees.
Project 1:
Duration 5 Years
Beginning cash outflow = Rs. 100
Cash inflows (at the end of the year)
Yr. 1 – Rs 30; Yr. 2 – Rs 30; Yr. 3 – Rs 30; Yr.4 – 10; Yr.5 – 10
Project 2:
Duration 5 Years
Beginning Cash outflow Rs. 3763
Cash inflows (at the end of the year)
Yr. 1 – 200; Yr. 2 – 600; Yr. 3 – 1000; Yr. 4 – 1000; Yr. 5 – 2000.
Project 3:
Duration 15 Years
Beginning Cash Outflow – Rs. 100
Cash Inflows (at the end of the year)
Yrs. 1 to 10 – Rs. 20 (for 10 continuous years)
Yrs. 11 to 15 – Rs. 10 (For the next 5 years)
Question:
If the cost of capital is 8%, which of the 3 projects should the ABC Company accept?
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
CASE – 4 STAR ENGINEERING COMPANY
Star Engineering Company (SEC) produces electrical accessories like meters, transformers, switchgears, and automobile
accessories like taximeters and speedometers.
SEC buys the electrical components, but manufactures all mechanical parts within its factory which is divided into four
production departments Machining, Fabrication, Assembly, and Painting—and three service departments—Stores, Maintenance, and
Works Office.Though the company prepared annual budgets and monthly financial statements, it had no formal cost accounting
system. Prices were fixed on the basis of what the market can bear. Inventory of finished stocks was valued at 90 per cent of the
market price assuming a profit margin of 10 per cent.
In March, the company received a trial order from a government department for a sample transformer on a cost-plus-fixed-fee
basis. They took up the job (numbered by the company as Job No 879) in early April and completed all manufacturing operations
before the end of the month.
Since Job No 879 was very different from the type of transformers they had manufactured in the past, the company did not
have a comparable market price for the product. The purchasing officer of the government department asked SEC to submit a detailed
cost sheet for the job giving as much details as possible regarding material, labour and overhead costs.SEC, as part of its routine
financial accounting system, had collected the actual expenses for the month of April, by 5th of May. Some of the relevant data are
given in Exhibit A.The company tried to assign directly, as many expenses as possible to the production departments. However, It was
not possible in all cases. In many cases, an overhead cost, which was common to all departments had to be allocated to the various
departments using some rational basis. Some of the possible bases were collected by SEC’s accountant. These are presented in Exhibit
B.He also designed a format to allocate the overhead to all the production and service departments. It was realized that the expenses of
the service departments on some rational basis. The accountant thought of distributing the service departments’ costs on the following
basis:
a. Works office costs on the basis of direct labour hours.
b. Maintenance costs on the basis of book value of plant and machinery.
c. Stores department costs on the basis of direct and indirect materials used.
The accountant, who had to visit the company’s banker, passed on the papers to you for the required analysis and cost
computations.
REQUIRED
Based on the data given in Exhibits A and B, you are required to:
1. Complete the attached ―overhead cost distribution sheet‖ (Exhibit C).
Note: Wherever possible, identify the overhead costs chared directly to the production and service departments. If such direct
identification is not possible, distribute the costs on some ―rational basis.
2. Calculate the overhead cost (per direct labour hour) for each of the four producing departments. This should include share of
the service departments’ costs.
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
3. Do you agree with:
a. The procedure adopted by the company for the distribution of overhead costs?
b. The choice of the base for overhead absorption, i.e. labour-hour rate?
Exhibit A
STAR ENGINEERING COMPANY
Actual Expenses(Manufacturing Overheads) for April
RS RS
Indirect Labour and Supervisions:
Machining
Fabrication
Assembly
Painting
Stores
Maintenance
Indirect Materials and Supplies
Machining
Fabrication
Assembly
Painting
Maintenance
Others
Factory Rent
Depreciation of Plant and Machinery
Building Rates and Taxes
Welfare Expenses
(At 2 per cent of direct labour wages and Indirect labour and supervision)
Power
(Maintenance—Rs 366; Works Office Rs 2,200, Balance to Producing
Departments)
Works Office Salaries and Expenses
Miscellaneous Stores Department Expenses
33,000
22,000
11,000
7,000
44,000
32,700
2,200
1,100
3,300
3,400
2,800
1,68,000
44,000
2,400
19,400
68,586
1,30,260
1,190
1,49,700
12,800
4,33,930
5,96,930
The Indian Institute Of Business Management & Studies
Subject: Human Resources Analytics Marks: 100
Exhibit B
STAR ENGINEERING COMPANY
Projected Operation Data for the Year
Department Area
(sq.m)
Original
Book of Plant &
Machinery
Rs
Direct
Materials
Budget
Rs
Horse
Power
Rating
Direct
Labour
Hours
Direct
Labour
Budget
Rs
Machining
Fabrication
Assembly
Painting
Stores
Maintenance
Works Office
Total
13,000
11,000
8,800
6,400
4,400
2,200
2,200
48,000
26,40,000
13,20,000
6,60,000
2,64,000
1,32,000
1,98,000
68,000
52,80,000
62,40,000
21,60,000
10,80,000
94,80,000
20,000
10,000
1,000
2,000
33,000
14,40,000
5,28,000
7,20,000
3,30,000
30,18,000
52,80,000
25,40,000
13,20,000
6,60,000
99,00,000
Note
The estimates given in this exhibit are for the budgeted year January to December where as the actuals in Exhibit A are just one month—April of the budgeted year.
Exhibit C
STAR ENGINEERING COMPANY
Actual Overhead Distribution Sheet for April
Departments
Overhead Costs
Production Departments Service Departments Total
Amount
Actuals for
April (Rs)
Basis for
Distribution
A. Allocation of Overhead to all
departments
A.1 Indirect Labour and
Supervision
1,49,700
A.2 Indirect materials and
supplies
12,800
A.3 Factory Rent 1,68,000
The Indian Institute Of Business Management & Studies
Subject: Human Resources Analytics Marks: 100
A.4 Depreciation of Plant and
Machinery
44,000
A.5 Building Rates and Taxes 2,400
A.6 Welfare Expenses 19,494
A.7 Power 68,586
A.8 Works Office Salaries and
Expenses
1,30,260
A.9 Miscellaneous Stores
Expenses
1,190
A. Total (A.1 to A.9) 5,96,430
B. Reallocation of Service
Departments Costs to Production
Departments
B.1 Distribution of Works Office
Costs
B.2 Distribution of Maintenance
Department’s Costs
B.3 Distribution of Stores
Department’s Costs
Total Charged to Producing
C. Departments (A+B)
5,96,430
D. Labour Hours Actuals for
April
1,20,00
0
44,000
60,
000
27,
500
E. Overhead Rate/Per Hour (D)
The Indian Institute Of Business Management & Studies
Subject: Human Resources Analytics Marks: 100
Case 5: EASTERN MACHINES COMPANY
Raj, who was in charge production felt that there are many problems to be attended to. But Quality Control was the main
problem, he thought, as he found there were more complaints and litigations as compared to last year. With the demand increasing,
he does not want to take any chances.
So he went down to assembly line, but was greeted by an unfamiliar face. He introduced himself.
Raj: I am in charge of checking the components, which we use, when we assemble the machines for customers. For most of
the components, suppliers are very reliable and we assume that there will not be any problem. When we generally test the end
product, we don’t have failures.
Namdeo: I am Namdeo. I was in another dept. and have been transferred recently to this dept.
Raj: Recently we have been having problems, and there has been some complaint or other about the machines we have
supplied. I am worried and would like to check the components used. I would like to avoid lot of expensive rework.
Namdeo: But it would be very expensive to test every one of them. It will take at least half an hour for each machine. I neither
have the staff nor the time. It will be rather pointless as majority of them will pass the test.
Raj: There has been more demand than supply for these machines in last 2 years. We have been buying many components
from many suppliers. We have been producing more with extra shifts. We are trying to capture the market and increase our market
share.
Namdeo: We order for components from different places, and sometimes we do not have time to check all. There is a time lag
between order and supply of components, and we cannot wait as production will stop. We use whatever comes soon as we want to
complete our orders.
Raj: Oh! Obviously we need some kind of checking. Some sampling technique to check the quality of the components. We
need to get a sample from each shipment from our component suppliers. But I do not know how many we should test.
Namdeo: We should ask somebody from our statistics dept. to attend to this problem.
As a Statistician, advice what kind of Sampling schemes can we consider, and what factors will influence choice of
scheme. What are the questions we should ask Mr. Namdeo, who works in the assembly line?

 

The Indian Institute Of Business Management & Studies
Subject: General Management Marks: 100
1
Attempt All Case Study
CASE NO – 1 -Health or Work
Mr. Victor is the marketing manager, looking after two sensitive products-Max and Priya (both are luxury
soaps) – produced by Hindustan Trading Company. After a service of fifteen years, Mr. Victor now enjoys the
second position in the marketing department of his company.
Recently the company introduced a new soap for the elite class of customers. It was launched in all the big
cities of India, under the overall supervision of Mr. Victor.
Mr. Victor now travels twenty days a month and works for fourteen hours a day. His work is well
appreciated by the chairman of the company. And was also rewarded with three direct increments.
As an obvious result of this new development, Mr. Victor now looks after all the three sensitive soaps.
Looking at his dashing approach to marketing, the company’s chairman now wants to give him the additional
responsibility of an ‘international launch’ of these products.
Unfortunately, Mr. Victor is now suffering from high blood pressure and has gone for medical treatment.
Although he is on leave now, he has to resume his duties within a week. As per the doctor’s advice, Mr. Victor was
supposed to take one month’s rest.
Mr. Victor’s wife works in the government department and they are blessed with two school going sons.
Required
What is your advice for Mr. Victor?
CASE NO – 2 – Wanted a Leader
Bombay Steel Limited is the market leader in raw steel, with 40% market share. The company has a work
force of 35,000 employees including 6,000 officers. The chairman of the company Mr. Rangtha retired recently and
could not place his successor immediately. The company is now facing severe competition from new entrants,
especially foreign companies. The moral of employees’ is down due to the absence of proper allocation of
responsibilities, support from superiors and wage revision.
The company is also expecting a non-cooperation movement to be carried out by its two unions. Export
orders are pending. The export market now expects better quality of product. The government has allowed BSL to
expand its capacity, acquire new technology and also raise capital from the open market.
Three senior executives of the company are in the race of becoming the new chairman. Two senior
bureaucrats from the central government departments are also aspiring for the same position.
Required.
1. What type of leader/chairman is required for this company?
2. Who should be made the chairman?
3. What should be the priorities of the new chairman?
The Indian Institute Of Business Management & Studies
Subject: General Management Marks: 100
2
CASE NO – 3 Assessment of Leadership Performance
Assess your present leader, using the following scale and factors (with respective weightages)
Scale
0 – Nil 1 – Poor
2 – Marginal 3 – Good
4 – Very Good 5 – Excellent
Factor Weightage
Decision Making 8
Understanding Subordinates 7
Delegation of Power 6
Supporting Subordinates 5
Dynamism and Risk caring 4
Vision and knowledge 3
Communication 2
Transparency 1
Required
Select your group leader. Also decide the next leader and the method for transfer of leadership.
The Indian Institute Of Business Management & Studies
Subject: General Management Marks: 100
3
CASE NO – 4 Value Approach to Productivity
Falcon International Limited is a well-known company for electrical and electronic products. It is the
market leader for various electrical products and enjoys the second position for electronic products. The company
has realized the 80 million strong middle-class market of India now wants world-class products and after-salesservices.
These customers are now ready to pay higher price for better product. On the other side, the lower
middle-class customers have become very price-sensitive, with decreasing real income and increasing inflation.
So far, this company has been selling ‘same quality products’ to all income groups of customers. But now, it
has realized that ‘product differentiation’ if required, and ‘value for money’ on one side and ‘reasonable value for
reasonable money’ on the other side are going to be the future ‘product strategies’ of the company.
Product differentiation is to be effected very carefully, without disturbing ‘customer sentiments’. This
requires suitable change in ‘employee skills’. If employees are ready to change their style of operations, the
required change in ‘product design’ or ‘product quality’ can be achieved and the customers could be completely
satisfied.
Employees are to be exposed to ‘real market realities’ through live product demonstrations and effective
workshops. Careful study of ‘customer’s ideas on product value’ should be carried out. New designs, new contents,
new utilities require new technology and new ideas. Ultimately, all this requires flexibility in productivity. Change
in operations or style should not have a negative effect on productivity. If changed design or quality of product
demands improvement in productivity, it should be achieved by the employees. The company should properly
reward such an improvement.
Falcon has appointed a committee to find out ways and means for redefining productivity, based on
redefined ‘product value’.
Required
1. Discuss the significance of timely change in ‘product value.’
2. Discuss the significance of timely changes in’ productivity’ to suit the ‘change in product value.’
3. How would you bring in such a change in the productivity.’

 

The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
1
Attempt all Cases.
Case 1: PROMOTING THE PROTÉGÉ
The die was cast. Prem Nath Divan, executive chairman of Vertigo, the country’s largest engineering
project organization, decided to switch tracks for a career in academics. Divan was still six years short of the
company’s retirement age of 65. His premature exit was bound to create a flutter at the Vertigo board. Having
joined Vertigo as a management trainee soon after college, he had gradually risen through the hierarchy to take a
board position as the marketing director of the firm at 32. He had become the president five years later and the
youngest chairman of the company at 45. But, by the time he was 50, the whizkid had acquired a larger than life
image of a role model for younger managers and a statesman who symbolized the best and brightest face of Indian
management.
On his wife’s suggestion that it would be wise to discuss the move with one of his trusted colleagues before
making a formal announcement of his intention to seek premature retirement, Divan called on Ramcharan Saxena,
a solicitor who has been on the Vertigo board for over a decade. Sexena was surprised at Divan’s plan. But he was
unfazed. “If that is what you want to do for the rest of your life, we can only wish you well”, he told him. “The
board will miss you. But the business should go on. We should get down to the task of choosing a successor. The
sooner it is done, the better.
“I think the choice is quite obvious, “said Divan, “Ranjan Warrior. He is good and …” Divan was taken aback
to see Saxena grimace. “You don’t have anything against him, do you?” he asks him. “No, no,” said Saxena, “He is
good. A financial strategist and a visionary. His conceptual skills have served the company well. But he has always
had staff role with no line experience. What we need is someone from operations. Like Richard Crasta.”
“Richard known things inside out alright”, said Divan, “But he is just a doer. Not fire in the belly. Vertigo
needs someone who understands the value of power and known how to use it. Like me. Like Ranjan.”
“That is just the problem, “said Saxena. “Prem, let me tell you something. Ranjan is a man in your own
image. Everyone known that he is your protégé. And are never popular. He has generated a lot of resentment
among senior Veritigo executives and there would be a revolt if he were to succeed you. An exodus is something
we can’t afford to have on our hands. We should think of someone else in the interest of stability to top
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2
management.” Divan could not believe what he heard. He had always prided himself on his hands – on style and
thought he had his ear to the ground. “How could I lose touch?” he wondered, somewhat shaken.
“When you are the boss, people accept your authority without question,” continued Saxena. “In any case,
you have been successful at Vertigo and it is difficult to argue with success. But the moment you announce your
intention to leave, the aura begins to fade away. And in deciding on your successor, the board will seek your
opinion, with due regard to your judgment. The board member must do what in their view is right for the
company. Having said that, may I also mention that if there is a showdown in the boardroom, you could always
choose to stay on ? We would like it. Or we could bring in an outsider.”
“I have finalized my career plans and there is no question of staying on beyond six months from now,” said
Divan. “The board is scheduled to meet next month. Let us shelve the matter till then. In the meantime, I rely on
you, Ram, to keep this discussion between the two of us.”
“Of course yes,” said Saxena.
On his way home, Divan thought about the matter in detail. Bringing an outsider would undo all his life’s
work at Vertigo. There were considerations like cuture and compatibility which were paramount. The chairman
had to be an inside man. “Richard lacks stature, “Divan said to himself. “Ranjan is the one I have been grooming,
but heavens, the flip side of it all had missed me completely. There is no way I can allow a split at the top just
before I quit. I must leave on a high note in my own interest. I must find a way out of he imminent mess.”
Question:
1. What should Divan do?
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Case 2: PREJUDICES IN WORKPLACES : REAL OR PERCEIVED ?
Manjula Srivastav had been head of marketing for the last four years at Blue Chips, a computer products firm. The
company’s turnover had increased by two – and a half times during the period and its market share in a number of
precuts had also moved up marginally. What was creditable was that all this had happened in an environment in
which computer prices had been crashing.
Although she had a talent for striking an instant report with people – particularly with the company’s
dealers – Srivastav often found herself battling against odds, as she perceived it, as far as her relationships with her
subordinates and peers in the company were concerned. Srivastav had to fight male prejudice all the way. She
found it unfair that she had to prove herself regularly at work and she used to make her displeasure on that score
quite obvious to everyone.
Six months ago, Blue Chips had been taken over by an industrial group which had a diversity of business
interests and was, more importantly, flush with funds. The change of ownership had led to a replacement of the
managing director, but it had not affected the existing core management team. Anand Prakash, the new managing
director, had his priorities clear. “Blue Chips will go international,” he had declared in the first executive
committee meeting, “and exports will be our first concern.”
Prakash had also brought in Harish Naik as his executive assistant with special responsibility for exports.
Naik had been seconded to Srivastav for five weeks as a part of a familiarization programme. Much to her surprise,
he had been appointed, within two months, as the vice president (exports), with compensation and perks higher
than her own. Srivastav had made a formal protest to Prakash who had assured her that he was aware of her good
work in the company and that she would have an appropriate role once the restructuring plan he was already
working on would by put into effect.
One morning, as she entered the office and switched on her workstation, a message flashed on her screen.
It was from Prakash. “Want to see you sometime today regarding restructuring. Will 2.30 be convenient?” It went.
Later at his office, Prakash had come straight to the point. He wanted to create a new post called general
manager (public affairs) in the company. “With your excellent background in customer relations and connections
with the dealer network, you are the ideal material for the job,” he said, “and I am offering it to you.” Srivastav was
quick to react. “There is very little I can contribute in that kind of job,” she said. “I was in fact expecting to be
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promoted as vice president (home marketing).” Prakash said that the entire gamut of marketing functions would
be looked after by Naik who would have boardroom responsibility for both domestic and export sales. “If you
continue in marketing, you will have to be reporting to Naik which I thought may not be fair to you. In any case, we
need someone who is strong in marketing to handle public affairs. Let me assure you that the new post I am
offering will in no way diminish your importance in the company. You will in fact be reporting to me directly.”
“You are being unfair and your are diminishing my importance in the company,” reported Srivastav. “You
know that I am a hardcore marketing professional and you also know I am the best. Why then am I being deprived
of a rightful promotion in marketing? Tell me,” she asked pointedly, “would you have done this to a male
colleague?”
“That is a hypothetical question,” said Prakash. “But I can’t think of any other slot for you in the
restructuring plan I want to implement except what I am offering.”
“If the reason why you are asking me to handle this fancy public affairs business of yours,” said Srivastav,
“is that you can’t think of any other slot for me, then I would have second thoughts about continuing to work for
this company.” “May I reiterate,” Said Prakash, “that I value your role and its is precisely because of this that I am
delegating to you the work I have been personally handling so far? May I also state that I am upgrading the job not
only because it is important but also because it should match your existing stature in the organization?”
“I need to think about this. I will let you know tomorrow,” said Srivastav and left the office.
Question:
What should she do?
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Case 3: MECHANIST’S INDISCIPLINED BEHAVIOUR
Dinesh, a machine operator, worked as a mechanist for Ganesh, the supervisor. Ganesh told Dinesh to pick
up some trash that had fallen from Dinesh’s work area, and Dinesh replied, “I won’t do the janitor’s work.”
Ganesh replied, “When you drop it, you pick it up”. Dinesh became angry and abusive, calling Ganesh a
number of names in a loud voice and refusing to pick up the trash. All employees in the department heard Dinesh’s
comments. Ganesh had been trying for two weeks to get his employees to pick up trash in order to have cleaner
workplace and prevent accidents. He talked to all employees in a weekly departmental meeting and to each
employee individually at least once. He stated that he was following the instructions of the general manager. The
only objection came from Dinesh.
Dinesh has been with the company for five years, and in this department for six months. Ganesh had
spoken to him twice about excessive alcoholism, but otherwise his record was good. He was known to have quick
temper.
This outburst by Dinesh hurt Ganesh badly. Ganesh told Dinesh to come to the office and suspended him
for one day for insubordination and abusive language to a supervisor. The decision was within company policy,
and similar behaviors had been punished in other departments.
After Dinesh left Ganesh’s office, Ganesh phoned the HR manager, reported what he had done, and said that
he was sending a copy of the suspension order for Dinesh’s file.
Question:
1. How would you rate Dinesh’s behaviour? What method of appraisal would you use?
2. Do you assess any training needs of employees? If yes, what inputs should be embodied in the
training programme?
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Case 4: RISE AND FALL
Jagannath (Jaggu to his friends) is an over ambitious young man. For him ends justify means.
With a diploma in engineering. Jaggu joined, in 1977, a Bangalore-based company as a Technical Assistant. He got
himself enrolled as a student in an evening college and obtained his degree in engineering in 1982. Recognizing as
Engineer-Sales in 1984.Jaggu excelled himself in the new role and became the blue-eyed boy of the management.
Promotions came to him in quick succession. He was made Manager-Sales in 1986 and Senior Manager-Marketing
in 1988.
Jaggu did not forget his academic pursuits. After being promoted as Engineer-Sales, he joined an MBA
(part-time) programme. After completing MBA, Jaggu became a Ph.D. scholar and obtained his doctoral degree in
1989.Functioning as Senior Manager-Marketing, Jaggu eyed on things beyond his jurisdiction. He started
complaining against Suresh the Section Head and Prahalad the Unit Chief (both production) with Ravi, the EVP
(Executive – Vice President). The complaints included delay in executing orders, poor quality and customer
rejections. Most of the complaints were concocted.
Ravi was convinced and requested Jaggu to head the production section so that things could be
straightened up there. Jaggu became the Section head and Suresh was shifted to sales.
Jaggu started spreading his wings. He prevailed upon Ravi and got sales and quality under his control, in
addition to production. Suresh, an equal in status, was now subordinated to Jaggu. Success had gone to Jaggu’s
head. He had everything going in his favor-position, power, money, and qualification. He divided workers and
used them as pawns. He ignored Prahalad and established direct link with Ravi. Unable to bear the humiliation,
Prahalad quit the company. Jaggu was promoted as General Manager. He became a megalomaniac.
Things had to end at some point. It happened in Jaggu’s life too. There were complaints against him. He
had inducted his brother – in – law, Ganesh, as an engineer. Ganesh was by nature corrupt. He stole copper worth
Rs. 5 lakh and was suspended. Jaggu tried to defend Ganesh but failed in his effort. Corruption charges were also
leveled against Jaggu who was reported to have made nearly Rs. 20 lakh for himself.
On the new-year day of 1993, Jaggu was reverted back to his old position- sales. Suresh was promoted and
was asked to head production. Roles got reversed. Suresh became boss to Jaggu. Unable to swallow the insult,
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Jaggu put in his papers.Back home, Jaggu started his own consultancy claiming himself as an authority in quality
management. He poached on his previous company and picked up two best brains in quality.
Fro 1977 to 1993, Jaggu’s career graph had a steep rise and a sudden fall. Whether there would be another
hump in the curve is a big question.
Questions:
1. Bring out the principles of promotion that were employed in promoting Jaggu.
2. What would you do if you were (i) Suresh, (ii) Prahalad or (iii) Ravi?
3. Bring out the ethical issues involved in Jaggu’s behaviour.

 

