Isbm case study answers & solutions 1

Isbm case study answers & solutions 1







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    Isbm case study answers & solutions 1 Isbm case study answers & solutions 1 Document Transcript

    • PORTPOLIO MANAGEMENT PHARMACOLOGY MANAGEMENT PUBLIC RELATIONSHIP MANAGEMENT PUBLIC ADMINISTRATION R S T RESEARCH METHODOLOGY RETAIL MANAGEMENT RISK & SAFETY MANAGEMENT RISK & INSURANCE MANAGEMENT RURAL MANAGEMENT SALES & DISTRIBUTION MANAGEMENT SIX SIGMA MANAGEMENT SIX SIGMA GREEN BELT MANAGEMENT SIX SIGMA BLACK BELT MANAGEMENT STATICAL QUALITY CONTROL SUPPLY CHAIN MANAGEMENT STORE MANAGEMENT SOFTWARE PROJECT MANAGEMENT SHIPPING MANAGEMENT SOFTWARE MANAGEMENT SAP CONSUTANCY MANAGEMENT SALES MANAGEMENT TELECOM MANAGEMENT TOTAL QUALITY MANAGEMENT TREASURY MANAGEMENT TOTAL SUPPLY MANAGEMENT TRAVEL & TOURISM TRAINING & DEVELOPING TAKE OVER AQUISATION TAXATION MANAGEMENT TEXTILE MANAGEMENT E-BUSINESS SYSTEM Case : 1 GM’s E-Business Strategy INTRODUCTION US-based General Motors (GM), the largest automobile company in the world, was in trouble in the late 1990s. The company‘s market share in the US automobile market had been steadily declining from a high of 50% in the late 1960s to a low of 28% by 1999.Analysts pointed out that GM had been in the grip of a vicious circle. The company faced low demand for its automobiles as they were not developed in line with the changing customer needs and preferences. However, GM continued producing automobiles which did not met customer requirements, leading to excess inventories at its factories and dealers. The building up of inventory at the dealers made the company even more desperate, and most often it resorted to higher dealer incentives which reduced the company‘s profits significantly. This again forced GM to produce more cars to compensate for the eroded profit margins. Commenting on the dilemma GM faced in the late 1990s, John Paul MacDuffie, Professor, Wharton Business School, explained, ―That belief in volume, and doing whatever it takes to keep volume, has driven a lot of their decisions. GM‘s labor costs are fixed, meaning they remain the same regardless of what the volume of sales is. GM wanted to keep factories open as much as possible. There was some value in that strategy, but I think they overdid it.‖ Analysts added that the reason for the decline in GM‘s US market share was that it had failed to introduce new models that customers wanted in quick time. To address this challenge, GM made e-business a strategic priority. It wanted to reinvent itself by embracing ebusiness across its value chain. In August 1999, after a year of research in collaboration with Forrester Research, GM launched a business division called e-GM that was responsible for all of the company‘s websites and its On Star communication system. Through this initiative, the company planned to reduce costs, improve quality AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL and boost demand for its products. Ult also wanted to position itself as a provider of Internet-based information services and a major player in the e-commerce arena. Commenting on this, Computerworld magazine quoted, ―GM wants to be more than your car company. Think in-car, real-time stock quotes, talking e-mail messages and video games. Think satellite-based radio services and online car financing. Think of a multibillion-dollar online trading exchange. These are just a few of the businesses in which GM is making huge information
    • technology investments. ―The philosophy that drove GM e-projects was the ‗launch and learn‘ approach. The company launched e-business projects, did pilot tests for them and then decided whether to abandon or continue them. However, analysts expressed doubts whether GM would be able to successfully implement its e-business strategy, and if it did, what the significance of this strategy for the company would be. Commenting on this, Derek Slater, Executive Editor of CIO Magazine said, ―Can e-business make a difference for an old economy, big and slow manufacturer the way it can for nimble, informationbased businesses?‖ Raising similar doubts, an Internet World magazine article queried, ―Will Internet hardware and services become GM‘S best products? And this in turn raises this question: Will Internet services become GM‘s core product some day?‖ NEED FOR E-BUSINESS STRATEGY With the advent of the Internet wave in 1999, GM wanted to reposition itself strategically. It wanted to make use of its vast customer base and huge assets to emerge as a leading player in the new economy businesses of entertainment and e-commerce. The 1999 annual report of GM stated: ―Besides mergers and acquisitions, there is no bigger trend in business today than that towards electronic business. Issues 1. What do you understand by the E-Business strategy implementation across an organization‘s value chain? 2. What are the rationale and benefits associated with e-commerce initiatives in an automobile company? 3. What are the Channel conflict arising from e-business initiative? Case : 2 Marriott’s Customer - Focused E- Business Strategy DELIGHTING CUSTOMERS Headquartered at Washington in the US, Marriott International (Marriott) is a world leader in the hospitality industry. In year 2003, it had a network in excess of 2,600 operating units in the US and a workforce of 145,000 employees, spread over 65 countries across the world. Marriott‘s diverse portfolio of popular hotel brands included leading brands such as Marriott, JW Marriott, Renaissance, Ramada International, Courtyard, Residence Inn, and The Ritz-Canton, among others. Marriott became the first hospitality company to win the CIO - 100 award from CIO magazine for four consecutive years (2000-03). The award was based on the company‘s exceptional customer service and relationship capability. Reacting to the receipt of award in 2003, Carl Wilson, Executive Vice President and Chief Information Officer of Marriot said, ―This award is the result of a culture and commitment among Marriott‘s information technology leadership team, associates and business partners to create great value for our company.‖ Since its inception, Marriott has focused on providing excellent customer service. The company offered personalized services to its clients, whom it referred to as its ‗guests.‘ It had introduced several innovative technologies and impIemented them even before its competitors did. For instance, in the 1980‘s, the company launched Marriott Automated Reservation System for Hotel Accommodation (MARSHA), a totally new concept of hotel reservation in the hospitality industry at that time. Marriott made continuous improvements in its business processes in its efforts to ‗delight‘ its customers. In 1998, the company adopted an e-business strategy to re-orient itself to serve its customers better. The company was operationalizing a strategy to switch over from a decentralized property-orientation to a centralized customer- orientation in its services. The company invested $70 million (mn) over a two-year period to implement a variety of IT applications in diverse functional disciplines such as sales, accounting and personnel. A key component of Marriott‘s e-business system was its CRM applications, developed in association with the leading CRM software company - Siebel Systems. By installing eCRM applications, Marriott was able to offer several new services that enhanced its hospitality services. The company‘s website, became one of the most frequently visited sites in the hospitality industry, giving clients access to the services offered by the entire Marriott chain of hotels and resorts. Il these initiatives boosted the company‘s ability to serve its clients, and also contributed to its own strong financial performance. For the financial year ending 2001-02, the company reported revenues of $84.41 billion (bn) and a net profit of $2.77 bn. BACKGROUND NOTE In 1927, J. William Marriott (William) set-up a nine-seat root beer shop in Washington. After some time, William started serving hot food along with root beer and named the shop as The Hot Shoppe‘ In 1929, Hot Shoppe was officially incorporated as Hot Shoppes, Inc. In 1937, Hot Shoppe ventured into airline catering at Washington airport, serving the Eastern, American and Capital airlines. Over the next three decades, Hot Shoppes diversified into other businesses including food services management
    • by starting a cafeteria at the US Treasury Building and Highway division. e-business strategy and the time involved for implementation. To execute e-business strategy successfully, organizations also require the best network and systems management tools available. It is also important to develop a framework for organizational alignment and decision-making and a more complex IT management and governance structure. A clear framework that establishes who can make which decisions, and where and how the e-business project will be managed is required. Issues 1. Bring out the facts of the case. 2. Identify the various E-business initiatives. 3. What are the strategies an organization to focus in order to excel in the E-business. 4. Apart from the facts provided in the case, what other initiatives you can project keeping in mind the success of an organization towards E-business. In 1966, the company ventured overseas, acquiring an airline catering kitchen in Caracas, Venezuela. In November 1967, its name was changed to Marriott Corporation (Marriott). In 1982, Marriott acquired Host -International, a leading hospitality services provider in the US, becoming the largest operator of airport terminal food, beverage and merchandise facilities in the US. In the 1980s, Marriott acquired several companies including American Resorts Corp. (vacation business, 1984), Gladieux Corporation (food service company, 1985), Service Systems (contact food service company, 1985), Howard Johnson Company (hotels & inns, 1985) and Residency Inn Company (1987). With the acquisition of Saga Corporation, a diversified food service management company in 1986, Marriott became the largest food service management company in the US. Issues 1. Taking out the facts of the case , Bring out the importance of a customer-focused e-business strategy in the hospitality industry. 2. Establish the role of IT in integrating different business processes to make them more customeroriented based on your understanding of the case. Case : 3 E-Strategies - Case Studies In the e-business environment, organizations must focus on their core competencies and should rely on external partners for all their non-core activities. The Internet enables a significant reduction in the cost of inter-organizational coordination and transactions, which fundamentally changes the nature of business relationships and encourages greater use of business partners over internal departments. Business managers have more choice to outsource business processes they require. E-business strategies can significantly improve various organizational functions including supply chain management (SCM), product development, marketing, HR and so on. It will also enhance the benefits for organizations adopting e-business including shortening of new product development cycle time, providing better information to suppliers and vendors, reducing data integrity issues, significantly enhancing customer experience and more. The e-SCM initiatives typically start with e-procurement with answering questions such as whether there is a need for e-market places for procurement and how to transform SCM from the organization driven inventory building to customer driven order approach. Another e-SCM initiative, e-sourcing is a cross-functional and cross-enterprise process that aims at optimizing supply chain lifecycle performance through the Internet. Organizations have to develop new partnerships, create new e-intermediaries (e-supply network) and develop appropriate standards for data exchange and inter-organization related processes. They also have to decide on what services they will source via the-Internet and have to develop robust KM systems to improve internal efficiency, enable faster decision-making and facilitate information and knowledge sharing. E-Strategies have to be developed for the sell side of an organization solving distribution related issues such as shall the organization serve directly to its customers and how will the organization‘s existing channels react if it uses the web as a new channel. Other sell side issues include how to manage customer relationships online and online marketing and how to use online channels like B2B emarketplaces, online retailers and virtual distributors. One of the major hurdles to overcome includes solving conflicts between old and new channel successfully. Getting prices right on the web is one of the critical success factors for establishing an e-business. However, few companies have been able to develop a right online pricing strategy. Organizations must ensure that their e-pricing strategy should not conflict with their core business principles and strategic objectives. They should employ the right software tools and related skills to enhance their online pricing performance. Moreover, the tools for optimizing e-pricing, for example, software for monitoring competitors‘ prices do not require much investment. Organizations not only have to redefine their core business processes but non-core processes such as
    • human resources as well to derive the full potential of the Internet. By developing effective Internetbased business-to-employee (B2E) systems, organizations can persuade their employees to embrace change. The benefits of these systems include reduced interaction costs, allowing employee selfservice and mass customization. Online brand management is another issue that must be tackled by organizations. In their rush to establish a presence on the Internet, most organizations have failed to build strong, distinctive online brands. Questions such as if one branch of an organization develops a website, will it not confuse customers of other branches of the company and how to differentiate local and global brands on the Internet has to answered. After addressing all issues related to electronically enabling the functional areas mentioned above, an organization is ready to manage the execution of its overall e-business strategy. Issues 1. Bring out the facts of the case. 2. Identify the various E-business initiatives. 3. What are the strategies an organization to focus in order to excel in the E-business. 4. Apart from the facts provided in the case, what other initiatives you can project keeping in mind the success of an organization towards E-business. Case : 4 A PROACTIVE APPROACH TO ENVIRONMENTAL RESPONSIBILITY INTRODUCTION Dell is a premier provider of computer systems world-wide. Through its direct usiness model, Dell designs, manufactures and customises products and services to customer requirements. DELL IRELAND Dell‘s European manufacturing operation is located in Limerick with a European Business Centre located at Cherrywood in Dublin. The company has been in Operation in Ireland since 1990, and employs around 4,500 people. Dell is Ireland‘s largest exporter, largest technology company and second largest company overall. Dell‘s manufacturing facility operates a Just-in-Time manufacturing strategy. Dell‘s suppliers deliver the required materials at regular intervals during the day and load them onto the manufacturing line. The final product is boxed and loaded directly onto transport trucks and shipped to supplier-owned merge centres. There, the monitor and other requested peripherals are added before final shipment to the customer. SOCIAL RESPONSIBILITY TO STAKEHOLDERS The need for a business to be responsible for its actions is widely accepted. Businesses do not exist in isolation; they provide goods and services to people and make use of‘ materials and labour supplied by people. Businesses have responsibilities to stakeholders to ensure their actions do not cause harm. CHARACTERISTICS OF AN ENVIRONMENTALLY RESPONSIBLE COMPANY Dell is committed to a culture of environmental sustainability and responsibility. It continually reduces its impact on the environment through product design, manufacturing, product ownership experience and product end-of-life solutions. The characteristics of an environmentally responsible company include: • Awareness — of how the company‘s policies can impact on stakeholders • Sensitivity — to the requirements of local community and environment • Honesty — about the actions of the company • Consultation — with stakeholders prior to developing new policies or products • Openness — transparency with stakeholders about company practices Dell has developed a Code of Conduct, which correlates closely to the above characteristics. It allows stakeholders to understand that they can believe what Dell says and trust what it does. ENVIRONMENTAL AUDIT Socially responsible companies conduct environmental audits to assess the impact of their businesses on the environment. Dell complies with all the environmental laws and regulations, including ISO 14001 and OHSAS 18001, and manages its facilities with the environment in mind. Dell designs products with up-to-date recyclable materials, using the Reduce, Reuse, Recycle initiative at ts manufacturing site. It commits to taking back old computer parts for recycling. Dell continually explores all kinds of recycling options to rind the stateof-the-art best practices for recycling of its old IT equipment. CORPORATE ENVIRONMENTAL GOALS Dell has identified corporate environmental goals to work towards in the future. This environmental policy provides a framework designed to ensure sustainable practices throughout the entire product life cycle.
    • Dell‘s vision is to create a company culture where environmental excellence is second nature. The following environmental policy objectives have been established to achieve its mission. PRODUCT CONCEPT & DESIGN Dell designs products with a focus on: • Safe operation • Extending product life span • Reducing energy consumption • Avoiding environmentally sensitive materials • Promoting dematerialisation • Using parts that can be recycled In 2000, Dell began a programme called ‗Design for the Environment‘, which evaluates the environmental performance of a product and the impact of its packaging, energy and materials. Many Dell systems (and virtually all Dell monitors) comply with the U.S. Environmental Protection Agency (EPA) Energy Star programme for energy efficient computers, which reduces air pollution. The EPA estimates that offices can save 5O% of equipment electricity costs by taking advantage of power management, where inactive computers go into ―sleep mode‖. This decrease in electricity usage can reduce emissions of carbon dioxide, which causes the greenhouse effect, and sulphur dioxide and nitrogen dioxide —, two primary causes of acid rain. PREVENT WASTE & POLLUTION Dell operates its facilities in a way that minimises harmful impacts on the environment. It also places a high priority on reducing waste, recycling and reuse programmes and pollution prevention. 100% of all boxing material, cardboard boxes and protective foam are recycled or recovered through Dell‘s local recycling facilities. In 2005, Dell developed a Forest Products Stewardship Model that established three main goals with respect to paper products: protecting endangered forests, improving forest practices and reducing demand on forests. CONTINUALLY IMPROVE PERFORMANCE Dell uses an Environmental Management System (EMS) to establish goals, implement programmes, monitor technology and environmental management practices, evaluate progress, and continually improve environmental performance. Dell also encourages a culture of environmental responsibility among employees and management. Dell-owned buildings are monitored and controlled by an automated building management system, which monitors energy usage and controls temperature. By monitoring building occupancy, energy consumption and cost per unit are reduced. DEMONSTRATE RESPONSIBILITY TO STAKEHOLDERS Dell acts in an environmentally responsible manner to ensure the health and safety of its employees, neighbours and the environment. COMPLIANCE WITH THE LAW Dell conducts business with integrity and complies with environmental laws and regulations. RECYCLING AND DONATING As computers become more common in homes and businesses, there is a growing concern about the environmental impact of old computers. CONSUMER EQUIPMENT END-OF-LIFE STRATEGIES As part of Dell‘s policy that ‗No Computer Should Go to Waste‘, Irish consumers can recycle used computer systems, monitors or printers through the Dell website at no cost with a new purchase. BUSINESS EQUIPMENT END-OF-LIFE STRATEGIES In November 2004, Dell Ireland launched recycling services for business and consumer customers. The new service is part of Dell‘s global effort to increase product recovery by 50% in 2005. Dell offers business customers Dell Asset Recovery Services (ARS), which allows customers to recycle or re-sell used computer equipment of any brand. Reuse is also a critical element of the product life cycle and Dell also supports donation as a responsible means of disposing of computers. RECYCLE In November 2004, Dell hosted a free recycling event in Limerick to raise awareness among consumers and small businesses of the importance of electronics recycling. More than 540 cars dropped off 19.1 tonnes of old computer equipment for recycling. 630 computers, 825 monitors, 330 printers and other peripherals filled three 40-foot freight trucks. At the event, Nicky Harterv, Vice President of Dell‘s Manufacturing and Business Operations commented “As an environmentally responsible company, offering a whole range of recycling services to both the consumer and business customer, it is important that we help raise the awareness of the importance of recycling to the environment and of the options available.”
    • DONATE In January 2004, Dell was a partner in the Reuse Technology (RT) Centre, a scheme that facilitates the reuse of computers by community and non-profit groups. Dell customers are encouraged through Dell‘s website to donate used systems to the RT Centre, who refurbish them, reload software and give them to suitable non-profit organisations. This makes hundreds of used computers available to communities that would not otherwise be able to afford them. Dell also contributes a percentage of its own used computers to the RT Centre. COMMUNICATING THE MESSAGE In March 2005, Dell called on all Irish consumers to ―Go Green‖ for St. Patrick‘s Day, following research which highlighted a lack of awareness among consumers of the computer recycle and reuse options. The study found while 85% of the public recycle household waste at least once a month, only 9% plan to recycle their home computer. Dell announced in June 2005 that Irish consumers are leading the way in the use of its computer recycling services in the Europe, Middle East and Africa (EMEA) region. Irish online recycling and computer donations accounted for over a quarter of Dell‘s total EMEA numbers in the first quarter of 2005. “Last year alone, Irish customers recycled over 22 tonnes of computer equipment through Dell. These figures emphasise the importance of having these services available,” said Jean Cox-Kearns, Dell‘s Senior Manager for Asset Recovery Services. COST-BENEFIT ANALYSIS The costs to Dell of meeting its ethical and environmental responsibilities include: • Resources for a take-back and recycling organisation. • Promoting recycling and its benefits can incur costs (advertising, transportation, sorting etc.). The benefits include: • A well managed company that understands its impact on the communities in which it operates. • Improved working conditions and higher motivation amongst employees. • Meeting expectations of ―green‖ customers. • Positive publicity for the corporation. In December 2004, Business Ethics magazine presented Dell with its Environmental Progress Award for the company‘s commitment to the environment and industry-leading computer recycling initiatives. CONCLUSION Dell‘s success is based on its ability to meet and exceed the requirements of customers. The same focus on business efficiencies and customer satisfaction helps Dell‘s environmental programme to conserve product energy consumption, reduce or eliminate materials for disposal, prolong product life span and provide effective and convenient equipment recovery solutions. Dell‘s philosophy is that ―No computer should go to waste‖ and key to meeting that goal is making customers aware that it provides recycling services that are easy-to- use, safe and affordable. ISSUES (1) Why does Dell treat its stakeholders in a socially and ethically responsible manner? (2) In your opinion, which of Dell‘s strategies makes the most impact on the environment? Explain your answer. (3) Explain the importance of the ―Energy Star‖ programme for consumers and businesses E-COMMERCE MANAGEMENT E-Commerce Strategy, Technologies and Applications CASE STUDY : 1 Mrs Geeta Kapoor is a middle aged lady, who is very fond of shopping. Uptill now she always used the traditional methods of shopping. But one day her shopping activity can stuck up due to unprecedented rains, that is when her neice brought up the idea of internet shopping. Mrs Kapoor felt that while internet e-commerce might be a very attractive facility to many customers, it does not solve all shopping problems for her. Question : 1) What do you feel are the reasons for Mrs Kapoor above statement? 2) Explain the advantages and disadvantages of ordering the products online. 3) Use the Web site Evaluation Model and evaluate a couple of Web sites. Compare the results of the two evaluations. 4) Compute an overall score to each of the sites along with reasons. AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL
    • CASE STUDY : 2 Mr Laxman Shastri is a master in the commerce field and over the period he has acquired a lot of computer literacy as he feels that the definition of E-Commerce put forward as ―Electronic Commerce is commerce enabled by internet era technologies‖ is very true. But still a number or lot of concepts have to be understood along with the nature of the internet. Question : 1) Explain packet switching 2) How does packet switching differ from a switched network. 3) Draw a simple diagram of hardware, network and software facilities utilized when an e-shop is accessed from a home PC. 4) List the facilities available on the web. CASE STUDY : 3 The recent introduction of EDI into Leroy Merlin, one of the larger DIY retailers in the French market. The French DIY sector is fragmented with a few medium size chains and many independent operators. This contrast with the UK DIY sector which is dominated by a few large operators all of which have operational EDI Systems. The use of EDI by Leroy Merlin will no doubt be emulated by the other players of comparable size but it seems likely to contribute to continue the rationalization that is taking place in this sector in France. Question : 1) For each stage of the business trade cycle, list the stage specific advantages and disadvantages of using EDI. 2) What problems might be encountered in the above case with the implementation of EDI? 3) EDI is typically applied to trade exchanges, orders, invoices etc but it can also be used for non-trade purposes. Suggest how EDI might be used in this case? 4) Suggest any instances where a mature EDI supply chain can facilitate a change in the nature of the product of service. CASE STUDY : 4 Mr. Apte is retired manager from a multinational company. He worked in the Audit department of the company. He has all his life done a great hard work. After the system in the company became computerized he adapted himself to the computerized environment. But still he does not feel comfortable with e-banking services and always feels that the old system was only better. Question : 1) Explain the reasons for Mr Apte holding the above views. 2) Explain what you mean by Internet banking? 3) What do you feel are the advantages and disadvantages of E-Banking? 4) How can the problems in Internet banking be resolved? BUSINESS ENVIRONMENTAL 1. Discuss how the environment acts does as a stimulant to business. Analyse why business often does little for the preservation of physical environment despite the fact that it is significant for business activity. 2. Explain the relevance of ecological issues to business environment 3. What do you understand by Business Social Responsibility ( B S R ). How this can be used to improve the Business Environment. 4. Explain how the business in an organization can be regulated with regard to the Organization’s Basic Objectives. 5. Describe in detail the different role played by the Government towards enriching the business Environment. 6. In the Business Environment context, explain how the Political and legal Environment of business plays a vital role. Justify by bringing in suitable examples. 7. Evaluate the advantages and disadvantages of FDI. What is your opinion on the role of FDI in the Retail Sector? Justify your views with India's experience in this sector. EVENT MANAGEMENT EVENT MANAGEMENT (1st Set) CASE STUDY : 1 A group of university students decided to hold a rock concert in the mountains in June and advertised the concert on the Internet. Three bands attended the three-day concert,
    • and there was twenty-four hour music. One young girl described the entire situation as living hell, although why she stayed is unfathomable. ―The dance area was in a valley and to get a drink of water you had to climb a sheep hill. Even then, the water was dirty and brown. The restrooms were so far away that nobody bothered to use them. The music pounded all night and the floor in the cabin we were in vibrated so you could not sleep. My friend got sick and there was no medical help. The organizers did not have a clue. They just wanted to make a fast buck. Question : 1) What are some of the things that could go wrong, or have wrong at similar events? 2) List three ways in which the organizers were negligent? 3) List three ways in which the event could have been improved? 4) This event was described to the authorities as a cultural festival. Do you think it belongs in that category? AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL CASE STUDY : 2 You are going to rent a venue for a fashion show. The venue you have in mind is an old theater that lends itself well to the event, with excellent sight lines for the audience. However, the décor and lighting planned by your artistic director for your fashion parade may compromise safety. Drapes over the ceiling area will obscure the normal lighting and will prevent the fire sensors and sprinklers from working correctly. Also, there are a number of props that may hinder access into and out of the venue. On the other hand, the audience expected is quite small. Question : 1) What are the some of the Safety risk associated with this event? 2) Who is responsible for the safety of the venue and the audience? 3) With whom should you discuss the risks associated with your event concept? 4) How could the risks be reduced? CASE STUDY : 3 Sponsorship is one of the most common funding sources for staging an event. In some cases, the sponsor is happy to provide cash to support the event in exchange for increased profile and sales of the sponsor‘s products. In other cases sponsor provides ‗Value in kind‘ that is the sponsor will provide free goods and services, again with the expectation that this arrangement will have a bottom-line benefit. For example, a newspaper sponsor may provide free advertising space. Some sponsors use an event to promote a new product, and in this case, the whole event is aimed at developing customer awareness and loyalty. Question : 1) Can the sponsor‘s involvement lead to some benefit for the organization in terms of increased profile or increased sales? 2) What other benefits are there? 3) Will it be time-consuming for their staff? 4) Define the term sponsorship in brief. CASE STUDY : 4 The 2008 exhibition of Designer Jewellery Artists of the South Pacific is being held in the foyer of a large Honolulu, Hawaii hotel. The governer will open the exhibition, and a number of dignitaries from Tahiti, Guam, Tonga, and Samoa will be in attendance. These will be some security risks associated with the visiting guests, as well as with the items on display. Threats and Protests could also disrupt the opening. Question : 1) Who will be responsible for security (probably more than one body)? 2) What are some of the potential security problems? 3) What are the occupational health and safety issue? 4) What steps can be taken to prevent a security incident? 5) What plans should be in place should an incident occur? WE ARE PROVIDING CASE STUDY ANSWERS ASSIGNMENT SOLUTIONS, PROJECT REPORTS
    • AND THESIS ISBM / IIBMS / IIBM / ISMS / KSBM / NIPM SMU / SYMBIOSIS / XAVIER / NIRM / PSBM ISM / IGNOU / IICT / ISBS / LPU / ISM&RC MBA - EMBA - BMS - GDM - MIS - MIB DMS - DBM - PGDM - DBM - DBA ARAVIND 09901366442 - 09902787224 Financial Management
    • Q-1) What are the techniques of Capital Budgeting? Explain in brief. Q-2) What are the approaches (models) of Dividend Policy. Q-3) Write a note on Stock Markets in India. Q-4) Explain Inventory Management, which is a part of Working Capital Management. Q-5) What are the techniques of analyzing financial statements. Q-6) Explain the concept of budget. Describe any 5 types of budgets. Q-7) What do you mean by leverages. Explain all three types of leverages. Q-8) Explain the concept of break even analysis. FINANCE MANAGEMENT a) What is meant by financing decisions? Mention two limitations of accounting rate of return. b) Explain Financial Risk. c) Mention the utility of public deposits as a source of fund. D) Explain operating Lease. e) Discuss the relation between debt financing and financial leverage. F) What is a letter of credit g) Differentiate between Bonus issue and stock split. H) Define the term 'take over.' i) What is Capital Asset pricing model? j) How cost of preference share capital is calculated? K) What is dividend pay-out Ratio? l) Explain the concept of Capital Rationing. m) Mention two advantages of Lease financing. n) Define Economic Value added in relation to shareholder's value criteria. Financial Management ZIP ZAP ZOOM CAR COMPANY Zip Zap Zoom Company Ltd is into manufacturing cars in the small car (800 cc) segment. It was set up 15 years back and since its establishment it has seen a phenomenal growth in both its market and profitability. Its financial statements are shown in Exhibits 1 and 2 respectively. The company enjoys the confidence of its shareholders who have been rewarded with growing dividends year after year. Last year, the company had announced 20 per cent dividend, which was the highest in the automobile sector. The company has never defaulted on its loan payments and enjoys a favourable face with its lenders, which include financial institutions, commercial banks and debenture holders. The competition in the car industry has increased in the past few years and the company foresees further intensification of competition with the entry of several foreign car manufactures many of them being market leaders in their respective countries. The small car segment especially, will witness entry of foreign majors in the near future, with latest technology being offered to the Indian customer. The Zip Zap Zoom‘s senior management realizes the need for large scale investment in up gradation of technology and improvement of manufacturing facilities to pre-empt competition. Whereas on the one hand, the competition in the car industry has been intensifying, on the other hand, there has been a slowdown in the Indian economy, which has not only reduced the demand for cars, but has also led to adoption of price cutting strategies by various car manufactures. The industry indicators predict that the economy is gradually slipping into recession. Exhibit 1 Balance sheet as at March 31,200 x (Amount in Rs. Crore) Source of Funds Share capital 350 Reserves and surplus 250 600 Loans : Debentures (@ 14%) 50 Institutional borrowing (@ 10%) 100 Commercial loans (@ 12%) 250 Total debt 400 Current liabilities 200
    • 1,200 Application of Funds Fixed Assets Gross block 1,000 Less : Depreciation 250 Net block 750 Capital WIP 190 Total Fixed Assets 940 Current assets : Inventory 200 Sundry debtors 40 Cash and bank balance 10 Other current assets 10 Total current assets 260 -1200 Exhibit 2 Profit and Loss Account for the year ended March 31, 200x (Amount in Rs. Crore) Sales revenue (80,000 units x Rs. 2,50,000) 2,000.0 Operating expenditure : Variable cost : Raw material and manufacturing expenses 1,300.0 Variable overheads 100.0 Total 1,400.0 Fixed cost : R & D 20.0 Marketing and advertising 25.0 Depreciation 250.0 Personnel 70.0 Total 365.0 Total operating expenditure 1,765.0 Operating profits (EBIT) 235.0 Financial expense : Interest on debentures 7.7 Interest on institutional borrowings 11.0 Interest on commercial loan 33.0 51.7 Earnings before tax (EBT) 183.3 Tax (@ 35%) 64.2 Earnings after tax (EAT) 119.1 Dividends 70.0 Debt redemption (sinking fund obligation)** 40.0 Contribution to reserves and surplus 9.1 * Includes the cost of inventory and work in process (W.P) which is dependent on demand (sales). ** The loans have to be retired in the next ten years and the firm redeems Rs. 40 crore every year. The company is faced with the problem of deciding how much to invest in up gradation of its plans and technology. Capital investment up to a maximum of Rs. 100 crore is required. The problem areas are three-fold.  The company cannot forgo the capital investment as that could lead to reduction in its market share as technological competence in this industry is a must and customers would shift to manufactures providing latest in car technology.  The company does not want to issue new equity shares and its retained earning are not enough for such a large investment. Thus, the only option is raising debt.  The company wants to limit its additional debt to a level that it can service without taking undue risks. With the looming recession and uncertain market conditions, the company perceives that additional fixed obligations could become a cause of financial distress, and thus, wants to determine its additional debt capacity to meet the investment requirements. Mr. Shortsighted, the company‘s Finance Manager, is given the task of determining the additional debt that the firm can raise. He thinks that the firm can raise Rs. 100 crore worth debt and service it even in years of recession. The company can raise debt at 15 per cent from a financial institution.
