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Question Paper
Business Policy & Strategy (MB311) : April 2008
Section A : Basic Concepts (30 Marks)
This section consists oI questions with serial number 1 - 30.
Answer all questions.
Each question carries one mark.
Maximum time Ior answering Section A is 30 Minutes.

1. A budget is a plan to show how much money a person or organization will earn and how much they will need or
be able to spend. Which oI the Iollowing provides inIormation Ior the daily management oI Iinancial resources
and key Ieedback whether the strategy is working or not?
(a) Capital budget
(b) Expenditure budget
(c) Cash budget
(d) Revenue budget
(e) Operating budget.
<ArsWer>
2. Companies and researchers have sought to determine how the environmental scanning task should be
accomplished. A study in some organizations Iound that the environmental appraisal Iunction was not linked to
strategic plans and decisions. This situation was due to which oI the Iollowing?
I. Complexity oI the entire process.
II. Long-term orientation oI managers.
III. Inability to gather inIormation and use it.
IV. Lack oI conIidence in the inIormation and/or the people who developed it.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
<ArsWer>
3. Which component oI strategic management assesses the strengths and weaknesses oI the company`s
management and organizational structure?
(a) Company vision
(b) External environment
(c) Company mission
(d) Company proIile
(e) Strategic analysis and choice.
<ArsWer>
4. While changing the ownership structure, exchange oIIers involve exchanging debt or preIerred stock Ior
common stock. This type oI exchange
(a) Increases the leverage
(b) Decreases the leverage
(c) Has no change
(d) Remains Ior long term
(e) Remains Ior short term.
<ArsWer>
5. The buyer`s purchase criteria can be identiIied by applying the Iundamentals oI buyer value to a particular
industry. Buyer purchase criteria can be divided into use criteria and signaling criteria. Which oI the Iollowing
is/are true regarding signaling criteria?
I. They are exact measures oI what creates buyer value.
II. It measures the perception oI buyers about the presence oI value.
III. It results Irom marketing activities.
IV. It encompasses product quality, product Ieatures, delivery time, etc.
(a) Only (II) above
(b) Both (I) and (III) above
(c) Both (II) and (III) above
<ArsWer>

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(d) (I), (II) and (III) above
(e) (I), (III) and (IV) above.
6. II the organization has strengths in research and development (R&D), or iI the external environment demands it,
the company should commit itselI to a strong R&D eIIort. Which oI the Iollowing strategy should companies
with less technical strength develop, that recognizes an ability to lead in R&D?
(a) Benchmarking
(b) Fast Iollower
(c) Best Iollower
(d) DiIIerentiation
(e) Commitment.
<ArsWer>
7. Which oI the Iollowing statement(s) is/are true regarding proxy contests?
I. A group which is external to the Iirm tries to obtain representation on the company`s Board oI Directors.
II. Proxy contests are seen as targeted towards the existing management.
III. The group tries to increase the controlling power oI the existing Board oI Directors.
IV. The group oI investors purchase the entire equity interest in a public company.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
<ArsWer>
8. II ONGC, an oil company engaged in the exploration and production oI oil, merges with Reliance company,
which is involved in the reIining and marketing oI oil, then this would be an example oI
(a) Horizontal merger
(b) Vertical merger
(c) Conglomerate merger
(d) Strategic merger
(e) Concentric merger.
<ArsWer>
9. Firms in Quadrant II choose to redirect resources Irom one business activity to another within the company.
Which oI the Iollowing are the strategies taken by Iirms in Quadrant II oI the Grand Strategy Selection Matrix?
I. Divestiture.
II. Liquidation.
III. Turnaround or retrenchment.
IV. Concentric diversiIication.
(a) Both (I) and (II) above
(b) Both (II) and (IV) above
(c) (I), (II) and (III) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
<ArsWer>
10.
A company`s mission plays a critical role in its survival. The absence oI mission oIten results in the Iailure oI a
Iirm since its short-run actions can be counterproductive to the Iirm`s long-run purpose. Which oI the Iollowing
is/are the characteristics oI a good mission statement?
I. It diIIerentiates the company Irom its competitors.
II. It seeks to clariIy the purpose oI the organization.
III. It deIines the business that the company wants to be in, not necessarily the one it is in.
IV. It speciIies the time period in which the objectives are achieved.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
<ArsWer>
11. Managers play a key role in the decision-making system oI the business. Which oI the Iollowing does not come
under the decisional roles category?
(a) Negotiator
(b) Resource allocator
(c) Entrepreneur
(d) Liaison role
<ArsWer>