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Attempt Any Four Case Study
CASE – 1 Dabur India Limited: Growing Big and Global
Dabur is among the top five FMCG companies in India and is positioned successfully on the specialist
herbal platform. Dabur has proven its expertise in the fields of health care, personal care, homecare
and foods.
The company was founded by Dr. S. K. Burman in 1884 as small pharmacy in Calcutta (now Kolkata),
India. And is now led by his great grandson Vivek C. Burman, who is the Chairman of Dabur India
Limited and the senior most representative of the Burman family in the company. The company
headquarters are in Ghaziabad, India, near the Indian capital New Delhi, where it is registered. The
company has over 12 manufacturing units in India and abroad. The international facilities are located
in Nepal, Dubai, Bangladesh, Egypt and Nigeria.
S.K. Burman, the founder of Dabur, was trained as a physician. His mission was to provide effective
and affordable cure for ordinary people in far-flung villages. Soon, he started preparing natural
remedies based on Ayurved for diseases such as Cholera, Plague and Malaria. Due to his cheap and
effective remedies, he became to be known as ‘Daktar’ (Indianised version of ‘doctor’). And that is how
his venture Dabur got its name—derived from Daktar Burman.
The company faces stiff competition from many multi national and domestic companies. In the
Branded and Packaged Food and Beverages segment major companies that are active include
Hindustan Lever, Nestle, Cadbury and Dabur. In case of Ayurvedic medicines and products, the major
competitors are Baidyanath, Vicco, Jhandu, Himani and other pharmaceutical companies.
Vision, Mission and Objectives
Vision statement of Dabur says that the company is “dedicated to the health and well being of every
household”. The objective is to “significantly accelerate profitable growth by providing comfort to
others”. For achieving this objective Dabur aims to:
 Focus on growing core brands across categories, reaching out to new geographies, within and
outside India, and improve operational efficiencies by leveraging technology.
 Be the preferred company to meet the health and personal grooming needs of target consumers
with safe, efficacious, natural solutions by synthesising deep knowledge of ayurveda and herbs with
modern science.
 Be a professionally managed employer of choice, attracting, developing and retaining quality
personnel.
 Be responsible citizens with a commitment to environmental protection.
 Provide superior returns, relative to our peer group, to our shareholders.
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Chairman of the company
Vivek C. Burman joined Dabur in 1954 after completing his graduation in Business Administration
from the USA. In 1986 he was appointed Managing Director of Dabur and in 1998 he took over as
Chairman of the Company.
Under Vivek Burman’s leadership, Dabur has grown and evolved as a multi-crore business house with
a diverse product portfolio and a marketing network that traverses the whole of India and more than
50 countries across the world. As a strong and positive leader, Vivek C. Burman has motivated
employees of Dabur to “do better than their best”—a credo that gives Dabur its status as India’s most
trusted nature-based products company.
Leading brands
More than 300 diverse products in the FMCG, Healthcare and Ayurveda segments are in the product
line of Dabur. List of products of the company include very successful brands like Vatika, Anmol,
Hajmola, Dabur Amla Chyawanprash, Dabur Honey and Lal Dant Manjan with turnover of Rs.100
crores each.
Strategic positioning of Dabur Honey as food product, lead to market leadership with over 40%
market share in branded honey market; Dabur Chyawanprash is the largest selling Ayurvedic
medicine with over 65% market share. Dabur is a leader in herbal digestives with 90% market share.
Hajmola tablets are in command with 75% market share of digestive tablets category. Dabur Lal Tail
tops baby massage oil market with 35% of total share.
CHD (Consumer Health Division), dealing with classical Ayurvedic medicines has more than 250
products sold through prescription as well as over the counter. Proprietary Ayurvedic medicines
developed by Dabur include Nature Care Isabgol, Madhuvaani and Trifgol.
However, some of the subsidiary units of Dabur have proved to be low margin business; like Dabur
Finance Limited. The international units are also operating on low profit margin. The company also
produces several “me – too” products. At the same time the company is very popular in the rural
segment.
Questions
1. What is the objective of Dabur? Is it profit maximisation or growth maximisation? Discuss.
2. Do you think the growth of Dabur from a small pharmacy to a large multinational company is
an indicator of the advantages of joint stock company against proprietorship form? Elaborate.
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CASE – 2 IT Industry: Checkered Growth
IT industry is now considered as vital for the development of any economy. Developing countries
value the importance of this industry due to its capacity to provide much needed export earnings and
support in the development of other industries. Especially in Indian context, this industry has
assumed a significant position in the overall economy, due to its exemplary potentials in creating high
value jobs, enhancing business efficiency and earning export revenues. The IT revolution has brought
unexpected opportunities for India, which is emerging as an increasingly preferred location for
customised software development. Experts are estimating the global IT industry to grow to US$1.6
million over the coming six years and exports to reach Rs. 2000 billion by 2008. It is envisaged that
Indian IT industry, though a very small portion of the global IT pie, has tremendous growth prospects.
Stock Taking
The decade of 1970 may be taken as the stage of introduction of the Indian IT industry. The early
years were marked by 75 per cent of software development taking place overseas and the rest 25 per
cent in India. Exports of Indian software until the mid-1970s was mainly Eastern Europe, followed by
US. Tata Consultancy Services (TCS) was among the pioneers in selling its services outside India, by
working for IBM Labs in the US. The hardware segment lagged behind its software counterpart. With
instances of exports worth US$ 4 million in 1980, the software segment of the industry has shown an
uneven profile. It was not until 1980s that vigorous and sustained growth in software exports begun,
as MNCs like Texas Instruments started to take serious interest in India as a centre of software
production. Destinations of export also underwent changes, with US dominating the main export
market with 75 per cent of the exports. The IT Enabled Services (ITeS) segment, however, had not
emerged at this stage.
It was also during the mid to late 1980s that computer firms shifted focus from mainframe computers
(the mainstay of MNCs) to Personal Computers (PCs). In March 1985, Minicomp installed the first ever
PC at CSI, Delhi; this changed the entire industry for good. With the entry of networking and
applications like CAD/CAM, PC sales soared in 1987-88, touching 50,000 units.
From a modest growth in the mid-1980s software exports moved up to Rs. 3.8 billion in 1991-92.
Since then, it grew at an incredible rate, up to 115 per cent in 1993. The hardware could also register
an annual growth of 40 per cent in this period, backed by a surging demand for PCs and networking.
Growth of the industry was also driven by the emergence and rapid growth of the ITeS segment.
IT sector’s share of GDP rose steadily in this period, rate of increase being the highest at 44.91 per
cent in 2000-01. It was in the same year that the size of the total IT market was the biggest in the
decade, at Rs. 56,592 crore. The overall IT market was also found to increase till 2000-01. The overall
IT market was also found to increase till 2000-01, with the only exception of 1998-99. The domestic
market also showed an overall increase till 2000-01, registering a spectacular CAGR of 50.39 per cent.
Aggregate output of software and services also increased in this period, though at an uneven rate. Of
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approximately $1 billion worth of sales in 1991-1992, domestic hardware sales constituted 37.2 per
cent (13.4 per cent growth over the previous year), exports of hardware 6.6 per cent.
During 2000-01 the growth in the hardware segment was driven mainly by PCs, which contributed
about 58 per cent of the total hardware market. This period also witnessed the phenomenon of
increasing share of Tier 2 and cities in PC sales, thereby indicating PC penetration into the hinterland.
PC shipments had increased by 35 per cent every year from 1997 till 2000-01 when it reached 1.8
million PCs. The commercial PC market saw a growth of 23.5 per cent mainly due to slashing of prices
by major vendors.
It was in 2001-02 that the industry had a sharp fall in rate of growth of its share of GDP to 5.90 per
cent, from 44.91 per cent in the previous year. The total IT market also showed a fall in growth rate
from 56.42 per cent in 2000-01 to a mere 16.24 per cent in the next year, growing further at the rate
of 16.25 per cent in the next year. Software export was also affected, registering a low growth of 28.74
per cent and failed to maintain its growth rate of 65.30 per cent in the previous year. It got further
lowered to 26.30 per cent in 2002-03. CAGR of total output of software and services (in Rs. crore)
came down to 25.61 in 2001-02 and further to 25.11 in 2002-03. The domestic market showed a steep
decline in growth to 3 per cent in 2001-02 from an outstanding 50.39 per cent in 2000-01. It could,
however, recover by growing at 4.11 per cent in the next year.
Table 1: Indian IT Industry: 1996-97 to 2002-03
Year A* B* C* D* E*
1996-97
1997-98
1998-99
1999-00
2000-01
2001-02
2002-03
18,641
25,307
36,179
56,592
65,788
76,482
3,900
6,530
10,940
17,150
28,350
36,500
46,100
6,594
10,899
16,879
23,980
37,350
47,532
59,472
9,438
12,055
14,227
18,837
28,330
29,181
30,382
*A: share of GDP of the Indian IT market, B: size of the Indian IT market (in Rs. crore), C: software and
services exports (in Rs. crore), D: size of software and services (in Rs. crore), E: size of the domestic
market (in Rs. crore)
Questions
1. Try to identify various stages of growth of IT industry on basis of information given in the
case and present a scenario for the future.
2. Study the table given. Apply trend projection method on the figures and comment on the
trend.
3. Compute a 3 year moving average forecast for the years 1997-98 through 2003-04.
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CASE – 3 Outsourcing to India: Way to Fast Track
By almost any measure, David Galbenski’s company Contract Counsel was a success. It was a company
Galbenski and a law school buddy, Mark Adams, started in 1993; it helps companies find lawyers on a
temporary contract basis. The growth over the past five years had been furious. Revenue went from
less than $200,000 to some $6.5 million at the end of 2003, and the company was placing thousands of
lawyers a year.
At then the revenue growth began to flatten; the company grew just 8% in 2004 despite a robust
market for legal services estimated at about $250 billion in the United States alone. Frustrated and
concerned, Galbenski stepped back and began taking a hard look at his business. Could he get it back
on the fast track? “Most business books say that the hardest threshold to cross is that $10 million sales
mark,” he says. “I knew we couldn’t afford to grow only 10% a year. We needed to blow right through
that number.”
For that to happen, Galbenski knew he had to expand his customer base beyond the Midwest into
large legal supermarkets such as Boston, New York, and Washington, D.C. He also knew that in doing
so, he could run into stiff competition from larger publicly traded rivals. Contract Counsel’s edge has
always been its low price, Clients called when dealing with large-scale litigation or complicated
merger and acquisition deals, either of which can require as many as 100 lawyers to manage the
discovery process and the piles of documents associated with it. Contract Counsel’s temps cost about
$75 an hour, roughly half of what a law firm would charge, which allowed the company to be
competitive despite its relatively small size. Galbenski was counting on using the same strategy as he
expanded into new cities. But would that be enough to spur the hyper growth that he craved for?
At that time, Galbenski had been reading quite a bit about the growing use of offshore employees. He
knew companies like General Electric, Microsoft and Cisco were saving bundles by setting up call and
data centers in India. Could law firms offshore their work? Galbenski’s mind raced with possibilities.
He imagined tapping into an army of discount-priced legal minds that would mesh with his existing
talent pool in the U.S. The two work forces could collaborate over the Web and be productive on a 24-
7 basis. And the cost could be massive.
Using offshore workers was a risk, but the payoff was potentially huge. Incidentally Galbenski and his
eight-person management team were preparing to meet for their semiannual review meeting. The
purpose of the two-day event was to decide the company’s goals for the coming year. Driving to the
meeting, Galbenski struggled to figure out exactly what he was going to say. He was still undecided
about whether to pursue an incremental and conservative national expansion or take a big gamble on
overseas contractors.
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The Decision
The next morning Galbenski kicked off the management meeting. Galbenski laid out the facts as he
saw them. Rather than look at just the next five years of growth, look at the next 20, he said. He cited a
Forrester Research prediction that some 79,000 legal jobs, totaling $5.8 billion in wages, would be
sent offshore by 2015. He challenged his team to be pioneers in creating a new industry, rather than
stragglers racing to catch up. His team applauded. Returning to the office after the meeting, Galbenski
announced the change in strategy to his 20 full-timers.
Then he and his team began plotting a global action plan. The first step was to hire a company out of
Indianapolis, Analysts International, to start compiling a list of the best legal services providers in
countries where people had comparatively strong English skills. The next phase was vetting the
companies in person. In February 2005, just three months after the meeting in Port Huron, Galbenski
found himself jetting off on a three months trip to scout potential contractors in India, Dubai, and Sri
Lanka. Traveling to cities like Bangalore, Chennai and Hyderabad, he interviewed executives from
more than a dozen companies, investigating their day-to-day operations firsthand.
India seemed like the best bet. With more than 500 law schools and about 200,000 law students
graduating each year, it had no shortage or attorneys. What amazed Galbenski, however, was that
thanks to the Web, lawyers in India had access to the same research tools and case summaries as any
associate in the U.S. Sure, they didn’t speak American English. “But they were highly motivated, highly
intelligent, and extremely process-oriented,” he says. “They were also eager to tackle the kinds of
tasks that most new associated at law firms look down upon” such as poring over and coding
thousands of documents in advance of a trial. In other words, they were perfect for the kind of
document-review work he had in mind.
After a return visit to India in August 2005, Galbenski signed a contract with two legal services
companies: QuisLex, in Hyderabad, and Manthan Services in Bangalore. Using their lawyers and
paralegals, Galbenski figured he could cut his document-review rates to $50 an hour. He also
outsourced the maintenance of the database used to store the contact information for his thousands of
contractors. In all, he spent about 12 months and $250,000 readying his newly global company.
Convincing U.S. based clients to take a chance on the new service hasn’t been easy. In November,
Galbenski lined up pilot programs with four clients (none of which are ready to publicise their use of
offshore resources). To help get the word out, he launched a website (offshore-legal-services.com),
which includes a cache of white papers and case studies to serve as a resource guide for companies
interested in outsourcing.
Questions
1. As money costs will decrease due to decision to outsource human resource, some real costs
and opportunity costs may surface. What could these be?
2. Elaborate the external and internal economies of scale as occurring to Contract Counsel.
3. Can you see some possibility of economies of scope from the information given in the case?
Discuss.
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CASE – 4 Indian Stock Market: Does it Explain Perfect Competition?
The stock market is one of the most important sources for corporates to raise capital. A stock
exchange provides a market place, whether real or virtual, to facilitate the exchange of securities
between buyers and sellers. It provides a real time trading information on the listed securities,
facilitating price discovery.
Participants in the stock market range from small individual investors to large traders, who can be
based anywhere in the world. Their orders usually end up with a professional at a stock exchange,
who executes the order. Some exchanges are physical locations where transactions are carried out on
a trading floor. The other type of exchange is of a virtual kind, composed of a network of computers
and trades are made electronically via traders.
By design a stock exchange resembles perfect competition. Large number of rational profit
maximisers actively competing with each other, trying to predict future market value of individual
securities comprises the main feature of any stock market. Important current information is almost
freely available to all participants. Price of individual security is determined by market forces and
reflects the effect of events that have already occurred and are expected to occur. In the short run it is
not easy for a market player to either exit or enter; one cannot exit and enter for few days in those
stocks which are under no delivery. For example Tata Steel was in no delivery from 29/10/07 to
02/11/07. Similarly one cannot enter or exit on those stocks which are in upper or lower circuit for
few regular trading sessions. Therefore a player has to depend wholly on market price for its profit
maximizing output (in this case stock of securities). In the long run players may exit the market if they
are not able to earn profit, but at the same time new investors are attracted by rise in market price.
As on 01/11/07 total market capital at Bombay Stock Exchange (BSE) is $1589.43 billion (source:
Business Standard, 1/11/2007); out of this individual investors account for only $100bn. In spite of
the fact that individual investors exist in a very large number, their capital base is less than 7% of total
market capital; rest of capital is owned by foreign institutional investor and domestic institutional
investors (FIIs and DIIs), which are very small in number. Average capital owned by a single large
player is huge in comparison to small investor. This situation seems to have prompted Dr Dash of BSE
to comment ‘The stock market activity is increasingly becoming more centralised, concentrated and
non competitive, serving interest of big players only.” Table 2 shows the impact of change in FII on
National Stock Exchange movement during three different time periods.
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Table 2: Impact of FIIs’ Investment on NSE
Wave
Date
Nifty
close
Change in
Nifty Index
FLLS Net
Investment
(Rs.Cr.)
Change in
Market
Capitalisation
(Rs.Cr.)
Wave 1
From
To
17/05/04
26/10/05
1388.75
2408.50
1019.75
59520
5,40,391
Wave 2
From
To
27/10/05
11/05/06
2352.90
3701.05
1348.15
38258
6,20,248
Wave 3
From
To
12/05/06
13/06/06
3650.05
2663.30
-986.75
-9709
-4,60,149
By design, an Indian Stock Market resembles perfect competition, not as a complete description (for
no markets may satisfy all requirements of the model) but as an approximation.
Questions
1. Is stock market a good example of perfect competition? Discuss.
2. Identify the characteristics of perfect competition in the stock market setting.
3. Can you find some basic aspect of perfect competition which is essentially absent in stock
market?
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CASE – 5 The Indian Audio Market
The Indian audio market pyramid is featured by the traditional radios forming its lower bulk. Besides
this, there are four other distinct segments: mono recorders (ranking second in the pyramid), stereo
recorders, midi systems (which offer the sound amplification of a big system, but at a far lower price
and expected to grow at 25% per year) and hi-fis (minis and micros, slotted at the top end of the
market).
Today the Indian audio market is abound with energy and action as both national and international
majors are trying to excel themselves and elbow the others, ushering in new concepts, like CD sound,
digital tuners, full logic tape deck, etc. The main players in the Indian audio market are Philips, BPL
and Videocon. Of these, Philips is one of the oldest and is considered at the leading national brands. In
fact it was the first company to introduce a range of international products such as CD radio cassette
recorder, stand alone CD players and CD mini hi-fi systems. With the easing of the entry barriers, a
number of new international players like Panasonic, Akai, Sansui, Sony, Sharp, Goldstar, Samsung and
Aiwa have also entered the arena. This has led to a sea of changes in the industry and resulted in an
expanded market and a happier customer, who has access to the latest international products at
competitive prices. The rise in the disposable income of the average Indian, especially the upperincome
section, has opened up new vistas for premium products and has provided a boost to
companies to launch audio systems priced as high as Rs. 50,000 and beyond.
Pricing across Segments
Super Premium Segment: This segment of the market is largely price-insensitive, as consumers are
willing to pay a premium in order to obtain products of high quality. Sonodyne has positioned itself in
this segment by concentrating on products that are too small for large players to operate in profitably.
It has launched a range of systems priced between Rs. 30,000 to Rs. 60,000. National Panasonic has
launched its super premium range of systems by the name of Technics.
Premium Segment: Much of the price game is taking place in this segment, in which systems are
priced around Rs. 25,000. Even the foreign players ensure that the pricing is competitive. Entry
barriers of yester years compelled the demand by this segment to be partially met by the grey market.
With the opening up of the market, the premium segment is witnessing a rapid growth and is
currently estimated to be worth Rs. 30 crores. Growth of this segment is also being driven by
consumers who want to upgrade their old music systems. Another major stimulating factor is the
plethora of financing options available, bringing more and more consumers to the market.
Philips has understood the Indian listener well enough to dictate the basic principles of segmentation.
It projects its products as high quality at medium price. In fact, Philips had successfully spotted an
opportunity in the wide price gap between portable cassette players and hi-fi systems and pioneered
the concept of a midi system (a three-in-one containing radio, tape deck and amplifier in one unit).
Philips has also realised that there is a section of the rich consumer which values not just power but
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also clarity and is willing to pay for it. The pricing strategy of Philips was to make the most of its image
as a technology leader. To this end, it used non-price variables by launching of a range of state of art
machines like the FW series, and CD players. Moreover, it came up with the punch line in its
advertisements as, “We Invent For You”.
BPL stands second only to Philips in the audio market and focuses on technology as its USP. Its kingpin
in the marketing mix is its high technology superior quality product. It is thus at being the productquality
leader. BPL’s proposition of fidelity is translated in its punchline for its audio systems as, ‘e-fi
your imagination’ (d-fi stands for digital fidelity). The company follows a market skimming strategy.
When a new product was launched, it was placed in the top end of the market, and priced accordingly.
The company offers a range of products in all price segments in the market without discounting the
brand.
Another major player, Videocon, has managed to price its products lower even in the premium
segment. The success of the Powerhouse (a 160 watt midi launched by Philips in 1990) had prompted
Videocon to launch the Select Sound range of midi stereo systems at a slightly lower price. At the
premium end, Videocon is making efforts to upgrade its image to being “quality-driven” by associating
itself with the internationally reputed brand name of Sansui from Japan, and following a perceived
value pricing method.
Sony is another brand which is positioning itself as a premium product and charges a higher price for
the superior quality of sound it offers. Unlike indulging into price wars, Sony’s ad-campaigns project
the message that nothing can beat Sony in the quality and intensity of sound. National Panasonic is
another player that has three products in the top end of the market, priced in the Rs. 21,000 to Rs.
32,000 range.
Monos and Stereos: Videocon has 21% share I the overall audio market, but has been a major player
only in personal stereos and two-in-ones. Its history is written with instances where it has offered
products of similar quality, but at much lower prices than its competitors. In fact, Videocon launched
the Sansui brand of products with a view to transform its image from that of being a manufacturer of
cheap products to that of being a company that primes quality, and also to obtain a share of the hi-fi
segment. Sansui is being positioned as a premium brand, targeting the higher middle, upper income
groups and also the sensitive middle class Indian consumer.
The objective of Philips in this segment is to achieve higher sales volumes and hence its strategy is to
expand its range and have a product in every segment of the market. The pricing method used by
Philips in this segment is providing value for money.
National Panasonic offers products in the lower end of the market, apart from the top of the range. In
fact, it reduced the price of one of its small two-in-ones from Rs. 3,500 to Rs. 2,400, with the logic that
a forte in the lower end of the market would help in building brand reliability across a wider customer
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base. The company is also guided by the logic that operating in the price sensitive region of the market
will help it reach optimum levels of efficiency. Panasonic has also entered the market for midis.
These apart, there also exists a sector in the Indian audio industry, with powerful regional brands in
mono and stereo segments, having a market share of 59% in mono recorders and 36% in stereo
recorders. This sector has a strong influence on price performance.
Questions
1. What major pricing strategies have been discussed in the case? How effective these strategies
have been in ensuring success of the company?
2. Is perceived value pricing the dominant strategy of major players?
3. Which products have reached maturity stage in audio industry? Do you think that product
bundling can be effectively used for promoting sale of these products?