    • While working out the debt capacity. Mr. Shortsighted takes the following assumptions for the recession years. a) A maximum of 10 percent reduction in sales volume will take place. b) A maximum of 6 percent reduction in sales price of cars will take place. Mr. Shorsighted prepares a projected income statement which is representative of the recession years. While doing so, he determines what he thinks are the ―irreducible minimum‖ expenditures under recessionary conditions. For him, risk of insolvency is the main concern while designing the capital structure. To support his view, he presents the income statement as shown in Exhibit 3. Exhibit 3 projected Profit and Loss account (Amount in Rs. Crore) Sales revenue (72,000 units x Rs. 2,35,000) 1,692.0 Operating expenditure Variable cost : Raw material and manufacturing expenses 1,170.0 Variable overheads 90.0 Total 1,260.0 Fixed cost : R & D --- Marketing and advertising 15.0 Depreciation 187.5 Personnel 70.0 Total 272.5 Total operating expenditure 1,532.5 EBIT 159.5 Financial expenses : Interest on existing Debentures 7.0 Interest on existing institutional borrowings 10.0 Interest on commercial loan 30.0 Interest on additional debt 15.0 62.0 EBT 97.5 Tax (@ 35%) 34.1 EAT 63.4 Dividends -- Debt redemption (sinking fund obligation) 50.0* Contribution to reserves and surplus 13.4 * Rs. 40 crore (existing debt) + Rs. 10 crore (additional debt) Assumptions of Mr. Shorsighted  R & D expenditure can be done away with till the economy picks up.  Marketing and advertising expenditure can be reduced by 40 per cent.  Keeping in mind the investor confidence that the company enjoys, he feels that the company can forgo paying dividends in the recession period. He goes with his worked out statement to the Director Finance, Mr. Arthashatra, and advocates raising Rs. 100 crore of debt to finance the intended capital investment. Mr. Arthashatra does not feel comfortable with the statements and calls for the company‘s financial analyst, Mr. Longsighted. Mr. Longsighted carefully analyses Mr. Shortsighted‘s assumptions and points out that insolvency should not be the sole criterion while determining the debt capacity of the firm. He points out the following :  Apart from debt servicing, there are certain expenditures like those on R & D and marketing that need to be continued to ensure the long-term health of the firm.  Certain management policies like those relating to dividend payout, send out important signals to the investors. The Zip Zap Zoom‘s management has been paying regular dividends and discontinuing this practice (even though just for the recession phase) could raise serious doubts in the investor‘s mind about the health of the firm. The firm should pay at least 10 per cent dividend in the recession years.  Mr. Shortsighted has used the accounting profits to determine the amount available each year for servicing the debt obligations. This does not give the true picture. Net cash inflows should be used to determine the amount available for servicing the debt.
    •  Net Cash inflows are determined by an interplay of many variables and such a simplistic view should not be taken while determining the cash flows in recession. It is not possible to accurately predict the fall in any of the factors such as sales volume, sales price, marketing expenditure and so on. Probability distribution of variation of each of the factors that affect net cash inflow should be analyzed. From this analysis, the probability distribution of variation in net cash inflow should be analysed (the net cash inflows follow a normal probability distribution). This will give a true picture of how the company‘s cash flows will behave in recession conditions. The management recognizes that the alternative suggested by Mr. Longsighted rests on data, which are complex and require expenditure of time and effort to obtain and interpret. Considering the importance of capital structure design, the Finance Director asks Mr. Longsighted to carry out his analysis. Information on the behaviour of cash flows during the recession periods is taken into account. The methodology undertaken is as follows : (a) Important factors that affect cash flows (especially contraction of cash flows), like sales volume, sales price, raw materials expenditure, and so on, are identified and the analysis is carried out in terms of cash receipts and cash expenditures. (b) Each factor‘s behaviour (variation behaviour) in adverse conditions in the past is studied and future expectations are combined with past data, to describe limits (maximum favourable), most probable and maximum adverse) for all the factors. (c) Once this information is generated for all the factors affecting the cash flows, Mr. Longsighted comes up with a range of estimates of the cash flow in future recession periods based on all possible combinations of the several factors. He also estimates the probability of occurrence of each estimate of cash flow. Assuming a normal distribution of the expected behaviour, the mean expected value of net cash inflow in adverse conditions came out to be Rs. 220.27 crore with standard deviation of Rs. 110 crore. Keeping in mind the looming recession and the uncertainty of the recession behaviour, Mr. Arthashastra feels that the firm should factor a risk of cash inadequacy of around 5 per cent even in the most adverse industry conditions. Thus, the firm should take up only that amount of additional debt that it can service 95 per cent of the times, while maintaining cash adequacy. To maintain an annual dividend of 10 per cent, an additional Rs. 35 crore has to be kept aside. Hence, the expected available net cash inflow is Rs. 185.27 crore (i.e. Rs. 220.27 – Rs. 35 crore) Analyse the debt capacity of the company. NO. 2 COOKING LPG LTD DETERMINATION OF WORKING CAPTIAL Introduction Cooking LPG Ltd, Gurgaon, is a private sector firm dealing in the bottling and supply of domestic LPG for household consumption since 1995. The firm has a network of distributors in the districts of Gurgaon and Faridabad. The bottling plant of the firm is located on National Highway – 8 (New Delhi – Jaipur), approx. 12 kms from Gurgaon. The firm has been consistently performing we.‖ and plans to expand its market to include the whole National Capital Region. The production process of the plant consists of receipt of the bulk LPG through tank trucks, storage in tanks, bottling operations and distribution to dealers. During the bottling process, the cylinders are subjected to pressurized filling of LPG followed by quality control and safety checks such as weight, leakage and other defects. The cylinders passing through this process are sealed and dispatched to dealers through trucks. The supply and distribution section of the plant prepares the invoice which goes along with the truck to the distributor. Statement of the Problem : Mr. I. M. Smart, DGM(Finance) of the company, was analyzing the financial performance of the company during the current year. The various profitability ratios and parameters of the company indicated a very satisfactory performance. Still, Mr. Smart was not fully content-specially with the management of the working capital by the company. He could recall that during the past year, in spite of stable demand pattern, they had to, time and again, resort to bank overdrafts due to nonavailability of cash for making various payments. He is aware that such aberrations in the finances have a cost and adversely affects the performance of the company. However, he was unable to pinpoint the cause of the problem. He discussed the problem with Mr. U.R. Keenkumar, the new manager (Finance). After critically examining the details, Mr. Keenkumar realized that the working capital was hitherto estimated only as approximation by some rule of thumb without any proper computation based on
    • sound financial policies and, therefore, suggested a reworking of the working capital (WC) requirement. Mr. Smart assigned the task of determination of WC to him. Profile of Cooking LPG Ltd. 1) Purchases : The company purchases LPG in bulk from various importers ex-Mumbai and Kandla, @ Rs. 11,000 per MT. This is transported to its Bottling Plant at Gurgaon through 15 MT capacity tank trucks (called bullets), hired on annual contract basis. The average transportation cost per bullet ex-either location is Rs. 30,000. Normally, 2 bullets per day are received at the plant. The company make payments for bulk supplies once in a month, resulting in average time-lag of 15 days. 2) Storage and Bottling : The bulk storage capacity at the plant is 150 MT (2 x 75 MT storage tanks) and the plant is capable of filling 30 MT LPG in cylinders per day. The plant operates for 25 days per month on an average. The desired level of inventory at various stages is as under.  LPG in bulk (tanks and pipeline quantity in the plant) – three days average production / sales.  Filled Cylinders – 2 days average sales.  Work-in Process inventory – zero. 3) Marketing : The LPG is supplied by the company in 12 kg cylinders, invoiced @ Rs. 250 per cylinder. The rate of applicable sales tax on the invoice is 4 per cent. A commission of Rs. 15 per cylinder is paid to the distributor on the invoice itself. The filled cylinders are delivered on company‘s expense at the distributor‘s godown, in exchange of equal number of empty cylinders. The deliveries are made in truck-loads only, the capacity of each truck being 250 cylinders. The distributors are required to pay for deliveries through bank draft. On receipt of the draft, the cylinders are normally dispatched on the same day. However, for every truck purchased on pre-paid basis, the company extends a credit of 7 days to the distributors on one truck-load. 4) Salaries and Wages : The following payments are made :  Direct labour – Re. 0.75 per cylinder (Bottling expenses) – paid on last day of the month.  Security agency – Rs. 30,000 per month paid on 10th of subsequent month.  Administrative staff and managers – Rs. 3.75 lakh per annum, paid on monthly basis on the last working day. 5) Overheads :  Administrative (staff, car, communication etc) – Rs. 25,000 per month – paid on the 10th of subsequent month.  Power (including on DG set) – Rs. 1,00,000 per month paid on the 7th Subsequent month.  Renewal of various licenses (pollution, factory, labour CCE etc.) – Rs. 15,000 per annum paid at the beginning of the year.  Insurance – Rs. 5,00,000 per annum to be paid at the beginning of the year.  Housekeeping etc – Rs. 10,000 per month paid on the 10th of the subsequent month.  Regular maintenance of plant – Rs. 50,000 per month paid on the 10th of every month to the vendors. This includes expenditure on account of lubricants, spares and other stores.  Regular maintenance of cylinders (statutory testing) – Rs. 5 lakh per annum – paid on monthly basis on the 15th of the subsequent month.  All transportation charges as per contracts – paid on the 10th subsequent month.  Sales tax as per applicable rates is deposited on the 7th of the subsequent month. 6) Sales : Average sales are 2,500 cylinders per day during the year. However, during the winter months (December to February), there is an incremental demand of 20 per cent. 7) Average Inventories : The average stocks maintained by the company as per its policy guidelines :  Consumables (caps, ceiling material, valves etc) – Rs. 2 lakh. This amounts to 15 days consumption.  Maintenance spares – Rs. 1 lakh  Lubricants – Rs. 20,000
    •  Diesel (for DG sets and fire engines) – Rs. 15,000  Other stores (stationary, safety items) – Rs. 20,000 8) Minimum cash balance including bank balance required is Rs. 5 lakh. 9) Additional Information for Calculating Incremental Working Capital During Winter.  No increase in any inventories take place except in the inventory of bulk LPG, which increases in the same proportion as the increase of the demand. The actual requirements of LPG for additional supplies are procured under the same terms and conditions from the suppliers.  The labour cost for additional production is paid at double the rate during wintes.  __________No changes in other administrative overheads.  The expenditure on power consumption during winter increased by 10 per cent. However, during other months the power consumption remains the same as the decrease owing to reduced production is offset by increased consumption on account of compressors /Acs.  Additional amount of Rs. 3 lakh is kept as cash balance to meet exigencies during winter.  No change in time schedules for any payables / receivables.  The storage of finished goods inventory is restricted to a maximum 5,000 cylinders due to statutory requirements. NO. 3 M/S HI-TECH ELECTRONICS M/s. Hi – tech Electronics, a consumer electronics outlet, was opened two years ago in Dwarka, New Delhi. Hard work and personal attention shown by the proprietor, Mr. Sony, has brought success. However, because of insufficient funds to finance credit sales, the outlet accepted only cash and bank credit cards. Mr. Sony is now considering a new policy of offering installment sales on terms of 25 per cent down payment and 25 per cent per month for three months as well as continuing to accept cash and bank credit cards. Mr. Sony feels this policy will boost sales by 50 percent. All the increases in sales will be credit sales. But to follow through a new policy, he will need a bank loan at the rate of 12 percent. The sales projections for this year without the new policy are given in Exhibit 1. Exhibit 1 Sales Projections and Fixed costs Month Projected sales without instalment option Projected sales with instalment option January Rs. 6,00,000 Rs. 9,00,000 February 4,00,000 6,00,000 March 3,00,000 4,50,000 April 2,00,000 3,00,000 May 2,00,000 3,00,000 June 1,50,000 2,25,000 July 1,50,000 2,25,000 August 2,00,000 3,00,000 September 3,00,000 4,50,000 October 5,00,000 7,50,000 November 5,00,000 15,00,000 December 8,00,000 12,00,000 Total Sales 43,00,000 72,00,000 Fixed cost 2,40,000 2,40,000 He further expects 26.67 per cent of the sales to be cash, 40 per cent bank credit card sales on which a 2 per cent fee is paid, and 33.33 per cent on installment sales. Also, for short term seasonal requirements, the film takes loan from chit fund to which Mr. Sony subscribes @ 1.8 per cent per month. Their success has been due to their policy of selling at discount price. The purchase per unit is 90 per cent of selling price. The fixed costs are Rs. 20,000 per month. The proprietor believes that the new policy will increase miscellaneous cost by Rs. 25,000. The business being cyclical in nature, the working capital finance is done on trade – off basis. The proprietor feels that the new policy will lead to bad debts of 1 per cent.
    • (a) As a financial consultant, advise the proprietor whether he should go for the extension of credit facilities. (b) Also prepare cash budget for one year of operation of the firm, ignoring interest. The minimum desired cash balance & Rs. 30,000, which is also the amount the firm, has on January 1. Borrowings are possible which are made at the beginning of a month and repaid at the end when cash is available. NO.4 SMOOTHDRIVE TYRE LTD Smoothdrive Tyre Ltd manufacturers tyres under the brand name ―Super Tread‘ for the domestic car market. It is presently using 7 machines acquired 3 years ago at a cost of Rs. 15 lakh each having a useful life of 7 years, with no salvage value. After extensive research and development, Smoothdrive Tyre Ltd has recently developed a new tyre, the ‗Hyper Tread‘ and must decide whether to make the investments necessary to produce and market the Hyper Tread. The Hyper Tread would be ideal for drivers doing a large amount of wet weather and off road driving in addition to normal highway usage. The research and development costs so far total Rs. 1,00,00,000. The Hyper Tread would be put on the market beginning this year and Smoothdrive Tyrs expects it to stay on the market for a total of three years. Test marketing costing Rs. 50,00,000, shows that there is significant market for a Hyper Tread type tyre. As a financial analyst at Smoothdrive Tyre, Mr. Mani asked by the Chief Financial Officer (CFO), Mr. Tyrewala to evaluate the Hyper-Tread project and to provide a recommendation or whether or not to proceed with the investment. He has been informed that all previous investments in the Hyper Tread project are sunk costs are only future cash flows should be considered. Except for the initial investments, which occur immediately, assume all cash flows occur at the year-end. Smoothedrive Tyre must initially invest Rs. 72,00,00,000 in production equipments to make the Hyper Tread. They would be depreciated at a rate of 25 per cent as per the written down value (WDV) method for tax purposes. The new production equipments will allow the company to follow flexible manufacturing technique, that is both the brands of tyres can be produced using the same equipments. The equipments is expected to have a 7-year useful life and can be sold for Rs. 10,00,000 during the fourth year. The company does not have any other machines in the block of 25 per cent depreciation. The existing machines can be sold off at Rs. 8 lakh per machine with an estimated removal cost of one machine for Rs. 50,000. Operating Requirements The operating requirements of the existing machines and the new equipment are detailed in Exhibits 11.1 and 11.2 respectively. Exhibit 11.1 Existing Machines  Labour costs (expected to increase 10 per cent annually to account for inflation) : (a) 20 unskilled labour @ Rs. 4,000 per month (b) 20 skilled personnel @ Rs. 6,000 per month. (c) 2 supervising executives @ Rs. 7,000 per month. (d) 2 maintenance personnel @ Rs. 5,000 per month.  Maintenance cost : Years 1-5 : Rs. 25 lakh Years 6-7 : Rs. 65 lakh  Operating expenses : Rs. 50 lakh expected to increase at 5 per cent annually.  Insurance cost / premium : Year 1 : 2 per cent of the original cost of machine After year 1 : Discounted by 10 per cent. Exhibit 11.2 New production Equipment  Savings in cost of utilities : Rs. 2.5 lakh  Maintenance costs : Year 1 – 2 : Rs. 8 lakh Year 3 – 4 : Rs. 30 lakh  Labour costs : 9 skilled personnel @ Rs. 7,000 per month 1 maintenance personnel @ Rs. 7,000 per month.  Cost of retrenchment of 34 personnel : (20 unskilled, 11 skilled, 2 supervisors and 1
    • maintenance personnel) : Rs. 9,90,000, that is equivalent to six months salary.  Insurance premium Year 1 : 2 per cent of the purchase cost of machine After year 1 : Discounted by 10 per cent. The opening expenses do not change to any considerable extent for the new equipment and the difference is negligible compared to the scale of operations. Smoothdrive Tyre intends to sell Hyper Tread of two distinct markets : 1. The original equipment manufacturer (OEM) market : The OEM market consists primarily of the large automobile companies who buy tyres for new cars. In the OEM market, the Hyper Tread is expected to sell for Rs. 1,200 per tyre. The variable cost to produce each Hyper Tread is Rs. 600. 2. The replacement market : The replacement market consists of all tyres purchased after the automobile has left the factory. This markets allows higher margins and Smoothdrive Tyre expects to sell the Hyper Tread for Rs. 1.500 per tyre. The variable costs are the same as in the OEM market. Smoothdrive Tyre expects to raise prices by 1 percent above the inflation rate. The variable costs will also increase by 1 per cent above the inflation rate. In addition, the Hyper Tread project will incur Rs. 2,50,000 in marketing and general administration cost in the first year which are expected to increase at the inflation rate in subsequent years. Smoothdrive Tyre‘s corporate tax rate is 35 per cent. Annual inflation is expected to remain constant at 3.25 per cent. Smoothdrive Tyre uses a 15 per cent discount rate to evaluate new product decisions. The Tyre Market Automotive industry analysts expect automobile manufacturers to have a production of 4,00,000 new cars this year and growth in production at 2.5 per year onwards. Each new car needs four new tyres (the spare tyres are undersized and fall in a different category) Smoothdrive Tyre expects the Hyper Tread to capture an 11 per cent share of the OEM market. The industry analysts estimate that the replacement tyre market size will be one crore this year and that it would grow at 2 per cent annually. Smoothdrive Tyre expects the Hyper Tread to capture an 8 per cent market share. You also decide to consider net working capital (NWC) requirements in this scenario. The net working capital requirement will be 15 per cent of sales. Assume that the level of working capital is adjusted at the beginning of the year in relation to the expected sales for the year. The working capital is to be liquidated at par, barring an estimated loss of Rs. 1.5 crore on account of bad debt. The bad debt will be a tax-deductible expenses. As a finance analyst, prepare a report for submission to the CFO and the Board of Directors, explaining to them the feasibility of the new investment. No. 5 COMPUTATION OF COST OF CAPITAL OF PALCO LTD In October 2003, Neha Kapoor, a recent MBA graduate and newly appointed assistant to the Financial Controller of Palco Ltd, was given a list of six new investment projects proposed for the following year. It was her job to analyse these projects and to present her findings before the Board of Directors at its annual meeting to be held in 10 days. The new project would require an investment of Rs. 2.4 crore. Palco Ltd was founded in 1965 by Late Shri A. V. Sinha. It gained recognition as a leading producer of high quality aluminum, with the majority of its sales being made to Japan. During the rapid economic expansion of Japan in the 1970s, demand for aluminum boomed, and palco‘s sales grew rapidly. As a result of this rapid growth and recognition of new opportunities in the energy market, Palco began to diversify its products line. While retaining its emphasis on aluminum production, it expanded operations to include uranium mining and the production of electric generators, and finally, it went into all phases of energy production. By 2003, Palco‘s sales had reached Rs. 14 crore level, with net profit after taxes attaining a record of Rs. 67 lakh. As Palco expanded its products line in the early 1990s, it also formalized its caital budgeting procedure. Until 1992, capital investment projects were selected primarily on the basis of the average return on investment calculations, with individual departments submitting these calculations for projects falling within their division. In 1996, this procedure was replaced by one using present value as the decision making criterion. This change was made to incorporate cash flows rather than accounting profits into the decision making analysis, in addition to adjusting these flows for the time value of money. At the time, the cost of capital for Palco was determined to be 12 per cent, which has been used as the discount rate for the past 5 years. This rate was determined by taking a weighted average cost Palco had incurred in raising funds from the capital market over the previous 10 years.
