Test Series: March, 2018

MOCK TEST PAPER

INTERMEDIATE (NEW): GROUP – II
PAPER – 7: ENTERPRISE INFORMATION SYSTEMS AND STRATEGIC MANAGEMENT
SECTION – A: ENTERPRISE INFORMATION SYSTEMS
Question No. 1 is compulsory.
Attempt any four questions from the rest.
Time Allowed – 1½ Hours Maximum Marks – 50

QUESTIONS
1. Answer all the following questions in brief.
(i) Discuss “Management Processes” and state their example.
(ii) Describe Role Based Access Control (RBAC) in Enterprise Resource Planning (ERP) System.
(iii) Discuss briefly the concept of “Virtual Memory”.
(iv) Define “Digital Library”.
(v) Explain the working of Automated Teller Machines (ATM) Channel Server? (5 x 2 = 10 Marks)
2. (a) A company ABC Ltd. is engaged in selling consumer goods to different categories of customers.
To increase its sales, different types of discounts are offered to customers. The policy of discount
is as given below:
i. On cooking range, a discount of 12% is allowed to dealers and 9% to retailers irrespective of
the value of the order.
ii. A discount of 12% is allowed on washing machine irrespective of the category of customer
and the value of the order.
iii. On decorative products, dealers are allowed a discount of 20% provided that the value of the
order is Rs. 10,000 and above. Retailers are allowed a discount of 10% irrespective of the
value of the order.
Prepare a flow chart to calculate the discount for the above policy. (6 Marks)
(b) An Internet connection exposes an organization to the harmful elements of the outside world. As
an EDP (Electronic Data Processing) operator of an organization ABC, prepare a checklist for
Network Access Controls that are required to be implemented in the organization. (4 Marks)
3. (a) As an IS Auditor, determine a checklist for the audit of ERP system in an organization. Also,
summarize the auditing aspects of ERP systems. (6 Marks)
(b) A bank PQR has many branches all over India. However, the competent authority intends to bring
all the branches together under one umbrella and make it centralized. For that, identify most
prominently available Core Banking Software in the market. (4 Marks)
4. (a) Operating System security involves policy, procedure and controls that determine, ‘who can access
the operating system,’ ‘which resources they can access’, and ‘what action they can take’. As an
Information Systems auditor, determine the key areas which shall be put in place by any organization.
(6 Marks)
(b) Recognize the application areas where the concept of Internet of Things (IoT) has been
implemented. (4 Marks)

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5. (a) “Jan Seva” is a charitable organisation that was established in 2008. It opened its current account
with ABC Bank on 1st February, 2008. Following transactions were made by Jan Seva in the month
of July 2012:
Date Amount of Cash transaction
3rd July, 2012 Rs. 5 Lakh
9th July, 2012 Rs. 2 Lakh
28th July, 2012 Rs. 3 Lakh

Examining the given situation, determine the liability of the reporting authority with respect to the
maintaining of the record of the transaction. (6 Marks)
(b) Internal Control Systems can provide an entity with reasonable assurance about achieving the
entity’s operational, financial reporting and compliance objectives. State the inherent limitations of
Internal Control Systems. (4 Marks)
6. (a) Ms. Y is using Google Apps through which she can access any application, service and data
storage facilities on the Internet and pay as-per-usage. Analyze which computing model is
providing her these facilities. Also, determine the model’s key characteristics. (6 Marks)
(b) Discuss the peculiarities that must be considered while allotting a voucher number to a voucher.
(4 Marks)

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 Test Series: March, 2018
MOCK TEST PAPER
INTERMEDIATE COURSE: GROUP – II
PAPER –7: ENTERPRISE INFORMATION SYSTEMS & STRATEGIC MANAGEMENT
SECTION – B: STRATEGIC MANAGEMENT
Time Allowed – 1½ Hours Maximum Marks – 50
All questions are compulsory. Choices, if any, are available within question.
Question 1 (Attempt any two parts)
1. (a) Explain competitive advantage.
(b) What is strategic vision?
(c) What do you understand by co-generic merger? (2 × 2 = 4 Marks)
Question 2 (Attempt any two parts)
2. Which of the following statements are ‘correct’ and which are ‘incorrect’? Give reasons, in brief, for your
answer:
(a) Every strategic move is the result of proactive planning.
