Annamalai Assignment Answer, ISBM Exam answer sheets, IIBM Exam Answer sheets, IIBMS Exam Answer Sheets, XIBMS exam answer sheets, NIBM Assignment Answer, IGNOU project report,ISMS exam answer sheets, All Indian and International Universities assignment answers, Case study solution & project report

PROVIDED BY Dr. PRASANTH (BE, MBA, PhD)

ISBM+91 9447965521, +91 9924764558mailprasanththampi1975@gmail.com

book
MBA Exam Question Answers

MANCOSA UNIVERSITY ECONOMICS EXAM QUESTION AND ANSWER PROVIDED

MANCOSA UNIVERSITY ECONOMICS EXAM QUESTION AND ANSWER PROVIDED

 

ECONOMICS 1B ANSWER

 

1.1 Which of the following macroeconomic objectives is being pursued by the Bank of England? (4 Marks)

  1. a) Price stability
  2. b) Full employment
  3. c) Economic growth
  4. d) Wage rate stability

 

 

 

1.2 As companies in England increase wages, the greatest impact on economic growth will be on which of the following sources of growth? (4 Marks)

 

  1. a) Labour supply
  2. b) Human capital
  3. c) Productivity
  4. d) Capital stock

 

 

 

1.3Which of the following macroeconomic objective is measured by the variable(s) discussed in the above extract?

(4 Marks)

  1. a) Price stability
  2. b) Redistribution of income
  3. c) Full employment
  4. d) Balance of payments stability

 

 

1.4 The theoretical argument in support for a Basic Income Grant, is based in which of the following government objectives? (4 Marks)

  1. a) Full employment
  2. b) Balance of payments stability
  3. c) Redistribution of income
  4. d) Economic growth

 

 

 

 

 

1.5 Suppose that the South African Economy is in a recession, the policy response in the extract above would be inline with which of the following schools of economic thought? (4 Marks)

 

  1. a) Keynesian theory
  2. b) Classical theorists
  3. c) Marxists economics
  4. d) Monetary economics

 

 

 

 

1.6 In the Simple Keynesian Macroeconomic Model, which of the following will determine the level of autonomous spending by South African households? (4 Marks)

 

  1. a) The level of economic growth
  2. b) The level of risk and or uncertainty
  3. c) The level of the interest rate
  4. d) Savings and or credit

 

 

1.7 The problem illustrated in the above extract is that of… (4 Marks)

  1. a) Data revision
  2. b) Economic welfare
  3. c) Unrecorded activity
  4. d) Non-market production

 

 

1.8 Which of the following methods of calculating GDP would NOT be accurate when the information on the sale and purchases of intermediate goods and services is not available? (4 Marks)

 

  1. a) The income method
  2. b) The expenditure method
  3. c) The production method
  4. d) The cost method

 

 

 

 

 

 

 

 

 

1.9 The actions above taken by the Competition Commission… (4 Marks)

  1. a) …are an example of government failure aimed at ensuring market failure.
  2. b) …are an example of market failure aimed at ensuring an efficient allocation of resources.
  3. c) …are an example of government intervention aimed at an efficient allocation of resources.
  4. d) …are an example of government intervention aimed at reducing market failure.

 

 

 

1.10 The decision taken by the Competition Commission, is aimed at ensuring which of the following views of an economy? (4 Marks)

 

  1. a) Marxist economics
  2. b) Socialist economics
  3. c) Keynesian economics
  4. d) Free market economics

 

 

 

 

1.11 The above action by President Cyril Ramaphosa is an example of… (4 Marks)

  1. a) Market participation.
  2. b) Public provision of goods and services.
  3. c) Regulation.
  4. d) Government spending.

 

 

1.12 The Kenyan Central Bank in its aim above will ultimately… (4 Marks)

  1. a) … reduce the amount of M2 money.
  2. b) … reduce the amount of bank notes and coins in circulation.
  3. c) … increase the amount of M1 money.
  4. d) … reduce the amount of bank notes and coins.

 

 

1.13 The increase in the unemployment rate as a result of the civil unrest is referred to as… (4 Marks)

  1. a) Cyclical unemployment
  2. b) Structural unemployment
  3. c) Seasonal unemployment
  4. d) Frictional unemployment

 

 

 

 

 

 

1.14 Given the information in the extract, the Simple Keynesian Macroeconomic Model concludes the following about the South African economy. (4 Marks)

 

  1. a) Excess demand
  2. b) Excess supply
  3. c) Macroeconomic equilibrium
  4. d) Aggregate spending is less than output

 

 

1.15 Which of the following presents the view of inflation depicted above? (4 Marks)

 

  1. a) The monetarist approach.
  2. b) Cost pull inflation.
  3. c) Demand push inflation.
  4. d) The conflict approach.

 

 

 

1.16 From the above extract, the South African economy is in which phase of the business cycle? (4 Marks)

 

  1. a) The upturn phase.
  2. b) The expansion phase.
  3. c) The peaking out phase.
  4. d) The slowdown phase.

 

 

 

1.17 “The South African Reserve Bank’s target range of 3% to 6%” is a demonstration of which of the following costs of inflation? (4 Marks)

 

  1. a) Distribution costs
  2. b) Economic costs
  3. c) Non-economic costs
  4. d) Social and political effects

 

 

 

 

 

 

 

1.18 Suppose that the bank later wishes to raise interest rates, which of the following instruments will they NOT make use of? (4 Marks)

 

  1. a) Accommodation policy
  2. b) Open-market policy
  3. c) Raise the Repo rate
  4. d) Raise the cost of borrowing

 

 

1.19The view held by Roberto Bagnato is that historically the $/ZAR exchange rate is… (4 Marks)

  1. a) A fixed exchange rate.
  2. b) A floating exchange rate.
  3. c) A managed floating exchange rate.
  4. d) A real exchange rate

 

 

1.20 South Africa trades in commodities… (4 Marks)

 

  1. a) For political pressure
  2. b) Due to its absolute advantage in producing commodities
  3. c) Due to its comparative advantage in producing commodities
  4. d) To invest in the global economy

 

 

 

1.21 GDP can be calculated by all of the following methods except… (4 Marks)

 

  1. a) Adding up the spending on goods and services by business, government, households, and foreigners, and subtracting imports.
  2. b) Adding up the “value added” at every stage of production in the economy.
  3. c) Adding up all of the receipts of households, government, and business.
  4. d) Adding up all income and expenses by consumers and businesses.

 

1.22 The unemployment figure presented here is the… (4 Marks)

  1. a) Seasonal unemployment.
  2. b) Narrow definition.
  3. c) Expanded definition.
  4. d) Real unemployment

 

 

 

1.23 Demand-pull inflation can occur when… (4 Marks)

 

  1. a) There is a shortage of investment and investors bid up interest rates.
  2. b) Inventories shrink and consumers bid up prices.
  3. c) There is a surplus of resources and so wages are bid up by employers.
  4. d) Undesired investment occurs.

 

 

1.24 Which of the following groups is protected from a sudden increase in inflation? (4 Marks)

 

  1. a) Borrowers who have loans at fixed interest rates.
  2. b) Fixed-income groups.
  3. c) Workers who receive fixed wages under the multiyear contracts.
  4. d) People who rent their homes under short-term lease agreements in comparison to those who own their homes.

 

 

1.25 The multiplier process can occur when a decrease in investment spending… (4 Marks)

 

  1. a) Increases household saving, causing consumers to buy more goods and services.
  2. b) Reduces household incomes, causing consumers to buy fewer goods and services.
  3. c) Increases household incomes, causing consumers to buy fewer goods and services.
  4. d) Reduces household incomes, causing consumers to buy more goods and services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


INFORMATION TECHNOLOGY CASE STUDY ANSWER PROVIDED

INFORMATION TECHNOLOGY CASE STUDY ANSWER PROVIDED

 

Attempt Any Four Case Study

 

CASE – 1   Dartmouth College Goes Wireless

 

Dartmouth College, one of the oldest in the United States (founded in 1769), was one of the first to embrace the wireless revolution. Operating and maintaining a campuswide information system with wires is difficult, since there are 161 buildings with more than 1,000 rooms on campus. In 2000, the college introduced a campuswide wireless network that includes more than 500 Wi-Fi (wireless fidelity) systems. By the end of 2002, the entire campus became a fully wireless, always-connected community—a microcosm that provides a peek at what neighborhood and organizational life may look like for the general population in just a few years.

To transform a wired campus to a wireless one requires lots of money. A computer science professor who initiated the idea at Dartmouth in 1999 decided to solicit the help of alumni working at Cisco Systems. These alumni arranged for a donation of the initial system, and Cisco then provided more equipment at a discount. (Cisco and other companies now make similar donations to many colleges and universities, writing off the difference between the retail and the discount prices for an income tax benefit.)

As a pioneer in campuswide wireless, Dartmouth has made many innovative usages of the system, some of which are the following:

  • Students are continuously developing new applications for the Wi-Fi. For example, one student has applied for a patent on a personal-security device that pinpoints the location of campus emergency services to one’s mobile device.
  • Students no longer have to remember campus phone numbers, as their mobile devices have all the numbers and can be accessed anywhere on campus.
  • Students primarily use laptop computers in the network. However, an increasing number of Internet-enabled PDAs and cell phones are used as well. The use of regular cell phones is on the decline on the campus.
  • An extensive messaging system is used by the students, who send SMSs (Short Message Services) to each other. Messages reach the recipients in a split second, any time, anywhere, as long as they are sent and received within the network’s coverage area.
  • Usage of the Wi-Fi system is not confined just to messages. Students can submit their classwork by using the network, as well as by watching streaming video and listening to Internet radio.
  • An analysis of wireless traffic on campus showed how the new network is changing and shaping campus behaviour patterns. For example, students log on in short burst, about 16 minutes at a time, probably checking their messages. They tend to plant themselves in a few favorite spots (dorms, TV room, student center, and on a shaded bench on the green) where they use their computers, and they rarely connect beyond those places.
  • Some students invented special complex wireless games that they play online.
  • One student has written a code that calculates how far away a networked PDA user is from his or her next appointment, and then automatically adjusts the PDA’s reminder alarm schedule accordingly.
  • Professors are using wireless-based teaching methods. For example, students can evaluate material presented in class and can vote online on a multiple-choice questionnaire relating to the presented material. Tabulated results are shown in seconds, promoting discussions. According to faculty, the system “makes students want to give answer,” thus significantly increasing participation.
  • Faculty and students developed a special voice-over-IP application for PDAs and iPAQs that uses live two-say voice-over-IP chat

 

Questions

 

  1. In what ways is the Wi-Fi technology changing the life of Dartmouth students? Relate your answer to the concept of the digital society.
  2. Some say that the wireless system will become part of the background of everybody’s life—that the mobile devices are just an afterthought. Explain.
  3. Is the system contributing to improved learning, or just adding entertainment that may reduce the time available for studying? Debate your point of view with students who hold a different opinion.
  4. What are the major benefits of the wireless system over the previous wireline one? Do you think wireline systems will disappear from campuses one day? (Do some research on the topic.)

 

 

 

CASE – 2 E-Commerce Supports Field Employees at  Maybelline

 

The Business Problem

 

Maybelline is a leader in color cosmetics products (eye shadow, mascara, etc.), selling them in more than 70 countries worldwide (maybelline.com). The company uses hundreds of salespeople (field merchandising representatives, or “reps”), who visit drugstores, discount stores, supermarkets, and cosmetics specialty stores, in an attempt to close deals. This method of selling has proved to be fairly effective, and it is used by hundreds of other manufacturers such as Kodak, Nabisco, and Procter & Gamble. Sales managers from any company need to know, as quickly as possible, when a deal is closed or if there is any problem with the customer.

Information technology has been used extensively to support sales reps and their managers. Until 2000, Maybelline, as well as many other large consumer product manufacturers, equipped reps with an interactive voice response (VR) system, by means of which they were to enter, every evening, information about their daily activities. This solution required that the reps collect data with paper-based surveys completed for every store they visited each day. For example, the reps noted how each product was displayed, how much stock was available, how items were promoted, etc. In addition to the company’s products the reps surveyed the competitors’ products as well. In the evening, the reps translated the data collected into answers to the voice response system which asked them routine questions. The reps answered by pressing the appropriate telephone keys.

The IVR system was not the perfect way to transmit sales data. For one thing, the IVR system consolidated information, delivering it to top management as a hard copy. However, unfortunately, these reports sometimes reached top management days or weeks too late, missing important changes in trends and the opportunities to act on them in time. Frequently, the reps themselves were late in reporting, thus further delaying the needed information.

Even if the reps did report on time, information was inflexible, since all reports were menu-driven. With the voice system the reps answered only the specific questions that applied to a situation. To do so, they had to wade through over 50 questions, skipping the irrelevant ones. This was a waste of time. In addition, some of the material that needed to be reported had no matching menu questions. Considering a success in the 1990s, the system was unable to meet the needs of the twenty-first century. It was cumbersome to set up and operate and was also prone to input errors.

 

The Mobile Solution

 

Maybelline replaced the IVR by equipping its reps with a mobile system, called Merchandising Sales Portfolio (MSP), from Thinque Corp. (thinque.com, now part of meicpg.com). It runs on handheld, pen-based PDAs, which have hand-writing recognition capability (from NEC), powered by Microsoft’s CE operating system. The system enables reps to enter their information by hand-writing their reports directly at the clients’ sites. From the handheld device, data can be uploaded to a Microsoft SQL Server database at headquarters every evening. A secured Internet connection links to the corporate intranet (a synchronization process). The new system also enables district managers to electronically send daily schedules and other important information to each rep.

The system also replaced some of the functions of the EDI (electronic data interchange) system, the pride of the 1990s. For example, the reps’ report include inventory-scanned data from retail stores. These are processed quickly by an order management system, and passed whenever needed to the shipping department for inventory replenishment.

In addition to routine information, the new system is used for decision support. It is not enough to speed information along the supply chain; managers need to know the reasons why certain products are selling well, or not so well, in every location. They need to know what the conditions are at retail stores affecting the sales of each product, and they need to know it in a timely manner. The new system offers those capabilities.

 

The Results

 

The system provided managers at Maybelline headquarters with an interactive link with the mobile field force. Corporate planners and decision makers can now respond much more quickly to situations that need attention. The solution is helping the company forge stronger ties with its retailers, and it considerably reduces the amount of after-hours time that the reps spend on data transfer to headquarters (from 30-50 minutes per day to seconds).

The new system also performs market analysis that enables managers to optimize merchandising and customer service efforts. It also enables Maybelline to use a more sophisticated interactive voice response unit—to capture data for special situations. Moreover, it provides browser-based reporting tools that enable managers, regardless of where they are, to view retail information within hours of its capture. Using the error-checking and validation feature in the MSP system, reps make significantly fewer data entry errors.

Finally, the quality of life of Maybelline reps has been greatly improved. Not only do they save 30 to 40 minutes per day, buy also their stress level has been significantly reduced. As a result, employee turnover has declined appreciably, saving money for the company.

 

Questions

 

  1. IVR systems are still popular. What advantages do they have over even older systems in which the reps mailed or faxed reports?
  2. Summarize the advantages of the new system over the IVR one.
  3. Draw the flow of information in the system.
  4. The existing technology enables transmission of data any time an employee can access the Internet with a wireline. Technically, the system can be enhanced so that the data can be sent wirelessly from any location as soon as they are entered. Would you recommend a wireless system to Maybelline? Why or why not?

 

 

 

 

CASE – 3   Precision Buying, Merchandising, and Marketing At Sears

 

The Problem

 

Sears, Roebuck and Company, the largest department store chain and the third-largest retailer in the United States, was caught by surprise in the 1980s as shoppers defected to specialty stores and discount mass merchandisers, causing the firm to lose market share rapidly. In an attempt to change the situation, Sears used several response strategies, ranging from introducing its own specialty stores (such as Sears Hardware) to restructuring its mall-based stores. Recently, Sears has moved to selling on the Web. It discontinued its over 100-year old paper catalog. Accomplishing the transformation and restructuring required the retooling of its information systems.

Sears had 18 data centers, one in each of 10 geographical regions as well as one each for marketing, finance, and other departments. The first problem was created when the reorganization effort produced only seven geographical regions. Frequent mismatches between accounting and sales figures and information scattered among numerous databases users to query multiple systems, even when they needed an answer to a simple query. Furthermore, users found that data that were already summarized made it difficult to conduct analysis at the desired level of detail. Finally, errors were virtually inevitable when calculations were based on data from several sources.

 

The Solution

 

To solve these problems, Sears constructed a single sales information data warehouse. The replaced the 18 old databases which were packed with redundant, conflicting, and sometimes obsolete data. The new data warehouse is a simple repository of relevant decision-making data such as authoritative data for key performance indicators, sales inventories, and profit margins. Sears, known for embracing IT on a dramatic scale, completed the data warehouse and its IT reengineering efforts in under one year—a perfect IT turnaround story.

 

 

Using an NCR enterprise server, the initial 1.7 terabyte (1.7 trillion bytes) data warehouse is part of a project dubbed the Strategic Performance Reporting System (SPRS). By 2003, the data warehouse had grown to over 70 terabytes. SPRS includes comprehensive sales data; information on inventory in stores, in transit, and at distribution centers; and cost per item. This has enabled Sears to track sales by individual items (skus) in each of its 1,950 stores (including 810 mall-based stores) in the United States and 1,600 international stores and catalog outlets. Thus, daily margin by item per store can be easily computed, for example. Furthermore, Sears now fine-tunes its buying, merchandising, and marketing strategies with previously unattainable precision.

SPRS is open to all authorized employees, who now can view each day’s sales from a multidimensional perspective (by region, district, store, product line, and individual item). Users can specify any starting and ending dates for special sales reports, and all data can be accessed via a highly user-friendly graphical interface. Sears managers can now monitor the precise impact of advertising, weather, and other factors on sales of specific items. This means that Sears merchandise buyers and other specialists can examine and adjust, if needed inventory quantities, merchandising, and order placement, along with myriad other variables, almost immediately, so they can respond quickly to environmental changes. SPRS users can also group together widely divergent kinds of products, for example, tracking sales of items marked as “gifts under $25.” Advertising staffers can follow so-called “great items,” drawn from vastly different departments, that are splashed on the covers of promotional circulars. SPRS enables extensive data mining, but only on sku- and location-related analysis.

In 1998 Sears created a large customer database, dubbed LCI (Leveraging Customer Information), which contained customer-related sale information (which was not available on SPRS). The LCI enables hourly records of transactions, for example, guiding hourly promotion (such as 15% discounts for early-bird shoppers).

In the holiday season of 2001, Sears decided to replace its regular 10% discount promotion by offering deep discount during early shopping hours. The new promotion, which was based on SPRS, failed, and only when LCI was used was the problem corrected. This motivated Sears to combine LCI and SPRS in a single platform, which enables sophisticated analysis (in 2002).

By 2001, Sears also had the following Web initiatives: an e-commerce home improvement center, a B2B supply exchange for the retail industry, a

 

toy catalog (wishbook.com), an e-procurement system, and much more. All of these Web-marketing initiatives feed data into the data warehouse, and their planning and control are based on accessing the data warehouse.

 

 

The Result

 

The ability to monitor sales by item per store enables Sears to create a sharp local market focus. For example, Sears keeps different shades of paint colors in different cities to meet local demands. Therefore, sales and market share have improved. Also, Web-based data monitoring of sales at LCI helps Sears to plan marketing and Web advertising.

At its inception, the data warehouse hand been used daily over 3,000 buyers, replenishers, marketers, strategic planner, logistics and finance analysts, and store managers. By 2004, there were over 6,000 users, since users found the system very beneficial. Response time to queries has dropped from days to minutes for typical requests. Overall, the strategic impact of the SPRS-LCI data warehouse is that it offers Sears employees a tool for making better decisions, and Sears retailing profits have climbed more than 20 percent annually since SPRS was implemented.

 

Questions

 

  1. What were the drivers of SPRS?
  2. How did the data warehouse solve Sears’s problems?
  3. Why was it beneficial to integrate the customers’ data-base with SPRS?
  4. How could RFID change Sears’s operations?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASE – 4   Dollar General Uses Integrated Software

 

Dollar General (dollargeneral.com) operates more than 6,000 general stores in the United States, fiercely competing with Wal-Mart, Target, and thousands of other stores in the sale of food, apparel, home-cleaning products, health and beauty aids, and more. The chain doubled in size between 1996 and 2002 and has had some problems in addition to the stiff competition, due to its rapid expansion. For example, moving into new states means different sales taxes, and these need to be closely monitored for changes. Personal management also became more difficult with the organization’s growth. an increased number of purchasing orders exacerbated problems in the accounts payable department, which was using manual matching of purchasing orders, invoices, and what was actually received in the “receiving” department before bills were paid.

The IT department was flooded with request to generate long reports on topics ranging from asset management to general ledgers. It became clear that a better information system was needed. Dollar General started by evaluating information requirements that would be able to solve the above and other problems that cut into the company’s profit.

A major factor in deciding which software to buy was the integration requirement among the existing information systems of the various functional areas, especially the financial applications. This led to the selection of the Financials suite (from Lawson Software). The company started to implement applications one at the time. Before 1998, the company installed the suite’s asset management, payroll, and some HR applications which allow the tens of thousands of employees to monitor and self-update their benefits, 401k contributions, and personal data (resulting in big savings to the HR department). After 1998, the accounts payable and general ledger modules of Lawson Software were activated. The accounting modules allow employees to route, extract, and analyze data in the accounting/finance area with little reliance on IT personnel. During 2001-2003, Dollar General moved into the sales and procurement areas, thus adding the marketing and operation activities to the integrated system.

Here are a few examples of how various parts of the new system work: All sales data from the point-of-sale scanners of some 6,000 stores are pulled each night, together with financial data, discounts, etc., into the business intelligence application for financial and marketing analysis. Employee payroll data, from each store, are pulled once a week. This provides synergy with the sales audit system (from STS Software). All sales data are processed nightly by the STS System, broken into hourly journal entries, processed and summarized, and then entered into the Lawson’s general ledger module.

The original infrastructure was mainframe based (IBM AS 400). By 2002, the 800 largest suppliers of Dollar General were submitting their bills on the EDI. This allowed instantaneous processing in the accounts payable module. By 2003, service providers, such as utilities, were added to the system. To do all this the system was migrated in 2001 from the old legacy system to the Unix operating system, and then to a Web-based infrastructure, mainly in order to add Web-based functionalities and tools.

A development tool embedded in Lawson’s Financials allowed users to customize applications without touching the computer programming code. This included applications that are not contained in the Lawson system. For example, an employee-bonus applications was not available at Lawson, but was added to Financial’s payroll module to accommodate Dollar General’s bonus system. A customized application that allowed additions and changes in dozens of geographical areas also solved the organization’s state sales-tax collection and reporting problem.

The system is very scalable, so there is not problem in adding stores, vendors, applications, or functionalities. In 2003, the system was completely converted to Web-based, enabling authorized vendors, for example, to log on the Internet and view the status of their invoices by themselves. Also the Internet/EDI enables small vendors to use the system. (An EDI is too expensive for small vendors, but the EDI/Internet is affordable.) Also, the employment can update personal data from any Web-enabled desktop in the store or at home. Future plans call for adding an e-purchasing (procurement) module using a desktop purchasing model.

 

Questions

 

  1. Explain why the old, nonintegrated functional system created problems for the company. Be specific.
  2. The new system cost several millions dollars. Why, in your opinion, was it necessary to install it?
  3. Lawson Software Smart Notification Software (lawson.com) is being considered by Dollar General. Find information about the software and write an opinion for adopting or rejection.
  4. Another new product of Lawson is Service Automation. Would you recommend it to Dollar General? Why or why not?

 

CASE – 5   Singapore and Malaysia Airlines Intelligent System

 

The problem

 

Airlines fly around the globe, mostly with their native crew. Singapore Airlines and Malaysia Airlines are relatively small airlines, but they serve dozens of different countries. If a crewmember is ill on route, there is a problem of quickly finding a replacement. This is just one example why crew scheduling may be complex, especially when it is subject to regulatory constraints, contract agreements and crew preferences. Disturbances such as   weather conditions, maintenance problems, etc, also make crew management difficult.

 

The Solution

 

Singapore Airlines uses Web-based intelligent systems including expert systems and neural computing to manage the company’s flight crew scheduling and handle disruptions to the crew rosters. The Integrated Crew Management System (ICMS) project, implemented in Singapore since 1997, consists of three modules: one roster assignment module for cockpit crew, one for the cabin crew, and a crew tracking module. The first two modules automate the tracking and scheduling of the flight crew’s timetable. The second module tracks the positions of the crew and includes an intelligent system that handles crew patterns disruptions.

For example, crews are rearranged if one member falls ill while in a foreign port; the system will find a backup in order to prevent understaffing on the scheduled flight. The intelligent system then determines the best way to reschedule the different crew members’ rosters to accommodate the sick person. When a potentially disruptive situation occurs, the intelligent system automatically draws upon the knowledge stored in the database and advises the best course of action. This might mean repositioning the crew or calling in backup staff. The crew tracking system includes a crew disruption handling module that provides decision support capabilities in real time.

A similar Web-based system is used by Malaysia Airlines, as of summer 2003, to optimize flight crew utilization. Also called ICMS, it leverages optimization software from ilog.com. Its Crew Pairing Optimization (CPO) module utilizes Ilog Cplex and Ilog Solver optimization components to ensure compliance with airline regulations, trade union agreements, and company policies, to minimize the costs associated with crew accommodations and transportation and to efficiently plan and optimize staff utilization and activities associated with long-term planning and daily operations. The Crew Duty Assignment (CDA) module provides automatic assignment of duties to all flight crews. The system considers work rules, regulatory requirements, and crew requests to produce an optimal monthly crew roster.

 

The Results

 

Despite the difficult economic times, both airless are competing successfully in the region, and their balance sheets are better than most other airlines.

 

Questions

 

  1. Why do airlines need optimization systems for crew scheduling?
  2. What role can experts’ knowledge play in this case?
  3. What are the similarities between the systems in Singapore and Malaysia?
  4. The airlines use ADSs for their pricing strategy (pricing and yield optimization). Can they use an ADS for crew management? Why or why not?

 


OPERATION MANAGEMENT CASE STUDY ANSWER PROVIDED

OPERATION MANAGEMENT CASE STUDY ANSWER PROVIDED

Attempt All Case Study

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..

 

 

 

 

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.


MANAGERIAL ECONOMICS CASE STUDY ANSWER PROVIDED

 MANAGERIAL ECONOMICS CASE STUDY ANSWER PROVIDED

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?

IT FOR MANAGEMENT CASE STUDY ANSWER PROVIDED

IT FOR MANAGEMENT CASE STUDY ANSWER PROVIDED

Attempt All Case Study Case 1 – HOW GENERAL MOTORS IS COLLABORATING ONLINE The ProblemDesigning a car is a complex and lengthy task. Take, for example, General Motors (GM). Each model created needs to go through a frontal crash test. So the company builds prototypes that cost about one million dollars for each car and tests how they react to frontal crash. GM crashes these cars, makes improvements, then makes new prototypes and crashes them again. There are other tests and more crashes. Even as late as the 1990s, GM crashed as many as 70 cars for each new model. The information regarding a new design and its various tests, collected in these crashes and other tests, has to be shared among close to 20,000 designers and engineers in hundreds of divisions and departments at 14 GM design labs, some of which are located in different countries. In addition, communication and collaboration is needed with design engineers of the more than 1,000 key suppliers. All of these necessary communications slowed the design process and increased its cost. It took over four years to get a new model to the market. The SolutionGM, like its competitors, has been transforming itself into an e-business. This gradual transformation has been going on since the mid-1990s, when Internet band width increased sufficiently to allow Web collaboration. The first task was to examine over 7,000 existing legacy IT systems, reducing them to about 3,000, and making them Web-enabled. The EC system is centered on a computer-aided design (CAD) program from EDS (a large IT company, subsidiary of GM). This system, known as Unigraphics, allows 3-D design documents to be shared online by both the internal and external designers and engineers, all of whom are hooked up with the EDS software. In addition. Collaborative and Web-conferencing software tools, including Microsoft’s NetMeeting and EDS’s eVis, were added to enhance teamwork. These tools have radically changed the vehicle-review process. To see how GM now collaborates with a supplier, take as an example a needed cost reduction of a new seat frame made by Johnson Control GM electronically sends its specifications for the seat to the vendor’s product data system. Johnson Control’s collaboration systems (eMatrix) is integrated with EDS’s In graphics. This integration allows joint searching, designing. Tooling, and testing of the seat frame in real time, expediting the process and cutting costs by more than 10 percent.Another area of collaboration is that of crashing cars. Here designers need close collaboration with the test engineers. Using simulation, mathematical modeling, and a Web-based review process. GM is able now to electronically “Crash” cars rather than to do it physically. The ResultsNow it takes less than 18 months to bring a new car to market, compared to 4 or more years before, and at a much lower design cost. For example, 60 cars are now “Crashed” electronically, and only 10 are crashed physically. The shorter cycle time enables more new car models, providing GM with a competitive edge. All this has translated into profit. Despite the economic show down. GM’s revenues increased more than 6 percent in 2002. while its earnings in the second quarter of 2002 doubled that of 2001. Questions: 1. Why did it take GM over four years to design a new car?2. Who collaborated with whom to reduce the time-to-market?3. How has IT helped to cut the time-to-market?   
Case 2 -Intranets: Invest First, Analyze Later? The traditional approach to information systems projects is to analyze potential costs and benefits before deciding whether to develop the system. However for moderate investments in promising new technologies that could offer major benefits. Organizations may decide to do the financial analyses after the project is over. A number of companies took this latter approach in regard to intranet projects initiated prior to 1997. Judd’sLocated in Strasburg. Virginia, Judd’s is a conservative, family-owned printing company that prints Time magazine, among other publications. Richard Warren. VP for IS. Pointed out that Judd’s “usually waits for technology to prove itself…. But with the Internet the benefits seemed so great that our decision proved to be a no-brainer.” Judd’s first implemented internet technology for communications to meet needs expressed by customers. After this it started building intranet of the significance of these applications to the company is the bandwidth that supports them. Judd’s increased the bandwidth by a magnitude of about 900 percent in the 1990s without cost-benefit analysis. Eli Lilly & CompanyA very large pharmaceutical company with headquarters in Indianapolis, Eli Lilly has a proactive attitude toward new technologies. It began exploring the potential of the Internet in 1993. Managers soon realized that, by using intranets, they could reduce many of the problems associated with developing applications on a wide variety of hardware platforms and networking configurations. Because the benefits were so obvious, the regular financial justification process was waived for intranet application development projects. The IS group that helps user departments develop and maintain intranet applications increased its staff from three to ten employees in 15 months. Needham InteractiveNeedham, a Dallas advertising agency, has offices in various parts of the country. Needham discovered that, in developing presentations for bids on new accounts, employees found it helpful to use materials from other employees’ presentations on similar projects. Unfortunately, it was very difficult to locate and then transfer relevant ,materials in different locations and different formats. After doing research on alternatives, the company identified intranet technology as the best potential solution. Needham hired EDS to help develop the system. It started with one office in 1996 as a pilot site. Now part of DDB Needham, the company has a sophisticated corporate wide intranet and extranet in place. Although the investment was “substantial”, Needham did not do a detailed financial analysis before starting the project. David King, a managing partner explained. “the system will start paying for itself  the first time an employee wins a new account because he had easy access to a co-worker’s information.”  Cadence Design SystemsCadence is a consulting firm located in San Jose, California. It wanted to increase the productivity of its sales personnel by improving internal communications and sales training. It considered Lotus Notes but decided against it because of the costs. With the help of a consultant, it developed an internet system. Because the company reengineered its sales training process to work with the new system, the project took somewhat longer than usual.International Data Corp., an IT research firm, helped cadence do an after-the-fact financial analysis. Initially the analysis calculated benefits based on employees meeting their full sales quotas. However, IDC later found that a more appropriate indicator was having new scales representatives meet half their quota. Startup costs were $280,000, average annual expenses were estimated at less than $400,000, and annual savings were projected at over $2.5 million. Barry Demak, director of sales, remarked, “we knew the economic justification…would be strong, but we were surprised the actual numbers were as high as they were.” Questions:1. Where and under what circumstances is the “invest first, analyze later” approach appropriate? where and when is it inappropriate? Give specific examples of technologies and other circumstances.2. How long do you think the “invest first , analyze later” approach will be appropriate for intranet projects? When (and why) will the emphasis shift to traditional project justification approaches? (Or has the shift already occurred?)3. What are the risks of going into projects that have not received a through financial analysis? How can organization reduce these risks?4. Based on the numbers provided for Cadence Design System’s intranet project, use a spread sheet to calculate the net present value of the project. Assume a 5-year life for the system.   Case 3 -Putting IT to Work at Home Depot Home Depot is the world’s largest home-improvement retailer, a global company that is expanding rapidly (about 200 new stories every year). With over 1500 stories (mostly in the United States and Canada, and now expanding to other countries) and about 50,000 kinds of products in each store, the company is heavily dependent on It, Especially since it started to sell online. To align its business and IT operations, Home Depot created a business and information service model, known as the Special Projects Support Team (SPST). This team collaborates both with the ISD and business colleagues on new projects, addressing a wide range of strategic occur at the intersection of business process. The team is composed of highly skilled employees. Actually, there are several teams, each with a director and mix of employees, depending on the project. For example, system developers, system administrators, security experts, and project managers can be on a team. The teams exist until the completion of a project; then they are dissolved and the members are assigned to new teams. All teams report to the SPST director, who reports to a VP of technology.To ensure collaboration among end users, the ISD and the SPST created structured (formal) relationships. The basic idea is to combine organizational structure and process flow, which is designed to do the following:•           Achieve consensus across departmental boundaries with regard to strategic initiatives.•           Prioritize strategic initiatives.•           Bridge the gap between business concept an detailed specifications.•           Result in the lowest possible operational costs.•           Achieve consistently high acceptance levels by the end-user community.•           Comply with evolving legal guidelines.•           Define key financial elements (cost-benefit analysis, ROI, etc.).•           Identify and render key feedback points for project metrics.•           Support very high rates of change.•           Support the creation of multiple, simultaneous threads of work across disparate time     lines.•                       Promote known, predictable, and manageable work flow events, event sequences, and change management processes.•           Accommodate the highest possible levels of operational stability.•           Leverage the extensive code base, and leverage function and component reuse.•           Leverage Home Depot’s extensive infrastructure and IS resource base. Online File W 15.11 shows how this kind of organization works for home depot’s e-commerce activites. There is a special EC steering committee which is connected to the CIO (who is a senior VP), to the Vp for marketing and advertising, and to the VP for merchandising (merchandising deals with procurement). The SPST is closely tied to the ISD, to marketing, and to merchandising. The data centre is shared with non-EC activities. The SPST migrated to an e-commerce team in Aughust 2000 in order to construct a Website supporting a national catalog of products, which was completed in April 2001. (This catalog contains over 400,000 products from 11,000 vendors.) This project requires the collaboration of virtually every department in Home depot (e.g., in the figure). Also contracted services were involved. (the figure in online file W15.11 shows the work flow process.) Since 2001, SPST has been continuously busy with Ec Intivatives, including improving the growing Home Depot online store. The cross departmental nature of the SPSt explains why it is an ideal structure to support the dyanamic, ever-changing work of the EC-related projects. The structure also consider the skills, strengtyhs, and the weeknesses of the It employees. The company offer both the online and offline training aimed at improving those skills. Home Depot is consistently ranked among the best places to work for IT employees. Questions: 1. Explain why the team based structure at Home Depot is so successful.2. The structure means that the SPST reports to both marketing and technology. This is known as a matrix structure. What are the potential advantages and problems?3. How is collaboration facilitated by IT in this case?4. Why is the process flow important in this case?  
Case 4 -Dartmouth College Goes Wireless Dartmouth College, one of the oldest in United States (founded in 1769), was one of the first to embrace the wireless revolution. Operating and maintain a campuswide information system with wires is very difficult. Since there are 161 buildings with more than 1,000 rooms on campus. In 2000, the college introduced a campuswide wireless network that includes more than 500 Wi-Fi (wireless fidelity: see chapter 6) systems. By the end of 2002, the entire campus became a fully wireless, always connected community – a microcosm that provides a peek at what neighborhood and organizational life may look like for the general population in just a few years. To transform a wired campus to a wireless one requires lots of money. A computer science professor who initiated the idea at Dartmouth in 1999 decided to solicit the help of alumni working at cisco systems. These alumni arranged for a donation of the initial system, and cisco then provided more equipment at a discount. (Cisco and other companies now make similar donations to many collages and universities, writing off the difference between the retail and the discount prices for an income tax benefit.) As a pioneer in campuswide wireless, Dartmouth has made many innovative usuages of the system, some of which are the following:•           Students are developing new applications for the Wi-Fi. For eample, one student has applied for a patent on a personal-security device that pinpoints the location of the campus emergency services to one’s mobile device.•           Students no longer have to remember campus phone numbers, as their mobile devices have all the numbers and can be accessed any where on campus.•           Students primarily use laptop computers on the network. However, an increasing number of Internet-enabled PDAs and cell phones are used as well. The use of regular cell phones is on the decline on campus.•           An extensive messaging system is used by the students, who send SMSs (Short Message Services) to each other. Messages reach the recipients in a split second, any time, anywhere, as long as they are sent and received within the network’s coverage area.•           Usage of the Wi-Fi system is not confined just to messages, students can submit their class work by using the network, as well as watch streaming video and listen to Internet radio.•           An analysis of wireless traffic on campus showed how the new network is changing and shaping campus behavior patterns. For example, students log on in short bursts, about 16 minutes at a time, probably checking their messages. They tend to plan themselves in a few favourite spots (dorms, TV room, student centre, and on a shaded bench on the green) where they use their computers, and they rarely connect beyond those places.•           The student invented special complex wireless games that they play online.•           One student has written some code that calculates how far away a networked PDA user is from his or her next appointment, and then automatically adjusts the PDA’s reminder alarm schedule accordingly.•           Professors are using wireless-based teaching methods. For example, students armed with Handspring visor PDA’s equipped with Internet access cards, can evaluate material presented in class and can vote on a multiple-choice questionnaire relating to the presented material. Tabulated results are shown in seconds, promoting discussions. According to faculty, the system “makes students want to give answers,” thus significantly increasing participation.•           Faculty and students developed a special voice-over-IP application for PDAs and iPAQs that uses live two-way voice-over-IP chat. Questions: 1.            In what ways is the Wi-Fi technology changing the Dartmouth students?2.                           Some says that the wireless system will become part of the background of everybody’s life – that the mobile devices are just an afterthought. Explain.3.                           Is the system contributing to improved learning, or just adding entertainment that may reduce the time available for studying? Debate your point of view with students who hold a different opinion.4.                           What are the major benefits of the wireless system over the previous wire line one? Do you think wire line systems will disappear from campus one day? (Do some research on the topic.)


GENERAL MANAGEMENT CASE STUDY ANSWER PROVIDED

GENERAL MANAGEMENT CASE STUDY ANSWER PROVIDED

Attempt Any Four Case Study

 

CASE – 1   Your Job and Your Passion—You Can Pursue Both!

 

The 21st century offers many challenges to every one of us. As more firms go global, as more economies interconnect, and as the Web blasts away boundaries to communication, we become more informed citizens. This interconnectedness means that the organizations you work for will require you to develop both general and specialized knowledge—such as speaking multiple languages, using various software applications, or understanding details of financial transactions. You will have to develop general management skills to foster your ability to be self-reliant and thrive in a changing market-place. And here’s the exciting part: As you build both types of knowledge, you may be able to integrate your growing expertise with the causes or activities you care most about. Or, your career adventure may lead you to a new passion.

Former presidents George H. W. Bush and Bill Clinton are well known for combining their management skills—running a country—with their passion for helping people around the world. Together they have raised funds to assist disaster victims, those with HIV/AIDS, and others in need. Jake Burton turned his love of snow sports into an entire industry when he founded Burton Snowboards. Annie Withey poured her business and marketing knowledge into her two famous business ventures: Smartfood and Annie’s Homegrown. Both products were the result of her passion for healthful foods made from organic ingredients.

As you enter the workforce, you may have no idea where your career path will lead. You may be asking yourself, “How will I fit in?” “Where will I live?” “How much will I earn?” “Where will my business and personal careers evolve as the world continuous to change at such a fast pace?” If you are feeling nervous because you don’t know the answers to these questions yet, relax. A career is a journey, not a single destination. You may have one type of career or several. It is likely you will work for several organisations, or you may run one or more businesses of your own.

As you ask yourself what you want to do and where you want to be, take a few minutes to review the chapter and its main topics. Think about your personality, what you like and dislike, what you know and what you want to learn, what you fear and what you dream. Then try the following exercise.

 

Questions

 

  1. Create a three-column chart in which the first column lists nonmanagement skills you have. Are you good at travel? Do you know how to build furniture? Are you a whiz at sports statistics? Are you an innovative cook? Do you play video games for hours? In the second column, list the causes or activities about which you are passionate. These may dovetail with the first list, but they might not.
  2. Once you have you two columns complete, draw lines between entries that seem compatible. If you are good at building furniture, you might have also listed a concern about families who are homeless. Remember that not all entries will find a match—the idea is to begin finding some connections.
  3. In the third column, generate a list of firms or organizations you know about that reflect your interests. If you are good at building furniture, you might be interested working for the Habitat for Humanity organization, or you might find yourself gravitating towards a furniture retailer like Ikea or Ethan Allen. You can do further research on organizations via Internet or business publications.

 

 

CASE – 2   Biyani – Pioneering a Retailing Revolution in India

 

“I use people as hands and legs. I prefer to do thinking around here.”

 

─ Kishore Biyani, CEO & MD, Pantaloon Retail (India) Ltd.

 

Kishore Biyani (Biyani), CEO& MD of Pantaloon Retail (India) Ltd., planned to have 30 Food Bazaar outlets, 22 outlets in Big Bazaar, 21 Pantaloons outlets, and four seamless malls under the Central logo, by the end of 2005. He also planned to launch at least three businesses every year and had already selected music, footwear and car accessories as his next areas of investments. He was already the top retailer in India followed by Raghu Pillai of RPG. As of 2004, Biyani headed a company that had a turnover of Rs 6,500 million and operated 13 Pantaloon apparel stores, 9 Big Bazaars, 13 Food Bazaars, and 3 seamless malls (Central), one each located in Bangalore, Hyderabad, and Pune.

Biyani’s journey from a person who looked after his family business to India’s top retailer in 1987, when he launched Manz Wear Pvt. Ltd. The company launched one of the first readymade trousers brands – ‘Pantaloon’ – in the country. The company also launched its first jeans brand called ‘Bare’ in 1989. On September 20, 1991, Manz Wear Pvt. Ltd. went public and on September 25, 1992, it changed its name to Pantaloon Fashions (India) Limited (PFIL). ‘John Miller’ was the first formal shirt brand from PFIL.

The company opened its first apparel stores, called ‘Pantaloons’ at Kolkata in August 1997. The stores generated Rs 70 million. Biyani then realized the potential of the Indian market and started to aggressively tap it. Accordingly, Biyani decided to expand into other segments of retailing besides apparel. To reflect this change in focus, the company changed its name to Pantaloon Retail (India) Limited (PRIL) in July 1999 and set itself a target of achieving Rs 10 billion in sales by June 2005. In course of time he launched three other retail formats — Big Bazaar, Food Bazaar, and Central.

Biyani didn’t believe in copying ideas from western retailers. He was critical of his peers who felt just copied ideas form the west without making any effort to mold them to Indian conditions. He ensured that his store formats such as Big Bazaar, Food Bazaar, and Pantaloons were all suited to the purchasing style of Indian consumers.

Biyani was a huge risk taker and his planning was always different from the conventional way of doing business. This was also one of the factors that had prompted Biyani to move away from his father’s conventional way of doing business. During the initial stages of his success, his risk-taking attitude sometimes had the effect of turning away financiers. The biggest risk that Biyani took was in opening Big Bazaar in Mumbai in 2001. The company needed money to expand Big Bazaar’s operations. However, it had profits of only Rs 40 million with a low share price at eighteen rupees. Therefore, Biyani could not raise money through equity. In light of this situation, Biyani took a loan of Rs 1,200 million from ICICI for launching the operations of Big Bazaar, which increased his debt exposure. However, Big Bazaar proved to be a resounding success with 100,000 customer visits in its first week of operations. According to analysts, if Big Bazaar had failed, Biyani would have landed in a severe debt crisis. The success of Big Bazaar not only increased the company profits, it also changed the perception of investors.

Many people criticized Biyani for not delegating authority and Biyani himself accepted the criticism. He said, “I use people as hands and legs. I prefer to do the thinking around here.” He preferred taking individual decision on activities like strategic planning, ideas for other ventures, and other important issues. It was because of this that managers like Kush Medhora of Westside were initially apprehensive about joining Biyani’s business. However, Biyani changed his attitude gradually with the launch of Big Bazaar, Food Bazaar, and Central and appointed different people for managing different business units.

Biyani believed in leading a simple life and in being simply dressed. His vision came from his diverse reading connected to retailing and other areas. He made it a point to visit each of his stores across the country. He aimed to spend at least seven hours a week at the stores. In the stores, he would stand at a corner and observe people. He also walked on streets, met common people, and talked to local leaders to plan and put up new products in his stores. Each of his stores was set with a weekly target, which was reviewed every Monday. Whenever a new store was opened, the details of its operations during the first 45 days were to be sent to him. Sometimes, he suggested remedies to some problems. Biyani believed in extensive advertising to make more people know about the product. His decision making was quick and devoid of unnecessary delays. Biyani was also a good learner and learned quickly from his mistakes. He planned to improve inventory management through responding effectively to the demands of the customers rather than forecasting them, as he felt that forecasting would pile up the inventory in this dynamic market.

 

Questions

 

  1. The tremendous success of the ‘Pantaloons’, ‘Big Bazaar’ and ‘Food Bazaar’ retailing formats, easily made PRIL the number one retailer in India by early 2004, in terms of turnover and retail area occupied by its outlets. Explain how Biyani is further planning to consolidate his businesses.
  2. “Our striving toward looking at the Indian market differently and strategizing with the evolving customer helped us perform better.” What other qualities of Kishore Biyani do you think were instrumental in making him top retailer of India?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASE – 3   The New Frontier for Fresh Foods Supermarkets

 

Fresh Foods Supermarket is a grocery store chain that was established in the Southeast 20 years ago. The company is now beginning to expand to other regions of the United States. First, the firm opened new stores along the eastern seaboard, gradually working its way up through Maryland and Washington, DC, then through New York and New jersey, and on into Connecticut and Massachusetts. It has yet to reach the northern New England states, but executives have decided to turn their attention to the Southwest, particularly because of the growth of population there.

