BUSINESS ANALYSIS MANAGEMENT IIBMS EXAM ANSWER

BUSINESS ANALYSIS MANAGEMENT IIBMS EXAM ANSWER

The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
Attempt Only 4 Case (20 Mark each case)
NO. 1 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 km from Gurgaon. The firm has been consistently performing us.” 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. Keen kumar, the new manager (Finance). After critically examining the details, Mr. Keen Kumar 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 Kendal, @ 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 makes 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.
The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
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 labor – 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.
The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
 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.
Question –
Suppose you are Mr.Keen Kumar, the new manager. What steps will you take for the growth of Cooking LPG Ltd.?
The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
NO. 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 installment option
Projected sales with installment 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 installment 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 Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
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.
Question –
(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.
The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
NO.3
Cardenbridge Farm is a family-run farm in Devon which is certified by the Soil Association as meeting their organic standards. The farm grows their own vegetables and has a mixed dairy and beef herd of cattle. Most of their produce is sold through their own farm shop. The farm is owned by Nathan Clement, who is soon to retire. Nathan’s eldest son, David, is being groomed to take over the farm. Nathan and David are both aware that the farm shop is under-performing, but they cannot agree on how to improve the turnover and profitability of the farm and the shop. Nathan is very proud of the hard-won Soil Association certification status and wishes to stay organic. As the farm cannot itself provide any more produce, Nathan wishes to buy in other organic produce from external Soil Association certified suppliers, including pork and lamb products and a wider range of vegetables. David, on the other hand, is prepared to let the Soil Association certification lapse to increase the yield of the farm to match what the shop can sell. He feels there is a good case for concentrating on meat, beef, pork and lamb, whilst running down the dairy and vegetable side of the business. It is his view that the public would prefer ‘home-produced’ meat products to organic vegetable
Question –
a) Develop a stakeholder perspective (also known as a root definition) from Nathan’s point of view. If you use the CATWOE mnemonic it is sufficient to list the items under the relevant headings.
b) Develop another stakeholder perspective from David’s point of view. Similarly, it is sufficient to list the items under the relevant headings if you use the CATWOE mnemonic.
c) Develop a conceptual model (a business activity model) for the business system represented by the stakeholder perspective that represents Nathan’s point of view.
The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
No. 4
Sun Worshippers UK Ltd are an independent, family run Travel Agency. The company has been in operation for 10 years and specialises in short haul package holidays and tours around the UK & Mediterranean countries. The Agency is based in an affluent location with many customers who are over 50 years old and often book 3 or 4 holidays each year. An increasing number of their customers make group bookings so that they can share their travel experiences with extended family and friends. In a recent customer survey, the company received positive feedback on their selection of holidays and most customers stated a preference for the personal attention they receive from Sun Worshippers. A few customers however, commented that they would spend over an hour talking about potential destinations with the Agent before selecting a holiday and also commented that they would like the Agency to provide online virtual tours so that they could get an idea of the travel locations at home before they came into the Agency to book. The survey also revealed the increasing number of travellers who were concerned about the impact their holiday would create on their Carbon Footprint. The company is a member of ABTA and takes its voluntary subjection to this travel regulator very seriously. The company also appears to understand their obligations under EU Travel Regulations and the Package Travel, Package Holidays and Package Tours Regulations Act 1992. In recent years Sun Worshippers has successfully promoted Lunar tours of Tunisia and the Anthony & Cleopatra Tour of Egypt. However, due to the civil unrest in Northern African countries recently, the British embassy has advised caution when travelling to these areas, though travel has not been prohibited due to the potential impact on future relations with these countries. To keep up to date on whether it is safe to travel, a new centrally maintained web service has been created specifically for Travel Agents and Tour Operators. This development has led the Sun Worshippers Team to consider whether they should look for new holiday destinations in the Canary Islands and Central Africa.
Question –
Using a technique you are familiar with analyse the external business environment of Sun Worshippers UK Ltd.
The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
NO. 5
Littlewood Travel, a local bus and coach company in the South of England, have been established for fifty years and provide transport services to and from school for children aged eleven to eighteen. The company has five buses and seven coaches, some of which are nearly 20 years old. The company is also used by many of the local schools to provide day trips and occasional field trips which require a coach for a week at a time. In addition to providing the services to schools, in order to deal with the reduction in demand during the school day, the company has started to provide day trips for pensioners. These trips generally start after the children have been delivered to their respective schools and finiish an hour before the children need to be collected. Demand for the daytime trips is sporadic but does tend to peak in the summer when the schools are shut and just before Christmas. Demand has been negatively affected in the last six months as the older vehicles have become more unreliable and suffered a number of breakdowns. Customers have commented that they have noticed that there have been a lot of new drivers in the past year, with many not staying with the company more than a few weeks. In order to meet local authority emission targets and to deal with the reliability issues, the company has begun a replacement programme for its fleet of vehicles. Failure to comply with the new targets, which can only be met by vehicles produced in the last five years, would result in a fine of up to £5,000 per vehicle. The average cost of a new vehicle is £75,000 and so the company has investigated the option of leasing rather than buying. A typical lease arrangement lasts for three years and costs £3,000 per month. New vehicles also meet stringent new safety and accessibility targets including the provision of seatbelts and wheelchair access.
Question –
Identify four costs and four benefits (two tangible and two intangible for each) together with three risks associated with the replacement programmer? Why?

Note: Solve any 4 Cases Study’s

CASE: I Enterprise Builds On People

When most people think of car-rental firms, the names of Hertz and Avis usually come to mind. But in the last few years, Enterprise Rent-A-Car has overtaken both of these industry giants, and today it stands as both the largest and the most profitable business in the car-rental industry. In 2001, for instance, the firm had sales in excess of $6.3 billion and employed over 50,000 people.
Jack Taylor started Enterprise in St. Louis in 1957. Taylor had a unique strategy in mind for Enterprise, and that strategy played a key role in the firm’s initial success. Most car-rental firms like Hertz and Avis base most of their locations in or near airports, train stations, and other transportation hubs. These firms see their customers as business travellers and people who fly for vacation and then need transportation at the end of their flight. But Enterprise went after a different customer. It sought to rent cars to individuals whose own cars are being repaired or who are taking a driving vacation.
The firm got its start by working with insurance companies. A standard feature in many automobile insurance policies is the provision of a rental car when one’s personal car has been in an accident or has been stolen. Firms like Hertz and Avis charge relatively high daily rates because their customers need the convenience of being near an airport and/or they are having their expenses paid by their employer. These rates are often higher than insurance companies are willing to pay, so customers who these firms end up paying part of the rental bills themselves. In addition, their locations are also often inconvenient for people seeking a replacement car while theirs is in the shop.
But Enterprise located stores in downtown and suburban areas, where local residents actually live. The firm also provides local pickup and delivery service in most areas. It also negotiates exclusive contract arrangements with local insurance agents. They get the agent’s referral business while guaranteeing lower rates that are more in line with what insurance covers.
In recent years, Enterprise has started to expand its market base by pursuing a two-pronged growth strategy. First, the firm has started opening airport locations to compete with Hertz and Avis more directly. But their target is still the occasional renter than the frequent business traveller. Second, the firm also began to expand into international markets and today has rental offices in the United Kingdom, Ireland and Germany.
Another key to Enterprise’s success has been its human resource strategy. The firm targets a certain kind of individual to hire; its preferred new employee is a college graduate from bottom half of graduating class, and preferably one who was an athlete or who was otherwise actively involved in campus social activities. The rationale for this unusual academic standard is actually quite simple. Enterprise managers do not believe that especially high levels of achievements are necessary to perform well in the car-rental industry, but having a college degree nevertheless demonstrates intelligence and motivation. In addition, since interpersonal relations are important to its business, Enterprise wants people who were social directors or high-ranking officers of social organisations such as fraternities or sororities. Athletes are also desirable because of their competitiveness.
Once hired, new employees at Enterprise are often shocked at the performance expectations placed on them by the firm. They generally work long, grueling hours for relatively low pay.

And all Enterprise managers are expected to jump in and help wash or vacuum cars when a rental agency gets backed up. All Enterprise managers must wear coordinated dress shirts and ties and can have facial hair only when “medically necessary”. And women must wear skirts no shorter than two inches above their knees or creased pants.

So what are the incentives for working at Enterprise? For one thing, it’s an unfortunate fact of life that college graduates with low grades often struggle to find work. Thus, a job at Enterprise is still better than no job at all. The firm does not hire outsiders—every position is filled by promoting someone already inside the company. Thus, Enterprise employees know that if they work hard and do their best, they may very well succeed in moving higher up the corporate ladder at a growing and successful firm.

Question:

1. Would Enterprise’s approach human resource management work in other industries?

2. Does Enterprise face any risks from its human resource strategy?

3. Would you want to work for Enterprise? Why or why not?

CASE: II Doing The Dirty Work

Business magazines and newspapers regularly publish articles about the changing nature of work in the United States and about how many jobs are being changed. Indeed, because so much has been made of the shift toward service-sector and professional jobs, many people assumed that the number of unpleasant an undesirable jobs has declined.
In fact, nothing could be further from the truth. Millions of Americans work in gleaming air-conditioned facilities, but many others work in dirty, grimy, and unsafe settings. For example, many jobs in the recycling industry require workers to sort through moving conveyors of trash, pulling out those items that can be recycled. Other relatively unattractive jobs include cleaning hospital restrooms, washing dishes in a restaurant, and handling toxic waste.
Consider the jobs in a chicken-processing facility. Much like a manufacturing assembly line, a chicken-processing facility is organised around a moving conveyor system. Workers call it the chain. In reality, it’s a steel cable with large clips that carries dead chickens down what might be called a “disassembly line.” Standing along this line are dozens of workers who do, in fact, take the birds apart as they pass.
Even the titles of the jobs are unsavory. Among the first set of jobs along the chain is the skinner. Skinners use sharp instruments to cut and pull the skin off the dead chicken. Towards the middle of the line are the gut pullers. These workers reach inside the chicken carcasses and remove the intestines and other organs. At the end of the line are the gizzard cutters, who tackle the more difficult organs attached to the inside of the chicken’s carcass. These organs have to be individually cut and removed for disposal.
The work is obviously distasteful, and the pace of the work is unrelenting. On a good day the chain moves an average of ninety chickens a minute for nine hours. And the workers are essentially held captive by the moving chain. For example, no one can vacate a post to use the bathroom or for other reasons without the permission of the supervisor. In some plants, taking an unauthorised bathroom break can result in suspension without pay. But the noise in a typical chicken-processing plant is so loud that the supervisor can’t hear someone calling for relief unless the person happens to be standing close by.
Jobs such as these on the chicken-processing line are actually becoming increasingly common. Fuelled by Americans’ growing appetites for lean, easy-to-cook meat, the number of poultry workers has almost doubled since 1980, and today they constitute a work force of around a quarter of a million people. Indeed, the chicken-processing industry has become a major component of the state economies of Georgia, North Carolina, Mississippi, Arkansas, and Alabama.
Besides being unpleasant and dirty, many jobs in a chicken-processing plant are dangerous and unhealthy. Some workers, for example, have to fight the live birds when they are first hung on the chains. These workers are routinely scratched and pecked by the chickens. And the air inside a typical chicken-processing plant is difficult to breathe. Workers are usually supplied with paper masks, but most don’t use them because they are hot and confining.
And the work space itself is so tight that the workers often cut themselves—and sometimes their coworkers—with the knives, scissors, and other instruments they use to perform their jobs. Indeed, poultry processing ranks third among industries in the United States for cumulative trauma injuries such as carpet tunnel syndrome. The inevitable chicken feathers, faeces, and blood also contribute to the hazardous and unpleasant work environment.
Question:

1. How relevant are the concepts of competencies to the jobs in a chicken-processing plant?

2. How might you try to improve the jobs in a chicken-processing plant?

3. Are dirty, dangerous, and unpleasant jobs an inevitable part of any economy?

CASE: III On Pegging Pay to Performance

“As you are aware, the Government of India has removed the capping on salaries of directors and has left the matter of their compensation to be decided by shareholders. This is indeed a welcome step,” said Samuel Menezes, president Abhayankar, Ltd., opening the meeting of the managing committee convened to discuss the elements of the company’s new plan for middle managers.
Abhayankar was am engineering firm with a turnover of Rs 600 crore last year and an employee strength of 18,00. Two years ago, as a sequel to liberalisation at the macroeconomic level, the company had restructured its operations from functional teams to product teams. The change had helped speed up transactional times and reduce systemic inefficiencies, leading to a healthy drive towards performance.
“I think it is only logical that performance should hereafter be linked to pay,” continued Menezes. “A scheme in which over 40 per cent of salary will be related to annual profits has been evolved for executives above the vice-president’s level and it will be implemented after getting shareholders approval. As far as the shopfloor staff is concerned, a system of incentive-linked monthly productivity bonus has been in place for years and it serves the purpose of rewarding good work at the assembly line. In any case, a bulk of its salary will have to continue to be governed by good old values like hierarchy, rank, seniority and attendance. But it is the middle management which poses a real dilemma. How does one evaluate its performance? More importantly, how can one ensure that managers are not shortchanged but get what they truly deserve?”
“Our vice-president (HRD), Ravi Narayanan, has now a plan ready in this regard. He has had personal discussions with all the 125 middle managers individually over the last few weeks and the plan is based on their feedback. If there are no major disagreements on the plan, we can put it into effect from next month. Ravi, may I now ask you to take the floor and make your presentation?”
The lights in the conference room dimmed and the screen on the podium lit up. “The plan I am going to unfold,” said Narayanan, pointing to the data that surfaced on the screen, “is designed to enhance team-work and provide incentives for constant improvement and excellence among middle-level managers. Briefly, the pay will be split into two components. The first consists of 75 per cent of the original salary and will be determined, as before, by factors of internal equity comprising what Sam referred to as good old values. It will be a fixed component.”
“The second component of 25 per cent,” he went on, “will be flexible. It will depend on the ability of each product team as a whole to show a minimum of 5 per cent improvement in five areas every month—product quality, cost control, speed of delivery, financial performance of the division to which the product belongs and, finally, compliance with safety and environmental norms. The five areas will have rating of 30, 25, 20, 15, and 10 per cent respectively.
“This, gentlemen, is the broad premise. The rest is a matter of detail which will be worked out after some finetuning. Any questions?”
As the lights reappeared, Gautam Ghosh, vice-president (R&D), said, “I don’t like it. And I will tell you why. Teamwork as a criterion is okay but it also has its pitfalls. The people I take on and develop are good at what they do. Their research skills are individualistic. Why should their pay depend on the performance of other members of the product team? The new pay plan makes them team players first and scientists next. It does not seem right.”
“That is a good one, Gautam,” said Narayanan. “Any other questions? I think I will take them all together.”
“I have no problems with the scheme and I think it is fine. But just for the sake of argument, let me take Gautam’s point further without meaning to pick holes in the plan,” said Avinash Sarin, vice-president (sales). “Look at my dispatch division. My people there have reduced the shipping time from four hours to one over the last six months. But what have they got? Nothing. Why? Because the other members of the team are not measuring up.”
“I think that is a situation which is bound to prevail until everyone falls in line,” intervened Vipul Desai, vice president (finance). “There would always be temporary problems in implementing anything new. The question is whether our long term objectives is right. To the extend that we are trying to promote teamwork, I think we are on the right track. However, I wish to raise a point. There are many external factors which impinge on both individual and collective performance. For instance, the cost of a raw material may suddenly go up in the market affecting product profitability. Why should the concerned product team be penalised for something beyond its control?”
“I have an observation to make too, Ravi,” said Menezes, “You would recall the survey conducted by a business fortnightly on ‘The ten companies Indian managers fancy most as a working place’. Abhayankar got top billings there. We have been the trendsetters in executive compensation in Indian industry. We have been paying the best. Will your plan ensure that it remains that way?”
As he took the floor again, the dominant thought in Narayanan’s mind was that if his plan were to be put into place, Abhayankar would set another new trend in executive compensation.

Question:

But how should he see it through?

CASE: IV Crisis Blown Over

November 30, 1997 goes down in the history of a Bangalore-based electric company as the day nobody wanting it to recur but everyone recollecting it with sense of pride.
It was a festive day for all the 700-plus employees. Festoons were strung all over, banners were put up; banana trunks and leaves adorned the factory gate, instead of the usual red flags; and loud speakers were blaring Kannada songs. It was day the employees chose to celebrate Kannada Rajyothsava, annual feature of all Karnataka-based organisations. The function was to start at 4 p.m. and everybody was eagerly waiting for the big event to take place.
But the event, budgeted at Rs 1,00,000 did not take place. At around 2 p.m., there was a ghastly accident in the machine shop. Murthy was caught in the vertical turret lathe and was wounded fatally. His end came in the ambulance on the way to hospital.
The management sought union help, and the union leaders did respond with a positive attitude. They did not want to fish in troubled waters.
Series of meetings were held between the union leaders and the management. The discussions centred around two major issues—(i) restoring normalcy, and (ii) determining the amount of compensation to be paid to the dependants of Murthy.
Luckily for the management, the accident took place on a Saturday. The next day was a weekly holiday and this helped the tension to diffuse to a large extent. The funeral of the deceased took place on Sunday without any hitch. The management hoped that things would be normal on Monday morning.
But the hope was belied. The workers refused to resume work. Again the management approached the union for help. Union leaders advised the workers to resume work in al departments except in the machine shop, and the suggestions was accepted by all.
Two weeks went by, nobody entered the machine shop, though work in other places resumed. Union leaders came with a new idea to the management—to perform a pooja to ward off any evil that had befallen on the lathe. The management accepted the idea and homa was performed in the machine shop for about five hours commencing early in the morning. This helped to some extent. The workers started operations on all other machines in the machine shop except on the fateful lathe. It took two full months and a lot of persuasion from the union leaders for the workers to switch on the lathe.
The crisis was blown over, thanks to the responsible role played by the union leaders and their fellow workers. Neither the management nor the workers wish that such an incident should recur.
As the wages of the deceased grossed Rs 6,500 per month, Murthy was not covered under the ESI Act. Management had to pay compensation. Age and experience of the victim were taken into account to arrive at Rs 1,87,000 which was the amount to be payable to the wife of the deceased. To this was added Rs 2,50,000 at the intervention of the union leaders. In addition, the widow was paid a gratuity and a monthly pension of Rs 4,300. And nobody’s wages were cut for the days not worked.
Murthy’s death witnessed an unusual behavior on the part of the workers and their leaders, and magnanimous gesture from the management. It is a pride moment in the life of the factory.

Question:

1. Do you think that the Bangalore-based company had practised participative management?

2. If your answer is yes, with what method of participation (you have read in this chapter) do you relate the above case?

3. If you were the union leader, would your behaviour have been different? If yes, what would it be?

CASE: V A Case of Burnout

When Mahesh joined XYZ Bank (private sector) in 1985, he had one clear goal—to prove his mettle. He did prove himself and has been promoted five times since his entry into the bank. Compared to others, his progress has been fastest. Currently, his job demands that Mahesh should work 10 hours a day with practically no holidays. At least two day in a week, Mahesh is required to travel.
Peers and subordinates at the bank have appreciation for Mahesh. They don’t grudge the ascension achieved by Mahesh, though there are some who wish they too had been promoted as well.
The post of General Manager fell vacant. One should work as GM for a couple of years if he were to climb up to the top of the ladder, Mahesh applied for the post along with others in the bank. The Chairman assured Mahesh that the post would be his.
A sudden development took place which almost wrecked Mahesh’s chances. The bank has the practice of subjecting all its executives to medical check-up once in a year. The medical reports go straight to the Chairman who would initiate remedials where necessary. Though Mahesh was only 35, he too, was required to undergo the test.
The Chairman of the bank received a copy of Mahesh’s physical examination results, along with a note from the doctor. The note explained that Mahesh was seriously overworked, and recommended that he be given an immediate four-week vacation. The doctor also recommended that Mahesh’s workload must be reduced and he must take physical exercise every day. The note warned that if Mahesh did not care for advice, he would be in for heart trouble in another six months.
After reading the doctor’s note, the Chairman sat back in his chair, and started brooding over. Three issues were uppermost in his mind—(i) How would Mahesh take this news? (ii) How many others do have similar fitness problems? (iii) Since the environment in the bank helps create the problem, what could he do to alleviate it? The idea of holding a stress-management programme flashed in his mind and suddenly he instructed his secretary to set up a meeting with the doctor and some key staff members, at the earliest.

Question:

1. If the news is broken to Mahesh, how would he react?

2. If you were giving advice to the Chairman on this matter, what would you recommend?

CASE: VI “Whose Side are you on, Anyway?”

It was past 4 pm and Purushottam Mahesh was still at his shopfloor office. The small but elegant office was a perk he was entitled to after he had been nominated to the board of Horizon Industries (P) Ltd., as workman-director six months ago. His shift generally ended at 3 pm and he would be home by late evening. But that day, he still had long hours ahead of him.
Kshirsagar had been with Horizon for over twenty years. Starting off as a substitute mill-hand in the paint shop at one of the company’s manufacturing facilities, he had been made permanent on the job five years later. He had no formal education. He felt this was a handicap, but he made up for it with a willingness to learn and a certain enthusiasm on the job. He was soon marked by the works manager as someone to watch out for. Simultaneously, Kshirsagar also came to the attention of the president of the Horizon Employees’ Union who drafted him into union activities.
Even while he got promoted twice during the period to become the head colour mixer last year, Kshirsagar had gradually moved up the union hierarchy and had been thrice elected secretary of the union. Labour-management relations at Horizon were not always cordial. This was largely because the company had not been recording a consistently good performance. There were frequent cuts in production every year because of go-slows and strikes by workmen—most of them related to wage hikes and bonus payments. With a view to ensuring a better understanding on the part of labour, the problems of company management, the Horizon board, led by chairman and managing director Aninash Chaturvedi, began to toy with idea of taking on a workman on the board. What started off as a hesitant move snowballed, after a series of brainstorming sessions with executives and meetings with the union leaders, into a situation in which Kshirsagar found himself catapulted to the Horizon board as work-man-director.
It was an untested ground for the company. But the novelty of it all excited both the management and the labour force. The board members—all functional heads went out of their way to make Kshirsagar comfortable and the latter also responded quite well. He got used to the ambience of the boardroom and the sense of power it conveyed. Significantly, he was soon at home with the perspectives of top management and began to see each issue from both sides.
It was smooth going until the union presented a week before the monthly board meeting, its charter of demands, one of which was a 30 per cent across-the board hike in wages. The matter was taken up at the board meeting as part of a special agenda.
“Look at what your people are asking for,” said Chaturvedi, addressing Kshirsagar with a sarcasm that no one in the board missed. “You know the precarious finances of the company. How could you be a party to a demand that can’t be met? You better explain to them how ridiculous the demands are,” he said.
“I don’t think they can all be dismissed as ridiculous,” said Kshirsagar. “And the board can surely consider the alternatives. We owe at least that much to the union.” But Chaturvedi adjourned the meeting in a huff, mentioning, once to Kshirsagar that he should “advise the union properly”.
When Kshirsagar told the executive committee members of the union that the board was simply not prepared to even consider the demands, he immediately sensed the hostility in the room. “You are a sell out,” one of them said. “Who do you really represent—us or them?” asked another.
“Here comes the crunch,” thought Kshirsagar. And however hard he tried to explain, he felt he was talking to a wall.
A victim of divided loyalities, he himself was unable to understand whose side he was on. Perhaps the best course would be to resign from the board. Perhaps he should resign both from the board and

the union. Or may be resign from Horizon itself and seek a job elsewhere. But, he felt, sitting in his office a little later, “none of it could solve the problem.”

Question:
1. What should he do?

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?

2. 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?

2. 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?

2. 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?

2. 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
purchaser. Is this putting too heavy a burden on sellers?

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

HUMAN RESOURCE MANAGEMENT IIBMS MBA CASE STUDY EXAM ANSWER

HUMAN RESOURCE MANAGEMENT IIBMS MBA CASE STUDY EXAM ANSWER

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 Jaggu.

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

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

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 IIBMS EXAM ANSWER SHEET

HUMAN RESOURCE MANAGEMENT IIBMS EXAM ANSWER SHEET

The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 1
Note: Solve any 4 Cases Study’s
CASE: I – Enterprise Builds On People
When most people think of car-rental firms, the names of Hertz and Avis usually come to mind. But in the last few years,
Enterprise Rent-A-Car has overtaken both of these industry giants, and today it stands as both the largest and the most
profitable business in the car-rental industry. In 2001, for instance, the firm had sales in excess of $6.3 billion and
employed over 50,000 people.
Jack Taylor started Enterprise in St. Louis in 1957. Taylor had a unique strategy in mind for Enterprise, and that strategy
played a key role in the firm’s initial success. Most car-rental firms like Hertz and Avis base most of their locations in or
near airports, train stations, and other transportation hubs. These firms see their customers as business travellers and
people who fly for vacation and then need transportation at the end of their flight. But Enterprise went after a different
customer. It sought to rent cars to individuals whose own cars are being repaired or who are taking a driving vacation.
The firm got its start by working with insurance companies. A standard feature in many automobile insurance policies is
the provision of a rental car when one’s personal car has been in an accident or has been stolen. Firms like Hertz and Avis
charge relatively high daily rates because their customers need the convenience of being near an airport and/or they are
having their expenses paid by their employer. These rates are often higher than insurance companies are willing to pay, so
customers who these firms end up paying part of the rental bills themselves. In addition, their locations are also often
inconvenient for people seeking a replacement car while theirs is in the shop.
But Enterprise located stores in downtown and suburban areas, where local residents actually live. The firm also provides
local pickup and delivery service in most areas. It also negotiates exclusive contract arrangements with local insurance
agents. They get the agent’s referral business while guaranteeing lower rates that are more in line with what insurance
covers.
In recent years, Enterprise has started to expand its market base by pursuing a two-pronged growth strategy. First, the
firm has started opening airport locations to compete with Hertz and Avis more directly. But their target is still the
occasional renter than the frequent business traveller. Second, the firm also began to expand into international markets
and today has rental offices in the United Kingdom, Ireland and Germany.
Another key to Enterprise’s success has been its human resource strategy. The firm targets a certain kind of individual to
hire; its preferred new employee is a college graduate from bottom half of graduating class, and preferably one who was
an athlete or who was otherwise actively involved in campus social activities. The rationale for this unusual academic
standard is actually quite simple. Enterprise managers do not believe that especially high levels of achievements are
necessary to perform well in the car-rental industry, but having a college degree nevertheless demonstrates intelligence
and motivation. In addition, since interpersonal relations are important to its business, Enterprise wants people who were
social directors or high-ranking officers of social organisations such as fraternities or sororities. Athletes are also desirable
because of their competitiveness.
Once hired, new employees at Enterprise are often shocked at the performance expectations placed on them by the firm.
They generally work long, grueling hours for relatively low pay.
And all Enterprise managers are expected to jump in and help wash or vacuum cars when a rental agency gets backed up.
All Enterprise managers must wear coordinated dress shirts and ties and can have facial hair only when “medically
necessary”. And women must wear skirts no shorter than two inches above their knees or creased pants.
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 2
So what are the incentives for working at Enterprise? For one thing, it’s an unfortunate fact of life that college graduates
with low grades often struggle to find work. Thus, a job at Enterprise is still better than no job at all. The firm does not hire
outsiders—every position is filled by promoting someone already inside the company. Thus, Enterprise employees know
that if they work hard and do their best, they may very well succeed in moving higher up the corporate ladder at a growing
and successful firm.
Question:
1. Would Enterprise’s approach human resource management work in other industries?
2. Does Enterprise face any risks from its human resource strategy?
3. Would you want to work for Enterprise? Why or why not?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 3
CASE: II – Doing The Dirty Work
Business magazines and newspapers regularly publish articles about the changing nature of work in the United States
and about how many jobs are being changed. Indeed, because so much has been made of the shift toward service-sector
and professional jobs, many people assumed that the number of unpleasant an undesirable jobs has declined.
In fact, nothing could be further from the truth. Millions of Americans work in gleaming air-conditioned facilities, but many
others work in dirty, grimy, and unsafe settings. For example, many jobs in the recycling industry require workers to sort
through moving conveyors of trash, pulling out those items that can be recycled. Other relatively unattractive jobs include
cleaning hospital restrooms, washing dishes in a restaurant, and handling toxic waste.
Consider the jobs in a chicken-processing facility. Much like a manufacturing assembly line, a chicken-processing facility is
organised around a moving conveyor system. Workers call it the chain. In reality, it’s a steel cable with large clips that
carries dead chickens down what might be called a “disassembly line.” Standing along this line are dozens of workers who
do, in fact, take the birds apart as they pass.
Even the titles of the jobs are unsavory. Among the first set of jobs along the chain is the skinner. Skinners use sharp
instruments to cut and pull the skin off the dead chicken. Towards the middle of the line are the gut pullers. These workers
reach inside the chicken carcasses and remove the intestines and other organs. At the end of the line are the gizzard
cutters, who tackle the more difficult organs attached to the inside of the chicken’s carcass. These organs have to be
individually cut and removed for disposal.
The work is obviously distasteful, and the pace of the work is unrelenting. On a good day the chain moves an average of
ninety chickens a minute for nine hours. And the workers are essentially held captive by the moving chain. For example, no
one can vacate a post to use the bathroom or for other reasons without the permission of the supervisor. In some plants,
taking an unauthorised bathroom break can result in suspension without pay. But the noise in a typical chicken-processing
plant is so loud that the supervisor can’t hear someone calling for relief unless the person happens to be standing close by.
Jobs such as these on the chicken-processing line are actually becoming increasingly common. Fuelled by Americans’
growing appetites for lean, easy-to-cook meat, the number of poultry workers has almost doubled since 1980, and today
they constitute a work force of around a quarter of a million people. Indeed, the chicken-processing industry has become a
major component of the state economies of Georgia, North Carolina, Mississippi, Arkansas, and Alabama.
Besides being unpleasant and dirty, many jobs in a chicken-processing plant are dangerous and unhealthy. Some workers,
for example, have to fight the live birds when they are first hung on the chains. These workers are routinely scratched and
pecked by the chickens. And the air inside a typical chicken-processing plant is difficult to breathe. Workers are usually
supplied with paper masks, but most don’t use them because they are hot and confining.
And the work space itself is so tight that the workers often cut themselves—and sometimes their coworkers—with the
knives, scissors, and other instruments they use to perform their jobs. Indeed, poultry processing ranks third among
industries in the United States for cumulative trauma injuries such as carpet tunnel syndrome. The inevitable chicken
feathers, faeces, and blood also contribute to the hazardous and unpleasant work environment.
Question:
1. How relevant are the concepts of competencies to the jobs in a chicken-processing plant?
2. How might you try to improve the jobs in a chicken-processing plant?
3. Are dirty, dangerous, and unpleasant jobs an inevitable part of any economy?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 4
CASE : III – On Pegging Pay to Performance
“As you are aware, the Government of India has removed the capping on salaries of directors and has left the matter of
their compensation to be decided by shareholders. This is indeed a welcome step,” said Samuel Menezes, president
Abhayankar, Ltd., opening the meeting of the managing committee convened to discuss the elements of the company’s new
plan for middle managers.
Abhayankar was am engineering firm with a turnover of Rs 600 crore last year and an employee strength of 18,00. Two
years ago, as a sequel to liberalisation at the macroeconomic level, the company had restructured its operations from
functional teams to product teams. The change had helped speed up transactional times and reduce systemic inefficiencies,
leading to a healthy drive towards performance.
“I think it is only logical that performance should hereafter be linked to pay,” continued Menezes. “A scheme in which over
40 per cent of salary will be related to annual profits has been evolved for executives above the vice-president’s level and
it will be implemented after getting shareholders approval. As far as the shopfloor staff is concerned, a system of incentivelinked
monthly productivity bonus has been in place for years and it serves the purpose of rewarding good work at the
assembly line. In any case, a bulk of its salary will have to continue to be governed by good old values like hierarchy, rank,
seniority and attendance. But it is the middle management which poses a real dilemma. How does one evaluate its
performance? More importantly, how can one ensure that managers are not shortchanged but get what they truly
deserve?”
“Our vice-president (HRD), Ravi Narayanan, has now a plan ready in this regard. He has had personal discussions with all
the 125 middle managers individually over the last few weeks and the plan is based on their feedback. If there are no
major disagreements on the plan, we can put it into effect from next month. Ravi, may I now ask you to take the floor and
make your presentation?”
The lights in the conference room dimmed and the screen on the podium lit up. “The plan I am going to unfold,” said
Narayanan, pointing to the data that surfaced on the screen, “is designed to enhance team-work and provide incentives for
constant improvement and excellence among middle-level managers. Briefly, the pay will be split into two components.
The first consists of 75 per cent of the original salary and will be determined, as before, by factors of internal equity
comprising what Sam referred to as good old values. It will be a fixed component.”
“The second component of 25 per cent,” he went on, “will be flexible. It will depend on the ability of each product team as a
whole to show a minimum of 5 per cent improvement in five areas every month—product quality, cost control, speed of
delivery, financial performance of the division to which the product belongs and, finally, compliance with safety and
environmental norms. The five areas will have rating of 30, 25, 20, 15, and 10 per cent respectively.
“This, gentlemen, is the broad premise. The rest is a matter of detail which will be worked out after some finetuning. Any
questions?”
As the lights reappeared, Gautam Ghosh, vice-president (R&D), said, “I don’t like it. And I will tell you why. Teamwork as a
criterion is okay but it also has its pitfalls. The people I take on and develop are good at what they do. Their research skills
are individualistic. Why should their pay depend on the performance of other members of the product team? The new pay
plan makes them team players first and scientists next. It does not seem right.”
“That is a good one, Gautam,” said Narayanan. “Any other questions? I think I will take them all together.”
“I have no problems with the scheme and I think it is fine. But just for the sake of argument, let me take Gautam’s point
further without meaning to pick holes in the plan,” said Avinash Sarin, vice-president (sales). “Look at my dispatch
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 5
division. My people there have reduced the shipping time from four hours to one over the last six months. But what have
they got? Nothing. Why? Because the other members of the team are not measuring up.”
“I think that is a situation which is bound to prevail until everyone falls in line,” intervened Vipul Desai, vice president
(finance). “There would always be temporary problems in implementing anything new. The question is whether our long
term objectives is right. To the extend that we are trying to promote teamwork, I think we are on the right track. However,
I wish to raise a point. There are many external factors which impinge on both individual and collective performance. For
instance, the cost of a raw material may suddenly go up in the market affecting product profitability. Why should the
concerned product team be penalised for something beyond its control?”
“I have an observation to make too, Ravi,” said Menezes, “You would recall the survey conducted by a business fortnightly
on ‘The ten companies Indian managers fancy most as a working place’. Abhayankar got top billings there. We have been
the trendsetters in executive compensation in Indian industry. We have been paying the best. Will your plan ensure that it
remains that way?”
As he took the floor again, the dominant thought in Narayanan’s mind was that if his plan were to be put into place,
Abhayankar would set another new trend in executive compensation.
Question:
But how should he see it through?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 6
CASE : IV – Crisis Blown Over
November 30, 1997 goes down in the history of a Bangalore-based electric company as the day nobody wanting it to recur
but everyone recollecting it with sense of pride.
It was a festive day for all the 700-plus employees. Festoons were strung all over, banners were put up; banana trunks and
leaves adorned the factory gate, instead of the usual red flags; and loud speakers were blaring Kannada songs. It was day
the employees chose to celebrate Kannada Rajyothsava, annual feature of all Karnataka-based organisations. The function
was to start at 4 p.m. and everybody was eagerly waiting for the big event to take place.
But the event, budgeted at Rs 1,00,000 did not take place. At around 2 p.m., there was a ghastly accident in the machine
shop. Murthy was caught in the vertical turret lathe and was wounded fatally. His end came in the ambulance on the way
to hospital.
The management sought union help, and the union leaders did respond with a positive attitude. They did not want to fish
in troubled waters.
Series of meetings were held between the union leaders and the management. The discussions centred around two major
issues—(i) restoring normalcy, and (ii) determining the amount of compensation to be paid to the dependants of Murthy.
Luckily for the management, the accident took place on a Saturday. The next day was a weekly holiday and this helped the
tension to diffuse to a large extent. The funeral of the deceased took place on Sunday without any hitch. The management
hoped that things would be normal on Monday morning.
But the hope was belied. The workers refused to resume work. Again the management approached the union for help.
Union leaders advised the workers to resume work in al departments except in the machine shop, and the suggestions was
accepted by all.
Two weeks went by, nobody entered the machine shop, though work in other places resumed. Union leaders came with a
new idea to the management—to perform a pooja to ward off any evil that had befallen on the lathe. The management
accepted the idea and homa was performed in the machine shop for about five hours commencing early in the morning.
This helped to some extent. The workers started operations on all other machines in the machine shop except on the
fateful lathe. It took two full months and a lot of persuasion from the union leaders for the workers to switch on the lathe.
The crisis was blown over, thanks to the responsible role played by the union leaders and their fellow workers. Neither the
management nor the workers wish that such an incident should recur.
As the wages of the deceased grossed Rs 6,500 per month, Murthy was not covered under the ESI Act. Management had to
pay compensation. Age and experience of the victim were taken into account to arrive at Rs 1,87,000 which was the
amount to be payable to the wife of the deceased. To this was added Rs 2,50,000 at the intervention of the union leaders. In
addition, the widow was paid a gratuity and a monthly pension of Rs 4,300. And nobody’s wages were cut for the days not
worked.
Murthy’s death witnessed an unusual behavior on the part of the workers and their leaders, and magnanimous gesture
from the management. It is a pride moment in the life of the factory.
Question:
1. Do you think that the Bangalore-based company had practised participative management?
2. If your answer is yes, with what method of participation (you have read in this chapter) do you relate the above
case?
3. If you were the union leader, would your behaviour have been different? If yes, what would it be?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 7
CASE : V – A Case of Burnout
When Mahesh joined XYZ Bank (private sector) in 1985, he had one clear goal—to prove his mettle. He did prove himself
and has been promoted five times since his entry into the bank. Compared to others, his progress has been fastest.
Currently, his job demands that Mahesh should work 10 hours a day with practically no holidays. At least two day in a
week, Mahesh is required to travel.
Peers and subordinates at the bank have appreciation for Mahesh. They don’t grudge the ascension achieved by Mahesh,
though there are some who wish they too had been promoted as well.
The post of General Manager fell vacant. One should work as GM for a couple of years if he were to climb up to the top of
the ladder, Mahesh applied for the post along with others in the bank. The Chairman assured Mahesh that the post would
be his.
A sudden development took place which almost wrecked Mahesh’s chances. The bank has the practice of subjecting all its
executives to medical check-up once in a year. The medical reports go straight to the Chairman who would initiate
remedials where necessary. Though Mahesh was only 35, he too, was required to undergo the test.
The Chairman of the bank received a copy of Mahesh’s physical examination results, along with a note from the doctor. The
note explained that Mahesh was seriously overworked, and recommended that he be given an immediate four-week
vacation. The doctor also recommended that Mahesh’s workload must be reduced and he must take physical exercise
every day. The note warned that if Mahesh did not care for advice, he would be in for heart trouble in another six months.
After reading the doctor’s note, the Chairman sat back in his chair, and started brooding over. Three issues were
uppermost in his mind—(i) How would Mahesh take this news? (ii) How many others do have similar fitness problems?
(iii) Since the environment in the bank helps create the problem, what could he do to alleviate it? The idea of holding a
stress-management programme flashed in his mind and suddenly he instructed his secretary to set up a meeting with the
doctor and some key staff members, at the earliest.
Question:
1. If the news is broken to Mahesh, how would he react?
2. If you were giving advice to the Chairman on this matter, what would you recommend?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 8
CASE : VI – “Whose Side are you on, Anyway?”
It was past 4 pm and Purushottam Mahesh was still at his shopfloor office. The small but elegant office was a perk he was
entitled to after he had been nominated to the board of Horizon Industries (P) Ltd., as workman-director six months ago.
His shift generally ended at 3 pm and he would be home by late evening. But that day, he still had long hours ahead of him.
Kshirsagar had been with Horizon for over twenty years. Starting off as a substitute mill-hand in the paint shop at one of
the company’s manufacturing facilities, he had been made permanent on the job five years later. He had no formal
education. He felt this was a handicap, but he made up for it with a willingness to learn and a certain enthusiasm on the
job. He was soon marked by the works manager as someone to watch out for. Simultaneously, Kshirsagar also came to the
attention of the president of the Horizon Employees’ Union who drafted him into union activities.
Even while he got promoted twice during the period to become the head colour mixer last year, Kshirsagar had gradually
moved up the union hierarchy and had been thrice elected secretary of the union. Labour-management relations at
Horizon were not always cordial. This was largely because the company had not been recording a consistently good
performance. There were frequent cuts in production every year because of go-slows and strikes by workmen—most of
them related to wage hikes and bonus payments. With a view to ensuring a better understanding on the part of labour, the
problems of company management, the Horizon board, led by chairman and managing director Aninash Chaturvedi, began
to toy with idea of taking on a workman on the board. What started off as a hesitant move snowballed, after a series of
brainstorming sessions with executives and meetings with the union leaders, into a situation in which Kshirsagar found
himself catapulted to the Horizon board as work-man-director.
It was an untested ground for the company. But the novelty of it all excited both the management and the labour force. The
board members—all functional heads went out of their way to make Kshirsagar comfortable and the latter also responded
quite well. He got used to the ambience of the boardroom and the sense of power it conveyed. Significantly, he was soon at
home with the perspectives of top management and began to see each issue from both sides.
It was smooth going until the union presented a week before the monthly board meeting, its charter of demands, one of
which was a 30 per cent across-the board hike in wages. The matter was taken up at the board meeting as part of a special
agenda.
“Look at what your people are asking for,” said Chaturvedi, addressing Kshirsagar with a sarcasm that no one in the board
missed. “You know the precarious finances of the company. How could you be a party to a demand that can’t be met? You
better explain to them how ridiculous the demands are,” he said.
“I don’t think they can all be dismissed as ridiculous,” said Kshirsagar. “And the board can surely consider the alternatives.
We owe at least that much to the union.” But Chaturvedi adjourned the meeting in a huff, mentioning, once to Kshirsagar
that he should “advise the union properly”.
When Kshirsagar told the executive committee members of the union that the board was simply not prepared to even
consider the demands, he immediately sensed the hostility in the room. “You are a sell out,” one of them said. “Who do you
really represent—us or them?” asked another.
“Here comes the crunch,” thought Kshirsagar. And however hard he tried to explain, he felt he was talking to a wall. A
victim of divided loyalities, he himself was unable to understand whose side he was on. Perhaps the best course would be
to resign from the board. Perhaps he should resign both from the board and the union. Or may be resign from Horizon
itself and seek a job elsewhere. But, he felt, sitting in his office a little later, “none of it could solve the problem.”
Question:
1. What should he do?

MANAGERIAL ECONOMIS IIBMS EXAM ANSWER SHEETS

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

IIBMS MBA MANAGERIAL ECONOMICS EXAM ANSWER

IIBMS MBA MANAGERIAL ECONOMICS EXAM ANSWER

The Indian Institute of Business Management & Studies

Subject: Managerial Economics Marks: 100

Page | 1

Attempt Any Four Case Study

CASE – 1 Dabur India Limited: Growing Big and Global

Dabur is among the top five FMCG companies in India and is positioned successfully on the specialist

herbal platform. Dabur has proven its expertise in the fields of health care, personal care, homecare

and foods.

