CA Guru Gupta – ITSM (Paper-7) CHAPTER-1 BUSINESS PROCESS MANAGEMENT AND IT

Chapter- 1 Business Process Management and IT

Business Process:
 A process is a sequence of events that uses inputs to produce outputs. It includes sequences of reading a file
and transforming the file to a desired output format; to taking a customer order, filling that order, and issuing the
customer invoice.
 From a business perspective, a process is a co-ordinated and standardized flow of activities performed by people or
machines to achieve a business objective and creates value for all stakeholders.
 Each business process is enacted by a single organization, but it may interact with business processes performed by
other organizations.
 Organizations have many different business processes such as completing a sale, purchasing raw materials, paying
employees and paying vendors, etc.
 Each of the business processes has either a direct or indirect effect on the financial status of the organization.
Q-1 What is the difference between functional organization and process organization?

S. Descriptions Functional Organization Process Organization

No.
1) Work Unit It represents Department It represents Team
2) Key person It comprises of Functional Executive It comprises of Process Owner
3) Benefits - It focuses on functional It focuses on response to market
excellence, easier to implement requirements, improved communication
work balancing because workers and collaboration between different
have similar skills and clear functional tasks and performance
management direction on how measurements aligned with process
work should be performed. goals.
4) Weaknesses It has barrier to communication It has duplication of functional expertise;
between different functions; poor inconsistency of functional performance
handover between functions that between processes; and increased
affects customer service; and lack of operational complexity.
end-to-end focus to optimize
organizational performance.
5) Strategic Value It supports cost leadership strategy. It supports differentiation strategy.

Business Process Management (BPM):

 Business Process Management (BPM) is a systematic and pro-active approach of interlinking the various
essential business processes namely inventory process, manufacturing process, marketing and distribution
process etc. by using various systems, methods, tools and techniques for mapping, planning, monitoring,
improvement and adherence with organizational processes.

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 It is a multi-functional approach and provides integration amongst various functions.

 It provides proper organization structure and departmentalization along with roles and responsibilities
provided to various managers of the hierarchy.
 It helps in design, administration, configuration, enactment, and analysis of business processes. It ensures
continuous improvement in processes to achieve enterprise objectives.
 BPM provides automation as a result of integration and changes the way of doing the business by using BPMS.
Hence BPM is a combination of BPA and BPR.
 The purpose of BPM is to improve efficiency and effectiveness over business processes and provide value
optimization with minimum costs and minimum utilization of resources. Thus it is used to achieve all
predetermined business objectives at lowest cost.
 It ensures alignment of processes with enterprise goals and find ways to improve those processes and then
establish measurements used to track and monitor performance for continuous improvement and optimization.
 Examples of methods used in BPM: Business Process Reengineering, Six Sigma, and Total Quality Management
(TQM); and process-supporting technologies such as workflow management, process analysis and automation suites,
and service enabled systems.

Q-1 Key terms of Business Process Management (BPM):

S. Key Definition
No. Terms
1) Business  An implementation of BPM must have an impact on the business by delivering benefits.
 It should focus on the core business processes that are essential to our primary business
activity – those processes that contribute towards the achievement of the strategic objectives of the
organization.
2) Processes  A process comprises all the things we do to provide someone who cares with what they expect
to receive’.
 The lifecycle of an end-to-end process is from the original trigger for the process to the ultimate
stakeholder satisfaction.
 The final test of a process‟s completeness is whether the process delivers a clear product or
service to an external stakeholder or another internal process.
3) Essential  Not every process in an organization contributes towards the achievement of the organization’s
strategic objectives. Essential processes are the ones that do.
4) Organization  It refers to an enterprise or parts of an enterprise, or a business unit that is discrete in its own
right.
 It is the end-to-end business processes associated with this part of an organization. This
end-to-end focus will ensure that a silo approach does not develop.
5) Objectives  The objectives of a BPM implementation range from the strategic goals of the organization
through to the individual process goals.
 It is about achieving the business outcomes or objectives. BPM is not an objective in itself, but
rather a means to achieving an objective. It is not a solution looking for a problem.
6) Achievement  Realizing the strategic objectives as outlined in the organization’s strategic plan.
 At a project level, it is about realizing the value or business benefits as outlined in the project

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 CA Guru Gupta – ITSM (Paper-7) CHAPTER-1 BUSINESS PROCESS MANAGEMENT AND IT

business case.
7) Management  It refers to the process’s and people’s performance measurement and management.
 It is about organizing all the essential components and subcomponents for processes. By
this we mean arranging the people, their skills, motivation, performance measures, rewards, the
processes themselves and the structure and systems necessary to support a process.
8) Control  BPM is about managing our end-to-end business processes and involves the full cycle of
plan–do–check–act (Deming circle, Walton, 1986).
 An essential component of control is to have the ability to measure correctly. If we cannot
measure something, we cannot control and manage it.
9) Improvement  It is about making the business processes more efficient and effective.

Q-2 Principles of BPM:

1) First principle of BPM is that processes are assets that create value for customers.
2) Second principle of BPM is that processes are required to be managed because only a managed process produces
consistent value to customers. It comprises of various tasks i.e, measuring, monitoring, controlling, and analyzing
business processes.
3) The third principle is continuous improvement of processes.

Q-3 Explain the levels of business process management:

a) Business Strategy:
 At the first level, this process describes long term unique and
complete planning to achieve sustainable competitive advantage in
the market.
 Example of a business strategy is cost leadership for products, focus
strategy, differentiation strategy etc.

b) Operational Goals:
 At the second level, the business strategy is broken down to small-small
operational goals. These goals should be organized, so that each goal can
be divided into a set of sub-goals.
 For example: Reducing the cost for supplied materials is a sample
goal that contributes to the realization of the business strategy mentioned.

c) Organizational business process:

 At the third level, organizational business processes can be obtained to provide organization structure in
summarized form. It refers to high-level process specified in textual form and includes inputs, their outputs, their
expected results and their dependencies on other organizational business processes.
 Example: Supplier to consumer process. It explains management of incoming raw materials provided by a set of
suppliers and distribution of finished goods.

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d) Operational Business Process:

 At last level, operational business process is required to be obtained to provide details about each and
every function required for organization.
 Examples: Inventory process, manufacturing process, marketing process, distribution process, logistic process etc.

e) Implemented Business Processes:

 This Process contains information on the execution of the process activities and the technical and
organizational environment in which they will be executed.

Q-4 Practices of BPM (amendment for Nov. 2015)

1) Process-oriented organizational structure:
 BPM ensures to provide processes according to the organization structure so that they can produce values. It
should be effectively managed and improved on continuous basis.
Types of process-oriented structures:
a) Process Organization:
 In this organization structure, employees will report to functional head of respective process lines.
Each process unit would contain various functions that support the processes. The advantage of
process organization is that it optimizes the performance of the process.
b) Case management organization:
 In this organizational structure, employees would still report to functional heads but apparently they
also report to case managers.
 The case manager has all responsibility to oversee the end-to-end process of an individual case.
c) Horizontal process management organization:
 The organization would create process owners who are responsible for core processes. The core
processes could be order-to-cash (sales), product development, purchase-to-pay (purchase), etc.
2) Appoint Process Owners:
 The process owner should be a senior member of the organization who has the power to influence other
senior managers. The process owners are assigned to the core processes for monitoring over the performance
of the process assigned.
 The process owner designs, deploys, and improves the process and is responsible for influencing
functional workers on how best to perform functions associated with the process.

3) Top-Down Commitment, Bottom - Up Execution:

 For effective BPM, top management must provide commitment and support to process-focused
management approach. Without top management commitment, BPM will likely to disappear.
 Executing process improvement should use a bottom-up approach. It is effective in execution process
because there is huge user participation and has less scope for resistance from the employees.

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4) Use Information Technology (IT) to Manage Processes:

 BPM should use BPMS that aligns the IT solution to be more in line with the process and once implemented,
allows organizations to measure, monitor, control, and analyse processes on real time basis.

5) Collaborate with Business Partners:

 Now a days, companies are preferred more to outsource the process to third organization for getting more
and more advancement and specialization.
 Outsourcing requires sharing information with business partners and helping business partners with their
business processes that can be provided by BPM.

6) Continuous Learning and Process Improvement:

 BPM provides learning module to new employees about how to use technology in executing business
process. It helps employees to increase their efficiency level in performing task. It also helps in providing accurate
result with productivity and reliable results.

7) Align Employee Rewards to Process Performance:

 BPM presents information about efficiency level of each and every employee and provide rate for rewards and
perform auto calculation of rewards on real time basis. It helps in delivering customer value and optimizing
process performance are two central goals.
 It assists organization in providing rewards to employees according to their performance and avoiding
paying rewards on ad-hoc basis. It helps in increasing the business process performance.

8) Utilize BPR, TQM, and Other Process Improvement Tools:

 Many business process experts describe BPM as the main component of business process improvement approach. BPM
uses various tools such as Six Sigma – DMAIC methods (Define, Measure, Analysis, Improve, and Control) for improving
the processes.

Q-4 Task to manage business Process:

1) Defining the task:
 It involves defining the steps (tasks) in the process and mapping the tasks to the roles involved in the
process.
 Examples: First define manufacturing tasks and then define roles and responsibilities to employees, workers
and managers.

2) Establishing process measurement:

 Once the process is mapped and implemented, performance measures can be established. It helps to create a
basis to improve the process.
 Example: Apply standard costing approach to measure the actual costs with standard costs.

3) Organizational Set up:

 It enables the standardization of and adherence to the process throughout the organization.
 It helps in assigning enterprise process owners and aligning employee‟s performance reviews to
achieve value creation in processes.
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 Example: Process owner of manufacturing process will be appointed to monitor manufacturing process.

Q-5 Phases of BPM life cycle:

1) Analysis phase:
 This involves analysis of the current environment and current processes, identification of needs and definition
of requirements.

2) Design phase:
 This involves evaluation of potential solutions to meet the identified needs, business process designing and
business process modeling.

3) Implementation phase:
 This involves project preparation, blue printing, realization, final preparation, go live and support.

4) Run and Monitor phase:

 This involves business process execution or deployment and business process monitoring.

Analysis

optimize Design
BPM Life
Cycle

Run & Impleme

monitor ntation

Q-6 Examples of Business Process flow:

Examples of key business process life cycle pertaining to accounting, sales and purchase are explained below.

1) Purchase:
 It covers the process of materializing procurement into payment for obtaining raw materials required for
production of a product or for providing a service.
 It begins from the point of placing an order with a vendor to the point of payment to the vendor.

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Life cycle of a purchase transaction::

(a) Purchase requisition: It is a document prepared for requesting the purchase department to place an order with the
vendor specifying the quantity and time frame.
(b) Request for quote: It is an invitation sent to vendors to join a bidding process for specific products.
(c) Quotation: The vendors provide cost quotations for supply of products.
(d) Purchase order: It is a commercial document issued to vendor specifying the type, quantity and agreed prices for
products.
(e) Receipts: It is a physical receipt of goods and invoices.
(f) Payments: It refers to outflow of money against the invoices raised.

2) Sales:
 It covers the process of materializing order into cash to fulfill customer‟s request for goods and services.
 It begins from the initial point of documenting a customer order to the final point of collecting the cash.

Order to cash process flow

Life cycle of a sale transaction:
(i) Customer Order: a purchase order received from a customer specifying the type, quantity and agreed prices for
products.
(ii) Recording: availability of the items is checked and customer order is booked.
(iii) Pick release: the items are moved from the warehouse to the staging area.
(iv) Shipping: the items are loaded onto the carrier for transport to the customer.
(v) Invoice: invoice of the transaction is generated and sent to the customer.
(vi) Receipt: money is received from the customer against the invoices.
(vii) Reconciliation: the bank reconciliation of all the receipts is performed.

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3) Accounting:
 This cycle covers accounting and Book keeping cycle that involves recording and processing of accounting
events of a company.
 It begins when a transaction or financial event occurs and ends with its inclusion in the financial statements.

Life cycle of an accounting transaction:

(a) Source Document: It is a document that captures data from transactions and events.
(b) Journal: These transactions are recorded into journals from the source document.
(c) Ledger: These entries are posted to the ledger from the journal.
(d) Trial Balance: These are unadjusted trial balance containing totals from all account heads is prepared.
(e) Adjustments: These are appropriate adjustment entries that are required to be passed to account the changes made.
(f) Adjusted Trial balance: It is a trial balance that is finalized after adjustments.
(g) Closing entries: These are appropriate entries are passed to transfer accounts to financial statements.
(h) Financial statement: It is an statement of all accounts in summarized form classified either in asset or liability side.

4) Finance:
 Finance is one of the most important and limited resources available with organization. Hence it should be used
properly to target the areas of need, efficiency and improvement in services.
 It begins from source of funds to application of funds and involves processes such as resource allocation,
monitoring and analysis.
Financial
reporting

Evaluation, Analysis Resource

& reporting allocation

operation and
monitoring

Q-7 Theories of Business Processes Management

1) Six Sigma
2) Total Quality Management (TQM)

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Six Sigma:
Introduction:
 Six Sigma is a set of strategies, techniques, and tools for process improvement and quality improvement on
outputs derived from each processes.
 It helps in identifying and removing the causes of defects and minimizing deviations in manufacturing and
business processes.
 Six Sigma project follows a defined sequence of steps and has quantified value targets and apply processes to
achieve it. For example: reduce process cycle time, reduce pollution, reduce costs, increase customer satisfaction,
and increase profits.
 It follows a life-cycle having phases: Define, Measure, Analyze, Improve and Control (or DMAIC).

Phases of Six-Sigma:
1) Define:
 In this phase, it identifies the customers and their requirements are gathered. Then develop problem statement,
goals and benefits. It also determines process owner, team and resources.

2) Measure:
 In this phase, it defines the metrics used to measure the results provided by each and every process and determine
the deficiencies available in it.

3) Analyze:
 After identifying deficiencies, SWOT analysis is required to be done to evaluate the performance of each and every
process by using statistical methods and graphical displays, and thereafter identify possible causes of process
output variations.
 These possible causes are analysed statistically to determine root cause of variation.

4) Improve:
 After analysing, various solution alternatives are generated to fix the root cause of each and every problem. The
most appropriate solution is identified using solution prioritization matrix and validated using pilot testing.
 Cost and benefit analysis is performed to validate the financial benefit of the solution. Thereafter,
implementation plan is drafted and executed.

5) Control:
 Once appropriate solution is identified for improvement over process performance, these processes must be
standardized and documented and thereafter monitoring system is implemented to ensure process is
performing as designed and validate expected results.
 Project is evaluated and lessons learned are shared with others.

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Total Quality Management (TQM):

Introduction:
 It is the organization-wide effort to make permanent climate for continuously improvement its ability to deliver high
quality products and services to customers.
 It improves the quality of products and services in response to continuous feedback.
 It ensures adherence to established standards such as the International Organization for Standardization's ISO 9000
series.
 TQM can be applied to any type of organization such as manufacturing sector, service sector, including schools,
highway maintenance, hotel management, and churches etc.
 TQM processes are divided into four sequential categories: Plan, Do, Check, and Act (the PDCA cycle)

Phases of TQM:
1) Plan: In the planning phase, people define the problem to be addressed, collect relevant data, and ascertain the
problem's root cause;
2) Do: In the doing phase, people develop and implement a solution, and decide upon a measurement to gauge its
effectiveness;
3) Check: In the checking phase, people confirm the results through before-and-after data comparison;
4) Act: In the acting phase, people document their results; inform others about process changes, and make
recommendations for the problem to be addressed in the next PDCA cycle.

Business Process Reengineering

 Definition of BPR is defined by Mr. Hammer Champhy is: “BPR is the fundamental rethinking and radical
redesign of processes to achieve dramatic improvement, in critical, contemporary measures of
performance such as cost, quality, service and speed”.
 Business processes need to be re-engineered to enhance efficiencies and bring transformational change
 Dramatic achievement means to achieve 80% or 90% reduction (in say, delivery time, work in progress or rejection
rate) and not just 5%, 10% reduction. This is possible only by making major improvements and breakthroughs,
and not small incremental changes like in Total Quality Management (TQM).
 Radical redesign means BPR is reinventing and not enhancing or improving. In a nutshell, a “clean slate
approach” of BPR says that “Whatever you were doing in the past is all wrong”.
 Fundamental rethinking means asking the question “why do you do what you do”, thereby eliminating
business processes altogether if it does not add any value to the customer. There is no point in simplifying or
automating a business process which does not add any value to the customer.

BPR Success factors

1) Organization wide commitment:
 Top management commitment is mandatorily required to proceed with changes to business processes
because it requires strong leadership, support and sponsorship from the top management and it would
have a direct impact on processes, organizational structures, work culture, information flows, infrastructure &

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technologies and job competencies.

2) BPR team composition:
 A BPR team is formed which would be responsible to take the BPR project forward and make key decisions
and recommendations.
 It includes active representatives from top management, business process owners, technical experts and
users. It should be of manageable size and well-coordinated.
3) Business needs analysis:
 Business need analysis is conducted in a series of sessions that are held with the process owners and
stakeholders. All ideas would be evaluated to outline and conceptualize desired business process
 The outcome of business need analysis will be used to prepare BPR project plan that specifies problem
areas, goals and key business objectives.
 It helps in identify exactly what current processes need re-engineering. It determines the strategy and goals
for BPR.
4) Adequate IT infrastructure:
 Adequate investment in IT infrastructure in line is of vital importance to successful BPR implementation.
 An IT infrastructure is a set of hardware, software, networks, facilities, etc. (including all of the information
technology), in order to develop, test, deliver, monitor, control or support IT services. Effective alignment of IT
infrastructure to BPR strategy would determine the success of BPR efforts.
5) Effective change management:
 BPR involves changes in people behavior and culture, processes and technologies. Hence, change
management process must consider most effective culture to foster a change in the prevailing beliefs,
attitudes and behaviors effectively.
6) Ongoing continuous improvement:
 BPR is an ongoing process, hence innovation and continuous improvement are key to the successful
implementation of BPR.

BPM implementation
 It is used to handle allocating issues such as process owners, process managers, and the method of measuring the
effectiveness and efficiency of a business process according to the different people working in different departments.
 By providing an adjustable structure to make key corporate decisions, BPM helps organizations optimize both work
and revenues.

Key factors for implementing BPM:

S. Factors Key considerations
No.
1) Scope A single process, a department, the entire company
2) Goals Process understanding, improvement, automation, re- engineering, optimization
3) Methods to be used Six Sigma, BPM Life Cycle Method, TQM, Informal methods

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4) Skills required Consultants, Train Employees, Formal Certification, Basic Education, Existing Skill
sets
5) Tools to be used White-Boards, Sticky notes, Software for Mapping, Documenting, Software for
Simulation, Comprehensive BPMS
6) Investments to make Training, Tools, Time
7) Sponsorship/ Buy-in needed Executive Level, Department Level, Process Owner Level, Employee Level

Need for a BPM implementation:

BPM will be the mechanism to:
 Create the long-term future positioning of the business and enhance its future capability;
 Create short-term cost effectiveness and improvement to current customer service;
 Initiate continuous improvement in processes;
 Introduce a knowledge of product and customer profitability;
 Re-engineer the business radically and provide clear future competitive differentiation;
 Address the cultural barriers that prevent effective cross-functional and hierarchical working;
 Introduce leadership and a role for managers and empowered staff.

Challenges in implementing BPA

How can any organization cope with these increased demands in an environment where, at the same time:
 The number of interfaces with the customers is growing (e.g. phone, fax, email, sms, pda, etc.)
 The product, service and price options have increased the complexity of the business
 Most organizations have own data format for „build and buy‟ systems and applications.
 Budgets are being cut.
 Marketing – what product or service do you have to offer?
 Sales – please treat me as one single client
 Delivery – please provide the product or service as quickly as possible.

Value Chain Automation (VCA)

Introduction:
 A value chain is a series of activities or processes which aims at creating and adding value to an article (product) at
every step during the production process.
 Value chain analysis (VCA) is a process where a firm identifies its primary and support activities that add value to its
final product and then analyze these activities to reduce costs or increase differentiation.
 Value chain automation is a combination of value chain analysis and information technology that means when value
chain analysis will be done by using information technology. This concept will be called as Value chain automation.
 Example: Value chain of a manufacturing organization comprises of Primary and Supportive activities. The
primary ones are inclusive of inbound logistics, operations, outbound logistics, marketing and sales, and services.

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The supportive activities relate to procurement, human resource management, technology development and
infrastructure.
 It helps to create value to our customers at minimum cost without any unwanted risks.
Six business functions of the value chain:
 Research and development
 Design of products, services, or processes
 Production
 Marketing and sales
 Distribution
 Customer service

A. Accounting Systems Automation or Accounting Information System

 It is a system of collecting, classifying, storing and processing financial and accounting data that are used
by decision makers to take effective and efficient financial and accounting decisions.
 The resulting financial reports can be used internally by management or externally by other interested parties
including investors, creditors and tax authorities.
 It is designed to support all accounting functions and activities including auditing, financial accounting &
reporting, managerial/ management accounting and tax.
 The most widely adopted accounting information systems modules are auditing and financial reporting.

Q-1 Key elements of Accounting Information System:

1) IT Infrastructure:
 It includes hardware such as personal computers, servers, printers, surge protectors, routers, storage media, and
possibly a backup power supply used to operate the system.
 Hardware selected for AIS must be compatible with the intended software.

2) Software:
 It refers to computer programs that provide quality, reliability and security to the company's financial data
that may be stored, retrieved, processed and analyzed.
 Managers rely on the information provided by software to make decisions for the company.

3) Data:
 It refers to the raw data related to organization's business practices such as sales orders, customer billing
statements, sales analysis reports, purchase requisitions, vendor invoices, check registers, general ledger,
inventory data, payroll information, timekeeping, tax information etc.
 It can be used to prepare accounting statements and reports such as accounts receivable aging, depreciation /
amortization schedules, trial balance, profit and loss, and so on.

4) Procedure and Instructions:

 These include both manual and automated methods for collecting, storing, retrieving and processing data.

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5) People:
 It helps various system‟s users of various departments to work together. It includes accountants, consultants,
business analysts, managers, chief financial officers and auditors etc.
 It allows only authorized users to access the information stored in the accounting system internally as well as
externally.

6) Internal Controls:
 It refers to the security measures such as ID and passwords, biometric device etc. used to protect sensitive data
from unauthorized access, virus and network intrusion.

Q-2 Basic functions of an Accounting Information System (AIS)

There are 3 basic functions of AIS and these are explained here.
1) Collect and store data:
 It refers to the process of collecting and storing data about organization‟s business activities and
transactions from source documents and posting data from journals to ledgers. These source documents,
registers and invoices are maintained serially for better control.
 It uses special forms for capturing transaction data such as sales order, sales invoice, order processing,
purchase order, etc.

2) Record transaction:
 It refers to the process of incorporating the transactions into journals by applying double accounting
principles.
 These journals represent a chronological record of accounting and financial events.

3) Safeguarding organizational assets:

 It provides various input and processing controls so that data are recorded and processed accurately.
 The 2 important methods for safeguarding assets is adequate documentation of all business activities and
segregation of duties.
 Documentation allows management to verify that assigned responsibilities were completed correctly.
Segregation of duties refers to dividing responsibility for different portions of a transaction among several
people.

Q-3 Processing Cycles of an Accounts BPM

There are 3 types of processing involved:
a) Processing cycle of Accounts BPM
b) General and ledger system
c) Data processing cycle

A. Processing Cycles of an Accounts BPM

1) Financing Cycles:
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 It consists of a set of transactions of a major economic event on the financial statements. It combines one or
more types of transactions having related features or similar objectives.
 Through the study of transaction cycles, we gain a clear view of a firm‟s processing framework.

2) Revenue Cycle:
 It includes transactions related to revenue involving accounts like Sales, Accounts Receivable, Inventory and
General Ledger.
 It involves capturing and recording of customer orders; shipment of the goods; and recording of cost of goods
sold. The billing process and the recording of sales and accounts receivable; the capturing and recording of cash
receipts.

Source Document Function

Sales Order Record Customer Order
Delivery Ticket Record Delivery to Customer
Remittance Advice Receive Cash
Deposit Slip Record Amounts Deposited
Credit Memo Support Adjustments to Customer Accounts

Revenue Cycle - Common Source Documents & Functions

3) Expenditure Cycle:
 It includes transactions of expenditures involving accounts like Purchases, Accounts Payable, Cash
Disbursements, Inventory and General Ledger.
 It includes preparation and recording of purchase orders; receipt of goods and the recording of the cost of
inventory; receipt of vendor invoices; recording of accounts payable and preparation and recording of cash
disbursements. The cycle also includes the preparation of employee paychecks and the recording of payroll
activities.

Source Document Function

Purchase Requisition Request that purchasing department order goods.
Purchase Order Request goods from vendors.
Receiving Report Record receipt of merchandise.
Check Pay for items.

Expenditure Cycle - Common Source Documents & Functions

4) Human Resource Cycle:

 It includes transactions related to activities of absenteeism, idles time, actual hours work for, actual hours paid
for etc.
Source Document Function
Time cards Record time worked by employees.
Job time tickets Record time spent on specific jobs.

Human Resource Cycle - Common Source Documents & Functions

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5) Production Cycle:
 This involves the transactions related to recurring set of business activities and related data processing
operations associated with manufacture of products including activities like converting raw materials and labor
into finished goods.

B.General Ledger & Reporting System:

 It includes recording of second effect of transactions occurred related to sales account, purchase account,
receipt account and expenditure account etc.
General Ledger and Reporting System
Journal Voucher Record entry posted to general ledger.
General Ledger & Reporting System - Common Source Documents & Functions

C. Data Processing Cycle:

 It refers to the data processing activities such as updation and recording of all the above cycles.
 It provides detail about the resources affected by the event and agents who participated in the activity.
 If the process of updating of the data stored is periodic, it is referred to as batch processing and if involves
immediate updating as each transaction occurs, it is referred to as on-line, real-time processing.
 The controls on these data are maintained by using Audit Trails which is done by capturing snapshots or by
tracing the flow of data. It provides means to check the accuracy and validity of ledger postings.
 Storage of these data is in files named General Ledger, Accounts Payable ledger and Accounts Receivable
ledger. The data files stored in the system typically include the following:
a. Transaction file: It is a collection of transaction input data - normally temporary in nature.
b. Master file: It is a collection of data called master field that are of a more permanent nature.
c. Reference file (internal table): It contains data that are necessary to support data processing.

Steps of Data Processing Cycle:

1) Data input:
 It involves the activities like capturing the data, implementing control procedures, recording in journals, posting to
ledgers and preparation of reports.
2) Data processing:
 It involves addition, deletion and updating of the data in the transaction file, master file or reference file.
3) Information output:
 It involves generation of documents and managerial reports in printable or electronic form for addressing queries, to
control operational activities and help the management in decision making.
4) Data storage:
 It involves organizing the data in master file or reference file of an automated system for easy and efficient access.

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Q-1 Classify each of the following items as belonging in the revenue, expenditure, human resources/payroll, production or
financing cycle.
S. No. Items Classification
1) Purchase raw materials
2) Decide how many units to make next month
3) Pay for raw materials
4) Disburse payroll checks to factory workers
5) Hire a new assistant controller
6) Update the allowance for uncollectible accounts
7) Establish a Rs. 10,000/- credit limit for customer
XYZ company.

Impact of IT on BPM and Risks of failure of IT

Q-1 Capabilities of BPM system to give impact to IT system:

 Closer business involvement in designing IT enabled business processes.
 Ability to integrate people and systems that participate in business processes.
 Ability to simulate business processes to design the most optimal processes for implementation.
 Ability to monitor, control, and improve business processes in real time, and
 Ability to effect change on existing business processes in real time.

Q-2 Benefits of BPMS

1) Automating repetitive business processes:
 It provides automation in various business processes such as report creation and distribution, monitoring,
reporting on company’s Key Performance Indicators (KPI) which reduces the manual operational costs and helps
employees to concentrate on activities that makes business successful.
2) BPMS works by 'loosely coupling' with a company's existing applications:
 It enables IT to extract, format, monitor and distribute information to systems and people in line with
business events or rules.
3) Operational Savings:
 It focuses on optimization of processes that means repetitive processes are automatically executed and lead to
reduced expenses that lead to immediate cost savings.
4) Reduction in the administration involved in Compliance and ISO Activities:
 It provides quality assurance initiative by complying international ISO standards, audit law, and other external
laws, rules and regulations.
 It gives full control over process and provides clarity of inherent risks. It ensures process improvement and
compliance / governance certification.
5) Freeing up of employee time:
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 It gives freedom to employees from doing same activity every time that saves substantial time. The concept
of “time is money” is very relevant to this topic because of huge operational cost associated with employee
time to complete a manual business process in business organization.
Crux: BPM or BPR software is a fast-growing segment of the enterprise software market because of its support for re-engineering.
Using BPM software tools, enterprises can document workflow and processes, to identify bottlenecks and other impediments to
effectiveness, and recommend alternative and improved business processes. The purpose of BPM software is to update the
documentation, analysis, monitor and re-design business processes in an enterprise.

Q-3 Business Risks of failure of IT

Some of the other reasons for failure of BPMS include:
 Failure to identify future business needs
 Software fails to meet business needs
Need
 System may be over-engineered when compared to the actual requirements.
 Breakdown in gap analysis
Top Mgt.  Superficial or deficient executive involvement
support
 Deficient project management
System  Resources not available when desirable
 Technological obsolescence.
 Multiple options for customization of BPM software
 Not flexible enough or too complicated to be customized to meet the precise workflow and business
Change process.
 Persistent compatibility problems with legacy systems of partners.
 Inadequate assessment of need for change management

Approaches to Mapping Systems

Q-1 Reasons that why documentation is important to information system:

1) Depicting how the system works:
 In computerized systems, the processing is electronic and invisible. Therefore documentation is required
to help employees understand how a system works. It assists accountants in designing controls for it,
demonstrates to managers that it will meet their information needs.
 It also assists auditors in understanding the systems that they test and evaluate.

2) Training users:
 Documentation also includes user guides, manuals, and similar operating instructions that help people learn
how an Information System operates.

3) Designing new systems:

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 Documentation helps system designers in developing new systems in the same way that blueprints help
architects design building. It provides information about parts, location of the parts and how these parts are
interacting amongst each other so that system can be designed as planned.

4) Controlling system development and maintenance costs:

 Good documentation helps system designers develop object-oriented software that contains module and
reusable code that avoid writing duplicate programs and facilitate changes when programs must be modified later.

5) Standardizing communications with others:

 Documentation such as E-R Diagrams, System Flowcharts, and Data Flow Diagrams are more standardized
tools, and they are more likely to be interpreted in the same way by all parties viewing them. It provides
common understanding amongst all users.

6) Auditing Information Systems:

 Documentation helps in depicting audit trails that provide information about which user has access which
information at what times and how many times.
 It helps auditors to determine the strengths and weaknesses of a system’s controls.

7) Documenting business processes:

 Documentation helps in understanding business processes that can lead to better systems and better
decision.
 Documentation helps managers in providing better understanding that how their businesses operate, what controls
are involved or missing from critical organizational activities, and how to improve core business activities.

Popular pictorial representation or techniques adopted for

mapping business processes:
1. Entity Relationship Diagrams;
2. Data Flow Diagrams;
3. Flowchart;
4. Decision Trees; and
5. Decision Tables etc.

1) Entity Relationship Diagrams

 An Entity-Relationship (ER) diagram is a data modeling technique that creates a graphical representation of the entities, and the
relationships between entities, and attributes within an information system.
 A relationship is the association amongst several entities. For examples,
- a works relationship between an employee and a department,
- a contain relationship between an order and Item,
- a perform relationship between an artist and a song, and many more.
 Types of relationships in E-R model: one to one relationship, one to many relationship, many to one and many to many
relationship.
 An attribute is a data element that describes an entity . Entities and relationships can both have attributes.

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For example: an employee entity might have a Social Security Number, Employee Name, Gross salary as an attribute of
employee and department relationship.
ER diagrams repeatedly bring into play symbols to symbolize three dissimilar types of information.
1) Boxes are commonly used to represent entities.
 The entity is defined as a distinguishable object that exists in isolation and is described by a set of
attributes. An entity may be
- a physical object such as a house or a car, an event such as a house sale or a car service, or
- a conceptual object such as a customer transaction or order.
2) Diamonds are normally used to represent relationships.
 A relationship is an association that exists between two entities.
 For example, Instructor teaches Class or Student attends Class. Most relationships can also be stated inversely. For
example, Class is taught by Instructor.
 The relationships on an ER Diagram are represented by lines drawn between the entities involved in the association.
There are three types of relationships between entities – one-to-one, one-to-many and many-to-many

3) Ovals are used to represent attributes.

Q-1: Explain different types of relationships in Entity-Relationship Model with suitable examples:
Answer:
S. No. Types of Relationship (Examples and Diagram)
1) One to one relationship (1:1) A one to one Example: A teacher may in-charge of a class. Each class must be in-charge of by
relationship is shown on the diagram by a line one teacher.
connecting two or more entities. Teacher Is in charge of Class

Example: A student has one and only one report card. Each report card is owned by
one and only one student.
Student Owns Report Card

2) One to Many relationship (1:M) A one to many Example: A student may borrow some books from the library. A book in the library
relationship is shown on the diagram by a line may be borrowed by at most a student.
with a “crow‟s foot” symbol denoting the „many‟
Student Borrows Book
end of the relationship.
A class is formed by a group of atleast one student. Each student is allocated to one
and only one class.
Class Formed by Student

3) Many- to One relationship (M:1) It is the Example: As in two or more parent records to a single child record.
reverse of One to many relationship. Child
Parent Records to

When three administrators in small town report to one minister.

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Administrator Report to Minister

4) Many-to-Many relationships (M:M) A many to Example: A student enrolls in at least one course. A course is enrolled by at least
many relationship is shown on the diagram by a one student.
line connecting the two entities with „crow‟s foot‟ Student Enrolls in Course
symbols at both ends.
A student may apply for more than one scholarship. Each scholarship may receive
some applications from student, or none.
Student Applies for Scholarship

Advantages of E-R Diagram

 ER Modeling is simple and easily understandable. It is represented in business user‟s language and it can be
understood by non-technical specialist.
 It is intuitive and helps in Physical Database creation.
 It can be generalized and specialized based on needs.
 It can help in database design.
 It gives a higher level description of the system.

Limitations of E-R Diagram

 Physical design derived from E-R Model may have some amount of ambiguities or inconsistency.
 Sometime diagrams may lead to misinterpretations.

Q-2 A university consists of a number of departments. Each department offers several courses. A number of modules make up each course. Students
enroll in a particular course and take modules towards the completion of that course. Each module is taught by a lecturer from the appropriate
department, and each lecturer tutors a group of students. Draw an E-R diagram.

Answer:
Step-1) Define entities:
Step-2) Draw nature and type of relationship
Step-3) Draw E-R diagram:
Q-3 In a school, students are allocated to different classes. Each student must be allocated to exactly one class, and a class is formed by at least 30
students. Each class must be managed by several different students, namely perfect, 1st monitor, 2nd monitor and 3rd monitor. Draw an E-R diagram for the
school, indicating cardinality.
Q-4 Construct an E-R diagram for a car-insurance company whose customers own one or more cars each. Each car has associated with it zero to any
number of recorded accidents.

2) Data Flow Diagrams:

 Data flow diagram (DFD) is a graphical representation of the logical flow of data through an information system.
 DFDs may be partitioned into levels that represent increasing information flow and functional detail. Therefore, the
DFD provides a mechanism for functional modeling as well as information flow modeling.
 A DFD represents that how data flow takes place from originations to destinations with intermediate processing
and storage.

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 It helps to understand working of particular process with required entities like data originator, data receiver and data
holder.

4- major components of DFD:

1) Entity (data source/ data destination):
 An entity is the source or destination of data. The source in a DFD represents those entities that are
available outside the system. Entities either provide data to the system or receive data from it.
 Entities are represented by rectangles.
2) Process:
 The process is the manipulation that transforms data into meaningful information, performing
computations, making decisions or directing data flows based on business rules. In other words, a process
receives input and generates some output.
3) Data Store:
 A data store is a location where a processed data is stored that can be retrieved by same or other processes
later as and when required. Data stores are usually drawn as a rectangle.
 Example: Files and tables are considered as data stores such as “customers”, “orders” and “products.”
4) Data Flow:
 Data flow is the movement of data between the entity, the process and the data store. It represents the
interface between the components of the DFD.
 Data flow is represented by an arrow, where the arrow is annotated with the data name.

Types of DFD:
1) Physical Data flow diagram
2) Logical data flow diagram
1) Physical Data flow diagram:
 A logical DFD focuses on the business and how the business operates. It describes the business events that take
place and the data required and produced by each event. The logical model reflects the business.
2) Physical Data flow diagram:
 A physical DFD shows how the system will be implemented. The physical model depicts the system.

Advantages of using Data Flow Diagram

 It describes the boundaries of the system.
 It is beneficial for communicating existing system knowledge to the users.

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 A straightforward graphical technique which is easy to recognize.

 DFDs can provide a detailed representation of system components.
 It is used as a part of system documentation file.
 DFDs are easy to understand by technical and nontechnical audiences
 It supports the logic behind the data flow within the system.

Limitations of using Data Flow Diagram

 It make the programmers little confusing concerning the system.
 It is time consuming to create hence analyst may not receive support from management within the time.
 Physical considerations are left out.

Example 1: Draw a Context Diagram for a Bank System that interacts with the following five agents: Customers, Bank Managers,
Third Parties, Sales agents and Other Banks.
Solution: The Context Diagram is shown below. This diagram shows the entirety of our proposed Bank System encapsulated as
a single process that sends data to and receives data from various external interfaces.
The interfaces to the right represent human actors.
a) Customers can send Deposit and Withdrawal requests to our system and can receive statements from it.
b) Bank Managers can send Open and Close Account Requests to the system and can receive Management
reports from it.
c) Third Parties can send third party deposits to the system, but obviously not make withdrawal requests.
The interfaces to the left represent human actors.
d) The first interface on the left represents the Other Banks which may send or receive Money Transfers when interacting
with our system. These other banks are likely to be system actors (i.e. computer programs) rather than human actors.
e) The second interface on the left represents the Sales Agents, which are external affiliate companies or individuals who
generate Customer Introductions for our system.

3) Flowchart:
 A flowchart is diagrammatic tools to represent the flow of data in a symbolic form. It depicts algorithms,
workflow in sequential steps as boxes of various kinds and their order by connecting them with arrows.
 It is an essential tool for programming and it illustrates the strategy and thread of logic followed in the program.
 It helps programmer to avoid fuzzy thinking and accidental omissions of intermediate steps.
 Different flow chart symbols have different meanings. The most common flow chart symbols are:
 Terminator: An oval flow chart shape indicating the start or end of the process.
 Process: A rectangular flow chart shape indicating a normal process flow step.
 Decision: A diamond flow chart shape indicating a branch in the process flow.
 Connector: A small, labeled, circular flow chart shape used to indicate a jump in the process flow.

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 Input data: A parallelogram that indicates data input or output (I/O) for a process.
 Document: It is used to indicate a document or report

Classification of Flowchart
1) Document flowchart:
 This flowchart traces the physical flow of documents through an organization i.e, the flow of documents from
the departments, groups, or individuals who first created them to their final destinations.

2) System flowchart:
 This typically depicts the electronic flow of data and processing steps in an Information System.
 While Document Flowcharts focus on tangible documents, system flowchart concentrates on the
computerized data flows of Information systems.

3) Program flowchart:
 It is most detailed and is concerned with the logical/arithmetic operations on data within the CPU and the
flow of data between the CPU on the one hand and the input/output peripherals on the other.

Difference between Flowchart and Data Flow Diagram

S. No. Flowchart Data flow Diagram
1) Flow chart presents steps to complete a process. DFD presents the flow of data.
2) Flow chart does not have any input from or output to DFD describes the path of data from an external
an external source. source to internal source or vice versa.
3) The timing and sequence of the process is aptly Whether processing of data is taking place in a
shown by a flowchart. particular order or several processes are taking
place simultaneously is described by a DFD.
4) Flow chart shows how to make a system function. DFD define the functionality of a system.
5) Flow chart is used in designing a process. DFD are used to describe the path of data that will
complete that process.
6) Types of Flow charts – System, Data, Document and Types of DFD – physical data flow and logical data
Program. flow.

Benefits of flowcharts
The benefits of flowcharts are elucidated below:-

1) Quicker grasp of relationships:

 It provides easily identification and understanding of relationship, before solving any application,
which existed between various elements of application.
 The programmer can chart a lengthy procedure more easily with the help of a flowchart than by describing it
by means of written notes.
2) Effective Analysis:
 The flowchart becomes a blue print of a system that can be broken down into detailed parts for study.
 Problems may be identified and new approaches may be suggested by flowcharts.

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3) Communication:
 Flowcharts are used in communicating the facts of a business problem for arriving at the solution.
4) Documentation:
 Flowcharts serve as a good documentation which is used in future program conversions.
5) Efficient coding:
 Flowcharts act as a guide during the system analysis and program preparation phase.
 All instructions coded in a programming language may be checked against the flowchart to ensure that
no steps are omitted.
6) Orderly check out of problem:
 Flowcharts serve as an important tool during program debugging. They help in detecting, locating and
removing mistakes.
7) Efficient program maintenance:
 The maintenance of operating programs is facilitated by flowcharts. The charts help the programmer to concentrate
attention on that part of the information flow which is to be modified.

Limitations of flowcharts:
The limitations of flowcharts are as given below:

1) Complex logic: Flowchart becomes complex and clumsy where the problem logic is complex.
2) Modification: If modifications to a flowchart are required, it may require complete re drawing.
3) Reproduction: Reproduction of flowcharts is often a problem because the symbols used in flowcharts
cannot be typed.
4) Link between conditions and actions: Sometimes it becomes difficult to establish the linkage
between various conditions and the actions to be taken there upon for a particular condition.
5) Standardization: Program flowcharts, although easy to follow, are not such a natural way of expressing
procedures as writing in English, nor are they easily translated into Programming language.

4) Decision Trees:
 A Decision Tree is a logical tree that specifies a set of conditions and set of actions as well as depicting various
situations arising from the permutations of various conditions and simulating actions to be undertaken for each such
situation
 It is used in operations research, specifically in decision analysis, to help identifying a strategy most likely to reach
a goal.
 In its tree-like representation, the premises(conditions) and conclusions(actions) are shown as nodes, and the branches
(changes in conditions) of the tree connect the premises and the conclusions. The logical operators “AND” and “OR” are

used to replicate the structure of the if- then rules. As such, decision tables (DTs) do not seem to differ much from
a decision tree.
 Decision trees are a simple, but powerful form of multiple variable analyses.

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Decision Tree Conceptual View

Advantages of using Decision Tree

 It is simple to understand and interpret. People are able to understand decision tree models after a brief explanation.
 Possible scenarios can be added.
 Worst, best and expected values can be determined for different scenarios.

Limitations of using Decision Tree

 For data including categorical variables with different number of levels, information gain in decision trees are biased in favor of
those attributes with more levels.
 Calculations can get very complex particularly if many values are uncertain and/or if many outcomes are linked.

5) Decision Table:
 A Decision table is a table that specifies a set of conditions and set of actions as well as depicting various situations
arising from the permutations of various conditions and simulating actions to be undertaken for each such situation.
 It accompanies a flowchart by defining the possible situations within the program and the appropriate
course of action for each situation.
 Decision tables should determine each branches of flowchart. Therefore if programmer attempts to draw a
flowchart directly, he is liable to miss some of the branches.

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Parts of decision table:

(1) Condition Stub: It is a stub which comprehensively lists the conditions or comparisons.
(2) Action Stub: It is a stub which comprehensively lists the actions to be taken along the various program
branches;
(3) Condition entries: It lists in its various columns the possible permutations of answer to the questions in the
conditions stub); and
(4) Action entries: It lists in its columns corresponding to the condition entries the actions contingent upon the
set of answers to questions of that column.

Components of Decision table:

a) Condition Statement: Statement which introduce one or more conditions (i.e., factors to consider in making a
decision)
b) Condition Entries: Entries that complete condition statements.
c) Action Statements: Statements which introduce one or more actions (i.e., steps to be taken when a certain
combination of conditions exist)
d) Action Entries: Entries that complete the action statements.
e) Rules: Unique combinations of conditions and actions to be taken under those conditions.
f) Header: Title identifying the table.
g) Rule Identifiers: Code (R1, R2, R3,) uniquely identifying each rule within a table.
h) Condition Identifiers: Codes (C1, C2, C3...) uniquely identifying each condition statements/entry.
i) Action Identifiers: Codes (A1, A2, & A3...) uniquely identifying each action statement/ entry

Steps in Preparing a Limited Entry Decision Table

 List conditions and actions.
 Combine conditions which describe the only two possibilities of a single condition. In other words, delete conditions which can be
derived from the responses of the other conditions.
 Make yes or no (Y or N) responses and mark actions to be taken for each rule with X.
 Combine redundant rules to simplify table.
 Check for completeness.

Advantages of Decision Table

1) Easy to Draw: Decision Tables are easy to draw and modify as compared to flowcharts.
2) Compact Documentation: The documentation in the form of decision tables is compact since one decision table may replace
few pages of a flowchart.
3) Simplicity: It is easier to follow a particular path in one column of a decision table than it is to go through several pages of the
flowcharts.
4) Direct Codification: The decision tables can be directly coded into a program.
5) Better Analysis: A decision table shows various alternatives and their respective outcomes side by side for better analysis of
the problem.

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6) Modularity: The complex problems would require complex decision tables which can be easily broken down to micro-decision
tables.
7) Non-technical: No knowledge of computer language or CPU working is necessary for drawing decision tables.

Limitation of Decision Table

1) All programmers may not be familiar with Decision Tables and therefore flow charts are more common
2) Flowcharts can better represent a simple logic of the system rather than a decision table.
3) The decision tables do not express the total sequence of the events needed to solve the problem.

Problems on flowchart:
1) Draw the program flowchart for finding the sum of first 100 odd numbers.
2) Draw a program flowchart for finding the sum of multiplication of two consecutive numbers sequentially for
first 10 natural numbers.
3) Draw the flowchart for finding the value of K! where K represents an integer greater than one whose value will be
read into the computer each time the program is run.
4) Draw the flowchart for finding the value of K N where K and N are read into the computer each time the program is
run, N has to be >1.
5) Draw the flowchart which will calculate the sum of the first N multiples of an integer K. (For example, if K = 3 and
N = 10), then calculate the sum of (1×3 + 2×3 + ...+ 10×3). Make the flowchart completely general by reading
an integer value for N and K each time this program is run.
6) There are three quantities; Q 1 Q2 and Q3. It is desired to obtain the highest of these in location H and lowest of
these in location L.
7) The square root of a number can be computed by an iterative procedure. The following computational steps are
performed.
8) Draw the flowchart for deriving the sum of the squares of first 20 odd numbers.
9) Draw a flow chart to print the square of odd numbers between 10 to 50 and also print the sum of their square.
(Nov. 2012)
10) The weights of newly born babies in a hospital are input to computer. The hospital in-charge is interested to find
the maximum, minimum and mean weights of all the weights of the babies. Draw a suitable flow chart for his
problem. A value of zero can be used at the end of the list of baby weights. This denotes the end of the list.
11) Draw the program flowchart for computing the annual acquisition, inventory carrying and total costs for lot sizes of
100,200... 2400. The various variables of interests are supposed to be there in the locations symbolized below :
REQ Annual requirements of the item
ACQ Procurement costs/order
COST Cost per unit
Rate Inventory-carrying rate, I.

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12) Assume that imported goods from foreign countries are classified into 4 categories for the purpose of levying
customs duty. The rate for each category is as follows :
Class No. (K) Class of Goods Customs duty (%) on Values of Goods V
1 Foods, beverages 10
2 Clothing, footware 15
3 Heavy machinery 30
4 Luxury items 40
Draw the flowchart for computing the appropriate customs duty.
13) The problem is to compute, for a series of transactions, the gross sales (G), the quantity discounts, (D), if any; and the
net sales (N). The raw data to be supplied in the program includes the quantity sold (Q) and unit price (P). The quantity
discount schedule is as follows:

If quantity sold is: The discount rate would be:

less than 100 units none

100 less than 200 10%
200 over 20%

14) An E-commerce site has the following cash back offers.

(i) If the purchase mode is via website, an initial discount of 10% is given on the bill amount.
(ii) If the purchase mode is via phone app. An initial discount of 20% is given on the bill amount.
(iii) If done via any other purchase mode, the customer is not eligible for any discount.
Every purchase eligible to discount is given 10 reward points.
(a) If the reward points are between 100 and 200 points, the customer is eligible for a further 30% discount on the
bill amount after initial discount.
(b) If the reward points exceed 200 points, the customer is eligible for a further 40% discount on the bill amount
after initial discount.
Taking purchase mode, bill amount and number of purchases as input draw a flowchart to calculate and display the total
reward points and total bill amount payable by the customer after all the discount calculation. (8 Marks)

15) A bicycle shop in Delhi hires bicycles by the day at different rates as shown in the following table :-
Season Charges per day
Spring (March - May) Rs. 8.00
Summer (June - August) Rs. 9.50
Autumn (Sept - Nov.) Rs. 5.00
Winter (Dec. - Feb.) Rs. 6.00
To attract his customers, the proprietor also gives a discount on the number of days a bicycle is hired for. If the
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hire period is more than 10 days, a reduction of 15% is made. For every bicycle hired, a deposit of Rs. 20 must be
paid. Develop a flowchart to print out the details for each customer such as name of customer, number of days a
bicycle is hired for, hire-charges and total charges including the deposit. It is also assumed that there are 25
customers and complete details for each customer such as name of customer, season and number of days the
bicycle is required for is inputted through console.

16) A company has 2,500 employees. Their salaries are stored as J(s), 1, 2, ---- 2500. The salaries are divided in four
categories as under :
(i) Less than Rs. 1,000 (ii) Rs. 1,000 to Rs.2,000
(iii) Rs. 2,001 to Rs. 5,000 (iv) Above Rs. 5,000.
Draw a flow chart for finding the percentage of the employees in each category.

17) The Income-tax for the employees of an organization is calculated on the basis of their Gross Income and the
Investments made by them under Section 80CCC. The taxable income is calculated according to the following rules :

Taxable Income = Gross Income – Investments provided investments are less than 1 lac. Otherwise Taxable Income =
Gross Income – 1,00,000
Following rules are applied to calculate the Income-tax on the Taxable Income:
Taxable Income Income-tax
(i) 0 – 2,50,000 : Nil
(ii) 2,50,001 – 5,00,000 : 10%, on the excess of 2,50,000
(iii) 5,00,001 – 10,00,000 : 25,000 + 20% on the excess of 5,00,000
(iv) 10,00,001 and above : 1,25,000 + 30% on the excess of 10,00,000
Surcharge @ 10% on amount of total tax, if the income of a person exceeds Rs. 10,00,000/- and education cess of 3%
of Income-tax is levied on all the employees, irrespective of the income. Employee number, Name, Gross Income,
Investment amount is given as input.
Draw a flow chart to calculate the Income-tax payable by each employee.
18) A housing society having 400 members pay electricity bills at the following rates:
No. of units consumed Charges/Units (Rs.)
For the first 200 units 2.65
For the next 300 units 3.90
Over 500 units 4.75
Surcharge @ 5% of the bill is to be added to the charges.
19) For the flow chart given below: (4 Marks)
(a) Print the output displayed for using the given two sets of data:
X Y
1st Set : 15 20
2nd Set: 35 30
if following instructions are given:
Instruction
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X=X+Y
Y=X-Y
X=X-Y
(b) What interpretation do you make from the instructions given in the flowchart?
(c) Comment about the storage of the variables used in the instructions of flowchart?
20) A university has 3000 students. These students are divided in four categories:
i) B. Tech (iii) M.S.
ii) M. Tech (iv) Ph. D
Draw a flow chart for finding the percentage of the students in each category.
21) An electric supply company charges the following rates from its customers:
No. of unit consumed Charges/unit
For the first 200 units 2.50
For the next 300 units 3.50
Over 500 units 5.00
Computer database of the company has the following information
 Consumer name; Address; Unit consumed
 Bill date; and Payment Date
If the consumer pays his bill within 15 days from the bill date, 10% discount is given. If he makes the payment after 15
days from the bill date, 5% surcharge is levied. Draw a flow chart to calculate the net amount of the bill for each
consumer and print it.
22) Katrina Kaif (a book publisher) offers discount to customers on the basis of customer type and number of copies
ordered as shown below:
Customer type Number of copies ordered Discount (%)
Book seller More than 10 25
Less than or equal to 10 15
Library More than 5 20
Less than or equal to 5 10
Customer number, name, type, book number, number of copies ordered and unit price are given as input. Draw a
flowchart to calculate the net amount of the bill for each customer and print it. The above is to be carried out for 50
customers.
23) A bicycle shop in a city hires bicycles by the day at different rates for different models as given below:
Model No. Hire rate per day (Rs.)
Model No. 1 14.00
Model No. 2 12.00
Model No. 3 10.00

In order to attract customers, the shopkeeper gives a discount on the number of days a bicycle is hired for. The
policy of discount is as given below:

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 CA Guru Gupta – ITSM (Paper-7) CHAPTER-1 BUSINESS PROCESS MANAGEMENT AND IT

No. of days Discount rate (%)

1-5 0.00
6-10 8
11 and over 15
For every bicycle hired, a deposit of Rs. 30,000/- must be paid.
Draw a flow chart to print out the details for each customer such as name of customer, bicycle model number, number
of days a bicycle is hired for, hire charges, discount and total charges including deposits.

24) A company Angelina Ltd. is engaged in selling consumer goods to different categories of customers. In order 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.
Draw a flow chart to calculate the discount for the above policy.
25) The goods imported from the foreign countries are classified into four categories for the purpose of levying custom
duty. The rate of custom duty on value of goods “V” for each category is given below:

Category Type of goods Custom Duty (%)

1 Electronic Items 10
2 Heavy Machinery 15
3 Footwear Items 20
4 All other unclassified goods 25
Draw a flow chart to compute appropriate custom duty including educational cess at the rate of 3% of the value of custom
duty.
26) A bank accepts fixed deposit for a year or more and the policy on interest rate is as follows:
i) If a deposit is less than Rs. 10,000/- and for 2 or more years, the interest rate is 7% compounded annually.
ii) If a deposit is Rs. 10,000/- or more, but less than Rs. 50,000/- and for 2 or more years, the interest rate is 7%
compounded annually.
iii) If the deposit is Rs. 50,000/- or more and is for one year or more the interest rate is 8% compounded annually.
iv) On all deposits for five years or more interest rate is 10% compounded annually.
v) On all other deposits not covered by the above conditions, the interest rate is 3%.
vi) If the customer is holder of any type of account for last five years, an additional 1% interest is allowed.
Draw a flow chart to obtain the money in customer’s account and interest credited at the time of withdrawal.

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27) An insurance company follows the following rules:

i) If a person’s health is good and age is between 20 and 40 years and lives in a city and sex is male, then the
premium is Rs. 20 per thousand and he will be insured for maximum amount of Rs. 10 lakhs.
ii) If a person satisfies all the above conditions, except that sex is female, then the premium is Rs. 15 per thousand
and maximum insured sum will be Rs. 15 lakhs.
iii) If a person’s health is poor and age is between 20 and 40 years, but lives in a village. For a male sex, premium is
Rs. 50 per thousand and maximum insured sum is Rs. 1 lakh only.
iv) In all other cases, the person is not to be insured.
Draw a flow chart to find the eligibility of a person to be insured, premium rate and maximum amount of Insurance.
28) A labourer in a manufacturing company gets his wage as per following calculations:
Basic pay = 10 x N if N<=10
= 12 x N if N<=15
= 15 x N if N>15
He is also awarded a quality related bonus as per following norms:
If QI<=0.5; Bonus =0.0
If QI<=0.75; Bonus = 10% of basic pay
If QI<=0.90; Bonus = 20% of basic pay
If QI>0.90; Bonus = 30% of basic pay
Where N = number of items manufactured
QI = Quality Index
For the above conditions, draw a flow chart to calculate and print basic pay, bonus and total pay received by the
labourer.
29) Draw a program flowchart to compute and print the sum of squares of the following 10 numbers.
[2, 5, 10, 17, 26, 37, 50, 65, 82, 101]
30) A bank has 500 employees. The salary paid to each employee is sum of his basic pay, Dearness Allowance and House rent
allowance. For the purpose of computing house rent allowance bank has classified his employees into three classes A, B and C.
The house rent allowance for each class is computed at the rate of 30 percent, 20 percent and 10 percent of the basic pay
respectively. The dearness allowance is computed at a flat rate of 60 percent of the basic pay. Draw a flow chart to determine the
percentage of employee falling in the each of the following salary slabs:
(i) Above Rs. 30,000
(ii) Rs. 15,001 to Rs. 30,000
(iii) Rs. 8,001 to Rs. 15,000
(iv) Less than or equal to Rs. 8,000.

31) a) Write the output sequence (at least for first 5 numbers] for the given flowchart, if N=o is selected as the value for N
as input.
b) If the statement “N = N* N” in the computation box of the flowchart is modified as “N = N*(N-1)”. Write the output
sequence (at least first 5 numbers) for the flowchart with N = 0 as the input value for N.

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 CA Guru Gupta – ITSM (Paper-7) CHAPTER-1 BUSINESS PROCESS MANAGEMENT AND IT

START

CAWL

Input - N

N > 1000 STOP

Print “N”

N =N + 1

N =N * N

32) A water distribution company has two categories of consumers (Domestic and Commercial). The charges of water per
unit consumed by these consumers are Rs. 5.00 and Rs. 8.00 respectively. The computer database of the company has the
following information:
- Consumer's name
- Category
- Units consumed
- Bill's date
- Date of payment.
The company processes bills according to the following criterion:
If the consumer is domestic and pays his bill within 10 days of the bill date, 7% discount is given. If he pays the bill within 15
days, no discount is given. If he makes the payment after 15 days of the bill date, 10% surcharge is levied. For commercial
consumers, corresponding percentage be 15%, 0% and 15% respectively.
Draw a Flow chart to calculate the bill amount, discount, surcharge and net amount of the bill for each type of
consumer and print it.

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 CA Guru Gupta –ITSM (Paper 7) CHAPTER-2 INFORMATION SYSTEM AND IT FUNDAMENTALS

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Chapter- 2 Information Systems and IT Fundamentals

Information System Layers:
There are 6 layers in the information system of which details are required to be studied:
1) Hardware; 2) System Software; 3) Application layer; 4) DBMS; 5) Network Links and 6) People

S. No. Particulars Hardware Software

1 Input device

2 Process device

3 Output device

4 Storage device

5 Network device

6 System software

7 Application software

8 DBMS

Hardware
 Hardware is a set of physical components of a computer such as keyboard, mouse, printer, hard disk drive,
graphics card, can be called as hardware.
 It is used to accept input, execute processing, generate output and hold data and information in computer system
 It is a tangible element of computer systems i.e, something we can touch and see.
 Hardware is directed by the software to execute any command or instruction.

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 CA Guru Gupta –ITSM (Paper 7) CHAPTER-2 INFORMATION SYSTEM AND IT FUNDAMENTALS

Q-1 Types of Hardware

1) Input device:
 Input devices are devices through which we interact with systems by providing input data.
 It includes Keyboard, Mouse, and MICR readers, Webcams, Microphone and Stylus/Touch Screen.
 Keyboard helps us with text based input, Mouse helps us in position based input, Scanners & Webcams
help in image based input and Microphone helps us in voice based input.

2) Processing devices:
 It is the actual hardware that interprets and executes the program instructions and coordinates how all the
other hardware devices work together.
 It can be called as a brain of the system.
 It has control unit, arithmetical and logical unit and register unit as main components of CPU.

Q-2 Main function of CPU:

a) Control Unit (CU):
- It is used to control entire hardware and software connected with the system. It also controls the flow of
data and instruction transmitting from one memory to another memory.
b) Arithmetic and Logical Unit:
- It performs arithmetic operations such as addition, subtraction, multiplication, and logical comparison of
numbers i.e, Equal to, Greater than, Less than, etc.

c) Registers:
- It is an internal memory with high speed memory units within CPU for storing small amount of data
(mostly 32 or 64 bits).
- It extracts the relevant data from cache memory and provide to CPU for arithmetical calculation and
logical operation as per the instructions provided by CPU.
i) Accumulators: They can keep running totals of arithmetic values.
ii) Address Registers: They can store memory addresses which tell the CPU as to where in the memory
an instruction is located.

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 CA Guru Gupta –ITSM (Paper 7) CHAPTER-2 INFORMATION SYSTEM AND IT FUNDAMENTALS

iii) Storage Registers: They can temporarily store data that is being sent to or coming from the system
memory.
iv) Miscellaneous: These are used for several functions for general purpose.

3) Data Storage Devices:

 It refers to the memory where data and programs are stored. Various memory techniques / devices are given
as follows:
a) Internal memory:
 It is a memory referred as a chips rather than disks or tapes. It is made up by using a technology
called semi-conductor to form circuits. They are called as main memory. These are RAM, ROM,
registers etc. and are different from disks or tapes.
 These are very fast and very small.
b) Primary memory:
 It is a memory used by CPU to read the data and program and execute as required without
following any sequence.
 These are primarily of 2 types out of main memory: RAM and ROM
Q-3 Difference between:
Tips: Volatile S T U D
S. No. Difference RAM ROM
1) Stands for It stands for Random access memory It stands for Read only memory
2) Volatility RAM is volatile i.e. its contents are lost It is non-volatile i.e. its contents are
when the device is powered off. retained even when the device is
powered off.
3) Types The two main types of RAM are static The types of ROM include PROM,
RAM and dynamic RAM. EPROM and EEPROM.
4) Use It is used to provide processing ROM stores the programs of devices for
capability by providing speed to booting the computer. It only allows
computers to read data quickly to run reading.
applications. It allows reading and
writing.
5) Definition It can be memory accessed randomly It is read only memory used for storing
at any time, in any order and from any only programs of hardware.
physical location.
c) Cache memory: (pronounced as cash)
 Cache memory is comprised into Level1 memory and Level2 memory. Level1 is mounted within CPU and
Level2 is mounted outside the CPU.
 It is a type of random access memory that can be accessed by CPU through register more quickly as
compared to accessing RAM. It is either directly integrated with CPU chip or placed on a separate
chip that has a separate bus interconnected with CPU through registers.
 It bridges the gap of speed differences bsetween Registers and Primary Memory (RAM). It stores
copies of data coming from RAM for processing so that Processor / Registers can access it more
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 CA Guru Gupta –ITSM (Paper 7) CHAPTER-2 INFORMATION SYSTEM AND IT FUNDAMENTALS

rapidly.
 However, register is used to store memory address for input data and output and cache memory is
used to store program instruction and provide it to CPU for executing current processing through
register memory.
 It allows additional processing capability to RAM memory by providing processing capability to
register. Hence it is a type of RAM memory only.
 It is a smaller and faster memory.

d) Virtual Memory:
 It is an imaginary memory area supported by Windows and other operating system in conjunction
with hard-disk. It can be called as virtual RAM.
 If RAM is proved to be insufficient to run a program, windows uses virtual memory to compensate
by combining computer‟s RAM with temporary space on the hard disk i.e, moving data from RAM to
a space called a paging file. It frees up RAM to complete its work. Thus, Virtual memory is an allocation
of hard disk space to help RAM.

e) Secondary Memory:
 It refers to the memory for storing the information on a permanent
basis due to its substantial storage capacity.
 It cannot be directly accessible by CPU. It requires USB port, CD
Drive etc. to access secondary storage device.
 Secondary storage does not lose the data when the device is powered
down hence, it is non-volatile.
 Storage devices could differ amongst each other in terms of speed
and access time, cost/portability, capacity and type of access.
 Features:
- It is non-volatile (contents are permanent in nature),
- It has greater capacity (they are available in large size),
- It has greater economy (the cost of these is lesser compared to register and RAMs) and
- It has slow speed (slower in speed compared to registers or primary storage).

