Test 2

CA INTER: Group II
PAPER – 7: ENTERPRISE INFORMATION SYSTEMS AND STRATEGIC MANAGEMENT

Total Marks: 30 Marks Time Allowed: 1.5 Hours

6 Marks each
1. Money laundering is used by anti-social elements to make ‘dirty’ money appear ‘clean’ that
affects the economy of any country. Discuss the various stages involved in the process of
Money Laundering.
2. ABC Ltd is a company that has grown eleven times its size in last five years. With the
increase in size the company is facing difficulty in managing things. Many a times functional
level is not in sync with the corporate level. What will you like to advise to the company and
why?
3. What do you mean by financial strategy of an organization? How the worth of a business
is evaluated?
4. Capabilities that are valuable, rare, costly to imitate, and non-substitutable are core
competencies. Explain these four specific criteria of sustainable competitive advantage that
firms can use to determine those capabilities that are core competencies
5. What is the purpose of SWOT analysis? Why is it necessary to do a SWOT analysis before
selecting a particular strategy for a business organization?
1. Stages of Money Laundering are as follows:
i. Placement: The first stage involves the Placement of proceeds derived from illegal
activities - the movement of proceeds frequently currency from the scene of the
crime to a place, or into a form, less suspicious and more convenient for the
criminal.
ii. Layering: Layering involves the separation of proceeds from illegal source using
complex transactions designed to obscure the audit trail and hide the proceeds. The
criminals frequently use shell corporations, offshore banks or countries with loose
regulation and secrecy laws for this purpose. Layering involves sending the money
through various financial transactions to change its form and make it difficult to
follow. Layering may consist of several banks to bank transfers or wire transfers
between different accounts in different names in different countries making deposit
and withdrawals to continually vary the amount of money in the accounts changing
the money’s currency purchasing high value items to change the form of money-
making it hard to trace.
iii. Integration: Integration involves conversion of illegal proceeds into apparently
legitimate business earnings through normal financial or commercial operations.
Integration creates the illusion of a legitimate source for criminally derived funds
and involves techniques as numerous and creative as those used by legitimate
businesses.

2. The higher-level corporate strategies need to be segregated into viable plans and policies
that are compatible with each other and communicated down the line. The higher-level
strategies need to be broken into functional strategies for implementation. These functional
strategies, in form of marketing, finance, human resource, production, research and
development help in achieving the organisational objective. The reasons why functional
strategies are needed can be enumerated as follows:
 Functional strategies lay down clearly what is to be done at the functional level. They
provide a sense of direction to the functional staff.
 They are aimed at facilitating the implementation of corporate strategies and the
business strategies formulation at the business level.
 They act as basis for controlling activities in the different functional areas of business.
 They help in bringing harmony and coordination as they are formulated to achieve
major strategies.
 Similar situations occurring in different functional areas are handled in a consistent
manner by the functional managers.

3. The financial strategies of an organization are related to several finance/ accounting

concepts considered to be central to strategy implementation. These are: acquiring needed
capital/sources of fund, developing projected financial statements/budgets, management/
usage of funds, and evaluating the worth of a business.
Various methods for determining a business’s worth can be grouped into three main
approaches which are as follows:
(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.

4. Four specific criteria of sustainable competitive advantage that firms can use to determine
those capabilities that are core competencies. Capabilities that are valuable, rare, costly to
imitate, and non-substitutable are core competencies.
i. Valuable: Valuable capabilities are the ones that allow the firm to exploit opportunities
or avert the threats in its external environment. A firm created value for customers by
effectively using capabilities to exploit opportunities. Finance companies build a
valuable competence in financial services. In addition, to make such competencies as
financial services highly successful require placing the right people in the right jobs.
Human capital is important in creating value for customers.
ii. Rare: Core competencies are very rare capabilities and very few of the competitors
possess this. Capabilities possessed by many rivals are unlikely to be sources of
competitive advantage for any one of them. Competitive advantage results only when
firms develop and exploit valuable capabilities that differ from those shared with
competitors.
iii. Costly to imitate: Costly to imitate means such capabilities that competing firms are
unable to develop easily. For example: Intel has enjoyed a first-mover advantage
more than once because of its rare fast R&D cycle time capability that brought SRAM
and DRAM integrated circuit technology, and brought microprocessors to market well
ahead of the competitor. The product could be imitated in due course of time, but it
was much more difficult to imitate the R&D cycle time capability.
iv. Non-substitutable: Capabilities that do not have strategic equivalents are called non-
substitutable capabilities. This final criterion for a capability to be a source of
competitive advantage is that there must be no strategically equivalent valuable
resources that are themselves either not rare or imitable.
5. An important component of strategic thinking requires the generation of a series of strategic
alternatives, or choices of future strategies to pursue, given the company’s internal
strengths and weaknesses and its external opportunities and threats. The comparison of
strengths, weaknesses, opportunities, and threats is normally referred to as SWOT
analysis.
 Strength: Strength is an inherent capability of the organization which it can use to
gain strategic advantage over its competitors.
 Weakness: A weakness is an inherent limitation or constraint of the organization
which creates strategic disadvantage to it.
  Opportunity: An opportunity is a favourable condition in the organisation’s environment
which enables it to strengthen its position.
 Threat: A threat is an unfavourable condition in the organisation’s environment which
causes a risk for, or damage to, the organisation’s position.
SWOT analysis helps managers to craft a business model (or models) that will allow a company to
gain a competitive advantage in its industry (or industries). Competitive advantage leads to
increased profitability, and this maximizes a company’s chances of surviving in the fast-changing,
competitive environment. Key reasons for SWOT analyses are:
 It provides a logical framework.
 It presents a comparative account.
 It guides the strategist in strategy identification.

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