The company was founded by Dr. S. K. Burman in 1884 as small pharmacy in Calcutta (now Kolkata),

India. And is now led by his great grandson Vivek C. Burman, who is the Chairman of Dabur India

Limited and the senior most representative of the Burman family in the company. The company

headquarters are in Ghaziabad, India, near the Indian capital New Delhi, where it is registered. The

company has over 12 manufacturing units in India and abroad. The international facilities are located

in Nepal, Dubai, Bangladesh, Egypt and Nigeria.

S.K. Burman, the founder of Dabur, was trained as a physician. His mission was to provide effective

and affordable cure for ordinary people in far-flung villages. Soon, he started preparing natural

remedies based on Ayurved for diseases such as Cholera, Plague and Malaria. Due to his cheap and

effective remedies, he became to be known as ‘Daktar’ (Indianised version of ‘doctor’). And that is how

his venture Dabur got its name—derived from Daktar Burman.

The company faces stiff competition from many multi national and domestic companies. In the

Branded and Packaged Food and Beverages segment major companies that are active include

Hindustan Lever, Nestle, Cadbury and Dabur. In case of Ayurvedic medicines and products, the major

competitors are Baidyanath, Vicco, Jhandu, Himani and other pharmaceutical companies.

Vision, Mission and Objectives

Vision statement of Dabur says that the company is “dedicated to the health and well being of every

household”. The objective is to “significantly accelerate profitable growth by providing comfort to

others”. For achieving this objective Dabur aims to:

 Focus on growing core brands across categories, reaching out to new geographies, within and

outside India, and improve operational efficiencies by leveraging technology.

 Be the preferred company to meet the health and personal grooming needs of target consumers

with safe, efficacious, natural solutions by synthesising deep knowledge of ayurveda and herbs with

modern science.

 Be a professionally managed employer of choice, attracting, developing and retaining quality

personnel.

 Be responsible citizens with a commitment to environmental protection.

 Provide superior returns, relative to our peer group, to our shareholders.

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Chairman of the company

Vivek C. Burman joined Dabur in 1954 after completing his graduation in Business Administration

from the USA. In 1986 he was appointed Managing Director of Dabur and in 1998 he took over as

Chairman of the Company.

Under Vivek Burman’s leadership, Dabur has grown and evolved as a multi-crore business house with

a diverse product portfolio and a marketing network that traverses the whole of India and more than

50 countries across the world. As a strong and positive leader, Vivek C. Burman has motivated

employees of Dabur to “do better than their best”—a credo that gives Dabur its status as India’s most

trusted nature-based products company.

Leading brands

More than 300 diverse products in the FMCG, Healthcare and Ayurveda segments are in the product

line of Dabur. List of products of the company include very successful brands like Vatika, Anmol,

Hajmola, Dabur Amla Chyawanprash, Dabur Honey and Lal Dant Manjan with turnover of Rs.100

crores each.

Strategic positioning of Dabur Honey as food product, lead to market leadership with over 40%

market share in branded honey market; Dabur Chyawanprash is the largest selling Ayurvedic

medicine with over 65% market share. Dabur is a leader in herbal digestives with 90% market share.

Hajmola tablets are in command with 75% market share of digestive tablets category. Dabur Lal Tail

tops baby massage oil market with 35% of total share.

CHD (Consumer Health Division), dealing with classical Ayurvedic medicines has more than 250

products sold through prescription as well as over the counter. Proprietary Ayurvedic medicines

developed by Dabur include Nature Care Isabgol, Madhuvaani and Trifgol.

However, some of the subsidiary units of Dabur have proved to be low margin business; like Dabur

Finance Limited. The international units are also operating on low profit margin. The company also

produces several “me – too” products. At the same time the company is very popular in the rural

segment.

Questions

1. What is the objective of Dabur? Is it profit maximisation or growth maximisation? Discuss.

2. Do you think the growth of Dabur from a small pharmacy to a large multinational company is

an indicator of the advantages of joint stock company against proprietorship form? Elaborate.

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Page | 3

CASE – 2 IT Industry: Checkered Growth

IT industry is now considered as vital for the development of any economy. Developing countries

value the importance of this industry due to its capacity to provide much needed export earnings and

support in the development of other industries. Especially in Indian context, this industry has

assumed a significant position in the overall economy, due to its exemplary potentials in creating high

value jobs, enhancing business efficiency and earning export revenues. The IT revolution has brought

unexpected opportunities for India, which is emerging as an increasingly preferred location for

customised software development. Experts are estimating the global IT industry to grow to US$1.6

million over the coming six years and exports to reach Rs. 2000 billion by 2008. It is envisaged that

Indian IT industry, though a very small portion of the global IT pie, has tremendous growth prospects.

Stock Taking

The decade of 1970 may be taken as the stage of introduction of the Indian IT industry. The early

years were marked by 75 per cent of software development taking place overseas and the rest 25 per

cent in India. Exports of Indian software until the mid-1970s was mainly Eastern Europe, followed by

US. Tata Consultancy Services (TCS) was among the pioneers in selling its services outside India, by

working for IBM Labs in the US. The hardware segment lagged behind its software counterpart. With

instances of exports worth US$ 4 million in 1980, the software segment of the industry has shown an

uneven profile. It was not until 1980s that vigorous and sustained growth in software exports begun,

as MNCs like Texas Instruments started to take serious interest in India as a centre of software

production. Destinations of export also underwent changes, with US dominating the main export

market with 75 per cent of the exports. The IT Enabled Services (ITeS) segment, however, had not

emerged at this stage.

It was also during the mid to late 1980s that computer firms shifted focus from mainframe computers

(the mainstay of MNCs) to Personal Computers (PCs). In March 1985, Minicomp installed the first ever

PC at CSI, Delhi; this changed the entire industry for good. With the entry of networking and

applications like CAD/CAM, PC sales soared in 1987-88, touching 50,000 units.

From a modest growth in the mid-1980s software exports moved up to Rs. 3.8 billion in 1991-92.

Since then, it grew at an incredible rate, up to 115 per cent in 1993. The hardware could also register

an annual growth of 40 per cent in this period, backed by a surging demand for PCs and networking.

Growth of the industry was also driven by the emergence and rapid growth of the ITeS segment.

IT sector’s share of GDP rose steadily in this period, rate of increase being the highest at 44.91 per

cent in 2000-01. It was in the same year that the size of the total IT market was the biggest in the

decade, at Rs. 56,592 crore. The overall IT market was also found to increase till 2000-01. The overall

IT market was also found to increase till 2000-01, with the only exception of 1998-99. The domestic

market also showed an overall increase till 2000-01, registering a spectacular CAGR of 50.39 per cent.

Aggregate output of software and services also increased in this period, though at an uneven rate. Of

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approximately $1 billion worth of sales in 1991-1992, domestic hardware sales constituted 37.2 per

cent (13.4 per cent growth over the previous year), exports of hardware 6.6 per cent.

During 2000-01 the growth in the hardware segment was driven mainly by PCs, which contributed

about 58 per cent of the total hardware market. This period also witnessed the phenomenon of

increasing share of Tier 2 and cities in PC sales, thereby indicating PC penetration into the hinterland.

PC shipments had increased by 35 per cent every year from 1997 till 2000-01 when it reached 1.8

million PCs. The commercial PC market saw a growth of 23.5 per cent mainly due to slashing of prices

by major vendors.

It was in 2001-02 that the industry had a sharp fall in rate of growth of its share of GDP to 5.90 per

cent, from 44.91 per cent in the previous year. The total IT market also showed a fall in growth rate

from 56.42 per cent in 2000-01 to a mere 16.24 per cent in the next year, growing further at the rate

of 16.25 per cent in the next year. Software export was also affected, registering a low growth of 28.74

per cent and failed to maintain its growth rate of 65.30 per cent in the previous year. It got further

lowered to 26.30 per cent in 2002-03. CAGR of total output of software and services (in Rs. crore)

came down to 25.61 in 2001-02 and further to 25.11 in 2002-03. The domestic market showed a steep

decline in growth to 3 per cent in 2001-02 from an outstanding 50.39 per cent in 2000-01. It could,

however, recover by growing at 4.11 per cent in the next year.

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

Year A* B* C* D* E*

1996-97

1997-98

1998-99

1999-00

2000-01

2001-02

2002-03

18,641

25,307

36,179

56,592

65,788

76,482

3,900

6,530

10,940

17,150

28,350

36,500

46,100

6,594

10,899

16,879

23,980

37,350

47,532

59,472

9,438

12,055

14,227

18,837

28,330

29,181

30,382

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

services exports (in Rs. crore), D: size of software and services (in Rs. crore), E: size of the domestic

market (in Rs. crore)

Questions

1. Try to identify various stages of growth of IT industry on basis of information given in the

case and present a scenario for the future.

2. Study the table given. Apply trend projection method on the figures and comment on the

trend.

3. Compute a 3 year moving average forecast for the years 1997-98 through 2003-04.

The Indian Institute of Business Management & Studies

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Page | 5

CASE – 3 Outsourcing to India: Way to Fast Track

By almost any measure, David Galbenski’s company Contract Counsel was a success. It was a company

Galbenski and a law school buddy, Mark Adams, started in 1993; it helps companies find lawyers on a

temporary contract basis. The growth over the past five years had been furious. Revenue went from

less than $200,000 to some $6.5 million at the end of 2003, and the company was placing thousands of

lawyers a year.

At then the revenue growth began to flatten; the company grew just 8% in 2004 despite a robust

market for legal services estimated at about $250 billion in the United States alone. Frustrated and

concerned, Galbenski stepped back and began taking a hard look at his business. Could he get it back

on the fast track? “Most business books say that the hardest threshold to cross is that $10 million sales

mark,” he says. “I knew we couldn’t afford to grow only 10% a year. We needed to blow right through

that number.”

For that to happen, Galbenski knew he had to expand his customer base beyond the Midwest into

large legal supermarkets such as Boston, New York, and Washington, D.C. He also knew that in doing

so, he could run into stiff competition from larger publicly traded rivals. Contract Counsel’s edge has

always been its low price, Clients called when dealing with large-scale litigation or complicated

merger and acquisition deals, either of which can require as many as 100 lawyers to manage the

discovery process and the piles of documents associated with it. Contract Counsel’s temps cost about

$75 an hour, roughly half of what a law firm would charge, which allowed the company to be

competitive despite its relatively small size. Galbenski was counting on using the same strategy as he

expanded into new cities. But would that be enough to spur the hyper growth that he craved for?

At that time, Galbenski had been reading quite a bit about the growing use of offshore employees. He

knew companies like General Electric, Microsoft and Cisco were saving bundles by setting up call and

data centers in India. Could law firms offshore their work? Galbenski’s mind raced with possibilities.

He imagined tapping into an army of discount-priced legal minds that would mesh with his existing

talent pool in the U.S. The two work forces could collaborate over the Web and be productive on a 24-

7 basis. And the cost could be massive.

Using offshore workers was a risk, but the payoff was potentially huge. Incidentally Galbenski and his

eight-person management team were preparing to meet for their semiannual review meeting. The

purpose of the two-day event was to decide the company’s goals for the coming year. Driving to the

meeting, Galbenski struggled to figure out exactly what he was going to say. He was still undecided

about whether to pursue an incremental and conservative national expansion or take a big gamble on

overseas contractors.

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The Decision

The next morning Galbenski kicked off the management meeting. Galbenski laid out the facts as he

saw them. Rather than look at just the next five years of growth, look at the next 20, he said. He cited a

Forrester Research prediction that some 79,000 legal jobs, totaling $5.8 billion in wages, would be

sent offshore by 2015. He challenged his team to be pioneers in creating a new industry, rather than

stragglers racing to catch up. His team applauded. Returning to the office after the meeting, Galbenski

announced the change in strategy to his 20 full-timers.

Then he and his team began plotting a global action plan. The first step was to hire a company out of

Indianapolis, Analysts International, to start compiling a list of the best legal services providers in

countries where people had comparatively strong English skills. The next phase was vetting the

companies in person. In February 2005, just three months after the meeting in Port Huron, Galbenski

found himself jetting off on a three months trip to scout potential contractors in India, Dubai, and Sri

Lanka. Traveling to cities like Bangalore, Chennai and Hyderabad, he interviewed executives from

more than a dozen companies, investigating their day-to-day operations firsthand.

India seemed like the best bet. With more than 500 law schools and about 200,000 law students

graduating each year, it had no shortage or attorneys. What amazed Galbenski, however, was that

thanks to the Web, lawyers in India had access to the same research tools and case summaries as any

associate in the U.S. Sure, they didn’t speak American English. “But they were highly motivated, highly

intelligent, and extremely process-oriented,” he says. “They were also eager to tackle the kinds of

tasks that most new associated at law firms look down upon” such as poring over and coding

thousands of documents in advance of a trial. In other words, they were perfect for the kind of

document-review work he had in mind.

After a return visit to India in August 2005, Galbenski signed a contract with two legal services

companies: QuisLex, in Hyderabad, and Manthan Services in Bangalore. Using their lawyers and

paralegals, Galbenski figured he could cut his document-review rates to $50 an hour. He also

outsourced the maintenance of the database used to store the contact information for his thousands of

contractors. In all, he spent about 12 months and $250,000 readying his newly global company.

Convincing U.S. based clients to take a chance on the new service hasn’t been easy. In November,

Galbenski lined up pilot programs with four clients (none of which are ready to publicise their use of

offshore resources). To help get the word out, he launched a website (offshore-legal-services.com),

which includes a cache of white papers and case studies to serve as a resource guide for companies

interested in outsourcing.

Questions

1. As money costs will decrease due to decision to outsource human resource, some real costs

and opportunity costs may surface. What could these be?

2. Elaborate the external and internal economies of scale as occurring to Contract Counsel.

3. Can you see some possibility of economies of scope from the information given in the case?

Discuss.

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Page | 7

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

The stock market is one of the most important sources for corporates to raise capital. A stock

exchange provides a market place, whether real or virtual, to facilitate the exchange of securities

between buyers and sellers. It provides a real time trading information on the listed securities,

facilitating price discovery.

Participants in the stock market range from small individual investors to large traders, who can be

based anywhere in the world. Their orders usually end up with a professional at a stock exchange,

who executes the order. Some exchanges are physical locations where transactions are carried out on

a trading floor. The other type of exchange is of a virtual kind, composed of a network of computers

and trades are made electronically via traders.

By design a stock exchange resembles perfect competition. Large number of rational profit

maximisers actively competing with each other, trying to predict future market value of individual

securities comprises the main feature of any stock market. Important current information is almost

freely available to all participants. Price of individual security is determined by market forces and

reflects the effect of events that have already occurred and are expected to occur. In the short run it is

not easy for a market player to either exit or enter; one cannot exit and enter for few days in those

stocks which are under no delivery. For example Tata Steel was in no delivery from 29/10/07 to

02/11/07. Similarly one cannot enter or exit on those stocks which are in upper or lower circuit for

few regular trading sessions. Therefore a player has to depend wholly on market price for its profit

maximizing output (in this case stock of securities). In the long run players may exit the market if they

are not able to earn profit, but at the same time new investors are attracted by rise in market price.

As on 01/11/07 total market capital at Bombay Stock Exchange (BSE) is $1589.43 billion (source:

Business Standard, 1/11/2007); out of this individual investors account for only $100bn. In spite of

the fact that individual investors exist in a very large number, their capital base is less than 7% of total

market capital; rest of capital is owned by foreign institutional investor and domestic institutional

investors (FIIs and DIIs), which are very small in number. Average capital owned by a single large

player is huge in comparison to small investor. This situation seems to have prompted Dr Dash of BSE

to comment ‘The stock market activity is increasingly becoming more centralised, concentrated and

non competitive, serving interest of big players only.” Table 2 shows the impact of change in FII on

National Stock Exchange movement during three different time periods.

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Table 2: Impact of FIIs’ Investment on NSE

Wave

Date

Nifty

close

Change in

Nifty Index

FLLS Net

Investment

(Rs.Cr.)

Change in

Market

Capitalisation

(Rs.Cr.)

Wave 1

From

To

17/05/04

26/10/05

1388.75

2408.50

1019.75

59520

5,40,391

Wave 2

From

To

27/10/05

11/05/06

2352.90

3701.05

1348.15

38258

6,20,248

Wave 3

From

To

12/05/06

13/06/06

3650.05

2663.30

-986.75

-9709

-4,60,149

By design, an Indian Stock Market resembles perfect competition, not as a complete description (for

no markets may satisfy all requirements of the model) but as an approximation.

Questions

1. Is stock market a good example of perfect competition? Discuss.

2. Identify the characteristics of perfect competition in the stock market setting.

3. Can you find some basic aspect of perfect competition which is essentially absent in stock

market?

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CASE – 5 The Indian Audio Market

The Indian audio market pyramid is featured by the traditional radios forming its lower bulk. Besides

this, there are four other distinct segments: mono recorders (ranking second in the pyramid), stereo

recorders, midi systems (which offer the sound amplification of a big system, but at a far lower price

and expected to grow at 25% per year) and hi-fis (minis and micros, slotted at the top end of the

market).

Today the Indian audio market is abound with energy and action as both national and international

majors are trying to excel themselves and elbow the others, ushering in new concepts, like CD sound,

digital tuners, full logic tape deck, etc. The main players in the Indian audio market are Philips, BPL

and Videocon. Of these, Philips is one of the oldest and is considered at the leading national brands. In

fact it was the first company to introduce a range of international products such as CD radio cassette

recorder, stand alone CD players and CD mini hi-fi systems. With the easing of the entry barriers, a

number of new international players like Panasonic, Akai, Sansui, Sony, Sharp, Goldstar, Samsung and

Aiwa have also entered the arena. This has led to a sea of changes in the industry and resulted in an

expanded market and a happier customer, who has access to the latest international products at

competitive prices. The rise in the disposable income of the average Indian, especially the upperincome

section, has opened up new vistas for premium products and has provided a boost to

companies to launch audio systems priced as high as Rs. 50,000 and beyond.

Pricing across Segments

Super Premium Segment: This segment of the market is largely price-insensitive, as consumers are

willing to pay a premium in order to obtain products of high quality. Sonodyne has positioned itself in

this segment by concentrating on products that are too small for large players to operate in profitably.

It has launched a range of systems priced between Rs. 30,000 to Rs. 60,000. National Panasonic has

launched its super premium range of systems by the name of Technics.

Premium Segment: Much of the price game is taking place in this segment, in which systems are

priced around Rs. 25,000. Even the foreign players ensure that the pricing is competitive. Entry

barriers of yester years compelled the demand by this segment to be partially met by the grey market.

With the opening up of the market, the premium segment is witnessing a rapid growth and is

currently estimated to be worth Rs. 30 crores. Growth of this segment is also being driven by

consumers who want to upgrade their old music systems. Another major stimulating factor is the

plethora of financing options available, bringing more and more consumers to the market.

Philips has understood the Indian listener well enough to dictate the basic principles of segmentation.

It projects its products as high quality at medium price. In fact, Philips had successfully spotted an

opportunity in the wide price gap between portable cassette players and hi-fi systems and pioneered

the concept of a midi system (a three-in-one containing radio, tape deck and amplifier in one unit).

Philips has also realised that there is a section of the rich consumer which values not just power but

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also clarity and is willing to pay for it. The pricing strategy of Philips was to make the most of its image

as a technology leader. To this end, it used non-price variables by launching of a range of state of art

machines like the FW series, and CD players. Moreover, it came up with the punch line in its

advertisements as, “We Invent For You”.

BPL stands second only to Philips in the audio market and focuses on technology as its USP. Its kingpin

in the marketing mix is its high technology superior quality product. It is thus at being the productquality

leader. BPL’s proposition of fidelity is translated in its punchline for its audio systems as, ‘e-fi

your imagination’ (d-fi stands for digital fidelity). The company follows a market skimming strategy.

When a new product was launched, it was placed in the top end of the market, and priced accordingly.

The company offers a range of products in all price segments in the market without discounting the

brand.

Another major player, Videocon, has managed to price its products lower even in the premium

segment. The success of the Powerhouse (a 160 watt midi launched by Philips in 1990) had prompted

Videocon to launch the Select Sound range of midi stereo systems at a slightly lower price. At the

premium end, Videocon is making efforts to upgrade its image to being “quality-driven” by associating

itself with the internationally reputed brand name of Sansui from Japan, and following a perceived

value pricing method.

Sony is another brand which is positioning itself as a premium product and charges a higher price for

the superior quality of sound it offers. Unlike indulging into price wars, Sony’s ad-campaigns project

the message that nothing can beat Sony in the quality and intensity of sound. National Panasonic is

another player that has three products in the top end of the market, priced in the Rs. 21,000 to Rs.

32,000 range.

Monos and Stereos: Videocon has 21% share I the overall audio market, but has been a major player

only in personal stereos and two-in-ones. Its history is written with instances where it has offered

products of similar quality, but at much lower prices than its competitors. In fact, Videocon launched

the Sansui brand of products with a view to transform its image from that of being a manufacturer of

cheap products to that of being a company that primes quality, and also to obtain a share of the hi-fi

segment. Sansui is being positioned as a premium brand, targeting the higher middle, upper income

groups and also the sensitive middle class Indian consumer.

The objective of Philips in this segment is to achieve higher sales volumes and hence its strategy is to

expand its range and have a product in every segment of the market. The pricing method used by

Philips in this segment is providing value for money.

National Panasonic offers products in the lower end of the market, apart from the top of the range. In

fact, it reduced the price of one of its small two-in-ones from Rs. 3,500 to Rs. 2,400, with the logic that

a forte in the lower end of the market would help in building brand reliability across a wider customer

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base. The company is also guided by the logic that operating in the price sensitive region of the market

will help it reach optimum levels of efficiency. Panasonic has also entered the market for midis.

These apart, there also exists a sector in the Indian audio industry, with powerful regional brands in

mono and stereo segments, having a market share of 59% in mono recorders and 36% in stereo

recorders. This sector has a strong influence on price performance.

Questions

1. What major pricing strategies have been discussed in the case? How effective these strategies

have been in ensuring success of the company?

2. Is perceived value pricing the dominant strategy of major players?

3. Which products have reached maturity stage in audio industry? Do you think that product

bundling can be effectively used for promoting sale of these products?

IIBMS GENERAL MANAGEMENT EXAM ANSWER | IIBMS HUMAN RESOURCE MANAGEMENT EXAM ANSWER

IIBMS GENERAL MANAGEMENT EXAM ANSWER | IIBMS HUMAN RESOURCE MANAGEMENT EXAM ANSWER

The Indian Institute of Business Management & Studies

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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.

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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

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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.

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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

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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.

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 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 halfheartedly

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

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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

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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.”

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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.

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pg. 1

Note: Solve any 4 Cases Study’s

CASE: I – Enterprise Builds On People

When most people think of car-rental firms, the names of Hertz and Avis usually come to mind. But in the last few years,

Enterprise Rent-A-Car has overtaken both of these industry giants, and today it stands as both the largest and the most

profitable business in the car-rental industry. In 2001, for instance, the firm had sales in excess of $6.3 billion and

employed over 50,000 people.

Jack Taylor started Enterprise in St. Louis in 1957. Taylor had a unique strategy in mind for Enterprise, and that strategy

played a key role in the firm’s initial success. Most car-rental firms like Hertz and Avis base most of their locations in or

near airports, train stations, and other transportation hubs. These firms see their customers as business travellers and

people who fly for vacation and then need transportation at the end of their flight. But Enterprise went after a different

customer. It sought to rent cars to individuals whose own cars are being repaired or who are taking a driving vacation.

The firm got its start by working with insurance companies. A standard feature in many automobile insurance policies is

the provision of a rental car when one’s personal car has been in an accident or has been stolen. Firms like Hertz and Avis

charge relatively high daily rates because their customers need the convenience of being near an airport and/or they are

having their expenses paid by their employer. These rates are often higher than insurance companies are willing to pay, so

customers who these firms end up paying part of the rental bills themselves. In addition, their locations are also often

inconvenient for people seeking a replacement car while theirs is in the shop.

But Enterprise located stores in downtown and suburban areas, where local residents actually live. The firm also provides

local pickup and delivery service in most areas. It also negotiates exclusive contract arrangements with local insurance

agents. They get the agent’s referral business while guaranteeing lower rates that are more in line with what insurance

covers.

In recent years, Enterprise has started to expand its market base by pursuing a two-pronged growth strategy. First, the

firm has started opening airport locations to compete with Hertz and Avis more directly. But their target is still the

occasional renter than the frequent business traveller. Second, the firm also began to expand into international markets

and today has rental offices in the United Kingdom, Ireland and Germany.

Another key to Enterprise’s success has been its human resource strategy. The firm targets a certain kind of individual to

hire; its preferred new employee is a college graduate from bottom half of graduating class, and preferably one who was

an athlete or who was otherwise actively involved in campus social activities. The rationale for this unusual academic

standard is actually quite simple. Enterprise managers do not believe that especially high levels of achievements are

necessary to perform well in the car-rental industry, but having a college degree nevertheless demonstrates intelligence

and motivation. In addition, since interpersonal relations are important to its business, Enterprise wants people who were

social directors or high-ranking officers of social organisations such as fraternities or sororities. Athletes are also desirable

because of their competitiveness.

Once hired, new employees at Enterprise are often shocked at the performance expectations placed on them by the firm.

They generally work long, grueling hours for relatively low pay.

And all Enterprise managers are expected to jump in and help wash or vacuum cars when a rental agency gets backed up.

All Enterprise managers must wear coordinated dress shirts and ties and can have facial hair only when “medically

necessary”. And women must wear skirts no shorter than two inches above their knees or creased pants.

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pg. 2

So what are the incentives for working at Enterprise? For one thing, it’s an unfortunate fact of life that college graduates

with low grades often struggle to find work. Thus, a job at Enterprise is still better than no job at all. The firm does not hire

outsiders—every position is filled by promoting someone already inside the company. Thus, Enterprise employees know

that if they work hard and do their best, they may very well succeed in moving higher up the corporate ladder at a growing

and successful firm.

Question:

1. Would Enterprise’s approach human resource management work in other industries?

2. Does Enterprise face any risks from its human resource strategy?

3. Would you want to work for Enterprise? Why or why not?

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pg. 3

CASE: II – Doing The Dirty Work

Business magazines and newspapers regularly publish articles about the changing nature of work in the United States

and about how many jobs are being changed. Indeed, because so much has been made of the shift toward service-sector

and professional jobs, many people assumed that the number of unpleasant an undesirable jobs has declined.

In fact, nothing could be further from the truth. Millions of Americans work in gleaming air-conditioned facilities, but many

others work in dirty, grimy, and unsafe settings. For example, many jobs in the recycling industry require workers to sort

through moving conveyors of trash, pulling out those items that can be recycled. Other relatively unattractive jobs include

cleaning hospital restrooms, washing dishes in a restaurant, and handling toxic waste.

Consider the jobs in a chicken-processing facility. Much like a manufacturing assembly line, a chicken-processing facility is

organised around a moving conveyor system. Workers call it the chain. In reality, it’s a steel cable with large clips that

carries dead chickens down what might be called a “disassembly line.” Standing along this line are dozens of workers who

do, in fact, take the birds apart as they pass.

Even the titles of the jobs are unsavory. Among the first set of jobs along the chain is the skinner. Skinners use sharp

instruments to cut and pull the skin off the dead chicken. Towards the middle of the line are the gut pullers. These workers

reach inside the chicken carcasses and remove the intestines and other organs. At the end of the line are the gizzard

cutters, who tackle the more difficult organs attached to the inside of the chicken’s carcass. These organs have to be

individually cut and removed for disposal.

The work is obviously distasteful, and the pace of the work is unrelenting. On a good day the chain moves an average of

ninety chickens a minute for nine hours. And the workers are essentially held captive by the moving chain. For example, no

one can vacate a post to use the bathroom or for other reasons without the permission of the supervisor. In some plants,

taking an unauthorised bathroom break can result in suspension without pay. But the noise in a typical chicken-processing

plant is so loud that the supervisor can’t hear someone calling for relief unless the person happens to be standing close by.

Jobs such as these on the chicken-processing line are actually becoming increasingly common. Fuelled by Americans’

growing appetites for lean, easy-to-cook meat, the number of poultry workers has almost doubled since 1980, and today

they constitute a work force of around a quarter of a million people. Indeed, the chicken-processing industry has become a

major component of the state economies of Georgia, North Carolina, Mississippi, Arkansas, and Alabama.

Besides being unpleasant and dirty, many jobs in a chicken-processing plant are dangerous and unhealthy. Some workers,

for example, have to fight the live birds when they are first hung on the chains. These workers are routinely scratched and

pecked by the chickens. And the air inside a typical chicken-processing plant is difficult to breathe. Workers are usually

supplied with paper masks, but most don’t use them because they are hot and confining.

And the work space itself is so tight that the workers often cut themselves—and sometimes their coworkers—with the

knives, scissors, and other instruments they use to perform their jobs. Indeed, poultry processing ranks third among

industries in the United States for cumulative trauma injuries such as carpet tunnel syndrome. The inevitable chicken

feathers, faeces, and blood also contribute to the hazardous and unpleasant work environment.

Question:

1. How relevant are the concepts of competencies to the jobs in a chicken-processing plant?

2. How might you try to improve the jobs in a chicken-processing plant?

3. Are dirty, dangerous, and unpleasant jobs an inevitable part of any economy?

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Subject: Human Resource Management Marks: 100

pg. 4

CASE : III – On Pegging Pay to Performance

“As you are aware, the Government of India has removed the capping on salaries of directors and has left the matter of

their compensation to be decided by shareholders. This is indeed a welcome step,” said Samuel Menezes, president

Abhayankar, Ltd., opening the meeting of the managing committee convened to discuss the elements of the company’s new

plan for middle managers.

Abhayankar was am engineering firm with a turnover of Rs 600 crore last year and an employee strength of 18,00. Two

years ago, as a sequel to liberalisation at the macroeconomic level, the company had restructured its operations from

functional teams to product teams. The change had helped speed up transactional times and reduce systemic inefficiencies,

leading to a healthy drive towards performance.

“I think it is only logical that performance should hereafter be linked to pay,” continued Menezes. “A scheme in which over

40 per cent of salary will be related to annual profits has been evolved for executives above the vice-president’s level and

it will be implemented after getting shareholders approval. As far as the shopfloor staff is concerned, a system of incentivelinked

monthly productivity bonus has been in place for years and it serves the purpose of rewarding good work at the

assembly line. In any case, a bulk of its salary will have to continue to be governed by good old values like hierarchy, rank,

seniority and attendance. But it is the middle management which poses a real dilemma. How does one evaluate its

performance? More importantly, how can one ensure that managers are not shortchanged but get what they truly

deserve?”

“Our vice-president (HRD), Ravi Narayanan, has now a plan ready in this regard. He has had personal discussions with all

the 125 middle managers individually over the last few weeks and the plan is based on their feedback. If there are no

major disagreements on the plan, we can put it into effect from next month. Ravi, may I now ask you to take the floor and

make your presentation?”

The lights in the conference room dimmed and the screen on the podium lit up. “The plan I am going to unfold,” said

Narayanan, pointing to the data that surfaced on the screen, “is designed to enhance team-work and provide incentives for

constant improvement and excellence among middle-level managers. Briefly, the pay will be split into two components.

The first consists of 75 per cent of the original salary and will be determined, as before, by factors of internal equity

comprising what Sam referred to as good old values. It will be a fixed component.”

“The second component of 25 per cent,” he went on, “will be flexible. It will depend on the ability of each product team as a

whole to show a minimum of 5 per cent improvement in five areas every month—product quality, cost control, speed of

delivery, financial performance of the division to which the product belongs and, finally, compliance with safety and

environmental norms. The five areas will have rating of 30, 25, 20, 15, and 10 per cent respectively.

“This, gentlemen, is the broad premise. The rest is a matter of detail which will be worked out after some finetuning. Any

questions?”

As the lights reappeared, Gautam Ghosh, vice-president (R&D), said, “I don’t like it. And I will tell you why. Teamwork as a

criterion is okay but it also has its pitfalls. The people I take on and develop are good at what they do. Their research skills

are individualistic. Why should their pay depend on the performance of other members of the product team? The new pay

plan makes them team players first and scientists next. It does not seem right.”

“That is a good one, Gautam,” said Narayanan. “Any other questions? I think I will take them all together.”

“I have no problems with the scheme and I think it is fine. But just for the sake of argument, let me take Gautam’s point

further without meaning to pick holes in the plan,” said Avinash Sarin, vice-president (sales). “Look at my dispatch

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pg. 5

division. My people there have reduced the shipping time from four hours to one over the last six months. But what have

they got? Nothing. Why? Because the other members of the team are not measuring up.”

“I think that is a situation which is bound to prevail until everyone falls in line,” intervened Vipul Desai, vice president

(finance). “There would always be temporary problems in implementing anything new. The question is whether our long

term objectives is right. To the extend that we are trying to promote teamwork, I think we are on the right track. However,

I wish to raise a point. There are many external factors which impinge on both individual and collective performance. For

instance, the cost of a raw material may suddenly go up in the market affecting product profitability. Why should the

concerned product team be penalised for something beyond its control?”

“I have an observation to make too, Ravi,” said Menezes, “You would recall the survey conducted by a business fortnightly

on ‘The ten companies Indian managers fancy most as a working place’. Abhayankar got top billings there. We have been

the trendsetters in executive compensation in Indian industry. We have been paying the best. Will your plan ensure that it

remains that way?”

As he took the floor again, the dominant thought in Narayanan’s mind was that if his plan were to be put into place,

Abhayankar would set another new trend in executive compensation.

Question:

But how should he see it through?

The Indian Institute Of Business Management & Studies

Subject: Human Resource Management Marks: 100

pg. 6

CASE : IV – Crisis Blown Over

November 30, 1997 goes down in the history of a Bangalore-based electric company as the day nobody wanting it to recur

but everyone recollecting it with sense of pride.

It was a festive day for all the 700-plus employees. Festoons were strung all over, banners were put up; banana trunks and

leaves adorned the factory gate, instead of the usual red flags; and loud speakers were blaring Kannada songs. It was day

the employees chose to celebrate Kannada Rajyothsava, annual feature of all Karnataka-based organisations. The function

was to start at 4 p.m. and everybody was eagerly waiting for the big event to take place.

But the event, budgeted at Rs 1,00,000 did not take place. At around 2 p.m., there was a ghastly accident in the machine

shop. Murthy was caught in the vertical turret lathe and was wounded fatally. His end came in the ambulance on the way

to hospital.

The management sought union help, and the union leaders did respond with a positive attitude. They did not want to fish

in troubled waters.

Series of meetings were held between the union leaders and the management. The discussions centred around two major

issues—(i) restoring normalcy, and (ii) determining the amount of compensation to be paid to the dependants of Murthy.

Luckily for the management, the accident took place on a Saturday. The next day was a weekly holiday and this helped the

tension to diffuse to a large extent. The funeral of the deceased took place on Sunday without any hitch. The management

hoped that things would be normal on Monday morning.

But the hope was belied. The workers refused to resume work. Again the management approached the union for help.

Union leaders advised the workers to resume work in al departments except in the machine shop, and the suggestions was

accepted by all.

Two weeks went by, nobody entered the machine shop, though work in other places resumed. Union leaders came with a

new idea to the management—to perform a pooja to ward off any evil that had befallen on the lathe. The management

accepted the idea and homa was performed in the machine shop for about five hours commencing early in the morning.

This helped to some extent. The workers started operations on all other machines in the machine shop except on the

fateful lathe. It took two full months and a lot of persuasion from the union leaders for the workers to switch on the lathe.

The crisis was blown over, thanks to the responsible role played by the union leaders and their fellow workers. Neither the

management nor the workers wish that such an incident should recur.

As the wages of the deceased grossed Rs 6,500 per month, Murthy was not covered under the ESI Act. Management had to

pay compensation. Age and experience of the victim were taken into account to arrive at Rs 1,87,000 which was the

amount to be payable to the wife of the deceased. To this was added Rs 2,50,000 at the intervention of the union leaders. In

addition, the widow was paid a gratuity and a monthly pension of Rs 4,300. And nobody’s wages were cut for the days not

worked.

Murthy’s death witnessed an unusual behavior on the part of the workers and their leaders, and magnanimous gesture

from the management. It is a pride moment in the life of the factory.

Question:

1. Do you think that the Bangalore-based company had practised participative management?

2. If your answer is yes, with what method of participation (you have read in this chapter) do you relate the above

case?

3. If you were the union leader, would your behaviour have been different? If yes, what would it be?

The Indian Institute Of Business Management & Studies

Subject: Human Resource Management Marks: 100

pg. 7

CASE : V – A Case of Burnout

When Mahesh joined XYZ Bank (private sector) in 1985, he had one clear goal—to prove his mettle. He did prove himself

and has been promoted five times since his entry into the bank. Compared to others, his progress has been fastest.

Currently, his job demands that Mahesh should work 10 hours a day with practically no holidays. At least two day in a

week, Mahesh is required to travel.

Peers and subordinates at the bank have appreciation for Mahesh. They don’t grudge the ascension achieved by Mahesh,

though there are some who wish they too had been promoted as well.

The post of General Manager fell vacant. One should work as GM for a couple of years if he were to climb up to the top of

the ladder, Mahesh applied for the post along with others in the bank. The Chairman assured Mahesh that the post would

be his.

A sudden development took place which almost wrecked Mahesh’s chances. The bank has the practice of subjecting all its

executives to medical check-up once in a year. The medical reports go straight to the Chairman who would initiate

remedials where necessary. Though Mahesh was only 35, he too, was required to undergo the test.

The Chairman of the bank received a copy of Mahesh’s physical examination results, along with a note from the doctor. The

note explained that Mahesh was seriously overworked, and recommended that he be given an immediate four-week

vacation. The doctor also recommended that Mahesh’s workload must be reduced and he must take physical exercise

every day. The note warned that if Mahesh did not care for advice, he would be in for heart trouble in another six months.

After reading the doctor’s note, the Chairman sat back in his chair, and started brooding over. Three issues were

uppermost in his mind—(i) How would Mahesh take this news? (ii) How many others do have similar fitness problems?

(iii) Since the environment in the bank helps create the problem, what could he do to alleviate it? The idea of holding a

stress-management programme flashed in his mind and suddenly he instructed his secretary to set up a meeting with the

doctor and some key staff members, at the earliest.

Question:

1. If the news is broken to Mahesh, how would he react?

2. If you were giving advice to the Chairman on this matter, what would you recommend?

The Indian Institute Of Business Management & Studies

Subject: Human Resource Management Marks: 100

pg. 8

CASE : VI – “Whose Side are you on, Anyway?”

It was past 4 pm and Purushottam Mahesh was still at his shopfloor office. The small but elegant office was a perk he was

entitled to after he had been nominated to the board of Horizon Industries (P) Ltd., as workman-director six months ago.

His shift generally ended at 3 pm and he would be home by late evening. But that day, he still had long hours ahead of him.

Kshirsagar had been with Horizon for over twenty years. Starting off as a substitute mill-hand in the paint shop at one of

the company’s manufacturing facilities, he had been made permanent on the job five years later. He had no formal

education. He felt this was a handicap, but he made up for it with a willingness to learn and a certain enthusiasm on the

job. He was soon marked by the works manager as someone to watch out for. Simultaneously, Kshirsagar also came to the

attention of the president of the Horizon Employees’ Union who drafted him into union activities.

Even while he got promoted twice during the period to become the head colour mixer last year, Kshirsagar had gradually

moved up the union hierarchy and had been thrice elected secretary of the union. Labour-management relations at

Horizon were not always cordial. This was largely because the company had not been recording a consistently good

performance. There were frequent cuts in production every year because of go-slows and strikes by workmen—most of

them related to wage hikes and bonus payments. With a view to ensuring a better understanding on the part of labour, the

problems of company management, the Horizon board, led by chairman and managing director Aninash Chaturvedi, began

to toy with idea of taking on a workman on the board. What started off as a hesitant move snowballed, after a series of

brainstorming sessions with executives and meetings with the union leaders, into a situation in which Kshirsagar found

himself catapulted to the Horizon board as work-man-director.

It was an untested ground for the company. But the novelty of it all excited both the management and the labour force. The

board members—all functional heads went out of their way to make Kshirsagar comfortable and the latter also responded

quite well. He got used to the ambience of the boardroom and the sense of power it conveyed. Significantly, he was soon at

home with the perspectives of top management and began to see each issue from both sides.

It was smooth going until the union presented a week before the monthly board meeting, its charter of demands, one of

which was a 30 per cent across-the board hike in wages. The matter was taken up at the board meeting as part of a special

agenda.

“Look at what your people are asking for,” said Chaturvedi, addressing Kshirsagar with a sarcasm that no one in the board

missed. “You know the precarious finances of the company. How could you be a party to a demand that can’t be met? You

better explain to them how ridiculous the demands are,” he said.

“I don’t think they can all be dismissed as ridiculous,” said Kshirsagar. “And the board can surely consider the alternatives.

We owe at least that much to the union.” But Chaturvedi adjourned the meeting in a huff, mentioning, once to Kshirsagar

that he should “advise the union properly”.

When Kshirsagar told the executive committee members of the union that the board was simply not prepared to even

consider the demands, he immediately sensed the hostility in the room. “You are a sell out,” one of them said. “Who do you

really represent—us or them?” asked another.

“Here comes the crunch,” thought Kshirsagar. And however hard he tried to explain, he felt he was talking to a wall. A

victim of divided loyalities, he himself was unable to understand whose side he was on. Perhaps the best course would be

to resign from the board. Perhaps he should resign both from the board and the union. Or may be resign from Horizon

itself and seek a job elsewhere. But, he felt, sitting in his office a little later, “none of it could solve the problem.”

Question:

1. What should he do?

IIBM MBA ONGOING EXAM ANSWER SHEETS PROVIDED

IIBM MBA ONGOING EXAM ANSWER SHEETS PROVIDED

The Indian Institute Of Business Management & Studies

Subject: Finance Management Marks: 100

Attempt Any Four Case Study (20 marks for each Case Study)

Case 1: Zip Zap Zoom Car Company

Zip Zap Zoom Company Ltd is into manufacturing cars in the small car (800 cc) segment. It was set up 15 years back and since its establishment it has seen a phenomenal growth in both its market and profitability. Its financial statements are shown in Exhibits 1 and 2 respectively.

The company enjoys the confidence of its shareholders who have been rewarded with growing dividends year after year. Last year, the company had announced 20 per cent dividend, which was the highest in the automobile sector. The company has never defaulted on its loan payments and enjoys a favorable face with its lenders, which include financial institutions, commercial banks and debenture holders.

The competition in the car industry has increased in the past few years and the company foresees further intensification of competition with the entry of several foreign car manufactures many of them being market leaders in their respective countries. The small car segment especially, will witness entry of foreign majors in the near future, with latest technology being offered to the Indian customer. The Zip Zap Zoom’s senior management realizes the need for large scale investment in up gradation of technology and improvement of manufacturing facilities to pre-empt competition.

Whereas on the one hand, the competition in the car industry has been intensifying, on the other hand, there has been a slowdown in the Indian economy, which has not only reduced the demand for cars, but has also led to adoption of price cutting strategies by various car manufactures. The industry indicators predict that the economy is gradually slipping into recession.

Exhibit 1 Balance sheet as at March 31,200 x

(Amount in Rs. Crore)

Source of Funds

Share capital 350

Reserves and surplus 250 600

Loans :

Debentures (@ 14%) 50

Institutional borrowing (@ 10%) 100

Commercial loans (@ 12%) 250

Total debt 400

Current liabilities 200

1,200

Application of Funds

Fixed Assets

Gross block 1,000

Less : Depreciation 250

Net block 750

Capital WIP 190

Total Fixed Assets 940

Current assets :

Inventory 200

The Indian Institute Of Business Management & Studies

Subject: Finance Management Marks: 100

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.