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(d) Liaison role
(e) Disturbance handler.
12. Which oI the Iollowing is/are true regarding beneIits oI annual objectives?
I. Annual objectives help operations managers and personnel to deIine their role in business mission.
II. Annual objectives make the personnel more accountable Ior planning and achieving targets than managers.
III. Annual objectives provide a strong motivation Ior managers in strategy implementation.
IV. Well set annual objectives provide a basis Ior strategy control.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
<ArsWer>
13. Which oI the Iollowing is deIined as the highest price paid by the bidder during a speciIic period, and is
sometimes required to exceed the book value oI the target?
(a) Fair price
(b) Stock price
(c) Overpricing
(d) Goodwill
(e) Under pricing.
<ArsWer>
14. A Iirm lowers buyer cost or rises buyer perIormance through the impact oI its value chain on the
(a) Buyers value chain
(b) Sellers value chain
(c) Competitors value chain
(d) Industries value chain
(e) Substitute companies` value chain.
<ArsWer>
15. Which oI the Iollowing is/are true regarding strategy Iormulation?
I. It reIers to the development oI long term plans Ior managing opportunities and threats in the external
environment.
II. Programs, budgets and procedures are developed Ior strategy Iormulation.
III. The aim is to identiIy the strategic Iactors that may determine the Iuture oI the Iirm.
IV. It helps an organization to provide leadership that understands and masters change.
(a) Only (II) above
(b) Both (I) and (IV) above
(c) Both (II) and (III) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
<ArsWer>
16. Strategic analysis enables a Iirm to identiIy a range oI possible attractive investment opportunities. Opportunities
that are compatible with the company`s mission are identiIied as
(a) Possible opportunities
(b) Desired opportunities
(c) Strategic opportunities
(d) Standard opportunities
(e) Complex opportunities.
<ArsWer>
17. In which oI the Iollowing industries is the competition within the industry essentially segmented Irom country to
country?
(a) Multi-domestic
(b) Global
(c) Multinational
(d) International
(e) Transnational.
<ArsWer>
18. The practical limitations oI the strategic management model are holistic, analytical and nonpolitical. Which oI
the Iollowing statements are true with respect to holistic model?
I. It overlooks diIIiculties in implementation.
II. It may sometimes lead to managers glossing over details that may eventually prove critical.
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III. It is diIIicult to integrate with planning activities.
IV. It concentrates more on improving current capabilities rather than on satisIying anticipated needs.
(a) Both (I) and (II) above
(b) Both (I) and (III) above
(c) (I), (II) and (III) above
(d) (II), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
19. Competitive scope inIluences the competitive advantage by shaping the structure and economies oI the value
chain. It has diIIerent dimensions such as segment scope, vertical scope, geographic scope and industry scope.
Which oI the Iollowing is/are not true about vertical scope?
I. Vertical scope reIers to the potential inter-relationships among the value chain required to compete in
related industries.
II. A Iirm with vertical scope oI operations streamlines its value activities between a Iirm and its suppliers.
III. A Iirm can take advantage oI vertical linkages without going in Ior vertical integration.
IV. Vertical integration may involve replacing supplier products with the Iirm`s own products.
(a) Only (I) above
(b) Both (I) and (II) above
(c) Both (II) and (III) above
(d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
<ArsWer>
20. Change decisions are categorized in terms oI their signiIicance to the organization. The job enrichment method
study and need oI improved eIIiciencies are required at which level oI change?
(a) Competitive strategy
(b) Concentration strategy
(c) Corporate strategy
(d) Functional strategy
(e) Business strategy.
<ArsWer>
21. Strategic managers must recognize and acknowledge the legitimate role oI stakeholders oI the Iirm in deIining or
redeIining the company mission. Which oI the Iollowing is not a claim made by various stakeholder groups on
the organization?
(a) The unions` wish Ior beneIits Ior members in proportion to their contribution to the company`s success
(b) The governments` desire Ior adherence to legislated rules, regulatory rules, regulations, laws and taxes
(c) The employees` claims Ior job satisIaction and compensation leading to a certain standard oI living
(d) The assurance sought by the general public that the quality oI liIe will be improved as a result oI the
Iirm`s existence
(e) The claims oI local communities, which expect companies to share their proIits to all the citizens
equally.
<ArsWer>
22.
IdentiIy the correct sequence oI steps in the ethical decision making process.
I. Evaluate decision Irom ethical standpoint in the context oI moral principles.
II. Engage in ethical behavior.
III. Evaluate decision Irom ethical standpoint in the context oI identiIying aIIected stakeholders.
IV. Establish moral intent.
(a) (I), (II), (III), (IV)
(b) (I), (IV), (III), (II)
(c) (II), (I), (IV), (III)
(d) (III), (I), (IV), (II)
(e) (IV), (I), (III), (II).
<ArsWer>
23. A divestiture is the sale oI a part or a division oI a company to a third party. The Iirst and Ioremost action that is
to be taken aIter reaching the decision to divest is
(a) IdentiIying the potential purchaser
(b) Assembling the core team
(c) Selecting a project manager
(d) Formulating a deIinitive project plan
(e) Determining precisely what to be sold.
<ArsWer>
24. The Iirm`s capacity to meet its short term Iinancial obligation is best described by
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(a) ProIitability ratio
(b) Liquidity ratio
(c) Leverage ratio
(d) Activity ratio
(e) Growth ratio.
25. The risk involved in a nation`s market should be identiIied by the companies beIore entering the market. AIter
selecting a country to enter, the company has to decide the best mode oI entry. Which oI the Iollowing modes oI
entry is the combination oI the higher labor skills and technology available in developed countries and lower
labor cost available in developing countries?
(a) Joint venture
(b) Acquisition
(c) Production sharing
(d) Management contracts
(e) Turnkey operations.
<ArsWer>
26. Which oI the Iollowing create diIIerences across national boundaries that inIluence people`s interaction, read
personal cues and otherwise interrelate socially?
(a) Social norms
(b) Values
(c) Attitudes
(d) BelieIs
(e) Policies.
<ArsWer>
27. Which oI the Iollowing, as a planning tool involves allocation oI time and constrained resources and their
arrangement into a sequence oI interdependent activities?
(a) Crisis management
(b) Budgets
(c) Scheduling
(d) Reward system
(e) Key success Iactors.
<ArsWer>
28. For evaluating strategic alternatives, a number oI criteria are available. The criteria Ior suitability attempts to
measure the extent to which the proposed strategies Iit the situation identiIied in the strategic analysis. In this
context, the strategy to be selected should meet which oI the Iollowing criteria?
I. Can the strategy overcome the diIIiculties identiIied in the strategic analysis?
II. Is the company capable oI coping with competition eIIectively?
III. To what extent can the strategy exploit the environmental opportunities by using the company`s strength?
IV. Do the company`s objectives and values Iit in with the strategy?
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
<ArsWer>
29. Which oI the Iollowing involves a Iull-scale reassessment oI the strategy and the advisability oI continuing or
reIocusing the direction oI the company?
(a) Monitoring strategic thrusts
(b) Milestone reviews
(c) Scheduling
(d) Steering
(e) Environmental scanning.
<ArsWer>
30. For the purpose oI cost analysis, the disaggregation oI the generic value chain into individual value activities
should reIlect some principles that are not mutually exclusive. Which oI the Iollowing is/are these principles?
I. The size and growth oI the cost represented by the activity.
II. The cost behavior oI the activity.
III. Competitor diIIerences in perIorming the activity.
IV. Customer`s role in accepting the activity.
(a) Only (I) above
(b) Both (I) and (II) above
(c) (I), (II) and (III) above
<ArsWer>

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(c) (I), (II) and (III) above
(d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.

