Question Paper

Business Policy & Strategy (MB311) : April 2007

Section A : Basic Concepts (30 Marks)
• This section consists of questions with serial number 1 - 30.
• Answer all questions.
• Each question carries one mark.
• Maximum time for answering Section A is 30 Minutes.

< Answer >

1. A business firm should maintain dependable relationships with its suppliers and creditors for its long-term survival. In
addition to strong ties with suppliers and creditors, several other related factors should also be considered. With regard
to its position with its creditors, which of the following is/are the questions that need not be considered?
I. Is the stock fairly valued and willingly accepted as collateral?
II. Do creditors perceive the firm as having an high leverage?
III. Are creditors current loan terms compatible with the firm’s profitability objectives?
IV. Are creditors able to extend the necessary line of credit?
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
2. The designing of business strategies involves a systematic approach. Which of the following is/are true, while
designing business strategies?
I. This process is multifaceted.
II. This process is complex.
III. This process involves interactive influence of remote environment only.
IV. This process requires assessment in depth.
(a) Only (I) above
(b) Both (I) and (III) above
(c) Both (II) and (IV) above
(d) (I), (II) and (IV) above
(e) (I), (III) and (IV) above.
< Answer >
3. Which of the following structures allows corporate management to delegate authority for the strategic management of
a distinct business entity?
(a) Simple
(b) Functional
(c) Divisional
(d) Strategic Business unit (SBU)
(e) Matrix.
< Answer >
4. Which of the following is not the consideration that is emphasized by firms, managing a strategy-culture relationship?
(a) Key changes should be visibly linked to the basic company mission
(b) Emphasis should be placed on the use of existing personnel
(c) Care should be taken if adjustments in the reward system are needed
(d) Emphasis should be placed on the use of new recruitment
(e) Key attention should be paid to the changes that are least compatible with the current culture.
 < Answer >
5. Which of the following is/are not the specific reasons for adopting the retrenchment strategies?
I. Existence of good economic conditions.
II. Operation and product efficiencies.
III.Ability of the firm to implement latest technology.
IV. Excessive competitive pressures.
V. The company has not met its objectives and there is pressure from shareholders or customers to improve
performance.
(a) Only (V) above
(b) Both (IV) and (V) above
(c) (I), (II) and (III) above
(d) (I), (II), (III) and (IV) above
(e) (I), (II), (III) and (V) above.
< Answer >
6. Under which of the following, selling is over when the order is received and paid for, but purchasing is said to be over
only when the good has been delivered and purchaser’s want has been satisfied?
(a) Services marketing
(b) Retailing
(c) Direct marketing
(d) Kiosk marketing
(e) E-Commerce.
< Answer >
7. Goals indicate a desired future state that a company attempts to realize. The characteristics of a goal, which make it
meaningful are
I. The goals should be precise and measurable.
II. The goals should address important issues.
III. The goals should be common to everyone.
IV. The goals should specify a time period in which they should be achieved.
(a) Both (I) and (III) above
(b) Both (II) and (IV) above
(c) (I), (II) and (IV) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
8. Which of the following is/are not true with respect to a formal offering memorandum?
I. Preparation of a formal offering memorandum is not required for all divestitures.
II. A formal offering memorandum is essential if the business being sold is to be offered, to one potential buyer,
either sequentially or on a competitive bidding basis.
III. Offering memorandum is necessary if the selling corporation is highly confident of knowing the buyer and that
the deal will be done with that one party.
IV. The offering memorandum must provide sufficient details to the perspective buyers to ascertain their genuine
interest in acquiring the business.
(a) Only (I) above
(b) Both (I) and (II) above
(c) Both (II) and (III) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
9. Which of the following is not a process through which the ownership structure is changed?
(a) Exchange offers
(b) Share repurchases
(c) Going private
(d) Diversification
(e) Leveraged buy-out.
 < Answer >
10. Which of the following involves a full-scale reassessment of the strategy and the advisability of continuing or
refocusing the direction of the company?
(a) Monitoring strategic thrusts
(b) Milestone reviews
(c) Scheduling
(d) Steering
(e) Environmental scanning.
< Answer >
11. A procedure is a prescribed series of related steps to be taken under certain recurring circumstances. Well established
and formalized procedures are called SOP’s. SOP stands for
(a) Standard operating procedures
(b) Simple operating procedures
(c) Strategic operating procedures
(d) Sample operating procedures
(e) Sequential operating procedures.
< Answer >
12. Luostarinen & Hellman, attempted to integrate all the three models of internationalization. According to them, the
internationalization process of a firm usually starts with a / an
(a) Forward process
(b) Backward process
(c) Inward process
(d) Outward process
(e) Sideward process.
< Answer >
13. Which of the following is the strategy that has to be adaptable to multiproduct market firms in which each
product/market is managed as a separate business or profit center because the firm is not dominated by one product
market?
(a) Business portfolio analysis
(b) Corporate portfolio analysis
(c) Financial portfolio analysis
(d) Strategic portfolio analysis
(e) Divisional portfolio analysis.
< Answer >
14. Functional strategies for personnel management are the basis for decisions pertaining to compensation, labor relations,
discipline and control, to enhance the productivity and motivation of the workforce. Which of the following is/are not
the questions relevant in achieving these objectives?
I. How should payment, incentive plans, benefits and seniority policies be laid out?
II. How should the company recruit to meet these needs?
III. How should new employees be introduced to the organization?
IV. Should there be hiring preferences?
(a) Only (IV) above
(b) Both (I) and (IV) above
(c) Both (II) and (III) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
 < Answer >
15. A firm must assign operating costs and assets to value activities after identifying its value chain. Which of the
following statements is/are true?
I. Assignment of operating costs is time consuming.
II. Assigning operating costs to activities is more complicated than assigning assets.
III. Asset accounts must usually be regrouped to correspond to activities.
IV. Assigning of assets is done in two ways.
(a) Only (I) above
(b) Both (I) and (III) above
(c) Both (II) and (IV) above
(d) (I), (II) and (III) above
(e) (I), (III) and (IV) above.
< Answer >
16. Incorporation of flexibility is one of the important considerations when designing strategies. Which of the following
is/are the approach (es) suggested to increase such flexibility?
I. The strategy must be stated in general terms.
II. The strategies must be treated as rules with exceptions.
III. The options must be kept close.
(a) Only (I) above
(b) Only (II) above
(c) Both (I) and (II) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
< Answer >
17. If ONGC an oil company engaged in the exploration and production of oil merges with Reliance company, which is
involved in the refining and marketing of oil, then this would be an example of
(a) Horizontal merger
(b) Vertical merger
(c) Conglomerate merger
(d) Strategic merger
(e) Concentric merger.
< Answer >
18. Which of the following statement(s) does not represent difference between equity carve-out and a spin-off?
I. In an equity carve-out, shares in the holding company are transferred to the subsidiary company and in a spin-off
the vice-versa happens.
II. In equity carve-out the proportion of debt increases whereas in spin-offs, the proportion of debt comes down.
III. In an equity carve-out a certain proportion of the shares in subsidiary company is offered for sale to general
public while in spin-off a company distributes its shares on a pro-rata basis to the existing shareholders.
IV. In equity carve-out the leverage ratio of the firm increases while it decreases in a spin-off.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
19. Problems of the new business are often more complex and resistant to solution than expected. Connections between
the new and old businesses are often superficial and only marginally related to the problems of the new venture.
Which of the following reasons for change of a firm from concentration strategies does relate to the above statement?
(a) Impatience to grow
(b) Overconfidence
(c) Misjudging success requirements
(d) Siren song of integration
(e) Underestimation of present opportunities.
 < Answer >
20. Which of the following are indicator(s) to assess the power of external stake holders?
I. The status.
II. Resource dependence.
III. Support services.
IV. Negotiating arrangements.
V. Symbols.
(a) (I), (II) and (III) above
(b) (I), (II), (III) and (IV) above
(c) (I), (II), (III) and (V) above
(d) (I), (II), (IV) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
< Answer >
21. Which of the following are social responsibilities that managers of business organizations have?
I. Political.
II. Legal.
III. Economical.
IV. Ethical.
V. Discretionary.
(a) (I), (II) and (IV) above
(b) (I), (II), (III), (IV) above
(c) (I), (II), (IV) and (V) above
(d) (II), (III), (IV) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
< Answer >
22. If a firm believes in and prefers an internal emphasis for maximizing strengths, four alternative strategies hold
considerable promise in Quadrant III of the strategy selection matrix. Which of the following is not a strategy in this
Quadrant?
(a) Concentration
(b) Joint Venture
(c) Market Development
(d) Product Development
(e) Innovation.
< Answer >
23. A firm enters into coalitions to gain certain advantages. Which of the following is/are not true regarding coalition?
I. It broadens the scope of operations without broadening the firm.
II. The firms get an opportunity to share its activities without entering new industry segments.
III. It involves the short term relationships.
IV. Entering the coalition is a simple process.
V. It does not involve coordination problems.
(a) Both (I) and (II) above
(b) Both (III) and (IV) above
(c) (I), (II) and (III) above
(d) (I), (II) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
< Answer >
24. Whose role is both symbolic and substantive in a strategy implementation from the following?
(a) Managers
(b) General Managers
(c) Board of Directors
(d) Chief Executive Officer (CEO)
(e) Chairman.
 < Answer >
25. Which of the following is/are not principle(s) of a good policy?
I. Policies should be rigid.
II. Policies should reflect objectives.
III. Policies should be controlled.
IV. Policies should be consistent.
(a) Only (I) above
(b) Both (I) and (II) above
(c) Both (III) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
26. Which of the following takes place when change patterns are accepted and followed willingly, as a part of
organizational change?
(a) Reengineering
(b) Restructuring
(c) Reshaping
(d) Refreezing
(e) Rewarding.
< Answer >
27. A threat refers to an extremely unfavorable situation in the firm’s environment. Which of the following is/are threat(s)
for a firm?
I. Slow market growth.
II. Entry of resourceful multinational companies/competitors.
III. Improved buyer or supplier relationships.
IV. Quick rate of obsolescence due to major technological change.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
28. Which of the following is not a key element in Ansoff’s strategic success paradigm?
(a) There is a universal success formula for all firms
(b) The level of turbulence in the environment determines the strategy required for the success of the firm
(c) The aggressiveness of the strategy should be aligned with the turbulence in the environment to optimize
the firm’s success
(d) Internal capability determines the firm’s success
(e) Management capabilities should be aligned with the environment to optimize the firm’s success.
< Answer >
29. Which of the following statement(s) would not hold true for the assumptions of value chain analysis?
I. To divide firms activities into two major categories.
II. To acquire in-depth understanding of firms capability.
III. To create value for both producer of products or service and its users.
IV. A process of external analysis.
(a) Only (I) above
(b) Both (I) and (II) above
(c) Both (III) and (IV) above
(d) (I), (II) and (III) above
(e) (I), (II) and (IV) above.
 < Answer >
30. Which of the following is a business factor to be considered in choosing a foreign manufacturing site as per Business
International Corporation?
(a) Foreign exchange position
(b) Degree of antiforeign discrimination
(c) Proximity of site to export markets
(d) Cost of local borrowing
(e) Competitive situation in the firm’s industry.

