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 Examination Paper of Financial Management

IIBM Institute of Business Management

IIBM Institute of Business Management

Subject Code-B-103

Examination Paper Financial Management

MM.100

Section A: Objective Type & Short Questions (30 marks)

Part one:

Multiple choice:

I.Investment is the… (1)

a) Net additions made to the nation’s capital stocks

b) Person’s commitment to buy a flat or house

c) Employment of funds on assets to earn returns

d) Employment of funds on goods and services that are used in production process

II. Financial Management is mainly concerned with... (1)

a) All aspects of acquiring and utilizing financial resources for firms activities

b) Arrangement of funds

c) Efficient Management of every business

d) Profit maximization

III. The Primary goal of the financial management is….. (1)

a. To maximize the return

b. To minimize the risk

c. To maximize the wealth of owners

d. To maximize profit

IV. In his traditional role the finance Manager is responsible for (1)

a. Proper utilization of funds

b. Arrangement of financial resources

c. Acquiring capital assets of the organization

d. Efficient management of capital

 This section consists of multiple choices and Short Notes type questions.

 Answer all the questions.

 Part one questions carry 1 mark each & Part two questions carry 5 marks each.

Examination Paper of Financial Management

IIBM Institute of Business Management

V.Market Value of the shares are decided by

(1)

a. The respective companies

b. The investment market

c. The government

d. Shareholders

VI. The only feasible purpose of financial management is (1) a. Wealth maximization b. Sales maximization c. Profit maximization d. Assets maximization

VII. Financial management process deals with (1)

a. Investments

b. Financing decisions

c. Both a and b

d. None of the above

VIII. Agency cost consists of

(1)

a. Binding

b. Monitoring

c. Opportunity and structure cost

d. All of the above

IX. Finance Function comprises

(1)

a. Safe custody of funds only

b. Expenditure of funds only

c. Procurement of finance only

d. Procurement & effective use of funds

X.Financial management mainly focuses on (1)

a. Efficient management of every business

b. Brand dimension

c. Arrangement of funds

d. All elements of acquiring and using means of financial resources for financial activities

Part Two:

1. What Is The Financial Management Reform? (5)

2. Why Was The FMR Introduced? (5)

3. What Changes Will The FMR Introduce? (5)

4. What Is Financial Management Information System (FMIS)? (5)

END OF SECTION A

Examination Paper of Financial Management

IIBM Institute of Business Management

Section B: Caselets (40 marks)

Caselet 1

Your employer, a mid-sized human resources management company, is considering expansion into related fields, including the acquisition of Temp Force Company, an employment agency that supplies word processor operators and computer programmers to businesses with temporary heavy workloads. Your employer is also considering the purchase of a bigger staff & McDonald (B&M), a privately held company owned by two friends, each with 5 million shares of stock. B&M currently has free cash flow of $24 million, which is expected to grow at a constant rate of 5%. B&M’s financial statements report marketable securities of $100 million, debt of $200 million, and preferred stock of $50 million. B&M’s weighted average cost of capital (WACC) is 11%. Answer the following questions

Questions

1. Describe briefly the legal rights and privileges of common stockholders. (20)

Caselet 2

Casino is a large electrical construction company having a turnover of Rs.100 crores per annum. Since a few years the company has not been doing well in terms of profits. In order to find out the reason, a group of independent auditors were deployed to examine the operations of the company. The item they felt that needed closer attention was the budget control of new construction work. The audit showed that most electrical designs for new construction were carried out at the headquarters of the company by a project manager. In preparing a budget for a new project, he checked the expenses for similar jobs in the past, then simply multiplied them by various factors. The auditors found that during the past two years, most budgets were greatly overestimated. Incidentally, it was about two years ago that the project manager was given the primary responsibility for budgeting. In this role, he would submit his budget to the Expenditure Control Committee, consisting of higher-level managers who had only a limited interest in budgeting. It was to this committee that the project manager submitted requests for additional money whenever needed. Most of the requests were approved.

The chief auditor felt that the project team tended to "expand" the time needed to complete the task whenever the members thought the budget made it possible. In other words, they "adjusted" their productivity to match the money allocated to the project.

The auditors noted that other contractors could do similar jobs for 20% less money. They concluded that a new control procedure was needed.

 This section consists of Caselets.

 Answer all the questions.

 Each Caselet carries 20marks.

 Detailed information should form the part of your answer (Word limit 150 to 200 words).

Examination Paper of Financial Management

IIBM Institute of Business Management

Questions

1. What do you think of the budgeting process? (10)

2. What kind of control procedure should the auditors recommend? (10)

Section C: Applied Theory (30 marks)

1. Differentiate Between the Financial Management and Financial Accounting? (15)

2. Explain Briefly The Limitations of Financial Ratios? (15)

S-2-010619

 This section consists of Applied Theory Questions.