The Indian Institute Of Business Management & Studies

Subject: Finance Management Marks: 100

Mr. Shortsighted, the company’s Finance Manager, is given the task of determining the additional debt that the firm can raise. He thinks that the firm can raise Rs. 100 crore worth debt and service it even in years of recession. The company can raise debt at 15 per cent from a financial institution. While working out the debt capacity. Mr. Shortsighted takes the following assumptions for the recession years.

a) A maximum of 10 percent reduction in sales volume will take place.

b) A maximum of 6 percent reduction in sales price of cars will take place.

Mr. Shorsighted prepares a projected income statement which is representative of the recession years. While doing so, he determines what he thinks are the “irreducible minimum” expenditures under recessionary conditions. For him, risk of insolvency is the main concern while designing the capital structure. To support his view, he presents the income statement as shown in Exhibit 3.

Exhibit 3 projected Profit and Loss account

(Amount in Rs. Crore)

Sales revenue (72,000 units x Rs. 2,35,000) 1,692.0

Operating expenditure

Variable cost :

Raw material and manufacturing expenses 1,170.0

Variable overheads 90.0

Total 1,260.0

Fixed cost :

R & D —

Marketing and advertising 15.0

Depreciation 187.5

Personnel 70.0

Total 272.5

Total operating expenditure 1,532.5

EBIT 159.5

Financial expenses :

Interest on existing Debentures 7.0

Interest on existing institutional borrowings 10.0

Interest on commercial loan 30.0

Interest on additional debt 15.0 62.0

EBT 97.5

Tax (@ 35%) 34.1

EAT 63.4

Dividends —

Debt redemption (sinking fund obligation) 50.0*

Contribution to reserves and surplus 13.4

* Rs. 40 crore (existing debt) + Rs. 10 crore (additional debt)

Assumptions of Mr. Shorsighted

 R & D expenditure can be done away with till the economy picks up.

 Marketing and advertising expenditure can be reduced by 40 per cent.

 Keeping in mind the investor confidence that the company enjoys, he feels that the company can forgo paying dividends in the recession period.

The Indian Institute Of Business Management & Studies

Subject: Finance Management Marks: 100

He goes with his worked out statement to the Director Finance, Mr. Arthashatra, and advocates raising Rs. 100 crore of debt to finance the intended capital investment. Mr. Arthashatra does not feel comfortable with the statements and calls for the company’s financial analyst, Mr. Longsighted.

Mr. Longsighted carefully analyses Mr. Shortsighted’s assumptions and points out that insolvency should not be the sole criterion while determining the debt capacity of the firm. He points out the following :

 Apart from debt servicing, there are certain expenditures like those on R & D and marketing that need to be continued to ensure the long-term health of the firm.

 Certain management policies like those relating to dividend payout, send out important signals to the investors. The Zip Zap Zoom’s management has been paying regular dividends and discontinuing this practice (even though just for the recession phase) could raise serious doubts in the investor’s mind about the health of the firm. The firm should pay at least 10 per cent dividend in the recession years.

 Mr. Shortsighted has used the accounting profits to determine the amount available each year for servicing the debt obligations. This does not give the true picture. Net cash inflows should be used to determine the amount available for servicing the debt.

 Net Cash inflows are determined by an interplay of many variables and such a simplistic view should not be taken while determining the cash flows in recession. It is not possible to accurately predict the fall in any of the factors such as sales volume, sales price, marketing expenditure and so on. Probability distribution of variation of each of the factors that affect net cash inflow should be analyzed. From this analysis, the probability distribution of variation in net cash inflow should be analysed (the net cash inflows follow a normal probability distribution). This will give a true picture of how the company’s cash flows will behave in recession conditions.

The management recognizes that the alternative suggested by Mr. Longsighted rests on data, which are complex and require expenditure of time and effort to obtain and interpret. Considering the importance of capital structure design, the Finance Director asks Mr. Longsighted to carry out his analysis. Information on the behaviour of cash flows during the recession periods is taken into account.

The methodology undertaken is as follows :

(a) Important factors that affect cash flows (especially contraction of cash flows), like sales volume, sales price, raw materials expenditure, and so on, are identified and the analysis is carried out in terms of cash receipts and cash expenditures.

(b) Each factor’s behaviour (variation behaviour) in adverse conditions in the past is studied and future expectations are combined with past data, to describe limits (maximum favourable), most probable and maximum adverse) for all the factors.

(c) Once this information is generated for all the factors affecting the cash flows, Mr. Longsighted comes up with a range of estimates of the cash flow in future recession periods based on all possible combinations of the several factors. He also estimates the probability of occurrence of each estimate of cash flow.

Assuming a normal distribution of the expected behaviour, the mean expected value of net cash inflow in adverse conditions came out to be Rs. 220.27 crore with standard deviation of Rs. 110 crore.

The Indian Institute Of Business Management & Studies

Subject: Finance Management Marks: 100

Keeping in mind the looming recession and the uncertainty of the recession behaviour, Mr. Arthashastra feels that the firm should factor a risk of cash inadequacy of around 5 per cent even in the most adverse industry conditions. Thus, the firm should take up only that amount of additional debt that it can service 95 per cent of the times, while maintaining cash adequacy.

To maintain an annual dividend of 10 per cent, an additional Rs. 35 crore has to be kept aside. Hence, the expected available net cash inflow is Rs. 185.27 crore (i.e. Rs. 220.27 – Rs. 35 crore)

Question:

Analyse the debt capacity of the company.

The Indian Institute Of Business Management & Studies

Subject: Finance Management Marks: 100

CASE – 2 GREAVES LIMITED

Started as trading firm in 1922, Greaves Limited has diversified into manufacturing and marketing of high technology engineering products and systems. The company’s mission is “manufacture and market a wide range of high quality products, services and systems of world class technology to the total satisfaction of customers in domestic and overseas market.”

Over the years Greaves has brought to India state of the art technologies in various engineering fields by setting up manufacturing units and subsidiary and associate companies. The sales of Greaves Limited has increased from Rs 214 crore in 1990 to Rs 801 crore in 1997. The sales of Greaves Limited has increased from Rs 214 crore in 1990 to Rs 801 crore in 1997. Profits before interest and tax (PBIT) of the company increased from Rs 15 crore to Rs 83 crore in 1997. The market price of the company’s share has shown ups and downs during 1990 to 1997. How has the company performed? The following question need answer to fully understand the performance of the company:

 Exhibit 1

GREAVES LTD.

Profit and Loss Account ending on 31 March (Rupees in crore)

1990

1991

1992

1993

1994

1995

1996

1997

Sales

Raw Material and Stores

Wages and Salaries

Power and fuel

Other Mfg. Expenses

Other Expenses

Depreciation

Marketing and Distribution

Change in stock

214.38

170.67

13.54

0.52

0.61

11.85

1.85

4.86

1.18

253.10

202.84

15.60

0.70

0.49

15.48

1.72

5.67

3.10

287.81

230.81

18.03

1.11

0.88

16.35

1.52

5.14

4.93

311.14

213.79

37.04

3.80

2.37

25.54

4.62

5.17

0.48

354.25

245.63

37.96

4.43

2.36

31.60

5.99

9.67

– 1.13

521.56

379.83

48.24

6.66

3.57

41.40

8.53

10.81

5.63

728.15

543.56

60.48

7.70

4.84

45.74

9.30

12.44

11.86

801.11

564.35

69.66

9.23

5.49

48.64

11.53

16.98

– 5.87

Total Op Expenses

202.72

239.40

268.91

291.85

338.77

493.41

672.20

731.75

Operating Profit

Other Income

Non-recurring Income

11.61

2.14

1.30

13.70

3.69

2.28

18.90

4.97

0.10

19.29

4.24

10.98

15.48

7.72

16.44

28.15

14.35

0.46

55.95

11.35

0.52

69.36

13.08

1.75

PBIT

15.10

19.67

23.97

34.51

39.64

42.98

65.67

82.64

Interest

5.56

6.77

11.92

19.62

17.17

21.48

28.25

27.54

PBT

9.54

12.90

12.05

14.89

22.47

21.50

37.42

55.10

Tax

PAT

Dividend

Retained Earnings

3.00

6.54

1.80

4.74

3.60

9.30

2.00

7.30

4.90

7.15

2.30

4.85

0.00

14.89

4.06

10.83

4.00

18.47

7.29

11.18

7.00

14.50

8.58

5.92

8.60

28.82

12.85

15.97

15.80

39.30

14.18

25.12

 Exhibit 2

GREAVES LTD.

Balance Sheet (Rupees in crore)

1990

1991

1992

1993

1994

1995

1996

1997

ASSETS

Land and Building

Plant and Machinery

Other Fixed Assets

Capital WIP

Gross Fixed Assets

Less: Accu. Depreciation

Net Tangible Fixed Assets

3.88

11.98

3.64

0.09

19.59

12.91

6.68

4.22

12.68

4.14

0.26

21.30

14.56

6.74

4.96

12.98

4.38

10.25

23.57

15.79

7.78

21.70

33.49

5.18

11.27

71.64

19.84

51.80

30.82

50.78

6.95

34.84

123.39

25.74

97.65

39.71

75.34

8.53

14.37

137.95

33.90

104.05

42.34

92.49

8.87

13.92

157.62

42.56

115.06

43.07

104.45

10.35

14.36

172.23

53.87

118.86

The Indian Institute Of Business Management & Studies

Subject: Finance Management Marks: 100

Intangible Fixed Assets

0.21

0.19

0.05

4.40

22.03

22.45

20.04

21.11

Net Fixed Assets

6.89

6.93

7.83

56.20

119.68

126.50

135.10

139.97

Raw Materials

Finished Goods

Inventory

Accounts Receivable

Other Receivable

Investments

Cash and Bank Balance

Current Assets

Total Assets

LIABILITIES AND CAPITAL

Equity Capital

Preference Capital

Reserves and Surplus

5.26

29.37

34.63

38.16

32.62

3.55

8.36

117.32

124.21

9.86

0.20

27.60

6.91

33.72

40.63

53.24

40.47

14.95

8.91

158.20

165.13

9.86

0.20

32.57

7.26

38.65

45.91

67.97

49.19

15.15

12.71

190.93

198.76

9.86

0.20

37.42

21.05

53.39

74.44

93.30

24.54

27.58

13.29

233.15

289.35

18.84

0.20

100.35

28.13

52.26

80.39

122.20

59.12

73.50

18.38

353.59

473.27

29.37

0.20

171.03

44.03

58.09

102.12

133.45

64.32

75.01

30.08

404.98

531.48

29.44

0.20

176.88

53.62

69.97

123.59

141.82

76.57

75.07

33.46

450.51

585.61

44.20

0.20

175.41

50.94

64.09

115.03

179.92

107.31

76.45

48.18

526.89

666.86

44.20

0.20

198.79

Net Worth

37.66

42.63

47.48

119.39

200.60

206.52

219.81

243.19

Bank Borrowings

Institutional Borrowings

Debentures

Fixed Deposits

Commercial Paper

Other Borrowings

Current Portion of LT Debt

14.81

4.13

4.77

12.31

0.00

2.33

0.00

19.45

3.43

16.57

14.45

0.00

3.22

0.00

26.51

9.17

19.99

15.03

0.00

3.10

0.08

24.82

38.09

4.56

14.08

0.00

3.18

0.12

55.12

38.76

4.37

15.57

15.00

17.08

15.08

64.97

69.69

4.37

17.75

0.00

1.97

0.02

70.08

89.26

2.92

20.81

0.00

2.36

1.49

118.28

63.60

1.49

19.29

0.00

2.57

1.57

Borrowings

38.35

57.12

73.72

84.61

130.82

158.73

183.94

203.66

Sundry Creditors

Other Liabilities

Provision for tax, etc.

Proposed Dividends

Current Portion of LT Dept

37.52

5.70

3.18

1.80

0.00

49.40

10.16

3.82

2.00

0.00

59.34

10.70

5.14

2.30

0.08

77.27

3.59

0.31

4.06

0.12

113.66

1.42

4.40

7.29

15.08

148.13

1.99

7.70

8.58

0.02

153.63

1.70

12.19

12.85

1.49

179.79

3.04

21.43

14.18

1.57

Current Liabilities

48.20

65.38

77.56

85.35

141.85

166.42

181.86

220.01

TOTAL LIABILITIES

Additional information:

Share premium reserve

Revaluation reserve

Bonus equity capital

124.21

8.51

165.13

8.51

198.76

8.51

289.35

47.69

8.91

8.51

473.27

107.40

8.70

8.51

531.67

107.91

8.50

8.51

585.61

93.35

8.31

23.25

666.86

93.35

8.15

23.25

 Exhibit 3

GREAVES LTD.

Share Price Data

1990

1991

1992

1993

1994

1995

1996

1997

Closing share price (Rs)

Yearly high share price (Rs)

Yearly low share price (Rs)

Market capitalization (Rs crore

EPS (Rs)

Book value (Rs)

27.19

29.25

26.78

65.06

4.79

35.64

34.74

45.28

21.61

67.77

6.82

37.22

121.27

121.27

34.36

236.56

9.73

42.54

66.67

126.33

48.34

274.84

1.93

57.75

78.34

90.00

42.67

346.35

2.66

40.61

71.67

100.01

68.34

316.87

7.16

64.98

47.5

90.00

45.00

210.02

5.03

45.35

48.25

85.00

43.75

213.34

9.01

50.73

Questions

1. How profitable are its operations? What are the trends in it? How has growth affected the profitability of the company?

2. What factors have contributed to the operating performance of Greaves Limited? What is the role of profitability margin, asset utilization, and non-operating income?

3. How has Greaves performed in terms of return on equity? What is the contribution of return on investment, the way of the business has been financed over the period?

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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?

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Subject: Finance Management Marks: 100

CASE – 4 STAR ENGINEERING COMPANY

Star Engineering Company (SEC) produces electrical accessories like meters, transformers, switchgears, and automobile accessories like taximeters and speedometers.

SEC buys the electrical components, but manufactures all mechanical parts within its factory which is divided into four production departments Machining, Fabrication, Assembly, and Painting—and three service departments—Stores, Maintenance, and Works Office.Though the company prepared annual budgets and monthly financial statements, it had no formal cost accounting system. Prices were fixed on the basis of what the market can bear. Inventory of finished stocks was valued at 90 per cent of the market price assuming a profit margin of 10 per cent.

In March, the company received a trial order from a government department for a sample transformer on a cost-plus-fixed-fee basis. They took up the job (numbered by the company as Job No 879) in early April and completed all manufacturing operations before the end of the month.

Since Job No 879 was very different from the type of transformers they had manufactured in the past, the company did not have a comparable market price for the product. The purchasing officer of the government department asked SEC to submit a detailed cost sheet for the job giving as much details as possible regarding material, labour and overhead costs.SEC, as part of its routine financial accounting system, had collected the actual expenses for the month of April, by 5th of May. Some of the relevant data are given in Exhibit A.The company tried to assign directly, as many expenses as possible to the production departments. However, It was not possible in all cases. In many cases, an overhead cost, which was common to all departments had to be allocated to the various departments using some rational basis. Some of the possible bases were collected by SEC’s accountant. These are presented in Exhibit B.He also designed a format to allocate the overhead to all the production and service departments. It was realized that the expenses of the service departments on some rational basis. The accountant thought of distributing the service departments’ costs on the following basis:

a. Works office costs on the basis of direct labour hours.

b. Maintenance costs on the basis of book value of plant and machinery.

c. Stores department costs on the basis of direct and indirect materials used.

The accountant, who had to visit the company’s banker, passed on the papers to you for the required analysis and cost computations.

REQUIRED

Based on the data given in Exhibits A and B, you are required to:

1. Complete the attached “overhead cost distribution sheet” (Exhibit C). Note: Wherever possible, identify the overhead costs chared directly to the production and service departments. If such direct identification is not possible, distribute the costs on some “rational basis.

2. Calculate the overhead cost (per direct labour hour) for each of the four producing departments. This should include share of the service departments’ costs.

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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

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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

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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)

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Case 5: EASTERN MACHINES COMPANY

Raj, who was in charge production felt that there are many problems to be attended to. But Quality Control was the main problem, he thought, as he found there were more complaints and litigations as compared to last year. With the demand increasing, he does not want to take any chances.

So he went down to assembly line, but was greeted by an unfamiliar face. He introduced himself.

Raj: I am in charge of checking the components, which we use, when we assemble the machines for customers. For most of the components, suppliers are very reliable and we assume that there will not be any problem. When we generally test the end product, we don’t have failures.

Namdeo: I am Namdeo. I was in another dept. and have been transferred recently to this dept.

Raj: Recently we have been having problems, and there has been some complaint or other about the machines we have supplied. I am worried and would like to check the components used. I would like to avoid lot of expensive rework.

Namdeo: But it would be very expensive to test every one of them. It will take at least half an hour for each machine. I neither have the staff nor the time. It will be rather pointless as majority of them will pass the test.

Raj: There has been more demand than supply for these machines in last 2 years. We have been buying many components from many suppliers. We have been producing more with extra shifts. We are trying to capture the market and increase our market share.

Namdeo: We order for components from different places, and sometimes we do not have time to check all. There is a time lag between order and supply of components, and we cannot wait as production will stop. We use whatever comes soon as we want to complete our orders.

Raj: Oh! Obviously we need some kind of checking. Some sampling technique to check the quality of the components. We need to get a sample from each shipment from our component suppliers. But I do not know how many we should test.

Namdeo: We should ask somebody from our statistics dept. to attend to this problem.

Question:

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?

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Note: Solve any 4 Cases

CASE: I Managing the Guinness brand in the face of consumers’ changing tastes

1997 saw the US$19 billion merger of Guinness and GrandMet 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 popular stout were sold every day, predominantly in Guinness’s 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 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 months of 2001 and, more alarmingly, sales were also down 4 per cent in

its home market, 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 litres 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 Ireland, accounting for nearly one of every

two pints 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 losing popularity compared with wine or the

recently launched RTDs (ready-to-drinks) or FABs (flavoured alcoholic beverages), which the younger

generation of drinkers considered 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.

Beer 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 first to feel the pain caused by the declining popularity of beer and in particular stout. A

Euromonitor report in February 2002 explained how the profile 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

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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 consumers increases.

The report continued:

In Ireland, in particular, the consumer 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 women had reportedly never tried

Guinness. 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.

In 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 millions 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 pint 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’ for 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, sale of beer in the

cheaper ‘off-trade’ channel were slowly gaining in importance. The Guinness brand manager at the time,

John O’Keeffe, explained how home drinkers could now enjoy a smoother, creamier head similar to the

one obtained in a 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 4ºC

rather than the normal 6ºC. 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-stemmed 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 quite a departure from the

traditional Guinness look.

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The objective was to reposition Guinness alongside certain similarly packaged lagers and RTDs 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 draft

Guinness easier access to the growing number of clubs and bars that were less likely to serve traditional

draft Guinness, which could be kept for only six to eight weeks and took two minutes to pour. The RTDs,

by contrast, had a shelf-life of more than a year and were drunk straight from the bottle.

However, financial analyst remained sceptical about the Guinness product innovations, which had no

significant positive impact on sales or profitability:

The last 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 estimates 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 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 advertising, was second only to the national telecoms provider, Eircom.

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 breathe life into an ageing brand, to reconnect an old company with

young (sceptical) customers.

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

Guinness 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 pint 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 pour

a proper pint. The process involved two steps—the pour and the top-up—and took a total of 119.5

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/DUV’s attempt to appeal to the younger generation of drinkers and boost its fading

image, rumours persisted in Ireland about the brand future. The country’s leading and respected

newspaper, the Irish times, reported in an article in July 2001:

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The uncertainty over its future all adds to the air of crisis that is building around Guinness Ireland Group

four months ago…The review is not complete and the assumption is that there is more bad news to come.

In the pubs across Ireland, the traditional Guinness drinkers looked on anxiously as the younger

generation drank Bacardi Breezers, Smirnoff Ices or Californian wines. Could the goliath Guinness survive

another two centuries? Was the preference for these new drinks just a fad or fashion, or did Diageo need

to seriously reconsider how it marketed Guinness?

A quick solution?

In late February 2002, Diageo CEO Paul Walsh revealed 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 form 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. 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. 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 innovative 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’.

Question:

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?

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CASE: II The grey market

Introduction

The over-50s market has long been ignored by advertising and marketing firms in favour of the market.

The complexity of how to appeal to today’s mature customers, without targeting their age, has proved

just too challenging for many companies. But this preoccupation with youth runs counter to demographic

changes. The over-50s represent the largest segment of the population, across western

developed countries, due largely to the post-Second World War baby boom. The sheer size of this grey

market, which will continue to grow as birth and mortality rates fall, coupled with its phenomenal

spending power, presents enormous opportunities for business. However, successfully unleashing its

potential will depend on companies truly understanding the attitudes, lifestyles and purchasing interests

of this post-war generation.

Demographic forces

Following the Second World War many countries experienced a baby boom phenomenon as returning

soldiers began families. This, coupled with a more positive outlook on the future, resulted in the baby

boom generation, born between 1946 and 1964. Now beginning to enter retirement, this affluent group

globally numbers approximately 532 million. In Western Europe they account for the largest proportion

of the total population at 14.9%, followed closely by 14.2% in North America and 13.5 % in Australia.

Table 1: Global population aged 45-54 by region: baby boomers as a % of the total population

1990/2002

Baby boomers as a

% total population

1990 2002 % point change

Western Europe 12.9 14.9 2.0

North America 9.9 14.2 4.3

Australasia 10.4 13.5 3.1

Eastern Europe 9.7 13.0 3.3

Asia-Pacific 7.8 9.8 2.0

Latin America 6.6 8.4 1.8

Africa/Middle East 2.6 2.3 20.3

WORLD 7.9 9.5 1.6

The grey market is big and getting bigger. Between 1990 and 2002 the global baby boomer population

increased by 41%. The rate of growth is predicted to decrease to 35% between 2002 and 2015.

Particularly noteworthy is the predicted increase in the proportion of baby boomers in many Western

European countries, such as Austria, Spain, Germany, Italy, and the UK. In developed countries, according

to the United Nations, the percentage of elderly people (60+) is forecast to rise from one-fifth of the

population to one-third by 2050. The growth in the elderly population is exacerbated by falling fertility

rates in many developed countries, coupled with a rise in human longevity.

The influences and buyer behaviour patterns of baby boomers

The members of the baby boomer generation are quite unlike their more conservative parents’

generation. They are the children of the rebellious ‘swinging sixties’, growing up on the sounds of the

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Beatles and the Rolling Stones. Better educated than their parents, in a time of greater prosperity, they

indulged in more hedonistic lifestyle. It has been said that they were the first ‘me generation’. Now, in

later life, they have retained their liberal, adventurous and youthful attitude to life. Aptly termed ‘younger

older people’ they abhor antiquated stereotypes of elderly people, preferring to be defined by their

attitude rather than their age.

Baby boomers are also tend to be very wealthy. Many are property owners and may have gained an

inheritance from parents or other relatives. They have higher than average incomes or have retired with

private pension plans. With their children having flown the nest they have greater financial freedom and

more time to indulge themselves. Having worked all their lives, and educated their children, many baby

boomers do not believe it is their responsibility to safeguard the financial future of their children by

carefully protecting their children’s inheritance. They are instead liquidating their assets, intent on

enjoying their later life to full, often through conspicuous consumption.

Based on research conducted by Euromonitor, the main areas of expenditure in the baby boomer market

are financial services, tourism, food and drink, luxury cars, electrical/electronic goods, clothing, health

products, and DIY and gardening.

Table 2: Global population aged 45-54 in thousands by country: developed countries 2002-2015

Country 2002 2010 2015 %change 2002/2015

Austria 1,059 1,277 1,371 29

Spain 4,921 5,741 6,189 26

Germany 10,991 12,963 13,508 26

Italy 7,684 8,591 9,347 23

UK 7,786 8,731 9,388 22

New Zealand 521 607 613 21

Ireland 474 529 555 18

Switzerland 997 1,120 1,159 17

Australia 2,661 3,006 3,057 16

Greece 1,359 1,476 1,559 15

Canada 4,505 5,320 5,122 15

Netherlands 2,301 2,492 2,604 14

Portugal 1,334 1,438 1,511 13

Norway 612 640 678 13

Denmark 745 761 802 11

USA 38,951 44,140 42,207 8

Belgium 1,423 1,549 1,526 8

Sweden 1,206 1,179 1,233 2

Japan 18,344 15,661 16,459 -10

Finland 820 749 718 -12

France 8,266 7,626 7,292 -12

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Figure 1 Global Baby boomer market: % analysis by broad sector 2002 (% value)

Note: sectors valued on the basis of estimates by senior managers in major companies in each sector,

consumer expenditure and industry sector data.

Unsurprisingly the financial sector is the largest in this market. Baby boomers are concerned with

being financially secure in their retirement. An ageing population, coupled with a rise in human longevity,

is giving rise to a pensions crisis across Western Europe. Baby boomers are therefore right to be

preoccupied with how they will maintain their lifestyle over the long term. They are actively engaging in

financial planning, both before and after retirement. Popular financial service products include

endowments, life insurance, personal pensions, PEPs and ISAs.

Baby boomers have adventurous attitudes with a desire to see the world. In their retirement

foreign travel is a key expenditure. Given their greater levels of sophistication and education, baby

boomers are much more demanding of holidays that suit their lifestyles. This group is very diverse, with

holiday interests ranging from action-packed adventures to culturally rich experiences.

Baby boomers want to maintain a youthful appearance in line with their youthful way of living.

Fear of becoming invisible is a genuine concern among older generations. This image conciousness is

reflected in their spending on clothing, cosmetics and anti-ageing products. Luxury cars also a key status

symbols for this group.

The home is another area of expenditure. Once children have flown the nest, many baby boomers

redecorate the home to suit their needs. Electrical and electronic purchases are key indulgences among

these technologically savvy consumers. Gardening is another pastime enjoyed by older generations.

Financial

services

22%

DIY/gardening

3%

Health

products

10%

Clothing

11%

Electrical/elec

tronic

11%

Luxury cars

12%

Food/drink

13%

tourism

18%

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Health is also a priority. Baby boomers invest in private health insurance and over-the-counter

pharmaceutical products to maintain their healthy lives.

Business opportunities

The sheer size of the grey market, which is getting bigger in many countries—characterized by

consumers with disposable income, ample free time, interest in travel, concern about financial security

and health, awareness of youth culture and brands and desire for aspirational living—makes this market

enormously attractive to many business sectors. Pharmaceuticals, health and beauty, technology, travel

financial services, luxury cars, lavish food and entertainment are key growth sectors for the grey market.

However, successfully tapping into this market will depend on companies truly understanding the

attitudes, lifestyles and purchasing interests of this post-war generation. Communicating with this group

is a tricky business, but, done right, it can be hugely rewarding.

When targeting the older consumer it is important to target their lifestyle and not their age. Older

people do not want to be reminded, in a patronizing way, of their age or what they should be doing now

they are a certain stage in life. With an interest in maintaining a youthful way of life these consumers are

interested in similar brands to those that appeal to younger generations. The key for the companies is to

find a way of making their brands also appeal to an older consumer without explicitly targeting their age.

One tried-and tested method of targeting this group is to use nostalgia. Mercedes Benz used the Janis

Joplin song ‘Oh Lord won’t you buy me a Mercedes Benz’ to great effect despite the obvious irony in that

the song was written to highlight the dangers of materialism! Volkswagen’s new retro-style Beetle has

also been popular among this group.

In the tourism sector Saga Holidays, the leader in holidays for the over-50s, has changed its

product offering to reflect changing trends among this group. In line with the more adventurous attitudes

of many older consumers it now offers more action-packed adventure holidays to far-flung destinations.

More recently, Thomas Cook has rebranded it over-50s ‘Forever Young’ programme to reflect the

diverse interest of its target customers. Its new primetime brochure targets five distinct groups with the

following holiday types: ‘Discover’, ‘Learn’, ‘Relax’, ‘Active’ and ‘Enjoy Life’.

Conclusion

The over-50s represent the largest segment of the population across Western developed countries. This

affluent market is big and getting bigger. Having ignored it for so long marketers are finally beginning to

see the enormous opportunities presented by the grey market. But conquering this market will not be

easy. The baby boomer generation is quite unlike its predecessors. With a youthful and adventuresome

spirit these ‘younger older people’ want to be defined by their attitude and not by their age. Only time

will tell whether today’s marketers are up to the challenge.

Questions

1. Why is the grey market so attractive to business?

2. Identify the influences on the purchasing behaviour of the over-50s consumer.

3. Discuss the challenges involved in targeting the grey market.

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CASE: III Nivea: managing an umbrella brand

‘In many countries consumer are convinced that Nivea is a local brand, a mistake which Beiersdoft, the

German makers, take as a compliment.’

(Quoted on leading brand consultancy Wolff-Olins’ website, www.wolff-olins.com)

An ode to Nivea’s success

In May 2003, a survey of ‘Global Mega Brand Franchises’ revealed that the Nivea Cosmetics brand had

presence in the maximum number of product categories and countries. The survey, conducted by USbased

ACNielsen, aimed at identifying those brands that had ‘successfully evolved beyond their original

product categories’. A key parameter was the presence of these brands in multiple product categories as

well as countries.

Nivea’s performance in this study prompted a yahoo.com news article to name it the ‘Queen of Mega

Brands’. This title was appropriate since the brand was present in over 14 product categories and was

available in more than 150 countries. Nivea was the market leader in skin creams and lotions in 28

countries, in facial cleansing in 23 countries, in facial skin care in 18 countries, and in suntan products in

15 countries. In many of those countries, it was reportedly believed to be a brand of local origin—having

been present in them for many decades. This fact went a long way in helping the brand attain leadership

status in many categories and countries (see Table 3).

Table 3 Nivea: market positions

CATEGORY Skin

care

Baby

care

Sun

protection

Men’s

care

COUNTRY

Austria 1 1 2 1

Belgium 1 1 3 1

UK 1 3 – 1

Germany 1 1 3 1

France 1 1 1 3

Italy 1 1 5 1

Netherlands 1 1 5 1

Spain 1 4 – 1

Switzerland 1 1 4 1

The study covered 200 consumer packaged goods brands from over 50 global manufacturers. The brands

had to be available in at least 15 of the countries studied; the same name had to be used in at least three

product categories and meet franchise in at least three of the five geographical regions.

In its home country Germany, too, many of Nivea’s products were the market leaders in their segments.

This market leadership status translated into superior financial performance. Between 1991 and 2001,

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Nivea posted double-digit growth rates every year. For 2001, the brand generated revenues of €2.5

billion, amounting to 55 per cent of the parent company’s (Beiersdoft) total revenue for the year. The

120-year-old, Hamburg-based Beiersdoft has often been credited with meticulously building the Nivea

brand into the world’s number one personal care brand. According to a survey conducted by ACNielsen in

the late 1990s, the brand had a 15 per cent share in the global skin care products market. While Nivea

had always been the company’s star performer, the 1990s were a period of phenomenal growth for the

brand. By successfully extending what was essentially a ‘one-product wonder’ into many different

product categories, Beiersdoft had silenced many critics of its umbrella branding decision.

The marketing game for Nivea

Millions of customers across the world have been familiar with the Nivea brand since their childhood.

The visual (colour and packaging) and physical attributes (feel, smell) of the product stayed on in their

minds. According to analysts, this led to the formation of a complex emotional bond between customers

and the brand, a bond that had strong positive under-tones. According to a superbrands.com. my article,

Nivea’s blue colour denoted sympathy, harmony, friendship and loyalty. The white colour suggested

external cleanliness as well as inner purity. Together, these colours gave Nivea the aura of an honest

brand.

To customers, Nivea was more than a skin care product. They associated Nivea with good health, graceful

ageing and better living. The company’s association Nivea with many sporting events, fashion events and

other lifestyle-related events gave the brand a long-lasting appeal. In 2001, Franziska Schmiedebach,

Beiersdoft’s Corporate Vice President (Face Care and Cosmetics), commented that Nivea’s success over

the decades was built on the following pillars: innovation, brand extension and globalization (see Table 4

for the brand’s sales growth from 1995-2002)

Table 4 Nivea: worldwide sales growth (%)

Innovation and brand extensions

Innovation and brand extensions went hand in hand for Nivea. Extensions had been made back in the

1930s and had continued in the 1960s when the face care range Nivea Visage was launched. However, the

first major initiative to extend the brand to other products came in the 1970s. Naturally, the idea was to

cash in on Nivea’s strong brand equity. The first major extension was launch of ‘Nivea For Men’

aftershave in the 1970s. Unlike the other aftershaves available in market, which caused the skin to burn

on application, Nivea For Men soothed the skin. As a result, the product became a runaway success.

The positive experience with the aftershave extension inspired the company to further explore the

possibilities of brand extensions. Moreover, Beiersdoft felt that Nivea’s unique identity, the values it

Sales Growth 1995 1996 1997 1998 1999 2000 2001 2002

In Million € 1040 1166 1340 1542 1812 2101 2458 2628

In per cent 9.8 12.1 14.9 15.1 17.5 16.0 17.0 6.9

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represented (trustworthiness, simplicity, consistency, caring) could easily be used to make the transition

to being an umbrella brand. The decision to diversify its product range was also believed to have

influenced by intensifying competitive pressures. L’Oreal’s Plenitude range, Procter & Gamble’s Oil of

Olay range, Unilever’s Pond’s range, and Johnson & Johnson’s Neutrogena range posed stiff competition

to Nivea.

Though Nivea was the undisputed market leader in the mass-market face cream segment worldwide, its

share was below Oil of Olay’s, Pond’s and Plenitude’s in the US market. While most of the competing

brands had a wide product portfolio, the Nivea range was rather limited. To position Nivea as a

competitor in a larger number of segments, the decision to offer a wider range inevitable.

Beiersdoft’s research centre—employing over 150 dermatological and cosmetics researchers,

pharmacists and chemists—supported its thrust on innovations and brand extensions. During the 1990s,

Beiersdoft launched many extensions, including men’s care products, deodorants (1991), Nivea Body

(1995), and Nivea Soft (1997). Most of these brand extension decisions could be credited to Rolf Kunisch,

who became Beiersdoft’s CEO in the early 1990s. Rolf Kunisch firmly believed in the company’s ‘twin

strategy’ of extension and globalization.

By the beginning of the twenty-first century, the Nivea umbrella brand offered over 300 products in 14

separate segments of the health and beauty market (see Table 5 and Figure 2 for information on Nivea’s

brand extensions). Commenting on Beiersdoft’s belief in umbrella branding, Schmiedebach said,

‘Focusing your energy and investment on one umbrella brand has strong synergetic effects and helps

build leading market positions across categories.’ A noteworthy aspect of the brand extension strategy

was the company’s ability to successfully translate the ‘skin care’ attributes of the original Nivea cream to

the entire gamut of products.

Table 5 Nivea: brand portfolio

Category Products

Nivea Bath Care Shower gels, shower specialists, bath foams, bath specialists, soaps, kids’

products, intimate care

Nivea Sun (sun care) Sun protection lotion, anti-ageing sun cream, sensitive sun lotion, sunspray,

children’s sun protection, deep tan, after tan, self –tan, Nivea baby

sun protection

Nivea Beaute (colour cosmetics) Face, eyes, lips, nails

Nivea For Men (men’s care) Shaving, after shaving, face care, face cleansing

Nivea Baby (baby care) Bottom cleansing, nappy rash protection, general cleansing, moisturizing,

sun protection

Nivea Body (body care) Essential line, performance line, pleasure line

Nivea Crème Nivea crème

Nivea Deodorants Roll-ons, sprays, pump sprays, sticks, creams, wipes, compact

Nivea Hand (hand care) Hand care lotions and creams

Nivea Lip Care Basic care, special care, cosmetic care, extra protection care

Nivea Visage (face care) Daily cleaning, deep cleaning, facial masks (cleaning/care), make-up

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remover, active moisture care, advanced repair care, special care

Nivea Vital (mature skin care) Basic face care, specific face care, face cleansing products, body care

Nivea Soft Nivea soft moisturizing cream

Nivea Hair Care Hair care (shampoos, rinse, treatment, sun); hair styling (hairspray and

lacquer, styling foams and specials, gels and specials)

Figure 2 Nivea Universe

The company ensured that each of its products addressed a specific need of consumers. Products in all

the 14 categories were developed after being evaluated on two parameters with respect to the Nivea

mother brand. First, the new product had to be based on the qualities that the mother brand stood for

NIVEA

NIVEA

Visage

NIVEA

For

Men

NIVEA

Creme

NIVEA

Body

NIVEA

Sun

NIVEA

Soft

Skin Care

NIVEA

Beaute

NIVEA

Baby

NIVEA

Hand NIVEA

Vital

NIVEA

Hair

NIVEA

Deodorrants

Personal Care

NIVEA

Bath

Care

NIVEA

Lipcare

Personal Care

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and, second, it ha to offer benefits that were consistent with those that the mother brand offered. Once a

new product cleared the above test, it was evaluated for its ability to meet consumer needs and its scope

for proving itself to be a leader in the future. For instance, a Nivea shampoo not only had to clean hair, it

also had to be milder and gentler than other shampoos in the same range.

Beiersdoft developed a ‘Nivea Universe’ framework for streamlining and executing its brand extension

efforts. This framework consisted of a central point, an inner circle of brands and an outer circle of

brands (see Figure 2)

The centre of the model housed the ‘mother brand’, which represented the core values of

trustworthiness, honesty and reliability. While the brands in the inner circle were closely related to the

core values of the Nivea brand, the brands in the outer circle were seen as extensions of these core

values. The inner-circle brands strengthened the existing beliefs and values associated with the Nivea

brand. The outer circle brands, however, sought to add new dimensions to the brand’s personality,

thereby opening up avenues, for future growth.

The ‘global-local’ strategy

The Nivea brand retained its strong German heritage and was treated as a global brand for many decades.

In the early days, local managers believed that the needs of customers from their countries were

significantly different from those of customers in other countries. As a result, Beiersdoft was forced to

offer different product formulations an packaging, and different types of advertising support.

Consequently, it incurred high costs.

It was only in the 1980s that Beiersdoft took a conscious decision to globalize the appeal of Nivea. The

aim to achieve a common platform for the brand on a global scale and offer customers from different

parts of the world a wider variety of product choices. This was radical departure from its earlier

approach, in which product development and marketing efforts were largely focused on the German

market. The new decision was not only expected to solve the problems of high costs, it was also expected

to further build the core values of the brand.

To globalize the brand, the company formulated strategies with the help of a team of ‘international’

experts with ‘local expertise’. This team developed new products for all the markets. Their

responsibilities included, among others, deciding about the way in which international advertising

campaigns should be adapted at the local level. The idea was to leave the execution of strategic decisions

to local partners. However, Beiersdoft monitored the execution to ensure that it remained in line with the

global strategic plan.

This way, Beiersdoft ensured that the nuances of consumer behaviour at the local level understood and

that their needs were addressed. Company sources claimed that by following the above approach, it was

easy to transfer know-how between headquarters and the local offices. In addition, the motivation level

of the local partners also remained on the higher side.

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The company established a set of guidelines that regulated how the marketing mix of a new

product/brand was to be developed. These guidelines stipulated norms with respect to product, pricing,

promotion, packaging and other related issues. For instance, a guideline regarding advertising read,

‘Nivea advertising is about skin care. It should be present visually and verbally. Nivea advertising is

simple, it is unpretentious and human.’

Thus all advertisements for any Nivea product depicted images related to ‘skin care’ and ‘unpretentious

human life’ in one way or the other. The company consciously decided not to use supermodels to

promote its products. The predominant colours in all campaigns remained blue and white. However, local

issues were also kept in mind. For instance, in the Middle East, Nivea relied more on outdoor media as it

worked out to be much more cost-effective. And since showing skin in the advertisements went against

the region’s culture, the company devised ways of advertising skin without showing skin.

Many brand management experts have spoken of the perils of umbrella management, such as brand

dilution and the lack of ‘change’ for consumers. However, the umbrella branding strategy worked for

Beiersdoft. In fact, the company’s growth was the most dynamic since its inception during 1990s—the

decade when the brand extension move picked up momentum. The strong yearly growth during the

1990s and the quadrupling of sales were attributed by company sources to the thrust on brand extension.

Questions

1. Discuss the reasons for the success of the Nivea range of products across the world. Why did

Beiersdoft decide to extend the brand to different product categories? In the light of Beiersdoft’s

brand extension of Nivea, critically comment on the pros and cons of adopting an umbrella

branding strategy. Compare the use of such a strategy with the use of an independent branding

strategy.

2. According to you, what are the core values of the Nivea brand? What type of brand extension

framework did Beiersdoft develop to ensure that these core values id not get diluted? Do you think

the company was able to protect these core values? Why/why not?

3. What were the essential components of Beiersdoft’s global expansion strategy for Nivea? Under

what circumstances would a ‘global-strategy-local execution’ approach be beneficial for a

company? When and why should this approach be avoided?

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CASE: IV Pret a Manger: passionate about food

Introduction

Pret a Manger (French for ‘ready to eat’) is a chain of coffee shops that sells a range of upmarket, healthy

sandwiches and desserts as well as a variety o coffees to an increasingly discerning set of lunchtime

customers. Started in London, England, in 1986 by two university graduates, Pret a Manger has more

than 120 stores across the UK. In 2002 it sold 25 million sandwiches and 14 million cups of coffee, and

had a turnover of over £100 million. Buckingham Palace reportedly orders more than £1000 worth of

sandwiches a week and British Prime Minister Tony Blair has had Pret sandwiches delivered to number

10 Downing Street for working lunches. The company also has ambitious plans to expand further—it

already has stores in New York, Hong Kong and Tokyo, and has set its sights on further international

growth.

Background and company history

In 1986, Pret a Manger was founded with one shop, in central London, and a £17,000 loan, by two

property law graduates, Julian Metcalf and Sinclair Beecham, who had been students together at the

University of Westminster in the early 1980s. At that time the choice of lunchtime eating in London and

other British cities was more limited than it is today. Traditionally, some ate in restaurants while many

favoured that well-known British institution, the pub, as a choice for lunchtime eating and drinking.

There was, however, a growing awareness among many people of the benefits of healthy eating and a

healthy lifestyle, and lunchtime habits were changing. There was a general trend towards taking shorter

lunch brakes and, among office workers, to take lunch at their desks. For those who wanted food to take

away, the choice in fast food was dominated by the large chains such as McDonald’s, Burger King and

Kentucky Fried Chicken (now KFC) while other types of carry-out food, such as pizzas, were also

available.

Sandwiches also played an important part in British lunchtime eating. Named after its eighteenth-century

inventor, the Earl of Sandwich, the humble sandwich had long been a popular British lunch choice,

especially for those with little time to spare. Prior to Pret’s arrival on the scene, sandwiches were sold

mainly either pre-packed in supermarkets and high-street variety chain stores such as Marks and

Spencer and Boots, or in the many small sandwich bars that were to be found in the business districts of

large cities like London, Sandwich bars were usually small, independently owned or family run shops that

made sandwiches to order for customers who waited in a queue, often out on to the pavement outside.

Dissatisfied with the quality of both the food and service from traditional sandwich bars, Metcalf and

Beecham decided that Pret a Manger should offer something different. They wanted Pret’s food to be high

quality and healthy, and preservative and additive free. In the beginning, they shopped for the food

themselves at local markets and returned to the store where they made the sandwiches each morning.