END OF SECTION A

Section B : Caselets (50 Marks)
This section consists oI questions with serial number 1 7.
Answer all questions.
Marks are indicated against each question.
Detailed explanations should Iorm part oI your answer.
Do not spend more than 110 - 120 minutes on Section B.


Caselet 1
Read the caselet carefully and answer the following questions:


1. 'The success oI Wal-Mart has long since been attributed to the company`s strong
cultural base. In this light, discuss the organizational culture oI Wal-Mart. ( 8 marks) <ArsWer>
2. Discuss how leaders manage and create a distinct culture within their organizations? ( 6 marks) <ArsWer>
3. In spite oI being generally applauded Ior its culture, Wal-Mart was also severely
criticized Ior certain aspects oI its culture. What are the various aspects, Ior which
Wal-Mart was criticized? ( 6 marks) <ArsWer>

In 2003, with sales at a quarter oI a trillion, a double digit growth rate, and
employees exceeding 1.3 million, Wal-Mart was one oI the most successIul
companies in the world. Not only was Wal-Mart the biggest retailer in the world, it
was also the biggest customer Ior companies like Disney, Procter and Gamble,
Revlon, Campbell Soup, Gillette, etc. In addition to this, it was the biggest seller oI
DVDs, CDs, groceries, guns, diamonds and a number oI other products in the US.
Wal-Mart was a super-retailer where a customer could get whatever he wanted under
one rooI. The company thrived on convenience and reasonably priced products.
Wal-Mart always gave more importance to volumes than margins and promised
customers the lowest prices on every kind oI goods.
Analysts believe that culture is one oI the most important determinants in making a
good company a great` one. The success oI Wal-Mart has long since been attributed
to the company`s strong cultural base. Analyst Jim Collins observed that Wal-Mart
had the kind oI cult-like` culture that is shared by all great companies. Even the
employees oI Wal-Mart were sometimes reIerred to as 'Walmartians by outsiders,
reIlecting the distinctiveness oI the people who shared that culture. It was a wonder
that a company oI such a huge size and scope could maintain its entrepreneurial
spirit so many decades aIter it Iirst started, besides achieving admirable growth rates
which were poised to make it the Iirst trillion dollar company in the world.
However, over the years, the company became the target oI much criticism. It held
the record Ior having been sued the maximum number oI times. Its work culture was
criticized on various grounds which included gender-based discrimination, its
overtime policies, using sweatshop products and killing oII` small local businesses.
Analysts attribute Wal-Mart`s success to its strong and pervasive culture. In spite oI
its huge size and tremendous growth rate, the company retained most oI the cultural
elements which contributed to its success in the early years. Walton believed that
happy and satisIied employees perIormed well and were responsible Ior happy
customers.
Wal-Mart`s culture was essentially customer-centric and service-oriented. It
embodied Walton`s dream oI creating a store which provided the best value at the
lowest prices. A unity oI purpose and a spirit oI oneness was created and maintained
across the organization.
Some unique Ieatures bound the people associated with Wal-Mart together, one oI
these being that Wal-Mart Iollowed a separate calendar which was based on Wal-
Mart time`, i.e. week 1` in the calendar was the Iirst week oI the company`s Iiscal
year that started on February 1
st
every year.




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Wal-Mart`s culture was built on three basic belieIs or tenets established by Walton in
1962, when Wal-Mart was Iirst set up. These tenets constituted the Ioundation oI its
culture in later years.
Wal-Mart realized that employees played a very important role in the success oI a
retail business and gave considerable importance to them. To instill a spirit oI
equality and oneness among employees, the company adopted the practice oI
terming employees associates`, thus creating in them a sense oI belonging and
involvement in Wal-Mart`s activities and success. Walton believed that iI he took
care oI the employees, they would take care oI the customers in the same manner.
He tried to create a positive and cheerIul atmosphere in the company. Wal-Mart was
one oI the Iirst companies to introduce proIit sharing and stock options Ior its
employees. AIter it went public, Wal-Mart began its 'ProIit Sharing Plan. The plan
oIIered an opportunity to its employees to improve their income depending on the
proIitability oI the store. Employees were also oIIered stock options and store
discounts.
This was to motivate them to take an active interest in the working oI the company.
A system oI perIormance linked compensation and bonus also ensured that
employees contributed their best to the organization. One oI the unique Ieatures oI
Wal-Mart`s human resource policy was that the company did not authorize overtime
work. It did not allow store managers to overburden employees with work.
The company was also committed to improving the career prospects oI its
employees. It had a policy oI recruiting more than 70 percent oI its personnel in
managerial positions Irom the ranks oI hourly workers in the stores.
In spite oI being generally applauded Ior its culture, Wal-Mart was also severely
criticized Ior certain aspects oI its culture.
Although Wal-Mart had a very strict policy on overtime and the company`s rules
Iorbade it, it was observed that, at most oI the stores, employees worked between 5 and
15 hours overtime per week. (The company had a 40 hour work week). Since the
company was very strict about not allowing overtime (there were instances where
store managers who paid overtime were demoted and in cases, even dismissed), it
was usually done on an unoIIicial basis.
Since overtime was not allowed, store managers oIten asked workers to clock out
aIter their shiIt was over and then continue working. Sometimes workers were put to
work as soon as they came to the stores at the start oI the shiIt, even beIore they
could clock in.
This way, employees sometimes worked a couple oI hours beIore they clocked in.
One employee recollected an instance when she had worked Ior 3 hours in a store
beIore she oIIicially clocked in.
Another tactic employed was to lock the doors oI the store at the end oI a shiIt
(ostensibly to prevent theIt) to prevent employees Irom leaving at the scheduled
time. This oIten enraged employees as well as their Iamilies and created a poor
image oI Wal-Mart.
Sometimes, the time cards were also edited by the people in charge oI payroll to
show that employees worked only 40 hours per week. When people clocked in more
than 40 hours the additional hours were deleted Irom the records. This was a regular
practice at the stores to control the expenditure on salaries.
The problem with Wal-Mart was that, as the largest company in the world, it had
three times the number oI employees that the second largest company behind it had.
Analysts Ielt that the size oI the company itselI suggested that the scope oI problems
was likely to be higher. It was not practically possible Ior the headquarters or the top
management to keep track oI everything going on at the store level. ThereIore, some
stores deviated considerably Irom the corporate principles.
Wal-Mart was the realization oI the dream oI Sam Walton (Walton), who wanted to
set up a store which provided customers high value, low prices and a warm
welcome`. Walton`s store was very successIul. Most oI the success came Irom his
innovative ideas. He realized that he could obtain competitive advantage by buying
products in bulk directly Irom manuIacturers and oIIering them at lower prices to
customers. He also kept the store open Ior longer hours than his competitors and
took advantage oI its good central location. In the very Iirst year, Walton earned a
proIit with his cost-cutting ideas.