Vivian Noble, the manager of one of the chain’s most successful stores in the Atlanta area, has been asked to relocate to Phoenix, Arizona, to open and run a new Fresh Foods Supermarket. She has decided to accept the job, but she knows it will be a challenge. As an African American woman, she has faced some prejudice during her career, but she refuses to be stopped by a glass ceiling or any other barrier. She understands that she will be living and working in an area where several cultures combine and collide, and she will be hiring and managing a diverse workforce. Noble has the support of top management at Fresh Foods, which wants the store to reflect the surrounding community—in both staff makeup and product selection. So she will be looking to hire employees with Hispanic and Native American roots, as well as older workers who can relate to the many retired residents in the area. And she will be seeking their inputs on the selection of certain food products, including ethnic brands, so that customers know they can buy what they need and want a Fresh Foods.

In addition, Noble wants to make sure that Fresh Foods provides services above and beyond those of a standard supermarket to attract local consumers. For instance, she wants the store to offer free delivery of groceries to home-bound customers who are either senior citizens or physically disabled. She wants to be sure that the store has enough bilingual employees to translate for and otherwise assist customers who speak little or no English. Noble believes that she is a pioneer of sorts, guiding Fresh Foods Supermarkets into a new frontier. “The sky is almost blue here,” she says of her new home state. “And there’s no glass ceiling between me and the sky.”

 

 

 

Questions

 

  1. What steps can Vivian Noble take to recruit and develop her new workforce?
  2. What other ways can Noble help her company reach out to the community?
  3. How will Fresh Foods Supermarkets as whole benefit from successfully moving into this new region of the country?

 

 

 

 

 

 

 

 

 

 

CASE – 4   The Law Offices of Jeter, Jackson, Guidry, and Boyer

 

THE EVOLUTION OF THE FIRM

 

David Jeter and Nate Jackson started a small general law practice in 1992 near Sacramento, California. Prior to that, the two had spent five years in the district attorney’s office after completing their formal schooling. What began as a small partnership—just the two attorneys and a paralegal/assistant—had now grown into a practice that employed more than 27 people in three separated towns. The current staff included 18 attorneys (three of whom have become partners), three paralegals, and six secretaries.

For the first time in the firm’s existence, the partners felt that they were losing control of their overall operation. The firm’s current caseload, number of employees, number of clients, travel requirements, and facilities management needs had grown far beyond anything that the original partners had ever imagined.

Attorney Jeter called a meeting of the partners to discuss the matter. Before the meeting, opinions about the pressing problems of the day and proposed solutions were sought from the entire staff. The meeting resulted in a formal decision to create a new position, general manager of operations. The partners proceeded to compose a job description and job announcement for recruiting purposes.

Highlights and responsibilities of the job description include:

  • Supervising day-to-day office personnel and operations (phones, meetings, word processing, mail, billings, payroll, general overhead, and maintenance).
  • Improving customer relations (more expeditious processing of cases and clients).
  • Expanding the customer base.
  • Enhancing relations with the local communities.
  • Managing the annual budget and related incentive programs.
  • Maintaining annual growth in sales of 10 percent while maintaining or exceeding the current profit margin.

 

The general manager will provide an annual executive summary to the partners, along with specific action plans for improvement and change. A search committee was formed, and two months later the new position was offered to Brad Howser, a longtime administrator from the insurance industry seeking a final career change and a return to his California roots. Howser made it clear that he was willing to make a five-year commitment to the position and would then likely retire.

Things got off to a quiet and uneventful start as Howser spent few months just getting to know the staff, observing day-today operations; and reviewing and analyzing assorted client and attorney data and history, financial spreadsheets, and so on.

About six months into the position, Howser became more outspoken and assertive with the staff and established several new operational rules and procedures. He began by changing the regular working hours. The firm previously had a flex schedule in place that allowed employees to begin and end the workday at their choosing within given parameters. Howser did not care for such a “loose schedule” and now required that all office personnel work from 9:00 to 5:00 each day. A few staff member were unhappy about this and complained to Howser, who matter-of-factly informed them that “this is the new rule that everyone is expected to follow, and anyone who could or would not comply should probably look for another job.” Sylvia Bronson, an administrative assistant who had been with the firm for several years, was particularly unhappy about this change. She arranged for a private meeting with Howser to discuss her child care circumstances and the difficulty that the new schedule presented. Howser seemed to listen half-heartedly and at one point told Bronson that “assistance are essentially a-dime-a-dozen and are readily available.” Bronson was seen leaving the office in tears that day.

Howser was not happy with the average length of time that it took to receive payments for services rendered to the firm’s clients (accounts receivable). A closer look showed that 30 percent of the clients paid their bills in 30 days or less, 60 percent paid in 30 to 60 days, and the remaining 10 percent stretched it out to as  many as 120 days. Howser composed a letter that was sent to all clients whose outstanding invoices exceeded 30 days. The strongly worded letter demanded immediate payment in full and went on to indicate that legal action might be taken against anyone who did not respond in timely fashion. While a small number of “late” payments were received soon after the mailing, the firm received an even larger number of letters and phone calls from angry clients, some of whom had been with the firm since its inception.

Howser was given an advertising and promotion budget for purposes of expanding the client base. One of the paralegals suggested that those expenditures should be carefully planned and that the firm had several attorneys who knew the local markets quite well and could probably offer some insights and ideas on the subject. Howser thought about this briefly and then decided to go it alone, reasoning that most attorneys know little or nothing about marketing.

In an attempt to “bring all of the people together to form a team,” Howser established weekly staff meetings. These mandatory, hour-long sessions were run by Howser, who presented a series of overhead slides, handouts, and lectures about “some of the proven management techniques that were successful in the insurance industry.” The meetings typically ran past the allotted time frame and rarely if ever covered all of the agenda items.

Howser spent some of his time “enhancing community relations.” He was very generous with many local groups such as the historical society, the garden clubs, the recreational sports programs, the middle-and high-school band programs, and others. In less than six months he had written checks and authorized donations totaling more than $25,000. He was delighted about all this and was certain that such gestures of goodwill would pay off handsomely in the future.

As for the budget, Howser carefully reviewed each line item in search of ways to increase revenues and cut expenses. He then proceeded to increase the expected base or quota for attorney’s monthly billable hours, thus directly affecting their profit sharing and bonus program. On the other side, he significantly reduced the attorneys’ annual budget for travel, meals, and entertainment. He considered these to be frivolous and unnecessary. Howser decided that one of the two full-time administrative assistant positions in each office should be reduced to part-time with no benefits. He saw no reason why the current workload could not be completed within this model. Howser wrapped up his initial financial review and action plan by posting notices throughout each office with new rules regarding the use of copy machines, phones, and supplies.

Howser completed the first year of his tenure with the required executive summary report to the partners that included his analysis of the current status of each department and his action plan. The partners were initially impressed with both Howser’s approach to the new job and with the changes that he made. They all seemed to make sense and were directly in line with the key components of his job description. At the same time, “the office rumor mill and grape vine” had “heated up” considerably. Company morale, which had been quite high, was now clearly waning. The water coolers and hallways became the frequent meeting places of disgruntled employees.

As for the marketplace, while the partner did not expect to see an immediate influx of new clients, they certainly did not expect to see shrinkage in their existing client base. A number of individual and corporate clients took their business elsewhere, still fuming over the letter they had received.

The partners met with Howser to discuss the situation. Howser urged them to “sit tight and ride out the storm.” He had seen this happen before and had no doubt that in the long run the firm would achieve all of its goals. Howser pointed out that people in general are resistant to change. The partners met for drinks later that day and looked at each other with a great sense of uncertainty. Should they ride out the storm as Howser suggested? Had they done the right thing in creating the position and hiring Howser? What had started as a seemingly, wise, logical, and smooth sequence of events had now become a crisis.

 

Questions

 

  1. Do you agree with Howser’s suggestion to “sit tight and ride out the storm,” or should the partners take some action immediately? If so, what actions specifically?
  2. Assume that the creation of the GM—Operation position was a good decision. What leadership style and type of individual would you try to place in this position?
  3. Consider your own leadership style. What types of positions and situations should you seek? What types of positions and situation should you seek to avoid? Why?

 

 

 

 

 

CASE – 5   The Grizzly Bear Lodge

 

Diane and Rudy Conrad own a small lodge outside Yellowstone National Park. Their lodge has 15 rooms that can accommodate up to 40 guests, with some rooms set up for families. Diane and Rudy serve a continental breakfast on weekdays and a full breakfast on weekends, included in the room they charge. Their busy season runs from May through September, but they remain open until Thanksgiving and reopen in April for a short spring season. They currently employ one cook and two waitpersons for the breakfasts on weekends, handling the other breakfasts themselves. They also have several housekeeping staff members, a groundkeeper, and a front-desk employee. The Conrads take pride in the efficiency of their operation, including the loyalty of their employees, which they attribute to their own form of clan control. If a guest needs something—whether it’s a breakfast catered to a special diet or an extra set of towels—Grizzly Bear workers are empowered to supply it.

The Conrads are considering expanding their business. They have been offered the opportunity to buy the property next door, which would give them the space to build an annex containing an additional 20 rooms. Currently, their annual sales total $300,000. With expenses running $230,000—including mortgage, payroll, maintenance, and so forth—the Conrads’ annual income is $70,000. They want to expand and make improvements without cutting back on the personal service they offer to their guests. In fact, in addition to hiring more staff to handle the larger facility, they are considering collaborating with more local business to offer guided rafting, fishing, hiking, and horseback riding trips. They also want to expand their food service to include dinner during the high season, which means renovating the restaurant area of the lodge and hiring more kitchen and wait staff. Ultimately, the Conrads would like the lodge to open year-round, offering guests opportunities to cross-country ski, ride snow-mobiles, or hike in winter. They hope to offer holiday packages for Thanksgiving, Christmas, and New Year’s celebrations in the great outdoors. The Conrads report that their employees are enthusiastic about their plans and want to stay with them through the expansion process. “This is our dream business,” says Rudy. “We’re only at the beginning.”

 

 

 

Questions

 

  1. Discuss how Rudy and Diane can use feedforward, concurrent, and feedback controls both now and in future at the Grizzly Bear Lodge to ensure their guests’ satisfaction.
  2. What might be some of the fundamental budgetary considerations the Conrads would have as they plan the expansion of their logic?
  3. Describe how the Conrads could use market controls plans and implement their expansion.

 


BUSINESS ENVIRONMENT CASE STUDY 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?

ENTREPRENEURSHIP CASE STUDY ANSWER PROVIDED

ENTREPRENEURSHIP CASE STUDY ANSWER PROVIDED

 

Attempt Any Four Case Studies

Case I

PROVIDE ADVICE TO AN ENTREPRENEUR ABOUT INTELLECTUAL PROPERTY PROTECTION

 

Locked doors and a security system protect your equipment, inventory and payroll. But what protects your business’s most valuable possessions? IP laws can protect your trade secrets, trademarks and product design, provided you take the proper steps. Chicago attorney Kara E.F. Cenar of Welsh and Katz, an IP firm, contends that businesses should start thinking about these issues earlier than most do. “Small businesses tend to delay securing IP protection because of the expense,” Cenar says. “They tend not to see the value of IP until a competitor infringes.” But a business that hasn’t applied for copyrights or patents and actively defended tem will likely have trouble making its case in court.

 

One reason many business owners don’t protect their intellectual property is that they don’t recognize the value of the intangibles they own. Cenar advises business owners to take their business plans to an experienced IP attorney and discuss how to deal with these issues. Spending money upfront for legal help can save a great deal later by giving you strong copyright or trademark rights, which can deter competitors from infringing and avoid litigation later.

 

Once you’ve figured out what’s worth protecting, you have to decide how to protect it. That isn’t always obvious. Traditionally, patents prohibit others from copying new devices and processes, while copyrights do the same for creative endeavors such as books, music and software. In many cases, though, the categories overlap. Likewise, trademark law now extends to such distinctive elements as a product’s color and shape. Trade dress laws concerns how the product is packaged and advertised. You might be able to choose what kind of protection to seek.

For instance, one of Welsh & Katz’s clients is Ty Inc., maker of plush toys. Before launching the Beanie Baby line, Cenar explains, the owners brought in business and marketing plans to discuss IP issues. The plan was for a limited number of toys in a variety of styles, and no advertising except word-of-mouth. Getting a patent on a plush toy might have been impossible and would have taken several years, too long for easily copied toys. Trademark and trade dress protection wouldn’t help much, because the company planned a variety of styles. But copyrights are available for sculptural art, and they’re inexpensive and easy to obtain. The company chose to register copyrights and defend them vigorously. Cenar’s firm has fended off numerous knockoffs.

 

That’s the next step: monitoring the market-place for knockoffs and trademark infringement, and taking increasingly firm steps to enforce your rights. Efforts typically begin with a letter of warning and could end with a court-ordered cease-and-desist order or even an award of damages. “If you don’t take the time to enforce [your trademark], it becomes a very weak mark,” Cenar says. But a strong mark deters infringement, wins lawsuits and gets people to settle early.” Sleep on your rights, and you’’’ lose them. Be proactive, and you’ll protect them – and save money in the long run.

An inventor with a newly invented technology comes to you for advice on the following matters:

 

Questions:

 

  1. In running this new venture, I need to invest al available resources in producing the products and attracting customers. How important is it for me to divert money from those efforts to protect my intellectual property?

 

  1. I have sufficient resources to obtain intellectual property protection, but how effective is that protection without a large stock of resources to invest in going after those that infringe on my rights? If I do not have the resources to defend a patent, is it worth obtaining one in the first place?

 

  1. Are there circumstances when it is better for me not to be an innovator but rather produce “knock-offs” of other innovations?

 

 

Case II – Provide advice to an entrepreneur about firing employees

 

Firing an employee is a messy business. Just the thought of having to recruit, train and manage a new sales soul is enough to keep some sales managers from following through with the task. But holding on to a salesperson who’s not performing or who’s disruptive to the team is guaranteed to exacerbate matters down the road. But how do you know when it’s time to say “you’ve gotta go”? It’s simple, according to Tricia Timkin: “Lack of production, lack of production, lack of production,” says the president of Padigent, a Carol Stream, Illinois, human resources consulting firm for emerging companies.

 

Dave Anderson, president of Dave Anderson’s Learn to Lead, concurs that performance is one criterion for firing. Anderson, whose Los Altos, California, company offers sales, management and leadership consulting, thinks reps who are “dishonest, selfish or disrespectful” should face the axe.

 

You may fear firing a rep will cause a morale dip in the troops. After all, someone’s buddy is getting shown the door. But making a tough choice can bolster the spirits of your sales squad. Says Tamkin: “Firing can positively affect morale [because] it sends a message that the company will take strong measures to ensure the success of the organization. Poor performers lower the morale of the team, and they continually break momentum and diminish the credibility of the sales manager.

Before firing, however, steps must be taken to legally protect your business. It’s crucial that the employee has been warned in advance in writing. Coaching sessions with failing sales people will help protect you when it comes time to separate. Tamkin advises that documentation must be developed in advance of the firing, and that when it comes time for the employee to go, the manger should conduct an exit interview. Though firing will never be a savory part of a manager’s job description, it’s short – term pain for long – term gain. “Managers have to realize that when they keep the wrong person,” Anderson says, “there’s more damage to the company than just lack of production.”

 

Here are some firing guidelines from William Skip Miller’s ProActive Sales Management (AMACOM):

  1. Never in your office: if it’s your office, you can’t leave if the employee wants to stay and talk.
  2. Short and Sweet: As you walk in the door, say, “The reason I’m here is to tell this is your last day of employment with this company.” Just get it out.
  3. Never on a Friday: If fired on a Friday, the employee can’t start the process of feeling good. All he or she can do is stew about it over the weekend.
  4. Outside help: If the employee says he or she has consulted an attorney or other legal counsel, stop the conversation immediately and consult your HR department or attorney, whoever helped you draft your company policy.
  5. No hanging around: Personal effects can be retrieved, but have the person leave the building.

 

Advice to an entrepreneur:

An entrepreneur, whose business has stopped growing, has read the above article and comes to you for advice:

 

  1. Gee, these managers discussed in the article are a bit rough. Even if one particular person is not producing as expected, doesn’t this person still deserve to be treated with respect?

 

  1. It appears that the automatic assumption is that the employee is at fault for not performing and therefore should be fired. But shouldn’t the responsibility fall on me as the manager and the system that I have introduced? Maybe the person is performing as well as the situation allows?

 

  1. How am I to build team spirit within my small company when I single out one person for lack of production and fire him or her?


Case III – Provide advice to an entrepreneur about small business investment companies

 

It started out as a straightforward consulting project for Mahendra Vora and research partner Sundar Kadaya. They were analyzing software trends and perusing market research studies to assess the size of various software markets. But after spending 40 hours looking for information that should have taken 10 minutes to access, the pair concluded that more advanced tools were needed to search the internet and databases of public information. Within months, they launched Intelliseek Inc., providing software to capture, track and analyze information for use in strategic planning, market research, product development and brand marketing. Vora, 39, was no stranger to start-ups. By the time he co-founded Intelliseek in 1997, he already had three business launches under his belt. He sold all three to Fortune 500 firms, providing capital for Intelliseek. His initial investment of a few million dollars supported operations the first couple of years and through two major product launches.

 

By 1999, the Cincinnati Company was laying the groundwork for its first round of venture capital.Vora had had two years to contemplate his dream investor. Foremost, size did matter: The venture capitalist should have the wherewithal for ongoing financing, but not be so large that it shunned all but elaborate business models. Finding an investor with a broad network of investing partners also was important to the $10million company. “If you become wildly successful and plan to raise $50 million someday, then [the investor] should have access to the big investors. The network is also important because it can [introduce] you to customers,” says Vora, whose clients include CBS, Ford Motor Co. and Nokia. Finally, Vora was looking for operational experience. “A lot of VCs are phenomenal in advising you about what to do, but they’ve never done it themselves,” he observes. Vora ultimately found his venture match in Cincinnati-based River Cities Capital Funds, a small business investment company. While River Cities was not large, it was well-connected and managed by industry veterans with extensive professional experience.

 

Starting Small

Licensed and regulated by the SBA, SBICs are generally organized and operated like any other venture capital fund. But unlike traditional funds, SBICs use their own capital and long-term loans to small companies. On the whole, SBICs tend to be more risk-tolerant than banks or traditional venture capitalists….Inteliseek’s SBIC banker removed barriers to reaching larger, mainstream investors. Led by river cities capital funds, the initial $6 million investment included capital from the venture arm of Nokia; later investors included Ford Motor Co. and General Atlantic Partners LLC. “once you get a VC like River Cities, it is much easier to get access to bigger VCs,” says Vora. “They can go to VCs and say ‘One of our companies is doing so well, we’re going to put in more money, and you guys should come in’.”

Down But Not Out

SBICs invested roughly $2.8 billion in about 2,100 companies in the 12-month period ending September 30, 2002 down from $4.6 billion invested in 2,254 companies in the same period one year earlier. Like mainstream investors, they have had to adjust to deteriorating economic conditions.  “Valuations have come down on deals, and due diligence periods have increased,” says Patrick Hamner, vice resident of Capital Southwest Corp., a Dallas-based SBIC. “People are being far more discriminating in how they invest their capital.”

“The bar has been raised even more for small businesses trying to get capital,” he continues. “As opposed to the overall venture industry, which has had a very marked decline in financing activity, SBICs are down but still active.”

Nor has quality been an overriding concern, even as SBICs engage in riskier deals than their mainstream counterparts. “Part of what has happened with the bursting of the bubble is that the ideas being proposed are based on more substantive models,” says Edwin Robinson, managing director of River Cities Capital Funds. “A lot of the excess is being wrung out the system.” While the venture shakeup has impacted conventional the way some SBICs operate. “During the bubble years, there was probably more of an inclination to overfund,” says NASBICs Mercer. “I don’t mean in  the sense that money might not be justified, but to make the unconditional investment. I suspect that what you’re seeing now is a lot more investing on a milestone basis.” For instance, a company that requires $3 million over three years is likely to receive $1 million upfront, getting the rest after meeting revenue and growth targets. Fewer venture dollars, coupled with the banking industry’s reticence to lend to small businesses, has contributed to an overall capital shortage, adds Mercer. “Banks that had been out a little bit further on the risk curve than they probably normally do,” he says. “The banks’ own proclivity and the regulators kind of forced a pullback, so there has been a tremendous pullback in bank credit availability even for small businesses that have had long time banking relationships.”

 

The SBIC program, meanwhile, is attracting mainstream investors having difficulty raising capital for venture-backed investments. The increased interest bodes well for the small firms that SBICs target: companies with a net worth of less than $18 million and average after-tax earning of less than $6 million for the past two years.

 

Advice to an entrepreneur

An entrepreneur, who is an owner manager of a small business and looking to raise $4,00,000, has read the above article and comes to you for advice:

  1. What are the advantages of going to an SBIC over and above a business angle or venture capitalist?
  2. What are the disadvantages and how can they be minimized?


Case IV -Provide advice to an entrepreneur about being more innovative

 

When Neil Franklin began offering round-the-clock telephone customer service in 1998, customers loved it. The offering fit the strategic direction Franklin had in mind for Dataworkforce, his Dallas-based telecommunications – engineer staffing agency, so he invested in a phone system to route after hours calls to his 10 employees’ home and mobile phones. Today, Franklin, 38, has nearly 50 employees and continues to explore ways to improve Dataworkforce’s service. Twenty-four-hour phone service has stayed, but other trials have not. One failure was developing individual Web sites for each customer. “We took it too far and spent $30,000 then abandoned it,” Franklin recalls. A try at globally extending the brand by advertising in major world cities was also dropped. “It worked pretty well,” Franklin says, “until you added up the cost.”

Franklin’s efforts are similar to an approach called “portfolios of initiatives” strategy. The idea, according to Lowell Bryan, a principal in McKinney & Co., the NYC consulting firm that developed it, is to always have a number of efforts underway to offer new products and services, attack new markets or otherwise implement strategies, and to actively manage these experiments so you don’t miss an opportunity or over commit to an unproven idea.

 

The portfolio of initiatives approach addresses a weakness of conventional business plans-that they make assumptions about uncertain future developments, such as market and technological trends, customer responses, sales and competitor reactions. Bryan compares the portfolio of initiatives strategy to the ship convoys used in World War II to get supplies across oceans. By assembling groups of military and transport vessels and sending them in a mutually supportive group, planners could rely on at least some reaching their destination. In the same way, entrepreneurs with a portfolio of initiatives can expect some of them to pan out.

 

Making a Plan

Three steps define the portfolio of initiatives approach. First, you search for initiatives in which you have or can readily acquire a familiarity advantage – meaning you know more than competitors about a business. You can gain familiarity advantage using low-cost pilot programs and experiments, or by partnering with more knowledgeable allies. Avoid business in which you can’t acquire a familiarity advantage, Bryan says.

After you identify familiarity-advantaged initiatives, began investing in them using a disciplined, dynamic management approach. Pay attention to how initiatives relate to each other. They should be diverse enough that the failure of one wont endanger the others, but should also all fit into your overall strategic direction. Investments, represented by product development efforts, pilot programs, market tests and the like, should start small and increase only as they prove themselves. Avoid over investing before initiatives have proved themselves. The third step is to pull the plug on initiatives that aren’t working out, and step up investment in others. A portfolio of initiatives will work in any size company. Franklin pursues 20 to 30 at any time, knowing 90 percent wont pan out, “The main idea is to keep those initiatives running,” he says. “If you don’t, you’re slowing down.”

 

Advice to an entrepreneur

An entrepreneur, who wants his firm to be more innovative, has read the above article and come to you for advice:

 

  1. This whole idea of experimentation seems to make sense, but all those little failures can add up, and if there enough of them, then this could lead to one big failure-the business going down the drain. How can I best get the advantages of experimentation in terms of innovation while also reduction the costs so that I don’t run the risk of losing my business?
  2. My employees, buyers, and suppliers like working for my company because we have a lot of wins. I am not sure how they will take it when our company begins to have a lot more failures (even if those failures are small)- it is a psychological thing. How can I handle this trade-off?
  3. Even if everyone else accepts it, I am not sure how I will cope. When projects fail it hits me pretty hard emotionally. Is it just that I am not cut out for this type of approach?

 

 

 

Case V – PROVIDE ADVICE TO AN ENTREPRENEUR ABOUT NONTRADITIONAL FINANCING

 

When Lissa D’Aquanni created a gourmet chocolate business in her Albany, New York, basement in 1998, she had not only a passion for candy-making, but also a knack for spurring citizen involvement. The former nonprofit executive had worked for women’s advocacy groups, most recently promoting breast cancer awareness. If there was one thing she knew, it was how to rally community support.

 

Her ability to leverage local resources would be invaluable as she made her business a fixture of her Albany neighborhood. And in no area were those skills as critical as in financing last year, D’Aquanni wanted to move her business, the chocolate Gecko, to an abandoned building three blocks away, she needed $25,000.” Volunteers also helped renovate the building, cutting project costs form an estimated $3,00,000.

 

Check out D’Aquanni’s unorthodox and creative financing plan: An economic development group, the Albany Local Development Corp., loaned her $95,000 to buy the building. D’Aquanni obtained a $1,00,000 government guaranteed loan from a local credit union to renovate the structure. Façade improvements were funded through a matching grant program to encourage commercial development in Albany. A local community development financial institution used a state program to fund energy-efficient upgrades, including new windows, light fixtures, furnaces and siding. Says D’Aquanni, “ There were lots of different pieces of the puzzle to identify and figure out how to access.”

 

Conventional financing wasn’t an option. “I was looking at a business that did about $44,000 in sales doing a $260,000 project, and the traditional funders were apprehensive,” explains D’Aquanni, 37. They urged her to rent a storefront rather than buy the rundown building. Undeterred, D’Aquanni met with a neighborhood group to develop her expansion plan. It wasn’t the first time the community had helped out. In 1999, the cashstrapped chocolatier needed molds and a temperer for the Christmas rush. Recalling a strategy she had seen in a magazine, she sold discounted gift certificates to raise capital. D’Aquanni offered customers $25 in free chocolates for every $100 in gift certificates purchase. “A lot of folks mailed them as gifts to friends, family and co-workers,” D’Aquanni says. “ And most of those people ordered chocolates. My customer base expanded.”

 

Indeed, many entrepreneurs successfully launch a business only to encounter funding hardships as they attempt to grow. The ability to think outside the box, experts say, is critical for firms short on funding. “There are pockets of money out there, whether it be municipalities, counties, chambers of commerce,” says Bill Brigham, Director of the Small Business Development Center in Albany. “Those are the loan programs that no one seems to have information about. A lot of these programs will not require the collateral and cash that is typical of traditional [loans]. They may be a little more lenient as far as credit history goes. That’s one of the key roles we can play-what entrepreneur is going to think [he or she] can qualify for HUD money?

 

Advice to an entrepreneur

 

An entrepreneur, who is looking to expand but has limited access to traditional financing, has read the above article and comes to you for advice:

 

  1. I want to find a little pot of gold like Lissa D’Aquanni. Where should I look?
  2. I like the gift certificate idea to raise money and build my business. What other types of products do you think that approach will work for?
  3. Over the years I have paid a lot of taxes. Should I feel guilty for accessing government – subsidized monies to build my business, or should I feel justified?

 


MBA CASE STUDY ANSWER PROVIDED

____MBA CASE STUDY ANSWER PROVIDED ________________________________________________________________

  1. You are the brand manager of a new line of light weight autofocus, economically priced digital

cameras. Describe how an understanding of consumer behaviour will help you in your

segmentation strategy and promotion strategy. What are the consumer behaviour variables that

are crucial to your understanding of this market ?

  1. Gillette, an established market leader in shaving products, is planning a foray into skin care

products for men. How can the company use stimulus generalisation to market these products ?

Can instrumental conditioning also be applied in this marketing situation ? How ?

  1. You have been asked to advise a mens wear apparel manufacturer, to help them suitably

segment their market and identify the most appropriate target segment. The company

manufactures both formal and casual wear, and has a stylish, upmarket range. You want or to

apply the VALSII typology to help them identify

the target segments. Explain how would you utilise this approach and which segments would be

the most appropriate for this manufacturer ?

  1. Discuss the components of an attitude. Taking the example of a consumer enable purchase

decision, explain what functions do attitudes play in consumer decision making.

  1. How as a marketer of home appliances, would you use the knowledge of post purchase

evaluation by consumer, to ensure that your consumers do not experience any dissonance ?

Describe the response strategies you will follow

  1. “Consumers are always right, but not always” – Agree (or) Disagree, Support your arguments

with and examples

 

 

Case Study : (20 Marks)

Attracting the Youth segment.

Campbell soup Company introduced its line of Chunky soups in Asia in late 80’s. The

product was geared to young people who were found to avoid the standard clear

soup lines and were looking for something that tasted more like a meal. This

heartier version of the soup containing more vegetables or meat in a heavier broth

had done very well over the years with teens, particularly the young males in

the U.S market, where it was the leading ready to serve food in super market.

However, youth in Asia has been found to tum very often from soups to other foods

for lunch and snacks, because of a high degree of prevalence of street food both traditional

and contemporary. Cultural variable like food preferences and taste are also creating

barriers for the product. In addition, with the faster penetration of microwave ovens

and the pizzas and popcorn cooked in them by the college going youth as alternative

snacks, Chunky faces increasing challenges’ from alternatives. In addition

competitive ready-toserve

soups both from international and local providers are

gaining prominence, either on the plank of being an internationally known name or

supplying local flavours to suit the Asian palate. Compbell has resolved to reach the

youth and college market. It conducted specialized research on the college market,

resulting in several

interesting findings. First, only about 1/3 students use college food facilitiesfor lunch and only

about one in four eats there for dinner. With 70% of students having access to a heater or

oven, the potential exists for heating up soup. In’addition, this group likes soup and

therefore is willing to consume chicken noodle soup or a variant of the com soup rather than

having a heavy, full plate lunch. The trends of consumption are also changing. Six out

of 10 college students in the metropolitan cities are more involved in buying prepared food

than in the past. The students are usually short of time, especially during semesters. Thus,

these patterns would indicate that heating .

up soup for a snack or a quick meal could be perceived as being fast and easy and would be an

attractive food choice for these students.

College youth are an attractive market segment for several reasons. First, they are a sizeable

population in a lot of the Asian countries, especially the South Asian countries. Second,

compared to the others in their age group students typically have a larger discretionary

income.

Third, because this is the time that many individuals are for the first

time trying independent living and making consumption decisions by

themselves, attracting them to Campbell brand could help develop a lifetime of

brand loyalty. Moreover, as university students, these consumers should become the

leaders and innovators of tomorrow, enhancing the brandsimage in the

future.

Campbell executives are also aware, however, that College students can be very difficult

to reach and can be noticeable fickle in their brand choice behaviour.

Question

(a) What in your view are the consumer behaviour variables that the company

should study before rolling out its detailed marketing effort ?

(b)Do you agree with the company’s identification of the college going students

as the most attractive segment? If the reference was specifically to the Indian

market, which other segment would you suggest as being attractive for the company.

(c)Advise the company about appropriate

.promotional appeals to use for the product for the target segment of college student.


ORGANIZATIONAL BEHAVIOUR CASE STUDY ANSWER PROVIDED

ORGANIZATIONAL BEHAVIOUR CASE STUDY ANSWER PROVIDED

____________________________________________________________________________

Case 1

Difficult Transitions

Tony Stark had just finished his first week at Reece Enterprises and decided to drive upstate to a small lakefront lodge for some fishing and relaxation. Tony had worked for the previous ten years for the O’Grady Company, but O’Grady had been through some hard times of late and had recently shut down several of its operating groups, including Tony’s, to cut costs. Fortunately, Tony’s experience and recommendations had made finding another position fairly easy. As he drove the interstate, he reflected on the past ten years and the apparent situation at Reece.

At O’Grady, things had been great. Tony had been part of the team from day one. The job had met his personal goals and expectations perfectly, and Tony believed he had grown greatly as a person. His work was appreciated and recognized; he had received three promotions and many more pay increases.

Tony had also liked the company itself. The firm was decentralized, allowing its managers considerable autonomy and freedom. The corporate Culture was easygoing. Communication was open. It seemed that everyone knew what was going on at all times, and if you didn’t know about something, it was easy to find out.

The people had been another plus. Tony and three other managers went to lunch often and played golf every Saturday. They got along well both personally and professionally and truly worked together as a team. Their boss had been very supportive, giving them the help they needed but also staying out of the way and letting them work.

When word about the shutdown came down, Tony was devastated. He was sure that nothing could replace O’Grady. After the final closing was announced, he spent only a few weeks looking around before he found a comparable position at Reece Enterprises.

As Tony drove, he reflected that “comparable” probably was the wrong word. Indeed, Reece and

O’Grady were about as different as you could get. Top managers at Reece apparently didn’t worry too much about who did a good job and who didn’t. They seemed to promote and reward people based on how long they had been there and how well they played the never-ending political games.

Maybe this stemmed from the organization itself, Tony pondered. Reece was a bigger organization than O’Grady and was structured much more bureaucratically. It seemed that no one was allowed to make any sort of decision without getting three signatures from higher up. Those signatures, though, were hard to get. All the top managers usually were too busy to see anyone, and interoffice memos apparently had very low priority.

Tony also had had some problems fitting in. His peers treated him with polite indifference. He sensed that a couple of them resented that he, an outsider, had been brought right in at their level after they had had to work themselves up the ladder. On Tuesday he had asked two colleagues about playing golf.

They had politely declined, saying that they did not play often. But later in the week, he had overheard them making arrangements to play that very Saturday.

It was at that point that Tony had decided to go fishing. As he steered his car off the interstate to get gas, he wondered if perhaps he had made a mistake in accepting the Reece offer without finding out more about what he was getting into.

Case Questions

  1. Identify several concepts and characteristics from the field of organizational behavior that this case

illustrates?

  1. What advice can you give Tony? How would this advice be supported or tempered by behavioral

concepts and processes?

  1. Is it possible to find an “ideal” place to work? Explain.


 

Case 2

Humanized Robots?

Helen Bowers was stumped. Sitting in her office at the plant, she pondered the same questions she had been facing for months: how to get her company’s employees to work harder and produce more. No matter what she did, it didn’t seem to help much.

Helen had inherited the business three years ago when her father, Jake Bowers, passed away

unexpectedly. Bowers Machine Parts was founded four decades ago by Jake and had grown into a moderate-size corporation. Bowers makes replacement parts for large-scale manufacturing machines such as lathes and mills. The firm is headquartered in Kansas City and has three plants scattered throughout Missouri.

Although Helen grew up in the family business, she never understood her father’s approach. Jake had treated his employees like part of his family. In Helen’s view, however, he paid them more than he had to, asked their advice far more often than he should have, and spent too much time listening to their ideas and complaints. When Helen took over, she vowed to change how things were done. In particular, she resolved to stop handling employees with kid gloves and to treat them like what they were: the hired help.

In addition to changing the way employees were treated, Helen had another goal for Bowers. She wanted to meet the challenge of international competition. Japanese firms had moved aggressively into the market for heavy industrial equipment. She saw this as both a threat and an opportunity. On the one hand, if she could get a toehold as a parts supplier to these firms, Bowers could grow rapidly. On the other, the lucrative parts market was also sure to attract more Japanese competitors. Helen had to make sure that Bowers could compete effectively with highly productive and profitable Japanese firms.

From the day Helen took over, she practiced an altogether different philosophy to achieve her goals. For one thing, she increased production quotas by 20 percent. She instructed her first-line supervisors to crack down on employees and eliminate all idle time. She also decided to shut down the company softball field her father had built. She thought the employees really didn’t use it much, and she wanted the space for future expansion.

Helen also announced that future contributions to the firm’s profit-sharing plan would be phased out.

Employees were paid enough, she believed, and all profits were the rightful property of the owner—her.She also had private plans to cut future pay increases to bring average wages down to where she thought they belonged. Finally, Helen changed a number of operational procedures. In particular, she stopped asking other people for their advice. She reasoned that she was the boss and knew what was best. If she asked for advice and then didn’t take it, it would only stir up resentment.

All in all, Helen thought, things should be going much better. Output should be up and costs should be way down. Her strategy should be resulting in much higher levels of productivity and profits.

But that was not happening. Whenever Helen walked through one of the plants, she sensed that people weren’t doing their best. Performance reports indicated that output was only marginally higher than before but scrap rates had soared. Payroll costs were indeed lower, but other personnel costs were up. It

seemed that turnover had increased substantially and training costs had gone up as a result.

In desperation, Helen finally had hired a consultant. After carefully researching the history of the

organization and Helen’s recent changes, the consultant made some remarkable suggestions. The bottom line, Helen felt, was that the consultant thought she should go back to that “humanistic nonsense” her father had used. No matter how she turned it, though, she just couldn’t see the wisdom in this. People worked to make a buck and didn’t want all that participation stuff.Suddenly, Helen knew just what to do: She would announce that all employees who failed to increase their productivity by 10 percent would suffer an equal pay cut. She sighed in relief, feeling confident that she had finally figured out the answer.

Case Questions

  1. How successful do you think Helen Bowers’s new plan will be?
  2. What challenges does Helen confront?
  3. If you were Helen’s consultant, what would you advise her to do?


 

Case 3

Teams at Evans RV Wholesale Supply and Distribution Company?

Evans RV Wholesale Supply and Distribution Company sells parts, equipment, and supplies for

recreational vehicles-motor homes, travel trailers, campers, and similar vehicles. In addition, Evans has a service department for the repair and service of RVs. The owner, Alex Evans, bought the company five years ago from its original owner, changed the name of the company, and has finally made it profitable, although it has been rough going. The organization is set up in three divisions: service, retail parts and supplies, and wholesale parts and supplies. Alex, the owner, CEO, and president, has a vice president for each operating division and a vice president of finance and operations. The organization chart shows these divisions and positions.

In the warehouse there are three groups: receiving (checking orders for completeness, returning

defective merchandise, stocking the shelves, filling orders), service parts, and order filling for outgoing shipments. The warehouse group is responsible for all activities related to parts and supplies receiving,storage, and shipping.

The retail sales division includes all functions related to selling of parts and supplies at the two stores and in the mobile sales trailer. Personnel in the retail division include salespeople and cashiers. The retail salespeople also work in the warehouse because the warehouse also serves as the showroom for walk-in customers.

In the service department the service manager supervises the service writers, one scheduler, and lead mechanics and technicians. The service department includes the collision repair group at the main store and the service department at the satellite store. The collision repair group has two service writers who have special expertise in collision repair and insurance regulations. Two drivers who move RVs around the “yard” also work in the service division.

The accounting and finance groups do everything related to the money side of the business, including accounts payable and receivable, cash management, and payroll. Also in this group is the one person who handles all of the traditional personnel functions.

Alex has run other small businesses and is known as a benevolent owner, always taking care of the loyal employees who work hard and are the backbone of any small business. He is also known as being real tough on anyone who loafs on the job or tries to take unfair advantage of Alex or the company. Most of the employees are either veterans of the RV industry at Evans or elsewhere, or are very young and still learning the business. Alex is working hard to develop a good work ethic among the younger employees and to keep the old-timers fully involved. Since he bought the business, Alex has instituted new, modern, employee-centered human resource policies. However, the company is still a traditional hierarchically structured organization.

The company is located in a major metropolitan area that has a lot of potential customers for the RV business. The region has many outdoor recreational activities and an active retirement community that either lives in RVs (motor homes, trailers, or mobile homes) or uses them for recreation. The former owner of the business specifically chose not to be in the RV sales business, figuring that parts and service was the better end of the business. Two stores are strategically located on opposite ends of the metropolitan area, and a mobile sales office is moved around the major camping and recreational areas during the peak months of the year.

When Alex bought the company, the parts and supplies business was only retail, relying on customers to walk in the door to buy something. After buying the business, Alex applied good management, marketing, and cash-management principles to get the company out of the red and into profitability.

Although his was not the only such business in town, it was the only one locally owned, and it had a good local following. About two years ago, Alex recognized that the nature of the business was changing. First, he saw the large nationwide retailers moving into town. These retailers were using discount pricing in large warehouse-type stores. These large retail stores could use volume purchasing to get lower prices from manufacturers, and they had the large stores necessary to store and shelve the large inventory. Alex, with only two stores, was unable to get such low prices from manufacturers. He also noted that retired people were notorious for shopping around for the lowest prices, but they also appreciated good, friendly customer service. People interested in recreational items also seemed to be following the national trend to shop via catalogs.

So for a variety of reasons Alex began to develop a wholesale business by becoming a wholesale

distributor to the many RV parts and supply businesses in the small towns located in the recreational areas around that state and in surrounding states. At the same time, he created the first catalog for RV parts and supplies, featuring all the brand-name parts and supplies by category and supplier. The catalog had a very attractive camping scene on the cover, a combination of attractively displayed items and many pages full of all the possible parts and supplies that the RV owner could think of. Of course, he made placing an order very easy, by phone, mail, or fax, and accepted many easy payment methods. He filled both distributor orders and catalog orders from his warehouse in the main store using standard mail and parcel delivery services, charging the full delivery costs to the customers. He credits the business’s survival so far to his diversification into the warehouse and catalog business through which he could directly compete with the national chains.

Although it is now barely profitable, Alex is concerned about the changes in the industry and the

competition and about making the monthly payments on the $5 million loan he got from the bank to buy the business in the first place. In addition, he reads about the latest management techniques and attends various professional conferences around the country. He has been hearing and reading about this team-based organization idea and thinks it might be just the thing to energize his company and take it to the next level of performance and profitability. At the annual strategic planning retreat in August, Alex announced to his top management team that starting on October 1 (the beginning of the next fiscal year), the company would be changing to a team-based arrangement.

Case Questions

  1. What mistakes has Alex already made in developing a team-based organization?
  2. If Alex were to call you in as a consultant, what would you tell him to do?
  3. Using the organization chart of Evans RV Wholesale Supply and Distribution, describe how you

would put the employees together in teams.


 

Case 4 Stress Takes Its Toll

Larry Field had a lot of fun in high school. He was a fairly good student, especially in math, he worked harder than most of his friends, and somehow he ended up going steady with Alice Shiflette, class valedictorian. He worked summers for a local surveyor, William Loude, and when he graduated Mr. Loude offered him a job as number-three man on one of his survey crews. The pay wasn’t very high, but Larry already was good at the work, and he believed all he needed was a steady job to boost his confidence to ask Alice to marry him. Once he did, events unfolded rapidly. He started work in June, he and Alice were married in October, Alice took a job as a secretary in a local company that made business forms, and a year later they had their first child. The baby came as something of a shock to Larry. He had come to enjoy the independence his own paycheck gave him every week. Food and rent took up most of it, but he still enjoyed playing basketball a few nights a week with his high school buddies and spending Sunday afternoons on the softball field.

When the baby came, however, Larry’s brow began to furrow a bit. He was only 20 years old, and he still wasn’t making much money. He asked Mr. Loude for a raise and got it—his first.

Two months later, one of the crew chiefs quit just when Mr. Loude’s crews had more work than they could handle. Mr. Loude hated to turn down work, so he made Larry Field a crew chief, giving his crew some of the old instruments that weren’t good enough for the precision work of the top crews, and assigned him the easy title surveys in town. Because it meant a jump in salary, Larry had no choice but to accept the crew chief position. But it scared him. He had never been very ambitious or curious, so he’d paid little attention to the training of his former crew chief. He knew how to run the instruments— the basics, anyway—but every morning he woke up terrified that he would be sent on a job he couldn’t handle.

During his first few months as a crew chief, Larry began doing things that his wife thought he had outgrown. He frequently talked so fast that he would stumble over his own words, stammer, turn red in the face, and have to start all over again. He began smoking, too, something he had not done since they had started dating. He told his two crew members that smoking kept his hands from shaking when he was working on an instrument. Neither of them smoked, and when Larry began lighting up in the truck while they were waiting for the rain to stop, they would become resentful and complain that he had no right to ruin their lungs too.

Larry found it particularly hard to adjust to being “boss,” especially since one of his workers was getting an engineering degree at night school and both crew members were the same age as he. He felt sure that Alfonso Reyes, the scholar, would take over his position in no time. He kept feeling that Alfonso was looking over his shoulder and began snapping any time they worked close together.

Things were getting tense at home, too. Alice had to give up her full-time day job to take care of the baby, so she had started working nights. They hardly ever saw each other, and it seemed as though her only topic of conversation was how they should move to California or Alaska, where she had heard that surveyors were paid five times what Larry made. Larry knew his wife was dissatisfied with her work and  believed her intelligence was being wasted, but he didn’t know what he could do about it. He was disconcerted when he realized that drinking and worrying about the next day at work while sitting at home with the baby at night had become a pattern.

Case Questions

  1. What signs of stress was Larry Field exhibiting?
  2. How was Larry Field trying to cope with his stress? Can you suggest more effective methods?

MARKETING MANAGEMENT CASE STUDY ANSWER PROVIDED

MARKETING MANAGEMENT CASE STUDY ANSWER PROVIDED

SUBJECT: Marketing Management

N.B: 1} Attempt all questions

Number: maur-00613-2010750

_________________________________________________________________________

Case 1

1997 saw the US$19 billion merger of Guinness and Grand Met to form Diageo, the world’s largest drinks company. Guinness was the group’s top- selling beverage after Smirnoff vodka, and the group’s third most profitable brand, with an estimated global value of US$ 1.2 billion. More than 10 million glasses of the world’s most popular stout were sold every day, predominantly in Guinness’ top markets: respectively, the UK, Ireland, Nigeria, the USA and Cameroon. However, the famous dark stout with the white, creamy head was causing some strategic concerns for Diageo. In 1999, for the first time in the 241-year history of Guinness, sales fell. In early 2002 Diageo CEO Paul Walsh announced to the group’s concerned shareholders that global volume growth of Guinness was down 4 per cent in the last six month of 2001 and, more alarmingly, sales were also down 4 per cent in its home markets, Ireland. How should Diageo address falling sales in the centuries- old brand shrouded in Irish mystique and tradition?

The changing face of the Irish beer market

The Irish were very fond of beer and even fonder of Guinness. With close to 200 liters per capita drunk each year- the equivalent of one pint per person per day- Ireland ranked top in worldwide per capita beer consumption, ahead of the Czech Republic and Germany.

Beer accounted for two-thirds of all alcohol bought in Ireland in 2001. Stout led the way in volume sales and accounted for 40 per cent of all beer value sales. Guinness, first brewed in 1759 in Dublin by Arthur Guinness, enjoyed legendary Status in Ireland, a national symbol as respected as the green, white and gold flag. It was by far the most popular alcoholic drink in the Ireland, accounting for nearly one of every two points of beer sold. Its nearest competitors were Budweiser and Heineken, which held 13 per cent and 12 per cent of the market respectively.

However, the spectacular economic growth of the Irish economy since the mid-1990s had opened up the traditional drinking market to new cultures and influences, and encouraged the travel-friendly Irish to try other drinks. Beer and in particular stout were gradually losing popularity compared with wine or the recently launched RTDs (ready-to-drinks) or FABs (flavored alcoholic beverages), which the younger generation of drinkers considers trendier and ‘healthier. As a Euromonitor report explained:

Younger consumers consider dark beers and stout to be old fashioned drinks, with the perceived stout or ale drinker being an old, slightly overweight man and thus not in tune with image conscious youth culture.1 Beers sales, which once accounted for 75 per cent of all alcohol bought in Ireland, were expected to drop to close to 50 per cent by 2006, while stout sales were forecast to decrease by 12 per cent between 2002 and 2006.