    • It had originally been Neha‘s assignment to update this rate over the most recent 10-year period and determine the net present value of all the proposed investment opportunities using this newly calculated figure. However, she objected to this procedure, stating that while this calculation gave a good estimate of ―the past cost‖ of capital, changing interest rates and stock prices made this calculation of little value in the present. Neha suggested that current cost of raising funds in the capital market be weighted by their percentage mark-up of the capital structure. This proposal was received enthusiastically by the Financial Controller of the Palco, and Neha was given the assignment of recalculating Palco‘s cost of capital and providing a written report for the Board of Directors explaining and justifying this calculation. To determine a weighted average cost of capital for Palco, it was necessary for Neha to examine the cost associated with each source of funding used. In the past, the largest sources of funding had been the issuance of new equity shares and internally generated funds. Through conversations with Financial Controller and other members of the Board of Directors, Neha learnt that the firm, in fact, wished to maintain its current financial structure as shown in Exhibit 1. Exhibit 1 Palco Ltd Balance Sheet for Year Ending March 31, 2003 Assets Liabilities and Equity Cash Accounts receivable Inventories Total current assets Net fixed assets Goodwill Total assets Rs. 90,00,000 3,10,00,000 1,20,00,000 5,20,00,000 19,30,00,000 70,00,000 25,20,00,000 Accounts payable Short-term debt Accrued taxes Total current liabilities Long-term debt Preference shares Retained earnings Equity shares Total liabilities and equity shareholders fund Rs. 8,50,000 1,00,000 11,50,000 1,20,00,000 7,20,00,000 4,80,00,000 1,00,00,000 11,00,000 25,20,00,000 She further determined that the strong growth patterns that Palco had exhibited over the last ten years were expected to continue indefinitely because of the dwindling supply of US and Japanese domestic oil and the growing importance of other alternative energy resources. Through further investigations, Neha learnt that Palco could issue additional equity share, which had a par value of Rs. 25 pre share and were selling at a current market price of Rs. 45. The expected dividend for the next period would be Rs. 4.4 per share, with expected growth at a rate of 8 percent per year for the foreseeable future. The flotation cost is expected to be on an average Rs. 2 per share. Preference shares at 11 per cent with 10 years maturity could also be issued with the help of an investment banker with an investment banker with a per value of Rs. 100 per share to be redeemed at par. This issue would involve flotation cost of 5 per cent. Finally, Neha learnt that it would be possible for Palco to raise an additional Rs. 20 lakh
    • through a 7 – year loan from Punjab National Bank at 12 per cent. Any amount raised over Rs. 20 lakh would cost 14 per cent. Short-term debt has always been usesd by Palco to meet working capital requirements and as Palco grows, it is expected to maintain its proportion in the capital structure to support capital expansion. Also, Rs. 60 lakh could be raised through a bond issue with 10 years maturity with a 11 percent coupon at the face value. If it becomes necessary to raise more funds via long-term debt, Rs. 30 lakh more could be accumulated through the issuance of additional 10-year bonds sold at the face value, with the coupon rate raised to 12 per cent, while any additional funds raised via long-term debt would necessarily have a 10 – year maturity with a 14 per cent coupon yield. The flotation cost of issue is expected to be 5 per cent. The issue price of bond would be Rs. 100 to be redeemed at par. In the past, Palco had calculated a weighted average of these sources of funds to determine its cost of capital. In discussion with the current Financial Controller, the point was raised that while this served as an appropriate calculation for external funds, it did not take into account the cost of internally generated funds. The Financial Controller agreed that there should be some cost associated with retained earnings and need to be incorporated in the calculations but didn‘t have any clue as to what should be the cost. Palco Ltd is subjected to the corporate tax rate of 40 per cent. From the facts outlined above, what report would Neha submit to the Board of Directors of palco Ltd? NO. 6 ARQ LTD ARQ Ltd is an Indian company based in Greater Noida, which manufactures packaging materials for food items. The company maintains a present fleet of five fiat cars and two Contessa Classic cars for its chairman, general manager and five senior managers. The book value of the seven cars is Rs. 20,00,000 and their market value is estimated at Rs. 15,00,000. All the cars fall under the same block of depreciation @ 25 per cent. A German multinational company (MNC) BYR Ltd, has acquired ARQ Ltd in all cash deal. The merged company called BYR India Ltd is proposing to expand the manufacturing capacity by four folds and the organization structure is reorganized from top to bottom. The German MNC has the policy of providing transport facility to all senior executives (22) of the company because the manufacturing plant at Greater Noida was more than 10 kms outside Delhi where most of the executives were staying. Prices of the cars to be provided to the Executives have been as follows : Manager (10) Santro King Rs. 3,75,000 DGM and GM (5) Honda City 6,75,000 Director (5) Toyota Corolla 9,25,000 Managing Director (1) Sonata Gold 13,50,000 Chairman (1) Mercedes benz 23,50,000 The company is evaluating two options for providing these cars to executives Option 1 : The company will buy the cars and pay the executives fuel expenses, maintenance expenses, driver allowance and insurance (at the year – end). In such case, the ownership of the car will lie with the company. The details of the proposed allowances and expenditures to be paid are as follows : a) Fuel expense and maintenance Allowances per month Particulars Fuel expenses Maintenance allowance Manager DGM and GM Director Managing Director Chairman Rs. 2,500 5,000 7,500 12,000 18,000 Rs. 1,000 1,200 1,800 3,000 4,000 b) Driver Allowance: Rs. 4,000 per month (Only Chairman, Managing Director and Directors
    • are eligible for driver allowance.) c) Insurance cost: 1 per cent of the cost of the car. The useful life for the cars is assumed to be five years after which they can be sold at 20 per cent salvage value. All the cars fall under the same block of depreciation @ 25 per cent using written down method of depreciation. The company will have to borrow to finance the purchase from a bank with interest at 14 per cent repayable in five annual equal instalments payable at the end of the year. Option 2 : ORIX, The fleet management company has offered the 22 cars of the same make at lease for the period of five years. The monthly lease rentals for the cars are as follows (assuming that the total of monthly lease rentals for the whole year are paid at the end of each year. Santro Xing Rs. 9,125 Honda City 16,325 Toyota Corolla 27,175 Sonata Gold 39,250 Mercedes Benz 61,250 Under this lease agreement the leasing company, ORIX will pay for the fuel, maintenance and driver expenses for all the cars. The lessor will claim the depreciation on the cars and the lessee will claim the lease rentals against the taxable income. BYR India Ltd will have to hire fulltime supervisor (at monthly salary of Rs. 15,000 per month) to manage the fleet of cars hired on lease. The company will have to bear additional miscellaneous expense of Rs. 5,000 per month for providing him the PC, mobioe phone and so on. The company‘s effective tax rate is 40 per cent and its cost of capital is 15 per cent. Analyse the financial viability of the two options. Which option would you recommend? Why? FINANCIAL MANAGEMENT (A). (1).Mr. Nimish holds the following portfolio. (10 marks) Share Beta Investment Alpha 0.9 Rs.12, 00,000 Beta 1.5 Rs. 3, 50,000 Carrot 1.0 Rs. 1, 00,000 What is the expected rate of return on his portfolio, if the risk rate is 7 per cent and the expected return on the market portfolio is 16 per cent? (A). (2). A share is selling for Rs.60 on which a dividend of Rs.4 per share is expected at the end of the year. The expected market price after dividend declaration is to be Rs.70. Compute the following: - (10 marks) (i) The return on investment ® in shares. (ii) Dividend yield (iii) Capital Gain Yield (B) DIC Ltd. provides the following data: (20 marks) Comparative trial balance March 31 year 2 March 31 year 1 Increase(Decrease) Debit Balance 20 10 10 Cash Rs.190 Rs. 90 Rs.100 Working capital (other than cash) 100 200 (100) Investment (Long term) 500 400 100 Building and equipment 40 50 (10) Total 850 750 100 Credit Accumulated Depreciation 200 160 40 Bonds 150 100 50 Reserves 350 350 --- Equity Shares 150 140 10 3 Total 850 750 100 Income Statement For the period ending March 31, year 2 (Amount in Rs lakh) Sales Rs.1000 Cost of Goods Sold 500 Selling Expense Rs.50 Administrative Expenses 50 100 Operating Income 400
    • Other charges Gain on sale of building and equipment Rs 5 Loss on sale of investments (10) Interest (6) Taxes (189) (200) Net Income after taxes 200 Notes: (a) The depreciation charged for the year was Rs.60 Lakh (b) The Book value of the building and equipment disposed was Rs 10 Lakh (c) Prepare a Cash Flow Statement (Based on AS-3) (C). (1). A. Ltd. produces a product which has a monthly demand of 4,000 units. The product requires a component X which is purchased at Rs.20. For every finished product one unit of component is required. The ordering cost is Rs.120 per order and the holding cost is 10 per cent per annum. (10 marks) You are required to calculate: (i) Economic order quantity (ii) If the minimum lot size to be supplied is 4, 000 units, what is the extra cost, the company has to incur? (iii) What is the minimum carrying cost, the company has to incur? 4 (C). (2). 4. Master Tools Ltd. Is currently operating its business at 75% level, producing 38275 units of a tools component and proposes to increase capacity utilization in the coming year by 33 1/3 % over the existing level of production. (10 marks) The following data has been supplied: (1)Unit cost structure of the product at current level: Rs. Raw Material 5 Wages 2 Overheads 3 Fixed Overhead 2 Profit 3 _____ 15 (i) Raw Material will remain in stores for 1 month before issued for production. Material will remain in process for further 1 month. Suppliers grant 4 months credit to the company. (ii) Finished goods remain in godown for 2 months (iii) Debtors are allowed credit for 2 months. (iv) Lag in wages and overheads payments in 1 month, and these expenses accrue evenly throughout the production cycle. (v) No increase either in cost of inputs or selling price is envisaged You are required to prepare a Projected Profitability statement and the Working Capital Requirement at new level, assuming that a minimum cash balance of Rs.20000 has to be maintained. (D). A stock is currently trading for Rs.29. The risk less interest is 7 % p.a continuously compounded. Estimate the value of European call option with a strike price of Rs.30 and a time of expiration of 4 months. The standard deviation of the stock‘s annual return is 0.45. Apply BS model. (20 marks) 5 (E). Following is the EPS record of AB Ltd over the past 10 years. (20 marks) Year EPS Year EPS 10 Rs.30 5 Rs.16 9 20 4 15 8 19 3 14 7 18 2 18 6 17 1 (12) (i) Determine the annual dividend paid each year in the following cases: (a) If the firm‘s dividend policy is based on a constant dividend payout ratio of 40 per cent for all years (b) If the firm pays at Rs 10 per share, and increases it to Rs 12 per share when earnings exceed Rs.14 per share for the previous 2 consecutive years. (c) If the firm pays dividend at Rs 7 per share each except when EPS exceeds Rs 14 per share, when an extra dividend equal to 80 per centof earnings beyond Rs.14 would be
    • paid. (ii) Which type of dividend policy will you recommended to the company and why? (F). (1). A US MNC has its subsidiary in India. The subsidiary has issued 15 pr cent preference shares of the face value of Rs.100, to be redeemed at year-end 9. Flotation costs are expected to be 5 per cent; these costs can be amortized for tax purpose during 8 years at a uniform rate. The corporate tax rate is 35 per cent. Determine the costs of preference shares from the perspective of the subsidiary. (10 marks) (F). (2) The US inflation rate is expected to be Rs.3 per cent annually and that of India is expected to be 4.5 per cent annually. The current spot rate of US $ in India is Rs.47.4060/US $. (10 marks) Find the expected rate of US $ in India after one year and after 5 years from now using purchase power theory of exchange rate FINANCIAL & COST ACCOUNTING Q1) ABC Ltd. Produces room coolers. The company is considering whether it should continue to manufacture air circulating fans itself or purchase them from outside. Its annual requirement is 25000 units. An outsider vendor is prepared to supply fans for Rs 285 each. In addition, ABC Ltd will have to incur costs of Rs 1.50 per unit for freight and Rs 10,000 per year for quality inspection, storing etc of the product. In the most recent year ABC Ltd. Produced 25000 fans at the following total cost : Material Rs. 50,00,000 Labour Rs. 20,00,000 Supervision & other indirect labour Rs. 2,00,000 Power and Light Rs. 50,000 Depreciation Rs. 20,000 Factory Rent Rs. 5,000 Supplies Rs. 75,000 Power and light includes Rs 20,000 for general heating and lighting, which is an allocation based on the light points. Indirect labour is attributed mainly to the manufacturing of fans. About 75% of it can be dispensed with along with direct labour if manufacturing is discontinued. However, the supervisor who receives annual salary of Rs 75,000 will have to be retained. The machines used for manufacturing fans which have a book value of Rs 3,00,000 can be sold for Rs 1,25,000 and the amount realized can be invested at 15% return. Factory rent is allocated on the basis of area, and the company is not able to see an alternative use for the space which would be released. Should ABC Ltd. Manufacture the fans or buy them? AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL Page 1 Out of 1 Q2) Usha Company produces three consumer products : P, Q and R. The management of the company wants to determine the most profitable mix. The cost accountant has supplied the following data. Usha Company : Sales and Cost Data Description Product Total P Q R Material Cost per unit Quantity (Kg) 1.0 1.2 1.4 Rate per Kg (Rs) 50 50 50 Cost per unit (Rs) 50 60 70 Labour Cost per unit 30 90 90 Variable Overheads per unit 15 10 25 Fixed Overheads (Rs .000) 9,175 Current Sales (Units ,000) 100 50 60 210 Projected Sales (Units ,000) 109 55 125 289 Selling Price per unit (Rs) 150 200 270 Raw material used by the firm is in short supply and the firm can expect a maximum supply of 350 lakh kg for next year. Is the company‘s projected sales mix most profitable or can it be changed for the better? Q3) DSQ Company Ltd, a diversified company, has three divisions, cement, fertilizers and textiles. The summary of the company‘s profit is given below : (Rs/Crore)
    • Cement Fertilizer Textiles Total Sales 20.0 12.0 18.0 50.0 Less : Variable Cost 8.0 9.6 5.4 23.0 Contribution 12.0 2.4 12.6 27.0 Less : Fixed Cost (allocated to divisions in proportion to volumes of Sales) 8.0 4.8 7.2 20.0 Profit (Loss) 4.0 (2.4) 5.4 7.0 After allocating the company‘s fixed overheads to products the Fertilizers, division incurs a loss of Rs 2.4 crore. Should the company drop this division? General Management 1. What is Input & Output model? 2. Describe some major kinds of strategies/policies & the hierarchy of strategies? 3. What do you mean by reengineering organization & Explain key aspects? 4. What is departmentation & Types of departmentation? 5. Distinguish strength of appraisal against verifiable objectives? 6. Explain Maslow hierarchy of needs theory? 7. Define Leadership with examples? 8. Explain communication flow in the organization? GENERAL MANAGEMENT CASE-1 : ATTEMPT ANY 4 CASES, EQUAL MARKS PER CASE (20 Marks) Case on Discomfort in a factory and Management Decision Making Mohan remembered the call from the head office as he puts down the telephone receiver. His boss from head office he said, "I just read your analysis and I want you to go down to our plant in Kollakal near Mysore right away. You know we cannot afford this plant any more - the costs are just too high. So go down there, check out what would be our operational costs would be if we move, and report back to me in a week." Mohan knew the challenge quite well as the branch manager of the Good will Specialty Products. His company is into manufacturing of special apparel for injured and people with other medical conditions. He needs to deal with high-cost labor in a remote village not so sophisticated plant, unionized manufacturing plant. Although he had done the analysis there were 480 people who made a living at this facility and if it is closed most of them will find it very difficult to get another job in the small town consisting of about 10 000 people. Instead of the Rs.20/- per hour paid to the Kollakal workers the wages paid to the migrant workers near Aurangabad will be much cheaper Rs.7/- hour working in sub human conditions. This provides a saving of 15 lakhs to the company for a year, which, can now be used to meet the costs for training, transportation and other matters. After two days of talking with Migrant workers association and representatives of other companies using the same services in the town, Mohan had enough information to formulate alternative plan for production and the cost figures for production and transportation. What was bothering him was only the thought that how is going to handover the termination of service notice to the Kollakal workers. The plant in Kollakal had been in operation since 1930s making special apparel for persons suffering from injuries and other medical conditions. Mohan has often talked to the employees who would recount stories of their fathers and grant fathers working in the company plant-the last of the original manufacturing operations in the town. AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL But friendship aside competitors had already edged past Good will in terms of price and were dangerously close to overtaking it in product quality. Although Mohan and his Boss had tried to convince the union to accept the lower wages, union leaders resisted it. In fact, in one occasion when Mohan tried to discuss a cell manufacturing approach, which would cross train employees to perform up to three different jobs, local union leaders could barely restrain their anger. Yet probing beyond their anger Mohan sensed their vulnerability, but could not break through. Tomorrow he will discuss his report with the CEO. Mohan does not want to be responsible for dismantling of the plant at Kollakal, an act, which Mohan believes is personally wrong, but he is helpless. Mohan said to himself "The costs are too high, the union's unwilling to cooperate, and the company needs to make a better return on its investment if it has to continue at all. It sounds right, but
    • it feels wrong. What should I do? Questions : 1. Assume you want to lead the change to save the Kollkal plant. Describe how you would proceed? 2. What is the primary type of change needed - technology, product, structure or people/culture? 3. What techniques would you use to overcome union resistance and implement change? CASE-2 (20 Marks) A small group of managers at Falcon Computer met regularly on Wednesday mornings to develop a statement capturing what they considered to be the 'Falcon Culture'. Their discussions were wideranging, covering what they thought their firm's culture was, what it should be and how to create it. They were probably influenced by other firms in their environment since they were located in the Silicon Valley area of California. Falcon computer was a new firm, having been created just eight months earlier. Since the corporation was still in the start- up phase managers decided it would be timely to create and instill the type of culture they thought would be most appropriate for their organization. After several weeks of brain storming, writing, debating, and rewriting, the management group eventually produced a document called 'Falcon Values', which described the culture of the company as they saw it. The organizational culture statement covered such topics, as treatment of customers, relations among work colleagues, preferred style of social communication, the decision making process, and the nature of working environment. Peter Richards read over the Falcon values statement shortly after he was hired as a software trainer. After observing managerial and employee behaviors at Falcon for a few weeks, he was struck by wide discrepancy between the values expressed in the document and what he observed as actual practice within the organization. For example the Falcon values document-contained statements such as this: "Quality; attention to detail is our trademark; our goal s to do it right the first time. We intend to deliver defect free products and services to customers on the date promised." However Richards had already seen shipping reports showing that a number of defective computers were being shipped to customers. And his personal experience supported his worst fears. When he borrowed four brand-new Falcon computers from the shipping room for use in a training class he found that only two of them started up correctly without additional technical work on his part. Another example of the difference between the Falcon Values document and actual practice concerned this statement on communication: "Managing by personal communication is part of the Falcon way. We value and encourage open, direct, person to person communication as part of our daily routine." Executives bragged about how they arranged their chairs in a circle to show equality and to facilitate open communications whenever they met to discuss the Falcon values document Richards had heard the "open communication" buzzword a lot since coming to Falcon, but he hadn't seen much evidence of such communication. As a matter of fact all other meetings used a more traditional layout with top executives at the front of the room. Richards believed that the real organizational culture that was developing at Falcon was characterised by secrecy and communications that followed the formal chain of command. Even the Falcon values document Richard was told had been created in secret. Richards soon became disillusioned. He confided in a coworker on afternoon "the falcon values document was so at avarice with what people saw everyday that very few of them took it seriously." Employees quickly learned what was truly emphasized in the organization-hierarchy, secrecy, and expediency and focused on those realities instead, ignoring many of the concepts incorporated in the values document. Despite this frustration Richards stayed with Falcon until it filed for bankruptcy two year later. "Next time" he thought to himself as he cleaned out his desk "ill pay more attention to what is actually going on, and less to what top management says is true. Furthermore, I guess you just can't create values." Questions 1. What is more important the statement in a corporate culture document or actual managerial behaviour? 2. Why did the Falcon executives act as they did? 3. Why didn't employees like Richards blow the whistle on Falcon, challenging the inconsistency between values and behaviour? 4. How can executives go about changing the old values that govern an organization? CASE-3 (20 Marks) Study the case below.Discuss customer insight? Define CRM,role and advantages for todays management? Archana Tuli (Owner of a water purifier): Look at my water purifier. Last week a person came to my house saying my service contract was up for renewal. Mind you, that was the first time in 10 months I was seeing anyone from Purifo. I did not like his barging into my time without prior notice. But that did not bother him. He had a list to clear, never mind if I was in the midst of cooking lunch. I asked him about the servicing, since under the maintenance contract the company should have
    • serviced the unit twice that year. " You should have called the company," he said. But that was a preventive maintenance contract and it was for the company to call and take a date. Finally, he set about servicing the machine. I found that his handling of the machine was rather clumsy. He dropped the casing twice and strewed the carbon all over the sink. I discovered that he was just four months old in the Company. Before that, he used to sell plastic boxes. Is this what I get for being your customer? Then he said the filter candle needed to be changed which I would have to pay for. That annoyed me. I showed him the contract, which clearly stated that the company would replace the candle once a year at its cost. He did not know that. Would you believe that? Clearly such service contracts are simply a means to make money. There is no attitude to servicing. He came because it was February and he had contract renewal targets to complete. He came without calling, expecting we would drop everything else to serve him. He had no clue as to what he had to give the customer for the contract. He messed up my kitchen and did not even attempt to tidy it up. The worst was that when I started the machine, the water would not flow. I was furious. Purifo sends incompetent, inexperienced people to cut costs. I carry the responsibility of providing my family a safe, hygienic environment at home, so I am prepared to pay for preventive maintenance. But what did I get? But it is a good product and I am an informed consumer who knows how to work around a manufacturer's inefficiency. I simply gave the service contract to a private firm. I don't want to have anything to do with Purifo. Ritikant Sharma (Credit Card holder): Every month, I receive a credit card bill and my payment is sent the very next day. Five months ago, the bill did not come on the 22nd evening as it normally would. I received the bill 10 days later with a charge of Rs. 675/- for overdue interest. I was taken aback and called up by the bank. But the bank manager argued that the bill had been sent earlier. It was my word against his. I wrote to Monet Bank, protesting against this undue charge. Eventually, after six letters from me, including one to the managing director, the bank " waived" the interest. But I was left with a bitter taste in my mouth. I wondered why the bank did this to me. Did I deliberately delay payment? I had this card for three years and not once had I defaulted on payment. I also wondered if the bank considered the cost of this argument to me. Was it worth the Rs. 675/-? Why was the customer not right this time? And what about all those times when I paid four days before the due date? I was amazed that the bank treated me like an errant schoolboy. Since then I have not felt good about using the Monet credit card. Worse, every month the bill continues to show the overdue interest and every month there is a fresh exchange of letters on the matter. Only last week I received an invitation to become a member of another credit card company. I am planning to surrender the Monet Card. Divya Mathur (Owner of a washing machine): You say I am an important customer of Crysta. Great. But for your customer service cell, I am just a number. For six months now, I have been having problems with the washing machine. Last month, when I called the customer service cell to follow up an old complaint about the motor, the lady who took the call asked me to repeat the details: model number, date of purchase, and the like. When I pointed out that all these details had been given several times before and all she needed to do was check the complaint order number, her response was shocking. " May be, but I can't boot the system. I am only standing in for someone who has not reported today. So, you have to give the details again." She said. Tell me what am I getting for being your customer? Respect? Good handling? No. Now you come here and ask me personal details like family income, number of members, husband's designation. You still haven't told me why you need all this information. You are researching. Are you collecting this information to help your company or me? Then there was the problem with the V-belt. Within a day of replacing it, there were some cracking sounds. The engineer said he would have to wait for the senior supervisor to examine it. Reason? " We recently changed our supplier and all his pieces are turning out to be defective." I was taken aback. It frightened me to know that there was no quality check at your end. We outsource a lot of stuff for our garment business, but every button and needle is checked before it is used. We are not a multinational, just an old family-managed business. Radhika Iyer (School Teacher): That feeling for the customer is simply not there. The customer is not a person but a collective noun. If the customer was important, wouldn't my water purifier Company tell me when it changed the service agent? When I called the number in my contract card, I discovered that the number now belonged to a courier company. I had to call the head office in Mumbai and get the new service agent's number in Delhi. Is this fair? Or does it matter? I guess the Company's attitude was: " If a customer needs service, let her break her back and spend money to find out who the new agent is. " The only motives are profits and
    • sales volumes. Not customer loyalty or service. Therefore a customer is one who buys your product, not one who has bought your product. Once you've bought the product you are a 'has been'. Why would you want to invest energy in a set of people to whom a sale has been made? You spend energy as long as a sale is not made. Once a sale is done, it is for the customer to invest energy in sustaining his relationship with the manufacturer. Isn't that how it is? The manufacturer's attitude is-you need me more than I need you, so guess who should work harder? And everyone once in a while, there is a new face at my door asking me if I own a Zento purifier. Dammit, don't you have a customer file? No, he says. We go from door to door. Splendid. Then what do you do with all the data you collect? And every one of these men asks me the same questions: when did you buy it, what is your model number, is it working properly? The worst is: " What is your address?" I don't care what the information is being used for. But I don't want to be disturbed for information, which you already have. We believe that because India now manufactures Coke and Mercedes, we have progressed. But this new market is no different from the gray market, where you can buy anything but cannot expect service. For instance, I bought a packet of macaroni, which said I had to boil it in 250 ml of water. I did that, but after the prescribed five minutes of boiling, there was enough water left in the pan. I then boiled it for another three minutes, and the pasta dissolved into a unrecognizable mass. One day, I met someone who worked for this macaroni company. I told him about my experience. He said I should let the pan rest for five minutes after turning off the heat. The residual water would get absorbed. That worked. Couldn't the firm have said so on the pack? Or is it cheaper to let the customer learn? Does the Company use experienced hands-on cooks while designing these products or are they MBAs who can't tell a stove from a cigarette lighter? I bought a jar of mayonnaise the other day. The label said it should be used within six months. Of what? Of the date of manufacture or of the date of opening the seal? Do I refrigerate it or not? It takes us back to what I said before: once the sale has been made, the consumer does not matter anymore. The sale is not on the customer's involvement, loyalty or satisfaction. It never was; it will never be. DIPANKAR BARUAH (Cell Phone Owner): There are numerous messages that are flashed on the cell phone to announce the sale of wedding suits, printers, shoes, or TV programmes, or updates on cricket scores. These messages usually send out a single, short beep. Only personal messages are announced with a long, continuous beep. Last week, I was distracted by six ad messages for a chocolate. And all of them were long beeps. It made me mad because I was in the midst of meeting clients and that kind of triviality is distracting. The cell phone is a great device. It helps me catch messages, which I would otherwise have missed. But I don't want it to distract me during a meeting. Please respect my privacy. The cell phone is for my convenience, not for the convenience of callous advertisers. Now, I leave the cell phone with the secretary and she calls me only if the message is a personal one. Tell me, has the advertiser benefited? He sought to get his messages across to 1,50,000 subscribers at one go. It appears to me that my cell phone has become a cheap medium for advertising. Since it has done me the favour of selling me the cell phone, the cell phone operator can pass on my personal details to advertisers without even asking me. The cell phone is a private medium of communication, not a public address system like a radio. We have allowed a million new products to enter the country but along with that, we have not allowed the market mindset to evolve or grow. Few people realize that the customer needs to be treated with respect. BERYL DIAS (owner of a laser printer): This printer cost me Rs. 28,000. My company did not fund it. I saved for it for a year. Saving that kind of money was not easy. I wanted the best, which is what I thought I got when I bought it., It worked very well and I know it is a good product. But that's where my ecstasy ends. One day, the paper jammed and I needed help. So I called up the company. The lady who took the call said: " You will have to bring the printer here, we are not going to come there." I felt that was very hostile. I expressed surprise that their service engineers would not come to my home. The lady gave me a silly reason. " If your mixie breaks down wouldn't you take it to the service center?" Maybe she took the liberty to talk down to me because I was a woman and I operated a home office. But there's a world of difference between a Rs. 2,500 mixie and a Rs. 28,000 printer. But she was surly from the word go. Worse, their office was located very far from where I lived and going there would mean wasting an entire morning. It was her surly behaviour that angered me the most. I recall how the sales engineers hovered around me when I had first contacted the company for a brochure. For three weeks someone from the company would call me practically daily. They virtually pushed me into buying the printer. I remember I still had the last Rs.1,500 /-to save up, when they decided to give me a Rs.1,000/- discount to hasten my decision. Their sales pitch mesmerized me. Today, I am just a statistic. I can almost hear
    • them saying: "You have no choice. If your printer is not working, that's your problem. If you live afar, that's also your problem.!" I had not considered the after - sales trauma when I brought the printer. I assumed that the company would come home to repair it, as other companies do for other products. They did not tell me about their service terms at the time of the sale. It was not important, I guess. For, all they wanted was my Rs.28, 000/-. To repair the printer, I went through an agent, who lost my complaint order papers, forgot to intimate the company about the part I wanted and made me wait for four weeks before the printer was repaired. Then I discovered it had not been repaired at all. I decided then that I wouldn't have anything to do with the company ever again. I sold that printer and brought another brand after ascertaining that there was a service agent close by. My old printer was state of the art, but the real differentiator is the effort a firm is willing to put into customer service. CASE-4 : (20 Marks) Company Social Responsibility & AIDS The AIDS epidemic today is unparalleled in the challenges it poses to the world, and it is clearly an issue that no one can address alone. Business is an essential partner in the response to AIDS. The private sector like the other sectors is not immune from AIDS. Involvement of the private sector in the response to HIV/AIDS is crucial to the success of our country's efforts against the epidemic. Questions 1. What is the impact of AIDS on businesses? Do you agree that businesses in the near future would be actively interested in addressing the issue of AIDS? Justify your answer 2. ABC Corporation wants to partner with an NGO and address the issue of AIDS around its factory, discuss what steps should ABC Corporation take to initiate, manage and sustain its partnership with the NGO . CASE-5 : (20 Marks) Read the following case study and answer the questions that follow Prakash Gupte is a sales representative with Beta Water Purifiers. Prakash is a star sales representative with the highest sales turnover record for 5 consecutive months. He is an aggressive and a dynamic sales person with a strong target-orientation. His marketing manager Shreyans Desai is very proud of his accomplishments. Based on his performance appraisal, Prakash has been promoted to the rank of Assistant Manager (Marketing). He is now required to supervise the work of 6 sales representatives and to manage sales targets for his area. After assuming charge as an Asst. Marketing Manager, Prakash set the targets for the first month and communicated these to the sales representatives in a direct and explicit manner. 4 sales representatives found the targets to be too ambitious but reserved their comments. After the meeting they discussed the issue informally and dispersed. Prakash called the fortnightly review meeting to take stock of the situation. He was extremely disappointed to know that all the six representatives were trailing behind in target achievement. He was very blunt in communicating his disappointment and told their team to get their targets by the end of the month. After the meeting, all the six representatives expressed their displeasure with the meeting and found the demand of Prakash unreasonable. They commonly perceived him to be a difficult person to deal with. They thought of approaching Shreyans for this. Harish and Sameer, two of the representatives met Shreyans and discussed this with him. Shreyans was a little upset with Prakash, but he thought to himself that Prakash is very efficient but lacks tact to work with people. He assured the duo that he will speak to Prakash in this regard. Shreyans called Prakash for an informal chat and advised him to go a little easy with people. Prakash was clearly agitated about this since he took this as a personal affront, as he sensed during this meeting that someone must have complained about his behavior to Shreyans. Instead of going easy with the team, he turned more bitter in his approach. He called a meeting of all the sales representatives, and indirectly communicated his displeasure with the incident. He once again made it clear that the targets were attainable but needed a greater sense of commitment from the group. Obviously the sales representatives did not like this. At the month-end briefing, Prakash was absolutely disappointed with the team for having under-achieved on the targets‘ count. He rebuked them for going slow on their work and told them sternly to adhere to the targets in the next month. Deepak, on of the sales representatives, objected to highly monthly targets and suggested that the targets be made more reasonable. To this Prakash retorted by saying that the targets were absolutely reasonable. Obviously the team was disheartened with this. They all decided to collectively approach Shreyans this time and seek his intervention. When they met Shreyans to brief him about the situation, Shreyans was sure that he had made a mistake somewhere. QUESTIONS: 1) What happened when Prakash got promoted to the position of Asst. Manager (Marketing)? Why did this happen?