 Answer all the questions.

 Each question carries 15marks.

 Detailed information should form the part of your answer (Word limit 200 to 250 words).

END OF SECTION C

END OF SECTION B

Examination Paper of Organizational Behaviour

IIBM Institute of Business Management

IIBM Institute of Business Management

Subject Code-B105

Examination Paper

Organizational Behaviour

MM.100

Section A: Objective Type & Short Questions (30 marks)

Part one:

Multiple choice:

I.Scientific Management approach is developed by (1)

a) Elton Mayo

b) Henry Fayol

c) F.W. Taylor

d) A. Maslow

II. What sort of goals does Management by Objectives (MBO) emphasize? (1)

a) Tangible, verifiable and measurable

b) Achievable, controllable and profitable

c) Challenging, emotional and constructive

d) Hierarchical, attainable and effective

III. What is the most relevant application of perception

concepts to OB? (1)

a. The perceptions people form about each other

b. The perceptions people form about their employer

c. The perceptions people form about their culture

IV. Goal setting theory is pioneered by (1)

a. Stacy Adams

b. Charms

c. Edwin Locke

d. F. W. Taylor

d. The perceptions people from about society

 This section consists of multiple choices and Short Notes type questions.

 Answer all the questions.

 Part one questions carry 1 mark each & Part two questions carry 5 marks each.

Examination Paper of Organizational Behaviour

IIBM Institute of Business Management

V. Which of the following is/are not organizational factors causing stress? (1)

a. Task demand

b. Role demand

c. Role conflict

d. Satisfaction VI. In which stage of the conflict process does conflict become visible? (1) a. Illumination b. Intentions c. Behavior d. Cognition

VII. In --------------leadership, there is a complete centralization of authority in the leader

(1)

a. Democratic

b. Autocratic

c. Free rein

d. Bureaucratic

VIII. Which of the following is not a contingency theory of leadership?

a. LPC theory

b. Path Goal theory

c. Vroom-Yetton-Jago theory

d. Job centered Leadership

IX. A technique to bring changes in the entire organization, rather man focusing attention on individuals to bring changes easily. (1)

a. Organizational development

b. Organizational change

c. Organizational culture

d. Organizational conflicts

X. Which one is not a Process Based Theory of motivation? (1)

a) Porter Lawler Theory

b) Mcclelland’s Theory

c) Stacy Adams Theory

d) Vroom’s Theory

Part B:

1. Define Scientific Management. (5)

2. Explain Management by Objectives (MBO). (5)

3. Explain Five-Stage Model of group development. (5)

4. Write short note on Trait Theory. (5)

END OF SECTION A

IIBM Institute of Business Management

IIBM Institute of Organizational Behaviour

Section B: Caselets (40 marks)

Caselet1

Ms. Priyanka is a store manager of one of the fourteen Hàppy Home Furniture outlets that are located at all the major cities in the country. Her staff consists of twelve salespersons and support personnel. Each salesperson. is paid commission based on sales. All the salespersons are expected to do other tasks, such as assisting the merchandise manager, arranging the displays, and handling customer complaints. These tasks, and a few others, are to be shared equally among the sales persons.

The store's sales target is established at the headquarters of the furniture chain. This target is divided by the number of salespersons and each is expected to meet his or her personal target Mr. Ranjan, is the top salesperson at the outlet. When he misses his sales goal, which seldom happens, the store's target is usually not met. Ranjan, however, often does not help in doing the common tasks, much to the frustration of the other eleven salespeople, who feel that if they do not handle the common tasks, they will be fired.

Recently, Ms. Priyanka noticed that one of her salespeople, Mr. Manish„ made careless errors, neglected clients, and did not do his share of the common tasks. When confronted by the store manager, he complained about Mr. Ranjan., who, in his opinion, got away with doing almost nothing. After this discussion, Ms. Priyanka began to observe the salespersons more closely and noticed that most of them neglected their work and were not cooperative.

The store manager felt that something had to be done. A talk with Mr. Ranjan had little effect. Yet, the store needed Ranjan because of his excellent sales record. On the other hand, the morale of the other salespersons had begun to deteriorate.

Questions:

1. What Should Ms. Priyanka do? (10)

2. What are the standards of performance? Should they be changed? If so, in what ways? (10

Caselet2

MR. Ketan Parekh had worked his way up through the technical arm of ANC Company to become chief Engineer and the General Manager of the Avionics Division. He was an important inventor and innovator, in basic frequency-modulated continuous wave (FM-CW) Doppler radar technology. This Fm-cw technology gave Avionics a world leadership position in Doppler radar equipment design and production, All Avionics equipment design were state of the art at the time of their design, a result of the importance research and development engineering for the department's future.