 Examples: USB Pen Drives, Floppy drive, Hard Drive, CD, DVD, Blue ray Disks and Smart cards.
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 CA Guru Gupta –ITSM (Paper 7) CHAPTER-2 INFORMATION SYSTEM AND IT FUNDAMENTALS

Q-4 Difference between Primary Memory and Secondary Memory

S. Basis of Primary Memory Secondary Memory
No. difference
1) Technology These are semiconductor memories. These are magnetic and optical
memories.
2) Volatile They are characterized as volatile random access They are non-volatile.
memories (RAM) or non-volatile memories (ROM).
3) Used for They contain program and data that is currently being These are used to for bulk storage.
used by microprocessor. It has small storage capacity.
4) Speed These memories are fast enough to interact with the It is slower than primary memories.
microprocessor.
5) Memory It is also known as Main Memory. It is also known as Backup Memory or
Auxiliary Memory. E.g. Tapes, Floppies,
Hard Discs, CD ROMs, DVDs.

4) Output devices:
 It refers to the device which displays output in the form of visual, audio or digital.
 Example: Monitor, printer, projector etc.

Q-5 Various types of Output Devices are:

a) Cathode-Ray Tube (CRT):
- It is a monitor made by using a vacuum tube that accepts the incoming signal and
separate it into red, blue and green signal each by separate electron guns to release
electrons (*kind of electronic energy) that enlighten the phosphors beam coated on the screen
repeatedly for scanning at the speed of 525 lines 30 times in a second. These 3 colors
are mixed together to form all color combinations you see on the screen as a live
image.
- It scans the screen line by line but users are unaware about such scanning because its
speed is so high.
- However, it is harmful to the eyes of users and consumes huge mass of power.

b) Liquid Crystal Display (LCDs):

- It is a monitor made by using a low-powered display technology where rod-shaped
crystal molecules change their orientation when an electrical current flows through
them. It is used in laptop computer and television.

c) Laser Printer: A printer that forms images using an electrostatic process, the
same way a photocopier works.

d) Ink-jet Printer: It is a type of printer that makes images by forcing ink droplets
through nozzles on to paper, plastic or any other objects.

e) Plotter: It is a type of printer that uses computer-directed pens for creating images,
blueprints, schematics, etc.

f) Speakers: It is a device used to provide audio output.

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 CA Guru Gupta –ITSM (Paper 7) CHAPTER-2 INFORMATION SYSTEM AND IT FUNDAMENTALS

Software:
 Computer software is the collection of computer programs that provide the set of instructions to the CPU for what
to do.
 A program is a set of detailed instructions that governs the data processing activities by a computer, and
individuals who perform this task are called programmers.
 The process of software development or process of writing programs is called programming or coding.
 It has 3-types of software which are as follows: a) System Software, b) Application software and c) DBMS.
 It is different from the term hardware which describes the physical aspects of computers. It increases the
capabilities of hardware.
 In contrast of Hardware, software is intangible and hardware is a tangible machine.
 Software guides the computer at every step where to start and stop during a particular job.

System Software / Operating System

 System software is a set of programs that is designed to control and operate the computer hardware and data
processing application.
 It provides platform to application system so that it can be performed. In absence of operating system,
application system cannot be performed at all.
 It acts as an interface between hardware resources and computer applications programs.
 Examples of Operating system are Windows 7, Windows 8, Windows Vista, Unix, Linux, Mac OS etc.

Q-1 Activities executed by Operating systems (OS):

Tips:

1) Networking Capability:
 Operating systems can provide systems such as router to connect with computer networks.
 Example: Linux & Windows 8 give us an excellent capability to connect to internet.

2) Hardware Independence:
 Every computer could have different specifications and configurations of hardware. If application developer
would have to rewrite code for every configuration he would be in a big trouble.
 Operating system provides Application Program Interfaces (API) that can be used by application developers
to create application software to understand the inner workings of operating system and hardware. Thus it gives us
hardware independence.
 Example: Windows can accept various configurations of hardware at a same time. It means that hardware has
independent platform from windows.

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 CA Guru Gupta –ITSM (Paper 7) CHAPTER-2 INFORMATION SYSTEM AND IT FUNDAMENTALS

3) Performing hardware functions:

 It allows various hardware to perform their operations such as keyboard provides input & monitor will display
output.

4) User Interfaces:
 User interface is a communication path through which user interacts with the computer system. It is an
important function of which is provided by operating system.
 It can be of 2 types: Command user interface (CUI) and Graphical user interface (GUI). CUI was used exclusively
in MS DOS operating system. However, Windows is using Graphical user interface which uses icons and menus
etc. to access the data.

5) File management:
 The operating system keeps a track of where each file is stored and who can access it. It provides information
about file size, file name, file organization, latest updation time etc.

6) Logical access security:

 Operating systems provide logical security by establishing a procedure for identification & authentication
using a User ID and Password. It can log the user access thereby providing security control.

7) Task Management:
 Task Management feature of Operating system helps in allocating resources to make optimum utilization of
resources.
 It facilitates a user to work with more than one application at a time i.e. multitasking and also allows more than
one user to use the system i.e. timesharing.

8) Memory Management:
 It allows controlling how memory is accessed and maximizing available memory & storage. It provides
virtual memory by allocating an area of hard disk to create an additional virtual RAM.
 It also provide various features to optimize the memory storage capacity i.e, disk scanning, memory splitter,
disk formatting, space utilized, space available, total space available, allocation of memory utilization etc.

Application Software
Introduction:
 Application software is a set of programs which is used to perform the processing of data. It uses the platform provided
by operating system. If there is no operating system, then it will not be performed at all.
 It provides solution to all real life problems of end users in business, scientific or any other areas.
 Examples: Ms Excel, tally, Windows media player etc.

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Q-1 Types of application software:

1) Media Development Software:

 It is used to create audio and video files to fulfill individual needs of listening various songs, lectures and
watching videos in electronic media.
 Example: Desktop Publishing software, graphics art software, multimedia development software, Video and audio
editing software, video audio mixer, animation software, etc.

2) Information Worker Software:

 It allows user to create and manage information for individual project within a department. It can be used
for calculation, analysis, evaluation of various text and graphical data to fulfill all individual needs within the
department.
 Example: word processor, Spreadsheets, email, blog clients, etc.

3) Content Access Software:

 It is used to access contents and addresses text and media files in digital form.
 Example: Media Players, Web browsers, Help browsers and Games etc.

4) Application suite:
 It has multiple applications bundled together, their related functions, features and user interfaces to
exchange data with each other.
 Example: MS Office 2010 which has Ms Word, MS Excel, MS Access etc.

5) Enterprise Software:
 It addresses an enterprise‟s needs rather than individual needs and data distributed environment. Such
organizations would include businesses, schools, interest-based user groups, clubs, charities, or governments.
 It provides various services such as online shopping and online payment processing, interactive product
catalogue, automated billing systems, enterprise content management, customer relationship
management, enterprise resource planning, collaboration, HR management, manufacturing etc.
 Example: ERP applications like SAP

6) Enterprise infrastructure Software:

 It provides various capabilities required to support enterprise software systems. It is specifically designed to
help business organizations to perform basic tasks such as workforce support, business transactions and
internal services and processes.
 Example: Email servers, Security software, antivirus, CCTV software.

7) Educational Software:
 It holds contents adopted for use by students. Its primary purpose of which is teaching and self learning.
 Example: Learning CDs and DVDs,

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Q-2 Benefits of Application Software are:

1) Addressing User needs:

 It meets the exact needs of the user since it is specifically designed to accomplish his task.
 Example: Tally is used to fulfill the need of getting financial information in tabular form.

2) Less threat from virus:

 The threat of virus in customized software is very small as compared to ready-made software because it is
protected by ID and password, antivirus and firewall.

3) Regular updates:
 Licensed application software gets regular updates from developer through internet automatically for
security reasons. Developer also regularly sends personals to correct any problems from time to time.

Q-3 Disadvantages of Application Software:

1) Development is costly:
 Developing application software designed to meet specific purposes can prove to be quite costly for
developers.
2) Infection from Malware:
 If application software is used commonly by many people and shared online, it carries a highly real
threat of infection by a computer virus or other malicious programs.

Database Management System (DBMS)

Introduction:
 It is a collection of software which is designed to control data retrieval, data processing, data storage, data
organization, records relationship, file organization, file processing, data creation, data manipulation, data
deletion, needed by application program etc.
 It allows access to data base only to authorized users.
 It provides facility to create, control and manages the database and stored it into electronic filing cabinet.
 Example: Oracle, My SQL, SQL Servers and DB2 etc.

Q-1 Tasks of DBMS for managing the information

 It should understand information needs;
 It should acquiring that information;
 It should organizing that information in a meaningful way;
 It should assuring information quality; and
 It should providing software tools so that users in the enterprise can access information they require.

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Q-2 Operations of DBMS for managing the information

 Adding new files to database,
 Inserting data in existing files,
 Modifying data in existing files,
 Deleting data in existing files,
 Querying data from existing files; and
 Deleting existing files from database.

Q-3 Other related aspects of DBMS

Some other related aspects of DBMS are given as follows:

(A) Data, Databases, Data models:

 Data: It is simply a raw data which in itself has no value unless it requires manipulations.
 Database:
- It is a super-file which consolidates data record in separate files.
- It must be organized in such a way so that it reduces data redundancy and data duplication.
- It must be divided into various separate parts i.e, bits, bytes, fields, records, file and database.

 Database model hierarchy:

 Bits: 0 and 1 represents a bit in database.
 Bytes: Various bits will form a byte according to the specifications provided in binary language.
 Characters: These are a collection of Bytes.
 Field: This is a collection of Characters.
 Record: This is a collection of Fields.
 File: This is a collection of Records.
 Database: This is a collection of Files.

‘0’ and ‘1’ represents a bit

Level 0
Level 1 Multiple related bits are combined to form a byte.
Multiple related bytes are combined to form a field.
Level 2
Multiple related fields are combined to form records.
Level 3
Level 4 Multiple related records are combined to form a file.

Level 5 Multiple related files are combined to form database.

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Q-4 Data model:

 A database model is a type of data model that determines the logical structure of a database and
fundamentally determines the manner in which data can be stored, organized and manipulated. Some
prominent database models are:
 Hierarchical Database Model,
 Network Database Model,
 Relational Database Model, and
 Object Oriented Database Model

1) Hierarchical Database Structure:

 Here records are logically organized into a hierarchy of relationships.
 It arranged logically in an inverted tree pattern.
 Records are stored in the form of parent child relationships in which parent records hold various child
records but no child record is available in more than one parent records. Hence it forms one to one and
one to many relationships only. Top parent record is called as root record.
 All records in hierarchy are called nodes. Each node is related to the others in a parent-child
relationship.
 For example: an equipment database may have building records, room records, equipment
records, and repair records.

BLDG-1 Root
Parent of Room

ROOM-1 ROOM-2 Children of Root

Parent of Equip

EQUIP-1 EQUIP-2 EQUIP-3 Children of Room

Parent of Repair

REPAIR-1 REPAIR-2 REPAIR-3 Children of Equip

Hierarchical database structures

2) Network Database Structure:

 It is an extension and expansion of hierarchical database structure. It is a variation on the hierarchical
model to the extent that it is built on the concept of multiple branches emanating from one or more nodes.
 A network database structure views all records in sets.
 Each set is composed of an owner record and one or more member records.
 This is analogous to the hierarchy‟s parent-children relationship.
 Thus, the network model implements the one-to-one and one-to-many record structures.
 It also permits a record to be a member of more than one set at one time. It allows the network model to
implement the many-to-one and the many-to-many relationship types.

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Spykar Black berry Fast track Titan Owners of brand

Garments Mobile Garments Glasses Wrist watch Wrist watch Owners of products and
members of brand

Owners of managers and

Manager1 Manager 2 Manager3 Manager4 Manager5 Manager6 Manager7
member of products

3) Relational Database Model:

 A relational database contains multiple tables with at least similar value occurring in two different records
implies a relationship amongst those two records.
 Here, each table has a collection of records and each record in a table contains the same set of fields.
 It allows data definition and their structures, storage and retrieval operations and integrity constraints
organized in a table structure.
 It also requires explicit relationships between records in the database. The relationships between records in
tables in the form of 1:1, 1:M, M:1 and M:M.
 All relations have to adhere to some basic rules to qualify as relations. First, the ordering of columns is immaterial
in a table. Second, there can't be an identical record in a table. And third, each record will contain a single value for
each of its attributes.
 3 key terms are used extensively in relational database models: relations, attributes, and domains.

Key:
 The word "key" is used in the context of relational database design . A key is a set of one or more
columns whose combined values are UNIQUE among all occurrences in a given table.
 Each and every attributes within the table can be called as “key”. It can be used to uniquely identify each
record in the table.

4) Object Oriented Database (OODMS):

 An object oriented database is a set of objects. It is based on the concept that each and everything can
be modeled in terms of objects and their interactions.
 Objects are entities and hence possess certain attributes to characterize them and interacting with
each other.
 It is used to store complex data such as images, audio and video, etc.
 Each object is independently functioning from application program. It uses Object-oriented
programming languages like Java, C#, Visual Basic, .Net, C++ and Smalltalk etc. used in structuring
OODMS.
 Now a day OODMS is used increasingly to store:
- design objects.
- support multimedia applications by providing images, graphics, audio and videos etc.
- Data analysis reports.

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SDLC Teams of Car

Analyst;
Designer
Developer
Tester
IS Auditor

Designer Car Quality

Name Name Sensitivity
ID Model No. Maintenance
Designation Color Speed
Area of Specialization Price Fuel Tank
Manufacturer Wheels
Suspension
Image of Object Oriented Diagram

Q-5 Advantages of DBMS:

1) Permitting data sharing:

 DBMS provides the facility so that same information can be made available to different users.

2) Minimizing Data Redundancy:

 It avoids duplication of information or data redundancy to the extent possible so that same data should not be
existed more than once in a database.

3) Integrity can be maintained:

 It manages the accuracy, consistency of every data and ensured that it is updated. It prevents unauthorized
manipulation of data.

4) Program and file consistency:

 DBMS provide same file formats for similar set of data and designed various different data format for
different types of transactions and provides standardized program for every processing.
 It makes the data files easier to maintain because the same rules and guidelines apply across all types of
data.

5) User-friendly:
 DBMS makes the data access and manipulation easier for the user. It also reduces the reliance of users on
computer experts to meet their data needs.

6) Improved security:
 It allows multiple users to access the same data resources but that would lead to high level of risk of

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unauthorized access, virus, data loss etc. Hence, security control can be defined to protect the data from
unwanted events.
 Example: ID and passwords to restrict data access only to authorized users.

7) Achieving program/data independence:

 In a DBMS, data does not reside in applications but database programs are resided. Hence, data are independent
from database programs.

8) Faster application development:

 DBMS makes application development more fast because application developer get all graphics, modules,
data, interfaces, buttons that is already available in database in readymade format. The application developer has
to think of only the logic required to retrieve the data in the way a user needs.

Q-6 Disadvantages of a DBMS

There are basically two major downsides to using DBMSs. One of these is cost (both system and user training), and the
other is the threat to data security. These are given as under:

1) Cost:
 Implementing a DBMS system can be expensive and time-consuming, especially in large enterprises. Training
requirements alone can be quite costly.

2) Security:
 Even with safeguards in place, it may be possible for some unauthorized users to access the database. If one gets
access to database then it could be an all or nothing proposition.

Information System Life cycle

System Investigation System Analysis System Designing System implementation System Maintenance and review

Introduction:
 This is commonly referred as Software/System Development Life Cycle (SDLC), which is a methodology used to
describe the process of building information systems.
 It is the logical starting point in the entire life cycle of a computerized system. Activities start when any enterprise
decides to go for computerization or migrate from existing computerized system to a new one.
 SDLC framework provides a sequence of activities for system designers and developers to follow.
 It consists of a set of steps or phases in which each phase of the SDLC uses the results of the previous one.
 It serves as a guideline to the designer, who seeks to use it as template while working on a project development.
 It comprises of important phases such as Investigation, Analysis, design, implementation and maintenance and review.

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START Preliminary Investigation

System Implementation
and Maintenance

END

Phase-1 System Investigation:

 It is undertaken when users come across a problem or an opportunity and submit a formal request for a new/modified
system to MIS department.
 After possible solution options are identified, project feasibility starts to ensure whether these systems will be
possible to develop for the organization.

Q-1 Dimensions of Feasibility Study:

Tips:
1) Schedule feasibility:
 It refers to the time period up to which the system should be made available to the organization. If take beyond
stipulated time, it is not worth to acquire.

2) Technical feasibility:
 Does the required technology being hardware, software etc. is existed to implement the proposed system or it
is a practical proposition?

3) Operational feasibility:
 Whether it is possible to implement system in existing environment of current working practices and existing
procedures? Whether it is comfortable to existing users of the organizations?

4) Legal feasibility:
 Is there any conflict between proposed system and legal requirements?
5) Economic Feasibility:
 Is proposed system is cost effective? If the operational cost of the project is more than its operational benefit,
then it is not worth to implement the proposed system.

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Phase-2 System Analysis:

 It is very important phase of SDLC because any error in this phase would affect all subsequent phase of
development.

 This phase includes a thorough and detailed understanding of the current system, identifies the areas that need
modification to solve the problem, the determination of user/managerial requirements and fair idea about various
systems development tools.

 Analysis of present and proposed system will be done on the basis of involved in interviews, questionnaires,
inquiries etc. to gather and collect the required information which will be input for proposed system.

 Requirement analysis is a process to gather the information of user requirement and system requirement.

Q-2 Activities involved in System Analysis Phase:

1) Interviewing staff:
 Here analyst collects information from individuals by making face to face communication to know about current
problems being faced by them.

2) Examine current business:

 It includes examination of system documents and output including current order documents, computer system
procedures and reports used by operations and senior management.

3) Sending out questionnaires:

 Here, analyst collects similar facts from a large number of individuals including users and managers as well to
get the multiple and various types of feedbacks.

4) Observation of current procedures:

 Here, analyst personally visits to on-site location of user to studies people doing their job.

Q-3 Function of Systems Analyst:

 Examine data and information flows in the enterprise using data flow diagrams;
 Establish what the proposed system will actually do (not how it will do it);
 Analyze costs and benefits;
 Consider possible hardware configurations;
 Outline system implementation options. (e.g. in-house or using consultants); and
 Make recommendations.

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Phase-3 System Designing:

 User requirements as identified in stage-2 are incorporated in design of new system and various reports, outputs,
inputs, files are designed to show how user requirements will be met.
 It describes the parts of the system and their interaction, how system will be implemented using the chosen hardware,
software and network facilities, specifies the program and database specifications and the security plan and further
specify the change control mechanism to prevent uncontrolled entry of new requirements.
 This phase examines that „How will the Information System do what it must do to obtain the solution to the problem‟?

Q-4 Technical aspects in design of proposed system

 Conversion plan: It includes design of “how the new system is to be implemented”;
 Hardware platform: It includes design of computer, network capabilities, input, storage and output devices;
 User interface: It includes design of “how users will interact with the computer system”;
 Software: It includes design of programming language, package and database;
 Modular design: It includes design of each program in the application;
 Inputs: It includes design of documents, screen layouts and validation procedures;
 Outputs: It includes design of report layouts and screen designs;
 Test plan: It includes design of test data; and
 Documentation: It includes design of systems and operations documentation. Later, a user manual will be
produced.

Phase-4 System Implementation:

 After passing testing stage, system is implemented in live environment. New hardware if required is installed and
users are trained.
 The process of putting proposed system into live environment and all hardware and software is installed and shifting all
inputs, processing, output and storage from old to new system is called as Systems Implementation.

Q-5 Activities / Steps of System Implementation:

In Installation, there are following major activities either for installation of new system or conversion of old system to the
new one.
 Acquisition of hardware and software;
 Installing the new hardware, which may involve extensive re-cabling and changes in office layouts;
 Coding and testing of system;
 Conversion of master files to the new system or creation of new master files.
 Training to the users on the new system; and

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Q-6 Major activities / Strategies in System Conversion:

1) Direct Changeover:
 The user stops using the old system one particular day and starts using the new system from thereon,
usually over a weekend or during a slack period.

2) Phased Conversion:
 It is used with larger systems that can be broken down into individual modules which can be
implemented separately at different times.

3) Pilot Conversion:
 New system will first be used by only a portion of the enterprise, for example at one branch or factory.

4) Parallel Conversion:
 The old system continues alongside the new system for a few weeks or months.

Phase-5 System maintenance and Review:

 The process of enhancing the existing system was according to the changed requirements is called maintenance.
This process is probably a longest and costliest process in the life of an Information System.
 The need for modification arises from a failure to anticipate all requirements during system design and/or from
changing organizational requirements.

Q-7 Objectives of System maintenance:

 Perfective Maintenance: It refers to the process of adopting changes taken place as per the requirement of
organization.

 Adaptive Maintenance: All systems will need to adopt to changing needs within a company as per the
requirement of environment.

 Corrective Maintenance: Problems frequently surface after a system has been in use for a short time,
however thoroughly it was tested. Any errors must be corrected.

Recent Technologies and devices

Blue tooth Wi-Fi Laptop- Tablet Smart Touchpad I-pad I-pod Ultra Android
Notebook computer phone mobile PC
(UMPC)

1) Bluetooth:
 Bluetooth is a wireless technology standard for exchanging data over short distances up to 50 meters (164
feet) from fixed and mobile devices , creating personal area networks (PANs) with high levels of security.
 It is a feature which is used every day through a number of compatible devices.

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 These include USB, handheld PDA, phone headset and most popularly the mobile phone.
 It can be used in mobile phone to send pictures, videos, exchange business cards and also transfer files to
our PC.
 Both data and voice transmissions can be sent and received through the use of short range networks.
 Bluetooth is really like a very low-power, short-range radio signal.
 Bluetooth signals are secure from the moment they're sent, so unlike any other wireless network we don't have
to worry about turning on security.
Few devices that utilize Bluetooth technology are:
 Keyboards and mice, Printers, Cell phones and headsets, PDAs (Personal Digital Assistants), Desktop and
laptop computers, Digital cameras, and Remotes: replacing IR (infrared).

2) Wi-Fi:
 Wi-Fi is a popular wireless networking technology that uses radio waves to provide wireless high-speed Internet
and network connections.
 It has limited range of 32 meters (120 ft.).
 Owner of the wi-fi is The Wi-Fi Alliance that are based on the Institute of Electrical and Electronics Engineers'
(IEEE) having 802.11 standards.
 Wi-Fi can be less secure than wired connections because an intruder does not need a physical connection for
hacking.
 It uses radio technologies called 802.11 to provide secure, reliable, fast wireless connectivity.
 It is used to connect electronic devices to each other on to the Internet.
 WI Fi is useful for small, medium and large corporations and campuses for extending standard wired
Ethernet networks to public areas like meeting rooms, training classrooms and large auditoriums.

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3) Laptop: Notebook:
 Laptop is a small, portable computer and small enough that it can sit on a lap.
 It is an extremely lightweight personal computer having weight less than 3 Kg and are small enough to fit easily
in a briefcase.
 It uses flat-panel technologies to produce a lightweight and non-bulky display screen.
 It is almost equivalent to personal computers having the same CPUs, memory capacity and disk drives.

a) Tablet Computer or Tablet:

 Tablet is a one piece general-purpose computer
contained in a single panel.
 It uses of a touch screen as the input device.
 Modern tablets are operated by fingers or stylus.
 It becomes quite popular through its portability and
user friendly user interfaces.
Some features of Tablets are:
Tips:
1) Performance: Since most tablet PCs are based on extremely low powered processors more suited for
tasks like email, web browsing, playing video or audio.
2) Size: Tablets has the size roughly of a small pad of paper and a weight lesser than 1 Kg.
3) Wireless: Tablets by design are mobile computers hence it has Wi-Fi, blue tooth and mobile
connectivity.
4) Input Method: Tablets uses touch interface on the screen for all input.
5) Storage Capacity: Most tablets has storage capacity lies between 16 to 64 gigabytes of storage.
6) Software: It uses two major tablet platforms i.e, android and iOS amongst plenty of applications that
are available.
7) Battery Life: Tablets performance is dependent upon battery power and since it requires low power for
operations. Its battery provide whole day usage and its life will be increased and sustained in a long
run.

b) Smart Phone:
 It is a mobile phone built on a mobile operating system with more advanced computing capability
connectivity than a feature phone.
 It is an integrated version of mobile phone capabilities and features of PDA (personal digital assistance).
 It allows users to store information, e-mail and install programs.

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 It has high-resolution touch screens features and web browsers that display standard web pages as
well as mobile-optimized sites.
 High-speed data access is provided by Wi-Fi and mobile broadband.

c) Touchpad:
 It is a pointing device featuring a tactile sensor, a specialized
surface that can translate the motion and position of a user's fingers
to a relative position on screen.
 It is used in laptop computers as a substitute for a mouse.
 It is vary in size and can also be found on PDAs. Wireless
touchpads are also available as detached accessories (*key board).
 It can be used to provide motion of a finger and motion of the
cursor.

d) I-pad:
 The iPad runs a version of iOS. iOS is designed for finger based use and does
not have a stylus features.
 Apple introduced responsive multi touch gestures, like moving two fingers
apart to zoom in.
 iOS uses less power, and so gives better battery life than the Intel devices used
by Windows tablets.
f) I-pod:
 The iPod is used to play graphics, audio and video files. Hence it is called as
portable media players designed and marketed by Apple Inc. It does not have
phone features.
 There were four current versions of the iPod: the ultra-compact iPod Shuffle,
the compact iPod Nano, the touchscreen iPod Touch, and the hard drive-based
iPod Classic.
 I-Pods can also serve as external data storage devices ranging from 2 GB for
the iPod Shuffle to 160 GB for the iPod Classic.

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4) Ultra-Mobile PC (UMPC):
 It is a small version of a pen computer, a class of laptop launched by Microsoft and Intel in 2006.
 These are smaller than subnotebooks having a LCD display are operated like tablet PCs using a touch screen or a
stylus, and can also have a physical keyboard.

5) Android:
 Android is a Linux-based operating system designed primarily for touch screen mobile devices such as smart
phones and tablet computers.
 It enables developers to create various mobile applications called as „apps‟.
 It has best handset and tablet manufacturers in the world like Samsung, HTC, Motorola, Sony, Asus and more.
 Android devices are available in all shapes and sizes, with vibrant high-resolution displays and cameras, giving the
flexibility to choose the one that‟s just right for a user.
 Android is open source that allows the software to be freely modified and distributed by device manufacturers.

Information Technology

Q-1 Need for Information Technology (IT): What is E-mail?

 E-mail is an internet facility available through
1) Communication capability which message is transmitted in an electronic
manner.
2) Data and information management; and
 It is cheaper, flexible, and fast as well as also
3) Automated processes provides simple and secured transmission.
 Example: yahoomail.com, rediffmail.com
1) Communication Capabilities:  It is controlled and managed by SMTP.
What is VOIP?
 IT provides resources such as email, protocols and mobile apps  It is an internet protocol which is used for
etc. to enterprises to communicate quickly and effectively. communication between 2 persons in voice
frequency.
 It integrates their business functions and segments spread  It allows people across the world to make free,
across different geographical areas. unlimited, superior quality voice calls via its
innovative peer-to-peer software.
2) Data and Information Management:  Example: skype, video chatting through
facebook etc.
 It enables to store large volume of data in electronic storage What is Whats App Messanger?
media which saves a lot of physical space and also saves  It is a cross platform mobile messaging
substantial documentation costs. Data can also be stored application which allows us to exchange
electronically on servers, and on cloud. messages without having to pay for SMS.
 It is available in Android based operating
 It manages the data as per the requirement of users.
system devices such as I-phone, Samsung etc.
 It allows only to authorized user to access these data at  It uses same internet data plan that we use for
anytime from anywhere in the world by implementing E-mail and web browsing, hence there is no
physical, logical and environmental security on the basis of transmission cost to message.
appropriate security standards, policy and procedures.

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3) Automated Processes:
 It provides Business Process Automation (BPA) to optimize critical business processes by using the latest
technology. It provides maximum benefit at low cost range.
 BPA can be achieved by using integrated ERP software which consists of various modules such as internal
control, human resources, production etc. Activities of ERP are such as accounting, sales & marketing
management, purchase management, production management, costing, inventory control and human resources
management.
 Benefits of Automation: Because of automation, enterprises are able to optimize and improve their business
processes through: Greater control over business and IT processes; Reduced costs through higher efficiency
and ; better management of the people involved; Shortened cycle times in the execution of processes
through improved and refined business workflows; and Reduced risks through greater ability to respond to
changing business conditions.

Q-2 Importance of IT in Auditing:

 IT encompasses all aspects of functioning of enterprises from strategy to operations and inception to completion.
 IT assists management in complying business, regulatory and competitive requirements.
 IT assists auditors in providing reasonable assurance on the security, effectiveness, and reliability of information
and applications.
 IT becomes a key enabler in enterprises of all types and sizes.
 IT is pervasive and its impact is extensive for enterprises, professionals and individuals.
 It creates positive customer experience by providing more revenue and growth.
 IT also assists Accountants and Auditors in accounting to auditing to perform their jobs effectively and efficiently.
 IT assists management in building, maintaining and sustaining the business relationship.
 IT is used to frame model to transform the business process by doing BPR.

Q-3 Audit objectives in Computerized Environment:

The objectives of Audit would vary depending on the type, purpose objective and scope of audit. However, general objective of
auditing in computerized environment could include the following objectives of manual audit.

1) Compliance: It helps in verifying that all processing is in compliance with governmental laws and
regulations, generally accepted accounting procedures, and the organization`s policies and procedures;
2) Operational: It helps in verifying that the program and activities are performed economically, efficient, and
effectively;
3) Cutoff: It helps in verifying that the transaction is re-coded in the proper financial accounting period;
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4) Authorization: It helps in verifying that events have occurred in accordance with management`s roles and
responsibilities;
5) Valuation: It helps in verifying that the accounting values fairly present items worth;
6) It helps in determining whether computer system accomplishes the business objectives and goals.
7) It helps in verifying whether internal control recommendations are implemented;
8) It helps in providing specification and proposed design of computer control for systems to be installed;
9) It helps in determining whether efficient use is made of the organization‟s Computer resources; and
10) Existence: Verify that the assets, liabilities, ownership, and/or activities are real.

Q-4 Difference in Audit procedures:

1) Study Technical Aspects:
 IS auditor must study and verify all technical aspects such as computer facility, application programs,
operating procedures, security procedures and so on and obtain sufficient appropriate evidence for any
discrepancies found therein under study.

2) Use Unique Techniques:

 IS auditor must use unique technique such as snapshot technique etc. to collect evidential matter during
audit in a computerized environment.
 For example, the audit planning step includes review of technical documentation and interviewing technical
specialists. The auditor must understand the procedures for testing and evaluating Computer Controls.

3) Audit Software Usage:

 These procedures include the use of generalized audit software to survey the contents of data files and the
use of specialized software to assess the contents of operating system.

Q-5 Types of IT risks:

There are three types of IT risks:
- process risk
- technology risks; and
- business risk

Q-6 Need for controls in Information System:

IS control procedure may include:
 Strategy and direction;
 General Organization and Management;

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 Access to IT resources, including data and programs;

 System development methodologies and change control;
 System Programming and technical support functions;
 Database Administration;
 Network and Communication;
 Operation procedures;
 Quality Assurance Procedures;
 Business Continuity Planning (BCP) and Disaster Resource Planning (DRP);
 Physical Access Controls;
 Protective and detective mechanisms against internal and external attacks.

Q-7 Impact of IT on Risks and Controls:

Impact of IT on Risk rising:
 Failure to recognize risks or potential impacts: If security administrator or any user unable to recognize
the nature and type risk or unable to assess the impact of risk, then it will be great problem for organization to
implement control within the time to minimize the impact or reduce the probability of occurrence of threat.

 Appropriate controls are not resident within the computer systems: If threats are not anticipated
and adequate controls are not designed to mitigate or counter them, system and its resources will be vulnerable.

 Ready access to terminals: As computerized Information Systems are highly distributed leads to ease in
perpetration of computer related crimes thereby increasing temptation for abuse.

 On-line processing of data and validation checks: It would help the prospective perpetrator in
guessing passwords and aid in circumventing controls in inputs to computer.

Impact of IT on control:
 Changes in custody of files and documents: In manual system, physical files are managed under the
custodian of physical person. In computerized environment, it is managed by the DBMS that is managed by DBA.
 Decline of accountability: Traditional functions, responsibilities and boundaries have been eliminated
by adopting new methods i.e, ID and password. In computerized environment, the person having valid ID and
password are allowed to access the file. Hence no need to have custodian to manage the physical access control.

 Transfer of responsibilities: Single action by user through programs may complete the entire processing
cycle of the transaction. Hence, no need to have separate person for separate process in computerized
environment.

 Realignment of functions data entry: In manual system, data entry is done manually but in computerized
environment, real time system accepts the input automatically at the time of its occurrence and stores the data at
centralized location called database.

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Computing:
Introduction:
Computing
- means any goal-oriented activity requiring, benefiting from or creating computers; and
- includes
 designing and building hardware and software systems for a wide range of purposes;
 processing, structuring, and managing various kinds of information;
 doing scientific studies using computers;
 making computer systems behave intelligently;
 creating and using communications and entertainment media;
 finding and gathering information relevant to any particular purpose, and so on.

Q-1 Sub disciplines of Computing field:

1) Computer science
2) Computer Engineering
3) Information Systems
4) Information Technology; and
5) Software engineering

1. Computer Science:
 Computer science is the study of the theory, experimentation, and engineering that form the basis for design
and use of computers.
 It is the systematic study of feasibility, structure, and mechanization of methodical processes or algorithms
that underlie the acquisition, representation, processing, storage, communication of and access to information.

2. Computer Engineering:
 It refers to an approach that integrates several fields of electrical engineering and computer science required
to develop computer hardware and software.
 It includes design of hardware and software from the stage of design of individual microprocessors, personal
computers, and supercomputers, up to the stage of circuit design.
 This focuses not only on how computer systems work but also how they integrate and work a holistic
system.

3. Software Engineering:
 It refers to the study of a systematic, disciplined, quantifiable approach to the design, development, operation,
and maintenance of software.

4. Information System (IS):

 It refers to the study of combination between hardware and software so that users can collect, process, create,
store and distribute data by using such combination of hardware and software.
 It refers to any specific Information System that aims to support operations, management and decision
making. Example: TPS, MIS, DSS, EIS etc.

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5. Information Technology (IT):

 It refers to the study of combination of computers and telecommunications to store, retrieve, transmit and
manipulate data for processing of information.
 IT encompasses not only computers and computer networks but also other information distribution technologies
such as television and telephones.

Computing Technologies
Server Popular computing architecture Emerging computing models Information Technology Software Engineering

Server:
 Server is a set of computers and CPU connected with various other client based computers through network to
accept the request from various users and provide respond to them.
 It requires client server architecture comprises of front end system and back end system and requires middleware
through which they are interlinked.

Q-1 Types of Servers:

1) Network server: It is a computer system used to manage network traffic. It comprises of various
hardware resources such as modem, router and various types of network protocols.

2) Web Servers:
 Web servers are a set of computers that uses HTTP to deliver web pages to users. Every web server has
an IP address and possibly a domain name.
 For example: if we enter the URL http://www.icai.org in our browser, this sends a request to the Web server
whose domain name is icai.org. The server then fetches the home page named and sends it to our browser.

3) Mail Server: It is a server that receives incoming e-mail from local users and remote senders and forwards
outgoing e-mail for delivery.

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4) Application Server:
 This is a program that handles all application operations such as managing application logic, its security
and its updation etc. between users and an enterprise's backend business applications.

5) Database server:
 This is a set of computer system that processes database queries by creating and maintaining master
files. It performs tasks such as data analysis, storage, data manipulation, archiving, and other non-user
specific tasks.

6) File server: This is a computer and storage device dedicated to storing files. Any user on the network can
store files on the server.

7) Print server: This is a computer that manages one or more printers.

Popular Computing Architecture:

Introduction:
 Computer architecture is a science and art of making conceptual design of various hardware components,
location of various components and their interconnection amongst them for creating computers. It is called
Instruction Set Architecture (ISA).
 It includes conceptual designing of their hardware, motherboard, CPU chip and various instruction sets within
software that meets functional, performance and cost goals.
 It describes how computer and its parts are functioning and how they are interacting amongst each other. It
determines the way that programs are constructed.

Q-1 Categories of Computer Architecture:

1) Instruction set architecture (ISA)
2) Micro architecture
3) System Design

1) Instruction Set Architecture (ISA):

 It is an abstract (invisible) model of a computing system that is seen by a programmer having knowledge
about machine language. It represents conceptual designing of instruction set, memory address modes,
processor registers, and address and data formats.
 It is relating to the programming of a computer which represents various elements of programming
language and provides knowledge about what instructions are to be carried out and in what order etc.
 The ISA basically deals with what the chip does. It‟s a sort of „bridge‟ between software and hardware.

Q-2 Categories of ISA or Types of Machine Code Instructions

Instructions are translated to machine code. In some architecture, all machine code instructions are the same length i.e, fixed
length. In other architectures, different instructions may be translated into variable lengths in machine code.
i) Fixed Length Instructions; and
ii) Variable Length Instructions
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Fixed length Instructions:

 Fixed length instructions has the same length. It is commonly used with RISC processors.
 Since each instruction occupies the same amount of space, every instruction must be long enough
to specify a memory operand even if the instruction does not use memory space. Hence, memory
space is wasted by this form of instruction.
 Advantage: They make the fetching and decoding instructions easier and more efficient, which
means that they can be executed in less time than the corresponding variable length instructions.

Variable length Instructions:

 Variable length instructions are commonly used on CISC machines.
 The advantage of using variable length instructions is that each instruction can use exactly the
amount of space it requires, so that variable length instructions reduce the amount of memory space
required for a program.

Q-3 Classification of Instruction Sets:

These are of basically two types, which are given as follows:
S. Basis of CISC RISC
No. difference
1) Definition A CISC is microprocessor where single It is a CPU based architecture that
instructions can execute several low level simplifies and executes the instructions at
operations (such as load from memory, high speed.
arithmetic operation and memory store etc.)
2) Used in year It was used in late 1970‟s It is a latest version of CISC and was used
in late 1980‟s
3) No. of electronic It uses single electronic circuits to execute It uses separate electronic circuit to
circuit use each instruction in the control unit. execute each instruction in the control unit.
4) Size of Instructions set are large. Hence CISC chip Instructions set are of fixed length. Hence
Instruction set requires more transistors. RISC chip require less transistors.
5) No. of functions It uses complicated addressing mode with It uses simple addressing modes and
provided large and variable lengths of instruction set. RISC instruction is of uniform fixed length
Hence it provides limited functions to (i.e, small instruction set), they can place
programmer. extra demand on programmers (more
functions).
6) Difficulty in It is very difficult to write machine language It is comparatively easy to write assembly
writing language based instruction set. However, it possesses based instruction set.
various advanced features which make the
job of machine language programmer easier.
7) Conversion It does not require any conversion mechanism It uses assembler and compiler to convert
mechanism as machine based instructions are directly directly program into binary.
stored in primary memory.
8) Speed and It is comparatively slower and quite It is comparatively faster, smaller and more
Performance complicated than RISC. simple.
9) Consume It consumes less resource. It consumes comparatively more resource.
resources
10) Consume It consumes more power. It consumes comparatively less power.
Powers

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11) Expensive It is more expensive. It is less expensive.

12) Utilization of Since it uses variable length instruction. It can Since it uses fixed length instruction.
memory space. save unutilized memory space. Unutilized memory space is wasted
because each instruction uses fixed space
whether utilized or not.
13) Examples: Intel 386, 486, Pentium, Pentium Pro, IBM RS6000, MC88100 processors etc.
Pentium II, Pentium III processors etc.
RISC vs CISC – An Example of multiplication of two numbers in memory.
Suppose that the main memory is divided into locations numbered from (row) 1: (column) 1 to (row) 5: (column) 4. The execution unit is responsible for carrying out all
computations. However, the execution unit can only operate on data that has been loaded into one of the four registers (A, B, C, or D). Let's say we want to find the
product of two numbers - one stored in location 1:3 and another stored in location 4:2 and store back the result to 1:3.

CISC Approach:
CISC design would try to finish the task in the minimum possible instructions by implementing hardware which could understand and execute series of operations. Thus
the processor would come with a specific instruction ‘MUL’ in its instruction set. ‘MUL’ will load the two values from the memory into separate registers, multiplies the
operands in the execution unit, and then stores the product in the appropriate location. So, the entire task of multiplying two numbers can be completed with one
instruction:
MUL 1:3, 4:2
MUL is referred to as a "complex instruction" as it operates directly on the computer's memory banks and does not require the programmer to explicitly call any loading
or storing functions.
1:1 1:1 1:1 1:1 1:1
RISC Approach: 2:1 2:1 2:1 2:1 2:1
RISC processors use simple instructions that can be executed within a clock cycle. 3:1 3:1 3:1 3:1 3:1 Memory
Thus, ‘MUL’ instruction will be divided into three instructions.
4:1 4:1 4:1 4:1 4:1
(i) "LOAD," which moves data from the memory bank to a register,
(ii) "PROD," which finds the product of two operands located within the registers, and 5:1 5:1 5:1 5:1 5:1
(iii) "STORE," which moves data from a register to the memory banks.
In order to perform the task, a programmer would need to code four lines of assembly: Register
LOAD A, 1:3 A B
LOAD B, 4:2 C D
PROD A, B
STORE 1:3, A
Execution Unit

2) Micro architecture: = (it describes internal framework of processor.)

 It is a lower level detailed description of the system that completely describes
the operation of all parts of the computing system, and how they are inter-
connected and inter-operate for logical implementation of ISA. It is also called as
computer organization.
 It is used to describe the resources and methods used to achieve architecture
specification for logical implementation of ISA.
 It can be seen as how the ISA does and what it does. It provides mechanism “for
how everything is ultimately organized on the chip or processor”.
 It helps in reaching the target cost and performance goals.
Micro architecture of Bulldozer

3) System Design: (It represents the design of computer bus, circuits It includes all of the other hardware components
within a computing system such as:

a) Computer buses and switches:

 Computer bus is a communication system that transfers data between components inside a
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computer, or between computers that covers all related hardware components (wire, optical fiber, etc.)
and software, including communication protocol.

b) Memory controllers:
 It is a digital circuit which manages the flow of data going to and from the main memory and can be a
separate chip or integrated into another chip.

c) CPU off-load mechanisms- Direct Memory Access (DMA):

 It allows certain hardware subsystems within the computer to access system memory independently
of the central processing unit (CPU).

d) Issues- multi-processing, virtualization, software features etc.

 Multiprocessing is the use of 2 or more Central Processing Units (CPUs) within a single computer
system to allocate tasks between them.
 Hardware Virtualization or Platform Virtualization refers to the creation of a virtual machine that acts like
a real computer with an operating system. Software executed on these virtual machines is separated from the
underlying hardware resources. Examples of virtual machines are:

Emerging technology / Computing Models:

This section provides brief overview of emerging computing technologies whose impact on enterprises will be felt increasingly in the
near future. These emerging technologies are given as under:
1) Cloud computing
2) Mobile computing
Mobile computing Cloud computing
a) Components of Mobile computing a) Cloud computing environment
b) Business applications of mobile computing b) Cloud computing Architectural considerations
c) Mobile computing concerns c) Service models of cloud computing
d) Characteristics, Advantage and Disadvantages

Mobile Computing:
Introduction:
 It is the use of portable computing devices (*such as laptop and tablet, PDAs) in conjunction with mobile communications
technologies to enable users to access the Internet and data on their home or work computers from anywhere in the
world.
 It provides flexibility in which a computer is expected to be transported during normal usage.
 Mobile computing is enabled by use of mobile devices (portable and hand held computing devices) such as PDA,
laptops, mobile phones, MP3 players, digital cameras, tablet PC and Palmtop on a wireless network.
Note: Mere having laptop cannot be called as mobile computing unless it has mobile features.

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Q-1 Components of mobile computing:

 Mobile Communication:
 It will incorporate all aspects of wireless communication related infrastructure to ensure that reliable
communication goes on.
 It includes devices such as Protocols, Services, Bandwidth and Portals necessary to facilitate and support the
stated services.
 The signals are carried over the air to intended devices for receiving and sending signals.

 Mobile Hardware:
 It refers to mobile devices and other physical components that receive or access the service of mobility.
These devices will have receptors that are capable of sensing and receiving signals.
 These devices are configured to operate in full-duplex mode capable of sending and receiving signals at
the same time.
 Example: Portable laptops, Smart phones, Tablet PC‟s to Personal Digital Assistants.

 Mobile Software:
 Mobile Software is the actual program that runs on the mobile hardware. It is an engine of mobile device.
It can also be called as an operating system of that appliance. Hence it is an essential component that
makes the mobile device operate.
 Example: Mobile apps such as whats app, facebook apps, store apps, message etc.

Business Applications of Mobile Computing:

Introduction:
 Mobile devices provide the capability to conduct business anywhere and enable users to communicate and
access information from anywhere.
 It changes the business structure by providing video, web-browsing, gaming, and other entertainment related
applications.
 It is rapidly moving from gadget status to a must have status because of involving more and more business
services which are to be offered through this mode.
 It enables enterprises to connect with their employees at all times which increases the productivity and a better
return on investments.

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Q-2 Examples of business applications in mobile computing:

by using mobile devices.

1) Customer service improvement:

 There are various business applications used to respond all customer‟s queries on site or off site.
 For example: sap store, sales force etc. are the business application used in mobile system to respond to all
queries of customer‟s complaints.

2) Incident management improvement:

 There are various business applications used to provide risk management solution without limitation of time
because employees can attend them anywhere without any boundation on location.
 For example: 1) Visium KMS is an apps used to provide incident management service in case of Rolls Royce.
2) Tally solutions provide various services from their desks by logging into the specific computer, identify problem
and resolve it online.

3) Business process transformation:

 There are various business applications used to transform the business process by using mobile devices
because it requires reengineering of core business processes of business organization.
 It is time saving and it provide services anywhere without boundation on location
 Example: redbus.in, bookmyshow, flipkart etc

4) Modification / updation of existing offers:

 There are various business applications used to modify and update their offerings and offer new products
and services altogether. It is It is time saving and it provide services anywhere without boundation on
location
 For example: amazon, flipkart etc. has features to modify the existing scheme available in the organization.

5) Freedom to Roam:
 There are various business applications used to give users freedom to roam along with access to data
and services at any time and in any place.
 Example: ERP apps, mail apps, flipkart apps, netbanking apps etc.

Q-3 Mobile Computing Concerns:

Major concerns relating to mobile computing are given as follows:

 Mobile computing has its fair share of security concerns as any other technology.
 Power consumption: When a power outlet or portable generator is not available, mobile computers must rely
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entirely on battery power.

 Dangers of misrepresentation- Another problem affecting mobile computing are credential verification.
 Potential health hazards

Network Virtualization
 In IT, Virtualization is the process of creating logical computing resources through programming from
available physical resources.
 Once installed, the virtualized computing resources such as memory, CPUs, network and storage can all be
pooled and provisioned to workloads without regard for physical location within a data center.
 It allows a large physical network to be provisioned into multiple smaller logical networks and conversely
allows multiple physical LANs to be combined into a larger logical network.
 It allows administrators to improve network traffic control, enterprise and security.

Q-1 Major applications of virtualization:

1) Server Consolidation:
 Virtual machines are used to consolidate many physical servers into fewer servers, which in turn host
virtual machines.
 Each physical server is reflected as a client virtual machines residing on a virtual machine host system.
 This is also known as “Physical-to-Virtual” or 'P2V' transformation.

2) Testing and Training:

 Hardware virtualization can give root access to a virtual machine. It is very useful in kernel development
and operating system courses.
 In Kernel mode, the executing code has complete and unrestricted access to all underlying hardware
available at server. Crashes in kernel mode are catastrophic and they will disrupt the entire PC.

3) Portable Applications:
 Portable applications are needed when running an application from a removable drive without installing it
on the system's main disk drive.
 Virtualization can be used to put the application into temporary files in the application's installation
directory and not within the system's permanent file system.

4) Portable Workspaces:
 Recent technologies have used virtualization to create portable workspaces on devices like iPods and USB
memory sticks.
 Example: Kinsgston 64GB pendrive alongwith RAM of 65536 MB

5) Disaster Recovery:
 Virtual machines can be used as "hot standby" environments for physical production servers. Hot
standby is a redundant method in which one system runs simultaneously with an identical primary system.
Upon failure of the primary system, the hot standby system immediately takes over, replacing the primary
system. However, data is still mirrored in real time. Thus, both systems have identical data.
 It helps to provides "backup-and-restore" philosophy by providing backup images.

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Grid Computing
 Grid Computing is a special kind of distributed computing network in which different computers within the
same network share one or more resources.
 Processing power, memory and data storage are all community resources that authorized users can tap
into and leverage for specific tasks.
 A grid computing system can be as simple as a collection of similar computers running on the same
operating system or as complex as inter-networked systems comprised of every computer platform.
 In this system, every resource is shared, turning a computer network into a powerful supercomputer.

Grid Computing

Q-1 Why need Grid Computing?

 Civil engineers collaborate to design, execute, & analyze shake table experiments. An insurance company mines
data from partner hospitals for fraud detection.
 It helps in shifting overload from one system to another system to a compute cycle provider.
 It helps in configuring internal & external resources to support e-Business workload.
 It allows sharing of heterogeneous computing resources, information systems and instruments amongst each
other located at different geographical location.

Cloud Computing:
Introduction:
 Cloud computing means the use of computing resources as a service through Internet in a virtual manner.
 Virtualization is something like if you have windows XP as an operating system and are able to operate windows
10 though it is not stored on user‟s private PC.
 Virtualization helps to provide all computing resources including hardware and software in a programmable
way to client PC.
 It comprises of servers and clients. Server can be called as back end architecture and client can be called as
front end architecture.

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 Front end architecture means the computer through which remote users are accessing the server and back end
architecture means the computer where database and all application logics are stored for program execution and
data storage.
 It will be protected only when there is Right Architecture for the Right Application (RARA).
 It is highly dynamic and scalable.
 It allows only authorized users to access any computer resources via Internet from anywhere.
 User need not to make investment to develop and maintain IT infrastructures.
 It offers services on demand over the network that meet changing business needs.
 It makes the location of physical resources and devices irrelevant.
 It also helps users to develop, deploy and manage their applications on cloud in a virtual manner.
 It provides benefit to small and medium-sized business systems who wishes to completely outsource their
data-centre infrastructure.
 Example: Google Apps where any application can be accessed by using a browser and it can be deployed on
thousands of computer through the Internet.

Cloud Computing Scenario

Q-1 Cloud Computing Environment:

It includes 5 types of cloud based on their deployment and usage:
1) Public Clouds:
 It is accessed by users from all over the world such as individuals, corporations and other types of organizations where
they can purchase resources on pay-per-use basis.
 It is administrated by third parties over the Internet.
 It enables other companies to share IT resources and services.

Advantages of public cloud:

 It is widely used in the development, deployment and management of enterprise applications at
affordable costs.
 It delivers highly scalable and reliable applications rapidly and at more affordable costs.
 There is no limit for the number of users.
 There is no need for establishing infrastructure for setting up and maintaining the cloud.
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 Strict SLAs are followed.

Limitations:
 It has low security assurance as to building trust among the clients.
 Privacy and organizational autonomy are not possible.

2) Private Clouds:
 It resides within the boundaries of an organization and is used exclusively for the organization’s benefits.
These are also called internal clouds or corporate cloud.
 Private Clouds can either be private to the organization and administered by a single organization (On-
Premise Private Cloud) or can be managed by third party (Outsourced Private Cloud).
 It is built by IT departments for optimizing utilization of IT resources by using the concepts of grid
computing and virtualization.

Advantages of private clouds:

 It improves average server utilization;
 It allows usage of low-cost servers and hardware. Hence, it provides higher efficiencies at low investment
costs.
 It reducing the costs that a greater number of servers would otherwise entail.
 It provides a high level of security and privacy to the user.
 It is small in size and controlled and maintained by the organization.

Limitations of Private Clouds:

 IT teams in the organization may have to invest in buying, building and managing the clouds
independently. Hence, budget is a constraint in private clouds.
 They have loose SLAs.

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3) Community Cloud: (hum sath sath hain)

 It is a combination of various private clouds where each similar nature of private organizations shares their private
clouds to build community cloud.
 It is used to share cloud infrastructure amongst the specific community.
 It may be owned, managed, and operated by 1 or more of the organizations in the community, a third party or
some combination of them.
 It is helpful for those organizations that neither afford to create private cloud nor can rely on public cloud and
still want to access the cloud resources available in the community.

4) Hybrid Clouds:
 It is a combination of both at least one private (internal) and at least one public (external) cloud computing
environments.
 It starts with a private cloud initially, and then for additional resources, the public cloud is used. It has
aims to utilize the power of the public cloud along with the properties of private cloud.
 With a hybrid cloud, organizations might run non-core applications in a public cloud, while maintaining core
applications and sensitive data in-house in a private cloud.
 It is typically offered in either of 2 ways:
- A vendor has a private cloud and forms a partnership with a public cloud provider; or
- A public cloud provider forms a franchise with a vendor that provides private cloud platforms.

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Q-2 Cloud Computing Architecture:

 Cloud computing architecture refers to the 1) Front End Architecture:
components and subcomponents that typically  It comprises of the client‟s devices and some
consist of a front end platform and back end applications needed for accessing the cloud
platforms and a network. Combined, it is called as computing system.
cloud computing architecture.  It is used by remote users from remote locations and
is scalable.
 The protection in cloud computing depends on  Examples: Computers, laptop and web browsers
having the right architecture for the right etc.
application. It requires proper understanding as to 2) Back End Architecture:
allocation of individual requirements to their  It comprises of data processing application,
individual applications. database management system, databases, security
devices and networking devices. It includes various
 It consists of 2 parts - Front End and a Back End
computer machines, data storage systems and servers.
that connect to each other through Internet. The front
 Groups of these applications and device constitute
end is a computer user, or client. The back end is the
a complete cloud computing system.
“cloud” section of the system.

Q-3 Service models of Cloud Computing:

1) Software as a Service (SaaS):
 SaaS provides ability to the end users to access large variety of applications over the Internet on pay per
use basis that is hosted and managed by the service provider without managing or controlling an application.
 SaaS changes the way the software is delivered to the customers.
 In the traditional software model, the software is delivered as a license-based product that needs to be
installed in end user‟s device. However, SaaS is delivered as on-demand service over the Internet and
there is no need to install the software.
 SaaS services can be accessed or disconnected at any time based on the end user‟s needs.
 It reduces the software maintenance cost.
 For example: One can make his own word document in Google docs online, he can edit a photo online
on pixlr.com. So he need not install the photo editing software on his system. Thus, Google is
provisioning software as a service.

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2) Platform as a Service (PaaS):

 It provides the ability to system developer to develop and deploy various applications for program
development.
 It provides all development tools to him to create, edit, run and manage the application programs.
 It also provides programming language execution environment, data base server and web server etc. for
developing software applications.
 For example: Google App Engine, Windows Azure Compute etc.

3) Infrastructure as a Service (IaaS):

 It is the foundation of cloud services.
 It is a hardware-level service providing computing resources such as processing power, memory storage,
and networks for cloud users to run their application on-demand.
 It allows users to maximize the utilization of computing capacities without making investment.
 It changes the computing from a physical infrastructure to a virtual infrastructure through virtual computing.
 Examples: Amazon web services, Google computer engine, Open stack, Eucalyptus etc

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Cloud Computing Service Models

4) Network as a Service (NaaS):

 It is a subset of IaaS and provides data communication
capacity such as video conferencing or large file
downloads.
 It allows to access virtual network services provided by
service provider over the Internet on pay-per-use basis.
 It allows network architects to create virtual networks;
virtual network interface cards (NICs), virtual routers,
virtual switches, and other networking components.
 NaaS providers operate using 3-common service
models: Virtual Private Network (VPN), Bandwidth on
Demand (BoD) and Mobile Virtual Network (MVN).
 Example: Meraki Solution

5) Communication as a Service (CaaS):

 CaaS has evolved in the same lines as SaaS because there is no communication in absence of software.
 It provides communication facilities stored in the cloud which was taken from cloud‟s vendor, to the client.
It is such as VoIP, Instant messanger, video conferencing etc.
 CaaS vendor is responsible for all hardware and software management and offers guaranteed Quality of
Service (QoS).
 It allows businesses to deploy communication devices on a pay-as-you-go, as-needed basis. This approach
eliminates the large capital investments.
 Examples: Voice over IP (VolP), Instant Messaging (IM), Collaboration and Videoconferencing application using
fixed and mobile devices.

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Q-4 Characteristics of Cloud Computing

1) Elasticity and Scalability:
 Cloud environments enable servicing of business requirements for larger audiences simultaneously without
affecting its performance efficiency.
 Example: If user of tally is increased from 500 to 10000, it will not affect the efficiency of cloud system.

2) On demand:
 It provides computer resources in a virtual manner to users as per their demand only. The computer
resources available in the cloud were not demanded by users, will not be provided to them.
 Example: Tally is available in cloud but was demanded by Mr. A and Mr. B only. It is provided only to them and
not to other users.

3) Pay-Per-Use Mode:
 Cloud must provide their resources as a service and they should charge their service on pay-per-use
mode.
 Price is decided based on the complexity of services offered.
 Application Programming Interfaces (APIs) may be offered to the users so that they can access services on
the cloud by using these APIs.

4) Resiliency:
 Cloud must be resilient so that if there is a problem in one component of cloud it will not affect other
components. It means that though all components are integrated amongst each other still they should maintain
isolation amongst them.

5) Multi tenancy:
 Since cloud computing is working in a distributed and shared model, multiple users should simultaneously able
to use applications with more efficiency at lower cost by sharing common infrastructure from different
locations.

6) Workload management:
 Cloud-computing providers can migrate workloads across servers both inside data center and across data
centers even in a different geographic area. This migration might be necessitated and due considerations must
be given to least cost or efficiency considerations (network bandwidth) or regulatory considerations.

Q-5 Advantages of Cloud Computing

1) Easy Access to Information:
 Once users get registered with the cloud, he can access the information from anywhere through Internet
connection.

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 It makes physical location of device, resources and users irrelevant. Moreover, they can access these
resources 24 * 7 hours.

2) Backup and Recovery:

 Since all the data is stored in the cloud, back up and restoring the same is relatively much easier than storing
the same on a physical device.
 Such backup is very helpful for recovery of information.

3) Cost Efficiency:
 Cloud computing is most cost efficient method to use, maintain and upgrade the cloud computing. On
other hand, traditional desktop software is very expensive for establishment in terms of paying a lot of
licensing fees for multiple users.
 In cloud computing, IT users need to pay only for resources on usage basis. He can save substantial
purchase cost unlike traditional approach.

4) Quick Deployment:
 Cloud computing gives advantage of quick deployment. It means that user can install software configuration
in a single click within a fraction of second without following actual installation process
 It makes entire system fully functional within a second.

5) Automatic Software Integration:

 Since all the software are stored in cloud environment, they can be easily linked amongst each other,
customized as well as updated as per user‟s requirement.

6) Almost Unlimited Storage:

 It provides unlimited storage capacity hence no one should worry about running out of storage space or
increasing the current storage space availability.

Q-6 Disadvantages of Cloud Computing

1) Prone to Attack:
 Storing information in the cloud could make the company vulnerable to external hack, attacks and threats.
Nothing on the Internet is completely secure and hence, there is always the lurking possibility of stealth of
sensitive data.

2) Security in the Cloud:

 Surrendering all the company‟s sensitive information to a third-party cloud service provider could
potentially put the company to great risk.

3) Technical Issues:
 This technology is always prone to outages and other technical issues. Even the best cloud service providers run
into this kind of trouble, in spite of keeping up high standards of maintenance. We will invariably be stuck in case
of network and connectivity problems.

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 CA Guru Gupta – ITSM (Paper 7) CHAPTER-3 TELECOMMUNICATION AND NETWORKS

Digital data Network Intro

transmission Tele Commu - Trends
Topologies Business
nication (TC) (3) value
Modes Transmission
Meaning Need & Scope
Model
Techniques Network archit. & Protocols Network (8)
Types / Classification Terminals
Aspects and Steps Network Admin
FCAPS Network
& mgt. TC
OSI Model (layer) Computing Area wise Characteristics
Threats & Vulnerabilities of LAN Processors
TCP/IP (levels) Features
Reasons 4 emerging LAN Guided
Categories of threat
OSI Vs. TCP/`IP Diff. (C Vs. Dec.)
Function wise TC
Level of
Factors responsible
security Network Risks, MTA Channels
4 vulnerabilities
control & Security (3) CST
Aspects of Network security P2P Unguided

Single
Cryptography Internet Internet revolution (6) Architecture
Computers
Two
Methods EFT Exam
Characteristics
Applic Business
Intranet ples
Approaches ation use Three
TC
Extranet M-Commerce Issues Control s/w
Network Security Benefits N-tier
Protocols
Functions E-Commerce Affect
on ind.
Ownership wise
Features
Business value
Tools to protect inf.
Rules Benefits Risk Types Public Private VPN
& system from CIM Tasks

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Chapter- 3 Telecommunication and Networks

Tele communication (An Introduction):
 It is a communication at a distance by technological means through electrical signals or electro-magnetic
airwaves. It includes telegraph, telephone, and tele-printer, networks, radio, microwave transmission, fiber optics,
communications satellites and the internet either with wired or with wireless communication system.
 It provides internet, extranet and intranet facilities to connect computer around the world, inter companies and
intra companies respectively.
 It provides rapid growth and development in communication system in global environment.

Q-1 Trends in Computer System

1) Industry Trends:
 In this trend, various telecommunication networks and services are available from numerous large and small
telecommunications operators. It provides explosive growth in Internet and the World Wide Web in order to
provide new telecommunications products, services and providers.
 Example: Modem, NIC, CPU chip, Hardware, software, etc. is provided by various vendors.