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Note: Solve any 4 Cases Study’s
CASE: I Playing to a new beat: marketing in the music industry
Good old fashioned rock ‘n’ roll could be dead. If a mobile phone ringtone in the shape of the vocalizations of the
animated Crazy Frog dominates the billboard charts for months on end, then it could well signal the death knell for the
industry, and how it operates. If this ubiquitous amphibian’s aurally annoying song, converted from a mobile phone
ringtone, outsold even mainstay acts such as Oasis and Coldplay, why should music companies invest millions in cultivating
fresh musical talent, hoping for them to be the next big thing, when their efforts can be beaten by basic synthesizer music?
The industry is facing a number of challenges that it has to address, such as strong competition, piracy, changing delivery
formats, increasing cost pressures, demanding pri-madonnas and changing customer needs. Gone are the days when music
moguls were reliant on sales from albums alone, now the industry trawls for revenue from a variety of sources, such as
ringtones, merchandising, concerts, and music DVDs, leveraging extensive back catalogues, and music rights from
advertising, movies and TV programming.
The music industry is in a state of flux at the moment. The cornerstone of the industry—the singles chart—has been
facing terminal decline since the mid-1990s. Some retailers are now not even stocking singles due to this marked freefall.
Some industry commentators blame the Internet as the sole cause, while others point to value differences between the
price of an album and the price of a single as too much. Likewise, some commentators criticize the heavy pre-release
promotion of new songs, the targeting of ever-younger markets by pop acts, and the explosion of digital television music
channels as root causes of the single’s demise. The day when the typical record buyer browses through rows of shelves for
a much sought-after band or song on a Saturday afternoon may be thing of the past.
Long-term success stories for the music industry are increasingly difficult to develop. The old tradition of A&R
(which stands for ‘Artists & Repertoire’) was to sign, nurture and develop musical talent over a period of years. The
industry relied on continually feeding the system with fresh talent that could prove to be the next big thing and capture the
public imagination. Now corporate short-term thinking has enveloped business strategies. If an act fails to be an immediate
hit, the record label drops them. The industry is now characterized by an endless succession of one-hit wonders and
videogenic artist churning out classic cover songs, before vanishing off the celebrity radar. Four large music labels now
dominate the industry (see Table 1), and have emerged through years of consolidation.
Table 1 The ‘big four’ music labels
Universal Music Sony BMG
The largest music label, with 26 per cent of
global music market share; artists on its roster
include U2, Limp Bizkit, Mariah Carey and No
Doubt
Merger consolidated its position; artists on
its roster include Michael Jackson, Lauryn Hill,
Westlife, Dido, Outkast and Christina Aguilera
Warner Music EMI
Third biggest music group; artists on its
roster include Madonna, Red Hot Chili Peppers
and REM
Artists on its roster include the Rolling
Stones, Coldplay, Norah Jones, Radiohead, and
Robbie Williams
The ‘big four’ labels have the marketing clout and resources to invest heavily in their acts, providing them with
expensive videos, publicity tours and PR coverage. This clout allows their acts to get vital airplay and video rotation on
dedicated TV music channels. Major record labels have been accused of offering cash inducements of gifts to radio stations
and DJs in an effort to get their songs on playlists. This activity is known in the industry as ‘radio payola’.
Consumer have flocked to the Internet, to download, to stream, to ‘rip and burn’ copyrighted music material. The
digital music revolution has changed the way people listen, use and obtain their favourite music. The very business model
that has worked for decades, buying a single or album from a high-street store, may not survive. Music executives are left
questioning whether the Internet will kill the music business model has been fundamentally altered. According to the
British Phonographic Industry (BPI), it estimated that 8 million people in the UK are downloading music from the
Internet—92 per cent of them doing so illegally. In 2005 alone, sales of CD singles fell by a colossal 23 per cent. To put the
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change into context, the sales of digital singles increased by 746.6 per cent in 2005. Consumers are buying their music
through different channels and also listening to their favourate songs through digital media rather than through standard
CD, cassette or vinyl. The emergence of MP3 players, particularly the immensely popular Apple iPod, has transformed the
music landscape even further. Consumers are now downloading songs electronically from the Internet, and storing them
on these digital devices or burning them onto rewritable CDs.
Glossary of online music jargon
Streaming: Allows the user to listen to or watch a file as it is being simultaneously downloaded. Radio channels
utilize this technology to transmit their programming on the Internet.
‘Rip n burn’: Means downloading a song or audio file from the Internet and then burning them onto rewritable CDs
or DVD.
MP3 format: MP3 is a popular digital music file format. The sound quality is similar to that of a CD. The format
reduces the size of a song to one-tenth of its original size allowing for it to be transmitted quickly over computer networks.
Apple iPod: The ‘digital jukebox’ that has transformed the fortunes of the pioneer PC maker. By the end of 2004
Apple is expected to have sold 5 million units of this ultra-hip gadget. It was the ‘must-have item’ for 2003. The standard 20
GB iPod player can hold around 5000 songs. Other hardware companies, such as Dell & Creative Labs, have launched
competing devices. These competing brands can retail for less than £75.
Peer-to-peer networks (P2P): These networks allow users to share their music libraries with other net users.
There is no central server, rather individual computers on the Internet communicating with one another. A P2P program
allows users to search for material, such as music files, on other computers. The program lets users find their desired music
files through the use of a central computer server. The system works lime this; a user sends in a request for a song; the
system checks where on the Internet that song is located; that song is downloaded directly onto the computer of the user
who made the request. The P2P server never actually holds the physical music files—it just facilitates the process.
The Internet offers a number of benefits to music shoppers, such as instant delivery, access to huge music catalogues
and provision of other rich multi-media material like concerts or videos, access to samples of tracks, cheaper pricing
(buying songs for 99p rather than an expensive single) and, above all, convenience. On the positive side, labels now have
access to a wider global audience, possibilities of new revenue streams and leveraging their vast back catalogues. It has
diminished the bargaining power of large retailers, it is a cheaper distribution medium than traditional forms and labels
can now create value-laden multimedia material for consumers. However, the biggest problem is that of piracy and
copyright theft. Millions of songs are being downloaded from the Internet illegally with no payment to the copyright holder.
The Internet allows surfers to download songs using a format called ‘MP3’, which doesn’t have inbuilt copyright protection,
thus allowing the user to copy and share with other surfers with ease. Peer to peer (P2P) networks such as Kazaa and
Grokster have emerged and pose an even deadlier threat to the music industry—they are enemies that are even harder to
track and contain. Consumers can easily source and download illegal copyrighted material with considerable ease using
P2P networks (see accompanying box).
P2P Networks used for file sharing
Kazaa
Gnutella
Grokster
Morpheus
eDonkey
Imesh
Bearshare
WinMX
A large number of legal download sites have now been launched, where surfers can either stream their favourite
music or download it for future use in their digital libraries. This has been due to the rapid success of small digital medial
players such the Apple iPod. The legal downloading of songs has grown exponentially. A la carte download services and
subscription-based services are the two main business models. Independent research reveals that the Apple’s iTunes
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service has over 70 per cent of the market. Highlighting this growing phenomenon of the Internet as an official channel of
distribution, new music charts are now being created, such as the ‘Official Download Chart’. Industry sources suggest that
out of a typical 99p download, the music label get 65p, while credit card companies get 4p, leaving the online music store
with 30p per song download. These services may fundamentally eradicate the concept of an album, with customers
selecting only a handful of their favourite songs rather than entire standard 12 tracks. These prices are having knock-on
consequences for the pricing of physical formats. Consumers are now looking for a more value-laden music product rather
than simply 12 songs with an album cover. Now they are expecting behind the scenes access to their favourite group, live
concert footage and other content-rich material.
Big Noise Music is an example of one of the legitimate downloading sites running the OD2 system. The site is
different in that for every £1 download, 10p of the revenue goes to the charity Oxfam.
The music industry is ferociously fighting back by issuing lawsuits for breach of copyright to people who are illegally
downloading songs from the Internet using P2P software. The recording industry has started to sue thousands of people
who illegally share music using P2P. They are issuing warnings to net surfers who are P2P software that their activities are
being watched and monitored. Instant Internet messages are being sent to those who are suspected of offering songs
illegally. In addition, they have been awarded court orders so that Internet providers must identify people who are heavily
involved in such activity. The music industry is also involved heavily in issue advertising campaigns, by promoting antipiracy
websites such as www.pro-music.org to educate people on the industry and the impact of piracy on artists. These
types of public awareness campaigns are designed to illustrate the implications of illegal downloading.
Small independent music labels view P2P networks differently, seeing them as vital in achieving publicity and
distribution for their acts. These firms simply do not have the promotional resources or distribution clout of the ‘big four’
record labels. They see P2P networks as an excellent viral marketing tool, creating buzz about a song or artist that will
ultimately lead to wider mainstream and commercial appeal. The Internet is used to create communities of fans who are
interested in their music, providing them access to free videos and other material. It allows independent acts the
opportunity to distribute their music to a wider audience, building up their fan base through word of mouth. Savvy
unsigned bands have sophisticated websites showcasing their work, and offering free downloads as well as opportunities
for audio-philes to purchase their tunes. Alternatively major labels still see that to gain success one has to get a video on
rotation on MTV and that this in turn encourages greater airplay on radio stations, ultimately leading to increased
purchases.
Table 2 The major legitimate online music provider
Name Details Pricing
Apple iTunes Huge catalogue of over 750,000 songs; compatible with
Apple’s very hip iPod system; offers free single of the week
and other exclusive material
79p per track, £7.99 per
album
Napster The now-legitimate website offers over 1,000,000 songs;
offers several streaming radio stations too
Subscription based—
subscribers pay £9.99 a
month to stream any of the
catalogue, plus another 99p
to download on to a CD
Sony Connect over 300,000 songs from the major labels; excellent sound
quality but compatible only with Sony products due to
proprietary file formats
From 80p- £1.20 per track,
and £8- £10 per album
Bleep.com Small catalogue of 15,000 songs with a focus on independent
music labels; high-quality downloads due to media files used
99p per track, £6.99 per
album
Wippit UK-based service; 175,000 songs to download; gives a
selection of free tracks every month
From 30p to £1 to
download; alternatively,
users can subscribe to the
service for £50 a year to
gain access to 60,000 songs
OD2 System, used These online sites use the OD2 system for music downloads; Varying product bundles,
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For traditional music retailers the retailing landscape is getting more competitive, with multiple channels of
distribution emerging due to the Internet and large supermarket chains now selling music CDs. Supermarkets are
becoming one of the main channels of distribution through which consumers buy music. These supermarkets are stocking
only a limited number of the best-selling music titles, limiting the number of distribution outlets for new and independent
music. Only charts hits and greatest hits collections will make it on to the shelves of such outlets.
Now consumers can buy albums from traditional Internet retailers such as Amazon.com, and also on websites that
utilize access to grey markets such as cdwow.co.uk, as well as through legitimate download retailers. This has left
traditional music retail operations with a severe conundrum: how can they entice more shoppers into their stores? The
accompanying box highlights where typical shoppers source their music at present.
Where do people buy their music?
Music stores (like HMV, Virgin Megastore) 16 per cent
Chains (like Woolworth, WHSmith) 16 per cent
Supermarkets (like Tesco, Asda) 21.6 per cent
Mail order 3.9 per cent
Internet sales (like Amazon.com) 7 per cent
Downloads Not yet measured
The issue of online music retailers using parallel importing, such as CDWOW (www.cdwow.co.uk) is a concern. These
retailers are taking advantage of worldwide price discrepancies for legitimate music CDs, sourcing them in low-cost
countries like Hong Kong and exporting them into European countries. Prices for music in these markets are considerably
lower than the market that they are exporting to, and they don’t even charge for international delivery. Yet technological
improvements have led to revenue opportunities for the industry. Development such as online radio, digital rights
management, Internet streaming, tethered downloads (locked to PC), downloads (burnable, portable), in-store kiosks, ringtones,
mobile message clips and games soundtracks are great potential revenue sources. In an effort to unlock this
potential the major labels have digitized their entire back catalogues. In the wake of these dramatic environmental changes
the industry has had to radically adapt. The ‘big four’ music labels are consolidating even further, developing a digital
music strategy, and re-evaluating their entire traditional business model. Mobile phones are seen as the next primary
channel of distribution for digital music. High penetration levels in the market for mobile phones and the inherent mobility
advantages make this the next crucial battlefield for the music industry.
The Internet may emerge as the primary channel of distribution for music, and the music industry is going to have to
adapt to these changes. The move towards the online distribution of entertainment is still in its infancy, with more
investment into the telecommunications infrastructure, such as greater Internet access, increased access to broadband
technology, 3G technology and changing the way people shop for music will undoubtedly take time. The digital revolution
will fundamentally change the way people purchase and consume their musical preferences. In forthcoming years the
digital format will become more mainstream, leading to a proliferation of channels of distribution for music. However, as
with most new channels of technology, catalogue shopping, Internet shopping likewise, and ‘video never really killed the
radio star’… but will the Internet kill the record store?
Questions:
1. Discuss the micro and macro forces that are affecting the music industry.
2. Based on this analysis, what strategic options would you recommend for both music publishers and music
retailers in the current marketing environment?
3. Discuss the advantages and disadvantages associated with online distribution from a music label’s
perspective.
by:Mycokemusic.com
HMV.com
MSN.com
TowerRecord.co.uk
Big Noise Music
they look after encryption, hosting, royalty management and
the entire e-commerce system; provides access to nearly
350,000 tracks from 12,000 recording artists
typically 99p for track
download, and 1p for
streaming
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CASE: II The Sudkurier
The Sudkurier is a regional daily newspaper in south-western Germany. On average 310,000 people in the area read
the newspaper regularly. The great majority of those readers subscribe to its home delivery service, which puts the paper
on their doorsteps early in the morning. On the market for the last 35 years, the Sudkurier contains editorial sections on
politics, the economy, sports, local news, entertainment and features, as well as advertising. The newspaper is financially
independent and its staff is free of any political affiliation. Management at the Sudkurier would like to bring the paper into
line with the current needs of its readers. For this purpose, the management team is considering the use of market
research.
Management would like to have information about the following.
1. What newspaper or other media are the Sudkurier’s main competitors?
2. Do most readers read the Sudkurier for the local news, sports and classified ads, and should these
sections therefore be expanded at the expense of the sections on politics and the economy?
3. Should the Sudkurier’s layout be modernized?
4. Do mostly lower levels of society read the Sudkurier?
5. Into what political category do readers and non-readers the Sudkurier?
6. Which suppliers of products and services consider the Sudkurier especially appropriate for their
advertising?
7. What advertising or information dot the readers think is missing from the Sudkurier?
You are an employee of the Sudkurier who has been instructed to obtain the requested information and to prepare
your findings for the decision-makers. You are in the fortunate position of receiving regular reports about the people’s
media use from the Arbeitsgemeinschaft Media-Analyse e.V. Relevant excerpts from the most recent survey are shown here
as Tables 3 and Table 4
Table 3 Media analysis of readership structure
Range in Circulation Area (1) Readers per edition of
SUDKURIER
National
average
RANGE Total in %
in % Absolute in %
Total 53.5 310,000 100.0 100.0
Gender Men 55.5 150,000 49.0 47.2
Women 51.6 160,000 51.0 52.8
Age Groups 14-19 years 51.8 20,000 8.0 7.2
20-29 years 41.0 50,000 15.0 19.1
30-39 years 52.1 50,000 16.0 16.4
40-49 years 61.8 50,000 16.0 15.2
50-59 years 61.1 60,000 19.0 16.5
60-69 years 53.6 40,000 13.0 13.5
70 years and older 57.4 40,000 13.0 12.2
Educational
Level
Secondary school without apprenticeship 49.4 60,000 18.0 17.6
Secondary school with apprenticeship 50.8 100,000 31.0 39.6
Continuing education without Abitur 60.8 110,000 36.0 27.0
Abitur, university preparation,
university/college
49.7 50,000 15.0 15.8
Occupation Trainee, pupil, student 44.7 40,000 11.0 11.0
Full-time employee 54.6 160,000 50.0 51.7
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Retire, pensioner 57.3 70,000 23.0 21.8
Unemployed 52.4 50,000 16.0 15.5
Occupation of
main wage
earner
Self-employed, mid- to large
business/Freelancer
63.8 20,000 5.0 3.1
Self-employed, small business,/Farmer 59.9 30,000 10.0 7.1
Managers and civil servants 58.6 30,000 9.0 8.7
Other employees and civil servants 49.3 120,000 40.0 42.9
Skilled staff 57.6 100,000 32.0 32.5
Unskilled staff 38.7 10,000 4.0 5.6
Net Household
Income/month
4500 and more 62.7 100,000 31.0 23.9
3500-4500 52.7 60,000 19.0 20.8
2500-3500 54.9 80,000 26.0 25.9
to 2500 44.1 70,000 23.0 29.3
Number of wage
earners
1 earner 45.4 100,000 33.0 40.4
2 earner 56.5 130,000 41.0 42.6
3 earner 62.7 80,000 25.0 16.9
Household Size 1 Person 41.8 50,000 14.0 17.9
2 Persons 55.5 90,000 29.0 31.8
3 Persons 59.5 70,000 22.0 22.4
4 Persons and more 54.8 110,000 35.0 27.9
Children in
Household
Children less than 2 years of age 52.7 10,000 4.0 3.8
2 to less than 4 years 38.4 10,000 4.0 5.4
4 to less than 6 years 45.8 10,000 5.0 5.2
6 to less than 10 years 43.8 20,000 8.0 8.5
10 to less than 14 years 54.1 30,000 10.0 9.2
14 to less than 18 years 57.7 50,000 16.0 13.7
No children under 14 54.9 250,000 79.0 77.4
No children under 18 53.6 210,000 67.0 68.1
Driving Licence yes 55.2 250,000 80.0 73.0
no 47.3 60,000 20.0 27.0
Private
Automobile
55.5 270,000 86.0 80.0
Garden own garden 60.4 240,000 76.0 57.0
without garden 39.8 70,000 23.0 43.0
Housing own house 62.1 180,000 58.0 46.0
own apartment 45.9 10,000 3.0 3.0
rent house or apartment 44.7 120,000 38.0 49.0
Electrical
Appliances
Freezer/Deep freeze 59.6 200,000 62.0 51.0
Last Holiday
Journey
Within the last 12 months 55.1 190,000 62.0 n.a.
1-2 years ago 51.0 40 ,000 14.0 n.a.
More than two years ago 48.6 50 ,000 16.0 n.a.
Never 55.4 30 ,000 9.0 n.a.
Last Holiday
Destination
Germany 57.4 70 ,000 23.0 n.a.
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Table 4 Reader behavior
What purchasing information is used?
Media purchasing information
for medium and long-term acquisition
(11 product areas; Basis: total population)
Daily newspaper 61%
Posters on the street 9 %
Leaflets 36 %
Television 24%
Radio 13%
Magazines 27 %
Free newspapers 49%
Credibility of advertising in the media
Advertising in… is generally believable and reliable
(Basis: broadest user group in each case)
Regional newspaper 49%
Television 30%
Public radio 20%
Privately-owned radio 14 %
Magazines 15%
Free newspaper 23%
Advertising in… is most informative
(Basis: broadest reading group)
Regional newspapers (subscription) 62 %
Television 47%
Public Radio 29%
Privately-owned radio 26%
Magazines 27 %
Free newspapers 36 %
Time spent reading daily newspaper
(Basis: broadest user group)
less than 15 minutes 7 %
15-24 minutes 21 %
25-34 minutes 28 %
35-65 minutes 34 %
more than 65 minutes 10 %
I often consult/depend on advertising in…
(Basis: broadest user group in each case)
Regional newspapers (subscription) 27 %
Television 11%
Public Radio 89%
Privately-owned radio 6%
Magazines 7 %
Free newspapers 18 %
Questions:
1. Explain how you will methodically go about compiling the requested information covered in the
seven questions for management. Include in your explanation an estimate of the expense involved in obtaining
the information.
2. Develop a 10-question questionnaire for the purpose of making a survey.
Austria, Switzerland, South Tyrol 48.7 60 ,000 20.0 n.a.
Elsewhere in Europe 53.4 130,000 42.0 n.a.
Country outside Europe 51.4 20 ,000 5.0 n.a.
Did not travel 56.4 30 ,000 9.0 n.a.
1) Entire circulation area 310 ,000 readers per edition
Example:
53.5% of people older than 14 years in the circulation of the Sudkurier daily
55.5% of all men older than 14 years and 51.6% of women older than 14 read the Sudkurier daily; that is 150
,000 men and 160 ,000 women.
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SUBJECT: Marketing Management Marks:100
8
The Indian Institute of Business Management & Studies
SUBJECT: Marketing Management Marks:100
9
CASE: III Unilever in Brazil: marketing strategies for low-income customers
After three successful years in the Personal Care division of Unilever in Pakistan, Laercio Cardoso was contemplating
attractive leadership positioning China when he received a phone call from Robert Davidson, head of Unilever’s Home Care
division in Brazil, his home country. Robert was looking for someone to explore growth opportunities in the marketing of
detergents to low-income consumers living in the north-east of Brazil and felt that Laercio had the seniority and skills
necessary for the project. Though he had not been involved in the traditional Unilever approach to marketing detergents,
his experience in Pakistan had made him acutely aware of the threat posed by local detergent brands targeted at lowincome
consumers.
At the start of the project—dubbed ‘Everyman’—Laercio assembled an interdisciplinary team and began by
conducting extensive field studies to understand the lifestyle, aspirations and shopping habits of low-income consumers.
Increasing detergent use by these consumers was crucial for Unilever given that the company already had 81 per cent of
the detergent powder market. But some in the company felt that it should not fight in the lower cost structures struggled to
break even. How could Laercio justify diverting money from a best-selling brand like Omo to invest in a lower-margin
segment?
Consumer behavior
The 48 million people living in the north-east (NE) of Brazil lag behind their south-eastern (SE) counterparts on just
about every development indicator. In the NE, 53 per cent of the population live on less than two minimum wages versus
21 per cent inn the SE. In the NE, only 28 per cent of households own a washing machine versus 67 per cent in the SE.
Women in the NE scrub clothes in a washbasin or sink using bars of laundry soap, a process that requires intense and
sustained effort. They then add bleach to remove tough stains and only a little detergent powder in the end, primarily to
make the clothes smell good. In the SE, the process is similar to European or North American standards. Women mix
powder detergent and softener in a washing machine and use laundry soap and bleach only to remove the toughest stains.
The penetration and usage of detergent powder and laundry soap is the same in the NE and the SE (97 per cent).
However, north-easterners use a little less detergent (11.4 kg per years versus 12.9 kg) and a lot more soap (20 kg versus 7
kg) than south-easterners. Many women in the NE view washing clothes as one of the pleasurable routine activities of their
week. This is because they often do their washing in a public laundry, river or pond where they meet and chat with their
friends. In the SE, in contrast, most women wash clothes alone at home. They perceive washing laundry as a chore and are
primarily interested in ways to improve the convenience of the process.
People in the NE and SE differ in the symbolic value they attach to cleanliness. Many poor north-easterners are
proud of the fact that they keep themselves and their families clean despite their low income. Because it is so labour
intensive, many women see the cleanliness of clothes as an indication of the dedication of the mother to her family, and
personal and home cleanliness is a main subject of gossip. In the SE, where most women own a washing machine, it has
much lower relevance for self-esteem and social status. Along with price, the primarily low-income consumers of the NE
evaluate detergents on six key attributes (Figure 1 provides importance ratings, the range of consumer expectations, and
the perceived positioning of key detergent brands on each attribute).
Competition
In 1996 Unilever was a clear leader in the detergent powder category in Brazil, with an 81 per cent market share,
achieved with three brands: Omo (one of Brazil’s favourate brands across all categories) Minerva (the only brand to be sold
as both detergent powder and laundry soap with a more hedonistic ‘care’ positioning) and Campeiro (Unilever’s cheapest
brand). Proctor & Gamble, which had recently entered the Brazilian market, had 15 per cent of the market with three
brands (Ace, Bold and the low-price brand Pop). Other competitors were smaller companies (see Figure 2).
The Brazilian fabric wash market consists of two categories: detergent powder and laundry soap. In 1996 detergent
was a US$106 million (42,000 tons) market in the NE. In 1996 the NE market for laundry soap bars was as large as the
detergent powder market (US$102 million for 81,250 tons). The NE market for laundry soap is much easier to produce
than powdered laundry detergent. Laundry soap is a multi-use product that has many home and personal care uses. Table
5 provides key information on all powder and laundry soap brands (packaging, positioning, key historical facts, and
financial and market data).
The Indian Institute of Business Management & Studies
SUBJECT: Marketing Management Marks:100
10
Table 5
Brand Packaging Positioning Key Data
OMO Cardboard pack:
1 kg & 500g.
Removes stains with low
quantity of product when used
in washing machines, thus
reducing the need for soap or
bleach.
S: 55.20
WP: 3.00
FC: 1.65
PKC: 0.35
PC: 0.35
Minerva Cardboard pack:
1 kg & 500g.
S: 17.60
WP: 2.40
FC: 1.40
PKC: 0.35
PC: 0.30
Campeiro Cardboard pack:
1 kg & 500g.
S: 6.05
WP: 1.70
FC: 0.90
PKC: 0.35
PC: 0.20
Ace Cardboard pack:
1 kg & 500g
Bold Cardboard pack:
1 kg & 500g.
Pop Cardboard pack:
1 kg & 500g.
Invicto Cardboard pack:
1 kg & 500g.
Minerva Plastic pack with 5 bars of 200g.
Bem-te-vi Plastic pack with 5 bars of 200g
or single bar of 200g.
Figure 1 & 2 Market Share and wholesale Price of Major Brands in the Laundry Soap and Detergent Powder
Categories in the Northeast in 1996
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SUBJECT: Marketing Management Marks:100
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Decisions
Robert Davidson, head of Unilever’s Home Care Division in Brazil, and Laercio Cardoso, head of the ‘Everyman’
research project aided at understanding the low-income consumer segment, must re-examine Unilever’s strategy for lowincome
consumers in the NE region of Brazil and make three important decisions.
1. Go/no go. Should Unilever divert money from its premium brands to invest in a lower-margin segment of
the market? Does Unilever have the right skills and structure to be profitable in a market in which even small local
entrepreneurs struggle to break even? In the long run, what would Unilever gain and what would it risk losing?
OMO ($3/KG)
52%
Minerva
($2.4/kg)
17%
Campeiro
($1.7/kg)
6%
Ace ($2.4/kg)
11%
Other P&G
($2.3/kg)
6%
Invicto
($1.7/kg)
5% Others
3%
Minerva
($1.7/kg)
19.1%
Others
($1.2/kg)
63.6%
Bem-te-vi
($1.2/kg)
11.3%
Flora ($1.2/kg)
6.0%
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SUBJECT: Marketing Management Marks:100
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2. Marketing and branding strategy. Unilever already has three detergent brands with distinct positionings.
Does it need to develop a new brand with a new value proposition or can it reposition its existing brands or use a
brand extension?
3. Marketing mix. What price, product, promotion and distribution strategy would allow Unilever to deliver
value to low-income consumers without cannibalizing its own premium brands too heavily? Is it just a matter of
price?
Product
Unilever could produce a product comparable to Campeiro, its cheapest product, but would it deliver the benefits
that low-income consumers wanted? Alternatively, Unilever could use Minerva’s formula but it might be too expensive for
low-income consumers. If they could eliminate some ingredients, Unilever’s scientists could develop a third formula that
would cost about 10 per cent more than Campeiro’s formula. The difficulty would be in determining which attributes to
eliminate, which to retain and which, if any would actually need to be improved relative to both existing brands.
Larger packages would reduce the cost per kilo but could price the product out of the weekly budget range of the
poorest consumers. Unilever could use a plastic sachet, which would cost 30 per cent of the price of traditional cardboard
boxes, but market research data had shown that low-income consumers were attached to boxes and regarded anything else
as good for only second-rate products. One solution might be to launch multiple types and sizes.
Price
Priced significantly above Campeiro and Minerva soap, the product would be out of reach for the target segment.
Priced too low, it would increase the cost of the inevitable cannibalization of existing Unilever brands. Should Unilever use
coupons or other means to reduce the cost of the product for low-income consumers? Or should it change the price of Omo,
Minerva and Campeiro?
Promotion
In the low-income segment, lower margins meant that volume had to be reached very quickly for the product to
break even. It was therefore crucial to find a radical ‘story’, one that would immediately put the new brand on the map.
What would be the objective of the communication? What should be the key message? Low-income consumers might be
reluctant to buy a product advertised ‘for the low-income people’ especially as products with that kind of message are
typically of inferior quality. On the other hand, using the classic aspirational communication of most Brazilian brands could
confuse consumers and lead to unwanted cannibalization.
In regular detergent markets Unilever had established that the most effective allocation of communication
expenditure was 70 cent above-the-line (media advertising) and 30 per cent below-the-line (trade promotions, events,
point- of-purchase marketing). The advantages of using primarily media advertising are its low cost per contact and high
reach because almost all Brazilians, irrespective of income, are avid television watchers. One alternative would be to use 70
per cent below-the-line communication. At US$0.05 per kg, this plan would require only one-third of the cost of a
traditional Unilever communication plan. On the other hand, it would lower the reach of communication, increase the cost
of per contact, and make a simultaneous launch in all north-eastern cities more difficult to organize.
Distribution
Unilever did not have the ability to distribute to the approximately 75,000 small outlets spread over the NE, yet
access to these stores was key because low-income consumers rarely shopped in large supermarkets like Wal-Mart or
Carrefour. Unilever could rely on its existing network of generalist wholesalers who supplied its detergents and a wide
variety of products to small stores. These wholesalers had national coverage and economies of scale but did not directly
serve the small stores where low-income consumers shopped, necessitating another layer of smaller wholesalers, which
increased their cost to US$0.10 per kg. Alternatively, Unilever could contract with dozens of specialize distributors who
would get exclusive rights to sell the new Unilever detergent. These specialized distributors would have a better ability to
implement point of purchase marketing and would cost less ($0.05 per kg).
Question:
1. Describe the consumer behaviour differences among laundry products’ customers in Brazil. What market
segment exists?
2. Should Unilever bring out a new brand or use one of its existing brands to target the north-eastern
Brazilian market?
3. How should the brand be positioned in the marketplace and within the Unilever family of brands?
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SUBJECT: Marketing Management Marks:100
13
Case 4 Ryanair: the low fares airlines
The year 2004 did not begin well for Ryanair. On 28 January, the airline issued its first profits warning and ended a
run of 26 quarters of rising profits. On that day, when the markets opened, the company was worth €5 billion. By close of
business, its value had shrunk to worth €3.6 billion, as its share price plunged from worth €6.75 to €4.86. Investors were
dismayed by the airline’s admission that it was facing ‘an enormous and sudden reduction of 25 to 30 per cent in yields’
(i.e. average fare levels) in the first quarter of 2004 (the last fiscal quarter of 2004). This was on top of an earlier fall of 10
to 15 per cent in the first nine months.
In April 2004, Chief Executive Michael O’Leary forecast a ‘bloodbath’, an ‘awful’ 2004/2005 winter for European
airlines, amid continuing fare wars, with a shakeout among the many budget airlines. ‘We will be helping to make it awful,’
warned Mr O’Leary, as he announced an 800,000 free seats giveaway. The most difficult markets were predicted to be
Germany and the UK regions where many new carriers, which were ‘losing money on an heroic scale’, had entered the
arena. O’Leary anticipated that the company’s 2004 profits would decline by 10 per cent, while 2005 profits would increase
by up to 20 per cent with a 5 per cent drop in yields. However, if yields were to fall by as much as 20 per cent, the 2005
outcome would be break-even, at best.
Yet, by 31 May 2005, on Ryanair’s 20th birthday, the carrier was able to announce record results for the year ended
31 March 2005. Both passenger volumes and net profits grew year on year by 19 per cent to 27.6 million from 23.1 million
and €268.9 from €226.6 million respectively. The all- important passenger yield figure (revenue per passenger) grew by 2
per cent, partially offsetting the 14 per cent yield decline in 2003/2004. Ancillary revenues were 40 per cent higher, rising
faster than passenger volumes, which resulted in total revenues rising by 24 per cent to €1.337 billion. Operating costs
rose 25 per cent, fractionally more than revenue growth, due principally to higher fuel costs. The 2005 results
announcement was followed by a 3.4 per cent jump in the company’s share price, to close to €6.46 on the day.
Ryanair’s adjusted after-tax margin for the full year at 20 per cent compared very to figures for Aer Lingus, British
Airways, easyJet, Lufthansa, Southwest and Virgin, with margins of 8, 1, 3, minus 5, 7, .1 per cent respectively (2003/2004
results). Despite the dire warnings and the temporary dip in fiscal 2004, Ryanair had arguably come through its crisis with
flying colours. How did it manage this?
Overview of Ryanair
Ryanair, Europe’s first budget airline, with 229 routes across 20 countries at of May 2005, is one of the world’s most
profitable, fastest-growing carriers. Founded in 1985 by the Ryan family as an alternative to the then state monopoly
carrier Aer Lingus, Ryanair started out as a full-service airline. After accumulating severe financial losses, finally, in
1990/91, the company came up with a survival plan, spearhead by Michael O’Leary and the Ryans, to transform itself into a
low-fares no-frills carrier, based on the model pioneered by Southwest Airlines, the Texas-based operator. Ryanair, first
floated on the Dublin Stock Exchange in 1997, is quoted on the Dublin and London Stock exchanges and on NASDAQ, where
it was admitted to the NASDAQ-100 in 2002. In June 2005, Ryanair’s market capitalization stood €5 billion, the second
highest carrier in the world, next to Southwest Airlines, and ahead of airlines with vastly greater turnover—such as
Lufthansa with capitalization at €4.7 billion, British Airways at €4.3 billion and Air France/KLM at €3.5 billion. Its market
capitalization was nearly four times that of easyJet, its UK-based budget airline rival. This was despite easyJet’s higher
turnover, similar passenger volumes and a slightly larger fleet.
Ryanair’s fares strategy
Ryanair’s core strategy entails offering the lowest fares, and the airline claims that it generally makes its lowest fares
widely available by allocating a majority of seat inventory to its two lowest fare categories. In fact, was Ryanair, originally
styled as the ‘low-fares airline’, actually becoming a ‘no-fares airline’? Half of Ryanair’s passenger will be flying for free by
2009, pledged Michael O’Leary in an interview with a German newspaper. He said that ticket prices would fall by an
average 5 per cent a year over the next five years, as passenger numbers grew by five million annually. One analyst
speculated that Ryanair pronouncement on free seats ‘is designed to put the wind up potential competitors in the hotly
contested German market. Of course, a balance must be struck between low fares to attract customers and a sufficient yield
to ensure viability.
An integral part of the low fares strategy is revenue enhancement through ancillary activities, increasingly used to
subsidize airfares in order to improve Ryanair margins to compensate for falls in fare yields. These include on-board sales,
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SUBJECT: Marketing Management Marks:100
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charter flights, travel reservations and insurance, car rentals, in-flight television advertising, and advertising outside its aircraft,
whereby a corporate sponsor pays to paint an aircraft, whereby a corporate sponsor pays to paint an aircraft with its
logo. Advertising on Ryanair’s popular website also provides ancillary income. Despite the abolition of duty-free sales on
intra-EU travel in 1999, Ryanair’s revenue from duty-paid sales and ancillary services has continued to rise. In 2005,
ancillary revenues comprised 18.3 per cent of total operating revenue, up from 16.1 per cent the year before, and the
ambition is to grow at twice the rate of increase in its passenger traffic. The company has outlined plans to continue raising
ancillary revenues through further penetration of existing products and the introduction of new ones, especially on-board
entertainment and gaming products/services. Ryanair is also considering entering the highly competitive mobile phone
market and has been in talks with various UK operators with a view to forming a joint venture.
Its low fares policy notwithstanding, Ryanair was able to realize a 2 per cent growth in yields in fiscal 2005. This is
attributable to a number of favourable factors in the competitive landscape. Underlying passenger growth volumes
returned in the industry as a whole, reducing the intensity of competition. Mainstream European operators like British
Airways, Lufthansa and Air France/KLM were increasingly abandoning the short-haul sector, preferring to concentrate
their growth on more lucrative long-run haul routes. Moreover, these airlines reacted to the massive price rise in the cost
of aviation fuel by introducing a fuel surcharge on their fares. For example, the surcharge levied by British Airways equated
to 22 per cent of an average Ryanair fare.
Another favourable factor was the failure of the threat of new entrants to materialize. Michael O’Leary’s prophecy of
a 2004/2005 winter bloodbath in the European airline industry had been based on the forecast of many new entrants into
the budget airlines sector, thus intensifying overcapacity. While new rivals continued to enter the fray, at any one time
large numbers were also dying off. Autumn 2004 saw the demise of a number of budget airlines—for example, Volare, an
Italian low-fare and charter operator, and V-Bird, a Dutch-owned carrier. Yet, new entrants were still launching. However,
it was agreed that the industry could not sustain the some 47low-fares airlines operating as of the end of November 2004,
Michael O’Leary predicted that the anticipated shake-out would be accelerated by rising oil prices. ‘Many of our competitor
airlines who were losing money heroically when fuel was US$25 a barrel are doomed the longer it stays at US$50. We
anticipate there will be further airline casualties as the perfect storm of declining fares and record high oil prices force lossmaking
carriers out of the industry.
Low fares require cost savings
To quote Michael O’Leary, ‘Any fool can sell low air fares and lose money. The difficult bit is to sell the lowest air
fares and make profits. If you don’t make profits, you can’t lower your air fares or reward your people invest in new aircraft
or take on the really big airlines like BA and Lufthansa.’
According to the company, its no-frills service allows it to prioritize features important to its clientele, such as
frequent departures, advance reservations, baggage handling and consistent on-time services. Simultaneously, it eliminates
non-essential extras that interfere with the reliable, low-cost delivery of its basic flights. The eliminated extras include
advance seat assignments, in-flight meals, multi-class seating, access to a frequent-flyer programme, complimentary drinks
and amenities. In 1997, Ryanair dropped its cargo services, at an estimated annual cost of IR£400,000 in revenue. Without
the need to load and upload cargo, the turnaround time of an aircraft was reduced from 30 to 25 minutes, according to the
company. It claims that business travellers, attracted by frequency and punctuality, comprise 40 per cent of its passengers,
despite often less conveniently located airports and the absence of pampering.
In conjunction with the elimination of non-essential extras, the organization of its operations enables the airline to
minimize costs, based on five main sources.
1. Fleet commonality (Boeing 737s, like Southwest Airlines): this results in lower maintenance and staff
training costs. In 2005, the company negotiated a new Boeing deal that takes down its per-seat costs for all post-
January 2005 deliveries to rock-bottom levels. This deal not only establishes a platform for growth; a younger fleet
also enables further cost reductions through lower fuel utilization and maintenance costs.
2. Contracting out of aircraft cleaning, ticketing, baggage handling and other services, other than at Dublin
Airport; this is more economical and flexible, while it entails less aggravation in terms of employee relations.
3. Airport charges and point-to-point route policy: Ryanair uses secondary airports that are less congested,
motivated to offer better deals and have fewer delays, resulting in increased punctuality and shorter turnaround
times.
4. Staff costs and productivity: productivity-based pay schemes and non-unionized staff.
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5. Marketing costs; Ryanair was the first airline to reduce and finally eliminate travel agents’ fees. In January
2000, Ryanair launched its www.ryanair.com website. This has had the effect of saving money on staff costs,
agents’ commissions and computer reservation charges, while significantly contributing to growth. In 2005,
Internet sales accounted for 97 per cent of all bookings. Ryanair supplements its advertising with the use of free
publicity to highlight its position as the low fares champion, by attacking various constituencies that threaten its
cost structure. These include EU regulators, airport authorities, politicians and trade unions. Its per passenger
marketing costs of 60c are considered to be the lowest across the European airline sector.
The year 2005 saw enormous volatility in the price of oil, and the global airline industry faced losses of US$6 billion.
Ryanair, which had been unhedged with respect to oil prices since September 2004, announced on 1 June that it was
hedging 75 per cent of its fuel needs for the October 2005 to March 2006 period, at a price of US$47 a barrel. At times, in
previous weeks, the price had stood at US$53-plus per barrel. At the end of June, the price had hit US$60 and analysts were
predicting it would rise to US$70-plus in the coming months.
Low costs contribute to a low break-even load factor of 62 per cent, so the airline can make money even if it fills
fewer seats than other budget competitors with higher costs and higher break-even load factors. For example, easyJet’s
break-even load factor is 73 per cent, while that of Virgin Express is 83 per cent. Table 6 shows Ryanair’s operating cost
structure.
Table 6 Ryanair consolidated profit and loss accounts
Operating revenues
Scheduled revenues
Ancillary revenues
Year ended
31 March
2005
€000
Year ended 31
March 2004
€000
1,128,116 924,566
208,470 149,658
Total operating revenues—continuing
operations
1,336,586 1,074,224
Operating expenses
Staff costs 140,997 123,624
Depreciation and amortization 98,703 98,130
Other operating expenses
Fuel and oil 265,276 174,991
Maintenance, materials and repairs 37,934 43,420
Marketing and distribution costs 19,622 16,141
Aircraft rentals 33,471 11,541
Route charges 135,672 110,271
Airport and handling charges 178,384 147,221
other 97,038 78,034
Total operating expenses 1,007,097 803,373
Operating profit before exceptional
costs and goodwill
329,489 270,851
Profit for the year 266,741 206,611
Customer service
The airline’s claims of attention to customer service are encompassed in its Passenger Charter, which embraces a
number of doctrines:
 Sell the lowest fares at all times on all routes and match competitors’ special offers.
 Allow flight and name changes with requisite fee
 Strive to deliver on-time performance
 Provide information to passengers regarding commercial and operational conditions
 Provide complaint response within seven days
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 Provide prompt refunds
 Eliminate overbooking and involuntary denial of boarding
 Publish monthly service statistics
 eliminate lost or delayed luggage
 Ryanair will not provide refreshments or meals or accommodation to passengers facing delays; any
passenger who wish to avail themselves of such services will be asked to pay for them directly to the service provider
 Ryanair facilitates wheelchair passengers travelling in their own wheelchair; where passengers require a
wheelchair, Ryanair directs those passengers to a third-party wheelchair supplier at the passenger’s own expense;
Ryanair is lobbying the handful of airports that do not provide a free wheelchair service to do so.
The company has confirmed that it would introduce a number of cost-cutting new features on its flights. For
instance, the Ryanair fleet would heretofore be devoid of reclining seats, window blinds, headrests, seat pockets and other
‘non-essentials’. Leather seats instead of cloth ones would allow faster turnaround times since leather is quicker and easier
to clean. More controversially, Michael O’Leary hoped eventually to wean passengers off checked-in luggage, eliminating
the need for baggage handling, suitcase holding areas and lost property. In 2004, Ryanair had one of the lowest baggage
allowances of any major airline, at 15 kg a person, and charged up to €7 for every additional kilo, one of the highest
surcharges in European aviation.
Successive Annual Reports cite-on-time performance (defined as up to 15 minutes after scheduled time in UK Civil
Aviation Authority statistics) and baggage handling as of key importance to customers. On punctuality, Ryanair claims to be
the most punctual airline between Dublin and London. On baggage handling, Ryanair claims less than one bag lost per 1000
carried, better than even the best US airline, Alaska Airlines, with 3.48 bags per 1000 lost, and considerably better than its
role model Southwest Airlines with 5.00 per 1000 lost.
Tables 7and 8, and Figure 3 provide some independent comparisons of Ryanair with other airlines on punctuality
and customer perceptions.
Reporting airport/airline
Origin/ destination
% early to No. of
15minutes
Average delay flights
flights late (minutes) unmatched
Birmingham—Ryanair Dublin 180 88 6 0
Birmingham—Aer Lingus Dublin 299 89 7 2
Birmingham—MyTravel Dublin 4 50 20 0
Heathrow—Aer Lingus Dublin 785 71 16 2
Heathrow—bmi British Midland Dublin 432 71 14 0
Stansted—Ryanair Dublin 727 79 11 1
Gatwick—British Airways Dublin 180 82 9 0
Gatwick—Ryanair Dublin 298 87 8 2
Heathrow— bmi British Midland Brussels 354 73 13 1
Heathrow— British Airways Brussels 452 84 9 2
Heathrow— bmi British Midland Palermo 8 25 37 0
Heathrow—Alitalia Milan(Linate) 174 63 15 0
Heathrow— British Airways Milan(Linate) 178 80 10 0
Heathrow— bmi British Midland Milan(Linate) 172 68 13 0
Heathrow—Alitalia Milan (Malpensa) 298 48 24 0
Heathrow— British Airways Milan (Malpensa) 180 80 10 0
Stansted— Ryanair Bergamo 172 76 10 0
Stansted— easyJet Bologna 60 70 14 0
Stansted— easyJet Milan(Linate) 60 42 39 0
Stansted— easyJet Rome (Ciampio) 120 76 12 0
Stansted— Ryanair Rome (Ciampio) 356 79 9 0
Stansted— easyJet Edinburgh 327 60 20 0
Stansted— easyJet Nice 120 70 24 0
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Stansted— Virgin Express Nice 1 0 184 0
Stansted— Ryanair Montpellier 59 76 14 2
Stansted— Ryanair Prestwick 562 87 6 4
Stansted— easyJet Glasgow 276 87 8 0
Glasgow—Aer Lingus Dublin 176 80 9 4
Glasgow—bmi British Midland Dublin 2 100 0 0
On punctuality, it must be borne in mind that one is not necessarily comparing like with like when contrasting
figures for congested Heathrow with Stansted or Luton, even if all serve London. Also not counted in the statistics were
cancelled flights. Ryanair has been known to ‘consolidate’ passengers by transferring them from their original flight to later
or alternative routing without any notice, if passengers were unfortunate enough to have originally been booked on a low
seat occupancy flight. Ryanair has announced that it would ignore European Commission proposals stipulating that
passengers whose flight has been cancelled and who have to wait for an alternative flight should be provided with care
while waiting, stating ‘we do not, and never will offer refreshments’.
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Clouds on the horizon?
Despite its winning performance in its 2005 results, a number of issues faced Ryanair
 While the competitive threat of new budget carriers had not emerged, some of the mainstream carriers
were becoming quasi-budget airlines on short-haul routes. An important instance of this was Aer Lingus, the national
state-owned airline of Ireland, operating domestic and international services, with a fleet of 30 aircraft. The events of
11 September 2001 were particularly traumatic for Aer Lingus, as the airline teetered on the verge of bankruptcy. In
late 2001, the choice was to change, or to be taken over or liquidated. Led by a determined and focused chief executive
and senior management team, the company set about cutting costs. By the end of 2002, Aer Lingus had turned a 2001
€125 million loss into a €33 million profit, and it improved still further in 2003 with a net profit of €69.2 million. In
essence. Aer Lingus claimed that it had transformed itself into a low-fares airline, and that it matched Ryanair fares on
most routes, or that it was only very slightly higher. The airline’s chief operating officer said that “Aer Lingus no longer
offers a gold-plated service to customers, but offers a more practical and appropriate service…it clearly differentiates
itself from no-frills carriers. We fly to main airports and not 50 miles away. We assign seats for passengers, we beat
low fares competitors on punctuality, even though we fly to more congested airports, and we always fulfil our
commitment to customers—unlike no frills carrier. While Aer Lingus had been an early adopter, other mainstream
airlines like British Airways and Air France/KLM were also converting short-haul intra-European routes to the value
model offered by Aer Lingus.
 Further source of pressure came from the EU. A decision from the EU Commission in February 2004 ruled
that had been receiving illegal state subsidies for its base airport at publicly owned Charleroi Airport (styled ‘Brussels
South’ by Ryanair). Of course, it was not only the Charleroi decision but also the precedent it could set that was of
concern. Other deals with public airports would come under scrutiny, although the vast majority of the airline’s slots
were at private airports. Also, it was estimated that Ryanair would have to repay €2.5 million and €7 million to
Charleroi’s regional government. Ryanair appealed the decision, but also threatened to initiate state aid cases and
complaints against every other airline flying into any state airports offering concessions and discounts. Airport fees
comprised 19 per cent of Ryanair’s operating costs and were deemed to be an inherent part of the airline’s low-cost
model. Thus, Ryanair warned that there was no mid-cost alternative model. Nevertheless, two months after the
Charleroi verdict, Ryanair confirmed that it had agreed a new deal there. It would keep flying all its 11 routes from
Charleroi, continuing existing airports and handling charges until the airport, which accommodated 1.8 million
passengers a year at the time, reached two million passengers a year. The EU Commission was not readily convinced
and initiated an investigation of the new settlement.
 On another regulatory matter, the EU had devised fresh rules to cover overbooking that results in
boarding denials to passengers by air-lines. Air travellers bumped off overbooked flights by EU airlines would receive
automatic compensation of between €250 and €600. Compensation might also be claimed when flights are cancelled
for reasons that are the carrier’s responsibility, provided the passengers have not been given two weeks’ notice or
offered alternative flights. Ryanair declared that the new rules would not impact its operations, as it did not overlook
its flights, and had the fewest number of cancellations and the best punctuality record in Europe. It suggested that, it
the EU is serious, it should just outlaw the practice of over-booking entirely.
 A few days prior to the EU decision on Charleroi, on 30 January 2004, at the Central London County Court,
a disabled man won a landmark case against Ryanair after it charged him £18 (€25) for a wheelchair he needed at
Stansted to get from the check-in desk to the aircraft. The passenger was awarded £1336 (€2400) in compensation
from Ryanair, as the UK-based Disability Commission said it may launch a class action against the airline on behalf of
35 other passengers. Ryanair’s immediate reaction was to levy 70c a flight on all customers using the affected airports.
In December 2004, the decision against Ryanair was upheld on appeal, although it was somewhat mitigated when the
Court of Appeal decided that Stansted Airport was also answerable and had to pay half of Ryanair’s liability for
damages, with interest. In response, Ryanair’s lawyer suggested that the 50:50 split in liability was unclear and
unexplained, and ‘could well have been delivered by King Solomon’.
 Also in 2004, a disgruntled Ryanair passenger set up a website inviting complaints about the airline.
Ryanair moved to have the website shut down in early 2005, on the grounds that it contained material that is ‘untrue,
unfounded, malicious and deeply damaging to the good name and trading reputation of Ryanair’, and that the name
and appearance of the site, which resembled that of Ryanair’s home website could be construed as ‘abusive
The Indian Institute of Business Management & Studies
SUBJECT: Marketing Management Marks:100
19
registration’. However, the site has reappeared under an ISP provider in Canada, and its number of hits has increased
since the incident was reported in the British satirical magazine Private Eye.
 On another front, Ryanair was in dispute against the British Airports Authority (BAA), as it filed a writ at
the High Court in London for alleged ‘monopoly abuse’ at Stansted. Michael O’Leary warned that the action was only
the first skirmish in what would become ‘the mother and father of a war’. The Chief Executive of the BAA announced
that he did not intend to negotiate further reductions to Ryanair’s deeply discounted deal on landing charges at
Stansted, due to finish in March 2007. The average charge per passenger would rise form £3 to £5 at the airport, whose
capacity utilization was now so high that it was running out of slots at peak times. Meanwhile, Michael O’Leary was
scathing about ‘grandiose plans’ to build a second runway at Stansted at cost of £4 billion, ‘when the cost of a runway
and even a terminal should run no more than £400 million.
 As if these issues were not enough, a number of Dublin-based Ryanair pilots were planning to establish
their own association, the Ryanair European Pilots Association with links to the British Airline Pilots Association
(BALPA), the Irish Airline Pilots Association (IALPA) and the European Cockpit Association. In November 2004, these
pilots, supported by IALPA, took a complaint about victimization against Ryanair to the Irish Labour Court. Ryanair
could potentially face a compensation bill of £44 million if 170 victimization claims brought by its Dublin-based pilots
were to be upheld. The company had out-lined various consequences to pilots if they joined a trades union: possible
redundancy when the existing 737-200 fleet was phased out, no share options or pay increases, non promotions and
no payment for future recurrent training. The airline declared its determination to keep out trades unions and to take a
case to the High Court to prove that legislation attempting to force companies to negotiate with unions was
unconstitutional. A ruling favourable to the pilots in February 2005 by the Irish Labour Relations Commission,
ordering that Ryanair had to attend a hearing dealing with the pilot’ complaints, was dismissed by Michael O’Leary: ‘It
is no surprise that the brothers have found in favour of the brothers. We will fight them on the beaches, in the fields,
and in the valleys,’ he said. Meanwhile, the airline is also fighting a number of legal challenges, including proceedings
against IALPA, accusing it of conducting an organized campaign of harassment and intimidation of Ryanair pilots
through a website, warning them off flying the airline’s new aircraft. Indeed, the carrier claims that specific threats
issued on the website are being investigated by the Irish police. In April 2005, Ryanair abandoned an experiment in
paid-for in flight entertainment, after passengers were reluctant to rent the consoles at the £5 required to receive the
service. Apparently, market research discovered passengers are unwilling to invest on such short flights, with the ideal
being six-hour flights to longer-haul holiday destinations. When the experiment was launched in November 2004,
Michael O’Leary hailed the move as ‘the next revolution of the low-fares industry…we expect to make enormous sums
of money’.
Questions:
1. How does Ryanair’s pricing strategy account for its successful performance to date? Would you
suggest any changes to Ryanair’ pricing approach? Why/why not?
2. Is the ‘no-fares’ strategy a useful approach for Ryanair in the short term? In the long term?
3. Do the issues facing Ryanair threaten its low-fares model?
The Indian Institute of Business Management & Studies
SUBJECT: Marketing Management Marks:100
20
Case V LEGO: the toy industry changes
How times have changed for LEGO. The iconic Danish toy maker, best known for its LEGO brick, was once the musthave
toy for every child. However, LEGO has been facing a number of difficulties since the late 1990: falling sales, falling
market share, job losses and management reshuffles. Once vote ‘Toy of the Century’ and with a history of uninterrupted
sales growth, it appears LEGO has fallen victim to changing market trends. Today’s young clued-up consume is far more
likely to be seen surfing the web, texting on their mobile phone, listening to their MP3 player or playing on their Game Boy
than enjoying a LEGO set. With intensifying competition in the toy market, the challenge for LEGO is to create aspirational,
sophisticated, innovative toys that are relevant to today’s tweens.
History
In 1932 Ole Kirk Christiansen, a Danish carpenter, established a business making wooden toys. He named the
company ‘LEGO’ in 1934, which comes from Danish words ‘leg godt’, meaning ‘play well’. Later, coincidentally, it was
discovered that in Latin it means, ‘I put together’. The LEGO name was chosen to represent company philosophy, where
play is seen as integral to a child’s successful growth and development. In 1947 the company began to make plastic
products and in 1949 it launched its world-famous automatic building brick. Ole Kirk Christiansen was succeeded by his
son Godtfred in 1950, and under this new leadership the LEGO group introduced the revolutionary ‘LEGO System of Play’,
which focused on the importance of learning through play. The company began exporting in 1953 and soon developed a
strong international reputation.
The LEGO brick, with its new interlocking system, was launched in 1958. During the 1960s LEGO began to use
wheels, small motors and gears to give its products the power of motion. LEGOLAND was established in Billund in 1968, as
a symbol of LEGO creativity and imagination. Later, in the 1990s, two new parks were opened in Britain and California.
LEGO figures were introduced in 1974, giving the LEGO brand a personality. The 1980s saw the beginning of digital
development, with LEGO forming a partnership with Media Laboratory at the Massachusetts Institute of Technology in the
USA. This resulted in the launch of LEGO TECHNIC Computer and paved the way for LEGO robots. LEGO introduced a
constant flow of new products in the 1990s, and placed greater focus on intelligence and behaviour. The new millennium
saw LEGO crowned the ‘Toy of the Century’ by Fortune magazine and the British Association of Toy Retailers. LEGO is
currently the fourth largest toy manufacturer in the world after Mattel, Hasbro and Bandai, with a presence in over 130
countries.
Challenges for the traditional toy market
A number of environmental shifts have been affecting the toy market over the past decade. Some of these are
described below.
 Kids getting older younger. By the time most kids reach the age of eight they have outgrown the offerings
of the traditional toy market. A central factor in children abandoning toys earlier in their lack of free time to play.
Children today have a lot more scheduled activities and, with greater emphasis on academic achievement, a lot
more time is spent studying. Faced with more media and entertainment choices these sophisticated and
technologically savvy consumers are favouring electronic, fashion, make-up and lifestyle products. The most
susceptible group to this age compression are ‘tweens’—children between the ages of 8 and 12—a US$5 billion
market, accounting for 20 per cent of the US$20.7 billion traditional toy industry.
 Intensifying competition from the electronic and games market. As noted above, today’s young consumer is
far more likely to be seen surfing the web, texting on their mobile phone, listening to their MP3 player or playing
on their Game Boy than enjoying a LEGO set. A survey by NPD Funworld, in 2003, found that tween boys who
played video game spent approximately 40 per cent less time playing with action figures when compared with the
previous year. Handheld toys with a video and gaming element suit the mobile lifestyle of today’s tween. As
demand for these more sophisticated toys increases, traditional toy makers are facing more direct competition
with the electronic and video games market.
 Fickleness of young consumers. The toy market today is very fashion-driven, leading to shorter product life
cycles. Toy manufacturers are facing increasing pressure to develop a competency in forecasting market changes
and improving their speed of response to those changes. In an effort to get a share of the huge revenues generated
by the latest hot toy, many toy manufacturers have left themselves more vulnerable to greater earnings volatility.
The Indian Institute of Business Management & Studies
SUBJECT: Marketing Management Marks:100
21
 Power of the retail sector. Consolidation in the retail sector and the expansion of many retail chains has
placed enormous pressure on the profit margins of traditional toy makers. Major retailers can exert tremendous
power over their suppliers because of the vast quantities they buy. Many retailers insert a clause in their supplier
contracts that gives them a certain percentage of profit regardless of the retail price.
Traditional toy makers are struggling to keep up with these environmental changes. It appears no one is safe, when
even the world-renowned LEGO brand can fall victim to changing market trends. The cracks first began to show in 1998,
when LEGO made a loss for the first time in its history. This began a major reversal in the fortunes of a company that had
become accustomed to decades of uninterrupted sales growth (see Table 9). Ironically, it is the success of LEGO that may
ultimately have paved the way for its downfall.
Table 9 : LEGO financial information
LEGO financial information (Mdkk) 2004 2003 2002 2001 2000
Income statement
Revenue 6704 7196 10006 9475 8379
Expenses (6601) ( 8257) (9248) (8554) (9000)
Profit/(loss) before special items, financial
income and expenses and tax
103 (1061) 868 921 (621)
Impairment of fixed assets ( 723) ( 172) – – –
Restructuring expenses ( 502 ( 283) – ( 122) ( 191)
Operating profit/(loss) (1122) (1516) 868 799 ( 812)
Financial income and expenses ( 115) 18 ( 251) ( 278) ( 280)
Profit/(loss) before tax (1237) (1498) 617 521 (1092)
Profit/(loss) on continuing activities (1473) (953 ) 348 420 ( 788)
Profit/(loss) discontinuing activities ( 458) 18 (22) (54) (75)
Net profit/(loss) for the year (1931) (935) 326 366 (863)
Employees:
Average number of employees (full-time),
continuing activities
5569 6542 6659 6474 6570
Average number of employees (full-time),
discontinuing activities
1725 1756 1657 1184 1328
What went wrong for LEGO
According to Kjeld Kirk Kristiansen, owner of the business and grandson of its founder, following many years of
success the LEGO culture had become ‘inward looking’ and ‘complacent’ and had failed to keep pace with the changes
taking place in the toy market. This lack of environmental sensitivity was evident in the US market in 2003, where LEGO
failed to predict demand for its Bionicle figures, resulting in two of its best-selling products from this range being out of
stock in the run-up to Christmas. It appeared nothing had been learned from the previous year, when also in the run-up to
Christmas the much sought-after Hogwarts Castle sets were out of stock across the UK.
LEGO had also become over-dependent on licences in the 1990s, for products such as Star Wars and Harry Potter, as
its main source of growth. This left LEGO vulnerable to the faddishness of these products: the years in which Star Wars and
Harry Potter films were released coincided with profitable years for LEGO, while losses were reported in the intervening
years.
The diversification of the brand into the manufacture of items such as clothing, bags and accessories was another
mistake for LEGO. The company over-complicated its product portfolio and it ran close to over-stretching the LEGO brand.
Kristiansen, resumed leadership in 2004 to guide the company out of crisis, is quoted as saying ‘LEGO was so busy chasing
the fashion of the day it took its eye off its core brand.’
He phasing-out of its long-established pre-school Duplo brand, to be replaced by LEGO Explore, was another error.
Parents were left confused, with many believing the larger-size Duplo brick had been discontinued. This error resulted in a
loss of revenues from the pre-school market in 2003. Adult fans of LEGO (AFOLs) were also left disgruntled when LEGO
changed the colour of its new building bricks so that they no longer matched the colour of the old bricks.
The Indian Institute of Business Management & Studies
SUBJECT: Marketing Management Marks:100
22
While other toy manufacturers have moved production to low-cost destinations such as China, LEGO has been
reluctant to follow suit. Today it still manufactures the bulk of its product in Billund and Switzerland. The reasons posited
for the company’s reluctance to move include a strong sense of loyalty to Billund, where one-quarter of the residents work
at the LEGO factory, and concerns that a move would affect its brand image. While its loyalty to these sites is admirable,
and brand image worries understandable, the question is whether its long-term future is viable without such a move.
A new direction for LEGO
In an attempt to turn around its fortunes LEGO has developed a number of new marketing strategies. These include
the following.
 A back-to-basics strategy is seeing LEGO refocus on its core brick-based product range and place more
emphasis on its key target group—younger children. In 2003, LEGO relaunched its classic range of brick-based
products and many new product lines have centred on eternal themes such as Town, Castle, Pirates and Vikings. LEGO
has reinstated the Duplo brand and introduced the Quarto brand, which consists of larger bricks for children under
two. Other new lines include LEGO Sports, born from strategic alliances with the National Hockey League and US
National Basketball Association. While the traditional audience of LEGO has always been young boys it has introduced
a new range, ‘Clikits’, a social toy developed specifically for a female audience. Clikits consists of pretty pastelcoloured
bricks, which provide numerous options to create jewellery and fashion accessories.
 LEGO has admitted to over-diversifying its brand. In response to this, LEGO has withdrawn many of its
manufacturing lines, instead opting to outsource these to third parties via licensing deals. LEGO is also selling its
LEGOLAND parks in a bid to refocus efforts on its core product and improve its financial situation.
 In an attempt to create a story-based, multi-channel, LEGO has engaged in a number of licensing deals,
with varying degrees of success, but more importantly it is now developing its own intellectual property. The Bionicle
range, launched in 2001, was the first time LEGO has created a story from the start as the basis for a new product
range. The Bionicles combine physical snap-together kits with an online virtual world. This toy brand has also been
extended into entertainment in the form of comics, books and a Miramax movie: Bionicle: Mask of light. The range has
proved a major success for LEGO and, building on this success, it has developed Knights Kingdom.
 Sub-brands that LEGO has neglected, including Mindstorms and LEGO TECHNIC, both aimed at older
children and enjoyed by some adults, are being given more attention. With so many adult fans of LEGO, efforts are also
being made to further engage the adult market. The company is currently considering whether to market its
management training tool, entitled LEGO Serious Play, to a wider adult audience.
 LEGO has overhauled its packaging, and the style and tone of its advertising. The emphasis is now being
placed on the LEGO play an educational experience as opposed to product detail. The strap-line ‘play on’ was
introduced in January 2003 to accompany the change. The slogan draws its inspiration from the company’s five core
values: creativity, imagination, learning, fun and quality. LEGO is also making greater use of more interactive
communication tools to promote its products, which it is believed will encourage consumers to interact more with the
brand. 2005 has seen LEGO invite fans on a tour of the company. Here they are given the opportunity to meet new
product developers, designers and toolmakers, and learn about the company’s history, culture and values.
 LEGO is also taking steps to reverse its insular culture. In an attempt to build a more market-driven
organization, it is spending more time consulting children, parents, retailers and AFOLs. The company established the
LEGO Vision Lab in 2002 to examine how the future will look to children and their families. A variety of sources are
being used to make assessments of future worldwide family patterns, including anthropology, architecture, consumer
patterns and awareness, culture, philosophy, sociology and technology.
 Plagued by supply-chain inefficiencies LEGO has improved production time from concept to the retailer’s
shelf. An example of this is the Duplo Castle, which was developed in nine months.
Conclusion
Having taken its eye off the ball, LEGO is fighting back with a new customer-focused strategic approach. Continuous
improvement, in response to changing market trends, is now key if LEGO is to ward off the many challenges it still faces. It
is still involved in many licence agreements, making it vulnerable to this cyclical market. Its back-to-basics strategy has
been widely praised but it remains to be seen if LEGO can balance this with its increasing activity in software. With
children’s growing appetite for video games with a more violent content, can LEGO satisfy this target group while still
The Indian Institute of Business Management & Studies
SUBJECT: Marketing Management Marks:100
23
remaining true to its wholesome ‘play well’ brand values? Will LEGO succeed in its attempts to target young girls and its
desire to target a more adult audience? Will it succeed in its attempts to reduce costs and improve efficiencies? Will CEO
Jorgen Vig Knudstorp succeed where his predecessors have failed? Only in the fullness of time will these questions be
answered but one thing is for sure: no brand, no matter how powerful, can afford to become complacent in an increasingly
competitive business environment.
Questions:
1. Why did LEGO encounter serious economic difficulties in the late 1990s?
2. Conduct a SWOT analysis of LEGO and identify the company’s main sources of advantage.
3. Critically evaluate the LEGO turnaround strategy.

