Business Policy and Strategic Management Question Papers

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1. An organization’s vision and mission act as guidelines for strategy formulation. Which of the following are the
main components of a well-conceived vision?
I. Core ideology.
II. Envisioned future.
III. Philosophy of the business.
IV. Principle technology.
(a) Both (I) and (II) above
(b) (I), (II) and (III) above
(c) (I), (III) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
2. Jaguar manufactures its cars in Europe and provides sales and services in different countries. Thus, Jaguar
derives a cost advantage by sharing technology development and manufacturing costs across different regions.
This is an example of
(a) Segment scope
(b) Vertical scope
(c) Horizontal scope
(d) Geographic scope
(e) Industry scope.
3. The assessment of the top management of the organization is a major reason for the internal analysis of an
organization. Which of the following are the important questions to be asked by the analyst while assessing top
management?
I. How has the organization been managed in the past?
II. How well is the company prepared to face the future?
III. How do stockholders collectively make themselves heard?
IV. How well did management assess its position, plan for change and carry out change?
(a) Both (I) and (II) above
(b) (I), (II) and (III) above
(c) (I), (II) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
4. In today’s global environment, rapid changes in technology, competition, customer demands have increased the
rate at which companies need to alter their strategies to survive in the market place. Which of the following
is/are the reason(s) for a technical change?
I. When new developments are made by competitors.
II. Strategists wishing to harness new technologies.
III. The tendency for large organizations and markets to become increasingly global.
IV. The greater skills of managers and employees.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
5. Which of the following cost drivers is not included in the institutional factors?
(a) Tax holidays
(b) Location
(c) Unionization
(d) Tariffs and levies
(e) Local content rules.
6. Active and independent is one of the phases in three phase internationalization model. Which of the following
are the reasons why company chooses to increase its commitment to internationalization in this phase?
I. The firm doesn’t have any opportunity to learn and improve its position.
II. By producing locally, the firm can serve the local customers better.
III. Some countries impose high tariff barriers making it difficult and expensive to operate from outside.
IV. The firm doesn’t want to share its company specific knowledge with other firms and wants to control the
knowledge through franchising, licensing or other modes.
(a) Both (I) and (II) above
(b) (I), (II) and (III) above
(c) (I), (III) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
7. Managers perform different roles. Which of the following is/are the interpersonal role(s) of a manager?
I. Figurehead role.
II. Entrepreneurial role.
III. Monitor role.
IV. Spokesman role.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
8. Retrenchment strategies are adopted when the firm’s survival is at stake. Liquidation is one of the retrenchment
strategies. Which of the following statements are true regarding liquidation strategy?
I. It involves closing down a business organization and selling its assets.
II. It is adopted when the company has a weak competitive position in some or all of its product lines.
III. It is adopted when the industry is unattractive and the company too weak to be sold as a going concern.
IV. In this, the management converts as many saleable assets as possible to cash, which is then distributed to
the shareholders after all obligations are paid.
(a) Both (I) and (II) above
(b) (I), (II) and (III) above
(c) (I), (III) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
9. Which of the following is a series of different budgets based on different levels of output?
(a) Zero base budget
(b) Cash flow budget
(c) Balance sheet budget
(d) Flexible budget
(e) Variable budget.
10.Looking at strategic management as a process helps to highlight certain aspects of the strategic management
model. In this regard, which of the following statements are true?
I. A change in any component will have an influence on several other components.
II. The process of strategic management should be kept flexible.
III. A proper structure is essential for strategy to be operational.
IV. Feedback from institutionalization, review and evaluation will loop back into the early stages of planning.
(a) Both (I) and (II) above
(b) (I), (II) and (III) above
(c) (I), (II) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
11.Who among the following is having the responsibility to design the organizational structure based on the
objectives, policies, environmental factors, expectations of employees etc.?
(a) Managers
(b) General managers
(c) Board of directors
(d) Chief Executive Officer (CEO)
(e) Consultants.
12.The strength of a culture influences the intensity by which organizational members comply with it as they go
about their daily activities. The specific feature(s) of culture that determine its strength is/are
I. Thickness.
II. Extent of sharing.
III. Clarity of ordering.
IV. Nature of the company.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
13.Identification of potential buyers by the project team initiates the selling process. Which of the following is/are
the category(ies) of potential buyer?
I. Direct competitors.
II. Suppliers and customers.
III. Buyers who want to broaden their product lines.
IV. Buyers looking for operational economies of scales.
(a) Only (I) above
(b) Both (III) and (IV) above
(c) (I), (III) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
14.In the initial step of a value chain analysis, a company’s operations are divided into business processes or
(a) Specific activities
(b) Competitor analysis
(c) Product life cycle
(d) Trade-offs
(e) Value judgments.
15.Policies are directives designed to help managers and their subordinates in the implementation of organizational
strategy. Which of the following are the purpose of business policies?