(b) Economies of scale discourages new entrants.
(c) Human resource management aids in strategic management. (2 × 2 = 4 Marks)
3. (a) Always Fit is a company that operates in pharmacy store chains. Its stores are specialized in
providing prescribed medicines, health and wellness products etc. in the country. The store chain
is having surplus space which can be utilized for other purposes. Azad, a senior executive of the
research and development wing in the company conceives an idea to manufacture and sell the
cosmetic products for utilizing the surplus space available in the pharmacy stores.
Identify and explain the role of Azad in company. (5 Marks)
(b) Arena Ltd. manufactures computers that are of low in production cost, competitive price, and
quality to their competitor’s product. Profits and market share are declining day by day. Shreekanth,
a senior executive realizes that drastic strategies have to be created for the survival of a company.
After SWOT analysis by assessing the strengths and weaknesses, they come up with the
conclusion that they cannot compete in the computers with the competitors. The management
directs Shreekanth to act quick and develop a suitable strategic plan.
Discuss the strategy which can be opted by Shreekanth. (5 Marks)
(c) Mr. Banerjee is head of marketing department of a manufacturing company. His company is in
direct competition with thirteen companies at national level. He wishes to study the market positions
of rival companies by grouping them into like positions.
Name the tool that may be used by Mr. Banerjee? Explain the procedure that may be used to
implement the technique. (5 Marks)
4. (a) Briefly explain the importance of strategic management. (5 Marks)
(b) What is strategic decision making? What are its major dimensions? (5 Marks)
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5. (a) “Evaluating the worth of a business is central to strategy implementation.” In the light of this
statement, explain the methods that can be used for determining the worth of a business. (5 Marks)
(b) Distinguish between cost leadership and differentiation strategies. (5 Marks)
6. What is strategy audit? Explain the criteria for strategy audit as given by Richard Rumelt.
Or
Define strategic change. Explain the various stages/phases of change process as propounded by Kurt
Lewin. (7 Marks)

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 Test Series: March, 2018
MOCK TEST PAPER
INTERMEDIATE (NEW): GROUP – II
PAPER – 7: ENTERPRISE INFORMATION SYSTEMS AND STRATEGIC MANAGEMENT
SECTION – A: ENTERPRISE INFORMATION SYSTEMS
ANSWERS
1. (i) Management Processes: Management processes measure, monitor and control activities related
to business procedures and systems. Examples of management processes include internal
communications, governance, strategic planning, budgeting, and infrastructure or capacity
management. Management processes do not provide value directly to the customers, however,
have a direct impact on the efficiency of the enterprise.
(ii) Role Based Access Control (RBAC) in ERP System: In computer systems security, role-based
access control is an approach to restricting system access to authorized users. It is used by most
enterprises and can implement mandatory access control or discretionary access control. RBAC is
sometimes referred to as Role-Based Security. Role-Based-Access-Control (RBAC) is a policy
neutral access control mechanism defined around roles and privileges. The components of RBAC
such as role-permissions, user-role and role-role relationships make it simple to perform user
assignments. RBAC can be used to facilitate administration of security in large organizations with
hundreds of users and thousands of permissions.
Roles for staff are defined in organization and access to the system can be given according to the
role assigned. For example - A junior accountant in accounting department is assigned a role of
recording basic accounting transactions, an executive in human resource department is assigned
a role of gathering data for salary calculations on monthly basis, etc.
(iii) Virtual Memory: Virtual Memory is an imaginary memory area supported by some operating
systems (for example, Windows) in conjunction with the hardware. If a computer lacks the Random -
Access Memory (RAM) needed to run a program or operation, Windows uses virtual memory to
compensate. Virtual memory combines computer’s RAM with temporary space on the hard disk.
When RAM runs low, virtual memory moves data from RAM to a space called a paging file. Moving
data to and from the paging file frees up RAM to complete its work. Thus, Virtual memory is an
allocation of hard disk space to help RAM.
(iv) Digital Library: A Digital Library is a special library with a focused collection of digital objects that
can include text, visual material, audio material, video material, stored as electronic media formats,
along with means for organizing, storing, and retrieving the files and media contained in the library
collection. Digital libraries can vary immensely in size and scope, and can be maintained by
individuals, organizations, or affiliated with established physical library buildings or institutions, or
with academic institutions. The digital content may be stored locally, or accessed remotely via
computer networks. An electronic library is a type of information retrieval system.