Pret’s offering was based around premium-quality sandwiches and other health-orientated lunches

including salads, sushi and a range of desserts, priced higher than at traditional sandwich bars, and sold

pre-packed in attractive and convenient packaging ready to go. There was also a choice of different

coffees, as well as some healthy alternatives. Service aimed to be fast and friendly go give customers a

minimum of queuing time.

Pret a Manger: ‘Passionate about What We do’

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Pret a Manger strongly emphasizes the quality of its products. Its promotional material and website

claims that it is:

‘passionate about food, rejecting the use of obscure chemicals, additives and preservatives common in so

much of the prepared and fast food on the market today…it there’s a secret to our success so far we like

to think its determination to focus continually on quality—not just our food, but in every aspect of what

we do’.

Great importance is also placed on freshness. Unlike those sold in high-street shops or supermarkets,

Pret’s sandwiches are all hand-made by staff in each shop starting at 6.30 every morning, rather than

being prepared and delivered by a supplier or from a central location. Metcalf and Beecham believe this

gives their sandwiches a freshness and distinctiveness. All food that hasn’t been sold in the shops by the

end of the day is given away free to local charities.

Careful sourcing of supplies for quality has also always been important. Genetically modified ingredients

are banned and the tuna Pret buys, for example, must be ‘dolphin friendly’. There is also a drive for

constant product improvement and innovation—the company claims that its chocolate brownie dessert

has been improved 33 times over the last few years—and, on average, a new product is tried out in the

stores every four days. Aware that some of its customers are increasingly health conscious, Pret’s website

menu carefully lists not only what is available, but also the ingredients and nutritional values in terms of

energy, protein, fats and dietary fibre for each item.

The level and quality of service from staff in the shop is a critical factor. The stores are self-service, with

customers helping themselves to sandwiches and other products form the supermarket-style

refrigerated cabinets. Staff at the counter at the back of the store then serve customers coffee and take

payment. Service is friendly, smiling and efficient, in contrast to many retail and restaurant outlets in

Britain where, historically, service quality has not always been high. Prêt puts an emphasis on human

resource management issues such as effective recruitment and training so as to have frontline staff who

can show the necessary enthusiasm and also remain fast and courteous under the pressure of a busy

lunchtime sales period. These staff are usually young and enthusiastic, some are students, many are

international. The pay they receive is above the fast-food industry average and staff turnover is 98 per

cent a year, which sounds high—however, this is against an industry norm of around 150 per cent. In

2001, Pret had 55,000 applications for 1500 advertised vacancies.

Recently, Fortune magazine voted Pret one of the top 10 companies to work for in Europe. According to

its own promotional recruitment material, Pret is an attractive and fun place to work: ‘We don’t work

nights, we wear jeans, we party!’ Service quality is checked regularly by the use of mystery shoppers: if a

shop receives a good report, then the staff there receive a 75p an hour bonus in the week of the visit.

Head office managers also visit stores on a regular basis and every three or four months every one of

these managers works as a ‘buddy’, where they spend a day making sandwiches and working on the floor

in one of the shops to help them keep in touch with what is going on. Store employees work in teams and

are briefed daily, often on the basis of customer responses that come in from in-store reply cards,

telephone calls and the company website. The website, which, lists the names and phone numbers of its

senior executives, actively invites customers to comment or complain about their experience with Pret,

and encourages them to contact the company. Great importance is placed on this customer feed-back,

both positive and negative, which is discussed at weekly management meetings.

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The design of the stores is also distinctive. Prominently featuring the company logo, they are fitted out in

a high-tech with metal cladding and interiors in Pret’s own corporate dark red colour. Each store plays

music, helping to create a stylish and lively atmosphere. Although the shops mainly sell carry out food

and coffee in the morning and through the lunchtime period, many also have tables and seating where

customers can drink coffee and eat inside the store or, weather permitting, on the pavement outside.

Growth and competition

Three years after the first Pret shop was launched another was opened and, after that, the chain began to

grow so that, by 1998, there were 65 throughout London. In the late 1990s stores were also opened in

other British cities such as Bristol, Cambridge and Manchester. Although growth in the UK has been

rapid—between 2000 and 2002 the company opened 40 new outlets and there are over 120 throughout

Britain—Pret’s policy has always been to own and manage all its own stores and not to franchise to other

operators. In 2002, £1 million was spent in launching an Internet service that enables customers to order

sandwiches online.

Plans for international growth have been more cautious. In 2000 the company made its first move

overseas when it opened a shop near Wall Street in New York. However, there were problems on several

fronts in moving into the USA. Metcalf is quoted saying, ‘As a private company its very difficult to set up

abroad. We didn’t know where to begin in New York—we ended up having all the equipment for the shop

made here and shipped over.’ There were also staffing and service quality difficulties—Pret reportedly

found it difficult to recruit people in New York who had the required friendliness to serve in the stores

and had to import British staff. Despite these problems, several other shops in New York have followed

and, in 2001, Pret opened its first outlet in Hong Kong.

During the 1990s, coffee shops boomed as the British developed a growing taste for drinking coffee in

pavement cafes, and competition for Pret grew as other chains entered the fray. Rivals like Coffee

Republic, Caffè Nero, Costa Coffee (now owned by leisure group Whitbread) Aroma (owned by

McDonald’s) and American worldwide operator Starbucks all came into the market, as well as a number

of smaller independents. All these chains offer a wide range of coffees but with varying product offerings

in terms of food, pricing and style (Starbucks, for example, offers comfortable arm-chairs around tables,

which encourage people to linger or work in a laptop in the store). In a London shopping street it is not

uncommon to see three or four rival outlets next door to or within a few yards of each other. However, it

quickly became clear that the sector was overcrowded and, apart from Starbucks, some of the other

chains reportedly struggled to make a profit. In 2002 Coffee Republic was taken over by Caffè Nero,

which also eventually acquired the ailing Aroma chain from McDonald’s. Costa Coffee was the largest

chain overall with over 300 shops throughout Britain, while Starbucks was expanding aggressively and

aimed to have an eventual 4000 stores worldwide.

The future

As work and lifestyles get busier, the demand for convenience and fast foods continues to grow. In 2000,

some estimates put the total value of the fast-food market in Britain, excluding sandwiches, at over £6

billion and growing about £200-£300 million a year. While the growth in sales of some types of fast food,

like burgers, was showing signs of slowing down, sandwiches continued to increase in popularity so that

by 2002 sales wee an estimated £3 billion. Customers are also getting more health conscious and choosy

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about what they eat and, increasingly, want nutritional information about food from labelling and

packaging.

In January 2001, in a surprise move, Pret’s two founders sold a 33 per cent stake in the company to fastfood

giant McDonald’s for an estimated £25 million. They claim that McDonald’s will not have any

influence over what Pret does or the products it sells, but that the investment by McDonald’s will help

their plan for future development. According to Metcalf:

‘We’ll still be in charge—we’ll have the majority of shares. Pret will continue as it does… The deal wasn’t

about money—we could have sold the shares for much more to other buyers but they wouldn’t have

provided the support we need.’

After a long run of success, Pret has ambitious plans for the future. It hopes to open at least 20 new stores

a year in the UK. In late 2002 it opened its first store in Tokyo, Japan, in partnership with McDonald’s. The

menu there is described as being 75 per cent ‘classic Pret’ with the remaining 25 per cent designed more

to please local tastes. In other international markets, the plan is to move cautiously—Pret’s first move

will be to open more stores in New York and Hong Kong, where it has already been successful.

Questions

1. How has Pret a Manger positioned its brand?

2. Explain how the different elements of the services marketing mix support and contribute to the

positioning of Pret a Manger.

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Case V ‘Fast Fashion’: exploring how retailers get affordable fashion on to the

high street

The term ‘fast fashion’ has become very much de rigueur within the fashion retailing industry. Retailers

have to react quickly to changes in the market, possess lean manufacturing operations, and utilize

responsive supply chains in order to get the latest fashions to the mass market. Stores such as H&M, Zara,

Mango, Top Shop and Benetton have been tremendously successful in being responsive to the fashion

needs of the market. Excellent logistical and marketing information systems are seen as key to the

implementation of the ‘fast fashion’ concept. ‘Fast fashion’ is the emphasis of putting fashionable and

affordable design concepts, which match consumer demand, on to the high street as quickly as possible.

These retailers get sought-after fashions into stores in a matter of weeks, rather than the previous

industry norm, which relied on production lead times ranging from six months to a year. The concept of

‘fast fashion’ relies of a number of central components: excellent marketing information systems, flexible

production and logistics operations, excellent communications within the supply chain, and leveraging

advanced IT systems. These components allow stores to track consumer demand, and deliver a rapid

response to changes in the marketplace. The results are invigorating for fashion retailers, with ‘fast

fashion’ retailers’ sales growing by 11 per cent, compared with the industry norm of 2 per cent.

Within the fashion industry a number of different levels exist, the exclusive haute couture ranges

(made to measure), the designer ready-to-wear collections, and then copycat designs by mass-market

retailers. Fashion has now gone to the high street, becoming more democratic for the mass market.

The traditional fashion- retailing model was seasonal, whereby retailers would typically launch

two seasons: spring and autumn collections. Fashion retailers would buy for these collections from their

supplier network a year in advance, and allow for between 20-30 per cent of their purchasing budgets

open to specific fashion changes in the market. Typically, retailers would have perennial offerings that

rarely change as well as catering to the whims of fashion, such as basic T-shirts and jeans.

Now, through the ‘fast fashion’ philosophy, new items are being stocked in stores more frequently. These

newer product ranges stimulate shoppers into frequenting these stores on a more regular basis, in some

cases weekly to see new fashion items. Savvy brand-loyal shoppers know when new stock is being

delivered to their favourite store. Through increased stock replenishment of new, fashionable items,

consumers are increasing their footfall to these stores, and furthermore these stores are developing

brand images as cutting edge, trendy, and fashionable. This increased footfall, where shoppers regularly

visit a store, eliminates the need for major expenditure on advertising and promotion. Also the concept of

‘fast fashion’ is helping to improve sales, conversion ratios within these stores. Due to the limited supply

of designs available, this creates an aura of exclusivity for these garments, further enhancing the brands

of these ‘fast fashion retailers’ as leading fashion brands.

Famous for ABBA, Volvos and IKEA, now Sweden has another international success story: H&M. The basic

business premise behind H&M is ‘fashion and quality at the best price’. The company now has over 1068

stores in 21 countries. H&M sources 50 per cent of its goods in Europe and the remainder in low-cost

Asian countries. Sourcing decisions are dependent on cost, quality, lead times and export regulations. The

lead times for items can vary from a minuscule two weeks to six months, dependent on the item itself.

H&M believes that having very short lead times can be beneficial in terms of stock control, however it is

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not the most important criteria for all items. Basic clothing garments can have lead times running into

months, due to consistent demand. However, items that are more trend- and fashion-conscious require

very short lead times, to match demand. H&M is now also in the process of teaming up with prestigious

designers like Karl Lagerfeld to create affordable fashion ranges.

The firm utilizes close relationships with its network of production offices and 700 suppliers. Unlike

some other clothing retailers, H&M outsources all of its production to independent suppliers. The dyeing

of garments is postponed until as late as possible in the production process to allow greater flexibility

and adaptation to the whims of the fashion buyer. Items from around the world are shipped to a

centralized transit warehouse in Hamburg, Germany, where quality checks are undertaken, and the items

are allocated to individual stores or placed in centralized storage. Items that are placed in this ‘call-off

warehouse’ are allocated to stores where there is more demand for the particular item. For example, if

pairs of a particular style of jeans are selling well in London, more jeans are shipped from Hamburg to

H&M’s London stores.

Table 6: Some of the key players in apparel industry

H&M Next Benetton

Originated in Sweden Originated in the UK Originated in Italy

Chain has 1069 stores in 21

countries

Has 380 stores in the UK and

Ireland and has 80 franchise

stores overseas

Has a presence in 120

countries and uses a retail

network o 5000 stores

Originally called Hennes &

Mauritz, renamed as H&M.

Sells women’s and men’s

apparel. Doesn’t own any

manufacturing resources.

Motto—‘Fashion and quality at

the best price’.

Sells women’s wear, men’s

wear and homeware. The firm

has a very successful catalogue

business. Targets the top end

of the mass market, focusing on

fashionable moderately priced

clothing

Sell under brand name such as

Benetton, Playlife, Sisley and

Killer Loop. Uses a network of

franchises/partner stores.

Established huge brand

awareness through its

infamous ad campaigns.

Zara Mango Arcadia

Originated in Spain Originated in Spain Originated in the UK

Chain has 729 Zara stores Chain has 770 stores in 70

countries

Chain has over 2000 stores

Zara is the main part of the

Spanish Inditex group and is

valued at nearly €14 billion.

Operates under the mantra of

affordable fashion, and adopts

the principle of market-driven

supply.

Operates a successful franchise

operation (more than half are

franchises). The company

specializes exclusively in

targeting the young female

mid-market.

Operates several different

fascia, targeting different types

of customer, with stores such

as Burton, Dorothy Perkins,

Evans, Wallis, Top Shop, Top

Man, Miss Selfridge and Outfit.

Owner Philip Green also owns

BHS stores and Etam UK

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21

Sourcing low-cost garments with quick response times is a vital element of the concept. Many of the ‘fast

fashion’ retailers utilize a vast network of suppliers, so that their stores are replenished with latest

designs. Some firms are entirely vertically integrated, where the retailer owns and controls the entire

supply chain. For example, Zara buys its fabric from a company owned by its parent, Inditex, and buys

dyes from another company also within the group. Retailers source their goods from countries such as

China, North Africa, Turkey and low-cost eastern European countries. If cost were the sole basis for

supplier selection, then the vast majority of products would be sourced from the Far East. However, the

lead times for delivery of goods are quite substantial in comparison to sourcing garments in Eastern

Europe (e.g. shipping goods from China can take sex weeks, whereas from Hungary takes two days). As a

result of this, retailers are using a hybrid approach, sourcing closer to markets for more fashionorientated

lines. The drive towards reduced lead times is allowing companies to be more responsive to

market changes. The benefits of such a quick response to market changes are reduced costs, lean

inventories, faster merchandise flow and closer collaborative supply chain relationships.

The concept of ‘postponement’ is a key strategy used within the fashion retailing industry. It is the

delayed configuration of a garment’s final design until the final market destination and/or customer

requirement is known and, once this is known, the garment is assembled or customized. The material and

styles are kept generic for a long as possible, before final customization. A classic illustration of the

concept of postponement is its usage by Benetton. Colours can come in and out of fashion. Benetton

delays when its garments are finally product differentiated, so that this matches what is selling. For

example, a Benetton sweater would be stitched and assembled from its original grey yarn and then, based

on feedback from Benetton’s distribution network as to what colours were selling, the sweater would be

dyed at the very final stage of production. The concept of postponement allows greater inventory cost

saving, and increased flexibility in matching actual demand.The production and logistics facilities for

these ‘fast fashion’ retailers are colossal in that each design may have several colour variants, and the

retailer needs to produce an array of garments in a number of different sizes. The number of stock

keeping units (SKUs) is therefore staggering. As a result, companies require a very reliable and

sophisticated information system—for example, Zara has to deal with over 300,000 new SKUs every year.

Benetton has a fully automated sorting and shipping system, managing over 110 million items a year,

with a staff of only 24 employees in its centralized distribution centres. Mango, another successful

Spanish fashion chain, also utilizes a high-tech distribution system, which can sort and pack 12,000

folded items an hour and 7000 hanging garments an hour.

Many in the industry see Zara as the classic illustration of the concept of ‘fast fashion’ in operation.

The company can get a garment from design, through production and ultimately on to the shelf in a mere

15 days. The norm for the industry has typically run to several months. The group’s basic business

philosophy is to seduce customers with the latest fashion at attractive prices. It has grown rapidly as a

fashion retail powerhouse by adopting four central strategies: creativity and innovation; having an

international presence; utilizing a multi-format strategy; and through vertically integrating its entire

supply chain. For the ‘fast fashion’ concept to be successful, it requires close relationships between

suppliers and retailers, information sharing and utilization of technology. Information is utilized along

the entire supply chain, according to the demand. It controls design, production and the logistics

elements of the business. Real-time demand feeds the production systems.

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22

Zara is part of the Inditex group of fashion retail brands. This group adopts a multi-format strategy with

different store brands targeting different types of customers. Zara is its key fashion-retailing brand. Zara

opened its first store in 1975 in Spain and has now become a fashion powerhouse, operating in four

continents, with 729 stores, located in over 54 countries. It has become very hip all over the world, for its

value for money and stylish designs. The chain is building large numbers of brand devotees because of its

fashionable designs, which are in tune with the very latest trends, and a very convincing price-quality

offering. Each of the different store brands (outlined in Table- 7) needs to be strongly differentiated in

order for the strategy to work effectively.

Table 7 Number of Inditex stores by fascia

Zara 729

Pull and Bear 373

Massimo Dutti 330

Bershka 305

Stradivarius 228

Oysho 106

Zara Home 63

Kiddy’s Class 131

TOTAL 2265

Figure 3 Zara’s market-led supply

Zara does not undertake any conventional advertising, except as a vehicle for announcing a new store

opening, the start of sales of seasons. The company uses the stores themselves as its main promotional

strategy, to convey its image. Zara tries to locate its stores in prime commercial areas. Deep inside the

lairs of its corporate headquarters, 25 full-scale store windows are set up, whereby Zara window

designers can experiment with design layouts and lighting. The approved design layouts are shipped out

Design

Retail Store

Production &

Supply

Logistics

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23

to all Zara’s stores, so that a Zara shop front in London will be the same as in Lisbon and throughout the

entire chain. The store itself is the company’s main promotional vehicle.

One of Zara’s key philosophies was the realization that fashion, much like food, has a ‘best before’

date: that fashion trends change rapidly. What style consumers want this month may not be same in two

months’ time. Fashion retailers have to adapt to what the marketplace wants for the here and now. The

company is guilty of under-stocking garments, as it does not want to be left with obsolete or out-offashion

items. The key driving force behind its success is to minimize inventory levels, getting product

out on to the retail floor space, and by being responsive to the needs of the market. Zara uses its stores to

find out what consumers really want, designs are selling, what colours are in demand, which items are

hot sellers and which are complete flops. It uses a sophisticated marketing information system to provide

feedback to headquarters and allow it to respond to what the marketplace wants. Similarly, Mango uses a

computerized logistical system that allows the matching of clothes designs to particular stores based on

personality traits and even climate variances (i.e. ‘It this garment suitable for the Mediterranean

Summer?). This sophisticated IT infrastructure allows for more responsive market-led retailing,

matching suitable clothing lines to compatible stores.

At the end of each day, Zara sales assistants report to the store manager using wireless headsets,

to communicate inventory levels. The stores then report back to Zara’s design and distribution

departments on what consumers are buying, asking for or avoiding. Both hard sales data and soft data

(i.e. customer feedback on the latest designs) are communicated directly back to the company’s

headquarters, through open channels of communication. Zara’s 250 designers use market feedback for

their next creations. Designers work hand in hand with market analyst, in cross-functional teams, to pick

up on the latest trends. Garments are produced in comparatively small production runs, so as not to be

over-exposed if a particular item is a very poor seller. If a product is a poor seller, it is removed after as

little as two weeks. Roughly 10 per cent of stock falls into this unsold category, in direct contrast to

industry norms of between 17 and 20 per cent. Zara produces nearly 11,000 designs a year. Stock items

are seen as assets that are extremely perishable and, if they are sitting on shelves or racks in a

warehouse, they are simply not making money for the organization.

In the course of one year alone, Zara has been able to launch 24 different collections into its

network of stores. After designs have been approved, fabrics are dyed and cut by highly automated

production lines. These pre-cut pieces are then sent out of nearly 350 workshops in northern Spain and

Portugal. These workshops employ nearly 11,000 ‘grey economy’ workers mainly women, who may want

to supplement their income. Seamstresses stitch the pre-cut pieces into garments using easy-to-follow

instructions supplied by Zara. The typical seamstress’s wage in Zara’s workshop network is extremely

competitive when compared with those in ‘third world’ countries where other fashion retailers mainly

outsource their production. Furthermore, the proximity of these workshops allows for greater flexibility

and control, Zara achieves greater control over its supply chain through having a high degree of

integration within the supply chain. By owning suppliers, Zara has greater control production capacities,

quality and scheduling. This is in stark contrast to Benetton, which is close to being a virtual organization,

outsourcing production to third-party suppliers and directly owning only a handful of its stores, the

majority being franchises or partner stores.

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The finished garments are then sent back to Zara’s colossal state-of-the-art logistics centre. Here

they are electronically tagged, quality control double-checks them, and then they are sorted into

distribution lots, ensuring the items arrive at their ultimate destinations. Each item is tagged with pricing

information. There is no pan-European pricing for Zara’s products: prices are different in each national

market. Zara believes each national market has its own particular nuances, such as higher salaries or

higher taxation, therefore it has to adjust the price of each garment to make it suitable in each country

and to reflect these differences. Shipments leave La Coruňa bound for every one of the Zara stores in over

54 countries twice a week, every week. The company’s average turnaround time from designing to

delivery of a new garment takes on average 10 to 15 days, and delivery of goods takes a maximum of 21

days, which is unparalleled in an industry where lead times are usually months, not days. Zara’s business

model tries to fulfill real-time fashion retailing and not second-guessing what consumers’ needs are for

next season, which may be six months away. As a result of Zara utilizing this ultra-responsive supply

chain, 85 per cent of its entire product range obtains full ticket price, whereas the industry norm is

between 60 and 70 per cent.

The successful adoption of the ‘fast fashion’ concept by these international retailers has drastically

altered the competitive landscape in apparel retailing. Consumers’ expectations are also rising with these

improved retail offerings. Clothes shoppers are seeking out the latest fashions at value-for-money prices

in enticing store environments. Now other well-established high-street fashion retailers have to adapt to

these challenges, by being more responsive, cost efficient, speedy and flexible in their operations. The rag

trade is churning out the latest value-for-money fashions at breakneck speed. ‘Fast fashion’ is what the

marketplace is demanding.

Questions

1. Discuss how supply chain management can contribute to the marketing success of these retailers.

2. Discuss the central components necessary for the fast fashion concept to work effectively.

3. Critically evaluate the concept of ‘market-driven supply’, discussing the merits and pitfalls of its

implementation in fashion retailing.

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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

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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.

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 namechange

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.

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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.

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

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 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 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?

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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

small-scale 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

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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

executives. But no much is mentioned in the business press about that collaborative strategic decisionmaking

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

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 supply-chain 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 clientservice

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

The Indian Institute of Business Management & Studies

Subject: Strategic Management Marks: 100

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 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.

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

The Indian Institute of Business Management & Studies

Subject: Strategic Management Marks: 100

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 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

The Indian Institute of Business Management & Studies

Subject: Strategic Management Marks: 100

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.

BUSINESS ETHICS IIBMS MBA EXAM ANSWER SHEET

BUSINESS ETHICS IIBMS MBA EXAM ANSWER SHEET
BUSINESS ETHICS IIBMS MBA EXAM ANSWER SHEET
BUSINESS ETHICS IIBMS MBA EXAM ANSWER SHEET

IIBMS MBA EXAM ANSWER SHEETS | IIBMS DMS EXAM ANSWER SHEETS
IIBMS MBA EXAM ANSWER SHEETS | IIBMS DMS EXAM ANSWER SHEETS
IIBMS MBA EXAM ANSWER SHEETS | IIBMS DMS EXAM ANSWER SHEETS
The Indian Institute of Business Management & Studies
Subject: Business Ethics Marks: 100
Section I: CASE STUDY (20 Marks)
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. (10 Marks each Question)
Q2.
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?

FINANCIAL MANAGEMENT IIBMS EXAM ANSWER SHEET

FINANCIAL MANAGEMENT IIBMS EXAM ANSWER SHEET
FINANCIAL MANAGEMENT IIBMS EXAM ANSWER SHEET
FINANCIAL MANAGEMENT IIBMS EXAM ANSWER SHEET
FINANCIAL MANAGEMENT IIBMS EXAM ANSWER SHEET
FINANCIAL MANAGEMENT IIBMS EXAM ANSWER SHEET

Xaviers Institute of Business Management Studies

Marks 100

FINANCIAL MANAGEMENT

Note: Attempt any five questions. All questions carry equal marks.
1. (A) Explain the Business Entity concept, Accrual concept and Consistency concept of Accounting.
(b) What do you understand by capitalization of earnings? How is the value of a firm ascertained with the help of its earnings? Explain with an example.
2. The following is the Trial Balance of Mr. Keshav Kant on 31st March 2006.
Rs. Rs.
Dr. Cr.
Capital – 8,00,000
Drawings 60,000 –
Opening Stock 75,000 –
Purchases 15,95,000 –
Freight on Purchases 25,000 –
Wages (11 months upto 28-2-2006) 66,000 –
Sales – 23,10,000
Salaries 1,40,000 –
Postage & Telephones 12,000 –
Printing and Stationery 18,000 –
Miscellaneous expenses 30,000 –
Creditors – 3,00,000
Investments 1,00,000 –
Discount received – 15,000
Debtors 2,50,000 –
Bad Debts 15,000 –
Provision for Bad Debts – 8,000
Building 3,00,000 –
Machinery 5,00,000 –
Furniture 40,000 –
Commission on Sales 45,000 –
Interest on Investments – 12,000
Insurance (year upto 31 .7 .2006) 24,000 –
Bank Balance 1,50,000 –
34,45,000 34,45,000
Adjustments:
(i) Closing Stock Rs. 2, 25,000.
(ii) Machinery worth Rs. 45,000 purchased on 1.10.2005 was shown as purchases. Freight paid on the machinery was Rs. 5,000 which is included in the Freight on Purchases.
(iii) Commission is payable at 2% on Sales.
(iv) Investments were sold at 10% profit but the entire sale proceeds have been taken as Sales.
(v) Write off Bad Debts Rs. 10,000 and create .a Provision for Doubtful Debts at 5% of Debtors.
(vi) Depreciate Building by 2% p.a. and Machinery and Furniture @ 10% p.a
Prepare Trading and Profit and Loss A/c for the Year ending 31st March 2006 and a Balance Sheet as on that date
3. Distinguish between Operating Leverage and Financial Leverage. What will be the effect of small change in Sales on Net Income, Return on Equity and Earnings Per Share if both these leverages are considerable? Explain.
4. (a) What is Production Budget ? What factors are taken into consideration while preparing a Production Budget? Why are separate budgets prepared For each of the elements of production costs? Explain.
(b) What is a Rolling Budget? Why is it prepared? Explain the procedure of its preparation.
5. An Engineering Company has received an export order for its sole product that would require the use of half of the factory’s total capacity, which is estimated at 4 lakh units per annum. The condition of the export order is that it has to be accepted in full: acceptance of a part is not allowed
The factory is currently operating at 60% level to meet the demand of its domestic customers. As against the current price of Rs. 6 per unit, the export offer is Rs. 4.70 per unit, which is less than the total cost of current production. The cost break-down is given below:
Direct material: Rs. 2.50 per unit
Direct labour: 1.00 per unit
Variable expenses: 0.50 per unit
Fixed overhead: 1.00 per unit
Total: 5.00 per unit
The company has the following options:
(a) Accept the export order and cut back domestic sales as necessary
(b) Remove the capacity constraint by installing balancing equipment and also by working overtime to meet both domestic and export demand. This will increase fixed overheads by Rs. 15,000 annually and additional cost for overtime work will amount to Rs. 40,000 for the year.
(c) Appoint a sub-contractor to manufacture the additional requirement and meet the domestic and export requirements in full by supplying raw materials, paying a conversion charge @ Rs. 2 per unit and appointing a supervisor at a salary of Rs. 3,000 per month for checking the quality of the product and controlling operations at the manufacturing unit
(d) Refuse the order.
You are required to prepare a statement of costs and profits under each of the options and give your recommendation to the company giving the reasons for the same.
6. Aditya Company’s equity shares are being traded in the market at Rs. 54 per share with a price-earning ratio of 9. The company’s payout is 72%. It has 1,00,000 equity shares of Rs. 10 each and no preference shares. Book value per share is Rs. 42.
You are required to calculate:
(i) Earnings per Share
(ii) Net Income
(iii) Dividend Yield, and
(iv) Return on Equity
7. Comment on the following statements:
(a) The greater the variability of cash flows, the higher should be the minimum cash balance.
(b) As there is no explicit cost of retained earnings, these funds are free of cost.
(c) Dividend, Investment and Financing decisions are inter-dependent.
(d) Profitability Index is more relevant in the evaluation and ranking of projects than Internal Rate of Return.
8. Write short notes on the following:
(a) Performance Budget
(b) Amortization of Intangible Assets
(c) Accounting Standards
(d) Funds from Business Operations

CORPORATE LAW IIBMS EXAM ANSWER SHEET

CORPORATE LAW IIBMS EXAM ANSWER SHEET
CORPORATE LAW IIBMS EXAM ANSWER SHEET
CORPORATE LAW IIBMS EXAM ANSWER SHEET
CORPORATE LAW IIBMS EXAM ANSWER SHEET
CORPORATE LAW IIBMS EXAM ANSWER SHEET
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)
i) An invitation to negotiate is a good offer.
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?
a) i) A bailee has a general lien on the goods bailed.
ii) The ownership of goods pawned passes to the pawnee.
iii) A gratuitous bailment can be terminated by the bailor even
before the stated time.
b) i) A substituted agent is as good an agent of the agent as a sub-
agent.
ii) An ostensible agency is as effective as an express agency.
iii) 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)
i) ‘Pay C for my use’
ii) ‘Pay C’)

iii) ‘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:
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.
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.
iii) 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?
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?
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.
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?
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.
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.
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)

IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY

IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY

ARROW AND THE APPAREL INDUSTRY
Ten years ago, Arvind Clothing Ltd., a subsidiary of Arvind Brands Ltd., a member of the Ahmedabad
based Lalbhai Group, signed up with the 150- year old Arrow Company, a division of Cluett Peabody
& Co. Inc., US, for licensed manufacture of Arrow shirts in India. What this brought to India was not
just another premium dress shirt brand but a new manufacturing philosophy to its garment industry
which combined high productivity, stringent in-line quality control, and a conducive factory
ambience.
Arrow’s first plant, with a 55,000 sq. ft. area and capacity to make 3,000 to 4,000 shirts a day, was
established at Bangalore in 1993 with an investment of Rs 18 crore. The conditions inside—with
good lighting on the workbenches, high ceilings, ample elbow room for each worker, and plenty of
ventilation, were a decided contrast to the poky, crowded, and confined sweatshops characterising
the usual Indian apparel factory in those days. It employed a computer system for translating the
designed shirt’s dimensions to automatically mark the master pattern for initial cutting of the fabric
layers. This was installed, not to save labour but to ensure cutting accuracy and low wastage of cloth.
The over two-dozen quality checkpoints during the conversion of fabric to finished shirt was unique
to the industry. It is among the very few plants in the world that makes shirts with 2 ply 140s and 3
ply 100s cotton fabrics using 16 to 18 stitches per inch. In March 2003, the Bangalore plant could
produce stain-repellant shirts based on nanotechnology.
The reputation of this plant has spread far and wide and now it is loaded mostly with export orders
from renowned global brands such as GAP, Next, Espiri, and the like. Recently the plant was
identified by Tommy Hilfiger to make its brand of shirts for the Indian market. As a result, Arvind
Brands has had to take over four other factories in Bangalore on wet lease to make the Arrow brand
of garments for the domestic market.
In fact, the demand pressure from global brands which want to outsource form Arvind Brands is so
great that the company has had to set up another large factory for export jobs on the outskirts of
Bangalore. The new unit of 75,000 sq. ft. has cost Rs 16 crore and can turn out 8,000 to 9,000 shirts
per day. The technical collaborators are the renowned C&F Italia of Italy.
Among the cutting edge technologies deployed here are a Gerber make CNC fabric cutting machine,
automatic collar and cuff stitching machines, pneumatic holding for tasks like shoulder joining, threat
trimming and bottom hemming, a special machine to attach and edge stitch the back yoke, foam
finishers which use air and steam to remove creases in the finished garment, and many others. The
stitching machines in this plant can deliver up to 25 stitches per inch. A continuous monitoring of the
production process in the entire factory is done through a computerised apparel production
management system, which is hooked to every machine. Because of the use of such technology, this
plant will need only 800 persons for a capacity which is three times that of the first plant which
employs 580 persons.
Exports of garments made for global brands fetched Arvind Brands over Rs 60 crore in 2002, and
this can double in the next few years, when the new factory goes on full stream. In fact, with the
The Indian Institute of Business Management & Studies
Subject: International Business Marks: 100
lifting of the country-wise quota regime in 2005, there will be surge in demand for high quality
garments from India and Arvind is already considering setting up two more such high tech exportoriented factories.
It is not just in the area of manufacture but also retailing that the Arrow brand brought a wind of
change on the Indian scene. Prior to its coming, the usual Indian shirt shop used to be a clutter of
racks with little by way of display. What Arvind Brands did was to set up exclusive showrooms for
Arrow shirts in which the functional was combined with aesthetic. Stuffed racks and clutter
eschewed. The product were displayed in such a manner the customer could spot their qualities from
a distance. Of course, today this has become standard practice with many other brands in the
country, but Arrow showed the way. Arrow today has the largest network of 64 exclusive outlets
across India. It is also present in 30 retail chains. It branched into multi-brand outlets in 2001, and is
present in over 200 select outlets.
From just formal dress shirts in the beginning, the product range of Arvind Brands has expanded in
the last ten years to include casual shirts, T-shirts, and trousers. In the pipeline are light jackets and
jeans engineered for the middle-aged paunch. Arrow also tied up with the renowned Italian designer,
Renato Grande, who has worked with names like Versace and Marlboro, to design its Spring /
Summer Collection 2003. The company has also announced its intention to license the Arrow brand
for other lifestyle accessories like footwear, watches, undergarments, fragrances, and leather goods.
According to Darshan Mehta, President, Arvind Brands Ltd., the current turnover at retail prices of
the Arrow brand in India is about Rs 85 crore. He expects the turnover to cross Rs 100 crore in the
next few years, of which about 15 per cent will be from the licensed non-clothing products.
In 2005, Arvind Brands launched a major retail initiative for all its brands. Arvind Brands licensed
brands (Arrow, Lee and Wrangler) had grown at a healthy 35 per cent rate in 2004 and the company
planned to sustain the growth by increasing their retail presence. Arvind Brands also widened the
geographical presence of its home-grown brands, such as Newport and Ruf-n Tuf, targeting small
towns across India. The company planned to increase the number of outlets where its domestic
brands would be available, and draw in new customers for readymades. To improve its presence in
the high-end market, the firm started negotiating with an international brand and is likely to launch
the brand.
The company has plans to expand its retail presence of Newport Jeans, from 1200 outlets across 480
towns to 3000 outlets covering 800 towns.
For a company ranked as one of the world’s largest manufactures of denim cloth and owners of
world famous brands, the future looks bright and certain for Arvind Brands Ltd.
Company profile
Name of the Company :Arvind Mills
Year of Establishment :1931
Promoters : Three brothers–Katurbhai, Narottam Bhai, and Chimnabhai
Divisions :Arvind Mills was split in 1993 into Units—textiles, telecom and garments.
Arvind Ltd. (textile unit) is 100 per cent subsidiary of Arvind Mills.
The Indian Institute of Business Management & Studies
Subject: International Business Marks: 100
Growth Strategy :Arvind Mills has grown through buying-up of sick units, going global and
acquisition of German and US brand names.
Questions
1. Why did Arvind Mills choose globalization as the major route to achieve growth when the
domestic market was huge?
2. How does lifting of ‘Country-wise quota regime’ help Arvind Mills?
3. What lessons can other Indian businesses learn form the experience of Arvind Mills?

IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem

IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem
IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem
IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem
IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem
IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem

– Bathroom city washed its hands of the problem
Simon Bell, of King’s Lynn, Norfolk, has been battling with Bathroom City, Birmingham, over a cracked bathroom unit for
six months after buying a shower tray, cabinet and basin in March. The delivery did not turn up for a month, despite a
promise that it would arrive within days. Mr. Bell, left, who is a former heating and plumbing engineer, says:
“When the delivery was made I inspected the goods and could see nothing wrong. But because the delivery was so late IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem
IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem
I
missed my opportunity to fit it immediately.”
It wasn’t until a couple of days later that he noticed a “hairline crack” on the basin when he took it out of the box. He sent a
photograph of the damage to Bathroom City, which said that there was nothing it could do because he had not reported it
within two days of delivery. The company also claimed that it did not look like a manufacturing fault but damage caused
when fitting the taps. However, Consumer Direct says that it is the duty of Bathroom City to prove that it was not
responsible; if it cannot, then the company owes Mr Bell a replacement or repair. Mr. Bell says:
“Bathroom City has refused to budge and my e-mails and letters have been ignored. I have fitted many bathroom suites
over the years and have never broken anything. What’s more, I know that it is impossible to inflict this type of damage
with modern taps.”
After being contacted by Times Money, Bathroom City offered to replace the basin as a goodwill gesture, but maintains
that it has “clear proof” that it did not damage the basin because “Mr. Bell clearly states that when it was delivered he
checked the goods over and found no initial fault”.
Questions :
1. Identify the elements of sale of goods.
2. Identify in which point the case supports or deviates the rules of sale of goods act.
IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem
IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem
IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem
IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem
IIBMS MBA CASE STUDY ANSWER – Bathroom city washed its hands of the problem

IIBMS MBA CASE STUDY ANSWER | Harvey V/S Facey CASE STUDY SOLUTION

IIBMS MBA CASE STUDY ANSWER Harvey V/S Facey CASE STUDY SOLUTION
IIBMS MBA CASE STUDY ANSWER Harvey V/S Facey CASE STUDY SOLUTION
IIBMS MBA CASE STUDY ANSWER Harvey V/S Facey CASE STUDY SOLUTION
CASE -1 Harvey V/S Facey
Harvey v Facey [1893], is a contract law case decided by the United Kingdom Judicial Committee of the Privy Council on
appeal from the Supreme Court of Judicature of Jamaica. In 1893 the Privy Council held final legal jurisdiction over most of
the British Caribbean. Its importance in case law is that it defined the difference between an offer and supply of
information. The Privy Council held that indication of lowest acceptable price does not constitute an offer to sell. Rather, it
IIBMS MBA CASE STUDY ANSWER – Harvey V/S Facey CASE STUDY SOLUTION
is considered a response to a request for information, specifically a “precise answer to a precise question” about the lowest
acceptable price which the seller would consider.
The case involved negotiations over a property in Jamaica. The defendant, Mr LM Facey, had been carrying on negotiations
with the Mayor and Council of Kingston to sell a piece of property to Kingston City. On 7 October 1893, Facey was traveling
on a train between Kingston and Porus and the appellant, Harvey, who wanted the property to be sold to him rather than
to the City, sent Facey a telegram. It said, “Will you sell us Bumper Hall Pen? Telegraph lowest cash price-answer paid”.
Facey replied on the same day: “Lowest price for Bumper Hall Pen £900.” Harvey then replied in the following words. “We
agree to buy Bumper Hall Pen for the sum of nine hundred pounds asked by you. Please send us your title deed in order
that we may get early possession.”
Facey, however refused to sell at that price, at which Harvey sued. Harvey had his action dismissed upon first trial
presided over by Justice Curran,(who declared that the agreement as alleged by the Appellants did not denote a concluded
contract) but won his claim on the Court of Appeal, which reversed the trial court decision, declaring that a binding
agreement had been proved. The appellants obtained leave from the Supreme Court of Judicature of Jamaica to appeal to
the Queen in Council (i.e. the Privy Council). The Privy Council reversed the Appeal court’s opinion, reinstating the
decision of Justice Curran in the very first trial and stating the reason for its action.
The Privy Council advised that no contract existed between the two parties. The first telegram was simply a request for
information, so at no stage did the defendant make a definite offer that could be accepted. Lord Morris gave the following
judgment. In the view their Lordships take of this case it becomes unnecessary to consider several of the defences put
forward on the part of the respondents, as their Lordships concur in the judgment of Mr. Justice Curran that there was no
concluded contract between the appellants and L. M. Facey to be collected from the aforesaid telegrams. The first telegram
asks two questions. The first question is as to the willingness of L. M. Facey to sell to the appellants; the second question
asks the lowest price, and the word “Telegraph” is in its collocation addressed to that second question only. L. M. Facey
replied to the second question only, and gives his lowest price. The third telegram from the appellants treats the answer of
L. M. Facey stating his lowest price as an unconditional offer to sell to them at the price named. Their Lordships cannot
treat the telegram from L. M. Facey as binding him in any respect, except to the extent it does by its terms, viz., the lowest
price. Everything else is left open, and the reply telegram from the appellants cannot be treated as an acceptance of an
IIBMS MBA CASE STUDY ANSWER – Harvey V/S Facey CASE STUDY SOLUTION
offer to sell to them; it is an offer that required to be accepted by L. M. Facey. The contract could only be completed if L. M.
Facey had accepted the appellant’s last telegram. It has been contended for the appellants that L. M. Facey’s telegram
should be read as saying “yes” to the first question put in the appellants’ telegram, but there is nothing to support that
contention. L. M. Facey’s telegram gives a precise answer to a precise question, viz., the price. The contract must appear by
the telegrams, whereas the appellants are obliged to contend that an acceptance of the first question is to be implied. Their
Lordships are of opinion that the mere statement of the lowest price at which the vendor would sell contains no implied
contract to sell at that price to the persons making the inquiry. Their Lordships will therefore humbly advise Her Majesty
that the judgment of the Supreme Court should be upheld. The appellants must pay to the respondents the costs of the
appeal to the Supreme Court and of this appeal.
Questions:
1. After Reading above study identify what type of contract between two parties?
2. If there will be no valid contract between parties give the fact and judgement for the same?
IIBMS MBA CASE STUDY ANSWER Harvey V/S Facey CASE STUDY SOLUTION
IIBMS MBA CASE STUDY ANSWER Harvey V/S Facey CASE STUDY SOLUTION
IIBMS MBA CASE STUDY ANSWER Harvey V/S Facey CASE STUDY SOLUTION

IIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY

IIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
IIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
IIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
IIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
IIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
The Indian Institute of Business Management & Studies
Subject: International Business Marks: 100
Note: Solve any 4 Cases Study’s
CASE: I ARROW AND THE APPAREL INDUSTRY
Ten years ago, Arvind Clothing Ltd., a subsidiary of Arvind Brands Ltd., a member of the Ahmedabad
based Lalbhai Group, signed up with the 150- year old Arrow Company, a division of Cluett Peabody
& Co. Inc., US, for licensed manufacture of Arrow shirts in India. What this brought to India was not
just another premium dress shirt brand but a new manufacturing philosophy to its garment industry
which combined high productivity, stringent in-line quality control, and a conducive factory
ambience.

IIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
Arrow’s first plant, with a 55,000 sq. ft. area and capacity to make 3,000 to 4,000 shirts a day, was
established at Bangalore in 1993 with an investment of Rs 18 crore. The conditions inside—with
good lighting on the workbenches, high ceilings, ample elbow room for each worker, and plenty of
ventilation, were a decided contrast to the poky, crowded, and confined sweatshops characterising
the usual Indian apparel factory in those days. It employed a computer system for translating the
designed shirt’s dimensions to automatically mark the master pattern for initial cutting of the fabric
layers. This was installed, not to save labour but to ensure cutting accuracy and low wastage of cloth.
The over two-dozen quality checkpoints during the conversion of fabric to finished shirt was unique
to the industry. It is among the very few plants in the world that makes shirts with 2 ply 140s and 3
ply 100s cotton fabrics using 16 to 18 stitches per inch. In March 2003, the Bangalore plant could
produce stain-repellant shirts based on nanotechnology.
The reputation of this plant has spread far and wide and now it is loaded mostly with export orders
from renowned global brands such as GAP, Next, Espiri, and the like. Recently the plant was
identified by Tommy Hilfiger to make its brand of shirts for the Indian market. As a result, Arvind
Brands has had to take over four other factories in Bangalore on wet lease to make the Arrow brand
of garments for the domestic market.
In fact, the demand pressure from global brands which want to outsource form Arvind Brands is so
great that the company has had to set up another large factory for export jobs on the outskirts of
Bangalore. The new unit of 75,000 sq. ft. has cost Rs 16 crore and can turn out 8,000 to 9,000 shirts
per day. The technical collaborators are the renowned C&F Italia of Italy.
Among the cutting edge technologies deployed here are a Gerber make CNC fabric cutting machine,
automatic collar and cuff stitching machines, pneumatic holding for tasks like shoulder joining, threat
trimming and bottom hemming, a special machine to attach and edge stitch the back yoke, foam
finishers which use air and steam to remove creases in the finished garment, and many others. The
stitching machines in this plant can deliver up to 25 stitches per inch. A continuous monitoring of the
production process in the entire factory is done through a computerised apparel production
management system, which is hooked to every machine. Because of the use of such technology, this
plant will need only 800 persons for a capacity which is three times that of the first plant which
employs 580 persons.
Exports of garments made for global brands fetched Arvind Brands over Rs 60 crore in 2002, and
this can double in the next few years, when the new factory goes on full stream. In fact, with the
The Indian Institute of Business Management & Studies
Subject: International Business Marks: 100
lifting of the country-wise quota regime in 2005, there will be surge in demand for high quality
garments from India and Arvind is already considering setting up two more such high tech exportoriented factories.
It is not just in the area of manufacture but also retailing that the Arrow brand brought a wind of
change on the Indian scene. Prior to its coming, the usual Indian shirt shop used to be a clutter of
racks with little by way of display. What Arvind Brands did was to set up exclusive showrooms for
Arrow shirts in which the functional was combined with aesthetic. Stuffed racks and clutter
eschewed. The product were displayed in such a manner the customer could spot their qualities from
a distance. Of course, today this has become standard practice with many other brands in the
country, but Arrow showed the way. Arrow today has the largest network of 64 exclusive outlets
across India. It is also present in 30 retail chains. It branched into multi-brand outlets in 2001, and is
present in over 200 select outlets.
From just formal dress shirts in the beginning, the product range of Arvind Brands has expanded in
the last ten years to include casual shirts, T-shirts, and trousers. In the pipeline are light jackets and
jeans engineered for the middle-aged paunch. Arrow also tied up with the renowned Italian designer,
Renato Grande, who has worked with names like Versace and Marlboro, to design its Spring /
Summer Collection 2003. The company has also announced its intention to license the Arrow brand
for other lifestyle accessories like footwear, watches, undergarments, fragrances, and leather goods.
According to Darshan Mehta, President, Arvind Brands Ltd., the current turnover at retail prices of
the Arrow brand in India is about Rs 85 crore. He expects the turnover to cross Rs 100 crore in the
next few years, of which about 15 per cent will be from the licensed non-clothing products.
In 2005, Arvind Brands launched a major retail initiative for all its brands. Arvind Brands licensed
brands (Arrow, Lee and Wrangler) had grown at a healthy 35 per cent rate in 2004 and the company
planned to sustain the growth by increasing their retail presence. Arvind Brands also widened the
geographical presence of its home-grown brands, such as Newport and Ruf-n Tuf, targeting small
towns across India. The company planned to increase the number of outlets where its domestic
brands would be available, and draw in new customers for readymades. To improve its presence in
the high-end market, the firm started negotiating with an international brand and is likely to launch
the brand.
The company has plans to expand its retail presence of Newport Jeans, from 1200 outlets across 480
towns to 3000 outlets covering 800 towns.
For a company ranked as one of the world’s largest manufactures of denim cloth and owners of
world famous brands, the future looks bright and certain for Arvind Brands Ltd.
Company profile
Name of the Company :Arvind Mills
Year of Establishment :1931
Promoters : Three brothers–Katurbhai, Narottam Bhai, and Chimnabhai
Divisions :Arvind Mills was split in 1993 into Units—textiles, telecom and garments.
Arvind Ltd. (textile unit) is 100 per cent subsidiary of Arvind Mills.
The Indian Institute of Business Management & Studies
Subject: International Business Marks: 100
Growth Strategy :Arvind Mills has grown through buying-up of sick units, going global and
acquisition of German and US brand names.
Questions
1. Why did Arvind Mills choose globalization as the major route to achieve growth when the
domestic market was huge?
2. How does lifting of ‘Country-wise quota regime’ help Arvind Mills?
3. What lessons can other Indian businesses learn form the experience of Arvind Mills?
IIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
CASE: II THE ECONOMY OF KENYA
Kenya’ economy has been beset by high rates of unemployment and underemployment for many
years. But at no time has it been more significant and more politically dangerous than in the late
1990s as an authoritarian beset by corruption, cronyism and economic plunder threatened the
economic stability of this once proud nation. Yet Kenya still has great potential. Located in East
Africa, it has a diverse geographic and climatic endowment. Three-fifths of the nation is semiarid
desert (mostly in the north), and the resulting infertility of this land has dictated the location of 85
per cent of the population (30 million in 2000) and almost all economic activity in the southern twofifths of the country. Kenya’s rapidly growing population is composed of many tribes and is
extremely heterogeneous (including traditional herders, subsistence and commercial farmers, Arab
Muslims, and cosmopolitan residents of Nairobi). The standard of living at least in major cities, is
relatively high compared to the average of other sub-Saharan African countries.
However, widespread poverty (per capita US$360), high unemployment, and growing income
inequality make Kenya a country of economic as well as geographic diversity. Agriculture is the most
important economic activity. About three quarters of the population still lives in rural areas and
about 7 million workers are employed in agriculture, accounting for over two-thirds of the total
workforce.
Despite many changes in the democratic system, including the switch from a federal to a republican
government, the conversion of the prime ministerial system into a presidential one, the transition to
a unicameral legislature, and the creation of a one-party state, Kenya has displayed relatively high
political stability (by African standards) since gaining independence from Britain in 1963. Since
independence, there have been only two presidents. However, this once stable and prosperous
capitalist nation has witnessed widespread ethnic violence and political upheavals since 1992 as a
deteriorating economy, unpopular one-party rule, and charges of government corruption create a
tense situation.
The Indian Institute of Business Management & Studies
Subject: International Business Marks: 100
An expansionary economic policy characterised by large public investments, support of small
agricultural production units, and incentives for private (domestic and foreign) industrial investment
played an important role in the early 7 per cent rate of GDP growth in the first decade after
independence. In the following seven years (1973-80), the oil crisis let to a lower GDP growth to an
annual rate of 5 per cent. Along with the oil price shock, lack of adequate domestic saving and
investment slowed the growth of the economy. Various economic policies designed to promote
industrial growth led to a neglect of agriculture and a consequent decline in farm prices, farm
production, and farmer incomes. As peasant farmers became poorer, more migrated to Nairobi,
swelling an already overcrowded city and pushing up an existing high rate of urban unemployment.
Very high birthrates along with a steady decline in death rates (mainly through lower infant
mortality) led Kenya’s population growth to become the highest in the world (4.1 per cent per year)
in 1988. Population growth fell to a still high rate of 2.4 per cent for the period 1990-2000.
The slowdown in GDP growth persisted in the following five years (1980-85), when the annual
average was 2.6 per cent. It was a period of stabilization in which political shakiness of 1982 and the
severe drought in 1984 contributed to a slowdown in industrial growth. Interest rates rose and
wages fell in the public and private sectors. An improvement in the budget deficit and current
account trade deficit, obtained through cuts in development expenditures and recessive policies
aimed at reducing imports, contributed to lower economic growth. By 1990, Kenya’s per capita
income was 9 per cent lower than it was in 1980–$370 compared to $410. It continued to decline in
the 1990s. In fact, GDP per capita fell at an annual average rate of 0.3 per cent throughout the decade.
At the same time, the urban unemployment rate rose to 30 per cent.

Comprising 23 per cent of 2000 GDP AND 77 per cent of merchandise exports, agricultural
production is the backbone of the Kenyan economy. Because of its importance, the Kenyan
government has implemented several policies to nourish the agricultural sector. Two such policies
include fixing attractive producer prices and making available increasing amounts of fertilizer.
Kenya’s chief agricultural exports are coffee, tea, sisal, cashew nuts, pyrethrum, and horticultural
products. Traditionally, coffee has been Kenya’s chief earner in foreign exchange.
Although Kenya is chiefly agrarian, it is still the most industrialised country in eastern Africa. Public
and private industry accounted for 16 per cent of GDP in 2000. Kenya’s chief manufacturing activities
are food processing and the production of beverages, tobacco, footwear, textiles, cement, metal
products, paper, and chemicals.
Kenya currently faces a multitude of problems. These include a stagnating economy, growing
political unrest, a huge budget deficit, high unemployment, a substantial balance of payments
problem, and a stubbornly high population growth rate.
With the unemployment rate already at 30 per cent and its population growing, Kenya faces the
major task of employing its burgeoning labour force. Yet only 10-15 per cent of seekers land jobs in
the modern industrial sector. The remainder must find jobs in the self-employment sector; in the
agricultural sector, where wages are low and opportunities are scarce; or join the masses of the
unemployed.
In addition to the unemployment problem, Kenya must always be concerned with how to feed its
growing population. An increase in population means an increasing demand for food. Yet only 20 per
cent of Kenya’s land is arable. This implies that the land must become increasingly productive.
Unfortunately, several factors work to constrain Kenya’s food output, among them fragmented
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landholdings, increasing environmental degradation, the high cost of agricultural inputs, and
burdensome governmental involvement in the purchase, sale, and pricing of agricultural output.
For the fiscal year 1995, the Kenyan budget deficit was $362 million, well above the government’s
target rate. Dealing with a high budget deficit is a second problem Kenya currently faces. Following
the collapse of the East African Common Market, Kenya’s industrial growth rate has declined; as a
result the government’s tax base has diminished. To supplement domestic savings, Kenya has had to
turn to external sources of finance, including foreign aid grants from Western governments. Its
highly protected public enterprises have been turning in a poor performance, thus absorbing a large
chunk of the government budget. To pay for its expenses, Kenya has had to borrow from
international banks in addition to foreign aid. In recent years, government borrowing from the
international banking system rose dramatically and contributed to a rapid growth in money supply.
This translated into high inflation and pinched availability of credit.
Kenya has also had a chronic international balance of payments problem. Decreasing prices for its
exports, combined with increasing prices for its imports, left Kenya importing almost twice as much
as it exported in 2000, at $3,200 million in imports and only $1,650 million in exports. World
demand for coffee, Kenya‘s predominant exports, remains below supply. In 2001-01, a dramatic
surge in coffee exports from Vietnam hurt Kenya further. Hence Kenya cannot make full use of its
comparative advantage in coffee production, and its stock of coffee has been increasing. Tea, another
main export, has also had difficulties. In 1987, Pakistan, the second largest importer of Kenyan tea,
slashed its purchases. Combined with a general oversupply in the world market, this fall in demand
drove the price of tea downward. Hence Kenya experienced both a lower dollar value and quantity
demanded for one of its principal exports.

IIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRYIIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY

Kenya faces major challenges in the years ahead as the economy tries to recover. Current is expected
to be no more than 1 to 2 per cent annually. Heavy rains have spoiled crops and washed away roads,
bridges, and telephone lines. Foreign exchange earnings from tourism, once promising, dropped by
40 per cent in the mid-1990s, then suffered again after the August 7, 1998, terrorist bombing of the
US embassy in Nairobi. Even more frightening, however, is the prospect of growing hunger as
Kenya’s maize (corn) crop has failed to meet rising internal demand and dwindling foreign exchange
reserves have to be spent to import food. Corruption is perceived to be so widespread that the
International Monetary Fund and World Bank suspended $292 million in loans to Kenyan in the
summer of 1997 while insisting on tough new austerity measures to control public spending and
weed out economic cronyism. As a result, the economy went into a tailspin, foreign investors fled the
country, and inflation accelerated markedly.
Unfortunately, needed structural adjustments resulting form the World Bank—and IMF—induced
austerity demands usually take a long time. Whether the Kenyan political and economic system can
withstand any further deterioration in living conditions is a major question. Public protests for
greater democracy and a growing incidence of ethnic violence may be harbingers of things to come.
Fig 1 Continuum of Economic Systems
Pure Market Pure Centrally Planned Economy
Economy
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The US France India China
Canada Brazil Cuba
UK North Korea
Questions
1. Is the economic environment of Kenya favourable to international business? Yes or no—
substantiate.
2. In the continuum of economic systems (see Fig 1), where do you place Kenya and why?
Case III: 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. Know as Toyota Kirloskar Motor (TKM), 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 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.
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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 vehicle—a sub-compact, a sedan, a luxury car and a
new multi-utility 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.
IIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY
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 standardised 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?
CASE: IV DELVING DEEP INTO USER’S MIND
Whirlpool is an American brand alright, but has succeeded in empowering the Indian housewife with
just the tools she would have designed for herself. A washing machine that doesn’t expect her to get
‘ready for the show’ (Videocon’s old jingle), nor adapt her plumbing, power supply, dress sense,
values, attitudes and lifestyle to suit American standards.
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That, in short, is the reason that Whirlpool White Magic, in just three years since its launch in 1999,
has become the choice of the discerning Indian housewife. Also worth noting is how quickly the
brand’s sound mnemonic, ‘Whirlpool, Whirlpool’, has established itself.
Whiteboard beginning
As a company, the US-based white goods major Whirlpool had entered India in 1989, in a joint
venture with the TVS group. Videocon, which had pioneered washing machines in India, was the
market leader with its range of low-priced ‘washers’ (spinning tubs) and semi-automatic machines,
which required manual supervision and some labour. The brand’s TV commercial, created by Punebased SJ Advertising, has evoked considerable interest with its jingle (‘It washes, it rinses, it even
dries your clothes, in just a few minutes…and you’re ready for the show’). IFB-Bosch’s front-loading,
fully automatic machines, which could be programmed and left to do their job, were the labour-free
option. But they were considered expensive and unsuited to Indian conditions. So Videocon faced
competition from me-too machines such as BPL-Sanyo’s. TVS Whirlpool was something of an alsoran.
The market’s sophistication started rising in the 1990s and there was a growing opportunity in the
price-performance gap between expensive automatics and laborious semi-automatics. In 1995,
Whirlpool gained a majority control of TVS Whirlpool, which was then renamed Whirlpool Washing
Machines Ltd (WMML). Meanwhile, the parent bought Kelvinator of India, and merged the
refrigerator business in 1996 with WMML to create Whirlpool of India (WOI), to market both fridges
and washing machines. Whirlpool’s ‘Flexigerator’ fridge hit the market in 1997. Two years later, WOI
launched its star White Magic range of washing machines.
Whitemagic was late to the market, but WOI converted this to a ‘knowledge advantage’ by using the
1990s to study the Indian market intensely, through qualitative and quantitative market research
(MR) tools, with the help of IMRB and MBL India. The research team delved deep into the psyche of
the Indian housewife, her habits, her attitude towards life, her schedule, her every day concerns and
most importantly, her innate ‘laundry wisdom’.
If Ashok Bhasin, vice-president marketing, WOI, was keen on understanding the psychodynamics of
Indian clothes washing, it was because of his belief that people’s attitudes and perceptions of
categories and brands are formed against the backdrop of their bigger attitudes in life, which could
be shaped by broader trends. It was intuitive, to begin with, that the housewife wanted to gain direct
control over crucial household operations. It was found that clothes washing was the daily activity
for the Indian housewife, whether it was done personally, by a maid, or by a machine.
The key finding, however, was the pride in self-done washing. To the CEO of the Indian household,
there was no displacing the hand wash as the best on quality. And quality was to be judged in terms
of ‘whiteness’. Other issues concerned water consumption, quantity of detergent used, and fabric
care—also something optimized best by herself. A thorough wash, done with gentle agility, was what
the magic was all about.
That was the break-through insight used by Whirlpool for the design of all its washing machines,
which adopted a ‘1-2, 1-2 Hand Wash Agitator System’ to mimic the preferred handwash technique.
With a consumer so particular about washing, one could expect her to be value-conscious on other
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aspects too. Sure enough, WOI found the housewife willing to pay a premium for a product designed
the way she wanted it. Even for a fully automatic, she wanted a top-loader; this way, she doesn’t fear
clothes getting trapped in if the power fails, and retains the ability to lift the shutter to take clothes
out (or add to the wash) even while the machine is in the midst of its job.
The target consumer, defined psychographically as the Turning Modernist (TM), was decided upon
only after the initial MR exercise was concluded. This was also the stage at which the unique selling
proposition (USP)—‘whitest white’—was thrashed out.
WOI first launched a fully automatic machine, with the hand-wash agitator. Then came the deluxe
model with a ‘hot wash’ function. The product took off well, but WOI felt that a large chunk of the TM
segment was also budget-bound. And was quite okay with having to supervise the machine. This
consumer’s identity as a ‘home-maker’ was important to her, an insight that Whirlpool was using for
the brand overall, in every product category.
So WOI launched a semi-automatic washing machine, with ‘Agisoak’ as a catchword to justify a 10—
15 per cent premium over other brand’s semi-automatics available in India.
The advertising, WOI was clear, had to flow from the same stream of reasoning. It had to be
responsive, caring, modern, stylish, and warm, and had to portray the victory of the Homemaker.
FCB-Ulka, which had bagged Whirlpool’s account in March 1997 from contract (in a global alignment
shift), worked with WOI to coin the sub-brand Whitemagic, to break into consumer mindspace with
the whiteness proposition. IIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY

The launch commercial on TV, in August 1999, scored a big success with its ‘Whirlpool, Whirlpool’
jingle…and a mother’s fantasy of her daughter’s clothes wowing others. A product demonstration
sequence took the ‘1-2, 1-2’ message home, reassuring the consumer that the wash would be just as
good as that of her own hand. The net benefit, of course, was an unharried home life.
Second Wave
Sadly, the Indian market for washing machines has been in recession for the past two years, with
overall volumes declining. This makes it a fight for market share, with the odds stacked against
premium players.
Even though Whirlpool has sought to nudge the market’s value perception upwards, Videocon
remains the largest selling brand in volume terms with its competitively priced machines. Washers
have been displaced by semi-automatics, which are now the market’s mainstay (in the Rs 7,000-
12,000 price range). In fact, these account for three-fourths of the 1.2 million units the Indian market
sold in 2000. With a share of 17 per cent, Whirlpool is No. 2 in this voluminous segment.
Whirlpool’s bigger success has been in the fully automatic segment (Rs 12,000-36,000 range). This is
smaller with sales of 177,600 units in 2000, but is predicted to become the dominant one as Indian
GDP per head reaches for the $1,000 mark. With a 26 per cent share, Whirlpool has attained
leadership of this segment.
That places WOI at the appropriate juncture to plot the value curve to be ascended over the new
decade.
According to IMRB data, Whirlpool finds itself in the consideration set of 54 per cent of all
prospective washing machine buyers, and has an ad recall of close to 85 per cent. This indicates the
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medium-term potential of Whitemagic, a Rs20.5 crore on a turnover of Rs1,042.8 crore, one-fifth of
which was on account of washing machines.
The innovations continue. Recently, Whirlpool has launched semi-automatic machines with ‘hot
wash’. The brand’s ‘magic’ isn’t showing signs of wearing off either. The current ‘mummy’s magic’
campaign on TV is trying to sell Whitemagic as a competent machine even for heavy duty washing
such as ketchup stains on a white tablecloth.
The Homemaker, of course, remains the focus of attention. And she remains as vivacious, unruffled,
and in control as ever. The attitude: you can sling the muckiest of stuff on to white cloth, but
sparkling white is what it remains for its her hand that’ll work the magic, with a little help from some
friends… such as Whirlpool.
Questions
1. What product strategy did WOI adopt? And why? Global standardisation? Local
customisaton?
2. What pricing strategy did WOI follow? What, according to you, could have been the
appropriate strategy?
3. What lessons can other white goods manufacturers learn from WOI?
CASE V: CONSCIENCE OR COMPETITIVE EDGE
The plane touched down at Mumbai airport precisely on time. Olivia Jones made her way through the
usual immigration bureaucracy without incident and was finally ushered into a waiting limousine,
complete with uniformed chauffeur and soft black leather seats. Her already considerable excitement
at being in India for the first time was mounting. As she cruised the dark city streets, she asked her
chauffeur why so few cars had their headlights on at night. The driver responded that most drivers
believed that headlights use too much petrol! Finally, she arrived at her hotel, a black marble
monolith, grandiose and decadent in its splendour, towering above the bay.
The goal of her four-day trip was to sample and select swatches of woven cotton from the mills in
and around Mumbai, to be used in the following season’s youth-wear collection of shirts, trousers,
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and underwear. She was thus treated with the utmost deference by her hosts, who were invariably
Indian factory owners or British agents for Indian mills. For three days she was ferried from one airconditioned office to another, sipping iced tea or chilled lemonade, poring over leather-bound swatch
catalogues, which featured every type of stripe and design possible. On the fourth day, Jones made a
request that she knew would cause some anxiety in the camp. “I want to see a factory,” she declared.
After much consultation and several attempts at dissuasion, she was once again ushered into a
limousine and driven through a part of the city she had not previously seen. Gradually, the hotel and
the Western shops dissolved into the background and Jones entered downtown Mumbai. All around
was a sprawling shantytown, constructed from sheets of corrugated iron and panels of cardboard
boxes. Dust flew in spirals everywhere among the dirt roads and open drains. The car crawled along
the unsealed roads behind carts hauled by man and beast alike, laden to overflowing with straw or
city refuse—the treasure of the ghetto. More than once the limousine had to halt and wait while a
lumbering white bull crossed the road.
Finally, in the very heart of the ghetto, the car came to a stop. “Are you sure you want to do this?”
asked her host. Determined not be faint-hearted, Jones got out the car.
White-skinned, blue-eyed, and blond, clad in a city suit and stiletto-heeled shoes, and carrying a
briefcase, Jones was indeed conspicuous. It was hardly surprising that the inhabitants of the area
found her an interesting and amusing subject, as she teetered along the dusty street and stepped
gingerly over the open sewers.
Her host led her down an alley, between the shacks and open doors and inky black interiors. Some
shelters, Jones was told, were restaurants, where at lunchtime people would gather on the rush mat
floors and eat rice together. In the doorway of one shack there was a table that served as a counter,
laden with ancient cans of baked beans, sardines, and rusted tins of fluorescent green substance that
might have been peas. The eyes of the young man behind the counter were smiling and proud as he
beckoned her forward to view his wares.
As Jones turned another corner, she saw an old man in the middle of the street, clad in a waist cloth,
sitting in a large bucket. He had a tin can in his hand with which he poured water from the bucket
over his head and shoulders. Beside him two little girls played in brilliant white nylon dresses,
bedecked with ribbons and lace. They posed for her with smiling faces, delighted at having their
photograph taken in their best frocks. The men and women around her with great dignity and grace,
Jones thought.
Finally, her host led her up a precarious wooden ladder to a floor above the street. At the top Jones
was warned not to stand straight, as the ceiling was just five feet high. There, in a room not 20 feet by
40 feet, 20 men were sitting at treadle sewing machines, bent over yards of white cloth. Between
them on the floor were rush mats, some occupied by sleeping workers awaiting their next shift. Jones
learned that these men were on a 24-hour rotation, 12 hours on and 12 hours off, every day for six
months of the year. For the remaining six months they returned to their families in the countryside
to work the land, planting and building with the money they had earned in the city. The shirts they
were working on were for an order she had placed four weeks earlier in London, an order of which
she had been particularly proud because of the low price she had succeeded in negotiating. Jones
reflected that this sight was the most humbling experience of her life. When she questioned her host
about these conditions, she was told that they were typical for her industry—and most of the Third
World, as well.
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Eventually, she left the heat, dust and din to the little shirt factory and returned to the protected, airconditioned world of the limousine.
“What I’ve experienced today and the role I’ve played in creating that living hell will stay with me
forever,” she thought. Later in the day, she asked herself whether what she had seen was an
inevitable consequence of pricing policies that enabled the British customer to purchase shirts at
£12.99 instead of £13.99 and at the same time allowed the company to make its mandatory 56
percent profit margin. Were her negotiating skills—the result of many years of training—an indirect
cause of the terrible conditions she has seen?
Once Jones returned to the United Kingdom, she considered her position and the options open to her
as a buyer for a large, publicly traded, retail chain operating in a highly competitive environment.
Her dilemma was twofold: Can an ambitious employee afford to exercise a social conscience in his or
her career? And can career-minded individuals truly make a difference without jeopardising their
future? Answer her.

IIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRYIIBMS MBA EXAM ANSWER – IIBMS MBA CASE STUDY ANSWER – ARROW AND THE APPAREL INDUSTRY

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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.

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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.

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
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.
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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.

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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
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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.

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
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.
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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.

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
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
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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.”

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
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.
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
 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.

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
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 halfheartedly
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
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
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

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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.”

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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.

The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 1

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
Note: Solve any 4 Cases Study’s
CASE: I – Enterprise Builds On People
When most people think of car-rental firms, the names of Hertz and Avis usually come to mind. But in the last few years,
Enterprise Rent-A-Car has overtaken both of these industry giants, and today it stands as both the largest and the most
profitable business in the car-rental industry. In 2001, for instance, the firm had sales in excess of $6.3 billion and
employed over 50,000 people.
Jack Taylor started Enterprise in St. Louis in 1957. Taylor had a unique strategy in mind for Enterprise, and that strategy
played a key role in the firm’s initial success. Most car-rental firms like Hertz and Avis base most of their locations in or
near airports, train stations, and other transportation hubs. These firms see their customers as business travellers and
people who fly for vacation and then need transportation at the end of their flight. But Enterprise went after a different
customer. It sought to rent cars to individuals whose own cars are being repaired or who are taking a driving vacation.
The firm got its start by working with insurance companies. A standard feature in many automobile insurance policies is
the provision of a rental car when one’s personal car has been in an accident or has been stolen. Firms like Hertz and Avis
charge relatively high daily rates because their customers need the convenience of being near an airport and/or they are
having their expenses paid by their employer. These rates are often higher than insurance companies are willing to pay, so
customers who these firms end up paying part of the rental bills themselves. In addition, their locations are also often
inconvenient for people seeking a replacement car while theirs is in the shop.
But Enterprise located stores in downtown and suburban areas, where local residents actually live. The firm also provides
local pickup and delivery service in most areas. It also negotiates exclusive contract arrangements with local insurance
agents. They get the agent’s referral business while guaranteeing lower rates that are more in line with what insurance
covers.
In recent years, Enterprise has started to expand its market base by pursuing a two-pronged growth strategy. First, the
firm has started opening airport locations to compete with Hertz and Avis more directly. But their target is still the
occasional renter than the frequent business traveller. Second, the firm also began to expand into international markets
and today has rental offices in the United Kingdom, Ireland and Germany.
Another key to Enterprise’s success has been its human resource strategy. The firm targets a certain kind of individual to
hire; its preferred new employee is a college graduate from bottom half of graduating class, and preferably one who was
an athlete or who was otherwise actively involved in campus social activities. The rationale for this unusual academic
standard is actually quite simple. Enterprise managers do not believe that especially high levels of achievements are
necessary to perform well in the car-rental industry, but having a college degree nevertheless demonstrates intelligence
and motivation. In addition, since interpersonal relations are important to its business, Enterprise wants people who were
social directors or high-ranking officers of social organisations such as fraternities or sororities. Athletes are also desirable
because of their competitiveness.
Once hired, new employees at Enterprise are often shocked at the performance expectations placed on them by the firm.
They generally work long, grueling hours for relatively low pay.
And all Enterprise managers are expected to jump in and help wash or vacuum cars when a rental agency gets backed up.
All Enterprise managers must wear coordinated dress shirts and ties and can have facial hair only when “medically
necessary”. And women must wear skirts no shorter than two inches above their knees or creased pants.
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 2
So what are the incentives for working at Enterprise? For one thing, it’s an unfortunate fact of life that college graduates
with low grades often struggle to find work. Thus, a job at Enterprise is still better than no job at all. The firm does not hire
outsiders—every position is filled by promoting someone already inside the company. Thus, Enterprise employees know
that if they work hard and do their best, they may very well succeed in moving higher up the corporate ladder at a growing

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
and successful firm.
Question:
1. Would Enterprise’s approach human resource management work in other industries?
2. Does Enterprise face any risks from its human resource strategy?
3. Would you want to work for Enterprise? Why or why not?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 3
CASE: II – Doing The Dirty Work
Business magazines and newspapers regularly publish articles about the changing nature of work in the United States
and about how many jobs are being changed. Indeed, because so much has been made of the shift toward service-sector
and professional jobs, many people assumed that the number of unpleasant an undesirable jobs has declined.
In fact, nothing could be further from the truth. Millions of Americans work in gleaming air-conditioned facilities, but many
others work in dirty, grimy, and unsafe settings. For example, many jobs in the recycling industry require workers to sort
through moving conveyors of trash, pulling out those items that can be recycled. Other relatively unattractive jobs include
cleaning hospital restrooms, washing dishes in a restaurant, and handling toxic waste.
Consider the jobs in a chicken-processing facility. Much like a manufacturing assembly line, a chicken-processing facility is
organised around a moving conveyor system. Workers call it the chain. In reality, it’s a steel cable with large clips that
carries dead chickens down what might be called a “disassembly line.” Standing along this line are dozens of workers who
do, in fact, take the birds apart as they pass.
Even the titles of the jobs are unsavory. Among the first set of jobs along the chain is the skinner. Skinners use sharp
instruments to cut and pull the skin off the dead chicken. Towards the middle of the line are the gut pullers. These workers
reach inside the chicken carcasses and remove the intestines and other organs. At the end of the line are the gizzard
cutters, who tackle the more difficult organs attached to the inside of the chicken’s carcass. These organs have to be
individually cut and removed for disposal.
The work is obviously distasteful, and the pace of the work is unrelenting. On a good day the chain moves an average of
ninety chickens a minute for nine hours. And the workers are essentially held captive by the moving chain. For example, no
one can vacate a post to use the bathroom or for other reasons without the permission of the supervisor. In some plants,
taking an unauthorised bathroom break can result in suspension without pay. But the noise in a typical chicken-processing
plant is so loud that the supervisor can’t hear someone calling for relief unless the person happens to be standing close by.

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
Jobs such as these on the chicken-processing line are actually becoming increasingly common. Fuelled by Americans’
growing appetites for lean, easy-to-cook meat, the number of poultry workers has almost doubled since 1980, and today
they constitute a work force of around a quarter of a million people. Indeed, the chicken-processing industry has become a
major component of the state economies of Georgia, North Carolina, Mississippi, Arkansas, and Alabama.
Besides being unpleasant and dirty, many jobs in a chicken-processing plant are dangerous and unhealthy. Some workers,
for example, have to fight the live birds when they are first hung on the chains. These workers are routinely scratched and
pecked by the chickens. And the air inside a typical chicken-processing plant is difficult to breathe. Workers are usually
supplied with paper masks, but most don’t use them because they are hot and confining.
And the work space itself is so tight that the workers often cut themselves—and sometimes their coworkers—with the
knives, scissors, and other instruments they use to perform their jobs. Indeed, poultry processing ranks third among
industries in the United States for cumulative trauma injuries such as carpet tunnel syndrome. The inevitable chicken
feathers, faeces, and blood also contribute to the hazardous and unpleasant work environment.
Question:
1. How relevant are the concepts of competencies to the jobs in a chicken-processing plant?
2. How might you try to improve the jobs in a chicken-processing plant?
3. Are dirty, dangerous, and unpleasant jobs an inevitable part of any economy?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 4

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
CASE : III – On Pegging Pay to Performance
“As you are aware, the Government of India has removed the capping on salaries of directors and has left the matter of
their compensation to be decided by shareholders. This is indeed a welcome step,” said Samuel Menezes, president
Abhayankar, Ltd., opening the meeting of the managing committee convened to discuss the elements of the company’s new
plan for middle managers.
Abhayankar was am engineering firm with a turnover of Rs 600 crore last year and an employee strength of 18,00. Two
years ago, as a sequel to liberalisation at the macroeconomic level, the company had restructured its operations from
functional teams to product teams. The change had helped speed up transactional times and reduce systemic inefficiencies,
leading to a healthy drive towards performance.
“I think it is only logical that performance should hereafter be linked to pay,” continued Menezes. “A scheme in which over
40 per cent of salary will be related to annual profits has been evolved for executives above the vice-president’s level and
it will be implemented after getting shareholders approval. As far as the shopfloor staff is concerned, a system of incentivelinked
monthly productivity bonus has been in place for years and it serves the purpose of rewarding good work at the
assembly line. In any case, a bulk of its salary will have to continue to be governed by good old values like hierarchy, rank,
seniority and attendance. But it is the middle management which poses a real dilemma. How does one evaluate its
performance? More importantly, how can one ensure that managers are not shortchanged but get what they truly
deserve?”
“Our vice-president (HRD), Ravi Narayanan, has now a plan ready in this regard. He has had personal discussions with all
the 125 middle managers individually over the last few weeks and the plan is based on their feedback. If there are no
major disagreements on the plan, we can put it into effect from next month. Ravi, may I now ask you to take the floor and
make your presentation?”
The lights in the conference room dimmed and the screen on the podium lit up. “The plan I am going to unfold,” said
Narayanan, pointing to the data that surfaced on the screen, “is designed to enhance team-work and provide incentives for
constant improvement and excellence among middle-level managers. Briefly, the pay will be split into two components.
The first consists of 75 per cent of the original salary and will be determined, as before, by factors of internal equity
comprising what Sam referred to as good old values. It will be a fixed component.”
“The second component of 25 per cent,” he went on, “will be flexible. It will depend on the ability of each product team as a
whole to show a minimum of 5 per cent improvement in five areas every month—product quality, cost control, speed of

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
delivery, financial performance of the division to which the product belongs and, finally, compliance with safety and
environmental norms. The five areas will have rating of 30, 25, 20, 15, and 10 per cent respectively.
“This, gentlemen, is the broad premise. The rest is a matter of detail which will be worked out after some finetuning. Any
questions?”
As the lights reappeared, Gautam Ghosh, vice-president (R&D), said, “I don’t like it. And I will tell you why. Teamwork as a
criterion is okay but it also has its pitfalls. The people I take on and develop are good at what they do. Their research skills
are individualistic. Why should their pay depend on the performance of other members of the product team? The new pay
plan makes them team players first and scientists next. It does not seem right.”
“That is a good one, Gautam,” said Narayanan. “Any other questions? I think I will take them all together.”
“I have no problems with the scheme and I think it is fine. But just for the sake of argument, let me take Gautam’s point
further without meaning to pick holes in the plan,” said Avinash Sarin, vice-president (sales). “Look at my dispatch
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 5
division. My people there have reduced the shipping time from four hours to one over the last six months. But what have
they got? Nothing. Why? Because the other members of the team are not measuring up.”
“I think that is a situation which is bound to prevail until everyone falls in line,” intervened Vipul Desai, vice president
(finance). “There would always be temporary problems in implementing anything new. The question is whether our long
term objectives is right. To the extend that we are trying to promote teamwork, I think we are on the right track. However,
I wish to raise a point. There are many external factors which impinge on both individual and collective performance. For
instance, the cost of a raw material may suddenly go up in the market affecting product profitability. Why should the
concerned product team be penalised for something beyond its control?”
“I have an observation to make too, Ravi,” said Menezes, “You would recall the survey conducted by a business fortnightly
on ‘The ten companies Indian managers fancy most as a working place’. Abhayankar got top billings there. We have been
the trendsetters in executive compensation in Indian industry. We have been paying the best. Will your plan ensure that it
remains that way?”
As he took the floor again, the dominant thought in Narayanan’s mind was that if his plan were to be put into place,
Abhayankar would set another new trend in executive compensation.
Question:
But how should he see it through?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 6
CASE : IV – Crisis Blown Over
November 30, 1997 goes down in the history of a Bangalore-based electric company as the day nobody wanting it to recur
but everyone recollecting it with sense of pride.
It was a festive day for all the 700-plus employees. Festoons were strung all over, banners were put up; banana trunks and
leaves adorned the factory gate, instead of the usual red flags; and loud speakers were blaring Kannada songs. It was day
the employees chose to celebrate Kannada Rajyothsava, annual feature of all Karnataka-based organisations. The function
was to start at 4 p.m. and everybody was eagerly waiting for the big event to take place.
But the event, budgeted at Rs 1,00,000 did not take place. At around 2 p.m., there was a ghastly accident in the machine
shop. Murthy was caught in the vertical turret lathe and was wounded fatally. His end came in the ambulance on the way
to hospital.

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
The management sought union help, and the union leaders did respond with a positive attitude. They did not want to fish
in troubled waters.
Series of meetings were held between the union leaders and the management. The discussions centred around two major
issues—(i) restoring normalcy, and (ii) determining the amount of compensation to be paid to the dependants of Murthy.
Luckily for the management, the accident took place on a Saturday. The next day was a weekly holiday and this helped the
tension to diffuse to a large extent. The funeral of the deceased took place on Sunday without any hitch. The management
hoped that things would be normal on Monday morning.
But the hope was belied. The workers refused to resume work. Again the management approached the union for help.
Union leaders advised the workers to resume work in al departments except in the machine shop, and the suggestions was
accepted by all.
Two weeks went by, nobody entered the machine shop, though work in other places resumed. Union leaders came with a
new idea to the management—to perform a pooja to ward off any evil that had befallen on the lathe. The management
accepted the idea and homa was performed in the machine shop for about five hours commencing early in the morning.
This helped to some extent. The workers started operations on all other machines in the machine shop except on the
fateful lathe. It took two full months and a lot of persuasion from the union leaders for the workers to switch on the lathe.
The crisis was blown over, thanks to the responsible role played by the union leaders and their fellow workers. Neither the
management nor the workers wish that such an incident should recur.
As the wages of the deceased grossed Rs 6,500 per month, Murthy was not covered under the ESI Act. Management had to
pay compensation. Age and experience of the victim were taken into account to arrive at Rs 1,87,000 which was the
amount to be payable to the wife of the deceased. To this was added Rs 2,50,000 at the intervention of the union leaders. In
addition, the widow was paid a gratuity and a monthly pension of Rs 4,300. And nobody’s wages were cut for the days not
worked.
Murthy’s death witnessed an unusual behavior on the part of the workers and their leaders, and magnanimous gesture
from the management. It is a pride moment in the life of the factory.
Question:
1. Do you think that the Bangalore-based company had practised participative management?
2. If your answer is yes, with what method of participation (you have read in this chapter) do you relate the above
case?
3. If you were the union leader, would your behaviour have been different? If yes, what would it be?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 7

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
CASE : V – A Case of Burnout
When Mahesh joined XYZ Bank (private sector) in 1985, he had one clear goal—to prove his mettle. He did prove himself
and has been promoted five times since his entry into the bank. Compared to others, his progress has been fastest.
Currently, his job demands that Mahesh should work 10 hours a day with practically no holidays. At least two day in a
week, Mahesh is required to travel.
Peers and subordinates at the bank have appreciation for Mahesh. They don’t grudge the ascension achieved by Mahesh,
though there are some who wish they too had been promoted as well.
The post of General Manager fell vacant. One should work as GM for a couple of years if he were to climb up to the top of
the ladder, Mahesh applied for the post along with others in the bank. The Chairman assured Mahesh that the post would
be his.
A sudden development took place which almost wrecked Mahesh’s chances. The bank has the practice of subjecting all its
executives to medical check-up once in a year. The medical reports go straight to the Chairman who would initiate
remedials where necessary. Though Mahesh was only 35, he too, was required to undergo the test.
The Chairman of the bank received a copy of Mahesh’s physical examination results, along with a note from the doctor. The
note explained that Mahesh was seriously overworked, and recommended that he be given an immediate four-week
vacation. The doctor also recommended that Mahesh’s workload must be reduced and he must take physical exercise
every day. The note warned that if Mahesh did not care for advice, he would be in for heart trouble in another six months.
After reading the doctor’s note, the Chairman sat back in his chair, and started brooding over. Three issues were
uppermost in his mind—(i) How would Mahesh take this news? (ii) How many others do have similar fitness problems?
(iii) Since the environment in the bank helps create the problem, what could he do to alleviate it? The idea of holding a
stress-management programme flashed in his mind and suddenly he instructed his secretary to set up a meeting with the
doctor and some key staff members, at the earliest.
Question:
1. If the news is broken to Mahesh, how would he react?
2. If you were giving advice to the Chairman on this matter, what would you recommend?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 8

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED
CASE : VI – “Whose Side are you on, Anyway?”
It was past 4 pm and Purushottam Mahesh was still at his shopfloor office. The small but elegant office was a perk he was
entitled to after he had been nominated to the board of Horizon Industries (P) Ltd., as workman-director six months ago.
His shift generally ended at 3 pm and he would be home by late evening. But that day, he still had long hours ahead of him.
Kshirsagar had been with Horizon for over twenty years. Starting off as a substitute mill-hand in the paint shop at one of
the company’s manufacturing facilities, he had been made permanent on the job five years later. He had no formal
education. He felt this was a handicap, but he made up for it with a willingness to learn and a certain enthusiasm on the
job. He was soon marked by the works manager as someone to watch out for. Simultaneously, Kshirsagar also came to the
attention of the president of the Horizon Employees’ Union who drafted him into union activities.
Even while he got promoted twice during the period to become the head colour mixer last year, Kshirsagar had gradually
moved up the union hierarchy and had been thrice elected secretary of the union. Labour-management relations at
Horizon were not always cordial. This was largely because the company had not been recording a consistently good
performance. There were frequent cuts in production every year because of go-slows and strikes by workmen—most of
them related to wage hikes and bonus payments. With a view to ensuring a better understanding on the part of labour, the
problems of company management, the Horizon board, led by chairman and managing director Aninash Chaturvedi, began
to toy with idea of taking on a workman on the board. What started off as a hesitant move snowballed, after a series of
brainstorming sessions with executives and meetings with the union leaders, into a situation in which Kshirsagar found
himself catapulted to the Horizon board as work-man-director.
It was an untested ground for the company. But the novelty of it all excited both the management and the labour force. The
board members—all functional heads went out of their way to make Kshirsagar comfortable and the latter also responded
quite well. He got used to the ambience of the boardroom and the sense of power it conveyed. Significantly, he was soon at
home with the perspectives of top management and began to see each issue from both sides.
It was smooth going until the union presented a week before the monthly board meeting, its charter of demands, one of
which was a 30 per cent across-the board hike in wages. The matter was taken up at the board meeting as part of a special
agenda.
“Look at what your people are asking for,” said Chaturvedi, addressing Kshirsagar with a sarcasm that no one in the board
missed. “You know the precarious finances of the company. How could you be a party to a demand that can’t be met? You
better explain to them how ridiculous the demands are,” he said.
“I don’t think they can all be dismissed as ridiculous,” said Kshirsagar. “And the board can surely consider the alternatives.
We owe at least that much to the union.” But Chaturvedi adjourned the meeting in a huff, mentioning, once to Kshirsagar
that he should “advise the union properly”.
When Kshirsagar told the executive committee members of the union that the board was simply not prepared to even
consider the demands, he immediately sensed the hostility in the room. “You are a sell out,” one of them said. “Who do you
really represent—us or them?” asked another.
“Here comes the crunch,” thought Kshirsagar. And however hard he tried to explain, he felt he was talking to a wall. A
victim of divided loyalities, he himself was unable to understand whose side he was on. Perhaps the best course would be
to resign from the board. Perhaps he should resign both from the board and the union. Or may be resign from Horizon
itself and seek a job elsewhere. But, he felt, sitting in his office a little later, “none of it could solve the problem.”
Question:
1. What should he do?