I. They are designed to control and reinforce the implementation of functional strategies and the grand
strategy.
II. They establish indirect control over independent action by making clear statements about how things are to
be done.
III. They assess the strengths and weaknesses of the company’s management and organizational structure.
IV. By limiting discretion, they in effect control decisions and conduct activities without direct intervention by
top management.
(a) Both (I) and (II) above
(b) (I), (II) and (III) above
(c) (I), (II) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
16.In cost analysis, the first step is to define a firm’s value chain and to assign operating costs and assets to value
activities. Which of the following statements is not true regarding assigning costs and assets?
(a) Operating costs should be assigned to the activities in which they are incurred
(b) The assigning of the assets should be done to the activities that employ, control or mostly clout their use
(c) Though assigning of operating costs is time consuming, it is straightforward
(d) Since assets are costlier and their selection and use often get entangled with trade offs with operating
costs, assets must be assigned to value activities in some way that will permit an analysis of cost
behavior
(e) Assigning operating costs to activities is more complicated than assigning assets.
17.The personnel department must take care in recruiting people that meet industry specifications. When recruiting
employees, which of the following factors are to be considered by the personnel department?
I. Reputation as an employer.
II. Local employment rates.
III. Demographic variables.
IV. Ready availability of personnel with the necessary knowledge and skills.
(a) Both (I) and (IV) above
(b) Both (II) and (III) above
(c) (I), (II) and (III) above
(d) (I), (II) and (IV) above
(e) (II), (III) and (IV) above.
18.Financial strategies direct the use of resources in supporting long term goals and annual objectives. Working
capital management is an important component of the financial strategy. Which of the following statement(s)
is/are true regarding working capital management?
I. The seasonal and cyclic fluctuations in the size and pattern of receipts and disbursements of a firm
influence the capital requirements of the firm.
II. Financial strategy should provide the guidelines for conserving and rebuilding the cash balances required
for daily operations.
III. The working capital requirements are determined through estimations of the cash flow.
(a) Only (I) above
(b) Both (I) and (II) above
(c) Both (I) and (III) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
19.Which of the following strategy involves making decisions about the competitive position of a single business
unit?
(a) Corporate level
(b) Business level
(c) Functional level
(d) Operational level
(e) Technical level.
20.The matching stage of the analytical framework for strategy formulation is called corporate portfolio analysis.
Which of the following statement(s) is/are true regarding corporate portfolio analysis?
I. This strategy involves making decisions about the competitive position of a single business unit.
II. This strategy has to be adoptable to multiproduct market firms in which each product/market is managed as
a separate business or profit center.
III. Each business is a separate entity and a contributor to the corporation’s total portfolio of business.
IV. This approach provides a simple way of identifying and evaluating alternative strategies for the generation
and allocation of corporate resources.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
21.The process of internal analysis, when matched with the results of management’s environmental analysis and
mission priorities, provides the critical foundation for
(a) Strategy formulations
(b) A grand strategy
(c) Company profile
(d) Long term objectives
(e) Annual objectives.
22.Divisional organizational structure is one of the types of structural choices that are currently used by most
business firms. Which of the following is/are the advantage(s) of divisional organizational structure?
I. It helps the corporate management to delegate authority for the strategic management of distinct business
equity.
II. It helps the progress in critical decision making within each division in response to different competitive
environment and compels the corporate management to stress upon corporate level decisions.
III. It has the combined advantage of both functional specialization as well as the product specialization.
IV. The number of middle managers gets increased with the help of this structure, exercising general
management responsibilities and broadens their exposure to organization wide strategic concerns.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
23.Long term objectives are statements of the results a firm seeks to achieve over a specific period. To achieve long
term prosperity, strategic planners commonly establish long term objectives in various areas. Which of the
following is not an area in this regard?
(a) Pricing
(b) Employee development
(c) Public responsibility
(d) Competitive position
(e) Employee relation.
24.Which of the following environment consists of a set of forces such as political, social, technological, and
industrial that originate beyond a firm’s operating situation?
(a) Remote
(b) Planning
(c) Economic
(d) Legal
(e) Operating.
25.Which of the following may be the most appropriate means of transfer in situations where the knowledge to be
transferred is complex or embedded in a complicated set of technological and organizational circumstances?
(a) Management by objectives
(b) Multiple surtax exemptions
(c) Participative training
(d) Class room training
(e) Learning-by-doing and teaching-by-doing.
26.The stronger a company’s culture becomes and the more that culture is directed towards the organizational
stakeholders, the less the company uses
I. Policy manuals.
II. Organizational charts.
III. Procedures and regulations.
IV. Detailed rules.
(a) Both (I) and (II) above
(b) (I), (II) and (III) above
(c) (I), (II) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
27.Which of the following is not a financial reform that a government has to take to be competitive in the global
market?