(v) Automated Teller Machines (ATM) Channel Server: This server contains the details of ATM
account holders. Soon after the facility of using the ATM is created by the Bank, the details of such
customers are loaded on to the ATM server. When the Central Database is busy with central end -
of- day activities or for any other reason, the file containing the account balance of the customer is
sent to the ATM switch. Such a file is called Positive Balance File (PBF). Till the central database
becomes accessible, the ATM transactions are passed and the balance available in the ATM
server. Once the central database server becomes accessible, all the transactions that took place
till such time as the central database became un-accessible would be updated in the central
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 database. This ensures not only continuity of ATM operations but also ensures that the Central
database is always up-to-date. The above process is applicable to stand alone ATMs at the Branch
level. As most of the ATMs are attached to the central network, the only control is through ATM
Switch.
2. (a) The required flowchart is given in Figure below.

(b) Network Access Control: An Internet connection exposes an organization to the harmful elements
of the outside world. The checklist for Network Access Controls that are required to be implemented
in the organization are as follows:
 Policy on use of network services: An enterprise wide policy applicable to internet service
requirements aligned with the business need for using the Internet services is the first step.
Selection of appropriate services and approval to access them should be part of this policy.
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  Enforced path: Based on risk assessment, it is necessary to specify the exact path or route
connecting the networks; e.g., internet access by employees will be routed through a firewall and
proxy.
 Segregation of networks: Based on the sensitive information handling function; say a VPN
connection between a branch office and the head-office, this network is to be isolated from the
internet usage service
 Network connection and routing control: The traffic between networks should be restricted,
based on identification of source and authentication access policies implemented across the
enterprise network facility.
 Security of network services: The techniques of authentication and authorization policy should be
implemented across the organization’s network.
 Firewall: A Firewall is a system that enforces access control between two networks. To accomplish
this, all traffic between the external network and the organization’s Intranet must pass through
the firewall that will allow only authorized traffic between the organization and the outside to pass
through it. The firewall must be immune to penetrate from both outside and inside the
organization. In addition to insulating the organization’s network from external networks, firewalls
can be used to insulate portions of the organization’s Intranet from internal access also.
 Encryption: Encryption is the conversion of data into a secret code for storage in databases and
transmission over networks. The sender uses an encryption algorithm with a key to convert the
original message called the Clear text into Cipher text. This is decrypted at the receiving end. Two
general approaches are used for encryption viz. private key and public key encryption.
 Call Back Devices: It is based on the principle that the key to network security is to keep the
intruder off the Intranet rather than imposing security measure after the criminal has connected to
the intranet. The call- back device requires the user to enter a password and then the system
breaks the connection. If the caller is authorized, the call back device dials the caller’s number to
establish a new connection. This limits access only from authorized terminals or telephone
numbers and prevents an intruder masquerading as a legitimate user. This also helps to avoid the
call forwarding and man-in-the middle attack
3. (a) Checklist to be followed by an IS Auditor for the audit of ERP Systems are as follows:
 Does the system process according to GAAP (Generally Accepted Accounting Principles) and
GAAS (Generally Accepted Auditing Standards)?
 Does it meet the needs for reporting, whether regulatory or organizational?
 Were adequate user requirements developed through meaningful interaction?
 Does the system protect confidentiality and integrity of information assets?
 Does it have controls to process only authentic, valid, accurate transactions?
 Are effective system operations and support functions provided?
 Are all system resources protected from unauthorized access and use?
 Are user privileges based on what is called ‘role-based access?’
 Is there an ERP system administrator with clearly defined responsibilities?
 Is the functionality acceptable? Are user requirements met? Are users happy?
 Have workarounds or manual steps been required to meet business needs?

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  Are there adequate audit trails and monitoring of user activities?
 Can the system provide management with suitable performance data?
 Are users trained? Do they have complete and current documentation?
 Is there a problem-escalation process?
Auditing aspects in case of any ERP system can be summarized as under:
(i) Auditing of Data
• Physical Safety – Ensuring physical control over data.
• Access Control – Ensuring access to the system is given on “need to know” (a junior
accountant need not view Profit & Loss Account of the business) and “need to do basis”
(HR executive need not record a Purchase Order).