Giving Guinness a boost in its home market

With Guinness alone accounting for 37 per cent of Diageo’s volume in the market, Guinness/UDV Ireland was one of the feel the pain caused by the declining popularity of beer and in particular stout. A Euromonitor report in February 2002 explained how the profit of the Guinness drinker, typically men aged 21-plus, was affected:

The average age of Guinness drinkers is rising and this is bringing about the worrying fact that the size of the Guinness target audience is falling. The rate of decline is likely to quicken as the number of less brand loyal, non-stout drinking younger consumer’s increases.2

The report continued:

In Ireland, in particular base for Guinness is shrinking as the majority of 18 to 24 year olds

consistently reject stout as a product relevant to their generation, opting instead to consume lager or spirits.

Effectively, one-third of young Irish men and half of young Irish woman had reportedly never tried Guinness.

3 A Guinness employee provided another explanation. Guinness is similar to coffee in that when you’re young you drink it [coffee] with sugar, but when

you’re older you drink it without. It’s got a similar acquired taste and once you’re over the initial hurdle, you’ll fall in love with it.

4 .n an attempt to lure young drinkers to the somewhat ‘acquired’ Guinness taste (40 per cent of the Irish population was under the age of 24) Diageo had invested million in developing product innovations and brand building in Ireland’s 10,000 pubs, clubs and supermarkets.

Product innovation

Until the mid-1990s most Guinness in Ireland was drunk in a paint glass in the local pub. The launch of product innovations in the form of a new cooling mechanism for draft Guinness and the ‘widget’ technology applied to cans and bottles attempted to modernize the brand’s image and respond to increasing competition from other local and imported stouts and lagers.

‘A perfect head canned Guinness

In 1989, and at a cost of more than 10 million, Guinness developed an ingenious ‘widget’ device for its canned draft stout sold in ‘off-trade’ outlets such as supermarkets and ‘off-licenses. The widget, placed in the bottom of the can, released a gas that replicated the draft effect.

Although over 90 per cent of beer in Ireland was sold in ‘on-trade’ pubs and bars, sales of beer in the cheaper ‘off-trade’ channel were slowly gaining in importance. The Guinness brand manger at the time, John O’Keeffe, explained how home drinkers could how enjoy a smoother, creamier head similar to the one obtained in the pub thanks to the new widget technology:

When the can is opened, the pressure causes the nitrogen to be released as the widget moves

through the beer, creating the classic draft Guinness surge . Nearly 10 years later, in 1997, the ‘floating widget’ was introduced, which improved the effectiveness of the device.

A colder pint

In 1997 Guinness draft Extra Cold was launched in Ireland. An additional chilled tap system could be added to the standard barrel in pubs, allowing the Guinness to be served at 4 C rather than the normal 6 C. By serving Guinness at a cooler temperature, Guinness/UDV hoped to mute the bitter taste of the stout and make it more palatable for younger adults, who were increasingly accustomed to drinking chilled lager, particularly in the summer.

A cooler image for Guinness

In October 1999 the widget technology was applied to long-steamed bottles of Guinness. The launch was supported by a US$2 million TV and outdoor board campaign. The packaging-with a clear, shiny plastic wrap, designed to look like a pint complete with creamy head –was quit a departure from the traditional Guinness look.

The objective was to reposition Guinness alongside certain similarly packaged lagers and RTD s and offer younger adults a more fashionable way to drink Guinness: straight from the bottle. It also gave Guinness easier access to the growing number of clubs and bars that were less likely to serve traditional drafts Guinness, which could be kept for only six to eight weeks and took two minutes to pure. The RTDs, by contrast, had a shelf-life of more than a year and were drunks straight from the bottle. However, financial analysts remained sceptical about the Guinness product innovation, which had no significant positive impact on sales or profitability:

The latest news about the success of the recently introduced innovations suggests that they have not had a notably material impact on Guinness brand performance.

Brand building

Euromonitor estimated that, in 2000, Diageo invested between US$230 and US$250 million worldwide in Guinness advertising and promotions. However, with a cost-cutting objective, the company reduced marketing expenses in both Ireland and the UK by up to 10 per cent in 2001 and the number of global Guinness agencies from six to two. Nevertheless, Guinness remained one of the most advertised brands in Ireland. It was the leading cinema advertiser and, in terms of outdoor advertising, was second only to the national telecoms provider;

Eircom.

7 Guinness was also heavily promoted at leading sporting and music events, in particular those that were popular with the younger age groups.

The ultimate tribute to the brand was the opening of the new Guinness storehouse in Dublin in late 2000, a sort of Mecca for all Guinness fans. The storehouse was also a fashionable visitor centre with an art gallery and restaurants, and regularly hosted evening events. The company’s design brief highlighted another key objective:

To use an ultramodern facility to breath life into an ageing brand, to reconnect an old company with young (skeptical) customers.

8 As the Storehouse’s design firm’s director, Ralph Ardill, explained:

Guinness Storehouse is a way to get in touch with a new generation to help young people reevaluate Guinness.

Within a year, the Storehouse had become the top tourist destination in Ireland, attracting more than half a million people and hosting 45,000 people for special events and training.

The storehouse also had training facilities for Guinness’s bartenders and 3000 Irish employees. The quality of the Guinness paint remained a high priority for the company, which not only developed pub-like classrooms at the Storehouse but also employed teams of draft technicians to teach barmen how to pure a proper pint. The process involved two-steps –the pour and the top up –and took a total of 199.5 seconds. Barmen also needed to learn how to check that the pressure gauges were properly set and that the proportion of nitrogen to carbon dioxide in the gas was correct. The Uncertain future of the Guinness brand in Ireland Despite Guinness/UDV’s attempt to appeal to the younger generation of drinkers and boost its fading image, rumors persisted in Ireland about the brand’s future. The country’s leading and respected newspapers, the Irish Times, reported in an article in July 2001:The uncertainty over is future all adds to the air of crisis that is building around Guinness. Sales of the famous stout in Ireland, still its single most important market, are falling … The decline in Irish sales triggered a review process at Guinness Ireland Group four month ago … The review is not complete and the assumption is that there is more bad news to come.

10 . in the pubs across Ireland, the traditional Guinness drinkers looked on anxiously as the younger generation drank Bacardi Breezers, Simirnoff Ices or Californian wines. Could the goliath Guinness survive another two centuries? Was the preference for these new to seriously reconsider how it marketed Guinness?

A quick solution?

In late February 2002, Diageo CEO Paul Walsh reverted that the company was testing technology to cut the waiting time for a pint of Guinness from 1 minute 59 seconds to 15-25 seconds. Ultrasound could release bubbles in the stout and from the head instantly, making a pint of Guinness that would be indistinguishable from one produced by the slower, traditional method.

‘A two- minute pour is not relevant to our customers today,’ Walsh said.11 A Guinness spokeswoman continued, ‘ We have got to move with the times and the brand must evolve. We must take all the opportunities that we can. In outlets where it is really busy, if you walk in after nine o’ clock in the evening there will be a cloth over the Guinness pump because it takes longer to pour than other drinks.’12 Aware that some consumers might not be attracted by the innovation, she added ‘It wouldn’t be put everywhere-only where people want a quick pint with no effect on the quality.’ Although still being tested, the ‘quick-pour pint’ was a popular topic of conversation in Dublin pubs, among barmen and customers alike. There were rumours that it would be introduced in Britain only; others thought it would be released worldwide.

Some market commentators viewed the quick-pour pint as an innovation way to appeal to the younger, less patient segment in which Guinness had under performed. Others feared that the young would be unconvinced by the introduction, and loyal customers would be turned off by what they characterized as a ‘marketing u-turn’.

Questions:-

  1. From a marketing perspective, what has Guinness done to ensure its longevity?
  2. How would you characterize the Guinness brand?
  3. What could Guinness do to attract younger drinkers? And to retain its older loyal customer base?

Can both be done at the same time?

  1. Is the quick- pour concept a good or bad idea? Why?


 

Case 2

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 month 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 primadonnas 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, levering 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 charthas 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 difference 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 a 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 artists churning out classic cover songs, before vanishing off the celebrity radar. Four large music labels now dominate the industry (see Table C2.1), and have emerged through years of consolidation. The ‘big four’ major 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 radio airplay and video rotation on dedicated TV music channels. Major record labels have even been accused of offering cash inducements or gift to radio station and DJs in an effort to get their song on playlists. This activity is known in the industry as ‘radio payola’. Consumers have flocked to the Internet, to down load to stream, to ‘rip and burn’ copyrighted music material. The digital music revolution has changed the way people listen, use and obtain their favorite 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 altogether. The traditional music industry 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 change into context, the sales of digital singles increased by 746.6 per cent in 2005. Consumers are The “big four’ labels Universal music 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 Warner music Third biggest music group; artists on its roster include Madonna, Red Hot Chili peppers and REM Song BMG Merger consolidates its position; artists on its roster include Michael Jackson, Lauryn Hill, West life, Dido, Osast and cristina Aguilera EMI Artists on its roster include the Rolling Stones, Coldplay, North Jones Radiohead and Robbie Williams  Buying their music their through different channels and also listening to their favourite 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 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 the song on to a rewritable CD 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 close on 5 million units of this ultra-hip gadget. It was the ‘must-have item’ for 2003. The standard 20GGB iPod player can hold around 5000 songs. Other hardware companies, such as Dell & Creative Labs, have launched competing devices these competing hardware 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 desire music files through the use of a central computer server. The system works like this: a user sends in a request for a song; the system checks where on the internet that song is located; that song is download 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 multimedia material like concerts or videos, access to samples of tracks, cheaper pricing (buying song 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 stream 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. Million of songs are being down loaded 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 copyright material with considerable ease using P2P networks (see accompanying box)

P2P Networks used for file sharing

Kazaa

Gnutella

Grokster

Morpheus

EDonkey

Imesh

Bearshare

Win MX

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 music libraries. This has due to been to the rapid success of small digital media players such has 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 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 our of a typical 99 download, the music label gets 65p while credit card companies get 4p, leaving the online music store with 30p per song download. This service 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 consequence 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 sites 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.

Name

Apple iTunes

Napster

Sony Connect

Bleep.com

Details

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

The now legitimate website offers over 1,000,000 songs; offers several streaming radio stations too Over 300,000 songs from the major labels; excellent sound quality but compatible only with Sony product due to proprietary file formats Pricing 79 per track, 7.99per album Subscription  asedsubscribers pay 9.99a month to stream any of the catalogue, plus another 99p to download

on to a CD From 80-1.20 per track, and 8-10per album Wippit OD2 System, used by:

Mycokemusic.com

HMV.com

MSN.com

Tower Record.co.uk

Big Noise Music

Small catalogue of 15,000 songs with a focus on independent music labels; high quality downloads due to media files used UK-based service; 175,000songs to download; gives a selection of free tracks every month These online sites use the OD2 system for music downloads; 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 99 per track,6.99 per

Album From 30p to 1 to download alternatively, users can  subscribe to the service for 50 a year to gain access to 60,000 songs Varying product bundles, typically 99p for track download , and 1p for streaming . They are issuing warnings to net surfers who are using 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 companies, by promoting anti-piracy 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 campaign 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 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.

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 supermarket 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 a 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 gray markets such as cdwow.co.uk, as well as through legitimate download retailers. This has left traditional music retail operations with severe conundrum: how can they entice more shoppers into their stores? The accompanying box highlight where typical sources their music at present.

Where do people buy their music?

Music stores (like HMV, Virgin Megastore) 16 per cent

Chains (like Woolworth, WHS mith) 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

Sources: British Phonographic Industry

The issue of online music retailers using parallel importing, such as CDWOW (www.cdwow.co.uk) is a concern. These retailers are taking advantages of worldwide price discrepancies for legitimate music CDs, sourcing them in low-cost countries like Hong Kong and exporting them in to European countries. Prices for music in these markets are considerably lower than the market that they are exporting to, and they don’t charge for international delivery. Yet technological improvements have led to revenue opportunities for the industry. Development such as online radio, digital right management, Internet streaming, tethered downloads (locked to PC), downloads (burnable, portable), in-store kiosks, ring tones, mobile message clips, video 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 his 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 or technology, catalogue shopping never surpassed regular high-street shop-ping, 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?

Discuss the advantages and disadvantages associated with online distribution from a music label’s perspective.


 

Section B

Questions 1 to 3 carry 16 marks each:-

1.} From a brand-building perspective, television advertising has two particularly important strengths. List and briefly explain these strengths.

2.} Prior research has shown that although consumers may have fairly good knowledge of the range of prices involved, surprisingly few can recall specific prices of products accurately. When examining products, consumers often employ reference prices. List the possible prices consumers use as their “reference.”

3.} Brands can be differentiated on the basis of many variables; however, four differentiation strategies are emphasized in the text. List and briefly characterize the three differentiation strategies.


STRATEGIC MANAGEMENT CASE STUDY ANSWER PROVIDED

STRATEGIC MANAGEMENT CASE STUDY ANSWER PROVIDED

The Indian Institute of Business Management & Studies
Subject: Strategic Management Marks: 100
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.
The Indian Institute of Business Management & Studies
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
The Indian Institute of Business Management & Studies
Subject: Strategic Management Marks: 100
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.


QUANTITATIVE METHOD CASE STUDY ANSWER PROVIDED

QUANTITATIVE METHOD CASE STUDY ANSWER PROVIDED

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.
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
3
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?
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
4
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
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
5
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.
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
6
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?
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
7
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.
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
8
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.
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
9
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.
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
10
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
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
11
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.
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
12
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.
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
13
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?
The Indian Institute of Business Management & Studies
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
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
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
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
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?
The Indian Institute of Business Management & Studies
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
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
18
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
The Indian Institute of Business Management & Studies
Subject: Quantitaive Methods Marks: 100
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?


BUSINESS ETHICS CASE STUDY ANSWER PROVIDED

BUSINESS ETHICS CASE STUDY ANSWER PROVIDED

The Indian Institute of Business Management & Studies
Subject: Business Ethics Marks: 100
Section I: CASE STUDY
No Minor Offence
Census data reveals high level of under – age marriages
Census statics are generally full of surprises. But this one is startling: 6.4 million Indians under the
age of 18 are already married. That’s not all. As many as 1.3 lakh girls under 18 are widowed and
another 56,000 are divorced or separated. The legal marriageable age for women is 18, for men 21. A
century and a half after Ishwarchandra Vidyasagar’s crusade against child marriage, the practice
persists. Obviously, the Child Marriage Restraint Act, 1929, exists only on paper and has not been
able to deter parents from marrying off under –aged sons and daughters. The incidence is
understandably higher in rural areas, but not low as expected in the cities. It’s more common in the
BIMARU states, with Rajasthan leading the way ironically, the Act renders all under-age marriages
illegal but not void, which means that an illegally married couple can stay married. It is, therefore,
violated with impunity and hardly anyone is ever hauled up. Despite the fact that child marriage is a
criminal offence, action is rarely taken by the police. Even civil society remains a passive spectator.
There’s not enough penalty-a fine of Rs.1, 000 and imprisonment up to three shows that the state
does not view the crime seriously.
The practice is linked to the curse of dowry. “Chhota Chhora dhhej kam mangta” (the younger the
groom, the smaller the dowry demand) justifies many such alliances. The grimmest part of the
scenario is the physical havoc that early marriage wreaks upon girls who are too young to bear the
burden of maternal and child mortality. There is also the belief that a daughters’ marriage is a scared
obligation that parents must fulfill at the earliest. A new legislation, Prevention of Child marriages
Bill, 2004, to replace the loophole-ridden 1929 Act is awaiting parliament’s approval. But legislation
alone is not enough. Compulsory registration of marriages is one way of tackling the problem.
Creating awareness about the ill-effects of such marriages and mobilizing committed social workers
to intervence are others. However, social workers have to often function in hostile conditions. The
1992 case of Bhanwari Devi, the Rajasthan saathin who was raped for preventing a child marriage, is
chilling. In the end only education, economic security and increasing empowerment of women can
eliminate the problem.
Questions
1. Discuss ethically the drawbacks you find in the under-age marriages?
2. How does the increasing empowerment of women help eliminate problems if this type?
The Indian Institute of Business Management & Studies
Subject: Business Ethics Marks: 100
Sections II: Solve any six questions.
a) What are moral hazards and why is it important?
b) What is emergent strategy?
Q3.
a) What are the objectives of a business, and which is the most important?
b) How many steps are there in the decision making process and what are they?
Q4.
a) What CSR issues exist for NFPs?
b) What measures of performance are typically used by these organizations?
Q5.
a) How globalization effect CSR?
b) Is globalization threat for CSR?
Q6.
a) Why is the measurement of performance important?
b) What is ISO14000 and what factors does it cover?
Q7.
a) What are the responsibilities of business in their corporate decision?
b) What is the relationship between CSR and corporate behavior?
Q8.
a) What are the 4 factors of sustainability?
b) What are the factors of distributable sustainability?
Q9.
a) What justification does stakeholder Theory use for considering stakeholder?
b) What are the steps involved in the incorporation of environmental accounting into the risk
evaluation system of an organization?


BANKING MANAGEMENT CASE STUDY ANSWER PROVIDED

BANKING MANAGEMENT CASE STUDY ANSWER PROVIDED

Note : Both the sections are compulsory.

 

Section I

 

CASE I : BANKING ON RELATIONSHIP

 

The birth of ABC Bank took place after the RBI issued guidelines for the entry of new private sector banks in January 1993. Subsequently, the promoter of ABC Bank sought permission to establish a commercial bank and retained KPMG, a management consultant of international repute, to prepare the groundwork for establishing a commercial bank. The Reserve Bank of India conveyed its approval in principle to establish ABC Bank on February 11, 1994. Thereafter, the Bank was incorporated under The Companies Act in September 1994. The bank started its operations in November 1995. The ABC Bank was promoted by the tenth largest development bank in the world, which had a magnificent record of promoting world-class institutions in India. The promoter was a strategic investor in a plethora of institutions, which had revolutionized the Indian financial markets.

 

Keeping in line with its policy of leveraging technology to drive its business, ABC Bank deployed Finacle, the e-age banking solution from Infosys to consolidate its position, meet challenges and quickly seize new business opportunities. The entire Finacle rollout was remarkable, considering the fact that it was implemented across all branches in a record timeframe of 5 months. Finacle provided the critical technology platform to propel the bank’s operations with new thrust and direction. The bank also implemented Kondor – a treasury front office software from Reuters and ITMS – treasury back office software from Synergy Login. The achievement of these significant milestones was consistent with ABC Bank’s continued focus to create customer and shareholder value through deployment of superior technology. Investments in technology were a part of the plan to put in place building blocks for creating the right organizational infrastructure. In future, it would help ABC Bank to consistently deliver superior products, convenient access channels and efficient service to its retail and corporate customers. Large investments had been made in back-end technology to strengthen processes, systems and control. This, in the long run, propelled by a top quality management team, clearly set ABC Bank apart from its competitors.

 

ABC Bank was a pioneer and an innovator in bringing state-of-the-art services to its customers. It was the first private bank to enter and capture new markets. It was the first Indian Bank to provide – ATM Next (an information portal on ATMs); Instant Account Opening; Talking ATMs; GiftCard (Prepaid Gift Card); EasyFill (Instant Mobile Refill Service) – along with other services. The Bank introduced a SMS alert service, which gave the customers, updated information on any transaction. The Bank had collaboration with other organizations rendering related services –Insurance, National Saving Certificates and Post office Service –providing a platform to interact with potential customers as well as offering other services to its existing customers. It also tried to tap potential rural market segments, which had not been explored by any other private bank. A key achievement for the Bank was that it emerged as the highest distributor for two top Mutual Fund Schemes consistently in the past, thereby demonstrating the strength of the Bank’s distribution channel of TPD business. It had registered huge success as a collecting bank to several market IPOs that consequently leveraged the IPO financing business. It launched a strategic B2B E-Commerce platform with BPCL to facilitate online payments from BPCL to its dealers, thereby enhancing corporate business through new-age technology and offering Supply Chain Financing Solutions. Corporate banking relationships were offered at 20 locations across the country and total Banking Solutions to its corporate customers (Annexure).

 

The Value Chain Management Group also offered Supply Chain Finance Solutions to various Corporates and special products like loan against credit card receivables. The lifeline of ABC Bank were its people, growing at a very fast pace. The average age of the employee at ABC Bank was 31 years. Approximately 83% of the employee strength was in the junior management category (which included trainees and probationers), while 14% made up the middle level management. The remaining constituted the senior and top management. The various business units comprised of 75%, while support functions made up for 12%, and operations for the remaining 13% of the total manpower strength of the Bank. The bank had rolled-out broad based grant of stock options covering 75% of the employees to align their interests with those of its shareholders. The bank had a stats-of-the-art training centre at Mumbai and every employee received on an average 40 hours of training, annually.

 

ABC Bank entered Nagpur market in two phases. In the first phase, it started with corporate banking and established itself as the best service provider. Afterwards, it leveraged its strengths by entering into retail banking. Although, relatively a late entrant in the retail banking sector, it acquired easy access in the new segment due to its brand image in corporate banking. In retail banking, ABC Bank opted for selective penetration based on two main factors – volume of business and credibility of the account. This enabled them to create greater satisfaction in the customers’ mind. Initially, it started with the criteria of an average quarterly cash balance of Rs 25,000 focusing on premium segment. Later on, to further penetrate the market, it reduced the average quarterly cash balance to Rs 5,000 and segmented the market on the basis of nature of business, volume and number of transactions per month. In this phase, by reducing the minimum available balance, it tapped other individual customer accounts during the course of its expansion.

 

ABC had always been particular about the specific needs of the customer and maintaining consistency in the quality of products and services provided. The bank emphasized on dealing with them on a one-to-one basis and providing tailor-made products. In course of penetrating this segment, ABC bank achieved great success due to its deep understanding of the needs and expectations of local customers. On the other hand, some of the competitors who displayed grand success in the beginning could not sustain it because of a mismatch between expectations of the customers and delivery of services. As promotion was mainly through word-of-mouth, the bank operated on the philosophy that 5 satisfied customers bring 5 new customers whereas 5 dissatisfied customers break 25 existing customers. Therefore, they focused about maintaining quality of services and customer satisfaction. The bank was very particular about reducing the turnaround time in extending its services to the customers. It also acted as an investment consultant for their individual customers.

 

Apart from offering ‘tailor-made’ products, the bank maintained a continuous personal relationship with each of its existing customer, based on their business potentials. They took regular feedbacks from the customers and responded sincerely to their suggestions or complaints. They used to call up their premium customers once a week, asking for their views on the services offered by the bank and suggestions to improve the same. To enable an impartial communication system, the bank created a dedicated e-mail ID for customers’ queries and complaints, which established a direct link between them and corporate office. The complaints and queries received from the customers were then forwarded to the concerned branch offices for immediate redressal and branch heads were asked to confirm the same. These complaint redressals formed an important component in performance evaluation of the branch as well as the concerned employee.

 

Even though a large group promoted ABC Bank, its independent asset base was limited, which posed a problem to finance large organizations. The limited asset base of the bank created hurdles in the expansion of its business. In view of having just two branches, RBI guidelines did not permit ABC to have its own currency chest at Nagpur, thereby affecting smooth management of hard cash. The bank had an insurance cover for a given amount of cash it could hold. When the cash inflow increased over the given limit, keeping additional hard cash with the bank increased risk. Therefore, it became necessary to transfer it to the right place. In the city of Nagpur, ABC had only two branches, though its customer base was very large and continuously increasing. The changing economic scenario was expanding business opportunities for the Bank. Butibori, a place 30 kms from Nagpur, was expected to be declared as a Special Economic Zone, which would attract more industries and accelerate the related business activities in the region.

 

An increasing number of private and foreign banks had begun entering Nagpur. The promotional activities of these multinational banks increased awareness about private banking amongst the people in the region. ABC Bank also planned to expand its services in credit cards and other value added services. With the entry of foreign and private banks in Nagpur, the scenario was becoming more competitive and complex. As the new players tried to grab experienced employees at higher salaries, the employee turnover at ABC Bank increased. Looking at the changing business scenario, the Branch Head, Nagpur, was wondering about the strategies and measures to be taken for sustenance and growth of the bank.

 

QUESTIONS FOR DISCUSSION

 

  1. Analyze the case, using SWOT.

 

  1. Comment on the strategies used by the bank for penetrating the Nagpur market.

 

  1. Suggest strategies for sustenance and growth of the bank in view of the changing scenario of the Nagpur region.

 

Section II

Answer Any six :

 

  1. Explain buyers credit and suppliers credit by giving examples of each type of credit. Also explain with a case study.
  2. What is correspondent banking? Explain briefly the services offered by correspondent banking? Explain briefly the services offered by correspondent banks to the banks having account relationship with them? Give some examples?
  3. Explain in brief, the role of Reserve bank of India in Indian Exchange control. Explain the role of EXIM bank in promotion exports, and describe briefly facilities given by EXIM bank? Give examples.
  4. The organizational career is a responsibility of the organization and the individual. Discuss.
  5. Explain the general architecture of an integrated banking system. How is it useful? Explain with examples.
  6. What do you understand by MICR? How does it help in clearing of instructions? Explain the field structure of MICR cheque.
  7. Explain how a digital signature is generated? Explain its use with examples.
  8. How can Indian banks use legal recognition of digital signature for development of business.
  9. What is market segmentation? Why is it important to advertisers? How is it useful for banking.

 


OPERATION MANAGEMENT EXAM ANSWER SHEET PROVIDED

OPERATION MANAGEMENT EXAM ANSWER SHEET PROVIDED

Attempt Only Eight Question:-

  1. How would operations strategy for a service industry be different if any from that for a manufacturing industry ? (Its an example & explain)
  2. Consider the following two mutually exclusive projects. The net cash flows are given below:
YEAR NET CASH FLOWS FROM PROJECT A NET CASH FLOWS FROM PROJECT B
0 –  Rs. 1,00,000 – Rs. 1,00,000/-
1 + Rs. 30,000 + Rs. 15,000/-
2 + Rs. 35,000 + Rs. 17,500/-
3 + Rs. 40,000 + Rs. 20,000/-
4 + Rs. 45,000 + Rs. 22,500/-
5   + Rs. 25,000/-
6   + Rs. 27,500/-
7   + Rs. 30,000/-
8   + Rs. 32,500/-

 

 

If the desired rate of return is 10% which project should be chosen?

  1. What are the levels of aggregation in forecasting for a manufacturing organization? How should this hierarchy of forecasts be linked and used ?
  2. How would forecasting be useful for operations in a BPO (Business processes outsourcing) unit ? What factors may be important for this industry ?  Discuss .
  3. A good work study should be followed by good supervision for getting good results. Explain with an example.
  4. What is job evaluation ? Can it be alternatively used as job ranking ?  How does one ensure that job evaluation evaluates the job and not the man ?  Explain with examples ?
  5. What is the impact of technology on jobs ? What are the similarities between job enlargement  & job rotation ?  Discuss the importance of training in the content of job redesign ?  Explain with examples ?
  6. What is an internet connectivity ? How is it important in to days business would with respect to materials requirement planning & purchasing.  Explain with examples ?
  7. Would a project management organization be different from an organization for regular manufacturing in what ways. Examples.
  8. How project evaluation different from project appraisal? Explain with examples.

 


CORPORATE LAW EXAM ANSWER SHEET PROVIDED

CORPORATE LAW EXAM ANSWER SHEET PROVIDED

Xaviers Institute of Business Management Studies

 

 MARKS: 80   

 COURSE: MBA

SUB:  CORPORATE LAW   

 

                N.B.: 1 Attempt any Twelve Questions

                          2) Last two Questions are compulsory

Q.1. In the following statements only one is correct statement.  Explain         Briefly?                                                                                                 (5 Marks)

  1. i) An invitation to negotiate is a good offer.
  2. ii) A quasi-contract is not a contract at all.

iii)   An agreement to agree is a valid contract.

 

Q.2. A ship-owner agreed to carry to cargo of sugar belonging to A from Constanza to Busrah.  He knew that there was a sugar market in Busrah and that A was a sugar merchant, but did not know that he intended to sell the cargo, immediately on its arrival.  Owning to Shipment’s default, the voyage was delayed and sugar fetched a lower price than it would have done had it arrived on time.  A claimed compensation for the full loss suffered by him because of the delay.  Give your decision.  Explain Briefly?                                                                                               (5 Marks)

 

Q.3. The proprietors of a medical preparation called the “Carbolic Smoke Ball” published in several newspapers the following advertisement:-

“£ 1000 reward will be paid by the Carbolic Smoke Ball Co. to any person who contracts the increasing epidemic influenza after having used the Smoke Ball three times daily for two weeks according to printed directions supplied with each ball. £ 1000 is deposited with the Alliance Bank showing our sincerity in the matter.

On the faith in this advertisement, the plaintiff bought a Smoke Ball and used it as directed. She was attacked by influenza.  She sued the company for the reward.  Will she succeed?  Explain Briefly               (5 Marks)

Q.4. Fazal consigned four cases of Chinese crackers at Kanpur to be carried to Allahabad on the 30th May, 1987.  He intended to sell them at the Shabarat festival of 5th June 1987.  The railway discovered that the consignment could not be sent by passenger train and asked Fazal either to remove them or authorize their dispatch by goods train.  He took no action and the goods arrived at Allahabad a month after they were booked.

Fazal filed a suit against Railways for damages due to late delivery of the goods which deprived him of the special profits at the festival sale.  Decide & explain briefly ?                                                              (5 Marks)

 

Q.5. ‘Lifeoy’ Soap company advertised that it would give a reward of Rs. 2000 who contracted skin disease after using the ‘Lifeoy’ soap of the company for a certain period according to the printed directions.  Mrs. Jacob purchased the advertised ‘Lifeboy’ and contracted skin disease inspite of using this soap according to the printed instructions.  She claimed reward of Rs. 2000. The claim is resisted by the company on the ground that offer was not made to her and that in any case she had not communicated her acceptance of the offer.  Decide whether Mrs. Jacob can claim the reward or not.  Give reasons. Explain briefly?                                         (5 Marks)

 

Q.6. In each set of statements, only one is correct.  State the correct statements & Explain briefly?

  1. a) i) A bailee has a general lien on the goods bailed.
  2. ii) The ownership of goods pawned passes to the pawnee.
  • A gratuitous bailment can be terminated by the bailor even

before the stated time.

  1. b) i) A substituted agent is as good an agent of the agent as a sub-

agent.

  1. An ostensible agency is as effective as an express agency.
  • A principal can always revoke an agent’s authority.    (5 Marks)

Q.7. A, an unpaid seller, sends goods to B by railway.  B becomes insolvent

And A sends a telegram to Railway authorities not to deliver the goods to B. B. goes to the Parcel office of Railway Yard and by presenting R. R.  (Railway Receipt) takes delivery of the goods and starts putting them in the cart.  Meanwhile the Station Master comes running with the telegram in hand and takes possession of the goods from B.  Discuss the rights of A and B to the goods in possession of Railway authorities.                      (5 Marks)

 

Q.8. X needs Rs. 10,000 but cannot raise this amount because his credit is not good enough.  Y whose credit is good accommodates.  X by giving him a pronote made out in favour of X, though Y owes no money to X.  X endorses the pronote to Z for value received.    Z who is holder in due course demands payment from Y.  Can Y refuse and plead the arrangement between him and X Explain briefly?                                                                        (5 Marks)

 

Q.9. Will C has the right of further negotiation in the following cases: (B signs the endorsements)        Explain briefly?                                              (5 Marks)

  1. i) ‘Pay C for my use’
  2. ii) ‘Pay C’)

 

  • ‘Pay C or order for the account of B’

 

Q.10.       A promissory note was made without mentioning any time for payment.  The holder added the words’ on demand on the face of the instrument.  State whether it amounted to material alteration and explain the effect of such alteration.  Explain briefly?                                               (5 Marks)

Q.11.       State whether the following instruments are valid promissory notes:

  1. i) I promise to pay Rs. 5000 to B on the dearth of ‘B’s uncle provided that D in his will gives me a legacy sufficient for the promise of payment of the said sum.
  2. ii) I hereby acknowledge that I owe X Rs. 5,000 on account of rent due and I agree that the said sum will be paid be me in regular installments.
  • I acknowledge myself indebted to B in Rs. 5000 to be paid on demand for value received.                         (5 Marks)

 

Q.12.       A Payee holder of a bill of exchange.  He endorses it in blank and delivers it to B.  B endorses in full to C or order.  C without endorsement transfers the bill to D.  State giving reasons whether D as bearer of the bill of exchange is entitled to recover the payment from A or B or C.  Explain briefly?                                                                                            (5 Marks)

 

Q.13.       Write a short note on the Doctrine of Indoor Management? Explain briefly?                                                                                            (5 Marks)

 

Q.14.       The shareholders at an annual general meeting passed a resolution for the payment of dividend at a rate higher than that recommended by the Board of Directors.  Examine the validity of the resolution. Explain briefly?                                                                                                       (5 Marks)

 

Q.15.       In a prospectus issued by a company the Managing Director stated that the company had paid dividend every year during 1921 – 27, which was a fact.  However, the company had sustained losses during the relevant period and had paid dividends out of secret reserves accumulated in the past.  Examine the consequences of the observation made by the Managing Director. Explain briefly?                                                           (5 Marks)

 

Q.16.       In a prospectus issued by a company the Managing Director stated that the company had paid dividend every year during 1921-27, which was a fact.  However, the company had sustained losses during the relevant period and had dividends out of secret reserves accumulated in the past.  Examine the consequences of the observation made by the Managing Director.  Explain briefly?                                                                                 (5 Marks)

 

Q.17.   A buys from B 400 shares in a company on the faith of a share certificate issued by the company.  A tender to the company a transfer deed duly executed together with B’s share certificate.  The company discovers that the certificate in the name of B has been fraudulently obtained and refuses to register the transfer. Advise A. Explain briefly?                        (5 Marks)

 

Q.18.       A insured his house against fire.  Later while insure, A killed his wife, severely injured his only son, set fire to the house and died in the fire.  The son survived and sued the insurer for the fire loss, advice the insurer.  Explain briefly?                                                                                    (5 Marks)

 

Q.19. a) Satrang Singh admitted his only infant son in a private nursing home.  As a result of strong dose of medicine administered by the nursing attendant, the child has become mentally retarded. Satrang Singh wants to make a complaint to the District Forum under the Consumer Protection Act, 1986 seeking relief by way of compensation on the ground that there was deficiency in service by the nursing home.  Does his complaint give rise to a consumer dispute?  Who is the consumer in the instant case? Explain briefly?

  1. b) Smart booked a motor vehicle through one of the dealers. He was informed subsequently that the procedure for purchasing the motor vehicle had changed and was called upon to make further payment to continue the booking before delivery.  On being aggrieved, Smart filed a complaint with the State Commission under the Consumer Protection Act, 1986.  Will he succeed? Explain briefly?
  2. c) Brittle and Company, a small-scale industry, sought nursing and financing facilities from its bankers by means of grant of further advances and adequate margin money in anticipation of good demand for its products. In failing to obtain this and having become sick, it proceeds against its bankers under the Consumer Protection Act, 1986, Will it succeed?  Explain briefly?                                                                                     (5 Marks)

 

Q.20.       X who was working as a truck driver had taken a general insurance policy to cover the risk of injuries for a period from 1.11.1998 to 30.11.1999.  He renewed the policy for a further period of one year on 10.11.1999.  On the same day, he met with an accident and suffered multiple injuries including fractures.  X submitted the claim along with documents to the insurance company. The insurance company repudiated the claim on the ground that the premium for the renewed policy was received in the office only at 2.30 p.m. on 10.11.1999, while the accident had taken place at 10.00 a.m. on that day and hence there was no policy at the time of accident.  Will X succeed if he files a complaint against the insurance company for this claim? Explain briefly?                                                                           (5 Marks)

 

Q.21.       Avinash booked his goods with Superfast Freight Carriers at Delhi for being carried to Ferozabad.  The goods receipt note mentioned that all the disputes would be subject to jurisdiction of the Mumbai Court.  Avinash lodged a complaint for certain deficiency in service against the transporter in the District Forum at Delhi.  Superfast Carriers contested that District Forum at Delhi had no jurisdiction to entertain the complaint as the head office of the transporter was at Mumbai and the jurisdiction has been clearly stated in the goods receipt not.  Is the contention of the transporter tenable? Explain briefly?                                                               (5 Marks)

 

Q.22.       With reference to the provisions of the Consumer Protection Act, 1986, decide the following giving reasons in support of your answer.

  1. i) Sukh Dukh Ltd. dispatched certain consignments of goods by road through Fastrack Roadways Ltd. The goods were unloaded and stored in a godown enroute on the suggestion of consignee. A fire broke out in the neighbouring godown spread to the godown and goods were destroyed.  The Fastrack Roadways Ltd. claimed that there was neither negligence nor deficiency in service on their part and goods were being carried at “Owner risk” and since no special premium was paid, they were not responsible for the loss caused by fire.  Whether Fastrack Roadways Ltd. is liable to pay damages to consignor?
  2. ii) Life Insurance Corporation (LIC) formulated a scheme called ‘salary saving scheme’ under which employees of an organisation could buy an insurance policy. Premium due on each policy was collected by the employer from the salary of the employees nor did it issue any premium notice.  When the widow of the deceased employee made a claim to LIC on the death of her husband, the LIC repudiated the claim on the ground that four installments of premium had not been paid.  The widow was approached the consumer forum for redressal. Is the LIC liable for deficiency in service? Explain?

iii)   Raman booked a ticket from Delhi to New York by Lufthansa Airlines.  The airport authorities in New Delhi did not find any fault in his visa and other documents.  However, at Frankfurt airport authorities instituted proceedings of verification because of which Raman missed his flight to New York.  After necessary verification, Raman was able to reach New York by the next flight.  The airline authorities’ tendered apology to Raman for the inconvenience caused to him and also paid as goodwill gesture a sum of Rs. 5,000.  Raman intends to institute proceedings under the Consumer Protection Act, 1986 against Lufthansa Airlines for deficiency in service.  Will he succeed?                                                         (10 Marks )

 

Q.23.       With reference to the provisions of the Consumer Protection Act, 1986, decide the following giving reasons in support of your answer.

  1. i) Sohn sent all relevant documents in an envelope regarding consignment of goods to a buyer in the USA through Fast Service Couriers. The documents did not reach the buyer as a consequence of which the buyer could not take delivery of the goods.  By the time the duplicate copies of the document had been received by the buyer, the season of the goods was over.  He claimed that he had suffered a loss of US $ 5,000 as a result of the negligence of the courier.  The State Commission ordered the payment to be made by the Fast Service Couriers, but the National Commission in appeal reversed the order and ordered payment of US $ 100 only as per the receipt issued by the Fast Service Courier to the consignor at the time of the dispatch of the latter.  Advise Sohan.
  2. ii) Mahesh purchased a machine from Astute Ltd. to operate it himself for earning his liverhood. He took the assistance of a person to assist him in operating the machine.  The machine developed fault during the warranty period. He filed a claim in the consumer forum against the company for deficiency in service.  Astute Ltd. alleged that Mahesh did not operate the machine himself but had appointed a person exclusively to operate the machine.  Will Mahesh succeed?

iii)   Pillai purchased a car by taking a loan from Kerala cooperative Bank Ltd. and gave post-dated cheques to the bank not only in respect of repayment of loan instalments but also of premium of insurance policy for two succeeding years. On the expiry of the policy.  Pillai’s car met with an accident.  Will Pillai succeed in getting a claim against the

Bank       ?                                                                       (10 Marks)

 

 


INTERNATIONAL BUSINESS CASE STUDY ANSWER PROVIDED

INTERNATIONAL BUSINESS CASE STUDY ANSWER PROVIDED

Xaviers Institute of Business Management Studies

 

 

 

                                                              MARKS : 80

                                                                                      COURSE : MBA

 

SUB:  INTERNATIONAL BUSINESS

  1. B.: 1) Attempt any four cases                                      2)        All cases carries equal marks.

No: 1

BPO – BANE OR BOON ?

Several MNCs are increasingly unbundling or vertical disintegrating their activities.  Put in simple language, they have begun outsourcing (also called business process outsourcing) activities formerly performed in-house and concentrating their energies on a few functions.  Outsourcing involves withdrawing from certain stages/activities and relaying on outside vendors to supply the needed products, support services, or functional activities.

Take Infosys, its 250 engineers develop IT applications for BO/FA (Bank of America). Elsewhere, Infosys staffers process home loans for green point mortgage of Novato, California.  At Wipro, five radiologists interpret 30 CT scans a day for Massachusetts General Hospital.

2500 college educated men and women are buzzing at midnight at Wipro Spectramind at Delhi. They are busy processing claims for a major US insurance company and providing help-desk support for a big US Internet service provider-all at a cost upto 60 percent lower than in the US. Seven Wipro Spectramind staff with Ph.Ds in molecular biology sift through scientific research for western pharmaceutical companies.

Another activist in BOP is Evalueserve, headquarterd in Bermuda and having main operations near Delhi.  It also has a US subsidiary based in New York and a marketing office in Australia to cover the European market.  As Alok Aggarwal (co-founder and chairman) says, his company supplies a range of value-added services to clients that include a dozen Fortune 500 companies and seven global consulting firms, besides market research and venture capital firms.  Much of its work involves dealing with CEOs, CFOs, CTOs, CIOs, and other so called C-level executives.

Evaluserve provides services like patent writing, evaluation and assessment of their commercialization potential for law firms and entrepreneurs.  Its market research services are aimed at top-rung financial service firms, to which it provides analysis of investment opportunities and business plans.  Another major offering is multilingual services.  Evalueserve trains and qualifies employees to communicate in Chinese, Spanish, German, Japanese and Italian, among other languages.  That skill set has opened market opportunities in Europe and elsewhere, especially with global corporations.

ICICI infotech Services in Edison, New Jersey, is another BOP services provider that is offering marketing software products and diversifying into markets outside the US. The firm has been promoted by $2-billion ICICI Bank, a large financial institution in Mumbai that is listed on the New York Stock Exchange.

In its first year after setting up shop in March 1999, ICICI infotech spent $33 million acquiring two information technology services firms in New Jersy-Object Experts and ivory Consulting – and command Systems in Connecticut.  These acquisitions were to help ICICI Infotech hit the ground in the US with a ready book of contracts.  But it soon found US companies increasingly outsourcing their requirements to offshore locations, instead of hiring foreign employees to work onsite at their offices.  The company found other native modes for growth.  It has started marketing its products in banking, insurance and enterprise resource planning among others. It has earmarket $10 million for its next US market offensive, which would go towards R & D and back-end infrastructure support, and creating new versions of its products to comply with US market requirements.  It also has a joint venture – Semantik Solutions GmbH in Berlin, Germany with the Fraunhofer Institute for Software and Systems Engineering, which is based in Berlin and Dortmund, Germany – Fraunhofer is a leading institute in applied research and development with 200 experts in software engineering and evolutionary information.

A relatively late entrant to the US market , ICICI Infotech started out with plain vanilla IT services, including operating call centeres.  As the market for traditional IT services started wakening around mid-2000, ICICI Infotech repositioned itself as a “Solutions” firm offering both products and services.  Today , it offers bundied packages of products and services in corporate and retail banking and include data center and disaster recovery management and value chain management services.

ICICI Infotech’s expansion into new overseas markets has paid off.  Its $50 million revenue for its latest financial year ending March 2003 has the US operations generating some $15 million, while the Middle East and Far East markets brought in another $9 million. It new boasts more than 700 customers in 30 countries, including Dow Jones, Glazo-Smithkline, Panasonic and American Insurance Group.

The outsourcing industry is indeed growing form strength.  Though technical support and financial services have dominated India’s outsourcing industry, newer fields are emerging which are expected to boost the industry many times over.

Outsourcing of human resource services or HR BPO is emerging as big opportunity for Indian BPOs with global market in this segment estimated at $40-60 billion per annum.  HR BPO comes to about 33 percent of the outsourcing revenue and India has immense potential as more than 80 percent of Fortune 1000 companies discuss offshore BOP as a way to cut costs and increase productivity.

Another potential area is ITES/BOP industry.  According to A NASSCOM survey, the global ITES/BOP industry was valued at around $773 billion during 2002 and it is expected to grow at a compounded annual growth rate of nine percent during the period 2002 – 06, NASSCOM lists the major indicators of the high growth potential of ITES/BOP industry in India as the following.

During 2003 – 04, The ITES/BPO segment is estimated to have achieved a 54 percent growth in revenues as compared to the previous year.  ITES exports accounted for $3.6 billion in revenues, up form $2.5 billion in  2002 – 03.  The ITES-BPO segment also proved to be a major opportunity for job seekers, creating employment for around 74,400 additional personnel in India during 2003 – 04.  The number of Indians working for this sector jumped to 245,500 by March 2004.  By the year 2008, the segment is expected to employ over 1.1 million Indians, according to studies conducted by NASSCOM and McKinsey & Co. Market research shows that in terms of job creation, the ITES-BOP industry is growing at over 50 per cent.

Legal outsourcing sector is another area India can look for.  Legal transcription involves conversion of interviews with clients or witnesses by lawyers into documents which can be presented in courts.  It is no different from any other transcription work carried out in India.  The bottom-line here is again cheap service.  There is a strong reason why India can prove to be a big legal outsourcing Industry.

India, like the US, is a common-law jurisdiction rooted in the British legal tradition. Indian legal training is conducted solely in English.  Appellate and Supreme Court proceedings in India take place exclusively in English.  Due to the time zone differences,  night time in the US is daytime in India which means that clients get 24 hour attention, and some projects can be completed overnight.  Small and mid – sized business offices can solve staff problems as the outsourced lawyers from India take on the time – consuming labour intensive legal research and writing projects.  Large law firms also can solve problems of overstaffing by using the on – call lawyers.

Research firms such as Forrester Research, predict that by 2015 , more than 489,000 US lawyer jobs, nearly eight percent of the field, will shift abroad..

Many more new avenues are opening up for BOP services providers.  Patent writing and evaluation services are markets set to boom.  Some 200.000 patent applications are written in the western world annually, making for a market size of between $5 billion and $7 billion.  Outsourcing patent writing service could significantly lower the cost of each patent application, now anywhere between $12,000 and $15,000 apiece-which would help expand  the market.

Offshoring of equity research is another major growth area.  Translation services are also becoming a big Indian plus.  India produces some 3,000 graduates in German each year, which is more than that in Switzerland.