(a) Change in tax laws
(b) Change in capital gains
(c) Permission to banks to invest in equities
(d) Removal of incentives for financial manipulation in buying
(e) Increased tax credits for R&D investments in industry.
28.Failure to deal effectively with crises can lead to loss of
I. Controversies.
II. Confidence.
III. Competitiveness.
IV. Market share.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
29.The basic objective of the production function is to ensure that the outputs produced have a value that exceeds
the combined costs of the inputs and the transformation process. The production strategies of small business
units would be different from those of large business units. Which of the following variables are generally
present in these large business units?
I. Capital-labor substitutions.
II. Economies of scale.
III. Product diversification.
IV. Learning.
(a) Both (II) and (III) above
(b) (I), (II) and (III) above
(c) (I), (II) and (IV) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
30.In which of the following, a company which intends to acquire a controlling interest in another company asks
the shareholders of the target company to submit their shares of stock in the firm?
(a) Equity carve out
(b) Spin-off
(c) Split up
(d) Divestiture
(e) Tender offer.
Business Policy & Strategy (MB3I1) : January 2009
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:
1. With respect to the caselet, examine the various advantages that can be gained by
this merger between InBev and Anheuser-Busch. Also, discuss the measures taken
by InBev to overcome the concerns after the merger. ( 7 marks)
2. “On June 12, 2008, Belgian-Brazilian brewing company InBev announced that it
had agreed to a US$46 billion offer for the company.” In this context, discuss the
economic rationale for major types of mergers in the world of business. ( 8 marks)
On June 12, 2008, Belgian-Brazilian brewing company InBev announced that it had
agreed to a US$46 billion offer for the company. If this had been successful, it would
have joined two of the world’s four largest brewing companies (based on revenue)
and created a company that brews three of the top beers in the world, namely Bud
Light, Budweiser, and Skol. InBev also stated that the merger would not result in
any U.S. brewery closures and they would also attempt to keep on management and
board members from both companies. On June 25, 2008, Anheuser-Busch officially
announced that they would reject InBev’s offer and provide a restructuring of
company to maintain shareholders and United States World Headquarters in St.
Louis. On July 1, 2008, InBev urged Anheuser-Busch shareholders to vote in favor
of the buyout as InBev felt the offer of $65 per share should be considered a
reasonable offer in view of the falling stock market. The company had previously
filed suit in Delaware, after the rejection of their offer, to ensure that the
stockholders could oust Anheuser-Busch’s 13 board members. On July 7, 2008,
Anheuser-Busch filed a lawsuit against InBev to stop them from soliciting support of
shareholders, stating that the company's offer is an illegal scheme. InBev is also
accused of concealing that they do business in Cuba, which might have created
additional obstacles to their efforts to operate in the United States.
On July 13, 2008, Anheuser-Busch and InBev said they have agreed to a deal,
pending shareholder and regulatory approval, for InBev to purchase Anheuser-Busch
at $70 per share, creating a new company to be named Anheuser-Busch InBev.
Anheuser-Busch would get two seats on the combined board of directors. The allcash
agreement, almost $52 billion in total equity, would create the world’s largest
brewer, uniting the maker of Budweiser and Michelob with the producer of Stella
Artois, Hoegaarden, Leffe and Beck’s, Bass, Labatt and Brahma. InBev said it
would be the world’s third largest consumer products company by market
capitalization after Procter & Gamble of the United States and Nestle SA of
Switzerland. Anheuser makes Budweiser - the most popular beer in the US - and
some US politicians had expressed anger at the prospect of a foreign takeover.
In a concession to political concerns about the deal, Budweiser's headquarters will
remain in St Louis, Missouri while none of Anheuser's US breweries will be closed.
InBev is offering to pay $70 a share for Anheuser in a deal which must be approved
by shareholders of both businesses. The combined business will have annual sales of
$36.4bn, equivalent to 46 billion litres of beer a year.
It will bring a host of popular brands including Beck’s, Hoegaarden and
Staropramen - in addition to Budweiser and Stella - under one roof. InBev, itself
formed by a giant merger of Brazil’s AmBev and Belgium's Interbrew several years
ago, described the deal as “historic”.
“Together, Anheuser-Busch and InBev will be able to accomplish much more than
each can on its own,” said InBev’s Brazilian boss Carlos Brito, who will become
chief executive of the new firm. “This combination will create a stronger, more
competitive global company with an unrivalled worldwide brand portfolio and
distribution network, with great potential for growth all over the world.” Anheuser
boss August Busch said the transaction would “enhance global market access for
Budweiser, one of America's truly iconic brands”.
There are widespread fears that the deal will lead to substantial job losses in the US
Midwest at a time while the threat of recession is hanging over the economy.
Although savings of $1.5bn are anticipated by 2011, commentators are not expecting
an employee headcount reduction since the two entities presently operate in different
global spheres. Rather, they expect savings to come from shoring off non-brewing
activities like packaging and theme parks.