IIBMS MBA EXAM CASE STUDY ANSWER PROVIDED

MARKETING MANAGEMENT – IIBMS EXAM ANSWER – Managing the Guinness brand in the face of consumers’ changing tastes

MARKETING MANAGEMENT – IIBMS EXAM ANSWER – Managing the Guinness brand in the face of consumers’ changing tastes

MARKETING MANAGEMENT – IIBMS EXAM ANSWER – Managing the Guinness brand in the face of consumers’ changing tastes

The Indian Institute Of Business Management & Studies
Subject: Marketing Management Marks: 100
1
Note: Solve any 4 Cases
CASE: I Managing the Guinness brand in the face of consumers’ changing tastes
1997 saw the US$19 billion merger of Guinness and GrandMet 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 popular stout were sold every day, predominantly in Guinness’s 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 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 months of 2001 and, more alarmingly, sales were also down 4 per cent in
its home market, 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 litres 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 Ireland, accounting for nearly one of every
two pints of beer sold. Its nearest competitors were Budweiser and Heineken, which held 13 per cent and
12 per cent of the market respectively.

MARKETING MANAGEMENT – IIBMS EXAM ANSWER – Managing the Guinness brand in the face of consumers’ changing tastes
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 losing popularity compared with wine or the
recently launched RTDs (ready-to-drinks) or FABs (flavoured alcoholic beverages), which the younger
generation of drinkers considered 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.
Beer 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 first to feel the pain caused by the declining popularity of beer and in particular stout. A
Euromonitor report in February 2002 explained how the profile 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
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MARKETING MANAGEMENT – IIBMS EXAM ANSWER – Managing the Guinness brand in the face of consumers’ changing tastes

2
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 consumers increases.
The report continued:
In Ireland, in particular, the consumer 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 women had reportedly never tried
Guinness. 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.
In 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 millions 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 pint 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’ for 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, sale of beer in the
cheaper ‘off-trade’ channel were slowly gaining in importance. The Guinness brand manager at the time,
John O’Keeffe, explained how home drinkers could now enjoy a smoother, creamier head similar to the
one obtained in a 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 4ºC
rather than the normal 6ºC. 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-stemmed 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 quite a departure from the
traditional Guinness look.
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MARKETING MANAGEMENT – IIBMS EXAM ANSWER – Managing the Guinness brand in the face of consumers’ changing tastes
3
The objective was to reposition Guinness alongside certain similarly packaged lagers and RTDs 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 draft
Guinness easier access to the growing number of clubs and bars that were less likely to serve traditional
draft Guinness, which could be kept for only six to eight weeks and took two minutes to pour. The RTDs,
by contrast, had a shelf-life of more than a year and were drunk straight from the bottle.
However, financial analyst remained sceptical about the Guinness product innovations, which had no
significant positive impact on sales or profitability:
The last 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 estimates 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 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 advertising, was second only to the national telecoms provider, Eircom.
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 breathe life into an ageing brand, to reconnect an old company with
young (sceptical) customers.
As the Storehouse’s design firm’s director, Ralph Ardill, explained:
Guinness 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 pint 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 pour
a proper pint. The process involved two steps—the pour and the top-up—and took a total of 119.5
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/DUV’s attempt to appeal to the younger generation of drinkers and boost its fading
image, rumours persisted in Ireland about the brand future. The country’s leading and respected
newspaper, the Irish times, reported in an article in July 2001:
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MARKETING MANAGEMENT – IIBMS EXAM ANSWER – Managing the Guinness brand in the face of consumers’ changing tastes
4
The uncertainty over its future all adds to the air of crisis that is building around Guinness Ireland Group
four months ago…The review is not complete and the assumption is that there is more bad news to come.
In the pubs across Ireland, the traditional Guinness drinkers looked on anxiously as the younger
generation drank Bacardi Breezers, Smirnoff Ices or Californian wines. Could the goliath Guinness survive
another two centuries? Was the preference for these new drinks just a fad or fashion, or did Diageo need
to seriously reconsider how it marketed Guinness?
A quick solution?
In late February 2002, Diageo CEO Paul Walsh revealed 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 form 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. 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. 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 innovative 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’.
Question:
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?
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Subject: Marketing Management Marks: 100
5

MARKETING MANAGEMENT – IIBMS EXAM ANSWER – Managing the Guinness brand in the face of consumers’ changing tastes
CASE: II The grey market
Introduction
The over-50s market has long been ignored by advertising and marketing firms in favour of the market.
The complexity of how to appeal to today’s mature customers, without targeting their age, has proved
just too challenging for many companies. But this preoccupation with youth runs counter to demographic
changes. The over-50s represent the largest segment of the population, across western
developed countries, due largely to the post-Second World War baby boom. The sheer size of this grey
market, which will continue to grow as birth and mortality rates fall, coupled with its phenomenal
spending power, presents enormous opportunities for business. However, successfully unleashing its
potential will depend on companies truly understanding the attitudes, lifestyles and purchasing interests
of this post-war generation.
Demographic forces
Following the Second World War many countries experienced a baby boom phenomenon as returning
soldiers began families. This, coupled with a more positive outlook on the future, resulted in the baby
boom generation, born between 1946 and 1964. Now beginning to enter retirement, this affluent group
globally numbers approximately 532 million. In Western Europe they account for the largest proportion
of the total population at 14.9%, followed closely by 14.2% in North America and 13.5 % in Australia.
Table 1: Global population aged 45-54 by region: baby boomers as a % of the total population
1990/2002
Baby boomers as a
% total population
1990 2002 % point change
Western Europe 12.9 14.9 2.0
North America 9.9 14.2 4.3
Australasia 10.4 13.5 3.1
Eastern Europe 9.7 13.0 3.3
Asia-Pacific 7.8 9.8 2.0
Latin America 6.6 8.4 1.8
Africa/Middle East 2.6 2.3 20.3
WORLD 7.9 9.5 1.6
The grey market is big and getting bigger. Between 1990 and 2002 the global baby boomer population
increased by 41%. The rate of growth is predicted to decrease to 35% between 2002 and 2015.
Particularly noteworthy is the predicted increase in the proportion of baby boomers in many Western
European countries, such as Austria, Spain, Germany, Italy, and the UK. In developed countries, according
to the United Nations, the percentage of elderly people (60+) is forecast to rise from one-fifth of the
population to one-third by 2050. The growth in the elderly population is exacerbated by falling fertility
rates in many developed countries, coupled with a rise in human longevity.
The influences and buyer behaviour patterns of baby boomers
The members of the baby boomer generation are quite unlike their more conservative parents’
generation. They are the children of the rebellious ‘swinging sixties’, growing up on the sounds of the
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Beatles and the Rolling Stones. Better educated than their parents, in a time of greater prosperity, they
indulged in more hedonistic lifestyle. It has been said that they were the first ‘me generation’. Now, in
later life, they have retained their liberal, adventurous and youthful attitude to life. Aptly termed ‘younger
older people’ they abhor antiquated stereotypes of elderly people, preferring to be defined by their
attitude rather than their age.
Baby boomers are also tend to be very wealthy. Many are property owners and may have gained an
inheritance from parents or other relatives. They have higher than average incomes or have retired with
private pension plans. With their children having flown the nest they have greater financial freedom and
more time to indulge themselves. Having worked all their lives, and educated their children, many baby
boomers do not believe it is their responsibility to safeguard the financial future of their children by
carefully protecting their children’s inheritance. They are instead liquidating their assets, intent on
enjoying their later life to full, often through conspicuous consumption.
Based on research conducted by Euromonitor, the main areas of expenditure in the baby boomer market
are financial services, tourism, food and drink, luxury cars, electrical/electronic goods, clothing, health
products, and DIY and gardening.
Table 2: Global population aged 45-54 in thousands by country: developed countries 2002-2015
Country 2002 2010 2015 %change 2002/2015
Austria 1,059 1,277 1,371 29
Spain 4,921 5,741 6,189 26
Germany 10,991 12,963 13,508 26
Italy 7,684 8,591 9,347 23
UK 7,786 8,731 9,388 22
New Zealand 521 607 613 21
Ireland 474 529 555 18
Switzerland 997 1,120 1,159 17
Australia 2,661 3,006 3,057 16
Greece 1,359 1,476 1,559 15
Canada 4,505 5,320 5,122 15
Netherlands 2,301 2,492 2,604 14
Portugal 1,334 1,438 1,511 13
Norway 612 640 678 13
Denmark 745 761 802 11
USA 38,951 44,140 42,207 8
Belgium 1,423 1,549 1,526 8
Sweden 1,206 1,179 1,233 2
Japan 18,344 15,661 16,459 -10
Finland 820 749 718 -12
France 8,266 7,626 7,292 -12
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Figure 1 Global Baby boomer market: % analysis by broad sector 2002 (% value)
Note: sectors valued on the basis of estimates by senior managers in major companies in each sector,
consumer expenditure and industry sector data.
Unsurprisingly the financial sector is the largest in this market. Baby boomers are concerned with
being financially secure in their retirement. An ageing population, coupled with a rise in human longevity,
is giving rise to a pensions crisis across Western Europe. Baby boomers are therefore right to be
preoccupied with how they will maintain their lifestyle over the long term. They are actively engaging in
financial planning, both before and after retirement. Popular financial service products include
endowments, life insurance, personal pensions, PEPs and ISAs.
Baby boomers have adventurous attitudes with a desire to see the world. In their retirement
foreign travel is a key expenditure. Given their greater levels of sophistication and education, baby
boomers are much more demanding of holidays that suit their lifestyles. This group is very diverse, with
holiday interests ranging from action-packed adventures to culturally rich experiences.
Baby boomers want to maintain a youthful appearance in line with their youthful way of living.
Fear of becoming invisible is a genuine concern among older generations. This image conciousness is
reflected in their spending on clothing, cosmetics and anti-ageing products. Luxury cars also a key status
symbols for this group.
The home is another area of expenditure. Once children have flown the nest, many baby boomers
redecorate the home to suit their needs. Electrical and electronic purchases are key indulgences among
these technologically savvy consumers. Gardening is another pastime enjoyed by older generations.
Financial
services
22%
DIY/gardening
3%
Health
products
10%
Clothing
11%
Electrical/elec
tronic
11%
Luxury cars
12%
Food/drink
13%
tourism
18%
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Health is also a priority. Baby boomers invest in private health insurance and over-the-counter
pharmaceutical products to maintain their healthy lives.
Business opportunities
The sheer size of the grey market, which is getting bigger in many countries—characterized by
consumers with disposable income, ample free time, interest in travel, concern about financial security
and health, awareness of youth culture and brands and desire for aspirational living—makes this market
enormously attractive to many business sectors. Pharmaceuticals, health and beauty, technology, travel
financial services, luxury cars, lavish food and entertainment are key growth sectors for the grey market.
However, successfully tapping into this market will depend on companies truly understanding the
attitudes, lifestyles and purchasing interests of this post-war generation. Communicating with this group
is a tricky business, but, done right, it can be hugely rewarding.
When targeting the older consumer it is important to target their lifestyle and not their age. Older
people do not want to be reminded, in a patronizing way, of their age or what they should be doing now
they are a certain stage in life. With an interest in maintaining a youthful way of life these consumers are
interested in similar brands to those that appeal to younger generations. The key for the companies is to
find a way of making their brands also appeal to an older consumer without explicitly targeting their age.
One tried-and tested method of targeting this group is to use nostalgia. Mercedes Benz used the Janis
Joplin song ‘Oh Lord won’t you buy me a Mercedes Benz’ to great effect despite the obvious irony in that
the song was written to highlight the dangers of materialism! Volkswagen’s new retro-style Beetle has
also been popular among this group.
In the tourism sector Saga Holidays, the leader in holidays for the over-50s, has changed its
product offering to reflect changing trends among this group. In line with the more adventurous attitudes
of many older consumers it now offers more action-packed adventure holidays to far-flung destinations.
More recently, Thomas Cook has rebranded it over-50s ‘Forever Young’ programme to reflect the
diverse interest of its target customers. Its new primetime brochure targets five distinct groups with the
following holiday types: ‘Discover’, ‘Learn’, ‘Relax’, ‘Active’ and ‘Enjoy Life’.
Conclusion
The over-50s represent the largest segment of the population across Western developed countries. This
affluent market is big and getting bigger. Having ignored it for so long marketers are finally beginning to
see the enormous opportunities presented by the grey market. But conquering this market will not be
easy. The baby boomer generation is quite unlike its predecessors. With a youthful and adventuresome
spirit these ‘younger older people’ want to be defined by their attitude and not by their age. Only time
will tell whether today’s marketers are up to the challenge.
Questions
1. Why is the grey market so attractive to business?
2. Identify the influences on the purchasing behaviour of the over-50s consumer.
3. Discuss the challenges involved in targeting the grey market.
The Indian Institute Of Business Management & Studies
Subject: Marketing Management Marks: 100
9

MARKETING MANAGEMENT – IIBMS EXAM ANSWER – Managing the Guinness brand in the face of consumers’ changing tastes
CASE: III Nivea: managing an umbrella brand
‘In many countries consumer are convinced that Nivea is a local brand, a mistake which Beiersdoft, the
German makers, take as a compliment.’
(Quoted on leading brand consultancy Wolff-Olins’ website, www.wolff-olins.com)
An ode to Nivea’s success
In May 2003, a survey of ‘Global Mega Brand Franchises’ revealed that the Nivea Cosmetics brand had
presence in the maximum number of product categories and countries. The survey, conducted by USbased
ACNielsen, aimed at identifying those brands that had ‘successfully evolved beyond their original
product categories’. A key parameter was the presence of these brands in multiple product categories as
well as countries.
Nivea’s performance in this study prompted a yahoo.com news article to name it the ‘Queen of Mega
Brands’. This title was appropriate since the brand was present in over 14 product categories and was
available in more than 150 countries. Nivea was the market leader in skin creams and lotions in 28
countries, in facial cleansing in 23 countries, in facial skin care in 18 countries, and in suntan products in
15 countries. In many of those countries, it was reportedly believed to be a brand of local origin—having
been present in them for many decades. This fact went a long way in helping the brand attain leadership
status in many categories and countries (see Table 3).
Table 3 Nivea: market positions
CATEGORY Skin
care
Baby
care
Sun
protection
Men’s
care
COUNTRY
Austria 1 1 2 1
Belgium 1 1 3 1
UK 1 3 – 1
Germany 1 1 3 1
France 1 1 1 3
Italy 1 1 5 1
Netherlands 1 1 5 1
Spain 1 4 – 1
Switzerland 1 1 4 1
The study covered 200 consumer packaged goods brands from over 50 global manufacturers. The brands
had to be available in at least 15 of the countries studied; the same name had to be used in at least three
product categories and meet franchise in at least three of the five geographical regions.
In its home country Germany, too, many of Nivea’s products were the market leaders in their segments.
This market leadership status translated into superior financial performance. Between 1991 and 2001,
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Nivea posted double-digit growth rates every year. For 2001, the brand generated revenues of €2.5
billion, amounting to 55 per cent of the parent company’s (Beiersdoft) total revenue for the year. The
120-year-old, Hamburg-based Beiersdoft has often been credited with meticulously building the Nivea
brand into the world’s number one personal care brand. According to a survey conducted by ACNielsen in
the late 1990s, the brand had a 15 per cent share in the global skin care products market. While Nivea
had always been the company’s star performer, the 1990s were a period of phenomenal growth for the
brand. By successfully extending what was essentially a ‘one-product wonder’ into many different
product categories, Beiersdoft had silenced many critics of its umbrella branding decision.
The marketing game for Nivea
Millions of customers across the world have been familiar with the Nivea brand since their childhood.
The visual (colour and packaging) and physical attributes (feel, smell) of the product stayed on in their
minds. According to analysts, this led to the formation of a complex emotional bond between customers
and the brand, a bond that had strong positive under-tones. According to a superbrands.com. my article,
Nivea’s blue colour denoted sympathy, harmony, friendship and loyalty. The white colour suggested
external cleanliness as well as inner purity. Together, these colours gave Nivea the aura of an honest
brand.
To customers, Nivea was more than a skin care product. They associated Nivea with good health, graceful
ageing and better living. The company’s association Nivea with many sporting events, fashion events and
other lifestyle-related events gave the brand a long-lasting appeal. In 2001, Franziska Schmiedebach,
Beiersdoft’s Corporate Vice President (Face Care and Cosmetics), commented that Nivea’s success over
the decades was built on the following pillars: innovation, brand extension and globalization (see Table 4
for the brand’s sales growth from 1995-2002)
Table 4 Nivea: worldwide sales growth (%)
Innovation and brand extensions
Innovation and brand extensions went hand in hand for Nivea. Extensions had been made back in the
1930s and had continued in the 1960s when the face care range Nivea Visage was launched. However, the
first major initiative to extend the brand to other products came in the 1970s. Naturally, the idea was to
cash in on Nivea’s strong brand equity. The first major extension was launch of ‘Nivea For Men’
aftershave in the 1970s. Unlike the other aftershaves available in market, which caused the skin to burn
on application, Nivea For Men soothed the skin. As a result, the product became a runaway success.
The positive experience with the aftershave extension inspired the company to further explore the
possibilities of brand extensions. Moreover, Beiersdoft felt that Nivea’s unique identity, the values it
Sales Growth 1995 1996 1997 1998 1999 2000 2001 2002
In Million € 1040 1166 1340 1542 1812 2101 2458 2628
In per cent 9.8 12.1 14.9 15.1 17.5 16.0 17.0 6.9
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represented (trustworthiness, simplicity, consistency, caring) could easily be used to make the transition
to being an umbrella brand. The decision to diversify its product range was also believed to have
influenced by intensifying competitive pressures. L’Oreal’s Plenitude range, Procter & Gamble’s Oil of
Olay range, Unilever’s Pond’s range, and Johnson & Johnson’s Neutrogena range posed stiff competition
to Nivea.
Though Nivea was the undisputed market leader in the mass-market face cream segment worldwide, its
share was below Oil of Olay’s, Pond’s and Plenitude’s in the US market. While most of the competing
brands had a wide product portfolio, the Nivea range was rather limited. To position Nivea as a
competitor in a larger number of segments, the decision to offer a wider range inevitable.
Beiersdoft’s research centre—employing over 150 dermatological and cosmetics researchers,
pharmacists and chemists—supported its thrust on innovations and brand extensions. During the 1990s,
Beiersdoft launched many extensions, including men’s care products, deodorants (1991), Nivea Body
(1995), and Nivea Soft (1997). Most of these brand extension decisions could be credited to Rolf Kunisch,
who became Beiersdoft’s CEO in the early 1990s. Rolf Kunisch firmly believed in the company’s ‘twin
strategy’ of extension and globalization.
By the beginning of the twenty-first century, the Nivea umbrella brand offered over 300 products in 14
separate segments of the health and beauty market (see Table 5 and Figure 2 for information on Nivea’s
brand extensions). Commenting on Beiersdoft’s belief in umbrella branding, Schmiedebach said,
‘Focusing your energy and investment on one umbrella brand has strong synergetic effects and helps
build leading market positions across categories.’ A noteworthy aspect of the brand extension strategy
was the company’s ability to successfully translate the ‘skin care’ attributes of the original Nivea cream to
the entire gamut of products.
Table 5 Nivea: brand portfolio
Category Products
Nivea Bath Care Shower gels, shower specialists, bath foams, bath specialists, soaps, kids’
products, intimate care
Nivea Sun (sun care) Sun protection lotion, anti-ageing sun cream, sensitive sun lotion, sunspray,
children’s sun protection, deep tan, after tan, self –tan, Nivea baby
sun protection
Nivea Beaute (colour cosmetics) Face, eyes, lips, nails
Nivea For Men (men’s care) Shaving, after shaving, face care, face cleansing
Nivea Baby (baby care) Bottom cleansing, nappy rash protection, general cleansing, moisturizing,
sun protection
Nivea Body (body care) Essential line, performance line, pleasure line
Nivea Crème Nivea crème
Nivea Deodorants Roll-ons, sprays, pump sprays, sticks, creams, wipes, compact
Nivea Hand (hand care) Hand care lotions and creams
Nivea Lip Care Basic care, special care, cosmetic care, extra protection care
Nivea Visage (face care) Daily cleaning, deep cleaning, facial masks (cleaning/care), make-up
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remover, active moisture care, advanced repair care, special care
Nivea Vital (mature skin care) Basic face care, specific face care, face cleansing products, body care
Nivea Soft Nivea soft moisturizing cream
Nivea Hair Care Hair care (shampoos, rinse, treatment, sun); hair styling (hairspray and
lacquer, styling foams and specials, gels and specials)
Figure 2 Nivea Universe
The company ensured that each of its products addressed a specific need of consumers. Products in all
the 14 categories were developed after being evaluated on two parameters with respect to the Nivea
mother brand. First, the new product had to be based on the qualities that the mother brand stood for
NIVEA
NIVEA
Visage
NIVEA
For
Men
NIVEA
Creme
NIVEA
Body
NIVEA
Sun
NIVEA
Soft
Skin Care
NIVEA
Beaute
NIVEA
Baby
NIVEA
Hand NIVEA
Vital
NIVEA
Hair
NIVEA
Deodorrants
Personal Care
NIVEA
Bath
Care
NIVEA
Lipcare
Personal Care
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and, second, it ha to offer benefits that were consistent with those that the mother brand offered. Once a
new product cleared the above test, it was evaluated for its ability to meet consumer needs and its scope
for proving itself to be a leader in the future. For instance, a Nivea shampoo not only had to clean hair, it
also had to be milder and gentler than other shampoos in the same range.
Beiersdoft developed a ‘Nivea Universe’ framework for streamlining and executing its brand extension
efforts. This framework consisted of a central point, an inner circle of brands and an outer circle of
brands (see Figure 2)
The centre of the model housed the ‘mother brand’, which represented the core values of
trustworthiness, honesty and reliability. While the brands in the inner circle were closely related to the
core values of the Nivea brand, the brands in the outer circle were seen as extensions of these core
values. The inner-circle brands strengthened the existing beliefs and values associated with the Nivea
brand. The outer circle brands, however, sought to add new dimensions to the brand’s personality,
thereby opening up avenues, for future growth.
The ‘global-local’ strategy
The Nivea brand retained its strong German heritage and was treated as a global brand for many decades.
In the early days, local managers believed that the needs of customers from their countries were
significantly different from those of customers in other countries. As a result, Beiersdoft was forced to
offer different product formulations an packaging, and different types of advertising support.
Consequently, it incurred high costs.
It was only in the 1980s that Beiersdoft took a conscious decision to globalize the appeal of Nivea. The
aim to achieve a common platform for the brand on a global scale and offer customers from different
parts of the world a wider variety of product choices. This was radical departure from its earlier
approach, in which product development and marketing efforts were largely focused on the German
market. The new decision was not only expected to solve the problems of high costs, it was also expected
to further build the core values of the brand.
To globalize the brand, the company formulated strategies with the help of a team of ‘international’
experts with ‘local expertise’. This team developed new products for all the markets. Their
responsibilities included, among others, deciding about the way in which international advertising
campaigns should be adapted at the local level. The idea was to leave the execution of strategic decisions
to local partners. However, Beiersdoft monitored the execution to ensure that it remained in line with the
global strategic plan.
This way, Beiersdoft ensured that the nuances of consumer behaviour at the local level understood and
that their needs were addressed. Company sources claimed that by following the above approach, it was
easy to transfer know-how between headquarters and the local offices. In addition, the motivation level
of the local partners also remained on the higher side.
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The company established a set of guidelines that regulated how the marketing mix of a new
product/brand was to be developed. These guidelines stipulated norms with respect to product, pricing,
promotion, packaging and other related issues. For instance, a guideline regarding advertising read,
‘Nivea advertising is about skin care. It should be present visually and verbally. Nivea advertising is
simple, it is unpretentious and human.’
Thus all advertisements for any Nivea product depicted images related to ‘skin care’ and ‘unpretentious
human life’ in one way or the other. The company consciously decided not to use supermodels to
promote its products. The predominant colours in all campaigns remained blue and white. However, local
issues were also kept in mind. For instance, in the Middle East, Nivea relied more on outdoor media as it
worked out to be much more cost-effective. And since showing skin in the advertisements went against
the region’s culture, the company devised ways of advertising skin without showing skin.
Many brand management experts have spoken of the perils of umbrella management, such as brand
dilution and the lack of ‘change’ for consumers. However, the umbrella branding strategy worked for
Beiersdoft. In fact, the company’s growth was the most dynamic since its inception during 1990s—the
decade when the brand extension move picked up momentum. The strong yearly growth during the
1990s and the quadrupling of sales were attributed by company sources to the thrust on brand extension.
Questions
1. Discuss the reasons for the success of the Nivea range of products across the world. Why did
Beiersdoft decide to extend the brand to different product categories? In the light of Beiersdoft’s
brand extension of Nivea, critically comment on the pros and cons of adopting an umbrella
branding strategy. Compare the use of such a strategy with the use of an independent branding
strategy.
2. According to you, what are the core values of the Nivea brand? What type of brand extension
framework did Beiersdoft develop to ensure that these core values id not get diluted? Do you think
the company was able to protect these core values? Why/why not?
3. What were the essential components of Beiersdoft’s global expansion strategy for Nivea? Under
what circumstances would a ‘global-strategy-local execution’ approach be beneficial for a
company? When and why should this approach be avoided?
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MARKETING MANAGEMENT – IIBMS EXAM ANSWER – Managing the Guinness brand in the face of consumers’ changing tastes
CASE: IV Pret a Manger: passionate about food
Introduction
Pret a Manger (French for ‘ready to eat’) is a chain of coffee shops that sells a range of upmarket, healthy
sandwiches and desserts as well as a variety o coffees to an increasingly discerning set of lunchtime
customers. Started in London, England, in 1986 by two university graduates, Pret a Manger has more
than 120 stores across the UK. In 2002 it sold 25 million sandwiches and 14 million cups of coffee, and
had a turnover of over £100 million. Buckingham Palace reportedly orders more than £1000 worth of
sandwiches a week and British Prime Minister Tony Blair has had Pret sandwiches delivered to number
10 Downing Street for working lunches. The company also has ambitious plans to expand further—it
already has stores in New York, Hong Kong and Tokyo, and has set its sights on further international
growth.
Background and company history
In 1986, Pret a Manger was founded with one shop, in central London, and a £17,000 loan, by two
property law graduates, Julian Metcalf and Sinclair Beecham, who had been students together at the
University of Westminster in the early 1980s. At that time the choice of lunchtime eating in London and
other British cities was more limited than it is today. Traditionally, some ate in restaurants while many
favoured that well-known British institution, the pub, as a choice for lunchtime eating and drinking.
There was, however, a growing awareness among many people of the benefits of healthy eating and a
healthy lifestyle, and lunchtime habits were changing. There was a general trend towards taking shorter
lunch brakes and, among office workers, to take lunch at their desks. For those who wanted food to take
away, the choice in fast food was dominated by the large chains such as McDonald’s, Burger King and
Kentucky Fried Chicken (now KFC) while other types of carry-out food, such as pizzas, were also
available.
Sandwiches also played an important part in British lunchtime eating. Named after its eighteenth-century
inventor, the Earl of Sandwich, the humble sandwich had long been a popular British lunch choice,
especially for those with little time to spare. Prior to Pret’s arrival on the scene, sandwiches were sold
mainly either pre-packed in supermarkets and high-street variety chain stores such as Marks and
Spencer and Boots, or in the many small sandwich bars that were to be found in the business districts of
large cities like London, Sandwich bars were usually small, independently owned or family run shops that
made sandwiches to order for customers who waited in a queue, often out on to the pavement outside.
Dissatisfied with the quality of both the food and service from traditional sandwich bars, Metcalf and
Beecham decided that Pret a Manger should offer something different. They wanted Pret’s food to be high
quality and healthy, and preservative and additive free. In the beginning, they shopped for the food
themselves at local markets and returned to the store where they made the sandwiches each morning.
Pret’s offering was based around premium-quality sandwiches and other health-orientated lunches
including salads, sushi and a range of desserts, priced higher than at traditional sandwich bars, and sold
pre-packed in attractive and convenient packaging ready to go. There was also a choice of different
coffees, as well as some healthy alternatives. Service aimed to be fast and friendly go give customers a
minimum of queuing time.
Pret a Manger: ‘Passionate about What We do’
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Pret a Manger strongly emphasizes the quality of its products. Its promotional material and website
claims that it is:
‘passionate about food, rejecting the use of obscure chemicals, additives and preservatives common in so
much of the prepared and fast food on the market today…it there’s a secret to our success so far we like
to think its determination to focus continually on quality—not just our food, but in every aspect of what
we do’.
Great importance is also placed on freshness. Unlike those sold in high-street shops or supermarkets,
Pret’s sandwiches are all hand-made by staff in each shop starting at 6.30 every morning, rather than
being prepared and delivered by a supplier or from a central location. Metcalf and Beecham believe this
gives their sandwiches a freshness and distinctiveness. All food that hasn’t been sold in the shops by the
end of the day is given away free to local charities.
Careful sourcing of supplies for quality has also always been important. Genetically modified ingredients
are banned and the tuna Pret buys, for example, must be ‘dolphin friendly’. There is also a drive for
constant product improvement and innovation—the company claims that its chocolate brownie dessert
has been improved 33 times over the last few years—and, on average, a new product is tried out in the
stores every four days. Aware that some of its customers are increasingly health conscious, Pret’s website
menu carefully lists not only what is available, but also the ingredients and nutritional values in terms of
energy, protein, fats and dietary fibre for each item.
The level and quality of service from staff in the shop is a critical factor. The stores are self-service, with
customers helping themselves to sandwiches and other products form the supermarket-style
refrigerated cabinets. Staff at the counter at the back of the store then serve customers coffee and take
payment. Service is friendly, smiling and efficient, in contrast to many retail and restaurant outlets in
Britain where, historically, service quality has not always been high. Prêt puts an emphasis on human
resource management issues such as effective recruitment and training so as to have frontline staff who
can show the necessary enthusiasm and also remain fast and courteous under the pressure of a busy
lunchtime sales period. These staff are usually young and enthusiastic, some are students, many are
international. The pay they receive is above the fast-food industry average and staff turnover is 98 per
cent a year, which sounds high—however, this is against an industry norm of around 150 per cent. In
2001, Pret had 55,000 applications for 1500 advertised vacancies.
Recently, Fortune magazine voted Pret one of the top 10 companies to work for in Europe. According to
its own promotional recruitment material, Pret is an attractive and fun place to work: ‘We don’t work
nights, we wear jeans, we party!’ Service quality is checked regularly by the use of mystery shoppers: if a
shop receives a good report, then the staff there receive a 75p an hour bonus in the week of the visit.
Head office managers also visit stores on a regular basis and every three or four months every one of
these managers works as a ‘buddy’, where they spend a day making sandwiches and working on the floor
in one of the shops to help them keep in touch with what is going on. Store employees work in teams and
are briefed daily, often on the basis of customer responses that come in from in-store reply cards,
telephone calls and the company website. The website, which, lists the names and phone numbers of its
senior executives, actively invites customers to comment or complain about their experience with Pret,
and encourages them to contact the company. Great importance is placed on this customer feed-back,
both positive and negative, which is discussed at weekly management meetings.
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The design of the stores is also distinctive. Prominently featuring the company logo, they are fitted out in
a high-tech with metal cladding and interiors in Pret’s own corporate dark red colour. Each store plays
music, helping to create a stylish and lively atmosphere. Although the shops mainly sell carry out food
and coffee in the morning and through the lunchtime period, many also have tables and seating where
customers can drink coffee and eat inside the store or, weather permitting, on the pavement outside.
Growth and competition
Three years after the first Pret shop was launched another was opened and, after that, the chain began to
grow so that, by 1998, there were 65 throughout London. In the late 1990s stores were also opened in
other British cities such as Bristol, Cambridge and Manchester. Although growth in the UK has been
rapid—between 2000 and 2002 the company opened 40 new outlets and there are over 120 throughout
Britain—Pret’s policy has always been to own and manage all its own stores and not to franchise to other
operators. In 2002, £1 million was spent in launching an Internet service that enables customers to order
sandwiches online.
Plans for international growth have been more cautious. In 2000 the company made its first move
overseas when it opened a shop near Wall Street in New York. However, there were problems on several
fronts in moving into the USA. Metcalf is quoted saying, ‘As a private company its very difficult to set up
abroad. We didn’t know where to begin in New York—we ended up having all the equipment for the shop
made here and shipped over.’ There were also staffing and service quality difficulties—Pret reportedly
found it difficult to recruit people in New York who had the required friendliness to serve in the stores
and had to import British staff. Despite these problems, several other shops in New York have followed
and, in 2001, Pret opened its first outlet in Hong Kong.
During the 1990s, coffee shops boomed as the British developed a growing taste for drinking coffee in
pavement cafes, and competition for Pret grew as other chains entered the fray. Rivals like Coffee
Republic, Caffè Nero, Costa Coffee (now owned by leisure group Whitbread) Aroma (owned by
McDonald’s) and American worldwide operator Starbucks all came into the market, as well as a number
of smaller independents. All these chains offer a wide range of coffees but with varying product offerings
in terms of food, pricing and style (Starbucks, for example, offers comfortable arm-chairs around tables,
which encourage people to linger or work in a laptop in the store). In a London shopping street it is not
uncommon to see three or four rival outlets next door to or within a few yards of each other. However, it
quickly became clear that the sector was overcrowded and, apart from Starbucks, some of the other
chains reportedly struggled to make a profit. In 2002 Coffee Republic was taken over by Caffè Nero,
which also eventually acquired the ailing Aroma chain from McDonald’s. Costa Coffee was the largest
chain overall with over 300 shops throughout Britain, while Starbucks was expanding aggressively and
aimed to have an eventual 4000 stores worldwide.
The future
As work and lifestyles get busier, the demand for convenience and fast foods continues to grow. In 2000,
some estimates put the total value of the fast-food market in Britain, excluding sandwiches, at over £6
billion and growing about £200-£300 million a year. While the growth in sales of some types of fast food,
like burgers, was showing signs of slowing down, sandwiches continued to increase in popularity so that
by 2002 sales wee an estimated £3 billion. Customers are also getting more health conscious and choosy
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about what they eat and, increasingly, want nutritional information about food from labelling and
packaging.
In January 2001, in a surprise move, Pret’s two founders sold a 33 per cent stake in the company to fastfood
giant McDonald’s for an estimated £25 million. They claim that McDonald’s will not have any
influence over what Pret does or the products it sells, but that the investment by McDonald’s will help
their plan for future development. According to Metcalf:
‘We’ll still be in charge—we’ll have the majority of shares. Pret will continue as it does… The deal wasn’t
about money—we could have sold the shares for much more to other buyers but they wouldn’t have
provided the support we need.’
After a long run of success, Pret has ambitious plans for the future. It hopes to open at least 20 new stores
a year in the UK. In late 2002 it opened its first store in Tokyo, Japan, in partnership with McDonald’s. The
menu there is described as being 75 per cent ‘classic Pret’ with the remaining 25 per cent designed more
to please local tastes. In other international markets, the plan is to move cautiously—Pret’s first move
will be to open more stores in New York and Hong Kong, where it has already been successful.
Questions
1. How has Pret a Manger positioned its brand?
2. Explain how the different elements of the services marketing mix support and contribute to the
positioning of Pret a Manger.
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MARKETING MANAGEMENT – IIBMS EXAM ANSWER – Managing the Guinness brand in the face of consumers’ changing tastes
Case V ‘Fast Fashion’: exploring how retailers get affordable fashion on to the
high street
The term ‘fast fashion’ has become very much de rigueur within the fashion retailing industry. Retailers
have to react quickly to changes in the market, possess lean manufacturing operations, and utilize
responsive supply chains in order to get the latest fashions to the mass market. Stores such as H&M, Zara,
Mango, Top Shop and Benetton have been tremendously successful in being responsive to the fashion
needs of the market. Excellent logistical and marketing information systems are seen as key to the
implementation of the ‘fast fashion’ concept. ‘Fast fashion’ is the emphasis of putting fashionable and
affordable design concepts, which match consumer demand, on to the high street as quickly as possible.
These retailers get sought-after fashions into stores in a matter of weeks, rather than the previous
industry norm, which relied on production lead times ranging from six months to a year. The concept of
‘fast fashion’ relies of a number of central components: excellent marketing information systems, flexible
production and logistics operations, excellent communications within the supply chain, and leveraging
advanced IT systems. These components allow stores to track consumer demand, and deliver a rapid
response to changes in the marketplace. The results are invigorating for fashion retailers, with ‘fast
fashion’ retailers’ sales growing by 11 per cent, compared with the industry norm of 2 per cent.
Within the fashion industry a number of different levels exist, the exclusive haute couture ranges
(made to measure), the designer ready-to-wear collections, and then copycat designs by mass-market
retailers. Fashion has now gone to the high street, becoming more democratic for the mass market.
The traditional fashion- retailing model was seasonal, whereby retailers would typically launch
two seasons: spring and autumn collections. Fashion retailers would buy for these collections from their
supplier network a year in advance, and allow for between 20-30 per cent of their purchasing budgets
open to specific fashion changes in the market. Typically, retailers would have perennial offerings that
rarely change as well as catering to the whims of fashion, such as basic T-shirts and jeans.
Now, through the ‘fast fashion’ philosophy, new items are being stocked in stores more frequently. These
newer product ranges stimulate shoppers into frequenting these stores on a more regular basis, in some
cases weekly to see new fashion items. Savvy brand-loyal shoppers know when new stock is being
delivered to their favourite store. Through increased stock replenishment of new, fashionable items,
consumers are increasing their footfall to these stores, and furthermore these stores are developing
brand images as cutting edge, trendy, and fashionable. This increased footfall, where shoppers regularly
visit a store, eliminates the need for major expenditure on advertising and promotion. Also the concept of
‘fast fashion’ is helping to improve sales, conversion ratios within these stores. Due to the limited supply
of designs available, this creates an aura of exclusivity for these garments, further enhancing the brands
of these ‘fast fashion retailers’ as leading fashion brands.
Famous for ABBA, Volvos and IKEA, now Sweden has another international success story: H&M. The basic
business premise behind H&M is ‘fashion and quality at the best price’. The company now has over 1068
stores in 21 countries. H&M sources 50 per cent of its goods in Europe and the remainder in low-cost
Asian countries. Sourcing decisions are dependent on cost, quality, lead times and export regulations. The
lead times for items can vary from a minuscule two weeks to six months, dependent on the item itself.
H&M believes that having very short lead times can be beneficial in terms of stock control, however it is
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not the most important criteria for all items. Basic clothing garments can have lead times running into
months, due to consistent demand. However, items that are more trend- and fashion-conscious require
very short lead times, to match demand. H&M is now also in the process of teaming up with prestigious
designers like Karl Lagerfeld to create affordable fashion ranges.
The firm utilizes close relationships with its network of production offices and 700 suppliers. Unlike
some other clothing retailers, H&M outsources all of its production to independent suppliers. The dyeing
of garments is postponed until as late as possible in the production process to allow greater flexibility
and adaptation to the whims of the fashion buyer. Items from around the world are shipped to a
centralized transit warehouse in Hamburg, Germany, where quality checks are undertaken, and the items
are allocated to individual stores or placed in centralized storage. Items that are placed in this ‘call-off
warehouse’ are allocated to stores where there is more demand for the particular item. For example, if
pairs of a particular style of jeans are selling well in London, more jeans are shipped from Hamburg to
H&M’s London stores.
Table 6: Some of the key players in apparel industry
H&M Next Benetton
Originated in Sweden Originated in the UK Originated in Italy
Chain has 1069 stores in 21
countries
Has 380 stores in the UK and
Ireland and has 80 franchise
stores overseas
Has a presence in 120
countries and uses a retail
network o 5000 stores
Originally called Hennes &
Mauritz, renamed as H&M.
Sells women’s and men’s
apparel. Doesn’t own any
manufacturing resources.
Motto—‘Fashion and quality at
the best price’.
Sells women’s wear, men’s
wear and homeware. The firm
has a very successful catalogue
business. Targets the top end
of the mass market, focusing on
fashionable moderately priced
clothing
Sell under brand name such as
Benetton, Playlife, Sisley and
Killer Loop. Uses a network of
franchises/partner stores.
Established huge brand
awareness through its
infamous ad campaigns.
Zara Mango Arcadia
Originated in Spain Originated in Spain Originated in the UK
Chain has 729 Zara stores Chain has 770 stores in 70
countries
Chain has over 2000 stores
Zara is the main part of the
Spanish Inditex group and is
valued at nearly €14 billion.
Operates under the mantra of
affordable fashion, and adopts
the principle of market-driven
supply.
Operates a successful franchise
operation (more than half are
franchises). The company
specializes exclusively in
targeting the young female
mid-market.
Operates several different
fascia, targeting different types
of customer, with stores such
as Burton, Dorothy Perkins,
Evans, Wallis, Top Shop, Top
Man, Miss Selfridge and Outfit.
Owner Philip Green also owns
BHS stores and Etam UK
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Subject: Marketing Management Marks: 100
21
Sourcing low-cost garments with quick response times is a vital element of the concept. Many of the ‘fast
fashion’ retailers utilize a vast network of suppliers, so that their stores are replenished with latest
designs. Some firms are entirely vertically integrated, where the retailer owns and controls the entire
supply chain. For example, Zara buys its fabric from a company owned by its parent, Inditex, and buys
dyes from another company also within the group. Retailers source their goods from countries such as
China, North Africa, Turkey and low-cost eastern European countries. If cost were the sole basis for
supplier selection, then the vast majority of products would be sourced from the Far East. However, the
lead times for delivery of goods are quite substantial in comparison to sourcing garments in Eastern
Europe (e.g. shipping goods from China can take sex weeks, whereas from Hungary takes two days). As a
result of this, retailers are using a hybrid approach, sourcing closer to markets for more fashionorientated
lines. The drive towards reduced lead times is allowing companies to be more responsive to
market changes. The benefits of such a quick response to market changes are reduced costs, lean
inventories, faster merchandise flow and closer collaborative supply chain relationships.
The concept of ‘postponement’ is a key strategy used within the fashion retailing industry. It is the
delayed configuration of a garment’s final design until the final market destination and/or customer
requirement is known and, once this is known, the garment is assembled or customized. The material and
styles are kept generic for a long as possible, before final customization. A classic illustration of the
concept of postponement is its usage by Benetton. Colours can come in and out of fashion. Benetton
delays when its garments are finally product differentiated, so that this matches what is selling. For
example, a Benetton sweater would be stitched and assembled from its original grey yarn and then, based
on feedback from Benetton’s distribution network as to what colours were selling, the sweater would be
dyed at the very final stage of production. The concept of postponement allows greater inventory cost
saving, and increased flexibility in matching actual demand.The production and logistics facilities for
these ‘fast fashion’ retailers are colossal in that each design may have several colour variants, and the
retailer needs to produce an array of garments in a number of different sizes. The number of stock
keeping units (SKUs) is therefore staggering. As a result, companies require a very reliable and
sophisticated information system—for example, Zara has to deal with over 300,000 new SKUs every year.
Benetton has a fully automated sorting and shipping system, managing over 110 million items a year,
with a staff of only 24 employees in its centralized distribution centres. Mango, another successful
Spanish fashion chain, also utilizes a high-tech distribution system, which can sort and pack 12,000
folded items an hour and 7000 hanging garments an hour.
Many in the industry see Zara as the classic illustration of the concept of ‘fast fashion’ in operation.
The company can get a garment from design, through production and ultimately on to the shelf in a mere
15 days. The norm for the industry has typically run to several months. The group’s basic business
philosophy is to seduce customers with the latest fashion at attractive prices. It has grown rapidly as a
fashion retail powerhouse by adopting four central strategies: creativity and innovation; having an
international presence; utilizing a multi-format strategy; and through vertically integrating its entire
supply chain. For the ‘fast fashion’ concept to be successful, it requires close relationships between
suppliers and retailers, information sharing and utilization of technology. Information is utilized along
the entire supply chain, according to the demand. It controls design, production and the logistics
elements of the business. Real-time demand feeds the production systems.
The Indian Institute Of Business Management & Studies
Subject: Marketing Management Marks: 100
22
Zara is part of the Inditex group of fashion retail brands. This group adopts a multi-format strategy with
different store brands targeting different types of customers. Zara is its key fashion-retailing brand. Zara
opened its first store in 1975 in Spain and has now become a fashion powerhouse, operating in four
continents, with 729 stores, located in over 54 countries. It has become very hip all over the world, for its
value for money and stylish designs. The chain is building large numbers of brand devotees because of its
fashionable designs, which are in tune with the very latest trends, and a very convincing price-quality
offering. Each of the different store brands (outlined in Table- 7) needs to be strongly differentiated in
order for the strategy to work effectively.
Table 7 Number of Inditex stores by fascia
Zara 729
Pull and Bear 373
Massimo Dutti 330
Bershka 305
Stradivarius 228
Oysho 106
Zara Home 63
Kiddy’s Class 131
TOTAL 2265
Figure 3 Zara’s market-led supply
Zara does not undertake any conventional advertising, except as a vehicle for announcing a new store
opening, the start of sales of seasons. The company uses the stores themselves as its main promotional
strategy, to convey its image. Zara tries to locate its stores in prime commercial areas. Deep inside the
lairs of its corporate headquarters, 25 full-scale store windows are set up, whereby Zara window
designers can experiment with design layouts and lighting. The approved design layouts are shipped out
Design
Retail Store
Production &
Supply
Logistics
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Subject: Marketing Management Marks: 100
23
to all Zara’s stores, so that a Zara shop front in London will be the same as in Lisbon and throughout the
entire chain. The store itself is the company’s main promotional vehicle.
One of Zara’s key philosophies was the realization that fashion, much like food, has a ‘best before’
date: that fashion trends change rapidly. What style consumers want this month may not be same in two
months’ time. Fashion retailers have to adapt to what the marketplace wants for the here and now. The
company is guilty of under-stocking garments, as it does not want to be left with obsolete or out-offashion
items. The key driving force behind its success is to minimize inventory levels, getting product
out on to the retail floor space, and by being responsive to the needs of the market. Zara uses its stores to
find out what consumers really want, designs are selling, what colours are in demand, which items are
hot sellers and which are complete flops. It uses a sophisticated marketing information system to provide
feedback to headquarters and allow it to respond to what the marketplace wants. Similarly, Mango uses a
computerized logistical system that allows the matching of clothes designs to particular stores based on
personality traits and even climate variances (i.e. ‘It this garment suitable for the Mediterranean
Summer?). This sophisticated IT infrastructure allows for more responsive market-led retailing,
matching suitable clothing lines to compatible stores.
At the end of each day, Zara sales assistants report to the store manager using wireless headsets,
to communicate inventory levels. The stores then report back to Zara’s design and distribution
departments on what consumers are buying, asking for or avoiding. Both hard sales data and soft data
(i.e. customer feedback on the latest designs) are communicated directly back to the company’s
headquarters, through open channels of communication. Zara’s 250 designers use market feedback for
their next creations. Designers work hand in hand with market analyst, in cross-functional teams, to pick
up on the latest trends. Garments are produced in comparatively small production runs, so as not to be
over-exposed if a particular item is a very poor seller. If a product is a poor seller, it is removed after as
little as two weeks. Roughly 10 per cent of stock falls into this unsold category, in direct contrast to
industry norms of between 17 and 20 per cent. Zara produces nearly 11,000 designs a year. Stock items
are seen as assets that are extremely perishable and, if they are sitting on shelves or racks in a
warehouse, they are simply not making money for the organization.
In the course of one year alone, Zara has been able to launch 24 different collections into its
network of stores. After designs have been approved, fabrics are dyed and cut by highly automated
production lines. These pre-cut pieces are then sent out of nearly 350 workshops in northern Spain and
Portugal. These workshops employ nearly 11,000 ‘grey economy’ workers mainly women, who may want
to supplement their income. Seamstresses stitch the pre-cut pieces into garments using easy-to-follow
instructions supplied by Zara. The typical seamstress’s wage in Zara’s workshop network is extremely
competitive when compared with those in ‘third world’ countries where other fashion retailers mainly
outsource their production. Furthermore, the proximity of these workshops allows for greater flexibility
and control, Zara achieves greater control over its supply chain through having a high degree of
integration within the supply chain. By owning suppliers, Zara has greater control production capacities,
quality and scheduling. This is in stark contrast to Benetton, which is close to being a virtual organization,
outsourcing production to third-party suppliers and directly owning only a handful of its stores, the
majority being franchises or partner stores.
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Subject: Marketing Management Marks: 100
24
The finished garments are then sent back to Zara’s colossal state-of-the-art logistics centre. Here
they are electronically tagged, quality control double-checks them, and then they are sorted into
distribution lots, ensuring the items arrive at their ultimate destinations. Each item is tagged with pricing
information. There is no pan-European pricing for Zara’s products: prices are different in each national
market. Zara believes each national market has its own particular nuances, such as higher salaries or
higher taxation, therefore it has to adjust the price of each garment to make it suitable in each country
and to reflect these differences. Shipments leave La Coruňa bound for every one of the Zara stores in over
54 countries twice a week, every week. The company’s average turnaround time from designing to
delivery of a new garment takes on average 10 to 15 days, and delivery of goods takes a maximum of 21
days, which is unparalleled in an industry where lead times are usually months, not days. Zara’s business
model tries to fulfill real-time fashion retailing and not second-guessing what consumers’ needs are for
next season, which may be six months away. As a result of Zara utilizing this ultra-responsive supply
chain, 85 per cent of its entire product range obtains full ticket price, whereas the industry norm is
between 60 and 70 per cent.
The successful adoption of the ‘fast fashion’ concept by these international retailers has drastically
altered the competitive landscape in apparel retailing. Consumers’ expectations are also rising with these
improved retail offerings. Clothes shoppers are seeking out the latest fashions at value-for-money prices
in enticing store environments. Now other well-established high-street fashion retailers have to adapt to
these challenges, by being more responsive, cost efficient, speedy and flexible in their operations. The rag
trade is churning out the latest value-for-money fashions at breakneck speed. ‘Fast fashion’ is what the
marketplace is demanding.
Questions
1. Discuss how supply chain management can contribute to the marketing success of these retailers.
2. Discuss the central components necessary for the fast fashion concept to work effectively.
3. Critically evaluate the concept of ‘market-driven supply’, discussing the merits and pitfalls of its
implementation in fashion retailing.