(ii) Auditing of Processes
• Functional Audit - This includes testing of different functions / features in the system and
testing of the overall process or part of process in the system and its comparison with actual
process. E.g. Purchase Process, Sales Process, Salary Calculation Process, Recruitment
Process, etc. Auditor may check this process in the system and compare it with actual
process. It is quite possible that all the aspect present in the actual process may not be
integrated in the ERP system. There may be some manual intervention.
• Input Validations - This stands for checking of rules for input of data into the system. E.g. a
transaction of cash sales on sales counter must not be recorded in a date other than today
(not a future date or a back date), amount field must not be zero, stock item field shall not be
empty, etc. Input validations shall change according to each data input form.
(b) Core Banking Solution (CBS) refers to a common IT solution wherein a central shared database
supports the entire banking application. Business processes in all the branches of a bank update
a common database in a central server located at a Data Center, which gives a consolidated view
of the bank’s operations. Branches function as delivery channels providing services to its
customers. CBS is centralized Banking Application software that has several components which
have been designed to meet the demands of the banking industry. CBS is supported by advanced
technology infrastructure and has high standards of business functionality. These factors provide
banks with a competitive edge. Core Banking Solution brings significant benefits such as a
customer is a customer of the bank and not only of the branch. Further, the CBS is modular in
structure and is capable of being implemented in stages as per requirements of the bank. A CBS
software also enables integration of all third-party applications, including in-house banking
software, to facilitate simple and complex business processes. Some examples of CBS software
are given below. These are only illustrative and not exhaustive.
• Finacle: Core banking software suite developed by Infosys that provides universal banking
functionality covering all modules for banks covering all banking services.
• FinnOne: Web-based global banking product designed to support banks and financial solution
companies in dealing with assets, liabilities, core financial accounting and customer service.
• Flexcube: Comprehensive, integrated, interoperable, and modular solution that enables banks to
manage evolving customer expectations.
• BaNCS: A customer-centric business model which offers simplified operations comprising loans,
deposits, wealth management, digital channels and risk and compliance components.
• bankMate: A full-scale Banking solution which is a scalable, integrated e-banking systems that
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 meets the deployment requirements in traditional and non-traditional banking environments. It
enables communication through any touch point to provide full access to provide complete range
of banking services with anytime, anywhere paradigm.
Further, there are many CBS software developed by vendors which are used by smaller and co-
operative banks. Some of the banks have also developed in-house CBS software. However, the trend
is for using high-end CBS developed by vendors depending on cost-benefit analysis and needs.
4. (a) Protecting operating system access is extremely crucial and can be achieved using following steps:
 Automated terminal identification: This will help to ensure that a specified session could only be
initiated from a certain location or computer terminal.
 Terminal log-in procedures: A log-in procedure is the first line of defense against unauthorized
access as it does not provide unnecessary help or information, which could be misused by an
intruder. When the user initiates the log-on process by entering user-id and password, the system
compares the ID and password to a database of valid users and accordingly authorizes the log-in.
 Access Token: If the log on attempt is successful, the Operating System creates an access token
that contains key information about the user including user-id, password, user group and privileges
granted to the user. The information in the access token is used to approve all actions attempted
by the user during the session.
 Access Control List: This list contains information that defines the access privileges for all valid
users of the resource. When a user attempts to access a resource, the system compasses his or
her user-id and privileges contained in the access token with those contained in the access control
list. If there is a match, the user is granted access.
 Discretionary Access Control: The system administrator usually determines; who is granted
access to specific resources and maintains the access control list. However, in distributed systems,
resources may be controlled by the end-user. Resource owners in this setting may be granted
discretionary access control, which allows them to grant access privileges to other users. For
example, the controller who is owner of the general ledger grants read only privilege to the
budgeting department while accounts payable manager is granted both read and write permission
to the ledger.
 User identification and authentication: The users must be identified and authenticated in a
foolproof manner. Depending on risk assessment, more stringent methods like Biometric
Authentication or Cryptographic means like Digital Certificates should be employed.
 Password management system: An operating system could enforce selection of good
passwords. Internal storage of password should use one-way hashing algorithms and the
password file should not be accessible to users.
 Use of system utilities: System utilities are the programs that help to manage critical functions
of the operating system e.g. addition or deletion of users. Obviously, this utility should not be
accessible to a general user. Use and access to these utilities should be strictly controlled and
logged.