Anheuser - which employs 6,000 staff - currently controls nearly half of the US
market, while InBev is strong in Western European and Latin American markets.
Anheuser also owns stakes in Mexican brewer Grupo Modelo and Chinese brewer
Tsingtao. The deal should give Budweiser a platform to boost its growth in Europe
where, apart from a number of markets like the UK, it has been relatively weak.
“The synergies are better than expected, $70 is a reasonable price and InBev has
avoided a long, drawn-out battle in the courts,” said Wim Hoste, from KBC
Securities. The beer market has been rapidly consolidating in the face of cost
pressures and declining sales in many mature markets. Scottish & Newcastle, the
UK’s largest brewer, was recently bought out by Heineken and Carlsberg.
Anheuser-Busch began as a small brewery located in St. Louis, Missouri. In 1860,
Eberhard Anheuser, a prosperous German-born soap manufacturer, became owner of
the struggling brewery. Adolphus Busch, Anheuser’s son-in-law, became partner in
1869, and became president when Anheuser died in 1880.
Adolphus Busch was the first U.S. brewer to use pasteurization to keep beer fresh,
the first to use artificial refrigeration and refrigerated railroad cars and the first to
bottle beer extensively. In 1876, Busch introduced America’s first national beer
brand: Budweiser. Anheuser-Busch became the largest brewer in the United States in
1957. It today produces about 11 billion bottles of beer a year.
Anheuser-Busch International, Inc. was established in 1981, and is responsible for
the company’s foreign beer operations and equity investments. Today, Anheuser-
Busch operates 12 breweries and several theme parks in the United States and has
operations around the world.
InBev was created in 2004 from the merger of the Belgian company Interbrew and
the Brazilian company AmBev. Before the merger with Ambev, Interbrew was the
third largest brewing company in the world by volume, Anheuser-Busch was the
largest, followed by SABMiller in second place. Heineken International was in
fourth place and AmBev was the world's fifth largest brewer.
InBev announced in 2005 and confirmed in 2006 that it would move the brewing of
Hoegaarden to the Piedboeuf brewery in Jupille, which resulted in some protests. In
September 2007 however, it was announced that brewing would continue at the
Hoegaarden Brewery in Hoegaarden. InBev dethroned Anheuser-Busch in 2006 as
the world’s largest brewer by sales. Revenue in 2007 was $19.7 billion, while
Anheuser Busch had $16.7 billion in sales.
END OF
CASELET 1
Caselet 2
Read the caselet carefully and answer the following questions:
3. “Culture is a strength as well as a weakness. It is strength since culture eases and
economizes communications, facilitates organizational decision-making and control. ( 7 marks)
Culture, on the other hand, becomes a weakness when important shared beliefs and
values interfere with the needs of the business.” In this context, discuss the basic
processes that lie at the heart of any organization.
4. “The culture ensured that Cisco was on the list of the Fortune magazine's '100 best
places to work' for eight consecutive years, starting 1998.” In this light, discuss the
various attributes of the culture helped Cisco to bounce back from the crisis. ( 6 marks)
Cisco Systems Inc. (Cisco), the leader in Internet Protocol (IP)-based networking
technologies and networking gear, recorded $2.2 billion in revenues and a market
capitalization of $9 billion in 1995. By March 2000, market capitalization went up to
$ 531 billion while revenues in 2000 were $19 billion. In 1995, Cisco accounted for
15% of the networking industry's profit and this figure went up to 50% in 2000. But
with the tech meltdown of 2000-01, telecom companies and Internet service
providers stopped purchasing telecom equipments from Cisco. Cisco was thus on a
free fall, a situation the top management did not expect.
”If somebody would've told me then that we'd go from 70% growth to minus 30%
growth in 45 days, I'd have said it was mathematically impossible,” said John T.
Chambers (Chambers), President and CEO, Cisco Systems Inc.
Though the company recorded losses in 2001, it bounced back with net profits the
next year. Cisco's net sales for fiscal 2004 were $22.0 billion, an increase of 16.8
percent from the $18.9 billion for fiscal 2003, while net income for fiscal 2004 was
$4.4 billion or $0.62 per share, compared with $3.6 billion or $0.50 per share for
fiscal 2003. Industry observers were quick to point out that it was the organization
culture of Cisco that helped it survive the tough periods of meltdown. Cisco was
founded on a culture based on the principles of customer focus, open
communication, empowerment, trust, integrity, and giving back to the community.
This culture ensured that Cisco was on the list of the Fortune magazine's '100 best
places to work' for eight consecutive years, starting 1998.
Headquartered at San Jose, California, US, Cisco was incorporated on December 10,
1984. The company was founded by a group of computer scientists, who designed a
software named IOS (Internet Operating System), which could send streams of data
from one computer to another. This was loaded into a box containing
microprocessors specially designed for routing. In 1985, the company started a
customer support site from where customers could download software over FTP
(File Transfer Protocol) and also upgrade the downloaded software. Cisco, on its
site, also provided a database that contained information about potential software
problems to help customers and developers.