END OF
CASELET



8
CASELET
1

Caselet 2
Read the caselet carefully and answer the following questions:


4.
Analyze the major changes expected Irom the merger between Glaxo and
Smithkline.
( 8 marks) <ArsWer>
5.
With respect to the caselet, explain the close link between the various stages in the
industry liIe cycle and the level oI merger and acquisitions (M&A) activity.
( 7 marks) <ArsWer>

In 1998, the merger between the two top British drug companies seemed virtually
complete with Glaxo Wellcome shareholders having 59.5 oI the new group,
leaving 40.5 to SmithKlineBeecham shareholders. With a market capitalization oI
US $110 billion, the deal would create the biggest pharmaceutical company and the
world`s third biggest corporation. The chieI executive Ior the new group was going
to be Jan Leschly, a Iormer international pro-tennis star turned pharmaceutical
executive and SmithKline Beecham`s CEO. The new chairperson would be Sir
Richard Sykes, Glaxo`s CEO. But aIter a weekend meeting oI intense negotiations
and to everyone`s surprise, the deal was called oII.
AIter the Iirst round oI merger talks collapsed in acrimony in 1998, renewed interest
in the merger emerged aIter Jan Leschly`s retirement announcement in mid-1999,
which eIIectively removed the barrier to the merger.
SigniIicantly, as part oI the new deal Sir Richard Sykes agreed to become non-
executive Chairman, a post oI inIluence but with little management responsibility,
while the ChieI Executive oI the new GlaxoSmithKline would be Jean Paul Garnier.
He joined SmithKline in 1990 as president oI the pharmaceutical division and moved to
number one aIter Leschly retired.
British and European regulators were swiIted to give clearance to the emergence oI
GlaxoSmithKline, though some time aIter that the Federal Trade Commission
(FTC), the US competition regulator, Iorced the groups to sell medicines Ior
chemotherapy-induced nausea and herpes with annual sales oI almost US $400
million. At that point, managers Ielt the most substantive issues had been dealt with.
However, the FTC continued to have concerns on the merged company`s perceived
domination oI the US smoking-cessation market and this caused a second delay in
taking the merger Iorward. The concerns oI the FTC were based on the Iact that, at
the time, SmithKline had the leading over-the-counter brand and Glaxo the only
approved prescription drug to help smokers quit. Two key products which the FTC
Ielt would give the combined company control over 90 oI that market.
In any event, managers intimated that some regulatory delays were anticipated but it
was never thought that regulatory concerns in the US over monopoly power oI the
new group in certain therapy classes would consume more than 10 months oI
negotiations and backtrack the merger process twice.
In addition to having a broad portIolio oI products, the new company would lead in
Iour oI the Iive largest therapy classes, which together represented roughly halI the
global pharmaceutical market. This was complemented by a leading position in the
vaccines market. The new company would also have blockbuster treatments Ior
asthma, depression, AIDS and migranes. Not surprising, new drugs still in the
pipeline` were expected to reinIorce the new pharmaceutical`s position in the anti-
inIective group, but other strong growth products were expected in the alimentary
and metabolic group as well as a new vaccine (InIantrix) and a respiratory drug
(Seretide/Advair). Top managers then claimed that the new group could be expected
to have a solid base in selected therapeutic markets while delivering sales oI 17
billion per annum or 7.4 oI the world`s pharmaceutical market.
Another key point to the merger were expected savings oI 250 million Irom
combined R&D operations. Those savings were to be reinvested in R&D to produce
an annual research budget oI 2.4 billion, the largest in the world aIter the new
PIizer. Top executives also expected the combined company to save an annualized
1 billion aIter three years. These savings would come on top oI previously
announced restructuring at both companies, expected to cut a combined 570
million a year. But analysts oI pharmaceutical companies at investment banks were