As the division grew and Avionics's success with Doppler systems brought large increases in sales, Mr. Ketan's preoccupations became considerably more managerially than technical. He began to reassess some of his own thinking about organizations. The organization appeared too weak, both structurally and managerially, to cope with the increasing complexity of his

 This section consists of Caselets.

 Answer all the questions.

 Each Caselet carries 20marks.

 Detailed information should form the part of your answer (Word limit 150 to 200 words).

IIBM Institute of Business Management

IIBM Institute of Organizational Behaviour

division's activities. Mr. Ketan was finding it impossible to cope with the number of major decisions that had to be made. Six major programs and several minor ones were in different stages of design and/or production. All had different customers, sometimes in different countries. Every program's product although they were all Doppler radar systems, was significantly different from every other one, particularly in its technology. Nevertheless the programs had to share manufacturing facilities, major items of capital equipment, and specialized functions. Mr. Ketan felt he had to find some way to force the whole decision process down to some level below his own.

Question:

1. What is the principal problem with ANC's existing organizational Structure? (10)

2. How can the matrix form of organization assist Mr. Ketan? (10)

Section C: Applied Theory (30 marks)

1. What are the components of attitude? How does attitude determine the behavior of an

individual? (15)

2. Explain the factors that affect an organizational climate. What are the determinants of job satisfaction of employees inside the organization? (15)

S-2-010619

END OF SECTION B

 This section consists of Applied Theory Questions.

 Answer all the questions.

 Each question carries 15marks.

 Detailed information should form the part of your answer (Word limit 200 to 250 words).

END OF SECTION C

Examination Paper of Production and Operations Management

IIBM Institute of Business Management

IIBM Institute of Business Management

Subject Code-B107 Examination Paper

Production and Operations Management

MM.100

Section A: Objective Type & Short Questions (30 marks)

Part one:

Multiple choice:

I.The purpose of the transportation approach for locational analysis is to minimize (1)

a) Total costs

b) Total shipping costs

c) Total variable costs

d) Total fixed costs

II. Which of the following would not generally be a motive for a firm to hold inventories? To (1)

e) Take advantage of quantity discounts

f) Minimize holding costs

g) Reduce stock out risks

h) Decouple production from distribution

III. Which of the following are assignable cause? (1)

a. Large variations in hardness of material

b. Tool wear

c. Errors in setting

d. All of the above

IV. Like roots of a tree, ________of organization is hidden from direct view.

(1)

a. Goodwill

b. Core competence

c. Higher management

d. Capital investment

 This section consists of multiple choices and Short Notes type questions.

 Answer all the questions.

 Part one questions carry 1 mark each & Part two questions carry 5 marks each.

Examination Paper of Production and Operations Management

IIBM Institute of Business Management

V.Inadequate production capacity ultimately leads to (1)

a. Poor quality

b. Poor Customer Service

c. Poor inventory control

d. All of the above

VI. Limitations of Traditional cost accounting are (1) a. Assumes factory as an isolated entity b. It measures only the cost of producing c. Both (A) and (B) d. None of the above

VII. Business is rated on which dimensions

(1)

a. Market attractiveness

b. Business strength

c. Both (A) and (B)

d. None of the above

VIII. How does ‘structure’ reduce external uncertainty arising out of human behavior (1)

a. Research and planning

b. Forecasting

c. Both (A) and (B)

d. None of the above

IX. Objective of Work Study is to improve _______ (1)

a. Cycle time

b. Productivity

c. Production

d. All of the above

X. Which of the following are activities of corrective maintenance? (1)

a. Overhauling

b. Emergency repairs

c. Modifications and improvements

d. All of the above

Part Two:

1. What are the dimensions of quality? (5)

2. What is Quality? (5)

3. What is Materials Planning? (5)

4. Need for Inventory Management - Why do Companies hold inventories? (5)

Section B: Caselets (40 marks)

END OF SECTION A

 This section consists of Caselets.

 Answer all the questions.

 Each Caselet carries 20marks.

 Detailed information should form the part of your answer (Word limit 150 to 200 words).