END OF SECTION A

Section B : Caselets (50 Marks)

• This section consists of questions with serial number 1 – 7.
• Answer all questions.
• Marks are indicated against each question.
• Detailed explanations should form part of your answer.
• Do not spend more than 110 - 120 minutes on Section B.

Caselet 1
Read the caselet carefully and answer the following questions:
< Answer >
1. With respect to the caselet, explain the various reasons behind the acquisition of Hutch by Vodafone.
(6 marks)
< Answer >
2. “The deal is a lucrative exit for Hong Kong billionaire Li Ka-shing, whose Hutchison Whampoa conglomerate
ultimately controls the Indian operator through its majority holding in Hutchison Telecom”. In this light,
explain the selling process as a part of divestiture. And also, explain the selling process used by Hutch.
(8 marks)
< Answer >
3. “The Essar group has in the past threatened to block any bid, claiming a right for first refusal for the
Hutchison stake.” In this regard, explain the various anti-takeover amendments that Essar group can use.
(7 marks)

Britain's Vodafone Group beat rival suitors with an $11.1 billion agreed offer for a controlling stake in India's Hutchison Essar,
gaining a strong foothold in the world’s fastest growing mobile market.
Vodafone, the world's biggest mobile operator outside China, said the Indian market, with just 150 million users in a population of
1.1 billion, offered strong growth potential and was in line with its strategy of seeking growth from emerging markets. But it has
also been accused of overpaying. It took an impairment charge of over 23 billion pounds in its last financial year, largely against
past acquisitions, leading it to report the biggest ever annual loss by a European company.
Vodafone said the deal would be neutral to earnings in the first year, excluding intangible amortization. Including intangible
amortization, it would dilute earnings by 6 percent to 7 percent in the first year before turning positive in five years.
Vodafone said late on Sunday its purchase of Hutchison Telecommunications' 67 percent stake in Hutchison Essar valued the
Indian firm at $18.8 billion, including debt. The deal is Vodafone's third-biggest ever and beat three rival suitors, India's Reliance
Communications and the Hinduja and Essar groups, the latter of which owns 33 percent of Hutchison Essar.
The deal is a lucrative exit for Hong Kong billionaire Li Ka-shing, whose Hutchison Whampoa conglomerate ultimately controls
the Indian operator through its majority holding in Hutchison Telecom.
"They hit the jackpot again," said Francis Lun, general manager at Fulbright Securities in Hong Kong. "Considering that they only
put HK$20 billion (US$2.6 billion) into India, it has to be a good deal for them."
Shares in Hutchison Telecom's parent, ports-to-property conglomerate Hutchison Whampoa Ltd., rose 0.68 percent while its bond
spreads tightened on hopes that deal proceeds will be used to lower debt and improve its credit profile. Li, Asia's richest man and
the chairman of Hutchison Whampoa, is famed for his market timing, having sold mobile group Orange to Germany's Mannesmann
during the telecoms boom in 1999 for a $15 billion profit.
Vodafone has also "some understanding" of the strategy of Bharti Airtel, India's largest private phone company in which it has held
a 10 percent stake, and Bharti will face greater competition.
The British company gave Bharti the opportunity to buy back Vodafone's 5.6 percent direct stake in it, which Vodafone valued at
1.6 billion dollars. It bought a 10 percent stake in Bharti for $1.5 billion in 2005. Bharti Airtel and Vodafone signed an agreement
on infrastructure sharing, roaming and long distance services that will enable rapid network expansion in semi-urban and rural
areas that are home to two-thirds of India's 1.1 billion people.
Vodafone was one of four groups in the race to buy Hong Kong-based Hutchison Telecommunications International's stake in
Hutchison Essar. Also bidding were India's Reliance Communications, and the Hinduja and Essar groups, the latter of which owns
33 percent of Hutchison Essar.
Vodafone said the deal met its strict acquisition criteria and would find support from investors. The group has been accused in the
past of overpaying for acquisitions, most recently its purchase of Turkish operator Telsim for $4.55 billion in December 2005. The
latest deal is Vodafone's biggest since its record-breaking 180 billion-euro ($231 billion) purchase of Germany's Mannesmann in
2000.
Vodafone's 180-billion-euro ($234 billion) purchase of Germany's Mannesmann in 2000 was the biggest company takeover in
history. Vodafone's offer valued Hutchison Essar at a forward enterprise value to EBITDA (earnings before interest, tax,
depreciation and amortisation) multiple of 16.4 times. Larger rivals Bharti and Reliance trade at about 13.6 times and 11.7 times.
Vodafone could be forced to shell out another $5 billion if existing minority partner Essar decided to cash out, but Finance Director
Andy Halford said the group had enough borrowing headroom and it would not affect the group's credit ratings. Vodafone has
generated some financial cushion in recent months, with disposals of minority stakes in Belgium and Switzerland helping it raise
up to $6 billion.
The group, which is barred by Indian law from owning more than 74 percent of a local telecoms operator, said it was keen on
existing partner Essar staying on in the venture.
For the Ruia family that controls Essar, a sale of its stake at the same price Vodafone offered Hutchison would prove to be a
windfall amounting to an estimated 6.5 billion dollars. A sale would compel Vodafone to seek another local partner because India
caps foreign ownership of telecom companies at 74 percent.
The Essar group has in the past threatened to block any bid, claiming a right for first refusal for the Hutchison stake, but CEO Sarin
said he did not think Vodafone's deal was at risk.
Caselet 2
Read the caselet carefully and answer the following questions:
< Answer >
4. With respect to the caselet, sum up the various HR practices followed by Infosys to build a strong culture in
the organization.
(6 marks)
< Answer >
5. "It is about creating a highly motivated workforce because this is not a factory where you can monitor the
quantum of output at the end of the day. But in the intellectual business you cannot do that. So, you have to
create a motivated set of people who can operate”. In this light, explain how the culture of a company is
responsible for its success.
(8 marks)
In November 2005, Infosys Technologies Ltd. (Infosys), based in Bangalore, India, was named 'The Best Company to Work for in
India' by Business Today magazine in a survey conducted by Business Today, HR consulting firm Mercer, and international market
research firm TNS .
Infosys had been adjudged the ‘Best Company to Work For’ in 2001 and 2002 but had lost this position in the next couple of years.
In the 'Best Employer' survey conducted by Dataquest-IDC in the year 2006, Infosys was adjudged the 'Dream Company to Work
for.'
Moreover, Infosys was also recognized globally and featured among the top 100 companies in Computerworld's 'Best Places to
Work for in IT – 2006'.
On the company's HR practices, Nandan Nilekani (Nilekani), CEO, President and Managing Director of Infosys, commented, "It is
about creating a highly motivated workforce because this is not a factory where you can monitor the quantum of output at the end
of the day. But in the intellectual business you cannot do that. So, you have to create a motivated set of people who can operate.
Attracting the best and the brightest and creating a milieu where they operate at their highest potential is very important. Our
campus and technology infrastructure is world-class, we pay a lot of attention to training and competency building, we try to have
sophisticated appraisal systems, we try to reward performance through variable pay. These are all part of the same motive.
Since the early 2000s, Infosys' operations had been growing rapidly across the world. The number of employees in the company
also increased four-fold to 44,658 in March 2006 as compared to 10,738 in March 2001.
The company believed that its key assets were people and that it was important to bring its employees on par with the company's
global competitors. In spite of its rapid global expansion, Infosys retained the culture of a small company. According to Bikramjeet
Maitra (Maitra), Head of Human Resources, Infosys, "We like to maintain a smaller company touch and we have split the overall
business into several smaller independent units of around 4,000 people each."
Infosys was incorporated as Infosys Consultants Private Limited on July 02, 1981, by a group of seven professionals. From the
beginning, it relied heavily on overseas business. One of the founders, Narayana Murthy (Murthy) stayed in India, while the others
went to the US to carry out onsite programming for corporate clients. One of Infosys' first clients was the US-based sports shoe
manufacturer Reebok. Infosys hired its first set of employees in 1982 from the Indian Institute of Technology, Chennai.
Most of the HR practices of Infosys were a result of the vision of its founders and the culture that they had created over the years.
The founders advocated simplicity and maintained the culture of a small company. The employees were encouraged to share their
learning experiences.
While recruiting new employees, Infosys took adequate care to identify the right candidates. On the qualities that Infosys looked
for in a candidate, Nilekani said, "We focus on recruiting candidates who display a high degree of 'learnability.' By learnability we