    • 2) If you were entrusted with the responsibility of managing 6 sales representatives & creating an effective sales team, how would you do it HOSPITAL ADMINISTRATION 1. Hospital waste causing environmental pollution and leading to negative recycling with serious medical and health consequences- Discuss at length. 2. Keeping the Hospital staff equipped with latest knowledge in the new millennium in clinical, technical and managerial competence is the need of the hour. Identify some new methods to achieve the objective. 3. List out the various areas of Hospital Administration. Review them in your own style. 4. What do you understand by the term MBO? Apply the concept to the Hospitals with appropriate examples. 5. Based on your study, establish certain Management techniques for the administrative Improvement and Administrative Reforms of Hospitals. Case Studies(20X2=40) Case No.1 In an effort to build a solid health care workforce for the future, a group of about 30 employees from various departments of a Hospital in Georgia spoke to high school students about the different disciplines in health care. The hospital also has assembled a resource book for high school guidance counselors on the various health care careers, the type of education required, salaries/wages, and availability of jobs. The hospital provides partial funding for a permanent staff position to help maintain the RN program. The hospital offers clinical rotations to students in the nursing and radiology programs and prides itself on treating the students as though they are valuable employees. As a result, students feel as though they are making a positive difference in the organization and are more likely to apply for a job upon graduation. The hospital's employment specialist assists applicants in applying for appropriate jobs based on their qualifications and communicates with them throughout the application process. In several departments, applicants undergo a peer interview to ensure that the appropriate candidate is selected for the position. Once hired, new employees attend an orientation where they learn the importance of organizational values, expectations of employees, customer service, etc. The hospital's values play a crucial role in the culture of the organization, and employees are expected to continually exhibit these values and behaviors. The organization's culture has created a pleasing environment for both employees and patients. Employees are on a first name basis with one another, they acknowledge each other when passing in the hall, and they always take time to help their colleagues. This program strives to open the lines of communication between administration and employees by holding monthly luncheons with administrators and employees. Each month, several employees are selected at random to attend the luncheon. The luncheons give employees the opportunity to share ideas and concerns with administrators; administration's motto is "If you don't say it, I can't hear it." This ethic allows employees to have ownership in the organization. Administration also supports a "No Secrets" policy in which it is
    • open and willing to share financial and other information with employees at informational meetings. Administration makes rounds throughout the hospital to ensure employees have the tools necessary to do their jobs, thanks them for their hard work, and simply communicates with them. Workforce Problem the Program/Initiative Was Designed to Address  Shortage of nurses  Turnover rate  Employee job satisfaction Major Objectives  Decrease turnover rate  Decrease job vacancies  Create a pleasant work environment Significant Results  Decreased nurse job vacancy rate to less than 2 percent  Leader in quality care in Georgia- based on SatisQuest patient satisfaction survey  Received the highest scores in history on the Meeting Professionals International (MPI) Employee Surveys (Athens Regional Medical Center is now used as a MPI benchmark for organizations.)  Decreased turnover rate to 14 percent  Awarded Hospital of the Year by the Georgia Alliance of Community Hospitals, and first place in overall quality and patient care by the Georgia Hospital Association Issues to be Discussed 1. Facts of the case. 2. By making additional study, Analyse the means to achieve the major objectives as stated in the case. 3. How would you address the workforce problems as given in the case effectively? Case No 2 Hospital Waste Management:A Case Study of Chandigarh Administration Hospital waste is the term used to denote unwanted material produced by various medical processes carried out in medical treatment and other laboratory procedures. Hospital wastes comprise both infectious and non-infectious wastes generated in the different sections of a hospital, which if not properly collected, transported or disposed-off, may cause cross-infections in the hospital and pose a major public health hazard and environmental pollution. The waste can be classified into the following categories 1. General Waste This includes domestic type of waste, packing material, garbage from hospital kitchen and other waste materials which do not pose a special handling problem or hazards to human health or environment. 2. Chemical Waste This waste comprises material discarded from diagnostic and experimental work and cleaning, housekeeping and disinfecting work. This may contain hazardous animal wastes which are toxic, corrosive, flammable, and reactive or
    • genotoxic. Such wastes require special precautions in handling. 3. Pathological Waste This waste consists of tissues, body parts removed in surgery, and human fetuses. This may be infections waste material. 4. Highly Infectious Waste This contains pathogens in sufficient quantity and exposure to it could result in disease. This category includes cultures and stock of infectious agents from laboratory work, waste from surgery and autopsies on patients with infectious diseases, wastes from infected patients in isolation wards, wastes that have been in contact with animals etc. 5. Sharp Objects These include needles, syringe, scalpels, blades, broken glass, nails and other type of materials which can cause puncture. 6. Pharmaceutical Wastes This includes pharmaceutical products, drugs and chemical that have been returned from wards, or having spilled or are outdated or contaminated, or discarded for any other reasons. 7. Pressurised Containers This includes those containers used for demonstration of instrumental purposes containing innocuous of inert gas and aerosol cans which may explode if incinerated or accidentally punctured. 8. Laboratory Waste This includes wastes which arise during storage, use and spillage of solid drugs and chemicals, blood and blood products, which may be toxic or contaminated. Proper management of various types of waste is essential for the upkeep of hospital sanitation. Segregation at source, safe transfer, requisite treatment and disposal through cost effective technologies can bring about significant changes. Infectious waste from hospital and health care Establishments contain pathological wastes, used disposable, semi-wet products (the used blood bags etc.) This waste is often thrown into the community bins instead of being properly treated and disposed-off. Presently in most Government hospitals and Pvt. Nursing Homes there is no specialized system of handling, collection, transportation and disposal of Solid Waste including hazardous bio-medical wastes. Hospital waste is responsible for various health hazards, including serious diseases like AIDS & Hepatitis. The Government notification in this regard has made it mandatory to join hands in order to ensure efficient hospital/medical waste management. The said Notification aims “to provide for a system for management of all potentially infectious and hazardous waste in accordance with the bio-medical waste management and handling rules 1998”. Bio-medical waste is defined as the waste generated during the diagnosis, treatment or immunization of human beings/animals or in research activities and training thereto or in the production or testing of biological, including categories mentioned in schedule of the biomedical waste
    • rule 1998. Ten numbers of categories have been framed: (i) Human anatomical waste, (ii) Animal waste, (iii) Microbiology and Bio-technology waste, (iv) Waste sharps, (v) Discarded medicines and cytological drugs, (vi) Solid waste-I, (vii) Liquid wastes, (viii) Incineration as, and (ix) Chemical waste. The collection of bio-medical waste is further to be done category-wise as the waste is to be disposed of in particular type of container having specific colour coding. The “City beautiful”, Chandigarh has made the implementation of the bio-medical waste rule, 1998 possible by installation of incinerators in PGI, Medical College & Hospital, Sector-32 and in the process of starting incinerator in General Hospital, Sector-16, Chandigarh. Private Nursing Homes also produce almost equal amount of Solid Waste and bio-medical waste, but they don’t have any independent facility available with them for its disposal. They need either to get together for a private incinerator of their own or Municipal Committee may set upon incinerator and let them use on rented charges. If followed thoroughly, this will make the city free from biomedical waste, which at present is being dumped in open, thereby reducing the spread of infection. We suggest here the following to deal with the problem of waste management. (i) Creating Awareness Awareness is to be created amongst patients, attendants, medical personnel and people in general regarding importance of bio-medical waste management through various media devices. An integrated approach with sharing treatment and disposal technologies amongst group of hospitals and medical units should be introduced. It will be cost effective and can cover more number of medical units. (ii) Developing a Manual A manual need to be developed to define procedure and responsibilities in connection with waste disposal. (iii) Need of strict supervision and control. (iv) Need of developing linkages with local government. (v) Need to avoid misuse of disposable items. (vi) Offices responsible for waste disposal need be framed. Hospital waste management would be beneficial to both the patients as well as the hospital staff especially those who are always in touch with these wastes. This would also improve general environment. Issues to be discussed 1. Facts of the Case. 2. Analyze the different categories of waste as discussed in the case in your style by making additional study. 3. Comment on the framed categories which are 10 in number. 4. How would you deal with the problem of Hospital waste management (Add on to the suggestions given in the case)
    • Hospitality Management 1. What is the importance of indoor leisure in hospitality? 2. Write a note on bar-attached restaurants. 3. What are the functions of rooms department? , 4. Outline a typical food service system and its subsystems. 5. What are the problems of food preparation? 6.Define the terms" Hotel" and" Hotel chains". 7. Discuss how a front office in a luxury hotel is administered. 8. Describe the various steps involved in menu planning. Hotel Management Q1) What are the minor operating departments of a hotel? Explain each. Q2) What are the basic principles in requisitioning guest and cleaning supplies? Q3) Write short notes on the following (Any 2) a) Role of the housekeeping control desk. b) Lost and found procedure c) Responsibilities of the Public area supervisor. Q4) How can we reduce physical stress? Q5) What are the types of notices in a house keeping operation? Q6) How do small hotels survive? Q7) Explain briefly what services dos a franchisor provide to a franchisee? Q8) Explain the role of maintenance (engineering department)? Q9) Discuss the relationship between management and supervisors? Q10) Explain the meaning of the various occupancy codes? HUMAN RESOURCE MANAGEMENT . Case –1 ( 20 Marks) The reality of software development is a huge company like Microsoft-it employs more than 48,000 people- is that a substantial portion of your work involves days of boredom punctuated by hours of tedium. You basically spend your time in an isolated office writing code and sitting in meetings during which you participate in looking for and evaluating hundreds of current employees and potential employees. Microsoft has no problem in finding and retaining software programmers. Their programmers work for very long hours and obsess on the goal of shipping product. From the day new employees begin at Microsoft, they know they are special. New hires all have one thing in common-they are smart. The company prides itself on putting all recruits through a grueling ―interviewing loop‖, during which they confront a barrage (an overwhelming number of questions or complaints) of brain-teasers by future colleagues to see how well they think. Only the best and the brightest survive to become employees. The company does this because Microsofties truly believe that their company is special. For example, it has high tolerance for non-conformity, would you believe that one software tester comes to work everyday dressed in extravagant Victorian outfits? . But the underlying theme that unites Microsofties is the belief that the firm has a manifest destiny to change the world. The least important decision as programmer can have a large importance which it can affect a new release that might be used by 50 million people. Microsoft employees are famous for putting in long hours. One program Manager said ―In my First Five Years, I was the Microsoft stereotype. I lived on caffeine and vending-machine hamburgers and free beer and 20-hour work-days……I had no life…..I considered everything outside the building as a necessary evil‖. More recently things have changed. There are still a number of people who put in 80-hour weeks, but 60 and 70 hour weeks are more typical and some even are doing their jobs in only 40 hours. No discussion of the employee life at Microsoft would be complete without mentioning the company‘s lucrative stock option program. Microsoft created more millionaire employees, faster, than any company in American history-more than 10,000 by the late – 1990‘s while the company is certainly more than a place to get rich, executive still realize that money matters. One former Manager claims that the human resources‘ department actually kept a running chart of employee satisfaction versus the company‘s stock price. ―When the stock was up, human resources could turn
    • off the ventilation and everybody would say they were happy. When the stock was down, we could give people Massages and they would tell us that the Massages were too hard.‖ In the go-go 1990‘s, when the Microsoft stock was doubling every few months and yearly stock splits were predictable, employees not only got to participate in the Microsoft‘s manifest destiny, they would get rich in the process. By the spring of 2002, with the world in a recession, stock prices down, and the growth for Microsoft products slowing, it wasn‘t so clear what was driving its employees to continue the company‘s dominance of the software industry. Questions 1. If you were the programmer, would you want to work at Microsoft? Why or Why not? 2. How many activities in this case can you tie into specific motivation theories? List the activities; list the motivation theories, and how they apply. 3. As Microsoft continues to get larger and its growth rate flattens do you think Management will have to modify any of its motivation practices? Elaborate. 4. Can money act as a motivator? Explain. Case-2 (20Marks) Merlyn Monroe is not a complainer. If she has a major ache, she usually suffers in silence. Although her employer, Atlantic Mutual Insurance, has an employee assistance program- to provide emotional and psychological support in the work plan. She certainly never thinks of using it, even if she did have a worry on her mind. ―They say its confidential but who really knows? Asked Ms. Monroe‘, an administrative assistant at the insurance company. But Merlyn Monroe‘s life changed on September 11, 2001. Her office at 140 Broadway in New York City, was near the world trade Center. She watched the whole thing from her 50th Floor office window. Ms.Monroe had never seen so much destruction in her life. She had never seen such a horrific terrorist attack. Nor had she forced her to relieve 9/11 over and over. Everything she talked to people they wanted details, which made it worse for her. She had so much anger about what had happened to her life and lives of so many people and the city where she worked for 40 Years. Two weeks after 9/11, Ms.Monroe was still suffering after effects. Even though she lives on state Island and Atlantic Mutual‘s offices have been temporarily relocated to Madison, New Jersey, not an hour goes by when she doesn‘t have flashbacks of her experiences of 9/11. Questions 1. What should Atlantic Mutual Management do, if anything, to cope with the aftereffects of 9/11? 2. How long would You expect employees to be adversely affected by 9/11 if a company provides no formal assistance for dealing with anger and stress? 3. What, if anything, should Management do about employees who appear to be suffering from such kind or trauma and stress, but will neither admit it nor accept help from their employee? 4. Outline the role of HR specialist in providing a safe and healthy environment for employees. Case – 3 (20 Marks) Patil, RK Materials, is very angry, anxious and restless. He bumped into Mehta, RK Materials, threw the resignation letter on his table, screamed and walked out of the room swiftly. Patil has a reason for his sudden outburst. Details of the story will tell the reasons for Patil‘s anger and why he put his resignation, only four months after he took up his job. In the year 2000 Patil quit his prestigious Mittal plant at Vishakhapatnam. As a manager Materials, Patil had various powers like he could even place an order of materials worth Rs.50 Lakhs. He required nobody‘s prior consent. Patil Joined a pulp-making plant located at Kerala, as RK Materials. The plant is part of a multiproduct and multi-plant conglomerate owned by a prestigious business house in India. The perks, reputation and designation of the conglomerate attracted Patil away from the public sector steel monolith. When he joined the eucalyptus pulp making company, little did Patil realize that he needed prior approval to place an order for materials worth Rs.25lakh. He thought that he had the authority to place an order for materials by himself worth half the amount of what he used to as at the Mega Steel maker. He placed the order, materials arrived, were received, accepted and used up in the plant. Trouble started when the bill for Rs.25 lakh came from the vendor. The accounts department withheld the payment for the reason that the bill was not endorsed by Mehta. Mehta refused to sign on the bill as his approval was not taken by Patil before placing the order. Patil felt very angry and cheated. A brief encounter with Mehta only made the situation worse. Patil was rudely told that he should have known company rules before venturing. He decided to Quit. Questions
    • 1. Do you think the company has any orientation programme? If yes, discuss its effectiveness. 2. If employees were properly selected, there should be no need for an orientation programme‖. Comment on the statement. 3. If You were Patil, how would you react to the above situation? 4. Discuss the purpose of orientation. What are various requisites of an effective programme? Case-4 (20Marks) ABC Tool Engineering is a company producing machinery and machine tools and some other related engineering products for specialist production companies. It‘s workforce consists of 1000 employees, two-thirds of which work in the production department. In 2000, the Management decided to introduce a total quality Management Scheme to increase efficiency and quality control. Throughout the 1990‘s, more flexible arrangements had been introduced together with a breakdown of old work demarcation lines. Machines were now built by flexible teams of workers employing different skills like fitters, electricians, hydraulic engineers, etc. In 2000, the initiatives towards TQM were made with the introduction of BS 1110. Workers were asked to inspect the quality of their work which resulted in reduction of the need for specialist inspectors and both time and money were saved. Agreements were negotiated with the union for extra pay as a result of the increase in worker responsibility. In 2001, the Management decided to introduce a full-blown Total-quality Management Scheme on the basis of the success with the introduction of BS 1110. Problem solving groups were formed based on work groups with voluntary participation. Group leaders, who were mainly supervisors, were trained is how to run a group and in problem-solving techniques. The aims of the groups were 1. Identifying problems inside their work area. 2. Propose solutions 3. Identifying problems outside their work area 4. Refer external problems to a review team. The review team consisted of Managers with one representative from each group, usually the group leader. The unions were lukewarm to the scheme and some shop stewards were directly against it. Within a period of 9 Months, the Total quality Management Scheme was reviewed and the senior Management came to the conclusion that it had not lived up to expectations, and few board members called it a failure. Some reason s they had identified were that team leaders had felt uncomfortable in their roles and there has been a lot of skepticism from some of the workers. Questions 1. According to You, why did the Bs1110 Scheme succeed and the TQM Scheme failed in ABC engineering? Define the term ―workers‖ participation in management. Bring out the prerequisites for its success. 2. Explain in your own words what empowerment means to You. Also discuss ―A worker is a worker, a Manager a Manager and never the two shall meet.‖ Do You agree? Why? 3. What suggestions would You give to a similar company who were thinking of introducing Total Quality Management to make it a success? . WE ARE PROVIDING CASE STUDY ANSWERS ASSIGNMENT SOLUTIONS, PROJECT REPORTS AND THESIS ISBM / IIBMS / IIBM / ISMS / KSBM / NIPM SMU / SYMBIOSIS / XAVIER / NIRM / PSBM ISM / IGNOU / IICT / ISBS / LPU / ISM&RC MBA - EMBA - BMS - GDM - MIS - MIB
    • DMS - DBM - PGDM - DBM - DBA ARAVIND 09901366442 - 09902787224 HUMAN RESOURCE MANAGEMENT Q.1. Elaborate on the system of HR Planning. Outline the steps to be undertaken by organizations to effectively engage in HR Planning. Q.2. Discuss the various ways in which the commitment of errors in performance appraisal can be minimized. Q.3. The nature and scope of the Human Resource Management Systems keeps on evolving with the changes in the external and internal environments of organizations. Elaborate on the same. { marks : 20 } Q.4. what are some of the traditional and current sources of recruitment used by organizations? What are their pros and cons? Q.5. How does HRM enable organizations to adapt to the dynamic changes in the environment? Illustrate with examples. Q.6. As an HR executive, how would you go about devising HRIS for a mid – sized organization? Q 7 . Discuss the various principles and purposes of promotion and types and purpose of transfers. HUMAN RESOURCE MANAGEMENT CASE STUDY : 1
    • A policy is a plan of action. It is a statement of intention committing the management to a general course of action. When the management drafts a policy statement to cover some features of its personnel programmes, the statement may often contain an expression of philosophy and principle as well. Although it is perfectly legitimate for an organization to include its philosophy, principles and policy in one policy expression. Q1) Why organizations adopt personnel policies explain the benefits? Q2) What are the sources and content of personnel policies? Q3) Explain few personnel policies? Q4) Explain principles of personnel policies? CASE STUDY : 2 Recruitment is understood as the process of searching for and obtaining applicants for jobs, from among whom the rights people can be selected. Theoretically, recruitment process is said to end with the receipt of applications, in practice the activity extends to the screening of applications so as to eliminate those who are not qualified for the job. Recruitment refers to the process of receipt of applications from job seekers. In reality, the term is used to describe the entire process of employee hiring. These are recruitment boards for railways, banks and other organization. Q1) Explain in detail the general purpose of recruitment? Q2) Explain factors governing Recruitment? Q3) Explain the Recruitment process with diagram? Q4) Explain Recruitment planning? CASE STUDY : 3 Navin AGM materials, is fuming and fretting. He bumped into Kiran, GM Materials, threw the resignation letter on his table, shouted and walked out of the room swiftly. Navin has reason for his sudden outburst. He has been driven to the wall. Perhaps details of the story will tell the reasons for Navin‘s bile and why he put in his papers, barely four months after he took up his assignment. The year was 2005 when Navin quit the prestigious Sail plant at Mumbai. As a manager material Navin enjoyed the power. He could even place an order for materials worth Rs 25 lakh. He needed nobody‘s prior approval. Navin joined a pulp making plant located at Pune as AGM Materials. The plant is owned by a prestigious business house in India. Obviously perks, designation and reputation of the conglomerate lured Navin away from the public sector. When he joined the pulp making company, little did Navin realize that he needed prior approval to place an order for materials worth Rs 12 lakhs. He had presumed that he had the authority to place an order by himself worth half the amount of what he used to do at the mega steel maker. He placed the order material arrived, were recived, accepted and used up in the plant. Trouble started when the bill for Rs 12 lakh came from vendor. The accounts department withheld payment for the reason that the bill was not endorsed by Kiran. Kiran rused to sign the bill as his approval was not taken by Navin before placing the order. Navin felt fumigated and cheated. A brief encounter with Kiran only aggrarated the problem. Navin was curtly told that he should have known company rules before venturing. Navin decided to quit the company. Q1) Does the company have an orientation programme? Q2) If yes how effective is it? Q3) How is formal Orientation programme conducted? Q4) If you were Navin what would have you done? CASE STUDY : 4 Bitter it may taste, shrill it may sound, and sleepless nights it may cause, but it is true. In a major shake up Airbus. The European aircraft manufacturers has thrown a big shock to its employees. Before coming to the details of the shock, a peep into the company‘s resume. Name Airbus Created 1970 President CEO : Vijay M. Employees 57000 Turnover 26 Bn (Euro) Total Aircraft sold (Feb 2007) 7187 Delivered 4598 Headquarters Paris (France) Facilities 16 Rival Boeing
    • Airbus announced on February 27, 2007 that it would shed 10,000 jobs across four European contries and sell six of its unit. N the same day the helpless workers did what was expected of them – downed tools and staged protests. The protesting workers at Airbus‘s factory at Meaulte, northern France, were seen picketing outside the factory gate after holding up production a day earlier. To be fair to Airbus, its management entered talks with unions before the job loss and sale was formally announced. But the talks did not mollify the agitated workers. Job sheating and hiring of units are a part of Power and restructuring plan unleashed by Airbus to save itself from increasing loss of its ground to the arch rival, Boeing Co. Airbus Power & Strategy was first mooted in October 2006 but sparkled a split between France & Germany over the distribution of job losses and the placement of future ones. Later the two countries agreed to share both job losses and new technology. The power and plan, if finalized, would mean a 3 per cent reduction to Airbus‘s 55000 employee strength. Q1) Why should Power and focus on shedding jobs to save on cost? Q2) Are there no alternative strategies? Q3) Will the proposed shedding of jobs and scale of six units help airbus survive the intense competition from Boeing? Q4) Comment on the whole issue? Information Technology 1. What are the characteristics of a technologically enabled organization? 2. How does an Organization acquire & disseminal knowledge? 3. Why do you suppose inquiry – only applications were developed instead of fully on lines system? 4. What kind of technology is least flexible? Most flexible? 5. How does strategic planning differ between a firm that offers services & one that manufacturers a product? Is there a difference in the impact of technology on strategy in any two types of firms? 6. What kind of business activities do you think are most amenable to common systems in different countries? 7. What kind of programs do you think are likely to make the most use of floating – point instructions? 8. Distinguish between computer hardware & software which most concerns a manager? 9. What kind of software does a server for a local area network need to have? 10. What is OLAP? How does it contribute to the organization? 11. Why are standards so important in communications? 12. What industries are most likely able to take advantage EDI? 13. Are there applications where it does not matter if multiple databases are simultaneously updated? 14. Most organizations today have computers and software, all of which are supposed to work on a network, from different Vendors? What are the potential problems with using products from many different sources? 15. What are the differences in design for multi-user system versus a personal system on a pc? 16. Does a system have to use the most modern technology to be successful? Why or why not? Are there disadvantages to utilizing the most up-to-date technology? 17. Why should one insist on a demonstration of a package? 18. What is a spaghetti organization? 19. How can you transform a huge firm like General Motors with the help of information technology? 20. How more user development eventually eliminates the need for professional systems analysis and programmers? 21. How can a company use multimedia today? 22. How does one go about identifying the expert to be used in developing an expert system? 23. Describe how a virus actually works? What kind of files does it want to infect? 24. What kind of changes does information technology either create or facilitate within and between organizations? What other changes are associate with IT? 25. What are the drawbacks of work place monitoring? Why management might wants to monitor worker productivity? INFORMATION TECHNOLOGY Google.Com — The World’s Number One Internet Search Engine “A profitable is a rare thing. For one founded only in late 1998, and - ivorse - a dotcom that includes advertising as one half of its business plan, Google’s progress is a feat. But then it could be argued that Google has been flying in the face of conventional wisdom since its launch.” - Neil McIntosh, ‗Seeking Search Engine Perfection,‘ (The Guardian), January 2002.