Though going is good, the Indian BPO services providers cannot afford to be complacent.  Phillppines, Maxico and Hungary are emerging as potential offshore locations.  Likely competitor is Russia, although the absence of English speaking people there holds the country back. But the dark horse could be South Affrica and even China

BOP is based on sound economic reasons.  Outsourcing helps gain cost advantage.  If an activity can be performed better or more cheaply by an outside supplier, why not outsource it ? Many PC makers, for example, have shifted from in – house assembly to utilizing contract assemblers to make their PCs.  CISCO outsources all productions and assembly of its routers and witching equipment to contract manufactures that operate 37 factories, all linked via the internet.

Secondly, the activity (outsourced) is not crucial to the firm’s ability to gain sustainable competitive advantage and won’t hollow out its core competence, capabilities, or technical know how.  Outsourcing of maintenance services, date processing, accounting, and other administrative support activities to companies specializing in these services has become common place.  Thirdly, outsourcing reduces the company’s risk exposure to changing technology and / or changing buyer preferences.

Fourthly, BPO streamlines company operations in ways that improve organizational flexibility, cut cycle time, speedup decision making and reduce coordination costs.  Finally, outsourcing allows a company to concentrate on its core business and do what it does best.  Are Indian companies listening ? If they listen, BPO is a boon to them and not a bane.

 

Questions:

  1. Which of the theories of international trade can help Indian services providers gain competitive edge over their competitors?
  2. Pick up some Indian services providers. With the help of Michael Porter’s diamond, analyze their strengths and weaknesses as active players in BPO.
  3. Compare this case with the case given at the beginning of this chapter. What similarities and dissimilarities do you notice? Your analysis should be based on the theories explained.

 

 

 

No: 2

PERU

Peru is located on the west coast of South America.  It is the third largest nation of the continent (after Brazil and Argentina) , and covers almost 500.000 square miles (about 14 per cent of the size of the United States).  The land has enormous contrasts, with a desert (drier than the Sahara), the towering snow – capped Andes mountains, sparkling grass – covered plateaus, and thick rain forests. Peru has approximately 27 million people, of which about 20 per cent live in Lima, the capital.  More Indians (one half of the population) live in Peru than in any other country in the western hemisphere.  The ancestors of Peru’s Indians were the famous incas, who built a great empire.  The rest of the population is mixed and a small percentage is white.  The economy depends heavily on agriculture, fishing , mining, and services, GDP is approximately $15 billion and per capita income in recent years has been around $4,3000.  In recent years the economy has gained some relative strength and multinationals are now beginning to consider investing in the country.

One of these potential investors is a large New York based bank that is considering a $25 million loan to the owner of a Peruvian fishing fleet.  The owner wants to refurbish the fleet and add one more ship.

During the 1970s, the Peruvian government nationalized a number of industries and factories and began running them for the profit of the state in most cases, these state – run ventures became disasters. In the late 1970s the fishing fleet owner was given back his ships and allowed to operate his business as before.  Since then, he has managed to remain profitable, but the biggest problem is that his ships are getting old and he needs an influx of capital of make repairs and add new technology.  As he explained it to the new York banker. “Fishing is no longer just an art. There is a great deal of technology involved.  And to keep costs low and be competitive on the world market, you have to have the latest equipment for both locating as well as catching and then loading and unloading the fish”

Having reviewed the fleet owner’s operation, the large multinational bank believes that the loan is justified.  The financial institution is concerned, however, that the Peruvian government might step in during the next couple of years and again take over the business. If this were to happen, it might take an additional decade for the loan to be repaid.  If the government were to allow the fleet owner to operate the fleet the way he has over the last decade, the fleet the way  he has over the last decade, the loan could be repaid within seven years.

Right now, the bank is deciding on the specific terms of the agreement.  Once theses have been worked out, either a loan officer will fly down to Lima and close the deal or the owner will be asked to come to New York for the signing. Whichever approach is used, the bank realizes that final adjustments in the agreement will have to be made on the spot.  Therefore, if the bank sends a representative to Lima, the individual will have to have the authority to commit the bank to specific terms. These final matters should be worked out within the next ten days.

Questions:

  1. What are some current issues facing Peru? What is the climate for doing business in Peru today?
  2. What type of political risks does this fishing company need to evaluate? Identify and describe them.
  3. What types of integrative and protective and defensive techniques can the bank use?
  4. Would the bank be better off negotiating the loan in New York or in Lima ? Why?

 

 

 

 

 

 

 

 

 

 

No: 3

RED BECOMING THICKER

The Backdrop

There seems to be no end to the troubles of the coloured – water giant Coca Cola. The cola giant had entered India decades back but left the country in the late 1970s.  It staged a comeback in the early 1990s through the acquisitions route. The professional management style of Coca Cola did not jell with the local bottlers. Four CEOs were changed in a span of seven years.  Coke could not capitalize on the popularity of Thums Up.  Its arch rival Pepsi is well ahead and has been able to penetrate deep into the Indian market.  Red in the balance sheet of Coke is becoming thicker and industry observers are of the opinion that it would take at least two decades more before Coke could think of making profits in India.

 

The Story

It was in the early 1990s that India started liberalizing her economy.  Seizing the opportunity, Coca Cola wanted to stage a comeback in India.  It chose Ramesh Chauhan of Parle for entry into the market.  Coke paid $100 million to Chauhan and acquired his well established brands Thums Up, Goldspot and Limca. Coke also bagged 56 bottlers of Chauhan as a part of the deal.  Chauhan was made consultant and was also given the first right of refusal to any large size bottling plants and bottling contracts, the former in the Pune – Bangalore belt and the latter in the Delhi and Mumbai areas.

Jayadeva Raja, the flamboyant management expert was made the first CEO of Coke India.  It did not take much time for him to realize that Coke had inherited several weaknesses from Chauhan along with the brands and bottlers. Many bottling plants were small in capacity (200 bottlers per minute as against the world standard of 1600) and used obsolete technology.  The bottlers were in no mood to increase their capacities, nor were they willing to upgrade the trucks used for transporting the bottle. Bottlers were more used to the paternalistic approach of Chauhan and the new professional management styles of Coke did not go down well with them.  Chauhan also felt that he was alienated and was even suspected to be supplying concentrate unofficially to the bottlers.

Raja was replaced by the hard – nosed Richard Niholas in 1995. The first thing Nicholas did was to give an ultimatum to the bottlers to expand their plants or sell out. Coke also demanded equity stakes in many of the bottling plants.  The bottlers had their own difficulties as well.  They were running on low profit margins.  Nor was Coke willing to finance the bottlers on soft terms.  The ultimatum backfired. Many bottlers switched their loyalty and went to Pepsi.  Chauhan allegedly supported the bottlers, of course, from the sidelines.

Coke thought it had staged a coup over Pepsi when it (Coke) clamed the status of official drink for the 1996 Cricket World Cup tournament.  Pepsi took on Coke mightily with the famous jingle “Nothing official about it”. Coke could have capitalized on the sporty image of Thums Up to counter the campaign, but instead simply caved in.

Donald Short replaced Nicholas as CEO in 1997.  Armed with heavy financial powers, Short bought out 38 bottlers for about $700 million.  This worked out to about Rs 7 per case, but the cost – effective figure was Rs 3 per case. Short also invested heavily in manpower.  By 1997, Coke’s workforce increased to 300.  Three years later, the parent company admitted that investment in India was a big mistake.

It is not in the culture of Coke to admit failure.  It has decided to fight back.  Coke could not only sustain the loss, it could even spend more money on Indian operations.  It hiked the ad budget and appointed Chaitra Leo Burnett as its ad agency.  During 1998 – 99, Coke’s ad spend was almost three times that of Pepsi.

Coke is taking a look at its human resources and is taking initiatives to re – orient the culture and inject an element of decentralization along with empowerment.  Each bottling plant is expected to meet predetermined profit, market share, and sales volumes.  For newly hired management trainees, a clearly defined career path has been drawn to enable them to become profit centre heads shortly after completion of their probation. Such a decentralized approach is something of a novelty in the Coke culture worldwide.

But Alezander “Von Behr, who replaced Short as Chef of Indian operations, reiterated Coke’s commitment to decentralization and local responsiveness.  Coke has divided India into six regions, each with a business head.  Change in the organization structure has disappointed many employees, some of whom even quit the company.

Coke started cutting down its costs.  Executives have been asked to shift from farm houses to smaller houses and rentals of Gurgaon headquarters have been renegotiated.  Discount rates have been standardized and information systems are being upgraded to enable the Indian headquarters to access online financial status of its outposts down to the depot level.

Coke has great hopes in Indian as the country has a huge population and the current per capita consumption of beverages is just four bottles a year.

Right now, the parent company (head – quartered in the US) has bottle full of problems.  The recently appointed CEO-E Neville Isdell needs to struggle to do the things that once made the Cola Company great.  The problems include –

Meddling Board

Coke’s star- studded group of directors, many of whom date back to the Goizueta era, has built a reputation for meddling.

Moribund Marketing

Once world class critics say that today the soda giant has become too conservative, with ads that don’t resonate with the teenagers and young adults that made up its most important audience.

Lack of Innovation

          In the US market, Coke hasn’t created a best – selling new soda since Diet Coke in 1982.  In recent years Coke has been outbid by rival Pepsi Co for faster growing noncarb beverages like SoBe Gatorade.

Friction with Bottlers

Over the past decade, Coke has often made its profit at the expenses of bottlers, pushing aggressive price hikes on the concentrate it sells them.  But key bottlers are now fighting back with sharp increases in the price of coke at retail.

 

 

International Worries

Coke desperately needs more international growth to offset its flagging US business, but while some markets like Japan remain lucrative, in the large German market Coke has problems so far as bottling contracts go.

When its own house is not in order in the large country, will the company be able to focus enough on the Indian market?

 

Questions:

 

  1. Why is that Coke has not been able to make profit in its Indian operations?
  2. Do you think that Coke should continue to stay in India? If yes, why?
  3. What cultural adaptations would you suggest to the US expatriate managers regarding their management style?
  4. Using the Hofstede and the value orientations cultural models, how can you explain some of the cultural differences noted in this case?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  1. 4

THE ABB PBS JOINT VENTURE IN OPERATION

ABB Prvni Brnenska Stojirna Brno, Ltd. (ABB-PBS), Czechoslovakia was a joint venture in which ABB has a 67 per cent stake and PBS a.s. has a 33 per cent stake.  This PBS share was determined nominally by the value of the land, plant and equipment, employees and goodwill, ABB contributed cash and specified technologies and assumed some of the debt of PBS.  The new company started operations on April 15, 1993.

Business for the joint venture in its first two full years was good in most aspects.  Orders received in 1994, the first full year of the joint venture’s operation, were higher than ever in the history of PBS.  Orders received in 1995 were 2½ times those in 1994.  The company was profitable in 1995 and ahead of 1994s results with a rate of return on assets of 2.3 per cent and a rate of return on sales of 4.5 per cent.

The 1995 results showed substantial progress towards meeting the joint venture’s strategic goals adopted in 1994 as part of a five year plan.  One of the goals was that exports should account for half of the total orders by 1999.  (Exports had accounted for more than a quarter of the PBS business before 1989, but most of this business disappeared when the Soviet Union Collapsed).  In 1995 exports increased as a share of total orders to 28 per cent, up from 16 per cent the year before.

The external service business, organized and functioning as a separate business for the first time in 1995, did not meet expectations.  It accounted for five per cent of all orders and revenues in 1995, below the 10 per cent goal set for it.  The retrofitting business, which was expected to be a major part of the service business, was disappointing for ABB-PBS, partly because many other small companies began to provide this service in 1994, including some started by former PBS employees who took their knowledge of PBS-built power plants with them.  However, ABB-PBS managers hoped that as the company introduced new technologies, these former employees would gradually lose their ability to perform these services, and the retrofit and repair service business, would return to ABB-PBS.

ABB-PBS dominated the Czech boiler business with 70 per cent of the Czech market in 1995, but managers expected this share to go down in the future as new domestic and foreign competitors emerged.  Furthermore, the west European boiler market was actually declining because environmental laws caused a surge of retrofitting to occur in the mid -1980 s, leaving less business in the 1990 s.  Accordingly ABB-PBS boiler orders were flat in 1995.

Top managers at ABB-PBS regarded business results to date as respectable, but they were not satisfied with the company’s performance.  Cash flow was not as good as expected.  Cost reduction had to go further.  The more we succeed, the more we see our shortcomings” said one official.

Restructuring

The first round of restructuring was largely completed in 1995, the last year of the three-year restructuring plan.  Plan logistics, information systems, and other physical capital improvements were in place.  The restricting included :

  • Renovating and reconstructing workshops and engineering facilities.
  • Achieving ISO 9001 for all four ABB-PBS divisions. (awarded in 1995)
  • Transfer of technology from ABB (this was an ongoing project)
  • Intallation of an information system.
  • Management training, especially in total quality assurance and English language.
  • Implementing a project management approach.

A notable achievement of importance of top management in 1995 was a 50 per cent increase in labour productivity, measured as value added per payroll crown.  However, in the future ABB-PBS expected its wage rates to go up faster than west European wage rates (Czech wages were increasing about 15 per cent per year) so it would be difficult to maintain the ABB-PBS unit cost advantage over west European unit cost.

The Technology Role for ABB-PBS

The joint venture was expected from the beginning to play an important role in technology development for part of ABB’s power generation business worldwide.  PBS a.s. had engineering capability in coal – fired steam boilers, and that capability was expected to be especially useful to ABB as more countries became concerned about air quality.  (When asked if PBS really did have leading technology here, a boiler engineering manager remarked, “Of course we do.  We burn so much dirty coal in this country; we have to have better technology”)

However, the envisioned technology leadership role for ABB-PBS had not been realized by mid – 1996.  Richard Kuba, the ABB-PBS managing director, realized the slowness with which the technology role was being fulfilled, and he offered his interpretation of events.

“ABB did not promise to make the joint venture its steam technology leader. The main point we wanted to achieve in the joint venture agreement was for ABB-PBS to be recognized as a full-fledged company, not just a factory.  We were slowed down on our technology plans because we had a problem keeping our good, young engineers. The annual employee turnover rate for companies in the Czech Republic is 15 or 20 per cent, and the unemployment rate is zero.  Our engineers have many other good entrepreneurial opportunities.  Now we’ve begun to stabilize our engineering workforce.  The restructing helped.  We have better equipment and a cleaner and safer work environment.  We also had another problem which is a good problem to have.  The domestic power plant business turned out to be better than we expected, so just meeting the needs of our regular customers forced some postponement of new technology initiatives.”

ABB-PBS had benefited technologically from its relationship with ABB.  One example was the development of a new steam turbine line.  This project was a cooperative effort among ABB-PBS and two other ABB companies, one in Sweden and one in Germany.  Nevertheless, technology transfer was not the most important early benefit of ABB relationship.  Rather, one of the most important gains was the opportunity to benchmark the joint venture’s performance against other established western ABB companies on variables such as productivity, inventory and receivables.

 

Questions:

  1. Where does the joint venture meet the needs of both the partners? Where does it fall short? 
  2. Why had ABB-PBS failed to realize its technology leadership?
  3. What lessons one can draw from this incident for better management of technology transfers?

 

  1. 5.

CHINESE EVOLVING ACCOUNTING SYSTEM

Attracted by its rapid transformation from a socialist planned economy into a

market economy, economic annual growth rate of around 12 per cent, and a population in excess of 1.2 billion, Western firms over the past 10 years have favored China as a site for foreign direct investment.  Most see China as an emerging economic superpower, with an economy that will be as large as that of Japan by 2000 and that of the US before 2010, if current growth projections hold true.

The Chinese government sees foreign direct investment as a primary engine of China’s economic growth.  To encourage such investment, the government has offered generous tax incentives to foreign firms that invest in China, either on their own or in a joint venture with a local enterprise.  These tax incentives include a two – year exemption from corporate income tax following an investment, plus a further three years during which taxes are paid at only 50 per cent of the standard tax rate.  Such incentives when coupled with the promise of China’s vast internal market have made the country a prime site for investment by Western firms.  However, once established in China, many Western firms find themselves struggling to comply with the complex and often obtuse nature of China’s rapidly evolving accounting system.

Accounting in China has traditionally been rooted in information gathering and compliance reporting designed to measure the government’s production and tax goals.  The Chinese system was based on the old Soviet system, which had little to do with profit or accounting systems created to report financial positions or the results of foreign operations.

Although the system is changing rapidly, many problems associated with the old system still remain.

One problem for investors is a severe shortage of accountants, financial managers, and auditors in China, especially those experienced with market economy transactions and international accounting practices.  As of 1995, there were only 25,000 accountants in china, far short of the hundreds of thousands that will be needed if China continues on its path towards becoming a market economy.  Chinese enterprises, including equity and cooperative joint ventures with foreign firms, must be audited by Chinese accounting firms, which are regulated by the state.  Traditionally, many experienced auditors have audited only state-owned enterprises, working through the local province or city authorities and the state audit bureau to report to the government entity overseeing the audited firm.  In response to the shortage of accountants schooled in the principles of private sector accounting, several large international auditing firms have established joint ventures with emerging Chinese accounting and auditing firms to bridge the growing need for international accounting, tax and securities expertise.

A further problem concerns the somewhat halting evolution of China’s emerging accounting standards.  Current thinking is that China won’t simply adopt the international accounting standards specified by the IASC, nor will it use the generally accepted accounting principles of any particular country as its mode.  Rather, accounting standards in China are expected to evolve in a rather piecemeal fashion, with the Chinese adopting a few standards as they are studied and deemed appropriate for Chinese circumstances.

In the meantime, current Chinese accounting principles present difficult problems for Western firms.  For example, the former Chinese accounting system didn’t need to accrue unrealized losses.  In an economy where shortages were the norm, if a state-owned company didn’t sell its inventory right away, it could store it and use it for some other purpose later.  Similarly, accounting principles assumed the state always paid its debts – eventually.  Thus, Chinese enterprises don’t generally provide for lower-of-cost or market inventory adjustments or the creation of allowance for bad debts, both of which are standard practices in the West.

Questions:

  1. What factors have shaped the accounting system currently in use in China?
  2. What problem does the accounting system, currently in sue in China, present to foreign investors in joint ventures with Chinese companies?
  3. If the evolving Chinese system does not adhere to IASC standards, but instead to standards that the Chinese governments deem appropriate to China’s “Special situation”, how might this affect foreign firms with operations in China ?

 

 

  1. 6

UNFAIR PROTECTION OR VALID DEFENSE ?

“Mexico Widens Anti – dumping Measure …………. Steel at the Core of US-Japan Trade Tensions …. Competitors in Other Countries Are Destroying an American Success Story … It Must Be Stopped”, scream headlines around the world.

International trade theories argue that nations should open their doors to trade.  Conventional free trade wisdom says that by trading with others, a country can offer its citizens a greater volume and selection of goods at cheaper prices than it could in the absence of it.  Nevertheless, truly free trade still does not exist because national governments intervene.  Despite the efforts of the World Trade Organization (WTO) and smaller groups of nations, governments seem to be crying foul in the trade game now more than ever before.

We see efforts at protectionism in the rising trend in governments charging foreign producers for “dumping” their goods on world markets.  Worldwide, the number of antidumping cases that were initiated stood at about 150 in 1995, 225 in 1996, 230 in 1997 , and 300 in 1998.

There is no shortage of similar examples.  The Untied States charges Brazil, Japan, and Russia with dumping their products in the US market as a way out of tough economic times.  The US steel industry wants the government to slap a 200 per cent tariff on certain types of steel.  But car markers in the United States are not complaining, and General Motors even spoke out against the antidumping charge – as it is enjoying the benefits of law – cost steel for use in its auto product ion.  Canadian steel makers followed the lead of the United States and are pushing for antidumping actions against four nations.

Emerging markets, too, are jumping into the fray.  Mexico recently expanded coverage of its Automatic Import Advice System.  The system requires importers (from a select list of countries) to notify Mexican officials of the amount and price of a shipment ten days prior to its expected arrival in Mexico.  The ten-day notice gives domestic producers advance warning of incoming low – priced products so they can complain of dumping before the products clear customs and enter the marketplace. India is also getting onboard by setting up a new government agency to handle antidumping cases.  Even Argentina, China, Indonesia, South Africa, South Korea, and Thailand are using this recently – popularized tool of protectionism.

Why is dumping on the rise in the first place? The WTO has made major inroads on the use of tariffs, slashing tem across almost every product category in recent years. But the WTO does not have the authority to punish companies, but only governments.  Thus, the WTO cannot pass judgments against individual companies that are dumping products in other markets.  It can only pass rulings against the government of the country that imposes an antidumping duty.  But the WTO allows countries to retaliate against nations whose producers are suspected of  dumping when it can be shown that : (1) the alleged offenders are significantly hurting domestic producers, and (2) the export price is lower than the cost of production or lower than the home – market price.

Supporters of antidumping tariffs claim that they prevent dumpers from undercutting the prices charged by producers in a target market and driving them out of business.  Another claim in support of antidumping is that it is an excellent way of retaining some protection against potential dangers of totally free trade.  Detractors of antidumping tariffs charge that once such tariffs are imposed they are rarely removed.  They also claim that it costs companies and governments a great deal of time and money to file and argue their cases.  It is also argued that the fear of being charged with dumping causes international competitors to keep their prices higher in a target market than would other wise be the case.  This would allow domestic companies to charge higher prices and not lose market share – forcing consumers to pay more for their goods.

 

Questions

  1. “You can’t tell consumers that the low price they are paying for a particular fax machine or automobile is somehow unfair. They’re not concerned with the profits of companies. To them, it’s just a great bargain and they want it to continue.” Do you agree with this statement? Do you think that people from different cultures would respond differently to this statement? Explain your answers.
  2. As we’ve seen, the WTO cannot currently get involved in punishing individual companies for dumping – its actions can only be directed toward governments of countries. Do you think this is a wise policy ? Why or why not? Why do you think the WTO was not given the authority to charge individual companies with dumping? Explain.
  3. Identify a recent antidumping case that was brought before the WTO. Locate as many articles in the press as you can that discuss the case. Identify the nations, products (s), and potential punitive measures involved. Supposing you were part of the WTO’s Dispute Settlement Body, would you vote in favor of the measures taken by the retailing nation? Why or why not?

 

 


RETAIL MANAGEMENT EXAM SHEET PROVIDED

RETAIL MANAGEMENT EXAM SHEET PROVIDED

Xaviers Institute of Business Management Studies

 

RETAIL MANAGEMENT
Maximum Marks: 100
Note : (i) Attempt any three questions from Section A.
(ii) Section B is compulsory.
(iii) All questions carry equal marks.

SECTION A

  1. Define retailing. Discuss the scope and prospects of retail sector in the Indian context, describing the drivers of growth of retailing in the country.
  2. (a) What are the stages of consumer decision making and their impact on retail strategies ? Explain with suitable examples.

(b) What makes location decisions in retailing strategic in nature? Discuss with suitable examples the factors necessary to consider before selecting a final site for any store.

  1. (a) How important is the role of pricing in retail marketing mix ? Briefly discuss the various retail pricing approaches available to the retailer.

(b) What are loyalty programmes? What purpose do they serve in the overall retail business? Explain.

  1. Briefly discuss the various types of non-store retailing currently in vogue. What are their limitations?
  2. Write notes on any three of the following:

(a) Functions of Retailers
(b) Wheel of Retailing
(c) Responsibilities of Merchandising Manager
(d) CRM
(e) Ethical Responsibilities of Retailer

SECTION B

  1. Read the case given below and answer the questions given at the end of the case.

Margin Free Market Private Ltd.

Subhiksha in Chennai, Margin free in Kerala, Bombay Bazaar in Mumbai, RPG’S Giant in Hyderabad, and Big Bazaar in Kolkata, Hyderabad, and Bangalore have one thing in common – they all price their products below MRP. Discount stores are slowly arriving in India and industry insiders feel they will spearhead a revolution in organized retailing. On the list of top retailers in the world, quite a few are discounters. Around 60% of the business abroad comes from this format. Incidentally, the largest retailer in the world, Wal-Mart, is a discount store.

Margin Free was registered as a co-operative society in 1993 in Kerala and entered the supermarket business in 1994. It is run by the Consumer Protection and Guidance Society, a charitable organization based in Thiruvananthapuram. Today, it has emerged as India’s number one supermarket chain with 150 stores and a turnover of Rs. 450 crores. Margin Free purchases directly from manufacturers at ex-factory price and sells at lower prices than the MRP, as it eliminates the margin accrued in the traditional manufacturer-stockist-wholesaler-retailer network.

Margin Free takes extreme care while pricing the products through its entire stores. It has employed software which evaluates the price by minimizing profits. Every store is computerized and utilizes the software to determine the pricing. This helps in ensuring that the products are rationally priced.

Margin Free has found exceptional success in its scalable franchised model. It is now looking to upgrade to a central warehouse concept. which will help it manage growth further. The success of Subhiksha and Margin Free indicate that the discount war will hot up in the coming months but it will be the customer who will emerge as the final winner.

Margin Free also gets an average credit of 20-22 days from suppliers, which it sells, on an average in 10 days, thereby even earning a notional interest on its sales also. Its strategy has made it flush with funds, which can finance further expansion. Margin Free uses its customer base as a bargaining power to strike discount deals. Any dealer who wants to set up a Margin Free store has to buy at least rupees one lakh worth of share of the main Margin Free holding company. Margin Free has a consumer base of 6 lakhs and it sells them consumer cards at Rs. 40 per year Customers who buy using this card get discounts on bulk purchases and also on government subsidized products like Rs. 2 per kg rice.

The stores are now opting for a major expansion drive. A key part of this is the introduction of private labeling, which is the season’s flavor in the retailing industry. For the purpose they have shortlisted 15 items – all generic labels like rice, sugar, etc. – and will add to the list in future.

Hence, they will be in a better position to provide quality stuff at considerably low prices within easy reach of an average middle-class family. For example, a packet of tea which sells for an MRP of Rs. 120 at one of the corporate retailers will be available for Rs. 90 at the Margin Free stores.

The chain is now planning to open huge Margin Free hyper markets, The first such hyper market, featuring an array of wares and spread over 50,000 square feet of well-laid out space, is planned to open at Ernakulum. The two other hyper markets would be opened in Thiruvananthapuram and Kozhikode.

If the success of retail activity is measured in the number of outlets, the existing 240-odd chain of franchisees must have already made Margin Free the largest ‘pure retail chain’ (as distinct from retailers who are manufacturers) in the private sector Even going by the number of footfalls, the Kerala-based retailer must have already beaten competition by a handsome margin.

The hyper markets will feature almost all conceivable retailing products under one roof – textiles, leather, cosmetics, provisions, electronic goods, consumer durables, grains; and grocery. As for ambience and class, they are most likely to resemble the Giant retailing chain operating out of Hyderabad and other cities.

The hyper market would not dabble in imported items – Chinese or otherwise – that are flooding the retail market right now. The cooperative society is in the process of mobilizing resources for the hyper market initiative. It plans to rope in outside investments over and above what the Consumer Protection and Guidance Society hopes to raise on its own.

The Society chose Ernakulum first because it happens to be the most commercialized city in the state Also, the comparable purchasing capacities are higher there. The nomenclature for the hyper market has a Margin Free prefix to it, seeking to build on the enormous trust that the discount chain has been able to build over a span of eight years of existence.

The management feels that the Margin Free retail chain has been able to earn the wholesale trust of consumers in a very short span. However, in its journey to success, the Margin Free stores have made life slightly uncomfortable for entrenched interests who have, on one hand, been fleecing consumers and on the other, resorting to indiscriminate under invoicing to avoid tax. The latter leads to loss of crores of rupees in realizable revenue for the state government.

Every month, Margin Free is opening up to 12 stores and the number has grown to 241 at last count. The chain has spread to literally all parts of Kerala. It has seven franchisees in neighboring Tamil Nadu already and two in Karnataka. The overall turnover has grown to Rs. 600 crore.

Questions :

(a) What has been the role of pricing strategy in the success of Margin Free Markets?

(b) What are the salient features of Margin Free Market pricing strategy ?

(c) Analyze the external and internal factors that have made it possible to sustain the present pricing strategy of Margin Free Market.

(d) Discuss the limitations of the existing pricing strategy of Margin Free Market. Suggest appropriate changes.

 


PRINCIPLES AND PRACTICE OF MANAGEMENT CASE STUDY ANSWER PROVIDED

PRINCIPLES AND PRACTICE OF MANAGEMENT CASE STUDY ANSWER PROVIDED

Xaviers Institute of Business Management Studies

MARKS: 80 ( Each case study for 20 Marks)

Subject – Principles and Practice of Management

 

 

Communicating in a Crisis

 

Overview Valley High School, situated in Kodaikanal, was established in 1980 and is owned by a well respected charitable trust. It overlooks a lake and is a modern building equipped with state-of-the-art facilities. The total student enrolment is 2000, out of which more than 50% are girls and the rest boys. The students are all from affluent, educated families. The school has established a good reputation for itself, thanks to the consistently good performance of students in the public examinations. The school is headed by a lady Principal and also has a couple of Supervisors and a team of 25 teachers. The teachers have had extensive experience, are well qualified and are known for their commitment to imparting quality education to students. Due to the recent heavy monsoons, the school was faced with the problem of flooding, with water entering the rooms on the ground floor and water seepage on the terrace. Since repair work had to be done, the school had to be closed for a couple of weeks. The work was carried out by reputed contractors, but the building still looks a little run down.

The crisis the school had just reopened after this two week break. The same morning, a fire suddenly broke out on the third floor and spread to other floors, blocking the stairways. There was widespread panic, as the children started jumping off the balconies, injuring themselves in the process. The Principal and staff had a tough time trying to calm down the children and take control of the situation. Fire engines were called and several of them arrived and began their fire fighting operations. In the meanwhile, many parents also arrived and tried to enter the building to speak to the Principal. The phones were ringing continuously. There was total chaos.

 

Question 1 :- How communication crises arise?

Question 2 :- What Principal should do to calm down the angry parents?

Question 3 :- How school will regain its reputation? What services school should provide in order to maintain its reputation?

 

 

 

 

 

 

Case Study 2

 

Case Study on The power of Non-Verbal Communication

 

The Power of Nonverbal Communication Soon after I graduated from engineering college, I accepted a position with the Sundaram Foundry, a medium-sized firm located in a small town in Tamil Nadu. It was a good position, since I was the assistant to Mr. Vishwanath, the General Manager and president of this family owned company, although there were many technical problems, the work was extremely interesting and I soon learnt all about the foundry business. The foundry workers were mostly older men and were a closely knit team. Many of them were related and had been in the foundry for several years. Therefore, they felt that they knew the business in and out and that a technical education had no value. In fact, Mr. Vishwanath had mentioned to me even at the time of my joining, that I was the only engineer ever to be employed in the foundry. He also let me know that the foundry workers, although a good group, were very clannish, since they had been working together for several years. Therefore, it would probably take them some time to accept me. I introduced myself to the group of foundry workers, a few days after my joining. As I went around in turn, I felt them eyeing me coldly. As I went down the main aisle of the foundry, I heard them talking to each other in low voices and laughing. I found their behavior to be very childish and felt that it was best to ignore these signs of hostility. I thought that if I ignored them, they would automatically stop these antics. A few weeks after this incident, I happened to visit the enamel shop. As I entered, I noticed a worker cleaning the floor with a hose, from which water flowed at high pressure. I was aware that it was the practice to clean the shop at least once a week. I turned my back on the worker and was busy near a dipping tank, when I suddenly felt the force of a stream of water hitting me. I was almost knocked down by the pressure and slipped on the wet floor. When I turned around, the worker looked away in the other direction, as if he had not noticed this happening. However, I was pretty sure that he had intentionally turned the hose on me.

 

 

Question 1 – What message did the foundry workers and the new engineer convey to each other through their non-verbal behavior?

 

Question 2 – Mr. Vishwanath, the General Manager and President, was not often present at the foundry. What could this non-verbal behavior mean to the workers and the new engineer?

 

Question 3. How could the engineer, the foundry workers and Mr. Vishwanath be more effective, both verbally and nonverbally?

 

 

Question 4. What do you suggest that the engineer should do, after the hosing incident?

 

 

 

Case Study 3

 

BS GETS A D-PLUS ON DIVERSITY FROM MULTIETHNIC COALITOIN

 

On February 3, 2000, President and CEO of CBS Leslie Moonves signed a pact with Kweisi Mfume, president and CEO of the national association for advancement of colored people (NAACP), who had joined forces with the Hispanic media coalition, and the American Indians in film and television to request the CBS help to increase Indians in film and television to request that CBS help to increase ethnic presence in the television industry. The agreement stipulated the CBS would increase minority participation both on and off screen by June 30.

 

In April 2000, CBS announced the appointment of Josie Thomas to the newly created position of senior vice president of Diversity at CBS Television. Her job was to improve outreach and recruitment, hiring, promotion, and monitoring practices in all divisions of CBS. That fall Moonves announced that 16 of the 21 CBS shows, including news magazines, would prominently feature minorities. “We think we are a leader in this area,” Moonves said “We think we are ahead of the curves”

 

Despite Mooves’s Statement that as “broadcasters, we believe strongly that it is our duty to reflect the public that makes up our viewing audience,” there were many who did not feel the company was sincere in its efforts to improve hiring practices. The national Hispanic Foundation for the Arts criticized CBS for not scheduling “American Family,” A pilot drama about middle – class Hispanic family. Moonves said “American Family” simply did not fit in CBS’s schedule, since there were already too many strong dramas planned. He said he took the unusual step of allowing the show’s producer to pitch the CBS-developed networks but no one picked it up. Meanwhile, the June 30 deadline had come and gone without much outward sign of change at CBS television.

 

Josie Thomas is committed to CBS’s new mandate for multicultural diversity. Twelve of CBS’ prime time series will have minorities in permanent roles and other series will have minority in recurring role. Fore of the network’s shows- C.S.I., the district, the fugitive and welcome to New York have minorities in leading roles.

 

Since signing the agreement, CBS has established a strong working relationship with national minority supplier council in order to help minority supplier council and women’s businesses. The company has bolstered its internship program to include paid internships on the west coast, pairing up interns with their areas of interest, Such as finance or entertainment. There are 10 minority interns in the program. Moreover, CBS has now made diversity a factor in employee job performance evaluation. “Each area of the network has developed a detailed plan for diversity,” said Thomas. “Manager will be reviewed with respect to their diversity efforts and that will be a factor in compensation decisions.” Ms. Thomas noted that Ghen Maynard, an Asian American Pacific Islander, had just been promoted form director to vice president of alternative programming for the entertainment division.

 

“Will all believe there is a long way to go,” Thomas said. “What I have found is there are some things that already exist that are positive, such as news magazines having minority anchors. We think ‘city of angels’ renewal was an important step. The ratings were mediocre to low, and we did feel the program was a risk. It says a lot about our commitment”

 

In June 2001, the coalition gave the Big 4 Broadcast Networks (all of whom had signed an agreement) a report card for their efforts to diversity shows on – air and behind the scenes. CBS got a D-plus.

 

Mr. Nogales, of the National Hispanic Media Coalition, said he was disappointed “We expect progress; we signed for progress” “The numbers in comparison to last year actually look better” Nogales says. “There have been gains for people of color. There was movement. But it has to be movement across the board, not just for one group.”  He is referring to the fact that most of the gains have been made by black actors, writes and producers. Black actors appear as regular in at least 19 of the six major networks’30 new prime-time series. Hispanics shows up in only eight, Asians in five and Native Americans in one.

 

The pressure being put on the networks- including threats of “boycott” and legal action – is having results. At CBS the number of minority writers and producer has more than tripled, from four to fourteen, including six executive or co executive producer however, obstacles to a fully integrated future remain serious-particularly because of misconceptions about the nature of the television audience and about the way pop culture works. Network executive worry that “ghetto shows” might promote stereotypes. They wonder if shows like The cosby show are “black” enough. Then again, they think that casting too many minorities may drive white viewers away. Some network executives are afraid to cast minority actors in “negative” roles because they may be criticized for it minority writers, who have been getting more work lately, wonder if they are not just “tokens”; and despite some progress it is still almost impossible for Hispanic actor to get non- Hispanic roles.

 

Both the NAACP and the coalition have been battling discrimination for years. CBS is just finding out that a profound change toward pluralism can take place only with true insight on the part of management. CBS spokesperson Chris Ender says “We have made tremendous strides to increase diversity on screen, behind the camera and in the executive suites. However we certainly recognize that more can be done and more will be done.”

 

As far as Nogales is concerned. “It’s still a white guy’s world,” and the june 2001 statics for network television prove he is right.

 

 

 

 

 

 

 

Questions

Question 1:- What advantages would accrue to CBS if it becomes a more diverse workplace?

 

Question 2:- Where would you have placed CBS on the organizational diversity continuum and where would you place CBS now? Why?

 

Question 3:- Which approach (es) to pluralism best sums up the diversity policy that is being developed at CBS? Explain

 

Question 4:- How do the attitudes of management at CBS as depicted in your case study affect the company’s progress toward forming a more diverse workforce? Explain.

 

 

 

 

 

 

 Case Study 4

 

McDonald’s Listening Campaign

 

At the end of 2002, the world’s largest quick service retailer made its first ever quarterly loss and faced a number of challenges. It responded by launching its Plan to Win program, part of a global strategy to modernize the business, followed by the Listening Campaign in the UK. Here, Ali Carruthers explains how the two initiatives were linked in the UK, and the impact The Listening Campaign has had on communication, culture, image and media perception.

 

In 2003, things were looking bleak for McDonald’s. Its share price was the lowest it had been in a decade and it faced a series of seemingly insurmountable problems: It was demonized by the UK media in the fierce debate raging over obesity; it faced huge competition on the high street; and it was suffering under a wave of Anti-Americanism in the wake of the wars in Afghanistan and Iraq.

Added to this was the fact that the restaurants themselves were beginning to look dated and UK health lobbyists were determined to push home the message that McDonald’s food was bad for people.

Speaking earlier this year to the BBC, the UK CEO Peter Beresford said: “We had taken our eye off the customer, we were not customer focused, we were not customer driven. And so we reorganized and regrouped. We decided we had to stop and take stock of where we were. We had to be better, but we had to change the way we were running this business.”

The Plan to Win

The senior management put their heads together and devised the Plan to Win program, which went public in the last quarter of 2003. A key part of its focus was a shift to more choice and variety foods, with salads appearing permanently on the menu for the first time in the organization’s history. Key restaurants began to receive make over and a supporting advertising campaign with international stars was planned, all of which were intended to turn the food chain’s image around.

But just as things were beginning to look up for the organization, trouble raised its head again in the shape of the documentary film “Supersize me,” which in turn re-ignited the obesity debate in the media. It was then discovered that one of the salads McDonald’s was marketing contained more calories than one of its hamburgers. The UK press reacted with predictable glee and once again McDonald’s was in the spotlight for all the wrong reasons.

The Listening Campaign. The company responded promptly. Working with agency Blue Rubicon, the in-house communication and media relations team devised the Listening Campaign. It made the most of the arrival of new UK CEO Peter Beresford in July 2004, building on his personal credibility and that of McDonald’s with the Listening Tour. Beresford spoke directly to customers in focus groups, met with franchise holders and with employees in 12 UK cities over the space of six weeks, starting at the end of October.

The key ingredient was listening to customers and staff and then showing the results of this. “Part of the reason [for doing it] was that we had to introduce Peter very quickly to employees, customers and stakeholders,” says head of internal communications AIi Carruthers. “It was also signaling that he’d continue to work to change our culture and lead the drive for a real transparency of approach. We’ve been building on that work ever since.”

Focus groups for stakeholders

 

The communication team made the most of Beresford’s time by booking ahead so that local franchisees could meet him when he travelled to regional centers for customer focus groups. Next, Listening Groups were created for the company’s regional offices with corporate rather than restaurant-based employees taking part. Initial meetings were centered around three classic focus group questions:

* What works?

* What would you change?

* How would you change it?

In each session, six to 10 employees took part and the sessions lasted around two hours. After the first session, an action plan was drawn up and fed back to the employees in a second round of focus groups. Then the agreed proposed changes were put in place by the organization.

Proposed changes put in place

A range of short, medium and long term actions have been instigated as a result of the focus groups. These include a firm commitment to hold monthly town-hall sessions to regularly address key issues within the organization. “We’ve agreed to use these sessions to feature various departmental heads,” says Carruthers.

“That’s so people can put names to faces, understand the organizational structure better and get an understanding of what goes on outside their own departments.” The company has also committed itself to involving a new group of employees every six months, and to being more transparent about its promotion process and how people are assessed for promotion. It now holds regular Plan to Win meetings, which are related to the global strategy. “We’re using the town-hall sessions to communicate the global strategy to thebroader office group rather than just senior management so there’s a wider understanding of what we’re doing,” says Carruthers.

The company has also committed to a peer-nominated quarterly recognition scheme for the regional and head offices. It’s planned that the town halls will also be used in the recognition scheme. “People need to say well done to each other and be acknowledged by the senior team,” says Carruthers.

A change in company culture

According to Carruthers, the strategy has been recognized globally – a drive for greater face-to-face communication, more transparency, a growth in leadership behavior and accountability. “Basically we’ve been trying to make people feel they’re able to ask questions,” she says. “There’s nothing wrong with challenging the status quo as long as it’s done in a constructive and respectful way. If we can use some of those ideas we can probably make it a more enjoyable place for everyone to work.”

There’s no doubt that the Listening Campaign has had an impact on the senior team and general employees alike. Carruthers has had feedback from both groups and believes the exercise has been an eye-opener for the senior team: “They frequently mention experiences they’ve had in those groups. There’s nothing quite like hearing issues for yourself; the good ones and the more awkward ones.”

The feedback from focus-group participants has been very good; employees say they feel listened to and think their feedback is being taken on board. “They feel confident to ask questions or send e-mails directly to people they thought wouldn’t have listened to their suggestions previously. It’s changing the culture. Anything that builds trust and transparency is good. Now it’s about delivering on the changes that we said we’d make.”

A hotline to the CEO

A hotline to the CEO has made the company’s drive for transparency and commitment to employees even more credible. The “Ask Peter” e-mail address was established when Beresford took up his post and has seen a fair amount of traffic. “It’s word of mouth – people see that it’s well responded to,” says Carruthers. She sees it as important to be straight with employees about how e-mails are dealt with and who sees them. “We’re very up-front about the fact that I see all e-mails as well as Peter, but if we forward them to other departments, they’ll be anonymous.”

A combination of high and low technology adds to the feeling of personal contact: Beresford will often answer e-mails with a hand-written reply. In one famous instance he replied to nearly 100 in one week. “It doesn’t always happen that way, but it’s these things that make a difference. People see it’s coming from him and it’s quite a personal touch.”

Committing to communication, A new round of Listening focus groups with fresh employees is due to kick off in October. The whole cycle of questions, action-planning and feedback will be replayed. “We’re working with a new group of employees because we want to keep changing and avoid having a formalized council of volunteers,” says Carruthers. “They’ll look at what they think has happened so far, whether anything could have been done differently and then we’ll hold a review of the proposals.”

It’s a genuine commitment to keep the focus groups running on an ongoing basis. Carruthers is also expecting that the flexibility and fresh new faces will ensure that new topics arise: “They’re things that inevitably come up along the way and get added to the agenda for change. We just need to follow them through and then tell people the results.”

The results

Since Beresford’s Listening Tour there’s been a turnaround in the media coverage of McDonald’s, which has been much more positive. The Listening Campaign is changing the internal culture of the company and its focus group cycles are becoming permanent two-way communication channels.

Results back in August this year from the last employee survey showed that internal communication is now ranked by employees as number four out of 25 departments. “The communications strategy has helped people become aware of who we are and what we do,” says Carruthers. The Listening Campaign has also helped McDonald’s raise its profile externally, as it was nominated in this year’s UK Chartered Institute of Public Relations Excellence Awards and short-listed for Best Use of Media Relations in the PR Week Awards.

 

 

 

 

 

Questions

 

Question1. Based on this case, develop guidelines for improving communication with each of different stakeholders, through better listening.

 

Question 2:- What are the essentials for the effective communication?

 

Question 3:- Write about McDonald marketing plan which they have implemented for the success?

 

Question 4:- Do the SWOT analysis of following:-

 

  • McDonald
  • Food Industry

 

 


FINANCE MANAGEMENT CASE STUDY ANSWER PROVIDED

FINANCE MANAGEMENT CASE STUDY ANSWER PROVIDED

Note: Solve any 4 Case Studies:

 

Case 1:

 

Lewis Securities Inc. has decided to acquire a new market data and quotation system for its Richmond home office. The system receives current market prices and other information from several on-line data services, then either displays the information on a screen or stores it for later retrieval by the firm’s brokers. The system also permits customers to call up current quotes on terminals in the lobby. The equipment costs $1,000,000, and, if it were purchased, Lewis could obtain a term loan for the full purchase price at a 10 percent interest rate. Although the equipment has a six-year useful life, it is classified as a special-purpose computer, so it falls into the MACRS 3-year class. If the system were purchased, a 4-year maintenance contract could be obtained at a cost of $20,000 per year, payable at the beginning of each year. The equipment would be sold after 4 years, and the best estimate of its residual value at that time is $200,000. However, since real-time display system technology is changing rapidly, the actual residual value is uncertain. As an alternative to the borrow-and-buy plan, the equipment manufacturer informed Lewis that Consolidated Leasing would be willing to write a 4-year guideline lease on the equipment, including maintenance, for payments of $260,000 at the beginning of each year. Lewis’s marginal federal-plus-state tax rate is 40 percent. You have been asked to analyze the lease-versus-purchase decision, and in the process to answer the following questions:
 

Questions:

  1. Who are the two parties to this potential lease transaction?
  2. How will these alternative decisions impact the company’s Capital Structure and its balance sheet?
  3. What discount rate should be used in this Net Present Value analysis? Why?
  4. In the Purchase Decision, what are the cash flow impacts of the Bank Loan? (Please focus on the after tax cash flows.)

 

 

 

 

 

 

 

 

 

 

 

 

 

Case 2: McKenzie Corporations Capital Budgeting

 

Sam McKenzie is the founder and CEO of McKenzie Restaurants, Inc., a regional company. Sam is considering opening several new restaurants. Sally Thorton, the company’s CFO, has been put in charge of the capital budgeting analysis. She has examined the potential for the company’s expansion and determined that the success of the new restaurants will depend critically on the state of the economy next year and over the next few years.

 

McKenzie currently has a bond issue outstanding with a face value of $34 million that is due in one year. Covenants associated with this bond issue prohibit the issuance of any additional debt. This restriction means that the expansion will be entirely financed with equity, at a cost of $8.4 million. Sally has summarized her analysis in the following table, which shows the value of the company in each state of the economy next year, both with and without expansion.

 

Economic Growth Probability Without Expansion With Expansion
Low 0.3 $30,000,000.00 $33,000,000.00
Normal 0.5 $35,000,000.00 $46,000,000.00
High 0.2 $51,000,000.00 $64,000,000.00

 

 

Questions:

 

  1. What is the expected value of the company in one year, with and without expansion? Would the company’s stockholders be better off with or without expansion? Why?