IIBM Institute of Business Management

Examination Paper of Production and Operations Management

Caselet 1

The pizza business did well and by 1965, Thomas was able to open two more stores in the town -Pizza King and Pizza from the Prop. Within a year, Varti opened a pizza store in a neighborhood town with the same name, DomiNick's Pizza. Thomas decided to change the name of his first store, DomiNick's Pizza, and one of his employees suggested the name Domino's Pizza(Domino's). The advantage of this name Thomas felt was that it would be listed after DomiNick in the directory. Domino's philosophy rested on two principles - limited menu and delivering hot and fresh pizzas within half-an-hour. In 1967, it opened the first franchise store in Ypsilanti, and in 1968, a franchise store in Burlington, Vermont. However, the company ran into problems when its headquarters (the first store) and commissary were destroyed by fire. In the early 1970s, the company faced problems again when it was sued by Amstar, the parent company of Domino Sugar for trademark infringement. Thomas started looking for a new name and came up with Red Domino's and Pizza's Dispatch. However, there wasn't any need for it because Domino's won the lawsuit in 1980.In 1982, Domino's Pizza established Domino's Pizza International (DPI) that was made responsible for opening Domino's stores internationally. The first store was opened in Winnipeg, Canada. Within a year, DPI spread to more than 50 countries and in 1983, it inaugurated its1000th store. Around the same time, new pizza chains like Pizza Hut and Little Caesar established themselves in the USA. Domino's Pizza faced intense competition because it had not changed its menu of traditional hand-tossed pizza. The other pizza chains offered low-priced breadsticks, salads and other fast food apart from pizzas. Domino's faced tough competition from Pizza Hut in the home delivery segment also. Little Caesar was eating into Domino's market share with its innovative marketing strategies. By 1989, Domino's sales had reduced significantly and cash flows were affected due to the acquisition of assets. In 1993, Thomas took measures to expand Domino's product line, in an attempt to revive the company and tackle competition. The company introduced pan pizza and bread sticks in the USA. In late 1993, Domino's introduced the Ultimate Deep Dish Pizza and Crunchy Thin Crust Pizza. In 1994, it rolled out another non-pizza dish - Buffalo wings. Though Domino's did not experiment with its menu for many years, the company adopted innovative ways in managing a pizza store. Thomas gave about 90% of the franchisee agreements in the USA to people who had worked as drivers with Domino's. The company gave ownership to qualified people, after they had successfully managed a pizza store for a year and had completed a training course. Domino's also gave franchises to candidates recommended by existing franchisees. Outside the USA, most of Domino's stores were franchise-owned. Domino's was also credited for many innovations in the pizza industry and setting standards for other pizza companies. It has developed dough trays, corrugated pizza boxes, insulated bags for delivering pizzas, and conveyor ovens.

In 1993, Domino's withdrew the guarantee of delivering pizzas within 30-minutes of order andstarted emphasizing on Total Satisfaction Guarantee (TSG) which read: "If for any reason, you are dissatisfied with your Domino's Pizza dining experience, we will re-make your pizza or refund your money." Domino's entered India in 1996 through a franchise agreement with VamBhartia Corp in Delhi. With the overwhelming success of the first outlet, the company opened another outlet in Delhi. By 2000, Domino's had outlets in all major cities in India. When

IIBM Institute of Business Management

Examination Paper of Production and Operations Management

Domino's entered India, the concept of home delivery was still in its nascent stages. It existed only in some major cities and was restricted to delivery by the friendly neighborhood fast food outlets. Eating out at 'branded' restaurants was more common. To penetrate the Indian market, Domino's introduced an integrated home delivery system from a network of company outlets within 30 minutes of the order. Goutham Advani (Advani), Chief of Marketing, Domino's Pizza India, said, "What really worked its way into the Indian mind set was the promised 30-minute delivery." Domino's also offered compensation: Rs.30/- off the price tag if there was a delay in delivery. For the first 4 years in India, Domino's concentrated on its 'Delivery' strategy.

Domino's Logistics Model

Analysts felt that Domino's took a cue from McDonald's supply chain model. However, they opined that the level of complexity in McDonald's system in India was not as high as that of Domino's. Commented Bhatia ,"McDonald's operations are not as spread out as ours. They are in four cities while we are in 16.Centralizing wouldn't work on such a geographical scale”. The logistics model adopted by Domino's offered some obvious benefits including lower transportation costs, cheaper procurement and economies of scale. Domino's had already cut out the duplication in procurement and processing of raw materials across each of the three commissaries. The old model of self-contained commissaries had another disadvantage: adding new outlets did not translate into greater economies of scale. Bhatia planned to extend the model to other parts of the country as well. The commissary was to be located near the largest market in that region. Bhatia said, "Our roll-out began only after we mapped out our procurement strategy." Based on the agricultural map of India, Domino's looked McDonald's had one of the best logistics models in India. To maintain consistency and quality of its products, McDonald's shipped all the raw materials lettuce, patties et al to a cold storage close to the main market. Based on a daily demand schedule that was prepared a day in advance, the required amount of raw material was transported to individual outlets to get the best product at the lowest cost.