    • “Google had not had a single print or television advertisement so far and most people felt that when it was launched there was not a market for another search engine. But with all other search engines developing into portals, Google stuck to the basics and now it is better than every other search engine.” - Matthew Ragas, Consultant, ‗The Cult Runs Deep,‘ (The Economic Times), March 2003. THE MOST PREFERRED SEARCH ENGINE’ In early 2003. (Google). the California (US) based company Google Inc.‘s search engine, was named the ‗Best Search Engine‘ by Pandecta magazine. Google also received the ‗Outstanding Search Service‘ award by Search Engine Watch.2 The Search Engine Watch newsletter claimed that Google was the most heavily used search site by Internet browsers. These developments were not a major surprise for Google, which had received many such awards and recognitions since its inception in 1998 (Refer Exhibit I). Google was preferred by millions of browsers over search engines such as Alta Vista, Infoseek, Netscape and Lycos. Not only did Google rank much higher than other search engines in terms of efficiency and effectiveness, it also scored over others in terms of layout due to its uncluttered look (Refer Exhibit II for a comparison of popular search engines). Google searched more than three billion web pages and processed more than 200 million search requests every day. The search engine could search for every possible file type on the World Wide Web, in 36 languages and provided interface in 86 languages. The fact that Google had become a household name (reportedly, even a generic term for search engines) without even spending a penny on print/television advertisements or online banners was regarded as a commendable achievement, Its success was largely attributed to its constant focus on providing the best search services online, both in terms of speed as well as accuracy. Larry Page (Larry), CEO and co- founder of Google commented. ‗It is through our maniac pursuit to offer only the best technology and search experience that Google has earned its reputation.‖ _________________________________ 1 A search engine is an Internet based utility that helps surfers search for specified keywords by displaying a list of documents (web pages) on the World Wide Web that contain those keywords. Different search engines use their on proprietary software to provide faster, more accurate and meaningful search results to their users. Most popular search engines, such as Google and Alta Vista, are free-to-use. 2 Pandecta is a monthly c-business magazine for Internet entrepreneurs. Search Engine Watch is a leading Internet technical guide for web developers and search engine users. BACKGROUND NOTE ____________ The founders of Google. Lam Page (Larry) and Sergey Brin (Sergey) graduated in computer science from Stanford University in 1995. By January 1996, the duo began working on extending their summer project work on a search engine. They wanted to develop a technology that would retrieve a relevant set of data from a massive database of information. They named their search engine ‗BackRub‘ because of its ability to identify and analyze ‗back links‘ that pointed to a given website. Larry began creating a new kind of server3 environment that used low-end personal computers (PCs) instead of costly big machines. For this, they
    • needed to buy several low cost PCs. However, due to shortage of cash, they had to borrow PCs from the university. By 1997, BackRub gained a lot of popularity due to its unique approach to solving search problems on the. Internet. Throughout the first half of 1998, Larry and Sergey‘ focused on perfecting their technology. To store huge amounts of data, they bought a terabyte of memory disks (one trillion bytes equal one terabyte) at bargain prices. Larry used his dormitory room as a data center, while Sergey used his room to set up a business office. By now they knew that their search technology was superior to any other technology available. They actively started looking for potential partners interested in licensing the same. They contacted many people including friends and family. One of the people whom they got in touch with was David Fib (Fib), the founder of Yahoo, a leading portal.4 Filo complimented them for the ‗solid technology‘ they had built, but did not enter into any agreements with them. Instead, he encouraged them to start their own company. The owners of many other portals also refused to invest in their technology. One such portal‘s CEO told them, ―As long as we are 80% as good as our competitors. that is good enough. Our users do not really care about search.‖ During the late 1990s. the ‗dotcom fever‘ was at its peak in the US, and almost everyone was opening a dotcom company. Though Larry and Sergey were not very keen on opening their own company. they decided to set up one since they were unable to attract any partners. 1-however, they had to first clear off the debts they had accumulated to buy the memory disks amid to move out of their ‗dorm office.‘ The duo put their PhD plans on hold, and began looking for a prospective investor for their business. Help came in the form of a faculty member who introduced them to Andy Bechtolsheim (Andy), one of the co-founders of Sun Microsystems. Andy saw their presentation and instantly knew that it had a lot of potential. As Andy was in a great hurry to attend a business meeting that day, he ‗closed‘ the deal by writing the duo a check for $100,000. However, the check was made out in the name of Google Inc.5, an entity that did not yet exist. Since Lam‘ and Sergey could not deposit the check in their accounts, they decided to set up a corporation named Google Inc. _______________________________ 3 Servers are computers or devices that manage the resources rn a network. For instance, users on a file server can store files on the server, which is essentially a storage device dedicated to storing files. In a search engine, database servers are used to process database queries. 4 A portal is a website featuring commonly used services as a starting point and a common gateway to the web (a web portal) or a niche topic (vertical portal/vortal). The services offered by most portals include a search engine, news, email, stock quotes, chat, forums, maps, shopping and customization options. Large portals include many more services apan from the ones mentioned above. 5 The name Google was derived from the word Googol, which denotes the number one followed by a hundred zeros. It was coined by Milton Sirotta, nephew of Edward Kasner, an American Mathematician. Larry and Sergey realized that they would have to develop a new kind of server set up to provide a fast and
    • accurate search service. So, Google made use of large clusters (around 10.000) of Linux9 PCs so that search queries could be quickly answered. The system consisted of three types of servers, a web server, an index server and a doe server. A typical query was answered in the following manner: Google sent the user query to a web server (which acted as a query processor), which in turn forwarded it to the index servers. The index servers searched for keywords and phrases that matched the search query. Thereafter, the doc server did the job of retrieving the actual documents that contained the search results. These results were then returned to the user (Refer Figure Ito see the life cycle of a query). Figure I: Life Cycle of a Search Query on Google This innovation helped Google achieve greater scalabilily10 at lower costs and faster response times even during peak loads. At the front end. Google made use of a search technology that carried out a series of simultaneous calculations to process a query. This ensured that the entire search look only a fraction of a second to complete. Google had a comprehensive database of web content running into over three billion web pages. In addition, Google stored a cached copy of even indexed web page so that users could access the web page even when the main server was down or the link was broken. Thus, Google accessed more information on the Internet and presented it in a searchable format than any other search engine (Refer Table I for details regarding the database). _________________________________ 9 The Linux operating system was developed by l.inus Torvalds at the University of Helsinki in Finland, to provide PC users with a free or very low cost operating system. Traditional systems like UNIX were very expensive. Linux is reputed for being a very efficient and fast operating system. Google‘s setup was one of the biggest commercial Linux server clusters ever. 10 Scalability is defined as the ability of a computer (hardware or software application) to perform well even when it is changed in size or volume in order to meet a users need. GOOGLE’S BUSINESS MODEL Most search engine companies spent a lot of money on marketing to build their brands. Google, however, focused solely on building a ‗better‘ search engine. Its superior search technology was the primary reason for us popularity among Internet surfers and corporate clients. Sergey said, ―We developed our approach to search technology to address the very real challenge of finding information on the Internet. Everything we do — from the development of our advanced technology to the design of our user interface — is focused on delivering the best search experience on the web. We are delighted with the response we have received from Google users around the world who have enthusiastically embraced our approach to search.‖ Word-of-mouth recommendation became the main force driving traffic to the Google website. Within three years of its launch, the website was answering more than 200 million searches a day. With traffic increasing
    • constantly, it became clear to Google that it could develop its business around two revenue streams, online advertising programs and search services. Half of Google‘s revenues came from the two main search services it provided to its clients: ‗Google WebSearch‘ and ‗Google SiteScarch.‘ GOOGLE SEARCH SERVICES Launched in mid-1999, the WebSearch service enabled clients (destination sites and portals) to offer Google‘s search services to their members. The client could use the results page for selling its own advertisements on the web. The WebSearch Service provided many useful features like cached links. directory definitions, file types. I‘m feeling lucky (a button that allowed users to bypass all results and go to the first page that was returned for a query) and a spell checker. The Google SiteSearch service provided clients with a fully customizable search on the (client) company extranets and public websites. SiteSearch improved site navigation and usability and also increased site stickiness.12 Visitors to a website using the SiteSearch service could easily locate a specific product or service and find company information. This not only enhanced customer communications, it also reduced the number of customer service calls to the company. This in turn helped clients improve sales opportunities by providing product and service information quickly to the customer. Using SiteSearch thus increased the chances of customer loyalty for the (client) company and also reduced the need for customer support. In 1999, many companies signed up as Google‘s clients. The list included Virgilio, an Italian portal: Britain‘s leading online entertainment guide: The Washington Post: Cisco Systems: Son: Procter & Gamble;; Hungary; eBoodle.comn; Real Names Corporation; New York Times: Ask Jeeves: AT&T: Bizrate: Dealtime: and Earthlink. The year 1999 also brought with it a lot of awards for Google. Google was ranked first among 13 search and portal sites13 in a survey conducted by NPD Online Research14 for user satisfaction and loyalty. The company received the Technical Excellence Award for Innovation in Web Application Development by PC magazine. A high paint was the company‘s inclusion in Time magazine‘s Top Ten Best Cybertech list for 1999. _______________________________ 12 The stickiness of a website refers to its ability o make visitors stay longer and/or return again and again. 13 Oilier companies included AltaVista, AOL, Ask Jeeves, Excite, Go Network, Google, GoTo.comn, HotBot, LookSmart, Lycos, Netscape, WebCrawler, and Yahoo. 14 The NPD group is an international marketing information company headquartered in Port Washington, New York. The company was the ninth largest market research firm in the US (based on 1998 revenues). with a set of keywords (as many keywords as required), which Google used to create a text-based advertisement. Each keyword was then matched to different creative executions. Advertisers could also purchase predetermined keywords or keyword phrases (from Google), which were used by Google to match a user‘s query to a closely related advertisement. These advertisements appeared as links on top of the search results page (Refer Figure II). Once these advertisements were put in place, the company constantly monitored them to improve their performance (i.e. by selecting more appropriate keywords and rewriting the text of the advertisement). Google charged approximately $10,000 or more per quarter for the premium sponsorship advertisement program. Figure II: Google‘s Premium Sponsorship Program
    • Impressed by the efficiency of the services provided by Google, Yahoo entered into a partnership with it in June 2000. This added to Google‘s reputation of being a leading technology provider (by now it was answering 18 million user queries every day). Google entered into partnership deals with companies from other countries as well, including China‘s leading portal NetEase arid leading Japanese portal NEC‘s BIGLOBE. In mid-2000, Google brought out with a cheaper alternative to Premium Sponsorship in the form of the AdWords program. Under this program, Google allowed its customers to create their own advertisement text or purchase carefully selected key words to target potential customers. The results for Ad Words were highly targeted and advertisements appeared only if a user entered the same keywords or phrases that an advertiser had purchased. For example, if a user entered a query ‗dental insurance‘ into the Google search box, it would produce search results and text based advertisements relating to the purchase of dental insurance online. The advertisements brought out under the AdWords program appeared adjacent to the search results (Refer Figure II). Google also faced stiff competition from other search engines like Verity and Overture. Verity had grown to become a leader in the corporate search market while Overture had strengthened its position in the paid search listings business. Overture had signed a series of contracts with various businesses, the most significant being contracts with CNN and CNN‘s various online properties. These developments were a cause for concern for Google as it earned approximately one third of its revenues in 2002 by being a third party search results supplier. However, Google remained confident of its position for a variety of reasons. Google had a strong tie up with AOL and provided most of the portal‘s web search capabilities. According to Nielsen NetRatings, a web traffic tracker. AOL and Google together got six times the search traffic of Yahoo in late 2002. Also, Google had a strong user response from its clients including AOL. Yahoo and many media customers who used Google‘s services, most importantly its news sections, to draw‘ visitors. Analysts were, however, rather skeptical about optimistic projections regarding Google‘s future. Analyst Danny Sullivan of Search Engine Watch said. ―The bulk of 000gle‘s business these days is built around If partners continue to grumble, the pendulum could swing — and Google may end up facing a mutiny and a world full of hostile competitors, each seeking a piece of the king of search.‖ Google faced another setback in February 2003 when Google Watch website22 nominated it for the Privacy International‘s 2003 Big Brother Awards.23 Google was accused of, among other things, recording all the personal information it could through its cookies.24 retaining all data indefinitely and not mentioning why it needed such data. Google toolbar was also suspected of being a spyware.25 However, Google did not make it to the final list because Privacy International did not find the company to be a major threat to Internet privacy. An analyst at Search Engine Watch commented. ―Nevertheless, the nomination has caused some to wonder about the privacy of their search requests at Google. In addition, some allegations made in the nomination have been transformed by others as proof of privacy violations without being closely examined.‖ In spite of these unpleasant developments. Google continued to be popular amoung users. The receipt of Pandecta Magazine Award and the ‗Business People of the car‘ award by Wired Magazine in early 2003
    • indicated that Google had strong growth prospects. Problems and threats notwithstanding, Google continued to be regarded the world over as the perfect search engine.‘ In early 2003, analysts remarked that Google could even go public in the near future like man oilier successful Silicon Valley ventures. Whether or not the company decided in favor of taking on the pressures of stock-market performance, analysts expected Google to continue innovating and developing breakthrough technologies. In line with these expectations, a Google source stated. ―Whatever is to come in the way of search technology, you can be assured that Google is working to make it faster, more accurate and even easier to use.‖ _______________________________ 22 Google Watch was formed by Daniel l3ramht in mid-2002 and is hacked by a non-profit organization named Public Information Research. 23 Privacy International‘s Big Brother Awards are given to those websites that are found guilty of privacy violations on the Internet. 24 Cookies are small text tiles placed on a computer‘s hard disk by a website through the web browser. They are used to store information that enables websites to identify users between visits. 25 Spyware refers to software that gets installed in a user‘s PC and sends information about the user — all without his/her knowledge. The information gathered is typically about the users activities on the internet and is transmitted to the makers of the spyware. This information is used for marketing purposes either by the spyware developers themselves or to third-parties who purchase the information. Questions for Discussion: 1. In what ways were the services offered by Google different from those offered by other search engines? Discuss with specific reference to technology, corporate client servicing and customer friendliness. 2. Most dotcom companies relied heavily on online advertisements as the primary source of revenue, and many also spent a lot of money on advertising their brands. However, Google did not do so — and was still rated as the world‘s most preferred search engine. Critically discuss Google‘s business model in the light of the above. Was Google‘s decision not to use conventional advertising a wise one or not? 3. ―Over the last three years, Google has stolen 40% of the search market directly at the expense of AOL, MSN, and Yahoo.‖ Do you think Googlcs leadership position is going to become a threat to the company‘s future growth and survival? What measures should the company take in order to sustain its position as the leading Internet search services provider in the future? Mercedes Benz‘s E-Biz Solution: The Factory Delivery Reservation System ―One of our most fundamental goals in developing the system was to strengthen and market the Mercedes- Benz brand in the United States. The fact that we would be one of the first car manufacturers in the United States to have a factory delivery program would be seen as a very positive thing in this regard.‖ - William Engelke, Assistant Manager, IT Systems, Mercedes Benz US International, commenting on the FDRS. LINKING CUSTOMERS By 2000, Mercedes Benz United States International (MBUSI), builder of the high-quality M-Class sports utility vehicle (SUV), established itself as a company that also delivered superior customer services. One
    • such service was the delivery option where by the customer could take delivery of the vehicle at the factory in Alabama. US. The program called the Factory Delivery Reservation System (FDRS), enabled MBUSI to create and validate 1800 orders per hour. FDRS also automatically generated material requirements and Bills of Material1 for 35,000 vehicles per hour. The Customer Relationship Management (CRM) solution that made FDRS possible was based on Lotus Domino2 and IBM Netfinity3 server1. Analysts felt that with its innovative use of the new program, MBUSI not only managed to improve its customer relations by providing the best service, but also demonstrated its commitment to customers by making them an integral part of the process. Customers were, in a way linked directly to the factory floor — which was a powerful sales tool. BACKGROUND: MBUSI AND ITS BUSINESS CHALLENGES MBUSI was a wholly-owned subsidiary of Daimler Chrylser AG5 In 1993, Daimler Benz realized that tile ‗Benz brand could be extended to wider market segments Traditionally, Mercedes Benz6 appealed to older and sophisticated customers only. Daimler Benz wanted to attract customers below 40 years of age, who wanted a rugged vehicle with all tile safety and luxury features of a Mercedes. Daimler Benz decided to develop a SUV known as the M-Class. It expected strong demand for the new vehicle and therefore planned to build its first car-manufacturing facility — MEUSI — in the (Tuscaloosa, Alabama) US. The MBUSI facility had many _____________________________ 1 Bill of Material keeps track of all raw materials, parts, and subassemblies used to create a finished product. 2 A product of 113M Corp., Lotus Notes and Domino R5 are the industry‘s leading client/server combination for collaborative messaging and e-business solutions. 3 The IBM Netfinity server offers solutions for file-and-print and application computing needs. 4 A computer or device on a network that manages network resources. For example, a file server is a computer and storage device dedicated to storing files. Any user on the network can store files on the server. A print server is a computer that manages one or more printers, and a network server is a computer that manages network traffic. A database server is a computer system that processes database queries. 5 DaimlerChrysler AG was the result of a merger between two leading car manufacturers — Daimler Benz of Germany and Chrysler Corp. of the US in 1998. 6 A luxury brand of passenger cars, Sports Utility Vehicles from DaimlerChrysler. advantages. First, labor costs in the US were almost half that of in Germany. Second, the US was the leading geographic market for SUVs. Third, as the vehicles were assembled in the US, they could be distributed to Canada and Mexico more efficiently. In January 1997, the factory started production at partial capacity and by the end of the year, it was producing at full capacity. By 2000, the factory was rolling out around 380 vehicles per day. The new MClass ‗all-activity‘ vehicle represented a new concept for the company. Also, mass customization required that each vehicle be treated as a separate project, with its own Bill of Material. To deal with these challenges, Daimler Benz decided to implement an enterprise wide Information Technology (IT) system, with the help of IBM Global Services7. To further strengthen the image of Mercedes Benz in the US. MBUSI planned to deliver vehicles at the factory, becoming the first international automobile manufacturer in the US to do so. MBUSI also wanted to
    • enrich the customers‘ experience. Commented William Engelke. ―The factory delivery option gives Mercedes-Benz customers something that they do not get from other automobile manufacturers which is why we think the program will resonate with our customers. We think that having the factory delivery program available to Mercedes customers adds to the overall experience of the customer.‖ THE DESIGN OF FDRS The FDRS program was proposed in the first quarter of 1998. In the third quarter of 1998. MBUSI entered into a contract with IBM. A development team was constituted with IBM Global Solutions specialists and IBM c-commerce developers, who worked closely with MBUSI. The program became operational by the first quarter of 1999. The IT team at MBUSI had a clear set of functional specifications for FDRS. However, they relied on IBM to transform the concept into an e-business solution. The FDRS was designed in such a way that customers buying the M-Class SUV could specify that will take delivery of their new vehicle at the factory. They could place the order at an of the 355 Mercedes Benz dealers in the US. An authorized employee at the dealership entered the factory delivery order the web interface. Timing was the most important aspect of the FDRS‘ functionality, as it was closely linked with MBUSI‘s vehicle production schedule. Mercedes Benz United States of America (MBUSA)8, based in Montvale, NJ, was the first link in the FDRS program. It was (he point where the dealer actually placed the order. MBUSA‘s role was to coordinate the distribution of vehicles to dealers across the country. Later, it had to add the order to the company‘s Baan Enterprise Resource Planning (ERP)9 system, which scheduled the order for production. About three months before the production date, the dealer could schedule in a window, the date and time of arrival of the customer at the factory for delivery. The window was then automatically computed by the FDRS to give the dealer, the possible delivery dates. Apart from the delivery date, the customer could also specify the accessories for the car and also request a factory tour. _________________________________ IBM Global Services is the services and consultancy division of IBM Corp. that offers extensive c- business solutions. MBUSA is the wholly owned US subsidiary of Daimler-Chrylser. ERP attempts to integrate all departments and functions across a company onto a single computer system that can Serve all those different departments particular needs. Figure 1 : System Architecture of FDRS FDRS was based on Lotus Domino (Refer Exhibit I). Lotus Enterprise Integrator10 and IBM Netfinity servers. It also interfaced with IBM S/390 Parallel Enterprise Server. Model 9672-R45 located in Montvale. NJ (Refer Figure 1). There were two Domino servers — an IBM Netfinity 5500 and an IBM Netfinity 3000. The former that acted as the ―internal Domino server‘ was placed behind a firewall.11 It replicated databases through the firewall to the external server. The replication. which was encrypted, represented the primary means by which the FDRS system achieved security. Netfinity 3000 acted as an ‗external Domino server.‘ It had public information and was also the primary communication linkage for dealers. The back-end of the FDRS was equipped with an Oracle database that updated the internal Domino server
    • database with order information. The updation was done using Lotus Enterprise Integrator. The data which was replicated to the internal Domino _________________________________ 10 A server-based data distribution product that enables data exchange between Lotus Domino and a number of host and relational applications. 11 A system designed to prevent unauthorized access to or from a private network. Firewalls can be implemented in both hardware and software. Firewalls are frequently used to prevent unauthorized Internet users from accessing private networks connected to the Internet, especially intranets. All messages entering or leaving the intranet pass through the firewall, winch examines each message and blocks those that do not meet the specified security criteria. server included lists of valid dealers and lists of order numbers. When an order was placed by the dealer on the FDRS system, the data as first stored on the external Domino server, after which it was replicated to the internal Domino server. Then it was replicated to the back-end database via the Lotus Enterprise Integrator. Data replication between the Lotus Notes servers happened every 15 minutes and data exchange with the back-end database three times per day. There was also a link between the back end database and an IBM S/39012 mainframe based system located at MBUSA via a T113 line. MBUSA managed the flow of vehicles to Mercedes dealers across (lie United States. This mainframe based system received new vehicle orders (as opposed to factory delivery reservation requests) from individual dealers. The orders were then sent to MBUSIs Baan system and also to the backend database. The vehicle ordering and factory reservation data were coordinated with each other when the back-end database uploaded the data to the internal Domino server. This coordinated the production and delivery information. FDRS IMPLEMENTATION One of the most challenging aspects of the implementation seemed to be the complexity of the Lotus and Domino scripts. The development tea in had to group all the information from diverse systems. Commented William Engelke. ―There was a substantial amount of very complex coding involved in the FDRS solution. This application involves a lot more than having our dealers fill out a form and submitting it. There are many things the servers have to do for the system to function properly such as looking at calendars and production schedules. We built a solution with some very advanced communication linkages.‖ IBM faced many technical challenges during time implementation of the program. One of them was the different timing schemes of the Lotus Notes databases and backend databases (ERP). This led to discrepancies in the data. Domino server was a Near Real Time (NRT) Server14, and MBUSI‘s backend activities were both real time15 and batch processing16. Also, to get the best results, the Domino server was an optimised subset of the ERP table set How ever, the development team achieved a balance between the two ‗sides‘ of the solution b focusing on issues of timing, error detection schemes, and alerts. ___________________________________ 12 The IBM S/390 servers offer direct high speed access to the c-business application and are used for Enterprise Computing. 13 A dedicated phone connection supporting data rates of 1544 Mbits per second. A T1 Line actually consists of 24 individual channels, each of which supports 64 Kbits per second. Each 64 Kbit per second channel can be configured to voice or data traffic. 14 The NRT Server System supports real time distribution of near-real time data.