 

  1. What is the expected value of the company’s debt in one year, with or without the expansion?

 

  1. One year from now, how much value creation is expected from the expansion? How much value is expected for stockholders? Bondholders?

 

  1. If the company announces that it is not expanding, what do you think will happen to the price of its bonds? What will happen the price of the bonds if the company does expand?

 

 

 

 

 

 

 

 

 

 

 

 

 

Case 3: Bullock Gold Mining

 

Seth Bullock, the owner of Bullock Gold Mining is evaluating a new gold mine in South Dakota. Dan Dority, the company’s geologist, has just finished his analysis of the mine site. He has estimated that the mine would be productive for eight years, after which the gold would be completely mined. Dan has taken an estimate of the gold deposits to Alma Garrett, the company’s financial officer. Alma has been asked by Seth perform an analysis of the new mine and present her recommendation on whether the company should open the new mine.

 

Alma has used the estimates provided by Dan to determine the revenues that could be expected from the mine. She has also projected the expense of opening the mine and the annual operating expenses. If the company opens the mine, it will cost $500 million today, and it will have a cash flow of $80 million nine years from today costs associated with closing the mine and reclaiming the area surrounding it. The expected cash flows each year from the mine are shown in the table. Bullock Mining has a 12 percent required return on all of its gold mines.

 

Year Cash Flow
0

1

2

3

4

5

6

7

8

9

─$500,000,000

60,000,000

90,000,000

170,000,000

230,000,000

205,000,000

140,000,000

110,000,000

70,000,000

─80,000,000

 

 

Questions:

 

  1. Construct a spreadsheet to calculate the payback period, internal rate of return, modified internal rate of return, and net present value of the proposed mine.

 

  1. Based on your analysis, should the company open the mine?

 

 

 

 

 

 

 

 

 

 

 

Case 4: 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:

 

  1. If the cost of capital is 8%, which of the 3 projects should the ABC Company accept?

 

 

 

 

 

 

 

 

 

 

 

 

 

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 has 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.

 

 

Question:

 

  1. 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?

 

 


ORGANIZATIONAL BEHAVIOUR CASE STUDY ANSWER PROVIDED

ORGANIZATIONAL BEHAVIOUR CASE STUDY ANSWER PROVIDED

Note: Solve any 4 Case Studies

 

Case 1: Failed Communication

 

Mr Vachani is the quality controller for four divisions of family-owned manufacturing organization in which the functional heads enjoy a large measure of autonomy. Mr Bose is the production superintendent of one of four divisions of the company. By and large, both these senior executives, who report to the general manager (works), get along well as colleagues though they have their usual difference and disagreements over issues concerning quality.

 

One day Mr Bose stormed into Mr Vachani’s office and shouted, ‘Your senior inspector, Sundaram, has misbehaved with me and I will not tolerate it. You must take immediate action against him.’ Mr Vachani asked Mr Bose to cool down and explain exactly what had happened giving the true facts. Narrating the incident, Mr Bose said that in the morning he had observed one of his workmen carrying out a job out of routine. On being asked explain why this was so, the workmen said that he was working on the job as per the advice of Mr Sundaram. On returning to his office, he called Mr Sundaram to make enquiries on the matter. The latter did not respond at first, but on being sent for once again, appeared before him. Asked why he had assigned the out-of-routine job to a workman, Sundaram did not give a satisfactory answer. He was asked to leave after being advised not to confuse his workmen. But Mr Sundaram reacted by making rude remarks and misbehaving.

 

Mr Vachani listened patiently to Mr Bose and advised him not to be agitated; adding that he (Mr Vachani) would talk to Sundaram about the matter. On Mr Bose’s attempts to again tell Mr Vachani as to what he wanted to be done, the latter said he would himself decide the best course of action, though of course, Mr Bose was free to take any alternative action he felt necessary.

 

After some time, Sundaram came to see Mr Vachani in his office. The latter did not indicate that he was aware of the incident with Mr Bose. After discussing various matters, Sundaram told Mr Vachani, ‘Today I had a fight with Bose’, and proceeded to narrate the whole incident. His account of the meeting with Mr Bose was, ‘I went to Bose’s office a little after I was called in. He asked me harshly to explain why I did not respond immediately on being sent for. I replied politely that when I arrived, he was immersed in some work and I did not want to disturb him. When Mr Bose continued to press the issue I told him to discuss with Mr Vachani whether I am required to respond immediately to his calls even if some work suffers in the process. About the out-of-routine job, I tried to explain that this became necessary in the view of the important inspection on Monday (about which Bose was also aware) and that I had taken the initiative in the interest of work. Anyway, Bose told me rudely not to instruct his men directly and to get out. This infuriated me and I told Bose angrily that it was he who had called me. He then used some foul language and as a result hot words were exchanged, so much so that I felt like hitting him.’ Sundaram further added that he was nowhere at fault and that Mr Bose’s behaviour, especially in asking him to ‘get out’, really provoked him. He said though he always gave Mr Bose due regard as a senior, the latter had no right to be as rude and insulting as he was.

 

It needs to be mentioned here that Sundaram has been working to the entire satisfaction of Mr Vachani and at times carried out his own liaison with Mr Bose and his department, whenever required to do so. After thinking over the incident for a few minutes, Mr Vachani advised Sundaram to go to Mr Bose some time later and talk to him reminding him (Mr Bose) politely about the usage of strong words like ‘get out’, etc. and admitting that he had lost his temper. In this way he felt that Mr Bose would not take offence to what Sundaram had said. After some persuasion, Sundaram agreed to do so and went back. About an hour later, Mr Vachani received a call from Sundaram saying that he had information that Mr Bose reported the matter to the personnel manager and as such there was no need for him now to talk to Mr Bose as suggested by Mr Vachani and that he would rather let the matter be decided otherwise, since he (Sundaram) was not at fault.

 

 

Questions:

 

  1. Was Mr Vachani’s suggestion to Sundaram to talk out the matter with Mr Bose correct in the circumstances?

 

  1. Was Mr Bose justified in reporting the incident to the personnel manager soon after he had apprised Mr Vachani of the same?

 

  1. What action, if any, should the personnel manager take in this regard once this is reported to him?

 

  1. If Mr Bose is found to be guilty in implicating Sundaram without any substantial reason, what remedy do you think the personnel manager should suggest to avoid recurrence of such incidents in future?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case 2: The Fall of Sona Computers

 

Mr Vinod Chopra, CEO of the company, heads Sona Computers, a leader in global computer hardware market, with the largest market share in servers and desktops. Mr Chopra is very hardworking and he nurtures the division of taking Sona to a new height, by doubling the business turnover in five year’s time. The computer hardware market is very competitive with the presence of Dell and HP-Compaq as international majors and many large, medium, and small players in India. Sona’s value-added desktops and servers have made them reach their peak in sales in India, far exceeding the market share than the other competitors. While product quality and price wise, Sona still remains a market leader, Mr Chopra, to further his vision to double the turnover, faced certain inter-organizational crisis. Once known as the best workplace ad even having bagged the best employer award from various national and international agencies, Sona suddenly started decaying. Political infighting, cynicism, gender bias, and labour law violations riddled Sona with frequent work stoppages, workplace violence and loss of productivity.

 

Mr Chopra has Mr Bose as the Vice President – HR. Both Mr Chopra and Mr Bose had worked together earlier and had a good understanding and mutual respect. Mr Bose joined Sona five years after Mr Chopra became the CEO of the company. Mr Bose leveraged his earlier ties with Mr Chopra and started restructuring the entire organization in line with Mr Chopra’s vision. Restructuring followed manpower rationalization decisions, rendering many people surplus in their jobs and their redeployment in different areas of the organization. Mr Bose did the entire task very diligently for the best interest of the organization and with view to further the vision of Mr Chopra.

 

One fine morning, the shopfloor-level PC assemblers, with their union-leaders, stormed into Mr Chopra’s office with a weeping middle-aged woman, who alleged outrageous behaviour by Mr Bose. This woman had been working with Sona since its inception and was known for her clout with the unions and the management, being the only woman member who joined Sona in eighties. Mr Chopra asked them to cool down after listening to their allegations against Mr Bose, cajoled them by saying, ‘I will talk to Bose and then get back to you.’ After their departure, Mr Chopra asked Mr Bose to meet him at his office. Mr Chopra narrated the incident to Mr Bose. Mr Bose on enquiry could identify the woman, whom he identified as surplus and had asked her to report to the packaging shopfloor. To that effect, Mr Bose had also issued a note to the supervisors of the assembly and packaging shopfloors, with a copy to the woman concerned.

 

Mr Chopra being extra sensitive about the business and success of Sona, requested Mr Bose to withdraw the order and allow the woman to remain with her earlier job. Mr Bose immediately resented, stating that will give a wrong signal to the entire organization and things will go out of control. He politely requested Mr Chopra to bear with this for some time and let him sort out the issue.

 

Mr Bose asked the woman to see him. The woman demanded she must be allowed to come with her colleagues. Mr Bose emphasized that since the issue pertains to her, it is preferred that she come alone. The woman entered Mr Bose’s office and without even seeking his permission sat on a chair and started asking about the reason for being called. Mr Bose could sense that the woman was not in mood to compromise. He feared that she may further muddle the issue. Hence he asked her to sit and allow him a few minutes to finish some important work. Mr Bose asked his secretary, a woman, to come into his chamber and in her presence started speaking to the woman employee. Mr Bose informed her in no uncertain terms that she must report to the packaging department and failure to do so will make her liable for disciplinary action. The woman left Mr Bose’s room with tears rolling down her cheeks and the mob waiting outside Mr Bose’s room suddenly started shouting, alleging that Mr Bose had sexually harassed her. In no time, the entire work force rushed to the site, leaving their jobs and demanded immediate removal of Mr. Bose. They threatened to stop work if their demand was not met immediately.

 

Mr Chopra was out of the country at the time of this incident and on getting the news, he immediately asked Mr Bose to leave the office, asking Mr Sharma, the CFO of the company, to take the charge in his absence. On return, Mr Chopra was briefed by the union leaders and others about the outrageous behaviour of Mr Bose. All the workers now also demanded that all their inter-departmental transfer orders should be scrapped because these were all ill-intentioned moves of Mr Bose, who hardly understood the company’s needs.

 

 

Questions:

 

  1. Study the power dynamics here, putting yourself in the role of Mr Bose, and analyse, where things went wrong. Also critically evaluate Mr Chopra’s role as a CEO

 

  1. Can you find out from the case a few limitations of empowerment?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case 3: Managing Work Culture Transformation

 

A legacy-bound multinational electronics major in India had to revisit its business strategies on account of the Korean entry in the business. Being the first in India to produce conventional black-and-white TVs, and later colour TVs, the company took pride in its captive market and while enjoying all the privileges of such a market, forced its Indian customers to have only what it believed was the best. For years together, it made no changes in variety of models. With the Korean entry, the multinational had to understand the real meaning of competition in the consumer electronics industry. The competition rendered its product prices uneconomical. Again, the availability of multiple models of the Korean products made its own look less attractive to customers. The mind-set of the employees made them to achieve that the company could meet their rising demands in salary, etc.

 

The company was acquired by a traditional Indian electronics major, whose price competition advantage made it successful in the market, next to the Korean manufacturers. The acquisition was legally challenged and even violently opposed by the trade unions. Workers in large numbers decided not to work with the new entity, lesser known than its foreign counterpart. On acquisition, the Indian major first tried to assuage the feelings of irate employees and the unions that their employment is protected with the golden parachute option, that is, service conditions and salary and benefits will remain unaltered. Even that did not help them to win the confidence of their employees and the unions. Many employees took early separation and those in the higher age bracket even opted for voluntary retirement, for which their parent company, before selling the stake to the Indian electronics major, made available separate provisions. Many employees even opted to wait and watch.

 

During the first phase of operations, the Indian electronics major followed rigorous transparency of information and communication with all cross-sections of employees. The chief operating officer (COO) was advised to spend more than 80 per cent of his time in meeting and talking to all cross-sections of employees, clarifying their doubts and answering their queries, if any. He kept himself busy in moving around the shop floors to meet people without bothering for immediate production loss. The COO also made it a point to meet employees both in groups and individually in his office at designated hours to discuss any issues, which otherwise the employees could not share on the shop floors. In between, the COO set an example before the employees, making it clear to all the managers and executives to be on time and disciplined at the workplace, which was diluted while they were with the multinational entity. After a month, managers set an example before the workers and then started demanding from their similar behaviour at the workplace. Whenever workers made it an issue that things were not moving at the right pace, they were given freedom to manage gang-level activities, deciding on their own every aspect of their jobs. Management extended all support and facilitated their activities and even made it a point for any important visitor to the plant to appreciate how the workers could take charge of the shopfloor in managing their activities.

 

The company then identified that there was some common areas of interest both for the workers and the management. A goal congruence model, duly developed in line with such common areas of interest, made it possible for them to assess the results of discussions on mutual interest. The company could see that management issues were not separate from those of the workers. Hence they took the approach of integrating worker’s issues with those of the management, reinforcing worker’s attitude to appreciate the need of change. Initial in-house training support to sell the imperative for change was strengthened by retaining services of expert consultants, which reinforced the thought process of workers to realize why they should change to scale up the activities of the organization for mutual interest.

 

Despite year-long efforts to change the attitude of the workers, it was observed that the company was still ridden with some deadwood, who were not only non-performers but also chronic absentees. A list of 22 such employees out of the 300 pay-roll workers (who were from erstwhile multinational) was prepared and the list was sent to the unions of their affiliation, with a request to suggest what should be the company’s standpoint to tackle them. Unions were non-committal at the initial stage and upon persistent communication, they asked their members to amend their attitudes and behaviour. But, there was hardly any impact. The management then decided to take up the issue at their level, referring it to the unions that no disciplinary action will be initiated against anyone, but that external experts will take the employees through rigorous attitudinal change sessions, to help them to understand the need for change. Unions agreed to this and accordingly the management retained experts to take the show.

 

Experts first used successive ice-breaking sessions to allow the erring employees to open their mouth. Some of them started making excuses that they remained absent because of the company’s failure to appreciate their achievements. They stated that the company’s productivity went up by three times after its acquisition, while their wages marginally increased, which had led to their demotivation.

 

Indian labour laws allow workers to receive terminal benefits like gratuity and pension, even when they remain absent without pay. This will continue till such time the workers are discharged. Politically conscious workers understand this privilege. Therefore, those who can afford to fend for better alternative sources of income will opt for the same, while remaining on the pay roll of their mother company, with some surprise visits. The elaborate disciplinary procedures take time to fix the erring workers by discharge.

 

Such employees set a bad precedent before others who are sincere and hardworking. Unions often plead their helplessness, as they fear that agreeing to the views and line of action of the management would reduce their membership, as rival unions can take these members in their group. Political interference is not possible, as everybody is concerned about their vote-bank. The company is not able to understand, how they should tackle these people.

 

 

Questions:

 

  1. As a manager, suggest how you will go ahead with this situation?

 

  1. How was the COO responsible for a positive change in the overall attitude of the employees?

 

Case 4: Amrita Sugar

 

Over the past few years, Amrita Sugar, consistently recorded profits and increased productivity of the workmen. After price de-control, the company is facing challenges from many new players in the market. Most of the new players have started their activities under collaboration with international giants with access to the latest technology. These new players thereby substantially reap the benefits of cost curtailment. In the past, Amrita was forced to go for backward integration, developing her own plantation to fight against the erratic price movements of raw materials, that is, sugar canes. With the development of a new supply source for sugar cane from Cuba and other countries, such exclusive privileges of Amrita did not continue for long. All the new players could substantially divert their funds ( which was otherwise diverted by Amrita for backward integration) for technology-intensive production method.

 

In the last board meeting, when the secretary was briefing the shareholders on the company’s performance, things went out of order and shareholders got extremely annoyed with the company’s performance, which indicated that:

 

  1. Profitability of the company increased to zero.
  2. Productivity of the workmen had come down by 40 per cent.
  3. Work-in-progress increased by 30 per cent.
  4. Inventory holding of the company had gone up substantially.

 

In the light of the above information, the Board of Directors of the Company decided to consider the following options:

 

  1. Go in for technological changes
  2. Reduce the manpower by offering VRS.
  3. Sell the captive plantation area and switch over to import of raw materials.
  4. Strengthen the production planning and control function by separating it from traditional manufacturing activity.
  5. Develop a strong MIS System with simultaneous focuses on Aggregate Planning, developing of Master Production Schedule, Capacity and Material Requirements Planning, etc.

 

 

Question:

 

  1. Which are the options you consider more appropriate to turn around Amrita? Write your answer assuming that the company does not face, for the present, any liquidity crisis and can substantially get financial support by capitalizing their reserves.

 

 

 

 

 

 

Case 5: Sabeer Bhatia: An Icon Of Creativity

 

Sabeer Bhatia, the co-founder of Hotmail is the recipient of the ‘TR 100” award presented by MIT to 100 young innovators who are expected to have the greatest impact on technology in the next few years. He has won several laurels—‘Elite 100’ list of top trendsetters in the New Economy by Upside Magazine, ‘People to watch’ in International Business by TIME (2002), ‘Entrepreneur of the Year’ by a venture capital firm Draper Fisher Jurvetson (1997), and one of the ten most successful entrepreneurs by San Jose Mercury News and POV magazine (1998).

 

One needs to know what has gone into making him a highly creative person. Born in Chandigarh, India, he completed his early schooling at Bangalore, in schools with ethical values. His parents were both professionals; father, Baldev, a senior officer in Ministry of Defense, and mother, Daman, a senior official in the Central Bank of India, who attracted great value to education. He has been a brilliant student who would solve problems on the blackboard. He was a perfectionist and would feel miserable if he was unable to write everything he knew in his answer book during an exam, due to limited time. He has also been entrepreneurial during his school days and once opened a sandwich shop.

 

He joined the Birla Institute of Technology, which he left to study at California Institute of after winning full scholarship. He completed his masters from Stanford University and joined Apple, where he worked for nine months. He had an urge to do something unique using the net, and he came up with javasoft—a method of using the web to create a personal database, where people could preserve their personal things. He shared his plan with his colleague Jack Smith, who suggested to e-mail to javasoft. Bhatia worked the whole night to develop the business plan. The two tried various options and came up with ‘Hotmail’ as their final choice, and a brand was launched in 1995. After a year, Microsoft approached them, and Hotmail was sold to Microsoft for $400 million. Bhatia worked with Microsoft for a year, and has launched two more products: Arzoo and BlogEverywhere. From the above account it is obvious that Sabeer Bhatia is brilliant, persistent, and innovative, and has scientific and technical knowledge. His friends find him “persistent, focused and disciplined”. To top it all, he is a perfectionist and entrepreneurial at heart. He has an unquenching desire to create new ventures, and bubbles with new ideas. He feels Indian IT companies can be more creative. Creativity seems to be his motivation in life; he is still single.

 

 

Questions:

 

  1. What competencies are needed to be creative?
  2. Identify methods through which creativity can be nurtured.

 

 

 

 

 

 


GENERAL MANAGEMENT CASE STUDY ANSWER PROVIDED

GENERAL MANAGEMENT CASE STUDY ANSWER PROVIDED

Note: Solve any 4 Case Studies

CASE – 1   Wild Water Gets Soaked

 

Jason and Marie Salerno, brother and sister, have been running their family business, a water park called Wild Water, since they both graduated from the college. The Salernos operate the park, which is located near the New Jersey shore, with help from their parents. Marie’s husband and Jason’s wife are also involved in the business. Wild Water has now been in business for more than 40 years—it is a landmark to both locals and summer tourists. The water park features such attraction as a wave pool, several water slides, a flume ride, a kiddie pool, and a tube ride. A picnic park, shaded petting zoo, aquarium, snack bar, and restaurant called the Seafood Shack round out the park’s offerings.

 

The park opens on Memorial Day and cuts back to weekends only after Labor Day, typically closing in the fall. With just a few months to accumulate revenue, the family and employees of the park work extremely hard. Marie oversees the financial aspects of the business, while Jason manages the staff. The staff—ride operators, ticket takers, lifeguards, and the like—are very loyal. Some have parents who once worked at the water park, and many have siblings who also work there. By its very nature, the organization culture of Wild Water is hierarchical—but most who work there, including Jason and Marie, would refer their employees as part of the family. Jason holds weekly staff meetings, where employees are encouraged to voice their idea about any aspect of the park’s operations. Photos of workers and customers line the walls of Jason and Marie’s tiny office, and stories about the park and its people abound, including sighting of celebrity visitors and near-disasters such as a close call with a hurricane.

 

While the organization culture has remained largely unchanged for the past four decades, the environment in which the park operates is changing. A new state safety law requires some expensive updating to meet the code. The Salernos recently learned that some of the smaller beach cottages in the area are going to be torn down to make way for a development of expensive condominiums. Vacationers who rent the condos are more likely to be looking for entertainment in the form of golf, deep-sea fishing trips, and exclusive restaurants. One of the major amusement park chains has been looking at a piece of real estate nearby. This chain is well known for its high-end rides, shows, and eating establishments. The Salernos point out that an entire family could enter Wild Water for the cost of one ticket at one of chain’s park.

 

While the Salernos acknowledge that they have serious challenges ahead, they remain upbeat. Wild Water has been a favorite of families for more than two generations, and they expect it to continue to be a destination for local residents as well as vacationers. Buy they need to make some changes to keep those visitors—and the new condo owners—coming through the turnstile.

 

 

 

 

Questions:

 

  1. Imagine that you are a management consultant hired by Salernos to help them navigate the choppy waters ahead. First, describe the elements of the microenvironment and competitive environment that affect Wild Water now. Then describe elements that you anticipate will affect the water park in the next few years.
  2. Next, describe the organization’s culture. Discuss how the current culture affects the way it responds to the organization’s external environment.
  3. Now, create a plan for Wild Water. In your plan, describe what changes the organization needs to make in its culture to meet upcoming challenges in the external environment. Then describe steps that Wild Water can take to compete successfully against the new amusement park. How can the Salernos keep their loyal customer happy while attracting new ones?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASE – 2   Custom Coffee & Chocolate

 

Bonnie Brewer and Stacy Kim were college roommates. While at school, they shared dreams of opening their own business. To prepare themselves, they took business and marketing courses, along with courses in management. When they graduated, they each found jobs in Seattle, near where they’d gone to school.

 

Several years later, after working at other companies to gain experience, the two women decided to take the plunge together and made a plan to open a small café where they and their customers could indulge their love of good coffee and fine chocolate. They looked at two locations for their café: one near Pike Place Market, which gets a lot of foot traffic from shoppers and businesspeople, and one near the university, where shops and restaurants are patronized by students, faculty, staff, and local residents. They chose the university location because they thought they knew and understood those customers well. The doors to Custom Coffee & Chocolate opened several months later, with both Brewer and Kim working hard to serve unique coffee blends and specialty chocolates, maintain shop, and handle the finances.

 

Custom Coffee & Chocolate’s business plan included purchasing only fair trade coffee (priced to provide living wages to coffee growers) and chocolates made by a few local suppliers. Their café was small, but it had several comfortable chairs, couches, and coffee tables to encourage customers to stay and chat or read the newspaper between classes. However, the majority of their business was takeout.

 

At the beginning, business was slow. Brewer and Kim had struggled to find the right price points for their coffee and chocolates, and they worried they worried they might be set too high. But everyone who came in to the café loved what they bought, and came back—and began to bring friends. Business increased over a period of about five months, when Brewer and Kim had to turn their attention toward longer-term planning. They had exhausted their savings and their initial small-business loan, and their six-month lease was up. They needed to decide whether they were in this for the long haul.

 

The two women met to consider their options. Right away, they decided they wanted to extend their hours and hire two part-time employees. They would investigate a wireless connection that customers could use. Kim would take over more of the finances, while Brewer would handle marketing—which they both agreed they needed for the café to grow. They evaluated whether to expand the menu to include baked chocolate desserts, tea, and other beverages. They considered delivery service to locations on campus, such as dorms and lounges where students were studying. They discussed holding events at the café such as poetry readings or discussion groups. And they talked about establishing a Web site with a menu and phone number, updates on current coffees and chocolate flavors, and a blog written by Brewer with opportunities for customers to respond. They agreed they were not yet ready to accept online orders, but eventually they might.

 

As Kim and Brewer finalized their planning, they agreed that managing their own business was a challenge, but one they would never regret.

 

 

 

Questions:

 

  1. What do you think Custom Coffee & Chocolate’s mission is?
  2. Create a SWOT analysis for Custom Coffee & Chocolate.
  3. Using the owners’ ideas for the future of their café, as well as your own ideas, outline a tactical plan for Custom Coffee & Chocolate.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASE – 3   Down East Spud Busters

 

Down East Spud Busters is part of a conglomerate that represents the potato growers of eastern Canada and northern Maine and that also overseas the collection, processing, and distribution of potatoes products.

 

For many years, the industry functioned as a local cooperative. The cooperative was simply a collection center where potatoes were weighed and received, washed and graded, bagged and distributed. Potatoes were the only product. Potatoes were distributed in a variety of bag sizes and weights and were also sold loosely in large bins.

 

The first phase of Down East Spud Busters’ strategic plan resulted in the building of a large manufacturing plant in northern Maine with a focus on value-added products. The major strategy is to process higher-value potato products. Those products include a frozen division line (French fries, home fries, gourmet stuffed potatoes, flavored potato skins, and so on), a dried-food division line (instant mashed potatoes, freeze dried potatoes, potato pancake mix, and so on). The corporate group figures that it can triple sales revenues from the existing yield of potatoes.

 

The second phase of Down East Spud Busters’ strategic plan call for a nationwide sales and distribution program. A gigantic market in retail food sales has gone untouched by this group of growers and producers. The major strategy is to recruit the appropriate sales force and to set up a system for selling and distributing the products. The major markets are supermarket chains, smaller retail grocers, major hotel chains, and governmental/school institutional kitchens.

 

Down East Spud Busters is leaning toward the concept of hiring sales associates who will work out their own homes in strategic location throughout the United States. Those sales associates will be assigned to specific territories and will be challenged to meet or exceed specific quotas of each of the conglomerate’s products. The sales associates will also be responsible for overseeing the distribution and delivery of the products, and for dealing with any and all after-sale problems or issues.

 

The third and final phase of Down East Spud Busters’ strategic plan is to build a second manufacturing plant in Idaho in five years and to possibly facilitate and oversee an increase in crop planting and yield in both territories. The company also plans to expand its market territories into selected locations in Europe and the Pacific Rim.

 

 

 

 

 

 

 

 

 

Questions:

 

  1. Select options from the chapter text, and prepare an organizational chart for the national distribution program that this company is about to embark on. Be sure to incorporate the company’s goal into your overall structure.
  2. Given the vast geographic expanse and logistical challenges of this new program, what recommendations do you have for the company regarding HR policies and procedures?
  3. What other types of industries could use the model from this case as a means to expand sales nationally or internationally?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASE – 4   Green Mountain Camp: It’s More than a Summer Job

 

Nick and Carol Randall had a dream for themselves and their two sons: to live at summer camp, re-creating their own memories of swimming in lake, hiking in mountains, and laughing around the campfire every evening. So, when Green Mountain Camp in Vermont went up for sale, they scraped together their savings and bought the property and the business. Soon they learned why the camp was for sale: the cabins were run down, the kitchen was below health standards, the dock was falling into the lake. But as they assessed the situation, adding up the repairs necessary to open for a summer session of school-age boys, they realized they had an even more serious problem: a lack of employees. When they bought the camp, the previous owners were vague about the commitment of camp staff from year to year; when Randalls tried to contact both the camp chef and head counselor, neither answered phone calls or e-mails.

 

Something was clearly wrong. Why weren’t Green Mountain staff members motivated to return to work at the camp? After they hired contractors to make the necessary physical repairs to the camp, the Randalls set about recruiting job candidates—talking with them to learn what they needed and wanted in their jobs and how to motivate them not only to serve the camp and its campers but also to stay. One way the Randalls decided to spread the word about the change in ownership was a Web site. The new Web site included an introduction to the Randalls and an invitation to previous staffers to contact them. The site offered job descriptions with meager benefits, but it promised a welcoming, positive atmosphere with opportunities for forming new camp programs, social time, and more comfortable accommodations.

 

Inquiries from both past staff members and interested newcomers began to trickle in, as did registration applications from campers themselves. Nick and Carol interviewed candidates to learn not only what their skills were but also what would motivate them to commit themselves to the job for more than one summer. Candidates included school teachers, recent college graduates, and even one retired businessman who just wanted to spend his summers outdoors teaching kids how to kayak and sail. The Randalls hired him immediately, hoping to tap his business knowledge in addition to his outdoor skills. All the candidates said they simply wanted to be treated fairly, given some freedom to make decisions on the spot that might benefit or enrich children, and be paid promptly. They were pleased to hear that the campground itself was under renovation. By late June, the Randalls had filled all the staff positions and had only a few empty spots left for campers. As the first campers began to arrive, the Randalls believed their dream of living at summer camp might really come true.

 

 

 

 

 

 

 

 

Questions:

 

  1. What steps might the Randalls take to design motivating jobs for camp staff?
  2. What needs might they be able to fill for camp staff?
  3. In what ways might the empowerment of camp staff affects the success of the camp?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASE – 5   S & Z EAST COAST IMPORTERS

 

OVERVIEW

 

Herbie Shapiro has worked as a retail footwear salesman in the New York City area for 20 years. The New York native has always worked for someone else, but he knows the business and its people very well. Shapiro has always felt that the supply side of the retail footwear business is poorly organized and that few if any distributors provide good service to the hundreds of retail outlets in the metropolitan area.

 

Mei Zhao, a native of China, is a longtime acquaintance of Shapiro, and a manufacturer’s rep for several of the Pacific Rim footwear manufactures. Zhao functions primarily as a foreign agent and freight forwarder for the Asian manufacturers, overseeing the unloading and trucking of container ship cargo.

 

Zhao shares many of the same views as Shapiro when it comes to the distribution and supply side of the retail footwear business. Both men are at the midpoint of their careers: have built a solid business and personal relationship with one another; and, following several meetings have decided to form a partnership. S & Z East Coast Importers has the opportunity to lease a 60,000-square foot warehouse with a buy option in northern New Jersey for purposes of establishing a distribution center for the metropolitan area retail footwear business.

 

Zhao already has many good links and relationships with the major suppliers and shippers of retail footwear. The partners plan to import a wide range of products, including casual shoes, athletic footwear, fashion and outdoor boots, slipper, socks, laces, pads, and inserts. Zhao has access to all of the major brand national brands as well as the bargain-priced no-name lines.

 

In addition to his long association and membership in local and national footwear organizations, Shapiro knows many store owners and employees within the New York – New Jersey metro area. Shapiro is well liked and well respected. The partners believe that their strong combination of supply-side and retail experience will provide them with access to many good markets.

 

As is the case in many industries, retail footwear has a very small number of large manufactured products coupled with a very large number of small retail stores. One of major keys to success therefore is the existence of an efficient, well-organized system of distribution. Shapiro and Zhao are focusing their efforts on doing a better job than the competition and on filling that niche in the footwear market.

 

 

 

 

 

LOGISTICAL ISSUES AND CHALLENGES

 

Most of the aforementioned footwear products arrive at the West Coast on giant container ships. After clearing customs, the containers are offloaded onto tractors for local (western) delivery and onto railcars for Midwestern and East Coast distribution. Shapiro and Zhao plan to set up their building as a warehouse and distribution center.

 

Warehouse and distribution centers must purchase virtually all of their products in large quantities. Shapiro and Zhao will typically be faced with buying shipments of 500,000 pairs of shoes, 1,000,000 pairs of socks, 600,000 pairs of running shoes, and so on. Retailers, on the other hand, typically must purchase very small quantities of mixed loads of products, primarily because of a lack of retail and storage space. Shapiro and Zhao will typically be faced with orders that call for 50 to 150 pairs of shoes, 50 to 100 pairs of socks, 100 to 300 pairs of running shoes, and so on.

 

Warehouse and distribution centers must therefore be set up to receive, unload, and store large shipments of product (railroad cars/tractor trailers); to “break bulk” (unpack, count, inventory, and repack); and to load and deliver small mixed loads to retail establishments. Many metro-area retailers are located on cramped and busy streets with limited access.

 

The financial side of Shapiro and Zhao’s business looks very promising. Thanks to Zhao’s connections with suppliers and Shapiro’s connections with the New York – New Jersey metro market, the partners anticipate an average markup of 30 percent of their products. That is nearly twice as much as Zhao earns as a manufacturer’s rep.

 

For the business to succeed, several variables and logistics must fall into place and be properly managed. The warehouse and distribution process, quality of service, and financial management must operate at maximum efficiency. In addition to in-house efficiency and cost control, the company must also buy and sell enough volume of product to cover all costs and generate profits.

 

Retail customers are looking for timely and frequent deliveries of small quantities of specific products. Some of those customers may need merchandising help as well. Retail sales are the key to avoiding a bottleneck in the process and flow of manufacturing and distribution.

 

The financial side of this business requires close and careful management of receivables and payables. Manufacturers typically expect and receive payment for their products in about 10 days. This is essential to the sustained cash flow of those operations (primarily for payroll and raw materials purposes). Retailers, on the other hand, expect and receive accounts payable terms ranging from 30 to 60 days. This is essential to the sustained cash flow of those operations, as customer sales are the primary source of funds. So while the prospect of a 30 percent markup is clearly attractive, the cash flow situation and challenge must be met.

 

Shapiro and Zhao are unsure about the best way to facilitate and manage trucking and insurance. They have the option of buying and leasing their own trucks on both supply and delivery side and also have the option of using independent trucking companies. They could select some combination of those two options. In addition, merchandise must be insured, but who exactly is responsible for that coverage, and when does that “ownership” change hands?

 

The partners project monthly warehouse operating expenses of $55,000 (building, payroll, administration, and salaries). This does not include merchandise, trucking, or insurance. Given their 30 percent average markup on products, monthly sales of about $180,000 will be needed to break even. The partners have conservatively projected first-year sales to be $3 million.

 

Their warehouse inventory capabilities are in excess of $30 million. Shapiro and Zhao realize that it will take some time to approach that level from both a sales and cash flow perspective. Their facility and market base clearly present the potential to achieve sales of $40 million or more. Cash flow is the current obstacle. They have just over $1 million in working capital for their start-up and believe that will accommodate first-year sales of $3 million given their logistics of inventory purchase, sales and cash flow.

 

From a distance, the prospect of success is promising. The partners have the opportunity to buy low and sell high in large volume. A market niche is waiting to be filled. The partners have the experience and the connection on both the supply and sales sides of the business.

 

 

Questions:

 

  1. How can Herbie Shapiro and Mei Zhao use technology to achieve success in their new venture? Be sure to address each of the major categories presented—purchasing, transportation, operations, distribution, and financial management.
  2. Select a specific business or industry that you may become a part of. How would you incorporate the technological aspects of the text into your day-to-day operations?

 


CONSUMER BEHAVIOUR CASE STUDY ANSWER PROVIDED

CONSUMER BEHAVIOUR CASE STUDY ANSWER PROVIDED

Note: Solve any 4 Case Studies

 

Case 1: Cub Foods

 

In 2003, Cub Foods had 78 corporate and 30 franchised stores. The chain built its success by focusing on its primary market: families of four or five individuals with adults ages 24 to early 40s who are informed. Value-conscious consumers – consumers like Leslie Wells.

 

Leslie Wells’s recent expedition to the new Cub Foods store in Melrose Park, Illinois, was no ordinary trip to the grocery store. “You go crazy,” says Wells, sounding a little shell-shocked. Overwhelmed by Cub’s vast selection, tables of samples, and discounts as high as 30 percent, Wells spent $76 on groceries – $36 more than she had planned. Wells fell prey to what a Cub executive calls “the wow factor”. A shopping frenzy brought on by low prices and clever marketing. That’s the reaction Cub’s super warehouse stores strive for and often get.

 

Cub Foods has been a leader in shaking up the food industry and forcing many conventional supermarkets to lower prices, increase services, or, in some cases go out of business. With Cub and other super warehouse stores springing up across the country, shopping habits are changing too. Some shoppers must drive 50 miles or more to a Cub store instead of going to the nearest neighborhood supermarket and bag their own groceries at Cub Foods. Their payoff is that they find almost everything they need under one roof, and most of it is cheaper than at competing supermarkets. Cub’s low prices, smart marketing, and sheer size encourage shoppers to spend far more than they do in average supermarket.

 

The difference between Cub and most supermarkets is obvious the minute a shopper walks through Cub’s doors. The entry aisle, called a “power alley” by some, is lined two stories high with specials, such as bean coffee at $2 a pound and half-price apple juice. Above the ceiling joists and girders are exposed, giving “the subliminal feeling of all the spaciousness up there. It suggests there’s massive buying going on that translates in a shopper’s mind that there’s tremendous savings going on as well,” says Paul Suneson, director of marketing research for Cub’s parent, SUPERVALU Inc., the nation’s largest food wholesaler.

 

Cub’s wider-than-usual shopping carts, which are intended to suggest expansive buying, fit easily through the wide aisles, which channel shoppers toward high-profit impulse foods. The whole store exudes a seductive, horn-of-plenty feeling. Cub customers typically buy in volume and spend four times the supermarket average per shopping trip. The average Cub store has sales quadruple the volume of conventional stores.

 

Cub Foods has a simple approach to grocery retailing: low prices, made possible by rigidly controlled costs and high-volume sales; exceptionally high quality for produce and meats – the items people build shopping trips around; and immense variety. It’s all packaged in clean stores that are twice as big as most warehouse outlets and four times as big as most supermarkets. A Cub store stocks between 35,000 and 49,000 items, double the selection of conventional stores, mixing staples with luxury, ethnic, and hard-to-find foods. This leads to overwhelming displays: 88 kinds of hot dogs and dinner sausages, 12 brands of Mexican food, and fresh meats and produce by the ton.

 

The store distributes maps to guide shoppers. But without a map or a specific destination, a shopper subliminally led around by the arrangement of the aisles. The power alley spills into the produce department. From there the aisles lead to highly profitable perimeter departments: meat, fish, bakery, and frozen foods. The deli comes before fresh meat because Cub wants shoppers to do their impulse buying before their budgets are depleted on essentials.

 

Overall, Cub’s gross margin – the difference between what it pays for its goods and what it sells them for – is 14 percent, sex to eight point’s less than most conventional stores. However, because Cub relies mostly on word-of mouth advertising, its ad budgets are 25 percent less than those of other chains.

 

 

Questions:

 

  1. List at least five marketing tactics Cub Foods employs in its stores to increase the probability of purchases.

 

  1. What accounts for Cub’s success in generating such large sales per customer and per store?

 

  1. Given Cub’s lower prices, quality merchandise, excellent location, and superior assortment, offers reasons that many consumers in its trading areas refuse to shop there.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case 2: Amazon.com

 

In 19194, Jeff Bezos, a young senior vice president at a Wall Street investment firm, decided to become a part of the Internet revolution. He decided to try to sell books via the World Wide Web. Why books? Because about 1.3 million books were in print at the time. Also, Bezos thought he would be able to provide the customer with discounted prices, the opportunity to get any book wanted, and convenience. Bezos initially come up with a list of possible items to sell online, including books, music, PC hardware and software, and magazines. After eliminating all but books and music, he realized that only 250,000 music CDs were available at any one time compared to 1.5 million English book titles (3 million titles if all languages were considered). So Bezos decided to go with books and drew up a business plan as he and his wife drove westward in search of their new home. He subsequently decided to start his new business in Seattle and sold his first book in July 1995. And with that, Amazon.com began its rapid ascent toward becoming one of the most recognized businesses in the world.

 

While it still hasn’t turned a profit, Amazon.com has succeeded where so many other fledgling Internet companies have failed. Bezos, who was recently named Time magazine’s “Pearson of the Year” and Advertising Age’s 1999 “Marketer of the Year” is the first to admit that first-mover advantage was instrumental in the growth of his company. He also credits the company’s success to the comprehensive selection of books available. “There’s no way to have a physical bookstore with 1.1 million titles,” he says. “Our catalog, if you were to print it, would be the size of seven New York City phone books.” In addition, Amazon.com is known for its ability to fulfill and deliver, thanks to large investments in nationwide warehouse distribution centers.

 

If you are worried that your local Barnes and Noble bookstore might be forced out of business any time soon, however, don’t be. Amazon.com cannot compete when customers want the physical presence of a bookstore. The online book behemoth cannot provide soft, comfortable couches, music and gourmet coffee. Nor does it allow consumers the opportunity to page through a book before purchasing it, savoring the crisp new pages and creaking of the binding when first opened. The company does, however, offer several advantages in the way of customer-to-customer and customer-to-author interaction. Customers can log on to the site, post a review on any book they have read, and have it permanently associated with that book’s entry in the online catalog. Also, authors are able to answer a variety of stock interview questions, which are then posted on the site associated with all of their books. Authors can also leave their email addresses so readers may email their own opinions or comments. Bezos believes that his is the world’s most “customer-centric” company.

 

Another unique feature of the company offers readers who have their own websites is the opportunity to set up their own specialized bookstores. For example, an expert on investing can list several investment strategy books on his or her website and then link them from the site directly into the Amazon.com catalog. The company is able to track books that are purchased in this manner and gives the individual a commission on all sales.

 

What else can customers expect when purchasing a book from Amazon.com? Discounts. Roughly 30 percent of the book titles are discounted by 10 to 30 percent. The others are sold at list price.

 

The company’s strategy of providing customers with a sense of community within its website seems to be working. While many retailers went out of business and many others were barely surviving, Amazon.com’s revenues were growing at 20 percent per year and reached $4 billion in 2003. It’s operating profit margin at 5 percent beat most retailers and approached Wall-Mart’s 6 percent. One analyst projected the company’s net income to be $800 million on $8 billion in revenues by 2007.

 

Recently the mammoth bookseller has branched into other areas. You can now purchase CDs, toys, home improvement products, software, videos, and DVDs, and small appliances at Amazon.com. With this push into selling other products, the company faces increasing competition from traditional retailers and e-commerce startups. Some believe the risks diluting its brand name by expanding its business to too many lines, too quickly. But Bezos begs to differ. He says, “I get asked a lot, ‘Are you trying to be the Wal-Mart of the Web?’ The truth is, we’re not trying to be anything of the Web. We’re genetically pioneers.” The company’s former UK managing director, Simon Murdoch, adds, “It’s a great name. ‘Amazon’ is not tied to any product category. The brand is extendible; it stands for delivery.”

 

Time will tell if the company will continue to deliver. For now, Amazon.com is one of the few Internet brands recognized around the world. It is the most frequented website in America and one of the top few in France, Britain, Germany, and Japan. Jeff Bezos’s vision has certainly become one of the great entrepreneurial success stories.

 

 

Questions:

 

  1. Why have books and CDs sold successfully online while other many products haven’s sold well?

 

  1. Do you think consumers who buy from Amazon.com also shop at other websites for books and CDs and buy from the site that offers the lowest price?

 

  1. What aspects of customer service have contributed to Amazon.com’s success?

 

  1. Why do you think Amazon.com isn’t profitable even though it generates high sales dollars?

 

 

 

 

 

 

Case 3: Hershey Chocolate USA in 2000

 

Although Hershey Chocolate USA, a division of Hershey Foods Corporation, did not meet its performance expectations in 1999, the company played an important role in increasing U.S. candy sales. Retail confectionery sales grew at rate of 4 percent in 1999, which was greater than the average growth rate within the general packaged foods industry. The past decade has shown an increase in competition in the candy industry, with companies such as Mars Candy Company introducing a variety of new products, brand extensions, and additional pack types. Similarly, Hershey has diversified its product line and formed alliances with other companies, such as Breyer’s.

 

Record sales in the early 1990s resulted in part from the introduction of a number of new Hershey products, the most significant being Hershey’s Kisses with Almonds. This product was introduced in 1990 and became one of the top 20 U.S. candy brands during 1991. By reaching the top 20 in less than a one full year of national distribution, Hershey’s Kisses with Almonds became the most successful new-product introduction in the corporation’s history.

 

In 1991, Hershey Chocolate also received the Equitrend Outstanding Quality Award. This award was based on a national survey that measured how consumers perceived the quality of 190 nationally recognized brand names. Hershey’s milk chocolate bar was the highest-rated confectionary brand.

 

Part of Hershey’s strategy is to target mothers. The company reasons that mothers determine children’s early taste in candy. In addition, research shows that adults eat more than 55 percent of all candy sold. Bite-size products are especially popular with adult consumers. When wrapped in seasonal colors, these products have tremendous appeal for adults during Christmas and Easter reason. Halloween season, however, is more oriented toward candy bars. In December 1998, Hershey targeted the ever-growing snacking segment of the confectionery industry by transforming some of its most popular bars into “Hershey Bites.” Included in this range of products were Hershey’s Milk Chocolate with Almonds, Cookies ‘n’ Crème, Almond Joy, and Reese’s Peanut Butter Cups. Unwrapped, bite-size chocolate candy now represents about one-fourth of the packaged chocolate candy category.

 

Hershey also generates interest and excitement in its products by providing fresh, new looks for standard confections. This strategy has allowed the company to align itself with top-of-mind activities. For instance, in 1997 the company successfully implemented a merchandising strategy with the Lost World: Jurassic Park. By using creative selling, marketing, and merchandising techniques, Hershey achieved a retail growth of 5.6 percent in 1998, exceeding the category growth rate and leading to record levels of market share.

 

In early 2000, Hershey’s creative marketing techniques were evident in its “Keep Easter Easy” campaign, which encouraged parents to incorporate nonchocolate treats like jelly beans, lollipops and gum into their traditional Easter festivities. A brochure full of recipe and game ideas incorporated a variety of Hershey products into activities the whole family could enjoy and could easily be downloaded from Hershey’s seasonal website (www.keepeastereasy.com). Another incentive for parents to implement nonchocolate sweets into the holiday was a mail-in coupon (located in the brochure)for a limited-edition Jolly Rancher Lollipops Watermelon plush toy that was cross-promoted with brochure.

 

In addition, Hershey uses a slightly less conventional approach to increase mind share. Hershey, Pennsylvania, the hometown of the chocolate bar, houses not only the company’s headquarters but also a 110-acre amusement park. It may not be the gateway parents dream of, but children seem to enjoy the eight roller coasters, sex water rides, more than 20 kiddie rides, monorail, and zoo. At the end of a long day of fun and frolic, families can retire to one of the 235 luxurious rooms in the Hotel Hershey.

 

The highly competitive nature of the chocolate candy market has individual companies vying for consumers with increasingly inventive advertising campaigns. Cadbury Schweppes has developed several campaigns to specifically target women consumers. One such television ad starred a woman caught in dilemma: She was unable to choose between her lover and her chocolate bar. More recently the company developed a new line of chocolate bars called Marble (a combination of marbled milk and white chocolate bars with a hazelnut praline center) targeted to women between ages 18 and 24. Hershey has also recently departed from its catchy but childlike jingles in an attempt to draw in a more mature chocolate lover. When introducing its new candy, Bar None, the company aired a TV commercial showing a lion tamer trying to satisfy a “chocolate beast” snarling from behind a door.