Thus, tomatoes would come from Bhubaneswar, spices from the south, baby corn from Nepal (where it's 40% cheaper than in India) and vegetables from Sri Lanka. Similarly, Domino's India planned to extend its operations to Nepal, Sri Lanka and Dhaka. The company planned to establish a commissary in Sri Lanka. Domino's also identified specialty crops in each region. The commissary in that region was entrusted with the task of processing that specialty crop. For instance, the commissary for the eastern region in Kolkata was responsible for buying tomatoes, processing them and then sending them to all the other commissaries. Similarly, the northern commissary had to deliver pizza bases. This way, Domino's minimized duplication as well as the dangers of perish ability. Once the new model was formalized, Bhatia planned to use Domino's 25 refrigerated trucks to transport products for other companies on the same route. For instance, if an operator in Kochi(Kerala) needed to transport specialty cheese, he could use the Domino's fleet to transport his products. Said Bhatia, "Not too many people have refrigerated trucks in the country. And we can offer them quality service because we will be giving them standards we use for ourselves." Company sources said that enquiries from clients for such transport facilities had started coming in. Bhatia said he was in the process of selecting a person to head the logistics operation, which would be spun off as a separate profit centre. Bhatia seemed confident that the profit centre had the potential to bring in Rs 10 by 2006. However, he said the profit center would not be allowed to impede the growth of the pizza

IIBM Institute of Business Management

Examination Paper of Production and Operations Management

business, Domino's core operation. Only those deliveries that did not delay or deroute the truck would be considered

Questions

1. Describe about the Article for Logistics and Operations Management Domino’s Pizza’s Process Technology (20)

Caselet 2

ABC Ltd. is the country’s largest manufacturer of spun yarn with well-established market. ABC Ltd. has good reputation for quality and service. Their marketing department identified that the potential for global market is expanding rapidly and hence the company undertook exercise for expansion of the capacity for export market. The company formed team of Marketing and Materials department to study the global logistics possibilities. After extensive study, the team came up with a report on global logistics and submitted that global logistics is essentially same as domestic due to following similarities: • The conceptual logistics framework of linking supply sources, plants, warehouses and customers is the same. • Both systems involve managing the movement and storage of products. • Information is critical to effective provision of customer service, management of inventory, vendor product and cost control. • The functional processes of inventory management, warehousing, order processing, carrier selection, procurement, and vendor payment are required for both. • Economic and safety regulations exist for transportation. The company had very economical and reliable transportation system in existence. For exports as well they decided to evaluate capabilities of their existing transporter and entrusted them with the job of transport till port. For customs formalities they engaged a good CHA after proper cost evaluation and entered into contract for freight with shipping company agent. The response for company’s export was very good and the company could get as many as 15 customers within first two months and reached to a level of USD 250,000 per month by the end of first half of the year. Based on this response the export volumes were expected to grow to a level of USD 400,000 per month by the end of the year. When the review was made at the end of the year, company found that export volumes had in fact come down to the level of USD 120,000 which was much lower than it had reached in the first half of the year. The managing committee had an emergency meeting to discuss this and the export manager was entrusted with the task of identifying the reasons for this decline. Mr. Ganesh decided to visit the customers for getting the first hand information. When he discussed the matter with the customers, the feedback on the quality and price were good but the customers were very upset on the logistic services due to delayed shipments, frequent changes in shipping schedules, improper documentation, improper identifications, package sizes, losses due to transit damages etc. After coming back, the export manager checked the dispatch schedules and found that production and ex-works schedules were all proper. Then he studied the logistics systems and found that the logistics cost was very high and all the logistics people were demotivated due to the overwork and were complaining of total lack of co-ordination and the system had become totally disorganized.

Questions

1. Explain the problems experienced by ABC Ltd. What is the main cause of these problems? (20)

END OF SECTION B

IIBM Institute of Business Management

Examination Paper of Production and Operations Management

Section C: Applied Theory (30 marks)

1. The Advantages & Disadvantages of Economic Order Quantity (EOQ)? (15)

2. Distinguish between just-in-time and just-in-case as stock management systems?(15)

S-2-010619

 This section consists of Applied Theory Questions.

 Answer all the questions.

 Each question carries 15marks.

 Detailed information should form the part of your answer (Word limit 200 to 250 words).

END OF SECTION C

Examination Paper of Strategic Management

IIBM Institute of Business Management

IIBM Institute of Business Management

SubjectCode-B108 Examination Paper

Strategic Management

MM.100

Section A: Objective Type & Short Questions (30 marks)

Part one:

Multiple choice:

I. Horizontal integration is concerned with

(1)

a) Production

b) Quality

c) Product planning

d) All of the above

II. It refers to formal and informal rules, regulations and procedures that complement the company structure (1)

a) Strategy

b) Systems

c) Environment

d) All of the above

III. Strategic management is mainly the responsibility of (1)

a. Lower management

b. Middle management

c. Top management

d. All of the above

IV. Formal systems are adopted to bring ________ & amalgamation of decentralized units into product groups.

(1)

a. Manpower

b. Co-ordination

c. Production

d. All of the above

 This section consists of multiple choices and Short Notes type questions.