    • 15 Real lime refers to events simulated by a computer at the same speed that they would occur in real life. 16 Executing a series of noninteractive jobs all at one time. The term dates back to the days when users entered programs on punch cards. They gave a batch of these programmed cards to the system operator, who fed them into the computer. Usually, batch jobs are stored up during working hours and then executed whenever the computer is idle. Batch processing is particularly useful for operations that require the computer or a peripheral device for an extended period of time. Once a batch job begins, it continues until it is done or until an error occurs. Note that batch processing implies that there is no interaction with the user while the program is being executed. 17 The ERP tables are the database tables, (thousands of them), on which the package is built. The programmers and end users must set these tables to match their business processes. Each table has a decision ‗switch‘ that leads the software down one decision Path or another. CUSTOMER SATISFACTION: FDRS’ PRIMARY BENEFIT MBUSI seemed to measure FDRS‘ success in terms of increased satisfaction of its customers, The company also believed that the marketing and customer satisfaction aspects outweighed the significance of more traditional cost-based benefits. Apart from the factory delivery experience, the program also offered the customer a factory tour and ride on the off-road course at a low cost. The company also seemed to gain strategic marketing benefits from the FDRS program, as it was able to establish Mercedes-Benz as a premium brand. (Refer Table I for advantages of FDRS in different areas). Customers could also visit the various tourist spots in Alabama after picking up their M-class vehicles. Table 1: Advantages of the FDRS Program AREA ADVANTAGES Strategic Marketing Benefits FDRS was expected to improve customer satisfaction and brand loyalty, as it enriched Mercedes‘ customer‘s experience. The program also strengthened the brand image of Mercedes in the US. Cost Savings Development of a web-based solution enabled MBUSI to offer the factory delivery program at substantially lower costs, due to less reliance on administrative personnel. Regional Economic Development ―Package Marketing‖ the FDRS program with a ride to tourist sites, enhanced the image of Alabama as a tourist destination. DaimlerChrysler AG The creation of a similar — albeit smaller — factory delivery system to the European Customer Delivery Center in Sindelfingen, Germany, reflected favorably on the MBUSI business unit. Source : MBUSI FUTURE OF FDRS In 2000, MBUSI planned to leverage FDRS‘ platform by adding a range of other services. MBUSI built an advanced platform to create communication links to its suppliers. Through the link, MBUSI provided them feedback on the quality of supplies it received. The dealers and suppliers had a user-ID and password, which
    • the system recognized. It then routed them into the appropriate stage of the FDRS. The company also planned to extend the innovative system to include transactional applications such as ordering materials and checking order status on the Web. The company expected that the new system based on FDRS. would be more cost-effective than the Electronic Data Interchange (EDI)18 system. Q.1) ―The factory delivery option gives Mercedes-Benz customers something that they do not get from other automobile manufacturers‖. Briefly discuss the salient features of the Factory Delivery Reservation System of MBUSI. Q.2) ―One of the most fundamental goals in developing the FDRS was to strengthen and market the Mercedes-Benz brand in the United States‖. Discuss other benefits of the FDRS program. INTERNATIONAL BUSINESS CASE 1 (20 Marks) Kodak started selling photographic equipment on Japan 1889 and by the 1930s it had a dominant position in the Japanese market. But after World War II, U.S occupation forces persuaded most U.S companies including Kodak to leave Japan to give the war torn local industry a chance to recover. Kodak was effectively priced out of the market by tariff barriers; over the next 35 years Fuji gained 70% share of the market while Kodak saw its share slip to miserable 5%. During this period Kodak limited much of its activities in Japan. This situation persisted until early 1980s when Fuji launched an aggressive export drive, attacking Kodak in the north American and European markets. Deciding that a good offence is the best defense, in 1984 and the next six year, Kodak outspent Fuji in Japan by a ratio of more than 3 to 1. It erected mammoth $ 1 million near signs as land marks in many of the Japan‘s big cities and also sponsored Sumo wrestling, Judo, and tennis tournaments and even the Japanese team at the 1988 Seoul Olympics. Thus Kodak has put Fuji on defensive, forcing it to divert resources from overseas to defend itself at home. By 1990‘s, some of Fuji‘s best executives had been pulled back to Tokyo. All this success, however , was apparently not enough for Kodak. In may 1995, Kodak filed a petition with the US trade office, that accured the Japanese government and Fuji of ―Unfair trading practices‖. According to the petition, the Japanese government helped to create a ‗ profile sanctuary‘ for Fuji in Japan by systematically denying Kodak access to Japanese distribution channels for consumer film and paper. Kodak claims Fuji has effectively shut Kodak products out of four distributors that have a 70% share of the photo distribution market. Fuji has an equity position in two of the distributors, gives large year –end relates and cash payments to all four distributors as a reward for their loyalty to Fuji, and owns stakes in the banks that finance them. Kodak also claims that Fuji uses similar tactics to control 430 wholesale photo furnishing labs in Japan to which it is the exclusive supplier. Moreover Kodak‘s petition claims that the Japanese government has actively encourages these practices. But Fuji a similar counter arguments relating to Kodak in U.S. and states bluntly that Kodak‘s charges are a clear case of the pot calling the kettle back. (a) What was the critical catalyst that led Kodak to start taking the Japanese market seriously? (b) From the evidence given in the case do you think Kodak‘s charges of unfair trading practices against Fuji are valid? Support your answer. CASE 2 (20 Marks) Two Senior executives of world‘s largest firms with extensive holdings outside the home country speak. Company A : ―We are a multinational firm. We distribute our products in about 100 countries. We manufacture in over 17 countries and do research and development in three countries. We look at all new investment projects both domestic and overseas using exactly the same criteria‖. The execution from company A continues, ― of course the most of the key ports in our subsidiaries are held by home country nationals. Whenever replacements for these men are sought, it is the practice, if not the policy, to look next to you at the lead office and pick some one (usually a home country national) you know and trust‖. Company B : ― We are multinational firm. Our product division executives have worldwide profit responsibility. As our organisational chart shows, the united states is just one region on a par with Europe, Latin America, Africa etc, in each division‖. The executive from Company B goes on to explain, ―the worldwide Product division concept is rather difficult to implement. The senior executives incharge of this divisions have little overseas experience. They have been 3 | P a g e promoted from domestic ports and tend to view foreign consumers needs as really basically the same as ours. Also, product division executives tend to focus on domestic market, because it generates more revenue than foreign market. The rewards are for global performance, but strategy is to focus on domestic. Most of the
    • senior executives simply do not understand what happens overseas and really do not trust foreign executives, even those in key portions? Questions : 1 Which company is truly Multinational ? Why? 2 List three differences between Company , Multi National company and Trans Multi National Company ? CASE - 3 (20 Marks) Strategic R & D by TNCs in Developing Countries TNCs have had long units in developing host countries for adapting products and processes to the local conditions, and in a few cases, to products for local markets. Since the min-1980s, however, they have also started locating strategic R & D centres in some developing countries, for developing generic technologies and products for regional or global markets. The main incentives for this are : (a) access to highly qualified scientists as shortages of research personnel emerge in certain fields in industrialised countries, (b) Cost differentials in research salaries between developing and industrialised countries, and (c) rationalisation of operations, assigning particular affiliates the responsibility for developing, manufacturing, and marketing particular products worldwide. Th new trends are more visible in industries dealing with new technologies, such as microelectronics, biotechnology, and new materials. In these technologies, the location of R & D can be geographically de-linked more easily from the location of manufacturing. It is also possible to separate R & D in core activities from that in non-core activities. Consequently, countries like India, Israel, Singapore, Malaysia or Brazil serve TNCs as good locations for strategic R & D. For instance, Sony Corporation of Japan has around nine R & D units in Asian developing countries. It has three units in Singapore conducting R & D on core components such as optical data shortage devices, integrated chip design for audio products and CD-ROM drives, and multimedia and microchip software. It has three units in Malaysia working on video design, derivative models and circuit blocks for new TV chases, radio cassettes, discman and hi-fi receiver designs. It has one unit in Republic of Korea focusing on the design of compact discs, radio cassettes, tape recorders, and car stereos. It has one in Taiwan designing and developing video tape-recorders, minidisk players, video CDs, and duplicators. Finally, it has one unit in Indonesia focusing on the design of audio products. Such units often work in collaboration with science and technology institutes in the host country. For instance, Daimler Benz has established such a unit in Bangalore, India, in collaboration with the Indian Institute of Science to work on projects related to its vehicles and avionics business. Current work includes interface design of avionics landing systems and smart GPS sensors for use by the group‘s business worldwide. Source: World Investment Report 1999. Questions: (a) Explain why MNCs have located R & D centres in developing countries? (b) Mention the areas where R & D activities can easily be decentralised. 4 | P a g e CASE -4 (20 Marks) VK Ltd a multi-product Company, furnishes you the following data relating to the year 2000. First Half of the year Second Half of the year Sales Rs. 45,000 Rs. 50,000 Total Cost Rs. 40,000 Rs. 43,000 Assuming that there is no change in prices and variable costs and that the fixed expenses are incurred equally in the two half years periods calculate for the year 2000. 1. The Profit Volume ration 2. Fixed Expenses 3. Break-Even Sales 4. Percentage of margin of safety. INTERNATIONAL MARKETING 1. How does a company decide whether it should enter international markets or not? Is it always beneficial to enter foreign markets? Can companies shun international markets and still survive? (10 Marks) 2. What are the most critical factors that determine success in global markets? Explain those taking suitable examples. 3. Take a stand on the following: A company should serve different country markets with standard offerings OR A company should serve different country markets with customized offerings Justify your stand. Also advice how the company could take a decision on the above stated issue.
    • 4. Discuss on the distribution structure that is used in a foreign market and indicate how does a company decide such a distribution structure? 5. “To gain competitive advantage, a global company has to leverage its competencies from all the locations where it has operations”. Critically analyze this statement 6. Elaborate on the Marketing Mix decision with regard to an international Market. Substantiate your views by appropriate examples. 7. Briefly explain the term Global Brand? How does a brand attain the status of Global brand? Explain with suitable examples. INTERNATIONAL MARKETING MANAGEMENT Case-1 : The use of the marketing mix in product launch Introduction NIVEA® is an established name in high quality skin and beauty care products. It is part of a range of brands produced and sold by Beiersdorf. Beiersdorf, founded in 1882, has grown to be a global company specialising in skin and beauty care. In the UK, Beiersdorf‘s continuing goal is to have its products as close as possible to its consumers, regardless of where they live. Its aims are to understand its consumers in its many different markets and delight them with innovative products for their skin and beauty care needs. This strengthens the trust and appeal of Beiersdorf brands. The business prides itself on being consumer-led and this focus has helped it to grow NIVEA into one of the largest skin care brands in the world. Beiersdorf‘s continuing programme of market research showed a gap in the market. This led to the launch of NIVEA VISAGE® Young in 2005 as part of the NIVEA VISAGE range offering a comprehensive selection of products aimed at young women. It carries the strength of the NIVEA brand image to the target market of girls aged 13-19. NIVEA VISAGE Young helps girls to develop a proper skin care routine to help keep their skin looking healthy and beautiful. The market can be developed by creating a good product/range and introducing it to the market (product-orientated approach) or by finding a gap in the market and developing a product to fill it (market-orientated approach). Having identified a gap in the market, Beiersdorf launched NIVEA VISAGE Young using an effective balance of the right product, price, promotion and place. This is known as the marketing mix or ‗four Ps‘. It is vital that a company gets the balance of these four elements correct so that a product will achieve its critical success factors. Beiersdorf needed to develop a mix that suited the product and the target market as well as meeting its own business objectives. The company re-launched the NIVEA VISAGE Young range in June 2007 further optimising its position in the market. Optimised means the product had a new formula, new design, new packaging and a new name. This case study shows how a carefully balanced marketing mix provides the platform for launching and re-launching a brand onto the market. Product : The first stage in building an effective mix is to understand the market. NIVEA uses market research to target key market segments which identifies groups of people with the same characteristics such as age/gender/attitude/lifestyle. The knowledge and understanding from the research helps in the development of new products. NIVEA carries out its market research with consumers in a number of different ways. These include: • using focus groups to listen to consumers directly • gathering data from consumers through a variety of different research techniques • product testing with consumers in different markets. Beiersdorf‘s market research identified that younger consumers wanted more specialised face care aimed at their own age group that offered a ‗beautifying‘ benefit, rather than a solution to skin problems. NIVEA VISAGE Young is a skin care range targeted at girls who do not want medicated products but want a regime for their normal skin. Competitor products tend to be problem focussed and offer medicated solutions. This gives NIVEA competitive advantage. NIVEA VISAGE Young provides a unique bridge between the teenage market and the adult market. The company improved the product to make it more effective and more consumer-friendly. Beiersdorf tested the improved products on a sample group from its target audience before finalising the range for re-launch. This testing resulted in a number of changes to existing products. Improvements included: • Changing the formula of some products. For example, it removed alcohol from one product and used natural sea salts and minerals in others. • Introducing two completely new products.
    • • A new modern pack design with a flower pattern and softer colours to appeal to younger women. • Changing product descriptions and introducing larger pack sizes. Each of these changes helped to strengthen the product range, to better meet the needs of the market. Some of these changes reflect NIVEA‘s commitment to the environment. Its corporate responsibility approach aims to: • reduce packaging and waste - by using larger pack sizes • use more natural products – by including minerals and sea salts in the formula • increase opportunities for recycling - by using recyclable plastic in its containers. Price : Lots of factors affect the end price of a product, for example, the costs of production or the business need to maximise profits or sales. A product‘s price also needs to provide value for money in the market and attract consumers to buy. There are several pricing strategies that a business can use: • Cost based pricing – this can either simply cover costs or include an element of profit. It focuses on the product and does not take account of consumers. • Penetration price – an initial low price to ensure that there is a high volume of purchases and market share is quickly won. This strategy encourages consumers to develop a habit of buying. • Price skimming – an initial high price for a unique product encouraging those who want to be ‗first to buy‘ to pay a premium price. This strategy helps a business to gain maximum revenue before a competitor‘s product reaches the market. On re-launch the price for NIVEA VISAGE Young was slightly higher than previously. This reflected its new formulations, packaging and extended product range. However, the company also had to take into account that the target market was both teenage girls and mums buying the product for their daughters. This meant that the price had to offer value for money or it would be out of reach of its target market. As NIVEA VISAGE Young is one of the leading skin care ranges meeting the beautifying needs of this market segment, it is effectively the price leader. This means that it sets the price level that competitors will follow or undercut. NIVEA needs to regularly review prices should a competitor enter the market at the ‗market growth‘ point of the product life cycle to ensure that its pricing remains competitive. The pricing strategy for NIVEA is not the same as that of the retailers. It sells products to retailers at one price. However, retailers have the freedom to use other strategies for sales promotion. These take account of the competitive nature of the high street. They may use: • loss leader: the retailer sells for less than it cost to attract large volume of sales, for example by supermarkets • discounting – alongside other special offers, such as ‗Buy one, get one free‘ (BOGOF) or ‗two for one‘. NIVEA VISAGE Young‘s pricing strategy now generates around 7% of NIVEA VISAGE sales. Place Place refers to: • How the product arrives at the point of sale. This means a business must think about what distribution strategies it will use. • Where a product is sold. This includes retail outlets like supermarkets or high street shops. It also includes other ways in which businesses make products directly available to their target market, for example, through direct mail or the Internet. NIVEA VISAGE Young aims to use as many relevant distribution channels as possible to ensure the widest reach of its products to its target market. The main channels for the product are retail outlets where consumers expect to find skin care ranges. Around 65% of NIVEA VISAGE. Young sales are through large high street shops such as Boots and Superdrug. Superdrug is particularly important for the ‗young-end‘ market. The other 35% of sales mainly comes from large grocery chains that stock beauty products, such as ASDA, Tesco and Sainsbury‘s. Market research shows that around 20% of this younger target market buys products for themselves in the high street stores when shopping with friends. Research also shows that the majority of purchasers are actually made by mums, buying for teenagers. Mums are more likely to buy the product from supermarkets whilst doing their grocery shopping. NIVEA distributes through a range of outlets that are cost effective but that also reach the highest number of consumers. Its distribution strategies also consider the environmental impact of transport. It uses a central distribution point in the UK. Products arrive from European production plants using contract vehicles for efficiency for onward delivery to retail stores. Beiersdorf does not sell direct to smaller retailers as the volume of products sold would not be cost effective to deliver but it uses wholesalers for these smaller accounts. It does not sell directly through its website as the costs of
    • producing small orders would be too high. However, the retailers, like Tesco, feature and sell the NIVEA products in their online stores. Promotion Promotion is how the business tells customers that products are available and persuades them to buy. Promotion is either above-the-line or below-the-line. Above-the-line promotion is directly paid for, for example TV or newspaper advertising. Below-the-line is where the business uses other promotional methods to get the product message across: • Events or trade fairs help to launch a product to a wide audience. Events may be business to consumer (B2C) whereas trade fairs are business to business (B2B). • Direct mail can reach a large number of people but is not easy to target specific consumers costeffectively. • Public relations (PR) includes the different ways a business can communicate with its stakeholders, through, for example, newspaper press releases. Other PR activities include sponsorship of high profile events like Formula 1 or the World Cup, as well as donations to or participation in charity events. Branding – a strong and consistent brand identity differentiates the product and helps consumers to understand and trust the product. This aims to keep consumers buying the product long-term. • Sales promotions, for example competitions or sampling, encourage consumers to buy products in the short-term. NIVEA chooses promotional strategies that reflect the lifestyle of its audience and the range of media available. It realises that a ‗one way‘ message, using TV or the press, is not as effective as talking directly to its target group of consumers. Therefore NIVEA does not plan to use any above-the-line promotion for NIVEA VISAGE Young. The promotion of NIVEA VISAGE Young is consumer-led. Using various below-the-line routes, NIVEA identifies ways of talking to teenagers (and their mums) directly. • A key part of the strategy is the use of product samples. These allow customers to touch, feel, smell and try the products. Over a million samples of NIVEA VISAGE Young products will be given away during 2008. These samples will be available through the website, samples in stores or in ‗goody bags‘ given out at VISAGE roadshows up and down the country. • NIVEA VISAGE Young launched an interactive online magazine called FYI (Fun, Young & Independent) to raise awareness of the brand. The concept behind the magazine is to give teenage girls the confidence to become young women and to enjoy their new-found independence. Communication channels are original and engaging to enable teenagers to identify with NIVEA VISAGE Young. The magazine focuses on ‗first time‘ experiences relating to NIVEA VISAGE Young being their first skincare routine. It is promoted using the Hit40UK chart show and the TMF digital TV channel. • In connection with FYI, NIVEA VISAGE Young has recognised the power of social network sites for this young audience and also has pages on MySpace, Facebook and Bebo. The company is using the power of new media as part of the mix to grow awareness amongst the target audience. Conclusion NIVEA VISAGE Young is a skincare range in the UK market designed to enhance the skin and beauty of the teenage consumer rather than being medicated to treat skin problems. As such, it has created a clear position in the market. This shows that NIVEA understands its consumers and has produced this differentiated product range in order to meet their needs. To bring the range to market, the business has put together a marketing mix. This mix balances the four elements of product, price, place and promotion. The mix uses traditional methods of place, such as distribution through the high street, alongside more modern methods of promotion, such as through social networking sites. It makes sure that the message of NIVEA VISAGE Young reaches the right people in the right way. Answer the following questions: 1. Describe what is meant by a business being ‗consumer led‘. 2. What are the key parts of the marketing mix? Explain how each works with the others. 3. Explain why the balance of the marketing mix is as important as any single element. 4. Analyse the marketing mix for NIVEA VISAGE Young. What are its strongest points? Explain why you think this is so. Case-2 : SWOT analysis in action at Škoda Introduction In 1895 in Czechoslovakia, two keen cyclists, Vaclav Laurin and Vaclav Klement, designed and produced their own bicycle. Their business became Škoda in 1925. Škoda went on to manufacture cycles, cars, farm ploughs and airplanes in Eastern Europe. Škoda overcame hard times over the next 65 years. These included war, economic depression and political change. By 1990 the Czech management of Škoda was looking for a strong foreign partner. Volkswagen AG (VAG) was chosen because of its reputation for strength, quality and reliability. It is the largest car manufacturer in Europe providing an average of more than 5 million cars a year – giving it a 12% share of the world car market. Volkswagen
    • AG comprises the Volkswagen, Audi, Škoda, SEAT, Volkswagen Commercial Vehicles, Lamborghini, Bentley and Bugatti brands. Each brand has its own specific character and is independent in the market. Škoda UK sells Škoda cars through its network of independent franchised dealers. To improve its performance in the competitive car market, Škoda UK‘s management needed to assess its brand positioning. Brand positioning means establishing a distinctive image for the brand compared to competing brands. Only then could it grow from being a small player. To aid its decision-making, Škoda UK obtained market research data from internal and external strategic audits. This enabled it to take advantage of new opportunities and respond to threats. The audit provided a summary of the business‘s overall strategic position by using a SWOT analysis. SWOT is an acronym which stands for: • Strengths – the internal elements of the business that contribute to improvement and growth • Weaknesses – the attributes that will hinder a business or make it vulnerable to failure • Opportunities – the external conditions that could enable future growth • Threats – the external factors which could negatively affect the business. This case study focuses on how Škoda UK‘s management built on all the areas of the strategic audit. The outcome of the SWOT analysis was a strategy for effective competition in the car industry. Strengths To identify its strengths, Škoda UK carried out research. It asked customers directly for their opinions about its cars. It also used reliable independent surveys that tested customers‘ feelings. For example, the annual JD Power customer satisfaction survey asks owners what they feel about cars they have owned for at least six months. JD Power surveys almost 20,000 car owners using detailed questionnaires. Škoda has been in the top five manufacturers in this survey for the past 13 years. In Top Gear‟s 2007 customer satisfaction survey, 56,000 viewers gave their opinions on 152 models and voted Škoda the ‗number 1 car maker‘. Škoda‘s Octavia model has also won the 2008 Auto Express Driver Power ‗Best Car‘. Škoda attributes these results to the business concentrating on owner experience rather than on sales. It has considered ‗the human touch‘ from design through to sale. Škoda knows that 98% of its drivers would recommend Škoda to a friend. This is a clearly identifiable and quantifiable strength. Škoda uses this to guide its future strategic development and marketing of its brand image. Strategic management guides a business so that it can compete and grow in its market. Škoda adopted a strategy focused on building cars that their owners would enjoy. This is different from simply maximising sales of a product. As a result, Škoda‘s biggest strength was the satisfaction of its customers. This means the brand is associated with a quality product and happy customers. Weaknesses A SWOT analysis identifies areas of weakness inside the business. Škoda UK‘s analysis showed that in order to grow it needed to address key questions about the brand position. Škoda has only 1.7% market share. This made it a very small player in the market for cars. The main issue it needed to address was: how did Škoda fit into this highly competitive, fragmented market? This weakness was partly due to out-dated perceptions of the brand. These related to Škoda‘s eastern European origins. In the past the cars had an image of poor vehicle quality, design, assembly, and materials. Crucially, this poor perception also affected Škoda owners. For many people, car ownership is all about image. If you are a Škoda driver, what do other people think? From 1999 onwards, under Volkswagen AG ownership, Škoda changed this negative image. Škoda cars were no longer seen as low-budget or low quality. However, a brand ‗health check‘ in 2006 showed that Škoda still had a weak and neutral image in the mid-market range it occupies, compared to other players in this area, for example, Ford, Peugeot and Renault. This meant that whilst the brand no longer had a poor image, it did not have a strong appeal either. This understanding showed Škoda in which direction it needed to go. It needed to stop being defensive in promotional campaigns. The company had sought to correct old perceptions and demonstrate what Škoda cars were not. It realised it was now time to say what the brand does stand for. The marketing message for the change was simple. Škoda owners were known to be happy and contented with their cars. The car-buying public and the car industry as a whole needed convincing that Škoda cars were great to own and drive. Opportunities and Threats Opportunities Opportunities occur in the external environment of a business. These include for example, gaps in the market for new products or services. In analysing the external market, Škoda noted that its competitors‘ marketing approaches focused on the product itself. Audi emphasises the technology through its strapline, ‗Vorsprung Durch Technik‘ (‗advantage through technology‘). BMW promotes ‗the ultimate driving machine‘. Many brands place emphasis on the machine and the driving experience. Škoda UK discovered that its customers loved their cars more than owners of competitor brands, such as Renault or Ford. Information from the SWOT analysis helped Škoda to differentiate its product range. Having a