2) Technology Trends:
 In this trend, telecommunication operators provide open system and unrestricted connectivity in order to
gain more and more competitive advantage. It leads to shifting from old networking architecture into client
server based technology; shifting from analog to digital technology; shifting from wire to wireless
technology etc.

3) Business Application Trends:

 In this trend, various application software and mobile apps are now being used in internet to initialize
various e-commerce transactions and social networking and various designing art works.
 Example: Transactions, commercial activities, payments, communications, amount transfer etc. are done through
websites, mobile apps etc. over internet.

Q-2 Business value of Telecommunication:

1) Overcome geographic barriers: It captures information about business transactions from remote locations. Example: ERP
system.
2) Overcome structural barriers: It supports linkages for competitive advantage. Example: one website can be linked with
another website.
3) Overcome cost barriers: It reduces the cost of more traditional means of communication. Example: Internet cost is cheapest.
4) Overcome time barriers: It provides information to remote locations immediately after it is requested. Example: E-commerce
transaction can be materialized in seconds.

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Q-3 Value from Telecommunications:

a) An increase in efficiency of operations;
b) An increase in effectiveness of management; and
c) An increase in innovations in marketplace.

Q-4 Impact from Telecommunications:

Tips:
a) Time compression:
 Telecommunications enable a firm to transmit raw data and information quickly and accurately between
remote sites.
b) Overcoming from geographical dispersion:
 Telecommunication enables an organization to work globally without any boundation through websites as
a single unit.
c) Restructuring business relationships:
 It helps to create systems that changes the way of interaction amongst people within internal and external
environment of organization. It helps in eliminating intermediaries from various business processes.

Network (An Introduction):

 It is a collection of computers and other hardware components interconnected by common communication
channels. Each component (say computer) in a computer network is called a „Node‟.
 It allows the multiple users to share the resources and exchange the data amongst different computers
connected with the networks.
 Classification of networks will be done on the basis of communication channel, areas, function, ownership,
& topology etc.
 It avoids data duplication and maintains data integrity.
 It assists organization for rapid growth and development in computer science, business fields, education field etc.
 Railway reservation system, Airways reservation system and Banking organization uses network
system to operate their various functions.
 Examples of various networks are: Telephone/ mobile network, postal networks etc.

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Q-1 Need and Scope of Telecommunication Networks

1) File Sharing:
 It is required for grouping all data files together on a server. It is easier to share documents and data. It
provides centralized file organization.

2) Resource Sharing:
 It provides sharing of computer resources such as hard disk, printers, fax etc. amongst multiple users
simultaneously to reduce the cost of installing and maintaining multiple resources in the organization.

3) Remote Access:
 It provides remote access facilities to authorized person without any location boundation with the use of
Virtual Private Networking (VPN).

4) Shared Databases:
 If allows to make the database available to multiple users at the same time.
 It also promotes integrity and confidentiality of data available in the database.

5) Fault Tolerance:
 It is the process of implementing fault tolerance for making sure that there are several lines of defense
against accidental data loss. It is an approach for fault prevention.
 Example: UPS must be available in case of power failure.

6) Internet Access and Security:

 It allows sharing a common network connection to the Internet that facilitates email, document
transfer and access to the resources available on the World Wide Web.
 Firewall plays a vital role to secure the network.

Q-2 Types of Networks: (with reference to chapter-2)

1) Connection Oriented networks (Wired network):
 This network is formed by using wire as a communication channel to connect the devices amongst each other.

2) Connectionless Networks (wireless network):

 This network is formed by using wireless technology as a communication channel to connect the devices
amongst each other.
 It is working on the basis of IP addresses provided to every computer connected with internet and data is being
exchanged between sender and receiver through these IP addreses.

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Q-3 Issues addressed by Computer Networks: (with reference to chapter-2)

Tips: B C R R
1) Bandwidth:
 It refers to the amount of data which can be sent across a network in given time.

2) Contention:
 It refers to the situation that arises when there is a conflict for some common resource.
 Example: Network contention could arise when two or more computer systems try to communicate at the
same time.
3) Routing:
 It refers to the process of deciding on how to communicate the data from source to destination in a network.
4) Resilience:
 It refers to the ability of a network to recover from any kind of error like connection failure, loss of data etc. It
may happens that if there is a problem in one computer it may affect another computer.

Benefits of a computer network: (with reference to chapter-2)

Tips: D R C R by user
1) Distributed nature of information:
 It helps in distributing the same information to all remote users connected with internet across the world. It
avoids data duplication and reducing transmission cost.
 Example: In the case of Banking Company, accounting information of various customers could be distributed
across various branches but to make Consolidated Balance Sheet at the year-end.

2) Resource Sharing:
 All computer resources could be stored at a central location and can be shared across different systems.
 Example: In the case of a CBS, Bank data is stored at a Central Data Centre and could be accessed by all
branches as well as ATMs.

3) Computational Power:
 It allows distribution of data processing amongst various computer systems so that load of one computer is
bifurcated amongst various computers every computer is free from being overloaded.
 For example: Data processing of a bank server is distributed amongst various ATM machines. As a result load of
server is reduced and also ATM machine‟s load is bifurcated amongst various ATM machines.

4) Reliability:
 It makes application more reliable because it ensures 24*7 hours availability of critical applications across
different systems distributed across network.
 Example: In a city there could be multiple ATM machines so that if one ATM fails, one could withdraw money from
another ATM.

5) User communication:
 Networks allow users to communicate by using e-mail, newsgroups, video conferencing, etc.

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Telecommunication Network Model

A communication network is any arrangement where a sender transmits a message to a receiver over a channel consisting of some
type of medium.
It consists of five basic categories of components:
1) Terminals
2) Telecommunications processors,
3) Telecommunications Media/Channels,
4) Computers and
5) Telecommunications Control Software.

Telecommunications Network Model

1) Terminals:
 Terminals are the starting and stopping points in any telecommunication network environment. Any input or
output device that is used to transmit or receive data can be classified as a terminal component.
 These includes: Video Terminals, Microcomputers, Telephones, Office Equipment and Transaction Terminals.
2) Telecommunications processors:
 It supports data transmission between terminals and computers by providing a variety of control and support
functions.
 They include Network Interface Card, Modem, Multiplexer and Internetworked Processors.
a) Network Interface Card (NIC):
 It is a special card mounted on motherboard through PCI
slot (Peripheral component interconnect slot) in computer
system.
 It is used to connect a computer to a computer network through
Ethernet connector by attaching network cable to a server.
 It has additional memory called MAC address (media access
control address) for buffering incoming and outgoing data
packets.
b) Modems:
 MODEM stands for Modulator/Demodulator Data. The word "modem" is a contraction of modulate and
demodulate.
 It is an encoding as well as decoding device used in data transmission to converts a digital
computer signal into an analog telephone signal (i.e. it modulates the signal) and converts an analog
telephone signal into a digital computer signal (i.e. it demodulates the signal) in a data communication
system.
 Modems are used for handling up streaming and down streaming of data from a peripheral device to the
CPU and vice versa.
 Modems are required to send computer data with ordinary telephone lines because computer data is
in digital form but telephone lines are analog. It provides ability to access remote computers

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across the world in a virtual manner.

 It is categorized according to speed, price and other features.
c) Multiplexers:
 A multiplexer is a communications processor that allows a single communications channel to carry
simultaneous data transmissions from many terminals.
 It merges the transmissions of several terminals through one communications channel and will
separate it into individual transmissions at the receiving end.
d) Internetwork Processors:
 Telecommunications networks are interconnected by special-purpose communications processors
called internetwork processors such as switches, routers, hubs, bridges, repeaters and gateways.
e) Switch:
 It is multi-port connecting device that makes connection between telecommunication circuits
within a network so that a telecommunications message can reach to its intended destination.
 It creates temporary point to point link between two or more nodes in a network and
makes intelligent routing decisions on the basis of MAC address provided to every terminal
within the network.

f) Router:
 Router is a communications processor that interconnects networks based on different rules or
protocols, so that a telecommunications message can be routed to its destination.
 It is the backbone of internet through which all remote terminals is being connected. Its primary
purpose is to identify the source and destination IP Address transmitted across the networks.
 It allows different networks to communicate with each other.
g) Hub:
 A hub is a multi-port connecting device used to interconnect LAN devices through wire or
wireless communication channel. It supports in homogeneous network only.
 It allows sharing of network resources such as servers, LAN workstations, printers, etc.
 A hub can be used to extend the physical length of a network.

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h) Bridge:
 Bridge is a communication processor than connects numerous Local Area Networks (LAN)
having same topology. It boosts the data transmission signal while passing data from one LAN to
another.
i) Repeater:
 Repeater is a communications processor used to regenerate or replicate the signal transmitted
over the network. It boosts or amplifies the signal before passing it to the next section of cable
in a network. It solves the problems of signal weakness or signal lost which results as data is
transmitted along the various cables.
j) Gateway:
 Gateway is a communications processor connecting various heterogeneous networks that uses
different communication architectures. It is used to transmit the data from one network to
another network having heterogeneous features.
 Example: Ethernet port is an example of gateway.

3) Telecommunications Media/Channels:
 It refers either to a physical transmission medium such as a wire, or a wireless technique such as
a radio channel in telecommunications and computer networking.
 It is used for data transmission and connecting network devices in a LAN, WLAN or WAN.
Telecommunications media is divided into two groups:
1) Guided Media: Twisted Pair, Coaxial cable and Optical fiber.
2) Unguided Media: Wireless

1) Guided Media:
 Guided Transmission Media uses a "cabling" system that guides the data signals along a specific path. The data
signals are bound by the "cabling" system. Guided Media is also known as Bound Media.
 Some of the common examples of guided media are Twisted Pair, Coaxial cable and Fiber optics.

a) Twisted-Pair Wire:
 Twisted-pair is ordinary telephone wire consisting of copper wire twisted into pairs and most widely
used media for telecommunications for both voice and data transmissions.
 It is used extensively in home and office telephone systems.
 Disadvantages: It creates various unwanted electrical interference (noise) and it is somehow
expensive utility wise and does not offer security.
b) Coaxial Cable:
 It consists of copper or aluminum wire wrapped with spacers to
insulate it from a tubular conducting shield. Insulation minimizes
interference of signals the cable carries. Many coaxial cables also
have an insulating outer sheath or jacket.
 It can carry a large volume of data and allows high-speed data
transmission used for cable TV systems, and for connection of
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computers and peripheral devices.

 It can be bundled together into a much larger cable for ease of installation.
Disadvantage: It is more expensive than even twisted pair.

c) Fiber Optics:
 It consists of a bundle of glass threads each of which is capable of transmitting messages
modulated onto light waves.
 Fiber optics has several advantages over twisted pair and coaxial wire.
 It has much greater bandwidth than metal cables.
 It carries digital as well as analog signals and provides increased speed and greater carrying
capacity than coaxial cable and twisted-pair lines.
 It is not affected by electromagnetic radiation and not susceptible to electronic noise unlike
twisted-pair and coaxial cable.
 It is easy to install and more flexible and can be used undersea.
 Advantages: Reduced installation effort, Greater communication capacity, Faster transmission
speeds, and Freedom from electrical interference.
 Disadvantage: Installation can be difficult and costly to purchase.

2) Unguided Media:
 It consists of a means for the data signals to travel without using wire. Hence, the data signals are not bound
by a cabling media and thus called unbound Media.
 Some of the common examples of unguided media are Terrestrial Microwave Systems, Radio waves, Micro
Waves, Infrared Waves and Communications Satellites.
a) Micro Waves:
 Microwaves has wavelengths ranging from one millimeter up to one meter or equivalently with frequencies
between 300 MHz (0.3 GHz) and 300 GHz hence repeaters must be located within one meter.
 These are used for communication, radio astronomy, navigation etc.

Measurement unit of
electromagnetic waves
1 hertz = 0.001 KHz
1 KHz = 0.001 MHz
1MHz = 0.001 GHz
1GHz = 0.001 THz

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b) Infrared Waves:
 Infrared radiation is a type of electromagnetic radiation, as are radio
waves, ultraviolet radiation, X-rays and microwaves (along with
extended wavelength). It is invisible to human eyes, but people can
feel it as heat.
 Its wavelength is more than those of visible lights and lies between
300GHz to 430 THz.
 It is used in Night-vision devices that allow people or animals to be
observed without the observer being detected.
 Example: An image of Earth in infrared wavelengths shows relative temperatures around the world. It
can also be used to observe paranormal activities.
c) Terrestrial Microwave:
 Terrestrial microwave transmission is required when microwaves are used to transmit data. Because of
the curve of the Earth's surface, the repeaters must be constructed every 30 miles.
 Terrestrial microwave transmits high-speed radio signals between relay stations spaced approximately
30 miles apart.
 It is widely used to provide communication links when it is impractical or too expensive to install
physical transmission media such as across river, inaccessible terrain etc.
 It is used to transmit data as well as voice in the form of electromagnetic waves.
Disadvantage: It cannot bend around the curvature of the earth.

d) Radio Waves:
 Radio waves are an invisible form of electromagnetic radiation
that varies in wavelength from around a millimeter to 100,000
km, making it one of the widest ranges in the electromagnetic
spectrum.
 It does not require any antenna and repeaters in between for
extending the signal unlike terrestrial microwave.
 Radio waves are most commonly used transmission media in
the wireless Local Area Networks.
e) Communication Satellites:
 Communication satellite uses the atmosphere of microwaves and radio waves as the medium through
which to transmit signals.
 Its wavelength is approximately 1GHz to 40 GHz.
 Satellite uses solar-powered electronic device that receives and retransmits signals; the satellite acts as a

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relay station between satellite transmissions stations on the ground (earth stations).
 They are used extensively for high-volume as well as long-distance communication of both data and
voice.
 It is cost-effective method for moving large quantities of data over long distances.
Disadvantages:
 Satellites are very expensive to develop and place in orbit.
 It has an age limit of 7-10 years.
 Signals weaken over long distances.
 Weather conditions and solar activity can also cause noise interference.
 Anyone can listen in on satellite signals, so sensitive data must be sent in a secret, or encrypted, form.

4) Computers:
 In a telecommunications networks, computers of all sizes and types are connected through media to
perform their communication assignments. They include personal computers, mini-computer, mainframe
computer, super computer and servers etc.
5) Telecommunications Control Software:
 It consists of programs i.e, protocols that control and manages telecommunication activities and their
telecommunications components. It manages Host computers, Network Operating Systems (network
servers), Network Management Components and Web browsers etc.
 It is resided on network and can provide various services such as performance monitoring, priority
assigning, and transmission error correction.

Major functions of network management

Tips: C T pe monitoring and security
1) Capacity planning:
 It is a process of understanding and managing network speed and capacity as it grows
and changes as per the user‟s need so that users can access all the server resources within
a fraction of second without any data lost.
 Example: For capacity planning, one should know about how many lanes are available in the
highway, what are the speed limits and how full are they?
2) Traffic management:
 It manages network resources and traffic to avoid congestion and optimize
telecommunications service levels to users.
 Example: For traffic management, one should know about how many cars are available in a
lane, types of car and vehicle, from whether they are coming and where they are going etc.

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3) Network monitoring:
 It troubleshoots and watches over the network, informing network administrators of
potential problems before they occur.
4) Security:
 It provides authentication, encryption, and auditing functions, and enforces security
policies.
 Example: Id and password, Firewall system, intrusion detection system.

Types of Telecommunications Networks

Classification of
Computer Networks

On the basis of On the basis of On the basis of On the basis

Area Functions Ownership of Media
coverage coverage
LAN MAN CST Tier Public VPN Wired Wireless
Network Network Network
WAN P2P Private
Network

Class I Function Based Classification

Client server  Client-Server networks consist of servers and clients.
 Client is used to ask the request and server is used to respond the request.
 Servers can host e-mail; store common data files and serve powerful network
applications such as Microsoft's SQL Server. Servers are the center for
backups and contain all application logics.
 Client server technology is either on 2 tier basis or 3 tier basis.
Peer to Peer  It is a type of decentralized and distributed network architecture in which individual
nodes in the network (called "peers") act as both suppliers and consumers of
resources.
 In this technology, servers are absent and all computers are equal, and
therefore, are termed as peer. Each machine available within this architecture
functions both as a client and as a server.
 This architecture is suitable for environments with a limited number of
users.
 This architecture is more economical where security can be compromised
and no restriction upon the access of data and programs reside on network
by any authorized person.
 Its design is very simple and easy to understandable.

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Multi-tier  It is client server architecture in which database, application logic and user
(or n-tier or 3 tier interfaces are resided at a separate and independent platform. Hence it is also
architecture)
called as 3-tier architecture.
 It uses middleware to connect application layer, database layer and interface
layer amongst each other.
 Data traffics are highest between application logic and database server which
requires high bandwidth. It is very expensive.
Class II Area Coverage Based Classification
LAN  It is a group of computers and network devices connected together within a
same building over a limited geographical area.
 It connects up to 100 approx microcomputers
 It has high speed and relatively inexpensive.
 It enables multiple users to share software, data, and devices.
 LANs use high-speed media (1 Mbps to 30 Mbps or more) and are mostly
privately owned and operated.
 Channels are relatively error free.
MAN  It is a larger network that usually established over the same city (roughly 40 km in
length). Cable network is an example of a MAN. It is somewhere between a LAN
and a WAN.
 It uses fiber optic cable that provides high speed with approx. 10 Mbps bandwidth.
 A MAN can support both data and voice. Cable television networks are
examples of MANs.
WAN  A Wide Area Network (WAN) is not restricted to any geographical location.
The technology is high speed and relatively expensive. The Internet is an
example of a worldwide public WAN.
 It covers a large geographic area with various communication facilities such as
long distance telephone service, satellite transmission, and under-sea cables.
 Examples of WANs are interstate banking networks and airline reservation
systems.
 Wide area networks typically operate at lower link speeds (about 1 Mbps).
3 Class III Ownership-based Classification
Public Networks established for all user across the world is known as public networks.
Networks Internet is an example of public networks.
Private Private networks used by particular organization, particular campus or
Networks particular enterprise only. This is a network that is not available to the outside
world. Intranet is an example of it.
Virtual A virtual private network (VPN) is a network that uses a public network, such
Private as the Internet, to provide secure access to organization's private network. A
Networks key feature of a VPN is its ability to work over both private networks as well as public
networks like the Internet. Using a method called tunneling, a VPN use the same
hardware infrastructure as existing Internet or intranet links.

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A) Area Coverage based classification

Q-1 Characteristics of LANs:
 It must have powerful microcomputer with a large disk capacity as a file server or network server that contains
a network operating system that controls telecommunications and network resources.
 It must have network interface card (NIC) as a connector to communicate computer with another computers
connected over network.
 It must have variety of telecommunications media, such as ordinary telephone wiring, coaxial cable, or wireless
radio systems to interconnect microcomputer workstations and computer peripherals.
 It must allow end users in a workgroup to communicate electronically and share hardware, software, and data
resources.

Q-2 Activities provided by LAN (or) Critical Reasons for using LAN:

1) Electronic mail and Message Broadcasting:

 Electronic mail allows users to communicate more easily amongst them through assigning a mail-box
on the server. It can be simultaneously transmitted to all users connected with network.
 Messages can also be dropped into the mail-box of receiver.
2) Expanded PC usage through inexpensive workstation:
 Once a LAN has been set up, it actually costs less to automate additional employees through diskless
PCs. Existing PCs can be easily converted into nodes by adding Network interface card.
3) Data management benefits:
 It provides centralization of data that becomes much easier to manage as well as back it up. One can update the
database from any PCs connected with LAN.
4) Organizational Benefits:
 It reduces substantial investment costs in computer hardware and software, reduces training cost and
saves substantial time. It helps managers and executive in better communication in easy and faster way.
It provides information flow very smoothly with various departments.
5) Security:
 It provides security for programs and data by using locked servers, Id and password, antivirus etc. It restricts
unauthorized access of data resources.
6) Distributed processing:
 It provides distributed system by installing numerous PCs around the office and connected amongst
various devices through LAN for communication and information exchange.
7) Software cost and up-gradation:
 Since multiple devices are connected amongst each other through LAN system. If software and data is
updated from one platform, all platforms will be automatically updated. It saves substantial cost of

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installation and updation of software as it prevent user from purchasing multiple copy of software for every
machine in the organization.
 It makes software up gradation is much easier as this package is stored centrally on the server.

B) Functional Based Classification:

1) Client-Server Networking:
a) Client:
 A client is a single-user workstation that accesses a service made available by server. Client computers
can be classified as Fat Client, Thin Client or Hybrid Client.
 Fat / Thick Client:
 It is a networked computer in which most resources installed locally, rather than distributed
over a network. It performs any data processing operations itself, and does not necessarily
rely on the server for processing and the server is accessed primarily for storage purposes.
 It is not well-suited for public environments.
 To maintain a thick client, it needs to maintain all systems for software deployment and up-
gradation rather than just maintaining the applications on the server.
 For example: Workstations
 Thin Client:
 It is a light weight computer and its main purpose is to access the server by using web browser
and presents only processed data typically called desktop virtualization resources.
 A thin client machine is going to communicate with a central processing server for accessing
hardware and software installed on the user's machine.
 Hybrid Client:
 A hybrid client is a mixture of above two client models. Similar to a fat client, it processes
locally, but relies on the server for storing persistent data.
 Hybrid clients are well suited for video gaming.
b) Server:
 A server is one or more multi-user processors with share memory providing computing, connectivity and
the database services and the interfaces relevant to the business need.

Q-2 [Working of a Client/Server Network] or [Architecture of Client server

network]:
 Servers are typically powerful computers running advanced network operating systems.
 Servers can host e-mail; store common data files and serve powerful network applications such as Microsoft's SQL
Server. As a centerpiece of the network, the server validates login to the network and can deny access to both
networking resources as well as client software.
 End user Personal Computer or Network Computer workstations are the Clients.

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 Clients are interconnected by local area networks and share application processing with network servers, which
also manage the networks.
 Client and Server can operate on separate computer platforms.
 Either the client platform or the server platform can be upgraded without having to upgrade the other platform.
 The server is able to service multiple clients concurrently; in some client/server systems, clients can access multiple
servers.
 Action is usually initiated at the client end, not the server end.
 The network system implemented within the client/server technology is commonly called by the computer industry as
Middleware. Middleware is distributed software needed to allow clients and servers to interact. General
Middleware allows for communication, directory services, queuing, distributed file sharing, and printing.

Q-2 Characteristics of client-server architecture:

Service: C/S provides as clean separation of function based on the idea of service. The server process is a provider of services and the
client is a consumer of services.

1) Mix-and-Match:
 The client server software is independent of hardware and operating System software platforms.
Example: Tally stored on the server can be operated in various computers having different operating
system such as windows professional, windows 7, Mac OS etc.
2) Integrity:
 It provides more data integrity as a result of data centralization and high level security provided in
server as well in workstations.
3) Shared Resources:
 A server can service many clients at the same time and regulate their access to the shared resources.
4) Scalability:
 In a C/S environment, client workstations can either be added or removed and also the server
load can be distributed across multiple servers.
5) Transparency of Location:
 C/S software usually asks the location of the server from the clients by redirecting the service calls
when needed.

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Q-3 Issues in Client/Server Network:

 When the server goes down or crashes, all the computers connected to it become unavailable to use.
 Simultaneous access to data and services by the user from server is more time consuming for processing the task.

2) Peer-to-Peer Networking (P2P):

Introduction:
 This network is created to connect 6-12 PCs approximately connected together and share resources without
going through a separate server computer. The computers are called peers.
 Its prime objective is creating a file-sharing network in which many computers come together and pool their
resources. It allows sharing of files, printers and other resources across all of the devices.
 It handles a very high volume of file sharing along with high speed.
 It promotes data decentralization without central point of control.
 It allows data sharing in both directions, i.e, downloading as well as uploading the data.
 As P2P does not rely exclusively on central servers, it provides scalability and more resiliency.

Advantages
(i) Peer-to-Peer Networks are easy and simple to set up and only require a Hub or a Switch to connect all the computers
together.
(ii) It is very simple and cost effective.
(iii) If one computer fails to work, all other computers connected to it continue to work.
Disadvantages
(i) There can be problem in accessing files if computers are not connected properly.
(ii) It does not support connections with too many computers as the performance gets degraded in case of high
network size.
(iii) The data security is very poor in this architecture.

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3) Multi-Tier Architecture:
A tier is a distinct part of hardware or software.

a) Single Tier Systems / One-Tier architecture

 A single computer that contains a database, all application logics and a front-end (GUI) user interface in a
single computer system also known as Single Tier System.
 It is used in small businesses. Personal computer is an example of single tier computer.
Advantages:
 A single-tier system requires only one stand-alone computer.
 It also requires only one installation of software which makes it the most cost- effective system available.
Disadvantages:
 It can be used by only one user at a time.
 A single tier system is impractical for an organization which requires two or more users to interact with the
organizational data stores at the same time.

b) Two Tier Systems:

 A two-tier system consists of a client and a server.
 A two-tier architecture is a software architecture in which a presentation layer or interface runs on a client, and
a data layer or data structure gets stored on a server. In other words, the database is stored on the server, and
the interface used to access the database is installed on the client.
Advantages:
 It is easy to setup and maintain entire system smoothly.
 The system performance is higher because business logic and database are physically close.
 Since processing is shared between the client and server, more users could interact with system.
Disadvantages:
 Performance deteriorates if number of users is greater than 100.
 There is restricted flexibility over choice of DBMS, since data language used in server is proprietary to
each vendor.

c) N-tier Architecture / 3 tier Architecture:

 N-tier architecture is client–server architecture in which presentation, application processing, and data management
functions are logically separated into separate platforms.
 Its three tiers are the presentation tier, application tier and data tier.
 It is used to provide increased flexibility, maintainability, reusability, scalability and performance [FMRSP].

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Three tiers in three-tier architecture are:

i. Presentation Tier:
 It displays the information related to services available on a website.
 This tier communicates with other tiers by sending results to the browser and other tiers in the
network.
ii. Application Tier:
 It stores all the application logics of software and executes and controls all data processing to
provide results. It is also called the middle tier, logic tier, or business logic. This tier is pulled from the
presentation tier.
iii. Data Tier:
 It houses database servers where information is stored and retrieved. Data in this tier is kept
independent of application servers or business logic.
Advantages of Three-Tier systems:
1) Clear separation of user-interface-control and data presentation from
application-logic:
 Through this separation more clients are able to have access to a wide variety of server applications.
2) Dynamic load balancing:
 If bottlenecks in terms of performance occur, the server process can be moved to other servers at runtime.
3) Change management:
 It is easy and faster to exchange a component on the server than to furnish numerous PCs with new
program versions.
Disadvantages of Three-Tier systems:
1) It creates an increased need for network traffic management, server load balancing, and fault
tolerance.
2) Current tools are relatively immature and are more complex.
3) Maintenance tools are currently inadequate for maintaining server libraries.

C) Ownership Based Classification

1) Public Data Network:
 A public data network is defined as a network shared and accessed by users not belonging to a single
organization.
 It is a network established and operated by a third party telecommunication administration for providing
data transmission services for the public.
 The Internet is an example of a Public Data Network.

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2) Private Data Network:

 Private data networks are used for data transmission about daily operations and communication within the
organization.

3) Virtual Private Networks (VPN):

 A VPN is a private network that uses a public network in an encrypted manner by using proxy server and
firewall to connect with various branches of organizations located at various remote locations.
 It uses "virtual” connections routed through the Internet from the business's private network to the remote site.
 It ensures security to the businesses and as a result no one can read the encrypted data.

Network Computing
Q-1 Features of network computing
1) Network computers provide a browser-based user interface.
2) Network computers are microcomputers without floppy or hard disk drives designed as low-cost networking
computing devices.
3) Servers provide the operating system, applets, databases, and database management software needed by
the end users in the network.

Q-2 Centralized Computing Vs Decentralized computing:

S. Basis of Centralized Computing Decentralized computing
No. difference
1. Computing Computing done at central location Computing is done at each individual
workstation after allocating hardware
and software in each workstation.
2. Centralized control It controls all the peripherals directly Each workstation is controlled
independently by itself.
3. Security It offers greater security because all It offers relatively lesser security
of the processing is controlled in a because it is difficult to manage various
central location. workstations simultaneously.
4. Shifting with If one terminal breaks down, the Shifting of work from one computer to
resumption user can go to another terminal and another computer is not possible with
all opened files will still be accessible resumption.
and can be resumed the session
from the point they were at before.
5. Downtime of main If the central computer crash, the If the central computer crash, other
server entire system will “go down”. system will not be affected.
6. Multi-installation and It is not required. It is mandatorily required.
multi up- gradation

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Network Topologies
There are several basic types of network topologies, or structures, in telecommunications networks. Four basic topologies used
in wide area and local area telecommunications networks are the:
1) Star network
2) Ring network
3) Bus network
4) Mesh Network
a) Star topology:
 In this topology, all communication channels (wires) are emanating from centralized control.
 The processing nodes in a star network interconnect directly with a central system. Each terminal can
communicate only with the central site.
 Transmission of information from one node to another node can be done only through central node.
 This topology is very beneficial to those organizations that requires centralized database.
 For example: a star network may be used in banking for centralized record keeping in an on-line branch office
environment.

Image of Star arrangement

Advantages:
 Several users can use central unit simultaneously at the same time.
 It is easy to add new and remove nodes.
 A node failure does not bring down the entire network
 It is easier to diagnose network problems through a central hub.
Disadvantages:
 The whole network is affected if the main unit (HUB) “goes down” and all communications stop.
 It is considered less reliable than a ring network because other computers in the star are heavily dependent on
the central host computer. If it fails, there is no backup processing and communications capability.
 Cost of cabling is very high.

b) Bus topology:
 In a bus network, a single length of wire is used to connect a number of computers.
 This structure is very popular for local area networks.
 A bus network has a decentralized approach.
 In this topology, a single network cable runs in the building and all nodes are linked with two

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endpoints called the bus. Two ends of the cable are terminated with terminators.

Image of Bus Topology

Advantages:
 There is no host computer or file server making bus network more reliable.
 If one of the microcomputers fails, it will not affect the entire network.
 It requires least amount of cable to connect the computers together and therefore is less expensive than
other cabling arrangements.
 It is very easy to extend. Two cables can be easily joined with a connector, making a longer cable for more
computers to join the network. A repeater can also be used to extend a bus configuration.
Disadvantages:
 Heavy network traffic can slow a bus considerably.
 Each connection between two cables weakens the electrical signal.
 The bus configuration can be difficult to trouble shoot. A cable break or malfunctioning computer can be
difficult to find and can cause the whole network to stop functioning.

c) Ring topology:
 A ring network is much like a bus network except the length of wire
that connects to form a loop.
 This topology is also used for local area networks.
 Local computer processors are tied together sequentially in a ring with
each device being connected to two other devices.
 A ring network has a decentralized approach.
Images of Ring topology
 When one computer needs data from another computer, the data is
passed along the ring.
 It is considered more reliable and less costly than star networks because if one computer fails, the other
computers in the ring can continue to process their own work and communicate with each other.
 These links are unidirectional which ensures that transmission by a node across the whole ring and
comes back to the node, which made the transmission.

Advantages:
 It does not require a central computer to control activity nor does it need a file server.
 Each computer can communicate directly with another computer in a network by using the common
communication channel and each computer does its own independent applications processing.

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 The ring network is not breakdowns as like star network, because when one computer in the ring fails, it does
not affect processing and communication capabilities of other computers in the ring.
 Ring networks offer high performance because each station has a similar workload.
 Ring networks are easily extendable.
Disadvantages:
 It is relatively expensive and difficult to install.
 Failure of one computer on the network can affect the whole network.
 It is difficult to trouble shoot a ring network.
 Adding or removing computers can disrupt the network

d) Mesh topology:
 In this structure, each computer is connected amongst each other directly available within the network.
 It is fully connected or connected with only partial links.
 In fully interconnected topology, each node is connected by a dedicated point to point link to every node. It
is utmost reliable as there are always alternate paths available. It is rarely found because it is very
expensive and time consuming. The purpose of this topology is to provide high level of redundancy in
communication path.
Advantages:
 It generates greatest amount of redundancy in the event that one of the
nodes fails where network traffic can be redirected to another node.
 Network problems are easier to diagnose.
Disadvantages:
 The cost of installation and maintenance is high (more cable is required than any other configuration).

Digital data Transmission or Transmission Technology

Introduction:
 Transmission is an act of passing something to another place. Transmission technology refers to
the technology used to transmit the data and information between two machines in a binary digit.
 Binary data, consisting of 1s and 0s, may be organized into groups of n bits each. Computers produce and
consume data in groups of bits in the same way we use spoken language in the form of words rather than
letters.
 Transmission between two machines can be accomplished either in Parallel mode or Serial mode.
 Further, while there is only one way to send parallel data, there are two subclasses of serial transmission:
Asynchronous and Synchronous.

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Data Transmission

Serial Parallel

Asynchronous

Synchronous

Serial Vs. Parallel Transmission:

1) Serial Transmission:
 In serial transmission, it sends one bit at a time one after another over a single wire
or computer bus. As one bit follows another, so only one communication channel
is required between two communicating devices. Serial Port

 In this transmission, synchronization of bit sequence is not possible since data are transmitted in a
single wire and bits are sent one after the other.
 It is used either in online system or real time system.
 RS-232 is an example of serial port used for mouse and keyboard.

2) Parallel Transmission
 In parallel transmission, it sends multiple bits at a time over multiple wires. In
Parallel transmission, there are separate parallel paths available with each bits
of byte so that all character bits are transmitted simultaneously.
 Centronic port is an example of parallel port used for printer. Centronic Port
 This technology is used in offline system such as integrated circuits, buses and in memory devices within
computer system

Integrated circuits

Image of Parallel and serial Transmission

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Q-1 Differences between Serial Transmission and Parallel Transmission:

S.No Basis of SERIAL TRANSMISSION PARALLEL TRANSMISSION

Difference
1 Slow It is relatively slower It is relatively faster.
2 Long It is applicable for long distance data It is not practical for long distance
distance transmissions. communications as it uses parallel path, so
cross talk may occur.
3 Expensive It is a cheaper mode of transferring data. It is relatively expensive.
4 Port Example: RS-232 Port for Mouse or Example: Parallel port for printer
Modem
5 Transmission In this, the data bits are transmitted In this, the data bits are transmitted
serially one after another. simultaneously.
6 Wiring Data is transmitted over a single wire. Data is transmitted over 8 different wires.

Synchronous Vs. Asynchronous Transmission:

 In serial transmission, synchronization of bit sequence is not possible since data are transmitted in a
single wire and bits are sent one after another. Therefore, either synchronous or asynchronous format will be
used to provide synchronization between data being transmitted. These formats are not used in parallel
transmission. In absence of such synchronization, data are grouped together and receiver will be
confused about the actual meaning of data. However, there are differences between synchronous and
asynchronous format. x
Synchronous Transmission:
 Synchronous transmission will be used only when 1 or more sender and receiver simultaneously want to
communicate with each other on real time manner. Hence, each character is sent at regular intervals
in time and sender and receiver are paced by the same clock.
 Here, receiver continuously receives the information at the same rate the transmitter sends it
even when no bits are transmitted.
 Hence in order to provide synchronization, supplementary information is inserted called character-
level synchronization to provide guarantee that there are no errors during transmission.
 Synchronous bits will not provide any separation between bits and they are sent continuously even
though there is no bits transmission.
 A group of synchronization bits must be placed at the beginning and ending of each block to maintain
synchronization.
 Example of communication using synchronous format: Telephone calls, web conferencing, instant
messaging.

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Asynchronous Transmission:
 Asynchronous transmission will be used only when sender and receiver wants to communicate with each
other on non-real time basis where receiver might give his reply later on after lapse of some time. Hence,
each character is sent at irregular intervals.
 This format of communication will be used to provide more flexibility to sender as well as receiver for
communication and no pressure is put on receiver to respond instantly.
 Since a single bit is transmitted during a long period of time and data size is large, the receiver
will not be able to know if this is 00010000, 10000000 or 00000100 . To correct this problem,
each character is preceded by some information indicating the start of character transmission.
The transmission start information is called a start bit (usually 0) and ends by sending end-of-
transmission information is called stop bit (usually 1).
 Example of communication using asynchronous format: Wikis, Blog, Mail etc.

Image of Asynchronous Transmission

Q-2 Difference between Asynchronous and Synchronous Transmission

S.No ASYNCHRONOUS SYNCHRONOUS TRANSMISSION
TRANSMISSION
1. Each data word is accompanied by It allows characters to be sent without start-stop
start and stop bits. bits.
2. It has extra start and stop bits that It has no start and stop bits that makes
slow down the transmission process transmission relatively faster.
relatively.
3. It is relatively cheaper. It is costlier because synchronous device is more
expensive to build. It helps in differentiating between
the actual data and special synchronous characters.
4. It is more reliable as start and stop It is comparatively less reliable as chances of data
bits ensure that receiver receives all loss are relatively high.
data sent by sender.
5. It is less efficient. It is more efficient.
6. Here, transmission is more secured. Here, transmission is less secured.

Q-3 Transmission Modes:

There are 3 different transmission modes characterized according to the direction of the exchanges in online system:
1) Simplex Connection: Terminal-A Terminal-B

 It is a connection in which the data flows in only one direction from the transmitter to the receiver. It is
useful if the data do not need to flow in both directions.
 Simplex connection shall always use only asynchronous technology over single carrier or single circuit.
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Hence it does not provide real time communication.

 Example: Television, Radio, etc.

Terminal-A Terminal-B
2) Half-duplex Connection:
 It is a connection in which the data flows in one direction or the other, but not both at the same time. It
provides bi-directional communications.
 It uses synchronous technology format over single carrier to provide real time information but not at the
same time
 Example: Instant messaging, walkie-talkie, Email etc.

3) Full-Duplex Connection: Terminal-A Terminal-B

 It is a connection in which the data flow in both directions simultaneously. Here sender and receiver
terminal both releasing and receiving data signal at same time.
 It uses synchronous technology format over single carrier to provide real time information at the same
time at both end.
 Example: Telephone, Mobile, Teleconferencing, VOIP i.e, video calling through internet, etc.

Q-4 Transmission Techniques:

Introduction:
 Transmission technique refers to the ways in which packets are filtered and forwarded through the network.
Example: Telephone lines, IP Addresses, E-mail, SMS etc.
 3-common switching techniques are Circuit Switching, Packet switching and Message switching.
 The primary objective of these techniques is simply moving information from one source to one more
destination nodes.
 Based on the techniques used to transfer data, communication networks can be categorized into Broadcast
network and Switching networks.
Broadcast Network:
 In broadcast network, data transmitted by one node is received by all available nodes.
 This refers to a method of transferring a message to all recipients simultaneously.
 Example: a corporation or other voluntary association, that provides live television or recorded content such as
movies, newscasts, sports, public affairs programming, and other television programs for broadcast over a group
of radio stations or television stations.
Switching Network:
 In Switched communication network, data transferred from source to destination is routed through switch
nodes.
 The way in which the nodes switch data from one link to another, as it is transmitted from source to destination
node, is referred to as a switching technique.
 Three common switching techniques are: 1) circuit switching; 2) message switching and 3) packet switching.

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1) Circuit Switching:
 A Circuit Switching network is one that establishes a fixed channel between nodes and terminals as
if the nodes were physically connected with an electrical circuit (*wire).
 This path will be decided before the data transmission starts.
 The system decides on which route to follow for transmission on the basis of resource optimizing
algorithm and transmission goes according to the path between two communicating bodies.
 Once the path is decided for data transmission, the route is dedicated and exclusive and released only
when the session terminates.
2) Message Switching:
 In this switching, users communicate the message from secondary storage. It contains the data being
delivered from source node to destination node.
 As the message is routed from its source to its destination, each intermediate switch within the network stores
the entire message. Hence it requires heavy memory storage capacity.
 It provides high level of reliability as to successful delivery of message.
 It is used for receiving, storing and forwarding messages from one point to another point.
 It transmits heavy volume of data. It is cost effective as one can send data in night when transmission
costs are relatively cheaper.
 Example: SMS and voice mail.
3) Packet Switching:
 It is a sophisticated means of maximizing transmission capacity of networks.
 Packet switching refers to protocols in which messages are broken up into small transmission units called
packets, before they are sent. Each packet is transmitted individually across the net.
 Packet switching has a maximum packet size hence requires split up into multiple packets.
 The packets may even follow different routes to the destination depends on the type of packet
switching. Because of having different routes, each packet has header information which enables to route
the packet to its destination. At the destination, the packets are reassembled into the original message.
 Passwords and other data can be included within the packet and the transmission cost is by packet
and not by message, routes or distance.
 Sophisticated error and flow control procedures are applied on each link by the network.
 Example: Internet, Intranet and Extranet

Network Architectures and Protocols

Network Architecture (an Introduction):
 It refers to the layout of the network, consisting of the hardware, software, connectivity, communication
protocols and mode of transmission, such as wired or wireless.
 It includes hardware components used for communication, cabling and device types, network layout and
topologies, physical and wireless connections, implemented areas and future plans. In addition, the software
rules and protocols also constitute to the network architecture.
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Transmission Protocols (Intro):

 Protocols are software which provides a set of rules that performs a variety of actions to be
undertaken necessary for data transmission between computers. In other words, we can say it governs
the way the data is transmitted over the internet.
 These Set of rules comprises of
 communicating timings, sequencing, formatting, and error checking for data transmis sion.
 standards for data communication.
 A protocols standard allows heterogeneous computers to talk to each other.
 At the most basic level, it defines the physical aspects of communication such as how system
components will be interfaced and at what bandwidth it will be transmitted.
 At higher levels, it define the way that data will be transferred, such as the establishment and
termination of “sessions” between computers and the synchronization of those transmissions.

Q-1 What are the aspects of digital communication defined by Protocols

(a) Syntax: It refers to the format of data being exchanged, character set used, type of encoding
scheme being used, type of error correction used, during transmission of data.
(b) Semantics: It refers to the type and order of messages used to ensure reliable and error free
information transfer.
(c) Timing: It defines the data rate selection and correct timing for various events during data transfer.

Q-2 What are the Steps carried out consistently for every computer in the
network for sending and receiving data.
Different protocols cannot talk to each other hence standard protocols have been structure to resolve the problem. The entire
operation of data transmission over a network is broken down into discrete systematic steps. Each step has its own rules or
protocol.
1) At the sending computer- 3) At the receiving computer,
2) A protocol stack is a combination
of a set of protocols. Each layer specifies protocols –
i) Break data down into packets,
a different protocol– (i) Take data packets off the cable
ii) Add destination address to the
(i) For handling a function or, (ii) Bring packets into computer through
packet,
Network Interface Card (N IC)
(ii) As a subsystem of the common process,
iii) Prepares data for transmission (iii) Strip the packets off any transmitting
through Network Interface Card (iii) Each layer has its own set of rules.
information,
(NIC) Application layer, Presentation layer;
(iv) Copy data from packet to a buffer for
Session layer Transport layer and
reassembly,
network layer and data link layer and
(v) Pass the reassembled data to the
physical layer. application.

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Open System Interconnection Model (OSI Model)

Introduction:
 ISO (International Organization Standards) established in 1947, is a multinational body dedicated to worldwide
agreement on international standards.
 ISO standards cover all aspects of network communications is the open system interconnection (OSI) model. It was
first introduced in the late 1970s.
 ISO facilitates communication of heterogeneous hardware and software platforms which consists of seven
layers of functions.

Q-1 What are the seven layers of OSI Model:

Layer 7 or Application Layer:
 The layer is closest to the end user through which the user interacts directly with the software
application. Hence, this layer is responsible for providing services to the user by allowing access to network
resources.
 It provides various user services by file transfer and file sharing etc. such as identification of receivers,
identification of quality of service, user authentication, privacy etc.

Layer 6 or Presentation Layer:

 This layer is responsible for providing format and code for data translation, data compression and data
encryption and decryption to the application layer for further processing or display. It converts incoming
and outgoing data from one presentation format to another format.
 An example of a presentation service would be the conversion of an EBCDIC-coded text computer file to
an ASCII-coded file.

Layer 5 or Session Layer:

 This layer is responsible for dialogue control and session management and connection coordination. This
layer is also responsible for "graceful close" of sessions also.
 Hence, this layer sets up, manages and terminates conversations, exchanges, and dialogs between
the applications at each end.

Layer 4 or Transport Layer:

 This layer is responsible for reliable transmission by using TCP protocol as well as unreliable transmission
by using UDP protocol.
 Reliability over transmission represents delivery report sent by the system to sender‟s computer as and when
packet reached to destination terminal. Hence TCP protocol sent delivery report and UDP does not sent any
delivery reports to sender computer.
 This layer provides source port address and destination port address on the TCP / UDP packet for
providing information about source and destination address so that router can understand from where it comes
and where it will go.
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Layer 3 or Network Layer:

 This layer is responsible to provide choice of routing for data transmission over the internet on the basis of
principles of following best shortest path available there in.
 In this layer, packet obtain source IP address and destination IP address on the basis of which data is
being transmitted by following best shortest path available.

Layer 2 or Data Link Layer:

 The Data Link Layer responds to service requests from the Network Layer and issues service requests to
the Physical Layer.
 This layer is responsible for transmission of packets (frame) from one node (R…….r) to another node
(R……….r.) .

 In this layer, source and destination MAC address is provided on packet on the basis of which packet is
passing from one router to another router by following the best shortest path provided by network layer.

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Layer 1 or Physical Layer:

 This is a hardware layer which specifies mechanical features as well as electromagnetic features of the
connection between the devices and the transmission.
 It defines the relationship between a device and a physical medium. It includes bandwidth, cable
specifications, repeaters, network adapters, Host Bus Adapters (HBAs used in Storage Area Networks) and more.
 It is responsible for converting digital data into analog data i.e, transmitting a bit stream (i.e, individual bits)
over a physical medium from one node to next node.

Major functions and services of Physical Layer are:

 It establishes and termination of a connection to a communications medium.
 It participates in the process of sharing of communication resources amongst multiple users.
 It participates in the conversion of digital data into analog and vice versa over a communications
channel.
Author’s Comment: Application Layer initiates or accepts a request from the user. The Presentation Layer adds formatting,
displays and encrypts information to the packet. The Session Layer adds traffic flow information to determine when the packet
gets sent or received. Transport Layer adds error handling information like CRC. The Network Layer does sequencing and adds
address information in the packet. The data Link Layer adds error checking information and prepares the data for going on to the
destination.

Transmission Control Protocol/Internet Protocol

Introduction:
 The Internet uses a system of telecommunications protocols that has become so widely used which is
equivalent to network architecture. The Internet‟s protocol suite is called Transmission Control Protocol/Internet
Protocol and is known as TCP/IP.
 TCP/IP is used by the Internet and by all Intranets and extranets. Many companies and other organizations
are also converting their client/server networks to TCP/IP.
 TCP/IP creates a packet-switching network.
 When a message, whether it is a file or just email, is ready to be sent over the Internet, the TCP protocol
breaks it up into small packets.
 Each packet is then given a header, which contains the destination address.
 The packets are then sent individually over the Internet.
 The IP protocol guides the packets so that they arrive at the proper destination. Once there, the TCP protocol
resembles the packets into the original message.
 TCP/IP protocol suite has 5 layers as compared to 7 layers of OSI model i.e, Physical, data-link, network,
transport and application layer.
 A TCP/IP protocol which has two parts–
(i) TCP deals with exchange of sequential data
(ii) IP handles packet forwarding and is used on the Internet

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Q-1 What are the 5 levels of TCP/IP:

1) Application or process layer:
 The Application Layer which provides services directly to users such as e-mail. It uses protocols such
as Telnet, SMTP, FTP, HTTP, SSH, SSL etc.
2) Host to Host transport Layer:
 The Transport Layer which provides end-to-end communication between applications and verifies
correct packet arrival. It uses protocols such as TCP, UDP, etc.
3) Internet Protocol (IP):
 The Internet Layer which provides packet routing for error checking and addressing and integrity. It uses
protocols such as Telnet, IP, ICMP, etc.
4) Network Interface:
 The Network Interface Layer which provides an interface to the network hardware and device drivers.
This can also be called the Data Link Layer. It uses protocols such as Telnet, MAC, ARP (Address
resolution protocol) etc.
5) Physical layer:
 Physical layer is a hardware layer used to provide physical transmission of data on the telecommunication
media in the network. It defines the relationship between a device and a physical medium. Since it is a
hardware layer, it does not require any protocols, it has only physical components.

Q-2 Difference between OSI model and TCP/IP.

S. No OSI MODEL TCP/IP MODEL
1 It has 7-Layers It has 5-Layers.

2 These are different layers. The Internet Application Layer includes the OSI Application
Layer, Presentation Layer, and Session Layer.

3 The OSI reference model was devised In this, the protocols came first and the model came late.
before the protocols were invented.

For understanding of OSI and TCP/IP Protocol:

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Network Administration and Management

Q-1 Functions of Network Management: [FCAPS] (Amendment for May 15)
FCAPS is the ISO telecommunication management network model and framework for network management:

1) Fault Management:
 A fault is an event that has a negative significance, must be recognized, isolated, corrected and maintains
log files of all faults including network problems and present this information to the network manager.
 It includes fault related to connectivity, speed, network devices and network software etc.
2) Configuration Management:
 It refers to the monitoring of network and system configuration information so that the impact on network
operations can be tracked and managed.
 It includes network changes, additions, and deletions need to be coordinated with the network management
personnel.
 Example: Network must have a device containing all features of switches, router and modem.
3) Accounting Management:
 For billed networks, accounting management is concerned with tracking of network utilization information,
such that name and ID of individual users, departments, or business units can be appropriately mentioned in
bills.
 For non-billed networks, accounting refers to administration of users by making their log files containing
their information such as ID and password, level of access right provided and roles and responsibilities of each
and every user.
4) Performance Management:
 It refers to the activity of measuring and availing data of network performance so that performance can be
measured and maintained.
 It enables the manager to prepare the network efficiently and effectively.
5) Security Management:
 It refers to the management of controlling over access to network resources as established by organizational
security guidelines.
 It ensures security such as authentication, authorization and auditing over network hardware, network software,
data and router.

Network Risks, Controls and Security

 The basic objective for providing network security is two-fold:
(i) to safeguard assets, and
(ii) to ensure and maintain the data integrity.
 There are 2-types of systems security.
 A physical security is implemented to protect the physical systems assets of an organization like the personnel,
hardware, facilities, supplies and documentation.
 A logical security is intended to control (i) malicious and non-malicious threats to physical security and (ii)
malicious threats to logical security.
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Threats and vulnerabilities

Q-1 What are threats? Explain categories of network security threats?
Threats:
 A threat is an action, event or condition where there is a compromise in the system, its quality and ability that
inflicts harm to the organization.
 Threat is any circumstance or event with the potential to cause harm to an information system in the form of
destruction, disclosure, adverse modification of data and denial of services.
 A threat is anything that can disrupt the operation, functioning, integrity, or availability of a network or
system.

Categories of Network security Threats:

a) Unstructured Threats:
 It refers to a computer attack from inexperienced and unprofessional hackers often called script kiddies,
who are using software created by more advanced hackers such as hacking tools, scanning tools, address
sweeping tools etc. from the internet to gain unauthorized access to information and system or launch a denial
of service attack.
 These threats occurs more on curiosity basis instead of conducting intentionally.
 It is avoidable threats which can be avoided by using latest technology. So one must do proper cost benefit
analysis before implementing technology.

b) Structured threats:
 It refers to a computer attack originating from the individual who are highly motivated and technically
competent and has immense knowledge about networking systems design and their vulnerabilities.
 Such threats are intentionally conducted by intruders to penetrate networking such as hackers, eavesdropper
etc.
 It is unavoidable threat hence it can‟t be avoided by using technology but it can be prevented from harming
the resources and can be mitigated by using risk management approach.

c) Internal Threats:
 These threats originate from individuals who have authorized access to the network working within the
organization.
 An internal threat may come from disgruntled employees, current employee or contractor etc.

d) External Threats:
 These originate from individuals or organizations working outside an organization, who does not have
authorized access to organization‟s computer systems or network.

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Q-2 What are vulnerabilities? Explain various factors responsible for vulnerability?
Vulnerability
 Vulnerability is the weakness in the system‟s safeguards that exposes the system to threats.
 It may be weakness in an information system, cryptographic system (security systems), or other components
(e.g. system security procedures, hardware design, internal controls) that could be exploited by a threat.
 Vulnerabilities potentially “allow” a threat to harm or exploit the system.
 Missing safeguards will often determine level of vulnerabilities.

Facts responsible for occurrence of vulnerabilities in software:

Tips: Bad and Untrustworthy SITE
1) Bad protocols:
 It refers to the unsecured protocols used for data transmission which may lead to unauthorized access of data
being transmitted or data lost.
 For example: Unsolicited commercial e-mail, known as “spam” is the irritating result of poor protocol programming.
2) Trusting Untrustworthy information:
 It refers to a problem which affects the performance of routers or those computers that connect one computer
to another.
 Example: If router is accepting IP address of hacker‟s site and allowed it to be entered into the server. It may lead
to high risk of data lost or unauthorized access.

3) Software bugs:
 It is a problem contained in the software program itself. It may create many problems such as operational
problem, virus issues, buffer overflow, access validation error, input validation error etc.
4) Insecure default configurations:
 It occurs only when users are using ID and password provided by vendors as it is. Most of time intruders
knows these passwords and can access systems effortlessly.
5) Timing windows:
 This problem may occur when a temporary file is exploited by an intruder to gain access to the file, overwrite
important data, and use the file as a gateway for advancing further into the system.
6) End users:
 Users of computer systems are not professionals and are not always security conscious.
 For example: When the number of passwords of an user increases, users may start writing them down where they
are easy to find. Further, kind of negligence such as save confidential files to places where they are not properly
protected.

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Q-2 Level of Security Program:

The task of a Security Administration in an organization is to conduct a security program which is a series of ongoing, regular and
periodic review of controls exercised to ensure safeguarding of assets and maintenance of data integrity. Security programs involve
following eight steps –

1) Preparing project plan:

 It refer to the plan for ensuring efficient and effective security and includes determine the scope of plan, tasks
to be accomplished, task assignment, preparation of resources budget and at last it determines target or schedule
for task completion.

2) Assets identification:
 After making plan, all assets must be identified available in the organization and must be classified into
personnel, Hardware, system software, application software, Facilities, Documentations, Supplies, Data etc.

3) Assets valuation:
 After identifying all assets, its value must be determined to understand its criticality, its importance, its
value, and impact of loss that may arise if such assets are affected by any disaster.
 Valuation of asset can be done physically as well as logical basis. For example: the replacement value of the
contents in a micro computer‟s hard disk may be several times more than the replacement value of the disk itself.

4) Threats identification:
 After identifying the assets and its valuation, all inherent threats related to the every asset must be
determined and analyzed. It might be structured, unstructured, internal or external.
 Examples of threats are: Power failure, communication failure, Earthquake, volcanoes, tsunamis etc.

5) Threats probability of occurrence assessment:

 After identifying all inherent threats, it is important to determine the probability of occurrence of each and
every threat that helps to understand how frequently particular threats are occurring and determine the level of
safeguard applied to prevent it from occurrence at optimum level.
 For example: Threat of Power failure is more probable than the threat of data loss.

6) Exposure analysis:
 After doing threat analysis, it is equally important to understand the impact of each and every threat if
occurred. It is an analysis of determining the extent of the loss that organization can suffer after disaster taken
place.

7) Controls adjustment:
 After doing threat and exposure analysis, it is a time to do security assessment to understand which control is
best to optimize the risk at minimum acceptable level.
 Hence, controls must be designed, implemented and operated in such a way so that benefit derived from
such control will be greater than the cost of the control. Such adjustment can be called as Cost benefit
analysis.

8) Report generation outlining the levels of security to be provided for

individual systems, end user, etc.
 After doing security assessment, all above analysis must be documented properly, generate report and
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submit to management stating that types and numbers of review performed, recommendation for
implementing new asset safeguarding techniques or mechanism etc.
Plan Assets Assets Probabilities Exposures Product Control
identification valuation

Network Security
 Network security is a provisions and policies adopted by a network administrator to prevent, monitor and
control unauthorized access, misuse, modification, or denial of a computer network and network accessible resources.
 Users choose or are assigned an ID and password or other authenticating information that allows them access to information
and programs within their authority.

Q-1 Aspects of Network Security:

1) Privacy/Confidentiality
2) Authentication
3) Integrity
4) Non repudiation

1) Privacy/confidentiality:
 Privacy assures confidentiality to receiver of the message from unauthorized disclosure and also assures that it is
available only to intended receivers.
 It is possible only through cryptography and encryption techniques so that data is secured and can only be
decrypted with a special algorithm and/or mathematical formula.
Cryptography:
 Cryptography is a combination of encryption and decryption process to authenticate the electronic
records by using algorithm key i.e, private key and public key.
 It ensures information security such as data confidentiality, integrity, authentication, and non-repudiation.
Encryption:
 In Cryptography, encryption is the process of encoding messages (or information) from normal text into cipher
text at sender‟s end by using private key.
 Decryption is a process of decoding messages from cipher text into normal text by using public key at receiver‟s
end.
1) Plaintext:
 It is normal message required to be encrypted by using algorithms.
2) Cipher Text:
 It is an output of encryption process that is transmitted often by a messenger or radio.
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3) Encryption Model:
 It refers to the algorithm used to execute encryption and decryption process. In absence of such
algorithm, intruder cannot decrypt the cipher text easily.

2-Categories of encryption/decryption methods

i) the Secret Key Method; and
ii) the Public Key Method.

1) In Secret key encryption/decryption method:

 The same key is used by both sender and the receiver.
 The sender uses private key and an encryption algorithm to encrypt data and the receiver uses the same key
for decryption.

2) In Public key encryption:

 There are two keys: a private key and a public key.
 The private key is kept by the sender and the public key is announced to the public.
 The sender uses his private key to encrypt the message just as a person uses his signature to sign a
paper document. The receiver uses the public key of the sender to decrypt the message just as a
person verifies from memory another person‟s signature.
 In digital signature, the private key is used for encryption and the public key for decryption and they
constitute key pair.
 In this, the algorithm used for decryption is the inverse of the algorithm used for encryption.
2-basic approaches to encryption:
a) Hardware encryption:
 In this encryption, various hardware is encrypted by executing advanced encryption process
(AES) in small chip available inside the drive itself.
 It includes encryption of pen drive, hard disk etc. It is relatively more secured as compared to
software encryption.
 AES encryption is a block of algorithms that „scrambles‟ the data into unreadable code so that data
can be protect during transport. In this way data stored in hardware can be protected from
unauthorized users.
 Example: Kanguru defender secure USB drive is a company providing pen drive encryption.
b) Software encryption:
 In this encryption, external software is used to provide encryption of a drive to secure the data.
 It is relatively more vulnerable than hardware encryption because software encryption options are
available in open market as a cheaper alternative.

2) Authentication:
 Network security ensures proper authentication that means the receiver must be sure about sender‟s identity and
confirmed that intruder has not sent the message.

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3) Integrity:
 It provides data security from unauthorized modification that assures data must be arrived to receiver
exactly as it was sent by sender. There must not be any changes during the transmission - either accidental or
malicious.
4) Non repudiation:
 It provides security as to proper recording of transactions incorporated by sender and allows receiver to claim
that transaction has been made if it was thereafter denied by sender that he had not made any transaction.

Q-2 What are the types of Network security protocols:

 Network Security Protocols are designed to prevent any unauthorized user, application, service or device from
accessing network data. It applies to all virtual data types (physical as well as logical assets) regardless of the
network medium used.
 It is used to implement cryptography and encryption techniques to secure the data so that it can only be
decrypted with a special algorithm, and mathematical formula and/or a combination of all of them.
 It includes Secure Shell (SSH), Secure File Transfer Protocol (SFTP), Secure Hypertext Transfer Protocol (HTTPS)
and Secure Socket Layer (SSL) etc.

1) SSL (Secure sockets layer): ye online application ko secure karta hai.

 It is a network protocol that provides a secure channel (various online applications) between two machines
operating over the Internet or an internal network.
 In practice, SSL protocol is used to secure various online applications such as web browser, email, internet
faxing, instant messaging, voice over IP etc. to provide secure online transactions and communications.
2) SSH: ye remote login ko encrypt karke secure karta hai
 Secure Shell is a program used to provide security over remote login by using encryption technique to
encrypt ID and password provided by remote users so that such ID and password cannot be accessed by
unauthorized users. It ensures secured way to access a remote computer.
 It protects a network from attacks such as IP spoofing, IP source routing, and DNS spoofing. An attacker
cannot access the connection in an unauthorized way when encryption is enabled. During SSH login, the
entire login session including transmission of password is encrypted, hence it is almost impossible for an outsider
to collect passwords.

3) SFTP: ye sirf reliable signal pe hi file ko transfer karta hai

 It is a network protocol that provides file access, file transfer, and file management over any reliable data
signal in which encryption process is applied.
 It is an extension of SSH to provide secure file transfer capabilities. Hence it is also called as SSH File
Transfer Protocol (Secure FTP or SFTP).

4) HTTPS: ye server and receiver ke beech me hone wale communication ko secure karke ensure karta hai ki
communication in dono ke beech me hi hona chahiye.
 It stands for hypertext transfer protocols. It is a communication protocol for secure communication over a
computer network. It is used to encrypt the data flow between client and server.
 It ensures that communication must be done between intended receiver and server only.

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Q-3 SEVERAL TOOLS to protect information and systems against compromise,

intrusion, or misuse: OR [Network Security Techniques]:
1.Firewalls:
 Firewall is a collection of devices (computers, routers, and software) that forms a barrier between a secure and
an open environment. It enforces a boundary between more than one network.
 All traffic between the security domains must pass through the firewall. Hence, the firewall serves as an
access control point for traffic between security domains.
 It restricts the use of system resources only to authorized users and ensuring that the users obtain only
authentic system resources.
 It is used to co-ordinate activities with network intrusion detection systems (IDS)
 The prime objective behind establishing firewall in the system is to inspect and block the unauthorized data
traffic.

2.Intrusion Detection system (IDS Technology):

 An IDS is a device or software application that monitors network or system activities for malicious
activities or policy violations and produces reports to a Management Station.
 The goal of intrusion detection is to monitor network assets to detect anomalous behavior and misuse.
Types of IDS technologies:
a) Network Intrusion Detection system(NID):
 These types of systems are placed on the network to examine the network traffic and determine whether it falls
within acceptable boundaries such as traffic free network, virus free network, no unauthorized access etc.
 Examples: such as “packet sniffers”. NID devices intercept packets traveling on various communication mediums and
protocols, usually TCP/IP.

b) Host based Intrusion Detection systems (HID):

 These types of system actually run on the system being monitored and examine the activity on an
individual system like mail server, web server or an individual PC to determine whether the activity on the
system is acceptable.
 It is best suited to combat internal threats because of its ability to monitor and respond to specific user
actions and file accesses on the host.

c) Hybrid Intrusion Detection:

 This system offers management and alert notification from both network and host-based
intrusion detection devices. Hybrid solutions provide centralized intrusion detection management.