 Answer all the questions.

 Part one questions carry 1 mark each & Part two questions carry 5 marks each.

Examination Paper of Strategic Management

IIBM Institute of Business Management

IV.Like roots of a tree, ________of organization is hidden from direct view. (1)

a. Performance

b. Strategy

c. Core competence

d. All of the above

V. The actual performance deviates positively over the budgeted performance. This is an indication of ……….. Performance. (1) a. Superior b. Inferior c. Constant d. Any of the above

VI. Criteria for making an evaluation is (are)

(1)

a. Consistency with goals

b. Consistency with environment

c. Money

d. All of the above

VII. Changes in company ………. also necessitates changes in the systems in various degrees (1)

a. structure

b. system

c. strategy

d. turnover

VIII. Micro environment is the ………. environment of a company. (1)

a. Working

b. Human

c. External

d. Internal

X Techniques used in environmental appraisal are (1)

a.Single-variable

extrapolation/multivariable

interaction analysis

b.Structured/ unstructured

expert/inexpert opinion

c.Dynamic modes and mapping

d.All of the above

Part Two:

1. Distinguish between a strategy and tactics. (5)

2. Give an outline of relation between ‘Strategy and Customer’ in brief? (5)

3. Explain in brief the concept of strategic thinking? (5)

4. What are the basic elements of planning? (5)

Section B: Caselets (40 marks)

END OF SECTION A

 This section consists of Caselets.

 Answer all the questions.

 Each Caselet carries 20marks.

 Detailed information should form the part of your answer (Word limit 150 to 200 words).

IIBM Institute of Business Management

Examination Paper of Strategic Management

Caselet 1

Apple’s profitable but risky strategy

When Apple’s Chief Executive – Steven Jobs – launched the Apple iPod in 2001 and the iPhone in 2007, he made a significant shift in the company’s strategy from the relatively safe market of innovative, premium-priced computers into the highly competitive markets of consumer electronics. This case explores this profitable but risky strategy.

Early beginnings

To understand any company’s strategy, it is helpful to begin by looking back at its roots. Founded in 1976, Apple built its early reputation on innovative personal computers that were particularly easy for customers to use and as a result was priced higher than those of competitors. The inspiration for this strategy came from a visit by the founders of the company – Steven Jobs and Steven Wozniack – to the Palo Alto research laboratories of the Xerox Company in 1979. They observed that Xerox had developed an early version of a computer interface screen with the drop-down menus that are widely used today on all personal computers. Most computers in the late 1970s still used complicated technical interfaces for even simple tasks like typing – still called ‘word-processing’ at the time.

Jobs and Wozniack took the concept back to Apple and developed their own computer – the Apple Macintosh (Mac) – that used this consumer-friendly interface. The Macintosh was launched in 1984. However, Apple did not sell to, or share the software with, rival companies. Over the next few years, this non-co-operation strategy turned out to be a major weakness for Apple.

Battle with Microsoft

Although the Mac had some initial success, its software was threatened by the introduction of Windows 1.0 from the rival company Microsoft, whose chief executive was the well-known Bill Gates. Microsoft’s strategy was to make this software widely available to other computer manufacturers for a license fee – quite unlike Apple. A legal dispute arose between Apple and Microsoft because Windows had many on-screen similarities to the Apple product. Eventually, Microsoft signed an agreement with Apple saying that it would not use Mac technology in Windows 1.0. Microsoft retained the right to develop its own interface software similar to the original Xerox concept.

Coupled with Microsoft’s willingness to distribute Windows freely to computer manufacturers, the legal agreement allowed Microsoft to develop alternative technology that had the same on-screen result. The result is history. By 1990, Microsoft had developed and distributed a version of Windows that would run on virtually all IBM-compatible personal computers – see Case 1.2. Apple’s strategy of keeping its software exclusive was a major strategic mistake. The company was determined to avoid the same error when it

IIBM Institute of Business Management

Examination Paper of Strategic Management

came to the launch of the iPod and, in a more subtle way, with the later introduction of the iPhone.

Apple’s innovative products

Unlike Microsoft with its focus on a software-only strategy, Apple remained a full-line computer manufacturer from that time, supplying both the hardware and the software. Apple continued to develop various innovative computers and related products. Early successes included the Mac2 and PowerBooks along with the world’s first desktop publishing program – PageMaker. This latter remains today the leading program of its kind. It is widely used around the world in publishing and fashion houses. It remains exclusive to Apple and means that the company has a specialist market where it has real competitive advantage and can charge higher prices.