9
puzzled by these Iigures.
However, only 7 oI Glaxo Wellcome`s sales depended on drugs whose US patents
expired beIore 2006 as compared with SmithKline`s 33.
As part oI the merger process, plans were draIted Ior the amalgamation oI corporate
and support operations oI the new pharmaceutical colossus in most countries. This
made labor unions unhappy because oI the lack oI consultation. Corporate
executives claimed that there was nothing to consult about until the legal merger had
taken place and thus, the newly introduced European regulation on consultation
would not be broken. Nevertheless, unions Ieared at least 15,000 job losses, no less
than 14 oI the 105,000 strong combined global workIorce would be lost.
As Ior the 300 or so senior managers likely to be made redundant, Spencer Stuart, an
international recruitment consultancy, was brought in to look into areas oI potential
overlap between business units rather than the universe oI managers at the new
corporation, and would leave the vital R&D and marketing teams intact.
The new plan considered breaking up discovery eIIorts through a combination oI
centralization and decentralization. Investments to generate new chemical entities
(NCE) would concentrate on traditional activities and genetics while aiming to
develop economies oI scale. Discovery eIIorts would then be broken into six
autonomous sub-units while aiming to maintain the excitement oI a small discovery
outIit. Drug development (including clinical trials) and marketing would again be
co-ordinated by the central organization.
The plan Ior the new structure at GlaxoSmithKline also considered creating six sub-
units (one in Italy, two in the UK and three in the US) out oI the middle section oI
the pipeline`, the part oI the drug generation process considered to be that where
bright ideas are incorporated into drugs. The six business units, called Centres oI
Excellence (Cedds), were to organise the eIIorts oI the 24 R&D sites across the
world, work semi-autonomously and compete to attract Iinancial resources Irom
head oIIice (and eventually Irom venture capitalists and even the stock market). It
was hoped that as a result oI the plan, the new company would avoid greater scale
and associated bureaucracy while maintaining agility, entrepreneurial spirit and
individual accountability in a key part oI drug discovery.
Moreover, the company would attract talent by emulating the culture at
biotechnology Iirms, including the introduction oI big share option packages
through which scientists receive royalties on the sale oI medicines they helped to
invent.
Finally, the plan Ior the new structure at GlaxoSmithKline also considered clinical
trials and marketing to be undertaken on a massive scale, oIten across continents,
and simultaneously complying with strict regulatory conditions. Scale at this last
stage oI the pipeline` aimed to achieve corporate control and uniIormity as well as
capitalize on global reach.
The debate around the role oI healthcare in the business portIolio oI
GlaxoSmithKline suggested that new company was at crossroads. The merger could
yield a wealth oI new drugs, Ior the good oI shareholders and patients alike. And the
new company seemed to have everything needed to be the best in the business, but
so did Glaxo and Wellcome or Beecham and SmithKline Beckman when they
merged.

END OF
CASELET
2


Caselet 3
Read the caselet carefully and answer the following questions:


6.
With respect to the caselet, analyze the marketing strategies adopted by Procter &
Gamble (P&G)?
( 8 marks) <ArsWer>
7.
'The company now admits that its US-centered way oI doing business no longer
works. In this context, discuss the complexity oI strategic planning Ior companies
such as P&G in the multinational environment.
( 7 marks) <ArsWer>

Procter & Gamble (P&G), the large US consumer products company, has a well-
earned reputation as one oI the world`s best marketers. With its 80-plus major



10
brands, P&G generates more than $37 billion in annual revenues worldwide. Along
with Unilever, P&G is a dominant global Iorce in laundry detergents, cleaning
products, and personal care products. P&G expanded abroad aIter World War II by
exporting its brands and marketing policies to Western Europe, initially with
considerable success. Over the next 30 years, this policy oI developing new products
and marketing strategies in the United States and then transIerring them to other
countries became entrenched. Although some adaptation oI marketing policies to
accommodate country diIIerences was pursued, it was minimal.
The Iirst signs that this policy was no longer eIIective emerged in the 1970s, when
P&G suIIered a number oI major setbacks in Japan. By 1985, aIter 13 years in
Japan, P&G was still losing $40 million a year there. It had introduced disposable
diapers in Japan and at one time had commanded an 80 share oI the market, but by
the early 1980s it held a miserable 8. Three large Japanese consumer products
companies were dominating the market. P&G`s diapers, developed in the United
States, were too bulky Ior the tastes oI Japanese consumers. Kao, a Japanese
company, had developed a line oI trim-Iit diapers that appealed more to Japanese
tastes. Kao introduced its product with a marketing blitz and was quickly rewarded
with a 30 share oI the market. P&G realized it would have to modiIy its diapers iI
it were to compete in Japan. It did, and the company now has a 30 share oI the
Japanese market. Plus, P&G`s trim-Iit diapers have become a best-seller in the
United States.
P&G had a similar experience in marketing education in the Japanese laundry
detergent market. In the early 1980s, P&G introduced its Cheer laundry detergent in
Japan. Developed in the United States, Cheer was promoted in Japan with the US
marketing message--Cheer works in all temperatures and produces lots oI rich suds
(the Iroth produced by soaps or detergents). But many Japanese consumers wash
their clothes in cold water, which made the claim oI working in all temperatures
irrelevant. Also, many Japanese add Iabric soIteners to their water, which reduces
detergents` sudsing action, so Cheer did not sud up as advertised. AIter a disastrous
launch, P&G knew it had to adapt its marketing message. Cheer is now promoted as
a product that works eIIectively in cold water with Iabric soIteners added, and it is
one oI P&G`s bestselling products in Japan.
P&G`s experience with disposable diapers and laundry detergents in Japan Iorced
the company to rethink its product development and marketing philosophy. The
company now admits that its US-centered way oI doing business no longer works.
Since the late 1980s, P&G has been delegating more responsibility Ior new-product
development and marketing to its major subsidiaries in Japan and Europe. The
company is more responsive to local diIIerences in consumer tastes and preIerences
and more willing to admit that good new products can be developed outside the
United States.
Evidence that this new approach is working can again be Iound in the company`s
activities in Japan. Until 1995, P&G did not sell dish soap in Japan. By 1998, it had
Japan`s best-selling brand, Joy, which now has a 20 share oI Japan`s $400 million
market Ior dish soap. It made major inroads against the products oI two domestic
Iirms, Kao and Lion Corp., each oI which marketed multiple brands and controlled
nearly 40 oI the market beIore P&G`s entry. P&G`s success with Joy was due to
its ability to develop a product Iormula that was speciIically targeted at the unmet
needs oI Japanese consumers, to the design oI a packaging Iormat that appealed to
retailers, and to the development oI a compelling advertising campaign.
In researching the market in the early 1990s, P&G discovered an odd habit;
Japanese homemakers, one aIter another, squirted out excessive amounts oI
detergent onto dirty dishes, a clear sign oI dissatisIaction with existing products. On
Iurther inspection, P&G Iound that this behavior resulted Irom the changing eating
habits oI Japanese consumers. The Japanese are consuming more Iried Iood, and
existing dish soaps did not eIIectively remove grease. Armed with this knowledge,
P&G researchers in Japan went on to work to create a highly concentrated soap
Iormula based on a new technology developed by the company`s scientists in
Europe that was highly eIIective in removing grease. The company also designed a
novel package Ior the product. The packaging oI existing products had a clear
weakness; the long-necked bottles wasted space on supermarket shelves. P&G`s dish
soap containers were compact cylinders that took less space in stores, warehouses,
and delivery trucks. This improved the eIIiciency oI distribution and allowed