 Duress alarm to safeguard users: If users are forced to execute some instruction under threat, the
system should provide a means to alert the authorities.
 Terminal time out: Log out the user if the terminal is inactive for a defined period. This will prevent
misuse in absence of the legitimate user.
 Limitation of connection time: Define the available time slot. Do not allow any transaction beyond
this time. For example, no computer access after 8.00 p.m. and before 8.00 a.m. - or on a Saturday
or Sunday.
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 (b) Some of the application areas of Internet of Things (IoT) are as follows:
I. All home appliances to be connected and that shall create a virtual home.
 Home owners can keep track of all activities in house through their hand-held devices.
 Home security CCTV is also monitored through hand held devices.
II. Office machines shall be connected through net.
 Human resource managers shall be able to see how many people have had a cup of coffee
from vending machine and how many are present.
 How many printouts are being generated through office printer?
III. Governments can keep track of resource utilizations / extra support needed.
 Under SWACHH mission government can tag all dustbins with IOT sensors. They (dustbins)
generate a message once they are full. Being connected to wi-fi, they can intimate the
cleaning supervisor of Municipal Corporation so that BIN can be emptied.
5. (a) The case is based on Sections 12 &13 of the Prevention of Money Laundering Act (PMLA), 2002
read with Rule 3 & Rule 8 of the Prevention of Money Laundering Rule (PMLR), 2002.
(1) Every reporting entity shall maintain a record of all transactions, including information relating
to cash transactions which are integrally connected to each other and which have been
individually valued below rupees ten lakh or its equivalent in foreign currency where such
series of transactions have taken place within a month and the monthly aggregate e xceeds
an amount of ten lakh rupees or its equivalent in foreign currency.
The Principal Officer of a reporting entity shall furnish the information in respect of such
transactions every month to the Director (Authority appointed by the CG) by the 15 th day of the
succeeding month.
As per the above stated provision aggregate cash transactions (Rs. 5 lakh + Rs. 2 lakh + Rs. 3
lakh = Rs. 10 lakh) made by the Jan Seva in the month of July 2012 was Rs. 10 Lakh and not in
excess to the limit prescribed. So there is no need to inform of the said transactions to the
authorised authority.
(b) Internal control, no matter how effective, can provide an entity with only reasonable assurance and
not absolute assurance about achieving the entity’s operational, financial reporting and compliance
objectives. Internal control systems are subject to certain inherent limitations, such as:
• Management’s consideration that the cost of an internal control does not exceed the expected
benefits to be derived.
• The fact that most internal controls do not tend to be directed at transactions of unusual
nature. The potential for human error, such as, due to carelessness, distraction, mistakes of
judgement and misunderstanding of instructions.
• The possibility of circumvention of internal controls through collusion with employees or with
parties outside the entity.
• The possibility that a person responsible for exercising an internal control could abuse that
responsibility, for example, a member of management overriding an internal control.
• Manipulations by management with respect to transactions or estimates and judgements
required in the preparation of financial statements.
6. (a) Cloud computing model provides the facility to access shared resources and common infrastructure
offering services on demand over the network to perform operations that meet changing business
needs. Thus, we can say that Ms. Y is using the Cloud Computing model which allows her to use
many computing resources as a service through networks, typically the Internet.
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 Some of the key characteristics of Cloud Computing are as follows:
 Elasticity and Scalability: Cloud computing gives us the ability to expand and reduce
resources according to the specific service requirement. For example, we may need many
server resources for the duration of a specific task. We can then release these server
resources after we complete our task.
 Pay-per-Use: We pay for cloud services only when we use them, either for the short term (for
example, for CPU time) or for a longer duration (for example, for cloud-based storage or vault
services).
 On-demand: Because we invoke cloud services only when we need them, they are not
permanent parts of the IT infrastructure. This is a significant advantage for cloud use as
opposed to internal IT services. With cloud services, there is no need to have dedicated
resources waiting to be used, as is the case with internal services.
 Resiliency: The resiliency of a cloud service offering can completely isolate the failure of
server and storage resources from cloud users. Work is migrated to a different physical
resource in the cloud with or without user awareness and intervention.
 Multi Tenancy: Public cloud service providers often can host the cloud services for multiple
users within the same infrastructure. Server and storage isolation may be physical or virtual
depending upon the specific user requirements.