3. Network access Control (NAC):

 It provides access control so that only authorized users can get access of network services available.
 Example: If network is secured with ID and password, the users having valid ID and password can get
access of network.

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4. Anti- Malware:
 It helps administrators in identifying block and removes malware from the computer system.
 Example: Antivirus software is used to scan virus and remove it.

5. Site Blocking:
 It is a software-based approach that prohibits access to certain Web sites that are deemed
inappropriate by management.
 It also provides log activities and determines the amount of time spent on the Internet and identifies
the sites visited.
 For example: Porn sites, illegal sites etc. must be blocked from accessing it.

The Internet Revolution

Q-1 Difference between Networks and the Internet
S. Basis of Networks Internet
No. difference
1 Definition It is a collection of computers and other Internet is a network of networks by using
hardware components interconnected by TCP/IP protocols. It represents international
communication channels to share network which connects the whole world as one
information and network resources. entity.
2 Scope Network includes Internet also. Hence its Internet is a type of network. Hence, its coverage
coverage is broad. is specific.
3 Example: Network can be of anything i.e, person, SMS It covers only internet network assisted by its
network; telephone network; E-mail network respective protocols.
etc.
4 Scalability It provides connectivity amongst limited It provides connectivity amongst computer
devices around the building, branches, around the globe.
organization etc.

Q-2 Types of Networks:

A computer network is two or more computers linked together to share information and/or resources. There are several types of
computers networks, but the types most important are Local Area Network (LAN), the Internet, Extranet, and Intranet.
1) LAN: Refer definition of LAN
2) Internet: Refer definition of Internet
3) Intranet: Refer definition of Intranet
4) Extranet Refer definition of Extranet
Difference LAN Intranet Extranet Internet

Geographical area

Interaction

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Hardware required

Network
architecture

Speed

Error

Protocols used

WWW

Requirement of
DNS
How to give access
path

Q-3 Internet Service provider Architecture (Amendment for Nov 15)

1) Internet Service Provider (ISP):
 To join the Internet, the computer is connected to an ISP from whom the user purchases Internet access or
connectivity.
 It allows computer to exchange packets across the Internet.
 There are many kinds of Internet access and they are usually distinguished by how much bandwidth they
provide and how much they cost.
 A common way to connect to an ISP is to use the phone line to our house, in which a phone company is our ISP.
 ISP networks may be regional, national, or international in scope.
Several other popular ways to connect to an ISP:
a) DSL (Digital Subscriber Line):
- It is also called as always on connection because it is connected to the premise directly and will not tie up your
phone as a dial-up connection does.
- It reuses the telephone line for digital data transmission apart from voice transmission.
- It requires DSL modem to get connected with computer that converts digital packets into analog signals.
- It is a higher bandwidth way to use the local telephone line.
- The word modem is short for „„modulator demodulator‟‟ and refers to any device that converts between digital bits and
analog signals. At the receiver‟s end, a device called a DSLAM (Digital Subscriber Line Access
Multiplexer) that is used to converts analog signals into data packets.
- The two main categories of Digital Subscriber Line (DSL) are called Asymmetric Digital Subscriber Line (ADSL)
and Symmetric Digital Subscriber Line (SDSL).

b) Cable TV System:
- It is another method to send signals over the cable TV system.

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- Like DSL, it reuses unused cable of TV channels by using cable modem at the home end and the device at the cable
head-end is called the CMTS (Cable Modem Termination System).
c) Wireless:
- It is used for Internet access in 3G mobile phone networks.
- They can provide data delivery at rates of 1 Mbps or higher to mobile phones and fixed subscribers.
- We call the location at which customer packets enter the ISP network for service the ISP‟s POP (Point of
Presence). Packets are moved between the POPs of different ISPs. From this point on, the system is fully digital and
packet switched.

BSNL

Customer’s Home

ISP’s architecture:
 Long distance Transmission Line:
 It is made up of long distance transmission lines that interconnect routers at POPs in the different cities that the
ISPs serve. This equipment is called the backbone of the ISP.
 If a packet is destined for a host served directly by the ISP, that packet is routed over the backbone and delivered to the
host. Otherwise, it must be handed over to another ISP.
 Internet Exchange Point:
 ISPs connect their networks at IXPs (Internet eXchange Points) to exchange traffic with another ISPs. There are
many IXPs in cities around the world.
 An IXP is a room full of routers, at least one per ISP. A LAN in the room connects all the routers, so packets can be
forwarded from any ISP backbone to any other ISP backbone.
 IXPs can be large and independently owned facilities.
 The connected ISPs are said to be peer with each other.

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 Peering:
 Peering is a process by which 2 internet networks are connected.
 The peering that happens at IXPs depends on the business relationships between ISPs. There are many
possible relationships.
 For example: a small ISP might pay a larger ISP for Internet connectivity to reach distant hosts, much as a
customer purchases service from an Internet provider.

 Peering Choice:
 It refers to the path a packet takes for transmission through the Internet depends on the peering choices of the
ISPs.
 If the ISP delivering a packet peers with the destination ISP, it might deliver the packet directly to its peer.
 Otherwise, it might route the packet to the nearest place at which it connects to a paid transit provider so that
provider can deliver the packet.

 Companies located at top:

 Often, the path a packet takes will not be the shortest path through the Internet.
 At the top, there are some companies that operate large international backbone networks with thousands of
routers connected by high-bandwidth fiber optic links.
 These ISPs do not pay for transit.
 They are usually called tier 1 ISPs and are said to form the backbone of the Internet since everyone else must
connect to them to be able to reach the entire Internet.

 Data centre:
 Companies that provide lots of content, such as Google and Yahoo!, locate their computers in data centres that are
well connected to the rest of the Internet.
 These data centres are so large (tens or hundreds of thousands of machines) that electricity is a major cost, so data
centres are sometimes built in areas where electricity is cheap.

Q-4 Internet Applications:

1) E-mail, browsing the sites on the World Wide Web, and participating in special interest newsgroups are the
most popular Internet applications.
2) Electronic commerce transactions between businesses and their suppliers and customers can also performed
with online web applications.
3) Internet provides electronic discussion forums and bulletin board systems formed and managed by
thousands of special-interest newsgroups.
4) Other applications include downloading software and information files and accessing databases provided by
thousands of businesses, governments, and other organizations.
5) The Internet allows holding real-time conversations with other Internet users.
6) The Internet allows gathering information through online services using web browsers and search engines.
7) Internet browser software enables millions of users to surf the World Wide Web by clicking their way to the
multimedia information resources stored on the hyperlinked pages of businesses, government, and other
websites.
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Q-5 Business Use of the Internet: [1-3] [4-6] [7-12] [13-14]

Business uses of the Internet include: - Business - Busi. application -E-transaction - Developing web
- Partners - Sr. application -Buying & selling based markets
1) Strategic business alliances (*gathbandhan) - Enterprise - Emergency - Gene. revenue and dist.
2) Collaboration among business partners application -Vendor’s support Channel
-Retain present - Develop new
3) Enterprise communications and collaboration customer information
4) Growth of cross-functional business applications -Attract new based
customer products
5) Marketing, sales, and customer service applications
6) Emergence of applications in engineering, manufacturing, human resources and accounting.
7) Electronic commerce
8) Buying and selling products and services
9) Generating revenue through electronic commerce applications is a growing source of business value.
10) Providing customer and vendor support
11) Retaining present customers with improved customer service and support.
12) Attracting new customers with innovative marketing and products.
13) Developing new web-based markets and distribution channels for existing products.
14) Developing new information-based products accessible on the Web.

Intranet
Introduction:
 An intranet is a network inside an organization that uses Internet technologies such as web browsers and servers,
TCP/IP network protocols, HTML and server etc. to provide an Internet like environment within the enterprise for
information sharing, communications, collaboration, and the support of business processes.
 An Intranet is protected by security measures such as passwords, encryption, and firewalls, and thus can be
accessed by only authorized users through the Internet.
 A Company‟s Intranet can also be accessed through the Intranets of customers, suppliers, and other business
partners via extranet links.
 Intranets are commonly used to store internal and company-related content such as company policies or employee
benefits.
 One difference between the Internet and an intranet is the way the web pages are addressed . On the Internet,
web pages typically are addressed through a full domain name, such as www.microsoft.com but domain name is usually not
needed to access intranet sites but can be accessed directly by providing his IP address in URL.
 It is less expensive than making any private networks based on proprietary protocols.
 It uses same web browser to access web information such as google chrome, Mozilla etc..

Q-1 [Business value of Intranet] or [Benefits/Advantages of Intranet]

1) Communications and Collaboration:
 Intranets can significantly improve communications and collaboration within an enterprise.
 Intranet provides various facilities such as e-mail, voicemail, paging, and faxing, discussion groups, chat

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rooms, and audio and videoconferencing within the organization.

2) Web Publishing:
 It provides capability of accessing web pages through web browser on World Wide Web servers within the
organization as well.

3) Business Operations and Management:

 Intranets are being used as the platform for developing and deploying critical business applications to
support business operations and managerial decision making across the internetworked enterprise.
 It provides various facilities such as customer applications, accessing company databases, multi user
system, product catalogs, search engines etc.

Extranets:
 Extranets are network links that use Internet technologies to interconnect the intranet of many businesses of
its customers, suppliers, or other business partners.
 It provides secured connection which isolates business communication from the internet.
 It provides privacy and security to an Intranet as well as to an extranet itself. It uses VPN, cryptography,
firewall server management and authorization procedures for having a better security.
 In this way, Intranets of business partners, material suppliers, financial services, distributors, customers, etc. are
connected to the Extranets by an agreement.
 It allows access only to authorized groups through strictly controlled mechanisms and promotes e-
commerce.

Q-1 Business Value of Extranets:

Tips: PARI - C
The business value of extranets is derived from several factors:
1) It provides an online, interactive product development, marketing, and customer-focused process that brings
faster a better designed products into market.
2) It makes customer and supplier access of intranet resources a lot easier and faster than previous business
methods.
3) It enables a company to offer new kinds of interactive Web-enabled services to their business partners. It helps in
building and strengthening good business relationships with its customers and suppliers.
4) Extranets enable and improve collaboration by a business with its customers and other business partners.

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Q-2 Companies can use an extranet to do the following tasks:

 They can exchange large volumes of data using Electronic Data Interchange (EDI) or XML.
 They can share product catalogs to whole sellers and retailers.
 They can share news with partner companies.
 They can both jointly develop and use training programs with other companies.
 They can collaborate with other companies on joint development efforts.
 They can access services provided by other companies such as an online banking application
managed by one company on behalf of affiliated banks.

Q-3 Five Rules of Extranet:

Tips: Data owner, partner aur decision maker ka internet time flexible hona chahiye

1) Be as flexible as the business:

 An extranet must be driven by the demands of the market, not the limitations of technology. Hence
it must be extremely flexible and allow companies to immediately deploy extranet services that
best fit the business need.

2) Deploy in "Internet time":

 To deploy an extranet, companies neither have to move for a new infrastructure nor for a major re-architecting
of their applications. It requires same infrastructure that was used in internet architecture. It helps in
deploying extranet quickly.

3) Protect the interests of the data owner:

 It is deployed in a fast and flexible way along with complete assurance that only the authorized users
can access the right services.
4) Serve the partner as a customer:
 It provides all information to the partner treating him as a customer so that he will satisfy as to
each functions of extranet.
 An extranet presents complete balance during provide customer service to key partners in a competitive
environment with mission-critical resources at risk. Partners should never be required to change their
security policies, networks, applications, and firewalls for the "good" of the extranet community.

5) Drive information to the decision-maker:

 An extranet must provide a central means to measure progress, performance, and popularity. Business units
deploying applications need to understand which extranet content and applications are most successful.

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Electronic Commerce (E-commerce)

Introduction:
 It refers to buying and selling of products or services over electronic systems such as the Internet and
other computer networks. It is a process of doing business electronically.
 It uses the technology to enhance the processing of commercial transactions between a company, its
customers and its business partners.
 It involves the automation of a variety of business-to-business and business-to-consumer
transactions between buyers and sellers through reliable and secure connections.
 It is an application of various communications technologies such as electronic funds transfer (EFT), Electronic
data interchange (EDI), supply chain management (SCM), customer relationship management (CRM), inventory
management (JIT), Internet marketing, online transaction processing and automated data collection systems.
 It provides integration amongst EFT, EDI, SCM, and CRM, inventory management, JIT and other processing to
form a new paradigm in business transaction processing.

Q-1 Benefits of Electronic Commerce Application and Implementation

1. Improved market intelligence and strategic planning.
2. Reduced costs to suppliers by electronically accessing on-line databases of bid opportunities, on-line
abilities to submit bids, and on-line review of rewards.
3. Reduced design and manufacturing cost.
4. Reduced overhead costs through uniformity, automation, and large-scale integration of management
processes.
5. Reduced errors, time, and overhead costs in information processing by eliminating requirements for re-
entering data.
6. Reduced inventories and reduction of risk of obsolete inventories as the demand for goods and services
is electronically linked through just-in-time inventory and integrated manufacturing techniques.
7. Reduced advertising costs.
8. Reduced delivery cost, notably for goods that can also be delivered electronically.
9. Reduced costs to buyers from increased competition in procurement as more suppliers are able to compete
in an electronically open market place.
10. Reduced time to complete business transactions, particularly from delivery to payment.
11. Faster time to market as business processes are linked, enabling seamless processing and eliminating time
delays.
12. Creation of new markets through the ability to easily and cheaply reach potential customers.
13. Easier entry into new markets, especially geographically remote markets, for companies of all sizes and
locations.
14. Customer involvement in product and service innovation
15. Better quality of goods as specifications are standardized and competition is increased and improved
variety of goods through expanded markets and the ability to produce customized goods.

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16. Optimization of resource selection as businesses form cooperative teams to increase the chances of
economic successes, and to provide the customer products and capabilities more exactly meeting his or her
requirements.
17. Ability to undertake major global programs in which the cost and personnel needed to manage a non-
automated system would be unreasonable or prohibitive.
18. Reduced use of ecologically damaging materials through electronic coordination of activities and the
movement of information rather than physical objects).

Q-2 Risks involved in e-Commerce

Tips: A R A D H N A ki D P is very risky.

The risks associated with e-Commerce are multi-faceted. Given below is a sample listing of risks of e-Commerce:
1) Problem of anonymity:
 There is need to identify and authenticate users in the virtual global market where anyone can sell to or buy
from anyone, anything from anywhere.
2) Repudiation of contract:
 There is possibility that the electronic transaction in the form of contract, sale order or purchase by the trading
partner or customer may be denied.
3) Lack of authenticity of transactions:
 The electronic documents that are produced in the course of an E-commerce transaction may not be
authentic and reliable.
4) Data Loss or theft or duplication:
 The data transmitted over the Internet may be lost, duplicated, tampered with or replayed.
5) Attack from hackers:
 Web servers used for e-Commerce may be vulnerable to hackers.
6) Non-recognition of electronic transactions:
 E-commerce transactions, as electronic records and digital signatures may not be recognized as evidence
in courts of law.
7) Lack of audit trails:
 Audit trails in e-Commerce system may be lacking and the logs may be incomplete, too voluminous or
easily tampered with
8) Denial of Service:
 Service to customers may be denied due to non-availability of system as it may be affected by viruses, e-
mail bombs and floods.
9) Problem of piracy:
 Intellectual property may not be adequately protected when such property is transacted through e-commerce.

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Q-3 Types of e-Commerce

There are six general classes of e-commerce applications:
(a) Business-to-Business (B2B) e-Commerce
(b) Business-to-Consumer (B2C) e-Commerce
(c) Consumer-to-Business (C2B) e-Commerce
(d) Consumer-to-Consumer (C2C) e-Commerce
(e) Business-to-Government (B2G) e-Commerce
(f) Business-to-Employee (B2E) e-Commerce

1) Business-to-Business (B2B) E-commerce:

 The exchange of services, information and/or products from one business to another is called
Business to business transaction. It takes all transactions between trading partners.
 It also encompasses marketing activities between businesses apart from financial transactions. It is
also used to identify sales transactions between businesses.
 This model can save time and money.
 For example: Transaction executed between Raw material supplier of Fabrics and manufacturer of Shirts.

2) Business-to-Consumer (B2C) E-commerce

 The exchange of services, information and/or products from a business to a consumer is called
Business to consumer transaction.
 It is used to sale products and services from a firm to consumers. It helps customers to make e-
payment in a safe, secure and user friendly way.
 This model can save time and minimizes internal costs created by inefficient and ineffective supply
chains and ultimately reduces end-prices for customers.
Advantages of B2C E-Commerce
 Shopping can be faster and more convenient.
 Offerings and prices can change instantaneously.
 Call centers can be integrated with the website.
 Broadband telecommunications will enhance the buying experience.

3) Consumer-to-Business (C2B) E-commerce:

 Customer directly contact with business vendors by posting their project work with set budge online so
that the needy companies review it and contact the customer directly with bid.
 The consumer reviews all the bids and selects the company for further processing.
 Examples: guru.com, rentacoder.com, getacoder.com, freelancer.com.

4) Consumer-to-Consumer (C2C) E-commerce:

 It is a form of e-commerce sites that provides a virtual environment in which consumers can sell to one
another through a third-party intermediary.

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5) Business-to-Government (B2G) E-commerce

 It is a type of e-commerce, also known as e-government, used to provide government and public services to
every citizen at their doorstep by using information and communication technologies. It helps to build and
strengthen relationships between government and employees, citizens, businesses, non-profit
organizations, and other government agencies.
 It is used to provide e-payment of tax, e-filing of tax, online application for PAN and passport etc.

6) Business-to-Employee (B2E) E-commerce:

 It is a type of e-commerce that has provided the means for a business to offer online products and
services to its employees from an intra-organizational perspective.

Q-4 Key aspects to be considered in implementing e-Commerce

1) Implementing appropriate policies, standards and guidelines
2) Performing cost benefit analysis and risk assessment to ensure value delivery
3) Implementing the right level of security across all layers and processes
4) Establishing and implementing the right level of (best practice) controls
5) Integration of e-Commerce with the business process and the physical delivery channels
6) Providing adequate user training
7) Performing post implementation review to ensure controls are working as envisaged.

Mobile Commerce
 Mobile Commerce or m-Commerce is about the explosion of applications and services accessible from
Internet-enabled mobile devices. It involves new technologies, services and business models.
 It is quite different from traditional e-Commerce.
 M-commerce (mobile commerce) is the buying and selling of goods and services through wireless
handheld devices such as cellular telephone and personal digital assistants (PDAs).
 M-commerce enables users to access the Internet without require plug in.

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Q-1 Following are the industries affected by m-commerce include:

1) Service/retail: It provides the ability to place and pay for orders on-the-fly.
2) Financial services: It includes mobile banking (when customers use their handheld devices to access
their accounts and pay their bills) as well as brokerage services, in which stock quotes can be displayed
and trading conducted from the same handheld device.
3) Information services: It includes the delivery of financial news, sports figures and traffic updates to
a single mobile device.
4) Telecommunications: It includes service changes, bill payment and account reviews can all be
conducted from the same handheld device.

Electronic Fund Transfer

 Electronic Funds Transfer (EFT) represents the way the business can receive direct deposit of all payments from the
financial institution to the company bank account.
 Once the users sign up, money comes to him directly and sooner than ever before.
 EFT is Fast and Safe which means that the money will be confirmed in user’s bank account quicker than if he had to
wait for the mail, deposit the cheque, and wait for the funds to become available.
 The payment mechanism moves money between accounts in a fast, paperless way.

Q-1 Some examples of EFT systems:

1) Automated Teller Machine:
 Consumers do their banking without assistance of teller. This machine requires ATM card issued by
bank and demand for PIN code to proceed with the transactions such as Withdrawal, Mini Statement,
Balance check, PIN Change etc.

2) Point of Sale (POS) Transactions:

 Some debit or EFT Cards can be used when shopping to allow the transfer of funds from the consumer‟s
account to merchant‟s account.
 EFT Card is used for making payment against the purchases made.

3) Preauthorized Transfers:
 This is a method of automatically depositing to or withdrawing funds from an individual‟s account,
when the account holder authorizes the bank or a third party (such as an employer) to do so.
 For example: Installment of loans in a digital manner.

4) Telephone Transfers:
 Consumers can transfer funds from one account to another or can order payment of specific bills by
phone.

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 CA Guru Gupta –ITSM (Paper -7) CHAPTER-4 BUSINESS INFORMATION SYSTEM

Chapter- 4 Business Information System

Information, System and Information Systems
Information:
 Information is data (facts, events, transactions) that have been put into a meaningful and useful context.
 It has been defined by Davis and Olson as - ―Information is data that has been processed into a meaningful
form to the recipient and is of real or perceived value in current decision‖.
 Information is crucial for business decision. It plays vital role in the survival of a business.
 The term ―data‖ and ‗information‘ are often used interchangeably. However, the relation of data to
information is that of raw material to finished product.
 The QUALITY of information determines the QUALITY of action or decision.

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System:
 System is an orderly arrangement of a set of interrelated and interdependent elements that operate
collectively to accomplish some common purpose or goal.
 All elements of system is available within the boundary of system and environment is available outside the
boundary of system.
 All elements are inter-linked amongst each other through interfaces.
 Potential interfaces must be available for the sub systems in the form of 1/2n(n-1) where n is the number of
sub systems.
 System is bifurcated into small - small components unless each and every component is of manageable size.
 If one sub system fails, entire system will be disrupted.

Information System:
- It refers to the system used to store, sort, categorize and manipulate the information.
- It is used to convert input into output.
- It is used to mange the information to provide desired information to management.
- It can be used to take decision to solve unstructured and semi structured problems.
- It can be used to provide business information, government information to recipient.
- It can be used in the field of business, scientific, governance, social and entertainment.
- It has components namely hardware, software, data, procedure, people and network.

Q-1 Components of Information System:

1) People, hardware, software, and data are four basic resources of information systems;
2) Human resources consist of end users and IT specialists; hardware involves machines and media; software
resources consist of programs and procedures; and data resources includes data, model, and knowledge base;
3) A process is used to convert data into information for end users;
4) Information processes consist of input, processing, output, storage, and control processes.

Components of Information System

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Q-2 Types of Information Systems

1) Strategic Level Systems:
 It refers to the system that deals with strategic issues and long-range planning.

2) Management-Level Systems:
 It is used for the monitoring, controlling, decision-making, and administrative activities of middle
management.
 It deals with predictions or “what if…” type questions. e.g. ―What would happen to our profits if the completion
of the new production plant was delayed by 6 months?‖

3) Operational-Level Systems:
 It is used to support operational managers tracking elementary activities.
 It includes tracking customer orders, invoice tracking, etc.
 It ensures whether business procedures are followed or not.
4) Knowledge-Level Systems:
 These systems support discovery, processing and storage of knowledge and data workers. These further
control the flow of paper work and enable group working.

Information systems at different Levels

Q-2 Who uses Information System:

The groups served at different levels are as follows:
1) Strategic Level:
 This system is used by senior managers or Top-level managers such as Chief Executive Officers, Chief Financial
Officers, Chief Operational Officers and Chief Information Officers etc. in order to extract internal as well as external
information in order to set goals for the organization and direct the company to achieve them.

2) Management Level:
 This system is used by middle level managers such as General Manager, Regional manager etc. It is required to provide
communications and provide link between top level and bottom level management.

3) Knowledge Level:
 This system is used by various users involved in doing analysis to obtain conclusions on any subject matter. It includes
knowledge and data workers who are selected, recruited and trained in a special manner than the non-knowledge
workers.

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4) Operational Level:
 This system is used by operational managers or supervisors responsible for performing daily operations such as
sales, purchase, expenses, income, and other daily operations etc.

Transaction Processing System (TPS)

Introduction:
 It is used at lower level of management that manipulates data from business transactions.
 It is used to process, record, organize and manipulate LARGE volume of day to day transactions such as
sales, purchase, production, delivery, payments or receipts for generating various information for external use.
Mere recording of transaction is not sufficient to declare information system as TPS.
 Processing can be done: in 2 ways a) batch processing and (b) online processing. Online processing will be
preferred.
 It is a basic source of internal information for other information system. If there is no TPS, there will be no other
information system.
 It provides only internal information.
 It should be user friendly system.
 It is used to update information from time to time regarding the operations within the enterprise.
 However, major limitation in TPS is that it is not possible to take any managerial decision.

Q-1 Transaction processing Cycle:

1) Data entry:
 The first step of the transaction processing cycle is the capture of business data.
 For example: transaction data may be collected by point-of-sale terminals using optical scanning of bar codes and credit
card readers at a retail store or other business. The recording and editing of data has to be quickly and correctly captured for
its proper processing.

2) Transaction processing:
 Transaction processing systems process data in two basic ways:
a) Batch Processing, where transaction data are accumulated over a period of time and processed periodically, and
b) real-time processing (also called online processing), where data are processed immediately after a transaction
occurs.
 All online TPS depend on the capabilities of fault tolerant computer systems that can continue to operate even
if parts of the system fail and incorporate real-time processing capabilities.

c) Document and report generation:

 Transaction Processing Systems produce a variety of documents and reports.
 Examples of transaction documents include purchase orders, paychecks, sales receipts, invoices, and customer
statements.

d) Database maintenance:
 An organization‘s databases must be updated by its transaction processing systems so that they are always
correct and up-to-date.

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 For example: database maintenance ensures that these and other changes are reflected in the data records stored in
the company‘s databases.

Q-2 Attributes of TPS

1) High Volume Rapid Processing:
 In most of the transaction processing, the foremost issue is momentum.
 The instantaneous processing of transactions is noteworthy to the success of certain industry such as banking.
TPS is designed to process transactions in an immediate to make confident that the transaction data is
available to other users or processes that entail it.

Transaction Processing System

2) Equivalence:
 Transactions are processed in the similar format every time to ensure that full effectiveness is achieved.
 The TPS Interfaces are designed to get hold of identical data for each transaction, despite the consequences of
the source.

3) Access Control:
 It provides access control mechanism to prevent unauthorized users to access or modify the transaction.
 It ensures that people who are not authorized to use the system are not permissible to influence or
transform the transaction process.
4) Trustworthiness:
 A TPS system is designed to be robust and trustworthy.
 The system is capable to process transactions very rapidly yet at the same time conduct several checks to
make certain that the data integrity is preserved.

Q-3[Transactions Processing Qualifiers] or [pre-requisites of Acid Test]:

In order to qualify as a TPS, transactions made by the system must pass the ACID Test. The ACID Test refers to the
following 4 pre-requisites.

1) Atomicity:
 It means that a transaction is either completed in full or not at all. It ensures that transactions take place in
their entirety.
 For example: If funds are transferred from one account to another, this only counts as a bone fide transaction if
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both the withdrawal and deposit take place. If one account is debited and the other is not credited, it does not
qualify as a transaction.

2) Consistency:
 TPS systems exist within a set of operating rules (or integrity constraints). If an integrity constraint states that
all transactions in a database must have a positive value, any transaction with a negative value would be refused.

3) Isolation:
 Transactions must appear to take place in seclusion i.e, giving dual account effect at same time.
 For example: When a fund transfer is made between two accounts the debiting of one and the crediting of
another must appear to take place simultaneously. The funds cannot be credited to an account before they
are debited from another.

4) Durability:
 Once transactions are completed they cannot be undone.
 To ensure that this is the case even if the TPS suffers failure, a log will be created to document all completed
transactions.

Management Information Systems (MIS)

 It is used at ALL level of management.
 It is used to manage the information to fulfil all requirements of users and supports in making decisions by
managers
 It is an extension and expansion of TPS. They use results produced by the TPS, but they may also use
other information.
 It is available in different-different flavors.
 It provides internal information in more summarized manner in the form of reports, tables, graphs and
charts or in presentation format using some tools. It does not provide external information.
 It provides Relevant, Accurate and Timely information to managers at all the levels.
 It provides right information to the right person at the right time and at right place.
 It provides various types of sales reports i.e, month wise, quarter wise etc.
 It provides exceptional reports.
 It does not provide information on ad-hoc basis.
 It is user friendly system.

Q-1 Some Examples of MIS

 Airline reservations (seat, booking, payment, schedules, boarding list, special needs, etc.)
 Bank operations (deposit, transfer, withdrawal) electronically with a distinguish payment gateways
 Integration of department with the help of contemporary software‘s like ERP
 Logistics management application to streamline the transportation system
 Train reservation with the help of IRCTC

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Decision Support System (DSS)

Introduction:
 It is used at middle level of management to take unstructured or semi structured decision to solve unstructured or
semi structured problems.
 It is an extension and expansion of TPS and MIS. It allows the use of models and database for data processing,
managing information and performs analysis for taking decisions.
 It is a formula based information system.
 It uses more internal and less external information for making tactical decisions.
 It is user friendly system.
 It uses human intellectual.
 It uses 1 model base, 2 or more databases and 1 user interface.
 It enhances a person or group’s ability to make decisions in computerized environment.
 Example: Microsoft Excel, Diagnostic system, share Trading system, GPS etc

Q-1 Components of DSS:

A decision support system has four basic components listed below:

1) The user:
 The user is usually a manager with an unstructured or semi-structured problem to solve. Manager and staff
specialist (analyst) are users of such system
 Managers are the users having basic computer knowledge and want DSS to be very user friendly and
system Analysts are the people having expert knowledge about computer system engaged in system
development to fulfill all user‘s need.

2) Database:
 DSS include one or more databases i.e, external and internal databases containing both routine and
non-routine data from both internal and external sources.
 The data from external sources may come from EIS, includes data about economic conditions,
market demand etc. Data also may come from internal source through TPS and MIS, includes data
about financial and managerial accounting system, marketing, production and personnel department.

3) Planning languages:
 It is communication path available in the system so that user can interact with the system in the form of problems
and obtain solutions. It can be 2 types either-
 General-purpose planning languages (GPPL):
- It allows users to perform many routine tasks viz. retrieving various data from a database or
performing statistical analyses, budgeting forecasting and worksheet oriented problem.
- For example, GUI, Voice Recognition and working spread sheets are the good examples.
 Special-purpose planning languages (SPPL):
- This language is very specific and used to solve statistical problems better than GPPL. Some statistical
languages, such as CPM, PERT, SAS SPSS and Minitab are examples of special purpose
planning languages.
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4) Model base (formulae):

 It is a place where all the formulae and logics are stored. Hence it is also called as brain of DSS. It performs
data manipulations and computations with the data provided by user and provide output on the basis of logics
and formulae stored.
 The planning language allows the user to maintain a dialogue with the model base.
 For example: Capital Budgeting NPV model, time series analysis, linear programming models and financial
computations.

Executive/Enterprise Information Systems (EIS)

Introduction:
 It is an information system used at top level management by chief executives.
 It is an extension and expansion of MIS and DSS.
 It uses simple user interfaces such as Touch screen, light pens; colorful graphics; Standard templates; Icon
and pull down menus; Trend Analysis etc.
 It is user friendly system.
 It requires internet 24*7 hours to access external database called web server.
 It is used to provide more external and less internal information.
 It does not require structured query language to retrieve relevant information from the database.
 It provides online analysis facility to avail ready-made information about external environment.
 It provides results in graphical, coloured, pictorial and summarized form.
 It provides readymade information from internal as well as external sources.

Q-1 Components of an EIS

1) Hardware:
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 It includes Input data-entry devices, CPU, Data storage files and output devices.

2) Software:
 It includes Text base software, Database, and Graphic types such as time series charts, scatter diagrams,
maps, motion graphics, sequence charts, and comparison-oriented graphs (i.e., bar charts) Model base.

3) User Interface:
 It includes hardware (physical) and software (logical) components by which people (users) interact with a
machine. Several types of interfaces can be available to the EIS structure, such as scheduled reports,
questions/answers, menu driven, command language, natural language and input/output.

4) Telecommunication:
 It involves transmitting data from one place to another in a reliable networked system.

Office Automation Systems (OAS)

 It refers to the use of computer and software to digitally generate, collect, store and manipulate office
information needed for accomplishing basic tasks and goals.
 It is used to provide better administration and management of organizational functions.
 It provides better communication and better networking system.

Q-1 Activities of OAS

 Meeting planning and management of work schedules.
 Exchange of information;
 Management of administrative documents;
 Handling of numerical data; and

Q-2 Examples of OAS (Amendment for Nov. 2015)

Word Processing Computer is used to perform automatically many of the tasks necessary to prepare typed or
printed documents.
Electronic Mail Computer and computer network is used to allow users to send, store and retrieve messages
using terminals and storage devices.
Voice Mail Computer and computer network is used to store audio messages digitally and convert them
back upon retrieval.
Electronic Calendaring Computer is used to store and retrieve a manager‘s appointment calendar and facilitates
scheduling.
Video conferencing Computer and computer network is used to link geographically dispersed conference
participants.
Desktop Video Conferencing Computer and computer network is used to provide two-way communication of picture and
sound.

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FAX Computer and fax machine is used to transmit the image of documents over telephone line.
Imaging Scanner device uses Optical Character Recognition (OCR) font to read physical data
mentioned on paper and convert it into digital format for storage in a soft file.
Desktop Publishing Computer is used to prepare quality output as it was produced by a typewriter.

Various types of Specialized Systems

Knowledge Management System (KMS)

Introduction:
 Knowledge is a sum total of “What everybody knows” about the community world. It is a gathering of values, wisdom,
education, experience, morals, and dissemination.
 Knowledge Management (KM) is a process of capturing, developing, sharing and effectively using organizational
knowledge. It refers to a multi-disciplined approach to achieving organizational objectives by making the best use of knowledge.
 It refers to any kind of IT system that stores and retrieves knowledge, improves collaboration, locates knowledge
sources, mines repositories for hidden knowledge, captures and uses knowledge, or in some other way enhances the
knowledge management process.
 It treats the knowledge component of any organization‘s activities as an explicit concern reflected in strategy, policy, and
practice at all levels of the organization.
 It makes a direct connection between an organization’s intellectual assets — both explicit [recorded] and tacit [personal
know-how] — and positive results.

Q-1 Link between Information and Knowledge:

Information Knowledge
1) Information is piecemeal, fragmented, specific Whereas knowledge is structured, coherent, and often universal.

Information is timely, transitory, and perhaps even Whereas knowledge is of enduring significance.
short-lived.

Information is a flow of messages Whereas knowledge is a stock, largely resulting from the flow,
Information is acquired by being told. Whereas knowledge can be acquired by thinking
Information comes from fact. Whereas knowledge is derived from information.
For example: Rs. 3450/- is data, my bank account has Example: If my balance falls below Rs. 2500/- I shall have to pay
a balance of Rs.3450/- is information minimum balance charge, is knowledge.

Q-2 Types of knowledge:

1) Explicit knowledge:
 It refers to a knowledge that can be expressed in term of spoken words or in written material. It can be
formalized easily and easily available across the organization.
 This type of knowledge is codified, easy to document, transfer and reproduce.
 For example: Online tutorials, Policy and procedural manuals.

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2) Tacit knowledge:
 It refers to a knowledge expressed in terms of emotions and feelings. It does not uses any spoken words nor
available in written material. It cannot be easily formalized or interpreted and is very difficult to understand.
 It resides in a person’s perception and can’t be captured by organizations or made available to others.
 It is unarticulated and represented as intuition, perspective, beliefs, and values that individuals form based
on their experiences.
 It is personal, experimental and context- specific. It is difficult to document and communicate.
 For example: Emotions, feelings and perceptions of human being.

Q-3 Factors showing “why knowledge has gained so much momentum in recent
times”:

1) Altering Business surroundings:

 Previously the business environment was very stable one. Hence, once people acquire knowledge it is for long
term as it does not require updation frequently so the people of any organization naturally became knowledgeable
over time such as knowledge about company‘s product & service, its market, customers, competitors and suppliers.
 But now business environment is so dynamic and requires updation more frequently otherwise knowledge that has
been gained will be soon outdated.

2) Burgeon Connections / complete knowledge of all business modules:

 Earlier, it was not required to acquire knowledge from all the fields in details to run the business, such as in-depth
operations, global expansion, continual change etc., because business was small and has limited functions.
 But now this knowledge is mandatorily required to run the business because of dynamic environment and large
size of organization. It requires user friendly information technology to the users used for capturing knowledge that helps to
provide integration amongst all business modules to provide complete, authenticated and updated knowledge automatically
as per the request of users.

3) Globalization:
 Earlier, business has domestic competitor’s only hence if they had knowledge about domestic environment such as
domestic products, domestic market, domestic customers, they can deal with customers better and it is sufficient.
 But now domestic market is expanded up to global level, hence expansion in knowledge about international level
product, market and customers and competitors are also required.

4) Modification in Organizational composition:

 Earlier, business was not dependent upon information technology and they were business structure either branch
wise, product wise, or functional structure.
 But now business is using web site based business structure and adopting e-commerce approach hence they have
to establish “Virtual Organization” structure. It requires product delivery gateway, centralized database and speedy
networking system without using hierarchy of management.

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Artificial Intelligence
Introduction:
 Artificial intelligence (AI) is a research field that studies how to comprehend the intelligent human behaviors on a
computer. It is focusing on creating machines that adopts human behavior.
 AI requires proper coding by using various programming language i.e, Prolog, smart talk etc. to execute the
human behavior into computer system. Wrong coding gives wrong behavior to the computer system.
 Example: The Deep Blue system which defeated the world chess champion is a well-know example of Artificial
Intelligence.
 AI will be applied on expert systems, pattern recognition, natural language processing etc.
 It uses special hardware called sensors that is used in various expert systems for heat and humidity probes in
dryers, for automatic parking feature in cars and for more applications.

Q-1 Commercial applications of Artificial Intelligence:

1) Decision Support:
 It is used in the field of making decisions on unstructured problems to solve. It is used to analyse and select the
best alternatives available amongst others.
 It has intelligent human–computer interface (HCI) systems that can understand spoken language and
gestures to solve particular problems.

2) Information Retrieval:
 It uses AI-based Intranet and Internet systems that automatically retrieves the relevant data from internet and
used to provide readymade information in graphical form to solve strategic problems.
 Natural language technology is used to retrieve online information from text to pictures, videos, maps, and audio
clips in response to English questions.

3) Virtual Reality:
 It is used in X-ray machine i.e, vision enabled device providing reality visualization that allows brain
surgeons to see and monitors many small cell tissues transmitted over blood cells and evaluate disease
progression.
 Automated animation interfaces that allow users to interact with virtual objects via touch.

4) Robotics:
 It is used in machine-vision inspections systems for guiding, identifying, and inspecting products and
providing competitive advantage in manufacturing.

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Expert System
Introduction:
 It uses Artificial Intelligence to solve problems within a specialized domain.
 It is a Knowledge Based Information System (KBIS) that uses its knowledge
about a specific, complex application to act as an expert consultant.
 Expert Systems are an extension of DSS/EIS.
 Expert system is a computerized system that exhibits expert.
 It preserves the accumulated knowledge of one or more domain experts.
 They mimic the process of human expert for those who has less expertise.
 They are rule-based and pre-programmed on certain assumptions and criteria.
 They use strategic logic to solve problems.
 Nevertheless, expert System remain supplements rather than replacements
for human experts.
 Example: Chess Game, Robot (Chitti), Software reconciling TDS Certificate, System developed in Krish Movie; Neural network
etc.

Q-1 Components of Expert System:

1) User Interface:
 This program allows the user to design, create, update, use and communicate with the expert system.

2) Inference Engine:
 This program contains the logic and reasoning mechanisms that simulate the expert logic process and
deliver advice.
 It uses data obtained from both the knowledge base and the user to make associations and inferences, form
its conclusions, and recommend a course of action.

3) Knowledge Base:
 It is a place where all the knowledge of domain area provided by various experts are stored. It includes the data,
knowledge, relationships, rules of thumb (heuristics), and decision trees used by experts to solve a particular
problem.
 It has both factual and heuristic knowledge.

4) Database of Facts:
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 This holds the user's input about the current problem.
 The user may begin by entering facts about the problem or ask whether certain conditions exist. As a result,
gradually a database of facts is built up which the inference engine will use to come to a decision.
 The quality and quantity of data gained from the user will influence the reliability of the decision.

5) Explanation facility:
 This facility provides the user with an explanation of the logic the ES used to arrive at its conclusion.

Q-2 Expert Systems can be Example-based, Rule-based or Frame-based

a) Example-based system:
 In this, developers enter the case facts and results. Through induction the Expert system converts tree examples to a
decision tree that is used to match the case at hand with those previously entered in the knowledge base.

b) Rule-based systems:
 It is created by storing data and decision rules as if-then rules.
 The system asks questions from user and applied if-then rules to answers to draw conclusions and make
recommendations.
 It is appropriate when a history of cases is unavailable or when a body of knowledge can be structured within a
set of general rules.

c) Frame based systems:

 It organizes all the information (data, description, rules etc.) about a topic into logical units called frames, which
are similar to linked records in data files.
 Rules are then established about how to assemble or inter-relate the frames to meet the user‘s needs.

Business Intelligence (BI):

Introduction:
 Definition: It refers to a process of collecting and refining information from many sources, analyzing and
presenting the information in useful ways so that users can make better business decisions.
 It combines of architecture, analytical tools, advanced technology, applications and databases in order to
provide various information patterns, relationships, and trends about customers, suppliers, business partners and
employees etc.
 It can handle large amounts of information to help identify and develop new opportunities for long-term stability.
 It provides right information to the right person at right time, who need it, when they need it.
 It uses various types of advanced technologies, such as computing power, data storage, computational analytics,
reporting and networking.

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Q-1 Types of Business Intelligence Tools:

There are four types of presentation media and one data mining, also called as business intelligent tools. These are all visual
representations of data that help people identify correlations, trends, patterns and business conditions. However, they have their own
attributes.

1) Simple Reporting and Querying:

 It provides response to user queries by accumulating various information
into knowledge - “Tell me what happened.” For this, BI must be connected
with enterprise data and all these necessary data must be available in one place
and in one common format.
 Its architecture combines all the data throughout enterprise from different
applications in a variety of formats and provides information in summarized
form in one format.
 Example: Report on assets, liabilities, profit and loss of a company.

2) Business Analysis (BA):

 It provides response to user queries by accumulating various information
into knowledge - “Tell me why this has happened.” For this, it visualizes
data in a multi-dimensional manner in tabular or graphical format.
 ETL tools (Extract, Transform, Load) bringing data from various e-sources, transform it,
and then load the results into the company database and plot the data into row
and column in a graphical way.
 Example: Give knowledge about % ups and downs in share price within 8 months.

3) Dashboards:
 It uses the results provided by business analysis tools and available to
users and giving response to query - “Tell me a lot of things, but without too
much effort”.
 This tool provides various architecture for reports in graphical format and
key performance indicator (KPI) that can be used to monitor the progress of
such business activities.
 Example: Market trend, inflation rate, growth rate, share market conditions etc.

4) Scorecards:
 It uses the results provided by dashboards and provide response to all
user’s query in graphical manner - Tell me how we have performed.
 It uses key metrics to compare actual performance with standard performance and
mapping them up to achieve strategic goals throughout the enterprise.

5) Data Mining or Statistical Analysis:

 Here user will not ask any specific questions. However, it uses statistical tools,
artificial intelligence, and related techniques tool to extract relevant information
and knowledge from database as per his requirements. It involves data analysis
for discovering useful patterns that are ―hidden‖ in large volume of diverse data.
 For Example: Market segmentation - identify common characteristics of customers
who buy same products. OLAP (Online Analytical Processing) is a multi-dimensional
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analytical tool typically used in data mining, that gathers and process vast amounts
of information into useful packets.

Q-2 Business Reporting through MIS and IT

Tips: Theory gives 2 skills for solution, conclusion and recommendations.
 It provides business and management theory to a practical situation.
 It provides short and related communication skills to solve issues.
 It provides analytical, reasoning, and evaluation skills in identifying potential solutions.
 It scrutinizes potential solutions to a problem.
 It draws conclusions about issues.
 It provides recommendations for upcoming issues.

Q-3 Benefits of BI tools for micro-business i.e, small & medium enterprises
Tips: chhota business - PAPER Time
1) Paperless lodgment:
 It eliminates paper work and associated costs.
2) Secure AUS key authentication:
 AUSkey is a common authentication solution for business-to-government online services.
3) Pre-filled forms:
 Reports are automatically pre-filled with information existing internal as well as external environment hence
saving valuable time.
4) Ease of sharing:
 It provides sharing of information and resources between client, accountant, tax agent or bookkeeper for
checking;
5) E-record keeping:
 It stores the reports securely in the accounting or bookkeeping system;
6) Same time validation:
 It receives a fast response that any lodgment has been received.

Q-4 Benefits BI tools for large business

Tips: Vadda business – CLASS Time
1) Reduce costs:
 It provides reduction in the cost of assembling, analyzing, and providing data to government;
2) Single reporting language to report to government:
 eXtensible Business Reporting Language(XBRL) - an international standards-based business reporting language developed
by accountants for financial reporting;
3) Increased access to comparable performance information:

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 Standard Business Report (SBR) uses the same standard (XBRL) that simplifies and adds integrity to the performance of
capital market comparisons by analysts and investors;
4) Secure AUS key authentication: It lodges online securely to a range of government agencies; and
5) Streamline the process of aggregating data:
 It provides opportunities exist for streamlining the process of aggregating data across different internal departments, or
business units of a company.
6) Same time validation: It provides rapid response that any lodgment has been received.

Enterprise Resource Planning (ERP)

1) ERP is a global, tightly integrated closed loop business solution package
and is multifaceted.
2) It is the solution of overall business problem such as
- Gain a competitive edge - Customer relationship
- Expansion of business - Management of IT sector
- Relationship with employees, suppliers,
customers and auditors etc.
- Observation at a glance - Online data transfer etc.
3) ERP handles large volume of data, large number of users, Multiple
system components distributed anywhere in the world.
4) It is an extension and expansion of client server technology.
5) It is structured with the help of RDBMS.
6) ERP systems integrate internal and external management information across an entire organization—taking on
finance/accounting, manufacturing, sales and service, customer relationship management, etc.
7) It organizes and integrates operation processes and information flows to make optimum use of resources such as men,
material, money and machine.
8) It provides automation in business process by providing information.
9) It assists employees and managers to plan, monitor and control the entire business.
10) It makes information flow easier amongst all business functions in the interior boundaries of the organization and control the
connections to exterior stakeholders.
11) ERP promises one database, one application, and one user interface for the entire enterprise.
12) It provides Re-engineering of current business practice which provides more efficient, more effective and more accurate
functions.
13) ERP provides the concept of ―across the world‖ i.e, vasudhaiva kutumbkam
14) Example of ERP Software such as Oracle, People Soft and SAP etc.
15) Examples of ERP modules include the following: Human resource management, Financial management, Supply chain
management, Procurement, Logistics and materials management, Planning and budgeting, Sales and distribution, and
Student administration

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Q-1 Diverse Stages of ERP

1) Stage-1 Inventory:
 It provides monitoring of demand and supply of each and every raw material in order to match demand and supply.
It is used to maintain re-order level, minimum, maximum and danger level of stock.
 It provides internal control over accounting procedure on inventory system for implementation of a strategy or
maintains assets or avoids fraud and error etc.

2) Stage-2 ABC Analysis:

 ABC analysis is that technique of material control in which we divide our material into three categories i.e, A, B and C and
investment is done according to the value and nature of that category’s materials.
 After this, we control materials according to their level of investment. We need not to control all the categories but we
have to control those materials which are in ―A‖ category.
 The ABC approach states that, when reviewing inventory, a company should rate items from A to C, basing its ratings on the
following rules:
 A-items are high class goods with highest annual consumption value. The top 70-80% of the annual consumption value of
the company typically accounts for only 10-20% of total inventory items.
 B-items are the interclass items with a medium consumption value. That 15-25% of annual consumption value typically
accounts for 30% of total inventory items.
 C-items are inferior class items with lowest consumption value. The lower 5% of the annual consumption value typically
accounts for 50% of total inventory items.
Thus it is very well said ―The Pareto principle states that 80% of the overall consumption value is based on only 20% of total
items.‖ In other words, demand is not evenly distributed between items: top sellers vastly outperform the rest.

3) Stage-3 Economic Order Quantity (EoQ):

 EoQ is used to scrutinize the level of inventory at all times and a fixed magnitude is ordered each time the inventory
level reaches a particular reorder point.
 It provides a model for calculating the suitable re-order point and the optimal reorder quantity to make sure the
immediate replenishment of inventory with no shortages.

4) Stage-4 Just-in-Time:
 This module is used to ensure that everything will be available AT THE TIME i.e, neither before nor after when the the
process or thing is actually required.
 It is a continuous improvement in which non value-adding activities (or wastes) are identified and removed for
ensuring cost reduction and improving delivery, flexibility, quality, performance and innovativeness. It can apply to all parts
of an organization in order taking, purchasing, operations, distribution, sales, accounting, design, etc.

5) Stage-5 Material Requirement Planning-I:

 This module is used for making planning for quantum of material used in manufacturing of final products and
controlling inventory system.

6) Stage-6 Manufacturing Resource Planning-II:

 This module is used for making valuable planning of all resources of manufacturing company. It addresses operational
planning in units, financial planning in amount, and has ability to respond "what-if" questions.

7) Stage-7 Distribution Resource Planning:

 This module is used to manage business administration for planning orders within a supply chain. It provides

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information about the status of inventory and which inventory is transported to which customer as it is.
 It enables the user to set certain inventory control parameters (like a safety stock) and calculate the time-phased
inventory requirements.

8) Stage-8 Enterprise Resource Planning:

 It is a software package consolidating all modules of the organization under one umbrella such as inventory module,
manufacturing module, distribution module, financial and accounting module. This has a broader role and is not confined to
one department but has an elaborate purview.

9) Stage-9 Money Resource Planning (MRP-III or ERP-II):

 This module is used to give emphasis on planning of capital and managing the situation when surplus money arises. It
provides mechanism to manage financial accounting system.

10) Stage-10 EIS-Web enabled:

 This type of technology is used to provide internet based websites to execute commercial activities in electronic
form. It is used to incorporate sales transactions, purchase transactions, order requirement and order status etc.
 It provides cheapest and simplest way to execute commercial transactions.

Customer Relationship Management (CRM)

 It is an information system providing information to the management as to the customer requ irement,
customer account balance, payment details, types of product and their marketing criteria.
 It manages long term customer relationship and customer loyalty.
 It provides reliable systems, processes and procedures to manage their customers in a better way.
 It is a widely implemented model for managing a company’s interactions with customers, clients, and sales prospects.
 It assists manager to cope up with the customer’s issues and problems within a prescribed time in an
efficient manner.
 CRM must establish business strategies related to manage the customers at optimum level.

 It works on the basis of the statement “The Customer Is Always Right - So Always Be Right about Your Customers‖.
 CRM provides the function and responsibilities of employees who directly work with customers.

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Customer Relationship Management CRM Mechanism

Q-1 [Aspects of CRM activities] or [Mechanism of CRM]:

1) Customer:
 He is a person used to purchase the goods for resale or he can be consumer to purchase the goods for self-
consumption. He is a source of company’s profit and future growth. Sometimes it is very difficult to find out
who is the real customer. CRM provides the abilities to distinguish and manage the customers.

2) Relationship:
 The relationship between a company and its customers involves continuous bi-directional communication
and interaction. It can be short-term/long-term, continuous/discrete, attitudinal/behavioural etc.

3) Management:
 CRM is not only an activity of marketing department but it also involves continuous corporate change in the
culture and process.
 Example: Collection of customer information, customer analysis etc is a continuous management process being handled by
CRM module.

Q-2 Benefits of CRM:

 It generates customer loyalty.

 It preserves existing customers and providing enhanced services to accomplish the loyalty.
 It raises a market intelligence enterprise, and an integrated relationship.
 It provides underlying standard for developing connection and affiliation with customer and supervising it professionally
and effectively so that it is advantageous to both the customer and the business is a noteworthy objective.
 CRM applications smoothen the progress to capture, consolidate, analysis, and enterprise-wide dissemination of data from
existing and potential customers.
 CRM can be considered as an amalgamation of people, process and systems rather than just IT application.

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Supply Chain Management (SCM)

Introduction:
 Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the
supply chain with the purpose to satisfy customer requirements as efficiently as possible. In simple terms, SCM is a
chain that starts with customers and ends with customers.
 It is a cross-functional approach to MANAGE the movement of raw materials into an organization and the
movement of finished goods out of the organization towards the end-consumer. It encompasses all movement and storage
of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption.
 It NOTICES all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-
origin to point-of-consumption.
 It provides a new way of managing the business and its relationships.
 It provides the integration of processes throughout the supply chain with the goal adding value to the customers.
 It provides competencies to compete in the global market and to gain edge of better competitive environment.
 It provides linkages between suppliers, manufacturers and customers.
 It improves trust and collaboration amongst partners and thus improve flow and management of inventory.

Q-1 Components/Elements of SCM:

1) Procurement / Purchasing:
 It begins with the purchasing of parts, components, or services from supplier.
 It must be ensured that the right items are delivered in the exact quantities at the correct location on the
specified time schedule at minimal cost. It provides assurance as to delivery of goods on the basis of
conditions, as promised by supplier.
2) Operations:
 The second major element of supply chain management system is operations.
 After purchasing of raw materials, parts, components, assemblies, or services from suppliers, the firm must
transform them and produce the products or the services that meet the needs of its consumers.

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3) Distribution:
 The third element of supply chain management system is distribution.
 It involves several activities i.e, transportation (logistics), warehousing, and customer relationship management
(CRM). The first and most obvious is logistics—the transportation of goods across the entire supply chain.

4) Integration:
 The last element of supply chain management is the need for integration.
 It is critical that all participants in the service chain recognize the entirety of the service chain. It will
significantly reduce costs and increase value of overall organization.

Organization

Suppliers SCM CRM Customers

ERP

Human Resource Management Systems (HRMS)

 Human resource management is the management of an organization’s workforce, or human resources.
 It is responsible for the attraction, selection, training, assessment, and rewarding of employees and ensuring
compliance with employment and labor laws.
 HRMS is a software application that integrates many human resources functions together, with benefits
administration, payroll, recruiting and training, and performance analysis and assessment into one parcel.
 It is used to manage the most valuable assets of the organization called people.
 It provides the mechanism for spending substantial time and endeavor in managing the human resources.

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Q-1 Key Integration Points or Key modules of HRMS:

1) Workforce Management:
 It is used to provide powerful tools to effectively manage labour rules, ensure compliance, and control labour
costs and expenses.

2) Time and attendance management:

 It is used to manage time and attendance of each and every employees of organization. It provides
information such as, attendance consistency, time availability, time consume, idle time of each and every
employees.
 It provides broad flexibility in data collection methods, labor distribution capabilities and data analysis
features. Cost analysis and efficiency metrics are the primary functions.

3) Payroll Management:
 It is designed to automate manual payroll functions and facilitate salary, deductions, calculations, and eliminate
errors and free up HR staff for more productive tasks. It provides time keeping modules to calculate automatic
deposit and manual cheque writing capabilities.
 It encompasses all employee-related transactions as well as integrates with existing financial management
systems.

4) Training management:
 It allows manager to track progress of employees, examine the results of courses taken and reschedule
specific courses when needed.
 It includes tracking of trainer or training organization, cost associated with training, training locations,
required supplies and equipment and registered attendees.
 As a result, all employees will be linked to a skills profile that enlists the skills brought by each and every

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employees acquired through training. The skills profile is updated automatically through the training
module.

5) Compensation Management:
 It provides full leverage to human capital to sustain a competitive position in a competitive labor market,
which requires integrating employee processes, information and programs with organizational
processes and strategies to achieve optimal organizational results.

6) Recruitment management:
 This module helps in hiring the right people with the right target skills.
 It includes processes for managing open positions/requisitions, applicant screening, assessments, selection and
hiring, correspondence, reporting and cost analysis.

7) Personnel management:
 It comprises of HR master data, personnel administration, recruitment and salary administration.

8) Organizational management:
 It includes organizational structure, staffing schedules & job description.

9) Employee self service (ESS):

 This module allows employees to query HR related data and perform some HR transactions over the
system. Employees may query their attendance record from the system without asking the information from
HR personnel.

10) Analytics:
 The analytics module enables organizations to extend the value of an HRMS implementation by extracting HR
related data for use with other business intelligence platforms.
 For example: It is used to analyze Hr profile to identify that which employee is more useful for which job.

Hiring Process

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Access and Privilege Controls

- It refers to a control that provides restrictions over access of computer and other resources from being accessed by
unauthorized users so that data integrity and system safeguard will be maintained.
- It is of two types: 1) Physical access control and 2) logical access control
- Example: Lock and key, doors and shutters are the example of physical access control and ID and password,
Biometric device, encryption technique are the examples of logical access control.

Q-1 [Importance of Access and Privilege Controls] or [Functions of Access Control]

1) Identity Management:
 It refers to a process of creating, storing, altering and updating valid ID and password provided by user into
the system. However, it does not provide 100 percent absolute assurance of the subject‘s identity.

2) Authentication:
 Identity management and authentication are inseparable. Identity management includes assigning and managing a
subject‘s identity. Authentication refers to a process of verifying a subject’s identity at the point of object
access to check whether Id and password provided by user is the one that is stored in security database of
system.

3) Authorization:
 Once a resource or network verifies a subject’s identity, the process of determining what objects that
subject can access begins. Authorization identifies what systems, network resources, etc. a subject can
access. Related processes also enforce least privilege, need-to-know, and separation of duties.

4) Accountability:
 It refers to a process of creating and storing log files containing information that who access which
resource at what time and how many times.
 These log files are stored for audit, sent to a log management solution. It provides information that how well the
access control process is working.

Q-2 Approaches to Access Control

There are two major approaches to establish access controls, which are given as under:
S. Basis of Role based Access Control Rule based Access Control
No. difference
1. Basis of It provides access control on the basis of It provides access control on the basis of context
Access roles and responsibilities assigned to available in the database.
control each and every users.
2. Static / It is static in nature. It is dynamic in nature.
dynamic
3. Elimination of When an employee changes jobs, all It is eliminated only when employee will leave
access previous access has to be removed, and organization, all previous access control has to be
control the rights and permissions of the new removed
role are assigned.
4. Example Id - Guru123 has access right over Mr. X (security admin) has ability to approve his
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adding, altering and deleting data. employee‘s hours worked. However, when he attempts
However, ID – Alia123 has access right to approve his own hours, a rule built into the
only as to adding of data. application compares the employee record and the
user, sees they are the same, and temporarily removes
approval privilege.

Core Banking System (CBS)

Introduction:
 CORE stands for "Centralized Online Real-time Environment". It is advancement over the bank’s legacy
system.
 It may be defined as the set of basic software components that manage the services provided by a bank to
its customers through its branches (branch network). In other words, the platform where communication
technology and information technology are merged to suit core needs of banking is known as Core
Banking Solutions (CBS).
 Core banking systems are the heart of a bank. It provides more growth and endurance depending upon an
agile, cost-effective core banking solution.
 CBS performs core operations of banking like recording of transactions, passbook maintenance, and interest
calculations on loans and deposits, customer records, balance of payments and withdrawal. It will also include
deposit accounts, loans, mortgages and payments. Banks make these services available across multiple channels
like ATMs, Internet banking, and branches.
 It allows to bank's branches accessing applications from centralized data centres during business hours.
 These systems are running 24x7 hours to support Internet banking, global operations, and real time
transactions via ATM, Internet, phone, and debit card.
 Examples of major core banking products: It includes Infosys‘ Finacle, Nucleus FinnOne and Oracle's
Flexcube application (from their acquisition of Indian IT vendor i-flex).

Q-1 Elements of core banking:

1) Making and servicing loans;
2) Opening new accounts;
3) Processing cash deposits and withdrawals;
4) Processing payments and cheques;
5) Calculating interest;
6) Customer relationship management (CRM) activities;
7) Managing customer accounts;
8) Establishing criteria for minimum balances, interest rates, number of withdrawals allowed and so on;
9) Establishing interest rates; and
10) Maintaining records for all the bank‘s transactions.

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Normal Core Banking Functions

A. Infosys’s Finacle
 It is comprehensive, agile and integrated business solution addressing all the core needs of banks in easy-to-
configure modules.
 It provides single source view into customer accounts and banks provides relevant information to customers
at the right time through the right channel.

Key modules of Finacle:

Tips: I C C Tournament world cup me I - P O D mila
1) Enterprise customer information:
 This module enables banks to create and maintain a single source of customer truth across multiple host
systems in a unified view. Example: Single enterprise wise customer information files.
2) Consumer banking:
 It allows customers to initiate banking transaction through web portals such as money transfer, money
deposits, application for loans, credit card, online payment and accounts viewing etc.
3) Corporate banking:
 It helps in initiating commercial lending essentials by providing various facilities such as multicurrency
disbursements and repayments, interest rate setup, amortization, and debt consolidation. Finacle maintains the
corporate customer information files, corporate deposits, commercial lending, corporate origination and
corporate payments etc.
4) Trade finance:
 It helps in initiating trade finance transactions by providing various facilities such as exchange rate setup,
supports multicurrency processing of trade products i.e, documentary credit, forward contract, import and export
financing, letter of guarantee, factoring and buyer‘s credit etc.
5) Wealth management:
 It helps in wealth management by creating new revenue streams by offering high net worth individuals and

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wealth management solutions.
6) Customer analytics:
 It helps in customer analysis by providing various facilities such as supports operations with comprehensive
intelligence, ranging from data acquisition to reporting and analysis, leveraging quantitative modelling techniques
and multi-dimensional reporting.
7) Islamic banking:
 It provides various features to support Islamic banking approach on various products and services offered
by bank. It provides unified, comprehensive and real time view of client across the enterprise for both Islamic
& non-Islamic Product.
8) Payments:
 It manages end-to-end payments and processes payments regardless of payment instruments. Example:
payment through cheque, amount transfer, payment through Demand draft, online payment either through debit
card or credit card etc.
9) Origination:
 It provides facility for initiation and completion of home loan, personal loan as well as commercial loan
process by providing online loan application form, provide online KYC norms, store customer information, store
his financial information. This system has loan module that simplifies and strengthens the complete credit
lifecycle process across retail and commercial loans.
 Basically origination process begins when a borrower submits their financial information to a bank for loan
processing and end up when underwrite will take decision either approving, suspending or declining the loan.
10) Dashboards:
 It provides facility of dashboard. Dashboard is a visual display of most important information needed to achieve
various objectives simultaneously in a consolidated manner on a single screen so that various information can be
monitored at a glance.

B. Nucleus FinnOne:
Introduction:
 It is made and marketed by India-based Company Nucleus software
 It is a multi-lingual web-based application comes with a wide variety of integrated applications covering
different aspects of global web banking.
 It includes a loan origination system that automates and manages the processing of many types of loans,
a credit card application system with fraud detection tools.
 It provides complete focused on banking and financial services in the areas of Retail & Corporate Banking,
Cash Management, Relationship Banking, Financial CRM, Credit Risk & Appraisal, EAI, Internet Banking, FX,
Basel II, Data warehousing and Analytics.