The Indian Institute of Business Management & Studies
Subject: Operation Management Marks: 100
CASE – 1
The Indian Railways’ ambitious Kashmir Railway Project. This was one of its most important and difficult
projects as it aimed to build a railroad connection through the Himalayan foothills linking Kashmir with the rest of
India. The main objective of this project was to provide an alternative and more reliable mode of transportation
system to the people of Kashmir than the existing mode of travel by road. Officially, this track was named as the
Jammu-Udhampur-Katra-Qazigund-Baramulla link (JUSBRL). The unique features of this line, according to
observers, were the presence of a major earthquake zone, extreme environmental conditions in terms of
temperature, and the most extreme geological profile throughout the entire terrain.
Some experts lauded the Indian Railway’s initiatives and how it had overcome some of the challenges associated
with the project and said that once accomplished it would be an engineering miracle. However, it was also
criticized on many fronts and some experts believed that the project had been bungled at the planning stage itself.
Question:
» Understand issues and challenges in executing a large infrastructure project by studying the ambitious Kashmir
Railway Project which once accomplished would be an engineering miracle.
» Appreciate the difficulties before the project managers due to the fragile geology and steep topography –
presence of a major earthquake zone, extreme environmental conditions in terms of temperature, etc.
» Appreciate the difficulties involved in the execution of large infrastructure projects in developing countries, and
how these can be overcome.
CASE – 2
Spain-based Mango MNG Holding SL (Mango), the flagship of a group of companies involved in design,
manufacture, and distribution of garments and fashion accessories, sold garments for men and women and
accessories through exclusive stores. The company was started in 1984 in Spain, and expanded rapidly to more
than 107 countries across the world by 2012. Mango went on to become the second largest textile exporter in
Spain. Mango was one of the pioneers of fast fashion. The company was able to design the garments and send them
to the stores within a span of three months.
It could also bring designs with slight modifications within just two weeks. The case discusses Mango’s business
model under which it retained some of the core activities of its value chain in-house while outsourcing the rest of
the activities. Important activities like design and distribution were managed completely by the company, while
manufacturing, which was a labor-intensive task, was outsourced. The company retailed through its own outlets as
well as through franchisees. This business model helped the company expand rapidly and also minimize the risks.
Question:
» Analyze Mango’s business model.
» Study the design, production, distribution, and store management processes at Mango.
» Evaluate Mango’s core and non-core activities.
» Understand which processes can be managed in-house and which ones can be outsourced..
The Indian Institute of Business Management & Studies
Subject: Operation Management Marks: 100
CASE – 3
Tthe Just-in-Time (JIT) implementation at Harley-Davidson Motor Company (Harley-Davidson), a US-based
motorcycle manufacturing company. JIT, a philosophy developed by Japanese companies, aims at reducing
inventory and advocates the production of only what is needed when needed and no more. After World War II,
Harley-Davidson faced fierce competition from Japanese automobile companies which were able to produce better
quality motorcycles at comparatively lower cost. Harley-Davidson visited some of the Japanese companies and
found that Japanese companies were following three main practices: employee involvement, use of statistical
process control, and JIT. The company soon realized that in order to beat Japanese competition, it had to
implement these practices as well. The company successfully implemented JIT practices and reaped several
benefits.
After spectacular growth in the 1990s and the early 2000s, Harley-Davidson again faced hard times from 2007. The
case also looks at the challenges faced by the company in the latter part of the first decade of the new millennium,
and how it was trying to focus on ‘continuous improvement’ in a bid to bring itself back into profits.
Question:
» To understand Just-in-time philosophy and its importance in reducing overall production cost and enhancing
product quality.
» To understand how the JIT philosophy requires the alignment of operational strategies to achieve the goal.
» To understand the important role of having a stable supplier network for achieving JIT.
» To understand that besides the use of statistical techniques in achieving JIT, employees’ involvement is equally
important.
» To discuss the challenges faced by Harley-Davidson since 2007.
» To explore operational strategies that Harley-Davidson can adopt to overcome those strategies.
CASE – 4
The case discusses the master franchise model of the US-based Domino’s Pizza Inc (Domino’s). Domino’s, which
was started in the 1960s, expanded in international markets mainly through its master franchise model. Under this
model, the franchisees were provided with exclusive rights to operate stores, or to sub-franchise them in a
particular area. Domino’s recruited franchisees with business experience and knowledge of local markets as
master franchisees, and was able to mitigate the risks associated with entering and operating in international
markets. Under master franchising, in markets where there was high potential for development, Domino’s
transferred market exclusivity to an individual/company, who had a significant presence and knowledge about the
local markets.
These individuals/companies in turn invested in establishing the master franchise, whose responsibilities include
building stores, sub-franchising, operating distribution system, etc. The case discusses in detail the store
operations of Domino’s and the benefits of its master franchise system.
Question:
» Understand the master franchise model of Domino’s and its advantages.
» Examine some of the unique features of the master franchise model of Domino’s.
» Analyze the store operations of Domino’s.
» Examine the training/support provided by Domino’s to the franchisees.
» Understand how the master franchise model helped Domino’s in facing the adverse impact of global economic
slowdown successfully.

