Page |1

INTERMEDIATE COURSE – TEST SERIES FOR MAY 2024 EXAM

PAPER 6 – FINANCIAL MANAGEMENT & STRATEGIC MANAGEMENT
Day: Saturday Marks: 100
Date: 20th April, 2024 Time: 3 hours (Reading Time 15 mins Extra)

ANSWERS
SECTION B: STRATEGIC MANAGEMENT
Part I - MCQs Questions
Que. Ans. Que. Ans. Que. Ans. Que. Ans. Que. Ans.
12. (b) 13. (d) 14. (a) 15. (d) 16. (a)
17. (c) 18. (a) 19. (c)

Part II – Descriptive Questions

Q.1.
(a) 1. Functional managers provide most of the information that makes it possible for business and
corporate level managers to formulate realistic and attainable strategies. This is so because
functional managers like Dharam Singh are closer to the customers/suppliers/ operations than
the typical general manager is.
2. A functional manager may generate important ideas that subsequently may become major
strategies for the company. Thus, it is important for general managers to listen closely to the
ideas of their functional managers and invoice them in decision making.
3. An equally great responsibility for managers at the operational level is strategy
implementation: the execution of corporate and business level plans, and if they are involved in
formulation, the clarity of thoughts while implementation can benefit too.
Conclusion:
Thus, the approach of Cylcix Corporate management is not right. They should involve Dharam Singh,
as well as other functional managers too in strategic management.

(b) Steps to understand the competitive landscape:

1) Identify the competitor: The first step to understand the competitive landscape is to identify
the competitors in the firm’s industry and have actual data about their respective market share.
2) Understand the competitors: Once the competitors have been identified, the strategist can use
market research report, internet, newspapers, social media, industry reports, and various other
sources to understand the products and services offered by them in different markets.
3) Determine the strengths of the competitors: What is the strength of the competitors? What do
they do well? Do they offer great products? Do they utilize marketing in a way that
comparatively reaches out to more consumers? Why do customers give them their business?
 Page |2
4) Determine the weaknesses of the competitors: Weaknesses (and strengths) can be identified
by going through consumer reports and reviews appearing in various media. After all,
consumers are often willing to give their opinions, especially when the products or services are
either great or very poor.
5) Put all of the information together: At this stage, the strategist should put together all
information about competitors and draw inference about what they are not offering and what
the firm can do to fill in the gaps. The strategist can also know the areas which need to be
strengthen by the firm.

(c) 1. A tool to study the market positions of rival companies by grouping them into like positions is
strategic group mapping.
2. Grouping competitors is useful when there are many competitors such that it is not practical to
examine each one in-depth.
3. In the given scenario there are thirteen competitors. A strategic group consists of those rival
firms which have similar competitive approaches and positions in the market.
4. The procedure for constructing a strategic group map and deciding which firms belong in which
strategic group is as follows:
a) Identify the competitive characteristics that differentiate firms in the industry typical
variables that are price/quality range (high, medium, low); geographic coverage (local,
regional, national, global); degree of vertical integration (none, partial, full); product-line
breadth (wide, narrow); use of distribution channels (one, some, all); and degree of
service offered (no-frills, limited, full).
b) Plot the firms on a two-variable map using pairs of these differentiating characteristics.
c) Assign firms that fall in about the same strategy space to the same strategic group.
d) Draw circles around each strategic group making the circles proportional to the size of the
group's respective share of total industry sales revenues.

Q.2.
(a) 1. XYZ Corporation is aiming to transform into a dominant technology company under the
leadership of Mohan, the new CEO. He aims to develop competencies for managers for
achieving better performance and a competitive advantage for the corporation.
2. Mohan is also well aware of the importance of resources and capabilities in generating and
sustaining the competitive advantage. Therefore, he must focus on characteristics of resources
and capabilities of the corporation.
3. The sustainability of competitive advantage and a firm’s ability to earn profits from it depends,
to a great extent, upon four major characteristics of resources and capabilities which are as
follows:
a) Durability: The period over which a competitive advantage is sustained depends in part
on the rate at which a firm’s resources and capabilities deteriorate. In industries where
the rate of product innovation is fast, product patents are quite likely to become
obsolete. Similarly, capabilities which are the result of the management expertise of the
CEO are also vulnerable to his or her retirement or departure. On the other hand, many
consumer brand names have a highly durable appeal.
 Page |3
b) Transferability: Even if the resources and capabilities on which a competitive advantage is
based are durable, it is likely to be eroded by competition from rivals. The ability of rivals
to attack position of competitive advantage relies on their gaining access to the necessary
resources and capabilities. The easier it is to transfer resources and capabilities between
companies, the less sustainable will be the competitive advantage which is based on
them.
c) Imitability: If resources and capabilities cannot be purchased by a would-be imitator,
then they must be built from scratch. How easily and quickly can the competitors build
the resources and capabilities on which a firm’s competitive advantage is based? This is
the true test of imitability. Where capabilities require networks of organizational routines,
whose effectiveness depends on the corporate culture, imitation is difficult.
d) Appropriability: Appropriability refers to the ability of the firm’s owners to appropriate
the returns on its resource base. Even where resources and capabilities are capable of
offering sustainable advantage, there is an issue as to who receives the returns on these
resources.