C. Oracle's FLEXCUBE:
 Oracle FLEXCUBE helps banks transform their business model from decentralized operations towards centralization
of key functions, such as accounting, customer information, and management information.
 It is supported by role based dashboards that guide business users to take action on critical tasks, track their
pending activities, and get insights into customer information and interaction.

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 The application also provides comprehensive product processing capabilities to cater to various lines of business.
 Banks using Oracle FLEXCUBE can take advantage of the high fidelity reports provided by the system for better
management and operational controls.
 It provides the ability to create or modify products rapidly, helping banks respond quickly to market needs.

Oracle FLEXCUBE empowers universal banks with:

 Superior Web experience through self-service and assisted channels
 Improved bank staff productivity with intuitive, role-based dashboards
 Comprehensive transaction banking capabilities and straight-through-processing (STP)
 Improved risk management and reporting

Payment Mechanisms
Introduction:
 It refers to the payment of amount by using debit card, credit card, and charge cards. It can also be understand in another terms
called E-Payment.
 E-Commerce will have a direct bearing on the validity of the information to individuals, corporations or the country‘s
economic interests and reputation. The validity of the transaction price, period, and the number of hours as part of the
agreement is remain intact.
 With the increase in online shopping and e-commerce industry, it has now become a requirement that the web stores are
integrated with a payment gateway.
 Payment gateway is fundamentally a service used to process credit card transactions when orders are accepted online from
clients. Hence, it represents a physical POS (Point-of-sale) terminal, which is set in every retail outlet these days. Payment
gateways use a special code for acquiring sensitive information like credit card numbers, so that information passes securely.
 Many hotels and other places and items could swipe of the card, POS terminals Regulations, ATM cash forms of payment.
 In general, the integration of the payments process appears to be important ingredient for both businesses and regulators. Since
we are here to discuss the chapter which revolves around BIS; thus the payment mechanism will be considered in terms of online.
Here on-line ecommerce transaction involves more than just a financial transaction; it is also called ‗Whole Transaction
Processes‘.

Payment Gateways

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Swipe Cards through POS and ATM

Q-1 Major types of Electronic Payments

 It is a method to make the payments on the internet.
 It is a new technology includes EFT, online payment etc.
 It requires some devices such as debit card, credit card to proceed with Electronic Payment.
 It requires proper logical access control method to secure the execution of making the transactions such as ID and
Password, Encryption technique.
1) Credit Cards
2) Electronic Cheques
3) Smart Cards
4) Electronic Purses

1) Credit Card:
 In a credit card transaction, the consumer presents his ability to pay by presenting his credit card number to
the merchant.
 The merchant can verify it with the bank, and create a purchase slip for the consumer to endorse.
 The merchant then uses purchase slip to a collect funds form the bank; and
 On the next billing cycle, the consumer receives a statement from the bank with a record of the transaction.

General Life Cycle of Electronic Payment through Credit Card

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Q-2 Explain How a Credit Card is processed:

Step 1: Authorization: Step 3: Clearing:
 Authorization is the first step in processing a credit  Clearing is the third step in processing a credit
card. card.
 After a merchant swipes the card, the data is  After the acquirer receives the batch, it sends it
submitted to merchant’s bank, called an acquirer, to through the card network, where each sale is
request authorization for the sale. routed to the appropriate issuing bank.
 The acquirer then routes the request to the card  The issuing bank then subtracts its
issuing bank, where it is authorized or denied, and the interchange fees, which are shared with the card
merchant is allowed to process the sale. network, and transfers the remaining amount
Practical Process: through the network back to the acquirer.
1) The cardholder requests a purchase from the merchant. Practical Process:
2) The merchant submits the request to the acquirer.
1) The batch is sent through the card network to request
3) The acquirer sends a request to the issuer to authorize the
payment from the issuer.
transaction.
4) An authorization code is sent to the acquirer if there is valid 2) The card network distributes each transaction to the
credit available. appropriate issuer.
5) The acquirer authorizes the transaction. 3) The issuer subtracts its interchange fees, which are
6) The cardholder receives the product. shared with the card network, and transfers the amount.
4) The card network routes the amount to the acquirer.
Step 2: Batching: Step 4: Funding:
 Batching is the second step in processing a credit card.  This is the fourth and final step in processing a credit
 At the end of a day, the merchant reviews all the card.
day’s sales to ensure they were authorized and signed  After receiving payment from the issuer, minus
by the cardholder. interchange fees, the acquirer subtracts its
 It then transmits all the sales at once, called a discount fee and sends the remainder to the
batch, to the acquirer to receive payment. merchant.
Practical Process:  The merchant is now paid for the transaction,
and the cardholder is billed.
1) The merchant stores all the day’s authorized sales in a batch. Practical Process:
2) The merchant sends the batch to the acquirer at the end of 1) The acquirer subtracts its discount rate and pays the
the day to receive payment. merchant the remainder.
2) The cardholder is billed.

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Crux:
To address these growing security concerns and pave the way for uninhibited growth of electronic commerce on the net, the two
leading credit card brands, Visa and MasterCard, teamed up some years ago to develop a common standard to process card
transactions on the Internet, called the Secure Electronic Transaction (SET) standard.

2) Electronic Cheques:
 Credit card payments will undoubtedly be popular for commerce on the Internet.
 However, following 2-systems have been developed to let consumers use electronic cheques to pay Web
merchants directly.

The Electronic Cheque Model

(a) By the Financial Services Technology Corporation (FSTC):
 The FSTC is a consortium of banks and clearing houses that has designed an electronic cheque.
 This electronic cheque is developed by approaching the concept of traditional paper cheque. It uses a digital
signature for signing and endorsing.
 It has enough flexibility for payment and thus offers a choice of payment instrument to users.

(b) By Cyber Cash:

 It is an extension of their wallet for credit cards, and can be used for making payment to prescribed vendors.
 An electronic cheque has all the same features as a paper cheque .
 It functions as a message to the sender’s bank to transfer funds, the message is given initially to the
receiver who, in turn, endorsees the cheque and presents it to the bank to obtain funds.
 Electronic cheque is proper secured by applying digital signature technique by encoding their account
number with the bank‘s public key, thereby not revealing your account number to the merchant.

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Working of electronic transaction

3) Smart Cards:
 Smart cards have an embedded microchip instead of magnetic strip.
 The chip contains all the information a magnetic strip contains but offers the possibility of manipulating the
data and executing applications on the card.

Types of smart cards:

1) Contact Cards:
 Smart cards need to insert into a reader to work, such as a smart card reader or automatic teller machines.

2) Contactless Cards:
 Contactless smart cards don’t need to be inserted into a reader .
 Just waving them near a reader is just sufficient for the card to exchange data. This type of cards is used for
opening doors.

3) Combi Cards:
 Combi cards contain both technologies and allow a wider range of applications.

Image of Smart Cards

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4) Electronic Purses:
 Electronic purse is yet another way to make payments over the net. It is very similar to a pre-paid card.
 It is a smart way to pay for the little things in life.
 For Example: Bank issues a stored value cards to its customers, the customer can then transfer value from
their accounts to the cards at an ATM, a personal computer, or a specially equipped telephone. The electronic purse
card can be used as a ATM card as well as a credit card.
 While making purchases, customers pass their cards through a vendor's point of sale terminal . No credit
check or signature is needed. Validation is done through a Personal Identification Number (PIN Number).
 Once the transaction is completed, funds are deducted directly from the cards and transferred to the
vendor's terminal.

Terminology Used in On-line transaction and certain sub-functions:

1) Advertising: the company communicates its products and services (catalogue),
2) Billing: the company produces the invoice,
3) Delivering: the seller delivers to the buyer
4) Offering: the company offers specific goods and services,
5) Paying:
 the buyer pays the seller by giving a payment instruction, matching; the seller matches the payment information (the
authorization results and the actual crediting of account) with the orders and feeds the result into the back-office,
6) Resolving: the seller and buyer try to resolve delivery or payment issues related to the purchase.
7) Selling: the company agrees with the customer on the content of a specific order,

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 By CA Guru Gupta (ITSM) CHAPTER-5 BUSINESS PROCESS AUTOMATION THROUGH APPLICATION SOFTWARE

Intro Types
Business
Application Category – nature of application
Controls
Objectives 2) Steps
objective
Controls Business Process 2) Activities
in BPA Automation [2 & 5] 2) IT processes
Types of
control
Classification Key Benefits / reason
of information
Information 2) Benefits
Processing Application used to
Application Managerial achieve BPA
control Control Delivery Channels How to choose
1) Information delivery channel
Boundary Managerial 2) Product delivery channel
function based
comtrol
Emerging
Input
Technology Environment
Process Architecture
Network Cloud
Output Virtualization Computing Models
Grid
Computing
Database Characteristics
Applications
Need Disadvantages Advantages

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 By CA Guru Gupta (ITSM) CHAPTER-5 BUSINESS PROCESS AUTOMATION THROUGH APPLICATION SOFTWARE

Chapter- 5 Business Process Automation through Application

software

Business Application
Introduction:
 Business Application as a computer program used to fulfill a person’s need for regular occupation or commercial activity.
 Hence, business applications are software or set of software used by business people to fulfill business needs.
 It is used to keep track of inventory levels, checking for bank account balances, checking status of delivery of goods
dispatched, and all other business activities.

Types of Business Applications

Business applications can be classified based on various usages they are put to as well as user‟s understanding of the application.
Types Nature of Source of Nature of Nature of
processing application business Application
Type I Batch In-house Small business Accounting
Processing developed application
Type II Online Purchased Medium Cash
Processing application business Management
Type-III Real time Leased Large Many more

Q-1 Application based on Nature of processing:

It refers to the activity of manipulating and updating the data either through batch processing or online real-time processing.

1) Batch Processing:
 It is defined as a processing of large set of data in a specific way, automatically, without needing any user intervention.
 The data is first collected, during a work day, for example, and then batch-processed, so all the collected data is
processed in one go at the end of the work day.
 It is possible to perform repetitive tasks on a large number of pieces of data rapidly without needing the user to monitor it.
 Batched jobs can take a long time to process.
 In batch processing, there is a time delay in occurrence and recording of transaction.
 For example: Batch processing is used in producing bills, stock control, producing monthly credit card statements, etc.

2) Online Processing:
 In online processing, data is processed immediately while it is entered (i.e, the transactions are recorded at the moment they
occur), the user usually only has to wait a short time for a response..
 For example: games, word processing, booking systems). Interactive or online processing requires a user tosupply an input.
Interactive or online processing enables the user to input data and get the results of the processing of that data immediately.

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 By CA Guru Gupta (ITSM) CHAPTER-5 BUSINESS PROCESS AUTOMATION THROUGH APPLICATION SOFTWARE

3) Real-time Processing:
 Real time processing is a subset of interactive or online processing. An application that allows query handling/ responses to
updates in system is classified as real time processing system.
 Input is continuously, automatically acquired from sensors, for example, which is processed immediately in order to
respond to the input in as little time as possible. After the system is finished responding, it reads the next set of input data
immediately to process that.
 This system doesn't need a user to control it, it works automatically.
 Whenever there is a rapid reaction required due to some sort of change, real time processing can take action without
the need of a user or long processing time beforehand.
 Real time processing is used in warning systems on aircraft, alarm systems in hazardous zones, burglar alarms etc.

Particulars

Substantial time gap Slight time gap No time gap

User User System

User System System

No Yes Yes

Mandatory Not required Not required

No No Yes

Legacy bank system Youtube, facebook, Video conferencing,

email navigation, GPS

Q-2 Application based on Source of Application:

Here, application will be classified on the basis of source from where the application is obtained i.e, either through purchase or
through in house development or through lease/outsourcing.

1) Custom-built Application:
 It refers to the customization of applications either for execution of one function or integrate processes across the
company to perform multiple functions automatically like an ERP.
 These applications can however be configured to meet a particular company’s requirements.
 Customization involves additional coding while configuration is based on settings which are inputted by the user.
 For Example: Billing, Inventory, Attendance etc.

2) Packaged Software:
 These are the standard applications which are not free but are licensed.
 Customization may or may not be allowed to suit business requirements.
 For Example: Tally, Oracle 9i, etc.

3) Leased application:

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 A new method for getting applications is being used today, i.e. leased applications, where user pays fixed rent for using the
application for agreed terms.
 Many specialized vendors provide users with this option to get their job done by paying monthly rent. This is referred to
as outsourcing.

Q-3 Application based on Size and Complexity of Business:

This classification is based on the users for whom the application has been developed. Here, the emphasis is on size and
complexity of business process.
1) Small and Medium Enterprise (SME) business:
 The best software for small and medium businesses is software designed to help them to run their operations better, cut
costs and replace paper processes.
 The most popular software packages include accounts, office productivity, email and communications, but nowadays, most
business activities can be improved through desktop or web based applications.

2) Large Business:
 It refers to the business software designed for the larger or more ambitious businesses, being used by large business
establishments.
 The business tools that tend to be favored by larger businesses include CRM, for recording customer information and
finding out trends in buying habits; and sales force automation, which helpful for organizing and managing sales teams and
leads.
 Business may also choose to use human resources software; business intelligence and dashboard tools; database
management systems; and enterprise resource planning and supply chain management tools. However, these may not be
for everyone and can add cost and complexity to small businesses’ IT systems.

Q-4 Business applications based on nature of application

It is clear from the above discussion that the categorization can be extended based on an individual‟s understanding and perception
of application under review. As business applications get their name from word applications, so the discussion here is being restricted
to one category, which is based on nature of application.

1) Accounting Applications: (Tally se leke ERP tak ke software cover hain)

 It covers Accounting applications range from application software such as TALLY to high-end applications such as
SAP and Oracle Financials.
 It is used for the purpose of day-to-day transactions of accounting and generating financial information such as
balance sheet, profit and loss account and cash flow statements. These are classified as accounting applications.

2) Office Management Software:

 It covers software in bundle like word processors (MS Word), electronic spreadsheets (MS Excel), presentation software
(PowerPoint), file sharing systems, etc. in one package.
 It is used to manage their office requirements and automate day-to-day office work and administration.

3) Compliance Applications:
 It covers software that helps in complying with applicable laws and regulations and meeting the compliance
requirements
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 It adopts e-compliance for its citizens with government promoting e-filing of documents, e-payments taxes, e-storage of
data, etc.
 Example: Avalara trust file GST for GST compliance; Optial start smart for internal control related compliance; R Mail for
mail security compliance; HR Laws.com for HR compliance etc.

4) Customer Relationship Management Software:

 It covers software that helps organizations largely in FMCG (Fast-Moving Consumer Goods) categories, to understand
and analyze the need of customer, interact with customers, solving queries and managing relationship with them.
 It provides customer involvement by way of direct interaction that helps in getting their service support in product
innovation.

5) Management Support Software:

 These are applications catering to decision-making needs of the management. They may be further classified based
on the level of management using them.
 For example: TPS, MIS, DSS and EIS are an example of Management support software.
6) ERP Software:
 These applications called as Enterprise Resource Planning software, which are used by entities to manage resources
optimally and to maximize Economy, Efficiency and Effectiveness (i.e, 3 Es) of business operations.
 Example: SAP, Microsoft dynamic, Infor, Oracle finnolex, etc.

7) Product Lifecycle Management Software:

 It covers software used in software sector to develop various types of new applications. It can also be used in automobile
sectors for development of new products such as 2 wheelers and 4 wheelers.

8) Logistics Management Software:

 It covers software used in large logistics managing companies to keep track of products and people across the globe for
finding out discrepancies that need corrective action.

9) Legal Management Software:

 It covers software used to digitize the legal system in India. It helps in reducing the pendency in courts. It is also called
as Best law firm case management software.
 It is used by big legal firms (lawyers) where lot of pending cases are there and lawyers want to close those cases within a
short span of time with high level of effectiveness, efficiency and quality.
 It support in solving criminal case, civil cases within a short span of time by providing financial and administrative
information.
 Example: AMICUS cloud web based software, Cosmolex Review etc. kinds of software are used to - protect information of
lawyer; provide billing system with invoice generation; Software; software integration with Ms Office etc;

10) Industry Specific Applications:

 These are industry specific applications focused on a specific industry sector.
 For example: software designed especially for Banking applications, Insurance applications, Automobile dealer system,
billing systems for malls, Cinema ticketing software, Travel industry related software, etc.

Business Process:
 A business process is a set of activities that are designed to accomplish specific organizational goals.

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 To better understand a business process, the activities may be arranged in the form of a flowchart or process matrix.
 It is a strategy to automate business processes so as to bring benefit to enterprise in terms of cost, time and effort.
 It requires integration amongst various business process to achieve the predetermined objectives of business.

Business Process Automation:

 BPA can be defined as “removing the human element from existing business processes by automating the
repetitive or standardized process components by using information technology”.
 Automation in Business Process is mandatorily required in order to maximize the ROI.

 It provides enterprise-wide automation and management for both business and IT workflow.
 BPA improves accuracy, performance and efficiency of the key business processes and as a result enterprise will
become more efficient and responsive to customer and employee needs.
 It avoids repetition in task and manual data manipulation by providing automation.
 BPA is fluctuating from the range of automating a simple data-entry up to complex and automated financial
management processes.
 It provides rapid growth in communication technology making it faster and reliable.

 Benefits from BPA: cost reduction, elimination of human error, freeing people from routine and volume, and allow
management to do what they are best at: make decisions, analyze data implications and trends and focus on providing better
customer service.
 It makes the business flexible, more faster, more efficient and robust.

Business Process Automation:

Q-1 Objectives of BPA

The success of any business process automation shall only be achieved when BPA ensures:
1) Confidentiality: To ensure that data is only available to persons who have right to see the same;
2) Integrity: To ensure that no un-authorized amendments can be made in the data;
3) Availability: To ensure that data is available when asked for; and
4) Timeliness: To ensure that data is made available in at the right time.

Q-2 Activities of BPA:

1) Orchestration:
 The process of orchestration enables the ability to bring tasks that exist across multiple computers and different business
departments or branches under one umbrella.

2) Integration:
 BPA allows applications and operating systems not only to read data, but also to pass data between the component

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applications of the business process and to modify the data as necessary.

3) Automation:
 Orchestration and integration unite with automation to deliver the capability to provide a rules-based process of
automatic execution that can span multiple systems and enable a more effective, nimble and efficient business process.

Q-3 Steps involved in BPA to automate the business Process:

The approach to business process automation entails understanding how information is collected and processed on a day-to-day basis
and then making recommendations on how best to automate those processes for maximum benefit. The steps involved in any BPA are
as follows:
Step 1: Define why we plan to implement BPA?
Step 2: Understand the rules/ regulation under which it needs to comply with?
Step 3: Document the process, we wish to automate.
Step 4: Define the objectives/goals to be achieved by implementing BPA.
Step 5: Engage the business process consultant.
Step 6: Calculate the ROI for project.
Step 7: Development of BPA.
Step 8: Testing the BPA.

Step-1: Why we plan to implement BPA?  The answer to this question will provide justification for implementing
BPA.
Step-2: Understand the rules/regulations  The underlying issue is that any BPA created needs to comply with
under which it needs to comply with? applicable laws and regulations.
Step-3: Document the process, we wish to  The current process which are planned to be automated need to be
automate. correctly and completely documented at this step.
Step-4: Define the objectives/goals to be  This enables the developer and user to understand the reasons for
achieved by implementing BPA? going for BPA. The goals need to be precise and clear.
Step-5: Engage the business process  Once the entity has been able to define the above, the entity needs to
consultant? appoint an expert, who can implement it for the entity.
Step-6: Calculate the ROI for project.  The answer to this question can be used for convincing top
management to say „yes‟ to the BPA exercise.
Step-7: Development of BPA  Once the top management grant their approval, the right business
solution has to be procured and implemented covering the necessary
BPA.
Step-8: Testing the BPA  Before making the process live, the BPA solutions should be fully
tested.
Step 1: Define why we plan to implement a BPA?
The primary purpose for which an enterprise implements automation may vary from enterprise to enterprise.
A list of generic reasons for going for BPA may include any or combination of the following:
1) Lack of management understanding of business processes.
2) Errors in manual processes leading to higher costs.
3) Unable to recruit and train new employees, but where employees are urgently required.
4) Lengthy or incomplete new employee or new account on-boarding.

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5) Poor customer service.

6) Poor debtor management leading to high invoice aging and poor cash flow.
7) Paying for goods and services not received.
8) Payment processes not streamlined, due to duplicate or late payments, missing early pay discounts, and losing revenue.
9) Not being able to find documents quickly during an audit or lawsuit or not being able to find all documents.
Step 2: Understand the rules / regulation under which enterprise needs to comply with?
One of the most important steps in automating any business process is to understand the rules of engagement,
which include following the rules, adhering to regulations and following document retention requirements.
This governance is established by a combination of internal corporate policies, external industry regulations and local,
state, and central laws.
Regardless of the source, it is important to be aware of their existence and how they affect the documents that drive the
processes.
Such legal documents must be retained for specified number of years and in a specified format.
Step 3: Document the process, we wish to automate
At this step, all the processes that are currently being used need to be documented.
An easy way to do this is to sketch the processes on a piece of paper, possibly in a flowchart format. Visio or even Word can
be used to create flowcharts easily.
It is important to understand that no automation shall benefit the entity, if the process being automated is error-prone.
Investment in hardware, workflow software and professional services, would get wasted if the processes being automated are not
made error-free.
Technology must assure that relevant, accurate, timely processing and complete data must be provided to right people
safely and securely at optimum cost.
The following aspects need to be kept in mind while documenting the present process:
 What documents need to be captured?
 Where do they come from?
 What format are they in: Paper, FAX, email, PDF etc.?
 Who is involved in processing of the documents?
 What is the impact of regulations on processing of these documents?
 Can there be a better way to do the same job?
 How are exceptions in the process handled?
Benefit of the above process for user and entity being:
 It provides clarity on the process.
 It helps to determine the sources of inefficiency, bottlenecks, and problems.
 It allows tore-design the process to focus on the desired result with workflow automation.
Step 4: Define the objectives/goals to be achieved by implementing BPA
Once the above steps have been completed, entity needs to determine the key objectives of the process improvement
activities.
When determining goals, remember that goals need to be SMART:
 Specific: Clearly defined,
 Measurable: Easily quantifiable in monetary terms,

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 Attainable: Achievable through best efforts,

 Relevant: Entity must be in need of these, and
 Timely: Achieved within a given time frame.
Step 5: Engage the business process consultant
This is again a critical step to achieve BPA. To decide as to which company/ consultant to partner with, depends upon the
following:
 Objectivity of consultant in understanding/evaluating entity situation.
 Does the consultant have experience with entity business process?
 Is the consultant experienced in resolving critical business issues?
 Whether the consultant is capable of recommending and implementing a combination of hardware, software and
services as appropriate to meeting enterprise BPA requirements?
 Does the consultant have the required expertise to clearly articulate the business value of every aspect of the
proposed solution?
Step 6: Calculate the RoI for project
The right stakeholders need to be engaged and involved to ensure that the benefits of BPA are clearly communicated
and implementation becomes successful.
Hence, the required business process owners have to be convinced so as to justify the benefits of BPA and get approval
from senior management.
A lot of meticulous effort would be required to convince the senior management about need to implement the right solution
for BPA.
The right business case has to be made covering technical and financial feasibility so as to justify and get approval for
implementing the BPA.
The best way to convince would be to generate a proposition that communicates to the stakeholders that BPA shall lead to not
only cost savings for the enterprise but also improves efficiency and effectiveness of service offerings.
Some of the methods for justification of a BPA proposal may include:
 Cost Savings, being clearly computed and demonstrated.
 How BPA could lead to reduction in required manpower leading to no new recruits need to be hired and how
existing employees can be re-deployed or used for further expansion.
 Savings in employee salary by not having to replace those due to attrition (*exploitation).
 Taking advantage of early payment discounts and eliminating duplicate payments.
 Eliminating fines to be paid by entity due to delays being avoided.
 The cost of space regained from paper, file cabinets, reduced.
 Reducing the cost of audits and lawsuits.
 Ensuring complete documentation for all new accounts.
 Charging for instant access to records (e.g. public information, student transcripts, medical records)
 Collecting accounts receivable faster and improving cash flow.
 New revenue generation opportunities.
 Building business by providing superior levels of customer service.
Step 7: Developing the BPA
Once the requirements have been documented, ROI has been computed and top management approval to go ahead has been
received, the consultant develops the requisite BPA.
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The developed BPA needs to meet the objectives for which the same is being developed.
Step 8: Testing the BPA
Once developed, it is important to test the new process to determine how well it works and identify where additional
“exception processing” steps need to be included.
The process of testing is an iterative process, the objective being to remove all problems during this phase.
Testing allows room for improvements prior to the official launch of the new process, increases user adoption and
decreases resistance to change.
Documenting the final version of the process will help to capture all of this hard work, thinking and experience which can
be used to train new people.

Q-4 IT processes for Business Process Automation:

1) Job scheduling:
 It automates processes that perform a variety of daily or unscheduled tasks.

2) Systems and event log monitoring:

 It reviews and analyzes the event log and critical systems, and create multistep corrective action, such as restarting a
server service. With BPA, these processes run automatically when certain events occur.

3) Application integration:
 It automates IT and business processes by combining applications that drive business. Complex processes such as
database queries, data transformation and spreadsheet integration can be automated.

4) Database access and changes:

 It provides access to data via ODBC (Open DataBase Connectivity) connections, data updates, file transfers.

5) File replication and data backup:

 It protects valuable data by backing up databases and key systems.

6) File transfers:
 It can be automated to deliver and retrieve data on set schedules.

7) Printing:
 It provides automation to simplify print jobs.

Q-5 Benefits of Automation (BPA):

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1) Reducing the Impact of Human Error:

 BPA removes human participation in the process, which is the source of many errors.

2) Transforming Data into Information:

 BPA can, apart from collecting and storing data also analyze data and make it available in a form that is useful for
decision-making.

3) Making users more efficient and effective:

 People can focus their energies on those tasks in which he is expert and computer helps them to achieve their optimum
efficiency while performing the task.

4) Making the business more responsive:

 Business can easily automate new applications and processes as they are introduced.

5) Improving performance and process effectiveness:

 In many cases, tasks that must be done manually are the bottleneck in the process. Automating those manual tasks
speeds up the effective throughput of the application.

6) Cost Saving:
 Automation leads to saving in time and labor costs through higher efficiency and better management of the people involved;

7) To remain competitive:
 To provide the level of products and services as offered by competition.

8) Fast service to customers:

 Automation shortens cycle times in the execution of processes through improved and refined business workflows and help
enterprises to serve their customers faster and better.

Q-6 Risks of Business Process Automation (BPA):

 Risk to jobs: Jobs that were earlier performed manually by several employees would post-automation would be
mechanized, thereby posing a threat to jobs.
 False sense of security: Automating poor processes will not gain better business practices.

Q-7 Applications that help entity to achieve BPA

Many applications are available today that help enterprise to achieve business process automation. Few applications may be simpler,
others may be more complex based on nature of process being considered. Some of them are mentioned below:

1) Tally:
 It is an accounting application that helps entity to automate processes relating to accounting of transactions.
 It also helps to achieve automation of few processes in inventory management.
 The latest version has been upgraded to help user achieve TAX compliances also.

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 It has features such as Remote Access Capabilities, Tax Audit and Statutory Compliance, Payroll, Excise for
Manufacturers, Multilingual Support, VAT Composition Returns, TDS, VAT (Value Added Tax), Rapid Implementation, Real
Time Processing, Dynamic Interactive Reports and Unique Drill-Down Facility, Unlimited Companies and Periods of
Accounting.

2) SAP R/3:
 It is an ERP software that allows an entity to integrate its business processes.
 It aims at better utilization of the resources and helps entity achieve better business performance.
 It has the features such as time management, reporting and analytics, budget monitoring, workflow approval, sales
management, team management, leave management, travel management, recruitment management and demand planning.
 This is used by most of the large enterprises across the world and covers enterprise automation end-to-end.

3) MS Office Applications:
 These are various office automation systems made available by Microsoft Corporation which include MS Word, MS Excel,
MS PowerPoint, MS Access, etc.
 Each of these software help to achieve automation of various tasks in the office.
 It has features such as customized ribbon, backstage view, built-in graphics toolset, enhanced security, excel spark lines,
pivot for Excel, PowerPoint broadcast, Power Point compression, paste, preview and outlook conversation view.

4) Attendance Systems:
 Many attendance automation systems are available in the market. The application helps entity to automate the process of
attendance tracking and report generation.
 It has features such as supervisor login access, holiday pay settings, labour distribution, employee scheduling and
rounding, employee view time card, overtime settings, battery-backed employee database and optional door/gate access
control.

5) Vehicle Tracking System:

 A lot of applications have been developed that allow entity to track their goods while in transit. Few applications are
high end, allowing owner of goods to check the temperature of cold stored goods while in transit.
 It has features such as GPS based location, GPRS connection based real-time online data-logging and reporting, route
accuracy on the fly while device is moving, real-time vehicle tracking, geo-fencing, SMS & e-mail notifications, over-the-air
location query support, on-board memory to store location inputs during times when GPRS is not available or cellular
coverage is absent.

6) Automated Toll Collection Systems:

 As India progresses through creation of the golden quadrilateral project, many toll booths have been built to collect
tolls. Many toll booths allow users to buy pre-paid cards, where user need not stop in lane to pay toll charges, but just
swipe / wave the card in front of a scanner.
 The system keeps the track of card and the number of time same has been swiped / waved.
 It has features such as real-time toll plaza surveillance system, automatic vehicle identification system (based on in-road
sensors), license plate recognition, zoom capability on captured images, laser based toll audit systems, automated vehicle
classification, transaction processing and violation enforcement.

7) Department Stores Systems:

 There has been huge development in the retail sector in India. The same has created a need to have systems to cater
to the ever increasing need of Indian consumers.

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 Two critical elements for managing departmental stores have been automated in India; they include the billing
processes and inventory management. It has features such as point of sale, multi-channel operation, supplier database,
products database, purchase ordering, management reporting, multiple promotions, loyalty schemes, stock control and
inventory management.

8) Travel Management Systems:

 Many business processes specific to this industry have been automated, including ticket booking for air, bus, train,
hotel, etc.
 It has features such as streamlined foreign travel approval process, foreign travel program, travel policy compliance, „safe
return‟ process, traveler portal for updation information, traveler profile information, online retrieval of e-tickets, reservations,
visas etc.

9) Educational Institute Management Systems:

 It is a system that provides information about the various courses of engineers, doctors, MBAs and CAs across the
world. A lot of automation has been achieved, including student tracking and record keeping. ICAI, itself is a good
example of this automation.
 A student based on his registration number can file many documents online including exam forms.
 It has features such as student‟s registration, student‟s admission, fee collection, student‟s attendance, result management,
result analysis, library management, HR management, staff attendance, payroll system, time- table management, financial
accounting, assets management and MIS.

10) File Management System:

 This system is used to develop many office automation systems. These allow office records to be kept in soft copy
and easy tracking of the same.
 It has features such as web access, search, Microsoft office integration, records management software, electronic forms (e-
forms), calendar, document version control, document scanning and imaging, check documents out/ check documents in,
document “tagging” or metadata capture, virtual folders and document linking.

11) Other Systems:

 It includes banking systems, the railway reservations systems and stock exchange systems are good examples of
business process automations achieved.

Q-8 Major / Primary Control objectives in BPA

1) Authorization:
 It ensures that all transactions are approved by responsible personnel in accordance with their specific or general authority
before the transaction is recorded.

2) Completeness:
 It ensures that no valid transactions have been omitted from the accounting records.

3) Accuracy:
 It ensures that all valid transactions are accurate, consistent with the originating transaction data, and information is
recorded in a timely manner.

4) Validity:
 It ensures that all recorded transactions fairly represent the economic events that actually occurred, are lawful in nature,
and have been executed in accordance with management's general authorization.

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5) Physical Safeguards and Security:

 It ensures that access to physical assets and information systems are controlled and properly restricted to authorized
personnel.

6) Error Handling:
 It ensures that errors detected at any stage of processing receive prompts corrective action and are reported to the
appropriate level of management.

7) Segregation of Duties:
 It ensures that duties are assigned to individuals in a manner that ensures that no one individual can control both the
recording function and the procedures relative to processing a transaction.

Q-9 Secondary control objectives:

The controls are used to Prevent, Detect, or Correct unlawful events. An unlawful event can arise if unauthorized, inaccurate,
incomplete, redundant, ineffective, or inefficient input enters the system.

1) Preventive Control: Those, which prevent occurrence of an error/fraud, say security guards
2) Detective Control: Those, which capture an error, say audit trail.
3) Corrective Control: Those, which correct an error or reduce the loss due to error/risk, say insurance policy.

Information Processing
 It refers to an effort to create information from raw data is known as Information Processing.
 Processed data will be meeting the needs of the users.
 Computer can be used as an aid to process this data so as to provide information, which has meaning and gives value to the
users to take effective decision.
 Information is necessary for decision making and survival of an entity as success of business depends upon making right
decisions at the right time on the basis of the right information available.

Q-1 Classification of information is based on level of human/computer intervention:

1) Manual Information Processing Cycle:
 These are the systems where the level of manual intervention is very high.
 For example: valuation of exam papers, teaching, operations in operation theatres, ticket checking by railway staff in trains,
buying of grocery, billing done by small medical shops, people maintaining books manually, etc.
 Components of manual information processing cycle include:
 Input: Put details in register.
 Process: Summarize the information.
 Output: Present information to management in the form of reports.
 Disadvantages: As the level of human intervention is very high the quality of information generated from these systems is
prone to flaws such as delayed information, inaccurate information, incomplete information and low levels of detail.

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Manual Processing Cycle

2) Computerized Information Processing Cycle:

 These are systems where computers are used at every stage of transaction processing.
 The components of a computerized information processing cycle include:
 Input: Entering data into the computer;
 Processing: Performing operations on the data;
 Storage: Saving data, programs, or output for future use; and
 Output: Presenting the results.
 Advantages: As the processing is computerized the quality of information generated from these systems is timely, accurate, fast
and reliable.

Computerized Processing Cycle

Delivery Channels
 Delivery channels refer to the mode through which information or products are delivered to users.

Q-1 Explain the various mode of delivery channels?

 Delivery channels for information include:
 Staff briefings, meetings and other face-to-face communications methods;
 Notice boards in communal areas;
 Manuals, guides and other printed resources;
 Internal newsletters and magazines;
 Hand-held devices (PDAs, etc.);
 Intranet: Network within the company/enterprise;
 E-mail: The most widely used delivery channel for information today; and
 Social networking sites, like Facebook, whatsup, etc.
 Delivery channels for products include:

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 Traditional models, brick and mortar type;

 Buying from a shop;
 Home delivery of products;
 Buying from a departmental store; and
 Buying online, getting home delivery and making cash payment on delivery.

Q-2 Explain factors to be considered before choosing Information Delivery Channel?

When choosing appropriate delivery channels, consider the following suggestions:

1) More than just the intranet:

 It is rarely sensible to have a goal of “increasing intranet usage”. Fundamentally, staff will (and should) use whichever
methods are easiest and most efficient to obtain information. Any attempt to move staff usage to the intranet away from
existing information sources will almost certainly fail, unless the intranet is easier than the current methods.
 For example, it may be effective to put a notice on the notice board in a canteen (such as for field staff), rather than putting the
same on intranet.

2) Understand staff needs & environment:

 Job roles and work environments will have a major impact upon the suitability of delivery channels. This includes which
systems do staff use, their level of PC access, their amount of computer knowledge, and their geographic location.
 For example, there may only be a single PC in an enterprise and people working may have no time available in the day to
access the intranet anyway. In this situation, the intranet would not be an effective delivery channel and face-to-face
communication may be better.

3) Traditional Channel need to be formalized:

 Instead of attempting to eliminate existing information sources in favour of the intranet, it may be more beneficial to formalize
the current practices.
 For example, staff may have key details pinned to the walls of their cubicles or work locations. The best outcome in this
situation could be to organize monthly reprinting of these notes to ensure they are up-to-date.

Information System Control:

Usually auditors cannot examine and evaluate all the data processing carried out within an organization. They need guidelines that will
direct them toward those aspects of the information systems function in which material losses or account mis-statements are most
likely to occur. Ultimately auditors must evaluate the reliability of controls; they need to understand the nature of controls.
Controls reduce expected losses from unlawful events by -
(i) decreasing the probability of the event occurring in the first place, or
(ii) limiting the losses that arise of the event occurs.
IS Control is divided into two parts i.e, 1) Managerial Control and 2) Application Control

A) Managerial controls:
In this part, we shall examine controls over the managerial functions that must be performed to ensure the development,
implementation, operation and maintenance of information systems in a planned and controlled manner in an organization. The

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controls at this level provide a stable infrastructure in which information systems can be built, operated, and maintained on a day-
to-day basis

1) Top Management:
 Top management must ensure that information systems function is well managed. It is responsible primarily for long – run
policy decisions on how Information Systems will be used in the organization.

2) Information System Management:

 IS management has overall responsibility for the planning and control of all information system activities. It also provides
advice to top management in relation to long-run policy decision making and translates long-run policies into short-run goals
and objectives.

3) System development Management:

 Systems Development Management is responsible for the design, implementation, and maintenance of application systems.

4) Programming Management:
 It is responsible for programming new system; maintain old systems and providing general systems support software.

5) Data Administration:
 Data administration is responsible for addressing planning and control issues in relation to use of an organization‟s data.

6) Operations Management:
 It is responsible for planning and control of the day-to-day operations of information systems.

7) Quality Assurance Management:

 It is responsible for ensuring information systems development; implementation, operation, and maintenance conform to
established quality standards.

8) Security Administration:
 It is responsible for access controls and physical security over the information systems function.

B) Application controls:
In the second part, we shall examine the application functions that need to be in place to accomplish reliable information processing.
1) Boundary: It comprises the components that establish the interface between the user and the system.
2) Input: It comprises the components that capture, prepare, and enter commands and data into the system.
3) Processing: It comprises the components that perform decision making, computation, classification, ordering, and
summarization of data in the system.
4) Output: It comprises the components that retrieve and present data to users of the system.
5) Database: It comprises the components that define, add, access, modify, and delete data in the system.
6) Communication: It comprises the components that transmit data among subsystems and systems.

A. Managerial Functions Based Control:

1) Top Management and Information Systems Management Controls:
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 The senior managers who take responsibility for IS function in an organization, face many challenges.
Major Functions of Top manager:
a) Planning: It refers to determining the goals of the information systems function and the means of achieving these goals;
b) Organizing: It refers to gathering, allocating, and coordinating the resources needed to accomplish the goals;
c) Leading: It refers to motivating, guiding, and communicating with personnel; and
d) Controlling: It refers to comparing actual performance with planned performance as a basis for taking any corrective
actions that are needed.
Types of IS Plans for IS functions:
a) Strategic plan:
 The strategic Plan is the long-run plan covering, say, the next three to five years of operations. Plans need to be
reviewed regularly and updated as the need arises. The planning depends upon factors such as the importance
of existing systems, the importance of proposed information systems, and the extent to which IT has been integrated
into daily operations.
b) Operational plan:
 The Operational Plan is the short-plan covering, say, next one to three years of operations. Plans need to be
reviewed regularly and updated as the need arises.

2) Systems Development Management Controls:

 Systems Development Management has responsibility for the functions concerned with analyzing, designing,
building, implementing, and maintaining information systems.
Different types of audits may be conducted during system development process
i) Concurrent Audit:
 In this audit, IS auditors assist the team in improving the quality of systems development for the specific system
they are building and implementing.
 He ensures whether system is analyzed, designed and developed as per the plan or not.
ii) Post implementation Audit:
 In this audit, IS auditors check whether system that is implemented fulfill all user‟s requirement and working properly or
not.
 If system is not working properly or not fulfilling user‟s need then he should also evaluate whether the system needs to
be scrapped, continued, or modified in some way.
iii) General Audit:
 In this audit, IS auditors check whether system is equipped with all controls that were required to be implemented. If so,
then he will check all controls implemented in the system to ensure whether they are working properly or not.
 They seek to determine whether they can reduce the extent of substantive testing needed to form an audit opinion
about management‟s assertions relating to the financial statements of system’s effectiveness and efficiency.

3) Programming Management Controls:

 It refers to a control applied over coding process to ensure that coding must be correct, simple, summarized and
completed so that high-quality programs can be developed and implemented.

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 It comprises six major phases – Planning; Design; Control; Coding; Testing; and Operation and Maintenance with Control
phase running in parallel for all other phases.

Phase of program development life cycle

a) Planning:
 Without the perfect plan, calculating the strengths and weaknesses of the project and development of software is
meaningless. Planning helps in measuring progress of project makes it positive, efficient and effective.
 Planning requires techniques like Work Breakdown Structures (WBS), Gantt charts and PERT (Program Evaluation and
Review Technique) Charts can be used to monitor progress of project.
b) Design:
 Once the planning and analysis is completed, the step of designing starts that basically building the architecture of the
project. This step helps remove possible errors by setting a standard and attempting to follow at best possible way.
 Design can be made on the basis of either tabular approaches or object-oriented approach.
c) Coding:
 Once the design is done, coding of each and every program must be started. Programmers must choose a module
implementation and integration strategy (like Top-down, bottom-up or Threads approach), a coding strategy (that
follows the percepts of structured programming), and a documentation strategy (to ensure program code is easily
readable and understandable).
d) Testing: Three types of testing can be undertaken:
i) Unit Testing – which focuses on individual program modules;
ii) Integration Testing – Which focuses in groups of program modules; and
iii) Whole-of-Program Testing – which focuses on whole program.
These tests are to ensure that a developed or acquired program achieves its specified requirements.
e) Operation and Maintenance:
 After implementation is done, updation process will be executed to adopt the changes taken place in environment so that
each and every program must be up to date.
 Management establishes formal mechanisms to monitor the status of operational programs so maintenance needs
can be identified on a timely basis. Three types of maintenance can be used –
Repair maintenance – in which program errors are corrected;
Adaptive Maintenance – in which the program is modified to meet changing user requirements; and
Perfective Maintenance - in which the program is tuned to decrease the resource consumption.

4) Data Resource Management Controls:

 As data is recognized as a critical resource that must be managed properly and therefore, centralized planning and
controls are implemented. Control will be provided by providing roles and responsibilities to database
administrator for data resource management.
 It ensures right information will be provided to right users at right time and right place in appropriate form with
accuracy. It helps in data creation, data modification, data deletion with full security so that data integrity can be
maintained.

5) Quality Assurance Management Controls:

 It refers to the control applied to develop quality software that increases the accuracy, reliability, and productivity of
output provided to users. This responsibility is provided to quality assurance manager.

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 Hence, he must check whether information system is developed as per quality assurance standards or not to make
the software error free.

6) Security Management Controls:

 It refers to the control applied to implement security system over all assets of organization. This responsibility is
provided to Information security administrators and he is responsible for ensuring that information systems
assets are secure.
 It will be considered that all assets are secured if expected loss that will occur over some time are at an
acceptable level.
Some of the major threats and to the security of information systems and their controls
S. No. Threat Control
1) Fire Well-designed, reliable fire-protection systems must be implemented.
2) Water Facilities must be designed and sited to mitigate losses from water damage
3) Energy Variations Voltage regulators, circuit breakers, and uninterruptible power supplies can be
used.
4) Structural Damage Facilities must be designed to withstand structural damage.
5) Pollution Regular cleaning of facilities and equipment should occur.
6) Unauthorized Intrusion Physical access controls can be used.
7) Viruses and Worms Controls to prevent use of virus-infected programs and to close security loopholes
that allow worms to propagate.
8) Misuse of software, data Code of conduct to govern the actions of information systems employees.
and services
9) Hackers Strong, logical access controls to mitigate losses from the activities of hackers.

7) Operations Management Controls:

 It refers to the control applied to implement control over daily operation of computer system. This responsibility is
provided to operation manager and he is responsible for the daily running of hardware and software facilities.
 It covers controls over the functions like Computer Operations, Communications Network Control, Data Preparation
and Entry, Production control, File Library; Documentation and Program Library; Help Desk/Technical support; Capacity
Planning and Performance Monitoring and Outsourced Operations.
 Operations management control must continuously monitor the performance of the hardware/software platform to
ensure that systems are executing efficiently and effectively.

B. Application function based Controls:

Application Controls can be
classified into the following
types:

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Types of Application Controls

(1) Boundary Controls:
 The major controls of the boundary system are the access control mechanisms.
 Access controls are implemented with an access control mechanism and links the authentic users to the
authorized resources they are permitted to access.
 The access control mechanism the 3 steps of identification, authentication and authorization with respect to the
access control policy implemented.
 The user can provide 3 classes of input information for the authentication process and gain access control to his
required resources.
 The three classes of information with respect to corresponding input to the boundary control are summarized in
the table below.
Class of Information Types of Input
Personal information Name, Birth date, a/c no., Password, PIN

Personal Characteristics Fingerprint, voice, hand size, signature, retinal pattern

Personal Objects Identification cards, badge, key, finger ring.

Boundary control techniques are:

a) Cryptography:
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 It deals with programs for transforming data into codes that are meaningless to anyone who does not possess the
authentication to access the respective system resource or file.
 A cryptographic technique encrypts data (clear text) into cryptograms (cipher text) and its strength depends on the time and
cost to decipher the cipher text by a cryptanalyst.
 The three techniques of cryptography are
o transposition (permute the order of characters within a set of data),
o substitution (replace text with a key-text) and
o product cipher (combination of transposition and substitution)

Cryptosystems

CLEAR TEXT ( ) CIPHER TEXT

( ) (Reversing words) (M1)LLAC EHT REGANAM
(M2)YCZZ MAT SCECGTU
( )
ABCDEFGHIJKLMNOPQRSTUVWXYZ
CRYPTOGAPHZSECNIQULMNBDFJK
Design (Key text) Checks validity
Cryptographer Factors: time & cost for decryption, Cryptanalyst
Small key, message size and low error.

Cryptography

b) Passwords:
 User identification by an authentication mechanism with personal characteristics like name, birth date, employee
code, function, designation or a combination of two or more of these can be used as a password boundary access
control.
 A few best practices followed to avoid failures in this control system are;
- periodic change of passwords, - limited entry attempts
- minimum length of password, - avoid usage of common dictionary words, and
- encryption of passwords

c) Personal Identification Numbers (PIN):

 It is similar to a password assigned to a user by an institution based on– the user characteristics and encryption
techniques; a random number stored in its database for user identification; or a customer selected number.
 Hence a PIN or a digital signature are exposed to vulnerabilities while issuance or delivery.

d) Identification Cards:
 Identification cards are used to store information required in an authentication process.
 These cards are used to control over the user identification process through the application for a card, preparation of the
card, issue, use and card return or card termination phases.

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What you have (Token), what you know (password/PIN) and who you are (Biometric)

(2) Input Controls:

 It provides ensurity as to the accuracy and completeness of data that are input into an application system.
 Input controls are important since substantial time is spent on input of data which involves human intervention and hence
error and fraud prone.
 Poorly designed data codes cause recording and keying errors.
 Auditors should evaluate the quality of coding systems to analyze their impact on the integrity and accurateness of data.
Input control techniques are:
 Source Document Control: In systems that use physical source documents to initiate transactions, careful
control must be exercised over these instruments. Source document fraud can be used to remove assets from the
enterprise.
 Data Coding Controls: These controls are put in place to reduce user error during data feeding.

Types of data coding errors:

 Addition: It refers to an error in which an extra character in a code will be provided. E.g. 54329 coded as 543291
 Truncation: It refers to an error in which some characters are omitted. Example 54329 coded as 5439
 Transcription: It refers to an error in which wrong characters are recorded. Example: 54329 coded as 55329
 Transposition: It refers to an error in which adjacent characters are reversed. Example: 54329 coded as 45329
 Double transposition: It refers to an error in which two or more adjacent characters are reversed. Example: 54329 is
entered as 92345.

Control used to guard against these types of errors:

1) Check digit:
 A check digit is a digit added to a string of numbers for error detection purposes.
 It helps digital systems detect changes when data is transferred from transmitter to receiver.

2) Batch Controls:
 These controls are put in place at locations where batch processing is being used.
 Batch processing is where there is a time gap between occurrence and recording of transactions, that is,
transactions are not recorded at the time of occurrence but are accumulated and a set (based on number/ time) is
processed.
 The objective is to ensure accuracy and completeness of the content and that they are not lost during
transportation.
Details required to be maintained on batch control sheet of each batch while
implementing batch control:
 Batch number, type, date, voucher type;
 Total Monetary Amount: for example, for a cash payment batch, the total payout of cash payment vouchers;
 Total Items: for example, the supporting with batch;

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 Total Documents: for example, total number of voucher with the batch; and
 Hash Totals: for example, total of voucher number or account code (if numeric).

3) Validation Controls:
 These controls validate the accuracy/correctness of input data.
 Input validation controls are intended to detect errors in the transaction data before the data are processed.
Validation procedures are most effective when they are performed as close to the source of the transactions
as possible.
 There are 3-levels of input validation controls:
1) Field interrogation
2) Record interrogation, and
3) File interrogation.

1) Field Interrogation:
It involves programmed procedures that examine the characters of the data in the field. The following are some common
types of field interrogation.
Various field checks used to ensure data integrity have been described below:
Tips:

a) Valid Code Checks:

 Checks are made against predetermined transactions codes, tables or order data to ensure that input data
are valid. The predetermined codes or tables may either be embedded in the programs or stored in (direct
access) files.

b) Limit Check:
 This is a basic test for data processing accuracy and may be applied to both the input and output data. The
field is checked by the program against predefined limits to ensure that no input/output error has occurred or
at least no input error exceeding certain pre-established limits has occurred.

c) Check Digit:
 One method for detecting data coding errors is a check digit. A check digit is a control digit (or digits) added
to the code when it is originally assigned that allows the integrity of the code to be established during
subsequent processing. The check digit can be located anywhere in the code, as a prefix, a suffix, or
embedded someplace in the middle.

d) Cross Checks:
 It may be employed to verify fields appearing in different files to see that the result tally.

e) Arithmetic Checks:
 Simple Arithmetic is performed in different ways to validate the result of other computations of the values of
selected data fields. Example: The discounted amount for Rs. 4,000 at 5% discounted may be computed
twice by the following different ways: 4,000 – 4,000 × 5/100 = 3,800 or Next time again at (3800/(100-
5))*100.

f) Picture Checks:

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 These check against entry into processing of incorrect/invalid characters.

2) Record Interrogation:
These are discussed as follows:

a) Sequence Checks: These are exercised to detect any missing transactions, off serially numbered
vouchers or erroneous sorting.

b) Format Completeness Checks: These are used to check the presence and position of all
the fields in a transaction. This check is particularly useful for variable data field records.

c) Redundant Data Checks: These are used to check for fields that are repeated in two or more
records.

d) Password: These are used to authorize users to access, read and write information.
(3) Processing Controls:
 Data processing controls perform validation checks to identify logical errors during processing of data.
 It ensures both completeness and accuracy of data being processed.
 It is enforced through the database management system that stores the data.

Data processing controls are:

However, adequate controls should be enforced through the front end application system also, to have consistency in the control
process.

a) Run-to-run totals:
 These help in verifying data that is subject to process through different stages.
 If the current balance of an invoice ledger is Rs. 150,000 and the additional invoices for the period is of total Rs. 20,000/-
then the total sales value should be Rs. 170,000. A specific record (probably the last record) can be used to maintain the
control total.

b) Reasonableness verification:
 Two or more fields can be compared and cross verified to ensure their correctness.
 For example the statutory percentage of provident fund can be calculated on the gross pay amount to verify if the
provident fund contribution deducted is accurate.

c) Edit checks:
 Edit checks similar to the data validation controls can also be used at the processing stage to verify accuracy and
completeness of data.

d) Field initialization:
 Data overflow can occur, if records are constantly added to a table or if fields are added to a record without initializing it,
i.e., setting all values to zero before inserting the field or record.

e) Exception reports:

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 Exception reports are generated to identify errors in data processed.

 It gives the transaction code and why the particular transaction was not processed or what is the error in processing the
transaction.
 For example, while processing a journal entry if only debit entry was updated and the credit entry was not up dated due
to absence of one of the important fields, then the exception report would detail the transaction code, and why it was not
updated in the database.

f) Existence/Recovery Controls:
 The check-point/restart logs, backup and recovery control that enables a system to be recovered if failure is temporary and
localized.

(4) Output Controls:

 It is to be ensured that the data delivered to users will be presented, formatted and delivered to user in a consistent and
secured manner.
 Output can be in any form, it can either be – a printed data report; a database file in a floppy disk/CD-ROM; or a word
document in Hard disk etc..
 It ensures the maintenance of confidentiality, integrity and availability of the output whether it is consistent.
 Output controls have to be enforced both in a batch-processing environment as well as in an online environment.

a) Storage and logging of sensitive & critical forms:

 Pre-printed stationery should be stored securely to prevent unauthorized destruction or removal and usage.
 Only authorized persons should be allowed access to stationery supplies such as security forms, negotiable instruments etc.

b) Logging of output program executions:

 Executed programs used for output of data should be adequately logged and monitored.
 In the absence of control over such output program executions, confidentiality of data could be compromised.

c) Controls over printing:

 It should be ensured that unauthorized disclosure of information printed is prevented.
 Users must be trained to select the correct printer and access restrictions may be placed on the workstations that can be used
for printing.

d) Report distribution and collection controls:

 Distribution of reports should be made in a secure way to ensure unauthorized disclosure of data.
 It should be made immediately after printing to reduce the time gap between generation and distribution.
 A log should be maintained as to what reports were generated, what reports are printed and to whom it was distributed, which one
is collected.

e) Retention controls:
 Retention controls consider the duration for which outputs should be retained before being destroyed.
 Consideration should be given to the type of medium on which the output is stored.
 Retention control requires that date of production should be determined for each output item.
 Consideration shall also be given to legislative requirements which would affect the retention period.

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f) Existence/Recovery Controls:
 These are needed to recover output in the event that it is lost or destroyed.
 If the output is written to a spool files and has been kept, then recovering and new generation is easy.
 Check/restart point helps in recovery when a hardware cause problems in a printing program.

(5) Database Controls:

 Protecting the integrity of a database when application software acts as an interface to interact between the user and the
database are called the update controls.

a) Sequence Check Transaction and Master Files:

 Synchronization and the correct sequence of processing between the master file and transaction file is critical to maintain the
integrity of updation, insertion or deletion of records in the master file with respect to the transaction records. (master file aur transn
file ko sequentially check karo)
 If errors in this stage are overlooked it leads to corruption of the critical data.(master file kharab sab kharab)

b) Ensure All Records on Files are processed:

 While processing the transaction file records mapped to the respective master file the end-of-file of the transaction file with respect
to the end-of-file of the master file is to be ensured.

c) Process multiple transactions for a single record in the correct order:

 Multiple transactions can occur based on a single master record.

 Here the order in which transactions are processed against the product master record must be done based on a
sorted transaction codes.

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By CA Guru Gupta IT - TERMILOLOGY

Terminology Meaning
1) Business Process It is a process of an organization’s objectives through the improvement, management and
Management control of essential business process.
2) Business Process BPA is a strategy to automate business processes so as to bring benefit to enterprise in
automation terms of cost, time and effort. The core objective of BPA is achieved through integrating
various business processes.
3) Business process re- It is defined by Mr. Hammer Champhy is: “BPR is the fundamental rethinking and radical
engineering redesign of processes to achieve dramatic improvement, in critical, contemporary
measures of performance such as cost, quality, service and speed”.
4) Flowchart It is a diagrammatic representation of the flow of data from origin to destination.
5) Data Flow diagram It is a diagrammatic representation of logical flow of data
6) System Component It is a process to documentation of resources utilized in developing the system along with its
Matrix functionality.
7) Decision Table It refers to the table which provides potential conditions used to solve the problems by making the
various permutations and combinations and listing the number of actions to be undertaken which
requires to be assigned for each such permutations arising out of such specified conditions.
8) System Software and System software is computer software that is designed to control and operate the computer
Operating software hardware and data processing application.
An Operating System (OS) is a set of computer programs that manages computer hardware
resources and acts as an interface with computer applications programs.

9) Database Management It is a collection of software which is designed to control data retrieval, data processing, data
System storage, file organization and file processing needed by application program etc.

10) Database Model A database model is a type of data model that determines the logical structure of a database
and fundamentally determines the manner in which data can be stored, organized and
manipulated.
11) Computer Network Computer Network is a collection of computers and other hardware interconnected by common
communication channels that allow sharing of resources and information. Hence, a network is a
group of devices connected to each other.
12) SDLC This is commonly referred as Software/System Development Life Cycle (SDLC), which is a
methodology used to describe the process of building information systems.

13) Computing Computing

- means any goal-oriented activity requiring, benefiting from or creating
computers; and
- includes
 designing and building hardware and software systems for a
wide range of purposes;
 processing, structuring, and managing various kinds of
information;
 doing scientific studies using computers;
 making computer systems behave intelligently;
 creating and using communications and entertainment media;
 finding and gathering information relevant to any particular
purpose, and so on.

14) Server Server is a computer (Hardware) or device on a network dedicated to run one or more services (as
a host), to serve the needs of the users of other computers on a network.
15) Computer Architecture Computer architecture is a science and art of selecting and interconnecting hardware
components to create computers that meet functional, performance and cost goals.
16) Cloud Computing Cloud computing is the use of various services, such as software development platforms, servers,
storage, and software, over the Internet, often referred to as the "cloud."
17) Mobile computing It is the use of portable computing devices (*such as laptop and handheld computers) in conjunction with

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mobile communications technologies to enable users to access the Internet and data on their
home or work computers from anywhere in the world.
18) Network It is a collection of computers and other hardware components interconnected by
communication channels.
19) Components of Network 1) Terminals
2) Telecommunications processors,
3) Telecommunications Media/Channels,
4) Computers and
5) Telecommunications Control Software.
20) Transmission Transmission technology refers to the technology used to transmit the data and
Technology information between two machines.
21) Transmission modes It refers to the direction in which communication is going on between sender and
receiver.
22) Transmission Technique Transmission technique refers to the ways in which packets are filtered and forwarded through
the network. Example telephone lines, IP Addresses, E-mail, SMS etc.
23) Network Architecture It refers to the layout of the network, consisting of the hardware, software, connectivity,
communication protocols and mode of transmission, such as wired or wireless.
24) Network Protocol A protocol is a software which provides a formal set of rules that performs variety of actions to be
undertaken necessary for data transmission and communications over network.
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42)

43)

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CHAPTER-1 BUSINESS ENVIRONMENT

BUSINESS:
 "The regular production or purchase and sale of goods undertaken with an objective of earning profit and acquiring
wealth through the satisfaction of human wants.“
 Business comprises of activities such as production, distribution, trading etc., involvement of buyer and seller,
exchange of goods and services, considerations, profit objective, presence of risks and uncertainties, satisfy
customer’s need and social obligations.
 Business does not function in isolation. It requires continuous interaction with the environment.

Conclusions by Mr. Peter F Drucker about business:

1) Business is created and managed by people:
 There will be a group of people who will take decisions that will determine whether an organization is
going to prosper or decline, whether it will survive or will perish.
2) Business cannot be explained in terms of profit:
 The economic criterion of maximizing profits for a firm has little relevance in the present times.
 Profit maximization is a long-term perspective and has been modified to include development of wealth and
several non-financial factors such as goodwill, societal factors, relations etc.

Q-1 Objectives of a Business:

Tips:
1) Profitability:
 Profitability is one of the most important and prime objectives of business. However, it is different from
profit.
 Profit is an absolute number calculated as total revenue minus total expenses. Profit indicates the overall
sound position of the business. It increases the value of shares in the market, and manages the working

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capital of organization.
 However, profitability is a relative amount and determines the scope of a company’s profit in relation to
the size of business. It is a measurement of business efficiency and its success or failure. It represents
survival of business that totally depends upon the profit.
 Example: To determine the worth of an investment in a company, investors cannot rely on a profit calculation
alone. Instead, an analysis of a company’s profitability is necessary to understand if the company is efficiently
utilizing its resources and its initial investment.

2) Growth:
 It consists with increase in assets, increase in manufacturing facilities, increase in sales volume in existing
products or through new products, improvement in profits and market share, increase in manpower
employment, acquisition of other enterprises and so on.

3) Stability:
 It is a strategy of least resistance even in an unfriendly and aggressive external environment. It ensures that
business’s going concern will remain maintained.
 It is least expensive but risky objective in terms of time, talent and other resources. It minimizes tensions of
managers.
 Examples: If business is stable, there should be no decrease in sale, no capital loss, no loss of key employees etc.

4) Survival:
 Survival is a will to continue existing features of business as long as possible.
 Example: If businessman wants to survive in dynamic market, he must do planning, differentiate himself, know the
numbers in his finger, use your time well, get good people, streamline internal process and system with environment,
get online, manage cash, continuous improvement etc.

5) Efficiency:
 Business enterprise requires efficiency to achieve their goals, doing things in the best possible manner
and utilizing resources within time constraint to get highest productivity.

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ENVIRONMENT:
Introduction:
 Environment is sum of several external and internal forces that affect the functioning of business. It is
divided into 2 parts: Internal and external (Micro and macro) environment.
 Environment refers to the element which is available outside the boundary of organization.
 Internal environment factors that has a direct impact on the business and is within the control of the
entrepreneurs. These are internal management, machinery, methods of production, human resources,
financial resources, vision, mission and objective, relationship etc.
 External Environment factors are either micro or macro environment. They are beyond the control of
individual enterprise and are dynamic in nature. These are technological, physical, political and socio
cultural, customer, supplier, etc.
 If one want to understand business environment he has to do 2 things namely 1) Understand
internal and external factor of organization; and 2) Conduct environmental scanning to understand the
changes taken place in external environment.

Q-1 Characteristics of Business Environment

Tips:
1) Environment is complex:
 It is so because that it consists of various factors, events, conditions and influences arising from
different sources. All these do not exist in isolation but interact with each other to create entirely new
sets of influences. It is difficult to comprehend at once but easier to understand in parts.
 Example: Environment of reliance industries is so complex to understand because it comprises of various
factors such as innovation, technological complexity, global competition, leadership change, and shifting
economic, social, and regulatory conditions. As a whole, it is very difficult to understand but it can be understood
individually one by one.
 It has to be understood properly with an effective data driven transformation strategy that provides
systems thinking, innovation, change management, big data analytics and visualization that gives knowledge,

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skills, and tools to guide your organization from “as-is” to your desired “to-be” .

2) Environment is dynamic:
 The environment is constantly changing in nature. Due to varied influences, environment is dynamic which
causes to continuously change its shape and character.

3) Environment is multi-faceted:
 Shape and characters of an environment depends upon the perception of the observer. A particular
change or a new development in environment may be viewed differently by different observers.
 It is frequently seen that same development is welcomed as an opportunity by 1 company while another
company perceives it as a threat.

4) Environment has a far reaching impact:

 The environment has a far reaching impact on organizations. The growth and profitability of an
organization depends critically on the environment in which it exists.
 Any environment change has an impact on the organization in several different ways.
Note: It requires transformation strategy to understand environmental complexities, dynamism, multi-facet and its far reaching
impact. This strategy provides analytics mechanism such as big analytics, visualization, discussion, lectures, case studies and problem
solving session etc. so that these could be understood properly and apply better solution to manage business environment.