 Workload Movement: This characteristic is related to resiliency and cost considerations.
Here, cloud-computing providers can migrate workloads across servers both inside the data
center and across data centers (even in a different geographic area). This migration might be
necessitated by cost (less expensive to run a workload in a data centre in another country
based on time of day or power requirements) or efficiency considerations (for example,
network bandwidth). A third reason could be regulatory considerations for certain types of
workloads.
(b) A Voucher Number or a Document Number is a unique identity of any voucher/ document. A
voucher may be identified or searched using its unique voucher number. The peculiarities that must
be considered while allotting a voucher number to a voucher are as foll ows:
 Voucher number must be unique.
 Every voucher type shall have a separate numbering series
 A voucher number may have prefix or suffix or both, e.g. ICPL/2034/17-18. In this case, “ICPL”
is the prefix, “17-18” is the suffix and “2034” is the actual number of the voucher.
 All vouchers must be numbered serially, i.e. 1,2,3,4,5,6 and so on.
 All vouchers are recorded in chronological order and hence voucher recorded earlier must
have an earlier number, i.e. if voucher number for a payment voucher having date as 15th
April 2017 is 112, voucher number for all the vouchers recorded after this date shall be more
than 112 only.

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 Test Series: March, 2018
MOCK TEST PAPER
INTERMEDIATE COURSE: GROUP – II
PAPER –7: ENTERPRISE INFORMATION SYSTEMS & STRATEGIC MANAGEMENT
SECTION – B: STRATEGIC MANAGEMENT
SUGGESTED ANSWERS/HINTS

1. (a) Competitive advantage is the position of a firm to maintain and sustain a favorable market position
when compared to the competitors. Competitive advantage is ability to offer buyers something
different and thereby providing more value for the money. It is the result of a successful strategy.
This position gets translated into higher market share, higher profits when compared to those that
are obtained by competitors operating in the same industry. Competitive advantage may also be
in the form of low cost relationship in the industry or being unique in the industry along dimensions
that are widely valued by the customers in particular and the society at large.
(b) A strategic vision delineates organisation’s aspirations for the business, providing a panoram ic
view of the position where the organisation is going. A strategic vision points an organization in a
particular direction, charts a strategic path for it to follow in preparing for the future, and moulds
organizational identity. A Strategic vision is a road map of a company’s future – providing specifics
about technology and customer focus, the geographic and product markets to be pursued, the
capabilities it plans to develop, and the kind of company that management is trying to create.
(c) In co-generic merger two or more merging organizations are associated in some way or the other
related to the production processes, business markets, or basic required technologies. Such
merger include the extension of the product line or acquiring components that are required in the
daily operations.
2. (a) Incorrect: In business, things happen that cannot be fully anticipated or planned for. When market
and competitive conditions take an unexpected turn or some aspect of a company's strategy hits a
stone wall, some kind of strategic reaction or adjustment is required.
(b) Correct: Economies of scale refer to the decline in the per-unit cost of production (or other activity)
as volume grows. A large firm that enjoys economies of scale can produce high volumes of goods
at successively lower costs. This tends to discourage new entrants.
(c) Correct: The human resource management helps the organization to effectively deal with the
external environmental challenges. The function has been accepted as a partner in the formulation
of organization’s strategies and in the implementation of such strategies through human resource
planning, employment, training, appraisal and rewarding of personnel.
3. (a) Azad plays role as an intrapreneur who operates within the boundaries of an organisation. He is
an employee of Always Fit, who is vested with authority of initiating creativity and innovation in the
company’s products, services and projects, redesigning the processes, workflows and systems.
Azad believes in change and do not fear failure. He discovers a new idea which can benefit the
whole organization by utilizing the surplus space in the stores. The job of Azad is extremely
challenging. He gets recognition and reward for the success achieved.
(b) Shreekant opt for turnaround strategy which is a highly-targeted effort to return Arena Ltd. to
profitability and increase positive cash flows to a sufficient level. Organizations those have faced
a significant crisis that has negatively affected operations require turnaround strategy. Once
turnaround is successful the organization may turn to focus on growth.