mean the ability to derive generic knowledge from specific experiences and apply the same in new situations. We also place
significant importance on professional competence and academic excellence. Other qualities we look for are analytical ability,
teamwork and leadership potential, communication and innovation skills, along with a practical and structured approach to problem
solving."
Training at Infosys was an ongoing process. When new recruits from colleges joined Infosys, they were trained through fresher
training courses. They were trained then on new processes and technologies. As they reached the higher levels, they were trained
on project management and later were sent for management development programs, followed by leadership development programs.
Infosys conducted a 14.5 week technical training program for all new entrants. The company spent around Rs 200,000 per year on
training each new entrant. The new recruits were trained at the Global Education Center (GEC) in Mysore, which had world class
training facilities and the capacity to train more than 4500 employees at a time. GEC, which was inaugurated in February 2005 was
spread over 270 acres and was the largest corporate training center in the world with 58 training rooms and 183 faculty rooms.
Infosys also conducted training programs for experienced employees. The company had a competency system in place which took
into account individual performance, organizational priorities, and feedback from the clients.
The Infosys Leadership Institute (ILI) was set up in 2001 to nurture future leaders in the company and to effectively manage the
exceptional growth that the company was experiencing. At the Institute, the executives were groomed to handle the changes in the
external and internal environment.
The first step toward carrying out performance appraisal at Infosys was the evaluation of personal skills for the tasks assigned to an
employee during the period of appraisal. To evaluate the performance, different criteria like timeliness, quality of work carried out
by the employee, customer satisfaction, peer satisfaction, and business potential, were considered. The personal skills of the
employees were also evaluated based on their learning and analytical ability, communication skills, decision making, change
management, and planning and organizing skills. Each of these criteria was measured on a scale of 1 to 5 (with 1 signifying above
the expected performance level and 5 below the expected performance level).
Infosys tried to preserve the attributes of a small company and worked in small groups, with decision-making remaining with those
who were knowledgeable about particular processes. The managers played the role of mentors and used their experience to guide
their team members.
With the IT industry growing at a rapid pace, Infosys planned to recruit around 25,000 people in the financial year 2006-07, in
order to maintain its growth. Though it had started hiring its workforce globally, it mainly recruited engineering graduates from
India. If the industry continued to grow at a similar pace, analysts opined that companies like Infosys would not be able to find
enough people, especially with several multinationals entering India and recruiting aggressively. To address this issue, Infosys
started recruiting science graduates with a mathematics background to create an alternate talent pool.
Caselet 3
Read the caselet carefully and answer the following questions:
< Answer >
6. What could be the reasons behind Kim Woo Choong’s decision to sell Daewoo Group's shipyards and
electronics?
(8 marks)
< Answer >
7. With respect to the caselet, explain why GM was showing interest in Daewoo. Also, explain the benefits that
Daewoo will gain after being acquired by GM.
(7 marks)
In the late 1990s, the leading South Korean car manufacturer, Daewoo Motors (Daewoo), was in deep financial trouble. For the
financial year ending 1999-2000, Daewoo generated revenues of $197.8 million and net loss after tax of $10.43 billion. The
company's revenues had dropped by 94 percent since 1999. The loss was regarded as South Korea's largest ever corporate loss.
Apart from this, the company's domestic market share came down to 23 percent in 2000 from 33 percent in 1998.
According to analysts, borrowings by the company for its expansion programs were considered the reasons for the losses. By
December 1999, the company's domestic and foreign debt amounted to more than $16.06 billion. The entry into risky markets and
selling products at very low price in order to gain market share are the other reasons that affected the company's financial
condition. Even there was labour unrest, which aggravated the problem. However, some analysts felt that the primary reason for
Daewoo's problems was mismanagement and the corrupt corporate governance practices adopted by Kim Woo Choong (Kim), the
founder of the Daewoo group. In 1999, Kim came up with a restructuring plan. He planned to sell about $7.5 billion worth of assets
of other companies of the group and concentrate on the automobiles and finance business. Though the creditors appreciated the
plan, it seemed difficult to execute. Kim planned to sell Daewoo Group's shipyards to a Japanese company, but Japan was planning
to reduce its own shipyards by 50 percent. Kim also planned to exchange the Group's electronics business for the Samsung Group's
car division. However, Samsung was not interested in buying the debt-ridden Daewoo electronics.
Since Kim was not able to execute his restructuring plan successfully, in July 1999, the South Korean government declared
Daewoo insolvent and put the company on sale. In November 2000, the Korean Government officially announced Daewoo's
bankruptcy and its assets were put on sale. The government also set up a committee for restructuring Daewoo. Around the same
time when the company was about to be announced bankrupt, General Motors (GM), Ford and Daimler-Chrysler expressed interest
in acquiring Daewoo. By June 2000, Ford entered into negotiations with the committee. However, after a few months of
negotiations, Ford reported that its due diligence had revealed some discrepancies in Daewoo's valuation of its assets. In September
2000, Ford announced the withdrawal of its offer, citing the discrepancies in Daewoo's accounts as the primary reason. From
August 2000, Daewoo stopped paying its 19,000 employees since further loans were not sanctioned to the company.
Meanwhile, Daewoo employees opposed the sale of the company to a foreign automaker. There were strikes at all Daewoo plants
in Korea. One of the South Korea's largest trade union groups, Korean Confederation of Trade Unions, also protested the sell-off.
There were also protests from a group of activists comprising some high-profile members of the country. The group launched a
campaign offering to buy Daewoo and name it a 'people's company."
In October 2000, GM and its partners, including Isuzu Motors, Fuji Heavy Industries and Suzuki Motors, announced their interest
in acquiring a part of Daewoo's assets. GM also insisted on the completion of the restructuring plan, which involved laying off
hundreds of workers at various Daewoo plants.
Amidst revolts and controversies, an agreement was reached between the Korean government and GM in September 2001. GM
signed a memorandum of understanding with Daewoo's creditors to acquire two plants in Korea and one each in Egypt and
Vietnam, along with all their outstanding debts for $1.2 billion. The agreement also included the acquisition of 22 sales units of the
company across the world. However, this agreement ran into problems when GM reported a discrepancy in Daewoo's overseas
accounts. In February 2002, GM made a renewed bid for some of the Daewoo's assets to its main creditor KDB. In this bid, GM
expressed interest in only nine sales units of Daewoo as against the earlier 22. It also refused to pay the $260 million debt of these
units as it had discovered new debts in some of Daewoo's overseas operations, including Daewoo's plant in Egypt.
In April 2002, GM and Daewoo's creditors arrived at an agreement. According to this agreement, GM would create a new
company, which would be owned jointly by Daewoo's creditors and GM. GM would own a 75 percent stake in the new company,
with an investment of $400 million. Creditors were to pay $137 million for the remaining 33 percent stake.
According to analysts, GM's acquisition of Daewoo seemed to be the ideal solution for the latter's problems. An analyst
commented, "GM badly needs Daewoo to establish a beachhead in the Asian market. And without GM, Daewoo will simply
collapse." They also opined that GM was the ideal buyer as it had owned a 50 percent stake in Daewoo till 1992. Analysts felt that
in the long run, GM could use Daewoo to gain a foothold in Asia. Moreover, GM was facing problems in the US. Tough its sales
were more than those of Daimler-Chrysler and Ford, GM's net earning were decreasing. Prior to the acquisition, GM depended
solely on its European subsidiary Ada Opel to manufacture small cars for developing countries. However, some analysts felt that
restoring Daewoo's brand image would require a lot of time and money. Alan Perriton, who was in charge of GM's business
development in Asia, commented, "Daewoo's acquisition gives us high-quality, low-cost products for the rest of Asia. However,
sales have been hit so badly because Koreans weren't sure Daewoo would survive. We have to let customers know that the
company is back in business and stand behind its products." However, some analysts felt that GM was adding to its problems by
acquiring a company like Daewoo.
END OF SECTION B