The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
1
Attempt Only 4 Case Study
Case I -Morgan Stanley’s Return on System Non-investment
Morgan Stanley is global financial services firm with more than 600 offices in 30 countries and over 53,000
employees. It was founded in 1935 and is headquartered in New York City. The firm operates in four segments:
Institutional Securities, Asset Management, Retails Brokerage, and Discover (which provides Discover Card services.) The
firm acquired the Discover Card business as a result of its merger with retails brokerage dean Witter discover and Co. in
1997.The unification of Morgan Stanley and Dean Witter created a digital, cultural, and philosophical divide, which was
extremely difficult to overcome. One of the business sectors to suffer the most under this arrangement has been Retail
Brokerage, which manages $616 billion in client assets. Retail Brokerage provides comprehensive brokerage, investment,
and financial services to individual investors globally, with 9,526 worldwide representatives in more than 500 retail
locations, including 485 in the United States.
Despite the merger, the Retail Brokerage group was never accepted as an equal partner by the rest of Morgan
Stanley. Former Dean Witter employees have claimed they felt like disrespected outsiders after the merger. The feeling
persisted and many retail brokers viewed their job security as tenuous at best. Moreover, Retail Brokerage was not wellintegrated
with the rest of the company. It ran on a different systems platform than the institutional brokerage side, and its
employee systems were not integrated.
Retail Brokerage systems were also much more antiquated than those at other parts of the company.Brokers have
to visit their offices on weekends to print portfolio summaries in advance of client meetings, because the outdated
computer systems could not handle the task during normal business hours. Even on those off-hours, desktop PCs, which
hadn’t been upgraded in years, would often crash and printers clogged if they were being used by more than two people.
Brokers did their work without benefit of an application that provided both real-time stock quotes and transaction
histories. Some of the firm’s technology problems couldn’t be hidden from clients, who routinely complained about the
customer Web site and sparsely detailed year-end tax reports they received.
Top brokers started to leave, taking with them the portfolios of numerous important clients. Profits specifically
from Retail Brokerage dropped precipitously and margins lagged behind those of comparable brokerage firms. During this
time, nearly 1,500 brokers left the company. Bill Doyle, an analyst with Forrester Research Inc., pointed out that the
business was ailing partially as a result of lack of investment in technology. When the stock market crashed in 2001, CEO
Philip Purcell believed that the market’s comeback would happen slowly. He therefore focused his business strategy on
maximizing profits instead of generating revenue. The implementation of this strategy involved cutting costs. Each of
Morgan Stanley’s divisions received less funding for their operations, jobs were eliminated, and investing in technology
was obviously a low priority. Purcell, of course, had miscalculated. The market rebounded within a few years, and Morgan
Stanley was not positioned to compete in retail. While his firm was watching its margins, Merrill Lynch was spending $1
billion on new systems for its brokers. The turmoil in the inner sanctum of Morgan Stanley’s leadership also contributed to
the company’s woes.
Purcell locked horns with investors, executives, and former executives over a number of issues, one of which was
selling the underperforming Discover credit card division. Some investors even wanted Purcell to spin off the entire Dean
Witter part of the company. In March 2005, eight former executives appealed to Morgan Stanley’s board of directors to
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
2
remove Purcell as CEO for his mismanagement of Discover and Retail Brokerage. The board determined that the best
interest of the firm was served by keeping Purcell and divesting itself of its struggling divisions. The board also approved
Purcell’s appointments of two executives who were considered loyal to him and to the board.
Protesting Purcell’s leadership, two leading executive sin the investment banking division resigned. More
departures followed. Purcell’s critics now had even more ammunition with which to bring him down: in addition to
mismanaging the struggling areas of the business, his action has threatened the performance of the firm’s strength,
investment banking. Purcell finally resigned in June 2005, unable to shake the claims that his solutions to problems were
lightweight rather than dramatic and far-reaching, and that his decision were based on protection his job rather than
improving the firm. He was succeeded by John Mack, a former Morgan Stanley president who had left the company in
2001. As a result of a power struggle with Purcell.
With new leadership in place, Morgan Stanley has finally begun to address the issue of technology in its Retail
Brokerage division, which has been renamed the Global Wealth Management group. In October 2005, the firm hired Eileen
Murray as its head of Global Operation and Technology. She works directly under Chief Executive John Mack, with whom
she has a strong professional history. Murray has committed to boosting Morgan Stanley’s investment in technology for
retail, saying, “We expect to make substantial improvements” that ” will ultimately help our financial advisors better serve
our clients while also helping our clients better manage their relationship with us”. As proof, the technology and
operations budget for the Global Wealth Management Group for 2006 exceeded $500 million. Mack also brought in a new
boss for the group. It is now under the leadership of James Gorman, who performed a successful parallel makeover at
Merrill Lynch’s brokerage division.
Mack has been under some pressure to sell the retail division, a choice he has been reluctant to make. He
subscribes to the view that ownership of a retail brokerage business is an investment in the firm because, in addition to
providing revenue from individual investors, it gives Morgan Stanley a direct channel for selling its own investment
banking products. Mack’s goal is to increase the profit margin of the Global Wealth Management Group retail brokerage,
which ranges from 11 percent to 20 percent, which would make it as profitable as rivals’ businesses. Mack has stated both
publicity and privately that some of Morgan Stanley’s businesses had not received the technology they needed, and he
intends to make the necessary investments. In the firm’s 2005 annual report, Mack said, “We are committed to addressing
underinvestment,” and “We’re going to upgrade our technology platforms and provide our financial advisors and
investment representatives with a tool kit that is an competitive as that of our leading peers.”
Some of the overwhelmed broker desktop workstations have been replaced. The new systems are better
integrated with backend systems so that brokers have been replaced. The new systems are better integrated with backend
systems so that brokers have a better view of client portfolios. The company plans further improvements in their are so
that brokers will have access to all relevant client data at once including transaction history, contact history, and portfolio
performance. Consolidating all of these features will require several years of work. The company also rolled out a new taxreporting
application that automatically reconciles gains and losses and allows users to download information from its
client Web site into popular tax programs. Before that time, customers had to wade thought a confusing maze of figures to
add up gains and losses on their year-end tax reports.
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In response to customer demands, Morgan Stanley scheduled an upgrade of its Web site for May 2006, which
analyst Doyle described as a particularly weak area for the firm. The services available online to Morgan Stanley customers
dated back to pre-2000 technology. Doyle sees the Web presence as a major challenge because Morgan Stanley has been
focusing more on its wealthiest clients than on the rank-and-file small investors. The firm had previously assumed that
these top clients weren’t interested in online services because they get the direct attention of brokers (whereas investors
with portfolios under $100,000 must deal with call centers). Research by Forrester has shown the opposite to be true:
wealthy customers actually want more hands – on control of their portfolios, and therefore want more tools and services
available online. These customers prefer to approach their brokers with their own ideas. Gorman, as head of the
significance that online technology holds for his division.
Mack and Gorman must also take measures to repair the schism that developed after the merger with Dean
Witter. Mack has been addressing the issue of a “one-firm culture.” The firm is trying to stem the loss of productive
brokers. Increasing salaries and expense accounts are not enough. The top brokers still fell they can fulfill their earning
potential better and hold hobs longer at other firms. It’s not just that their print queue gets jammed; it’s that they question
how much the company values them if it’s not willing to support them in such a way that they can best perform their jobs.
By the spring of 2006, sings of progress were evident. In June 2006, Morgan Stanley generated second-quarter net
income of $1.96 billion. The retail brokerage division posted $157 million in pretax profit, the largest profit since the first
quarter of 2005.
CASE I QUESTIONS:
1. Why did Morgan Stanley under invest in information technology?
2. Why was the merger with Dean Witter disruptive for the company?
3. If you were James Gorman, the new head of Global Wealth Management Group, What information systems would
you invest in? Why? Do you think Morgan Stanley’s plans for an integrated client information system are
worthwhile? [Hint: Think of the services you would like to receive from your banker or stock broker.]
4. Aside from new systems, what changes in management and organization are required to restore revenue and
profit growth at the Global Wealth Management Group?
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CASE II:
If you turn on the television, read a newspaper, or surf the Web, you’re bound to find many dire predictions about
large-scale loss of life from biological or chemical attacks or an avian influenza pandemic. Computer models estimate that
between 2 and 100 million people could die in the event of a flu pandemic, depending on the characteristics of the virus.
Fears of a major public health crisis are greater now than ever before, and governments throughout the world are trying to
improve their capabilities for identifying biochemical attacks or pandemic outbreaks more rapidly.
On May 3, 2006, the United States government issued an Implementation Plan for its National Strategy for
Pandemic Influenza to improve coordination among federal, state, and local authorities and the private sector for
pandemics and other public health emergencies. The implementation plan calls for improving mechanisms for real-time
clinical surveillance in acute care settings such as hospital emergency rooms, intensive care units, and laboratories to
provide local, state, and federal public health officials with continuous awareness of the profile of illness in communities.
One such initiative is the BioSense Real-Time Clinical Connections Program developed by the U.S. Federal Centers
for Disease Control and Prevention (CDC). BioSense sits atop a hospital’s existing information systems, continually
gathering and analyzing their data in real time. Custom software developed by CDC monitors the facility’s network traffic
and captures relevant patient records, diagnoses, and prescription information. The data include patient age, sex, ZIP code
of residence, ZIP code of the medical facility handling the patient, the principal medical complaint, symptoms, onset of
illness, diagnoses, medical procedures, medications prescribed, and laboratory results. The software converts these data to
the HL7 data messaging format, which is the standard for the health-care industry, encrypts the data, and transmits them
every 15 minutes over the Web to the CDC where they are maintained in a large data repository.
The system summarizes and presents analytical results by source, day, and syndrome for each ZIP code, state, and
metropolitan area using maps, graphs, and tables. Registered state and local public health agencies as well as hospitals and
health care providers are allowed to access data that pertain to their jurisdiction. They access BioSense via a Web-based
application over a secure data network, ‘information from BioSense could show early signs of a pandemic or biologic
attack and alert local Hospitals, health workers, and federal and state agencies to take preventive measures. The
traditional process for public health Surveillance is manual and much slower. Hospitals, Physicians, and laboratories
would mail or fax paper reports to public health agencies, who would then call health care providers for more detailed
information. This slow chain of person-to-person communication is not well-suited to a major public health emergency.
By monitoring streaming data about health events as they occur, the system helps CDC epidemiologists quickly
detect early signs of a flu pandemic or bioterrorist attack and provide public health and government decision makers with
the information needed to manage preparedness and response, simultaneous access of the data by all levels of public
health decreases the time needed to classify health events as serious public health problems; decreases the time to identify
causes, risk factors, and appropriate interventions; and decreases the time needed to classify health events as serious
public health problems; decreases the time to identify causes, risk factors, and appropriate interventions; and decreases
the time needed to implement countermeasures and health guidance.
BioSense first became operational in 2004, when it began gathering daily data from U.S. Defense Department and
Veterans Affairs (VA) hospitals and laboratory Corporation of America (LabCorp) orders Sir medical tests. (LabCorp
operates a large nationwide network of testing locations and service Enters and is one of the largest clinical lab service
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providers in the United States.) Approximately 700 defense Department and 1,110 VA facilities report data to BioSense. In
late 2005, CDC started to expand fie BioSense network to civilian hospitals in major metropolitan areas and anticipates
sharing its Analysis of local and regional influenza-like illness tenders with health care and other public agencies in
affected areas. The CDC expects to connect 300 hospitals to BioSense by the end of 2006.To help civilian hospital link to
BioSense, the CDC enlisted the Consella group health care information technology consultants. Consella explains the
benefits of participating in a project that will serve their specific interests as well as those of the public at large and will put
their data in standardized form.
However, many hospitals have not been anxious to jump on the bandwagon because the transition would be burdensome
and time-consuming. To transmit data to BioSense, each hospital must standardize its patients and other medical data.
Most hospitals use their own coding systems for symptoms, diseases, and medications. CDC’s contractors would have to
work with the hospital to translate its data codes into the standards used by CDC’s software. According to Barry Rhodes,
CDC’s associate director for technology and informatics, “To standardize the data and do all the data validation steps is a
huge technological challenge.”
Some in the medical community question whether the BioSense network is worth the effort. whether the BioSense
network is worth the effort. “If there is a pandemic flu, we are not going to know about if from a system like this,” says Dr.
Susan Fernyak, director of communicable disease control and prevention at the San Francisco Department of Public
Health. According to Dr. John Rosenberg, director of the Infectious Disease Laboratory at the State of California’s
Department of Health Services in Richmond, California, if an epidemic broke out, “You’d know it befor the date rolled in.
When your emergency rooms fill up you make a phone call; this is probably a better measure.”
David Groves, CDC project head at SAIC, a BioSense contractor, points out that a hospital’s medical staff might not
know right away that there’s a serious problem when patients start showing up with symptoms. CDC scientists using the
system will be in a better position to spot a major pandemic or biological or chemical attack over a wider geographic area.
Having a bigger picture of what’s happening will help CDC help hospitals, police, and emergency units mobilize a better
response.
Although participation in BioSense is voluntary, physicians and health official might resent the system because it
enables the federal government to encroach on what has traditionally been the domain of local health care providers and
organization. They note that they and not the CDC have the responsibility for responding to and managing a pandemic.
Additionally, hospitals are reluctant to sign up because of concerns about maintaining privacy and security of patient
information. BioSense would let the CDC “listen in” on their treatment of patients on a real-time basis. The CDC does not
use any data that would identify individual patients.
CASE II QUESTIONS
1. Describe and diagram the existing process for reporting and identifying major public health problems, such as a
flu pandemic.
2. How does BioSense improve this process? Diagram the process for reporting and identifying public health
problems using BioSense.
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3. Discuss the pros and cons of adopting BioSense for public health surveillance. Should all hospitals and public
health agencies switch to BioSense? Why or why not?
4. Put yourself in the role of hospital director at a large urban hospital. Would you support joining up with the
BioSense system? Why or why not? What factors would you want to take into account before joining?
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CASE III BLOCKBUSTER vs. NETFLIX: WHICH WILL WIN OUT?
When Blockbuster entered the video rental business in 1985, the industry consisted mostly of independent, momand-
pop-style stores whose entire reach may have been two towns or a few city blocks. In its first 20 years of business, the
rental giant opened 9, 100 stores in 25 countries, gaining a market share that has been enjoyed by few companies in any
industry.Blockbuster equipped each of its video rental stores with custom software it had designed to simplify rental and
sale transactions. An automated point-of-sale system uses a laser bar code scanner to read data from items being rented or
sold and from a Blockbuster customer’s identification card. These data are transmitted to Blockbuster’s corporate
computer center. Management uses these data to monitor sales and to analyze the demographics, and rental and sales
patterns for each store to improve its marketing decisions.
Blockbuster’s success was based on video tape rentals and sales and rentals of DVDs. By 2004, Blockbuster
possessed a 40-percent share of the U.S. video rental market, estimated to range from $7 billion of business per year to $9
billion; Blockbuster also had video sales of around $16 billion.The greatest threat to Blockbuster’s viability came from the
emergence of a new business model in the video rental market. Launched in 1998, Netflix Inc. intended to cater to those
video rental customers who valued convenience above all else. First, the upstart eliminated the need for a physical store.
All interactions between Netflix and its customers took place on the Internet and through the postal service. Users could go
online and create a wish list of movies they wanted to rent. For a monthly service fee, Netflix mailed up to three movies at
a time, which the customer could keep for a long as he or she wanted without incurring late charges. When finished with a
movie, the customer mailed it back to Netflix in reshaped packaging provided by the company. Returning a movie
prompted Netflix to send the next title on the customer’s wish list. For $19.95 a month, Netflix customers had access to
thousands of movie titles without leaving their homes.
According to Kagan Research LLC, revenues from online movie rentals, which were basically nonexistent in 1998,
rose to $552 million in 2004. Kagan projected that the total revenue would approach $1 billion in 2005 and $3 billion by
2009. As Netflix caught on and its subscription model became popular, Netflix’s gains in market share, from 2 to 7 percent
between 2003 and 2004, gave Blockbuster true cause for concern.
To compete in the changing marketplace, Blockbuster made some dramatic changes in its business beginning in
2003. It added an online rental service; Movie Pass, a monthly subscription service for in-store customers; Game Pass, a
subscription service for video games; a trading service for movies and games; and the infamous “No More Late Fees”
program. The entire question of how to address a new source of competition was a complicated matter. Blockbuster could
have chosen to launch an online rental store similar to Netflix and leave it at that. Or, the company could have focused only
on its traditional business in an attempt to lure customers back from the rising online tide. Instead, with the initiatives
previously mentioned, Blockbuster tried to do both.
Blockbuster’s $100 million increase in capital expenditures from 2003 to 2004 hints at the scale of the
restructuring of the business. Many of those millions found their way to the information technology department, which
took Netflix on directly by establishing the information systems supporting Blockbuster’s own online subscription service.
This venture required Blockbuster to construct a new business model within its existing operations.
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Rather than meld the two channels, Blockbuster created a new online division with its own offices near corporate
headquarters in Dallas. Part of Blockbuster’s initial strategy for defeating the competition was to undercut Netflix in both
pricing and distribution. Blockbuster set the price for its three-movies-at-a-time monthly subscription at $19.99, which
was, at the time, two dollars less than Nexflix’s competing plan. Blockbuster had a strategic advantage in distribution as
well. Netflix was serving its customers from 35 distribution centers around the country. Blockbuster had 30 such facilities
but also had 4,500 stores in the United States to deliver DVDs to most of its customers in only a day or two at lower
shipping costs. Blockbuster also enticed online customers to maintain a relationship with the physical stores by offering
coupons for free in store rentals. Blockbuster’s original intent was to integrate the online and in store services so that
customers could float back and forth between the two channels wit restrictions. However, the disparate requirements for
revenue recognition and inventory management have so far been too complex to make the plan a reality.
After a year in existence, the report card on Blockbuster’s online store was mixed. The service had acquire on
million subscribers and the company hoped to double that number within seven months or so. At the same time, Netflix
had surpassed three million subscribers and was on its way to four million by the end of the year. Blockbuster continued
to pursuer gains through pricing, at one point lowering its three-movie plan to $14.99 per month versus $17.99 at Netflix.
Both companies offer plan variations such as unlimited rentals of one DVD at a time for $5.99 per month and two at a time
with a limit of 4 per month for $11.99.
In September 2005, research firm SG Cowen declared that Blockbuster’s online DVD rental service “remains
inferior” to Netflix. The researcher stated that Blockbuster had improved on movie availability but actually fell further
behind in ratings of its use interface. The evaluation by SG Cowen came on the heels of rocky financial reports for
Blockbuster. Blockbuster’s most costly change was likely the “No More Late Fees” campaign it launched in January 2005.
The goal of the program was to lure more customers and position Blockbuster better in the market alongside Netflix,
which never charged late fees. However, the program may have created more problems than it solved. Blockbuster did
measure an increase in in-store rentals after eliminating late fees, but early returns did not suggest that the increase offset
the $250 million to $300 million in annual late fee revenue that was no longer being collected.Well-known corporate
raider Carl Icahn took advantage of Blockbuster’s low share price and acquired 9 percent of the company, entitling him a
position on the board of directors. Icahn harshly criticized CEO John Antico’s business strategy. Icahn believed that
Blockbuster’s new initiatives such as online rentals, were too expensive and too risky. He believed that the company
should take advantage of its prevailing position in the bricks and mortar rental industry, even if that industry were slowly
dying. Despite the presence of Icahn, Antico maintained that online rentals were the only segment of the industry open to
growth.
Both Blockbuster and Netflix now face a new set of challenges. Fifteen million cable subscribers use video-ondemand
(VOD) technology to watch movies and programs that are not yet available on DVD. TiVo and similar digital video
recorders combined with VOD could make the rental of movies obsolete. Some analysts still insist that the economics do
not make sense for movie studios to abandon DVD sales which account for 50 percent of their profits, in favor of VOD. And
technology does not currently permit the bandwidth for VOD suppliers to provide nearly the number of titles that
Blockbuster can. Down the road, however Blockbuster likely will have to address VOE), especially if the studios can
eliminate companies like Blockbuster as an intermediary.
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In April 2006, the Internet as a channel for movie distribution finally came into focus. Six movie studios, including
Warner Brothers, Sony Pictures, Universal, MGM, and Paramount, reached an agreement with Web site Movielink to sell
movies online via download. Until that time, Movielink had offered movie downloads as rentals, which, like the VOD model
the customer could watch for only 24 hours. Sony, MGM, and Lions Gate also reached agreements with a Movielink
competitor, CinemaNow, which is partially owned by Lions Gate. Warner Brothers also expanded its presence by-entering
into relationships with Guba.com and BitTorrent. The studios moved to build on the momentum created by the success of
the iTunes music store, which demonstrated that consumers were very willing to pay for legal digital downloads of
copyrighted material. At the same time, they hoped that entering the download sales market would enable them to
confront the piracy issue in their industry earlier in its development than the music industry was able to do.While the
studios’ commitment to these ventures appeared clear, what remained a question was whether they could replicate the
success of iTunes. The initial pricing schemes certainty did not offer the same appeal as Apple’s $0.99 per song or $9.99
per CD. Movielink set the price for new movies at $20 to $30. Older movies were discounted to $10. Movielink was
counting on the fact that customers would pay more for the immediacy of downloading a movie in their homes, as opposed
to visiting a bricks-and-mortar store like Circuit City or an online store such as Amazon.com, both of which sell new DVDs
for less than $15.00.However, even if customers were willing to pay a little extra, they were getting less for their money.
Most movie downloads did not come with the extra features that are common with DVD releases.
Moreover, the downloaded movies were programmed for convenient viewing on computer screens, but
transporting them from the computer to the TV screen involved a more complicated process than most consumers were
willing to tackle. Neither Movielink nor CinemaNow offered a movie format that could be burned to a DVD and played on a
regular DVD player. In fact, CinemaNow downloads were limited to use on a single computer. To watch these movies on a
television screen, users would need to have Windows Media Center, which is designed to connect to a TV or special jacks
and cables.An additional obstacle for both the technology and the consumer to overcome was bandwidth. Even using a
broadband Internet connection, high-quality movie files, which generally surpassed 1 gigabyte in file size, required in the
neighborhood of 90 minutes to download completely.
Considering these issues, the near-term outlook for the legal digital distribution of movies remains cloudy,
Movielink, with only 75,000 downloads per month, was struggling to sustain itself. Neither Blockbuster nor Netflix seemed
in a panic to adjust to this new source of competition. While locked in legal battles over patents and antitrust concerns, the
two companies had few specific plans related to downloading, though Netflix was widely believed to be considering a settop
box. Netflix said only that downloading was part of its future plans, but expressed dissatisfaction with the terms the
movie studios were offering in early discussions.
The one development that has the potential to force the hands of Blockbuster and Netflix is the entrance of Apple
into the movie download market. Apple’s iTunes store, like Netflix, already had a satisfied and loyal customer base, not to
mention a pervasive “cool” factor. And, it was iTunes’s successful transition from music-only to music and television
downloads that paved the way for Movielink and CinemaNow to sell movie downloads in the first place. Apple is said to be
on the verge of adding movies to its store and would stick to its flat-rate p; icing model. Industry rumors indicated that
Apple CEO Steve Jobs intended to sell downloads of all movies for S9.99. Industry experts characterized Apple’s
involvement as a possible “tipping point” for outline movie distribution.
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In the meantime, Antico wants Blockbuster to stay very close to the cutting edge of technology in his industry.
Doing so, he believes will enable the company to replace directly any rental revenues lost to new technology. Meanwhile,
add Amazon to the list of competitive threats on which Blockbuster must also keep a careful eye. Amazon.com already
operates an online movie rental service in the United Kingdom. Could there be another player to compete with Blockbuster
and Netflix? Or could a new partnership shake up the industry again?
CASE III QUESTIONS
1. What is Blockbuster’s business model? How successful has it been?
2. What industry and technology forces have challenged that business model? What problems have they created?
3. Is Blockbuster developing successful solutions to its problems? Are there other solutions it should have
considered?
4. How successful is Netflix and its business model?
5. Do you think Blockbuster or Netflix will succeed in the future? Explain your answer.
CASE IV IS THE TELEPHONE COMPANY VIOLATING YOUR PRIVACY?
In May 2006, USA Today reported that three of the four major United States landline telecommunications
companies had cooperated with the National Security Agency (NSA) fight against terrorism by turning over records of
billions of phone calls made by Americans. AT&T, Verizon Communications, and BellSouth all contributed to the NSA’s
anti-terrorism program. Qwest Communications International was the only one of the big four to withhold its records.The
revelation by USA Today caused a firestorm of controversy. Media outlets, privacy advocates, and critics of the Bush
administration expressed outrage over the program and questioned its legality. The Washington Post referred to the
program as a “massive intrusion on personal privacy.”
The issue received particularly strong scrutiny because it came to light only five months after President Bush said
that he had authorized the NSA to listen in on international phone calls of Americans suspected of having ties to terrorism
without obtaining a warrant. When combined, the two stories caused intense worn7 among privacy activists who feared
that a widespread data mining effort was being carried out against American citizens by the administration.
President Bush would not acknowledge the existence of such an initiative. He said only that, “the intelligence
activities I authorized are lawful and have been briefed to appropriate members of Congress.” He added, “We are not
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mining or trolling through the personal lives of innocent Americans” and the privacy of citizens was being “fiercely
protected.”
What exactly did the phone companies do for the government? After September 11, 2001, they began turning over
tens of millions of phone call records to the NSA, whose goal was to build a database of every call made inside the United
States. The records that were turned over contained only phone numbers and calling information such as time, date, and
the duration of the calls; they omitted names, addresses, and other personal data. Qwest was approached by the NSA at the
same time as the others, but Joseph Nacchio, the company’s CEO at the time (later involved in an insider trading scandal),
refused to cooperate. Nacchio based his decision on the fact that the NSA had not secured a warrant or submitted to other
legal processes in requesting the data.
The ethical questions raised by this case prompted no shortage of opinions from executives, politicians, pundits,
activists and legal experts. The phone companies cited a strong belief in protecting the privacy of their customers but
stated that the belief must co-exist with, an obligation to cooperate with law enforcement and the government in matters
of national security. A release from AT & T summed up the company’s position as follows: “If and when AT&T is asked to
help, we do so strictly within the law and under the most stringent conditions.” Verizon made a similar statement but also
declined to comment on having a connection to a “highly classified” national security plan. The company also indicated
that press coverage of its data dealings contained factual errors.
After examining the issue, legal experts on both sides of it weighed in with their opinions on the actions taken by
the phone companies. Lawmakers began to seek hearings on the matter almost immediately. Customers directed their
anger and concern directly to customer support lines. Two lawyers in New Jersey filed a S5 billion suit against Verizon on
behalf of the public accusing the company of violating privacy laws.Some legal scholars and privacy advocates agree that
the telecoms may have crossed the line. These experts cite the Electronic Privacy Act of 1986, which permits businesses to
turn over calling data to the government only in extreme cases (for example, to protect individuals who are in immediate
danger of being harmed). Creating a database from the records does not meet the criteria. James X. Dempsey of the Center
for Democracy and Technology noted that the law allows for a minimum penalty of $1,000 per customer whose calling
data were submitted to the government. Based on the number of records contributed to the NSA database, the phone
companies faced civil penalties reaching hundreds of millions or possibly billions of dollars.
Dempsey shot down the idea that the phone companies did not break the law because the records they turned
over included only phone numbers and not identifying information. According to Dempsey, the law does not specify that
such personal information needs to be exchanged for the law to be broken. This was a popular position among critics of
the NSA program. They asserted that phone numbers could easily be cross-referenced to personal information, such as
names and addresses, using databases that are readily available to the public on the Internet.
A senior government official who spoke on condition of anonymity admitted that the NSA had access to most
domestic telephone calls even though, according to Kate Martin of the Center for National Security Studies, the NSA would
be prohibited by federal statutes from obtaining such data without judicial consent. The government official said that the
scope of the program was small in the sense that the database was used only to track the communications of individuals
who were known to have ties to terrorism.
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The non-profit Electronic Frontier Foundation (EFF), a privacy watchdog, concurs with Martin’s assessment. EFF
supports its argument by referencing the Pen Register Statute, which prohibits the government from gathering calling data
without a court order, and the Fourth Amendment, which covers privacy rights and unreasonable search and seizure.
However, the impact of such a defense in court was unclear. In response to the wiretapping controversy of five months
earlier, the Bush administration cited Article II of the Constitution as the derivation of its authority to employ wiretapping
as a terror-fighting tool. Furthermore, Congress virtually wrote the President a blank check by empowering him to “use all
necessary and appropriate force” in the war on terror.It was not surprising that Congress had as much to say about the
issue as anyone. Various senators weighed in both with opinions and calls for investigation. Opinions did not always fall
along party lines.
Senator Dick Durbin, a Democrat from Illinois, believed that actions of the telephone companies put the privacy of
American citizens at stake and that the companies should be compelled to appear before the Senate Judiciary Committee.
Durbin was backed up by the chairman of that committee, Senator Arlen Specter, a Republican from Pennsylvania. Senator
Specter intended to call upon executives from the Participating companies to give their testimony about the NSA database
program. House Majority Leader John Boehner of Ohio and Senator Lindsey Graham of South Carolina also crossed party
lines in questioning the necessity of such a program. Senator Graham asked, “The idea of collecting millions of thousands
of phone numbers, how does that fit into following the enemy?”
Proponents of the program answer that question by saying that the purpose of the program is to discover patterns
in the calling records that indicate the presence of terrorist activity. Intelligence analysts and commercial data miners
refer to this as ink analysis, “which is a technique for pulling meaningful patterns out of massive quantities of rata.
Defenders of the program were harshly critical of media outlets who exposed it. Representative Peter Hoekstra, a
republican from Michigan and chairman of the House Intelligence Committee, insisted that reporting on the NSA’s
programs undermined national security. He stated, “Rather than allow our intelligence professionals to maintain a laser
focus on the terrorists, we are once again retired in a debate about what our intelligence community may or may not be
doing”. President Bush echoed this sentiment by declaring that leaks of sensitive intelligence always hurt the government’s
ability to counter terrorism.
Republican Senator Jeff Sessions of Alabama also disputed the need to investigate the program. Senator Sessions
answered the critics by emphasizing”; that the program did not involve actual surveillance of phone conversations and
therefore did not merit the scrutiny it was receiving. In his statements, the president also went out of his way to
distinguish between eavesdropping on telephone conversations and gathering call data.
In May 2006, senior intelligence officials revealed that the scope of the NSA’s eavesdropping operations was
strongly influenced by Vice President Dick Cheney and his office. The Vice President and his key legal adviser, David S.
Addington, began pushing for surveillance of domestic phone calls and e-mails without warrants soon after September
11th. They believed that the Constitution gave the executive branch expansive powers that covered this type of domestic
spying, as well as certain interrogation tactics for dealing with suspected terrorists.
However, the NSA pushed back on advice from its owl legal team. As a result, the NSA limited the eavesdropping to calls in
which at least one participant was outside the United States.
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Still, conducting such operations appeared to conflict with the 1978 Foreign Intelligence Surveillance Act (FISA),
which required court authorization for any wiretapping done within the United Stales. Nancy Libin of the Center for
Democracy and technology posits that listening in on any phone cay without a warrant, regardless of whether it is
domestic or international, is illegal according to FISA. However, while FISA covers wiretapping, it does not clearly prohibit
the type of data mining that was done in the NSA database program.
In June 2006, a federal court in California released a document related to EFF’s suit against AT & T that sheds light
on how the phone company may have provided its data to the NSA. In the document, J. Scott Marcus, who had worked as a
senior advisor for Internet technology to the Federal Communications Commission, evaluates evidence presented to EFF
from a former AT & T technician named Mark Klein. Klein claimed that AT&T recon figured its network in San Francisco
and installed special computer systems in a secret room in order to divert and collect Internet traffic for use by the NSA.
Marcus concluded that Klein’s description of a private backbone network partitioned from AT & T’s main Internet
backbone was “not consistent with normal AT & T practice”. Marcus further observed that at the time of the
reconfiguration, AT & T was in poor shape financially and would have been very unlikely to have made such expensive
infrastructure changes on its own.
In July 2006, Senator Specter announced that an agreement had been reached with the White House to give the
Foreign Intelligence Surveillance Court the authority to review the constitutionality of the NSA’s surveillance programs.
The court would be empowered to determine whether wiretapping fell within the president’s powers to fight the war on
terrorism. The agreement allowed for the court’s proceedings and rulings to be conducted in secret. Even though judicial
oversight of the NSA’s activities had been established, debate continued over the efficacy of the compromise. The American
Civil Liberties Union and the ranking democrat on the House Intelligence Committee, Representative Jane Harman of
California, accused Senator Specter of giving away too much, including a key Fourth Amendment protection.
The White House won several important points in the agreement, including the ability to appeal the court’s
decisions; changing the language so that submitting a program to the court was actually optional for the administration;
and a guarantee that the agreement doe’s not retract any of the president’s existing constitutional authority. On the other
hand the lead judge on the court was known to have significant misgivings about the NSA’s actions ever before the
program came to light. The bill to enact FISA’s power over NSA wiretapping awaits Congressional approval.
CASE IV QUESTIONS
1. Do the increased surveillance power and capability of the U.S. government present an ethical dilemma? Explain
your answer.
2. Apply an ethical analysis to the issue of the U.8 government’s use of telecommunications data to fight terrorism.
3. What are the ethical, social, and political issues raised by the U.S. government creating massive databases to
collect the calling data of millions of Americans?
4. What is the responsibility of a business such as AT & T or Verizon in this Matter? What are the ethical, social, and
political issues rose by a business, such as a phone company, working with the government in this fashion?
5. State your opinion of the agreement reached by the White House and the Senate Judiciary Committee with regard
to the NSA wiretapping program. Is this an effective solution?
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Subject: Quantitaive Methods Marks: 100
14
CASE V – Merrill Lynch Connects Past and Future Technology
Merrill Lynch is a worldwide leader in-;’financial management and advisory services, employing 50,600 workers
36 countries and territories. The company and its subsidiaries provide brokerage, investment banking, financing, wealth
management, advisory, asset management, insurance, lending, and other related products and services to private,
institutional and government clients with assets of $1.6 trillion” In 2005, Merrill Lynch posted a record S5.1 billion net
earnings, a 15 percent increase over the previous year, on net revenues of $26 billion.
One of the most critical components of Merrill, Lynch’s operations is its information technology infrastructure.
Over the last five years, that IT infrastructure has played a major role in the company gains. Like many financial
institutions, Merrill Lynch has had to modernize its technology infrastructure order to remain competitive.
Merrill Lynch considered its IBM mainframe installation, which was one of the largest in the world, to be a
strategic asset. The mainframe ran in the neighborhood of 23,000 programs to process the firm’s 80 million daily online
transactions for accessing customer accounts online or making stock trades.
In modernizing its technology, Merrill Lynch had to make choices regarding its legacy computers and applications.
Internet-based applications that gave customers access to their portfolios and tools to work with them were a key to
remaining competitive. But these applications did not use mainframe-based software. How could Merrill Lynch develop
such applications while leveraging the processing power and wealth of data in its mainframe?
The answer appeared to be Web services and a service-oriented architecture (SOA). Most corporations developing
a SOA typically use commercially available platforms such as those from BEA Systems and webMethods instead of creating
their own development platforms. They rely on the vendor’s expertise and access to consultants familiar with integrating
mainframe and Web applications.
Project leader Jim Crew, then head of database infrastructure for Merrill Lynch, determined that on the surface,
purchasing an SOA platform was much easier than building one, and would have enabled the firm to deploy its Web
services relatively quickly However, no SOA vendors that Crew researched offered products that met Crew’s requirements
for the project. They were offering SOA platforms that were geared toward distributed programming and recent
development tools such as Java and .NET.
Merrill Lynch’s 1200 mainframe programmers did not have experience with these tools. Retraining this huge staff
did not make sense economically, nor did purchasing new workstations required for running the development software.
According to research from Gartner Group consultants. retraining Merrill Lynch’s mainframe programmers could have
taken as much as a year and cost more than $80 million. To Crew, it was obvious that the firm should pursue a more
unconventional approach; construct a proprietary Web development platform from the ground up to extend the
capabilities of its legacy mainframe systems.
Merrill Lynch had initially tried to avoid these costs by copying the data stored in its mainframe installation into
Oracle, Sybase, or Microsoft SQL Server databases. In those formats, the data were compatible with server-based
applications. However, that technique was not entirely satisfactory. Copying large quantities of data often introduces
errors based on disk failures and space issues. Furthermore, some data can become obsolete as soon as they are copied.
For instance, a client who made several stock trades would have to wait until the next day to see an accurate balance in his
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15
or her account. Crew noted that the firm was spending money on copying data that could quickly be out-of-date while the
accurate data were always residing on the mainframe.
Instead, Merrill Lynch created its own set of in-house proprietary tools that enable its mainframe legacy programs
and the functions they perform to be exposed as Web services. XML tags are used to describe the data for other
applications that are equipped to interpret XML. SOAP makes it possible for programs running under different operating
systems to communicate with each other. Together, the two standards made it possible for online applications to
communicate effectively with the mainframe without an additional layer of middleware.
Merrill Lynch’s Web services toolset -was called X4ML, which stood for XML for Modernizing Legacy. Crew
challenged his team to increase the firm’s savings from Web services ten-fold to $20 million. Crew’s team established five
criteria for the Web services project:
1. No new programming languages for the mainframe programmers to learn.
2. No new software tools for development that would require expensive workstations; tools would be accessible
from a Web browser.
3. A central storage directory for the Web services that would be developed so that programmers could easily reuse
and repackage them with each other.
4. Web services developed as a result of the project had to conform to the existing mainframe security standards as
well as Web security standards for encryption, authentication, and authorization.
5. Inclusion of budding Web services standards in the Web services architecture to ensure future availability.
The project team prohibited the new platform from requiring changes to program code on the mainframe or
hindering its operation in any respect. The team did not want to alter the mainframe in any way because of its track
record, its complexity, and the fact that there was likely no one on staff who knew the inner workings of its deep-rooted
code.
To maximize simplicity and speed, the team did not install a middleware server to translate requests made to it in
other languages, such as Java, into instructions that could be understood by the mainframe applications. Instead, the
translation software was written in Assembly Language (a programming language dating to the 1950s that is rarely used
today for business applications) and installed directly on the mainframe This strategy reduced the number of things that
could go wrong during translations and promised better performance.
The lack of middleware meant that the system’s users such as Merrill Lynch financial advisers, could “•quest
information directly from the mainframe from their desktops. For example, an adviser could a Web browser to request a
list of all clients who owned shares of certain stock, such as General Electric (GE). The request arrives at the mainframe to
perform a particular operation, and the search is translated by XML.
A Merrill Lynch mainframe programmer can access the X4ML development tool from a desktop Web browser.
Using X4ML, the programmer can create and name a new Web service, import the necessary application from the
mainframe, and then pick and choose which parts of the operation in the legacy application to include in the Web service.
Thus, a programmer is able to produce a Web service that pulls out all of the personal data for a client, or copy the less
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16
sensitive data, such as name and address. Once a programmer creates a Web service, it is, listed in a Universal Description,
Discovery, and Integration (UDDI) directory, where it can be accessed by other programmers. The X4ML development tool
also includes a testing capability, which enables programmers to correct errors before deploying a service, as well as
utilize trial-and-error to perfect combinations of applications for new services.
Merrill Lynch earmarked $1 billion over a three-year period to use X4ML to provide its 14,000 financial advisers
with a new suite of wealth management applications. For this initiative, the firm teamed with Thomson Financial and
Siebel Systems (now owned by Oracle), which offered financial data and research services and client management
expertise, respectively.
Merrill Lynch’s investment in Web services saved the company S41 million in application development costs. The
company wrung even more value out of X4ML by selling it in December 2005 to Web services vendor SOA Software Inc. of
Los Angeles. As part of the deal, Crew and three other key members of the X4ML team shifted their employment to SOA
Software to continue enhancing the tool, which was renamed Service Oriented Legacy Architecture (SOLA). Merrill Lynch
had a long history of selling internally developed technology, and it viewed the sale of X4ML as a way of optimizing its
investment.
Chief Technology Architect Andrew Brown did not think that turning the technology over to another company
would hurt his firm’s competitive advantage. He needed six months to convince management that selling to a software
vendor was the right move. After the fact, management appreciated the value of the sale and the space that it created in the
IT budget. At the time of the sale, X4ML was utilizing 600 Web services for 40 different core applications at Merrill Lynch
and processing 1.5 million transactions daily. The price of the X4ML sale to SOA was not disclosed, but SOA Software began
selling SOLA to customers in 2006 for $125,000. Purchasers of the tool were poised to gain unmatched scalability.
Meanwhile, the success of X4ML gave a second life to Merrill Lynch’s mainframe programmers and their work.
CASE V QUESTIONS
1. Why did Merrill Lynch need to update its infrastructure?
2. What is the relationship of information technology to Merrill Lynch’s business strategy? How was its Web services
initiative related to that strategy?
3. Evaluate Merrill Lynch’s approach to Web services development. What are the advantages and disadvantages? Is it
a good solution? Explain your answer.
4. Do you think that Merrill Lynch’s decision to sell off its successful technology initiatives was a good idea? Why or
why not?
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Subject: Quantitaive Methods Marks: 100
17
Case VI – PANASONIC CREATES A SINGLE VERSION OF THE TRUTH FROM ITS DATA
Panasonic is one of the world’s leading electronics manufacturers. It operates under the auspices of parent
company Matsushita Electric Industrial Co. Ltd., a conglomeration of over 600 firms that is based in Kadoma, Japan.
Collectively, the businesses of Matsushita manufacture 15,000 products for a global market and employ 330,000 people
internationally. In Europe alone, Panasonic has 15 sales subsidiaries, 14 manufacturing facilities, five research and
development centers, and seven administrative stations. Add in major presences around the world, including Asia and
North America, and it is clear that Panasonic’s operations cover the globe.
With so many different sources of data, the company found itself with product and customer data that were often
inconsistent, duplicate, or incomplete. Different segments of the company used their own pools of data, which were
completely isolated from the data that the rest of the company was using. These conditions combined to be a drag on
operational efficiency and drained significant amounts of money from the corporation as a whole.
The types of data required to launch a new Panasonic product included photos, product specifications and
descriptions, manuals, pricing data, and point-of-sale marketing information. Employees adapted product information to
suit the needs of their country or region. It took considerable time and effort to sift through all the data and create a common
set of data for launching products globally, which allowed competitors to infiltrate markets that Panasonic did not
reach in its first phase of a launch.
To solve this problem, Panasonic decided to pursue a “single version of the truth.” Daily activities required the
data to pass though legacy systems, fax machines, e-mail, phone calls, and regular mail. With so man}’ people handling the
data in such a variety of formats, inefficiencies and inaccuracies were always a risk. Erasing these problems promised to
increase Panasonic’s speed of bringing products to market.
Panasonic was enjoying a number of successes: a market leadership in plasma TVs, a successful transition of
company presidents, and a well-received marketing identity, “Panasonic: Ideas for Life.” However, these positives were
overshadowed by the administrative costs incurred by such an immense organization. Thus, when Fumio Otsubo took over
as president in June 2006, he took over a y company with an operating profit margin of only 5 percent. The board of
directors saddled him with the goal of increasing the margin to 10 percent by 2010.
In Panasonic’s industry, consumers expect the price of new technology to decrease over time, which it had for
items that were strengths at Panasonic such as plasma TVs and DVD players. Therefore, Otsubo could not expect to
increase the company’s profit margin by increasing prices. Instead, he had to set his sights on reducing costs and
increasing sales.
Starting in Europe, Panasonic sought to replace its “pull” model of data dissemination with a “push” model.
Previously, employees in marketing and sales had to request data from numerous repositories. Under the push model, a
centralized data bank sends the information to all employees who need it at the same time, ensuring uniformity. The
recipients of p the data include retail partners and e-commerce vendors, who receive complete product information at all
stages of a product rollout. Panasonic employees receive data on a more targeted basis. The benefits to Panasonic Europe
are more consistent product rollouts and product information. The latter ensures that customers do not become confused
while researching their purchases, which could motivate them to abandon Panasonic for a competitor.The technical force
behind Panasonic Europe’s data management overhaul was master-data-management (MDM) software from IBM’s
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WebSphere line. The software enabled Panasonic Europe to consolidate date data, as well as systematize the business
processes related to the data. Overall, the company gained better control over its internal data.
Generally speaking, MDM software aims to merge disparate records into one authenticated master file. Many
companies have adopted MDM to fix discrepancies among the databases used by their various departments (e.g., the
accounting department having record of fewer customers than the number of customer IDs in the CRM database). MDM is
particularly useful for companies that have data integration issues as a result of mergers or acquisitions. Small and midsize
firms generally do not have the kinds of challenges that would require an MDM solution.
Implementing MDM is a multi-step process that “includes business process analysis, data assessment, data
cleansing, data consolidation and reconciliation, data migration, and development of a master data is service layer. These
steps produce a system of records that stores the master file for all of the company’s data. It is critical for the organization
to institute strict policies against computing activities that could compromise the authenticity of the data. Once -the MDM
is in place, employees and applications access a consolidated view of the company’s data. The implementation should
enforce standards for the formatting and storage of data, such as the num- her of fields in an address record or the number
of digits in a ZIP code. The service layer of the MDM preserves the view of the master data for applications and
synchronizes updates to the master file. In the case of Panasonic, the deployment of the IBM MDM software paid quick
dividends. Within a year and a half, Panasonic Europe was getting products to market faster and spending 50 percent less
time creating and maintaining product information. Time-to-market for a product was reduced from five to six months to
one to two months. According to internal calculations, Panasonic Europe improved its efficiency by a factor of 5 and
anticipates saving a million euros a year while increasing sales by 3.5 percent.
However, analyst Paul Jackson of Forrester Inc., cautioned against high expectations of boosted sales based on
data management improvements. He pointed to pricing, innovation, and strategic partnerships as better strategies for
long-term market share increases. When Panasonic North America had to reconcile its data, it did not have to confront the
challenge of multiple countries with multiple languages and currencies complicating product launches, as had its European
counterpart. However, the challenges of reorganizing workflow and consolidating product information were just as
daunting.
Panasonic faced this issue when it needed to provide a consolidated view of product information for retail giant
Wal-Mart. Panasonic started by identifying the information that Wal-Mart would need, which was data that adhered
closely to industry standards. Then, the electronics maker searched its legacy systems for the sources of the required data.
Finally, Panasonic worked with IBM to create an interface apparatus to collect the required data for a repository. Some
information, such as that produced by newer business processes, was not available in the legacy systems. Panasonic had to
add new interfaces in order to include this information and then build an application-integration layer to send the whole
package to Wal-Mart.
Each of the company’s multiple facilities made its own contributions to new products. More importantly, the
facilities had their own cultures and information infrastructures. They also valued their autonomy and the flexibility it
furnished. Different Panasonic entities might be unwilling to give up control over information due to the perceived loss of
power. The company required clear music management rules to prevent too many hands from manipulating the data so
that the master would remain pristine. Panasonic North America Information Technology vice president Bob Schwartz
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19
hoped that the tierce competition threatening the standing of his company would help convince the traditionalists to
support data-sharing. However, he expected that convincing the enterprise of this would be an uphill battle.
Besides all the units of Panasonic North America, there were manufacturing partners to briny aboard. Without
them, the system could not fulfill its complete potential. This had been a serious challenge for Panasonic Europe, where
most partners were based in Asia and were content with their manual processes for managing product data Paul Bolton,
senior manager for e-commerce and customer relationship management solutions deployed the product information
database at Panasonic first. Once it proved effective, he then presented its capabilities to the other manufacturers and won
them over.Schwartz therefore had a strategy and a roadmap to clear that hurdle. What remained was perhaps the biggest
hurdle; convincing the corporate office in Japan that their data management strategy deserved global adoption. Only then
would the application of MDM principles achieve its full benefit. In the meantime, Schwartz reached out to Panasonic’s
vendors in the U.S. and gained additional profits from the company’s improved data. Panasonic was able to use the data to
reduce the amount of time that vendors such as Best Buy and Circuit City kept high-cost inventory, such as large-model
TVs, in stock from 35 to 7 days, thereby increasing their profit margins.
CASE VI QUESTIONS:
1. Evaluate Panasonic’s business strategy using the competitive forces and value chain models.
2. How did Panasonic’s information management problems affect its business performance and ability to
execute its strategy? What management, organization and technology factors were responsible for those
problems?
3. How did master data management address these problems? How effective was this solution?
4. What challenges did Panasonic face in implementing this solution?