 

Perhaps one of the more popular advertising campaigns Hershey has come up with in the past few years stars the eye-catching Hershey’s Syrup animated cows. In mid-1999, the cow commercials were combined with the California Milk Processor Board’s popular “Got Milk?” advertisement. The TV spot depicted two cows sitting together on a couch watching the “Got Milk?” commercial on television. One cow turns to other and says, “That’s a silly question.”

 

 

Questions:

 

  1. What are the advantages of targeting candy bars to adults rather than to children?

 

  1. Does targeting to adults require a change in image for candy products?

 

  1. Why do you think bite-size candies are so popular with adults?

 

  1. Describe the most recent purchase of a candy bar in terms of relevant affect and cognition, behavior, and environments.

 

 

 

 

 

 

 

Case 4: Peapod Online Grocery—2003

 

The online grocery turned out to be a lot tougher than analysts thought a few years ago. Many of the early online grocers, including Webvan, ShopLink, StreamLine, Kosmom, Homeruns, and PDQuick, went bankrupt and out of business. At one time, Webvan had 46 percent of the online grocery business, but it still wasn’t profitable enough to survive. The new business model for online grocers is to be part of an existing brick-and-mortar chain. Large grocery chains, like Safeway and Albertson’s, are experiencing sales growth in their online business but have yet to turn a profit. Jupiter Research estimates that online grocery sales will be over $5 billion by 2007, about 1 percent of all grocery sales, while it expects more than 5 percent of all retail sales to be online by then. A few years ago, optimistic analysts estimated online grocery sales would be 10 to 20 times that by 2005, but it didn’t work out that way.

 

One of the few online grocers to survive in 2003 is Peapod, the first online grocer, started by brothers Andrew and Thomas Parkinson in 1990. However, even Peapod was failing until 2001 when Dutch grocery giant Royal Ahold purchased controlling interest in the company for $73 million. Peapod operates in five markets, mainly by closely affiliating itself with Ahold-owned grocery chains. Peapod by Giant is in the Washington, DC, area, while Peapod by Stop and Shop runs in Boston, New York, and Connecticut. The exception is Chicago, where Peapod operates without an affiliation with a local grocery chain. Peapod executives claim the company is growing by 25 percent annually and has 130,000 customers, and all of its markets except Connecticut are profitable. Average order size is up to $143 from $106 three years earlier.

 

The online grocery business seemed like a sure winner in the 1990s. Dual-income families strapped for time could simply go online to do their grocery shopping. They has about the same choices of products that they would have had if they went to a brick-and-mortar grocery, about 20,000 SKUs (stockkeeping units). They could browse the “aisles” on their home computers and place orders via computer, fax or telephone. The orders were filled at affiliated stores and delivered to their homes in a 90-minute window, saving them time and effort and simplifying their daily lives. For all this convenience, consumers were willing to pay a monthly fee and a fee per order for packaging, shipping, and delivery. Since most of the products purchased were well-known branded items, consumer faced little risk in buying their traditional foodstuffs. Even perishables like produce and meat could be counted on to be high quality, and if consumers were concerned, they could make a quick trip to a brick-and-mortar grocery for these selections. However, while all of this sounded good, most consumers didn’t change their grocery shopping habits to take advantage of the online alternative.

 

Currently analysts do not expect the online grocery industry to take off in the near future, if ever. Miles Cook of Bain & Company estimates that only 8 to 10 percent of U.S. consumers will find ordering groceries online appealing, but only about 1 percent will ever do so. He concludes: “This is going to remain a niche offering in a few markets. It’s not going to be a national mainstream offering.” Jupiter Media Metrix analyst Ken Cassar concludes that “The moral of the story is that the ability to build a better mousetrap must be measured against consumers’ willingness to buy it.”

 

 

Questions:

 

  1. What behaviors are involved in online grocery shopping? How does online shopping compare with traditional shopping in terms of behavioral effort?

 

  1. What types of consumers are likely to value online grocery shopping from Peapod?

 

  1. Overall, what do you think about the idea of online grocery shopping? How does it compare with simply eating in restaurants and avoiding grocery shopping and cooking altogether?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case 5: Mouse-Rid

 

One hot May morning, Shobha, general manager of Innotrap India Ltd., entered her office in Delhi. She paused for a moment to contemplate the quote, which she had framed and hung on a wall facing her table.

 

“If a man can make a better mousetrap than his neighbor, the world will make a beaten path to his door.” She vaguely recalled that probably it was Ralph Waldo Emerson who said this. Perhaps, she wondered, Emerson knew something that she didn’t. She had the better mousetrap – Mouse­-Rid – but the world didn’t seem all that excited about it.

 

Shobha had just returned from a Trade Fair in Kolkata. Standing in the trade show display booth for long hours and answering the same questions hundreds of times had been tiring. Yet, this show had excited her. The Trade Fair officials held a contest to select the best new product introduced at the show. Of the more than 150 new products, her mousetrap had won first place. Two women’s magazines had written small articles about this innovative mousetrap, however, the expected demand for the trap had not materialized. Shobha hoped that this award might stimulate increased interest and sales.

 

A group of investors who had obtained rights to market this innovative mousetrap in India had formed Innotrap India in January 2001. In return for marketing rights, the group agreed to pay the inventor and patent holder, a retired engineer, a royalty fee for each trap sold. The group then appointed Shobha as the general manager to develop and manage Innotrap India Ltd.

 

The Mouse-Rid, a simple yet clever device, is manufactured by a plastics firm under contract with Innotrap India Ltd. It consists of a square, plastic tube measuring about 6 inches long and one and one-half inches- square. The tube bends in the middle at a 30-degree angle, so that when the front part of the tube rests on a flat surface, the other end is elevated. The elevated end holds a removable cap into which the user places bait (piece of bread, or some other titbit). A hinged door is attached to the front end of the tube. When the trap is “open”, this door rests on two narrow “stills” attached to the two bottom corners of the door.

 

The trap works with simple efficiency. A mouse, smelling the bait enters the tube through the open end. As it moves up the angled bottom toward the bait, its weight makes the elevated end of the trap drop downward. This elevates the open end, allowing the hinged door to swing closed, trapping the mouse. Small teeth on the ends of stills catch in a groove on the bottom of the trap, locking the door closed. The mouse can be disposed of live, or it can be left alone for a few hours to suffocate in the trap.

 

Shobha felt the trap had many advantages for the consumer when compared with traditional spring-loaded traps or poisons. Consumers can use it safely and easily with no risk for catching their fingers while loading. It poses no injury or poisoning threat to children or pets.

 

Shobha’s personal and informal inquiries with acquaintances and friends suggested that women are the best target market for the Mouse-Rid. Most women stay at home and take care of household chores and their children. Thus, they want a means of dealing with the mouse problem that avoids any kind of risks. To reach this market, Shobha decided to distribute Mouse-Rid through grocery stores, and kitchenware stores. She personally contacted a supermarket and some departmental stores to persuade them to carry the product, but they refused saying that they did not sell such contraptions. She avoided any wholesalers and other middlemen.

 

The traps were packaged in a simple cardboard, with a suggested retail price ofRs.150 for a piece. Although this price made Mouse-Rid about five 1;0 six times more expensive than standard traps, those who bought it showed little price resistance.

 

To promote the product, Shobha had budgeted approximately Rs. 300,000 toward advertising in different women’s magazines, such as Grah Shobha, and Good Housekeeping. Shobha was the company’s only salesperson, but planed to employ sales people soon.

 

Shobha had forecasted Mouse-Rid’s first year sales at 2 million units. Through Aril, however, the company had sold only few thousand units. She wondered if most new products got to such slow start, or if she was doing something wrong.

 

Shobha knew that the investor group believed that Innotrap India Ltd. had a “once-in-a­ lifetime chance” with its innovative mousetrap. She sensed the group’s impatience. To keep the investors happy, the company needed to sell enough traps to cover costs and make a profit.

 

 

Questions:

 

  1. Has Shobha identified the best target market for Mouse-Rid? Why or why not?

 

  1. Does Shobha have enough needed data on consumer behaviour? What type of consumer research should Shobha conduct?

 

  1. What type of advertising can influence consumers for this type of product?

 

 


BUSINESS ETHICS CASE STUDY ANSWER PROVIDED

BUSINESS ETHICS CASE STUDY ANSWER PROVIDED

Note: Solve any 4 Case Studies

 

Case 1: Cool Dudes Bunking Work – HR Practice at BPO

 

The BPO

The Company offers its customers technical product support. The activity consists of customer call service, data monitoring, and quality audits. It is a very busy workstation with three shifts.

 

HR Head

He is a seasoned manager, who has had his share of dealing with the young employees. He follows a personal philosophy of employing good people, that is, those whose attitude match the company’s work culture; he then trains them as required. He found a similar trait in the HR Manager when he signed him on. The new HR manager was from a tea estate HR management background, but he was willing to learn the industrial HR management skills. The HR head has given him two months to prove himself.

 

Problem

Six disgruntled shift workers have a grievance. They are underpaid as compared to those who have joined the company after them. So they walk up to the HR manager and tell him exactly how they feel about the issue of their pay and give him a day’s ultimatum to sort it out. Two days go by but the HR manager does not attend to the problem. The workers walk out and do not report to work. The operations Manager intervenes and patches up. He even succeeds in getting the entire unit of the firm to agree to work for longer hours and at weekends also, when the business increases manifold. Things continue as before and the workers realize that there is going to be no end to it. The increase in their remuneration is not materializing, nor do they have any idea about the volume of the work involved and how long the provisional period of extra work will go on. So now, they want to quit. But the company cannot afford to lose them. What should the HR head, the HR manager, the Operations manager and the supervisor do?

 

Knowledge Workers

These unhappy workers are young, modern, Gen X, just-out-of-college group of individuals with new age thinking, live fast lives, and have a fling at BPOs to make quick money. They couldn’t care less for the corporate hierarchy and neither are they in awe of the managers. They are straightforward, upfront, without arguing. They know exactly what is going on and are also aware of their importance to the company. The first priority is, in fact, not the raise in their remuneration, but that the HR manager speaks to them or rather listens to them. Neglect by the HR manager is an insult to them. They sulk. Instead of working, they sit at the coffee shop and perhaps call the HR manager names.

 

HR Manager

He is a fine man and understands his duty well. He expects everyone else to understand his or her duty as well, and turn up for work. He easily forgets the ultimatum given by the shift team because he thinks that normally employees do not carry out such threats and that these problems can be sorted out in time. It is a blessing that the Operations Manager usually understands the youngsters. However, he is perplexed why these six workers threaten to quit at the drop of a hat. He fails to understand why these cannot let things take their own course. Sometimes there is more work and at other times, there will be a lean season just as it is in the tea estate.

 

Operations Manager

He has a definite experience in dealing with the young people and he does not mind condescending to speak to them or go after them. He finds them in the coffee shop just as he has expected. So he sits down with them and asks them what’s wrong. The youngsters tell him and he just listens to their grievance without saying a word. The youngsters then returns to their workstations. The Operations Manager shows his human understanding, and the skill and attitude that a manager must exercise when there is a huge volume of business spurt. A new product launch caught the imagination of the people and its demand was an all-time high. The operations Manager decides to give it as a gift to this entire unit of shift workers during the festival season. The manager skillfully manoeuvres the entire troupe  of six into working overtime, without taking the weekend’s and holiday’s off. But perhaps he too becomes a victim of his own strategies. He does not disclose to the employees about the burgeoning load of work. He reasons that he needs not to disclose this because after all, they have to only attend to a single call at a time. The employees have agreed to work longer, so what difference does it make? The Operations Manager, who always understood his employees, cannot understand the problem of the six youngsters who would now like to quit.

 

Supervisor

The supervisor knows the problem of the youth at the BPO; he is aware that they have spoken to the HR manager. He is a sensitive man who observes everything that is going on but reserves his judgment. He is the key to what is going on. On a sophisticated apparatus, he monitors the workload that comes in and the calls are directed to the teller’s desk. They do not get to see the data, only he knows about the volume of business transaction happening on the floor.

 

Epilogue

There is no epilogue! The story ends here but the suspense must continue. It is expected that the students, managers, or readers make up their minds about this situation which is taking place practically every day at the BPOs. Many management practitioners and thinkers are apprehensive about this industry and are concerned about the young employees working here. These youngsters, who are in the prime of their youth, are exposed to enormous verbal abuse, ghostly working hours, and are forced into a life-style that is unreal, and had very little longevity. Stability in life and the security of life are the trade offs. If young people get frustrated despite the so-called ‘good money’ that they earn, it only shows that their foundations are shaky.

 

The HR managers too are caught up in a web. How do they deal with the young employees? One comes up with the banal exercise of ‘listening’ to the youngsters, but does not care to do anything about it.

 

Practitioners and thinkers are often very critical about the BPO industry and liken it to the sophisticated sweatshops. The ‘silicon valley’ nomenclature has been changed to the ‘coolie valley’. To think that this is the industry that has catapulted India to new global heights is sad. Is this what our young employees should look forward to? What kind of a country are these citizens going to build? The future looks gloomy.

Questions:

 

  1. What is the outstanding issue of the case?

 

  1. Why is the issue ethical?

 

  1. What is the attitude of young people towards authority at their first stint at work?

 

  1. Is there an age culture that affects human relationships at workplace?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case 2: The Glass Ceiling

 

The concept of a glass ceiling refers to a height limit that seems transparent, but is a real barrier. The original context of this idea is that of the promotion of women to senior positions.

 

There are different approaches that may be used to determine its veracity, but they may yield different results. One way of looking at the problem is a count of the percentage of women in senior positions. The count may be low, but that may not be a good indicator of a glass ceiling since the quality of the applicants may vary, with women being less qualified or less experienced. If this were so the proportion of women should increase as they work their way to more senior positions.

 

Another indicator could be that of not identifying the sex of applicants before appointment, using some blind assessment technique. Yet another indicator of whether or not adverse discrimination is present is that of using certain agreed performance indicators to assess their value to the enterprise (again using some kind of blind assessment, done by an independent arbiter). There is no certainty that such investigations would yield a complete answer, but one would have to conclude that the results would shed more light onto the processes, and give an indication of whether or not the proposition of a glass ceiling is a tenable one.

 

In relation to this one would need to consider what the law says about equal opportunity; in relation to both this and to other groups perceived to be adversely discriminated. To this end some data from formal hearings that have determined cases would be helpful.

 

Critics of the glass ceiling might also told that the only way that a woman can penetrate the glass ceiling is to use different wiles to convince male colleagues of their contribution. Among the suggested ruses are those of dressing with allure, being ‘approachable’, and not appearing to be a dominating person. This latter point is often taken to mean that if a man seems dominant it is perceived by others as being masterful: the same behaviour exhibited by women is more likely to be construed as ‘pushy’ and domineering.

 

We do have to note that there is substantial iconic value in having a highly competent woman in a position of authority. It demonstrates, above all else, that the simple fact of being a woman is no bar to competence, respect and achievement. Indeed the prominence of women Prime Ministers in Sri Lanka, India, Britain and Israel, for example, are each ample demonstration of that point.

 

One of the vexing points here is that of cultural variations. It is obvious that there are not only substantial variations, but there may be ones on which the adversely discriminated might think to be acceptable and even preferable. At extremes there are examples of women in some countries adversely discriminated by (say) not being allowed to drive a car, go out in public without a male relative, or being barred from attending conventional universities.

 

Following is the problem of the import of such cultural ways into another culture and then being at odds with the host country values. A striking instance is that of wearing a veil that covers a face. In Western societies, and many others, there is a convention that the face is exposed in social interaction – indeed it is hard to see how such interaction could take place without facial responses. Further, a concealed face in (say) a bank might be taken as a security risk. It is not uncommon for banks to require motor cycle riders to remove their helmets before entering.

 

There are some occupations that seem not to attract, intentionally or otherwise, females: notable among such is the military. Anecdotal comments suggest that women are regarded as a nurturant rather than aggressive, that they are reluctant to maim or kill, that they lack the physique for military operations, or that they have a background at odds with the military mind.

 

It is interesting to observe that there has been a test case in a Western country in which a woman co-pilot aspired to become a aircraft captain. The case was fought on the grounds that women were ill-suited by temperament to pilot aircraft, the barrier putting one argument, amongst others, that women were prone to mood swings. The counter argument was that if mood swings were pertinent then that quality, not that of being a woman, was a relevant criterion on which captains should be selected. Eventually the case was won, and the woman promoted to captain. Once that glass ceiling barrier was broken it opened the way to a set of standards by which women were no longer excluded on the basis of gender.

 

From this it follows that glass ceilings have a strong cultural component, to which we might add dress form, social conventions, touch taboos, and perceived male-female physical differences. We do have to conclude that if there may be a glass ceiling, it operates differentially in different countries (easier in India than Arab countries, for example), and operates differently in different professions (more readily in academic positions than in the military).

 

 

Questions:

 

  1. If there is a glass ceiling, how is its existence to be determined objectively?

 

  1. If there is a glass ceiling, how it may be removed?

 

  1. Would reverse discrimination be morally justified or would that be unfair to men?

 

 

 

 

 

 

 

 

 

 

 

 

 

Case 3: There is news for the government and the corporations

 

We, Polepalli SEZ Vyathireka Aikya Sanghatana, are contesting these elections, as we find all political groups have cheated the poor farmers and are responsible for their deaths. All political parties are silent on this major crime that’s taking the lives of people in the name of the SEZ. A Dalit group of thirteen members, who came from the village of Polepalli in Andhra Pradesh, declared the above statement. Three of them were women. They told the press that their village land was acquired on the pretext of turning it into a green park and that they would be employed in it. Several lies and rumours about its development and their employment circulated, and over a thousand acres of land was acquired from the surrounding villages. They declare that now, they have come together to contest elections against the regular politicians. Then, all of sudden, there was an announcement that the SEZ would be scrapped. The politicians bought time. They reneged on the promise. People suffered intensely and received a measly compensation. Corruption rules the roost.

 

But the history is not over. The simple and illiterate people of India seem to be on the march. Individual disappointments have not dampened their spirits. The SEZ operation has been going on since its institution in 2005, and both – the governments at the centre, as well as in the states, and the corporations – have lost their battle.

 

The message for the government and the corporations is to obtain free, prior, and informed consent.

 

 

Questions:

 

  1. SEZ’s are not different workplaces, they only work differently. Comment.

 

  1. What ethical principle is utilized by the government and the corporations to convince that what they are doing is for the people’s development?

 

  1. What recommendation would you give to governments and corporations?

 

 

 

 

 

 

 

 

 

 

 

 

 

Case 4: Trade in Human Organs

 

An entrepreneur in a certain country conceives of a business that is designed to avoid waste and is committed to recycling. One of the first actions is to contact and undertaker with a view to purchasing spectacles from the deceased with a view to setting up a shop that sells such recycled goods. The undertaker saw no problem with that idea and entered into an arrangement to sell the goods, they being of no further use to the former owner.

 

That was such a successful venture that the entrepreneur extended the idea and suggested to the undertaker that artificial dentures would be a good next venture. With some misgivings the undertaker agreed, but with the proviso that they were properly sterilized first. Among the reservations by the undertaker here was the notion of who is the owner? Should the relatives be consulted? How were the proceeds to be divided? Having solved that problem satisfactorily the entrepreneur found business so good that he wished to extend it further.

 

The next stage was seen as a rather personal form of recycling, that of body organs. Where a corpse had a undamaged and potentially useful, organ that might be harvested. Here the problems become more complicated. The recycling of organs needs much more technical knowledge than is available to the average undertaker. Among the technical problems are those of tissue typing, of preservation and prompt use, of the setting up of a register and of financial compensation and to whom. Add to this is the problem of whose permission is needed.

 

If this venture is successfully exploited with a proper setup is then the demand could well increase. Suppose that the entrepreneur is so successful that he wanted to extend the supply and, ideally, have fresh organs from young healthy cadavers. Being a lateral thinker he contacted prison authorities who might have a supply of those executed. At least, he argued, they were not put to death in vain. If the prison authorities agreed and appropriate rules were framed, then the pressure might be on the system to ensure a steady supply and thus affect the rate at which prisoners were condemned to death.

 

One of the interesting ideas that the entrepreneur had was a prisoner, who was not condemned to death might agree to the removal of a non-vital removal (say, one kidney) in return for a commutation of sentence and thus save the state the cost of further imprisonment as well as providing the prisoner with funds to start a new life.

 

Suppose, instead of a prison situation there is a hospital one. In a hospital there are always those who are very ill and in need of a transplant. For organ removal one needs to be certain that the donor is really dead before removal and dead from natural causes rather than being ‘helped’ along the way because of an urgent need for the organ. The criterion of ‘death’ then becomes a crucial one. A patient might be physically surviving, put be brain dead. Could one harvest an organ from a brain dead patient, which would involve ignoring the vital signs?

 

In this case one can see the escalation of a comparatively small moral issue into one which has very wide ramifications. This engaging case has some further aspects: one is the moral position of starting with simple items from the dead and escalates into a problem involving some very complex issues. Put in interrogative form here are some of the issues and questions for solution.

 

  1. Is the selling of spectacles from cadavers morally correct provided permission is given?
  2. Does that same point apply to full dentures?
  • Is the purchase of organs from executed prisoners morally justifiable?
  1. Is the purchase of an organ supposedly removed, not illegally, correct?
  2. Who are the appropriate persons or authorities to give permission for organ harvesting?
  3. If it leads to a trade in organs is there a moral dimension well beyond the business world?
  • What should the criterion be for the declaration being ‘dead’?
  • What is our opinion of an entrepreneur who believes in recycling for the benefit of the living?

 

 

Write an essay on the topic of organ Donation

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Case 5: Kohlberg’s Research Case

 

Tracing Moral Development

 

The following short and simple case is historic. Lawrence Kohlberg utilized this case while interviewing about seventy people of different ages, and he came to discover the celebrated findings of the six stages of moral development.

 

The Case:

 

Heinz is a poor man. His wife suffers from cancer and needs immediate medicine. The medicine is very costly and Heinz cannot afford it. The chemist is unwilling to lend it to him on credit. Heinz breaks open the store, steals the drug, and administers it to his wife.

 

Framework to analyse the case

 

  1. What are the facts or circumstance that constitute the case
  2. Who are the people involved.
  3. What is/are the moral issue or issues that concern this case?
  4. Which is/are the moral principle or principles that are at stake?
  5. What arguments can be put forward after taking into consideration the above four questions?
  6. Do the persons involved in this case pass the duty test?
  7. What kind of moral responsibility or accountability does each member in the case bear?
  8. What solutions would you provide to solve the problems that have risen from this case?
  9. What are the lessons that have you learnt from the case?

 

Heads Particulars Remarks
Facts Heinz steals medicine for his wife. Focus on essential facts

 

People ·         Heinz, poor, cannot afford to buy medicine

·         Heinz’s wife suffers from cancer, needs medicine

·         The chemist, businessman, may suffer loss by selling a costly drug on credit to a poor man who is unable to pay

Examine the people involved and their relationship with each other
Moral Issues Heinz: Stealing

Chemist: Refusal to help a genuinely, needy person.

Examine immediate moral concerns
Principles Heinz: Means and ends, justice.

Chemist: Conscience, prudence

Pin the case with just one or two principles.
Argument Heinz, who is desperate to save his wife’s life, finds stealing a lesser evil and is ready to bear the consequences if the law catches up with him.

The chemist finds no legal obligation to help, since he has to run a business. His conscience does tell him that he should help, but his business sense tells him that if he is going to help the needy, he will end up losing in business.

Analyse from the general principle to arrive at the particular conclusion
Duty test ·         Has Heinz done his duty? It is natural that his duty is to aid his dying wife. But is it his duty to steal?

·         Is it the chemist’s duty to help by lending the drug on credit?

The duty test eliminates emotional or sentimental aspects from a rational judgment. This may seem unkind but it provides the ultimate test for a minimum requirement of a moral action.
Accountability ·         Heinz has a compelling argument on compassionate grounds. However, the moral principle that ‘ends do not justify the means’, although harsh in this case, is yet quite valid. His action causes injustice to the chemist, who suffers a loss for no fault of his.

·         The chemist also has a good argument, which makes good business sense. However, if he were to listen to his conscience, his commonsense or prudence would have guided him to make an exception in this case. The good deed itself would also have won him a loyal customer for the future.

Do not accuse. Point out the outcome of the argument.
Application ·         The solution  to the above problem is typically ethical. The attitude of the whole society is questioned and it demands moral responsibility towards the individuals.

·         Today, societies around the world have developed system of medical insurance and care even for the poorest of the poor. However, all societies or countries do not have such systems due to poverty and the lack of means for such massive provisions.

·         An individual has a moral right to claim freedom from hunger, disease and homelessness.

Suggest a solution that is compatible to the principle employed in the argument.
Lessons ·         Moral actions involve relationship with other people. If Heinz had not appeared on the scene, not only would the chemist have been spared the loss, but also the social stigma of being an insensitive person to the dire needs of a poor man.

·         A business organization has several lessons to learn from this case. It has the primary responsibility towards the welfare of all its employees.

·         A corporation cannot shirk its responsibility by merely saying that its concern is to add value to its shareholders. It has duty to consider its role as a good citizen to the people in the community.

·         A corporation needs to develop a caring conscience. In the above case, this directly applies to the state of pricing policies in the pharmaceutical firms today.

·         Managers within an organization are the people who take decisions on behalf of the organization. Hence, managers are normally responsible for the consequences of their decisions.

·         Managers who are directly responsible for the employees must take care to ensure their safety and security.

Although these are personal reflections, make them as following from the universal ethical principles.

 

Questions:

 

  1. Does Heinz represent the large part of the Indian Society?

 

  1. Is the unrelenting chemist a reflection of the Indian business community?

 

  1. Examine six different Indian companies that may fit into the six different moral stages of development.

BUSINESS COMMUNICATION CASE STUDY ANSWER PROVIDED

BUSINESS COMMUNICATION CASE STUDY ANSWER PROVIDED

Note: Solve all the Case Studies

CASE I: A Reply Sent to an Erring Customer

Dear Sir,

Your letter of the 23rd, with a cheque for Rs. 25,000/- on account, is to hand.

We note what you say as to the difficulty you experience in collecting your outstanding accounts, but we are compelled to remark that we do not think you are treating us with the consideration we have a right to expect.

It is true that small remittances have been forwarded from time to time, but the debit balance against you has been steadily increasing during the past twelve months until it now stands at the considerable total of Rs. 85,000/-

Having regard to the many years during which you have been a customer of this house and the, generally speaking, satisfactory character of your account, we are reluctant to resort to harsh measures.

We must, however, insist that the existing balance should be cleared off by regular installments of say Rs. 10,000/- per month, the first installment to reach us by the 7th.  In the meantime you shall pay cash for all further goods; we are allowing you an extra 3% discount in lieu of credit.

We shall be glad to hear from you about this arrangement, as otherwise we shall have no alternative but definitely to close your account and place the matter in other hands.

Yours truly,

Questions:

  1. Comment on the appropriateness of the sender’s tone to a customer.
  2. Point out the old – fashioned phrases and expressions.
  3. Rewrite the reply according to the principles of effective writing in business.

 


 

Case II: Advertising Radio FM Brand

A young, gorgeous woman is standing in front of her apartment window dancing to the 1970s tune, “All Right Now” by the one – hit band free.  Across the street a young man looks out of his apartment window and notices her.  He moves closer to the window, taking interest.  She cranks up the volume and continues dancing, looking out the window at the fellow, who smiles hopefully and waves meekly.  He holds up a bottle of wine and waves it, apparently inviting her over for a drink.  The lady waves back.  He kisses the bottle and excitedly says, “Yesss.”  Then, he gazes around his apartment and realizes that it is a mess. “No!” he exclaims in a worried tone of voice.

Frantically, he does his best to quickly clean up the place, stuffing papers under the sofa and putting old food back in the refrigerator, He slips on a black shirt, slicks  back his hair, sniffs his armpit, and lets out an excited , “Yeahhh!” in eager anticipation of entertaining the young lady.  He goes back to the window and sees the woman still dancing away.  He points to his watch, as if to say “Come on.  It is getting late.”   As she just continues dancing, he looks confused.  Then a look of sudden insight appears on his face, “Five,” he says to himself.  He turns on his radio, and it too is playing “All Right Now.”  The man goes to his window and starts dancing as he watches his lady friend continue stepping.  “Five, yeah,” he says as he makes the “okay” sign with his thumb and forefinger.  He waves again.  Everyone in the apartment building is dancing by their window to “All Right Now.”  A super appears on the screen: “Are you on the right wavelength?”

Questions:

  1. What is non – verbal communication? Why do you suppose that this commercial relies primarily on non-verbal communication between a young man and a gorgeous woman? What types of non – verbal communication are being used in this case?
  2. Would any of the non-verbal communications in this spot (ad) not work well in another culture?
  3. What role does music play in this spot? Who is the target market?
  4. Is the music at all distracting from the message?
  5. How else are radio stations advertised on TV?

 

 

 

CASE III: Arvind Pandey Caught in Business Web

Arvind Pandey is a project manager at Al Saba Construction Company in Muscat.   It s a flourishing company with several construction projects in Muscat and abroad.  It is known for completing projects on time and with high quantity construction.  The company’s Chairman is a rich and a highly educated Omani.  A German engineer is Arvind’s Vice – President for urban and foreign construction projects.

Three months ago, Al Saba had submitted a tender for a major construction project in Kuwait.  Its quotation was for $ 25 million.  In Kuwait the project was sponsored and announced by a US – based construction company called Fuma.  According to Al Saba, their bid of $ 25 million was modest but had included a high margin of profit.

On 25 April, Arvind was asked to go to Kuwait to find out from the Fuma project manager the status of their construction proposal.  Arvind was delighted to know that Fuma had decided to give his company, (Al Saba) the construction project work.  The project meant a lot of effort and money in planning the proposed construction in Kuwait.

But before Arvind could tank the Fuma project manager, he was told that their bird should be raised to $ 28 million.  Arvind was surprised. He tried to convince the Fuma project manager that his (Arvind company had the bast reputation for doing construction work in a cost effective way.  However, he could always raise the bid by $ 3 million. But he wanted to know why he was required to do so.

The Fuma manager’s reply was, “That’s the way we do our business in this part of the world, $ 1 million will go to our Managing Director in the US, I shall get $ 1 million, you, Mr. Pandey, will get $ 1 million in a specified account in Swiss Bank.

Arvind asked, “But why me?”

“So that you never talk about it to any one.”  The Fuma Project Manager said.

Arvind promised never to leak it out to any one else.  And he tried to bargain to raise the bid by $ 2 million.  For Arvind was familiar with the practice of “pay – offs” involved in any such thing.  He thought it was against his loyalty to his company and his personal ethics.  Arvind promised the Fuma project manager that the bid would be raised to $ 28 million and fresh papers would be put in. He did not want to lose the job.

He came back to Muscat and kept trying to figure out how he should place the whole thing before his German Vice President.  He obviously was at a loss.


Questions:

  1. Analyse the reasons for Arvind Pandey’s dilemma.
  2. Does Arvind Pandey really face a dilemma?
  3. In your view what should Arvind Pandey do? Should he disclose it to his German Vice President?


CASE IV: Company Accepting a Contract

A computer company was negotiating a very large order with a large size corporation.  They had a very good track record with this client.

In this corporation, five different departments had pooled their requirements and budgets.  A committee was formed which had representation from all the departments.  The corporation wanted the equipment on a long lease and not outright purchase.  Further, they wanted the entire hardware and software form one supplier.  This meant that there should be bought – out items from many suppliers since no one supplier could meet all the requirements of supply from its range of products.

The corporation provided an exhaustive list of very difficult terms and conditions and pressurized the vendors to accept.  The computer company who was finally awarded the contract had agreed to overall terms that were fine as far as their own products were concerned but had also accepted the same terms for the brought – out items.  In this case, the bought – out items were to be imported through a letter of credit. The percentage of the bought – out items versus their own manufacture was also very high.  One of the terms accepted was that the “system” would be accepted over a period of 10 days after all the hardware had been linked up and software loaded.

The computer company started facing trouble immediately on supply.  There were over 100 computers over a distance connected with one another with software on it.  For the acceptance tests, it had been agreed that the computer company would demonstrate as a pre-requisite the features they had claimed during technical discussions.

Now, as you are aware, if a Hero Honda motorcycle claims 80 km to a litre of petrol, it is under ideal test conditions and if a motorcycle from the showroom were to be tried for this test before being accepted, it would never pass the test.  In corporation’s case, due to internal politics, the corporation persons from one department – who insisted on going exactly by the contract – did not sign acceptance since the “system” could not meet the ideal test conditions.

Further, in a classic case of, “for want of a horse – shoe, payment for the horse was held up”, the computer company tried to get the system accepted and payment released.  The system was so large that at any point of time over a period of 10 days something small or the other always gave problems.  But the corporation took the stand that as far as they were concerned the contracts clearly were concerned the contract clearly mentioned that the “system” had to be tested as a whole and not module by module.


Questions:

  1. Comment on the terms and conditions placed by the corporation.
  2. What factors influenced the computer company’s decision to accept the contract?
  3. Was it a win – win agreement? Discuss?

FINANCIAL MANAGEMENT CASE STUDY ANSWER PROVIDED

FINANCIAL MANAGEMENT CASE STUDY 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 ?

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

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.

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.

  1. A maximum of 10 percent reduction in sales volume will take place.
  2. 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.

 

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 :

  • 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.

 

  • 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.
  • 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.

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Intangible Fixed Assets

 

3.88

11.98

3.64

0.09

19.59

12.91

6.68

0.21

 

4.22

12.68

4.14

0.26

21.30

14.56

6.74

0.19

 

4.96

12.98

4.38

10.25

23.57

15.79

7.78

0.05

 

21.70

33.49

5.18

11.27

71.64

19.84

51.80

4.40

 

30.82

50.78

6.95

34.84

123.39

25.74

97.65

22.03

 

39.71

75.34

8.53

14.37

137.95

33.90

104.05

22.45

 

42.34

92.49

8.87

13.92

157.62

42.56

115.06

20.04

 

43.07

104.45

10.35

14.36

172.23

53.87

118.86

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 utilisation, 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?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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?

 

 

 

 

 

 

 

 

 

 

 

 

 

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:

  1. Works office costs on the basis of direct labour hours.
  2. Maintenance costs on the basis of book value of plant and machinery.
  3. 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.
  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

 

 

 

 

 

 

 

 

 

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  
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  

1,20,000

 

44,000

 

60,000

 

27,500

         
E. Overhead Rate/Per Hour (D)                  

 

 

 

 

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 has 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?


OPERATION MANAGEMENT CASESTUDY ANSWER PROVIDED

OPERATION MANAGEMENT CASESTUDY ANSWER PROVIDED

 

SUBJECT: Operation Management

 

 

    __    ____    _____    __    ___________    _____    _______________    _____    ________            

 

SECTION A

 

Case – 1                                                                                                                                 Marks- 20

 

Dr. Govinda Venkataswamy (fondly called Dr. V) founded the Aravind Eye Hospitals in 1976 with an 11- bed facility in Madural, which performed all types of eye surgeries. Its goal was to offer quality care at reasonable cost. In 1978, a 70 bed free hospital was opened to provide the poor with quality care. In

2004, Aravind Eye Care System comprised Eye Care Facilities at Madural, Theni, Tirunelveli, Coimbatore and Pondicherry (Exhibit 1) and performed nearly 230,000 eye surgeries and handled 1,640,000 outpatient visits (Exhibit 2). It is recognized as the world’s most productive eye hospital handling the largest patient volume. Its website states that ‘with less than 1% of the country’s ophthalmic manpower, Aravind accounts for 5% of the ophthalmic surgeries performed nationwide”. Its mission has now become to “eradicate needless blindness by providing appropriate, compassionate and quality eye care for all”. Each day, across all five Aravind Eye Hospitals, about 4481 outpatient visits are handled, about 627 surgeries take place and about three camps are conducted.

 

Currently, there are more than 20 million blind people in India and only over four million surgeries are performed every year. Over 75% of the blindness is due to cataract. Cataract is the clouding of the natural eye lens due to ageing or otherwise. There are two types of cataract surgeries: one in which the natural lens is removed and then glasses are provided after three to four weeks, called intracapsular surgery (ICCE) and the other where after removing the natural lens, the intraocular lens inserted, called extra capsular surgery or ECCE. In ECCE, patients normally do not require corrective lenses after the

surgery. ECCE is better and often preferred because the quality of the restored sight is distortion-free and near natural. However, ECCE is slightly expensive due to the cost of the intraocular lens. Talking to a Harvard Business School professor, Dr.V argued, “Tell me, can a cataract surgery be marketed like hamburgers? Don’t you call it social marketing or something? See, in America, McDonald’s and Dunkin’ Donuts and Pizza Hut have all mastered the art of mass marketing, we have to do something like that to clear the backlog of Million blind eyes in India. We perform only one million cater acts a year. At this rate we can’t catch up.” Each of the Aravind Hospitals has two sections: one is the Main Hospital for the paid patients and other is free hosp ital for nonpaying patients. The series of steps, which a patient normally goes through, is the same in both the hospitals: patients are initially registered, their vision is recorded and they undergo a preliminary examination followed by testing of tension and tear duct function. This follows refraction test and final examination. While the assistants carry out many of the intermediate

steps, a senior ophthalmologist does the final examination. The two sections differ in size, the kind of beds they provide and general kind of patients. Who come to use them? However, the same pool of doctors and nurses serves both sections. “The hallmarks of the Aravind model are quality care and productivity at prices that everyone can afford. A core principle of the Aravind System is that the hospital must provide services to the rich and poor alike, yet be financially self-supporting. This principle is achieved through

high quality, large volume care and a well-organized system.” In Aravind Hospitals, a typical Operation

Theater (OT) has two tables side by side. The surgical team keeps one table ready while the surgeon is working on the other. The surgeon merely turns and starts doing surgery on the other table as soon as he

 

 

 

finishes the current one. In this way, the valuable time of surgeon is used properly. Aravinds’ surgeons take only 10 minutes per surgery while industry standard is 30 minutes. Aravind achieves this feat while maintaining the world standard in quality. Its infection rate is only 4 per 10,000 cases as opposed to 6 per

10,000 in UK. And they are able to carry out 400 surgeries per doctor per month as opposed to the average of 25 surgeries per doctor per month.

 

To cater to such high performing, large-scale surgical system, Aravind has to ensure that enough patients come to it; partly to achieve this, Aravind organizes camps to attract patients in rural areas, Help of local organizations like ions club is taken in publicizing the camps. They also of ten help with sharing of the part of cost in transporting patients and other such activities. In these camps, patients go through the similar steps of registration, vision recording. Preliminary examination, testing of tension, refraction, and final examination. If a surgery is found to be required, patients additionally undergo BP and urine sugar test

and their surgery papers are prepared. Following this, patients are taken to the nearest Aravind for surgery and brought back to the same place after three days. This is unlike many other camp organizers who perform surgeries in the camps themselves.

 

For its hospitals, Aravind recruits nurses from the nearby villages. Aravind essentially looks for hunger to do some good in such people before it trains them for the job. They need not have any nursing training before coming to Aravind. Nurses typically do not leave Aravind because they tack the necessary qualifications to get employed in other hospitals.

 

Aravind is finding it a little harder to recruit and keep doctors; it expects its doctors to work nearly 60 hours a week as opposed to 30 hours in many institutions. They tend to leave Aravind after few years as they command higher salaries in the marketplace than what Aravind gives them.

 

Till few years back, Aravind used to provide only the intra-cap surgeries for free patients as the cost of in ocular lens was high. Each in ocular lens used to cost Rs 800, as t had to be imported. In 1991, Aravind set up a factory to produce 60,000 IOLs per year. Initially, it had a detect rate of 50% and the cost of

each lens worked out to be Rs 200/-. Over time, it was expected that the cost of the lens would drop to Rs

100/- as the factory improved its working. This factory was set up as a separate venture so that the hospitals could keep their focus on eye care. Recently, the factory has also started manufacturing sutures and other items used in the surgeries.

 

In a recent interview to two Indian business school professors, Mr. R. D. Thulsiraj, MD, Aravind Hospitals, remarked that eye care has some unique characteristics that make it possible to transfer the model directly. One characteristic is the high volume: about 20% of the population needs glasses and 1% has cataract. Secondly, the intervention for the most part is one time, because it is not a chronic disease, or one needing long-term treatment like cancer, Finally, intervention is quite low cost unlike, say, bypass surgery. But Dr. V argued, “I think this model must work in other health care sectors also, whether it is women’s heath or children’s health, or cancer or tuberculosis, People like you must explore and see where this model can be applied, our main focus should be on improving the total health of the country

 

 

 

 

 

Exhibit 1

 

 

Exhibit 2

ARAVIND EYE HOSPITALS Statistics—Year 2004

Outpatient Visits: 1,635,599

Surgeries: 228,894

Free Eye Camps: 1,271

Statistics—Year 1976—2004

Outpatient Visits: 17,778,075

Surgeries: 2,225,225

Free Eye camps: 20,995

 

 

 

QUESTIONS:

 

  1. 1. What is the vision of AECS? What is the role of operations in meeting it?
  2. 2. Can this system be replicated to other aspects of health care? Other services? What will be the problems? What will be the advantages?
  3. 3. How do different elements of AECS work together to deliver the vision of Dr. V?
  4. 4. What are some of the problems AECS facing? Are they inherent in its model or they could be rectified while keeping the model intact?

 

 

 

Case – 2                                                                                                                                  Marks-15

 

On the night of Feb 28th, the last day of classes, Nilesh proposed to Geeta, his MBA classmate of nearly a year and a half. Geeta agreed immediately and wondered if all her classmates will be able to attend their wedding as once they all go back to their homes it would be really very difficult for everyone to get together again. Suddenly, Nilesh came up with the idea: what if they got married on March 22nd? “But how could it be? Our convocation is on March 21st     Geeta said.

“Exactly! All our classmates will definitely come here for convocation and they would not mind staying an extra day for the wedding. In fact, we will get the blessings of even their parents as many are planning to come for the convocation.”

 

Geeta: Right. But so many things have to be done. That is also when the wedding season starts and all the reception halls become unavailable. For our send-off party, juniors were saying that hotels were insisting on 17 days notice. Of course, for Rs 5000/- extra the notice period can be reduced to 10 days. Nilesh: I want my brother and sister-in-law to come for the wedding.

Geeta: But, they are in US and working. They will require at least 10 days before they can be here. Also

my parents will have to buy your sister-in-law a sari-set (sari with matching blouse and petticoat) as per the tradition. She will have to be here well in time so that they can be fitted well.

Nilesh: And catering! It takes two days to choose the menu and Pandal decorations. Hotel Sayaji wants at least 10 days notice period before the formal engagement ceremony (one night before the wedding).

Geeta: And what about our dresses? These days, it is better to get it made after choosing the pattern and buying the material yourself. It would take three days to choose the pattern and eight days to order and receive the material after

Nilesh: Yes. But the material supplier can deliver in five days if we pay an extra of Rs 1000/- for expediting it.

 

Geeta: I want Joyti of Asha Boutique to work on our dresses. Nilesh: But she charges Rs 500/- for one day of work.

Geeta: If I got my mother to do all the services, we could finish the dresses in 11 days. If Joyti helped, we could cut that down to six days, at a cost of Rs 500/- for each day less than 11 days.

 

Nilesh: It would take another two days to do the final fitting. Then dry-cleaner will take two days to clean and press the dresses unless we pay Ps 1000/- for the express service of single day delivery.

 

Geeta: That’s right. By the way, have you thought about invitations? Nobody will come unless we invite them formally.

 

Nilesh: Anand Printing Press will take 12 days to print the invitation cards. Of course, they do have an express service and can deliver in five days if we pay them extra Rs 1500/-

 

Geeta: It will take three days to prepare the matter which will be printed and select the styles. Nilesh: Given the postal delays, the invitations have to go out at least 10 days before the wedding.

Geeta: Mailing them will take a day and that cannot be done until we write addresses on them. Addressing

will take four days unless we hire some help. We can finish addresses in two days if we hire a part-time help for Ps 200/-.

 

Geeta: We also have to buy some jewellery items to be given as gift to my brother-in-law. It will take a day to do that

 

 

 

Nilesh: But before we start writing address, we will have to prepare a guest list. We can’t afford to miss out on anyone important, as that will have an impact on the relationship with them forever. We will have to be really thorough on that. I think it will take four days to prepare an exhaustive guest list.

Geeta: That does sound like a lot. Now it certainly looks much easier to earn an MBA degree than get married!!!

 

QUESTIONS:

 

  1. 1. Given the activities and precedence relationships described in the (A) case, develop a network diagram for the wedding plan
  2. 2. Identify the path Which are critical?
  3. 3. What is the maximum cost plan that meets the March 22nd deadline?

 

 

 

Case -3 {Continuation of Case 2}                                                                                       Marks-15

 

Several complications arose during the course of trying to meet the deadline of March 21, for the Nilesh— Geeta engagement. Since it was important for Nilesh and Geeta to get married on March 22nd, the implications of each of these complications had to be assessed.

 

  1. 1. All hotels informed that the express booking had to be withdrawn that year as there was a mad-rush for getting married, and therefore Nilesh and Geeta would have to give 17 days’ notice.

 

2.A call to the US revealed that brother and sister-in-law couldn’t leave till March 1st as they had urgent deadlines at work.

 

3.Nilesh came down with four day flu just as he started to work on the guest list.

 

  1. 4. The dress material was lost in transit. Notice of loss was delivered to Geeta on March 10t

 

  1. 5. There was an unplanned repair work at Sayaji on March 8. They informed that they would be closed for two to three day

 

QUESTIONS :-

 

  1. 1. Given your answers to the (A) case, describe the effects on the wedding plans of each incident noted in the (B) case.

 

 

 

SECTION B                                                                                                                               Marks-30

 

Attempt all the questions:-

 

1 ) B r i e f l y s k e t c h t h e  p r o d u c t  d e v e l o p m e n t  p r o c e s s .

 

2 ) W h a t  d o y o u m e a n  b y c o n t i n u o u s  i m p r o v e m e n t ? G i v e t w o  e x a m p l e s o f c o n t i n u o u s i m p r o v e m e n t s t h a t  o r g a n i z a t i o n s u n d e r t a k e .

 

3 ) S u p p o s e  y o u  w a n t  t o v i s i t  y o u r b a n k t o d e p o s i t  y o u r s a l a r y c h e q u e a n d  t h e n w i t h d r a w  s o m e m o n e y f r o m  y o u r a c c o u n t . U s e  y o u r  k n o w l e d g e  o f  p r o c e s s

m a p p i n g  a n d  d r a w t h e  p r o c e s s .