Section C : Applied Theory (20 Marks)

• This section consists of questions with serial number 8 - 9.
• Answer all questions. 0
• Marks are indicated against each question.
• Do not spend more than 25 -30 minutes on section C.

< Answer >

8. Today’s successful business strategies can be traced back to military strategies that have been used effectively
from ancient Greece to Deserts Storm. Strategic principles remain unchanged through time and context. In
this context, define strategic management and explain the various tasks that strategic management comprises
of.
(10 marks)
< Answer >
9. The structure is considered to be the best, based on the strategy of the firm. The key activities and resources of
the firm are tied together by the structural design.
a. Explain the relation between structure and strategies.
b. Coordination is a must in the organization for a smooth functioning. But, if the coordination is lacking in
the large functional structure across the organization, the company’s performance will get disturbed.
How can it be figured out?
(7 + 3 = 10 marks)
END OF SECTION C

END OF QUESTION PAPER

 Suggested Answers
Business Policy & Strategy (MB311) : April 2007
Section A : Basic Concepts
1. Answer : (b) < TOP >

Reason: A business firm should maintain dependable relationships with its suppliers with its suppliers and
creditors for its long-term survival. In addition to strong ties with suppliers and creditors, several other
related factors should also be considered. With regard to its position with its creditors, the questions to
be considered are:
• Is the stock fairly valued and willingly accepted as collateral?
• Do creditors perceive the firm as having an acceptable record of past payment?
• Are creditors current loan terms compatible with the firm’s profitability objectives?
• Are creditors able to extend the necessary line of credit?
So option (d) is not a question that is needed to be considered.
2. Answer : (d) < TOP >

Reason: the designing of business strategies involves a systematic approach which is multifaceted, complex and
requires assesment in depth. Hence option (d) is the answer.
3. Answer : (c) < TOP >

Reason: Divisional structure allows corporate management to delegate authority for the strategic management of
a distinct business entity
4. Answer : (d) < TOP >

Reason: the four basic considerations that are empasized by firms managing a strategy-culture relationships are:
• Key changes should be visibly linked to the basic company mission
• Emphasis should be placed on the use of existing personnel
• Care should be taken if adjustments in the reward system are needed
• Key attention should be paid to the changes that are least compatible with the current culture. But
not emphasis should be placed on the use of new recruitment
Hence the option (d) is the answer.
5. Answer : (c) < TOP >

Reason: The specific reasons for adopting retrenchment strategies could be:
• Existence of poor economic conditions
• Operation and product inefficiencies
• Inability of the firm to implement latest technology
• The company has not met its objectives and there is pressure from shareholders or customers to
improve performance
• Excessive competitive pressures
• When the strengths are insufficient to face the threats posed by the environment.
Hence option (c) is the answer.
6. Answer : (e) < TOP >

Reason: in e-commerce selling is over when the order is received and paid for, but purchasing is said to be over
only when the good has been delivered and purchaser’s want has been satisfied.
7. Answer : (c) < TOP >

Reason: Goals indicate a desired future state that a company attempts to realize. To be meaningful, goals should
have three main charecteristics. They are:
• The goals should be precise and measurable.
• The goals should address important issues.
• The goals should specify a time period in which they should be achieved.
Hence the option (c) is the correct answer.
8. Answer : (c) < TOP >

Reason: The following are true about the formal offering memorandum:
• Preparation of a formal offering memorandum is not required for all divestitures.
• A formal offering memorandum is essential if the business being sold is to be offered, to number
of potential buyer, either sequentially or on a competitive bidding basis.
• Offering memorandum may not be necessary if the selling corporation is highly confident of
knowing the buyer and that the deal will be done with that one party.
• The offering memorandum must provide sufficient details to the perspective buyers to ascertain
their genuine interest in acquiring the business.
And the following are not true:
• A formal offering memorandum is essential if the business being sold is to be offered, to one
potential buyer, either sequentially or on a competitive bidding basis.
• Offering memorandum is necessary if the selling corporation is highly confident of knowing the
buyer and that the deal will be done with that one party.
Hence option (c) is the answer.
9. Answer : (d) < TOP >

Reason: changes in ownership structure includes exchange offers, share repurchase, going private and leveraged
buy-out. Hence option (d), diversification is the answer.
10. Answer : (b) < TOP >

Reason: Milestone review involves a full-scale reassessment of the strategy and the advisability of continuing or
refocusing the direction of the company
11. Answer : (a) < TOP >

Reason: A procedure is a prescribed series of related steps to be taken under certain recurring circumstances.
Well established and formalized procedures are called SOP’s. SOP means Standard operating
procedures.
12. Answer : (c) < TOP >

Reason: Luostarinen & Hellman, attempted to integrate all the three models of internationalization. According to
them, the internationalization process of a firm usually starts with an inward process.
13. Answer : (b) < TOP >

Reason: corporate portfolio analysis has to be adaptable to multiproduct market firms in which each
product/market is managed as a separate business or profit center because the firm is not dominated by
one product market.
14. Answer : (c) < TOP >