By 1991, Cisco's support centre was receiving around 3,000 calls a month, which
increased to 12,000 by 1992. To deal with the large volume of transactions, it built
an online customer support system on its site.
In 1993, Cisco installed an Internet-based system for large multinational corporate
customers. The system allowed customers to post queries related to their problems.
Cisco also installed a trigger function called the 'Bug Alert' on its website. The ‘Bug
Alert’ sent e-mails on software problems within 24 hours of their discovery.
Encouraged by the success of its customer support site, in 1994, Cisco launched
Cisco Information Online, a public website that offered not only company and
product information but also technical and customer support to customers.
In 1995, it introduced applications for selling products or services on its website.
This was done mainly to transfer paper, fax, and e-mails to the web to save time for
employees, customers, and trading partners, besides broadening Cisco's market
reach. In 1996, the company introduced a new Internet initiative, 'Networked
Strategy' to leverage on its enterprise network to foster interactive relationships with
prospective customers, partners, suppliers, and employees.
In August 1996, Cisco launched transactional facilities including product
configuration and online order placement connected to Cisco's ERP systems. In
1997, it introduced the dial-in access from desktop computers that enabled
customers to place orders without accessing the Internet. In the same year, it also
introduced customized business applications for its customers' corporate Intranets
and automated the ordering process by linking directly to Cisco's internal systems.
Commenting on the growth of Cisco in the late 1990s, Jeremy Duke, analyst at
market research firm In-Stat said, “They are entering into the zone of the great phone
companies, as moneymakers and as builders of infrastructure. There's nobody like
them.”
Cisco’s success has been attributed to its relationship with its customers. Cisco
professed a ‘worship of customers', which was a part of the company's culture right
from its inception. “This is a culture where the customer comes first. If the customer
has a problem, we drop everything,” said Pete Solvik (Solvik), Senior Vice President
and Chief Information Officer (CIO), Cisco. Cisco viewed the assessment of
customer satisfaction as a continuous process. One of the elements of this
assessment was getting regular customer feedback, which helped Cisco employees
to be proactive in identifying problem areas, rather than waiting for an annual
customer satisfaction survey. Cisco’s field teams designed the questionnaires that
were used to assess customer satisfaction.
The organizational structure of Cisco fostered a spirit of employee involvement.
“Very often it’s most efficient to just work with the person involved, without the
formality of passing through every layer of management. But that requires a level of
trust that not all organizations have,” mentioned Solvik. If a Cisco employee wanted
the top management support for an innovative idea, he had to discuss the idea with
an employee decision-making team and get its assent. If the decision-making team
accepted the idea, the top management gave the green signal. “They (the decisionmaking
teams) are empowered to make that decision because we put the authority,
the responsibility, and the accountability at the same layer.”
Cisco’s recruitment practices reflected the company culture. Cisco’s recruiting team
identified candidates whom they felt the company ‘should hire’ and then designed its
hiring processes to attract them to the company. In the late 1990s, the company was
hiring at a rate which averaged 1000 new employees every month. For recruiting
candidates who fit into the culture of Cisco, a selection criterion was developed
which targeted candidates who were frugal, enthusiastic about the future of the
Internet, and were not obsessed with status - all hallmarks of the Cisco culture.
According to some analysts, Cisco faced the risk of diluting its culture due to the
influences of new recruits who brought in behaviors from past job experiences.
“We’re focusing on what it will take to communicate the culture and preserve it.
That's another learning experience: Culture is not automatic.”
END OF
CASELET 2
Caselet 3
Read the caselet carefully and answer the following questions:
5. Mark Thompson was quick to acknowledge the efforts of Dyke, but emphasized that
the corporation would require some 'real and radical changes' to sustain itself in the
coming years. Discuss the various steps in the change process. ( 8 marks)
6. Thompson said, “We're going to have to change the BBC more rapidly and radically
over the next three to five years than at any previous point in its history. It feels like
the task of really changing the BBC has only begun”. In this regard, examine the
various changes initiated by Mark Thompson in BBC. ( 7 marks)
7. With respect to the caselet, discus how BBC grew from being a radio broadcaster to
become a popular television news channel. ( 7 marks)
On May 21, 2004, Mark Thompson (Thompson) was appointed Director General of
the British Broadcasting Corporation (BBC), the world’s first public broadcasting
corporation.
The immediate task on Thompson’s hands was to reform the 82-year-old BBC,
which had been severely criticized in the Hutton Report. The Hutton Report, which
went into a BBC report on the British Government's claims about Iraq’s weapons of
mass destruction, described the BBC’s editorial system as defective and said that the
editors had not scrutinized the script before it was aired. It also found fault with the
BBC’s management for having failed to act on a complaint given by the Government
saying that the report by BBC correspondent Andrew Gilligan (Gilligan) was false.