MANAGERIAL ECONOMICS CASE STUDY ANSWER PROVIDED

MANAGERIAL ECONOMICS CASE STUDY ANSWER PROVIDED
____________________________________________________________________________
Case 1: Where is the Fair Play? (Marks-16)
In most countries in Europe, and primarily America, they don’t prefer the leg meat – it is waste matter
for them so they look for nations where they can dump this meat. They did in the Philippines, Sri Lanka
and Russia. They might deny it in the US but everybody knows that they are sitting on stocks for at
least 2-3 years. They have succeeded in doing that because of their good freezing techniques. Now it’s
becoming a major problem for them. They’re not used to eating leg meat and are in a fix. In the US
they actually load the price of the entire chicken on the breast meat, and the rest of the bird is like a
carcass to them. Due to environmental reasons they can’t dump it in the sea so they have to dump it
somewhere. It can be any underdeveloped country, may be India!
It’s wrong notion that supply of this meat to underdeveloped countries will be good for the consumers
there. It is not. Can the Americans guarantee anything – how long will they be able to supply the
chicken? How long will they supply subsidized eggs to such a large country? We could end up destroying
our industry base and that will be very sad. As far as chicken is concerned, they can only supply the
legs – they can never supply the whole bird. The white meat costs US $3 to 3.5 per pound, so it’s out of
range. May be the consumer gets the advantage of subsidized supply of the white meat in the short run
but over time the consumers’ interests are likely to suffer because such a supply will result only in
destroying the chicken and egg industry in India. Once their surplus stock gets exhausted they can
charge you any price – can they guarantee the price? They can’t and they won’t.
The chicken/egg business deals with livestock. It is not possible for people to stop producing for a year
and come back – they will be finished. Once they are out of the cycle they are out of the industry. It
would be very said if that happened to this industry that has grown over the past 25 years.
For many people it provides a day-to-day livelihood. Once the foreign players come in and are allowed
to sell their products at very low rates, the industry could collapse as it has in other countries.
India is a the cheapest egg producer in the world – about Re.1 a piece. But now we are very worried. In
European countries, eggs cost between Rs.3-5 but they are able to deliver the same egg to the Middle
East at Re 1-1.50. This is because in Western countries they have so many subsidies. When it comes to
agriculture, they are very sensitive and protective. If they bring it to the Middle East, then why can’t
they do it here as well? The government knows that the Western countries are not going to remove
subsidies – they know when it comes to agriculture, neither the Europeans nor the Americans are going
to do anything. They are going to protect them forever- so where is the fair play?
Questions:
i. What would you recommend to the government to create a level playing field for the local firms
and the western exporters of meat to India?
ii. Can you cite any other typical product where India’s advantage turns into disadvantages as a
result of WTO agreement?
Case: 2 (Marks -16)
One of the most notable things about consumer behaviour is that the demand in the short run is always
less elastic (or more inelastic) than the demand in the medium or long term. Petroleum, which is one of
the most essential commodities of modern life is a classic example of this phenomenon. Petroleum, also
known as a luxurious necessity because of its steep price, is the greatest cause for our Balance of
Payment being perennially in deficit. Despite all its disadvantages, life is literally and figuratively
`immobile’ without petroleum.
Our country faced two oil shocks during the 1970s. The shock of 1973-74 was a severe one and was felt
by many other countries, while the oil shock of 1979 was mild and pertained only to India. In order to
combat the sudden fall in supply, resulting in excess demand for it, the price of petrol was hiked (in
India, petroleum prices are always administered, and not market-driven) assuming that consumer
demand for petrol will go down. There was some reduction in the consumption of petrol as people
limited their pleasure trips and joy rides. The concept of `car pool’ to go to offices started and the
middle class started depending heavily on diesel-run public transport (diesel although a by-product of
crude oil is a cheaper and readily available product).
Besides this, there was no perceptible change in the demand for petrol and people continued to buy
petrol at a higher price. As a result, although the prices went up by 25 to 30 percent, the demand
decreased by only 5 to 6 percent between the 1970s and the early 1980s.
However, analysts and planners observed phenomenon, believed to be related to the hike in the price of
petrol. People, especially in the urban areas, started to stay near the workplace (even if it meant a
higher rent), showing a preference for fuel-efficient vehicles when compared to steady, stable but not
such fuel-efficient vehicles.
The phenomenal success of Maruti 800 cars launched in the mid-1980s was because of its single
attribute of fuel-efficiency, despite other disadvantages of a light body (which made it easy for the car to
topple over and get dented or damaged on Indian roads), costly parts (when compared to the
Ambassador or Fiat). Consumes preferred Maruti for its excellent fuel-efficient technology and hence a
lower running cost, than for any other reason. So much was the popularity of Maruti cars that
automobile associations discovered that the demand for other vehicles had falled by 30 to 40 percent in
favour of Maruti 800. a permanent change in the demand pattern for small, fuel-efficient cars had been
achieved.
For most commodities, economists found that in the long term (the concept of long term varies from
commodity to commodity) the absolute value of the demand elasticity is higher than in the short run. A
few of these are given in the following Table:
The value of demand elasticity for certain goods and services in India
(This includes urban, semi-urban and small town area)
Goods + Services Short-Run
Demand Elasticity
Long-Run
Demand
Elasticity
Expenditure on food 0.35 0.36
Expenditure on clothing 0.68 1.22
Consumption of electricity 0.54 0.90
House rent 0.75 1.82
Transportation 0.40 1.60
Source: Calculated on the basis of Government of India published reports.
Questions:
i Why do you think the absolute value of demand elasticity is less in the short run than in the long
run?
ii. Do you think jewellery as a commodity, can also be categorized in the same group as others in
the given table? In other words, will it also exhibit change in the demand elasticity between the
short and long run? Explain why?
iii. The change in the value of demand elasticity between short and long run is much smaller in case
of food than in clothing, what does this reflect about the consumer behaviour?
Case :3 (Marks -16)
TAKE THE BULL BY THE HORN
Through its relatively brief history, the Reliance group has specialised in taking gambles, sometimes
huge ones. A pattern repeated time and again – such as when it set up capacities for Polyester Staple
Fibre (PSF) which was the same size as the domestic market or when it put up a 27 million tonne
refinery in Jamnagar, which is close to a third of India’s demand for petroleum products.
There’s no gamble quite so audacious as the one that’s underway. The Rs. 25,000 crore Reliance
Infocom project that’s currently taking shape aims at no less than a complete remake of India’s telecom
landscape to emerge as India’s number one telecommunications company, ahead of the state-owned
behemoth Bharat Sanchar Nigam l td.
It’s also an attempt to realign Reliance’s revenues and profits – which today originate entirely from
manufacturing – with India’s economic profile, in which services account for over 40 per cent of GDP.
“Reliance’s revenues will have to become diversified with a larger proportion originating from services
which would be in keeping with the
changing structure of India’s economy,” says Mukesh Ambani, vice chairman of Reliance Industries.
Rs. 8000 crore will be invested over a three – year period. As of now, it’s full steam ahead for Reliance’s
Infocom plans. As it had done earlier in oil and gas. Reliance plans to emerge as an integrated player,
focusing on the entire range of telecom services ranging from high – speed internet access for business
and consumers, call centres,
data centres, cellular phone services and domestic and international long distance telephony. Apart from
the gamut of telecom services, Reliance’s integration plans are in one respect unique in the telecom
industry. If senior group officials are to be believed, the company has plans to assemble cellular phones
and set-top boxes.
At the core of the Infocom project is a 115,000 km fibre optic backbone covering 115 cities across 12
States, accounting for over 50 per of India’s GDP. The company plans to become what the industry
jargon refers to as a carriers’ carrier, where it hires out infrastructure to other telecom operations. Here
Reliance, along with the Bharti group, has obtained a licence for providing domestic long-distance
services. In fact, these are the only two companies to do so. The total domestic long-distance market is
worth Rs. 6,000 crore. Of this, the market available to the long
distance operator is likely to be Rs. 2,400 crore, according to a December 2000 Merrill Lynch report. This
is based on a 30 : 40 : 30 revenue share between the originator, the carrier and the last-mile access
provider. However, Reliance would hope for a larger share since it plans to fill all the three roles. Merrill
Lynch estimates that the domestic long-distance revenues accruing to the carrier would amount to Rs.
2760 crore in 2002 – 03, of which Reliance is expected to garner 20 per cent – or Rs. 620 crore.
As part of its plans to enter international long-distance telecommunication, Reliance has already
submitted an expression of interest for international long-distance operator VSNL. The total international
long-distance market in India right now is Rs. 4,900 crore. Reliance’s own estimates for revenue and
profitability have not been made publicly available. However, internal estimates reportedly project
revenues of Rs. 30,000 crore, which is roughly a third of the total telecommunication market of around
Rs. 1,00,000 crore estimated for fiscal year 2004 – 05. The annual total telecommunications market is
around Rs. 42,000 crore. These estimates are of course based on the assumptions of a rapid take-off in
traffic, particularly data traffic. Check out some figures: out of the 30 million households that have an
income over Rs. 4000, an estimated 20 million are in the urban market and 10 million in the rural
market. Out of the urban people, 13 million already have fixed-line connections. And out of the 10
million rural customers, 6.5 million already have fixed lines.
In the light of the above: “what kind of growth can one really expect” for the telecommunication sector
in India as such and Reliance lnfocom in particular ?
Questions :
(a) Is there such a market in India for all the huge plans that they have ?
(b) Can you support it as a case of economies of scope ?
(c) Does it not lend to monopolistic conditions ? Give reasons.
Case : 4 (Marks-16)
The Industry
The automotive sector is one of the core industries of the Indian economy, whose prospect is reflective
of the economic resilience of the country. The automobile industry witnessed a growth of 19.35 percent
in April-July 2006 when compared to April-July 2005. As per Davos Report 2006, Indian is largest three
wheeler market in the world; 2nd largest two wheeler market; 4th largest tractor market; 5th largest
commercial vehicle market and 11th largest passenger car market in the world and expected to the
seventh largest by 2016. India is among few countries that are showing a growth rate of 30 per cent in
demand for passenger cars. The industry currently accounts for nearly 4% of the GNP and 17% of the
indirect tax revenue. The well developed India automotive industry produces a wide variety of vehicles
including passenger cars, light, medium and heavy commercial vehicles, multi-utility vehicles, scooters,
motorcycles, mopeds, three wheelers, tractors etc. Economic liberalization over the years made India as
one of the prime business destination for many global automotive players, including international giants
like Ford, Toyota, GM and Hyundai have also made their also made their presence with a mark.
As per another report, every commercial vehicle manufacture, create 13.31jobs, while every
passenger car creates 5.31 jobs, and every two-wheeler create 0.49 jobs, in the country. Beside, the
automobile industry has as output multiplier of 2.24, i.e., for every additional rupee of output in the auto
industry, the overall output of the India economy increases by Rs. 2.24.
The India automotive sector has a presence across all vehicle segments and key components. In
terms of volume, two wheelers dominate the sector, with nearly 80 percent share, followed by passenger
vehicles with 13 percent. At present, there are 12 manufactures of passenger cars, 5 manufactures of
multi utility vehicles (MUVs), 9 manufactures of commercial vehicles (CVs), 12 of two wheelers and 4 of
three wheelers, besides 5 manufactures of engines.
Table 1 Vehicle Segment-wise Market Share (2005-06)
Items Percent Share
Commercial Vehicles
Passenger Vehicles
Two Wheelers
Three Wheelers
Total
3.94
12.83
79.19
4.04
100.00
Source: Report of Society of Indian Automobile Manufactures (SIAM), 2006.
Although the automotive industry in India is nearly six decades old, until 1982, there were only three
manufactures – M/s. Hindustan Motors, M/s. Premier Automobiles and M/s. Standard Motors in the
motorcar sector. In 1982, Maruti Udyog Ltd. (MUL) came up as a government initiative in collaboration
with Suzuki of Japan to establish volume production of contemporary models.
The Company
Maruti Udyog Limited (MUL) has become Suzuki Motor Corporation’s R&D hub for Asia outside Japan.
Maruti introduced upgraded versions of the Esteem, Maruti 800 and Omni, completely designed and style
in house. This followed the up gradation of WagonR and Zen models, done in house only a year before.
Maruti engineer also worked with their counterparts in Suzuki Motor Corporation in the design and
development of its new model, Swift.
The company launched superior Bharat Stage III version of most of its models, well before the
Government deadline. Maruti also set up a Center for Excellence with a corpus of Rs. 100 million. This
was done in collaboration with suppliers, who contributed an additional Rs. 50 million. The Center
provides consultancy and training support to Maruti’s Suppliers and Sales Network to enable them to
achieve standards in Quality, Cost, Service and Technology Orientation.
Maruti has embarked upon this new project in collaboration with SMC for the manufacture of diesel
engines, petrol engines and transmission assemblies for four wheeled vehicles. The project is being
implemented in the existing Joint Venture Company viz. Suzuki Metal India Limited (renamed Suzuki
Power train India Limited).
Questions:-
1. Identify the most important factors of production in case of automobile industry. Also attempt to
explain the relative significance of each of these factors.
2. What more information would you like to obtain in order to draw a production function for Maruti
Udyog? Explain with logic.
3. Automobile industry is a good example of capital augmenting technical progress. Discuss.
Case :5 (Marks-16)
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 contact basis. The growth over the past five years has 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.
And then 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 a happen, Galbenski knew he has 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 would run into stiff competition from large publicly traded rivals. Contract Counsel’s edge had always
been its low prices. Clients called when dealing with large-scale litigation or complicated merger and
acquisition deals, either of which can require as many 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 the 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 saving 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 strategic 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 sill
undecided about whether to pursue an incremental and conservation 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 dent
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-month trip to scout potential contractors in India, Dubai, and Sri
Lanka. Traveling to cities like Bangalore, Chennai, and Hyderabad, he interviewed executive from more
than a dozen companies, investigating their day-to-say operation 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 of 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 also eager to tackle the
kinds of tasks that most new associates at law firms look down upon” such as poring over perfect for the
kind of document-review work he had in mind.
After a retune visit to India in August 2005, Galbenski signed a contract with two legal service
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 hours. 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 cost 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.


INTERNATIONAL BUSINESS CASE STUDY ANSWER PROVIDED

 INTERNATIONAL BUSINESS CASE STUDY ANSWER PROVIDED

INTERNATIONAL BUSINESS

 

 

Case Study 1 – Documentary Credit (Marks -16)

M/S Auto India

Introduction

M/S Auto India is a public limited company; they manufacture SUVs (sports utility

Vehicle), in technical collaboration with General Motors of USA. The company has established their

manufacturing base at Ranjangaon in Pune. They have acquired an area of 250 acres and the total

project cost is estimated at Rs 1500 crores. As per the projections, the company is slated to achieve a

25% market share in the Indian market, within a period of two years.

Out of the total project cost, 49% is brought in by General Motors and the rest is tied up with financial

institutions, international banks and Indian banks. The working capital is financed by a consortium of

banks in which Global bank, Pune branch, is the leader. The company imports many parts of the car

engine in a CKD (completely knocked down) condition from General Motors, Detroit, after establishing

import letters of credit through its main bankers, Global Bank, Pune Branch.

M/S Auto India approached Global Bank, Pune for opening of import letter of credit as per UCP ICC 600

for USD 100,000, on sight basis, in favour of General Motors, Detroit.

Type of credit – Irrevocable negotiable

Application – UCP ICC 600

Applicant – M/S Auto India, Pune, India

Beneficiary – M/S General Motors, Detroit, USA.

Issuing Bank – Global Bank, Pune, India

Advising Bank – The American Bank, New York

Negotiating Bank – The American Bank, New York

Reimbursing Bank – International Bank, New York

Availability – Negotiable at sight

Expiry – At the counters of The American Bank, New York

Amount – USD 100,000

Merchandise – Car engine parts

Quantity and price – 50 units @ USD 2000 per unit

Circumstances

Issuing Bank

Global Bank, Pune issued its irrevocable negotiable credit through its head office in Pune

since Global Bank co-ordinated all its accounting and communication functions at its head office. The

Bank’s head office transmitted the credit through Swift network as

instructed by its Pune branch to General Motors, Detroit, through The American Bank, New

York.

Advising Bank

The American Bank, New York advised the credit to General Motors, Detroit on receipt

of the swift transmission.

Credit

Along with other conditions, the credit clearly stated that the negotiating bank was to

forward the documents directly to Global Bank’s head office at Pune.

Beneficiary

After export of the consignment, General Motors, Detroit presented the documents under

the credit to The American bank, New York.

Negotiating Bank

The American Bank, New York, examined the documents presented by General Motors

and determined that they were in compliance with the terms and conditions of the credit. The

American bank negotiated the documents and forwarded the documents, as per the credit

terms, to the HO of Global Bank in Pune and claimed reimbursement from International

bank, New York.

Reimbursing Bank

International Bank, New York honoured the reimbursement claim by crediting the current

account of the American Bank, New York and debiting the account of Global Bank, Pune, in its

books.

Issuing Bank Head Office

Global Bank’s Head Office, at Pune, received the documents and after internal

registration of the documents, forwarded the documents to its Pune Branch by inter-office

mail.

Issuing Bank Branch

On receipt of the documents by the Pune branch of Global Bank, they examined the

documents and determined that they were discrepant. They were (a) 60 units were

shipped instead of 50 units, thereby overdrawing the credit value by USD 2000 (b)

Inspection certificate by Auto Inspection Council, USA is not submitted, as per credit

terms. Global Bank contacted Auto India for waiver of the discrepancies.

Applicant

Auto India requested for copies of the documents to be forwarded by fax and after

reviewing the same, they refused to waive the discrepancies.

Issuing Bank Branch

Global Bank, Pune Branch instructed its HO to transmit an authenticated swift to The

American Bank, New York stating that Global Bank had rejected the documents for the noted

discrepancies, requesting the American Bank’s instructions as to disposal of the documents,

and demanding a refund of the funds reimbursed.

Issuing Bank Head Office

The HO of the Global Bank sent the authenticated swift message to the American Bank,

New York, as instructed by its Pune Branch.

Negotiating Bank

On receipt of the swift notification advising that Global Bank had rejected the documents

for the stated discrepancies, the American Bank informed Global Bank that it did not accept

the rejection of the drawing since the Global Bank did not comply with UCP 600 sub-article 14

for standard examination of documents. Therefore, Global Bank was said to be stopped from

dishonouring its irrevocable obligation.

Issuing Bank

Global Bank, Pune Branch responded by stating that they acted in accordance with UCP

article 14, since their action did not exceed five banking days following the day of receipt of the

documents at their branch counters after which they scrutinised the documents and

determined to refuse them. They maintained that as per article 14 of UCP 600, they notified

about the rejection of the documents, by swift, not later than the close of the fifth banking day

following the day of receipt of the documents. They had pointed out all the discrepancies and

had informed American Bank, New York that they were holding the documents at the latter’s

disposal.

Negotiating Bank

The American Bank, New York replied as follows:-

We disagree with your position that you acted in accordance with UCP 600 article 14.

Documents were delivered by courier to your HO as per the terms of the credit, on Monday,

January 7, 2008. Your swift notifying rejection of the documents was not sent until

Wednesday, Jan 16, 2008 that is, on the eighth banking day after receipt of the documents

by your bank.

Issuing Bank

Global Bank, Pune Branch, responded by stating that even though its HO received the

documents on January 7,2008; the Global Bank’s Pune Branch did not receive the documents

until the following Thursday, January 10, 2008, and the swift advice rejecting the documents

was sent within the time period permitted in UCP article 14.

Negotiating Bank

The American Bank, New York, replied that it was not their concern how Global Bank’s

operational policy impacted on their inability to comply with UCP. The American Bank, New

York stated that in accordance with the credit terms and conditions, documents were

negotiated by them and forwarded to Global Bank’s HO by courier. The documents were

received by Global Bank on Jan 7, 2008, and any notice of rejection of the documents should have been

given within the close of the fifth banking day following receipt of the documents. Global Bank’s Pune

Branch failed to do so. Therefore, the American Bank, New York’s position was firm relative to UCP 600

article 14 and they would not refund the funds reimbursed.

 

 

Questions

1) Was Global Bank, Pune Branch correct in its argument, as the credit issuing bank?

2) Was the stand taken by The American Bank, New York correct, as the negotiating bank?

 

 

Foreign Trade

M/S Taneja Exports, Mumbai

Introduction

Mr. Gurmeet Taneja and Mr. Rahul Khatri are partners of M/S Taneja exports, Mumbai.

Both of them qualified from IIFT, New Delhi in the year 2002. They declined lucrative

corporate job offers, since they have decided to plunge into the world of international

business.

M/S Taneja Exports is registered as a partnership firm, with Mr. Gurmeet Taneja and Mr. Rahul

Khatri sharing the profits in the ratio of 60: 40.

The partners had conducted in depth market survey in the domestic as well as

international markets regarding the demand of women’s apparels in cotton and hosiery. They

have taken the assistance of Apparel export promotion council and the marketing agencies in

various countries of European Union.

On account of their knowledge in foreign trade, they were able to quickly assess that Indian

exporters have not succeeded in penetrating into the huge apparel market of Europe.

They found out that the main reasons were ineffective marketing, improper quality control and

non adherence to the shipping schedules. Mr. Gurmeet concentrated on marketing of the

cotton and hosiery apparels abroad and Mr. Rahul ensured on the procurement of the raw

materials and timely execution of shipments.

The firm had taken an industrial gala, measuring 700 sq ft, at 501, Mangal Das market, Lower

Parel, Mumbai. They were paying a monthly rent of Rs. 35,000/- for the office premises and

the stock of garments was kept in a godown in the same gala area, for which the rent

payable was Rs. 15,000/- pm

The firm was sourcing their raw materials from the south Indian towns of Tirupur and

Coimbatore. As per the export orders, they were providing the raw materials for job works

in Mumbai and subject the samples to rigorous quality and specification checks. The firm had

employed 2 accounts staff and 3 contract workers to attend to daily office and godown

activities.

The firm was able to achieve steady improvement in export sales due to the stringent quality

control measures and timely execution of shipment schedules. The following were the credit

facilities enjoyed from M/S International Bank of India, Fort branch, Mumbai.

Facility (Amount in Lakhs) 2003 2004 2005

Fund based

  1. a) Export packing credit 5.00 7.00 10.00
  2. b) Foreign bill purchased/Foreign

bill negotiated

5.00 7.00 10.00

Non Fund based

  1. a) Performance guarantee 2.00 5.00 7.00

Export sales 20.00 30.00 40.00

Towards the security of the credit facilities, the firm had mortgaged the residential house,

valued at Rs 85 lakhs, belonging to Mr. Vikram Taneja, father of Mr. Gurmeet Taneja, and

stocks valued at Rs 15 lakhs was also hypothecated to the Bank. Mr. Vikram Taneja stood

guarantee for the facilities sanctioned to the firm.

M/S Taneja exports used to avail the export packing credit facility from International Bank of

India and adjust the same by purchase or negotiation of the export bills drawn on their

European buyers. Generally the bills carried a tenor period of 60 days. Most of the export bills

were drawn and send for collection through international Bank of India, Mumbai Fort Branch,

to the foreign buyer’s bankers, based on the confirmed purchase order of the buyer. The bills

were paid on the due dates and the conduct of the account on the bank’s books was quite

satisfactory. Based on the past history and the increase in

sales turnover achieved by the firm, the bankers were happy to increase the credit limits

from Rs 7 lakhs in 2003 to Rs 17 lakhs in 2005.

On June 17, 2005, the firm submitted an export document to International Bank of India, Fort

Branch, for Euro 53000.00, drawn on M/S St Laurn Fashions, Paris. The documents were

drawn on 60 days DA terms as per the contract. The merchandise under the export were ladies

garments in cotton and hosiery. In the covering letter of the firm to the bank, they had

instructed the bank to present the documents to St Laurn, Paris, through their bankers viz,

Credit Lyonnais, Paris. The exporter had submitted bills of exchange, bills of lading, commercial

invoice, packing list, inspection certificate, certificate of origin and in the bill of exchange it was

typed as ‘to be co-accepted by credit Lyonnais’.

The International Bank of India took the documents in its books and sent the documents for

collection to Credit Lyonnais, Paris. In due course, they received communication from Credit

Lyonnais that the documents were accepted by St Laurn and due date of the

documents were August 25, 2005.The bankers informed the due date of the bill to Taneja

exports. On August 30, 2005, Taneja Exports informed the bankers that they are yet to receive

the payment of the bill for Euro 53000.00 in their books. The bank sent a swift message

enquiring about the fate and payment of the bill. Two days later the bank received a message

from Credit Lyonnais saying that the importer, St Laurn, had become bankrupt and they were

unable to pay the bill. International Bank of India informed the same to Taneja Exports. They

argued with the bank that they had clearly mentioned in the bills of exchange that the

documents were to be released against the co-acceptance of the

French bank only. Immediately the Indian bank send a message to Credit Lyonnais that

since the bill of exchange contained the co-acceptance clause by the French bank, they

are liable to pay even though the importer had become bankrupt. The French bank refuted the

claim of the Indian Bank and intimated that the bank’s collection instruction did not contain

any co-acceptance clause by the French bank and they had acted as per the provisions in the

uniform rules for collection in the ICC publication No 522.

Since payments were not forthcoming, Taneja Exports filed a suit with the National Consumer

Forum, New Delhi for deficiency of services by International Bank of India, Mumbai, on

November 10, 2005. They put forth the argument that the bank was deficient in not

mentioning about the co-acceptance clause in their covering letter to the French bank and in

case of non-coacceptance by the French bank they would have returned the documents to

India and the exporter could have arranged for an alternate buyer or re- import of the

merchandise. This negligence on the part of the bank had caused them total financial loss.

After hearing the arguments of both the parties, The National Consumer Forum gave the

judgement, on February 6, 2006, that the International Bank of India was deficient and

negligent in their services and ordered them to compensate the value of the export bill of Euro

53000.00 (approx Rs 24 lakhs) along with 15% interest, till the date of payment.

The bank went on appeal against the order of the consumer forum in the Supreme Court on

March 20, 2006. After hearing the counsels of both sides, the Supreme Court gave the

judgement that since the original agreement between the exporter and importer do not have

any co-acceptance clause by the importer’s banker, the co-acceptance clause on the bill of

exchange cannot be binding on the French Bank as well as on the Indian Bank.

The bankruptcy of the importer is the reason for loss to the exporter and not the deficiency of

service by the bank. The Supreme Court set aside the judgement of the National consumer

forum and passed the judgement in favour of the bank, with costs, on March 15, 2007.

 

Questions

1) Elaborate the deficiency of service on the part of the bank, pointed out by the National

consumer redressal forum, in the light of the uniform rules for collection ICC publication

No.522.

2) Advise the firm about the precautions they should have taken to avoid such a colossal

business loss.

3) Discuss the remedial measures the bank in India should take to avoid such damaging

judgements by the consumer forums.

4) Elaborate the Supreme Court judgement in the context of the international banking

rules and practises, as guided by the ICC publications.

 

 

Case-3 (Marks -16)

LATE MOVER ADVANTAGE?

Though a late entrant, Toyota is planning to conquer the Indian car market. The Japanese auto major

wants to dispel the notion that the first mover enjoys an edge over the rivals who arrive late into a

market.

Toyota entered the Indian market through the joint venture route, the partner being the Bangalore based

Kirloskar Electric Co. Known as Toyota Kirloskar Motor (TKM), and the plant was set up in 1998 at Bidadi

near Bangalore.

To start with, TKM released its maiden offer— Qualis. Qualis is not a newly conceived, designed, and

brought out vehicle. Rather it is the new avatar of Kijang under which brand the vehicle was sold in

markets like Indonesia.

Qualis virtually had no competition. Telco’s Sumo was not a multi-utility vehicle like Qualis. Rather, it was

a mini-truck converted into a rugged all-purpose van. More importantly, Toyota proved that even its old

offering, but decked up for India, could offer better quality than its competitor. Backed by a carefully

thought out advertising campaign that communicated Toyota’s formidable global reputation, Qualis went

on a roll and overtook Tata Sumo within two years of launch.

Sumo sold 25,706 vehicles during 2000—2001, compared to a 3 per cent growth over the previous year,

compared to 25,373 of Qualis. But during 2001—2002, it was a different story. Qualis had been clocking

more than 40 per cent share of the market. At the end of Sept 2001, Qualis had sold over 25,000 units,

compared to Sumo’s 18000 plus.

The heady initial success has made TKM think of the future with robust confidence. By 2010, TKM wants to

make and sell one million vehicles per year and garner one-third share of the Indian market. The firm is

planning to introduce a wide range of vehicles—a sub-compact, a sedan, a luxury car and a new multiutility

vehicle to replace Qualis. A significant percentage of the vehicles will be exported.

But Toyota is not as lucky in China. Its strategy of ‘late entry’ in China seems to have back fired. In 2005,

it sold just 1, 83, 000 cars in China, the fastest growing auto market in the world. Toyota ranks ninth in

the market, far behind Volkswagen, General Motors, Hyundai and Honda. Toyota delayed producing cars

in China until 2002, when it entered a joint venture with a local company, the First Auto Works Group

(FAW). The first car manufactured by Toyota FAW, the Vios, failed to attract much of a market, as, despite

its unremarkable design, it was three times as expensive as most cars sold in China.

Late start was not the only problem. There were other lapses too. Toyota assumed the Chinese market

would be similar to the Japanese market. But Chinese market, in reality, resembled the American market.

Sales personnel in Japan are paid salaries. They succeeded in building a loyal clientele for Toyota by

providing first-class service to them. Likewise, most Japanese auto dealers sell a single brand, thereby

ensuring their loyalty to it. Japan is a relatively a well-knit country with an ethnically homogeneous

population. Accordingly, Toyota used nationwide advertising to market its products in its home country.

But China is different. Sales people are paid commissions and most dealers sell multiple brands.

Obviously, loyalty plays little role in motivating either the sales staff or the dealers, who will ignore a slow

selling product should a more profitable one turn up. Besides, China is a large, diverse country. A

standardized ad campaign will not do. Luckily, Toyota is learning its lessons. Competition in the Chinese

market is tough, and Toyota’s success in reaching its goal of selling a million cars a year, by 2010, is

uncertain. But, its chances are brighter as the company is able to transfer lessons learned in the American

market to its operations in China.

 

Questions:-

  1. Why has the late corner’s strategy’ of Toyota failed in China, though it succeeded in India?
  2. Why has Toyota failed to capture the Chinese market? Why is it trailing behind its rivals?

 

 

 

 

THE EU’S LAGGING COMPETITIVENESS

In a report produced for the European Commission, published in November 1998, it was argued that the

EU lags behind the USA and Japan on most measures of international competitiveness. Gross domestic

product per capita, sometimes used as an indicator of international competitiveness at the country level,

was 33 per cent lower in the EU as a whole than in the USA and 13 per cent lower than in Japan. The EU’s

poor record in creating employment was singled out for particular criticism. As this appeared to apply

across 2. the board in most industrial sectors, it suggested that the EU’s poor performance related to the

business environment in general and, in particular, to the flexibility of Europe’s labor markets and

excessive regulation in markets for goods and 3. Services. A shortage of risk capital for advanced

technological development and high cost and 4. Inefficiency of Europe’s financial services was also

highlighted by the report. For one reason or another, European industries generally lag behind in

technology industries. If measured by the number 5. of inventions patented in at least two countries, the

USA is well ahead of most European countries, as well as Japan. Despite these shortcomings, the report’s

authors focus attention on flexible markets, market liberalization, and the creation of a competitive

business environment rather than on targeted intervention by the EU or national authorities.

 

 

Questions:-

1) Is gross domestic product per capita a useful indicator of international competitiveness in the EU?

2) Is it fair to point the blame for the EU’s poor international competitiveness at inflexible labor markets,

regulated goods and services markets, and a general lack of competition? What alternative explanations

might be suggested? What appears to be the problem with the EU’s banking sector?

3) Is the number of patents registered a useful indicator of superior international competitiveness? Why

do you think the USA does well in this area?

4) Should the EU consider more targeted intervention in the form of subsidies or strategic trade policy?

 

 

 

 

 

 

Case-5 (Marks-16)

AT THE RECEIVING END

Spread over 121 countries with 30,000 restaurants, and serving 46 million customers each day with the

help of more than 400,000 employees, the reach of McDonald’s is amazing. It all started in 1948 when

two brothers, Richard and Maurice ‘Mac’ McDonald, built several hamburger stands, with golden arches in

southern California. One day a travelling salesman, Ray Kroc, came to sell milkshake mixers. The

popularity of their $0.15 hamburgers impressed him, so he bought the world franchise rights from them

and spread the golden arches around the globe.

McDonald’s depends on its overseas restaurants for revenue. In fact, 60 per cent of its revenues are

generated outside of the United States. The key to the company’s success is its ability to standardize the

formula of quality, service, cleanliness and value, and apply it everywhere.

The company, well known for its golden arches, is not the world’s largest company. Its system wide sales

are only about one-fifth of Exxon Mobil or Wal-Mart stores. However, it owns one of the world’s best

known brands, and the golden arches are familiar to more people than the Christian cross. This

prominence, and its conquest of global markets, makes the company a focal point for inquiry and

criticism.

McDonald’s is a frequent target of criticism by anti-globalization protesters. In France, a pipes moking

sheep farmer named Jose Bove shot to fame by leading a campaign against the fast-food chain.

McDonald’s is a symbol of American trade hegemony and economic globalization. Jose Bove organized

fellow sheep farmers in France, and the group led by him drove tractors to the construction site of a new

McDonald’s restaurant and ransacked it. Bove was jailed for 20 days, and almost overnight an

international anti-globalization star was borne. Bove, who resembles the irrelevant French comic book

hero Asterix, travelled to Seattle in 1999, as part of the French delegation to lead the protest against

commercialization of food crops promoted by the WTO. Food, according to him, is too vital a part of life to

be trusted to the vagaries of the world trade. In Seattle, he led a demonstration in which some skimasked

protestors trashed at McDonald’s. As Bove explained, his movement was for small farmers against

industrial farming, brought about by globalization. For them, McDonald’s was a symbol of globalization

implying the standardization of food through industrial farming. If this was allowed to go on, he said,

there would no longer be need for farmers. “For us,” he declared, “McDonald’s is a symbol of what WTO

and the big companies want to do with the world.” lroncally, for all of Bove’s fulminations against

McDonald’s, the fast food chain counts its French operations among its most profitable in 121 countries.

As employer of about 35,000 workers, in 2006, McDonald’s was also one of France’s biggest foreign

employers.

Bove’s and his followers are not the only critics of McDonald’s. Leftists, anarchists, nationalists, farmers,

labor unions, environmentalists, consumer advocates, protectors of animal rights, religious orders and

intellectuals are equally critical of the fast food chain. For these and others, McDonald’s represents an evil

America. Within hours after US bombers began to pound Afghanistan in 2001, angry Pakistanis damaged

McDonald’s restaurants in Islamabad and an Indonesian mob burned an American flag.

McDonald’s entered India in the late 1990s. On its entry, the company encountered a unique situation.

Majority of the Indians did not eat beef but the company’s preparations contained cow’s meat. Nor could

the company use pork as Muslims were against eating it. This left chicken and mutton. McDonald’s came

out with ‘Maharaja Mac’, which is made from mutton and ‘McAloo Tikki Burger’ with chicken potato as the

main input. Food items were segregated into vegetarian and non-vegetarian categories.

Though it worked for sometime, this arrangement did not last long. In 2001, three Indian businessmen

settled in Seattle sued McDonald’s for fraudulently concealing the existence of beef in its French fries. The

company admitted its guilt of mixing miniscule quantity of beef extract in the oil. The company settled the

suit for $10 million and tendered an apology too. Further, the company pledged to label the ingredients of

its food items, and to find a substitute for the beef extract used in its oil.

McDonald’s succeeded in spreading American culture in the East Asian countries. In Hong Kong and

Taiwan, the company’s clean restrooms and kitchens set a new standard that elevated expectations

throughout those countries. In Hong Kong, children’s birthdays had traditionally gone unrecognized, but

McDonald’s introduced the practice of birthday parties in its restaurants, and now such parties have

become popular among the public. A journalist set forth a ‘Golden Arches Theory of Conflict Prevention’

based on the notion that countries with McDonald’s restaurants do not go to war with each other. A British

magazine, The Economist, prints an yearly ‘Big Mac Index’ that uses the price of a Big Mac in different

foreign currencies to assess exchange rate distortions.

 

 

Questions:-

  1. What lessons can other MNCs learn from the experience of McDonald’s?
  2. Aware of the food habits of Indians, why did McDonald’s err in mixing beef extract in the oil used for

fries?

  1. How far has McDonald’s succeeded in strategizing and meeting local cultures and needs?

 

 

 

 

 


BUSINESS ETHICS CASE STUDY ANSWER SHEETS PROVIDED

BUSINESS ETHICS CASE STUDY ANSWER SHEETS PROVIDED

 

 

Sub : Business Ethics

 

SECTION A

Case 1: KFC

Abstract

The case highlights the ethical issues involved in Kentucky Fried Chicken’s (KFC) business

operations in India. KFC entered India in 1995 and has been in midst of controversies since

then. The regulatory authorities found that KFC’s chickens did not adhere to the Prevention

of Food Adulteration Act, 1954. Chickens contained nearly three times more monosodium

glutamate (popularly known as MSG, a flavor enhancing ingredient) as allowed by the Act.

Since the late 1990s, KFC faced severe protests by People for Ethical Treatment of Animals

(PETA), an animal rights protection organization. PETA accused KFC of cruelty towards

chickens and released a video tape showing the ill-treatment of birds in KFC’s poultry farms.

However, undeterred by the protests by PETA and other animal rights organizations, KFC

planned a massive expansion program in India.

BACKGROUND OF KENTUCKY FRIED CHICKEN

KFC is based in Louisville, Kentucky, and is the world’s most popular chicken restaurant

chain. Founded by Colonel Harland Sanders in the early 1930s by cooking & serving food

for hungry travellers. In 1952 Sanders started franchising his chicken business & named it as

Kentucky Fried Chicken. KFC is part of Yum! Brands, Inc., the world’s largest restaurant

company in terms of system restaurants, with more than 36,000 locations around the

world. Yum! Brands is run by David Novak, Chairman & CEO. KFC operates more than 5,200

restaurants in the United States and more than15,000 units around the world.109

countries and territories around the world. Every day, more than 12 million customers

are served at KFC restaurants. KFC Division is run by Cheryl Bachelder, President and Chief

Concept Officer.

KFC’s Entry in INDIA

KFC was the first fast food multinational to enter INDIA, after the economic liberalization

policy of the Indian Govt. in early 1990s. KFC received permission to open 30 new

outlets across the country & Opened first fast food outlet in Bangalore in June 1995 by

targeting upper middle class population. PepsiCo planned to open 60 KFC and Pizza Hut

outlets in next 7 yrs in the country.

Issues:

Understand the significance of cultural, economic, regulatory and ecological issues while

establishing business in a foreign country. Appreciate the need for protecting animal rights

in developed and developing countries like India. Understand the importance of ethics

in doing business. Examine the reasons for protests of PETA (People for Ethical Treatment

of Animals). Identify solutions for KFC’s problems in India

Problems for KFC

  • Protests by farmers led by the Karnataka Rajya Ryote Sangha (KRRS) & the farmer’s

leader was Nanjundaswamy who used the term “junk food” against KFC.

  • Protests by cultural & Economic activists.
  • Protests by PETA in the late 1990s.
  • Support of celebrities in against of KFC.

SWOT ANALYSIS Strengths

  • Understand the Culture, Regulatory & Ecological issues.
  • Understand the importance of Ethics in doing business
  • Examine the reason for protests of PETA
  • Identify Solutions for KFC‟S Problems in India.

Weaknesses

  • Non Ethical business practice.
  • PETA Protest.
  • KRRS Protest.
  • MSG flavour in chicken.

Opportunity

  • Retail boom in India.
  • Indians youth are adopting western culture.
  • Indian Economy.
  • Cosmopolitan Rapid Development.

Threats

  • MSG chicken flavour.
  • PETA like organizations.
  • Political parties Protesting for junk foods.
  • Protest support from famous Personalities like Anil Kumble, Aditi Govithrikar,

John Abraham etc.

Questions:

  1. Since its entry in India in 1995, KFC has been facing protests by cultural & Economic

activists and farmers. What are the reasons for these protests?

  1. Do you think in the light of fierce competition, it is justified for business organizations not

to give importance to ethical values at the cost of making profits? Why or Why not?

CASE 2: THE NEW MARKET OPPORTUNITY (Marks 20)

FACTS OF THE CASE

China was eager to enter joint ventures with foreign companies to construct and operate

automobile manufacturing plants inside China. The plants would not only manufacture cars

to supply China’s new internal market, but could also make cars that could be exported for

sale abroad and would be sure to generate thousands of new jobs. The Chinese

government specified that the new car had to be priced at less than $5000, be small enough

to suit families with a single child (couples in China are prohibited from having more than

one child), rugged enough to endure the poorly maintained roads that criss-crossed the

nation, generate a minimum of pollution, be composed of parts that were predominantly

made within China, and be manufactured through joint – venture agreements between

Chinese and foreign companies. Experts anticipated that the plants manufacturing the new

cars would use a minimum of automation and would instead rely on labor – intensive

technologies that could capitalize on China’s cheap labor. China saw the development of a

new auto industry as a key step in its drive to industrialize its economy. The Chinese market

was an irresistible opportunity for General Motors, Ford and Chrysler, as well as for the

leading Japanese, European and Korean automobile companies. With a population of 1.2

billion people and almost double digit annual economic growth rates, China estimated that

in the next 40 years between 200 and 300 million of the new vehicles would be purchased

by Chinese citizens. Already cars had become a symbol of affluence for China’s new rising

middle class, and a craze for cars had led more than 30 million Chinese to take driving

lessons despite that the nation had only 10 million vehicles, most of them government –

owned trucks. Environmentalists, however, were opposed to the auto manufactures’ eager

rush to respond to the call of the Chinese government. The world market for energy,

particularly oil, they pointed out, was based in part on the fact that China, with its large

population, was using relatively low levels of energy. Critics pointed out that if China were

to eventually have as many cars on the road per person as Germany does, the world would

contain twice as many cars as it currently does. No matter how “ pollution – free” the new

car design was, the cumulative environmental effects of that many more automobiles in the

world would be formidable. Even clean cars would have to generate large amounts of

carbon dioxide as they burned fuel, thus significantly worsening the greenhouse effect.

Engineers pointed out that it would be difficult, if not impossible, to build a clean car for

under $5000. Catalytic converters, which diminished pollution, alone cost over $200 per car

to manufacture. In addition, China’s oil refineries were designed to produce only gasoline

with high levels of lead. Upgrading all its refineries so they could make low-lead gasoline

would require an investment China seemed unwilling to make.

IDENTIFICATION OF ISSUES / PROBLEMS IN THE CASE

China was eager to enter joint ventures with foreign companies to construct and operate

automobile manufacturing plants inside China.

The Chinese government had specified that the new car had to be priced at less than $5000,

be small enough to suit families with a single child (couples in China are prohibited from

having more than one child), rugged enough to endure the poorly maintained roads that

criss-crossed the nation, generate a minimum of pollution, be composed of parts that were

predominantly made within China, and be manufactured through joint – venture agreements

between Chinese and foreign companies. Environmentalists, however, were opposed to the

auto manufactures. Engineers pointed out that it would be difficult, if not impossible, to build

a clean car for under $5000 because Catalytic converters, which diminished pollution, alone

cost over $200 per car to manufacture. In addition, China’s oil refineries were designed to

produce only gasoline with high levels of lead. Upgrading all its refineries so they could

make low-lead gasoline would require an investment China seemed unwilling to make.

Many government officials were also worried by the political implications of having China

become a major consumer of oil. If China were to increase its oil consumption, would have

to import all its oil from the same countries that other nations relied on, this would create

large political, economic and military risks.

INDIVIDUAL OPINION

I think China should enter joint ventures with foreign companies to construct and operate

automobile manufacturing plants. This would not only generate the Chinese economy to

boost up but will also generate a lot of employment opportunities to the Chinese population.

Also having a car which is priced at less than $5000, will suit families with a single child. So

the requirement will also not fulfill only the middle class but also the poor class in some time

to come. Also looking from the point of view that the arrangement for making new cars will

not only cater to the Chinese internal market but also be exported to other countries. This

will get foreign exchange for China which will enhance the economy.

Questions:

  1. In your judgment, is it wrong, from an ethical point of view, for the auto companies to

submit plans for an automobile to China? Explain your answer?

  1. Of the various approaches to environmental ethics outlined in this chapter, which

approach sheds most light on the ethical issues raised by this case? Explain your answer.

  1. Should the US government intervene in any way in the negotiations between US auto

companies and the Chinese government? Explain.

SECTION B (Marks 40)

Attempt any 05 questions:

  1. Distinguish ethical decision making from other practical decision situations.
  2. Discuss the role of mission statements and codes in creating an ethical corporate

culture.

  1. Describe the three key concerns of ethical analysis of marketing issues.
  2. Explain why ethics is important in the business environment.
  3. Discuss the need for ethics in performance appraisal.
  4. What are the ethical models for decision making?
  5. Define corporate culture.

—-The End—-


BUSINESS ENVIRONMENT CASE STUDY ANSWER PROVIDED

BUSINESS ENVIRONMENT CASE STUDY 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?

FINANCE MANAGEMENT CASE STUDY ANSWER SHEETS PROVIDED

FINANCE MANAGEMENT CASE STUDY ANSWER SHEETS PROVIDED

 

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

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.

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.

  1. A maximum of 10 percent reduction in sales volume will take place.
  2. 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.

 

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 :

  • 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.

 

  • 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.
  • 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.

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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

Intangible Fixed Assets

 

3.88

11.98

3.64

0.09

19.59

12.91

6.68

0.21

 

4.22

12.68

4.14

0.26

21.30

14.56

6.74

0.19

 

4.96

12.98

4.38

10.25

23.57

15.79

7.78

0.05

 

21.70

33.49

5.18

11.27

71.64

19.84

51.80

4.40

 

30.82

50.78

6.95

34.84

123.39

25.74

97.65

22.03

 

39.71

75.34

8.53

14.37

137.95

33.90

104.05

22.45

 

42.34

92.49

8.87

13.92

157.62

42.56

115.06

20.04

 

43.07

104.45

10.35

14.36

172.23

53.87

118.86

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 utilisation, 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?

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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?

 

 

 

 

 

 

 

 

 

 

 

 

 

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:

  1. Works office costs on the basis of direct labour hours.
  2. Maintenance costs on the basis of book value of plant and machinery.
  3. 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.
  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

 

 

 

 

 

 

 

 

 

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  
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  

1,20,000

 

44,000

 

60,000

 

27,500

         
E. Overhead Rate/Per Hour (D)                  

 

 

 

 

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 has 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?


HUMAN RESOURCE MANAGEMENT CASE STUDY ANSWER PROVIDED

HUMAN RESOURCE MANAGEMENT CASE STUDY ANSWER 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?