Reason: Functional strategies for personnel management are the basis for decisions pertaining to compensation,
labor relations, discipline and control, to enhance the productivity and motivation of the workforce. The
following is are the questions relevant in achieving these objectives:
• What are the standards for promotions?
• How should payment, incentive plans, benefits and seniority policies be laid out?
• Should there be hiring preferences?
• What are the appropriate disiplinary steps for various types of undesireble behavior?
Hence option (c) is the answer.
15. Answer : (e) < TOP >

Reason: All the statements are true except (II). Assigning assets to activities is more complicated than assigning
operating costs.
16. Answer : (c) < TOP >

Reason: Several approaches can be suggested to increase such flexibility:

• The strategy must be stated in general terms.
• The strategies must be treated as rules with exceptions.
• The options must be kept open.
Hence option (c) is the answer.
17. Answer : (b) < TOP >

Reason: If ONGC an oil company engaged in the exploration and production of oil merges with Reliance
company, which is involved in the refining and marketing of oil, then this would be an example of
Vertical merger.
A vertical merger takes place when one firm acquires another firm that is in the same industry but at
different stage of production.
18. Answer : (d) < TOP >

Reason: The difference between equity carve-out and spin-offs:

(III) In a equity carve-out certain proportion of the subsidiary’s shares are offered to the general public,
bringing an infusion of cash to the parent company without the loss of control. However in a spin-
off a company distributes all the shares of its own subsidiaries to its own shareholders on pro-rata
basis.
(I) is false as in equity carve-out shares of an wholly owned are offered to the general public and not
transferred to any subsidiary. However, in spin-off the shares of subsidiary are distributed to its
own shareholders and not to public in general.
(II) is incorrect as the management policy affects the change of debt in the company.
(IV) is incorrect as in an equity carve-out shares of a wholly owned are offered to the general public
and in spin-offs shares of subsidiary are distributed to its own shareholders and not to public in
general.
19. Answer : (c) < TOP >

Reason : The statements are appropriately pointing towards the reason, which is often called as misjudging
success requirements. So the alternative (c) is the answer.
Other reasons are explained as follows: (a) Small firms often feel they are too small to be important in
their field. (b) A company doing well may conclude that it has superior ability and can be successful in
almost any business. Management often forgets the years of experience it took to earn the success being
achieved. Such firms lack this experience in the new business. (d) Forward and backward integration
creates opportunities to control resources or markets. (e) Spreading resources too thin may cause an
organization to overlook opportunities in its existing field.
20. Answer : (d) < TOP >

Reason: The indicators to assess the power of external stakeholders are :

• The status
• Resource dependence
• Negotiating arrangements
• Symbols.
Thus option (d) is the answer.
21. Answer : (d) < TOP >

Reason: Managers of the business organizations should have four social responsibilities:
• Economic
• Legal
• Ethical
• Discretionary.
Hence the option (d) answer.
< TOP >
22. Answer : (b)
Reason: If a firm believes in and prefers an internal emphasis for maximizing strengths, four alternative
strategies hold considerable promise in Quadrant III. The strategies are:
• Concentration
• Market Development
• Product Development
• Innovation.
Hence the option (b) is the answer.
< TOP >
23. Answer : (b)
Reason: A firm enters into coalitions to gain certain advantages. The various advantages are:
• Broaden the scope of operations without broadening the firm.
• Firm gets an opportunity to share its activities without entering new industry segments.
• Does not involve coordination problems.
The following statements are not true:
• It involves the short term relationships.
• Entering the Coalition is a simple process.
Hence the option (b) is the correct answer.
24. Answer : (b) < TOP >

Reason: In strategy implementation, the nature of the General Manager’s role is of both symbolic and
aubstantative.
25. Answer : (a) < TOP >

Reason: The principles of a good policy are:

• Policies should reflect objectives
• Policies should be consistent
• Policies should be flexible
• Policies should be communicated, taught and understood
• Policies should be controlled
Hence the option (a) is the answer.
26. Answer : (d) < TOP >

Reason: refreezing takes place when change patterns are accepted and followed willingly. Often rewards are
influential in ensuring that refreezing takes place.
27. Answer : (d) < TOP >

Reason: A threat refers to an extremely unfavorable situation in the firm’s environment. Which of the following
are the threats for a firm:
• Slow market growth
• Entry of resourceful multinational companies/competitors
• Increased bargaining power of key buyers or suppliers
• Quick rate of obsolescence due to major technological change
• Adverse changes in government policies, rules and regulations.
Hence the option (d) is the answer.
28. Answer : (a) < TOP >

Reason: According to Ansoff there is no universal formula for all firms.

29. Answer : (d) < TOP >

Reason: (I) The assumption of value chain analysis is based on the belief that to divide firms activities into
two major categories is correct.
(II) The assumption of value chain analysis is based on the belief that, to acquire in-depth
understanding of firms capability is correct
(III) The assumption of value chain analysis is based on the belief that, to create value for both
producer of products or service and its users is correct
(IV) The assumption of value chain analysis is based on the belief that it is a process of external
analysis is incorrect.
Hence option (d) is the answer.
30. Answer : (e) < TOP >

Reason : The appropriate business factor is the competitive situation i.e. alternative (e). Alternative (a), (b), (c)
and (d) are respectively economic factor, political factor, geographic factor, and capital source factor.
So the correctiv answer is alternative (e).

Section B : Problems
1. The various reasons behind the acquisition of Hutch by Vodafone: < TOP >