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1
Attempt Only 4 Case Study
CASE – 1 MANAGING HINDUSTAN UNILEVER STRATEGICALLY
Unilever is one of the world’s oldest multinational companies. Its origin goes back to the 19th century
when a group of companies operating independently, produced soaps and margarine. In 1930, the companies
merged to form Unilever that diversified into food products in 1940s. Through the next five decades, it emerged
as a major fast-moving consumer goods (FMCG) multinational operating in several businesses. In 2004, the
Unilever 2010 strategic plan was put into action with the mission to ‘bring vitality to life’ and ‘to meet everyday
needs for nutrition, hygiene and personal care with brands that help people feel good, look good, and get more
out of life’. The corporate strategy is of focusing on bore businesses of food, home care and personal care.
Unilever operates in more than 100 countries, has a turnover of € 39.6 billion and net profit of € 3.685 billion
in 2006 and derives 41 per cent of its income from the developing and emerging economies around the world.
It has 179,000 employees and is a culturally-diverse organisation with its top management coming from 24
nations. Internationalisation is based on the principle of local roots with global scale aimed at becoming a
‘multi-local multinational’.
The genesis of Hindustan Unilever (HUL) in India, goes back to 1888 when Unilever exported Sunlight
soap to India. Three Indian, subsidiaries came into existence in the period 1931-1935 that merged to form
Hindustan Lever in 1956. Mergers and acquisitions of Lipton (1972), Brooke Bond (1984), Ponds (1986),
TOMCO (1993), Lakme (1998) and Modern Foods (2002) have resulted in an organisation that is a
conglomerate of several businesses that have been continually restructured over the years.
HUL is one of the largest FMCG company in India with total sales of Rs. 12,295 crore and net profit of
1855crore in 2006. There are over 15000 employees, including more than 1300 managers. The present
corporate strategy of HUL is to focus on core businesses. These core businesses are in home and personal care
and food. There are 20 different consumer categories in these two businesses. For instance, home and personal
care is made up of personal wash, laundry, skin care, hair care, oral care, deodorants, colour cosmetics and
ayurvedic personal and health care, while food businesses have tea, coffee, ice creams and processed food
brands. Apart from the two product divisions, there are separate departments for specialty exports and new
ventures.
Strategic management at HUL is the responsibility of the board of directors headed by a chairman. There
are five independent and five whole-time directors. The operational management is looked after by a
management committee comprising of Vice Chairman, CEO and managing director and executive directors of
the two business divisions and functional areas. The divisions have a lot of autonomy with dedicated assets and
resources. A divisional committee having the executive director and heads of functions of sales, commercial and
manufacturing looks after the business level decision-making. The functional-level management is the
responsibility of the functional head. For instance, a marketing manager has a team of brand managers looking
after the individual brands. Besides the decentralised divisional structure, HUL has centralised some functions
such as finance, human resource management, research, technology, information technology and corporate and
legal affairs.
Unilever globally and HUL nationally, operate in the highly competitive FMCG markets. The consumer
markets for FMCG products are finicky: it’s difficult to create customers and much more difficult to retain them.
Price is often the central concern in a consumer purchase decision requiring producers to be on continual
guard against cost increases. Sales and distribution are critical functions organisationally. HUL operates in such
a milieu. It has strong competitors such as the multinationals Procter & Gamble, Nivea or L’Oreal and
formidable local companies such as, Amul, Nirma or the Tata
FMCG companies to contend with. Rivals have copied HUL’s strategies and tactics, especially in the area of
marketing and distribution. Its innovations such as new style packaging or distribution through women
entrepreneurs are much valued but also copied relentlessly, hurting its competitive advantage.
The Indian Institute of Business Management & Studies
Subject: Strategic Management Marks: 100
2
HUL is identified closely with India. There is a ring of truth to its vision statement: ‘to earn the love and
respect of India by making a real difference to every Indian’. It has an impeccable record in corporate social
responsibility. There is an element of nostalgia associated with brands like Lifebuoy (introduced in 1895) and
Dalda (1937) for senior citizens in India. Consequently Indians have always perceived HUL as an Indian
company rather than a multinational. HUL has attempted to align its strategies in the past to the special needs
of Indian business environment. Be it marketing or human resource management, HUL has experimented with
new ideas suited to the local context. For instance, HUL is known for its capabilities in rural marketing, effective
distribution systems and human resource development. But this focus on India seems to be changing. This
might indicate a change in the strategic posture as well as recognition that Indian markets have matured to the
extent that they can be dealt with by the global strategies of Unilever. At the corporate level, it could also be an
attempt to leverage global scale while retaining local responsiveness to some extent.
In line with the shift in corporate strategy, the focus of strategic decision-making seems to have moved
from the subsidiary to the headquarters. Unilever has formulated a new global realignment under which it will
develop brands and streamline product offerings across the world and the subsidiaries will sell the products.
Other subtle indications of the shift of decision-making authority could be the appointment of a British CEO
after nearly forty years during which there were Indian CEOs, the changed focus on a limited number of
international brands rather than a large range of local brands developed over the years and the name-change
from Hindustan Lever to Hindustan Unilever.
The shift in the strategic decision-making power from the subsidiary to headquarters could however,
prove to be double-edged sword. An example could be of HUL adopting Unilever’s global strategy of focussing
on a limited number of products, called the 30 power brands in 2002. That seemed a perfectly sensible
strategic decision aimed at focusing managerial attention to a limited set of high-potential products. But one
consequence of that was the HUL’s strong position in the niche soap and detergent markets suffering owing to
neglect and the competitors were quick to take advantage of the opportunity. Then there are the statistics to
deal with: HUL has nearly 80 per cent of sales and 85 per cent of net profits from the home and personal care
businesses. Globally, Unilever derives half its revenues from food business. HUL does not have a strong position
in the food business in India though the food processing industry remains quite attractive both in terms of local
consumption as well as export markets. HUL’s own strategy of offering low-price, competitive products may
also suffer at the cost of Unilever’s emphasis on premium priced, high end products sold through modern
outlets.
There are some dark clouds on the horizon. HUL’s latest financials are not satisfactory. Net profit is down,
sales are sluggish, input costs have been rising and new food products introduced in the market have yet to
pick up. All this while, in one market segment after another, a competitor pushes ahead. In a company of such a
big size and over-powering presence, these might still be minor events developments in a long history that
needs to be taken in stride. But, pessimistically, they could also be pointers to what may come.
Questions:
1. State the strategy of Hindustan Unilever in your own words.
2. At what different levels is strategy formulated in HUL?
3. Comment on the strategic decision-making at HUL.
4. Give your opinion on whether the shift in strategic decision-making from India to Unilever’s
headquarters could prove to be advantageous to HUL or not.
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Subject: Strategic Management Marks: 100
3
CASE: 2 THE STRATEGIC ASPIRATIONS OF THE RESERVE BANK OF INDIA
The Reserve Bank of India (RBI) is India’s central bank or ‘the bank of the bankers’. It was established on
April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1935. The Central Office of the
RBI, initially set up at Kolkata, is at Mumbai. The RBI is fully owned by the Government of India.
The history of RBI is closely aligned with the economic and financial history of India. Most central banks
around the world were established around the beginning of the twentieth century. The Bank was established
on the basis of the Hilton Young Commission. It began its operations by taking over from the Government the
functions so far being performed by the Controller of Currency and from the Imperial Bank of India, the
management of Government accounts and public debt. After independence, RBI gradually strengthened its
institution-building capabilities and evolved in terms of functions from central banking to that of development.
There have been several attempts at reorganisation, restructuring and creation of specialised institutions to
cater to emerging needs.
The Preamble of the RBI describes its basic functions like this: ‘….to regulate the issue of Bank Notes and
keeping of reserves with a view to securing monetary stability in India and generally to operate the currency
and credit system of the country to its advantage.’ The vision states that the RBI ‘….aims to be a leading central
bank with credible, transparent, proactive and contemporaneous policies and seeks to be a catalyst for the
emergence of a globally competitive financial system that helps deliver a high quality of life to the people in the
country.’ The mission states that ‘RBI seeks to develop a sound and efficient financial system with monetary
stability conductive to balanced and sustained growth of the Indian economy’. The corporate values of
underlining the mission statement include public interest, integrity, excellence, independence of views and
responsiveness and dynamism.
The three areas in which objectives of the RBI can be stated are as below.
1. Monetary policy objectives such as containing inflation and promoting economic growth, management
of foreign exchange reserves and making currency available.
2. Objectives set for managing financial sector developments such as supervision of systems and
information access and assisting banking and financial institutions to become competitive globally.
3. Organisational development objectives such as development of economic research facilities, creating
information system for supporting economic decision-making, financial management and human
resource management.
Strategic actions taken to realise the objectives fall under four categories:
1. The thrust area of monetary policy formulation and managing financial sector;
2. Evolving the legal framework to support the thrust area;
3. Customer service for providing support and creation of positive relationship; and
4. Organisational support such as structure, systems, human resource development and adoption of
modern technology.
The major functions performed by the RBI are:
 Acting as the monetary authority
 Acting as the regulator and supervisor of the financial system
 Discharging responsibilities as the manager of foreign exchange
 Issue currency
 Play as developmental role
 Related functions such as acting as the banker to the government and scheduled banks
The management of the RBI is the responsibility of the central board of directors headed by the governor
and consisting of deputy governors and other directors, all of whom are appointed by the government. There
are four local boards based at Chennai, Kolkata, Mumbai and New Delhi. The day-to-day management of RBI is
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4
in the hands of the executive directors, managers at various levels and the support staff. There are about 22000
employees at RBI, working in 25 departments and training colleges.
The RBI identified its strengths and weaknesses as under.
 Strengths A large body of competent officers and staff; access to key data on the economy; wide
organisational network with 22 regional offices; established infrastructure; ability to attract talent;
and financial self sufficiency.
 Weaknesses Structural rigidity, lack of accountability and slow decision-making; eroded specialist
know-how; strong employee unions with rigid industrial relations stance; surplus staff; and weak
market intelligence.
Over the years, the RBI has evolved in terms of structure and functions, in response to the role assigned to
it. There have been sweeping changes in the economic, social and political environment. The RBI has had to
respond to it even in the absence of a systematic strategic plan. In 1992, the RBI, with the assistance of a private
consultancy firm, embarked on a massive strategic planning exercise. The objective was to establish a roadmap
to redefine RBI’s role and to review internal organisational and managerial efficacy, address the changing
expectations from external stakeholders and reposition the bank in the global context. The strategic planning
exercise was buttressed by departmental position papers and documents on various subjects such as
technology, human resources and environmental trends. The strategic plan of the RBI emerged with four
sections dealing with the statement of mission, objectives and policy, a review of RBI’s strengths and
weaknesses and strategic actions required with an implementation plan. The strategic plan reiterates
anticipation of evolving external environment in the medium-term; revisiting strengths and weaknesses
(evaluation of capabilities); and doing away with the outdated mandates for enhancing efficiency in operations
in furtherance of best public interests. The results of these efforts are likely to manifest in attaining a visible
focus, reinforced proficiency, realisation of shared sense of purpose, optimising resource use and build-up of
momentum to achieve goals.
Historically, the RBI adopted the time-tested technique of responding to external environment in a
pragmatic manner and making piecemeal changes. The dilemma in adoption of a comprehensive strategic plan
was the risk of trading off the flexibility of the pragmatic approach to creating rigidity imposed by a set model
of planning.
Questions:
1. Consider the vision and mission statements of the Reserve Bank of India. Comment on the quality of
both these statements.
2. Should the RBI go for a systematic and comprehensive strategic plan in place of its earlier pragmatic
approach of responding to environmental events as and when they occur? Why?
The Indian Institute of Business Management & Studies
Subject: Strategic Management Marks: 100
5
CASE: 3 THE INTERNATIONALISATION OF KALYANI GROUP
The Kalyani Group is a large family-business group of India, employing more than 10000 employees. It has
diverse businesses in engineering, steel, forgings, auto components, non-conventional energy and specialty
chemicals. The annual turnover of the Group is over US$2.1 billion. The Group is known for its impressive
internationalisation achievements. It has nine manufacturing locations spread over six countries. Over the
years, it has established joint ventures with many global companies such as ArvinMeritor, USA, Carpenter
Technology Corporation, USA, Hayes Lemmerz, USA and FAW Corporation, China.
The flagship company of the Group is Bharat Forge Limited that is claimed to be the second largest
forging company in the world and the largest nationally, with about 80 per cent share in axle and engine
components. The other major companies of the Group are Kalyani Steels, Kalyani Carpenter Special Steels,
Kalyani Lemmerz, Automotive Axles, Kalyani Thermal Systems, BF Utilities, Hikal Limited, Epicenter and Synise
Technologies
The emphasis on internationalisation is reflected in the vision statement of the Group where two of the
five points relate to the Group trying to be a world-class organisation and achieving growth aggressively by
accessing global markets. The Group is led by Mr. B.N. Kalyani, who is considered to be the major force behind
the Group’s aggressive internationalisation drive. Mr. Kalyani joined the Group in 1972 when it was a smallscale
diesel engine component business.
The corporate strategy of the Group is a combination of concentration of its core competence in its
business with efforts at building, nurturing and sustaining mutually beneficial partnerships with alliance
partners and customers. The value of these partnerships essentially lies in collaborative product development
with the partners who are the original equipment manufacturers. The foreign partners are not intended to
provide expansion in capacity, but to enable the Kalyani Group to extend its global marketing reach.
In achieving its successful status, the Kalyani Group has followed the path of integration, extending from
the upstream steel making to downstream machining for auto components such as crank-shafts, front axle
beams, steering knuckles, cam-shafts, connecting rods and rocker arms. In all these products, the Group has
tried to move up the value chain instead of providing just the raw forgings. In the 1990s, it undertook a
restructuring exercise to trim its unrelated businesses such as television and video products and concentrate
on its core business of auto components.
Four factors are supposed to have influenced the growth of the Group over the years. These are
mentioned below:
 Focussing on core businesses to maximise growth potential
 Attaining aggressive cost savings
 Expanding geographically to build global capacity and establishing leading positions
 Achieving external growth through acquisitions
The Group companies are claimed to be positioned at either number one or two in their respective
businesses. For instance, the Group claims to be number one in forging and machined components, axle
aggregates, wheels and alloy steel. The technology used by the Group in its mainline business of auto
components and other businesses, is claimed to be state-of-the-art. The Group invests in forging technology to
enhance efficiency, production quality and design capabilities. The Group’s emphasis on technology can be
gauged from the fact that in the 1990s, it took the risky decision of investing Rs. 100 crore in the then latest
forging technology, when the total Group turnover was barely Rs. 230 crore. Information technology is applied
for product development, reducing production and product development time, supply-chain management and
marketing of products. The Group lays high emphasis on research and development for providing engineering
support, advanced metallurgical analysis and latest testing equipment in tandem with its high-class
manufacturing facilities.
Being a top-driven group, the pattern of strategic decision-making within seems to be entrepreneurial.
There was an attempt to formulate a five-year strategic plan in 1997, with the participation of the company
The Indian Institute of Business Management & Studies
Subject: Strategic Management Marks: 100
6
executives. But no much is mentioned in the business press about that collaborative strategic decision-making
after that.
Recent strategic moves include Kalyani Steels, a Group company, entering into a joint venture agreement
in may 2007, with Gerdau S.A. Brazil for installation of rolling mills. An attempt to move out of the mainstream
forging business was made when the Group strengthened its position in the prospective business of wind
energy through 100 per cent acquisition of RSBconsult GmbH (RSB) of Germany. Prior to the acquisition, the
Group was just a wind farm operator and supplier of components.
Questions:
1. What is the motive for internationalisation by the Kalyani Group? Discuss.
2. Which type of international strategy is Kalyani Group adopting? Explain.
CASE 4: THE STORY OF SYNERGOS UNFOLDS
Synergos is a young management and strategy consulting firm based at Mumbai. It was established in 1992 at a
time when there were a lot of expectations among the industry people from the liberalisation policies that were
started the previous year by the Government of India.
The consulting firm is an entrepreneurial venture started by Urmish Patel, a dynamic person who worked
with a multinational consulting firm at the time. He left his comfortable position there to venture into the
management consultancy industry. The motivation was to be ‘the master of his own destiny’ rather than being
an employee working for others. Urmish comes from an upper middle-class Gujarati family, settled in a small
town in Rajasthan. His father was a government servant who retired with a meagre pension. His mother is a
housewife. His other siblings are all educated and well-settled in their respective careers and professions.
Urmish is a creative individual, uncomfortable with the status-quo. During his student days at a college at
Jaipur, he was continually coming up with bright ideas that some of his friends found to be preposterous. To
him, however, these were perfectly achievable ideas. He studied biotechnology and then went to the US on a
scholarship to do his Masters. After a semester at a well-known university there, he lost interest and switched
to pursue an MBA. He liked it and soon settled down to work with an American consultancy firm and toured
several countries on varied assignments during the seven years he worked there.
In 1992 came the urge to Urmish to chuck his job and be on his own. It was risky, yet an exciting step to
take. His accumulated capital was limited—just enough to rent office space, buy a few computers and hire an
assistant. There were no consultancy assignments for the first three months. But an acquaintance soon came to
his aid, introducing him to the CFO of a major family business group who needed advice on a performance
improvement project they wanted to launch. The opportunity came in handy though the returns were nothing
to write home about. That project was the first step to
The Indian Institute of Business Management & Studies
Subject: Strategic Management Marks: 100
7
many more that came gradually. Synergos started gaining presence in the competitive management
consultancy industry and attracting attention from the people whom they worked for. Word-of-mouth publicity
led them from one project to another for the first three years till 1995. Synergos took up whatever came its
way, delivering a cost-effective solution to its clients. A team of four had formed by now, each member of the
team specialising in services rendered to the clients. For instance, one of the members is a specialist in
engineering projects, while another has expertise finance. The third one is a service sector specialist, also
having experience in dealing with government matters.
The phase of rapid growth started some time in 1995 when the Synergos team decided to focus on the
small and medium enterprises (SMEs). These were firms that realised they had problems needing specialist
advice, but were apprehensive to approach the big firms on account of their limited outlay and inexperience of
dealing with such firms. Synergos came to their aid by tailoring their services as near as possible to their needs.
Another differentiation platform Synergos offered to its client was a fully-integrated consultancy service where
it got involved right from the stage of planning down to its implementation and monitoring.
Presently, Synergos has grown to be a medium-sized consultancy firm, serving clients in India and
abroad, working for industries ranging from auto components to financial services and for manufacturing
organisations to service providers. Some-how, nearly half of the assignments it has worked on have been for
mid-sized, upcoming, family-owned businesses, a niche it has served well. These organisations typically need a
boutique sort of consultancy that can offer customised services dealing with a broad range of practices related
to strategy, organisation design, mergers and acquisitions and operational matter such as logistics and supplychain
management. Synergos fits in with their requirements owing to its personalised service and reasonable
commission structure.
The organisational structure at Synergos has a board at the top, consisting of seven people, including the
four founding members and three independent directors. One of the independent directors is the chairman of
the board. Urmish, as the founder CEO, also heads an executive management committee with each of the
founding members, leading three other top-level committees dealing with business portfolio, service
management and executive recruitment.
The management team is called the professional group. The rest of the employees are referred to as the
staff. The professional group has young women and men who are graduates from some of the best institutions
in India and abroad. They are assigned to taskforces based on their qualifications, experience and interests. The
departmentation at Synergos is flexible, based on an interplay of the three categories: skill, service and
specialty. For instance, a professional may have IT skills, may have worked to provide supply-chain
management services and developed expertise in handling operational assignments for medium-sized food and
beverage firms. There is a lot of multi-tasking however, to utilise the wide range of skills and special expertise
that the professionals have. For administrative matters, the professionals are assigned to client-service
departments of industry solutions, enterprise solutions and technology solutions. The flexibility that such an
organisational arrangement affords seems to have been the major reason for the evolution of the organisation
structure at Synergos over the years.
The staff group of employees consists of the support people who provide a variety of services to the
professionals. Among these are research assistants, industry analysts, documentation experts and secretarial
staff. There is no set pattern for assignment of staff to the administrative departments and generally, a needbased
approach is followed, depending on the workload at a particular time.
Recruitment for professionals is stringent. Synergos typically looks for a good combination of education
and experience and lays much emphasis on the compatibility of the prospective employee with the shared
values. Creativity, broad range of professional interests, intellectual acumen, team-working and physical fitness
to undertake demanding tasks and work for long hours are the criteria for hiring. There are not many training
opportunities except the on-the-job learning. New professionals are assigned to a mentor for some time till they
are ready to handle assignments autonomously. The staff members are usually recruited from fresh graduates,
with good degrees from reputed institutions, in arts, sciences and commerce. The staff positions are also open
for persons wanting to work on part-time or project-bases. Emphasis is given to the ability of the prospective
The Indian Institute of Business Management & Studies
Subject: Strategic Management Marks: 100
8
staff to undertake multi-tasking and work with documentation and word processing and presentation software
packages.
The compensation system consists of a base salary with commission and bonus depending on
performance. There are other usual elements such as medical reimbursement, loan facility and gratuity and
retirement benefits. the performance appraisal is informal, with at least one of the four founding members
being part of the evaluation committee for a professional. Usually, the founding member closest to the work
area of the employee is involved in determining the rewards to be given. The time-cycle for appraisal is one
year. Management control is discreet and performance-based rather than behaviour-based. The means for
control are informal, such as direct supervision.
Urmish is a strong proponent of the emergent strategy and is not in favour of tying Synergos to a fixed
strategic posture. So are the other founder members, though at times they do talk about deciding on a niche
such as SME organisations as clients and enterprise solutions as the core competence. In the highly fragmented
consultancy industry where it is possible for even one person to set up an office in a commercial area and
leverage connections to secure projects, Synergos is open to opportunities as they emerge, while trying to
maintain the flexibility that has made it successful till now.
Questions:
1. Identify the type of organisation structure being used at Synergos and explain how it works. What are
the benefits of using this type of structure? What are the pitfalls?
2. Express your opinion about whether the structure is in line with the recruitments of the strategy that
Synergos is implementing.
3. Based on the information related to the information, control and reward systems available in the case,
examine whether these systems are appropriate for the type of strategy being implemented.
The Indian Institute of Business Management & Studies
Subject: Strategic Management Marks: 100
9
CASE: 5 EXERCISING STRATEGIC AND OPERATIONAL CONTROLS AT iGATE
GLOBAL SOLUTIONS
The Bangalore-based iGATE Global Solutions is the flagship company of iGATE Corporation, a NASDAQ-listed
US-based corporation. Known earlier as Mascot Systems, it was set up in India in 1993, to offer staffing services.
It acquired business process outsourcing (BPO) and contact centre businesses in 2003, making it an end-to-end
IT and ITES service provider. Its service portfolio includes consulting, IT services, data analytics, enterprise
systems, BPO/BSP, contact centre and infrastructure management services. iGATE has over 100 active clients
and centres based in Canada, China, Malaysia, India, the UK and the US. Chairman, Ashok Trivedi and CEO
Phaneesh Murthy, an ex-Infosys IT professional and their partners hold a major stake, with some participation
by institutional and public investors. The revenues for 2006-2007 are over Rs. 805 crore and net profits, Rs.
49.6 crore.
The corporate strategies of iGATE are offering integrated IT services and divesting the legacy IT staffing
business and possibly making acquisitions in the domain expertise for financial services businesses. The
business strategy is focused differentiation based on the focal points of testing, infrastructure management and
enterprise solutions. The competitive tactic is avoiding head-on competition with the formidable larger players
in the industry by carving out a niche. The business definition is serving large customers and staying away from
sub-contracting work.
iGATE adopts a differentiation business model based on an integrated technology and operations model
which it calls as the iTOPS model. This is an advancement over the prevalent model in the ITES industry based
on low-cost arbitrage model. iTOPS is based on transaction-based pricing for services and supporting the
clients by providing the platform, processes and services.
The strategic evaluation and control has both the elements of strategic as well as operational controls.
The functional and operational implementation is aimed at achieving four sets of objectives:
(a) Shifting from small customers to large customer (Fortune 1000 companies)
(b) Shifting away from stocking to project-consulting assignments
(c) Working directly with clients rather than with system integrators
(d) Moving from a local to international markets
Some illustrations of the performance indicators that reflect these objectives are:
1. On-shore versus off-shore mix of business revenues: In 2004, this ratio was 55:45 and in 2007, it
has improved to 27:73, indicating a much higher revenue generation from off-shore business.
2. Billing rates: Revenue charged from clients on assignments. With project consulting assignments
from off-shore clients, where the revenues are typically higher, with lower costs and higher
productivity in India, the realisations from billing have to be higher. The industry norms for ITES
are US$18-25 per hour for off-shore and US$ 55-65 per hour for on-shore assignments.
3. The number of large clients from Fortune 1000 companies: Presently, iGATE has nearly half of its
more than 100 clients from Fortune 1000 companies, of which the top 10 account for 70 per cent
of its business.
4. Controlling employee costs: This is an area where concerted effort is required from the HR and
finance functions. Hiring less experienced employees lowers the compensation bill. In the IT and
ITES industry, attracting and retaining well-qualified and experienced employees is a critical
success factor. The performance indicator for this objective is the cost per employee.
5. Human resource metrics such as the hiring and attrition rates: In the IT and ITES industry, the
human resource metrics such as hiring and attrition rates are critical indicators. Increasing the
number of employees and lowering the attrition rate by retaining the employees is a big
challenge. There are presently about 5800 employees, likely to go up to 8500 in the next two
The Indian Institute of Business Management & Studies
Subject: Strategic Management Marks: 100
10
years. The attrition of 20 per cent presently at iGATE is on the higher side. But such attrition is
common in the industry where the employee mobility is high and employee pinching a
widespread trend.
The human resource management function being critical in an industry where so many challenges exist, needs
a strong emphasis on training and development, motivation, autonomy and attractive incentives. iGATE has an
integrated people management model focusing on developing technical, behavioural and leadership
competencies. The three metrics by which the HR function is assessed are: human capital index, work culture
and employee affective commitment. The reward system at iGATE consists of meritorious employees across all
levels being granted restricted stock options, thus providing an incentive to remain with the company till they
become due. The company, though, is an average paymaster, which disadvantage it tries to trade-off offering a
more challenging work environment, quicker promotions and chances for practising innovation.
Critics say that that iGATE lacks the big-brand appeal of the larger players such as Infosys and Wipro,
cannot compete on scale and is still under the shadow of its original business of body-shopping IT personnel.
Questions:
1. Analyse the iGATE case to highlight how it could apply some of the strategic controls such as premise
control, implementation control, strategic surveillance and special alert control.
2. Analyse and describe the process of setting of standards at iGATE.
3. Give your opinion on the effectiveness of the role of reward system in exercising HR performance
management at iGATE and suggest what improvements are possible, given the environmental
conditions in the IT/ITES industry in India at present.