Q-2 Components of Business Environment:

 The environment in which an organization exists could be broadly divided into 2-parts the external and the internal
environment because it is complex, dynamic, multi- faceted and has a far reaching impact.
 The internal environment refers to all the factors within an organization which impart strengths or cause weaknesses of a
strategic nature.
 The external environment includes all the factors outside the organization which provide opportunity or pose threats to the
organization.

The economy at large

Technology Suppliers Substitute

FIRM Legislation &

regulations

Rivals Buyer

Societal
value & New Entrant
Lifestyle
Population and
demographic

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Environmental Influences
Q-1 Explain the four Environmental Influences on Business:
1) Opportunity:
 It is a favorable condition in the organization's environment which enables it to consolidate and
strengthen its position.
 Example: Growing demand, invention in new technology, new job offer etc.

2) Threat:
 Threat is an unfavorable condition in the organization's environment which creates a risk for, or
causes damage to, the organization.
 Example: Emergence of strong new competitors who offers stiff competition; launching of new similar
products by competitors, etc.

3) Strength:
 Strength is an inherent capacity of organization which can be used to gain strategic advantage over its
competitors.
 Example: Superior research and development skills, Latest technology, skilled human resources, well
equipped machineries, better internal control, TQM system, availability of sufficient funds etc.

4) Weakness:
 A weakness is an inherent limitation or constraint of an organization which creates a
strategic disadvantage.
 Example: Over dependence on a single product line, obsolescence of product, obsolete technology,
unskilled labour, insufficient funds, inferior raw material etc.

Q-2 What is SWOT analysis? Explain the purpose of SWOT Analysis?

 It is a systematic approach to understand the internal and external environment is the SWOT analysis.
 It represents the comparison of strengths, weakness, opportunities and threats of each strategy amongst
others available to be pursued.
 SWOT, which is the acronym for strengths, weaknesses, opportunities and threats.
 In this analysis, the strengths and weaknesses existing within an organization can be matched with the
opportunities and threats operating in the environment so that an effective strategy can be formulated.
 Hence, an effective strategy capitalizes the opportunities through the use of strengths and neutralizes the
threats by minimizing the impact of weaknesses.

purpose of SWOT Analysis?

 Its central purpose is to IDENTIFY the strategies to create business model that will best match a company's
resources and capabilities to the demands of the environment in which it operates.
 Strategic managers COMPARE the various alternative strategies against each other with respect to their
ability to achieve major goals and superior profitability.

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Q-3 What are the significance of SWOT Analysis:

1) Logical Framework:
 It provides with a logical framework for systematic and sound thrashing of issues having bearing on the
business situation, generation of alternative strategies and the choice of a strategy.

2) Comparative Account:
 It presents information about both external and internal environment in a structured form to compare
external opportunities and threats with internal strengths and weaknesses.
 It helps in matching external with internal environments so that a strategist can come out with suitable
strategy by developing patterns of relationship such as high opportunities and high strengths, high
opportunities and low strengths, high threats and high strengths, high threats and low strengths.

3) Guiding strategist in Strategy Identification:

 It guides the strategist to identify the strategy for every patterns arising from such analysis to provide the
best solutions to every problems that organization faces.

4) Craft a business model (or models):

 On the basis of identified strategies, it helps manager to craft a business model through which business
functions can be strategically operated to gain competitive advantage in its industry.
 Competitive advantage leads to increased profitability, and this maximizes a company's chances of
surviving in the fast-changing, global competitive environment.

Q-4 Problems in understanding the environmental influences:

1) Encapsulation of all environmental influences:
 The environment comprises of many different diversified influences which can contribute to strategic
decision-making. Listing all conceivable environmental influences may be possible, but it may not be of really
much importance.

2) Uncertainty as to technological changes:

 Managers claim that technology and global communication changes faster and rapidly now than ever
before. However it is not as actual as it was claimed by managers.

3) Oversimplification of Complexities:
 Managers tend to simplify such complexity by focusing on aspects of the environment, which perhaps
historically important but might not actually.
 Strategic managers always find ways to oversimplify the complexities in understanding the environment,
while still achieving a useful and usable level of analysis.

Q-5 Framework to understand the environmental influences:

1) Firstly, it is useful to take an initial view of the nature of the organization’s environment in terms of uncertainty,
static / dynamic, and simple or complex. It helps in deciding what focus the rest of the analysis is to take.

2) The next step might be the auditing of environmental influences to identify different environmental
influences likely to affect the organization's development or performance. It is useful to relate such influences

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to growing trends towards globalization as well as to predict scenarios of possible futures to consider the extent of
strategies might need to change.

3) The final step is to focus on explicit consideration of organization’s environment such as competitive area
to analyze organization's competitive position to relate with those other organizations competing for the same
resources.

Micro and Macro Environment

The business environment can be categorized into 2 elements i.e, micro-environment and macro-environment.

Introduction:
Micro Environment Macro Environment
 It refers to the forces that are very close to the  It refers to all forces that are part of the larger
company and affect its ability to do routine periphery and distantly affect organization as well as
functions. micro environment.
 Micro-environment is related to small area or  Macro environment has broader dimensions.
immediate periphery of an organization.  It mainly consists with the element of economic,
 It consists of suppliers, consumers, marketing technological, political, legal and socio-cultural in terms
intermediaries and competitors, etc. of individuals, groups, agencies, events, conditions etc.
 Micro-environment influences an organization  It is largely external to the enterprise and thus
regularly and directly. beyond the direct influence and control of the
organization. It has powerful influence over its
 These are specific to the business and affect its
functioning.
working on short term basis.
 The elements of macro environment are general
environment and affect the working of all the
firms in an industry.

Various issues of micro environment: Various issues of macro environment:

 Who are the firm’s suppliers and how the links  Who are their threats in the competitive world in which
are developed between them? they operate and why?
 The firm’s employees, their characteristics and  Which areas of technology might pose a threat to
how they are organized. their current product range and why?
 The customer base on which the firm relies for  The bargaining power of suppliers and customers?
business.  The type of competition they are facing and their
 The local community within which the firm perceived threats and weaknesses?
operates.
 The direct competition and how they perform.
 The ways of raising the finance by firms.

Q-1 Elements of Micro Environment

1) Consumers/Customers:
 Customer is a person who pays money to acquire an organization's products and services . The
organizations cannot survive without customers.
 Customers may or may not be a consumer. Consumer is the one who ultimately consumes or uses the

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product or service. A father may buy a product as a customer for his daughter who will be a consumer.
 The marketer has to closely monitor and analyze changes in consumer tastes and preferences and their
buying habits.

2) Competitors:
 Competitors are the other business entities that compete for resources as well as markets. They are
threat to organization. Hence study of competitive environment is mandatorily required.
 There are a few major questions that may be addressed for analyzing competitions. Who are the
competitors? What are their present strategy and business objective? Who are the most powerful competitors?

3) Organization:
 Organization consists of number of individuals coming from outside occupying different positions and
each one has different and varied interests on organization.
 These are the factors that must be considered to study the organization i.e, owners, Board of directors
and Employees etc.
 Study of organization helps in understanding of its own strengths and capabilities in a particular business,
i.e., availability of resources, goals, objectives etc. in environment.

4) Market:
 Market is a place where commodities are sold and services are rendered to the customers. It may be large
or small in size. The market is larger than the customers.
 The market must be carefully analyzed in terms of its size, its growth and its attractiveness. The marketer
should study the trends, development and the key success factors of the market. Important issues are: Cost
structure of the market; the price sensitivity of the market; Technological structure of the market, the existing
distribution system of the market.

5) Suppliers:
 Supplier provides raw materials, equipment, services etc. for production of final products.
 Suppliers must be carefully analyzed to control the cost structure of finished goods.
 Organizations must take major decisions on “outsourcing” or “in-house” production depending on this
supplier environment.

6) Intermediaries:
 Intermediaries exert considerable influence on the business organizations.
 They provides the services of assisting buyers and sellers in purchasing and selling of products and
rendering as well as receiving of services between service provider and service receiver.

Q-2 Elements of Macro-Environment

Tips:

1) Demographic Environment:
 The term demographic denotes characteristics of population in area, district, country or in world.
 It includes factors such as age, income, educational attainment, asset ownership, home ownership,
employment status and location.
 Factors such as general age profile, sex ratio, education, growth rate affect the business with different
magnitude. Many multinationals are interested in India considering its population size.

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Q-3 What are the Elements of demographic environment? [OR]

What are the changes have been identified in demographic elements?
i) Population Size:
 Population size, whether large or small , may be important to companies to identify potential
customers. Changes in population’s size may have even more critical implications on the organizations.
 Among the most important changes in a population's size are: Changes in a family size; changes in the total
population; Effects of rapid population growth on natural resources or food supplies.

ii) Geographic Distribution:

 Population shifts from one region of a nation to another or from non-metropolitan to metropolitan
areas may have an impact on a company's strategic competitiveness.
 Issues that should be considered include:
o The attractiveness of a company's location.
o Re-allocation of location if population shifts substantially.

iii) Ethnic Mix: (ethnic means connected or relating to different racial or cultural groups of
people)
 This reflects the changes in the ethnic make-up of a population and has implications both for a
company's potential customers and for the workforce.
 Issues that should be addressed include:
 Changes in the ethnic mix of the population?
 Will new products and services be demanded or can existing ones be modified?
 How managers manage more culturally diverse workforce?

iv) Income Distribution:

 Changes in income distribution are important because changes in the levels of individual and group
purchasing power and discretionary income often result in changes in spending (consumption)
and savings patterns.
 Changes in income patterns may identify new opportunities for companies.

2) Economy Environment:
 It refers to the nature and direction of the economy in which a company competes. It helps to determine the
strength and size of the market.
 It includes general economic situation in the region and the nation, conditions in resource markets (man,
money, market, material and machines etc.) which influence the supply of inputs to the enterprise and their
costs, quality, availability and reliability of supplies.
 Strategists must assess a number of key economic factors such as interest rates, tax rates, inflation
rates, money market rates, price fluctuations etc. for both domestic and key international markets.

3) Political-Legal Environment:
 This is partly general to all similar enterprises and partly specific to an individual enterprise.
 It includes factors such as political issues, government policies, law and order situation, political ideas
and stability, general and specific legal enactments and framework in which the enterprise has to function
and the degree of effectiveness with which they are implemented.

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Q-4 Elements in Political legal environment:

i) Government:
 The type of government running a country is a powerful influence on business. Business is highly
guided and controlled by government policies.
 If there are changes in the elected government, it affects political and legal environment and thus provides
significant changes in the economic policies and the regulatory framework.
 These changes affect the businesses through their political ideology and practices of ruling party,
government policies etc.
 For example: introduction of Value Added Tax has major impact on the business.

ii) Legal:
 Business organizations prefer to operate in a country having sound legal system. Businesses
must understand the relevant laws relating to companies, competition, intellectual property, foreign
exchange, labour and so on and do their business according to the laws and regulations.

iii) Political:
 Political pressure groups put influence and limitations on organizations to pay more
attention to consumer’s rights, minority rights, and women rights.

4) Technological Environment:
(Q-5 Write a short note on technological environment? Ans: Introduction + Factors + Key questions for assessment
of technology)
 Technology is the most dynamic of all the environmental factors in terms of various dynamic products and
dynamic processes (R&D, Quality inspections etc.) in the industry.
 Changes in technology vitally affect the organization’s cost, profitability, market price, quality, product lines,
growth and development.
 Technology and business are highly inter related and inter dependent with each other.
 Technology can act as both opportunity, if adopted, and threat, if not adopted, in a business. For example,
an innovative internet system for telecommunication system if not adopted will become the weakness in e-
commerce business.
 It improves the quality of social life and raises the standard of living.

Q-6 What are the factors for technological environment:

Tips: Ch O R R
 Technological change.
 Opportunities arising out of technological innovation.
 Risk and uncertainty of technological development.
 Role of R&D in a country and government’s R&D budget.

Question-7: Suppose, Dell Computer Corporation wants to reduce its paperwork flow, schedules its
payments more efficiently, and is able to coordinate its inventories efficiently and effectively by using the
capabilities of the Internet. What are the questions can be asked to assess the technological environment?

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Q-7 Key questions asked in assessing the technological environment:

 What are the technologies used by the company?
 Which technologies are utilized in the products of organization?
 How critical is each technology to each of these products and businesses?
 Which external technologies might become critical and why? Will they remain available outside the
company?
 What are the investments in the product and in the process of these technologies?
 Which technological investments should be eliminated?
 What are the other applications of the company's technologies? In which applications does the
company currently participate and why? In which application does the company does not participate
and why?
 What are the implications of the technology and business portfolios for corporate strategy?

5) Socio-Cultural Environment:
 It helps to provide consistency to perform their operations in a similar manner.
 It includes factors such as social traditions, social values and beliefs, level and standards of literacy
and education, the ethical and moral standards etc. required to be analyzed to determine
interrelationship amongst individuals.

Q-8 Factors influencing operating in socio cultural environment:

 Social concerns, such as the role of business in society, environmental pollution, corruption, use of
mass media, and consumerism.
 Social attitudes and values, such as expectations of society from business, social customs, beliefs,
rituals and practices, changing lifestyle patterns, and materialism.
 Family structure and changes, attitude towards and within the family and family values.
 Role of women and children in family and society.
 Educational levels, awareness and consciousness of rights, and work ethics of members of society.

6) Global Environment:
 Globalization refers to the process of integration of the world into one huge market (i.e, vasudhaiva
kutumbkam).
 At the company level, globalization means 2 things:
(a) the company commits itself with several manufacturing locations around the world and offers products
in several diversified industries, and
(b) it also means ability to compete in domestic markets with foreign competitors.

Q-9: 3-characteristics of a global company:

 It is a conglomerate of multiple units having common ownership.
 Multiple units draw on a common pool of resources, such as money, credit, information, patents etc.
 It uses common strategy.

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Q-10 Why do companies go global?

There are several reasons why companies go global. These are discussed as follows:
1) It secures reliable and cheaper source of raw-materials for production of products.
2) It requires to spent large sums on R&D for new products in the case of high-tech industries such as
electronics and telecommunications organizations to increase sales volume.
3) It reduces high transportation costs.
4) It is being realized that the domestic markets are no longer adequate and rich.
5) It helps in developing attractive new products which sell them first in their home markets and at later in
foreign market.
6) One reason could be the rapid shrinking of time and distance across the globe i.e, faster communication,
speedier transportation, growing financial flows and rapid technological changes.

Q-11: What are the developments are responsible for TRANSNATIONAL OPERATION of
companies:
 Increasing emphasis on market forces in all developing countries.
 A growing role for the private sector in all developing countries;
 Rapidly changing technologies that are transforming the nature, organization, an location of
international production;
 The globalization of firms and industries;
 The rise of services to constitute the largest single sector in the world economy; and regional economic
integration, which has involved both the world's largest economies as well as select developing countries.

Q-12 Manifestation of Globalization:

Globalization manifests itself in many ways. Important of them are:

1) Configuring anywhere in the world:

 If an MNCs locate its different operations in different countries on the basis of raw material availability,
consumer markets and low-cost labour. It is a symbol of globalization.

2) Interlinked and independent economies:

 If country's prosperity is interlinked with the rest of the world and it avoids function in isolation by each domestic
companies. It is a symbol of globalization.

3) Lowering of trade and tariff barriers:

 If trade removes the tariff barriers and custom barriers by redefining the roles of state and industry. It is a
symbol of globalization.

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 It leads to more privatization of manufacturing and public sectors, less government interference in business
decisions.

4) Infrastructural resources and inputs at International prices:

 If infrastructural inputs are available at international based competitive prices. It is a symbol of
globalization..
 For example, cheap labour availability, choice amongst raw materials available globally in dollar currency
etc.

5) Increasing trend towards privatization:

 If governments would withdraw his hands from owning and running business enterprises and give full
freedom to private enterprises to run their businesses independently. It is a symbol of globalization.

6) Entrepreneur and his unit have a central economic role:

 If the entrepreneur and his unit become central figures in the process of economic growth and
development of a nation. It is a symbol of globalization.
 It leads to innovation, bring new products, and contribute to nation's wealth because of R&D research
in an international level.
 The more risk they take, the more reward they get but it provides cost effective and quality of products
helping in surviving the business.

7) Mobility of skilled resources:

 If skilled labours are highly mobile and are allowed them to roam freely around the world for job purpose. It is
a symbol of globalization. They play a vital role in production of goods, plant location, usage of new technology
because they are expert in their jobs.
 Where labour is unskilled, managements are spending large amount of money to train workers.

8) Formation of regional blocks: (BB Meri NPS + India)

 If there is a formation of trade blocks. It is a symbol of globalization.
 India is part of South Asian Association for Regional cooperation (SAARC). SAARC consists of 7 South
Asian Countries with Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka as its members in
addition of India. It accelerates the economic growth, social progress and cultural development in the
region.

9) Market-side efficiency:
 Integration of global markets implies that costs, quality processing time, and terms of business become
dominant competition drivers.
 Customers can now make a genuine choice of products and services on the basis of maximum value for
money.

Q-13 PESTLE Analysis:

It is an analysis of the factors of external environment.

1) Political:
 It is required to be analyzed to know how and up to what extent government intervening organization.
 It includes goods and services that government wants to provide or be provided or does not want to be
provided. Governments have great influence also on health, education and infrastructure of a nation.

2) Economy:
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 It is analyzed to know how businesses operate and take decisions.

 It includes interest rates affect a firm's cost of capital and therefore to what extent a business grows and
expands. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in
an economy and therefore to what extent goods are to be imported. Hence, money supply, inflation, credit
flow, per capita income, growth rates have a bearing on the business decisions.

3) Socio cultural:
 It is analyzed to know how it affects the demand for a company's products and how that company
operates.

4) Technological:
 It is analyzed to know how it affects production level and influence outsourcing decisions. Furthermore,
technological shifts can affect costs, quality, and lead to innovation.

5) Legal:
 It is analyzed to know how it affects the company operation, costs and the demand for its products.

6) Environmental Analysis:
 It is analyzed to know how it affects operation and the products /services of industries such as tourism, farming,
and insurance industries etc. if there is a change in existing climate.
 It helps in creating new markets and diminishing or destroying existing ones.

Q-14 What is Environmental Scanning? Explain factors affecting it?

Introduction:
 Organizational environment consists of both internal and external factors.
 It is the process of gathering information regarding company’s environment, analyzing it and
forecasting the impact of all predictable environmental changes.
 It is a process to identify opportunity and threats affecting their business for the purpose of taking
strategic decisions.
 It is very useful while formulating the strategy to take the advantage of opportunities and minimize
the threats.

Factors of Environmental Scanning:

Tips: TIEE

1) Trends:
 Trends are the general tendencies or the courses of action along which events take place.
 Trends are grouping of similar or related event that tends to move in a given direction, increasing
or decreasing in strength of frequency of observations and usually suggests a pattern of change
in a particular area.
 (For example, consumer behavior, technology uses).

2) Issues:
 Issues are the current concerns that arise in response to events and trends which is more difficult.
 It starts with a value shift, or a change in how an issue is viewed.

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3) Events:
 It is a specific occurrences taking place in different environmental sectors.
 Events are certain happening in the internal or external organizational environment which can be
observed and tracked.

4) Expectations:
 Expectations are the demands made by interested groups in the light of their concern for issues.

Q-15 Goal of Environmental Analysis

1) The analysis should provide an understanding of current and potential changes taking place in the environment.
It is important that one must be aware of the existing environment and have a long term perspective about the future
too.
2) Environmental analysis should provide inputs for strategic decision making. Mere collection of data is not
enough, it must be useful for strategic decision making.
3) Environment analysis should facilitate and foster strategic thinking in organizations to provide rich
source of ideas and understanding of firm’s situations and conditions bringing fresh viewpoints into the
organization.

Q-16 Relationship between Organization and environment:

1) Exchange of information:
 The organization scans the external environmental variables, their behaviour and changes and generates
important information and uses it for its planning, decision-making and control purposes.
 It helps to make organizational structure and functioning is in tune with external environmental information.
It solves problems of uncertainty and complexity of the external environment.
 It covers gathering of past, present and future information related to economic activity and market conditions,
technological developments, social and demographic factors, political governmental policies and postures, the
activities of other organizations and so on. Apart from gathering information, the organization also transmits
information to governmental agencies, investors, employees, trade unions, professional bodies and like several
external agencies either voluntarily, inadvertently or legally through advertisements, annual reports etc.

2) Exchange of resources:
 The organization receives inputs in the form of finance, materials, manpower, equipment etc. from the
external environment through contractual and other arrangements and used these inputs in producing output of
products and services.
 Organization need to communicate with several external organizations say supplier group for getting input
and say clientele group such as customers, shareholders, general public etc. for providing output.
 Resources are exchanged with environment to fulfill all needs of all environmental factors such as customer,
shareholders, government and general public etc.

3) Exchange of influence and power:

 It is another area of organizational environmental interaction is in the exchange of power and influence.
 The external environment holds considerable power over the organization both by virtue of its being more
inclusive as well as command over resources, information and other inputs.

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 It offers a range of opportunities, incentives and rewards on the one hand and a set of constraints, threats
and restrictions on the other. In both ways, the organization is conditioned and constrained.
 Example: Governmental control over the organization is one such power relationship. Other organizations,
competitors, markets, customers, suppliers, investors etc., also exercise considerable collective power and influence
over the planning and decision making processes of the organization.

Q-16 Various approaches for strategic Responses to the Environment

Tips:

1) Least resistance:
 At first level, it covers businesses that manage to survive by way of coping with their changing external
environments.
 They are simple goal-maintaining units. They are very passive in their behavior. They are solely guided by
the signals of the external environment. They are not ambitious at all and hence they are least resistance.

2) Proceed with caution:

 In this level, businesses take an intelligent interest to adapt all changes occurred in external environment.
 They monitor the changes in that environment, analyze their impact on goals and translate their
assessment in terms of specific strategies for survival, stability and strength.

3) Dynamic response:
 At a still higher sophisticated level, businesses are partially manageable and controllable by their
action. They are highly dynamic and powerful. They are not merely recognizing threats but also they
convert threats into opportunities.
 They are highly confident of their own strengths and the weaknesses . They generate a contingent
set of alternative courses of action to make the adverse environment positive towards them.

Competitive Environment
 Competition plays a vital and lead role for growth and development of business. It provides the information of
on-going situation of markets and hence also provides many opportunities to develop the new products
with high quality and sound technology to satisfy the consumer needs.
 Competition has its own benefits and demerits as well. Competition reduces the profit margin per unit but
increases the choice of customers as to selection of products at acceptable price range.
 Competition affecting the rate of growth, income distribution and consumer welfare.
 Businesses have to consider competitor’s strategies, profits levels, costs, products and services
when preparing and implementing their business plans.

Q-1 Identification of nature and extent of competition by answering the

following questions:
(i) Who are the potential competitors?
(ii) What are their product and services?
(iii) What are their market shares?
(iv) What gives them cost and price advantage?

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(v) What are their financial positions?
(vi) What are they likely to do next?
(vii) Who are the potential future competitors?

Q-2 Co-operation in a Competitive Environment:

 In economics we study oligopoly, wherein a small number of only manufactures/sellers of a product may join
together to have monopolistic behaviour.
 Examples of oligopoly are: Organization of the Oil Exporting Countries (OPEC), which is collective group of
nations extracting and exporting oil; Cold drink manufacturers have arrangement with chain of restaurants in
relation to cold drinks; Tata has arrangement with Fiat in relation to car.
 It secures co-ordination and unification of policies for product prices amongst various countries to ensure
the stabilization of prices in international market with a view to eliminating harmful and unnecessary
fluctuations.

 Kieretsus:
 The word “Kieretsus” is a japanese term which is being used to refer “LARGE CO-OPERATIVE
NETWORKS OF BUSINESS.
 It provides the benefit of co-operation amongst such large co-operative groups of network.
 This concept enhances the abilities of individual member and prefers to do business with
other kieretsu members.
 It is a loosely-coupled group of companies, usually in related industries.
 Kieretsu members are peers and may own significant amounts of each other’s stock and have many
common board members. However, they are different in ownership pattern.
 However, they remain independent companies and will not share information at all.

Q-3 Co-operation on account of family ownership:

 Ownership Group:
 Theoretically, co-operation generates automatically in businesses owned by a same family. The
ownership group is nothing but a family and its kith and kin.
 Ownership Group in India:
 There are very large numbers of business enterprises, big, medium and small, are family-managed enterprises. It
includes large business houses such as Tata, Birla, Godrej, Reliance, Modi, Escorts and et al. Major decisions
and minor decisions are made by members of the family who manage the enterprise.
 Family members influence managerial decisions:
 The interests of the family largely influence the managerial decisions and activities of the enterprise. Such
decision is taken on the basis of needs and goals of the family and enterprise.
 Personal conflicts affects family member’s behaviour:
 The interests of the family largely influence the managerial decisions and activities of the enterprise. Such
decision is taken on the basis of needs and goals of the family and enterprise.
 Sometimes, quarrels and conflicts among the managing members of the family on family matters
tend to distort their behaviour in managing the enterprise also and thereby damage its functioning.

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Q-4 Porter’s Five Forces Model - Competitive Analysis

1) Rivalry amongst current players:
 Competitive pressures come from existing competitors already available in the market. It gives more
competitive pressures on prices, margins etc. Hence Profit margin per unit will go gradually down.
 Competition amongst existing players will be high when they have same product with same features and
same size; players having similar strategies; no substantial differences in the products, prices, costs, quality and
advertisement pattern etc.

2) Threat of new entrants:

 Competitive pressures associated with the threat of new entrants into the market. New entrants are always a
powerful source of competition.
 They brings new capacity and new product’s range which brings new competitive pressures.
 They put the limitation upon the market price of competitors and affect the profitability.

3) Threats from substitutes:

 This competitive pressure comes when competitor gives option to buyer to buy his substitute product.
 It helps to win buyers over their own substitute products.

4) Bargaining powers of suppliers:

 It refers to the bargaining powers of suppliers over companies.
 They sometimes hit more prices for delivery of good and qualitative services to company. Suppliers
demand bargaining in context of increase in price charged by supplier for his qualitative goods and services
provided.

5) Bargaining powers of customers:

 It is another force which affects the competitive conditions of industry.
 It does not only affect the market price of producers but also affect cost and investments of
producer because they also demand for better and qualitative services which involve heavy cost and
investments.
Steps to determine leuel of competition pressures as per porter’s model
1) Step 1: Identify the specific competitive pressures associated with each of the five forces.
2) Step 2: Evaluate how strong the pressures comprising each of the five forces are (fierce, strong,
moderate to normal, or weak).
3) Step 3: Determine whether the collective strength of 5-competitive forces is conducive to earning
attractive profits.

Rival sellers Substitute Products

amongst existing offered by seller’s of
firms other industries
New Entrants

Industry Competitor’s

Supplier’s bargaining
Buyer’s bargaining powers
powers

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CHAPTER-2 BUSINESS POLICY & STRATEGIC MANAGEMENT

Business Policy as a Discipline

 It is framed by management for development and implementation of day-to-day planning techniques in a
standardized way.
 It replaces the long term planning into strategic planning.
 It enables the person to handle the roles and responsibilities of various personals within the management.
 It provides the guidance and direction to the organization for functioning of various activities in an efficient and
effective manner.
 It provides information for anticipation of future through preparation of budgets and using control systems like
capital budgeting and management by objectives.
 It presents a framework for understanding strategic decision making.

Meaning and Nature of Management

 Management is a set of activities to carry out to manage, maintain and control the various resources,
facilities and valuable assets of the organization and discharge the functions.
Level of Management in organization:
a) Top level management (Strategic level): It deals with formulation of strategy to solve issues related to the critical
to the survival of business.
b) Middle level management (Business level): It deals with the implementation of strategy framed by the top level
management by coordinating amongst various functional level managers.
c) Lower level management (Operational level): It deals with the management of various functions carried out
within the organization.
Nature:
 Managers formulate their goals, values, organization structure, resources and strategies, to cope with, to adapt
and to adjust themselves with the behaviour and changes of the environment.
 It integrates the disorganized resources of manpower, money, materials, and technology into a functioning.
 Management taking the charge of all affairs of organization.
 They also include adoption of certain techniques, tools and methods for carrying on activities, and installation

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of communication and control systems to ensure that what is planned is achieved.

 The survival and success of an organization depend to a large extent on the competence and character of its
management.
 It facilitates organizational change and adaptation.

Vision, Mission and Objectives

Vision: an Introduction
 A Strategic vision is A ROAD MAP of a company’s future providing specifics about
- the technology and customer focus,
- the geographic and product’s markets
TO BE PURSUED, the capabilities it plans to develop, and the kind of company that management is trying to
create.
 A strategic vision providing a long way view of the “where we are going”.
 It provides direction and charts etc. to follow strategic path to shape the future and change organizational
identity.

Q-1 Elements of a strategic vision:

1. Defines the current status of business:
 It defines what business the company is presently in and conveys the essence of “Who we are and
where we are now?”

2. Assist in making the choice of destiny:

 It assists in deciding on a long-term course making choices about “Where we are going?”

3. Communicating the clear vision:

 Communicating the strategic vision in clear, exciting terms that arouse organization wide commitment.

Q-2 How to develop a strategic vision:

 Developing a strategic vision requires to think creatively about how to prepare a company for the future.
 It requires an intelligent entrepreneurship.

 It requires changing direction as and when required not in order to survive but in order to maintain their success.
 Strategic vision should create enthusiasm and engages members of the organization towards the organization’s vision.
 It should clearly provide the direction to achieve their goals.

Mission: an Introduction
 It is a visualization of organization's future.
 A company’s Mission is an OPEN statement which provides focus on its present business scope – “who we are
and what we do”.
 A mission is not a confidential affair exclusive for the top management; rather it has to be open to the entire
company. It represents the common purpose which is required to be shared and pursued.

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 According to Glueck & Jauch, mission is an answer to the question ‘what business are we in’.
 It describes an organization’s present capabilities, customer focus, activities, and business makeup.
 It defines the role and responsibilities of an organization required to be played in the society.
 It provides direction, supervision and control to each and every member of organization.

Q-3 Why organization should have mission?

 To ensure unanimity of purpose within the organization.

 To facilitate the translation of objective and goals into a work structure involving the assignment of tasks to
responsible personnel within the organization.

 To specify and translation of organizational purposes into goals in such a way that cost, time, and
performance parameters can be assessed and controlled.

 To develop a basis, or standard, for allocating organizational resources.

 To establish an organizational climate.

 It helps to those who can identify purpose and direction, and to deter those who cannot form participating in activities.

 To provide a basis for motivating the use of the organization’s resources.

Q-4 Characteristics of writing a good mission statement:

 It should be precise, clear, feasible, distinctive and motivating. It should indicate major components of strategy.
 It defines the company’s business and what needs are trying to satisfy, which customer groups it is targeting and
which technologies and competencies it uses and the what activities it performs.
 Good mission statements are highly personalized and unique to the organization for which they are developed.
 It gives to organization its own special identity, business emphasis and path for development.
 Technology, competencies and activities are important in defining a company’s business because they
indicate the boundaries on its operation.

Objective: an Introduction
 Objectives are organizations performance targets – the results and outcomes it wants to achieve. They
function as yard stick for tracking an organizations performance and progress.
 Objectives are open-ended attributes that denote the future states or outcomes. Goals are close-ended
attributes which are precise and expressed in specific terms.
 Thus the goals are more specific and translate the objectives to short term perspective.
 Attempting to achieve objective is an unending process. For example: organizations sustainability.
 It provides meaning and sense of direction to organizational endeavour.
 It acts as benchmarks for guiding organizational activity and for evaluating how the organization is performing.

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Q-1 Characteristics of Objectives:

 Objectives should be measurable and controllable.

 Different objectives should correlate with each other.
 Objectives should be challenging.
 They should provide the basis for strategic decision-making.
 They should be facilitative towards achievement of mission and purpose.
 Objectives should define the relationship of organizations with its environment.
 Objectives should be understandable .
 They should provide standards for performance appraisal.
 Objectives should be concrete and specific.
 Objectives should be related to a time frame.
 Objectives should be set within constraints.

Strategy
 Definition as per William F. Glueck: - “A unified, comprehensive and integrated plan designed
to assure that the basic objectives of the enterprise are achieved.”
 It consists of the combination of competitive moves and business approaches to convince customers,
compete successfully and achieve organizational objectives .
 It is formulated at top level management, implemented at middle level management and operated at lower level
management.
 It has distinct characteristics such as they are prolonged, integrated, multi functional, action oriented etc.
 It is flexible and dynamic .
 Effective strategy reduces the complexities and uncertainties of environment.
 Strategy should be partly pro-active and partly re-active.
 Strategy can never be perfect, flawless and optimal.

Q-1 When Strategy is partly proactive and when partly reactive:

Strategy is proactive:
 Strategy is proactive because sometimes it is made on the basis of the positive and effective result obtained from
the previous actions taken and is intended to continue with the merits obtained which strengthen the company’s overall
position and performance.
 Proactive/planned actions on the part of managers to improve the company's market position and financial
performance;

Strategy is reactive:
 Strategy is sometimes reactive because when market and competitive conditions take an unexpected turn, some
kind of strategic reaction or adjustment is required. Hence, a portion of a company's strategy is always
developed as a reasoned response to unforeseen developments.
 Reactive actions on the part of managers to unanticipated developments and fresh market conditions.

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Crux: Crafting a strategy thus involves grouping of proactive as well as reactive strategy and then adapting first one piece
and then another as circumstances changes.

Corporate Strategy
Introduction:
 Corporate strategy is basically the growth design of the firm; it spells out the growth objective - the direction,
extent, pace and timing of the firm's growth.
 It also spells out the strategy for achieving the growth. Thus, we can also describe corporate strategy as the
objective-strategy design of the firm.
 In corporate strategy, the set of goals has a system of priorities; the combination, the sequence and the timing
of the moves, means and approaches are determined in advance; the implications of decisions and it should be
flexible and contingent.

Q-1 Characteristics of Corporate Strategy:

 It is flexible and dynamic.

 It is multipronged and integrated.
 It is concerned with perceiving opportunities and threats and seizing initiatives to cope with them.
 It provides unified criteria for decision making by managers.
 It flows out of the goals and objectives of enterprise and to translate them into realities.
 It is action oriented and is more specific than objectives.
 It gives importance to timing, direction, sequence, combination, and depth of various moves and
action initiatives taken by managers to handle environmental uncertainties and complexities.
 It is formulated at the top management level, implemented at middle level and operated at lower level
of management.
 It is generally of long-range in nature, though it is valid for short-range situations also.
 It is generally meant to cope with a competitive and complex setting.
 It is also concerned with deployment of limited organizational resources in the best possible manner.

Q-2 Nature, scope and concerns of corporate strategy

Corporate strategy is basically concerned with the choice of businesses, products and markets.
The following points will clarify the corporate strategy.

 It can also be viewed as the objective-strategy design of the firm.

 It describes the entire concepts of business organization wise.
 It is the design for filling the firm's strategic planning gap.
 It is concerned with the choice of the firm's products and markets; it actually denotes the changes /
additions / deletions in the firm's existing product-market postures.

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 It ensures that the right fit is achieved between the firm and its environment.
 It helps build the relevant competitive advantages for the firm.

Q-3 What does corporate strategy ensure?

 It ensures the growth of the firm.
 It ensures the correct alignment of the firm with its environment.
 It serves as the design for filling the strategic planning gap.
 It also helps build the relevant competitive advantages.
 Masterminding and working out the right fit between the firm and its external environment is the
primary contribution of corporate strategy.
 The purpose of corporate strategy is to harness the opportunities available in the environment, countering the
threats embedded therein.
 It amounts to long-term, well thought-out and prepared responses to the various forces in the business
environment.

Q-4 Stages of Corporate Strategy Formulation-Implementation Process: (refer chapter-4 of Module)

Crafting and executing company’s strategy is a 5 stage managerial process as given below:

1) Developing a strategic vision:

 It is required to indicate where the company needs to head and what its future’s product, customer,
market, and technology focus should be.

2) Setting objectives:
 It is required to indicate the yardsticks for measuring the company’s performance and progress to ensure
whether achieving objectives .

3) Crafting a strategy:
 It is required to achieve the desired outcomes and move the company along the strategic course that
management has charted.

4) Implementing and executing the chosen strategy:

 It is required to be done to indicate whether chosen strategy is working efficiently and effectively.

5) Monitoring developments and initiating corrective adjustments :

 It is required to ensure whether company’s actual performance, actual changing conditions, actual new
upcoming ideas and actual new upcoming opportunities etc. are as per the company's long-term
direction, objectives defined under the crafted strategy.
 If no, it is required to be changed and revised from time to time.

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Write a short notes on:

Q-5) What is Mission & Strategic Intents during the phase of making vision:
 It is a statement of mission and managers should be cleared about their roles and responsibilities and
their future goals and objectives.
 It helps to provide strategic direction rather than only having strategy for in-depth understanding of each and
every SBU unit.
 Strategic direction plays a vital role in providing a common direction to select the best one amongst the strategic
choice.
 Once managers charged with developing a strategy, he should also need to be clear about best fit of
strategies into the whole organization.
 A clear strategic intent helps in providing motivation and enthusiasm throughout the organization.
 A company must follow strategic intent that wants to achieve continuously goal oriented strategic objective
and concentrates its full resources and competitive actions. In the absence of this, there is a risk of the
different parts and different levels of management in organization.

Q-6) What is balanced scorecard approach:

 It is a combination of strategic and financial objectives.
 This approach requires setting both financial and strategic objectives and tracking their achievement for
measuring company performance.
 Unless a company is in deep financial difficulty, such that its very survival is threatened, company
managers are well advised to put more emphasis on achieving strategic objectives than on achieving
financial objectives whenever a trade-off has to be made.
 The surest path to sustained future profitability quarter after quarter and year after year is to
continuously pursue strategic outcomes that strengthen a company’s business position.
 Achievement of strategic objectives (*such as market strength and competitiveness improvement) enables a company to
deliver better financial results from operations.

Q-7) What are the 3 assessments are relevant while crafting strategy / making strategic decision:
In making strategic decisions, inputs from a variety of assessments are relevant. However, the core of any strategic
decision should be based on three types of assessments.
1) The first concerns organizational strengths and weaknesses.
2) The second evaluates competitor strengths, weaknesses, and strategies, because an organization's
strength is of less value if it is neutralized by a competitor's strength or strategy.
3) The third assesses the competitive context, the customers and their needs, the market, and the market
environment.

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Q-8) What are the Principal aspects in managing the strategy-execution process:

 It ensures that policies and operating procedures facilitate effective execution.

 It uses best-known practices to perform core business activities and pushing for continuous
improvement.
 It creates strong "organizational fits" between strategy and organizational capabilities, between strategy and
the reward structure, between strategy and internal operating systems, and between strategy and the organization's
work climate and culture.
 It helps in staffing the organization with the needed skills and expertise, competencies and competitive capabilities, and
organizing the work effort.
 It helps in creating a company culture and work climate for successful strategy implementation and
execution.
 It should install information and operating systems that enable company personnel to carry out their strategic roles
day in and day out.
 It helps in declaring rewards and incentives to the achievement of performance objectives and good strategy
execution.
 It helps in developing budgets that steer ample resources into those activities critical to strategic success.
 It helps in motivating people to pursue the target objectives energetically.
 It helps in providing leadership for implementation and execution of strategy when organization encounters
problems and weaknesses.

Strategic management
Introduction:
 Strategic management is defined as the art and science of formulating, implementing and evaluating cross
functional decisions that enable the organization to achieve its objectives.
 Strategic management is not only related to a single specialization but covers cross functional or overall
organization.
 Strategic Management refers to the managerial process of
- forming a strategic vision,
- setting objectives,
- crafting a strategy,
- executing and implementing the strategy; and
- monitoring of such vision, objectives and strategy and applies corrective adjustments wherever it
requires.
 Strategic planning is an important component of strategic management which involves developing a strategy
to meet competition and ensures long-term survival and growth.
 It assists manager in creating and delivering a superior value to targeted customers and ensures dynamic business
environment to adopt changing needs.

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Q-1 Framework of Strategic Management Process:

The basic framework of strategic process can be described in a sequence of five stages. The five stages are as follows:
Stage-1) Where are we Now? (Beginning):
 This is the starting point of strategic planning and consists of doing a situational analysis of the firm in the
environmental context.
 It includes finding out its strength and weakness of organization, its relative market position, corporate image,
and also environmental threats and opportunities also known as SWOT analysis (Strength, Weakness,
Opportunity, Threat).
Stage-2) Where are we Want to Be? (Ends):
 It is a process of goal setting for the organization after it has finalized its vision and mission.
 A strategic vision is a roadmap of the company’s future specifies about technology and customer focus, the
geographic and product markets to be pursued etc.
 An organization’s Mission states what customers it serves, what need it satisfies, and what type of product it
offers.
Stage-3) How Might we Get There? (Means):
 Here the organization deals with the various strategic alternatives it has.

Stage 4) Which Way is Best? (Evaluation):

 Out of all the alternatives generated in the earlier stage the organization selects the best suitable alternative in line with
its SWOT analysis.
Stage 5) How Can we Ensure Arrival? (Control):
 It is an implementation and control stage of a suitable strategy. Here again the organization continuously
does situational analysis and repeats the stages again.

Q-2 Importance / Benefit of Strategic Management:

 It helps organizations to be more proactive instead of reactive in shaping its future.
 It provides framework for all the major business decisions of an enterprise such as decisions on businesses, products,
markets, manufacturing facilities, investments and organizational structure.
 It is concerned with ensuring a good future for the firm.
 It serves as a corporate defense mechanism against mistakes and pitfalls.
 It helps organization to evolve certain core competencies and competitive advantages that assist in its fight for
survival and growth over a period of time.

Strategic Decision Making

Introduction:
 Decision making is a managerial process and function of choosing a particular course of action out of several
alternative courses for the purpose of accomplishment of the organizational goals.
 Decisions may relate to day to day operations.
 They may be major or minor . They may also be strategic in nature.
 Strategic decisions are different in nature than all other decisions which are taken at various levels of the organization

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during day-to-day working of the organizations.

Q-1 Major dimensions of Strategic Decisions:

1) Top-management decisions:
 Strategic issues involve strategic thinking in totality but there is also a lot of risk involved. Hence, it
requires strategic decisions require to be considered by top management who is more qualified & experienced.

2) Allocation of large amounts of company resources:

 It may require huge financial investment to venture into a new area of business. Alternatively,
organization may require huge number of manpower with new set of skills in them.

3) Significant impact on the long term prosperity of the firm:

 Results of such strategic implementation are seen on a long term basis and not immediately.

4) Future oriented:
 Strategic thinking involves predicting the future environmental conditions and how to orient for the changed
conditions.

5) Multifunctional or multi-business consequences:

 Strategic issues affect different sections of the organization with varying degree because they provide strategic thinking
in totality to the organization.

6) 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 Levels in Organizations

1) Corporate level of management:
 It consists of the chief executive officer (CEO), other senior executives, board of directors, and
corporate staff. These individuals occupy for decision making process within the organization.
 The CEO is the principal general manager. The role of corporate-level managers is to oversee the
development of strategies for the whole organization.
 It affects to the critical to the survival of business.
 This role includes [May-15]
- defining the missions and goals of organization
- determining what businesses it should be in
- allocating resources among the different businesses
- formulating and implementing strategies and
- providing leadership for the organization, and
- provide link between people overseeing strategic development of a firm.

2) Business level of management:

 Business-level general managers are concerned with strategies that are specific to a particular business.
 The strategic role of these managers is to translate the general statements of direction and intent that come from
the corporate level into concrete strategies for individual businesses.

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 It affects the financial position, liquidity, goodwill and reputation of organization.

3) Functional level of management:

 Functional-level managers are responsible for the specific business functions or operations (human
resources, purchasing, product development, customer service, and so on) that constitute a company or
one of its divisions.
 Thus, a functional manager's sphere of responsibility is generally confined to one organizational activity,
whereas general managers oversee the operation of a whole company or division.
 It affects the efficiency and effectiveness of operations of the business.

Corporate level: CEO, other senior Head Office

manager, BOD and corporate staff

Business level: Divisional managers Division - A Division - B Division - C

and staff.

Functional level: Functional Business Business Business

managers. functions functions functions

Market - A Market - B Market - C

Q-1 Characteristics of strategic management decisions at different levels

Characteristic Level of Strategy
Corporate Business Functional
Type Conceptual Mixed Operational

Measurability Value judgments Semi quantifiable Usually

dominant Quantifiable

Frequency Sporadic or Periodic Periodic or Sporadic Periodic

Relation to Innovative Mixed Supplementary

present Activities

Risk Wide Range Moderate Low

Profit Potential Large Medium Small

Cost Major Medium Modest

Time horizon Long Range Medium Range Short Range

Flexibility High Medium Low

Cooperation Considerable Moderate Little

Required

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CHAPTER-3 STRATEGIC ANALYSIS

Introduction
 The strategic management process, after deciding the vision, mission, goals
and objectives of the organization, turns its focus to scanning of environment Scanning of environment
in which all organizations work as sub-systems.
 That is environmental scanning covers both scanning of external External Internal
environment and internal environment. environment environment
 The scanning of external environment leads to the identification of the
opportunities and threats. Identification of Study of
opportunities and strengths and
 The scanning of internal situation leads to the study of strengths and threats weakness
weaknesses which will decide as to what extent each company is going to
capitalize the opportunities and neutralize the threats.

STRATEGIC ANALYSIS
 It is a scanning of external environment with internal situation which helps in providing judgment about
what strategy to pursue.
 The 2 most important situational considerations are:
 industry and competitive conditions and (other’s quality)
 a company's own competitive capabilities, resources, internal strengths and weaknesses, and his market
position. (own quality)
 It also helps in providing accurate diagnosis of the company's situation for deciding long-term
direction, setting appropriate objectives, and crafting an appropriate strategy.
 It helps in evaluation of alternatives to provide choices about strategy.

Strategic Analysis

External Analysis Internal Analysis

 Performance Analysis: Profitability, sales, shareholder’s value
analysis, customer satisfaction, product quality, brand associations,
 Customer Analysis: Segments, motivations, unmet needs relative cost, new products, employee capability and performance,
 Competitor Analysis: Identity, strategic groups, performance, image, product portfolio analysis.
objectives, strategies, culture, cost structure, strengths and weaknesses.  Determinates Analysis: Past and current strategies, strategic
 Market Analysis: Size, projected growth, profitability, entry barriers, cost problems, organizational capabilities and constraints, financial
structure, strengths and weaknesses. resources and constraints, strengths and weaknesses.
 Environmental Analysis: Technological, government, economic,
cultural, demographic, scenarios, information need areas.

Opportunities, threats, trends, strategic and uncertainties Strategic strengths, weaknesses, problems, constraints and uncertainties

Strategy Identification and selection:

 Identify strategic alternatives
o Product maker investment strategy
o Functional areas strategy
o Assets, competencies and synergies
 Select strategy
 Implement the operating plan
 Review strategies

Figure: Framework of Strategic Analysis

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Q-1 Issues to consider for strategic analysis

1) Strategy evolves over a period of time:
 While crafting a strategy, it is important to consider the possible implications of routine decisions.
 Strategy for a particular point of time is result of a series of small decisions taken over an
extended period of time.

2) Balance:
 Strategy will be so formulated so that it matches the internal potential of the organization with the
environmental opportunities; balance opportunities, influences and constraints.

3) Risk:
 An important aspect of strategic analysis is to identify potential imbalances or risks and assess their
consequences. The complexity and intermixing of variables in the environment reduces the
strategic balance in the organization.
 Competitive markets, liberalization, globalization, booms, recessions, technological advancements,
inter-country relationships all affect businesses and pose risk at varying degree.
 A broad classification of the strategic risk is external risk and internal risk.

SITUATIONAL ANALYSIS
 It refers to the analysis of overall elements of macro environment that covers such as economy at
large, population demographics, societal values and lifestyles, governmental legislation and regulation,
technological factors, assess their impact and influence, and adapt the company’s direction and strategy
as needed.

 These factors are enough to have a bearing on the decisions the company makes about its direction,
objectives, strategy, and business model.

 Influences coming from the macro environment have a direct / indirect impact on a company's
business situation and shape the company's direction and strategy.

Thinking strategically about a

company’s external Form a Identify Select the
environment. strategic promising best
vision of strategic strategy
where the options for and
Thinking strategically about a company the business
company’s internal needs to company. model for
environment. head. the
company

Figure: From Thinking Strategically about the Company's Situation to Choosing a Strategy

Q-1 Elements of situational analysis for choosing best strategy:

1) Product situation:
 This analysis provides the details about current product.
 Product may be divided into parts such as the core product and any secondary or supporting services or products
that also make up what you sell.

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2) Competitive situation:
 This analysis provides the details about the nature, type and strength of main competitors.
 It includes who are they; what are they up to; how do they compare; What are their competitive advantages?

3) Distribution situation:
 This analysis provides the way to review the distribution situation.
 It includes how are you getting your product to market; Do you need to go through distributors or other
intermediaries?

4) Environmental factors:
 This analysis provides the details about external and internal environment’s factors which are required to be
considered.
 It includes economic or sociological factors that impact on your performance.

5) Opportunity and issue analysis:

 This analysis provides the details about
- what current opportunities that are available in the market,
- the main threats that business is facing and may face in the future,
- the strengths that the business can rely on; and
- any weaknesses that may affect the business performance.

Q-2 Analysis of Issues in Industry and Competitive Analysis (ICA)

 This analysis provides a way of thinking strategically about any industry’s overall situation and
drawing conclusions whether industry is doing an attractive investment for company’s funds.
 ICA analysis requires analysis of several issues which may come in between, to build understanding
of a firm's environment and matching its strategy to adapt changing industry conditions and
competitive realities.

1) Dominant economic features of the industry:

 Industries differ significantly in their basic character and structure. Hence, this analysis begins
with an overview of the industry's dominant economic features.
 It includes various economic factors such as :
 companies – whether small or dominant
 Capital requirements
 Ease of entry and exit.
 Technological changes in production process innovation and new product introductions.
 Number of rivals and their relative sizes.
 Market size and market growth rate and position in the business life
 Types of distribution channels used to access consumers.
 Number of buyers and their relative sizes.

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2) Nature and strength of competition:

 It involves trying to discover new information about main sources of competitive pressures
and determine how strong each competitive force is. Formulation of appropriate strategy becomes
impossible without understanding competitive pressures.
 Porter’s five forces model is useful in understanding the competition.

3) Triggers of change:
 It involves sufficient understanding of changing in environment that provides information of factors
relating to competition pressures. However, it is very difficult to identify and account all
environmental changes.
 Examples: Internet and the new e-commerce, Increasing globalization, Changes in the long-term
industry growth rate, Product and market innovation, Technical know-how, and Changes in cost and
efficiency etc.
 It describes the stages of changes namely rapid growth, early maturity, saturation, and decline.

4) Identifying the companies that are in the strongest/weakest

positions:
 This analysis requires to study the market positions of rival companies by using the technique
called as strategic group mapping (SGM).
What is Strategic Group Mapping: [study + comparing] each one but not in-depth
 SGM is a useful analytical tool for comparing the market positions of each firm separately or
for grouping them into like positions when an industry has so many competitors.
 It is not practical to examine each one in depth.
Procedure for constructing a strategic group map (*to decide which firms belong in which SGM)

 Identify the competitive characteristics that differentiate firms in the industry typical variables 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 the same strategy space to the same SGM.
 Draw circles around each strategic group making the circles proportional to the size of the group's
respective share of total industry sales revenues
5) Likely strategic moves of rivals:
 It requires continuous pays attention to what competitors are doing.
 A company can't expect to gain advantage against its rivals without
 understanding their strategies,  monitoring their actions,
 his strengths and weaknesses and  anticipating what moves they are likely to
make next.

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6) Key success factors (KSF) to gain edge of competition:

 It gives effect to industry’s ability by providing prosperity in the market such as strategy
elements, product attributes, resources, competencies, competitive capabilities, and business
outcomes that spell the difference between competitive success and failure.
 It is a top-priority analytical consideration to determine all Key Success Factors.
 It requires understanding of industry situation to know what is more important/less important
for competitive success.
 KSFs vary from industry to industry and even from time to time within the same industry.

How to identify an industry's KSFs: [Nov 14, Nov, 15]

 What product attributes are crucial?
 What resources and competitive capabilities required for competitively successful?
 What does it take for sellers to achieve a sustainable competitive advantage?

7) Prospects and financial attractiveness of industry:

 The final step is to use the results of analysis of previous 6 issues to draw conclusions about the
relative attractiveness or unattractiveness of the industry, both near-term and long-term.
 The important factors for drawing conclusion are such as:
 Quantum of industrial growth.
 Quantum of competition - whether provide adequate profitability or not.
 Quantum of competitive pressures - whether stronger or weaker.
 Industrial profitability - whether favorable or unfavorable
 Company's competitive position – whether stronger or weaker.
 Degrees of risk and uncertainty in the industry's future.
 Severity of problems as a whole in industry.

TOWS Matrix
 Heinz Weihrich has developed a matrix called TOWS matrix by comparing strengths and weaknesses
of organization with that of market opportunities and threats.
 It has been criticized that after conducting the SWOT Analysis, managers frequently fail to come to
terms with the strategic choices that the outcomes demand.
 In order to overcome this, TOWS Matrix are developed which re-organizes them and integrates
them more fully into the strategic planning process while using same SWOT.
 It is a good way to use brain storming.
 It is used to create alternative strategies that might not otherwise be considered.
 It forces strategic managers to design various growth, stability or retrenchment strategies.
 It can be said that TOWS matrix is an improvement over the SWOT matrix because it is used to
provide various strategic alternatives but SWOT defines strength, weakness, opportunity and threat only.
The matrix is outlined below:
Internal Organizational Strengths Organizational Weaknesses

External Elements Strategic Options

SO: strengths can be used to capitalize or WO: the strategies developed need to
build upon existing or emerging overcome organizational weaknesses if

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opportunities. existing or emerging opportunities are to

Environmental Opportunities (and risks)
be exploited.

ST: strengths in the organization can be WT: the strategies pursued must
Environmental Threats
used to minimize the existing threats. minimize the weaknesses and as far as
possible, cope with existing threats

Portfolio Analysis
INTRODUCTION

 A business portfolio is a collection of businesses and products that make up the company.
 In order to design the business portfolio, the business must analyze its current business portfolio
and decide which business should receive more, less, or no investment.
 Depending upon analyses, businesses may develop growth strategies for adding new products or
businesses to the portfolio.
 It helps to provide best fit between company’s strengths and weaknesses with opportunities in the
environment.
 It helps strategists in taking strategic decisions with regard to individual products or businesses in a
firm’s portfolio.
 It is used for competitive analysis and corporate strategic planning in multi-product and multi
business firms.
 Its main advantage is to channelize the resources at corporate level to those businesses that
possess the greatest potential.

Q-1 Pre-requisites to understand different models of portfolio analysis:

1) Strategic business unit (SBU): (detailed study in chapter-6: SBU-an organizational structure)

 It is used to Analyzing portfolio may begin with identifying key businesses also termed as strategic
business unit (SBU).
 It is a unit of company that has a separate mission and objectives and that can be planned
independently from other company businesses.
 It can be a company division, a product line within a division, or even a single product or brand.
 Organization may be composed with multiple SBUs, each of which is responsible for its own profitability.
 SBU is a profit center which focuses on products and markets. Every SBU has discrete marketing plan,
analysis of competition, and marketing campaign.
Characteristics of an SBU:
 It has single business or collection of related businesses that can be planned for separately.
 It has its own set of competitors.
 It has a manager who is responsible for strategic planning and profit.

2) Experience Curve:
 It is a concept used for applying a portfolio approach. It is akin
to a learning curve. It explains the efficiency increase gained by
workers through repetitive productive work.

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 It is an observed phenomenon that unit costs decline or profit per

unit will increase as a firm accumulates experience in Experience

cumulative volume of production.

 It uses varieties of factors such as learning effects, economies
of scale, product re-design and technological improvements in
production, to provide results.
 It helps larger firms to have lower unit cost, thereby gaining a
competitive cost advantage.

3) Product Life Cycle (PLC):

 It is an S-shaped curve which exhibits the relationship of
sales with respect of time for a product. It is a useful concept
for guiding strategic choice.
 It passes through the 4-successive stages: introduction (slow
sales growth), growth (rapid market acceptance) maturity (slow
down in growth rate) and decline (sharp downward drift).
 It can be used to diagnose a portfolio of products in order to
establish the stage.
 Particular attention is to be paid on the businesses that are in
the declining stage. After diagnosis, appropriate strategic
choice could be made.

Particulars Introduction Growth Maturity Decline

Product Just launched Products are growing Sales are at peak level Sales will fall down because
product loses its demand
Sales Growth Slowly as possible Rapid sales growth Sales will be increasing It will be fall down
slowly
Product No product Little awareness Highest People will be started shifting
awareness awareness into new product
Price Price is least even Price start increasing but Competitive or Sometimes operational cost
at loss substantially reduced as promotional price will will be more than its price.
compared to market price be used.
as new competitors enter
into the market.
Profit Usually no profit Profit start coming Profit may soon start It turns into losses sometimes.
to fail as product
enters the saturation
stage
Competition No competition Competition will be starting Intense Competition in Stiff competition in the
soon the market market
Advertising Information Persuasive advertising may Advertising expenses Advertising is reduced then
advertising may be be used will be highest to stop
used sustain growth.

Boston Consulting Group (BCG) or Growth-Share Matrix :

Introduction:
 The BCG matrix is a 4-celled matrix (2*2 matrix) developed by BCG, USA. It is a most renowned corporate portfolio
analysis tool.
 It provides a graphic representation for an organization to examine different businesses in it’s portfolio on the
basis of their related market share and industry growth rates.
 It is a 2-dimensional analysis on management of SBU’s (Strategic Business Unit).
 Growth share matrix also known for its cow and dog metaphors is popularly used for resource allocation in a
diversified company.

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 In the matrix, the vertical axis represents market growth rate and provides a measure of market attractiveness and the
horizontal axis represents relative market share and serves as a measure of company strength in the
market.

Q-1 Different types of products or SBU in BCG:

1) Stars:
 It represents SBU or products having large market share in a fast growing industry.
 SBU in this stage may generate cash but because of fast growing market, stars require huge
investments to maintain their position and finance.
 SBU in this stage has availability of moderate net cash flow.
 SBU in this stage has best opportunities for expansion, highly competitive and attractive as they are
located in robust industry.
 If SBU is successful, a star stage will become a cash cow when the industry matures.

2) Cash Cows:
 It represents SBU or products having large market share in a mature, slow growing industry.
 SBU in this stage are established, successful and need little investment. It generates cash that can
be utilized for investment in other products. They are the base of an organization and they are the
corporation’s key source of cash.
 SBU in this stage has highest net cash flow.
 SBU in this stage usually follow stability strategies and when cash cows loose their appeal and
move towards deterioration, then retrenchment policy will be pursued.
 In long run when the growth rate slows down, stars become cash cows.

3) Question Marks:
 It represents SBU or products having low relative market share and located in a high growth
industry.
 SBU in this stage require huge amount of cash to maintain or gain market share.
 SBU in this stage has lower net cash flow.
 SBU in this stage are generally offered new goods and services which have a good commercial
prospective. There is no specific strategic that can be adopted. If the firm thinks it has dominant
market share, then it can adopt expansion strategy, else retrenchment strategy.
 Most business started as question marks as the company tries to enter a high growth market in
which there is already a market share. If ignored, then question marks may become dogs, while if
huge investment is made, then they have potential becoming stars and then to cash cows when
the growth rate reduces.

4) Dogs:
 It represents SBU or products having weak market shares in low growth market because of high
costs, poor quality, ineffective marketing, etc.
 SBU in this stage neither generate huge cash nor require huge amount of cash for investment.
Moreover, sometimes they need cash to survive.
 SBU in this stage generally adopt retrenchment strategies because these firms can gain market
share only at the expense of their rival/competitor’s firms.

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 Unless a dog has some other strategic aim, it should be liquidated if there are fewer prospects
for it to gain market share. Number of dog should be avoided and minimized in an organization
by means of divestment or liquidation.

Q-2 Strategies to be pursued after classification of SBU or products

1. Build: Its objective is to increase market share, even by forgoing short-term earnings in favour of
building a strong future with large market share.
2. Hold: Its objective is to preserve market share.

3. Harvest: Here the objective is to increase short-term cash flow regardless of long-term effect.
4. Divest: Here the objective is to sell or liquidate the business because resources can be better
used elsewhere.

Q-3 Problems and limitations in BCG matrix:

The growth-share matrix has done much to help strategic planning study. However, there are problems
and limitations with the method.
 BCG matrix can be difficult, time-consuming, and costly to implement.
 Management may find it difficult to define SBUs and measure market share and growth.
 It provides little advice for future planning.
 It provides too much emphasis on market-share growth or growth through entry into attractive
new markets which can cause unwise expansion into hot, new, risky ventures or giving up on
established units too quickly.

High Stars Question marks

Market Growth Rate

Cash cows Dogs

$
Low
R&D High Low
Relative Market Share

Figure: BCG Growth-Share Matrix

 BCG matrix classifies businesses as low and high, but generally businesses can be medium also.
 Market is not clearly defined in this model.
 High market share does not always leads to high profits. There are high costs also involved with
high market share.

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 Growth rate and relative market share are not the only indicators of profitability. This model
ignores and overlooks other indicators of profitability.
 At times, dogs may help other businesses in gaining competitive advantage. They can earn even
more than cash cows sometimes.

Ansoff’s Product Market Growth Matrix:

Introduction:
 It is proposed by Igor Ansoff.
 The Ansoff’s product market growth matrix is a useful tool that helps businesses to decide their product
and market growth strategy.
 With the use of this matrix, a business can get a fair idea about how its growth depends upon it markets in
new or existing products in both new and existing markets.
 The product/market growth matrix is a portfolio-planning tool for identifying company growth
opportunities for the future.

Q-1 Types of Product market growth strategies:

1) Market Penetration:
 It refers to a growth or expansion strategy where the business focuses on selling existing
products into existing markets.
 It is achieved by making more sales to present customers without changing products in any
major way.
 The firm directs its resources to the profitable growth of a single product, in a single market, and with
a single technology.
 It requires greater spending on advertising or personal selling.
 Penetration is also done by effort on increasing usage by existing customers.

2) Market Development:
 It refers to a growth strategy where the business seeks to sell its existing products into new
markets.
 It consists of marketing of present products to customers in related market areas by adding different
channels of distribution or by changing the content of advertising or the promotional media.
 This strategy may be achieved through new geographical markets, new product dimensions or
packaging, new distribution channels or different pricing policies etc.

3) Product Development:
 It refers to a growth strategy where business aims to introduce new products into existing
markets.
 It is a strategy for company growth by offering modified or new products to current markets.
 It involves substantial modification of existing products or creation of new but related items that
can be marketed to current customers through establish channels.