11
supermarkets to use their shelI space more eIIectively, which made them receptive
to stocking Joy. P&G also devoted considerable attention to developing an
advertising campaign.

END OF
CASELET
3


END OF
SECTION B



Section C : Applied Theory (20 Marks)
This section consists oI questions with serial number 8 - 9.
Answer all questions.
Marks are indicated against each question.
Do not spend more than 25 - 30 minutes on Section C.


8. Power, Irom the view point oI strategic management and speciIically
organizational culture, is an extent to which individuals or groups are able to
persuade, induce or coerce others into Iollowing certain course oI action.
Explain the various sources oI power and also the methods oI assessing power.
( 10 marks)
<ArsWer>
9. The general manager is an entrepreneur, strategist, leader and chieI
implementer. The general managers integrate various activities, roles and
Iunctions Ior achieving organizational objectives. Discuss the various strategic
management responsibilities oI a general manager.
( 10 marks)
<ArsWer>

END OF SECTION C
END OF QUESTION PAPER

12
Suggested Answers
Business Policy & Strategy (MB311) : April 2008
Section A : Basic Concepts
Answer Reason

1. D Revenue budget provides inIormation Ior the daily management oI Iinancial resources
and key Ieedback whether the strategy is working or not.
< T0P >
2. D Companies and researchers have sought to determine how the environmental
scanning task should be accomplished. A study in some organizations Iound that the
environmental appraisal Iunction was not linked to strategic plans and decisions. This
situation was due to:
Improper attitudes oI managers toward the process.
Short-term orientation oI managers.
Complexity oI the entire process.
Inability to gather inIormation and use it.
Lack oI conIidence in the inIormation and/or the people who developed it.
Hence option (d) is the answer.
< T0P >
3. D Company proIile assesses the strengths and weaknesses oI the company`s
management and organizational structure.
< T0P >
4. A While changing the ownership structure, exchange oIIers involve exchanging debt or
preIerred stock Ior common stock. This type oI exchange increases the leverage.
< T0P >
5. C Statements (II) and (III) are true in case oI signaling criteria. Statements (I) and (IV)
are true in case oI use criteria.
< T0P >
6. B II the organization has strengths in research and development (R&D), or iI the
external environment demands it, the company should commit itselI to a strong R&D
eIIort. Companies with less technical strength must develop fast follower that
recognizes an ability to lead in R&D.
< T0P >
7. B In proxy contests, a group which is external to the Iirm will try to obtain
representation on the company`s Board oI Directors. It tries to reduce the controlling
power oI the existing Board oI Directors. As the management oIten controls the
Board oI Directors, proxy contests are seen as targeted towards the existing
management.
Hence the option (b) is the answer.
< T0P >
8. B II ONGC an oil company engaged in the exploration and production oI oil merges
with Reliance company, which is involved in the reIining and marketing oI oil, then
this would be an example oI vertical merger.
A vertical merger takes place when one Iirm acquires another Iirm that is in the same
industry but at diIIerent stage oI production.
< T0P >
9. C The strategies in the II
rd
quadrant oI grand strategy selection matrix are:
Turnaround or retrenchment.
Divestiture.
Liquidation.
Hence option (c) is the answer.
< T0P >
10. C The characteristic oI a good mission statement are:
It diIIerentiates the company Irom its competitors.
It seeks to clariIy the purpose oI the organization.
It deIines the business that that the company wants to be in, not necessarily the
one it is in.
It is inspiring
It is relevant to all the stakeholders in the Iirm, not just shareholders and
< T0P >