MANAGERIAL ECONOMICS EXAM ANSWER SHEET PROVIDED

           MANAGERIAL ECONOMICS EXAM ANSWER SHEET PROVIDED

 

     IIBMS QUESTION PAPER

                Subject – Managerial Economics

                                 Marks – 100

 

 

Attempt Any Four Case Study

 

CASE – 1   Dabur India Limited: Growing Big and Global

 

Dabur is among the top five FMCG companies in India and is positioned successfully on the specialist herbal platform. Dabur has proven its expertise in the fields of health care, personal care, homecare and foods.

The company was founded by Dr. S. K. Burman in 1884 as small pharmacy in Calcutta (now Kolkata), India. And is now led by his great grandson Vivek C. Burman, who is the Chairman of Dabur India Limited and the senior most representative of the Burman family in the company. The company headquarters are in Ghaziabad, India, near the Indian capital New Delhi, where it is registered. The company has over 12 manufacturing units in India and abroad. The international facilities are located in Nepal, Dubai, Bangladesh, Egypt and Nigeria.

S.K. Burman, the founder of Dabur, was trained as a physician. His mission was to provide effective and affordable cure for ordinary people in far-flung villages. Soon, he started preparing natural remedies based on Ayurved for diseases such as Cholera, Plague and Malaria. Due to his cheap and effective remedies, he became to be known as ‘Daktar’ (Indianised version of ‘doctor’). And that is how his venture Dabur got its name—derived from Daktar Burman.

The company faces stiff competition from many multi national and domestic companies. In the Branded and Packaged Food and Beverages segment major companies that are active include Hindustan Lever, Nestle, Cadbury and Dabur. In case of Ayurvedic medicines and products, the major competitors are Baidyanath, Vicco, Jhandu, Himani and other pharmaceutical companies.

 

 

 

Vision, Mission and Objectives

 

Vision statement of Dabur says that the company is “dedicated to the health and well being of every household”. The objective is to “significantly accelerate profitable growth by providing comfort to others”. For achieving this objective Dabur aims to:

  • Focus on growing core brands across categories, reaching out to new geographies, within and outside India, and improve operational efficiencies by leveraging technology.
  • Be the preferred company to meet the health and personal grooming needs of target consumers with safe, efficacious, natural solutions by synthesising deep knowledge of ayurveda and herbs with modern science.
  • Be a professionally managed employer of choice, attracting, developing and retaining quality personnel.
  • Be responsible citizens with a commitment to environmental protection.
  • Provide superior returns, relative to our peer group, to our shareholders.