On January 29, 2004, following the publication of the Hutton Report, Greg Dyke
(Dyke), Thompson's predecessor, who had stood by Gilligan’s story, resigned.
In January 2000, Birt was replaced by Dyke, CEO of Pearson Television. Dyke, who
took over as Director General on February 01, 2000, found the BBC’s organizational
structure extremely complex. There were far too many layers and the organization
was much too bureaucratic. He immediately announced the creation of the “One
BBC” program where various departments and their employees would cooperate
with each other and work toward achieving common goals.
Since the early 2000s, the license fee charged by the BBC had come under severe
criticism. In August 2003, the Conservative Party, the second largest political party
in the UK, charged that the viewers were paying for programs that had been copied
from commercial channels and demanded that the fee be cut. It said that the BBC
was getting an unfair advantage by receiving £2.7 billion as annual fee.
Thompson took charge on June 21, 2004. He was quick to acknowledge the efforts
of Dyke, but emphasized that the corporation would require some 'real and radical
changes’ to sustain itself in the coming years. On his very first day, he announced the
restructuring of the BBC’s executive committee, the first of the many steps toward
creating a simpler and more effective organization structure. The executive
committee was divided into three boards - creative, journalism, and commercial -
covering the principal activities of the BBC. Thompson headed the creative board.
Thompson also announced that the other businesses of the BBC such as production,
commercial businesses, and commissioning would be reviewed with the sole aim of
cutting costs and improving the efficiency of the organization as a whole. He said,
“We’re going to have to change the BBC more rapidly and radically over the next
three to five years than at any previous point in its history. It feels like the task of
really changing the BBC has only begun.” A number of people felt that Thompson
had come in at a critical time when the BBC's integrity was under question,
employee morale was down, and the impact of digital technology was looming large.
The committee submitted its report on June 23, 2004, a day after Thompson took
charge as the Director General of the BBC. The Neil Report called for a vast
improvement in the training process of the journalists. It suggested establishment of
a college of journalism and a greater role for editors and lawyers in the BBC’s
editorial process. The committee wanted the BBC to continue to broadcast reports
based on a single source but only after proper examination. It emphasized that only
the most accurate information should be given to the public.
On June 29, 2004, the BBC announced its Charter manifesto called ‘Building Public
Value’ aimed at providing value to its customers in the wake of changing customer
preferences and the competition. The Charter manifesto, which consisted of BBC’s
proposals for the coming years, would be sent to the government to peruse while
reviewing the Royal Charter.
The manifesto justified the continuance of the license fee and the Charter for the
next ten years. In the wake of criticism over the license fee, Thompson announced
sweeping measures in the nine-point manifesto.
In the first week of December 2004, Thompson began implementing the manifesto
by announcing a new vision aimed at making the BBC a more creative and efficient
digital broadcaster. He announced that his vision had three aspects – ‘a bold new
program and content strategy based above all around the idea of excellence,’ ‘a
transformation of the BBC into a state-of-the art digital broadcaster,’ and ‘an
irreversible shift in the culture of the BBC toward simplicity, opportunity, and
creativity’.
In the last week of June 2005, the BBC launched the BBC Journalism College at an
investment of £5 million to train journalists working in various divisions of the BBC
such as news, the World Service, etc. As opposed to the concept of classroom
training, the instructions were imparted through interactive e-learning sessions,
seminars, and workshops (conducted by Neil) at various locations across the globe.
They predicted that the journey further down the road would in no way be an easy
one for him. However, analysts were confident about Thompson’s capability to solve
at least some of BBC’s problems. Tessa Jowell (Jowell), Secretary of State for
Culture, Media, and Sport, believed that Thompson was the right man for the post
under such circumstances. Jane Root, Former Controller of the BBC-owned BBC2,
said, “He thinks very strategically about the big issues in television, and that is more
than anything what the BBC needs its new director general to do. There is going to
be an incredible amount of turbulence in television in the next few years; Mark was
always a big-range thinker who didn't just think about the here and now.”
The BBC was created on October 18, 1922, as the British Broadcasting Company,
by a group of wireless manufacturers including Guglielmo Marconi (Marconi),
inventor of the radio.
Regular broadcasting began from Marconi's London studio on November 14, 1922.
The company's mission was 'to inform, educate, and entertain'. In 1927, the
company's name was changed to the British Broadcasting Corporation and it was
granted a Royal Charter, which put it under the control of the UK government. The
Charter defined the BBC's objectives, powers, and obligations. The BBC was
operated through a 12-member Board of Governors, who acted as trustees and
ensured that the organization was accountable for its work to the public while
maintaining its independence in reporting news. The day-to-day operations were
managed by an Executive Board, which consisted of nine members and was led by a
Director General.