4) Diversification:
 It refers to a growth strategy where a business aims to introduce new products in new markets.

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 It is a strategy by starting up or acquiring businesses outside the company’s current products

and markets.
 Here, business is moving into that markets in which he has little or no experience.

I. Growth in existing product II. Product development

markets  Add product features, New
 Increase market share  Product refinement Market
 Increase product usage  Develop a Diversification
Development
 Increase the frequency used new-generation product

Markets
 Increase the quantity used  Develop new product for
 Find new application for current the same market Market Product
users Development
Penetration
III. Market development IV. Diversification involving new Existing
 Expand geographically products and new markets
 Target new segments Related Existing Products and New
Unrelated services

ADL Matrix:
Introduction:
 This matrix has been derived from the name Arthur D. Little. ADL Matrix

 The ADL matrix is a portfolio analysis method that is based on product life
cycle. Stage of Industry Firms competitive
maturity position
 The approach forms a 2-dimensional matrix based on stage of industry
maturity and the firms competitive position.
It represents position
It represents business
 Each of these dimensions can be further split up into the following in industry’s life cycle strength which helps in
categories to better analyze a firm and accordingly determine the future categorizing SBU

strategic actions.
1. Embryonic 1. Dominant
 Stage of industry maturity is an environmental measure that represents 2. Growth 2. Strong
3. Maturity
a position in industry's life cycle which is categorized into Embryonic, Growth, 4. Ageing
3. Favorable
4. Tenable
Maturity and Ageing. 5.Weak

 Competitive position is a measure of business strengths that helps in

categorization of products or SBU's into one of five competitive
positions i.e, dominant, strong, favorable, tenable, weak.

THIS IS 4 by 5 MATRIX AS FOLLOWS

(Industry maturity) Industry life cycle stage
Embryonic Growth Maturity Ageing
Dominant  Aggressive push for market  Maintain industry position  Maintain position, grow  Maintain industry position
share and market share market share as the industry  Reinvest as necessary
 Invest faster than market  Invest to sustain growth grows
share dictates  Reinvest as necessary
Strong  Aggressive push for market  Aggressive push for market  Maintain position, grow  Maintain industry position or
Competitive Position

share share market share as the industry cut expenditures to maximize

 Look for ways to improve  Look for ways to improve grows profit (harvest)
competitive advantage competitive advantage  Reinvest as necessary  Minimum reinvestment
 Invest faster than market  Invest to increase growth
share dictates and position
Favorable  Moderate to aggressive push  Look for ways to improve  Develop a niche or other strong  Cut expenditures to maximize
for market share competitive advantage and differentiating factor and profit (harvest) or plan a phased
 Look for ways to improve market share maintain it. withdrawal
competitive advantage  Selectively invest to  Minimum or selective  Minimum investment or look to
 Invest selectively improve position reinvestment get out of current investment
Tenable  Look for ways to improve  Develop a niche or other  Develop a niche or other  Phased withdrawal or abandon
industry position strong differentiating factor strong differentiating factor and market
 Invest very selectively and maintain it maintain it or plan a phased  Get out of investments or

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 CA Guru Gupta (ITSM) CHAPTER-3 STRATEGIC ANALYSIS
 Invest selectively withdrawal. divest
 Selective reinvestment
Weak  Stay if potential benefits  Look for ways to improve  Look for ways to improve  Abandon market
outweigh costs, otherwise share and position, or get out share and position or plan a  Divest
get out of market of the market phased withdrawal
 Invest or divest  Invest or divest  Selectively invest or divest
Figure: Arthur D. Little Strategic Condition Matrix

Q-1 Competitive position of firm is based on an assessment of criteria:

1) Dominant:
 This is a comparatively rare position and in many cases is attributable either to a monopoly or a
strong and protected technological leadership.

2) Strong:
 By virtue of this position, the firm has a considerable degree of freedom over its choice of
strategies.
 It is often able to act without its market position being unduly threatened by its competitions.
 In this case, the company might not be a monopoly but definitely has a strong presence and loyal
customers.
3) Favorable:
 Companies with favorable competitive position usually operate in fragmented markets and no one
competitors stand out clearly, results in the market leaders a reasonable degree of freedom.

4) Tenable:
 Here each company caters to a niche segment defined by a product variety or segmented
demographically i.e, either geographical.

5) Weak:
 In this scenario, company financials are too weak to gain a strong hold in the market and is
expected to die out within a short span of time although the opportunities for improvement do
exist.

The General Electric Model

Introduction:
 The General Electric Model developed by GE with the assistance of the consulting firm McKinsey & Company.
 It is similar to the BCG growth-share matrix.
 Portfolio analysis is required to be conducted in order to analyze the current business portfolio.
 However, there are differences where firstly market attractiveness replaces market growth as the dimension of
industry attractiveness, and includes a broader range of factors other than just the market growth rate.
 Secondly, competitive strength replaces market share as the dimension by which the competitive position of
each SBU is assessed.
 There is a requirement of making decisions about how to use its limited resources most effectively. Hence
this planning model can help determining which SBU should be stimulated for growth, which one maintained in their present
market position and which one eliminated.
Business Position
High Medium Low

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Market High Invest Invest Protect

Attractiveness Medium Invest Protect Harvest
Low Protect Harvest Divest
Figure: The GE Matrix
 The criteria used to rate market attractiveness and business position assigned different ways because some
criteria are more important than others. Then each SBU is rated with respect to all criteria. Finally, overall ratings
for both factors are calculated for each SBU. Based on these ratings, each SBU is labeled as high, medium or
low with respect to (a) market attractiveness, and (b) business position.

Q-1 Strategies for creating and sustaining competitive advantage:

1) Functional-level strategy:
 It provides direction to improve the effectiveness of operations within a company.
 It includes such as materials management, product development, manufacturing, marketing, &
customer service.
2) Business-level strategy:
 It encompasses the business's overall competitive theme.
 It provides the way in which it shall stands in the market place to gain a competitive advantage, and the
different positioning strategies that can be used in different industry settings -
 For example: cost leadership, differentiation, focusing on a particular niche or segment of the industry,
or some combination of these.
3) Corporate-level strategy:
 This strategy is used to provide to maximize the long-run profitability of the organization and gain a
competitive advantage?
4) Global strategy:
 It addresses that how to expand operations outside the home country to grow and prosper in a world
where competitive advantage is determined at a global level.

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 CA Guru Gupta (ITSM) CHAPTER-4 STRATEGIC PLANNING

CHAPTER-4 STRATEGIC PLANNING

PLANNING
Introduction:
 Planning is future oriented. It relates to deciding what needs to done in the future and generating
blueprints for action.
 Planning involves determining what resources are available, what resources can be obtained, and
allocating responsibilities according to the potential of the employees.
 Planning can be strategic or operational.
- Strategic plans are organization wide, establish overall objectives, and position the
organization with relation to its environment.
- Operational plans specify details on how individual objectives are to be achieved. It is an attempt to improve
operational efficiency.

Strategic Planning
Introduction:
 Strategic planning is process of developing an organizational strategy to achieve overall business
objective of organization.
 It is a function of top level management in the organization and relates the organization with
environment.
 It gives direction to the organization and involves making decisions and allocating resources to pursue
the strategy.
 It deals with one or more of 3-key questions: What are we doing? For whom do we do it? How to improve and
excel?
 It determines where an organization is going over the next year or more.
 The flow of planning can be from corporate to divisional level or vice-versa. Hence, there are 2-
approaches for strategic planning - top down or bottom up.
Top down approach:
 It is a centralized approach to strategy formulation in which the head office determines mission,
strategic intent, objectives and strategies for the organization as a whole and for all parts.
 Unit managers are seen as implementers of pre-specified corporate strategies.

Bottom up approach:
 It is a decentralized approach to strategy formulation in which division and subsidiary companies
determines the mission, objectives, or strategies by operational level of management.
 Top management prefers to act as a facilitator in implementing the corporate level strategy

Stages of Corporate Strategy Formulation-Implementation Process:

Crafting and executing company’s strategy is a 5 stage managerial process as given below:

1) Developing a strategic vision:

 It is required to indicate where the company needs to head and what its future’s product, customer,
market, and technology focus should be.

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2) Setting objectives:
 It is required to indicate the yardsticks for measuring the company’s performance and progress to
ensure whether achieving objectives .

3) Crafting a strategy:
 It is required to achieve the desired outcomes and move the company along the strategic course that
management has charted.

4) Implementing and executing the chosen strategy:

 It is required to be done to indicate whether chosen strategy is working efficiently and effectively.

5) Monitoring developments and initiating corrective adjustme nts:

 It is required to ensure whether company’s actual performance, actual changing conditions, actual new
upcoming ideas and actual new upcoming opportunities etc. are as per the company's long-term
direction, objectives defined under the crafted strategy.
 If no, it is required to be changed and revised from time to time.

Write a short notes on:

Q-1) What is Mission & Strategic Intents during the phase of making vision:
 It is a statement of mission and managers should be cleared about their roles and responsibilities and
their future goals and objectives.
 It helps to provide strategic direction rather than only having strategy for in-depth understanding of each and
every SBU unit.
 Strategic direction plays a vital role in providing a common direction to select the best one amongst the strategic
choice.
 Once managers charged with developing a strategy, he should also need to be clear about best fit of
strategies into the whole organization.
 A clear strategic intent helps in providing motivation and enthusiasm throughout the organization.
 A company must follow strategic intent that wants to achieve continuously goal oriented strategic objective
and concentrates its full resources and competitive actions. In the absence of this, there is a risk of the
different parts and different levels of management in organization.

Q-2) What is balanced scorecard approach:

 It is a combination of strategic and financial objectives.
 This approach requires setting both financial and strategic objectives and tracking their achievement for
measuring company performance.
 Unless a company is in deep financial difficulty, such that its very survival is threatened, company
managers are well advised to put more emphasis on achieving strategic objectives than on achieving
financial objectives whenever a trade-off has to be made.
 The surest path to sustained future profitability quarter after quarter and year after year is to
continuously pursue strategic outcomes that strengthen a company’s business position.
 Achievement of strategic objectives (*such as market strength and competitiveness improvement) enables a company to
deliver better financial results from operations.
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Q-3) What are the 3 assessments are relevant while crafting strategy / making strategic decision:
In making strategic decisions, inputs from a variety of assessments are relevant. However, the core of any strategic
decision should be based on three types of assessments.
1) The first concerns organizational strengths and weaknesses.
2) The second evaluates competitor strengths, weaknesses, and strategies, because an organization's
strength is of less value if it is neutralized by a competitor's strength or strategy.
3) The third assesses the competitive context, the customers and their needs, the market, and the market
environment.

4) What are the Principal aspects in managing the strategy-execution process:

 It ensures that policies and operating procedures facilitate effective execution.

 It uses best-known practices to perform core business activities and pushing for continuous
improvement.
 It creates strong "organizational fits" between strategy and organizational capabilities, between strategy and
the reward structure, between strategy and internal operating systems, and between strategy and the
organization's work climate and culture.
 It helps in staffing the organization with the needed skills and expertise, competencies and competitive capabilities,
and organizing the work effort.
 It helps in creating a company culture and work climate for successful strategy implementation and
execution.
 It should install information and operating systems that enable company personnel to carry out their strategic
roles day in and day out.
 It helps in declaring rewards and incentives to the achievement of performance objectives and good strategy
execution.
 It helps in developing budgets that steer ample resources into those activities critical to strategic success.
 It helps in motivating people to pursue the target objectives energetically.
 It helps in providing leadership for implementation and execution of strategy when organization encounters
problems and weaknesses.

Strategic Alternatives
Grand Strategies / Directional Strategies
 Various strategy alternatives are available to firm for achieving its growth objective.
 Selection of alternative strategy shall be done on the basis of nature of alternatives, how they have been
classified into a few broad categories as well as proper analysis of scope of such alternatives strategy.
 The corporate strategies a firm can adopt have been classified into four broad categories: stability,
expansion, retrenchment and combination known as grand strategies.
 Grand strategies, which are often called master or business strategies, are intended to provide basic
direction for strategic actions.
 It requires co-ordination and sustained efforts directed towards achieving long-term business objectives.

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Q-1 Categories of Grand /directional strategies:

Basic features / Characteristics / Scope / Main Reasons for applying Grand Strategies according to William F Glueck and Lawrence R Jauch
- Stability strategy
- Expansion strategy
- Retrenchment strategy
- Combination strategy

1) Stability Strategies:
Basic features The firm stays with its current businesses and product markets; maintains the existing level of
effort; and is satisfied with incremental growth.
Characteristics ▪ Its aim is to enhance functional efficiencies in an incremental way through optimum
utilization of resources.
▪ It helps in attaining growth objective of firms employing this strategy.
▪ It does not involve a re-definition of the business of the corporation.
▪ It is basically a safety-oriented, status quo-oriented strategy.
▪ It does not warrant much of fresh investments.
▪ The risk is also less.
▪ The firm has benefit of concentrating its resources and attention on the existing
businesses / products and markets.
▪ This strategy does not permit the renewal process of bringing in fresh investments and
new products and markets for the firm.
Reason  It is less risky, involves less changes and people feel comfortable with things as they are.
 The environment faced is relatively stable.
 Expansion may be perceived as a threat.

2) Expansion Strategy:
Basic features This strategy seeks significant growth within the current businesses as well as by entering new
business being related or unrelated to existing businesses.
Characteristics  It is an opposite of stability strategy.
 It provides highest risks and highest rewards as compared to stability strategy.
 It is a true growth strategy. A firm with a substantial growth ambition can meet its
objective only through the expansion strategy.
 It involves a re-definition of business of the corporation.
 It allows renewal in existing process of firm through fresh investments and new
businesses/products/markets is facilitated only by expansion strategy.
 It is a highly versatile strategy. Thus offers several permutations and combinations for
growth and can generate many alternatives within the strategy by altering its
propositions regarding products, markets and functions and pick the one that suits it most.
 It has 2 major strategy routes: Intensification and Diversification. Both of them are growth
strategies.
a) Intensification strategy: It assists firm in achieving growth by working with its
current businesses. Intensification encompasses 3-alternative routes:

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1) Market penetration strategy Refer chapter-3

2) Market development strategy Igor Ansoff
3) Product development strategy
b) Diversification strategy: It assists firm in achieving growth by expansion into
new businesses that are outside the current businesses and markets. There are
4-broad types of diversification
- Horizontal integrated diversification
- Vertically integrated diversification Discuss later on in
- Concentric diversification this chapter only
- Conglomerate diversification
Reason  It may become imperative when environment demands increase in pace of activity.
 Psychologically, strategists may feel more satisfied with the prospects of growth from
expansion; chief executives may take pride in presiding over organizations perceived to be
growth-oriented.
 It is required as increasing size may lead to more control over the market vis-a-vis
competitors.

i) Expansion through diversification:

 Diversification is defined as entry into new products or product lines, new services or new markets,
having substantial different skills, technology and knowledge.
 It is pursued only when an established firm introduces a new product with little or no similarity with its
present product line and has completely new class of customers, also known as conglomerate
diversification.
 It is a means of utilizing their existing facilities and capabilities in a more effective and efficient
manner such as manufacturing facilities, investible funds, marketing channels, competitive standing ,
managerial etc.
 It helps in providing more opportunities and challenges for organization growth.
 It provides synergistic advantage to the entire organization.

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Utilizing existing
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ii) Expansion through acquisitions and mergers:

 It is defined as a process of combining 2 or more existing organization together. It leads to expansion of
firms.
 Merger is a process when 2 or more companies come together to expand their business operation.
- In this process, they both have friendly terms and both organization will share the profits in the newly
created entity.

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- They are combined to increase their strength and financial gains along with breaking the trade barriers.
 Acquisition is a process when one organization takes over the other organization and controls all its business
operations.
- Here, one organization overpowers the weaker one.
- Acquisitions often happen during recession in economy or during decline profit margins.
- In this process, deal gets finalized on unfriendly terms because powerful entity either force to consumes the
operation or company in loss is force to sale.
 This strategy avoids the risk and saves time and skills required for internal growth opportunities.
 It builds up the necessary resource base required to materialize growth.

Types of Mergers:

Horizontal mergers Vertical mergers Co-generic Merger Conglomerate

merger
 It is a combination of firms  It is a merger of 2  It is a merger of 2 or more  It is a
engaged in the same organizations that are merging organizations that are combination of
industry. operating in the same associated directly or indirectly organizations that
industry but at different with production processes, are unrelated to
 It is a merger with the stages of production. business markets, or basic each other.
direct competitor. required technologies.
 This often leads to increased  There are no
 The principle objective is synergies with the merging  It includes the extension of linkages with
to achieve economies of firms. product line or acquiring respect to
scale in the production components that are required in customer groups,
process by reducing cost  If organizations take over its the daily operations. customer
per unit and increasing supplier of raw material, then functions and
volume. it leads to backward  It offers great opportunities to technologies
integration. businesses to diversify around a
 For example, formation of common set of resources and
Brook Bond Lipton India  On the other hand, forward strategic requirements.
Ltd. Through the merger integration happens only when
of Lipton India and Brook an organization decides to  For example, organization in the
Bond. take over its buyer white goods categories such as
organizations or distribution refrigerators can diversify by
channels. merging with another organization
having business in kitchen
 It results in many operating appliances.
and financial economies.

Diversification strategy
i) Vertically integrated diversification:
 In this strategy, firms opt to engage in businesses that are related to the existing business of the firm but the
firm remains vertically within the same process.
 It has 2-components – forward integration and backward integration sequentially in the chain.
 The firm cannot jump outside the vertically linked product-process chain.
a) Forward Integration:
 It is moving forward in the value chain and entering business lines that use existing products.

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 Forward integration will also take place where organizations enter into businesses of distribution channels.

b) Backward Integration
 It is a step towards creation of effective supply by entering business of input providers.
 Strategy employed to expand profits and gain greater control over production of a product.
 Here a company will purchase or build a business that will increase its own supply capability or lesser
its cost of production.
BACKWARD INTEGRATION

Raw materials Components Machinery Product/Process

manufacture Manufacture Manufacture research/design

Raw materials Components Machinery Financing

supply supply supply

Transport

HORIZONTAL INTEGRATION
By-Products
Competitive
products Manufacturer

Repairs and
Complementary
Servicing
products

FORWARD INTEGRATION
Distribution Transport Marketing
outlets Information

Figure: Motivations for Diversification Vertically integrated diversification

ii) Horizontal Integrated Diversification

 Acquisition of one or more similar business operating at the same stage of the production-marketing
chain that is going into complementary products, by-products or taking over competitors’ products.
 It will provide the opportunity to create the market of new similar products which will help to increase the
return on investment.

iii) Concentric Diversification

 In concentric diversification, the new business is LINKED / CONNECTED to the existing businesses
through process, technology or marketing. However, they are not intermediates and thus new products are not
vertically linked to the existing ones.
 The new product is a separate from the existing facilities, products and processes but it is closely related to
its core business or technology.
 They serve new functions/ new products in new markets.
 It involves adding new services to old business practices to do existing business practices more efficiently.

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 It involves adding complementary products and services across several market areas to establish a wide
distribution network.
 It provides the benefits of achieving business synergy, improve product development and increased
market share.
 However, concentric diversification provide linkage of new product with existing ones. While in vertically
integrated diversification, the new product falls within the firm's current process-product chain.

iv) Conglomerate Diversification

 In conglomerate diversification, no such linkages exist.
 A new business is added to the firm's portfolio.
 The new businesses/ products are disjointed from the existing businesses/products in every way.
 It is a totally unrelated diversification.
 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) Retrenchment Strategy:
Basic Features
The firm retrenches some of the activities in a given businesses, or drops the business as
such through sell-out or liquidation
Characteristics
 A business organization can re-define its business by divesting a MAJOR product
line or market, product or services.
 Retrenchment or retreat becomes necessary or expedient in adverse situations in
the environment and when any other strategy is likely to be suicidal.
 In business parlance also, retreat is not always a bad proposition to save the
enterprise's vital interests, to minimize the adverse effects of advancing forces.
 The nature, extent and timing of retrenchment are matters to be carefully decided by
management, depending upon each contingency.
 Retrenchment includes
- Cut back on its capital and revenue expenditures, replacement of worn-out
machinery and personnels, advertising, R & D activities, employee welfare
subsidies, community development projects, executives perks, and so on.
- Slashing or postponements in case of hard times, inventory levels, manufacturing
level, manpower, plant maintenance, dividend to shareholders and interest on
deposits.
- Withdrawing from some marginal markets, withdrawal of some brands and sizes of
products, withdrawal of even some slow moving products, winding up some branch
offices, abolition of some executive positions and so on.
- Sale of some manufacturing facilities and individual product divisions, retirement from
production or marketing stage, taking over by another enterprise, liquidation of
companies, dissolution of firm, closure of entire business.
Reason
 The management no longer wishes to remain in business either partly or wholly due to
continuous losses and unviability.
 The environment faced is threatening.
 Stability can be ensured by reallocation of resources from unprofitable to profitable
businesses.

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4) Combination Strategies:
Basic Features The firm combines the above strategic alternatives in some permutation/combination so as to suit
the specific requirement of the firm.
Characteristics
 The above strategies are not mutually exclusive. It is possible to adopt a mix of the
above to suit particular situations. An enterprise may seek stability in some areas of activity,
expansion in some and retrenchment in the others.

 Retrenchment of ailing (*weak or outdated) products followed by stability and capped by

expansion in some situations may be thought of.

 For some organizations, a strategy by diversification and/or acquisition may call for a
retrenchment in some obsolete product lines, production facilities and plant locations.
Reasons
 The organization is large and faces complex environment.
 The organization is composed of different businesses, each of which lies in a different
industry requiring a different response.

Michael Porter’s Generic Marketing Strategies

 According to Porter, strategies allow organizations to GAIN COMPETITIVE ADVANTAGE from 3-different bases:
- COST LEADERSHIP,
- DIFFERENTIATION, and
- FOCUS

Cost leadership Differentiation Focus

It producing
emphasizes It is a strategy aimed at It means producing products
products and services at a producing products and and services that fulfill the
very low cost per-unit for services considered unique needs of small groups of
consumers who are price- industry wide and directed at consumers.
sensitive . consumers who are relatively
price-insensitive.
 It implies different organizational arrangements, control procedures, and incentive systems.
 Larger firms with greater access to resources typically compete on a cost leadership and / or differentiation basis,
whereas smaller firms often compete on a focus basis.
 Porter stresses strategists to perform cost-benefit analyses to enhance competitive advantage by lowering
costs or raising differentiation.

STRATEGIC ADVANTAGE
Uniqueness perceived by Low cost position
the customer

Industry wide
Differentiation Overall cost
leadership
STRATEGIC TARGET
Focus
Particular segment only

Michael Porter’s Generic Strategy Cost Leadership Strategies

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Cost Leadership Strategy:

 It is used to create a lowest cost of operation in the industry. The use of this strategy is primarily to gain a
competitive advantage over competitors by reducing operation costs below that of others in the
same industry.
 It is driven by company efficiency, size, economies of scale, capacity, scope and cumulative experience
learning curve. [More learning and more experience will lead to less cost per unit.]
 It will be effective only when the market is composed of many price-sensitive buyers.
 It is a best strategy to gain market share and sales which send some competitors out of the market
entirely.
 It has a risk that competitors may imitate the strategy.
 Some of the organization uses this strategy: Wal-Mart, Mc Donalds etc. to offer their goods
and services at least cost to attract new customers and compete with their competitors.

Differentiation Strategies Focus Strategies

 It offers different degrees of differentiation in products.  It offers low prices or differentiated
products / services which should be
 It should be pursued only after a careful study of
dependent upon the needs of selected
buyer’s needs and preferences for incorporating 1 or
segment, resources and capabilities of the
more differentiating features into a unique product.
firm.
 It does not guarantee competitive advantage if
 This strategy may concentrate on a
competitive products sufficiently meet customer needs.
particular group of customers,
 A differentiation strategy is appropriate where the target geographic markets, or product-line
customer segment is not price-sensitive. segments.
 It allows a firm to charge a higher price for its product  It is an appropriate strategy for small
and to gain customer loyalty. companies especially for those wanting to
 Product development is an example of a strategy avoid competition with big ones.
that offers the advantages of differentiation.  Midsize and large firms can effectively
 This strategy assures greater product flexibility, pursue focus-based strategies only in
greater compatibility, improved service, less conjunction with differentiation or cost
maintenance, greater convenience etc. leadership-based strategies.

 There is a risk that if unique product would not be  Strategies such as market penetration and
valued high by customers to justify the higher price, a market development offer substantial
cost leadership strategy easily will defeat a focusing advantages.
differentiation strategy.  Focus strategies are most effective when
 Another risk in this strategy is that competitors may consumers have distinctive preference
develop ways to copy the differentiating features quickly. and rival firms are not attempting to give
specialize in the same target segment.
 It requires strong coordination amongst the R&D and
marketing functions.  There is a risk in this strategy that
competitors may develop ways to copy the
 Example: Honda (quality), Wal-Mart (More for your money) differentiating features quickly.
Rolex (Prestige), Nike athletic shoes (image and brand
mark), BMW Group Automobiles, Apple Computer  It covers only a narrow market as company
(product's design), Mercedes-Benz automobiles ideally focuses on a few target market.
(Engineering design & Performance).  Example: Rolls Royce (Luxury automobiles)

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 CA Guru Gupta (ITSM) CHAPTER-4 STRATEGIC PLANNING

Best-Cost Provider Strategy:

The new model of best cost provider strategy is a further development of above three generic strategies.
Type of Competitive Advantage Being Pursued

Lower Cost Differentiation

A broad cross-section of Overall low cost Broad differentiation

buyers leadership strategy

Best cost
MARKET TARGET provider
strategy

A Narrower Buyer Focused Low cost Focus differentiation

segment (or market) strategy strategy

The Five Generic Competitive Strategies

Distinctive features of the generic competitive strategies are given below:

Type of Low cost Broad Differentiation Best cost provider Focused low cost and
Feature Focused Differentiation
Strategic A broad cross- A broad cross-section of Value-conscious buyer A narrow market niche where
Target section of the the market buyer needs and preferences
market are distinctively different from
the rest of the market.
Basic of Lower costs than An ability to offer buyers More value for the money Lower cost in serving the
competitive competitors something different from niche (focused low cost) or
advantage competitors special attributes that appeal
to the tastes or requirements of
niche members (focused
differentiation)
Market Try to make a  Build in whatever  Either underprice rival Communicate how the
emphasis virtue out of features buyers are brands with comparable focuser’s product attributes and
product features willing to pay for features or match the capabilities aim at catering to
that lead to low  Charge a premium price price of rivals and provide niche member tastes and/or
cost to cover the extra costs better features-to build a specialized requirements
of differentiating features reputation for delivering
the best value
Sustaining  Offer economical  Communicate the points Develop unique expertise in Remain totally dedicated to
the prices/good of difference in credible simultaneously managing serving the niche better than
strategy value ways costs down and up scaling other competitors; don’t blunt
 Aim at  Stress constant features and attributes the firm’s image and efforts by
contributing to a improvement and use entering other segments or
sustainable cost innovation to stay ahead adding other product categories
advantage-the of initiative competitors to widen market appeal.
key is to manage  Concentrate on a few
costs down, year differentiating features;
after year, in tout them to create a
every area of the reputation and brand
business image.
Product A good basic Many product variations, Good-to-excellent Features and attributes that
line product with few wide selection, strong attributes, several-to-many appeal to the tastes and/or
frills (acceptable emphasis on upscale features special needs of the target
quality and limited differentiating features segment
selection)

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Retrenchment strategy
 Retrenchment grand strategy is followed when an organization substantially reduces the scope of its
activity.
 It involves the process which is initialized from attempting to find out the problem areas and
diagnose the causes of the problems and final steps are taken to solve the problems. These steps
result in different kinds of retrenchment strategies.
 If the organization chooses –
- to focus on ways and means to  it adopts at turnaround strategy.
reverse the process of decline,

- cuts off the loss-making units,  it adopts a divestment (or divestiture)

divisions, or SBUs, curtails its strategy.
product line, or reduces the
functions performed, If

- none of these actions work,  then it may choose to abandon the total
activities, resulting in a liquidation strategy.

Types of retrenchment strategy

1. Turnaround Strategies
 Retrenchment may be done either internally or externally. For internal retrenchment to take place, emphasis is laid
on improving internal efficiency, known as turnaround strategy.
Indicators of turnaround strategy:
 Persistent negative cash flow
 Negative profits
 Declining market share
 Deterioration in physical facilities
 Over-manning, high turnover of employees, and low morale
 Uncompetitive products or services
 Mismanagement

Q-1 Elements of turnaround strategy:

Tips:

 Top management changes

 Unique planning and principles
 Reductions in cost quickly
 Initial actions
 Asset liquidation for generating cash
 Revenue generation
 Mobilization of the organizations
 Initial control
 Identifying quick payoff activities
 Better internal coordination.
 Neutralizing external pressures

2. Divestment Strategies
 Divestment strategy involves retrenchment of some of the activities in a given business of the firm. It includes
cutting of a major division; profit centre; SBU; or sell-out of some of the businesses as such.

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 Divestment is usually a part of rehabilitation or restructuring plan. It is adopted when a turnaround

has been attempted but has proved to be unsuccessful.
 It also involves a redefinition of the business of the corporation like expansion strategy.
 The option of a turnaround may even be ignored if divestment is the only answer.

Q-2 Reason for applying divestment strategy:

 A newly acquired business proves to be a mismatch and cannot be integrated within the company.
 Business becoming unprofitable or persistent negative cash flows from a particular business creates
financial problems for the whole company.
 High competition or severity of competition and the inability of a firm to cope with.
 Technological up-gradation is required for surviving the business but not possible for the firm to
invest in it.
 Obsolescence of product/process
 Industry overcapacity
 Failure of strategy

3. Liquidation Strategies
 This strategy is a most extreme and unattractive strategy.
 It involves closing down a firm and selling all its assets. Hence, it is considered as the last resort
because it leads to serious consequences such as loss of employment for workers and other employees,
termination of opportunities etc.
 Small-scale units, proprietorship firms, and partnership ventures liquidate frequently but medium-and
large-sized companies rarely liquidate in India such as company, government, banks and financial
institutions, trade unions and other agencies.
 It is very difficult to find buyers for selling out the assets for implementing a liquidation strategy.
 It will be utmost attractive strategy when a "dead business is worth more than alive", it is a good
proposition.
 Abandoned and systematic plan is desirable before execution of liquidation strategy to reap the
maximum benefits for the firm and its shareholders.
 Under the Companies Act, 1956, liquidation/winding up may be either by the court, voluntary, or subject to
the supervision of the court.

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 CA Guru Gupta (ITSM) CHAPTER-5 FORMULATION OF FUNCTIONAL STRATEGY

CHAPTER- 5 FORMULATION OF FUNCTIONAL STRATEGY

Introduction:
 Once business strategies are developed, management need to formulate and implement strategies for each
functional area.
 Functional area strategy such as marketing, financial, production and Human Resource are based on the
functional capabilities of an organization.
 These strategies cannot be looked at in isolation, because all functional tasks are interlinked that determine the
effectiveness of the major strategy.
 For effective implementation, strategists have to provide direction to functional managers regarding the plans
and policies to be adopted.
 Functional strategies play 2 important roles. Firstly, they provide support to the overall business strategy.
Secondly, they spell out as to how functional managers will work so as to ensure better performance in their
respective functional areas.

Q-1 Reasons why functional strategies are needed:

 It makes top level strategies feasible at the functional level.
 It facilitates the flow of strategic decisions to the different parts of an organization.
 They are used to control the activities at different functional areas of business.
 It helps in reducing the time spent by functional managers in decision-making as plans lay down clearly what
is to be done.
 It helps in bringing harmony and coordination amongst these strategies as they remain part of major strategies.
 It helps in handling similar situations occurring at different functional areas in a consistent manner.

Logistics Strategy:
 It is a process that integrates the flow of supplies of an organization to ensure that right materials are
available at the right place, at the right time, of the right quality, and at the right cost .
 It helps in recording the cost of transporting materials as low as possible consistent with safe and reliable
delivery.
 Supply chain management helps in logistics and enables a company to have constant contact with its
distribution team which could consist of trucks, trains, or any other mode of transportatio n.
 This strategy helps in change management in logistics operations such as emerging technologies and
industry initiatives.

Q-1 Areas considered before implementation of Logistic Strategy [May 2016]

1) Sources of raw materials and components.
2) Timely availability of quality materials.
3) Different manufacturing locations and the products being manufactured at each location.
4) Nature of distribution facilities. Mode of transportation and whether it is owned or outsourced
5) Method for deploying inventory in the logistics network.
6) Obsolescence, Safety stock, reorder level, etc.

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Supply Chain Management (SCM)

 It is a cross-functional approach to managing the movement of raw materials into an organization and
the movement of finished goods out of the organization towards the end-consumer. It encompasses all
movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-
origin to point-of-consumption.
 Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of
the supply chain with the purpose to satisfy customer requirements as efficiently as possible.
 It provides competencies to compete in the global market and to gain edge of better competitive environment.
 The term supply chain refers to the linkages between suppliers, manufacturers and customers.
 It involves activities like sourcing and procurement of material, conversion, and logistics.
 It noticed all movement and storage of raw materials, work-in-process inventory, and finished goods from
point-of-origin to point-of-consumption.
 It strives in focusing in core competencies.
 These functions can be outsourced to other business organizations that specialize in those activities and
can perform in better and cost effective manner.
 Working in the supply chain improve trust and collaboration amongst partners and thus improve flow and
management of inventory.

Supply Chain Management

Q-1 Is logistic management same as supply chain management?:

Logistic Management:
 It includes management of inbound and outbound goods, transportation, warehousing, handling of material,
fulfilment of orders, inventory management, supply/demand planning. Although these activities also form part of
Supply chain management, the latter has different components.
 Logistic management is one of its part relating to planning, implementing, and controlling the movement
and storage of goods, services and related information between the point of origin and the point of consumption.

Supply chain management:

 Supply chain management is an extension of logistic management.
 It includes more aspects apart from the logistics function.
 It is a tool of business transformation and involves delivering the right product at the right time to the right place
and at the right price.
 It reduces costs of organizations and enhances customer service.

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Q-1 Implementing Supply Chain Management Systems:

1) Product development:
 It provides working environment so that customers and suppliers can work together in the product development
process.
 Products are developed and launched in shorter time and help organizations to remain competitive.

2) Procurement:
 Procurement requires careful resource planning, quality issues, identifying sources, negotiation,
order placement, inbound transportation and storage.
 Organizations have to coordinate with suppliers in scheduling without interruptions. Suppliers are involved in
planning the manufacturing process.

3) Manufacturing:
 Flexible manufacturing processes will be in place to respond to market changes.
 They should be adaptive to accommodate customization and changes in the taste and preferences.
 Manufacturing should be done on the basis of just-in-time (JIT) and minimum lot sizes. Changes in the
manufacturing process be made to reduce manufacturing cycle.

4) Physical distribution:
 It assist management to provide availability of the products at right time at right place which is
important for each channel participant.
 Supply chain management links a marketing channel with customers.

5) Outsourcing:
 Outsourcing is not limited to the procurement of materials and components, but also includes
outsourcing of services that traditionally have been provided within an organization.
 The company focuses on those activities where it has competency and everything else will be outsourced.

6) Customer services:
 Organizations must build customer relationship and also provide immense focus upon the level of
customer satisfaction and trying to make them cent percent satisfied.
 This in turn helps in producing positive feelings in the organization and the customers.

7) Performance measurement:
 There has to be a strong relationship amongst the supplier, customer and organization.
 Supplier capabilities and customer relationships can be correlated with a firm performance. Performance
is measured in different parameters such as costs, customer service, productivity and quality.

Research and Development (R&D): (Meaning+ Personnel + Strategies+ Benefit)

 Research and development process is a process in which new product is developed.
 R&D personnel can play an integral role to developing and implement strategy in developing new
products and improving old products.
 R&D process includes transferring complex technology, adjusting processes to local raw materials, adapting
processes to local markets, and altering products to particular tastes and specifications.

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 Strategies such as product development, market penetration, and concentric diversification require that new
products be successfully developed and that old products be significantly improved.
 Management supports for R&D is often constrained by resource availability.
 R&D strategy always tied with external opportunities to internal strengths and is linked with objectives.
 Well formulated R&D policies match market opportunities with internal capabilities.
 There must be effective interactions between R&D departments and other functional departments in
implementing R&D strategy. Conflicts between marketing, finance/accounting, R&D, and information
systems departments can be minimized with clear policies and objectives.

Q-1 Guidelines as to whether to acquire R&D expertise from external firms or

develop R&D expertise internally:
Situations Decisions Reason
then in-house R&D is The reason is that R&D, if successful, will
 If the rate of technical progress is slow, the preferred solution. result in a temporary product or process
the rate of market growth is moderate, monopoly that the company can exploit.
and there are significant barriers to
possible new entrants,
hence R&D expertize
 then a major effort in R&D may be very
 If technology is changing rapidly and the must be appointed. risky,
market is growing slowly,  It may also lead to the development of an
ultimately obsolete technology or one for
which there is no market.
Appoint R&D expertise Because there is not enough time for in-
 If technology is changing slowly but the on an exclusive or house development.
market is growing quickly, nonexclusive basis from
an outside firm.
 If both technical progress and market R&D expertise should Same as above
growth are fast, be obtained

Tabular presentation
Situation In house R & D R & D Experts are appointed
Technology changes Market grow
Slow Moderate
Rapidly Slow
Slow Fast
Fast Fast

Q-2 Major R&D approaches for implementing strategies:

R&D Approaches Impacts
1) Market new technological - This is a glamorous and exciting strategy but also a dangerous one.
products. - Firms such as Samsung and Apple have been successful with this approach, but
(Eg: develop innovative products) many other pioneering firms have fallen, with rival firms seizing the initiative.
2) Innovative imitator of successful - This approach entails allowing a pioneer firm to develop the first version of the new
products thereby reducing risks product and to demonstrate that a market exists.
and costs of start-up. - Then, dormant firms develop a similar product. This strategy requires excellent
(Eg: Copy the strategy of others) R&D personnel and an excellent marketing department. (China made product)
3) Low-cost producer by mass- - As a new product accepted by customers, price becomes increasingly
producing products similar to but important in the buying decision
less expensive than products - Also, mass marketing replaces personal selling as the dominant selling strategy.
recently introduced. - This R&D strategy requires substantial investment in plant and equipment , but fewer
(Eg: more sales unit at less cost =
expenditures in R&D than the two approaches described earlier.
more sales)

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Operation Planning and Control

 Strategies related to operations planning and control are concerned with aggregate production planning;
materials supply; inventory, cost, and quality management; and maintenance of plant and
equipment.
 The aim of strategy implementation is to see how efficiently resources are utilized and in what manner
the day-to-day operations can be managed in the light of long-term objectives.
 For instance: Instrumentation Ltd is a public sector company engaged in the business of process control and automation and is currently-
following a strategy of expansion and diversification. Operations planning and control at this company is based on the policy of ancillarisation.
There are about 259 ancillary units that supply sub-assemblies and components. The company's centralized production is at Kota in Rajasthan and its
operations plans are based on the plans of its ancillary units. The centralized production provides all the basic inputs to ancillaries and performs the
functions of testing, standardizing, and fabricating the equipment.
GG Ltd.
(Supplier
Raw materials supplies
)

Ancillary Units Raw materials sent to respective ancillary units Central Units
ABC Ltd- Provides processed Plastics Raw materials
BCD Ltd.- Provides processed Aluminium
CDE Ltd – Provides processed Steel
DEF Ltd. – Provides processed Rubber
Testing, standardization and
EFG Ltd. – Provides processed Cotton
fabricating the equipment

Sale to Buyers

Production Strategy Formulation

 The strategy for production are related to the production system, operational planning and control, and
research and development (R&D).
 The strategy adopted affects the nature of product/service, the markets to be served and the manner in which
the markets are to be served and production objective.
 Thus, a strategy of expansion through—
 related - which will affect what products are offered to which market and how
diversification, these markets are served.
 the operations - which is concerned with the manufacturing/ service and supply/delivery
system structure, system,
 and operations - which are related to customer service and resource utilization, both
system determine what operations, plans and policies are set.
objectives,

Production System:
 The production system is concerned with the capacity, location, layout, product or service design, work
systems, degree of automation, extent of vertical integration etc.
 Strategies related to production system are significant as they deal with vital issues affecting the
organizational capability to achieve its objectives.
 Strategy implementation would have to take into account the production system factors which involves
long term decisions and influence not only the operations capability of an organization but also its ability to
implement strategies and achieve objectives.

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 For example: Excel Industries, a pioneering company in the area of industrial and agro chemicals, adopts
a policy of successive vertical integration for import substitution. It starts with the end product and then
integrates backward to make raw materials for it.

Marketing Strategy Formulation

Definition:
 Marketing is a social and managerial process by which individuals and groups obtain what they need and want through
creating, offering and exchanging products of value with others. Philip Kotler
 It is an activity that creates and sustains the relationships amongst those who are willing and able to buy and
sell products and services.
 It helps in identifying the needs of customers and taking actions to satisfy them in return.
 In marketing it is more important to do what is strategically right rather than what is immediately
profitable.
 It helps in causing rapid economic growth, globalization, technological up-gradation, development of human
needs and wants and increasing purchasing power.
Q-1 Examples of marketing decisions requiring special attention:
1. The amount and extent of advertising i.e, heavy or light advertising.
2. The kind of distribution network such as dealerships or multiple channels of distribution.
3. Whether to limit or enhance the share of business.
4. Whether to be a price leader or a price follower.
5. Whether to offer a complete or limited warranty.
6. Whether to reward salespeople based on straight salary, straight commission, or on a combination of
salary/commission.
Q-2 Delivering value to Customer:
 Marketing alone cannot produce superior value for the consumer. It needs to work in co-ordination with
other departments to accomplish this.
 Marketing acts is representing a chain of activities in which marketers are challenged to find ways to get
all departments to think with focus on customer.
 For better competitive advantage, the firm needs to look beyond its own chain of activities and into the
chains of its suppliers, distributors, and ultimately customers.
 Companies must win customers from competitors and keep them by delivering greater value. \
 Since companies cannot satisfy all consumers in a given market, they must divide up the total market
(market segmentation), choose the best segments (market targeting), and design strategies for
profitably serving chosen segments better than the competition.

Q-3 Marketing Mix

 It plays an important role in marketing strategy formulation.
 It is a set of marketing variables used in a combined way to get the desired response from target market.
 It consists of “4 Ps” which stands for product, price, place and promotion.
 An effective marketing program mixes all marketing mix elements into a coordinated program designed to
achieve the company’s marketing objectives by delivering value to consumers.
 The 4 Ps are from a marketer’s angle, when translated to buyer’s angle, they may be termed as 4 Cs

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which stands for Products as customer solution, price as customer cost, place as convenience and promotion
as communication.

4 Ps (seller’s angle) 4 Cs (Buyer’s angle)

Product Customer solution
Price Cost
Place Convenience
Promotion Communication

Four- Marketing Mix in details:

1) Product:
 It stands for the “goods-and-service” combination the company offers to the target market.
 Strategies are needed for managing existing product over time by adding new ones and dropping
failed products.
 Strategic decisions must also be made regarding branding, packaging and other product features such as
warrantees. Proper policies and strategies are required for change management between product and market.
 Products having consistent customer demand over long period of time shall maintain wide range of
quality and requires quality changes over time.
 Products must be different from competitor’s product on the basis of size, shape, colour, packaging,
brand names, after-sales service and so on.
 Organizations seek to hammer into customer’s minds that their products are different from others.
 Product and even firms branding must also be built through advertising and other promotional strategies.
2) Price:
 It stands for the amount of money customers have to pay to obtain the product.
 Strategies required to find the location of the customers, price flexibility, competitor’s price and
related items within a product line and terms of sale.
 It provides information to the customers regarding value of product, utility to customer, its demand,
quality, reliability, safety, competition etc. and so on.
 There are basically 2 types of pricing strategy- (1) Skimming pricing and (2) Penetration pricing.
 Skimming pricing stratgy is applied where new product is being launched with high demand. Main
purpose of skimming price is to earn the maximum profit at earliest stage because product may be
obsoleted soon in near future.
 On other side penetration pricing strategy is applied when new product is launched with minimum
demand. The main objective is to create the market by earning less profit at initial stage and gradually
increase the price when demand go high.
 Organizations may also adopt cost plus pricing strategy wherein a margin is added to the cost of the
product to determine its price. However, in the competitive environment such an approach may not be
feasible because customers are very price sensitive with minor deviations of their costs.

3) Place:
 It stands for company activities that make the product available to target consumers.
 One of the most basic marketing decision is choosing the most appropriate marketing channel.
 Strategies should be taken for the management of channels by which ownership of product is transferred from
producers to customers. In many cases goods are not directly moved to the customer rather it is moved through the
channel of wholesellers and retailers, in that case such strategy will also be applicable to them.

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4) Promotion:
 It stands for activities that communicate the merits of the product and persuade to target
consumers for buying it.
 Strategies are needed to combine individual methods such as advertising, personal selling, and sales
promotion into a coordinated campaign.

Q-4 Major direct methods or tools for promotion:

1) Personal Selling:
 It is an oldest form of promotion involving face-to-face interaction with customers and provides
a high degree of personal attention to them.
 It executes oral communication with potential buyers for making a sale.
 It is very useful to develop a relationship with the potential buyer and end up with efforts for
making a sale.
 It suffers from very high costs because sales personals are expensive. They can physically
attend only one customer at a time. Thus it is not a cost-effective way of reaching a large number of
people.
2) Advertising:
 Advertising is a non-personal, highly flexible and dynamic promotional method.
 The media for advertisings are several such as pamphlets, brochures, newspapers, magazines,
hoardings, display boards, radio, television and internet. Hence, choice of appropriate media is
important for effectiveness of message.
 It is very difficult to measure the actual expenditure of advertisement perfectly and accurately.

3) Publicity:
 It is also a non-personal, high flexible and dynamic form of promotion similar to advertising.
 However, no payments are made to the media as in case of advertising. Organizations skillfully
seek to promote themselves and their product without payment. Thus it is way of reaching
customers with negligible cost.
 The media for publicity are such as press releases, press conferences, reports, stories, and
internet releases. These releases must be of interest to the public.
4) Sales promotion:
 Sales promotion includes all activities that are undertaken to promote the business but are not
specifically included under personal selling, advertising or publicity.
 Activities like discounts, contests, money refunds, installments, kiosks and exhibitions
constitute sales promotion.
 All these are meant to give a boost to the sales. Sales promotion done periodically may help in
getting a larger market share to an organization.

Expanded Marketing Mix:

These above 4 Ps are not exhaustive one. We discuss few more elements (new Ps) that may form part of an organizational
marketing mix strategy are as follows:
 People: All human actors who play a part in delivery of the market offering and thus influence the buyer’s perception,
namely the firm’s personnel and the customer.

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 Physical evidence: It refers to the environment in which the market offering is delivered and where the firm and
customer interact.
 Process: It refers to the actual procedures, mechanisms and flow of activities by which the product / service is
delivered.

Q-5 Write a short notes on Marketing Analysis:

 Marketing analysis involves a complete analysis of the company’s situation.
 A company performs analysis by identifying environmental opportunities and threats. It also analyzes its
strengths and weaknesses to determine which opportunities the company can best pursue.
 3-components of Marketing Analyses are planning, implementation and control. Through analysis, organization
feed information and other inputs to each of the other marketing management functions.

Analysis

Planning Implementation Control

Develop Strategic Plan Measure results
Carry out the plans

Develop Marketing Plans Evaluate results

Take Corrective actions

MANAGING THE MARKETING EFFORT

Q-6 Write a short notes on Marketing Planning

 Marketing planning involves deciding on marketing strategies to attain its overall strategic objectives.
 A detailed plan is needed for each business, product, or brand. It includes
 It must have a market description.
 It must have a product review.
 It must have an analysis of competition.
 It must have a section on distribution.
 It must show all threats and opportunities in marketing so that important developments and its
impact can be anticipated, either positive or negative on the firm.
 Strategies should be created for all marketing mix components.
 It must have a marketing budget that shows projected revenues, costs, and profits.
 At last, it should outline the controls to monitor progress and take corrective action.

Q-7 Marketing Strategy Techniques:

1) Social Marketing:
 It refers to the design, implementation, and control of programs seeking to increase the acceptability of a
social ideas, cause, or practice among a target group.
 For instance, the publicity campaign for prohibition of smoking in Delhi explained the place where one can and
can’t smoke in Delhi.

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2) Augmented Marketing:
 It is a provision of additional customer services and benefits to satisfy additional requirement of customers like
movies on demand, on-line computer repair services, secretarial services, etc.
 It provides a set of benefits that promise to promote customer services to an unexpected level.

3) Direct Marketing:
 Marketing through various advertising media that interact directly with consumers, generally calling for the
consumer to make a direct response.
 Direct marketing includes Catalogue Selling, Mail, Tele-computing, Electronic Marketing, Shopping, and
TV shopping.

4) Relationship Marketing:
 The process of creating, maintaining, and enhancing to make strong and valuable relationships with
customers and other stakeholder.
 For example: British Airways offers special lounges with showers at 199 airports for frequent flyers. Thus,
providing special benefits to select customers to strength bonds. It will go a long way in building relationships.

5) Services Marketing:
 It is applying the concepts, tools, and techniques, of marketing to services.
 Services is any activity or benefit that one party can offer to another party that is essentially intangible and
does not result in the, banking, savings, retailing, educational or utilities.

6) Person Marketing:
 People are also marketed. Person marketing consists of activities undertaken to create, maintain or
change attitudes or behavior towards particular people.
 For example, politicians, sports stars, film stars, professional i.e., market themselves to get votes, or to promote
their careers and income.

7) Organization Marketing:
 It consists of activities undertaken to create, maintain, or change attitudes and behavior of target
audiences towards an organization.
 Both profit and nonprofit organizations practice organization marketing.

8) Place Marketing:
 Place marketing involves activities undertaken to create, maintain, or change attitudes and behavior towards
particular places say, business sites marketing, tourism marketing.

9) Enlightened Marketing:
 A marketing philosophy holding that a company’s marketing should support the best long-run
performance of marketing system; its five principles include customer-oriented marketing, innovative
marketing, value marketing, sense-of-mission marketing, and societal marketing.

10) Differential Marketing:

 A market-coverage strategy in which a firm decides to target several market segments and designs
separate offer for each.
 For example: Hindustan Lever Limited has Lifebuoy, Lux and Rexona in popular segment and Lyril and Pears
in premium segment.

11) Synchro-marketing:
 When the demand for the product is irregular due to season, some parts of the day, or on hour basis,

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causing idle capacity or over-worked capacities, synchro-maketing can be used to find ways to alter
the same pattern of demand through flexible pricing, promotion, and other incentives.
 For example: woollens or coolers; or hospitals underbooked on weekend or end of the week.
12) Concentrated Marketing:
 A market-coverage strategy in which a firm goes after a large share of one or few sub-markets.

13) Demarketing:
 Marketing strategies to reduce demand temporarily or permanently, the aim is not to destroy demand, but
only to reduce or shift it. This happens when there is overfull demand.
 For example: buses are overloaded in the morning and evening, roads are busy for most of times, zoological
parks are over-crowded on Saturdays, Sundays and holidays. Here de-marketing can be applied to regulate
demand.

Financial Strategy Formulation

 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.
 Strategists need to formulate strategies in these areas so that they are implemented.

Q-1 Examples of decisions requiring finance/accounting policies:

1. To raise capital with short-term debt, long-term debt, preferred stock, or common stock.
2. To determine an appropriate dividend payout ratio.
3. To lease or buy fixed assets.
4. To extend the time of accounts receivable.
5. To determine the amount of cash that should be kept on hand.
6. To establish a certain percentage discount on accounts within a specified period of time.

Q-2 Acquiring capital to implement strategies / sources of funds

 Successful strategy implementation often requires additional capital.
 Besides net profit from operations and the sale of assets, 2- basic sources of capital for an organization
are debt and equity.
 Determining an appropriate mix of debt and equity in a firm's capital structure can be vital to successful
strategy implementation.
 Theoretically, an enterprise should have enough debt in its capital structure to boost its return on
investment by applying debt to products and projects earning more than the cost of the debt. In low earning
periods, too much debt in the capital structure can endanger stockholder’s return and affect company survival.
 The major factors regarding which strategies have to be made are: capital structure; procurement of

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capital and working capital borrowings; reserves and surplus as sources of funds; and relationship
with lenders, banks and financial institutions.
 Strategies related to the sources of funds are important since they determine how financial resources will
be made available for the implementation of strategies. Organizations have a range of alternatives regarding
the sources of funds. While one company may rely on external borrowings, another may follow a policy of
internal financing.

Q-3 Projected financial statements / budgets

 Projected financial statement analysis is a central strategy-implementation technique because it allows
examining expected results of various actions and approaches.
 This analysis can be used to forecast the impact of various implementation decisions.
 For example: to increase promotion expenditures by 50% to support a market-development strategy, to increase
salaries by 25% to support a market-penetration strategy, to increase R&D expenditures by 70% to support
product development, or to sell common stock to raise capital for diversification.
 All financial institutions require a projected financial statements whenever a business seeks capital.
 As a result of accounting scandal, companies today are being much more diligent in preparing projected
financial statements to "reasonably rather than too optimistically" project future expenses and earnings.
 A financial budget is also a document that details how funds will be obtained and spent for a specified period of
time.
 It is categorized as Annual budgets, Financial budgets, Zero based budgeting, Cash budget, Operating budget,
sales budgets, profit budgets, flexible and fixed budgets, expense budgets etc. that can be ranged from one day
to more than 10 years.

Q-4 Management / usage of funds:

 Plans and policies for the usage of funds deal with investment or asset-mix decisions.
 It includes plans and policies which are to be made are: capital investment; fixed asset acquisition; current
assets; loans and advances; dividend decisions; and relationship with shareholders.
 Usage of funds is important to determine efficiency and effectiveness of resource utilization in the process of
strategy implementation.
 Payout policies for dividends and bonus distribution play an important role in the usage of funds.
 If usage of fund is made at wrong direction or on wrong object, it will lead to a heavy fund loss and mis-utilization of
resources.
 The major factors of the policy of usages of fund are: the systems of finance, accounting, and budgeting;
management control system; cash, credit, and risk management; cost control and reduction; and tax
planning.

Q-5 Evaluating the worth of a business:

 It is a central to strategy implementation because integrative, intensive, and diversification strategies are often
implemented by acquiring other firms.
 Other strategies, such as retrenchment may result in the sale of a division of an organization or of the firm
itself. Thousands of transactions occur each year in which businesses are bought or sold in the United
States. Hence, it is necessary to establish the financial worth or cash value of a business to successfully
implement strategies.

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3- main approaches for evaluating the worth of business:

1) Determine Net-worth:
 The first approach in evaluating the worth of a business is determining its net worth or stockholders' equity.
 Net worth represents the sum of common stock, additional paid-in capital, and retained earnings.
 After calculating net worth, add or subtract an appropriate amount for goodwill and overvalued or
undervalued assets. This total provides a reasonable estimate of a firm's monetary value. If a firm has
goodwill, it will be listed on the balance sheet, perhaps as "intangibles".
[Networth = Paid up capital + Profit and reserves] [Monetary Value of firm = Paid up capital + Profit and
reserves - Goodwill - other Assets]
2) Value of firm:
 The second approach to measuring the value of a firm which grows out on the basis of large future benefits
through net profits.
 A conservative rule of thumb is to establish a business's worth as 5 times the firm's current annual profit. A
five-year average profit level could also be used. When using the approach, remember that firms normally
suppress earnings in their financial statements to minimize taxes.

3) Value of Business:
 The third approach, letting the market determine a business's worth, involves 3 methods.
 First, base the firm's worth on the selling price of a similar company. A potential problem,
however, is that sometimes comparable figures are not easy to locate, even though substantial
information on firms that buy or sell to other firms is available in major libraries.
 The second approach is called the price-earnings ratio method. To use this method, divide the
market price of the firm's common stock by the annual earnings per share and multiply this number
by the firm's average net income for the past five years.
 The third approach can be called the outstanding shares method. To use this method, simply
multiply the number of shares outstanding by the market price per share and add a premium (per share
amount).

Human Resource (HR) Strategy Formulation

 HR management is the management of an organization’s workforce or human resources.
 It is responsible for the attraction, selection, training, assessment, and rewarding of employees and ensuring
compliance with employment and labor laws.
 It includes assessing the staffing needs and costs for proposed alternative strategies and developing a staffing
plan for effectively implementing strategies.
 It must provide ability to motivate employees and managers.
 It also covers performance indicator approach through which performance of individual employees and
workers and can be measured and incentive will be provided.
 Managers and employees must be involved in strategic management activities to provide clear
understanding of strategies to yield greatest benefits.
 Lack of proper attention may fail a well-designed strategic-management system. It creates problem such as
disruption of Social and political structures, misunderstanding between individual’s perceptions with
implementation tasks, and inadequate top management support.
 It must provide proper and accurate role and responsibilities fit with employee’s caliber and capabilities.
 It is though time-consuming but it builds understanding, trust, commitment and ownership and reduces

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uncertainties.
 It provides ability to achieve the competitive advantages by accepting the firm’s external opportunities and threats
and its internal strengths and weaknesses.

Q-1 Factors influencing on employee competence:

1) Recruitment and selection:
 The workforce will be more competent if a firm can successfully identify, attracts, and select the
most competent applicants.

2) Training:
 The workforce will be more competent if employees are well trained to perform their jobs property.

3) Appraisal of Performance:
 The performance appraisal must identify any performance deficiencies experienced by employees due
to lack of competence. Such deficiencies, once identified, can often be solved through counselling,
coaching or training.

4) Compensation:
 A firm can usually increase the competency of its workforce by offering pay and benefit packages
that are more attractive than those of their competitors.
 This practice enables organizations to attract and retain the most capable people.

Q-2 Strategic focus in HR Management Practices:

 Pre-selection practices including human resource planning and job analysis.
 Selection practices meant to staff various positions in the organization. Both Recruitment and
Selection policies and procedures should be designed keeping in view the mission and the purpose of the
organization.
 Post-selection practices to maintain and improve the worker’s job performance levels. Human Resources
decisions related to training and development, performance appraisal, compensation and motivation should be based
on corporate strategy of the organization.

Q-3 Strategic Role of HR Management:

The prominent areas where the human resource manager can play strategic role are as follows:

1) Providing purposeful direction:

 They must be able to lead people and organize them towards the desired direction involving people
right from the beginning.
 Their most important tasks are to ensure whether desired objectives are achieved by each individual
working in the organization.

2) Creating competitive atmosphere:

 Maintaining a global market as a competitive gain is the object of an organization.
 There are two important ways to achieve a competitive advantages i.e,

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 1) Cost leadership which means the firm aims to become a low cost leader in the industry.
 2) Differentiation under which the firm seeks to be a unique industry in terms of dimensions
highly valued to the customers.

3) Facilitation of change:
 The Human resource will be more concerned with substance rather than form, accomplishments rather
than activities, and practice rather than theory.
 The personnel function will be responsible for maintaining it as well as in devoting more time to
promote adopting changes.

4) Diversion of workforce:
 Diverse workforce has a great challenge in these days. Workforce diversity can be observed in terms of
male and female workers, young and old workers, educated and uneducated workers, unskilled and
professional employee etc. Moreover, it also has people of different castes, religious and nationalities.
 Workforce will comprise more of educated and self conscious workers because they will ask for
higher degree of participation in activities. Money will no longer be the sole motivating force and hence
non-financial incentives will also play an important role in motivating the workforce.

5) Empowerment of human resources:

 Empowerment means authorizing every member of a society or organization to take of his own destiny
realizing his full potential.
 It involves giving more power to those who, at present, have little control what they do and little ability
to influence the decisions being made around them.

6) Building core competency:

 The HR manager has a great role to play in developing core competency by the firm.
 A core competence is a unique strength of an organization which may not be shared by others. It includes
human resources, marketing, capability, or technological capability.
 If the business is organized on the basis of core competency, it is likely to generate competitive
advantage.

7) Development of works ethics and culture:

 Greater efforts will be needed to achieve cohesiveness because workers would have commitment with
their groups.
 Changing work ethic requires redesigning of jobs.
 A vibrant work culture will have to be developed in the organizations to create an atmosphere of trust
among people and to encourage creative ideas by the people.

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CHAPTER-6 STRATEGY IMPLEMENTATION & CONTROL

Introduction:
 It is a process that simply put strategies and plans into actions to achieve desire goals.
 Strategic-management process does not end when the firm decides what strategies to pursue. There
must be a translation of strategic thought into strategic action which requires support of all managers
and employees of the business.
 Implementing strategy affects an organization from top to bottom and all the functional and divisional
areas of a business.

A B
Sound
Strategy Formulation

(Success)

C D
Flawed

Weak Excellent
Strategy Implementation
Reason:
Square A is the situation where a company apparently has formulated a very competitive strategy, but is showing difficulties in implementing
it successfully. This can be due to various factors, such as the lack of experience (e.g. for startups), the lack of resources, missing
leadership and so on. In such a situation the company will aim at moving from square A to square B, given they realize their
implementation difficulties.
Square D is the situation where the strategy formulation is flawed, but the company is showing excellent implementation skills. When a
company finds itself in square D the first thing they have to do is to REDESIGN their strategy before readjusting their
implementation/execution skills.
Square C is reserved for companies that haven't succeeded in coming up with a sound strategy formulation and in addition are bad at implementing
their flawed strategic model. Their path to success also goes through business model RE-DESIGN and implementation/execution RE-
ADJUSTMENT.

Q-1 Difference/inter-relationship between Strategy formulation and implementation:-

Difference Strategy Formulation Strategy Implementation
Design/Putting It involves the design and making right choice of It is the process of putting the various
appropriate organisational strategies. strategies into action of organizations.
Static/ Motion Strategy formulation is static. Strategy implementation is in motion.
Forces Strategy formulation is positioning forces before the Strategy implementation is managing forces
action during the action.
Focus Strategy formulation focuses on effectiveness. Strategy implementation focuses on efficiency.
Process Strategy formulation is primarily an intellectual Strategy implementation is primarily an
process. operational process.

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Skills Strategy formulation requires good intuitive and Strategy implementation requires special
analytical skills. motivation and leadership skills.
Co-ordination Strategy formulation requires coordination among a Strategy implementation requires co-ordination
few individuals. amongs many individuals.

Q-2 Types of linkages exist between Strategy formulation and strategy implementation:
The forward linkages deal with the impact of the formulation on implementation while the backward linkages are
concerned with the impact in the opposite direction.
1) Forward Linkages:
 All the elements of the strategy formulation starting with objective setting through environmental and
organizational appraisal, strategic alternatives.
 With the formulation of new strategies, or reformulation of existing strategies, many changes have to be
adopted within the organization.
 For instance, the organizational structure has to undergo a change in the light of the requirements of the
modified or new strategy. The style of leadership has to be adapted to the needs of the modified or new
strategies. In this way, the formulation of strategies has forward linkages with their implementation.