• The European market was saturated, so the company was looking to invest in some developing countries.
India was one of their targets.
• Through the acquisitions, the company can expand its business operations to other countries.
• By the acquisition of Hutch, Vodafone could easily enter the prosperous market of India.
• Vodafone need not have to start from the scratch, as there was a readymade market created by Hutch.
• Vodafone can utilize its vast experience in telecom industry to attract more business.
• Vodafone had a greater scope to cover more market, as only150 million from 1.1 billion population used
the mobile services.
• Vodafone will have a high morale boost by the acquisition as competed with the three biggest competitors.
2. THE SELLING PROCESS < TOP >
The four key elements that constitute the selling process are: (1) identification of prospective buyers, (2)
selection of the type of selling process to be utilized, (3) business reviews, and (4) negotiation of the transaction
and closing the deal.
• Identifying Potential Buyers
Identification of potential buyers by the project team initiates the selling process. Potential buyers, in
general, can be categorized into direct competitors, companies in similar types of businesses, buyers who
want to broaden their product lines, buyers looking for operational economies of scale, suppliers and
customers, and others such as companies seeking diversification, holding companies, investment groups,
and venture capitalists.
• Selecting the Selling Process
There are, basically, four different methods of selling a business, each having its own advantages and
disadvantages. The selection of the selling process depends on the nature of the business being sold and
the objectives of the selling corporation. The four methods are as given under:
• Competitive bidding
This process helps produce the highest bidder and the best deal structure for the selling corporation,
if correctly managed. The process of competitive bidding is most effective when 5 to 10 potential
buyers have been identified and when the potential buyer list contains diverse strategic objectives.
• Sequential selling
This method involves establishing a priorityty list of potential buyers after the identification of
prospective purchasers. The selling corporation offers the business to what it believes to be the most
likely potential buyer and, if unsuccessful, moves down the pre-established priority list. If successful
with the very first potential buyer, this-process is obviously a much easier process to manage than
competitive bidding.
• One buyer
If, in the process of identifying potential buyers, only one prospective purchaser can be identified,
the seller is left with little negotiating leverage. The resulting transaction is hence not likely to meet
all of the seller's objectives.
• Going public
Divestiture of a business through an initial public offering is completely different from selling it
through a private transaction. In order to go public, the entity to be sold must have an established
history of profits and growth or a proprietary product or service on which a public market price can
be based.
• Business Reviews
The primary objective of business reviews is to provide sufficient information to prospective purchasers,
which is necessary for the preparation of firm offers for the business. Information exchange, therefore,
invariably includes discussions about the deal structure and the purchase price.

• Negotiating and Closing the Transaction

A good negotiator knows when to be tough and when to be flexible on a specific point. The objective of
good negotiators is to maximize price and optimize the deal structure.
• Preparing for negotiations
Prior to initiating negotiations, the negotiating team should identify all the major points that are to be
discussed and should evaluate these in the context of the overall objective of the divestiture.
• Conducting the negotiations
There are several steps involved in actual negotiations. The first step of the negotiation deals with
reaching an agreement in principle.
• Due diligence examinations
After having reached and documenting agreement on the major points of the transaction, the
purchaser expects to conduct a due diligence examination of appropriate books, records, and
facilities of the business for verifying the financial statement and other information.
• The purchase agreement
The next step in the conduct of negotiations involves the preparation of the definitive purchase
 agreement and any supplementary agreements that may be required. The process involves numerous
drafts and revisions prior to the closing.
• Closing the transaction
Usually, closing of a transaction involves signing of agreements, exchanging of the proceeds of the
transaction.
Hutch has followed ‘Competitive Bidding’ method to sell its business.
3. ANTITAKEOVER AMENDMENTS < TOP >

Anti-takeover amendments are amendments to the firm's corporate charter, which are intended to make it more
difficult for an unwanted acquirer to take over the firm. These are popularly called shark repellents. As is the
case for all charter amendments, anti-takeover amendments must be voted on and approved by shareholders.
There are various types of anti-takeover amendments:
• Super majority amendments
Under such amendments, shareholder approval by at least a two-thirds vote and sometimes even 90 percent
of the voting power of outstanding capital stock is required for change of control. In many cases, a board-
out clause is introduced, which empowers the board to determine when and if the supermajority provisions
will be in effect. The management's flexibility in takeover negotiations gets limited as a result of pure
supermajority provisions.
• Fair price amendments
The corporate charter may be amended to require supermajority provisions with a board-out clause, and an
additional clause which waives the requirement of supermajority if a fair price is paid for all the shares
purchased. Fair price is defined as the highest price paid by the bidder during a specified period, and is
sometimes required to exceed the book value of the target, or an amount determined relative to accounting
earnings.
• Classified boards
Staggered, or classified, boards of directors are another major type of anti-takeover initiative. The
rationale behind proposing a staggered board or classified board is to ensure continuity of policy and
experience. For example, if a board has nine members, it will be divided into three classes with only three
members standing for election for a three-year term each year. A new shareholder would have to wait at
least two annual general meetings to gain control of the board of directors.
• Authorization of preferred stock
Board of directors have the discretion to create a new class of securities with special voting rights. In a
control contest these securities are offered to friendly parties. Though this method has been traditionally
used as a tool to give the board of directors flexibility in financing under dynamic economic conditions, it
is basically a defensive measure against hostile takeover bids.
4. Most of the HR practices of Infosys were a result of the vision of its founders and the culture that they had < TOP >
created over the years. The founders advocated simplicity and maintained the culture of a small company. The
employees were encouraged to share their learning experiences.
• While recruiting new employees, Infosys took adequate care to identify the right candidates. On the