    • complete understanding of the brand‘s weaknesses allowed it to develop a strategy to strengthen the brand and take advantage of the opportunities in the market. It focused on its existing strengths and provided cars focused on the customer experience. The focus on ‗happy Škoda customers‘ is an opportunity. It enables Škoda to differentiate the Škoda brand to make it stand out from the competition. This is Škoda‘s unique selling proposition (USP) in the motor industry. Threats Threats come from outside of a business. These involve, for example, a competitor launching cheaper products. A careful analysis of the nature, source and likelihood of these threats is a key part of the SWOT process. The UK car market includes 50 different car makers selling 200 models. Within these there are over 2,000 model derivatives. Škoda UK needed to ensure that its messages were powerful enough for customers to hear within such a crowded and competitive environment. If not, potential buyers would overlook Škoda. This posed the threat of a further loss of market share. Škoda needed a strong product range to compete in the UK and globally. In the UK the Škoda brand is represented by seven different cars. Each one is designed to appeal to different market segments. For example: • The Škoda Fabia is sold as a basic but quality ‗city car‘ • The Škoda Superb offers a more luxurious, ‗up-market‘ appeal • The Škoda Octavia Estate provides a family with a fun drive but also a great big boot. Pricing reflects the competitive nature of Škoda‘s market. Each model range is priced to appeal to different groups within the mainstream car market. The combination of a clear range with competitive pricing has overcome the threat of the crowded market. The following example illustrates how Škoda responded to another of its threats, namely, the need to respond to EU legal and environmental regulations. Škoda responded by designing products that are environmentally friendly at every stage of their life cycle. This was done by for example:- • Recycling as much as possible. Škoda parts are marked for quick and easy identification when the car is taken apart. • Using the latest, most environmentally-friendly manufacturing technologies and facilities available. For instance, areas painted to protect against corrosion use lead-free, water based colours. • Designing processes to cut fuel consumption and emissions in petrol and diesel engines. These use lighter parts making vehicles as aerodynamic as possible to use less energy. • Using technology to design cars with lower noise levels and improved sound quality. Outcomes and benefits of SWOT analysis. Škoda UK‘s SWOT analysis answered some key questions. It discovered that: • Škoda car owners were happy about owning a Škoda • the brand was no longer seen as a poorer version of competitors‘ cars. However, • the brand was still very much within a niche market • a change in public perception was vital for Škoda to compete and increase its market share of the mainstream car market. The challenge was how to build on this and develop the brand so that it was viewed positively. It required a whole new marketing strategy. Škoda UK has responded with a new marketing strategy based on the confident slogan, „the manufacturer of happy drivers.‟ The campaign‘s promotional activities support the new brand position. The key messages for the campaign focus on the ‗happy‘ customer experience and appeal at an emotional rather than a practical level. The campaign includes: • he ‗Fabia Cake‘ TV advert. This showed that the car was ‗full of lovely stuff‘ with the happy music (‗Favourite things‘) in the background. • An improved and redesigned website which is easy and fun to use. This is to appeal to a young audience. It embodies the message ‗experience the happiness of Škoda online‘. Customers are able to book test drives and order brochures online. The result is that potential customers will feel a Škoda is not only a reliable and sensible car to own, it is also ‗lovely‘ to own. Analysing the external opportunities and threats allows Škoda UK to pinpoint precisely how it should target its marketing messages. No other market player has ‗driver happiness‘ as its USP. By building on the understanding derived from the SWOT, Škoda UK has given new impetus to its campaign. At the same time, the campaign has addressed the threat of external competition by setting Škoda apart from its rivals. Conclusion Škoda is a global brand offering a range of products in a highly competitive and fragmented market. The company must respond positively to internal and external issues to avoid losing sales and market share. A SWOT analysis brings order and structure to otherwise random information. The SWOT model helps
    • managers to look internally as well as externally. The information derived from the analysis gives direction to the strategy. It highlights the key internal weaknesses in a business, it focuses on strengths and it alerts managers to opportunities and threats. Škoda was able to identify where it had strengths to compete. The structured review of internal and external factors helped transform Škoda UK‘s strategic direction. The case study shows how Škoda UK transformed its brand image in the eyes of potential customers and build its competitive edge over rivals. By developing a marketing strategy playing on clearly identified strengths of customer happiness, Škoda was able to overcome weaknesses. It turned its previously defensive position of the brand to a positive customer-focused experience. The various awards Škoda has won demonstrate how its communications are reaching customers. Improved sales show that Škoda UK‘s new strategy has delivered benefits. Answer the 1. What was the key weakness that Škoda was able to identify? 2. What strength did Škoda use to turn its brand weakness into an opportunity? 3. How has Škoda strategically addressed external threats? 4. What in your view are the important benefits of using a SWOT analysis Case-3 : Marketing strategy for growth Introduction Businesses must respond to change in order to remain competitive. Developing appropriate strategies which allow them to move forward is essential. Wilkinson is a prime example of a business that has responded to changing customer needs throughout its history. It is one of the UK‘s long-established retailers of a wide range of food, home, garden, office, health and beauty products.James Kemsey (JK) Wilkinson opened his first Wilkinson Store in Charnwood Street, Leicester in 1930. After the Second World War, the 1950s saw a rise in the use of labour-saving devices and DIY. Wilkinson responded by making this type of product the focus of its sales. In the 1960s customers wanted more convenience shopping. Wilkinson started selling groceries and supermarket goods and created the Wilko brand. In the 1980s Wilkinson extended its range of low-cost products to include quality clothing, toys, toiletries and perfumes. In 1995 it opened a central distribution centre in Workshop, serving stores in the north of England and in 2004, a new distribution centre opened in Wales. In 2005 Wilkinson launched its Internet shopping service, offering over 800,000 product lines for sale online. Wilkinson currently has over 300 stores, which carry an average of 25,000 product lines. 40% of these are Wilko ‗own-brand‘ products. The company‘s target is to see this element grow and to have over 500 stores by 2012. Wilkinson‘s growth places it in the top 30 retailers in the UK. Recently it has faced increasing challenges from competitors, such as the supermarket sector. Wilkinson needed to combat this and identify new areas for growth. Over two years it conducted extensive market research. This has helped it create a marketing strategy designed to continue growing by targeting a new market segment - the student population. This case study focuses on how Wilkinson created and implemented this strategy, using the findings of its market research to drive the strategy forward. Marketing strategy aims to communicate to customers the added-value of products and services. This considers the right mix of design, function, image or service to improve customer awareness of the business‘ products and ultimately to encourage them to buy. An important tool for helping develop an appropriate marketing strategy is Ansoff‘s Matrix. This model looks at the options for developing a marketing strategy and helps to assess the levels of risk involved with each option. Marketing strategies may focus on the development of products or markets. Doing more of what a business already does carries least risk; developing a completely new product for a new audience carries the highest risk both in terms of time and costs. Based on its research, Wilkinson committed to a market development strategy to sell its products to a new audience of students. This is a medium risk strategy as it requires the business to find and develop new customers. It also carries costs of the marketing campaigns to reach this new group. The main focus of the strategy was to increase awareness of the brand among students and encourage them to shop regularly at Wilkinson stores. Market research Market research is vital for collecting data on which to base the strategy. Market research takes one of two main forms – primary research and secondary research. Primary research (also called field research) involves collecting data first hand. This can take many forms, the main ones being interview, questionnaires, panels and observation. Secondary research (also called desk research) involves collecting data which already exists. This includes using information from reports, publications, Internet research and company files. Both methods have advantages and disadvantages. The advantages of primary research are that it is recent, relevant and designed specifically for the company‘s intended strategy. The main disadvantage is that it is more expensive than secondary research and can be biased if not planned well. Secondary
    • research is relatively cheap, can be undertaken quickly and so enables decision-making sooner. However, secondary research can go out-of-date and may not be entirely relevant to the business‘ needs. Wilkinson undertook primary market research using questionnaires from students across the UK and secondary research using government and university admissions data. The statistics revealed that there were three million potential student customers. They had a combined annual spend of around £9 billion per year. This research confirmed that the choice of focusing on the student market as a means of growth was valid. Wilkinson undertook further research to identify how to reach students and persuade them to start shopping at Wilkinson stores. This information was used to formulate a focus strategy. This was aimed specifically at the needs of the student ‗market segment‘. Marketing to students Wilkinson involved 60 universities in research, using questionnaires distributed to students initially in Years 2 and 3 of a range of universities and then to ‗freshers‘ (new students) through the University and Colleges Admission Service. This ensured the widest range of students was included to eliminate bias. It also gave a wide range of responses. From this initial group, students were asked a second set of questions. Participants were rewarded with Amazon vouchers to encourage a good take-up. The research focused on two areas: 1. student awareness of the Wilkinson brand and 2. reasons why students were currently not using the stores regularly. The market research enabled Wilkinson to put together its marketing strategy. The aim was to ensure the student population began shopping at Wilkinson stores early in their student experience. This would help to maintain their customer loyalty to Wilkinson throughout their student years and also to develop them as future customers after university. Repeat business is key to sustained growth. Wilkinson wanted to create satisfied customers with their needs met by the Wilkinson range of products. A marketing campaign was launched which focused on a range of promotional tactics, specifically designed to appeal to university students: • Wilkinson being present at freshers‘ fairs – and giving free goody bags with sample products directly to students • direct mail flyers to homes and student halls, prior to students arriving • advertisements with fun theme, for example, showing frying pans as tennis racquets • web banners • offering discounts of 15% with first purchase using the online store • gift vouchers • free wallplanners. The challenge was to get students into Wilkinson stores. The opportunity was to capture a new customer group at an early stage and provide essential items all year round. This would lead to a committed customer group and secure repeat business. Outcomes/evaluation Wilkinson wanted to know what would inspire students to shop at Wilkinson more and what factors would help to attract non-customers. The research provided significant primary information to analyse the effects of the campaign. Wilkinson used questionnaires collected from the first year undergraduates to gather qualitative data. In addition, Wilkinson obtained quantitative data from various other sources, including: • redemption rates – how many people used the discount vouchers when buying • sales analysis – how much extra business did the stores handle • footfall in stores analysis – how many extra people went into stores. This information helped Wilkinson to develop its plans for future marketing campaigns. It identified Motivation factors for the student audience which would help to encourage future purchase. Key factors included products being cheaper than competitors and easy access to stores. 23% of students questioned gave ‗distance from university‘ as a reason for not regularly visiting the store. The layout of the store was another major problem affecting repeat visits. These findings have been taken on board by Wilkinson in its future planning of store locations and layouts. Researching students‘ opinions after the campaign showed that: • Awareness of Wilkinson brand had significantly risen from 77% to 95% of those interviewed. This brought it in line with Morrison supermarkets, a key competitor. Conclusion Wilkinson‘s marketing strategy began with its corporate aim to grow and increase stores across the UK. It was facing increased competition from supermarkets and needed to identify an area to focus on. To pursue a growth strategy, Wilkinson used market research to identify new target customers. This enabled it to prepare marketing strategies to fit the audience. Primary and secondary research was used to find out customer views regarding its brand. Data indicated
    • the student market segment was a significant area to focus on to achieve market development. A marketing campaign using data from a follow-up survey was put in place. The campaign showed significant increase in students‘ levels of awareness about Wilkinson and its products. It encouraged them either to shop more or to try Wilkinson for the first time. The campaign helped to achieve many of the business‘ aims, creating increased brand awareness and repeat visits. It also helped to inform the company‘s future strategies for growth. Market research gathered will help to formulate future plans for new stores. These will be in line with Wilkinson commitment to providing communities with affordable products across the country. Answer the following questions 1. What is the difference between primary and secondary research? Identify one example of primary and secondary research carried out by Wilkinson. 2. Explain why Wilkinson needed a marketing strategy to help them to grow. 3. Evaluate the benefits of the marketing campaign to Wilkinson. 4. Analyse how effective the marketing campaign was in helping Wilkinson respond to competitive pressures. Case-4 : Extending the product life cycle Introduction Businesses need to set themselves clear aims and objectives if they are going to succeed. The Kellogg Company is the world‘s leading producer of breakfast cereals and convenience foods, such as cereal bars, and aims to maintain that position. In 2006, Kellogg had total worldwide sales of almost $11 billion (£5.5 billion). In 2007, it was Britain‘s biggest selling grocery brand, with sales of more than £550 million. Product lines include ready-to-eat cereals (i.e. not hot cereals like porridge) and nutritious snacks, such as cereal bars. Kellogg‘s brands are household names around the world and include Rice Krispies, Special K and Nutri-Grain, whilst some of its brand characters, like Snap, Crackle and Pop, are amongst the most wellknown in the world. Kellogg has achieved this position, not only through great brands and great brand value, but through a strong commitment to corporate social responsibility. This means that all of Kellogg‘s business aims are set within a particular context or set of ideals. Central to this is Kellogg‘s passion for the business, the brands and the food, demonstrated through the promotion of healthy living. The company divides its market into six key segments. Kellogg's Corn Flakes has been on breakfast tables for over 100 years and represents the ‗Tasty Start‘ cereals that people eat to start their day. Other segments include ‗Simply Wholesome‘ products that are good for you, such as Kashi Muesli, ‗Shape Management‘ products, such as Special K and ‗Inner Health‘ lines, such as All-Bran. Children will be most familiar with the ‗Kid Preferred‘ brands, such as Frosties, whilst ‗Mum Approved‘ brands like Raisin Wheats are recognised by parents as being good for their children. Each brand has to hold its own in a competitive market. Brand managers monitor the success of brands in terms of market share, growth and performance against the competition. Key decisions have to be made about the future of any brand that is not succeeding. This case study is about Nutri-Grain. It shows how Kellogg recognised there was a problem with the brand and used business tools to reach a solution. The overall aim was to re-launch the brand and return it to growth in its market. The product life cycle Each product has its own life cycle. It will be ‗born‘, it will ‗develop‘, it will ‗grow old‘ and, eventually, it will ‗die‘. Some products, like Kellogg‟s Corn Flakes, have retained their market position for a long time. Others may have their success undermined by falling market share or by competitors. The product life cycle shows how sales of a product change over time. The five typical stages of the life cycle are shown on a graph. However, perhaps the most important stage of a product life cycle happens before this graph starts, namely the Research and Development (R&D) stage. Here the company designs a product to meet a need in the market. The costs of market research - to identify a gap in the market and of product development to ensure that the product meets the needs of that gap - are called ‗sunk‘ or start-up costs. Nutri-Grain was originally designed to meet the needs of busy people who had missed breakfast. It aimed to provide a healthy cereal breakfast in a portable and convenient format. 1. Launch - Many products do well when they are first brought out and Nutri-Grain was no exception. From launch (the first stage on the diagram) in 1997 it was immediately successful, gaining almost 50% share of the growing cereal bar market in just two years. 2. Growth - Nutri-Grain‟s sales steadily increased as the product was promoted and became well known. It maintained growth in sales until 2002 through expanding the original product with new developments of flavour and format. This is good for the business, as it does not have to spend money on new machines or equipment for production. The market position of Nutri-Grain also subtly changed from a ‗missed breakfast‘ product to an ‗all-day‘ healthy snack. 3. Maturity - Successful products attract other competitor businesses to start selling similar products.
    • This indicates the third stage of the life cycle - maturity. This is the time of maximum profitability, when profits can be used to continue to build the brand. However, competitor brands from both Kellogg itself (e.g. All Bran bars) and other manufacturers (e.g. Alpen bars) offered the same benefits and this slowed down sales and chipped away at Nutri-Grain‟s market position. Kellogg continued to support the development of the brand but some products (such as Minis and Twists), struggled in a crowded market. Although Elevenses continued to succeed, this was not enough to offset the overall sales decline. Not all products follow these stages precisely and time periods for each stage will vary widely. Growth, for example, may take place over a few months or, as in the case of Nutri-Grain, over several years. 4. Saturation - This is the fourth stage of the life cycle and the point when the market is ‗full‘. Most people have the product and there are other, better or cheaper competitor products. This is called market saturation and is when sales start to fall. By mid-2004 Nutri-Grain found its sales declining whilst the market continued to grow at a rate of 15%. 5. Decline - Clearly, at this point, Kellogg had to make a key business decision. Sales were falling, the product was in decline and losing its position. Should Kellogg let the product ‗die‘, i.e. withdraw it from the market, or should it try to extend its life? Strategic use of the product life cycle When a company recognises that a product has gone into decline or is not performing as well as it should, it has to decide what to do. The decision needs to be made within the context of the overall aims of the business. Kellogg‘s aims included the development of great brands, great brand value and the promotion of healthy living. Strategically, Kellogg had a strong position in the market for both healthy foods and convenience foods. Nutri-Grain fitted well with its main aims and objectives and therefore was a product and a brand worth rescuing. Kellogg decided to try to extend the life of the product rather than withdraw it from the market. This meant developing an extension strategy for the product. Ansoff’s matrix is a tool that helps analyse which strategy is appropriate. It shows both market-orientated and product-orientated possibilities. Extending the Nutri-Grain cycle – identifying the problem Kellogg had to decide whether the problem with Nutri-Grain was the market, the product or both. The market had grown by over 15% and competitors‘ market share had increased whilst Nutri-Grain sales in 2003 had declined. The market in terms of customer tastes had also changed – more people missed breakfast and therefore there was an increased need for such a snack product. The choice of extension strategy indicated by the matrix was either product development or diversification. Diversification carries much higher costs and risks. Kellogg decided that it needed to focus on changing the product to meet the changing market needs. Research showed that there were several issues to address: 1. The brand message was not strong enough in the face of competition. Consumers were not impressed enough by the product to choose it over competitors. 2. Some of the other Kellogg products (e.g. Minis) had taken the focus away from the core business. 3. The core products of Nutri-Grain Soft Bake and Elevenses between them represented over 80% of sales but received a small proportion of advertising and promotion budgets. 4. Those sales that were taking place were being driven by promotional pricing (i.e discounted pricing) rather than the underlying strength of the brand. Implementing the extension strategy for Nutri-Grain having recognised the problems, Kellogg then developed solutions to re-brand and re-launch the product in 2005. 1. Fundamental to the re-launch was the renewal of the brand image. Kellogg looked at the core features that made the brand different and modelled the new brand image on these. Nutri-Grain is unique as it is the only product of this kind that is baked. This provided two benefits: • the healthy grains were soft rather than gritty • the eating experience is closer to the more indulgent foods that people could be eating (cakes and biscuits, for example). The unique selling point, hence the focus of the brand, needed to be the ‗soft bake‘. 2. Researchers also found that a key part of the market was a group termed ‗realistic snackers‘. These are people who want to snack on healthy foods, but still crave a great tasting snack. The re-launched Nutri-Grain product needed to help this key group fulfil both of these desires. 3. Kellogg decided to re-focus investment on the core products of Soft Bake Bars and Elevenses as these had maintained their growth (accounting for 61% of Soft Bake Bar sales). Three existing Soft Bake Bar products were improved, three new ranges introduced and poorly performing ranges (such as Minis) were withdrawn. 4. New packaging was introduced to unify the brand image. 5. An improved pricing structure for stores and supermarkets was developed. Using this information, the re-launch focused on the four parts of the marketing mix: • Product – improvements to the recipe and a wider range of flavours, repositioning the brand as
    • ‗healthy and tasty‘, not a substitute for a missed breakfast • Promotion – a new and clearer brand image to cover all the products in the range along with advertising and point-of-sale materials • Place – better offers and materials to stores that sold the product • Price – new price levels were agreed that did not rely on promotional pricing. This improved revenue for both Kellogg and the stores. As a result Soft Bake Bar year-on-year sales went from a decline to substantial growth, with Elevenses sales increasing by almost 50%. The Nutri-Grain brand achieved a retail sales growth rate of almost three times that of the market and most importantly, growth was maintained after the initial re-launch. Conclusion Successful businesses use all the tools at their disposal to stay at theSuccessful businesses use all the tools at their disposal to stay at the top of their chosen market. Kellogg was able to use a number of business tools in order to successfully re-launch the Nutri-Grain brand. These tools included the product life cycle, Ansoff‘s matrix and the marketing mix. Such tools are useful when used properly. Kellogg was able to see that although Nutri-Grain fitted its strategic profile – a healthy, convenient cereal product – it was underperforming in the market. This information was used, along with the aims and objectives of the business, to develop a strategy for continuing success. Finally, when Kellogg checked the growth of the re-launched product against its own objectives, it had met all its aims to: • re-position the brand through the use of the marketing mix • return the brand to growth • improve the frequency of purchase • introduce new customers to the brand. Nutri-Grain remains a growing brand and product within the Kellogg product family. Answer the following questions: 1. Using current products familiar to you, draw and label a product life cycle diagram, showing which stage each product is at. 2. Suggest appropriate aims and objectives for a small, medium and large business. 3. Consider the decision taken by Kellogg to opt for product development. Suggest a way in which it could have diversified instead. Justify your answer. Investment Analysis Management CASE STUDY 1 (Marks 20) Downloaded Data of Bank of Baroda and HDFC Bank from of last 11 years has been summarized as follows. You are required to analyze the data using appropriate statistical tools, interpret the results and provide necessary advice to the investors as research analyst. Close Close Sr.No Date Symbol Price Symbol Sr.No Date Price 1 1-Apr-97BANKBARODA 56.75 HDFCBANK 1 1-Apr-97 46.45 2 1-Apr-98BANKBARODA 108.35 HDFCBANK 2 1-Apr-98 72.8 3 1-Apr-99BANKBARODA 45 HDFCBANK 3 1-Apr-99 67.6 4 3-Apr-00BANKBARODA 47.4 HDFCBANK 4 3-Apr-00 247.15 5 30-Mar-01BANKBARODA 60.45 HDFCBANK 5 2-Apr-01 223.15 6 1-Apr-02BANKBARODA 50.45 HDFCBANK 6 1-Apr-02 233.65 7 1-Apr-03BANKBARODA 86.45 HDFCBANK 7 1-Apr-03 234.3
    • 8 1-Apr-04BANKBARODA 250.45 HDFCBANK 8 1-Apr-04 384.35 9 1-Apr-05BANKBARODA 221.85 HDFCBANK 9 1-Apr-05 551.55 10 3-Apr-06BANKBARODA 232.95 HDFCBANK 10 3-Apr-06 773.85 11 30-Mar-07BANKBARODA 215.05 HDFCBANK 11 30-Mar-07 954.15
    • CASE STUDY 2 (20 Marks) Given below are the returns on the three stocks Supertex, Colourtex and Wivetex for a four year period. Compute the average returns, variance and standard deviation if a portfolio is constructed such that the stock has lowest standard deviation accounts for 50% of the funds, a stock having the next lowest standard deviation accounting for 30% and the third stock accounting for 20% of the funds. Period ( Years) Annual Returns (%) Supertex Colourtex Wivetex 1 10 11 8 2 12 9 12 3 14 13 9 4 16 17 15 CASE STUDY 3 (20 Marks) Pruthvi Hardware Ltd. Invested on 1-04-2006 in equity shares as below:- Company Number of Shares Cost (Rs.) Mafatlal .Ltd. .1000 (Rs.100 Each) 2,00,000 Natraja Pencil Ltd. 500 (Rs.10 each) 1,50,000. In September 2006, Mafatlal Ltd. Paid 10% dividend and in October, 2006 Nataraj Ltd. Paid 30% dividend. On 31-3-2007, market price of shares of Mafatlal Ltd. And Nataraj Ltd. Were Rs.220 and Rs.290 respectively. Pruthvi Hardware ltd. have been informed by their investment advisor that :-
    • 6. Dividend s from Mafatlal L Ltd. And Nataraj Ltd. For the year ending 31-03-2008 are likely to be 20% and 35% respectively. You are required to 9. Calculate the average return from the portfolio for the year ended 31-03-2007. 10. Advice P Ltd. Of the comparative risk of two investments by calculating the standard deviation in each case. CASE STUDY 4 (20 Marks) A) The following table provides details about three mutual fund portfolios. Find out the Sharpe, Treynor and Jensen Index and rank them. What are your suggestions to the investors? (10 Marks) Portfolio Return on Standard Deviation Beta Portfolio Equity Fund 26 12 1.25 Mid Cap 40 10 0.80 Fund Infra – Fund 24 14 1.40 Market Index 18 1.00 Risk Free Rate of Return : 6% 1. The beta of Equity fund is higher than the Beta of Mid Cap fund but the returns are higher in Mid Cap Fund than Equity Fund. Do you agree with this statement? If yes, explain with reasonable examples. 2. The beta of Infra – Fund is the highest among all three fund but the returns is the lowest among all three fund. Explain with reasonable examples.