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 Conditions for turnaround strategies
When firms are losing their grips over market, profits due to several internal and external factors,
and if they have to survive under the competitive environment they have to identify danger signals
as early as possible and undertake rectification steps immediately. These conditions may be, inter
alia cash flow problems, lower profit margins, high employee turnover and decline in market share,
capacity underutilization, low morale of employees, recessionary conditions, mismanagement, raw
material supply problems and so on.
Action plan for turnaround strategy
 Stage One – Assessment of current problems
 Stage Two – Analyze the situation and develop a strategic plan
 Stage Three – Implementing an emergency action plan
 Stage Four – Restructuring the business
 Stage Five – Returning to normal
(c) A tool to study the market positions of rival companies by grouping them into like positions is
strategic group mapping. Grouping competitors is useful when there are many competitors such
that it is not practical to examine each one in-depth. 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.
The procedure for constructing a strategic group map and deciding which firms belong in which
strategic group is as follows:
 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).
 Plot the firms on a two-variable map using pairs of these differentiating characteristics.
 Assign firms that fall in about the same strategy space to the same strategic group .
 Draw circles around each strategic group making the circles proportional to the size of the
group's respective share of total industry sales revenues.
4. (a) Importance of Strategic Management: Strategic Management is very important for the survival and
growth of business organizations in dynamic business environment. Other major benefits of
strategic management are as follows:
 It helps organizations to be more proactive rather than reactive in dealing with its future. It
facilitates the organisations to work within vagaries of environment and remains adaptable
with the turbulence or uncertain future. Therefore, they are able to control their own destiny
in a better way.
 It provides better guidance to entire organization on the crucial point – what it is trying to do.
Also provides framework for all major business decisions of an enterprise such a decision on
businesses, products, markets, organization structures, etc.
 It facilitates to prepare the organization to face the future and act as pathfinder to various
business opportunities. Organizations are able to identify the available opportunities and
identify ways and means as how to reach them.
 It serves as a corporate defence mechanism against mistakes and pitfalls. It helps
organizations to avoid costly mistakes in product market choices or in vestments.
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  Over a period of time, strategic management helps organizations to evolve certain core
competencies and competitive advantages that assist in the fight for survival and growth.
(b) Decision making is a managerial process of selecting the best course of action out of several
alternative courses for the purpose of accomplishment of the organizational goals. Decisions may
be operational i.e., which relate to general day-to-day operations. They may also be strategic in
nature. According to Jauch and Glueck “Strategic decisions encompass the definition of the
business, products to be handled, markets to be served, functions to be performed and major
policies needed for the organisation to execute these decisions to achieve the strategic objectives.”
The major dimensions of strategic decisions are as follows:
 Strategic decisions require top-management involvement: Strategic decisions involve thinking
in totality of the organization. Hence, problems calling for strategic decisions require to be
considered by the top management.
 Strategic decisions involve commitment of organisational resources: For example, Strategic
decisions to launch a new project by a firm requires allocation of huge fund s and assignment
of a large number of employees.
 Strategic decisions necessitate consideration of factors in the firm’s external environment:
Strategic focus in organization involves orienting its internal environment to the changes of
external environment.
 Strategic decisions are likely to have a significant impact on the long-term prosperity of the
firm: Generally, the results of strategic implementation are seen on a long-term basis and not
immediately.
 Strategic decisions are future oriented: Strategic thinking involves predicting the future
environmental conditions and how to orient for the changed conditions.
 Strategic decisions usually have major multifunctional or multi-business consequences: As
they involve organization in totality they affect different sections of the organization with
varying degree.
5. (a) It is true that evaluating the worth of a business is central to strategy implementation. There are
circumstances where it is important to evaluate the actual worth of the business. These
circumstances can be wide and varied. At a higher level they may include acquisition, merges or
diversification. They may also include other situations such as fixing of share price in an issue.
Acquisition, merger, retrenchment may require establishing the financial worth or cash value of a
business to successfully implement such strategies.
Various methods for determining a business’s worth can be grouped into three main approaches.
(i) Net worth or stockholders’ equity: Net worth is the total assets minus total outside liabilities
of an organisation.
(ii) Future benefits to owners through net profits: These benefits are considered to be much
greater than the amount of profits. A conservative rule of thumb is to establish a business’s
worth as five times the firm’s current annual profit. A five-year average profit level could also
be used.