13
managers.
It attempts to ensure that the organization behaves in the way that it promises it
will by deIining the purpose Ior which the Iirm exists.
Statement IV ie. it speciIies the time period in which the objectives are achieved, is an
characteristic oI goals. Hence option (c) is the answer.
11. D Decisional roles include the role oI an entrepreneur, disturbance handler, resource
allocator and negotiator. Liaison role is not included in decision roles oI a manager
but is included in interpersonal roles.
< T0P >
12. D The beneIits oI annual objectives are:
Annual objectives help operations managers and personnel to deIine their role in
business mission.
Annual objectives make the manager more accountable Ior planning and
achieving targets.
Annual objectives provide strong motivation Ior managers in strategy
implementation.
Well set annual objectives provide a basis Ior strategy control.
Hence the option (d) is the answer.
< T0P >
13. A Fair pricing is deIined as the highest price paid by the bidder during a speciIic period,
and is sometimes required to exceed the book value oI the target, an amount
determined relative to accounting errors.
< T0P >
14. A A Iirm lowers buyer cost or raises buyer perIormance through the impact oI its value
chain on the buyers` value chain.
< T0P >
15. B Statements (I) and (IV) are true in case oI strategy Iormulation. Statement (II) is true
in case oI strategy implementation. Statement (III) is true in case oI environmental
scanning.
< T0P >
16. B Strategic analysis enables a Iirm to identiIy a range oI possible attractive investment
opportunities. Opportunities that are compatible with the company`s mission are
identiIied as desired opportunities.
< T0P >
17. A A multi-domestic industry is one in which the competition within the industry is
essentially segmented Irom country to country.
< T0P >
18. A The risk oI using holistic model is the tendency to overlook diIIiculties in
implementation. It may sometimes lead to managers glossing over details that may
eventually prove critical. All the other options are true about tactical model. Holistic
model is totally opposite oI tactical model.
Hence option (a) is the answer.
< T0P >
19. A Vertical scope reIers to the extent oI activities that are perIormed in-house. Whereas
industry scope relers lo the potential inter-relationships among the value chain
required to compete in related industries. All the other statements about vertical scope
are true. Hence option (a) is the answer.
< T0P >
20. D The job enrichment method study and need oI improved eIIiciencies are required at
Iunctional strategy level oI change.
< T0P >
21. E The claims oI various groups oI stakeholders on the organization are:
The unions wish Ior beneIits Ior members in proportion to their contribution to
company success
The governments desire Ior adherence to legitimate rules, regulatory rules,
regulations, laws and taxes
The employees claims Ior job satisIaction and compensation leading to a certain
standard oI living
The assurance sought by the general public that the quality oI liIe will be
improved as a result oI the Iirm`s existence
The claims oI local communities, which expect companies to be responsible
citizens`.
< T0P >

14
The stockholders claim to appropriate returns on investments.
The customers desire Ior value Ior their money
Supplier`s requirement oI dependable buyers.
Hence option (e) is the answer.
22. D The correct sequence oI steps in the ethical decision making process are as Iollows:
Evaluate decision Irom ethical standpoint in the context oI identiIying aIIected
stakeholders.
Evaluate decision Irom ethical standpoint in the context oI moral principles.
Establish moral intent.
Engage in ethical behavior.
< T0P >
23. C Divestment oI a business requires a team oI Iunctional experts under the direction oI
an expert project manager. The Iirst and Ioremost action that is to be taken aIter
reaching the decision to divest pertains to the selection oI the project manager.
< T0P >
24. B The Iirm`s capacity to meet its short term Iinancial obligation is best described by the
liquidity ratio. ProIitability ratios indicate how eIIectively a Iirm is being managed.
Leverage ratios identiIy the source oI a Iirm`s capital i.e. owners or outside creditors.
Activity ratios measure a Iirm`s eIIiciency in generating sales and making collections.
< T0P >
25. C The higher labor skills and technology available in developed countries with the
lower cost labor available in developing countries is combined by production
sharing.
< T0P >
26. A Social norms create diIIerences across national boundaries that inIluence people`s
interaction, read personal cues and otherwise interrelate socially.
< T0P >
27. C Scheduling as a planning tool involves allocation oI time and constrained resources
and their arrangement into a sequence oI interdependent activities
< T0P >
28. D The criteria Ior suitability attempts to measure the extent to which the proposed
strategies Iit the situation identiIied in the strategic analysis. The strategy to be
selected should meet the Iollowing criteria:
Can the strategy overcome the diIIiculties identiIied in the strategic analysis?
To what extent can the strategy exploit the environmental opportunities by using
the company`s strength?
Do the company`s objectives and values Iit in with the strategy?
Statement (II) is a criteria oI Ieasibility. Hence option (d) is the answer.
< T0P >
29. B Milestone review involves a Iull-scale reassessment oI the strategy and the
advisability oI continuing or reIocusing the direction oI the company
< T0P >
30. C For purpose oI cost analysis, the disaggregation oI the generic value chain into
individual value activities should reIlect three principles that are not mutually
exclusive:
The size and growth oI the cost represented by the activity.
The cost behavior oI the activity.
Competitor diIIerences in perIorming the activity.
Hence option (c) is the answer.
< T0P >



15
Section B : Caselets
1. The success oI Wal-Mart has long since been attributed to the company's strong cultural base.
Analyst Jim Collins observed that Wal-Mart had the kind oI 'cult-like' culture that is shared by
all great companies. Even the employees oI Wal-Mart were sometimes reIerred to as
"Walmartians" by outsiders, reIlecting the distinctiveness oI the people who shared that
culture. It was a wonder that a company oI such a huge size and scope could maintain its
entrepreneurial spirit so many decades aIter it Iirst started, besides achieving admirable
growth rates which were poised to make it the Iirst trillion dollar company in the world.
In spite oI its huge size and tremendous growth rate, the company retained most oI the
cultural elements which contributed to its success in the early years. Walton believed that
happy and satisIied employees perIormed well and were responsible Ior happy customers.
Wal-Mart's culture was essentially customer-centric and service-oriented. It embodied
Walton's dream oI creating a store which provided the best value at the lowest prices. A unity
oI purpose and a spirit oI oneness was created and maintained across the organization.
Some unique Ieatures bound the people associated with Wal-Mart together, one oI these being
that Wal-Mart Iollowed a separate calendar which was based on 'Wal-Mart time', i.e. 'week 1'
in the calendar was the Iirst week oI the company's Iiscal year that started on February 1st
every year.
Wal-Mart's culture was built on three basic belieIs or tenets established by Walton in 1962,
when Wal-Mart was Iirst set up. These tenets constituted the Ioundation oI its culture in later
years.
Wal-Mart realized that employees played a very important role in the success oI a retail
business and gave considerable importance to them. To instill a spirit oI equality and oneness
among employees, the company adopted the practice oI terming employees 'associates', thus
creating in them a sense oI belonging and involvement in Wal-Mart's activities and success.
Walton believed that iI he took care oI the employees, they would take care oI the customers
in the same manner.
He tried to create a positive and cheerIul atmosphere in the company. Wal-Mart was one oI
the Iirst companies to introduce proIit sharing and stock options Ior its employees. AIter it
went public Wal-Mart began its "ProIit Sharing Plan". The plan oIIered an opportunity to its
employees to improve their income depending on the proIitability oI the store. Employees
were also oIIered stock options and store discounts.
This was to motivate them to take an active interest in the working oI the company. A system
oI perIormance linked compensation and bonus also ensured that employees contributed their
best to the organization. One oI the unique Ieatures oI Wal-Mart's human resource policy was
that the company did not authorize overtime work. It did not allow store managers to
overburden employees with work.
The company was also committed to improving the career prospects oI its employees. It had a
policy oI recruiting more than 70 percent oI its personnel in managerial positions Irom the
ranks oI hourly workers in the stores...
< T0P >
2. CULTURE AND THE ORGANIZATION
Leaders typically attempt to manage and create a distinct culture within their organizations
through a variety oI ways. Some common methods are as Iollows:
Key Themes or Dominant Values Emphasized
Encourage Dissemination oI Stories and Legends about Core Values
Institutionalization oI Practices that Systematically ReinIorce Desired BelieIs and Values
Adopt Very Common Themes in Their Own Unique Ways
The Iollowing are the most typical belieIs that shape organizational culture:
1. A belieI in being the best.
2. A belieI that growth and proIits are essential to a company's healthy Iinancial
position.
3. A belieI in superior quality and service.
4. A belieI in the importance oI inIormal communication.
5. A belieI in the importance oI people as individuals and a Iaith in their ability make
a strong and eIIective contribution.
< T0P >