Not all Apple’s new products were successful – the Newton personal digital assistant did not sell well. Apple’s high price policy for its products and difficulties in manufacturing also meant that innovative products like the iBook had trouble competing in the personal computer market place.

Apple’s move into consumer electronics

Around the year 2000, Apple identified a new strategic management opportunity to exploit the growing worldwide market in personal electronic devices – CD players, MP3 music players, digital cameras, etc. It would launch its own Apple versions of these products to add high-value, user-friendly software. Resulting products included iMovie for digital cameras and I DVD for DVD-players. But the product that really took off was the iPod – the personal music player that stored hundreds of CDs. And unlike the launch of its first personal computer, Apple sought industry co-operation rather than keeping the product to itself.

Launched in late 2001, the iPod was followed by the iTunes Music Store in 2003 in the USA and 2004 in Europe – the Music Store being a most important and innovatory development. iTune was essentially an agreement with the world’s five leading record companies to allow legal downloading of music tracks using the internet for 99 cents each. This was a major coup for Apple – it had persuaded the record companies to adopt a different approach to the problem of music piracy. At the time, this revolutionary agreement was unique to Apple and was due to the negotiating skills of Steve Jobs, the Apple Chief Executive, and his network of contacts in the industry. Apple’s new strategy was beginning to pay off. The iPod was the biggest single sales contributor in the Apple portfolio of products.

In 2007, Apple followed up the launch of the iPod with the iPhone, a mobile telephone that had the same user-friendly design characteristics as its music machine. To make the iPhone widely available and, at the same time, to keep control, Apple entered into an exclusive contract with only one national mobile telephone carrier in each major country – for example, AT&T in the USA and O2 in the UK. Its mobile phone was premium priced – for

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Examination Paper of Strategic Management

example, US$599 in North America. However, in order to hit its volume targets, Apple later reduced its phone prices, though they still remained at the high end of the market. This was consistent with Apple’s long-term, high-price, high-quality strategy. But the company was moving into the massive and still-expanding global mobile telephone market where competition had been fierce for many years.

And the leader in mobile telephones – Finland’s Nokia – was about to hit back at Apple, though with mixed results. But other companies, notably the Korean company Samsung and the Taiwanese company, HTC, were to have more success later.

So, why was the Apple strategy risky?

By 2007, Apple’s music player – the iPod – was the premium-priced, stylish market leader with around 60 per cent of world sales and the largest single contributor to Apple’s turnover. Its iTune download software had been re-developed to allow it to work with all Windows-compatible computers (about 90 percent of all PCs) and it had around 75 percent of the world music download market, the market being worth around US$1000 million per annum. Although this was only some 6 percent of the total recorded music market, it was growing fast. The rest of the market consisted of sales of CDs and DVDs direct from the leading recording companies.

In 2007, Apple’s mobile telephone – the iPhone – had only just been launched. The sales objective was to sell 10 million phones in the first year: this needed to be compared with the annual mobile sales of the global market leader, Nokia, of around 350 million handsets. However, Apple had achieved what some commentators regarded as a significant technical breakthrough: the touch screen. This made the iPhone different in that its screen was no longer limited by the fixed buttons and small screens that applied to competitive handsets. As readers will be aware, the iPhone went on to beat these earlier sales estimates and was followed by a new design, the iPhone 4 in 2010.

The world market leader responded by launching its own phones with touch screens. In addition, Nokia also launched a complete download music service. Referring to the new download service, Rob Wells, senior Vice President for digital music at Universal commented: ‘This is a giant leap toward where we believe the industry will end up in three or four years’ time, where the consumer will have access to the celestial jukebox through any number of devices.’ Equally, an industry commentator explained: ‘[For Nokia] it could be short-term pain for long-term gain. It will steal some of the thunder from the iPhone and tie users into the Nokia service.’ Readers will read this comment with some amazement given the subsequent history of Nokia’s smart phones that is described in Case 9.2.

‘Nokia is going to be an internet company. It is definitely a mobile company and it is making good progress to becoming an internet company as well,’ explained Olli PekkaKollasvuo, Chief Executive of Nokia. There also were hints from commentators that Nokia was likely to make a loss on its new download music service. But the company was determined to ensure that Apple was given real competition in this new and unpredictable market.

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Examination Paper of Strategic Management

Here lay the strategic risk for Apple. Apart from the classy, iconic styles of the iPod and the iPhone, there is nothing that rivals cannot match over time. By 2007, all the major consumer electronics companies – like Sony, Philips and Panasonic – and the mobile phone manufacturers – like Nokia, Samsung and Motorola – were catching up fast with new launches that were just as stylish, cheaper and with more capacity. In addition, Apple’s competitors were reaching agreements with the record companies to provide legal downloads of music from websites.