The BBC, which had no competitor at that time, gained revenues only through a
license fee (10 shillings), set by the British parliament and paid for by radio owners.
It was not allowed to indulge in commercial activities such as advertising. In 1932,
the BBC began broadcasts (BBC Empire Service) outside Britain for the Englishspeaking
people under the then British Empire.
After starting experimental broadcasts in 1932, the BBC officially started television
services in November 1936, under the name BBC Television Service. It also issued
8.5 million radio licenses covering around 98 percent of Britain’s population.
However, during the Second World War, television broadcasts were suspended for
security reasons and these recommenced only in 1946. Though television services
were suspended during the War, the BBC continued with its radio broadcasts. The
corporation earned a reputation for honest and accurate news reporting and its 9
o’clock news became very popular. Until 1982, there were only four television
channels in the UK - BBC1, BBC2, ITV, and Channel 4 - all of which used the
terrestrial television broadcasting method to air their programs.
• This section consists of questions with serial number 8 - 9.
• Answer all questions.
• Marks are indicated against each question.
• Do not spend more than 25 -30 minutes on Section C.
8. By assessing its competitor's position in the market, a firm can improve or
formulate strategies to optimize its environmental opportunities. During the
construction of the competitor's profile, what are the factors that are to be
considered?
( 10 marks)
9. Strategic choice refers to the decision to adopt any of the alternative strategies.
Discuss the various factors that influence the strategic choice.
( 10 marks)

[Quick Sam]

END OF SECTION C
END OF QUESTION PAPER
Suggested Answers
Business Policy and Strategy (MB3I1) : January 2009
Section A : Basic Concepts
Answer Reason
1. A A well- conceived vision comprises two main components:
• Core ideology.
• Envisioned future.
Whereas, philosophy of the business and principle technology are part of mission
statements.
Hence option (a) is the answer.
2. D Jaguar manufactures its cards in Europe and provides sales and services in different
countries. Thus, Jaguar derives a cost advantage by sharing technology development
and manufacturing costs across different regions. This is an example of geographic
scope.
3. A The assessment of the top management of the organization is a major reason for the
internal analysis of an organization. The important questions to be asked hereby the
analyst are:
• How has the organization been managed in the past?
• How well is it being managed now?
• How well is the company prepared to face the future?
Hence option (a) is the answer.
4. B A need for technical change stems up when new developments are made by
competitors. Another reason could be that the strategists might wish to harness new
technologies. Internal research and development ideas can generate technical change
internally. In high technology industries, this is a significant issue because the product
life cycle is short. Hence option (b) is the answer.
5. B Government regulation, tax holidays, and other financial incentives, unionization,
tariffs and levies and local content rules which constitute the major cost driver are
included in institutional factors.
6. D In active and independent internationalization phase, a company increases its
commitment to internationalization and goes beyond exporting to international
markets. The following are the reasons why a company chooses to increase its
commitment to internationalization:
• By producing locally, the firm can better serve the local customers.
• Some countries impose high tariff barriers making it difficult and expensive to
operate from outside.
• The firm doesn’t want to share its company specific knowledge with other firms
and wants to control the knowledge through franchising, licensing or other
modes.
• Economies of scales can be achieved by establishing production bases in the
most appropriate locations in the world with respect to price, quality and
distribution.
The firm’s doesn’t have any opportunity to learn and improve its position, is true
regarding passive and dependent internationalization.
Hence option (d) is the answer.
7. A The three interpersonal roles of a manager are:
• Figurehead role.
• Leader role
• Liaison role.
Hence option (a) is the answer.
8. C The liquidation strategy
• Involves closing down a business organization and selling its assets.
• It is adopted when the industry is unattractive and the company too weak to be
sold as a going concern.
• In this, the management converts as many saleable assets as possible to cash,
which is then distributed to the shareholders after all obligations are paid.
It is adopted when the company is has a weak competitive position in some or all of
its product lines is true regarding retrenchment strategies. Hence option (c) is the
answer.
9. E A variable budget is a series of different budgets based on different levels of output. < TOP >
10. C Looking at strategic management as a process helps to highlight certain aspects of the
model:
• A change in any component will have an influence on several other components.
• The process of strategic management should be kept flexible.
• Feedback from institutionalization, review and evaluation will loop back into the
early stages of planning.
A proper structure is essential for strategy to be operational is true regarding structure
which is required for strategy implementation. Hence option (c) is the answer.
11. C It is the responsibility of the board to design the organizational structure based on the
objectives, policies, environmental factors, expectations of employees etc.
12. C The strength of a culture influences the intensity by which organizational members
comply with it as they go about their daily activities. The specific features of cultures
that determine its strength are
• Thickness.
• Extent of sharing.
• Clarity of ordering.
Hence option (c) is the answer.
13. E Potential buyers, in general, can be categorized into
• Direct competitors.
• Suppliers and customers.