(b) Gautam wishes to diversify in a business that is not related to their existing line of product and can
be termed as conglomerate diversification. He is interested in acquiring another industrial unit
located in Faridabad manufacturing stationery items such as permanent markers, notebooks,
pencils and pencil sharpeners, envelopes and other office supplies, which is not related to their
existing product.
1) In conglomerate diversification, the new businesses/ products are disjointed from the existing
businesses/products in every way; it is an unrelated diversification.
2) In process/ technology/ function, there is no connection between the new products and the
existing ones. Conglomerate diversification has no common thread at all with the firm's present
position.
3) On the other hand, Siddhartha seeks to move forward in the chain of existing product by
adopting vertically integrated diversification/ forward integration. The cloth being
manufactured by the existing processes can be used as raw material of garments
manufacturing business.
4) In such diversification, firms opt to engage in businesses that are related to the existing
business of the firm. The firm remains vertically within the same process and moves forward or
backward in the chain. It enters specific product/process steps with the intention of making
them into new businesses for the firm.
5) The characteristic feature of vertically integrated diversification is that here, the firm does not
jump outside the vertically linked product-process chain. Both types of diversifications have
their own risks.
6) In conglomerate diversification, there are no linkages with customer group, customer
marketing functions and technology used, which is a risk. In the case of vertical integrated
diversification, there is a risk of lack of continued focus on the original business.
 Page |4
Q.3.
(a) It is advisable that divestment strategy should be adopted by X Pvt. Ltd.
1) In the given situation where the business of co-working spaces became unprofitable and
unviable due to Global pandemic, the best option for the company is to divest the loss-making
business. Retrenchment may be done either internally or externally.
2) Turnaround strategy is adopted in case of internal retrenchment where emphasis is laid on
improving internal efficiency of the organization, while divestment strategy is adopted when a
business turns unprofitable and unviable due to some external factors. In view of the above,
the company should go for divestment strategy.
3) Further, divestment helps address issues like:
a) Persistent cash flows from loss making segment could affect other profit-making
segments, which is the case in the given scenario.
b) Inability to cope from the losses, which again is uncertain due to pandemic.
c) Better investment opportunity, which could be the case if X Pvt. Ltd. can invest the
money it generates from divestment.

(b) 1. The company Delta is transitioning into the Hourglass organization structure because it has
used technological tools to transform various business processes and operations and has
significantly diminished the role played by specialist managers of the middle management.
2. The technological tool in addition to savings organisational costs by replacing many tasks of the
middle management has also served as a link between top and bottom levels in the
organization and assists in faster decision making.
3. The skewed middle level managers now perform cross-functional duties. All these factors
indicate towards Hourglass organization structure.

Q.4.
(a) 1. There are multiple ways in which all the 3 levels of management are interlinked, and
interestingly it depends on the organisation as a whole to decide what kind of network of
relationship suits their culture and aspirations.
2. There are 3 major types of networks of relationship between the levels and also amongst the
same levels of a business;
a) Functional and Divisional Relationships -
i) It is an independent relationship, where each function or a division is run
independently headed by the function/division head, who is a business level
manager, reporting directly to the business head, who is a corporate level manager.
 Page |5
ii) Functions maybe like Finance, Human Resources, Marketing, etc. while Divisions
may depend on the products like for a toys manufacturer - kids toys, teenager toys,
etc. could be divisions.
b) Horizontal Relationships -
i) All positions, from top management to staff-level employees, are in the same
hierarchical position. It is a flat structure where everyone is considered at same
level. This leads to openness and transparency in work culture and focused more on
idea sharing and innovation.
ii) This type of relationship between levels is more suitable for startups where the
need to share ideas with speed is more desirable.
c) Matrix Relationship -
i) It features a grid-like structure of levels in an organisation, with teams formed with
people from various departments that are built for temporary task-based projects.
This relationship helps manage huge conglomerates with ease where it is nearly
impossible to track and manage every single team independently.
ii) There are more than one business level managers for each functional level teams. It
is complex for smaller organisations, but extremely useful for large organisations.