MARKETING MANAGEMENT – IIBMS EXAM ANSWER – Managing the Guinness brand in the face of consumers’ changing tastes

HUMAN RESOURCE MANAGEMENT – IIBMS EXAM ANSWER – Doing The Dirty Work

HUMAN RESOURCE MANAGEMENT – IIBMS EXAM ANSWER – Doing The Dirty Work

HUMAN RESOURCE MANAGEMENT – IIBMS EXAM ANSWER – Doing The Dirty Work

 

The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 1
Note: Solve any 4 Cases Study’s
CASE: I – Enterprise Builds On People
When most people think of car-rental firms, the names of Hertz and Avis usually come to mind. But in the last few years,
Enterprise Rent-A-Car has overtaken both of these industry giants, and today it stands as both the largest and the most
profitable business in the car-rental industry. In 2001, for instance, the firm had sales in excess of $6.3 billion and
employed over 50,000 people.
Jack Taylor started Enterprise in St. Louis in 1957. Taylor had a unique strategy in mind for Enterprise, and that strategy
played a key role in the firm’s initial success. Most car-rental firms like Hertz and Avis base most of their locations in or
near airports, train stations, and other transportation hubs. These firms see their customers as business travellers and
people who fly for vacation and then need transportation at the end of their flight. But Enterprise went after a different
customer. It sought to rent cars to individuals whose own cars are being repaired or who are taking a driving vacation.
The firm got its start by working with insurance companies. A standard feature in many automobile insurance policies is
the provision of a rental car when one’s personal car has been in an accident or has been stolen. Firms like Hertz and Avis
charge relatively high daily rates because their customers need the convenience of being near an airport and/or they are
having their expenses paid by their employer. These rates are often higher than insurance companies are willing to pay, so
customers who these firms end up paying part of the rental bills themselves. In addition, their locations are also often
inconvenient for people seeking a replacement car while theirs is in the shop.
But Enterprise located stores in downtown and suburban areas, where local residents actually live. The firm also provides

HUMAN RESOURCE MANAGEMENT – IIBMS EXAM ANSWER – Doing The Dirty Work
local pickup and delivery service in most areas. It also negotiates exclusive contract arrangements with local insurance
agents. They get the agent’s referral business while guaranteeing lower rates that are more in line with what insurance
covers.
In recent years, Enterprise has started to expand its market base by pursuing a two-pronged growth strategy. First, the
firm has started opening airport locations to compete with Hertz and Avis more directly. But their target is still the
occasional renter than the frequent business traveller. Second, the firm also began to expand into international markets
and today has rental offices in the United Kingdom, Ireland and Germany.
Another key to Enterprise’s success has been its human resource strategy. The firm targets a certain kind of individual to
hire; its preferred new employee is a college graduate from bottom half of graduating class, and preferably one who was
an athlete or who was otherwise actively involved in campus social activities. The rationale for this unusual academic
standard is actually quite simple. Enterprise managers do not believe that especially high levels of achievements are
necessary to perform well in the car-rental industry, but having a college degree nevertheless demonstrates intelligence
and motivation. In addition, since interpersonal relations are important to its business, Enterprise wants people who were
social directors or high-ranking officers of social organisations such as fraternities or sororities. Athletes are also desirable
because of their competitiveness.
Once hired, new employees at Enterprise are often shocked at the performance expectations placed on them by the firm.
They generally work long, grueling hours for relatively low pay.
And all Enterprise managers are expected to jump in and help wash or vacuum cars when a rental agency gets backed up.
All Enterprise managers must wear coordinated dress shirts and ties and can have facial hair only when “medically
necessary”. And women must wear skirts no shorter than two inches above their knees or creased pants.
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Subject: Human Resource Management Marks: 100
pg. 2
So what are the incentives for working at Enterprise? For one thing, it’s an unfortunate fact of life that college graduates
with low grades often struggle to find work. Thus, a job at Enterprise is still better than no job at all. The firm does not hire
outsiders—every position is filled by promoting someone already inside the company. Thus, Enterprise employees know
that if they work hard and do their best, they may very well succeed in moving higher up the corporate ladder at a growing
and successful firm.

HUMAN RESOURCE MANAGEMENT – IIBMS EXAM ANSWER – Doing The Dirty Work
Question:
1. Would Enterprise’s approach human resource management work in other industries?
2. Does Enterprise face any risks from its human resource strategy?
3. Would you want to work for Enterprise? Why or why not?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 3
CASE: II – Doing The Dirty Work
Business magazines and newspapers regularly publish articles about the changing nature of work in the United States
and about how many jobs are being changed. Indeed, because so much has been made of the shift toward service-sector
and professional jobs, many people assumed that the number of unpleasant an undesirable jobs has declined.
In fact, nothing could be further from the truth. Millions of Americans work in gleaming air-conditioned facilities, but many
others work in dirty, grimy, and unsafe settings. For example, many jobs in the recycling industry require workers to sort
through moving conveyors of trash, pulling out those items that can be recycled. Other relatively unattractive jobs include
cleaning hospital restrooms, washing dishes in a restaurant, and handling toxic waste.
Consider the jobs in a chicken-processing facility. Much like a manufacturing assembly line, a chicken-processing facility is
organised around a moving conveyor system. Workers call it the chain. In reality, it’s a steel cable with large clips that
carries dead chickens down what might be called a “disassembly line.” Standing along this line are dozens of workers who
do, in fact, take the birds apart as they pass.
Even the titles of the jobs are unsavory. Among the first set of jobs along the chain is the skinner. Skinners use sharp
instruments to cut and pull the skin off the dead chicken. Towards the middle of the line are the gut pullers. These workers
reach inside the chicken carcasses and remove the intestines and other organs. At the end of the line are the gizzard
cutters, who tackle the more difficult organs attached to the inside of the chicken’s carcass. These organs have to be
individually cut and removed for disposal.
The work is obviously distasteful, and the pace of the work is unrelenting. On a good day the chain moves an average of
ninety chickens a minute for nine hours. And the workers are essentially held captive by the moving chain. For example, no
one can vacate a post to use the bathroom or for other reasons without the permission of the supervisor. In some plants,
taking an unauthorised bathroom break can result in suspension without pay. But the noise in a typical chicken-processing
plant is so loud that the supervisor can’t hear someone calling for relief unless the person happens to be standing close by.
Jobs such as these on the chicken-processing line are actually becoming increasingly common. Fuelled by Americans’
growing appetites for lean, easy-to-cook meat, the number of poultry workers has almost doubled since 1980, and today
they constitute a work force of around a quarter of a million people. Indeed, the chicken-processing industry has become a
major component of the state economies of Georgia, North Carolina, Mississippi, Arkansas, and Alabama.
Besides being unpleasant and dirty, many jobs in a chicken-processing plant are dangerous and unhealthy. Some workers,
for example, have to fight the live birds when they are first hung on the chains. These workers are routinely scratched and
pecked by the chickens. And the air inside a typical chicken-processing plant is difficult to breathe. Workers are usually
supplied with paper masks, but most don’t use them because they are hot and confining.
And the work space itself is so tight that the workers often cut themselves—and sometimes their coworkers—with the
knives, scissors, and other instruments they use to perform their jobs. Indeed, poultry processing ranks third among
industries in the United States for cumulative trauma injuries such as carpet tunnel syndrome. The inevitable chicken
feathers, faeces, and blood also contribute to the hazardous and unpleasant work environment.
Question:
1. How relevant are the concepts of competencies to the jobs in a chicken-processing plant?
2. How might you try to improve the jobs in a chicken-processing plant?
3. Are dirty, dangerous, and unpleasant jobs an inevitable part of any economy?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 4

HUMAN RESOURCE MANAGEMENT – IIBMS EXAM ANSWER – Doing The Dirty Work

CASE : III – On Pegging Pay to Performance
“As you are aware, the Government of India has removed the capping on salaries of directors and has left the matter of
their compensation to be decided by shareholders. This is indeed a welcome step,” said Samuel Menezes, president
Abhayankar, Ltd., opening the meeting of the managing committee convened to discuss the elements of the company’s new
plan for middle managers.
Abhayankar was am engineering firm with a turnover of Rs 600 crore last year and an employee strength of 18,00. Two
years ago, as a sequel to liberalisation at the macroeconomic level, the company had restructured its operations from
functional teams to product teams. The change had helped speed up transactional times and reduce systemic inefficiencies,
leading to a healthy drive towards performance.
“I think it is only logical that performance should hereafter be linked to pay,” continued Menezes. “A scheme in which over
40 per cent of salary will be related to annual profits has been evolved for executives above the vice-president’s level and
it will be implemented after getting shareholders approval. As far as the shopfloor staff is concerned, a system of incentivelinked
monthly productivity bonus has been in place for years and it serves the purpose of rewarding good work at the
assembly line. In any case, a bulk of its salary will have to continue to be governed by good old values like hierarchy, rank,
seniority and attendance. But it is the middle management which poses a real dilemma. How does one evaluate its
performance? More importantly, how can one ensure that managers are not shortchanged but get what they truly
deserve?”
“Our vice-president (HRD), Ravi Narayanan, has now a plan ready in this regard. He has had personal discussions with all
the 125 middle managers individually over the last few weeks and the plan is based on their feedback. If there are no
major disagreements on the plan, we can put it into effect from next month. Ravi, may I now ask you to take the floor and
make your presentation?”
The lights in the conference room dimmed and the screen on the podium lit up. “The plan I am going to unfold,” said
Narayanan, pointing to the data that surfaced on the screen, “is designed to enhance team-work and provide incentives for
constant improvement and excellence among middle-level managers. Briefly, the pay will be split into two components.
The first consists of 75 per cent of the original salary and will be determined, as before, by factors of internal equity
comprising what Sam referred to as good old values. It will be a fixed component.”
“The second component of 25 per cent,” he went on, “will be flexible. It will depend on the ability of each product team as a
whole to show a minimum of 5 per cent improvement in five areas every month—product quality, cost control, speed of
delivery, financial performance of the division to which the product belongs and, finally, compliance with safety and
environmental norms. The five areas will have rating of 30, 25, 20, 15, and 10 per cent respectively.
“This, gentlemen, is the broad premise. The rest is a matter of detail which will be worked out after some finetuning. Any
questions?”
As the lights reappeared, Gautam Ghosh, vice-president (R&D), said, “I don’t like it. And I will tell you why. Teamwork as a
criterion is okay but it also has its pitfalls. The people I take on and develop are good at what they do. Their research skills
are individualistic. Why should their pay depend on the performance of other members of the product team? The new pay
plan makes them team players first and scientists next. It does not seem right.”
“That is a good one, Gautam,” said Narayanan. “Any other questions? I think I will take them all together.”
“I have no problems with the scheme and I think it is fine. But just for the sake of argument, let me take Gautam’s point
further without meaning to pick holes in the plan,” said Avinash Sarin, vice-president (sales). “Look at my dispatch
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 5
division. My people there have reduced the shipping time from four hours to one over the last six months. But what have
they got? Nothing. Why? Because the other members of the team are not measuring up.”
“I think that is a situation which is bound to prevail until everyone falls in line,” intervened Vipul Desai, vice president
(finance). “There would always be temporary problems in implementing anything new. The question is whether our long
term objectives is right. To the extend that we are trying to promote teamwork, I think we are on the right track. However,
I wish to raise a point. There are many external factors which impinge on both individual and collective performance. For
instance, the cost of a raw material may suddenly go up in the market affecting product profitability. Why should the
concerned product team be penalised for something beyond its control?”
“I have an observation to make too, Ravi,” said Menezes, “You would recall the survey conducted by a business fortnightly
on ‘The ten companies Indian managers fancy most as a working place’. Abhayankar got top billings there. We have been
the trendsetters in executive compensation in Indian industry. We have been paying the best. Will your plan ensure that it
remains that way?”
As he took the floor again, the dominant thought in Narayanan’s mind was that if his plan were to be put into place,
Abhayankar would set another new trend in executive compensation.
Question:
But how should he see it through?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 6
CASE : IV – Crisis Blown Over
November 30, 1997 goes down in the history of a Bangalore-based electric company as the day nobody wanting it to recur
but everyone recollecting it with sense of pride.
It was a festive day for all the 700-plus employees. Festoons were strung all over, banners were put up; banana trunks and
leaves adorned the factory gate, instead of the usual red flags; and loud speakers were blaring Kannada songs. It was day
the employees chose to celebrate Kannada Rajyothsava, annual feature of all Karnataka-based organisations. The function
was to start at 4 p.m. and everybody was eagerly waiting for the big event to take place.
But the event, budgeted at Rs 1,00,000 did not take place. At around 2 p.m., there was a ghastly accident in the machine
shop. Murthy was caught in the vertical turret lathe and was wounded fatally. His end came in the ambulance on the way
to hospital.
The management sought union help, and the union leaders did respond with a positive attitude. They did not want to fish
in troubled waters.
Series of meetings were held between the union leaders and the management. The discussions centred around two major
issues—(i) restoring normalcy, and (ii) determining the amount of compensation to be paid to the dependants of Murthy.
Luckily for the management, the accident took place on a Saturday. The next day was a weekly holiday and this helped the
tension to diffuse to a large extent. The funeral of the deceased took place on Sunday without any hitch. The management
hoped that things would be normal on Monday morning.
But the hope was belied. The workers refused to resume work. Again the management approached the union for help.
Union leaders advised the workers to resume work in al departments except in the machine shop, and the suggestions was
accepted by all.
Two weeks went by, nobody entered the machine shop, though work in other places resumed. Union leaders came with a
new idea to the management—to perform a pooja to ward off any evil that had befallen on the lathe. The management
accepted the idea and homa was performed in the machine shop for about five hours commencing early in the morning.
This helped to some extent. The workers started operations on all other machines in the machine shop except on the
fateful lathe. It took two full months and a lot of persuasion from the union leaders for the workers to switch on the lathe.
The crisis was blown over, thanks to the responsible role played by the union leaders and their fellow workers. Neither the
management nor the workers wish that such an incident should recur.
As the wages of the deceased grossed Rs 6,500 per month, Murthy was not covered under the ESI Act. Management had to
pay compensation. Age and experience of the victim were taken into account to arrive at Rs 1,87,000 which was the
amount to be payable to the wife of the deceased. To this was added Rs 2,50,000 at the intervention of the union leaders. In
addition, the widow was paid a gratuity and a monthly pension of Rs 4,300. And nobody’s wages were cut for the days not
worked.
Murthy’s death witnessed an unusual behavior on the part of the workers and their leaders, and magnanimous gesture
from the management. It is a pride moment in the life of the factory.
Question:
1. Do you think that the Bangalore-based company had practised participative management?
2. If your answer is yes, with what method of participation (you have read in this chapter) do you relate the above
case?
3. If you were the union leader, would your behaviour have been different? If yes, what would it be?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 7

HUMAN RESOURCE MANAGEMENT – IIBMS EXAM ANSWER – Doing The Dirty Work
CASE : V – A Case of Burnout
When Mahesh joined XYZ Bank (private sector) in 1985, he had one clear goal—to prove his mettle. He did prove himself
and has been promoted five times since his entry into the bank. Compared to others, his progress has been fastest.
Currently, his job demands that Mahesh should work 10 hours a day with practically no holidays. At least two day in a
week, Mahesh is required to travel.
Peers and subordinates at the bank have appreciation for Mahesh. They don’t grudge the ascension achieved by Mahesh,
though there are some who wish they too had been promoted as well.
The post of General Manager fell vacant. One should work as GM for a couple of years if he were to climb up to the top of
the ladder, Mahesh applied for the post along with others in the bank. The Chairman assured Mahesh that the post would
be his.
A sudden development took place which almost wrecked Mahesh’s chances. The bank has the practice of subjecting all its
executives to medical check-up once in a year. The medical reports go straight to the Chairman who would initiate
remedials where necessary. Though Mahesh was only 35, he too, was required to undergo the test.
The Chairman of the bank received a copy of Mahesh’s physical examination results, along with a note from the doctor. The
note explained that Mahesh was seriously overworked, and recommended that he be given an immediate four-week
vacation. The doctor also recommended that Mahesh’s workload must be reduced and he must take physical exercise
every day. The note warned that if Mahesh did not care for advice, he would be in for heart trouble in another six months.
After reading the doctor’s note, the Chairman sat back in his chair, and started brooding over. Three issues were
uppermost in his mind—(i) How would Mahesh take this news? (ii) How many others do have similar fitness problems?
(iii) Since the environment in the bank helps create the problem, what could he do to alleviate it? The idea of holding a
stress-management programme flashed in his mind and suddenly he instructed his secretary to set up a meeting with the
doctor and some key staff members, at the earliest.
Question:
1. If the news is broken to Mahesh, how would he react?
2. If you were giving advice to the Chairman on this matter, what would you recommend?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 8
CASE : VI – “Whose Side are you on, Anyway?”
It was past 4 pm and Purushottam Mahesh was still at his shopfloor office. The small but elegant office was a perk he was
entitled to after he had been nominated to the board of Horizon Industries (P) Ltd., as workman-director six months ago.
His shift generally ended at 3 pm and he would be home by late evening. But that day, he still had long hours ahead of him.
Kshirsagar had been with Horizon for over twenty years. Starting off as a substitute mill-hand in the paint shop at one of
the company’s manufacturing facilities, he had been made permanent on the job five years later. He had no formal
education. He felt this was a handicap, but he made up for it with a willingness to learn and a certain enthusiasm on the
job. He was soon marked by the works manager as someone to watch out for. Simultaneously, Kshirsagar also came to the
attention of the president of the Horizon Employees’ Union who drafted him into union activities.
Even while he got promoted twice during the period to become the head colour mixer last year, Kshirsagar had gradually
moved up the union hierarchy and had been thrice elected secretary of the union. Labour-management relations at
Horizon were not always cordial. This was largely because the company had not been recording a consistently good
performance. There were frequent cuts in production every year because of go-slows and strikes by workmen—most of
them related to wage hikes and bonus payments. With a view to ensuring a better understanding on the part of labour, the
problems of company management, the Horizon board, led by chairman and managing director Aninash Chaturvedi, began
to toy with idea of taking on a workman on the board. What started off as a hesitant move snowballed, after a series of
brainstorming sessions with executives and meetings with the union leaders, into a situation in which Kshirsagar found
himself catapulted to the Horizon board as work-man-director.
It was an untested ground for the company. But the novelty of it all excited both the management and the labour force. The
board members—all functional heads went out of their way to make Kshirsagar comfortable and the latter also responded
quite well. He got used to the ambience of the boardroom and the sense of power it conveyed. Significantly, he was soon at
home with the perspectives of top management and began to see each issue from both sides.
It was smooth going until the union presented a week before the monthly board meeting, its charter of demands, one of
which was a 30 per cent across-the board hike in wages. The matter was taken up at the board meeting as part of a special
agenda.
“Look at what your people are asking for,” said Chaturvedi, addressing Kshirsagar with a sarcasm that no one in the board
missed. “You know the precarious finances of the company. How could you be a party to a demand that can’t be met? You
better explain to them how ridiculous the demands are,” he said.
“I don’t think they can all be dismissed as ridiculous,” said Kshirsagar. “And the board can surely consider the alternatives.
We owe at least that much to the union.” But Chaturvedi adjourned the meeting in a huff, mentioning, once to Kshirsagar
that he should “advise the union properly”.
When Kshirsagar told the executive committee members of the union that the board was simply not prepared to even
consider the demands, he immediately sensed the hostility in the room. “You are a sell out,” one of them said. “Who do you
really represent—us or them?” asked another.
“Here comes the crunch,” thought Kshirsagar. And however hard he tried to explain, he felt he was talking to a wall. A
victim of divided loyalities, he himself was unable to understand whose side he was on. Perhaps the best course would be
to resign from the board. Perhaps he should resign both from the board and the union. Or may be resign from Horizon
itself and seek a job elsewhere. But, he felt, sitting in his office a little later, “none of it could solve the problem.”
Question:
1. What should he do?

GENERAL MANAGEMENT IIBMS EXAM ANSWER – Biyani – Pioneering a Retailing Revolution in India

GENERAL MANAGEMENT IIBMS EXAM ANSWER – Biyani – Pioneering a Retailing Revolution in India

GENERAL MANAGEMENT IIBMS EXAM ANSWER – Biyani – Pioneering a Retailing Revolution in India

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

GENERAL MANAGEMENT IIBMS EXAM ANSWER – Biyani – Pioneering a Retailing Revolution in India

The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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.
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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.
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
 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 halfheartedly
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
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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.”
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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 ANALYSIS MANAGEMENT – IIBMS EXAM ANSWER – Using a technique you are familiar with analyse the external business environment of Sun Worshippers UK Ltd

BUSINESS ANALYSIS MANAGEMENT – IIBMS EXAM ANSWER – Using a technique you are familiar with analyse the external business environment of Sun Worshippers UK Ltd

BUSINESS ANALYSIS MANAGEMENT – IIBMS EXAM ANSWER – Using a technique you are familiar with analyse the external business environment of Sun Worshippers UK Ltd

The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
Attempt Only 4 Case (20 Mark each case)
NO. 1 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 km from Gurgaon. The firm has been consistently performing us.” 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. Keen kumar, the new manager (Finance). After critically examining the details, Mr. Keen Kumar 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.

BUSINESS ANALYSIS MANAGEMENT – IIBMS EXAM ANSWER – Using a technique you are familiar with analyse the external business environment of Sun Worshippers UK Ltd
1) Purchases : The company purchases LPG in bulk from various importers ex-Mumbai and Kendal, @ 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 makes 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.
The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
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.

BUSINESS ANALYSIS MANAGEMENT – IIBMS EXAM ANSWER – Using a technique you are familiar with analyse the external business environment of Sun Worshippers UK Ltd
4) Salaries and Wages : The following payments are made :
 Direct labor – 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.
The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
 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.
Question –
Suppose you are Mr.Keen Kumar, the new manager. What steps will you take for the growth of Cooking LPG Ltd.?
The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100

BUSINESS ANALYSIS MANAGEMENT – IIBMS EXAM ANSWER – Using a technique you are familiar with analyse the external business environment of Sun Worshippers UK Ltd
NO. 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 installment option
Projected sales with installment 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 installment 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 Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
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.
Question –
(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.
The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100

BUSINESS ANALYSIS MANAGEMENT – IIBMS EXAM ANSWER – Using a technique you are familiar with analyse the external business environment of Sun Worshippers UK Ltd
NO.3
Cardenbridge Farm is a family-run farm in Devon which is certified by the Soil Association as meeting their organic standards. The farm grows their own vegetables and has a mixed dairy and beef herd of cattle. Most of their produce is sold through their own farm shop. The farm is owned by Nathan Clement, who is soon to retire. Nathan’s eldest son, David, is being groomed to take over the farm. Nathan and David are both aware that the farm shop is under-performing, but they cannot agree on how to improve the turnover and profitability of the farm and the shop. Nathan is very proud of the hard-won Soil Association certification status and wishes to stay organic. As the farm cannot itself provide any more produce, Nathan wishes to buy in other organic produce from external Soil Association certified suppliers, including pork and lamb products and a wider range of vegetables. David, on the other hand, is prepared to let the Soil Association certification lapse to increase the yield of the farm to match what the shop can sell. He feels there is a good case for concentrating on meat, beef, pork and lamb, whilst running down the dairy and vegetable side of the business. It is his view that the public would prefer ‘home-produced’ meat products to organic vegetable
Question –
a) Develop a stakeholder perspective (also known as a root definition) from Nathan’s point of view. If you use the CATWOE mnemonic it is sufficient to list the items under the relevant headings.
b) Develop another stakeholder perspective from David’s point of view. Similarly, it is sufficient to list the items under the relevant headings if you use the CATWOE mnemonic.
c) Develop a conceptual model (a business activity model) for the business system represented by the stakeholder perspective that represents Nathan’s point of view.
The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100

BUSINESS ANALYSIS MANAGEMENT – IIBMS EXAM ANSWER – Using a technique you are familiar with analyse the external business environment of Sun Worshippers UK Ltd
No. 4
Sun Worshippers UK Ltd are an independent, family run Travel Agency. The company has been in operation for 10 years and specialises in short haul package holidays and tours around the UK & Mediterranean countries. The Agency is based in an affluent location with many customers who are over 50 years old and often book 3 or 4 holidays each year. An increasing number of their customers make group bookings so that they can share their travel experiences with extended family and friends. In a recent customer survey, the company received positive feedback on their selection of holidays and most customers stated a preference for the personal attention they receive from Sun Worshippers. A few customers however, commented that they would spend over an hour talking about potential destinations with the Agent before selecting a holiday and also commented that they would like the Agency to provide online virtual tours so that they could get an idea of the travel locations at home before they came into the Agency to book. The survey also revealed the increasing number of travellers who were concerned about the impact their holiday would create on their Carbon Footprint. The company is a member of ABTA and takes its voluntary subjection to this travel regulator very seriously. The company also appears to understand their obligations under EU Travel Regulations and the Package Travel, Package Holidays and Package Tours Regulations Act 1992. In recent years Sun Worshippers has successfully promoted Lunar tours of Tunisia and the Anthony & Cleopatra Tour of Egypt. However, due to the civil unrest in Northern African countries recently, the British embassy has advised caution when travelling to these areas, though travel has not been prohibited due to the potential impact on future relations with these countries. To keep up to date on whether it is safe to travel, a new centrally maintained web service has been created specifically for Travel Agents and Tour Operators. This development has led the Sun Worshippers Team to consider whether they should look for new holiday destinations in the Canary Islands and Central Africa.
Question –
Using a technique you are familiar with analyse the external business environment of Sun Worshippers UK Ltd.
The Indian Institute Of Business Management & Studies
Subject: Business Analysis Management Marks: 100
NO. 5
Littlewood Travel, a local bus and coach company in the South of England, have been established for fifty years and provide transport services to and from school for children aged eleven to eighteen. The company has five buses and seven coaches, some of which are nearly 20 years old. The company is also used by many of the local schools to provide day trips and occasional field trips which require a coach for a week at a time. In addition to providing the services to schools, in order to deal with the reduction in demand during the school day, the company has started to provide day trips for pensioners. These trips generally start after the children have been delivered to their respective schools and finiish an hour before the children need to be collected. Demand for the daytime trips is sporadic but does tend to peak in the summer when the schools are shut and just before Christmas. Demand has been negatively affected in the last six months as the older vehicles have become more unreliable and suffered a number of breakdowns. Customers have commented that they have noticed that there have been a lot of new drivers in the past year, with many not staying with the company more than a few weeks. In order to meet local authority emission targets and to deal with the reliability issues, the company has begun a replacement programme for its fleet of vehicles. Failure to comply with the new targets, which can only be met by vehicles produced in the last five years, would result in a fine of up to £5,000 per vehicle. The average cost of a new vehicle is £75,000 and so the company has investigated the option of leasing rather than buying. A typical lease arrangement lasts for three years and costs £3,000 per month. New vehicles also meet stringent new safety and accessibility targets including the provision of seatbelts and wheelchair access.
Question –
Identify four costs and four benefits (two tangible and two intangible for each) together with three risks associated with the replacement programmer? Why?

BUSINESS ANALYSIS MANAGEMENT – IIBMS EXAM ANSWER – Using a technique you are familiar with analyse the external business environment of Sun Worshippers UK Ltd

XIBMS EXAM ANSWER – BRAND MANAGEMENT – Explain the eight different questions that a product manager needs to answer to analyse current and potential customers

XIBMS EXAM ANSWER – BRAND MANAGEMENT – Explain the eight different questions that a product manager needs to answer to analyse current and potential customers

XIBMS EXAM ANSWER – BRAND MANAGEMENT – Explain the eight different questions that a product manager needs to answer to analyse current and potential customers

Xaviers Institute of Business Management Studies

 

 

Subject Title: Brand Management                                                                          

                                                                                                                                                      Maximum Marks: 80           

 

 

Instructions:

1. Attempt any 5 questions. All questions are for 16 Marks.
2. Make suitable assumptions wherever necessary.

XIBMS EXAM ANSWER – BRAND MANAGEMENT – Explain the eight different questions that a product manager needs to answer to analyse current and potential customers

Q.1 (a) Explain the eight different questions that a product manager needs to

answer to analyse current and potential customers. Explain each question

with the help of a product category.

 

 (b) Differentiate between potential and forecast. What are the objectives

behind estimation of (i) market potential and (ii) sales forecasting?

Explain any two methods of estimating (i) market potential and (ii) sales

forecasting.

 

Q.2 (a) Define competitor. Explain the four bases of competition and four levels

of competition. Supplement your answer with example(s).

 

 (b) Explain the three major factors in assessing the underlying attractiveness

of a product category.

XIBMS EXAM ANSWER – BRAND MANAGEMENT – Explain the eight different questions that a product manager needs to answer to analyse current and potential customers

Q.3 What are the benefits of a successful marketing strategy? Which are the

seven parts of a marketing strategy of a product? Explain the first five

parts of this strategy with an example, in detail.

 

Q.4 (a) What do brands mean to you? What roles does a brand play for a

manufacturer and a consumer? With examples, explain the different

challenges a brand manager faces today.

 

 (b) Choose a brand having its origin in India. Explain how it can be assessed

on the basis of Customer Based Brand Equity (CBBE) model.

 

Q.5 (a) Pick a product or service category basically dominated by two main

brands. Evaluate the positioning of each brand. Who are their target

markets? What are the main points of parity and points of difference?

 

 (b) Select a brand and identify all its brand elements that contribute towards

development of its brand equity. Explain the role of each element towards

development of brand equity of that brand.

XIBMS EXAM ANSWER – BRAND MANAGEMENT – Explain the eight different questions that a product manager needs to answer to analyse current and potential customers

Q.6 (a) If you had to launch a fast food restaurant in your city or town, what kind

of marketing programmes will you design to build strong brand equity of

the fast food restaurant?

 

 (b) Choose a brand and identify all its marketing communication materials.

How effectively has the brand mixed and matched the marketing

communication material?

XIBMS EXAM ANSWER – BRAND MANAGEMENT – Explain the eight different questions that a product manager needs to answer to analyse current and potential customers

Q.7 (a) Define brand equity management system. Explain the three steps of

implementing brand equity management system.

 

 (b) Enlist the quantitative and qualitative research techniques to identify

potential sources of brand equity. Explain any one in detail.

 

Q.8 (a) Define brand product matrix. Select a firm having multiple brands and

product categories and then identify its brand product matrix. Explain

breadth of a branding strategy?

 

 (b) Define brand extension. Explain the steps to be undertaken for

successfully introducing brand extensions.

 

Q.9 (a) Give reasons for companies to market their brands globally. Explain the

disadvantages of global marketing programmes.

 

 (b) With examples, explain how global brands implement the strategies of

localization and standardisation.