    • B) Share of HDFC and BANK of Baroda display the following returns over the past two years:- (10 Marks) YEAR HDFC BANK OF BARODA First Year 232 775 Second Year 215 955 1) What is the expected return on a portfolio made up of 40% of Pepsi and 60% of Coca-Cola? 2) What is the standard deviation of each share? 3) What is the covariance of Share of Pepsi and Coca-Cola? 4) What is the correlation coefficient? 5) Interpret the results in each case and advice the investors for investment decision? LABOUR LAW (Marks 80) CASE 1 : (30 Marks) Trade Unions in the TNC Supply Chain and their relationship with the CSR movement Chinese enterprises are essentially passive players at the sharp end of CSR in China. They are in a position of having to juggle between the different factors governing the development of industrial relations in China, including trade union reform. In this often tense dynamic, CSR is seen as an external factor and trade unions an internal factor. These two factors have an impact on each other. As part of the research for this case study, the research team (RT) ‗shadowed‘ a CSR audit. The factory had come under very heavy CSR pressure in 2004. Altogether, the RT carried out two investigations: in March (see earlier printed report) and August 2006 Initial conclusions: 1) That factories undergoing CSR audits have better working conditions than those that don‘t. 2) There is no evidence to suggest that trade unions have an impact on wage levels at enterprise level. However, factories subject to CSR pressure are generally large workplaces and this was perhaps a factor in improving labour conditions. Moreover, CSR-targeted factories are prone to data distortion due to ‗training of workers‘ answers‘ in interview and double or even triple accounting. Enterprise Y was established in 1997 and now has 1,200 workers. It was ‗Re-registered‘ in 2002 to take advantage of tax breaks etc. It manufactures electronic goods for export chiefly to three retailers and over 50% of goods go to a single US company. Employment breakdown: 80 managers, 300 skilled workers; remainder are ordinary workers. Managers and skilled workers have contracts and social insurance based on minimum legal standards. The extent of contracts among unskilled workers remains unclear. The enterprise had previously AN ISO 9001 : 2008 CERTIFIED INTERNATIONAL B-SCHOOL 2 supplied a ‗comprehensive‘ contract and social insurance list to CSR audit team (excluding probationary workers) but the RT‘s interviews with workers revealed that many had no idea if they had a contract or not or if they were paying into various social insurance schemes such as work injury or pensions. The RT was not given access to formal SI contribution records. Wages were verified at between 900-1100 yuan per month with on average more than 60 hours o/t but this was subject to orders. There were few disputes and conditions generally were better than at surrounding factories. Up until Aug 2006 accommodation was free and reasonably good. The labour
    • turnover rate for unskilled workers was just 8% and most workers had been there more than two years already. However, in the same period the labour turnover rate for skilled workers had increased dramatically. Enterprise Trade Union Established in 2004. Trade union chair M directly elected by workers, largely as a result of pressure from the Brand. By August the follow-up research revealed M had left, apparently for ‗personal reasons‘ according to management. Former vice chair C had taken over his position. C‘s previous experience had been as a member of a trade union committee in an SOE trade union. He was appointed to the post at Y. The local township union said that there would be fresh union elections ‗soon‘. The trade union at Y had three other union committee members. All were mid or senior level managers: human resources manager, one an engineer, and a finance manager. The union had an office in the enterprise but has no bank account or independent accounts/expenses system. All union activities were entirely dependent on management transferral of funds. Trade Union Work Approach to union work very similar to work in SOEs – i.e. very traditional. Also the union works very closely with the township union and pretty much depends on it for policy etc. The latter is very pleased with the Y union, which has received a number of awards. Activities include labour productivity competitions, May Day competitions. Prizes include going on holiday to HK. Examples of general day union work included:  Management introduced a charge for canteen food. The service had been franchised to outside contractors. In response the union organised a small group (xiao zu) which negotiated with the company and succeeded in getting the food and food hygiene situation improved.  Dormitory Management Team: made up of company reps and worker reps. Aim was to selfmanage the dormitories and avoid management imposing arbitrary fines on workers. The committee‘s work was based on a ‗Dormitory Management Contract‘ which the union drew up. Any fines imposed had to be in accordance with the contract and workers reported an improvement in the overall dormitory conditions. 3 Union representing workers in wage consultations The union was very proud of this aspect of its work. Wages stipulated in contracts were 574 yuan per month – however the real income of workers varied between 900 and 1100 per month due to o/t. On 1 September 2006 – the government introduced new standards for min. wage which were reset at 690 yuan per month, which at current contract and o/t levels in the factory would mean a 300 yuan per month wage increase. Company provided figures which made it clear that if they abided by the wage increase in current market conditions they would go bust. Y‘s HR department presented a proposal saying that Y should meet new min. wage requirements but cancel food and board subsidy. However, this would break contracts with workers in which the company agreed to supply food and dormitory accommodation. Management consulted with local government and township trade union and decided to try and solve the problem through consultations with enterprise union. RT investigation found that the consultation did not follow either the regulations on collective consultations on wages, nor did they constitute a collective contract. Instead: Workers Rep meeting called by boss: mostly production managers but also a small number of line workers present who were appointed as ‗reps‘ by the trade union chair. RT observed this meeting and also provided legal advice to worker reps. At the meeting was a deputy managing director and the two managers from the union committee. Meeting procedures and presentations recorded in report – worker reps presented with an ultimatum regarding bankruptcy plus threat of dismissal from HR dep. for anyone who did not agree with the cancellation of free food and board. Trade union said: it wanted the new min. wage standard met; new charges for food and board should be reasonable and include a self management team for dormitory. Union also called for further consultation with members. Not much feedback from members. Union held further talks with senior company managers. This led to the Method of New wage Management. New charges 200 for dorm and 60 for food, a rate below market prices but reduced the wage rise itself to between 40-60 yuan. RT interviews with workers showed that most workers agreed with the new arrangements. A minority felt that they had been cheated. All signed the new agreement and anyone who refused was told their contracts would not be renewed. CSR audit RT shadowed and at times provided translation for a social audit team. Despite the professionalism of
    • the audit team, their task to report actual conditions at the factory was essentially a failure. The audit team asked that the factory management bring o/t levels down to legal levels, although they also expressed an understanding of local conditions and stated that workers were able to take adequate rest time despite high levels of overtime. No workers expressed dissatisfaction with pay and conditions directly to audit team. The audit team also had an extensive meeting with trade union chair who told them that the new wage levels had been met but did not mention the introduction of dormitory and canteen charges. The audit team also asked that a dispute mediation committee be established at factory level as well as warning management that a complaints system for workers should be implemented as soon as possible. Also discussions over whether the deposit that the factory demanded for work uniform was an illegal job deposit. Audit team agreed that it wasn‘t. 4 Audit team did not discover the fact that some workers who did not meet piece rate targets had to complete quotas in their own time – up to 1-2 hours per day! The trade union chair had told workers it was in their interests to lie to audit team over working hours as trained to do so by enterprise management. He was under no pressure to take this line from the enterprise itself. Discussion:  Organisation of the trade union was from CSR pressure not pressure from workers i.e. in effect top down. 2004 US client retailer had cancelled an order due to working conditions and this had caused losses.  Union operated in a cooperative manner with management not confrontational.  With regard to a workers‘ complaints and mediation system. The US client did not believe it to be true when management had told them there were no disputes with or among the workers. The real situation was that the union had not taken part in any disputes. RT checked with the MOLSS and found that a dispute had occurred following a death in the dormitory. Management denied it was due to a work injury and police ruled out criminal behaviour. Eventually MOLSS brokered compensation with family and Y enterprise. No details made available. However, RT concluded from this dispute that the company did not have an injury compensation scheme for workers. If they did have, the settlement would have been between the dead worker‘s family and the insurance company.  Audit ream did not discover that the HR department pressured workers to hand in their notice when they wanted to cut staff levels rather than simply lay them off. This was to avoid compensation. The union also kept silent on this.  The wage negotiation process was entirely non-confrontational except for HR attitude to the workers, who were threatened with dismissal if they objected to concluding the agreement.  The union helped the enterprise and the brand find an easy way out of the wage dilemma. It did not ‗represent‘ the workers in this process. Questions : 1. What is the experience of China about Trade Union in the above mentioned case? 2. How Trade Union resolved the dispute? By confrontation or by negotiations? 3. What is the general impression about the Trade Union movement with reference to this case? 4. Give your comments and opinion 5 CASE 2 (30 Marks) Acas and Essex Ambulance Service NHS Trust: Improving consultation and working patterns. The Challenge Essex Ambulance Service (EAS) is an organisation dealing with unscheduled care,predominantly accessed via 999 calls. It was established as an NHS Trust in 1990 and employs around 1,300 people who are primarily members of two unions, Unison and the GMB. The Trust had two inter-related problems. Firstly, relations between management and unions had deteriorated after a national ambulance dispute in 1989. Trade unions did not have recognition at the Trust, and a trade union representative described the management-union relationship throughout the 1990s as ―arms-length‖ and ―fairly tense‖. During this time, trade union involvement was restricted to representatives attending health and safety committees and representing union members during individual disputes. Consultation
    • between management and the workforce was nonexistent, and this was due in part to the management style of the organisation. A JNCC (joint negotiation and consultation committee) was established at the unions‘ insistence, but it was largely ineffective. Decisions made at the JNCC were often overturned or ignored by the Chief Executive Officer (CEO), thereby damaging the committee‘s credibility, and the CEO had no involvement in the committee. This contributed to a second problem: a failure to respond to different staff interests by modernising working arrangements for part-time and relief staff. These workers were unable to influence their work roster and shift patterns to the same extent as full-time and longer serving staff. And because of a lack of consultation mechanisms, it was proving difficult to agree on strategies that would mutually resolve the problem. The Trust eventually recognised trade unions in 1999. In 2002, following the departure of key managers who had resisted engaging in joint consultation, trade union representatives, supported by management, contacted Acas for help in addressing these problems and improving the employment relations climate. Acas was approached, according to the HR manager, because it was seen as ―independent, and expert around this area‖. How Acas helped In October 2002 the Acas adviser met with management and trade unions to develop two sets of workshop programmes, each addressing the issues identified as problems. Two initial workshop sessions were held to discuss rostering issues. The Acas adviser led these workshops, using techniques to break down barriers between participants, including splitting them into mixed (management-trade union) groups to work on problems and design solutions. Throughout the workshops, the adviser also profiled examples of how problems were resolved in other organisations she had worked with.By the end of the first workshop a number of recommendations were developed, including the need to have clear principles driving consultation, the need for a review of the roster system, and the need to have stronger informal ties between key managementunion players. The Acas adviser then put together a report based on the ideas and suggestions 6 generated at the workshop, and these were discussed at a further workshop, at which participants ratified and agreed a new system of rosters. ‗Break-out groups‘ addressed problems in a way that included the voice of all parties, and stakeholders and the adviser also worked with specific sub-groups of staff – for example relief workers (who fill in for workers on holiday or sick leave) – to tackle particular rostering problems and design improved working practices. The adviser organised a subsequent facilitated workshop in early 2003, attended by key Trust managers and union groups. Its aim was to establish the purpose of the JNCC and its terms of reference. Whilst no formal output emerged from the workshop, participants felt that it had formed the basis for the renewal of the forum. The HR manager described the imperatives driving this initiative: “… bear in mind we‟re coming from a stance where the unions weren‟t involved in negotiation at all … We‟re moving towards Agenda for Change now and that‟s very much about partnership working with staff-side. So we wanted to make sure that the JNCC had the right terms of reference and was going to be working effectively for both sides to benefit.” The benefits: improved consultation and working patterns: A range of positive outcomes flowed from Acas‘ involvement at the Trust, with management and trade union representatives emphasising their significance in light of the relationship difficulties and low levels of trust at the Trust during the 1990s. Firstly, the JNCC has become a central feature of employment relations at the Trust. It now functions effectively, partly as a result of good informal relations between key trade union representatives and HR managers. The Committee has provided a vehicle for regular management-trade union dialogue on a wide variety of issues, including work-life balance and flexible working. The JNCC has also become a crucial medium for discussions around Agenda for Change. Secondly, in terms of work rosters, there is a new system that accommodates the interests of both full-time staff and those on a variety of different contracts. Employees who formerly had little advance knowledge of when they were working can now plan their rest days more clearly. In facilitating changes in working patterns, the Acas project has brought part-time staff closer to the strategic concerns of the Trust. This has meant that human resource planning is clearer and more consensual in nature, and levels of commitment from part-time staff are, according to trade union representatives, higher than in the past. Thirdly, the process of improving consultative mechanisms and the roster system has helped build relationships between management and union representatives, enabling them to develop other new
    • practices relating to, for example, meal breaks and work-life balance initiatives. A joint approach has also been taken to managing the implementation of Agenda for Change, with trade union representatives reporting that they now feel that they have some ownership over its development. There are now ‗joint management-union chairs‘ for sub-groups, including Agenda for Change subgroups, each tackling a variety of new issues and reforms. These new issues are approached in a very different way to the past, when the level of dialogue was virtually non-existent. There are still differences and problems, but the new framework has sustained a high degree of joint working. Central to this has been the strong explicit commitment and support for consultative mechanisms from the union and senior management, including the interim CEO, who chaired the JNCC. As one trade union representative explained: “(The Acas project) has built a foundation to move forward on the working lives for our relief staff, for full time staff. And we‟ve now got the JNCC firmly established as the main staff conduit to the head of the organisation on a formal basis.” 7 According to HR managers and trade union representatives, longer term benefits of Acas involvement have become evident over the last two years. These include increased levels of trust between employees, unions and managers, and improved formal and informal workplace relations. Trade union representatives and managers now speak to each other openly and constructively, and improvements to operational systems and practices are the subject of consultation and dialogue to a much greater extent than in the past. Such is the nature of the turnaround that Trust managers and union representatives are often called upon to provide advice to other Trusts who are attempting to improve employer-trade union relationships. Questions:- 1. Give the brief history of the above mentioned case study 2. What was the problem? How it was resolved? 3. What was the effect of solution on the unit‘s mechanism? 4. What is the message ? 8 CASE 3 (20 Marks) Changing role of trade unions The curtain has at last come down on one of the most famous marquees in the motorcar industry, with MG Rover finally shutting down production earlier this month. A company that once employed 40,000 people in the British Midlands, with an equal number employed in the factories of suppliers, had been forced to scale down its operations over the years. But even skeletal operations with 4,000 people has now ceased. It is an example of what destructive trade unionism can do to an industry. Arthur Scargil in the 1980s set out to destroy industry in the Midlands with his brand of militant and destructive trade unionism. Finally Mrs Thatcher stood up to him and showed him the limits to which trade unions could push industry. She privatised industries and Scargil lost his power base, which was mainly in public sector heavy industries. Successive governments in Britain after Mrs Thatcher have refused to bail out public sector undertakings with subsidies and grants. This has resulted in Britain transforming itself from being the sick man of Europe to one of the more dynamic economies in the West. In India too we have had examples of the Arthur Scargil brand of trade unionism. What Datta Samant did to the cotton textile and engineering industries in Mumbai was equally devastating. Almost all the textile mills in the city closed because of the unreasonable demands made by trade unions under Datta Samant. India has the advantages of (a) growing both long staple and short staple cotton and (b) a huge domestic market. We could have been the cotton textile source for the whole world. But battling militant trade unions, on the one hand, while coping with price controls imposed by unimaginative governments and textile quotas imposed by foreign governments, on the other, proved too much for our textile industry. It did not have the necessary financial and managerial resources, and it failed to modernize and remain competitive in terms of quality and cost. So it declined and became terminally ill. Trade unions are a legitimate system for organizing workers and to voice their rights and grievances. Without them companies would become either too paternalistic or too dictatorial. Responsible unions help to create a middle path in the relationship between management and labour while maintaining the responsibilities of the former and the dignity of the latter. Where things go wrong is when the management becomes authoritarian, especially in owner/familymanaged
    • companies, or when a trade union leader allows emotion and ego to overcome reason. 9 Fortunately today, workers have become better informed and aware of the economic forces that impact their industry. The media has helped to create much greater economic awareness. So it is not so easy to mislead them. Managements too have become more sensitive and skilled in handling relationships with employees. This is true of even family-owned and managed businesses. TVS [Get Quote] in the South is a prime example of how a large family-managed industrial group has successfully managed its relationship with employees through enlightened management. There are more such examples in other parts of the country. Perhaps the labour departments of governments at the state and the Centre should sponsor the institutes of management to do case studies of companies that have built up such successful relationships. Instead of merely administering rules and labour laws, these government departments could also act as apostles of good practices in the field. As the skill levels and educational qualifications of employees advance, the role and significance of trade unions tend to diminish. This is because (a) employees are able to represent their own case and (b) managements are more sensitive to the needs of individual employees, whose intellectual skills become almost uniquely valuable. This is already happening in the sunrise industries based on brainpower such as IT and telecommunications. Another phenomenon in these modern industries is that employees have greater opportunity and tendency to move from one company to another, not only because of better terms of employment but also because of their yearning to learn new skills. This appetite for learning is something remarkable, especially in the IT industry. In fact, people in that industry are more bothered about what they can learn in a company than about how much they earn. This phenomenon is facilitated by the fact that there are plenty of employment opportunities in IT and it is a young industry. That is why one does not notice any union flags in the Silicon Valley of India/Bangalore's Electronic City. Trade unions have declined in their importance even in the UK, the original home of trade unions. The UK's Labour Party was formed by socialist leaders of trade unions. Today, Tony Blair does not have to depend on trade unions as much as his predecessors had to do in the 1980s and 90s. The Labour Party's appeal to the public is based on key policy issues such as spending on the National Health Service and the education system, rather than anything to do with labour policy. In the US, trade unions are powerful in negotiations with individual employers, but have no significant political clout although they generally support the Democratic Party. The same is the case in Japan. Even in Germany, France, and Italy, the role of trade unions has become more focused on negotiations with employers rather than on politics. The privatization or corporatisation of many public services such as electricity and water supply has accelerated this shift. Hopefully the same shift in the character and role of trade unions will happen in 10 India -- even in places like Kerala and Bengal, as employment starts to move to more intellect-based activities and public sector industries are privatized. Responsible trade union leaders with a long-term vision will adapt their policies to suit the new realities. Correspondingly, there has also been a change in the attitude of management, even in familymanaged companies. They are now better educated and many of them have been exposed to international education and international markets. They realise the dignity of human beings more than their previous generation and therefore are less prone to treat employees in a scurvy manner. More and more companies are investing in management training and development. This has also helped to create much better awareness of the aspirations of workmen, among the managers. Yet the last vestiges of negative union practices continue to persist in monopolistic public services like the state transport undertakings, state electricity boards, etc. The only way to correct this is to corporatise or privatise these undertakings or open them up to competition. A prime example of the change that is possible is what has happened in aviation. Once airline services were opened up to competition, the whole scene changed. Instead of treating passengers with the indifference typical of a public sector employee, Indian Airlines staff learnt even to smile while greeting passengers.
    • In addition, we have created some world-class private carriers in the domestic market who are now set to take wing on international routes. Even the railways can be privatised. The rail track in each region can be owned and operated by a company, which then allows competing companies to run their trains on these tracks. Similarly, there is no reason why urban bus services cannot be made more efficient by opening them up to competition. Today they are run as monopolies due to pressure from unionised labour. For example, in Mumbai the urban bus service is cross-subsidised by BEST Electric Supply services. Questions:- 1. What do you know about changing role of Trade Union activities? 2. What is the role of responsible Trade Unionism? 3. Is Privatisation a challenge for Union activities? 4. What is the lesson learnt from the IT sector? Logistics Management Case 1 (10 Marks) M/s Britecolor Paints Ltd. (BPL) is a manufacturer of decorative paints for households commercial premises and industrial application. 7. M/s. BPL had embarked on a policy of satisfying every possible customer in respect of shades, delivery and durability. Thus it went ahead and created twenty-five depots, one almost in every major city. The manufacturing base however, was maintained at Pune. The factory received information in connection with stocks from depots J once in a week and there was no inter-communication between depots. Since they were in a competitive market, price was predetermined, i.e. the manufacturer had no liberty to price the product as per one‘s own choice. 8. In their effort to satisfy the customer, M/s BPL manufactured every possible shade by combining various primary shades and would await the prospective customer to carry out the purchase. It ensured that these shades were available at each and every depot even at the cost of transportation incurred in sending goods in less than full truckload lots. This certainly provided a very high service level and customers who could get the shade as per their desire, were fully satisfied. (c) While on one hand M/s BPL had a population of very satisfied customers, they had almost 50% of their total domestic sales lying as finish Goods inventory at various depots, on the other hand.
    • 11. Industrial paints, though not very customised, the respective industrial customer was quite satisfied. Consequently, the inventory of finished goods was very low in this segment. But at the same time, realisation was also lower due to stiff competition from other industrial paint manufacturers than the domestic segment. 12. Nevertheless, the economic runs of industrial paints were always assured due to high off-take by the industrial customers. 13.The objective of the manufacturer was to increase the realization taking into account, economic runs, inventory, seasonality and individual choices of domestic / industrial customer. Qeustions If you are appointed as the logistics consultant, then advise M/s BPL in respect of ‗ 3. How to achieve economy in transportation, by maintaining almost same service level? 4. Demand Forecasting technique to take care of seasonality, reduction in inventory. 5. Information technology to substitute maintenance of high inventory without affecting customer service level. 6. Connectivity between factory and depots (networking Diagram) Case 2 (10 Marks) ABCL Ltd. is leading/ Fast Food Processing Company operating from Thane. It is involved in the fast food business since last 10 years and has tie up with a foreign firm operating in the same field. It handles both Vegetable as well Non—Vegetable products for which it arranges the vegetables and chickens from the local vegetable vendors and poultry farms as well as from far off places like Nasik, Pune and Aurangabad. It has very good market in Mumbai, Pune and surrounding cities. The products are sold in the brand name of ‗Nasta‘ which is very popular brand amongst the young collegians and office goers. it has its ‗7,- most modern kitchen at New •Mumbai to cater the needs for fresh Nasta. Vegetables and chicken items are transported from the procurement centres of Nasik, Pune, Aurangabad using hired Trucks. While transporting vegetables and chickens there were shortages,.. damages and decomposition problems which varies from 1Y‘lo 15% and there is inconsistency in the transit time the reliability of the
    • raw material transporters is very low. Packaging of the Nasta is very good and attractive but it is not long lasting tyje. Hoever, the quality and taste are the reasons for its popularity. Nasta is sold in three different packs — party, family and individual. The Nasta looses the taste and flavour after 8 hours, if not preserved in refrigeration. The Nasta is distributed through 25 distribution centers including three at its main procurement centers of Nasik Pune, and Aurangabad.. Logistics information network is not up to the mark. ‗The procurement centers directly communicate to the operating center at Thane. Due to lack of proper co-ordination at different distribution centers it has started creating the problems of stocks, spoilage, pilferage and wastage of raw material as well as finished goods at certain distribution and procurement centers. Transportation and storage problems are identified as main culprits for the heavy losses being incurred at some centers. Holidays, festivities and college seasonably puts a lot of pressure on the existing demand and supply situation of the Nasta resulting in losses and mismanagement. Entry of multinationals has increased the competition and put a let of pressure on the Nasta. Managing Director has formed a team of Senior Executive to suggest a concrete plan to fight the competition and overcome the transport, storage and other related problems so as to increase the market share and margin. Questions In case you are appointed as logistic consultant to solve the problems, you are required to put forward your suggestions for: 6) Proper transportation policy to ensure minimum transportation loss of vegetables and poultry products and reduction in the packaging costs. 7) Demand Forecasting techniques to take care of the seasonality, reduction in inventory and shortage and other related problems. 8) Suggestion for improved Purchase and Distribution policy. 9) Is it advisable to have company owned dedicated transport fleet? Case 3 (10 Marks) Mumbai four mills, provide high-quality bakery flours to commercial bakers as well as to the consumer market. The commercial buyers have consistent demand and brand-loyalty, whereas consumers have minimal brand- loyalty but also generally prefer known names over store brands. Demand is seasonal for the flours with the annual break occurring just before Diwali and slacking off dramatically during January and February. To offset these both, Mumbai Flour Mills and its major supermarket chain-accounts carry out special deals and sales promotions. The Production planning Dept. of the company located at Akola, Maharashtra, has the responsibility for controlling the inventory levels at the plant warehouse at Nagpur as well as three distribution centres located at Nasik in Maharashtra, Bhopal in Madhya Pradesh and 1-lyderabad in Andhra Pradesh. Planning has been routinely based on past experience and history. No formal forecasting is performed. Distribution centres get their requirements by rail from Nagpur. The lead time of replenishment from
    • Nagpur to distribution centres is 7 days. The replenishment rate is 48 to 54 pallets per wagon depending upon the type of wagon used. In case of any emergency demand, eighteen pallets can be made available by truck with a 3 days transit time. Recently the company has experienced two major stock out for its consumer-size 5 Kg. sacks of refined quality white flour. One of these was due to problems in milling operations, the other occurred when marketing initiated a ―buy one, get one free‖ coupon promotion. Since these events, the planning has become overly cautious and errs on the side having excess inventories at the distribution centres. Additional, two other events have affected Distribution Centre‘ throughput: (1) implementation of direct factory supply for replenishing the five largest super market chains, and (2) a price increase making Mumbai Flour more expensivethan its national brand competitors such a Pillsbury or ATA Maida. Of 1500 pallets in the Hyderabad Distribution Centre the Mumbai Flour Mills shows only 396 pallets for open orders. This has led the company to use outside overflow storage, where there are another 480 pallets. Flour is easily damaged, hence, Mumhai Flour Mills prefers to minimise handling. Over stocking at Distribution centres alone cost Rs. 1.85/- per pallet for outside storage to which must be added Rs. 4.25 per pallet extra handling and Rs. 225 per truckload for transportation. Similar scenarios are being played out at the other DCs as well. Mr. Mohan, the distribution manager is contemplating various approaches to solving the inventory problem. It is clear that the product must be in place at the time a consumer is making a decision to buy the product, but the company cannot tolerate the overstocking situation and the stress that it is putting on facilities and cash flow. Mr. Mohan‘s first thought is ―a better information system‖ which will provide timely and accurate information throughout the organisation. On the basis of above case answer the following: Questions:- (1) Evaluate the alternative solution that could be considered by Mr. Mohan. (2) What additional solution do you propose? (3) Examine the transportation system and its drawbacks? Case 4 (10 Marks) M/s Modern Garments is the manufacturers of Ladies and Gents garments like shirts, tops and undergarments etc. The technology is advanced and there are several players with access to such latest
    • technologies. The supply chains for M/s Modern Garments includes significant purchases of raw material, stitching, packaging and supply to customers. The logistics functions are the key competitive elements in the market, M/s Modern Garments is considering to take over the control of its inbound and out bound logistics function which affect the inventories, reduce the losses due to transit delays and improve the response timeand service reliability. However the cost implications of such changes have to be looked into. The M/s Modem Garments has been a leader in the readymade shirts market in India for a number of years. After liberalization they entered into a joint venture with a French Company to expand their business in the field of Trousers and T-shirts. However new joint venture company M/s Modern Garments still continues to manufacture its shirts at Thane near Mumbai and has started a new state-of-art garment manufacturing plant at Pune in Maharashtra to compete with other market players. The company has planned to undertake the distribution of garments made and packed in its plants at New-Mumbai and Kalyan so as to retain the control over design, quality and service channel of the products. After liberalization, the market has grown more matured and expectations of the customers towards the features of the product have increased and also the technology and design has improved considerably. Now in the market only garments with good delivery quality are acceptable. All the competitors have equally good quality product in the market. Presently the area of logistics distribution, customer service and satisfaction are the area of prime concern in order to have extra value addition to the product. The product defects due to stitching, cutting and transportation are now under increasing scrutiny. From the cost control point of view, the amount of money held up in distribution pipeline is significant. The large variety of garments now means more raw materials to be held in stocks. Presently the incoming supplies are arranged by the vendor firms, they may be persuaded to opt for jointly approved transporters. Due to product variations, the order fulfillment and its processing is of considerable importance. The traditional information system has become inadequate. There are over 500 retail outlets through which the finished products are distributed with the help of more than 50 transporters. Lead- time variability is creating problem of buffer stocks• with distributors. The transit time fluctuations are due to the breakdown of trucks, improper documentation and unfair practice of over charging of the vehicles etc. Such variability has to be reduced. Major portion of logistics cost was allocated in fleet management; where as warehousing, raw material management and information networking have insignificant costs. Questions (i) Examine the possibility of alternatives in transportation of the inbound and outbound materials? (ii) How to reduce the cost of inbound and outbound logistics functions? (iii) What could be the major problem in exploiting the inbound and outbound logistic functions? (iv) Is it advisable to have dedicated transport system to operate packaged materials mainly for the company? (v) What arrangements have to be made to ensure the service quality for customers?
    • Case 5 (10 Marks) M/s Ador Electrodes Limited (AEL) was incorporated in the year 1981 and is the second largest player in the welding industry in India & has the widest product range amongst all its competitors. As it has happened to a the industries, the heat of the competition coming from the International Companies, mainly from China, started affecting to this industry too. ‗The company has four state-of-an-art manufacturing plants accredited with ISO certification & backed by strong technical support from their foreign collaborators. The company is also having a well established all India distribution network consisting of numbers of dealers. The products flow from the manufacturing plants to the warehouses, managed & maintained by the company, located at different places across the country. The dealers draw their requirements from these warehouses for onward delivery to their customers, The inventory of the products is under the ownership of the company and is maintained as per the anticipated demand in the region. Primary transportation from the plant to the warehouses is the responsibility of the company, whereas the transportation from the warehouse to the customer is the dealer‘s responsibility. The biggest drawback in the present system is that the inventory at all warehouses is carried by the company, blocking the huge amount of company‘s working capital. The level of average inventory they maintain is equal to their 6 months sales requirements. Over & above, in many places where the sales are low, the stocks remain unsold for longer periods. Moreover, because of improper maintenance of these warehouses the stocks also get damaged I spoiled or stolen. The warehouses are managed by the employees of the company having no ‗basic qualifications & experience in inventory and warehouse management. The management of the company took a serious note of the situation and now wishes to take immediate steps to overcome the current logistical problems to face the competitive scenario. Questions: 1. What are the company‘s present logistical problems? 2. Give your recommendations for improving the company‘s logistical performance? Case 6 (10 Marks)
    • 1967 M/s. Vijay Enterprise ventured into trading of electronic consumer durable targeting the large potential market in the year 1970, the company managed to get the exclusive dealership of a leading electronic manufacturing company in India to market their products in the Western Indiá. Later on, the company with a view to create their own brand in the market established a plant in Maharashtra & started their own manufacturing activities. With a manufacturing capacity under their belt, the company increased their turnover tremendously in the next 20 years with the help of all India distribution network consisted of 4 regional offices, 4 mother warehouses, 12 C & F agents & 75 stockists & 5000 odd retail outlets. After the liberalisation of the Indian economy in 1991, the entire business scenario- particularly in consumer durable industry - has undergone a drastic change. The company started experiencing the pressure of competition from local as well as international players. It was observed that during the last 5 years sales growth has come down and the company is losing its market share slowly& steadily. The external agency that conducted a study for the Company came out with their following observations. 1. At all levels in the company employee orientation is towards production rather than marketing 2 The cost of product distribution is the highest compared to the Industry standards 3. The warehouse space was urderutilized — the utilization factor varies between 95 % during the peak season and drop to 40% during the slack season. 4. There is duplication of many logistics operations. Every department has their own policies I practices and objectives. 5. In more than 20 per cent of the trips made to mother warehouses / C& F agents, the products are despatched in less than full truckloads, resulting in high transportation costs. 6. Only 65 % of shipments were delivered on time, as a result of slow information flow and inadequate connectivity across the system causing longer order processing time. 7. Transit damages were ranging between 2 to 5 % due to improper logistical packaging and inadequate material handling equipment. 6. The finished goods inventory is above the best managed company in the industry Questions: 1. Identify the main logistical problems of the Company 2. To offer better customer service level and reduce the operating cost, how will you go about redesigning the distribution network? Case 7 (10 Marks) M/s. Decorative Laminates Corporation (DLC) is a supplier of decorative sheets for wooden furniture makers in domestic as well as commercial markets. In spite of competition n this field their sales volumes shown growth during last 2 to 3 years. The last year was recorded 15% more sales compared to previous year. Even though the sales volume are increasing• the profit margin is getting reduced day by day due to
    • future competition. In one of the monthly management review meetings it was observed that the main cause for depleting profitability is the increasing procurement costs. . The report presented by the new Purchase Manger revealed that in order to obtain quantity discounts from the suppliers the company was purchasing inputs & other maintenance items much more than their actual requirements. This has not only created a problem of holding huge inventories but necessitated hiring of additional warehouse space to accommodate these high inventories. It has also been observed that most of the purchasing tasks like inventory control are still performed manually. The computers are used only for maintaining purchasing records and printing purchase orders. Questions 1. What is the main problem in this case? What are your suggestions to the company on inventory management? 2. What type of logistical cost approach you would suggest to the company? Case 8 (10 Marks) M/s. Compu-Tech is on the reputed Indian companies producing various types of computer printers. Their production plant is situated at Noida in northern India and the products are distributed through distribution centers located in every region. The company introduced LS popular line of Desk Jet printers first time in India in 2005. Immediately on the launch of this products The solo more than one lacs units during that year. But the problems came with the boom in sales. Already, the company was running into serious inventory snags, particularly with service to its customers situated In southern region. The printers were generally shipped to all the distribution centers & onward to the customers by road only. Unfortunately, that resulted in long lead times, making It tough to meet the shorter delivery time offered by the local sellers mainly from Southern India. The Company also found itself running short of production capacity to meet the quantity requirements of certain large institutional & industrial customers. To add to it, quite often the company was running out of stock for certain fast moving models and at the same time facing problems of excess inventory of other models. Working out product wise demand from each market was also proving difficult for their manufacturing plant. Questions’ 1. What are the main problems in the logistical network of M/s. Compu-Tech? What solutions would you propose o overcome these problems?