 

Chairman of the company

 

Vivek C. Burman joined Dabur in 1954 after completing his graduation in Business Administration from the USA. In 1986 he was appointed Managing Director of Dabur and in 1998 he took over as Chairman of the Company.

Under Vivek Burman’s leadership, Dabur has grown and evolved as a multi-crore business house with a diverse product portfolio and a marketing network that traverses the whole of India and more than 50 countries across the world. As a strong and positive leader, Vivek C. Burman has motivated employees of Dabur to “do better than their best”—a credo that gives Dabur its status as India’s most trusted nature-based products company.

 

Leading brands

 

More than 300 diverse products in the FMCG, Healthcare and Ayurveda segments are in the product line of Dabur. List of products of the company include very successful brands like Vatika, Anmol, Hajmola, Dabur Amla Chyawanprash, Dabur Honey and Lal Dant Manjan with turnover of Rs.100 crores each.

Strategic positioning of Dabur Honey as food product, lead to market leadership with over 40% market share in branded honey market; Dabur Chyawanprash is the largest selling Ayurvedic medicine with over 65% market share. Dabur is a leader in herbal digestives with 90% market share. Hajmola tablets are in command with 75% market share of digestive tablets category. Dabur Lal Tail tops baby massage oil market with 35% of total share.

CHD (Consumer Health Division), dealing with classical Ayurvedic medicines has more than 250 products sold through prescription as well as over the counter. Proprietary Ayurvedic medicines developed by Dabur include Nature Care Isabgol, Madhuvaani and Trifgol.

However, some of the subsidiary units of Dabur have proved to be low margin business; like Dabur Finance Limited. The international units are also operating on low profit margin. The company also produces several “me – too” products. At the same time the company is very popular in the rural segment.

Questions

 

  1. What is the objective of Dabur? Is it profit maximisation or growth maximisation? Discuss.
  2. Do you think the growth of Dabur from a small pharmacy to a large multinational company is an indicator of the advantages of joint stock company against proprietorship form? Elaborate.

 

CASE – 2   IT Industry: Checkered Growth

 

IT industry is now considered as vital for the development of any economy. Developing countries value the importance of this industry due to its capacity to provide much needed export earnings and support in the development of other industries. Especially in Indian context, this industry has assumed a significant position in the overall economy, due to its exemplary potentials in creating high value jobs, enhancing business efficiency and earning export revenues. The IT revolution has brought unexpected opportunities for India, which is emerging as an increasingly preferred location for customised software development. Experts are estimating the global IT industry to grow to US$1.6 million over the coming six years and exports to reach Rs. 2000 billion by 2008. It is envisaged that Indian IT industry, though a very small portion of the global IT pie, has tremendous growth prospects.

 

Stock Taking

 

The decade of 1970 may be taken as the stage of introduction of the Indian IT industry. The early years were marked by 75 per cent of software development taking place overseas and the rest 25 per cent in India. Exports of Indian software until the mid-1970s was mainly Eastern Europe, followed by US. Tata Consultancy Services (TCS) was among the pioneers in selling its services outside India, by working for IBM Labs in the US. The hardware segment lagged behind its software counterpart. With instances of exports worth US$ 4 million in 1980, the software segment of the industry has shown an uneven profile. It was not until 1980s that vigorous and sustained growth in software exports begun, as MNCs like Texas Instruments started to take serious interest in India as a centre of software production. Destinations of export also underwent changes, with US dominating the main export market with 75 per cent of the exports. The IT Enabled Services (ITeS) segment, however, had not emerged at this stage.

It was also during the mid to late 1980s that computer firms shifted focus from mainframe computers (the mainstay of MNCs) to Personal Computers (PCs). In March 1985, Minicomp installed the first ever PC at CSI, Delhi; this changed the entire industry for good. With the entry of networking and applications like CAD/CAM, PC sales soared in 1987-88, touching 50,000 units.

From a modest growth in the mid-1980s software exports moved up to Rs. 3.8 billion in 1991-92. Since then, it grew at an incredible rate, up to 115 per cent in 1993. The hardware could also register an annual growth of 40 per cent in this period, backed by a surging demand for PCs and networking. Growth of the industry was also driven by the emergence and rapid growth of the ITeS segment.

IT sector’s share of GDP rose steadily in this period, rate of increase being the highest at 44.91 per cent in 2000-01. It was in the same year that the size of the total IT market was the biggest in the decade, at Rs. 56,592 crore. The overall IT market was also found to increase till 2000-01. The overall IT market was also found to increase till 2000-01, with the only exception of 1998-99. The domestic market also showed an overall increase till 2000-01, registering a spectacular CAGR of 50.39 per cent. Aggregate output of software and services also increased in this period, though at an uneven rate. Of approximately $1 billion worth of sales in 1991-1992, domestic hardware sales constituted 37.2 per cent (13.4 per cent growth over the previous year), exports of hardware 6.6 per cent.

During 2000-01 the growth in the hardware segment was driven mainly by PCs, which contributed about 58 per cent of the total hardware market. This period also witnessed the phenomenon of increasing share of Tier 2 and cities in PC sales, thereby indicating PC penetration into the hinterland. PC shipments had increased by 35 per cent every year from 1997 till 2000-01 when it reached 1.8 million PCs. The commercial PC market saw a growth of 23.5 per cent mainly due to slashing of prices by major vendors.

It was in 2001-02 that the industry had a sharp fall in rate of growth of its share of GDP to 5.90 per cent, from 44.91 per cent in the previous year. The total IT market also showed a fall in growth rate from 56.42 per cent in 2000-01 to a mere 16.24 per cent in the next year, growing further at the rate of 16.25 per cent in the next year. Software export was also affected, registering a low growth of 28.74 per cent and failed to maintain its growth rate of 65.30 per cent in the previous year. It got further lowered to 26.30 per cent in 2002-03. CAGR of total output of software and services (in Rs. crore) came down to 25.61 in 2001-02 and further to 25.11 in 2002-03. The domestic market showed a steep decline in growth to 3 per cent in 2001-02 from an outstanding 50.39 per cent in 2000-01. It could, however, recover by growing at 4.11 per cent in the next year.

 

 

Table 1: Indian IT Industry: 1996-97 to 2002-03

 

Year A* B* C* D* E*
1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

 

 

1.22

1.45

1.87

2.71

2.87

3.09

 

 

18,641

25,307

36,179

56,592

65,788

76,482

 

3,900

6,530

10,940

17,150

28,350

36,500

46,100

 

6,594

10,899

16,879

23,980

37,350

47,532

59,472

 

9,438

12,055

14,227

18,837

28,330

29,181

30,382

 

 

*A: share of GDP of the Indian IT market, B: size of the Indian IT market (in Rs. crore), C: software and services exports (in Rs. crore), D: size of software and services (in Rs. crore), E: size of the domestic market (in Rs. crore)

 

 

Questions

 

1.                  Try to identify various stages of growth of IT industry on basis of information given in the case and present a scenario for the future.
2.                  Study the table given. Apply trend projection method on the figures and comment on the trend.
3.                  Compute a 3 year moving average forecast for the years 1997-98 through 2003-04.

 

 

 

 

 

 

 

 

 

 

CASE – 3   Outsourcing to India: Way to Fast Track

 

By almost any measure, David Galbenski’s company Contract Counsel was a success. It was a company Galbenski and a law school buddy, Mark Adams, started in 1993; it helps companies find lawyers on a temporary contract basis. The growth over the past five years had been furious. Revenue went from less than $200,000 to some $6.5 million at the end of 2003, and the company was placing thousands of lawyers a year.

At then the revenue growth began to flatten; the company grew just 8% in 2004 despite a robust market for legal services estimated at about $250 billion in the United States alone. Frustrated and concerned, Galbenski stepped back and began taking a hard look at his business. Could he get it back on the fast track? “Most business books say that the hardest threshold to cross is that $10 million sales mark,” he says. “I knew we couldn’t afford to grow only 10% a year. We needed to blow right through that number.”

For that to happen, Galbenski knew he had to expand his customer base beyond the Midwest into large legal supermarkets such as Boston, New York, and Washington, D.C. He also knew that in doing so, he could run into stiff competition from larger publicly traded rivals. Contract Counsel’s edge has always been its low price, Clients called when dealing with large-scale litigation or complicated merger and acquisition deals, either of which can require as many as 100 lawyers to manage the discovery process and the piles of documents associated with it. Contract Counsel’s temps cost about $75 an hour, roughly half of what a law firm would charge, which allowed the company to be competitive despite its relatively small size. Galbenski was counting on using the same strategy as he expanded into new cities. But would that be enough to spur the hyper growth that he craved for?

At that time, Galbenski had been reading quite a bit about the growing use of offshore employees. He knew companies like General Electric, Microsoft and Cisco were saving bundles by setting up call and data centers in India. Could law firms offshore their work? Galbenski’s mind raced with possibilities. He imagined tapping into an army of discount-priced legal minds that would mesh with his existing talent pool in the U.S. The two work forces could collaborate over the Web and be productive on a 24-7 basis. And the cost could be massive.

Using offshore workers was a risk, but the payoff was potentially huge. Incidentally Galbenski and his eight-person management team were preparing to meet for their semiannual review meeting. The purpose of the two-day event was to decide the company’s goals for the coming year. Driving to the meeting, Galbenski struggled to figure out exactly what he was going to say. He was still undecided about whether to pursue an incremental and conservative national expansion or take a big gamble on overseas contractors.

 

The Decision

 

The next morning Galbenski kicked off the management meeting. Galbenski laid out the facts as he saw them. Rather than look at just the next five years of growth, look at the next 20, he said. He cited a Forrester Research prediction that some 79,000 legal jobs, totaling $5.8 billion in wages, would be sent offshore by 2015. He challenged his team to be pioneers in creating a new industry, rather than stragglers racing to catch up. His team applauded. Returning to the office after the meeting, Galbenski announced the change in strategy to his 20 full-timers.

Then he and his team began plotting a global action plan. The first step was to hire a company out of Indianapolis, Analysts International, to start compiling a list of the best legal services providers in countries where people had comparatively strong English skills. The next phase was vetting the companies in person. In February 2005, just three months after the meeting in Port Huron, Galbenski found himself jetting off on a three months trip to scout potential contractors in India, Dubai, and Sri Lanka. Traveling to cities like Bangalore, Chennai and Hyderabad, he interviewed executives from more than a dozen companies, investigating their day-to-day operations firsthand.

India seemed like the best bet. With more than 500 law schools and about 200,000 law students graduating each year, it had no shortage or attorneys. What amazed Galbenski, however, was that thanks to the Web, lawyers in India had access to the same research tools and case summaries as any associate in the U.S. Sure, they didn’t speak American English. “But they were highly motivated, highly intelligent, and extremely process-oriented,” he says. “They were also eager to tackle the kinds of tasks that most new associated at law firms look down upon” such as poring over and coding thousands of documents in advance of a trial. In other words, they were perfect for the kind of document-review work he had in mind.

After a return visit to India in August 2005, Galbenski signed a contract with two legal services companies: QuisLex, in Hyderabad, and Manthan Services in Bangalore. Using their lawyers and paralegals, Galbenski figured he could cut his document-review rates to $50 an hour. He also outsourced the maintenance of the database used to store the contact information for his thousands of contractors. In all, he spent about 12 months and $250,000 readying his newly global company. Convincing U.S. based clients to take a chance on the new service hasn’t been easy. In November, Galbenski lined up pilot programs with four clients (none of which are ready to publicise their use of offshore resources). To help get the word out, he launched a website (offshore-legal-services.com), which includes a cache of white papers and case studies to serve as a resource guide for companies interested in outsourcing.

Questions

 

1.                  As money costs will decrease due to decision to outsource human resource, some real costs and opportunity costs may surface. What could these be?
2.                  Elaborate the external and internal economies of scale as occurring to Contract Counsel.
3.                  Can you see some possibility of economies of scope from the information given in the case? Discuss.

 

CASE – 4   Indian Stock Market: Does it Explain Perfect Competition?

 

The stock market is one of the most important sources for corporates to raise capital. A stock exchange provides a market place, whether real or virtual, to facilitate the exchange of securities between buyers and sellers. It provides a real time trading information on the listed securities, facilitating price discovery.

Participants in the stock market range from small individual investors to large traders, who can be based anywhere in the world. Their orders usually end up with a professional at a stock exchange, who executes the order. Some exchanges are physical locations where transactions are carried out on a trading floor. The other type of exchange is of a virtual kind, composed of a network of computers and trades are made electronically via traders.

By design a stock exchange resembles perfect competition. Large number of rational profit maximisers actively competing with each other, trying to predict future market value of individual securities comprises the main feature of any stock market. Important current information is almost freely available to all participants. Price of individual security is determined by market forces and reflects the effect of events that have already occurred and are expected to occur. In the short run it is not easy for a market player to either exit or enter; one cannot exit and enter for few days in those stocks which are under no delivery. For example Tata Steel was in no delivery from 29/10/07 to 02/11/07. Similarly one cannot enter or exit on those stocks which are in upper or lower circuit for few regular trading sessions. Therefore a player has to depend wholly on market price for its profit maximizing output (in this case stock of securities). In the long run players may exit the market if they are not able to earn profit, but at the same time new investors are attracted by rise in market price.

As on 01/11/07 total market capital at Bombay Stock Exchange (BSE) is $1589.43 billion (source: Business Standard, 1/11/2007); out of this individual investors account for only $100bn. In spite of the fact that individual investors exist in a very large number, their capital base is less than 7% of total market capital; rest of capital is owned by foreign institutional investor and domestic institutional investors (FIIs and DIIs), which are very small in number. Average capital owned by a single large player is huge in comparison to small investor. This situation seems to have prompted Dr Dash of BSE to comment ‘The stock market activity is increasingly becoming more centralised, concentrated and non competitive, serving interest of big players only.” Table 2 shows the impact of change in FII on National Stock Exchange movement during three different time periods.

 

Table 2: Impact of FIIs’ Investment on NSE

 

 

Wave

 

 

Date

 

 

Nifty

close

 

Change in Nifty Index

 

FLLS Net Investment

(Rs.Cr.)

 

Change in Market Capitalisation

(Rs.Cr.)

Wave 1

From

To

 

17/05/04

26/10/05

 

1388.75

2408.50

 

 

1019.75

 

 

59520

 

 

5,40,391

Wave 2

From

To

 

27/10/05

11/05/06

 

2352.90

3701.05

 

 

1348.15

 

 

38258

 

 

6,20,248

Wave 3

From

To

 

12/05/06

13/06/06

 

3650.05

2663.30

 

 

-986.75

 

 

-9709

 

 

-4,60,149

 

By design, an Indian Stock Market resembles perfect competition, not as a complete description (for no markets may satisfy all requirements of the model) but as an approximation.

 

 

 

 

 

Questions

 

  1. Is stock market a good example of perfect competition? Discuss.
  2. Identify the characteristics of perfect competition in the stock market setting.
  3. Can you find some basic aspect of perfect competition which is essentially absent in stock market?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASE – 5   The Indian Audio Market

 

The Indian audio market pyramid is featured by the traditional radios forming its lower bulk. Besides this, there are four other distinct segments: mono recorders (ranking second in the pyramid), stereo recorders, midi systems (which offer the sound amplification of a big system, but at a far lower price and expected to grow at 25% per year) and hi-fis (minis and micros, slotted at the top end of the market).

Today the Indian audio market is abound with energy and action as both national and international majors are trying to excel themselves and elbow the others, ushering in new concepts, like CD sound, digital tuners, full logic tape deck, etc. The main players in the Indian audio market are Philips, BPL and Videocon. Of these, Philips is one of the oldest and is considered at the leading national brands. In fact it was the first company to introduce a range of international products such as CD radio cassette recorder, stand alone CD players and CD mini hi-fi systems. With the easing of the entry barriers, a number of new international players like Panasonic, Akai, Sansui, Sony, Sharp, Goldstar, Samsung and Aiwa have also entered the arena. This has led to a sea of changes in the industry and resulted in an expanded market and a happier customer, who has access to the latest international products at competitive prices. The rise in the disposable income of the average Indian, especially the upper-income section, has opened up new vistas for premium products and has provided a boost to companies to launch audio systems priced as high as Rs. 50,000 and beyond.

 

Pricing across Segments

 

Super Premium Segment: This segment of the market is largely price-insensitive, as consumers are willing to pay a premium in order to obtain products of high quality. Sonodyne has positioned itself in this segment by concentrating on products that are too small for large players to operate in profitably. It has launched a range of systems priced between Rs. 30,000 to Rs. 60,000. National Panasonic has launched its super premium range of systems by the name of Technics.

 

Premium Segment: Much of the price game is taking place in this segment, in which systems are priced around Rs. 25,000. Even the foreign players ensure that the pricing is competitive. Entry barriers of yester years compelled the demand by this segment to be partially met by the grey market. With the opening up of the market, the premium segment is witnessing a rapid growth and is currently estimated to be worth Rs. 30 crores. Growth of this segment is also being driven by consumers who want to upgrade their old music systems. Another major stimulating factor is the plethora of financing options available, bringing more and more consumers to the market.

Philips has understood the Indian listener well enough to dictate the basic principles of segmentation. It projects its products as high quality at medium price. In fact, Philips had successfully spotted an opportunity in the wide price gap between portable cassette players and hi-fi systems and pioneered the concept of a midi system (a three-in-one containing radio, tape deck and amplifier in one unit). Philips has also realised that there is a section of the rich consumer which values not just power but also clarity and is willing to pay for it. The pricing strategy of Philips was to make the most of its image as a technology leader. To this end, it used non-price variables by launching of a range of state of art machines like the FW series, and CD players. Moreover, it came up with the punch line in its advertisements as, “We Invent For You”.

BPL stands second only to Philips in the audio market and focuses on technology as its USP. Its kingpin in the marketing mix is its high technology superior quality product. It is thus at being the product-quality leader. BPL’s proposition of fidelity is translated in its punchline for its audio systems as, ‘e-fi your imagination’ (d-fi stands for digital fidelity). The company follows a market skimming strategy. When a new product was launched, it was placed in the top end of the market, and priced accordingly. The company offers a range of products in all price segments in the market without discounting the brand.

Another major player, Videocon, has managed to price its products lower even in the premium segment. The success of the Powerhouse (a 160 watt midi launched by Philips in 1990) had prompted Videocon to launch the Select Sound range of midi stereo systems at a slightly lower price. At the premium end, Videocon is making efforts to upgrade its image to being “quality-driven” by associating itself with the internationally reputed brand name of Sansui from Japan, and following a perceived value pricing method.

Sony is another brand which is positioning itself as a premium product and charges a higher price for the superior quality of sound it offers. Unlike indulging into price wars, Sony’s ad-campaigns project the message that nothing can beat Sony in the quality and intensity of sound. National Panasonic is another player that has three products in the top end of the market, priced in the Rs. 21,000 to Rs. 32,000 range.

 

Monos and Stereos: Videocon has 21% share I the overall audio market, but has been a major player only in personal stereos and two-in-ones. Its history is written with instances where it has offered products of similar quality, but at much lower prices than its competitors. In fact, Videocon launched the Sansui brand of products with a view to transform its image from that of being a manufacturer of cheap products to that of being a company that primes quality, and also to obtain a share of the hi-fi segment. Sansui is being positioned as a premium brand, targeting the higher middle, upper income groups and also the sensitive middle class Indian consumer.

The objective of Philips in this segment is to achieve higher sales volumes and hence its strategy is to expand its range and have a product in every segment of the market. The pricing method used by Philips in this segment is providing value for money.

National Panasonic offers products in the lower end of the market, apart from the top of the range. In fact, it reduced the price of one of its small two-in-ones from Rs. 3,500 to Rs. 2,400, with the logic that a forte in the lower end of the market would help in building brand reliability across a wider customer base. The company is also guided by the logic that operating in the price sensitive region of the market will help it reach optimum levels of efficiency. Panasonic has also entered the market for midis.

These apart, there also exists a sector in the Indian audio industry, with powerful regional brands in mono and stereo segments, having a market share of 59% in mono recorders and 36% in stereo recorders. This sector has a strong influence on price performance.

 

 

Questions

 

  1. What major pricing strategies have been discussed in the case? How effective these strategies have been in ensuring success of the company?
  2. Is perceived value pricing the dominant strategy of major players?
  3. Which products have reached maturity stage in audio industry? Do you think that product bundling can be effectively used for promoting sale of these products?

 

 

 

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INDUSTRIAL MANAGEMENT EXAM ANSWER SHEET PROVIDED

INDUSTRIAL MANAGEMENT EXAM ANSWER SHEET PROVIDED

Note: Solve any 8 Questions

 

 

  1. To compare three sites, the various factors are listed, as given below. Select the optimal location and give reasons for your choice:

 

  Site A

Rs.

Site B

Rs.

Site C

Rs.

Rent 20,000 10,000 10,000
Labour 1,35,000 1,30,000 1,60,000
Freight Charges 81,000 64,000 28,000
Taxes Nil 3,500 2,000
Power 6,000 6,000 6,000
Community attitude Indifferent Want business Indifferent
Employee Housing Excellent Adequate Poor

 

 

  1. What are the principal considerations for location of:
  1. Steel industry around Bihar
  2. Zinc smelter Plant at Udaipur (Rajasthan)
  • Plastic industry in Bombay
  1. Khetri Copper Project in Rajasthan
  2. Textile industry at Bombay and Ahmedabad
  3. Sugar industry in Maharashtra and U.P.
  • Glass and Bangle industry at Firozabad
  • Woollen carpets at Mirzapur
  1. Silken sarees at Kanjiwaram ( Tamil Nadu )
  2. YMCA Institute of Engineering at Faridabad
  3. Indian Oil Refinery at Mathura
  • Iron foundaries at Agra
  • Brass sheet industry at Moradabad
  • Bed sheet industry at Sholapur.
  1. Escort Tractors Ltd. At Faridabad.

 

  1. a. What do you understand by “Centralised Production Planning and Control”?   Give its advantages.

 

  1. What is the position of P.P.C. in a works organization? Show it with the help of a chart.

 

  1. a. What do you understand by the ‘Follow up’ function of production planning and control? Explain

 

  1. Give a specimen of “Gantt Chart” which is normally used in the production planning and control department and describe briefly how it could be used for checking the actual progress of a job against the schedule

 

 

  1. a. What are the various Indirect Expenses which are essential in estimating the total cost? Explain

 

  1. What do you understand by depreciation? Explain

 

 

  1. a. What is the purpose of Work Measurement? Enumerate its uses

 

  1. What are the various allowances considered in Time Study?

 

  1. Define “Rating”. What is its necessity?

 

 

  1. a. What are the techniques of work measurement? Explain each of them briefly.

 

  1. Why is a job broken down into elements and what are the general rules for selection of elements?

 

 

  1. a. How ‘management functions’ differ from ‘administrative functions’ specially in the context of ‘differentiation’ and ‘integration’ activities involved in realising the organizational objectives?

 

  1. Distinguish between ‘formal’ and ‘informal’ type of communication system.

 

  1. Considering a manufacturing organization as a ‘socio-technical’ system indicate how the four principal functions of management are interrelated.

 

  1. a. Explain the assumption underlying PERT and CPM network models applied in Project Management.

 

  1. How is PERT different from CPM? Explain their fields of application

 

  1. A project is composed of seven activities whose time estimates are listed in the following table. Activities are identified by their beginning(i) and ending(j) mode numbers:

 

Activity Estimated duration in weeks
I j Optimistic Most Likely Pessimistic
1 2 1 1 7
1 3 1 4 7
1 4 2 2 8
2 5 1 1 1
3 5 2 5 14
4 6 2 5 0
5 6 3 6 15

 

  1. Draw the project network and identify all paths for its completion.
    1. Find the expected duration and variance for the project
  • Calculate the early and let occurrence time for each mode. Calculate expected project length.
  1. Calculate the stack for each activity

 

 

  1. What are the basic differences between
  1. Operation process chart
  2. Flow process chart
  • Flow diagram, and
  1. String Diagram.

 

Draw sample charts with a specific product in mind to explain the characteristics of these techniques of Work Study.


HUMAN RESOURCES MANAGEMENT EXAM ANSWER SHEETS PROVIDED

HUMAN RESOURCES MANAGEMENT EXAM ANSWER SHEETS PROVIDED

The Indian Institute of Business Management & Studies
Subject: Human Resources Management Marks: 100
Section – A is Compulsory.
a) What is the significance of human resource management in the present business
environment?
b) What do you mean by job analysis?
c) What is the purpose of induction?
d) What is the need for job rotation?
e) What is meant by career planning?
f) Distinguish between structured and unstructured interviews.
g) What is human resource development?
h) What are the objectives of incentives?
i) Differentiate between wages and salary.
j) What is meant by employee empowerment?
Attempt any four questions from Section – B.
Q2) what kind of new trends in human resource development have taken place as a
result of globalization and technological advancement? Discuss.
Q3) what is job specification? How is it different from job description? Explain with the
help of a specimen how is it prepared?
Q4) what is the importance of selection? Briefly explain the process of selection.
Q5) Discuss the benefits of promotion. Should it be based on seniority or merit? Give
reasons
Q6) discuss the need for training in an industrial organization. Explain the various types
of training programs prevalent in the industry.
Q7) what is the significance of performance appraisal in an organization. Explain the
criteria to be used for measurement of performance


GENERAL MANAGEMENT EXAM ANSWER SHEETS PROVIDED

GENERAL MANAGEMENT EXAM ANSWER SHEETS PROVIDED

The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
Section – A is Compulsory.
Section – A
a) Enlist the functions of management.
b) What is a policy?
c) What is the importance of decision – making in management?
d) What are the principles of organizing?
e) What are the merits and demerits of depart mentation by function?
f) Differentiate between authority and responsibility.
g) What is the importance of performance appraisal?
h) What are the essentials of effective communication?
i) What is budgeting?
j ) What is the responsibility of business towards employees?
Section – B: Solve any four questions
Q2) Discuss the nature and scope of management.
Q3) “Decision – Making is the primary task of management”. Comment upon the
statement and discuss the process of decision making.
Q4) what is departmentalization? Explain various types of departmentalization.
Q5) Define decentralization. What are the determinants of effective
decentralization?
Q6) Discuss the non-budgetary methods of control.
Q7) Define performance appraisal. Discuss its process


BUSINESS COMMUNICATION EXAM ANSWER SHEETS PROVIDED

BUSINESS COMMUNICATION EXAM ANSWER SHEETS PROVIDED

 

The Indian Institute of Business Management & Studies
Subject: Business Communication Marks: 100
Note: Solve any 8 questions
1. Write in your own words a definition of the term ‘communication’ and trace its origin
2. “The lack of upward communication can be disastrous”. Discuss with reference to some examples.
3. Modern psychologists and management experts have been seriously studying the communication patterns or systems in organizations. What are the basic questions that they are trying to tackle?
4. “Remember that negotiating is by its nature a compromise process.” Discuss.
5. Assume you are going to be interviewed for the post of Assistant Manager in a reputed company. What questions do you anticipate? How would you answer them? Write both questions and answers.
6. Discuss, and write a note on, some of the ways in which service industry builds up cordial customer relations. Give concrete examples, preferably showing how they have benefited you.
7. Show how offensive style is the greatest barrier to communication. Cite some examples.
8. In the context of business correspondence, discuss the following.
a) Courtesy b) Sincerity c) positive language d) persuasion e) ethics
9. You are a wholesaler in gent’s shirt and trousers and have just received an order for a large quantity of popular brand of trousers. You do not have them in stock but can supply another brand that you think is equally good. Write a letter regretting your inability to supply the brand ordered and inducing the customer to buy one you can supply.
10. Write a note on threat to e-commerce security and firewalls.