XIBMS EXAM ANSWER – BRAND MANAGEMENT – Explain the eight different questions that a product manager needs to answer to analyse current and potential customers

IIBMS MBA CASE STUDY SOLUTION Enterprise Builds On People

IIBMS MBA CASE STUDY SOLUTION Enterprise Builds On People

IIBMS MBA CASE STUDY SOLUTION Enterprise Builds On People

 

The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 1
Note: Solve any 4 Cases Study’s
CASE: I – Enterprise Builds On People
When most people think of car-rental firms, the names of Hertz and Avis usually come to mind. But in the last few years,
Enterprise Rent-A-Car has overtaken both of these industry giants, and today it stands as both the largest and the most
profitable business in the car-rental industry. In 2001, for instance, the firm had sales in excess of $6.3 billion and
employed over 50,000 people.
Jack Taylor started Enterprise in St. Louis in 1957. Taylor had a unique strategy in mind for Enterprise, and that strategy
played a key role in the firm’s initial success. Most car-rental firms like Hertz and Avis base most of their locations in or
near airports, train stations, and other transportation hubs. These firms see their customers as business travellers and
people who fly for vacation and then need transportation at the end of their flight. But Enterprise went after a different
customer. It sought to rent cars to individuals whose own cars are being repaired or who are taking a driving vacation.
The firm got its start by working with insurance companies. A standard feature in many automobile insurance policies is
the provision of a rental car when one’s personal car has been in an accident or has been stolen. Firms like Hertz and Avis
charge relatively high daily rates because their customers need the convenience of being near an airport and/or they are
having their expenses paid by their employer. These rates are often higher than insurance companies are willing to pay, so
customers who these firms end up paying part of the rental bills themselves. In addition, their locations are also often
inconvenient for people seeking a replacement car while theirs is in the shop.
But Enterprise located stores in downtown and suburban areas, where local residents actually live. The firm also provides
local pickup and delivery service in most areas. It also negotiates exclusive contract arrangements with local insurance
agents. They get the agent’s referral business while guaranteeing lower rates that are more in line with what insurance
covers.
In recent years, Enterprise has started to expand its market base by pursuing a two-pronged growth strategy. First, the
firm has started opening airport locations to compete with Hertz and Avis more directly. But their target is still the
occasional renter than the frequent business traveller. Second, the firm also began to expand into international markets
and today has rental offices in the United Kingdom, Ireland and Germany.
Another key to Enterprise’s success has been its human resource strategy. The firm targets a certain kind of individual to
hire; its preferred new employee is a college graduate from bottom half of graduating class, and preferably one who was
an athlete or who was otherwise actively involved in campus social activities. The rationale for this unusual academic
standard is actually quite simple. Enterprise managers do not believe that especially high levels of achievements are
necessary to perform well in the car-rental industry, but having a college degree nevertheless demonstrates intelligence
and motivation. In addition, since interpersonal relations are important to its business, Enterprise wants people who were
social directors or high-ranking officers of social organisations such as fraternities or sororities. Athletes are also desirable
because of their competitiveness.
Once hired, new employees at Enterprise are often shocked at the performance expectations placed on them by the firm.
They generally work long, grueling hours for relatively low pay.
And all Enterprise managers are expected to jump in and help wash or vacuum cars when a rental agency gets backed up.
All Enterprise managers must wear coordinated dress shirts and ties and can have facial hair only when “medically
necessary”. And women must wear skirts no shorter than two inches above their knees or creased pants.
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 2
So what are the incentives for working at Enterprise? For one thing, it’s an unfortunate fact of life that college graduates
with low grades often struggle to find work. Thus, a job at Enterprise is still better than no job at all. The firm does not hire
outsiders—every position is filled by promoting someone already inside the company. Thus, Enterprise employees know
that if they work hard and do their best, they may very well succeed in moving higher up the corporate ladder at a growing
and successful firm.
Question:
1. Would Enterprise’s approach human resource management work in other industries?
2. Does Enterprise face any risks from its human resource strategy?
3. Would you want to work for Enterprise? Why or why not?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100

 

IIBMS MBA CASE STUDY SOLUTION Enterprise Builds On People

pg. 3
CASE: II – Doing The Dirty Work
Business magazines and newspapers regularly publish articles about the changing nature of work in the United States
and about how many jobs are being changed. Indeed, because so much has been made of the shift toward service-sector
and professional jobs, many people assumed that the number of unpleasant an undesirable jobs has declined.
In fact, nothing could be further from the truth. Millions of Americans work in gleaming air-conditioned facilities, but many
others work in dirty, grimy, and unsafe settings. For example, many jobs in the recycling industry require workers to sort
through moving conveyors of trash, pulling out those items that can be recycled. Other relatively unattractive jobs include
cleaning hospital restrooms, washing dishes in a restaurant, and handling toxic waste.
Consider the jobs in a chicken-processing facility. Much like a manufacturing assembly line, a chicken-processing facility is
organised around a moving conveyor system. Workers call it the chain. In reality, it’s a steel cable with large clips that
carries dead chickens down what might be called a “disassembly line.” Standing along this line are dozens of workers who
do, in fact, take the birds apart as they pass.
Even the titles of the jobs are unsavory. Among the first set of jobs along the chain is the skinner. Skinners use sharp
instruments to cut and pull the skin off the dead chicken. Towards the middle of the line are the gut pullers. These workers
reach inside the chicken carcasses and remove the intestines and other organs. At the end of the line are the gizzard
cutters, who tackle the more difficult organs attached to the inside of the chicken’s carcass. These organs have to be
individually cut and removed for disposal.
The work is obviously distasteful, and the pace of the work is unrelenting. On a good day the chain moves an average of
ninety chickens a minute for nine hours. And the workers are essentially held captive by the moving chain. For example, no
one can vacate a post to use the bathroom or for other reasons without the permission of the supervisor. In some plants,
taking an unauthorised bathroom break can result in suspension without pay. But the noise in a typical chicken-processing
plant is so loud that the supervisor can’t hear someone calling for relief unless the person happens to be standing close by.
Jobs such as these on the chicken-processing line are actually becoming increasingly common. Fuelled by Americans’
growing appetites for lean, easy-to-cook meat, the number of poultry workers has almost doubled since 1980, and today
they constitute a work force of around a quarter of a million people. Indeed, the chicken-processing industry has become a
major component of the state economies of Georgia, North Carolina, Mississippi, Arkansas, and Alabama.
Besides being unpleasant and dirty, many jobs in a chicken-processing plant are dangerous and unhealthy. Some workers,
for example, have to fight the live birds when they are first hung on the chains. These workers are routinely scratched and
pecked by the chickens. And the air inside a typical chicken-processing plant is difficult to breathe. Workers are usually
supplied with paper masks, but most don’t use them because they are hot and confining.
And the work space itself is so tight that the workers often cut themselves—and sometimes their coworkers—with the
knives, scissors, and other instruments they use to perform their jobs. Indeed, poultry processing ranks third among
industries in the United States for cumulative trauma injuries such as carpet tunnel syndrome. The inevitable chicken
feathers, faeces, and blood also contribute to the hazardous and unpleasant work environment.
Question:
1. How relevant are the concepts of competencies to the jobs in a chicken-processing plant?
2. How might you try to improve the jobs in a chicken-processing plant?
3. Are dirty, dangerous, and unpleasant jobs an inevitable part of any economy?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 4
CASE : III – On Pegging Pay to Performance
“As you are aware, the Government of India has removed the capping on salaries of directors and has left the matter of
their compensation to be decided by shareholders. This is indeed a welcome step,” said Samuel Menezes, president
Abhayankar, Ltd., opening the meeting of the managing committee convened to discuss the elements of the company’s new
plan for middle managers.
Abhayankar was am engineering firm with a turnover of Rs 600 crore last year and an employee strength of 18,00. Two
years ago, as a sequel to liberalisation at the macroeconomic level, the company had restructured its operations from
functional teams to product teams. The change had helped speed up transactional times and reduce systemic inefficiencies,
leading to a healthy drive towards performance.
“I think it is only logical that performance should hereafter be linked to pay,” continued Menezes. “A scheme in which over
40 per cent of salary will be related to annual profits has been evolved for executives above the vice-president’s level and
it will be implemented after getting shareholders approval. As far as the shopfloor staff is concerned, a system of incentivelinked
monthly productivity bonus has been in place for years and it serves the purpose of rewarding good work at the
assembly line. In any case, a bulk of its salary will have to continue to be governed by good old values like hierarchy, rank,
seniority and attendance. But it is the middle management which poses a real dilemma. How does one evaluate its
performance? More importantly, how can one ensure that managers are not shortchanged but get what they truly
deserve?”
“Our vice-president (HRD), Ravi Narayanan, has now a plan ready in this regard. He has had personal discussions with all
the 125 middle managers individually over the last few weeks and the plan is based on their feedback. If there are no
major disagreements on the plan, we can put it into effect from next month. Ravi, may I now ask you to take the floor and
make your presentation?”
The lights in the conference room dimmed and the screen on the podium lit up. “The plan I am going to unfold,” said
Narayanan, pointing to the data that surfaced on the screen, “is designed to enhance team-work and provide incentives for
constant improvement and excellence among middle-level managers. Briefly, the pay will be split into two components.
The first consists of 75 per cent of the original salary and will be determined, as before, by factors of internal equity
comprising what Sam referred to as good old values. It will be a fixed component.”
“The second component of 25 per cent,” he went on, “will be flexible. It will depend on the ability of each product team as a
whole to show a minimum of 5 per cent improvement in five areas every month—product quality, cost control, speed of
delivery, financial performance of the division to which the product belongs and, finally, compliance with safety and
environmental norms. The five areas will have rating of 30, 25, 20, 15, and 10 per cent respectively.
“This, gentlemen, is the broad premise. The rest is a matter of detail which will be worked out after some finetuning. Any
questions?”
As the lights reappeared, Gautam Ghosh, vice-president (R&D), said, “I don’t like it. And I will tell you why. Teamwork as a
criterion is okay but it also has its pitfalls. The people I take on and develop are good at what they do. Their research skills
are individualistic. Why should their pay depend on the performance of other members of the product team? The new pay
plan makes them team players first and scientists next. It does not seem right.”
“That is a good one, Gautam,” said Narayanan. “Any other questions? I think I will take them all together.”
“I have no problems with the scheme and I think it is fine. But just for the sake of argument, let me take Gautam’s point
further without meaning to pick holes in the plan,” said Avinash Sarin, vice-president (sales). “Look at my dispatch
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 5
division. My people there have reduced the shipping time from four hours to one over the last six months. But what have
they got? Nothing. Why? Because the other members of the team are not measuring up.”
“I think that is a situation which is bound to prevail until everyone falls in line,” intervened Vipul Desai, vice president
(finance). “There would always be temporary problems in implementing anything new. The question is whether our long
term objectives is right. To the extend that we are trying to promote teamwork, I think we are on the right track. However,
I wish to raise a point. There are many external factors which impinge on both individual and collective performance. For
instance, the cost of a raw material may suddenly go up in the market affecting product profitability. Why should the
concerned product team be penalised for something beyond its control?”
“I have an observation to make too, Ravi,” said Menezes, “You would recall the survey conducted by a business fortnightly
on ‘The ten companies Indian managers fancy most as a working place’. Abhayankar got top billings there. We have been
the trendsetters in executive compensation in Indian industry. We have been paying the best. Will your plan ensure that it
remains that way?”
As he took the floor again, the dominant thought in Narayanan’s mind was that if his plan were to be put into place,
Abhayankar would set another new trend in executive compensation.
Question:
But how should he see it through?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 6

IIBMS MBA CASE STUDY SOLUTION Enterprise Builds On People
CASE : IV – Crisis Blown Over
November 30, 1997 goes down in the history of a Bangalore-based electric company as the day nobody wanting it to recur
but everyone recollecting it with sense of pride.
It was a festive day for all the 700-plus employees. Festoons were strung all over, banners were put up; banana trunks and
leaves adorned the factory gate, instead of the usual red flags; and loud speakers were blaring Kannada songs. It was day
the employees chose to celebrate Kannada Rajyothsava, annual feature of all Karnataka-based organisations. The function
was to start at 4 p.m. and everybody was eagerly waiting for the big event to take place.
But the event, budgeted at Rs 1,00,000 did not take place. At around 2 p.m., there was a ghastly accident in the machine
shop. Murthy was caught in the vertical turret lathe and was wounded fatally. His end came in the ambulance on the way
to hospital.
The management sought union help, and the union leaders did respond with a positive attitude. They did not want to fish
in troubled waters.
Series of meetings were held between the union leaders and the management. The discussions centred around two major
issues—(i) restoring normalcy, and (ii) determining the amount of compensation to be paid to the dependants of Murthy.
Luckily for the management, the accident took place on a Saturday. The next day was a weekly holiday and this helped the
tension to diffuse to a large extent. The funeral of the deceased took place on Sunday without any hitch. The management
hoped that things would be normal on Monday morning.
But the hope was belied. The workers refused to resume work. Again the management approached the union for help.
Union leaders advised the workers to resume work in al departments except in the machine shop, and the suggestions was
accepted by all.
Two weeks went by, nobody entered the machine shop, though work in other places resumed. Union leaders came with a
new idea to the management—to perform a pooja to ward off any evil that had befallen on the lathe. The management
accepted the idea and homa was performed in the machine shop for about five hours commencing early in the morning.
This helped to some extent. The workers started operations on all other machines in the machine shop except on the
fateful lathe. It took two full months and a lot of persuasion from the union leaders for the workers to switch on the lathe.
The crisis was blown over, thanks to the responsible role played by the union leaders and their fellow workers. Neither the
management nor the workers wish that such an incident should recur.
As the wages of the deceased grossed Rs 6,500 per month, Murthy was not covered under the ESI Act. Management had to
pay compensation. Age and experience of the victim were taken into account to arrive at Rs 1,87,000 which was the
amount to be payable to the wife of the deceased. To this was added Rs 2,50,000 at the intervention of the union leaders. In
addition, the widow was paid a gratuity and a monthly pension of Rs 4,300. And nobody’s wages were cut for the days not
worked.
Murthy’s death witnessed an unusual behavior on the part of the workers and their leaders, and magnanimous gesture
from the management. It is a pride moment in the life of the factory.
Question:
1. Do you think that the Bangalore-based company had practised participative management?
2. If your answer is yes, with what method of participation (you have read in this chapter) do you relate the above
case?
3. If you were the union leader, would your behaviour have been different? If yes, what would it be?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 7

IIBMS MBA CASE STUDY SOLUTION Enterprise Builds On People
CASE : V – A Case of Burnout
When Mahesh joined XYZ Bank (private sector) in 1985, he had one clear goal—to prove his mettle. He did prove himself
and has been promoted five times since his entry into the bank. Compared to others, his progress has been fastest.
Currently, his job demands that Mahesh should work 10 hours a day with practically no holidays. At least two day in a
week, Mahesh is required to travel.
Peers and subordinates at the bank have appreciation for Mahesh. They don’t grudge the ascension achieved by Mahesh,
though there are some who wish they too had been promoted as well.
The post of General Manager fell vacant. One should work as GM for a couple of years if he were to climb up to the top of
the ladder, Mahesh applied for the post along with others in the bank. The Chairman assured Mahesh that the post would
be his.
A sudden development took place which almost wrecked Mahesh’s chances. The bank has the practice of subjecting all its
executives to medical check-up once in a year. The medical reports go straight to the Chairman who would initiate
remedials where necessary. Though Mahesh was only 35, he too, was required to undergo the test.
The Chairman of the bank received a copy of Mahesh’s physical examination results, along with a note from the doctor. The
note explained that Mahesh was seriously overworked, and recommended that he be given an immediate four-week
vacation. The doctor also recommended that Mahesh’s workload must be reduced and he must take physical exercise
every day. The note warned that if Mahesh did not care for advice, he would be in for heart trouble in another six months.
After reading the doctor’s note, the Chairman sat back in his chair, and started brooding over. Three issues were
uppermost in his mind—(i) How would Mahesh take this news? (ii) How many others do have similar fitness problems?
(iii) Since the environment in the bank helps create the problem, what could he do to alleviate it? The idea of holding a
stress-management programme flashed in his mind and suddenly he instructed his secretary to set up a meeting with the
doctor and some key staff members, at the earliest.
Question:
1. If the news is broken to Mahesh, how would he react?
2. If you were giving advice to the Chairman on this matter, what would you recommend?
The Indian Institute Of Business Management & Studies
Subject: Human Resource Management Marks: 100
pg. 8

IIBMS MBA CASE STUDY SOLUTION Enterprise Builds On People
CASE : VI – “Whose Side are you on, Anyway?”
It was past 4 pm and Purushottam Mahesh was still at his shopfloor office. The small but elegant office was a perk he was
entitled to after he had been nominated to the board of Horizon Industries (P) Ltd., as workman-director six months ago.
His shift generally ended at 3 pm and he would be home by late evening. But that day, he still had long hours ahead of him.
Kshirsagar had been with Horizon for over twenty years. Starting off as a substitute mill-hand in the paint shop at one of
the company’s manufacturing facilities, he had been made permanent on the job five years later. He had no formal
education. He felt this was a handicap, but he made up for it with a willingness to learn and a certain enthusiasm on the
job. He was soon marked by the works manager as someone to watch out for. Simultaneously, Kshirsagar also came to the
attention of the president of the Horizon Employees’ Union who drafted him into union activities.
Even while he got promoted twice during the period to become the head colour mixer last year, Kshirsagar had gradually
moved up the union hierarchy and had been thrice elected secretary of the union. Labour-management relations at
Horizon were not always cordial. This was largely because the company had not been recording a consistently good
performance. There were frequent cuts in production every year because of go-slows and strikes by workmen—most of
them related to wage hikes and bonus payments. With a view to ensuring a better understanding on the part of labour, the
problems of company management, the Horizon board, led by chairman and managing director Aninash Chaturvedi, began
to toy with idea of taking on a workman on the board. What started off as a hesitant move snowballed, after a series of
brainstorming sessions with executives and meetings with the union leaders, into a situation in which Kshirsagar found
himself catapulted to the Horizon board as work-man-director.
It was an untested ground for the company. But the novelty of it all excited both the management and the labour force. The
board members—all functional heads went out of their way to make Kshirsagar comfortable and the latter also responded
quite well. He got used to the ambience of the boardroom and the sense of power it conveyed. Significantly, he was soon at
home with the perspectives of top management and began to see each issue from both sides.
It was smooth going until the union presented a week before the monthly board meeting, its charter of demands, one of
which was a 30 per cent across-the board hike in wages. The matter was taken up at the board meeting as part of a special
agenda.
“Look at what your people are asking for,” said Chaturvedi, addressing Kshirsagar with a sarcasm that no one in the board
missed. “You know the precarious finances of the company. How could you be a party to a demand that can’t be met? You
better explain to them how ridiculous the demands are,” he said.
“I don’t think they can all be dismissed as ridiculous,” said Kshirsagar. “And the board can surely consider the alternatives.
We owe at least that much to the union.” But Chaturvedi adjourned the meeting in a huff, mentioning, once to Kshirsagar
that he should “advise the union properly”.
When Kshirsagar told the executive committee members of the union that the board was simply not prepared to even
consider the demands, he immediately sensed the hostility in the room. “You are a sell out,” one of them said. “Who do you
really represent—us or them?” asked another.
“Here comes the crunch,” thought Kshirsagar. And however hard he tried to explain, he felt he was talking to a wall. A
victim of divided loyalities, he himself was unable to understand whose side he was on. Perhaps the best course would be
to resign from the board. Perhaps he should resign both from the board and the union. Or may be resign from Horizon
itself and seek a job elsewhere. But, he felt, sitting in his office a little later, “none of it could solve the problem.”
Question:
1. What should he do?

IIBMS MBA CASE STUDY SOLUTION Enterprise Builds On People

IIBMS MBA CASE STUDY ANSWER PROVIDED

IIBMS CASE STUDY ANSWER PROVIDED

IIBMS MBA CASE STUDY ANSWER PROVIDED

IIBMS MBA CASE STUDY ANSWER PROVIDED

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

IIBMS MBA CASE STUDY ANSWER PROVIDED
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.
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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.

IIBMS MBA CASE STUDY ANSWER PROVIDED

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

IIBMS MBA CASE STUDY ANSWER PROVIDED

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

IIBMS MBA CASE STUDY ANSWER PROVIDED
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.
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Subject: General Management Marks: 100
 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 halfheartedly
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
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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?

IIBMS MBA CASE STUDY ANSWER PROVIDED
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.”
The Indian Institute of Business Management & Studies
Subject: General Management Marks: 100
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.

IIBMS MBA CASE STUDY ANSWER PROVIDED

IIBMS MBA CASE STUDY ANSWER – Zip Zap Zoom Car Company CASE STUDY SOLUTION

IIBMS MBA CASE STUDY ANSWER – Zip Zap Zoom Car Company CASE STUDY SOLUTION

IIBMS MBA CASE STUDY ANSWER – Zip Zap Zoom Car Company CASE STUDY SOLUTION

The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
Attempt Any Four Case Study
Case 1: Zip Zap Zoom Car Company
Zip Zap Zoom Company Ltd is into manufacturing cars in the small car (800 cc) segment. It was set up 15 years back and
since its establishment it has seen a phenomenal growth in both its market and profitability. Its financial statements are shown in
Exhibits 1 and 2 respectively.
The company enjoys the confidence of its shareholders who have been rewarded with growing dividends year after year.
Last year, the company had announced 20 per cent dividend, which was the highest in the automobile sector. The company has never
defaulted on its loan payments and enjoys a favorable face with its lenders, which include financial institutions, commercial banks and
debenture holders.
The competition in the car industry has increased in the past few years and the company foresees further intensification of
competition with the entry of several foreign car manufactures many of them being market leaders in their respective countries. The
small car segment especially, will witness entry of foreign majors in the near future, with latest technology being offered to the Indian
customer. The Zip Zap Zoom’s senior management realizes the need for large scale investment in up gradation of technology and
improvement of manufacturing facilities to pre-empt competition.
Whereas on the one hand, the competition in the car industry has been intensifying, on the other hand, there has been a
slowdown in the Indian economy, which has not only reduced the demand for cars, but has also led to adoption of price cutting
strategies by various car manufactures. The industry indicators predict that the economy is gradually slipping into recession.
Exhibit 1 Balance sheet as at March 31,200 x
(Amount in Rs. Crore)
Source of Funds
Share capital 350
Reserves and surplus 250 600
Loans :
Debentures (@ 14%) 50
Institutional borrowing (@ 10%) 100
Commercial loans (@ 12%) 250
Total debt 400
Current liabilities 200
1,200
Application of Funds
Fixed Assets
Gross block 1,000
Less : Depreciation 250
Net block 750
Capital WIP 190
Total Fixed Assets 940
Current assets :
Inventory 200
Sundry debtors 40
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
Cash and bank balance 10
Other current assets 10
Total current assets 260
-1200
Exhibit 2 Profit and Loss Account for the year ended March 31, 200x
(Amount in Rs. Crore)
Sales revenue (80,000 units x Rs. 2,50,000) 2,000.0
Operating expenditure :
Variable cost :
Raw material and manufacturing expenses 1,300.0
Variable overheads 100.0
Total 1,400.0
Fixed cost :
R & D 20.0
Marketing and advertising 25.0
Depreciation 250.0
Personnel 70.0
Total 365.0
Total operating expenditure 1,765.0
Operating profits (EBIT) 235.0
Financial expense :
Interest on debentures 7.7
Interest on institutional borrowings 11.0
Interest on commercial loan 33.0 51.7
Earnings before tax (EBT) 183.3
Tax (@ 35%) 64.2
Earnings after tax (EAT) 119.1
Dividends 70.0
Debt redemption (sinking fund obligation)** 40.0
Contribution to reserves and surplus 9.1
* Includes the cost of inventory and work in process (W.P) which is dependent on demand (sales).
** The loans have to be retired in the next ten years and the firm redeems Rs. 40 crore every year.
The company is faced with the problem of deciding how much to invest in up gradation of its plans and technology. Capital
investment up to a maximum of Rs. 100 crore is required. The problem areas are three-fold.
 The company cannot forgo the capital investment as that could lead to reduction in its market share as technological
competence in this industry is a must and customers would shift to manufactures providing latest in car technology.
 The company does not want to issue new equity shares and its retained earning are not enough for such a large investment.
Thus, the only option is raising debt.
 The company wants to limit its additional debt to a level that it can service without taking undue risks. With the looming
recession and uncertain market conditions, the company perceives that additional fixed obligations could become a cause of financial
distress, and thus, wants to determine its additional debt capacity to meet the investment requirements.
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
Mr. Shortsighted, the company’s Finance Manager, is given the task of determining the additional debt that the firm can raise. He
thinks that the firm can raise Rs. 100 crore worth debt and service it even in years of recession. The company can raise debt at 15 per
cent from a financial institution. While working out the debt capacity. Mr. Shortsighted takes the following assumptions for the
recession years.
a) A maximum of 10 percent reduction in sales volume will take place.
b) A maximum of 6 percent reduction in sales price of cars will take place.
Mr. Shorsighted prepares a projected income statement which is representative of the recession years. While doing so, he
determines what he thinks are the ―irreducible minimum‖ expenditures under recessionary conditions. For him, risk of insolvency is
the main concern while designing the capital structure. To support his view, he presents the income statement as shown in Exhibit 3.
Exhibit 3 projected Profit and Loss account
(Amount in Rs. Crore)
Sales revenue (72,000 units x Rs. 2,35,000) 1,692.0
Operating expenditure
Variable cost :
Raw material and manufacturing expenses 1,170.0
Variable overheads 90.0
Total 1,260.0
Fixed cost :
R & D —
Marketing and advertising 15.0
Depreciation 187.5
Personnel 70.0
Total 272.5
Total operating expenditure 1,532.5
EBIT 159.5
Financial expenses :
Interest on existing Debentures 7.0
Interest on existing institutional borrowings 10.0
Interest on commercial loan 30.0
Interest on additional debt 15.0 62.0
EBT 97.5
Tax (@ 35%) 34.1
EAT 63.4
Dividends —
Debt redemption (sinking fund obligation) 50.0*
Contribution to reserves and surplus 13.4
* Rs. 40 crore (existing debt) + Rs. 10 crore (additional debt)
Assumptions of Mr. Shorsighted
 R & D expenditure can be done away with till the economy picks up.
 Marketing and advertising expenditure can be reduced by 40 per cent.
 Keeping in mind the investor confidence that the company enjoys, he feels that the company can forgo paying dividends in
the recession period.
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
He goes with his worked out statement to the Director Finance, Mr. Arthashatra, and advocates raising Rs. 100 crore of debt to
finance the intended capital investment. Mr. Arthashatra does not feel comfortable with the statements and calls for the company’s
financial analyst, Mr. Longsighted.

 

IIBMS MBA CASE STUDY ANSWER – Zip Zap Zoom Car Company CASE STUDY SOLUTION
Mr. Longsighted carefully analyses Mr. Shortsighted’s assumptions and points out that insolvency should not be the sole criterion
while determining the debt capacity of the firm. He points out the following :
 Apart from debt servicing, there are certain expenditures like those on R & D and marketing that need to be continued to
ensure the long-term health of the firm.
 Certain management policies like those relating to dividend payout, send out important signals to the investors. The Zip Zap
Zoom’s management has been paying regular dividends and discontinuing this practice (even though just for the recession phase)
could raise serious doubts in the investor’s mind about the health of the firm. The firm should pay at least 10 per cent dividend in the
recession years.
 Mr. Shortsighted has used the accounting profits to determine the amount available each year for servicing the debt
obligations. This does not give the true picture. Net cash inflows should be used to determine the amount available for servicing the
debt.
 Net Cash inflows are determined by an interplay of many variables and such a simplistic view should not be taken while
determining the cash flows in recession. It is not possible to accurately predict the fall in any of the factors such as sales volume, sales
price, marketing expenditure and so on. Probability distribution of variation of each of the factors that affect net cash inflow should be
analyzed. From this analysis, the probability distribution of variation in net cash inflow should be analysed (the net cash inflows
follow a normal probability distribution). This will give a true picture of how the company’s cash flows will behave in recession
conditions.
The management recognizes that the alternative suggested by Mr. Longsighted rests on data, which are complex and require
expenditure of time and effort to obtain and interpret. Considering the importance of capital structure design, the Finance Director
asks Mr. Longsighted to carry out his analysis. Information on the behaviour of cash flows during the recession periods is taken into
account.
The methodology undertaken is as follows :
(a) Important factors that affect cash flows (especially contraction of cash flows), like sales volume, sales price, raw materials
expenditure, and so on, are identified and the analysis is carried out in terms of cash receipts and cash expenditures.
(b) Each factor’s behaviour (variation behaviour) in adverse conditions in the past is studied and future expectations are
combined with past data, to describe limits (maximum favourable), most probable and maximum adverse) for all the factors.
(c) Once this information is generated for all the factors affecting the cash flows, Mr. Longsighted comes up with a range of
estimates of the cash flow in future recession periods based on all possible combinations of the several factors. He also estimates the
probability of occurrence of each estimate of cash flow.
Assuming a normal distribution of the expected behaviour, the mean expected value of net cash inflow in adverse conditions
came out to be Rs. 220.27 crore with standard deviation of Rs. 110 crore.
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
Keeping in mind the looming recession and the uncertainty of the recession behaviour, Mr. Arthashastra feels that the firm
should factor a risk of cash inadequacy of around 5 per cent even in the most adverse industry conditions. Thus, the firm should take
up only that amount of additional debt that it can service 95 per cent of the times, while maintaining cash adequacy.
To maintain an annual dividend of 10 per cent, an additional Rs. 35 crore has to be kept aside. Hence, the expected available
net cash inflow is Rs. 185.27 crore (i.e. Rs. 220.27 – Rs. 35 crore)
Question:
Analyse the debt capacity of the company.
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
CASE – 2 GREAVES LIMITED
Started as trading firm in 1922, Greaves Limited has diversified into manufacturing and marketing of high technology
engineering products and systems. The company’s mission is ―manufacture and market a wide range of high quality products, services
and systems of world class technology to the total satisfaction of customers in domestic and overseas market.‖
Over the years Greaves has brought to India state of the art technologies in various engineering fields by setting up
manufacturing units and subsidiary and associate companies. The sales of Greaves Limited has increased from Rs 214 crore in 1990 to
Rs 801 crore in 1997. The sales of Greaves Limited has increased from Rs 214 crore in 1990 to Rs 801 crore in 1997. Profits before
interest and tax (PBIT) of the company increased from Rs 15 crore to Rs 83 crore in 1997. The market price of the company’s share
has shown ups and downs during 1990 to 1997. How has the company performed? The following question need answer to fully
understand the performance of the company:

IIBMS MBA CASE STUDY ANSWER – Zip Zap Zoom Car Company CASE STUDY SOLUTION
 Exhibit 1
GREAVES LTD.
Profit and Loss Account ending on 31 March (Rupees in crore)
1990 1991 1992 1993 1994 1995 1996 1997
Sales
Raw Material and Stores
Wages and Salaries
Power and fuel
Other Mfg. Expenses
Other Expenses
Depreciation
Marketing and Distribution
Change in stock
214.38
170.67
13.54
0.52
0.61
11.85
1.85
4.86
1.18
253.10
202.84
15.60
0.70
0.49
15.48
1.72
5.67
3.10
287.81
230.81
18.03
1.11
0.88
16.35
1.52
5.14
4.93
311.14
213.79
37.04
3.80
2.37
25.54
4.62
5.17
0.48
354.25
245.63
37.96
4.43
2.36
31.60
5.99
9.67
– 1.13
521.56
379.83
48.24
6.66
3.57
41.40
8.53
10.81
5.63
728.15
543.56
60.48
7.70
4.84
45.74
9.30
12.44
11.86
801.11
564.35
69.66
9.23
5.49
48.64
11.53
16.98
– 5.87
Total Op Expenses 202.72 239.40 268.91 291.85 338.77 493.41 672.20 731.75
Operating Profit
Other Income
Non-recurring Income
11.61
2.14
1.30
13.70
3.69
2.28
18.90
4.97
0.10
19.29
4.24
10.98
15.48
7.72
16.44
28.15
14.35
0.46
55.95
11.35
0.52
69.36
13.08
1.75
PBIT 15.10 19.67 23.97 34.51 39.64 42.98 65.67 82.64
Interest 5.56 6.77 11.92 19.62 17.17 21.48 28.25 27.54
PBT 9.54 12.90 12.05 14.89 22.47 21.50 37.42 55.10
Tax
PAT
Dividend
Retained Earnings
3.00
6.54
1.80
4.74
3.60
9.30
2.00
7.30
4.90
7.15
2.30
4.85
0.00
14.89
4.06
10.83
4.00
18.47
7.29
11.18
7.00
14.50
8.58
5.92
8.60
28.82
12.85
15.97
15.80
39.30
14.18
25.12
 Exhibit 2
GREAVES LTD.
Balance Sheet (Rupees in crore)
1990 1991 1992 1993 1994 1995 1996 1997
ASSETS
Land and Building
Plant and Machinery
Other Fixed Assets
Capital WIP
Gross Fixed Assets
Less: Accu. Depreciation
Net Tangible Fixed Assets
3.88
11.98
3.64
0.09
19.59
12.91
6.68
4.22
12.68
4.14
0.26
21.30
14.56
6.74
4.96
12.98
4.38
10.25
23.57
15.79
7.78
21.70
33.49
5.18
11.27
71.64
19.84
51.80
30.82
50.78
6.95
34.84
123.39
25.74
97.65
39.71
75.34
8.53
14.37
137.95
33.90
104.05
42.34
92.49
8.87
13.92
157.62
42.56
115.06
43.07
104.45
10.35
14.36
172.23
53.87
118.86
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
Intangible Fixed Assets 0.21 0.19 0.05 4.40 22.03 22.45 20.04 21.11
Net Fixed Assets 6.89 6.93 7.83 56.20 119.68 126.50 135.10 139.97
Raw Materials
Finished Goods
Inventory
Accounts Receivable
Other Receivable
Investments
Cash and Bank Balance
Current Assets
Total Assets
LIABILITIES AND CAPITAL
Equity Capital
Preference Capital
Reserves and Surplus
5.26
29.37
34.63
38.16
32.62
3.55
8.36
117.32
124.21
9.86
0.20
27.60
6.91
33.72
40.63
53.24
40.47
14.95
8.91
158.20
165.13
9.86
0.20
32.57
7.26
38.65
45.91
67.97
49.19
15.15
12.71
190.93
198.76
9.86
0.20
37.42
21.05
53.39
74.44
93.30
24.54
27.58
13.29
233.15
289.35
18.84
0.20
100.35
28.13
52.26
80.39
122.20
59.12
73.50
18.38
353.59
473.27
29.37
0.20
171.03
44.03
58.09
102.12
133.45
64.32
75.01
30.08
404.98
531.48
29.44
0.20
176.88
53.62
69.97
123.59
141.82
76.57
75.07
33.46
450.51
585.61
44.20
0.20
175.41
50.94
64.09
115.03
179.92
107.31
76.45
48.18
526.89
666.86
44.20
0.20
198.79
Net Worth 37.66 42.63 47.48 119.39 200.60 206.52 219.81 243.19
Bank Borrowings
Institutional Borrowings
Debentures
Fixed Deposits
Commercial Paper
Other Borrowings
Current Portion of LT Debt
14.81
4.13
4.77
12.31
0.00
2.33
0.00
19.45
3.43
16.57
14.45
0.00
3.22
0.00
26.51
9.17
19.99
15.03
0.00
3.10
0.08
24.82
38.09
4.56
14.08
0.00
3.18
0.12
55.12
38.76
4.37
15.57
15.00
17.08
15.08
64.97
69.69
4.37
17.75
0.00
1.97
0.02
70.08
89.26
2.92
20.81
0.00
2.36
1.49
118.28
63.60
1.49
19.29
0.00
2.57
1.57
Borrowings 38.35 57.12 73.72 84.61 130.82 158.73 183.94 203.66
Sundry Creditors
Other Liabilities
Provision for tax, etc.
Proposed Dividends
Current Portion of LT Dept
37.52
5.70
3.18
1.80
0.00
49.40
10.16
3.82
2.00
0.00
59.34
10.70
5.14
2.30
0.08
77.27
3.59
0.31
4.06
0.12
113.66
1.42
4.40
7.29
15.08
148.13
1.99
7.70
8.58
0.02
153.63
1.70
12.19
12.85
1.49
179.79
3.04
21.43
14.18
1.57
Current Liabilities 48.20 65.38 77.56 85.35 141.85 166.42 181.86 220.01
TOTAL LIABILITIES
Additional information:
Share premium reserve
Revaluation reserve
Bonus equity capital
124.21
8.51
165.13
8.51
198.76
8.51
289.35
47.69
8.91
8.51
473.27
107.40
8.70
8.51
531.67
107.91
8.50
8.51
585.61
93.35
8.31
23.25
666.86
93.35
8.15
23.25
 Exhibit 3
GREAVES LTD.
Share Price Data
1990 1991 1992 1993 1994 1995 1996 1997
Closing share price (Rs)
Yearly high share price (Rs)
Yearly low share price (Rs)
Market capitalization (Rs crore
EPS (Rs)
Book value (Rs)
27.19
29.25
26.78
65.06
4.79
35.64
34.74
45.28
21.61
67.77
6.82
37.22
121.27
121.27
34.36
236.56
9.73
42.54
66.67
126.33
48.34
274.84
1.93
57.75
78.34
90.00
42.67
346.35
2.66
40.61
71.67
100.01
68.34
316.87
7.16
64.98
47.5
90.00
45.00
210.02
5.03
45.35
48.25
85.00
43.75
213.34
9.01
50.73

IIBMS MBA CASE STUDY ANSWER – Zip Zap Zoom Car Company CASE STUDY SOLUTION
Questions
1. How profitable are its operations? What are the trends in it? How has growth affected the profitability of the company?
2. What factors have contributed to the operating performance of Greaves Limited? What is the role of profitability margin,
asset utilization, and non-operating income?
3. How has Greaves performed in terms of return on equity? What is the contribution of return on investment, the way of the
business has been financed over the period?
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
CASE – 3 CHOOSING BETWEEN PROJECTS IN ABC COMPANY
ABC Company, has three projects to choose from. The Finance Manager, the operations manager are discussing and they are not
able to come to a proper decision. Then they are meeting a consultant to get proper advice. As a consultant, what advice you will give?
The cash flows are as follows. All amounts are in lakhs of Rupees.
Project 1:
Duration 5 Years
Beginning cash outflow = Rs. 100
Cash inflows (at the end of the year)
Yr. 1 – Rs 30; Yr. 2 – Rs 30; Yr. 3 – Rs 30; Yr.4 – 10; Yr.5 – 10
Project 2:
Duration 5 Years
Beginning Cash outflow Rs. 3763
Cash inflows (at the end of the year)
Yr. 1 – 200; Yr. 2 – 600; Yr. 3 – 1000; Yr. 4 – 1000; Yr. 5 – 2000.
Project 3:
Duration 15 Years
Beginning Cash Outflow – Rs. 100
Cash Inflows (at the end of the year)
Yrs. 1 to 10 – Rs. 20 (for 10 continuous years)
Yrs. 11 to 15 – Rs. 10 (For the next 5 years)
Question:
If the cost of capital is 8%, which of the 3 projects should the ABC Company accept?
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
CASE – 4 STAR ENGINEERING COMPANY
Star Engineering Company (SEC) produces electrical accessories like meters, transformers, switchgears, and automobile
accessories like taximeters and speedometers.
SEC buys the electrical components, but manufactures all mechanical parts within its factory which is divided into four
production departments Machining, Fabrication, Assembly, and Painting—and three service departments—Stores, Maintenance, and
Works Office.Though the company prepared annual budgets and monthly financial statements, it had no formal cost accounting
system. Prices were fixed on the basis of what the market can bear. Inventory of finished stocks was valued at 90 per cent of the
market price assuming a profit margin of 10 per cent.
In March, the company received a trial order from a government department for a sample transformer on a cost-plus-fixed-fee
basis. They took up the job (numbered by the company as Job No 879) in early April and completed all manufacturing operations
before the end of the month.
Since Job No 879 was very different from the type of transformers they had manufactured in the past, the company did not
have a comparable market price for the product. The purchasing officer of the government department asked SEC to submit a detailed
cost sheet for the job giving as much details as possible regarding material, labour and overhead costs.SEC, as part of its routine
financial accounting system, had collected the actual expenses for the month of April, by 5th of May. Some of the relevant data are
given in Exhibit A.The company tried to assign directly, as many expenses as possible to the production departments. However, It was
not possible in all cases. In many cases, an overhead cost, which was common to all departments had to be allocated to the various
departments using some rational basis. Some of the possible bases were collected by SEC’s accountant. These are presented in Exhibit
B.He also designed a format to allocate the overhead to all the production and service departments. It was realized that the expenses of
the service departments on some rational basis. The accountant thought of distributing the service departments’ costs on the following
basis:
a. Works office costs on the basis of direct labour hours.
b. Maintenance costs on the basis of book value of plant and machinery.
c. Stores department costs on the basis of direct and indirect materials used.
The accountant, who had to visit the company’s banker, passed on the papers to you for the required analysis and cost
computations.
REQUIRED
Based on the data given in Exhibits A and B, you are required to:
1. Complete the attached ―overhead cost distribution sheet‖ (Exhibit C).
Note: Wherever possible, identify the overhead costs chared directly to the production and service departments. If such direct
identification is not possible, distribute the costs on some ―rational basis.
2. Calculate the overhead cost (per direct labour hour) for each of the four producing departments. This should include share of
the service departments’ costs.
The Indian Institute Of Business Management & Studies
Subject: Finance Management Marks: 100
3. Do you agree with:
a. The procedure adopted by the company for the distribution of overhead costs?
b. The choice of the base for overhead absorption, i.e. labour-hour rate?
Exhibit A
STAR ENGINEERING COMPANY
Actual Expenses(Manufacturing Overheads) for April
RS RS
Indirect Labour and Supervisions:
Machining
Fabrication
Assembly
Painting
Stores
Maintenance
Indirect Materials and Supplies
Machining
Fabrication
Assembly
Painting
Maintenance
Others
Factory Rent
Depreciation of Plant and Machinery
Building Rates and Taxes
Welfare Expenses

IIBMS MBA CASE STUDY ANSWER – Zip Zap Zoom Car Company CASE STUDY SOLUTION
(At 2 per cent of direct labour wages and Indirect labour and supervision)
Power
(Maintenance—Rs 366; Works Office Rs 2,200, Balance to Producing
Departments)
Works Office Salaries and Expenses
Miscellaneous Stores Department Expenses
33,000
22,000
11,000
7,000
44,000
32,700
2,200
1,100
3,300
3,400
2,800
1,68,000
44,000
2,400
19,400
68,586
1,30,260
1,190
1,49,700
12,800
4,33,930
5,96,930
The Indian Institute Of Business Management & Studies
Subject: Human Resources Analytics Marks: 100
Exhibit B
STAR ENGINEERING COMPANY
Projected Operation Data for the Year
Department Area
(sq.m)
Original
Book of Plant &
Machinery
Rs
Direct
Materials
Budget
Rs
Horse
Power
Rating
Direct
Labour
Hours
Direct
Labour
Budget
Rs
Machining
Fabrication
Assembly
Painting
Stores
Maintenance
Works Office
Total
13,000
11,000
8,800
6,400
4,400
2,200
2,200
48,000
26,40,000
13,20,000
6,60,000
2,64,000
1,32,000
1,98,000
68,000
52,80,000
62,40,000
21,60,000
10,80,000
94,80,000
20,000
10,000
1,000
2,000
33,000
14,40,000
5,28,000
7,20,000
3,30,000
30,18,000
52,80,000
25,40,000
13,20,000
6,60,000
99,00,000
Note
The estimates given in this exhibit are for the budgeted year January to December where as the actuals in Exhibit A are just one month—April of the budgeted year.
Exhibit C
STAR ENGINEERING COMPANY
Actual Overhead Distribution Sheet for April
Departments
Overhead Costs
Production Departments Service Departments Total
Amount
Actuals for
April (Rs)
Basis for
Distribution
A. Allocation of Overhead to all
departments
A.1 Indirect Labour and
Supervision
1,49,700
A.2 Indirect materials and
supplies
12,800
A.3 Factory Rent 1,68,000
The Indian Institute Of Business Management & Studies
Subject: Human Resources Analytics Marks: 100
A.4 Depreciation of Plant and
Machinery
44,000
A.5 Building Rates and Taxes 2,400
A.6 Welfare Expenses 19,494
A.7 Power 68,586
A.8 Works Office Salaries and
Expenses
1,30,260
A.9 Miscellaneous Stores
Expenses
1,190
A. Total (A.1 to A.9) 5,96,430
B. Reallocation of Service
Departments Costs to Production
Departments
B.1 Distribution of Works Office
Costs
B.2 Distribution of Maintenance
Department’s Costs
B.3 Distribution of Stores
Department’s Costs
Total Charged to Producing
C. Departments (A+B)
5,96,430
D. Labour Hours Actuals for
April
1,20,00
0
44,000
60,
000
27,
500
E. Overhead Rate/Per Hour (D)
The Indian Institute Of Business Management & Studies
Subject: Human Resources Analytics Marks: 100
Case 5: EASTERN MACHINES COMPANY
Raj, who was in charge production felt that there are many problems to be attended to. But Quality Control was the main
problem, he thought, as he found there were more complaints and litigations as compared to last year. With the demand increasing,
he does not want to take any chances.
So he went down to assembly line, but was greeted by an unfamiliar face. He introduced himself.
Raj: I am in charge of checking the components, which we use, when we assemble the machines for customers. For most of
the components, suppliers are very reliable and we assume that there will not be any problem. When we generally test the end
product, we don’t have failures.
Namdeo: I am Namdeo. I was in another dept. and have been transferred recently to this dept.
Raj: Recently we have been having problems, and there has been some complaint or other about the machines we have
supplied. I am worried and would like to check the components used. I would like to avoid lot of expensive rework.
Namdeo: But it would be very expensive to test every one of them. It will take at least half an hour for each machine. I neither
have the staff nor the time. It will be rather pointless as majority of them will pass the test.
Raj: There has been more demand than supply for these machines in last 2 years. We have been buying many components
from many suppliers. We have been producing more with extra shifts. We are trying to capture the market and increase our market
share.
Namdeo: We order for components from different places, and sometimes we do not have time to check all. There is a time lag
between order and supply of components, and we cannot wait as production will stop. We use whatever comes soon as we want to
complete our orders.
Raj: Oh! Obviously we need some kind of checking. Some sampling technique to check the quality of the components. We
need to get a sample from each shipment from our component suppliers. But I do not know how many we should test.
Namdeo: We should ask somebody from our statistics dept. to attend to this problem.
As a Statistician, advice what kind of Sampling schemes can we consider, and what factors will influence choice of
scheme. What are the questions we should ask Mr. Namdeo, who works in the assembly line?

IIBMS MBA CASE STUDY ANSWER – Zip Zap Zoom Car Company CASE STUDY SOLUTION

IIBMS DMS EXAM ANSWER SHEETS PROVIDED

IIBMS DMS EXAM ANSWER SHEETS 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?

 

2. 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?

 

2. 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?

 

2. 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?

 

2. 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?

 

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

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?

 

2. 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?

 

3. 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?

 

2. 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?

 

3. 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?

 

 

Attempt Any Four Case Study

 

Case 1: Zip Zap Zoom Car Company

          

Zip Zap Zoom Company Ltd is into manufacturing cars in the small car (800 cc) segment.  It was set up 15 years back and since its establishment it has seen a phenomenal growth in both its market and profitability.  Its financial statements are shown in Exhibits 1 and 2 respectively.

The company enjoys the confidence of its shareholders who have been rewarded with growing dividends year after year.  Last year, the company had announced 20 per cent dividend, which was the highest in the automobile sector.  The company has never defaulted on its loan payments and enjoys a favorable face with its lenders, which include financial institutions, commercial banks and debenture holders.

The competition in the car industry has increased in the past few years and the company foresees further intensification of competition with the entry of several foreign car manufactures many of them being market leaders in their respective countries.  The small car segment especially, will witness entry of foreign majors in the near future, with latest technology being offered to the Indian customer.  The Zip Zap Zoom’s senior management realizes the need for large scale investment in up gradation of technology and improvement of manufacturing facilities to pre-empt competition.

Whereas on the one hand, the competition in the car industry has been intensifying, on the other hand, there has been a slowdown in the Indian economy, which has not only reduced the demand for cars, but has also led to adoption of price cutting strategies by various car manufactures.   The industry indicators predict that the economy is gradually slipping into recession.

 

 

 

 

 

 

 

 

 

 

 

 

Exhibit 1 Balance sheet as at March 31,200 x

(Amount in Rs. Crore)

 

Source of Funds

Share capital                                        350

Reserves and surplus                           250                              600

Loans :

Debentures (@ 14%)               50

Institutional borrowing (@ 10%)        100

Commercial loans (@ 12%)    250

Total debt                                                                                            400

Current liabilities                                                                                 200

1,200

 

Application of Funds

Fixed Assets

Gross block                                                     1,000

Less : Depreciation                                            250

Net block                                                           750

Capital WIP                                                       190

Total Fixed Assets                                                                              940

Current assets :

Inventory                                                           200

Sundry debtors                                                    40

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?