(b) 1. New entrants can reduce an industry’s profitability, because they add new production capacity,
leading to increase in supply of the product, sometimes even at a lower price and can
substantially erode existing firm’s market share position.
2. To discourage new entrants, existing firms can try to raise barriers to entry. “Barriers to entry"
represent economic forces (or ‘hurdles’) that slow down or impede entry of new firms.
3. Common barriers to entry include:
a) Capital Requirements
i) When a large amount of capital is required to enter an industry, firms lacking funds
are effectively barred from the industry, thus enhancing the profitability of existing
firms in the industry.
ii) For example, huge investments are needed to build production facilities and
establish brand awareness among people for entry into the pharmaceutical
industry. This makes the entry of new companies into this sector very difficult.
b) Economies of Scale
i) Many industries are characterized by economic activities driven by economies of
scale.
ii) Economies of scale refer to the decline in the per-unit cost of production (or other
activity) as volume grows.
iii) A large firm that enjoys economies of scale can produce high volumes of goods at
successively lower costs.
iv) This tends to discourage new entrants.
c) Product Differentiation
i) Product differentiation refers to the physical or perceptual differences, or
enhancements, that make a product special or unique in the eyes of customers.
ii) Firms in the personal care products and cosmetics industries actively engage in
product differentiation to enhance their products’ features.
iii) Differentiation works to reinforce entry barriers because the cost of creating
genuine product differences may be too high for the new entrants.
 Page |6
d) Switching Costs
i) To succeed in an industry, new entrant must be able to persuade existing
customers of other companies to switch to its products.
ii) To make a switch, buyers may need to test a new firm’s product, negotiate new
purchase contracts, and train personnel to use the equipment, or modify facilities
for product use.
iii) Buyers often incur substantial financial (and psychological) costs in switching
between firms.
iv) When such switching costs are high, buyers are often reluctant to change.
e) Brand Identity
i) The brand identity of products or services offered by existing firms can serve as
another entry barrier.
ii) Brand identity is particularly important for infrequently purchased products that
carry a high unit cost to the buyer.
iii) New entrants often encounter significant difficulties in building up the brand
identity, because to do so they must commit substantial resources over a long
period.
iv) The gestation period of customer loyalty is quite high, when customers identify
themselves with existing brands.
f) Access to Distribution Channels
i) The unavailability of distribution channels for new entrants poses another
significant entry barrier.
ii) Despite the growing power of the internet, many firms may continue to rely on
their control of physical distribution channels to sustain a barrier to entry to rivals.
iii) Often, existing firms have significant influence over the distribution channels and
can retard or impede their use by new firms.
iv) For example, because of control over distribution channels in India by HUL, P&G
and Godrej etc., small entrepreneurs find it very difficult to sell their products
through the existing channels.
Similarly, with advent of Patanjali and its strong nation-wide distribution channel, new
Ayurvedic FMCG companies are facing a challenge.
g) Possibility of Aggressive Retaliation
i) Sometimes the mere threat of aggressive retaliation by incumbents can deter entry
by other firms into an existing industry.
ii) For example, introduction of products by a new firm may lead incumbent’s firms to
reduce their product prices and increase their advertising budgets.

OR

(b) 1. Meaning of Strategic performance measures

a) A company's performance depends heavily on execution of strategy. Companies that
continuously outperform their competitors are those who execute well.
b) Strategic performance measures are key indicators that organizations use to track the
effectiveness of their strategies and make informed decisions about resource allocation.
c) The measures provide a snapshot of the organization's performance, enabling leaders to
assess whether their strategies are aligned with their goals and objectives and to make
necessary adjustments to improve their performance.
 Page |7
2. The Importance of Strategic Performance Measures
Strategic performance measures are essential for organizations for several reasons:
a) Goal Alignment:
Strategic performance measures help organizations align their strategies with their goals
and objectives, ensuring that they are on track to achieve their desired outcomes.
b) Resource Allocation:
Strategic performance measures provide organizations with the information they need to
make informed decisions about resource allocation, enabling them to prioritize their
efforts and allocate resources to the areas that will have the greatest impact on their
performance.
c) Continuous Improvement:
Strategic performance measures provide organizations with a framework for continuous
improvement, enabling them to track their progress and make adjustments to improve
their performance over time.
d) External Accountability:
Strategic performance measures help organizations demonstrate accountability to
stakeholders, including shareholders, customers, and regulatory bodies, by providing a
clear and transparent picture of their performance.

*******