qualities that Infosys looked for in a candidate, who display a high degree of 'learnability.' Company also
place significant importance on professional competence and academic excellence. Other qualities are
analytical ability, teamwork and leadership potential, communication and innovation skills, along with a
practical and structured approach to problem solving."
• Training at Infosys was an ongoing process. When new recruits from colleges joined Infosys, they were
trained through fresher training courses. They were trained then on new processes and technologies. As
they reached the higher levels, they were trained on project management and later were sent for
management development programs, followed by leadership development programs.
• Infosys conducted a 14.5 week technical training program for all new entrants. The company spent around
Rs 200,000 per year on training each new entrant.
• Infosys also conducted training programs for experienced employees. The company had a competency
system in place which took into account individual performance, organizational priorities, and feedback
 from the clients.
• The Infosys Leadership Institute (ILI) was set up in 2001 to nurture future leaders in the company and to
effectively manage the exceptional growth that the company was experiencing. At the Institute, the
executives were groomed to handle the changes in the external and internal environment.
• The first step toward carrying out performance appraisal at Infosys was the evaluation of personal skills
for the tasks assigned to an employee during the period of appraisal. To evaluate the performance,
different criteria like timeliness, quality of work carried out by the employee, customer satisfaction, peer
satisfaction, and business potential, were considered. The personal skills of the employees were also
evaluated based on their learning and analytical ability, communication skills, decision making, change
management, and planning and organizing skills. Each of these criteria was measured on a scale of 1 to 5
(with 1 signifying above the expected performance level and 5 below the expected performance level).
• Infosys tried to preserve the attributes of a small company and worked in small groups, with decision-
making remaining with those who were knowledgeable about particular processes. The managers played
the role of mentors and used their experience to guide their team members.
5. Organizational culture is the set of important assumptions that members of an organization share in common. < TOP >
Culture is strength as well as a weakness.
The five basic processes that lie at the heart of any organization are cooperation, decision-making, control,
communication and commitment.
• Cooperation
True cooperation cannot ultimately be legislated. Managements can resort to carefully worded
employment contracts, spell out detailed expectations, and devise clever incentive schemes to reward first
the right behavior.
• Decision Making
Shared beliefs and values give organizational members a consistent set of basic assumptions and
preferences. This leads to a more efficient decision making process since fewer disagreements arise over
which premises should prevail.
• Control
The essence of control is the ability to take action to achieve planned results. The basis for action is
provided by two different control mechanisms - formal procedures and clans.
• Communication
The major reasons people miscommunicate daily in organizational and every day life include the technical
problem of distortion between the point where a communication starts out and the point where it is
received. A second and more important hurdle in communication concerns difficulties in interpretation.
No two people will interpret a statement the same way.
Culture reduces these dangers of miscommunication in two ways. First, there is no need to communicate
in matters for which shared assumptions already exist. Certain things go without saying. Second, shared
assumptions provide guidelines and cues to help interpret messages that are received. Thus, a strong
culture encourages efficient and effective communication. The advantage of this efficiency and
effectiveness should not be underestimated - since communications are the lifeblood of organizations.
• Commitment
A person feels committed to an organization when he or she identifies with it and experiences some
emotional attachment to it. A variety of incentives – salary, prestige, personal sense of worth - tie the
individual to the organization. Strong cultures foster strong identification and feelings through multiple
beliefs and values that the individual can share with others.
6. During late 1990s, the leading South Korean car manufacturer, Daewoo Motors (Daewoo), was in deep < TOP >
financial trouble. The net loss after tax was $10.43 billion in the financial year ending 1999-2000. The
company's revenues had dropped by 94 percent since 1999. The loss was regarded as South Korea's largest ever
corporate loss. Apart from this, the company's domestic market share came down to 23 percent in 2000 from 33
percent in 1998. The company's domestic and foreign debt amounted to more than $16.06 billion by 1999.
Therefore, these factors played a role in divestment decision of Daewoo Group by Kim Woo Choong (KIM),
 the founder of the Daewoo group.
To turnaround the company's fortunes, in 1999, Kim came up with a restructuring plan. He planned to sell
about $7.5 billion worth of assets of other companies of the group and concentrate on the automobiles and
finance business. He even planned to sell Daewoo Group's shipyards to a Japanese company and electronic
business to Samsung Group. Based on this, we can say that the divestment decision plans falls under planned
category.
The possible reasons behind Kim's decision to sell Daewoo Group's shipyards and electronics are:
• Change in corporate goals
• Change in corporate image
• Poor business fit
Change in corporate goals- Generally, this is the common reason for companies to begin divestment
programs. Most of the companies use the statement as a mask to divest any division. Kim also might have
thought of using this statement as a mask.
Change in corporate image – In order to change its image, Kim might have brought in this divestment,
because Daewoo's shipyards and electronic businesses do not have long-term potential as they are not
Daewoo's core activities.
Poor business fit- One more reason for the divestment decision of the company's shipyards and electronics
could be the divisions' inability to fit with the core divisions of the company.
7. GM was one of the largest automobile manufacturers in the world. It had presence in different continents which < TOP >
included manufacturing plants. There are many reasons for GM showing interest in Daewoo. By acquiring
Daewoo, GM can establish a strong presence in the Asian market. GM can leverage on the marketing and
distribution strength of Daewoo. GM will get access to the manufacturing plants of Daewoo and the
distribution channels of Daewoo. All these can help GM to strengthen its position in the Asian market.
Daewoo will also benefit from being acquired by GM. Daewoo was in financial mess. The company needed a
financially sound company to infuse capital and take Daewoo out of the mess. GM being one of the world's
largest automobile company was in good financial health and could afford to infuse funds into Daewoo. Thus
Daewoo needed a savior who could rescue the company from the financial trouble and the savior could be GM.