• Buyers who want to broaden their product lines.
• Buyers looking for operational economies of scales.
• And other such companies seeking diversification, holding companies,
investment groups and venture capitalists.
Hence option (e) is the answer.
14. A In the initial step of a value chain analysis, a company’s operations are divided into
business process or specific activities.
15. C The following are the purposes of business policies:
• They are designed to control and reinforce the implementation of functional
strategies and the grand strategy.
• They establish indirect control over independent action by making clear
statements about how things are to be done.
• By limiting discretion, they in effect control decisions and the conduct of
activities without direct intervention by top management.
They assess the strengths and weaknesses of the company’s management and
organizational structure is true regarding company profile. Hence option (c) is the
answer.
16. E The following statements are true regarding assigning costs and assets:
• Operating costs should be assigned to the activities in which they are incurred
• The assigning of the assets should be done to the activities that employ, control
or mostly clout their use
• Though assigning of operating costs is time consuming, it is straightforward
• Since assets are costlier and their selection and use often get entangled with
trade offs wit operating costs, assets must be assigned to value activities in some
way that will permit an analysis of cost behavior
• Assigning assets to activities is more complicated than assigning operating costs.
Hence option (e) is the answer.
17. D The personnel department must take care in recruiting people that meet industry
specifications. When recruiting employees, three factors are to be considered:
• Reputation as an employer.
• Local employment rates.
• Ready availability of personnel with the necessary knowledge and skills.
Hence option (d) is the answer.
18. B The statements (I) the seasonal and cyclic fluctuations in the size and pattern of
receipts and disbursements of a firm influence the capital requirements of the firm
and (II) financial strategy should provide the guidelines for conserving and rebuilding
the cash balances required for daily operations are true regarding working capital
management.
Whereas statement (III) the working capital requirements are determined through
estimations of the cash flow is a wrong statement as the working capital requirements
are determined through accurate projections of the cash flow. Hence option (b) is the
answer.
19. B Business level strategy involves making decisions about the competitive position of a
single business unit.
20. D The matching stage of the analytical framework for strategy formulation is also called
corporate portfolio analysis. This strategy has to be adoptable 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. Moreover, Each business is
a separate entity and a contributor to the corporation’s total portfolio of business. In
such companies, the corporate strategic considerations are not separate and distinct
from business level considerations. The portfolio approach provides a simple way of
identifying and evaluating alternative strategies for the generation and allocation of
corporate resources.
Business level strategy involves making decisions about the competitive position of a
single business unit. Hence option (d) is the answer.
21. A The process of internal analysis, when matched with the results of management’s
environmental analysis and mission priorities, provide the critical foundation for
strategy formulations.
22. B The following are the advantages of divisional organizational structure:
• It helps the corporate management to delegate authority for the strategic
management of distinct business equity.
• It helps the progress in critical decision making within each division in response
to different competitive environment and compels the corporate management to
stress upon corporate level decisions.
Whereas, the other two options are true regarding matrix structure. i.e.,
• It has the combined advantage of both functional specialization as well as the
product specialization.
• The number of middle managers gets increased with the help of this structure,
exercising general management responsibilities and broadens their exposure to
organization wide strategic concerns.
Hence option (b) is the answer.
23. A Long term objectives are statements of the results a firm seeks to achieve over a
specific period. To achieve long term prosperity, strategic planners commonly
establish long term objectives in seven areas. They are:
• Profitability
• Public responsibility
• Productivity
• Competitive position
• Employee development
• Employee relations
• Technological leadership.
Hence option (a) is the answer.
24. A Remote environment consists of a set of forces such as political, social, technological,
and industrial forces that originate beyond a firm’s operating situations.
25. E Learning-by-doing and teaching-by-doing may be the most appropriate means of
transfer in situations where the knowledge to be transferred is complex or embedded
in a complicated set of technological and organizational circumstances.
26. E The stronger a company’s culture become and the more that culture is directed
towards the organizational stakeholders the less the company uses policy manuals,
organizational charts, and detailed rules, procedures and regulations to enforce
discipline and norms.
27. E Financial reforms that have to be take by government are:
• Change in tax laws
• Change in capital gains
• Permission to banks to invest in equities
• Removal of incentives for financial manipulation in buying
Increased tax credits for R&D investments in industry is a technology policy that has
to be taken by the government. Hence option (e) is the answer.
28. D Failure to deal effectively with crises can lead to loss of confidence, competitiveness,
profits and market share. Hence option (d) is the answer.
29. C Three variables are generally present in large business units:
• Capital-labor substitutions: substituting capital for labor and vice versa
• Economies of scale: reductions in cost per unit of output as volume of output
increases
• Learning: understanding the role of specialization and its advantages.
Hence option (c) is the answer.
30. E In a tender offer, a company which intends to acquire a controlling interest in another
company asks the shareholders of the target company to submit or tender their shares
of stock in the firm.