(iii) Market-determined business worth: This, in turn, involves three methods. First, the firm’s
worth may be based on the selling price of a similar company. The second approach is called
the price-earnings ratio method whereby the market price of the firm’s equity shares is divided
by the annual earnings per share and multiplied by the firm’s average net income for the
preceding years. The third approach can be called the outstanding shares method whereby
one has to simply multiply the number of shares outstanding by the market price per share
and add a premium.
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 (b) Cost leadership emphasizes producing standardized products at a very low per -unit cost for
consumers who are price-sensitive. Differentiation is a strategy aimed at producing products and
services considered unique industry wide and directed at consumers who are relatively price -
insensitive.
A primary reason for pursuing forward, backward, and horizontal integration strategies is to gain
cost leadership benefits. But cost leadership generally must be pursued in conjunction with
differentiation. Different strategies offer different degrees of differentiation. A differentiation
strategy should be pursued only after a careful study of buyers’ needs and preferences to
determine the feasibility of incorporating one or more differentiating features into a unique product.
A successful differentiation strategy allows a firm to charge a higher price for its product and to
gain customer loyalty.
6. A strategy audit is an examination and evaluation of areas affected by the operation of a strategic
management process within an organization. The audit of management performance with regard to
external strategies helps an organization identify problem areas and correct the strategic approaches
that have not been effective so far. It is a process for taking an objective look at the existing strategies
of the organization. It involves assessing the direction of a business and comparing that to the course
required to succeed in a changing environment.”
Companies review their business plans and strategies on regular basis to identify weaknesses and
shortcomings to enable a successful development plan. The strategy audit secures that all necessary
information for the development of the company are included in the business plan and that the
management supports it.
Richard Rumelt’s Criteria for Strategy Audit
a. Consistency: A strategy should not present inconsistent goals and policies which can lead to
organizational problems and conflicts. Three guidelines to identify are:
 Strategies may be inconsistent if managerial problems tend to be issue-based rather than
people-based.
 If success for one organizational department means, or is interpreted to mean, failure for
another department, then strategies may be inconsistent.
 If policy problems and issues continue to be brought to the top for resolution, then strategies
may be inconsistent.
b. Consonance: Consonance refers to the need for strategists to examine sets of trends, as well as
individual trends, in auditing strategies. A strategy must represent an adaptive response to the
external environment and to the critical changes occurring within it. One difficulty in matching a
firm’s key internal and external factors in the formulation of strategy is that most trends ar e the
result of interactions among other trends.
c. Feasibility: A strategy must neither overtax available resources nor create unsolvable sub -
problems. The final broad test of strategy is its feasibility; that is, can the strategy be attempted
within the physical, human, and financial resources of the enterprise? In auditing a strategy, it is
important to examine whether an organization has demonstrated in the past that it possesses the
abilities, competencies, skills, and talents needed to carry out a given strategy.
d. Advantage: A strategy must provide for the creation and/or maintenance of a competitive
advantage in a selected area of activity. Competitive advantages normally are the result of
superiority in one of three areas:
(1) resources, (2) skills, or (3) position.

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 or
The changes in the environmental forces often require businesses to make modifications in their
existing strategies and bring out new strategies. Strategic change is a complex process and it
involves a corporate strategy focused on new markets, products, services and new ways of doing
business.
To make the change lasting, Kurt Lewin proposed three phases of the change process for
moving the organization from the present to the future. These stages are unfreezing, changing
and refreezing.
(i) Unfreezing the situation: The process of unfreezing simply makes the individuals or
organizations aware of the necessity for change and prepares them for such a change.
Lewin proposes that the changes should not come as a surprise to the members of the
organization. Sudden and unannounced change would be socially destructive and
morale lowering. The management must pave the way for the change by first “unfreezing
the situation”, so that members would be willing and ready to accept the change.
(ii) Changing to New situation: Once the unfreezing process has been completed and the
members of the organization recognise the need for change and have been fully
prepared to accept such change, their behaviour patterns need to be redefined. H.C.
Kellman has proposed three methods for reassigning new patterns of behaviour. These
are compliance, identification and internalisation.
(iii) Refreezing: Refreezing occurs when the new behaviour becomes a normal way of life.
The new behaviour must replace the former behaviour completely for successful and
permanent change to take place. In order for the new behaviour to become permanent,
it must be continuously reinforced so that this new acquired behaviour does not diminish
or extinguish.

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