 

 

 

 

 

 


HUMAN RESOURCE MANAGEMENT EXAM ANSWER PROVIDED

HUMAN RESOURCE MANAGEMENT EXAM ANSWER PROVIDED

Examination Paper of Human Resource Management
IIBM Institute of Business Management
Examination Paper MM.100
Human Resource Development & Training
Section A: Objective Type & Short Questions (30 marks)
 This section consists of Multiple Choi  ces and Short Notes Type Questions. 
 Answer all the questions. 
 Part one carries 1 mark each & Part Two carries 5 marks each. 
Part One:
Multiple choices:
1. HRD is the process of helping people to acquire________
a. Competition
b. Completeness
c. Competencies
d. None of the above
2. Techniques of human resource development are also called_______
a. HRD Methods
b. HRD Instruments
c. HRD Mechanism
d. All of above
3. In India HRD began only in______
a. 1970s
b. 1980s
c. 1910s
d. 1990s
4. BARS Stand for______
a. Behaviorally Anchored Rating Scale
b. Behaviorally Anchoring Rating Scale
c. Behaviorally Appraisal Rating Scale
d. None of the above
5. Levels of evaluations of Training programme are:
a. 7
b. 6
c. 5
d. 10
6. Performance appraisal in a _________process of identifying, planning, developing
employee Performance.
a. Multi-Stages
b. Single-Stages
1
IIBM Institute of Business Management
Examination Paper of Human Resource Management
c. Dual-Stages
d. All of the above
7. Halo effect is the tendency to the judge all aspects of a________
a. Person’s behaviour
b. Perspective behaviour
c. Performance appraisal
d. All of the above
8. QWL Stand for_______
a. Quality of work life
b. Quality of worker life
c. Quantity of work life
d. None of the above
9. 360- degree feedback can be used s a tool for performance_______
a. Appraisal
b. Analyze
c. Assessment
d. None of the above
10. Career planning is a _______that constitute what a person does for a living.
a. Sequence of career
b. Sequence of jobs
c. Sequence of sum
d. None of the above
Part Two:
1. Discuss the various methods of Appraisal?
2. Briefly explain ‘On the job and Off the job’ methods of Training and Development.
3. Explain the objectives of ‘Performance Appraisal’.
4. Differentiate between HRM and HRD concept.
END OF SECTION A
Section B: Case lets (40 marks)
 This section consists of caselets. 
 Answer all the questions. 
 Each Caselets carries 20 marks. 
 Detailed information should from the part of your answer ( Word limit 150 to 200 words.) 
Case let 1
2
IIBM Institute of Business Management
Examination Paper of Human Resource Management
Introduction to the Organization:
XYZ Company was established 20 years ago, to manufacture gearbox components for diesel engines.
It employs around 250 people, having a head office, which employs a wide range of personnel who
are generally well educated and enthusiastic about their work, and a factory, which employs semiskilled
local people who are generally disinterested in the products of the company and who have an
instrumental attitude to work, seeing salary as the only reward.
Brief Description of the Problem:
The performance of the company has not been good and the records revealed the following facts:
  Wastage within the factory was costing the company approximately Rs.100,000 a month. 
  There was wide spread differences in individual work standards. 
  Processes were non-standardized resulting in repeated problems. 
 Management made all decisions and cascaded the results down to employees. 

 The top management become concerned about the performance of the factory and they hired.
Mr. Tanmoy Deb, an OD consultant to study the problem and suggest specific changes to
 relationship and tasks with the following objectives: 
  To review and improve communication systems. 
  To restructure the organization and to review teamwork and quality practices. 
 To review leadership issues across all levels. 

Mr. Tanmoy Deb carried out discussions, interviews and surveys and made the following
 observation: 
  There’ and ‘us’ attitude was widely prevalent between head office and factory personnel. 
  Production personnel lacked technical skills. 
  Factory employees felt alienated from sharing the Company’s success. 
  Production systems were adhoc and defective because of frequent variation in standards set. 
  Many times raw material was found to be of inferior quality. 
 Rigidly defined job descriptions. 
Questions:
1. What in your view are the central human resource issues involved in this case?
2. What Strategy should Mr. Tanmoy Deb develop and implement for improving the present system?
Case let 2
Introduction to the Organization:
XYZ Company is an existing profit making FMCG Company. The company has 600 personnel and
has branches all other the country. It has a separate training department with a Training Manager, Mr.
A.P. Mohan as its head who is supported by two qualified training officers. Mr. Mohan has been in
the company for the last 8 years and is very efficient.
Brief Description of the problem:
Mr. Mohan wants to have the organization. He is fed up with organization politics. He is dissatisfied and
in fact frustrated. There are several reasons attachment to it. First and foremost is that he is not paid
adequately despite the fact that he has brought 12% growth in revenue to the company. Second reason is
that he is not consulted and constantly neglected while making decision on training aspects. Lastly, he
considers himself to be a victim of politics played in the organization. Production Manager
3
IIBM Institute of Business Management
Examination Paper of Human Resource Management
is constantly hurting him and interferes with the work. Dr. Ashok Sarao, boss of Mr. A.P. Mohan does
not want him to leave the organization, as he known that the effectively will come down if he leaves
Dr. Ashok tries to convince Mohan that he should adjust himself with the environment and also talk of
how Mohan is constantly neglected. He talks of how politics is played in the organization and
strengths and weaknesses of Mohan but does nothing to convince Mohan. Rather he says that they
have to adjust, as they are part of family run business. In this setting, personal equation rather than
merit works. Mohan is not convinced and says he is leaving.
Questions:
1. Why a high performer like Mr. Mohan decided to leave the organization he has been long part of?
2. Do you think Mr. A.P. Mohan took the right decision to leave the organization? What would you
have done if you were in his shoes?
END OF SECTION B
Section C: Applied Theory (30 marks)
 This section consists of Applied Theory Questions. 
 Answer all the questions. 
 Each questions carry 15 marks. 
 Detailed information should from the part of your answer (Word limit 200 to 250 words). 

1. What do you mean by Quality of Work Life? Discuss the various techniques for improving
the Quality of work life with the principles of QWL?
2. Discuss the basic concepts of management development. What is the important of
management development in the changing business?
END OF SECTION C
4
IIBM Institute of Business Management
Examination Paper of Human Resource Management
IIBM Institute of Business Management
Examination Paper MM.100
Industrial Relations & Labour Laws
Section A: Objective Type & Short Questions (30 marks)
 This section consists of Multiple choices a  nd Short Notes type questions. 
 Answer all the questions. 
 Part one carries 1 mark each & Part Two carries 5 marks each. 
Part One:
Multiple choices:
1. Workers participation in management decision-making is a highly________ concept.
a. Duplex
b. Complex
c. Simplex
d. None of the above
2. The origin of industrial relations in India can be traced in to the:
a. Second world war
b. First world war
c. Third world war
d. British rule
3. Under the payment of wages act, 1936, no wages period shall exceed for one.
a. Four month
b. Two month
c. One month
d. None of the above
4. Collective bargaining is the process of bargaining between________
a. employees & employer
b. workers & workers
c. employees & employees
d. None of the above
5. Layoff can also cause a ________
a. Retirement
b. Grievance
c. Conflict
d. None of the above
6. As per payment of bonus act, accounting year for a company is ________
a. One year
b. Period for which balance sheet is prepared
c. Period for which cash flow is prepared
5
IIBM Institute of Business Management
Examination Paper of Human Resource Management
d. Period for which profit and loss account is prepared
7. WPM stands for_________
a. Workers’ Participation in Management
b. Workers’ Payment of Management
c. Well fare Payment of Management
d. None of the above
8. Causes of Industrial disputes are_________
a. Economic causes
b. Political causes
c. Technological causes
d. All of the above
9. Trade unions of workers in an organization formed by workers to protect their________
a. Working condition
b. Interest
c. Both a & b
d. None of the above
10. A grievance causes in any organization are_________
a. Work environment
b. Supervision
c. Work group
d. All of the above
Part two:
1. What are the steps of Grievances handling Process? Explain it.
2. What are the objectives of ‘Industrial Relations’?
3. Briefly explain the term ‘evolution of Trade unions in India’.
4. Explain the ‘workers’ participation in management’.
END OF SECTION A
Section B: Case lets (40 marks)
 This section consists of Caselets. 
 Answer all the questions. 
 Each Caselet carries 20 marks. 
 Detailed information should form the part of your answer (Word limit 150 to 200 words). 
Case let 1
6
IIBM Institute of Business Management
Examination Paper of Human Resource Management
Star Automobiles Ltd. Pimpary is in the field of manufacturing of two wheelers. They manufacture and
market mopeds. These are available in the brand names ‘arrow’ and ‘double arrow’ where ‘arrow’ is
their traditional product and ‘double arrow’ is the improved version. The company was started about 20
yrs ago. Their product ‘arrow’ enjoys a reasonably good reputation and they were comfortable in the
market. However, with the entry of the new generation of fuel-efficient mopeds the company started
loosing its market. They immediately started developing the improved ‘double arrow’ but by the time
they came out with this new model the competitors had already strengthened their position in the
market. The arrow model was still acceptable by a segment of the market as it was cheapest vehicle.
‘Double arrow’ is new generation vehicle. It was costlier than Jet but its performance was much
superior. It is compared favorably with the competitors’ products; however it was yet to gain a foot hold
in the market.
The company had to refurbish the marketing activities in order to get back their market share. They
employed young sales engineer to launch a strong sales drive. Mr. Ramesh Tiwari, Btech and a diploma
holder in marketing got selected and was put on the job. Mr. Ramesh Tiwari started well in his new job.
He was given a territory to contact the prospective customers’ and to book the orders. The company had
introduced a new financial assistance scheme. Under this scheme, buyers were given easy loans. It was
particularly advantageous for group booking by employees working in an organization. Mr. Ramesh
Tiwari was able to contact people in different organization, arrange for group bookings and facilitate
the loans. His performance was good in the first year and in the second year of his service. The
company had its own system of rewarding those whose performance happened to be good. They usually
arranged a paid holiday trip for the good performer along with his wife. Mr. Ramesh Tiwari was
accordingly informed by the marketing manager to go to Chennai with his wife on company expenses.
Mr. Ramesh Tiwari asked him as to how much it would cost to the company. The marketing manager
calculated and told him that it would cost about 8000/-. He quickly asked him whether he could get that
8000/- in cash instead of the trip as he had better plans. The marketing manager countered this saying
that it might not be possible to doso. It was not the trading of the company, however he would check
with the personnel manager. After a couple of days, Mr. Tiwari was informed that it would not be
possible to give him a cash reward. Mr. Tiwari grudgingly went for the trip and returned. On his return,
he was heard complaining to one of his colleagues his little daughter was also along with him. The
marketing manager and the personnel manager thought he was a bit too fusy about the money and some
of his colleagues also thought so. During the subsequent days Mr. Ramesh Tiwari’s performance was
not all that satisfactory this showed his lukewarm attitude towards his job and the subordinates.
Questions:
1. Did the personnel manager handle the issue properly?
2. What is your recommendation to avoid such situations in future?
Case let 2
In 1950, with the enactment of the Insurance Act, Government of India decided to bring all the
insurance companies under one umbrella of the Life Insurance Corporation of India (LIC). Despite the
monopoly of LIC, the insurance sector was not doing well. Till 1995, only 12% of the country’s people
had insurance cover. The need for exploring the insurance market was felt and consequently the
Government of India set up the Malhotra Committee. On the basis of their recommendation, Insurance
Development and Regulatory Authority (IRDA) Act was passed in parliament in 2000. This moved
allowed the private insurers in the market with the strong foreign partners with 74:26% stakes. XYZMoon
life was one of the first three private players getting the license to operate in India in the year
7
IIBM Institute of Business Management
Examination Paper of Human Resource Management
2000. XYZ Moon life Insurance was a joint venture between the XYZ Group and Moon Inc. of US.
XYZ started off its operations in 1965, providing finance for industrial development and since then it
had diversified in to housing finance, consumer finance, mutual funds and now its latest venture was
Life Insurance. Its foreign partner Moon Inc. had its presence in Asia since the past 75 years catering to
over 1 million customers across 11Asian countries. Within a span of two years, twelve private players
obtained the license from IRDA.IRDA had provided certain base policies like, Endowment Policies,
Money back Policies, Retirement Policies, Team Policies, Whole Life Policies, and Health Policies.
They were free to customize their products by adding on the riders. In the year 2003, the company
becomes one of the market leaders amongst the private players. Till 2003, total market share of private
insurers was about 4%, but Moon Life was performing well and had the market share of about 30% of
the private insurance business. In June 2002, XYZ Moon Life started its operations at Nagpur with one
Sales Manager(SM) and ten Development Officers (DO). The role of a DO was to recruit the agents and
sell a career to those who have an inclination towards insurance and could work either on part time or
full time basis. They were very specific in recruiting the agents, because their contribution directly
reflected their performance. All DOs faced three challenges such as Case Rate (number of policies),
case size (amount of premium), and recruitment of advisors by natural market, personal observations,
nominators, and centre of influence. Incentive of offered by the company to development officers and
agents were based on their performance, which resulted in to internal competition and finally converted
into rivalry. In August 2002, a branch manager joined along with one more sales manager and ten
development officers. Initially, the branch was performing well and was able to build their image in the
local market. As the industry was dynamic in nature, there were frequent opportunities bubbling in the
market. In order to capitalize the outside opportunities, one sales manager left the organization in
January 2003. As the sales manager was a real performer, he was able to convince all the good
performers at XYZ Moon Life Insurance to join the new company. In april 2004, the company faceda
grave problem, when the Branch Manager left the organization for greener pastures. To fill the position,
in May 2004, the company appointed a new branch manager, Shashank Malik, and a sales manager,
Rohit pandey. The branch manager in his early mthirties had an experience of sales and training of
about 12 years and was looking after two branches i.e., Nagpur and Nasik. Malik was given one
Assistant Manager and 25 Development Officers. Out of that, ten were reporting to him. He was given
the responsibility of handling all the operations and the authority to make all the decisions, while
informing the Branch Manager. Malik opined that the insurance industry is a sunrise industry where
manpower plays an important role as the business is based on relationship. He wanted to encourage
one-to-one interaction, transparency and discipline in his organization. While managing his team, he
wanted his co-workers to analyze themselves i.e., to understand their own strengths and weaknesses. He
wanted them to be result-oriented and was willing to extend his full support. Finally, he wanted to
introduce weekly analysis in his game plan along with inflow of new blood in his organization. Using
his vast experience, he began informal interactions among the employees, by organizing outings and
parties, to inculcate the feelings of friendliness and belonging. He wanted to increase the commitment
level and integrity of his young dynamic team by facilitating proper channelization of their energy. He
believed that proper training could give his team a proper understanding of the business and the
dynamics of insurance industry.
Questions:
1. If you were Malik, what strategies would you adopt to solve the problem?
2. With high employee turnover in insurance industry, how can the company retain a person like Malik?
END F SECTION B
8
IIBM Institute of Business Management
Examination Paper of Human Resource Management
Section C: Applied Theory (30 marks)
 This section consists o  f Applied Theory Questions. 
 Answer all the questions. 
 Each question carries 15 marks. 
 Detailed information should form the part of your answer (Word limit 200 to 250 words). 


1. What is the Collective Bargaining? Explain the Characteristics and types of Collective
Bargaining and write down the different levels of Collective Bargaining?
2. Discuss the wage policy in India with reference to detailed evaluation of the act.
END F SECTION C
S-2-300813
9
IIBM Institute of Business Management


INTERNATIONAL HUMAN RESOURCE MANAGEMENT EXAM ANSWER PROVIDED

INTERNATIONAL HUMAN RESOURCE MANAGEMENT EXAM ANSWER PROVIDED

International Human Resource Management

Total Marks: 80

Instructions:

  1. Attempt all questions.
  2. Make suitable assumptions wherever necessary.
  3. Figures to the right indicate full marks.

 

 

 

Q.1   Case Study:

WHOM DO YOU SATISFY?  EXPATRIATE OR NATIONALS

Hi-Tech Electronics Limited was established in 2006 in Kualalampur, Malaysia. It produces and markets all types of electronics goods in most of the Asian and Pacific countries. It has been one among the top five companies as for the level of technology and one among the top three

Companies regarding marketing of the products in Malaysia. The company’s policy and practices concerning human resource management are top in the country. The company’s salary administration policies and practices were taken as guidelines not only by the other companies but

Also by various wage boards and pay commissions in the country. But this company has been struggling a lot because of a minor problem relating to administration of salary and benefits. The problem is stated hereunder.

The company employed nearly 400 national young graduate and post graduate engineers and 20 expatriate engineers. This employees form the cream of the company’s present human resource. The expatriate employees occupied higher position in all the departments including Human Resource Department. The company’s salary policy and benefit policy were formulated mainly on the basis of the expatriate employee’s desire.  The base salary of the company is the same for both the expatriate and national employees. But expatriate receive additional allowances like international market allowance, educational allowance, settling-in allowance, car allowance, housing allowance and entertainment allowance. Thus, expatriate receives nearly 250% more salary than the nationals doing the same job.

The national employees demanded the management to pay equally with that of expatriates immediately. According to them, the pocket frustrates them severely.

(a) What is the crucial issue in this case?

(b) If you were the HR manager of the company, whom do you satisfy?

Q.2 (a) Explain stages of internationalization of firm and how does each stage affect the HR function?

(b) What are main characteristics of the four approaches to international Staffing?

OR 

(b) Explain the strength and weaknesses of workforce diversity with relevant examples.

 

Q.3 (a) Explain career cycle for expatriates and the factors that contribute for expatriate’s success.

(b) What are the objectives of international compensation management?

OR 

Q.3 (a) what are the factors contributing to Expatriate’s Failure?

(b) What is global training? Explain in brief different areas of global training and development. 10

 

Q.4 (a) what is glass-ceiling? Why does it take place for women employees and employees belonging to minority groups?

(b) How domestic HRM does differ from global HRM?

OR

Q.4 (a) what are the factors affecting standardization of work practices?

(b)   What are the significant shifts in HRM practices in recent time?

 

Q.5 (a) what are the challenges of performance appraisal in international human resource management?

(b) In what ways trade union influence the HRM functions of multinationals?

OR

Q.5 (a) what is participative management? Discuss the practices of participative management in different countries.

(b) How do you make the performance management in multinationals effective?

 


BRAND MANAGEMENT EXAM ANSWER SHEETS PROVIDED

BRAND MANAGEMENT EXAM ANSWER SHEETS PROVIDED

Xaviers Institute of Business Management Studies

 

 

Subject Title: Brand Management                                                                          

                                                                                                                                                      Maximum Marks: 80           

                                                                                                                                                                                                                                               

 

Question No. 1 is compulsory and is for 16 Marks. Please attempt any 4 questions from question number 2 to 9.

 

 

 

  1. Case Study : (Compulsory)

BURNOL

 

Burnol has been around for six decades as a yellow burns-relief ointment.  It has almost become a generic brand.  Its yellow colour reminds one of turmeric, the traditional burns-relief remedy.

The brand has been recently acquired by Dr. Morepen (a subsidiary of Morepen Laboratories Ltd.) from Reckit Piramal.  The brand has high recall value.  Morepen is the brand’s third owner (Boots is the first, Pirmal second).

Burnol’s position in the mind space of the consumer is that of the burns ointment.  It is open to marketers to reposition the brand.  But sometimes the brand does not budge from its original position.  Burnol is a typical example.  It is so strong as anti-burn ointment that it has become intractable.

Burnol introduced by Boots started domestic manufacturing in 1948. JWT handled the account.  Formerly, it was sold on prescription.  In 1960 it became over-the counter (OTC) product.

As Indian housewives depended upon kerosene or wood-fed stoves, Burnol became an integral part of the household.  In 1967, Burnol’s application was far widened, to include antiseptic properties against cuts and other wounds. But it did not succeed and Boots reverted to its original anti-burns position.  In 1972, Shield was launched by SKF as a competitive brand.  It was followed by Medigard by J.L. Morison.  But they could not affect Burnol.

In 1980, a commercial on DD showed a daughter entering kitchen and getting burns due to oil splash. The mother uses Burnol and the VO says “Haath jal gaya? Shukar hai ghar mein Burnol jo hai”.

Kitchen became safer in 85s after the switch-over to LPG-based cooking and the use of gas-lighter instead of the match boxes.  Burnol started stagnating.

Though the product had high recall, the actual reality was that households did not keep the product handy.  Plain water was being recommended to treat burns.  Turmeric, as it causes stains, was becoming a liability.  The product composition was changed by changing colour from deep yellow to non-staining light yellow.  People were coaxed to keep the product within easy reach, Sales showed some improvement.

In 1995, again it was repositioned as antiseptic for multiple usages. The colour was made even lighter. It was given a new perfume.  But the brand failed to compete with other antiseptic creams such as Boroline and Dettol. The brand could not be moved from its ‘burns’ spot in the consumer mind. It’s becoming generic as a burns remedy proved to be its cause for stagnation.

In 2000, Burnol was sold to Reckitt Pirmal for 12.5 crore.  It became Burnol Plus.  It was positioned as ‘first aid cream’.  It registered a turnover of ` 6.2 crore in 2002. As Reckit Pirmal joint venture came apart, Burnol was sold to Dr. Morepen in 2003.  It is being relaunched in April 2004.

 

 

 

Burns market including dressings stand as ` 39 crore. Antiseptic market stands at ` 210 crore.  The old need is passing into history. The strategy should be to retain its original uniqueness, and still broad-base it.  There are new dangers such as geysers, irons, ovens and so on.  Burnol can become a cream that ensures safety if present. Burnol should be promoted as brand that cares.

Burnol is now marketed by Dr. Morepen Lab as protective cream which should be kept handy always.

 

Question:

As a Management consultant give your comments on Burnol as a brand.

 

  1. What do you understand by the concept of a Brand?  Describe the characteristics of

Brands.

 

  1. a.   Define the Brand Image. Explain the dimensions of Brand Image.
  2. What is meant by Brand Identity? Explain the different elements of Brand                         Identity.

 

  1. Discuss in detail the different stages of brand building process.
  2. a.   What is Brand Audit?  Explain its importance.
  3. Describe the two steps in brand audit.

 

  1. “Positioning is an outcome of our perceptions about the brand relative to the

competing brands”   – Discuss with examples.

 

  1. How do consumers perceive and choose brands? Discuss.

 

  1. What are the different phases of strategic brand management process?

 

  1. Discuss the “TEN COMMANDMENTS” of Global Branding.

 

 


INTERNATIONAL HUMAN RESOURCE MANAGEMENT ANSWER SHEETS PROVIDED

INTERNATIONAL HUMAN RESOURCE MANAGEMENT ANSWER SHEETS PROVIDED

 

International Human Resource Management

Total Marks: 80

Instructions:

  1. Attempt all questions.
  2. Make suitable assumptions wherever necessary.
  3. Figures to the right indicate full marks.

 

 

 

Q.1   Case Study:

WHOM DO YOU SATISFY?  EXPATRIATE OR NATIONALS

Hi-Tech Electronics Limited was established in 2006 in Kualalampur, Malaysia. It produces and markets all types of electronics goods in most of the Asian and Pacific countries. It has been one among the top five companies as for the level of technology and one among the top three

Companies regarding marketing of the products in Malaysia. The company’s policy and practices concerning human resource management are top in the country. The company’s salary administration policies and practices were taken as guidelines not only by the other companies but

Also by various wage boards and pay commissions in the country. But this company has been struggling a lot because of a minor problem relating to administration of salary and benefits. The problem is stated hereunder.

The company employed nearly 400 national young graduate and post graduate engineers and 20 expatriate engineers. This employees form the cream of the company’s present human resource. The expatriate employees occupied higher position in all the departments including Human Resource Department. The company’s salary policy and benefit policy were formulated mainly on the basis of the expatriate employee’s desire.  The base salary of the company is the same for both the expatriate and national employees. But expatriate receive additional allowances like international market allowance, educational allowance, settling-in allowance, car allowance, housing allowance and entertainment allowance. Thus, expatriate receives nearly 250% more salary than the nationals doing the same job.

The national employees demanded the management to pay equally with that of expatriates immediately. According to them, the pocket frustrates them severely.

(a) What is the crucial issue in this case?

(b) If you were the HR manager of the company, whom do you satisfy?

Q.2 (a) Explain stages of internationalization of firm and how does each stage affect the HR function?

(b) What are main characteristics of the four approaches to international Staffing?

OR 

(b) Explain the strength and weaknesses of workforce diversity with relevant examples.

 

Q.3 (a) Explain career cycle for expatriates and the factors that contribute for expatriate’s success.

(b) What are the objectives of international compensation management?

OR 

Q.3 (a) what are the factors contributing to Expatriate’s Failure?

(b) What is global training? Explain in brief different areas of global training and development. 10

 

Q.4 (a) what is glass-ceiling? Why does it take place for women employees and employees belonging to minority groups?

(b) How domestic HRM does differ from global HRM?

OR

Q.4 (a) what are the factors affecting standardization of work practices?

(b)   What are the significant shifts in HRM practices in recent time?

 

Q.5 (a) what are the challenges of performance appraisal in international human resource management?

(b) In what ways trade union influence the HRM functions of multinationals?

OR

Q.5 (a) what is participative management? Discuss the practices of participative management in different countries.

(b) How do you make the performance management in multinationals effective?

 


LEADERSHIP MANAGEMENT EXAM ANSWER SHEETS PROVIDED

LEADERSHIP MANAGEMENT EXAM ANSWER SHEETS PROVIDED

Leadership Management

 

 

Max. Marks: 80

Answer any five questions

All questions carry equal marks

 

Q.1 Clarify the concept of Leadership. Differentiate Leadership from Management.

Q.2 Write notes on: 1. Importance of Leadership 2. Quality of Leadership

Q.3 Write notes on: 1. Situational Theory of Leadership 2. Traity Theory of Leadership

Q.4 Examine the implications of Charismatic and Behavioual Leadership Theory.

Q.5 (a) Distinguish between Autocratic and Participative Leadership Style. (b) Discuss in detail Participative Leadership style.

Q.6 (a) Briefly explain Free-Rein Leadership.(b) What is the meaning of Autocratic Leadership? Explain its advantages and disadvantages.

Q.7 Write notes on: 1. Leadership in Indian Organisation 2. Leadership Development Process

Q.8 What do you mean by ‘Leadership Development’? What are the ingredients of ‘Leadership Development’?


ENTREPRENEURSHIP EXAM ANSWER SHEETS PROVIDED

 ENTREPRENEURSHIP EXAM ANSWER SHEETS PROVIDED

Entrepreneurship

Total marks – 100

 

PART – A
Answer any 5 questions. Each question carries 4 marks.
1. Define the term ‘spontaneous entrepreneur’.
2. Define a tiny industry.
3. What do you mean by seed capital?
4. Who is an entrepreneur?
5. State four functions of SISI.
6. What do you mean by industrial clusters?
7. Define the term project report.
8. What do you mean by network analysis?
9. What is venture capital?
10. What is DIC?
11. What do you mean by job rotation?
12. Explain the term ‘business environment’. (5×4=20 Marks)

 

 

PART – B
Answer any eight questions. Each question carries 5 marks.
13. Discuss the need for and importance of project appraisal.
14. What are common errors in project formulation?
15. Discuss the qualities for a successful entrepreneur.
16. Suggest some measures for developing rural entrepreneurship.
17. Explain the different phases of a typical EDP.
18. What factors determine the capital structure of an enterprise?
19. Discuss the role and functions of SIDBI.
20. Discuss the salient features of the new small enterprise Policy.
21. Explain the factors influencing organisational climate.
22. Make a list of the major considerations in the layout of plants.
23. Examine the suitability of small enterprises to the Indian economy.
24. Discuss the specific problems of women entrepreneurs. (8×5=40 Marks)

 

PART – C
Answer any two questions. Each question carries 20 marks.
25. Briefly discuss the factors affecting entrepreneurial growth in a developing economy.
26. Explain the institutional frame work for the promotion of small enterprises in India.
27. What is a project report? Show its contents by preparing a proforma project
report.
28. Discuss the dimensions of a typical project appraisal proposed for small enterprises.
(2×20=40 Marks)


BRAND MANAGEMENT EXAM ANSWER SHEETS PROVIDED

 

BRAND MANAGEMENT EXAM ANSWER SHEETS PROVIDED

Xaviers Institute of Business Management Studies

 

 

Subject Title: Brand Management                                                                          

                                                                                                                                                      Maximum Marks: 80           

                                                                                                                                                                                                                                               

 

Question No. 1 is compulsory and is for 16 Marks. Please attempt any 4 questions from question number 2 to 9.

 

 

 

  1. Case Study : (Compulsory)

BURNOL

 

Burnol has been around for six decades as a yellow burns-relief ointment.  It has almost become a generic brand.  Its yellow colour reminds one of turmeric, the traditional burns-relief remedy.

The brand has been recently acquired by Dr. Morepen (a subsidiary of Morepen Laboratories Ltd.) from Reckit Piramal.  The brand has high recall value.  Morepen is the brand’s third owner (Boots is the first, Pirmal second).

Burnol’s position in the mind space of the consumer is that of the burns ointment.  It is open to marketers to reposition the brand.  But sometimes the brand does not budge from its original position.  Burnol is a typical example.  It is so strong as anti-burn ointment that it has become intractable.

Burnol introduced by Boots started domestic manufacturing in 1948. JWT handled the account.  Formerly, it was sold on prescription.  In 1960 it became over-the counter (OTC) product.

As Indian housewives depended upon kerosene or wood-fed stoves, Burnol became an integral part of the household.  In 1967, Burnol’s application was far widened, to include antiseptic properties against cuts and other wounds. But it did not succeed and Boots reverted to its original anti-burns position.  In 1972, Shield was launched by SKF as a competitive brand.  It was followed by Medigard by J.L. Morison.  But they could not affect Burnol.

In 1980, a commercial on DD showed a daughter entering kitchen and getting burns due to oil splash. The mother uses Burnol and the VO says “Haath jal gaya? Shukar hai ghar mein Burnol jo hai”.

Kitchen became safer in 85s after the switch-over to LPG-based cooking and the use of gas-lighter instead of the match boxes.  Burnol started stagnating.

Though the product had high recall, the actual reality was that households did not keep the product handy.  Plain water was being recommended to treat burns.  Turmeric, as it causes stains, was becoming a liability.  The product composition was changed by changing colour from deep yellow to non-staining light yellow.  People were coaxed to keep the product within easy reach, Sales showed some improvement.

In 1995, again it was repositioned as antiseptic for multiple usages. The colour was made even lighter. It was given a new perfume.  But the brand failed to compete with other antiseptic creams such as Boroline and Dettol. The brand could not be moved from its ‘burns’ spot in the consumer mind. It’s becoming generic as a burns remedy proved to be its cause for stagnation.

In 2000, Burnol was sold to Reckitt Pirmal for 12.5 crore.  It became Burnol Plus.  It was positioned as ‘first aid cream’.  It registered a turnover of ` 6.2 crore in 2002. As Reckit Pirmal joint venture came apart, Burnol was sold to Dr. Morepen in 2003.  It is being relaunched in April 2004.

 

 

 

Burns market including dressings stand as ` 39 crore. Antiseptic market stands at ` 210 crore.  The old need is passing into history. The strategy should be to retain its original uniqueness, and still broad-base it.  There are new dangers such as geysers, irons, ovens and so on.  Burnol can become a cream that ensures safety if present. Burnol should be promoted as brand that cares.

Burnol is now marketed by Dr. Morepen Lab as protective cream which should be kept handy always.

 

Question:

As a Management consultant give your comments on Burnol as a brand.

 

  1. What do you understand by the concept of a Brand?  Describe the characteristics of

Brands.

 

  1. a.   Define the Brand Image. Explain the dimensions of Brand Image.
  2. What is meant by Brand Identity? Explain the different elements of Brand                         Identity.

 

  1. Discuss in detail the different stages of brand building process.
  2. a.   What is Brand Audit?  Explain its importance.
  3. Describe the two steps in brand audit.

 

  1. “Positioning is an outcome of our perceptions about the brand relative to the

competing brands”   – Discuss with examples.

 

  1. How do consumers perceive and choose brands? Discuss.

 

  1. What are the different phases of strategic brand management process?

 

  1. Discuss the “TEN COMMANDMENTS” of Global Branding.

 

 


ADVERTISING MBA EXAM ANSWER SHEETS PROVIDED

ADVERTISING MBA EXAM ANSWER SHEETS PROVIDED

Advertising

Max. Marks: 80
Answer any five questions
All questions carry equal marks
– – –
1. What is advertising? Bring out clearly the changing concept of advertising in
modern business world.

2. Explain the objectives and functions of advertisement manager.

3. What is advertisement budget? How do you determine optimal expenditure
through advertisement budget?

4. What are the characteristics of advertising media? Explain..

5. Write a short note on:
a) Visual layout.
b) Production traffic copy.

6. How do you measure the effectiveness of advertisement? Explain.

7. Define sales promotion? Explain the types of sales promotion.

8. Explain the merits and demerits publicity.


INTERNATIONAL BUSINESS MBA EXAM ANSWER SHEETS PROVIDED

INTERNATIONAL BUSINESS MBA EXAM ANSWER SHEETS PROVIDED

 

MARKS: 80      .        

SUB:  International Business.

N.B.: 1) Attempt any Four Case studies.

         2   All questions carry equal marks.

 

 

CASE 1

Creating world class quality standards

Introduction

Customers expect to be able to buy products that meet certain standards.  Standards can be written down and published for use by manufacturers and service providers.  They can be used as guidance.  BSI stands for British Standards Institution.  It was the world’s first Standards body, and is the National Standards Body for the UK.  BSI works in three main fields:

. Setting British and international standards

. Product testing

. Quality management systems (QMS)

Standards are based on agreed best practice.  Businesses are keen to use standards to show they have a place in global markets.  There are thousands of standards covering all manner of goods and services.

Quality

A quality product or service does what the customer wants it to do.  This may differ from market to market.  For instance, a cheap football provides enough `quality’ for a village match.  For a league match, a better ball would be needed.  Many organizations try to build quality into everything they do.  They do this by using a QMS.  This provides a framework that helps the business to improve in all areas.  BSI helps organizations to identify best practice and translates this into standards.  BSI publishes almost 20,000 standards and each year adds 2,000 new or revised standards to this list.

The importance of standards

Standards exist at a number of levels.  These include:

* International Standards, (ISO).  These need to be agreed between countries, so are the most complex

* European Standards (EN)

* British Standards (BS).

BSI contributes to all three.

Standards help protect consumers’ safety.  They also promote research.  They promote the sharing of knowledge.  They help businesses to compete.  In markets where it is hard to compete on price, businesses can use standards to help them compete on quality.

The Kitemark

BSI is independent.  It works with both the private and public sector.  It makes sure that safety and quality standards in the UK and around the world are built into products.  BSI also owns the famous Kitemark symbol which you see on many products.  It shows that a business has had a product tested to the relevant standard.  Schemes cover various products and services.  Examples include lighting, 13 amp plugs, motor cycle helmets and car repair garages.  The Kitemark shows that the business sees safety and quality as vital.  It shows the customer that the product or service has  been tested and has reached the relevant Standard.  Other symbols are required  by law, for instance, CE marking.  This shows that a product conforms to certain European Union regulations.

Processes

ISO 9001 is a key international standard.  It shows that the business uses a QMS.  It shows that quality is built into all aspects of operations.  This must include all systems, whether inside or outside of the business.  It therefore includes suppliers.  There are eight quality measures that must be met to gain certification to ISO 9001.

Conclusion

Products include both goods and services.  These can be made, operated and sold on a global basis.  International standards  for them are therefore vita.  BSI helps to create these standards.  Standards help businesses to build good reputations based on quality, safety and reliability.

Issues for Discussion

  1. What do you understand by the term `quality’ in relation to a product you buy?
  2. What is the BSI Kitemark?  How might this help you to choose a product to purchase?
  3. How might meeting the Standard ISO 9001 help a business to gain a competitive advantage over a rival?
  4. Assume that you have developed a new manufacturing process – how might the BSI help you to develop this process?

 

 

 

Case 2

Sustainable business at Corus

Introduction

Corus is the UK’s biggest steel manufacturer. Even so, it still has to compete. In 2004 it launched a programme to make itself more efficient. Part of the program, called ‘Restoring Success’, focuses on recycling steel. The world economy is growing. The demand for steel has increased as more nations such as India and China have grown. Recycling as part of sustainable development has thus become vital. It has become a main concern for Corus.

What is sustainable?

Sustainable development is linked to resources. It means leaving at least as much for the future as we had to start with. This shows respect for the environment. It also shows thought the future. Everyone should try to aim for sustainability. This includes governments, businesses and people.

Recycling

Steel can be recycled over and over again with no loss of quality. This makes it stand out in terms of sustainability.  It is easy to extract steel from waste because of its unique magnetic properties and recycle it from scrap. By recycling steel Corus helps to:

* preserve natural resources

* protect the environment

* meet targets for reducing waste.

Corus is working hard to make the public aware of what can and should be recycled. Steel can be recycled from drink and food cans, lids, paint cans and aerosols. Not everyone knows what can be recycled. For instance, 57% of consumers recycle drinks cans but only 7% recycle aerosols. Corus is working to develop a ‘closed loop’ for steel.

The steel would go from consumers to recycling plants, then into production and back to consumers.

Stakeholders

Corus sees that there are two sides to recycling.  There are gains, but there can also be extra costs.  To keep all of its stakeholders happy, it must balance these.  There are effects on :

the planet. Fewer resources are used but energy is needed to recycle

* consumers. They have a smaller carbon footprint but more time is needed to recycle

* employees. More are involved in recycling

*communities. Less waste is stored in landfill but there may be noise from recycling plants.

Gains include lower production costs, governments hitting recycling targets and all of us having a better planet to live on.

Costs and benefits

It is possible to weigh up costs and benefits. A monetary value can be put on them. Businesses want gains to outweigh costs. Corus gains from recycling. Socially. Corus gains a good reputation. There is reduced impact on the environment, lower energy use and less waste. There are also costs. These include the cost of recycling and of collecting and sorting waste steel. Corus has created a number of targets to help measure its success. These are called Key Performance Indicators. They include

  • Corus’  UK energy use being reduced to less than 1997 levels
  • an increase in the steel recycling rate to 55%.

 

Conclusion

Corus works to recycle as much as it can. This helps towards greater sustainability. It shows concern for all its stakeholders. Consumers can also help by recycling as much as they can.

Issues for Discussion

  1. What is sustainability and whose responsibility is it?
  2. Describe three actions that an individual can take to support sustainability and two actions that a business can take?
  3. Steel lends itself to recycling. What actions could be taken to increase public awareness of steel recycling?
  4. Recommend actions that individuals and businesses can take to enhance the closed loop ‘steel to steel’ recycling process.
  5. Recommend ways in which the benefits of steel recycling can be increased compared to the costs of recycling steel.

 

 

 

Case 3

 

 International trade

For centuries Britain has been a country that relies on international trade. We purchase goods and services from other countries and in return we sell them goods and services produced here. An import is a purchase by UK citizens from overseas. An export is a sale by UK citizens to a member of another country.

Visible and invisible trade items

For the purpose of classification we call the tangible goods that we trade visible items. We call the services that we trade invisible items. Exports bring currency into the UK whereas imports lead to an outflows of currency.

The UK has always done well on her invisible account. This is because we developed a world-wide reputation for commercial services. Some of our major invisible earnings come from the following:

* Selling insurance policies through Lloyd’s.

* Bank services to foreigners,

* Tourists spending money in the UK.

On the news every month we hear that the UK has made a surplus on invisible trade showing that we have sold more invisible services than we have bought. The accounts for a particular month might show:

* Invisible exports  ?100 billion

* Invisible imports ?80 billion

* Invisible surplus f20 billion

At the same time the UK frequently makes a loss on her visible trade.

A typical current account showing the UK’s trading with the rest of the world in a given period, may therefore look like the following:

Visible exports 500 Invisible exports  400 Total exports  900

Visible imports 650 Invisible imports  200 Total imports  850

Visible balance -150 Invisible balance  200 Current balance 50

The current account of the UK balance of payments gives a good guide to current trading in visible and invisibles with the rest of the world.

Issues for Discussion

  1. Analyze the case at length

 

 

 

 

 

 

Case 4

 

Embracing and pursuing change

Introduction

AEGON UK is part of one of the world’s largest pension and insurance groups. The AEGON Group has over 27,000 employees. It has over 25 million customers worldwide. In the UK it has grown its customer base. It has also bought other businesses. Its aim is to become ‘the best lone;-term savings and protection business within the UK’. To achieve this, it is keen to change in order to improve. AEGON also needed to raise its profile in the UK. The companies which it bought, such as Scottish Equitable, tended to keep their own brand image. AEGON therefore needed to build on the global strength of the Group.

External factors

External factors are those outside the control of the business. It is vital for businesses to be aware of these changes. Changes that have affected AEGON include:

*  people are living longer so need better pensions

*  the insurance industry has had a poor reputation. In some cases the wrong products for people’s needs were sold. This is called miss-selling.  As a result, the Financial Services Authority (FSA) made regulation tighter.

*  financial products can be hard for people to grasp

Investment returns have been less than predicted. Many people have therefore not ended up with the sums that they had hoped for

There is a lot of competition in the industry.

Why change?

Government imposed price controls reduced profitability. Also. AEGON was not a well-known brand. It needed to be better known before consumers would see it as a good place for long-term investment. AEGON went through a ‘discovery’ phase. This was to find out what it needed to do to reach its aim. It set out to find out:

*  what the brand stood for in the UK

  • what they wanted it to stand for
  • how they were going to reach this.

 

A brand audit was used. This looked at AEGON both from within and outside. This information could then be used to plan change.

Creating a culture
The culture of an organization refers to the way that it works. AEGON created a culture of change. AEGON needed to do well financially. This was linked to raising awareness of the brand and building on AEGON’s global strength. This meant:

*  financial services in simpler forms that customers could grasp

*  a workforce improved through training and development. This would b•, better able to manage change

*  a more distinct market presence.

AEGON developed a framework to help all its staff support its brand values.
Implementing change

AEGON used a number of methods to achieve the

* external promotional campaigns

* the new Chief Executive (C1 O) talked to the media about the need for change

* new and innovative products were launched,

AEGON’s success can be seen through the record results, increased new business and growth in earnings.

Conclusion

AEGON recognized a need to give itself a greater market presence. The change has made the organization much more customer focused. As a result it is more effective.

Issues for discussion.

  1. What are the external factors influencing the change.  Discuss
  2. Identify the reasons for change
  3. Creating a new culture is a key part of the change process
  4. Carry out the implementation of the above.

 


FINANCE MANAGEMENT EXAM ANSWER SHEETS PROVIDED

 FINANCE MANAGEMENT EXAM ANSWER SHEETS PROVIDED

Subject Title: Finance Management                                                                        

                                                                                                                                                      Maximum Marks: 80           

 

 

Note : Attempt any four questions. All questions carry equal marks.

 

1.(a) How does an accountant follow the principle “anticipate no profit, provide for all losses” ? On which accounting concept is this based ? Explain it and discuss its significance.

 

(b) Distinguish between Financial Accounting and Management Accounting. What is the most important role of a Management Accountant in a business organisation ? Discuss.

 

2.(a) Distinguish between revenue expenditure and Capital expenditure. How are they treated while preparing the final accounts ? If by mistake the accountant of a firm treats a capital expenditure as revenue expenditure, how will it affect the final accounts of the’ firm ? Give an example.

 

(b) Why is depreciation charged ? Explain the two methods of charging depreciation. In which method the value of the asset is reduced to zero earlier ? Which one is more rational ? Explain why ?

 

  1. “Financial Leverage is one of the important considerations in planning the capital structure of a company.” Explain this statement giving an example. Briefly describe the other factors which are also considered while planning the Capital structure.

 

  1. Distinguish between :

(a)Profit maximisation and Wealth maximisation goals.

(b)Accounting Rate of Return and Internal Rate of Return.

(c)Operating Cash flows and Financial cash flows.

(d)Direct Labour Rate Variance and Direct Labour Efficiency Variance.

 

  1. Explain fully the following statements :

(a)”Break – even Analysis is not without limitations”.

(b)”Lenders prefer high interest coverage ratio but a low debt-equity ratio”.

 

(c)”Weighted average cost of capital would always be higher, if market value weights are used.”

(d)Zero – based budgeting is a better alternative to traditional method of budgeting.

 

6.(a) “Sales Budget forms the basis on which all other budgets are built .” Explain.

What factors are taken into consideration while preparing the sales budget ? Discuss.

 

(b) What is Rolling Budget ? How does it differ from flexible Budget ? What purposes do these budgets serve ? Explain.

 


CORPORATE LAW EXAM ANSWER SHEETS PROVIDED

CORPORATE LAW EXAM ANSWER SHEETS PROVIDED

 

Corporate Law

Total Marks – 80

Section A (10*3= 30 marks)
Answer any TEN each in 50 words

1. Define consideration.
2. What do you mean by an “agreement”?
3. What are quasi contracts?
4. What is the contract of sale?
5. Write a note on agency by holding out.
6. Define the term limited liability.
7. What is a private company?
8. Explain the functions of a promoter.
9. What do you mean by authorized capital?
10. What is meant by winding up of a company?
11. What is the meaning of quorum?
12. Write a note on statutory meeting.

Section B (4*5= 20 marks)
Answer any FIVE each in 200 words

13. What is an offer? State the rules of a valid offer.
14. Discuss the various types of consideration.
15. Explain the essential elements of agency.
16. Distinguish between sale and agreement to sell.
17. Write the differences between company and partnership.
18. Define proxy. Discuss the provisions relating to proxies.
19. Write a note on “Issue of share at discount”.
20. Write a note on Annual General meeting.

Section C (2*15= 30 marks)
Answer any TWO each in 500 words

21. What are the remedies for breach of contract?
22. Explain the duties and rights of an agent.
23. What are the clauses to be stated in the memorandum of association? Can the capital clauses be altered? If yes, how?
24. Explain the different modes of winding up of a joint stock company.


BUSINESS ETHICS EXAM ANSWER SHEETS PROVIDED

BUSINESS ETHICS EXAM ANSWER SHEETS PROVIDED
                                                    BUSINESS ETHICS

Marks – 80

SECTON-A

ANSWER ALL QUESTIONS (5X3=15)

1. Define business ethics?
2. What is kick-back in business?
3. What is unfair discrimination?
4. What is acid rain?
5. Define the term social responsibility in business?

SECTION-B

ANSWER any 5 QUESTIONS (5X5=25)

6. Difference between transactional & transformational leadership?
7. Business & ethics are contradictory?
8. Explain the term ‘stealing trade secrets’
9. Explain whistle blowing
10. Mention 3 unethical practices in marketing?
11. What are the primary reasons for resources depletion?
12. Explain the objectives of social audit?

SECTION-C

ANSWER any 4 questions (10 X 4=40)

13.discuss the role & import of ethics in business
14.explain the types of ethical issues in business
15.discuss about the qualities & features of CEO in business
16.analyses the various causes of pollution in developing countries
explain the principle obligations of a business firm
17.discuss in detail about unfair trade discrimination?