Apple’s competitive reaction

As a short term measure, Apple hit back by negotiating supply contracts for flash memory for its iPod that were cheaper than its rivals. Moreover, it launched a new model, the iPhone 4 that made further technology advances. Apple was still the market leader and was able to demonstrate major increases in sales and profits from the development of the iPod and iTunes. To follow up this development, Apple launched the Apple Tablet in 2010 – again an element of risk because no one really knew how well such a product would be received or what its function really was. The second generation Apple tablet was then launched in 2011 after the success of the initial model. But there was no denying that the first Apple tablet carried some initial risks for the company.

All during this period, Apple’s strategic difficulty was that other powerful companies had also recognized the importance of innovation and flexibility in the response to the new markets that Apple itself had developed. For example, Nokia itself was arguing that the markets for mobile telephones and recorded music would converge over the next five years. Nokia’s Chief Executive explained that much greater strategic flexibility was needed as a result: ‘Five or ten years ago, you would set your strategy and then start following it. That does not work anymore. Now you have to be alert every day, week and month to renew your strategy.’

If the Nokia view was correct, then the problem for Apple was that it could find its market-leading position in recorded music being overtaken by a more flexible rival – perhaps leading to a repeat of the Apple failure 20 years earlier to win against Microsoft. But at the time of updating this case, that looked unlikely. Apple had at last found the best, if risky, strategy.

Questions

1. using the concepts in this chapter undertake a competitive analysis of both Apple and Nokia – who is stronger? (10)

2. What are the problems with predicting how the market and the competition will change over the next few years? What are the implications for strategy development? (10)

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Examination Paper of Strategic Management

Caselet 2

Mr. Ashwin is the marketing manager of the cosmetics. division of the Medwin Drug Company. The company was well known as a leader in new proprietary drug and toiletry products and had a good record of profitability. The cosmetics division had been especially successful in women's toiletries and .1/4.-o..,unctitk.:s and in the introduction of new products, It always based its new-product development on market research respect to what Would appeal to women and, after almost invariably test marketing a new product in a few almost invarariably test marketing a new product in selected cities, launched it with a heavy advertising and sales promotion program. It had hoped in this way not only to get a large initial share of the markets but also to become so well entrenched that competitors. who soon copy a successful product would not dislodge it from its market share.

After being cautioned by the president of Medwin Drug about the necessity for watching costs more carefully, the division manager became increasingly concerned with two opposing factors in his marketing strategy: ( 1) test marketing of new products (offering them for sale first in a few test cities with area advertising and sales programs) tended increasingly to give competitors advance information on new products, and certain competitors had been able to copy a product almost as soon as Medwin could offer it nationally and profited thereby from Medwin's advertising; and (2) national advertising and sales promotion expenses were rising so fast that a single major product failure would have an important impact on division profits, on which his annual bonus was primarily determined. On the one hand, he recognized the wisdom of test marketing, but he disliked the costs and dangers involved. On the other hand, he hardly wished to take an unknown risk of embarking on a national program until a test showed that the product did in fact have a good market demand. Yet, he wondered whether all products should be test marketed.

Mr. Ashwin was asked to put this problem to his marketing department subordinates and ask them what should be done. To give the strategy some meaning, he used as a case at point the company's new hair conditioner which had been developed on the basis of promising, although preliminary, market research. He asked his sales manager whether he thought the product would succeed and what he thought his "best estimate" of sales would be. He also asked his advertising manager to give some cost estimates on launching the product.

Mr. Kiran, division sales manager, thought a while, then said he was convinced that the product was a winner and that his best estimate would be sales of Rs. 5 crores per year for at least five years. Mr. Desai, the advertising manager, said that the company could launch the product for a cost of Rs. 1 crore the first year and some Rs. 25 lakhs per year thereafter. He also pointed out that the test-marketing program would cost Rs. 15 lakhs, of which half would be saved if these test cities were merely a part of a national program, and that the testing program would delay the national program for six months. But he warned Mr. Ashwin that test marketing would save the gamble of so much money on the national promotion program. At this point, Mr. Sachdev, the new marketing research manager, suggested that the group might come to a better decision if they used a proper decision-making technique.

Question:

1. Which decision-making technique can be used in this situation? Why? (20)

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Examination Paper of Strategic Management

Section C: Applied Theory (30 marks)

1. What are the main characteristics of strategic decisions? (15)

2. What specific entrepreneurial aspects include the strategy formation process? (15)

S-2-010619

 This section consists of Applied Theory Questions.

 Answer all the questions.

 Each question carries 15marks.

 Detailed information should form the part of your answer (Word limit 200 to 250 words).

END OF SECTION C

END OF SECTION B