Section C: Applied Theory

8. MAKING STRATEGIC DECISIONS < TOP >

Strategic management is defined as the set of decisions and actions that result in the formulation and
implementation of plans designed to achieve a company's objectives.
Strategic management comprises nine critical tasks:
• Formulating the company's mission, including broad statements about its purpose, philosophy and goals.
• Developing a company profile that reflects its internal conditions and capabilities.
• Assessing the company's external environment, including both the competitive and general contextual factors.
• Analyzing the company's options by matching its resources with the external environment.
• Identifying the most desirable options by evaluating each option in light of the company's mission.
• Selecting a set of long-term objectives and grand strategies that will achieve the most desirable options.
• Developing annual objectives and short -term strategies that are compatible with the selected set of long-term
objectives and grand strategies.
• Implementing the strategic choices by means of budgeted resource allocations in which the matching of tasks,
people, structures, technologies and reward systems is emphasized.
• Evaluating the success of the strategic process-as an input for future decision making.
9. a. Most organizations have structures that have emerged overtime rather than resulting from deliberate attempts < TOP >
to design the ideal organization. These emerging structures must be efficient to maintain the growth of
organization. Due to the lack of ideal structure all firms suffer from weaknesses and problems that derive
from the way people are organized. Structure can influence the strategy of the firm particularly where one
function tends to dominate the senior management positions. Structure can also reduce firm’s ability can also
be reduced by structure to adapt to external changes. Some organizations which are excessively rigid impede
 flexibility and can suppress creativity and initiative. Some firms adapt their strategies over time but they do
not readjust their structure to match tile new strategy. For instance, consider a firm that grows through tile
success of a single product. The firm then introduces new products in tile same broad market to sustain tile
past growth rate, finally leading to a highly expanded multi-product firm. What tends to happen to the
structure during tile phase of expansion and product diversification is as follows.
1. The early phase of rapid growth is coped with through an informal structure, with little specialization.
2. This is followed by a professionalization of the firm as tile need for systems and specialists becomes
essential to cope with the expanding size of the business. Typically, functional specialism emerges in
finance and accounting, production, administration and sales.
3. The problems arise when firms stick with this functional structure as they become increasingly large and
diverse. As more people join the number of management level increases, resulting in communication
problems up and down the hierarchy. Functional goals tend to leave no-one looking after the needs of a
particular product or customer, people just do their bit and pass it on to the next department.
b. Coordination is a must in the organization for a smooth functioning. But. if the coordination is lacking in the
large functional structure across the organization, the company's performance will get disturbed. There are
number of ways of tackling this problem.
1. Break the firm up into smaller business units that can focus on particular products, or markets.
2. Introduce staffs who is responsible for co-ordinating activities across the functions (product managers.
project leaders).
3. Formalize the role of the Product/Project managers in a matrix structure.
< TOP OF THE DOCUMENT >