2) Backward Linkages:
 Just as implementation is determined by the formulation of strategies, the formulation process is also affected by
factors related with implementation.
 While dealing with strategic choice, past strategic actions also determine the choice of strategy.
 Organizations tend to adopt those strategies which can be implemented with the help of the present
structure of resources combined with some additional efforts. Such incremental changes, over a period
of time, take the organization from where it is to where it wishes to be.

Q-3 Issues in Strategy Implementation

1) The strategic plan proposes the manner in which the strategies could be put into action. Strategies, by
themselves, do not lead to action. Strategies, therefore, have to be activated through implementation.
2) Strategies should lead to plans. For instance, if stability strategies have been formulated, they may lead to the
formulation of various plans. One such plan could be a modernization plan.
3) Plans result in different kinds of programs.
- A program is a broader term which includes goals, policies, procedures, rules, and steps to be taken in putting a
plan into action.
- Programs are usually supported by funds allocated for plan implementation.
- An example of a program is a research and development program for the development of a new product.
4) Programs lead to the formulation of projects. A project is a highly specific program for which the time
schedule and costs are predetermined. It requires allocation of funds based on capital budgeting by organizations.
Thus, research and development programs may consist of several projects, each of which is intended to achieve a
specific and limited objective, requires separate allocation of funds, and is to be completed within a set time schedule.
5) Projects create the needed infrastructure for the day-to-day operations in an organization. They may be used
for setting up new or additional plants, modernizing the existing facilities, installation of newer systems, and for several other activities
that are needed for the implementation of strategies.

Q-4 Sequential manner of issues in strategy implementation:

 Project implementation
 Procedural implementation
 Resource aIIocation

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 Structural implementation
 Functional implementation
 Behavioural implementation
Notes:
1) But it should be noted that the sequence does not mean that each of the foIIowing activities are necessarily performed one after
another.
2) Many activities can be performed simultaneously, certain other activities may be repeated over time; and there are activities, which are
performed only once.

Organization and Strategy Implementation

 Changes in strategy often require changes in the way an organization is structured for 2 major reasons.
- First, structure largely dictates how objectives and policies will be established. For example,
objectives and policies established under a geographic organizational structure are couched in
geographic terms. (Woolen cloth in Jammu and Kashmir)
- Secondly structure should dictates how resources will be allocated. If an organization's structure is
based on customer groups, then resources will be allocated in that manner. Similarly, if an
organization's structure is set up along functional business lines, then resources are allocated by
functional areas.
 Without a strategy or reasons, companies find it difficult to design an effective structure.
 Numerous external and internal forces affect an organization; no firm could change its structure in
response to every one of these forces, because to do so would lead to chaos. However, when a firm
changes its strategy, the existing organizational structure may become ineffective.

types of organizational structure:

1) Functional structure
2) Divisional by geographic area,
3) Divisional by product,
4) Divisional by customer,
5) Divisional process,
6) Strategic business unit (SBU),
7) Matrix,
8) Network structure, and
9) Hourglass structure
1) Functional Structure:
 It is a widely used structure in business organizations.
 It is very simple and inexpensive structure.
 A functional structure consists of various tasks and activities by business function such as
production/operations, marketing, finance/accounting, research and development, and management
information systems.
 It also promotes specialization of labour, encourages efficiency, minimizes the need for an elaborate
control system, and allows rapid decision making.
Disadvantages:

 It forces accountability to the top, inadequate planning for products and markets, line/staff conflicts,
poor delegation of authority, minimizes career development opportunities, and low employee

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morale.
 Most large companies abandoned the functional structure in favour of decentralization and improved
accountability.

Chief Executive Officer

Corporate R&D Corporate Strategic Corporate Corporate

Finance planning Marketing Human

Finance Production Engineering Accounting Sales & Human Resource

Marketing

Functional Organization Structure

What is Multi divisional Structure (M-Form structure)?

 Functional departments often had difficulty dealing with distinct product lines and markets, especially in coordinating conflicting priorities
among the products. Costs were not allocated to individual products, so it was not possible to assess an individual product's profit
contribution.

 The M-form structure was developed in the 192 0s, in response to coordination and control related problems in large firms.

 It is composed of operating divisions where each division represents a separate business to which the top corporate officer delegates
responsibility for day-to-day operations and business unit strategy to division managers.

 By such delegation, the corporate office is responsible for formulating and implementing overall corporate strategy and manages
divisions through strategic and financial controls.
Benefits from Multi divisional structure:
This would enable the firm to –
- more accurately monitor the performance of individual businesses,
- simplifying control related problems,
- facilitate comparisons between divisions,
- improving the allocation of resources and
- seek ways to improve performance.

2) The Divisional Structure:

 As a small organization grows, it has more difficult in managing different products and services in
different markets. It helps in motivating employees, control operations, and compete successfully in
diverse locations.
 It is organized in one of four ways: by geographic area, by product or service, by customer, or by
process.
 With a divisional structure, functional activities are performed both centrally and in each separate
division.
 It provides the clarity of accountability. Hence, divisional managers can be held responsible for sales and
profit levels.
 It helps employees and managers to see the results of their good and bad performance which boost the
employee’s morale.
Disadvantage :
 This structure is very costly because it requires functional specialists, duplication of staff services and
facilities, managers must be well qualified.

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Chief Executive Officer

Corporate Finance Corporate

General Manager General Manager

Division-A Division-B

Marketing Marketing

Production Production

Personnel Personnel

Figure: Divisional Structure

A divisional structure by geographic area:

 It is most appropriate for organizations whose strategies are fit to the particular customer’s needs in
different geographic areas.
 It can be most appropriate for organizations that have similar branch facilities located in widely
dispersed areas.
 It requires local participation in decision making and improved coordination within a geographic region.
The divisional structure by product (or services):
 It is most effective for implementing strategies when specific products or services need special
emphasis.
 It is widely used when an organization offers only a few products or services, when an
organization's products or services differ substantially.
 It allows strict control over product lines, but it may also require a more skilled management force
and reduced top management control.
 Example: General Motors, DuPont, and Procter & Gamble use a divisional structure by product to
implement strategies.
Divisional structure by customer:
 It is most appropriate for organizations who renders many different services to these customers.
 It allows an organization to cater effectively to the requirements of clearly defined customer groups.
 For example: book-publishing companies often organize their activities around customer groups such as
colleges, secondary schools, and private commercial schools.
A divisional structure by process:
 It is similar to a functional structure, because activities are organized according to the way work is
actually performed.
 However, a key difference between these two designs is that functional departments are not
accountable for profits or revenues, whereas divisional process departments are evaluated on these
criteria.

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3) The Strategic Business Unit (SBU) Structure:

President

Corporate Corporate Strategic Corporate Corporate Human

R&D Finance Planning Marketing Resource

SBU-A SBU-B SBU-C SBU-D

Division Division Division Division Division Division

Fig: SBU Structure

Disadvantage of SBU structure:

 It is an additional layer of management that increases salary expenses, and
 The role amongst groups are quite ambiguous.

Q-1 Attributes of an SBU deriving benefits to a firm:

1) Each SBU is a separate business from the strategic planning standpoint. In the basic factors, viz., mission,
objectives, competition and strategy-one SBU will be distinct from another.
2) Each SBU will have its own distinct set of competitors and its own distinct strategy.
3) Each SBU will have a CEO who is responsible for strategic planning for such SBU and its profit performance
and he has control over all factors affecting the profit of the SBU.
4) It is a scientific method of grouping the businesses of a multi-business corporation that helps firm in
strategic planning.
5) Grouping the businesses on SBU lines helps the firm in strategic planning by removing the confusion; it also
facilitates the right setting for correct strategic planning and facilitates correct relative priorities and resources to the
various businesses.
6) It helps in analyzing and segregating the businesses / portfolios and regrouping them into a few, well defined,
distinct, scientifically demarcated business units.
7) It executes distinct strategic planning from other businesses.
8) It provides an improvement over the territorial grouping of businesses and strategic planning based on territorial
units.
9) Unrelated products/businesses in any group are separated and has assigned under another SBU.

Q-2 Characteristics of SBU:

 Each SBU is a single business or a collection of related businesses which offer scope for independent
planning and which might feasibly stand-alone from the rest of the organization.
 Each SBU has its own set of competitors.
 Each SBU has a manager who has responsibility for strategic planning and profit performance,
and who has control of profit-influencing factors.

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4) The Matrix Structure:

 It groups employees by both FUNCTION and PRODUCT. It frequently uses teams of employees to
accomplish work to take advantage of the strengths and make up for the weaknesses.
 Matrix structure is very appropriate in SBUs.
 Employees have two superiors, a product or project manager and a functional manager.
 Functional unit such as engineering, manufacturing, or sales etc. is reasonably permanent but people
of these functional units are assigned temporarily to 1 or more product units or projects. The product
units or projects are usually temporary.
 It is a most complex structure because it depends upon both vertical and horizontal flows of authority and
communication.
 It is costly because of its more management positions such as dual lines of budget authority, dual sources of
reward and punishment, shared authority, dual reporting channels, and a need for an extensive and effective
communication system.
 It is widely used in many industries, including construction, healthcare, research and defence.
 In order for a matrix structure to be effective, organizations need Planning, Training, clear Roles and
responsibilities, excellent internal Communication, and Mutual trust and Confidence.
 The matrix structure is very useful when the external environment (*say technological and market aspects) is
very complex and changeable.

Conditions for Matrix structure:

1. Ideas need to be cross-fertilised across projects or products,
2. Resources are scarce and
3. Abilities to process information and to make decisions need to be improved.
Advantages:
- Objectives of matrix structures are very clear,
- Workers can see the visible results of their work through many communication channels and
- shutting down a project is accomplished relatively easily.

Dis-advantages:
- It produces conflicts revolving around duties, authority, and resource allocation.
- Goals to be achieved are vague and the technology used is poorly understood,
- a continuous battle for power between product and functional mangers.

Product / Inventory Production Marketing

Functions
Shoes
Belt
Tie
Shirts
Wallet

Matrix Organization Structure

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Q-1 Phases for development of Matrix structure proposed by Davis & Lawrence:
1) Cross-functional task forces:
 Temporary cross-functional task forces are initially used when a new product line is being introduced. A
project manager is in charge as the key horizontal link.

2) Product/brand management:
 If the cross-functional task forces become more permanent, the project manager becomes a product or
brand manager and a second phase begins.
 In this arrangement, function is still the primary organizational structure, but product or brand managers
act as the integrators of semi permanent products or brands.

3) Mature matrix:
 It involves a true dual-authority structure.
 Both the functional and product structures are permanent.
 All employees are connected to both a vertical functional superior and a horizontal product
manager. Functional and product managers have equal authority and must work well together to resolve
disagreements over resources and priorities.
 However, the matrix structure is not very popular because of difficulties in implementation and
trouble in managing.

5) Network Structure:
 It is a new structure of organization having a radical organizational design.
 It can also be termed as a "non-structure” by its virtual elimination of in house business functions.
 The organization is electronically connected through information system to some completely
owned divisions, partially owned subsidiaries, and other independent companies.
 An organisation organized in this manner is often called a virtual organization because it is composed of a
series of project groups or collaborations linked by constantly changing non-hierarchical, cobweb-like networks.
 Instead of having salaried employees, it may contract with people for a specific project or length of time.
Long-term contracts with suppliers and distributors replace services that the company could provide for itself.
 It becomes most useful when the environment of a firm is unstable and is expected to remain so.
 It is cheaper and functioning in time saving mode. Managers are usually engaged in coordinating and
controlling functions.
 It uses information systems to reduce the transaction costs of the marketplace.
 An organization's business functions are scattered worldwide rather than having location at one place
 Companies like Nike, Reebok and Benetton use the network structure in their operations function by
subcontracting manufacturing to other companies in low-cost
 It provides flexibility and adaptability to cope with rapid technological change and shifting patterns of
international trade and competition.
Disadvantages:
- The availability of numerous potential partners can be a source of trouble.
- Contracting out functions to separate suppliers/distributors may restrain specialized firm in
their getting proper accountability and execution of specialization.

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6) Hourglass Structure
 In the recent years information technology and communications have significantly altered the functioning of
organizations.
 The role played by middle management is diminishing as the tasks performed by them are increasingly being
replaced by the technological tools.
 It consists of 3 layers with restricted middle layer. Information technology links the top and bottom levels in the
organization. It takes away many tasks that are performed by the middle level managers.
 A shrunken middle layer coordinates diverse lower level activities. The managers in the hourglass structure are
generalists and perform wide variety of tasks. They would be handling cross-functional issues emanating such as those
from marketing, finance or production.
Merits:
- It has benefit of reduced costs. It also helps in enhancing responsiveness by simplifying decision making.
Decision making authority is shifted close to the source of information so that it is faster.
Demerits:
- However, with the reduced size of middle management the promotion opportunities for the lower levels
diminish significantly.
- Continuity at same level may bring monotony and lack of interest and it becomes difficult to keep the
motivation levels high.

Value Chain Analysis

 A value chain is a series of activities or processes which aims at creating and adding value to an article (product)
at every step during the production process.
 Value chain analysis (VCA) is a process where a firm identifies its primary and support activities that add value
to its final product and then analyze these activities to reduce costs or increase differentiation.
 Example: Value chain of a manufacturing organization comprises of Primary and Supportive activities. The
primary ones are inclusive of inbound logistics, operations, outbound logistics, marketing and sales, and services.
The supportive activities relate to procurement, human resource management, technology development and
infrastructure.
 It helps to create value to our customers at minimum cost without any unwanted risks.

Q-1 Primary Activities of Organization are grouped into 5 main areas:

The primary activities of the organization are grouped into five main areas: inbound logistics, operations, outbound
logistics, marketing and sales, and service.
1) Inbound logistics:
 These are the activities concerned with receiving, storing and distributing the inputs to the

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product/service. This includes materials handling, stock control, transport etc.
2) Operations:
 It transforms these various inputs into the final product or service: machining, packaging, assembly,
testing etc.
3) Outbound logistics:
 It collects, stores and distributes the product to customers.
 For tangible products this would be warehousing, materials handling, transport, etc. In the case of services,
it may be more concerned with arrangements for bringing customers to the service if it is a fixed location (e.g.
sports events).
4) Marketing and sales:
 It provides the means whereby consumers/users are made aware of the product/service and are able to
purchase it. This would include sales administration, advertising, selling and so on. In public services,
communication networks which help users' access a particular service are often important.
5) Services:
 It means all those activities, which enhance or maintain the value of a product/service, such as
installation, repair, training and spares.

Q-2 Support activities to which primary activities are linked:

1) Procurement:
 It refers to the processes for acquiring the various resource inputs to the primary activities.
2) Technology development:
 All value activities have a 'technology', even if it is simply know-how.
 The key technologies may be concerned directly with the product (e.g. R&D product design) or with
processes (e.g. process development) or with a particular resource (e.g. raw materials improvements).
3) Human resource management:
 It is an important area which transcends all primary activities.
 It is concerned with those activities involved in recruiting, managing, training, developing and
rewarding people within the organization.
4) Infrastructure:
 The systems of planning, finance, quality control, information management etc. are crucially
important to an organization's performance in its primary activities.
 Infrastructure also consists of the structures and routines of the organization which sustain its culture.

Q-3 Write a short notes on “Why Identifying Core Competences are important”:
 Value chain analysis is useful in describing the separate activities which are necessary to support an
organization's strategies and how they link together both inside and outside the organization.
 Every activity should necessarily involve a threshold competence hence it is really important to
identify these competences that supports in achieving organization's competitive advantage.
 It is differ from one organization to another depending on how the company is positioned and the
strategies it is pursuing.

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 It will not provide only good 'fit' between these core competences and the changing nature of the
environment but also helps in providing new opportunities.
 Hence it is very important to decide which competences are core and which one is not.
 For example: Consider how small shops compete with supermarkets in grocery retailing. All shops need to have a threshold
competence in the basic activities of purchasing, stocking, display, etc. However, the major supermarkets are pursuing strategies
which provide lower prices to consumers through their core competences in merchandising, securing lower cost supplies and
managing in-store activities more efficiently. This gives a supermarket competitive advantage over smaller shops. It is difficult for
smaller shops to imitate these competences, since they are underpinned by key resources such as computerized stock/ordering
systems and own brand labels.

Q-4 Write a short notes on “Managing linkages in core competent activities”:

 Core competences in separate activities may provide competitive advantage for an organization,
but nevertheless over time may be imitated by competitors.
 Core competences are likely to be more robust and difficult to imitate if they relate to the
management of linkages within the organization's value chain and linkages into the supply and
distribution chains.
 Managing linkages provides levels of performance which are difficult to match.
 It provides ability to co-ordinate the activities of specialist teams or departments may create
competitive advantage through improving value for money in the product or service.
 Specialization of roles and responsibilities is only the way to achieve high levels of competence in
separate activities. However, one should evaluating the cost benefit analysis for assigning the roles and
responsibilities.

Q-5 Management of internal linkages in the value chain create competitive

advantage in various ways:
1) There may be important linkages between the primary activities.
- For example: A decision to hold high levels of finished stock might ease production scheduling
problems and provide for a faster response time to the customer.
- It is easy to miss this issue of managing linkages between primary activities in an analysis if
organization's competences in marketing activities and operations are assessed separately.
2) The management of the linkages between a primary activity and a support activity may be the basis of
a core competence.
- It may be key investments in systems or infrastructure which provides the basis on which the
company outperforms competition.
- Travel bookings and hotel reservation systems are examples which other services would do well
to emulate (performs at equal level) .
- Management of such linkages created the competence to provide both a better service at reduced
cost within the organization. It creates genuinely new services from these core competences to
expand rapidly into new markets.
3) Linkages between different support activities may also be the basis of core competences.
- For example: the extent to which HR development is in tune with new technologies has been a key
feature in the implementation of new production and office technologies.
- Many companies have failed to become competent in managing this linkage properly and have
lost out competitively.

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Competitive advantage may also be gained by complement/co-ordinate the

organization's own activities with those of supplier’s channels or customers in
a number of different ways:
1) Vertical integration with suppliers:
- It attempts to improve performance through ownership of more parts of the value system, making
more internal linkages to the organization.
- However, the practical difficulties and costs of co-ordinating with internal activities can outweigh the
theoretical benefits.
2) Integration with quality inspector:
- It attempts to improve the competence by improving the quality of raw material provided by supplier w ithin
manufacturing industry
- It helps to closely specify the exact requirements and controlling the performance of suppliers.
(sometimes linked to quality checking and/or penalties for poor performance) which is critical to both quality enhancement and cost

reduction.

3) Integration with specialists:

- Total quality management (TQM) seeks to improve performance through closer working relationships
between the specialists within the value system.
- For example: Many manufacturers will now involve their suppliers and distributors at the design stage
of a product or project.
4) Integration with distributors:
- The merchandising activities in which manufacturers undertake with their distributors are now
much improved and are an important criteria for attaining competitive advantage.

Leadership and Strategic Implementation

 Strategic leadership is the ability of influencing others to voluntarily make decisions that enhance
prospects for the organization’s long-term success while maintaining short-term financial stability.
 It includes determining the firm’s strategic direction, aligning the firm’s strategy with its culture,
modeling and communicating high ethical standards, and initiating changes in the firm’s strategy, when
necessary.
 Strategic leadership sets the firm’s direction by developing and communicating a vision of future and
inspire organization members to move in that direction.
 A strategy manager has many different leadership roles to play visionary, chief entrepreneur and
strategist, chief administrator, culture builder, resource acquirer and allocator, capabilities builder, process
integrator, crisis solver, spokesperson, negotiator, motivator, arbitrator, policy maker, policy enforcer, and
head cheerleader.
 Sometimes it is useful to be an authoritarian and hardnosed; sometimes it is best to be a perceptive
listener; sometimes a strongly participative; sometimes being a coach and adviser; and sometimes a
compromising decision maker is the proper role.

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Q-1 Leadership roles to play in pushing for good strategy execution:

1. Staying on top of what is happening, closely monitoring progress, ferreting out (*finding out) issues, and
learning what obstacles lie in the path of good execution.
2. Promoting a culture and esprit de corps that mobilizes and energizes organizational members to
execute strategy in a competent fashion and perform at a high level.
3. Keeping the organization responsive to changing conditions, alert for new opportunities, bubbling with
innovative ideas, and ahead of rivals in developing competitively valuable competencies and capabilities.
4. Exercising ethics leadership and insisting that the company conduct its affairs like a model corporate
citizen.
5. Pushing corrective actions to improve strategy execution and overall strategic performance.

Q-2 Several responsibilities of strategic leader including the following:

 Managing human capital (perhaps the most critical of the strategic leader's skills). Effectively managing
the company's operations.
 Sustaining high performance over time.
 Being willing to make candid, courageous, yet pragmatic, decisions.
 Seeking feedback through face-to-face communications.
 Having decision-making responsibilities that cannot be delegated.
Crux: Thus, the strategic leadership skills of a company's managers represent resources that affect company performance.
And these resources must be developed for the company's future benefit.

Q-3 Approaches to leadership style:

1) Transformational leadership style:
 It uses charisma and enthusiasm to inspire people to promote them for the good success of
organization.
 It may be appropriate in –
- turbulent (*dynamic) environments  at the very start or end of their life-
cycles,
- poorly performing organizations  when there is a need to inspire a
company to embrace major
changes.
 It offers excitement, vision, intellectual stimulation and personal satisfaction.
 They inspire employee to involve in a mission, giving them a ‘dream’ or ‘vision’ to have more
dramatic changes in organizational performance.
 It helps in increasing their abilities and self-confidence, and also promote innovation throughout
the organization.

2) Transactional leadership style:

 It focuses more on designing systems and controlling the organization’s activities and are more
likely to be associated with improving the current situation.
 They try to build the existing culture and enhance current practices.
 It may be appropriate in settled environment, in growing or mature industries, and in

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organizations that are performing well. The style is better suited in persuading people to work
efficiently and run operations smoothly.
 This style uses the authority of its office to exchange rewards, such as pay and status.
 They prefer a more formalized approach for motivation, setting clear goals with explicit rewards
or penalties for achievement or non-achievement.

Strategic Change:
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.

Q-1 Steps to initiate strategic change:

For initiating strategic change, 3 steps can be identified as under:

1) Recognize the need for change:

 The first step is to diagnose which parts of the present corporate culture are strategy
supportive and which are not. Hence, environmental scanning is required for both internal
and external capabilities through SWOT analysis and then determines the loopholes and scope for
change exists.

2) Create a shared vision to manage change:

 Objectives and vision of both individuals and organization should go hand in hand. There should be
no conflict between them.
 Senior managers need to consistently communicate the vision to inform others as well as to
overcome from resistance through proper communication.
 Strategy implementers have to convince all those who think change in business culture is not
beneficial to organization.
 The actions taken for adoption of changes have to be highly visible and should be without mistake.

3) Institutionalize the change:

 It is an action stage that requires implementation of changed strategy.
 It should provide a different attitude towards change to ensure that firm does not slip back into old
ways of thinking.
 Change process must be regularly monitored and reviewed to analyze the after-effects of change.
 Any discrepancy or deviation should be brought to the notice of persons concerned so that the
necessary corrective actions are taken.

Q-2 Kurt Lewin Change Process:

1) Unfreezing the situation:
 Unfreezing is the process of breaking down the old attitudes and behaviors, customs and traditions so
that they start with a clean slate.
 It can be achieved by making announcements, holding meetings and promoting the ideas throughout
the organization.

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 This process makes individuals or organizations aware of the necessity for change and prepares them
for such a change.
 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 provide a way for change by first “unfreezing the situation”, so that members
would be willing and ready to accept the change.

2) Changing to new situation:

 Once the unfreezing process has been completed and the members recognize 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 3 methods for reassigning new patterns of behaviour. These are
compliance, identification and internalization.
- Compliance: It is achieved by strictly enforcing the reward and punishment strategy for
good or bad behavior. Fear of punishment, actual punishment or actual reward seems to
change behavior for the better.
- Identification: Identification occurs when members are psychologically impressed as to
assigning the role models whose behavior they would like to adopt and try to become like
them.
- Internalization: Internalization involves some internal changing of the individual’s thought
processes in order to adjust to a new environment. They have given freedom to learn and
adopt new behavior in order to succeed in the new set of circumstances.
3) Refreezing:
 Refreezing occurs when the new behavior becomes a normal way of life.
 The new behavior must replace the former behavior completely for successful and permanent change
to take place.
 In order to make new behavior permanent, it must be continuously reinforced so that this new
acquired behavior does not diminish or extinguish.

Crux: Change process is not a one-time application but a continuous process due to dynamism and ever changing environment. The
process of unfreezing, changing and refreezing is a cyclical one and remains continuously in action.

Strategic Control:
 Strategic Control focuses on the dual questions of whether: (1) the strategy is being implemented as planned;
and (2) the results produced by the strategy are those intended.
 It ensures that performance of planned activities must be executed as per standards to achieve the
pre-determined goals and results.
 It is intended to regulate and check the behavior of events and people, to put restrictions on undesirable
tendencies, to make people conform to certain norms and standards, to measure progress to keep the system
on track.
 It ensures that what is planned is translated into results to keep a watch on proper use of
resources and safeguarding of assets.
 It involves monitoring the activity and measuring results against pre-established standards,
analyzing and correcting deviations as necessary and maintaining/adapting the system.

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 It enables the organization to continuously learn from its experience and to improve its capability to
cope with the demands of organizational growth and development.

Q-1 Elements of Control System:

a) Objectives and characteristics of system that become base for execution of operation with
measurable and controllable standards.
b) A mechanism for monitoring and measuring the characteristics of the system.
c) A mechanism for –
- for comparing the actual results with reference to the standards
- for detecting deviations from standards and
- for learning new insights on standards themselves.
d) A mechanism for feeding back corrective and adaptive information and instruction to the system, for
effecting the desired changes to set right the system to keep it on course.

Types of organizational control:

1) Operational control:
 It is a process applied on individual tasks or transactions as against total or more aggregative
management functions. For example: Procuring specific items for inventory is a matter of operational
control, in contrast to inventory management as a whole.
 Some of the examples of operational controls can be stock control (maintaining stocks between set
limits), production control (manufacturing to set programmes), quality control (keeping product quality
between agreed limits), cost control (maintaining expenditure as per standards), budgetary control
(keeping performance to budget).

2) Management Control:
 It is a process applied to assure that resources are obtained and used effectively and efficiently in
the accomplishment of the organization’s objectives”.
 When compared with operational, management control is more inclusive and more
aggregative in the sense of holding integrated activities of a complete department, division or
even entire organization instead of particular activities of subunits.
 Its main purpose is to achieve short and long range enterprise goals in an effective and efficient
manner.
3) Strategic Control:
 It is a process of evaluating strategy formulated and implemented. It is directed towards identifying
problems and changes in assumptions and making necessary adjustments.
 Strategic control focuses on the dual questions of:
- whether the strategy is being implemented as planned; and
- whether the results produced by the strategy are those intended."
 Strategies once formulated are not immediately implemented. There is time gap between the
stages of strategy formulation and their implementation.
 Strategies are often affected on account of changes in internal and external environments of
organizations.

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Q-2 Types of Strategic Control:

There are 4-types of strategic control as follows:

1) Premise control:
 A strategy is formed on the basis of certain assumptions or premises about the complex and
dynamic environment.
 It provides systematic and continuous monitoring of environment to verify the validity and accuracy of
of assumptions on which the strategy has been built.
 It primarily involves monitoring of 2 types of factors:
a. Environmental factors such as economic (inflation, liquidity, interest rates), technology, social
and regulatory.
b. Industry factors such as competitors, suppliers, substitutes.

2) Strategic surveillance:
 The strategic surveillance is unfocused.
 It involves general monitoring of various sources of information to uncover unanticipated information having
a bearing on the organizational strategy.
 It involves casual environmental browsing, reading financial and other newspapers, business magazines,
meetings, conferences, discussions at clubs or parties and so on can help in strategic surveillance.
 Strategic surveillance may be loose form of strategic control, but is capable of uncovering information
relevant to the strategy.
3) Special alert control:
 At times unexpected events may force organizations to reconsider their strategy.
 Sudden changes in government, natural calamities, terrorist attacks, unexpected merger/acquisition by
competitors, industrial disasters and other such events may trigger an immediate and intense review of
strategy.
 Organizations to cope up with these eventualities, form crisis management teams to handle the situation.

4) Implementation control:
 Managers implement strategy by converting major plans into concrete, sequential actions that form
incremental steps.
 Implementation control is directed towards assessing the need for changes in the overall strategy in
light of unfolding events and results associated with incremental steps and actions.
 Strategic implementation control is not a replacement to operational control. It unlike operational controls
continuously monitors the basic direction of the strategy.
 The 2-basis forms of implementation control are:
a) Monitoring strategic thrusts: Monitoring strategic thrusts help managers to determine whether the
overall strategy is progressing as desired or whether there is need for readjustments.
b) Milestone Reviews:
 All key activities necessary to implement strategy are segregated in terms of time, events or
major resource allocation.
 It normally involves a complete reassessment of the strategy.
 It also assesses the need to continue or refocus the direction of an organization.

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Building a Strategy-Supportive Corporate Culture:

 Corporate culture refers to a company’s values, beliefs, business principles, traditions, ways of
operating, and internal work environment.
 Every business organization has a unique organizational culture. Each business has its own philosophy
and principles, its own ways of approaching problems and making decisions, own thinking process,
own way to do task, own behavior patterns etc.

Where Does Corporate Culture Come From ?

 An organization’s culture is come from a complex combination of socio-logical forces operating
within its boundaries.
 Sociological forces means ethical standards and official policies in its stakeholder relationships
especially during dealing with various personals of organization, in its supervisory practices, in
employee’s attitudes and behavior, in the organization's politics, combine to define an organization's
culture, beliefs and practices.

How a corporate culture can be both strength and weakness of an organization ?

As a Strength: Culture can facilitate communication, decision making and control and instil cooperation and
commitment. An organization’s culture could be strong and cohesive when it conducts its business according to clear
and explicit set of principle and values, which the management devotes considerable time to communicating to
employees and which values are shared widely across the organisation.

As a weakness: Culture, as a weakness can obstruct the smooth implementation of strategy by creating resistance to
change. An organization’s culture could be characterised as weak when many sub-cultures exists, few values and
behavioural norms are shared and traditions are rare. In such organizations, employees do not have a sense of
commitment, loyalty and sense of identity.

Culture: ally or obstacle to strategy execution?

 An organization’s culture is either an important contributor or an obstacle to successful strategy
execution.
 The beliefs, vision, objectives, and business approaches and practices underpinning a company's strategy
may be compatible with its culture or they may not.
 When they are, the culture becomes a valuable ally in strategy implementation and execution. When
the culture is in conflict with some aspect of the company's direction, performance targets or strategy, it
becomes a stumbling block that impedes successful strategy implementation and execution.

How culture can promote better strategy execution?

 Strong cultures promote good strategy execution. Strong culture provides best fit and loose culture
hurt the organization values, practice and behaviors.
 It helps in energizing people to do their jobs in a strategy-supportive manner by providing better
organization values, practice and behaviors.
 A good culture provides the best way that how to conduct business internally.
 Strategy-supportive cultures shape the mood, temperament, and motivation the workforce,
positively affecting organizational energy, work habits and operating practices, the degree to
which organizational units cooperate, and how customers are treated.
 A strong strategy-supportive culture nurtures and motivates people to do their jobs.

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The Perils (*danger) of Strategy-Culture Conflict

 When a company's culture is out of sync with what is needed for strategic success, the culture has to
be changed so rapidly which cannot be managed.
 While correcting a strategy-culture conflict can occasionally mean revamping (*changing to
improve) strategy to produce cultural fit. It means that changing mismatched culture as per
requirement to improve and make strategy fit.

Creating a strong fit between strategy and culture

 It is the strategy maker’s responsibility to select a strategy compatible with the "sacred" or
unchangeable parts of prevailing corporate culture.
 It is the strategy implementer's task, once strategy is chosen, to change whatever facets of the
corporate culture. Once a culture is executed, it is difficult to change.

Changing a problem culture:

 Changing a company's culture to align it with strategy is among the toughest management tasks.
 Changing problem cultures is very difficult because it is difficult for people to leave existing
behaviors and habbits to which they are emotionally most familiar.
 Hence, it requires management action over a period of time to replace an unhealthy culture with a
healthy culture or to root out certain unwanted cultural obstacles and install one that are more strategy-
supportive.
 The first step is to diagnose which areas of present culture are strategy supportive and which are
not.
 Then, managers have to talk openly, accurately and in a friendly way about those aspects of
culture that have to be changed.
 Culture-changing actions includes revising policies and procedures, altering incentive
compensation, and recognizing people who display the new cultural ideas, recruiting and hiring
new managers and employees who have the desired cultural values etc. and communicate to
employees the basis for cultural change and its benefits.

Culture changing actions

 If strategy implementers would like to push others for new behaviors and approaches then he must
convince them by providing logical reason along with it as to why it is better than existing one.
 After convincing them, new strategy will be formulated and complimented substantive actions and
real movement has to be started.
 These actions taken have to be credible, highly visible, and free from mistake that indicates seriousness
of management’s commitment for new strategic initiatives and the associated cultural changes.
 It requires sincere and sustained commitment by the chief executive in reinforcing the culture at
every opportunity through both word and deed.
 Neither charisma nor personal magnetism is essential. What is actually important is to personal
TALK with many departmental groups about the reasons for “change in culture” is essential.
 The task of making culture supportive of strategy is not a short-term exercise. It takes time for a new
culture to emerge and prevail; it's unrealistic to expect an overnight transformation. The bigger the
organization and the greater the cultural shift needed to produce a culture -strategy fit, the longer it
takes.

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CHAPTER-7 REACHING STRATEGIC EDGE

What is Business process:

 Business processes are simply a set of activities that TRANSFORM a set of inputs into a set of outputs for
another person or process.
 It creates value addition to the business as well as to the customer.
 It involves a set of activities performed by different people in different departments.

Core business processes:

 Core business processes are extremely critical for the success and survival of the enterprise. BPR
focuses on such critical business processes.
 A core business process creates value addition to the business and to the customers to cope with the
competitive environment.
 It is very important to identify the core business processes. However, some are easily identifiable and
some takes time.
 The core processes of a company may change over a period of time according to the shifting requirements
of its competitiveness .

The following instances shows core processes:

▪ In the insurance industry, the actual works that leads to balance of competitive premium for customers, and profit
after claims for the company, is a core business process.
▪ In the banking industry, the activities that help mobilise deposits and generate funds for advances to
customers, is a core business process.
▪ In advertising industry, marketing and brand management is a core process.
▪ In the electronics and semi-conductor industries, new product development is a core process.

Business Process Reengineering

 Definition for BPR, (By Hammer and Champhy):- “BPR is the fundamental re-thinking, radical re-design, re-inventing
of processes to achieve dramatic improvement in terms of cost, quality, service and speed.”
 “Re-engineering-
- means starting all over, starting from scratch.”
- begins with a fundamental rethinking.
- In a nutshell, it says that “Whatever you were doing in the past is all wrong, just forget it” and do not
get biased by it or reassemble you new system to redesign it afresh.
- In doing reengineering people must ask some most basic questions about their organizations and
about their operations. They try to find out answers to such questions like “Why do we do what we
do? And why do we do it the way we do?”
 Dramatic achievement means to achieve 80% or 90% reduction (i.e, delivery time, work in progress or
rejection rate) and not just 5%, 10% reduction. This is possible only by making major improvements and
breakthroughs, and not small incremental changes (like in TQM or suggestion schemes).

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 Radical redesign means BPR is reinventing and not enhancing or improving.

 Fundamental rethinking means asking the question “why do you do, what do you do”, thereby eliminating
business process altogether if it does not add any value to the customer.
 Thus, BPR aims at major transformation of the business processes to achieve Dramatic improvement.

Q-1 Principles of BPR:

1) Start re-thinking from new base:
 Reengineering does not have any scope for any partial modification or marginal improvement in the
existing business processes.
 It aims at achieving excellence by redesigning the process entirely and radically.
 It requires challenging the necessity of existing rules and procedures to evolve altogether new processes.

2) Assumptions are mandatorily required to re-design the process:

 BPR recognizes that most of the existing rules and procedures of work methods are based on
certain assumptions about goals, technology and people of organization. These assumptions may
not be valid any more.
 Many of these systems and procedures have failed to reap the benefit of massive development of IT
during the past few years.
 BPR recognizes vast and expanding potential of IT for most rational, simple, and efficient redesign of
work structure.”
 BPR aims at utilizing IT for evolving a new process, instead of automating the existing process.

3) Concept of Radical Changes must be required:

 While reengineering starts with the process it does not end there. The fundamental and radical changes
that takes place while reengineering the process has its own implication on every other
parts of the organization.
 Reengineering requires viewing a process from cross-functional perspective.
 Reengineering effort focuses on a multidimensional approach disregarding the constraints of
organizational structure departmental boundaries.

4) Managing organizational Changes affecting other areas:

 “BPR efforts involve managing massive organizational change.”
 Re-engineering is not just changing the process. The change in process is almost always accompanied
by a whole lot of changes in other areas too. Work changes from task oriented to process oriented.
 People have the choice of making their own decisions instead of being directed. “Functional
departments find their existence as redundant. Practically every aspect of the organization changes beyond
recognition.”

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Q-2 “Categories of redesign in Business Processes:

1) Processes pertaining to development and delivery of products and
services:
 These may include research, design, engineering, manufacturing, and logistics, besides
purchasing/ procurement and materials management.

2) Process involving interfaces with customers:

 These usually include marketing, advertising, order fulfilment, and service.

3) Process comprising management activities:

 These include strategy formulation, planning and budgeting, performance measurement
and reporting, human resource management, and building infrastructure.

Q-3 Rationale of BPR or Main Reason for applying BPR:

Improving business processes is paramount for businesses to stay competitive in today’s marketplace.
1) Technology:
▪ BPR requires because technology has been accelerated so fast in last decades with the
need to improve business processes.
▪ It comprises of information system, networking, integrated databases, E-commerce etc. which
brings new capabilities to businesses.
2) Competition:
▪ BPR requires because business processes are required to be improved because of increased
competition.
▪ Since more companies have entered in the market hence competition goes stiff hence it
requires major changes for survival of business.
3) Demand of customer:
▪ BPR requires in order satisfying all customer’s need and demand for better products and services.
▪ If they do not receive what they want from one supplier, they have many others to choose from.
They are ready to try new brands.

Q-4 Steps in implementing BPR:

1) Identify customers and determine their needs:
▪ The designers have to understand customers , their profile, their steps in acquiring, using and disposing a
product.
▪ Redesigning of business process must provide the value addition to the customer.
2) Determining objectives and framework:
▪ Objectives are the desired end results of the re-design process must be pre-determined which the
management attempts to achieved.
▪ It will provide the required focus, direction, and motivation for the redesign process. It helps in building
a comprehensive foundation for the reengineering process.

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3) Study the Existing Process:

▪ Existing process must be studied properly to understand the loopholes and find out the opportunities to cope
up with such loopholes while designing the proposed system.

4) Formulate a redesign process plan:

▪ The information gained through the earlier steps is translated into an ideal redesign process.
▪ Formulation of process re-design Plan should be customer focused.
▪ In this step, all processes are identified and redesigned then all alternative processes are considered and
at last the best one is selected.

5) Implement the redesign:

▪ It is easier to formulate new process than to implement them.
▪ Implementation of the redesigned process and application of other knowledge gained from the previous
steps is key to achieve dramatic improvements.
▪ It is the joint responsibility of the designers and management to operationalize the new process.

Q-5 Role of Information Technology in BPR:

The accelerating pace at which information technology has developed during the past few years had a very large impact
in the transformation of business processes. That information technology plays a vital role in changing the business
processes during the years to come.
Impact of IT-systems are identified as:
 Time saving
 Overcoming restrictions of geographical area
 Restructuring of relationships.
IT-initiatives provide business values in 3 distinct areas:
 Efficiency – by way of increased productivity,
 Effectiveness – by way of better management,
 Innovation – by way of improved products and services.

Q-6 Problems in “BPR”:

 Only a limited number of companies are able to have enough courage for having BPR because of
the challenges posed.
 It disturbs established hierarchies and functional structures and creates serious repercussions and
involves resistance among the work-force.
 Reengineering is time consuming and costly.
 Even there can be loss in revenue during the transition period.
 Setting of targets is tricky and difficult. If the targets are not properly set or the whole transformation
not properly carried out, reengineering efforts may turn-out as a failure.

Q-7 Issues in changing from old system to BPR:

 The operational excellence of a company is a major basis for its competitiveness.
 The business strategy of a company should be oriented towards leveraging its operational
excellence into the marketplace.
 A customer-focused organization needs to be re-aligned in terms of a process orientation.

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 Process need to managed, not functions.

 For considering totally new ways of redesigning processes, each and every concept, assumption,
purpose, and principle, needs to abandoned temporarily.
 Continuous improvement is a deficient approach when a company is far behind the industry
standards, and needs rapid quantum leaps in performance.
 Dramatic improvement in performance is the pre-requisite for overcoming competition.
 How to compete is more important than deciding about where to compete.

Benchmarking:
Introduction:
 A benchmark is an approach of setting goals and measuring productivity based on standard
industry practices
 It is used to measure and compare all the different aspects of performance with the best practices,
identifying gaps and finding out novel methods to not only reduce the gaps but to improve the
situations.
 It helps in improving performance by learning from best practices.
 This exercise must be repeated periodically to protect environment from being outdated.
 It is a process of continuous improvement in search for competitive advantage.

Q-1 Elements of Benchmarking Process:

Define the objective
(1) Identifying the need for benchmarking and Select the type of benchmarking
planning: Identify the realistic opportunity
 This step will define the objectives the benchmarking exercise. It will Collection of information on
also involve selecting the type of benchmarking. Organizations identify various business processes and
realistic opportunities for improvements. their performance from various
methods.
(2) Clearly understanding existing business Identify the best processes
processes: Comparison of gaps amongst
various processes
 This step will involve compiling information and data on performance. Best performers shall be identified
This will include mapping processes. Information and data is collected
Analyzation of such gaps to seek
by different methods for example, interviews, visits and filling of
explanations.
questionnaires.
Examination of conditions on the
(3) Identify best processes: basis of which improvements are
 Within the selected framework, best processes are identified. These to be applied
may be within the same organization or outside one. Preparation of report along with
recommendations and action
(4) Compare own processes and performance with plans.
that of others: Evaluation of benchmark results

 While comparing gaps in performance between the organization and better performers is identified.
 Further, gaps in performance are analyzed to seek explanations. Such comparisons have to be
meaningful and credible.

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 Feasibility of making the improvements in the light of the conditions that apply within the organization
is also examined.

(5) Prepare a report and Implement the steps necessary to close the
performance gap:
 A report on the Benchmarking initiatives containing recommendations is prepared. Such a report
includes the action plans for implementation.
(6) Evaluation:
 Business organizations evaluate the results of the benchmarking process in terms of improvements
vis-à-vis objectives and other criteria set for the purpose.
 It also periodically evaluates and reset the benchmarks in the light of changes in the conditions that
impact the performance.

Total Quality Management (TQM)

Introduction:
 It is a people-focused management system that aims at continual increase in customer satisfaction at
continually lower real cost.
 There is a sustained management commitment to quality and everyone in the organization and the
supply chain is responsible for preventing rather than detecting defects.
 It is a total system approach (not a separate area say manufacturing dept.) and an integral part of high
level strategy.
 It works horizontally across functions and departments, involves all employees, top to bottom, and
extends backward and forward to include the supply chain and the customer chain.
 TQM stresses learning and adaptation to continual change as keys to organizational success.

Q-1 Principles guiding TQM (or) Philosophy behind the TQM:

1) The synergy of teams:

 Quality circle formal team must be organized to take the advantage of team synergy which is an
effective way to address the problems and challenges of continuous improvement.
2) Supplier teaming:
 Another principle of the TQM philosophy is to develop long-term relationships with a few high-quality
suppliers, rather than simply selecting those suppliers with the lowest initial cost.
3) Training:
 Training is basic to the TQM process. The concept is based on of empowering employees by
providing the tools necessary for continuous improvement.
4) Thinking statistically:
 Statistical thinking is another basic TQM philosophy.

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 Quality efforts often require reducing process or product-design variation and statistical methods
are ideally suited to support this objective.
5) Sustained management committment to Quality:
 If an organization is serious about implementing TQM, the commitment has to start at the top and
remain constant and unchanged in its commitment to quality.
 If quality is managed it reflects senior management's values.
6) Quality responsibility:
 Another basic TQM precept is that the responsibility for quality is not restricted to an
organization's quality assurance department, but is shared by everyone in an organization.
 TQM requires that everyone takes responsibility for quality.
 In all over world, only a few companies are fully committed to TQM with quality assurance.
7) Quality measurement:
 The quality measurement aspect of TQM asks the question: Where are we? and where are we going?
 It is an extremely important concept, and in order to improve quality,
- we need to know where we are (or stated differently, what the current quality levels are), and
- we need to have some idea where we are going (or what quality levels we aspire to).
8) Customer Focus:
 According to Lee Iacocca had only three rules: Satisfy the customer, satisfy the customer, and
satisfy the customer. This sums up the importance of customer focus in the TQM philosophy.
 According to him, satisfaction of customers will determine the success of an organization.
9) Root cause corrective action:
 Most of us have experienced instances in which problems we thought were corrected but it continues
to occur.
 TQM seeks to prevent this by identifying the root causes of problems, and by implementing corrective
actions that address problems at the root cause level.
10) Continuous improvement and learning:
 TQM also has a philosophy of continuous improvement and learning in all areas of an organization.
It requires universal quality responsibility and universal quality measurement concepts.
 Quality measurement is needed to focus on improvement efforts to optimize their performance.
 Improvements may be of several types:
- Enhancing value to the customer through new and improved products and services;
- Developing new business opportunities;
- Reducing errors, defects, and waste;
- Improving responsiveness and cycle time performance; and
- Improving productivity and effectiveness in the use of all resources.

11) Employee involvement and empowerment:

 Employee involvement means every employee is involved in running the business and plays an active
role in helping the organization meet its goals.
 Employee empowerment means providing employees with necessary tools and authority to perform their
roles and responsibilities.

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12) Value improvement:

 The linkage between continuous improvement and value improvement is simultaneously obvious
and subtle.
 The essence of continuous improvement is the quality that has ability to deliver qualitative goods and
services.
 The essence of value improvement is the ability to meet or exceed customer expectations to deliver
the goods and services at reasonable/lowest costs. But simply cutting costs, however, will not improve
value if the focus does not remain on satisfying customer requirements and expectations.
13) Inventory reduction:
 TQM introduces new philosophy called Just in time approach (in short JIT) which helps in managing the
shortage of natural resources especially raw materials. It helps in managing the inventory at highest
reduced level.
 This concept of JIT was first introduced by Japanese companies.
 JIT works on the basis that “as inventories grew smaller, quality improved”.
 Reduced inventories lead to lot of savings in holding cost of inventories.
14) Preventing rather than detecting defects:
 TQM is a management philosophy that seeks to prevent poor quality in products and services,
rather than simply to detect and sort out defects.
 "An ounce of prevention is worth a pound of cure." A little precaution before a crisis occurs is
preferable to a lot of fixing up afterward.
 This also saves cost and time.

Short Notes:
“TQM is a management philosophy, an abstract entity!
 Correct but…………
 TQM is not an overnight cure for an organization's quality problems.
 TQM implementation process is not a program.
 A TQM implementation effort has a beginning, but if implemented properly, it does not have
an ending.
 The continuous improvement process continues indefinitely in organizations that successfully
implement TQM.
 TQM requires patience when embarking on its journey.

Q-2 TQM and Traditional Management Practices

 TQM is quite different from traditional management practices, requiring changes in organizational
processes, beliefs and attitudes, and behaviors.
 "Traditional management" means the way things are usually done in most organizations in the
absence of a TQM focus.

Key difference between nature of TQM and nature of Common Management

Practices are as follows:
1) Strategic Planning and Management:
 TQM frames Quality goal and Quality planning which are the corner stone of overall business
plan. It provides the assurance of better quality management.

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 It has measures to control and promote the quality of products and services such as customer
satisfaction level, defect rates, and repairs and maintenance rates etc. and hence receive much
attention in the strategic plan to develop financial and marketing objectives.
2) Changing Relationships with Customers and Suppliers:
 In TQM, quality is defined as products and services beyond present needs and expectations of
customers. Innovation is required to meet and exceed customer’s needs.
 Traditional management places customers outside of the enterprise and within the domain of marketing and
sales. TQM views everyone inside the enterprise as a customer of an internal or external supplier,
and a supplier of an external or internal customer.
 Marketing concepts and tools can be used to assess internal customer needs and to communicate internal
supplier capabilities.
(INDUSTRY)
TQM Traditional Management
(Industry) (Marketing and sales)

Customer
Supplier Customer
Supplier Supplier

Customer
Supplier Customer

3) Organizational Structure:
 TQM views the enterprise as a system of interdependent processes, linked laterally over time through a
network of collaborating (internal and external) suppliers and customers.
 Each process is connected to the enterprise's mission and purpose through a hierarchy of
micro- and macro-processes.
 Every process contains sub-processes and is also contained within a higher process. This structure
of processes is repeated throughout the hierarchy.

4) Organizational Change:
 In TQM the environment in which the enterprise interacts is considered to be changing constantly.
 Hence, Management must provide leadership for continual improvement and innovation in processes
and systems, products, and services.

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Technology
Business Process Leadership
Government
Climatic Conditions
Human Behavior Company
Customer’s need Change Strategy
Financial budget
Economic condition
Innovations

Improvement

5) Teamwork:
 In TQM, individuals co-operate in team structures such as quality
circles, steering committees, and self-directed work teams.
Departments work together towards system optimization through
cross-functional teamwork.

6) Motivation and Job Design:

 TQM managers provide leadership rather than overt intervention
in the processes of their subordinates, who are viewed as process
managers rather than functional specialists.
 People 'are motivated to make meaningful contributions to what
they believe is an important and noble cause of value to the
enterprise and society.

Six Sigma and Management

Introduction of Six Sigma:

 Six Sigma means maintenance of the desired quality in processes and end products. It is an approach to
take systemic and integrated efforts toward improving quality and reducing cost.
 It is highly disciplined process that helps in developing and delivering near-perfect products and services.
 It strives to meet and improve organizational goals on quality, cost, scheduling, manpower, new products
and so on.
 It works continuously towards revising the current standards and establishing higher ones.
 Six Sigma works on the basis of probability concept and normal distribution in statistics. Six Sigma
strives that 99.99966% of products manufactured are defect free.
 Six Sigma puts the customer first and uses facts and data to drive better solutions.
 Six Sigma efforts target 3 main areas which leads to substantial reduction in cost:
- Improving customer satisfaction
- Reducing cycle time
- Reducing defects

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 Six Sigma is not merely a quality initiative, it is a business initiative.

Q-1 Six Sigma Methodology:

For implementing six sigma there are two separate key methodologies for existing and new processes.
Conceptually there is some overlapping between the two. The two methodologies as follows:

DMAIC: DMADV:
 DMAIC methodology is an acronym for 5 different  DMADV is again acronym for the steps
steps used in six sigma directed towards improvement followed in implementing six sigma.
of existing product, process or service.
 It is a strategy for designing new products,
The five steps are as follows: processes and services.
1) Define: The five steps are as follows:
In this phase, it identifies the customers and their

requirements are gathered. Then develop problem 1) Define :
statement, goals and benefits. It also determines process  At start, 6-sigma experts formally define
owner, team and resources. goals of the design activity that are
consistent with strategy of organization
2) Measure: and customer demands.
 In this phase, it defines the metrics used to measure the
results provided by each and every process and
2) Measure:
determine the deficiencies available in it.  Next identify the factors that are critical
to quality (CTQs).
3) Analyze:
 Measure factors such as product
 After identifying deficiencies, SWOT analysis is required capabilities and production process
to be done to evaluate the performance of each and capability and also assess the risks
every process by using statistical methods and graphical involved.
displays, and thereafter identify possible causes of
process output variations. 3) Analyze:
 Develop and design alternatives.
 These possible causes are analysed statistically to
determine root cause of variation.  Create high-level design and evaluate to
select the best design.
4) Improve:
4) Design:
 After analysing, various solution alternatives are
 Develop details of design and
generated to fix the root cause of each and every
optimize it.
problem. The most appropriate solution is identified
using solution prioritization matrix and validated using  Verify designs may require using
pilot testing. techniques such as simulations.
 Cost and benefit analysis is performed to validate the 5) Verify:
financial benefit of the solution. Thereafter,  Verify designs through simulations or pilot
implementation plan is drafted and executed. runs.
5) Control:  Verified and implemented processes are
handed over to the process owners.
 Once appropriate solution is identified for improvement
over process performance, these processes must be
standardized and documented and thereafter
monitoring system is implemented to ensure process
is performing as designed and validate expected results.
 Project is evaluated and lessons learned are shared with
others.

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Q-2 Characteristic of Six Sigma making it separate from other quality programs:
1) Customer focused:
 While moving towards Six sigma, it is almost an obsession to keep external customer needs in plain
sight, driving the improvement effort. External customers are mostly those who buy business's products
and services.
2) Produce major returns on investment:
 It helps in improving the returns and brings loyalty to customers.
 It helps in avoiding and reducing all possible defects leading to increased cost and reduced customer
satisfaction.
 It helps a company to save more money by delivering near perfect products and services.

3. Change in management operation.

 Six Sigma is much more than improvement projects. Senior executives and leaders throughout
a business are learning the tools and concepts of Six Sigma.
 It includes New approaches to thinking, Planning, and Executing to achieve Results. It makes the
working smarter, not harder.

Q-3 Themes of Six Sigma:

The critical elements of Six Sigma can be put into six themes as follows:

1) Genuine focus on the customer:

 It helps to provide complete details to understand about their customers.
 In Six Sigma, customer focus becomes the top priority.
 The measures of Six Sigma performances begin with the customer identification and end with
customer satisfaction and value.

2) Data and fact-driven management:

 Six Sigma takes the concept 'of "management by fact" to a new, more powerful level.
 Rather than understanding the past scenarios, Six Sigma discipline begins by clarifying what
measures are key to calculate business performance and then gathers data and analyzes key variables.
Then problems can be much more effectively defined, analyzed, and resolved-permanently.
 At a more down-to-earth level, Six Sigma helps managers answer two essential questions to
support data-driven decisions and solutions.
 What data / information do I really need?
 How do we use that data / information to maximum benefit?

3) Processes are where the action is:

 Business has various processes which are to be performed to get the specific task done such
as designing products and services, measuring performance, improving efficiency and customer
satisfaction, or even running the business.
 Six Sigma positions the process as the key vehicle of success and it is to be ensured that leaders and
managers has been convinced by such positioning of processes in order to build competitive advantage in
delivering value to customers.

4) Proactive management:
 Being proactive means acting in advance of events rather than reacting to them.

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 It includes defining ambitious goals and reviewing them frequently, setting clear priorities, focusing on
problem prevention rather than fire-fighting, and questioning why we do things instead of blindly defending
them.

5) Boundaryless collaboration:
 Six sigma requires breaking of barriers amongst the hierarchy within management and improves
teamwork up, down, and across organizational lines.
 Huge opportunities are available for providing value to customers through improved collaboration.
 Billions of dollars are lost every day because of disconnects and outright competition between groups.

6) Drive for perfection; tolerate failure:

 No company will get even close to Six Sigma without launching new ideas and approaches which
always involve some risk.
 If people who see possible ways to be closer to perfect are too afraid of the consequences of
mistakes, they'll never try.

Contemporary Strategic Issues

Strategies for Internet Economy

 The coming of e-commerce has changed the character of the market, created new driving forces and
key success factors and formation of new strategic groups.
 The creativeness with which a company incorporates e-commerce practices holds enormous potential for
reconfiguring its value chain and affecting its company's competitiveness.
 Internet economy presents new opportunities and new threats that demand strategic response and that
require managers to craft bold new strategies.
What is Internet Technology?

 Internet is an integrated network of banks of servers and high-speed computers, digital switches and
routers, telecommunications equipment and lines, and individual users' computers.
 Digital switches and routers are used to direct the transmission of messages between senders and
receivers across the network.
 The backbone of the Internet consists of telecommunications lines (fibre optic lines, telephone
lines, wireless technology etc.) that allow computers to transfer data in digital form at very high speed.
 The bandwidth of the line determines the capacity or speed of the data transfer.
 It provides E-commerce facility and transmission is done within fraction of seconds at lowest cost.
 Internet makes physical location of data is irrelevant. Any authorized user can access any data from
anywhere in the world.
 Internet requires various protocols (i.e, communication standards) and topologies through which
communication is possible.

Q-1 Strategy-shaping Characteristics of the E-Commerce environment:

1) Compete in global markets:
 Internet helps exporter to expand their market of product and services across the country by providing
e-commerce facilities which helps in finding international level consumers.

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2) Intensification of competition by new e-commerce strategic initiatives

of existing rivals and by entry of new e-commerce rivals:
 Internet as well as the use of online systems afforded by the Internet are act as a new distribution
channel that allows sellers to reach vast numbers of buyers in an inexpensive way which also increases
business efficiency at low operating costs.
 Hence, innovative use of the Internet adds a valuable weapon to the competitive market.

3) Low Entry barriers into e-commerce: (jo chahe wo e-commerce me aa sakta hai,,, no
rok tok)
 Outsourcing is required to be done because entire function of e-commerce cannot be handled by a single
person.
 Outsourcing covers value added functions such as Handling of E-commerce software, establishment of
website, maintenance of database, security system etc.
 Hence, the software necessary for establishing a Web site is often available at lower cost and available
to every needy person.

4) Online buyers gain bargaining power:

 It opens the business for 24 hours a day, every day of the year, giving buyers unprecedented ability to
compare offerings and find the best value.
 Using online networks, international manufacturers can easily pool their orders from suppliers and bargain
for volume discounts. Likewise, wholesalers research the products, prices, and features of competing
manufacturers and bargain for the best deals from manufacturers and distributors. Retailer can also
purchase the best products at best price from their wholesalers. Individual consumers can readily get
reviews of products, compare the features and prices and put up bids for how much they are willing to pay
for items.

5) Companies can reach beyond their borders to find best suppliers and
close collaboration with them:
 In an e-commerce environment, companies using Internet to integrate foreign suppliers into their supply
chain networks more tightly, boosting savings and speeding new products to market.
 It helps to extend their geographic search for suppliers and can collaborate electronically with chosen
suppliers to streamline ordering and shipping of parts and components, improve just-in-time deliveries and
communicate speedily and efficiently.

6) Internet and PC technologies are advancing rapidly:

 Technological companies such as Intel and Microsoft were focusing all their energies on expanding
the personal computer as a multifunctional appliance in both business significance of the internet and
initiate crashed programs to redirect their efforts.
 Recently, apple companies were utilizing their potential energies in developing virus free operating system
etc. These inventions are start without end. It is a continuous process, it will never stop.

7) Monitoring of new technology and new idea across the world:

 Companies can use internet to monitor the latest technological developments and to stay abreast of
what is transpiring in the markets of Europe, Japan, and North America and what the leading companies
in these areas are doing.

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8) Companies move swiftly:

 Speed is a condition of survival. New developments on first one front and then another occur daily.
Market and competitive conditions change very quickly. Late movers are doomed.

9) Opening up a host of opportunities for reconfiguring industry and

company value chains:
 Using the internet to link the orders of customers with the suppliers of components enables
just-in-time delivery to manufacturers, slicing inventory costs and allowing production to match
demand. It saves substantial holding cost of inventory.
 It allows more accurate demand forecasting. Tight supply chain management starting with customer
orders and then production and ultimately go up to delivery and consumers satisfaction.

10) Economical in delivering customer service:

 The Internet provides innovative opportunities for handling customer service activities.
 It requires reducing staffing levels, introducing telephone call centers and cutting manual
responding to customer faxes and e-mail messages and introducing automatic system which performs
customer handling task automatically.

11) Raise huge capital to promote e-commerce businesses:

 In the Internet age, e-commerce businesses have found it relatively easy to raise hundred billions dollar to
fund a promising new venture.
 Venture capitalists are quite willing to fund start-up enterprises provided that they have a promising
technology or idea, an attractive business model, and a well thought out strategic plan.

12) Providing human talent in the form of both technological expertise

and managerial know-how:
 While some e-commerce companies have their competitive advantage based on patented technology or
unique physical assets or brand-name awareness.
 Many are pursuing competitive advantage based on the expertise and intellectual capital of their
personnel and on their organizational competencies and capabilities.
 Two of the most valuable competitive assets a company can have are
- in-depth knowledge in a particular technology and
- a workforce with exceptional know-how and experience
that gives a firm uniquely strong skills and competitive capabilities.

Strategic management in non-profit and government organization

 Business organization can be classified as commercial or non-commercial on the basis of the interest they
have.
 A commercial organization has profit as its main aim. Apparently, we find many organizations which do not have
any commercial objective of making profits. Their prime objectives may be for social, charitable, or educational
purposes.
 Examples of non-commercial organizations can be ICAI, municipal corporations, Temples, Educational
institution etc. Their main aim is to provide services to members, beneficiaries or public at large.

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1) Educational institutions:
 Educational institutions are using strategic-management techniques and concepts more frequently.
 The significant change in the competitive climate has taken place in the educational environment. Hence,
they are adopting different strategies for attracting best students.
 The academic institutions have also joined hands with industries in order to deliver education to their
employees.
 The educational delivery system has also undergone considerable changes with the introduction of
computers and internet technologies.
 Nearly 200 students can access virtual lectures anytime and chat with professors.

2) Medical organizations:
 Hospitals are creating new strategies today as advances in the diagnosis and treatment of chronic
diseases are undercutting that earlier mission.
 Hospitals are beginning to bring services to the patient as much as bringing the patient to the
hospital.
 Pathological laboratories have started collecting door-to-door samples.
 Chronic care will require day-treatment facilities, electronic monitoring at home, user-friendly
ambulatory services, decentralized service networks, and laboratory testing.
 It includes such as sharing results of medical tests and prescribing medicine.
 The 10 most successful hospital strategies today are providing free-standing outpatient surgery
centers, outpatient surgery and diagnostic centers, physical rehabilitation centers, home health
services, cardiac rehabilitation centers, preferred provider services, industrial medicine services,
women’s medicine services, skilled nursing units, and psychiatric services.

3) Governmental agencies and departments

 Central, state, municipal agencies, Public Sector Units, departments are responsible for formulating,
implementing, and evaluating strategies that use taxpayer’s money in the most cost-effective way to
provide services and programs.
 Strategic-management is more effective and efficient for these organizations.
 Public enterprises generally cannot diversify into unrelated businesses or merge with other firms.
Governmental strategists usually enjoy little freedom in altering the organization’s missions.
But government agencies and departments are finding that their employees get excited about
the opportunity to participate in the strategic-management process and have an effect on the
organization's mission, objectives and strategies.
 Government agencies by using a strategic management approach to develop formal requests for
additional funding.

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