16
6. A belieI in inspiring people to do their best, whatever their ability.
7. A belieI in the importance oI the details oI execution - the nuts and bolts oI doing
the job well.
8. A belieI that customers should reign supreme.
Management oI Organizational Culture in a Global Organization
3. In spite oI being generally applauded Ior its culture, Wal-Mart was also severely criticized Ior
certain aspects oI its culture.
Although Wal-Mart had a very strict policy on overtime and the company's rules Iorbade it, it
was observed that, at most oI the stores, employees worked between 5 and 15 hours overtime
per week. (The company had a 40 hour work week). Since the company was very strict about
not allowing overtime (there were instances where store managers who paid overtime were
demoted and in cases, even dismissed), it was usually done on an unoIIicial basis.
Since overtime was not allowed, store managers oIten asked workers to clock out aIter their
shiIt was over and then continue working. Sometimes workers were put to work as soon as
they came to the stores at the start oI the shiIt, even beIore they could clock in.
This way, employees sometimes worked a couple oI hours beIore they clocked in. One
employee recollected an instance when she had worked Ior 3 hours in a store beIore she
oIIicially clocked in.
Another tactic employed was to lock the doors oI the store at the end oI a shiIt (ostensibly to
prevent theIt) to prevent employees Irom leaving at the scheduled time. This oIten enraged
employees as well as their Iamilies and created a poor image oI Wal-Mart.
Sometimes the time cards were also edited by the people in charge oI payroll to show that
employees worked only 40 hours per week. When people clocked in more than 40 hours the
additional hours were deleted Irom the records. This was a regular practice at the stores to
control the expenditure on salaries...
The problem with Wal-Mart was that, as the largest company in the world, it had three times
the number oI employees that the second largest company behind it had. Analysts Ielt that the
size oI the company itselI suggested that the scope oI problems was likely to be higher. It was
not practically possible Ior the headquarters or the top management to keep track oI
everything going on at the store level. ThereIore, some stores deviated considerably Irom the
corporate principles.
< T0P >
4. BUSINESS PORTFOLIO
Attained leadership position: The merger expected a broad portIolio oI products and in
addition to that the new company would lead in Iour oI the Iive largest therapy classes, which
together represented roughly halI the global pharmaceutical market. This was complemented
by a leading position in the vaccines market. The new company would also have blockbuster
treatments Ior asthma, depression, AIDS and migranes.
More products/Stronger portIolio: Not surprising new drugs still in the pipeline` were
expected to reinIorce the new pharmaceutical's position in the anti-inIective group, but other
strong growth products were expected in the alimentary and metabolic group as well as a new
vaccine (InIantrix) and a respiratory drug (Seretide/Advair). Top managers then claimed that
the new group could be expected to have a solid base in selected therapeutic markets while
delivering sales oI 17 billion pounds per annum or 7.4 oI the world's pharmaceutical
market.
Economies oI Scale: Another key point to the merger were expected savings oI 250 million
pounds Irom combined R&D operations. Those savings were to be reinvested in R&D to
produce an annual research budget oI 2.4 billion pounds, the largest in the world aIter the
new PIizer. Top executives also expected the combined company to save an annualized 1
billion pounds aIter three years. These savings would come on top oI previously announced
restructuring at both companies, expected to cut a combined 570 million a year. But analysts
oI pharmaceutical companies at investment banks were puzzled by these Iigures.
However, only 7 oI Glaxo Wellcome's sales depended on drugs whose US patents expired
beIore 2006 as compared with SmithKline's 33 per cent.
HUMAN RESOURCE MANAGEMENT
As part oI the merger process, plans were draIted Ior the amalgamation oI corporate and
support operations oI the new pharmaceutical colossus in most countries. This made labour
unions unhappy because oI the lack oI consultation. Corporate executives claimed that there
was nothing to consult about until the legal merger had taken place and thus, the newly
< T0P >


17
introduced European regulation on consultation would not be broken. Nevertheless, unions
Ieared at least 15,000 job losses, no less than 14 oI the 105,000 strong combined global
workIorce would be lost.
As Ior the 300 or so senior managers likely to be made redundant, Spencer Stuart, an
international recruitment consultancy, was brought in to look into areas oI potential overlap
between business units rather than the universe oI managers at the new corporation, and
would leave the vital R&D and marketing teams intact.
ORGANIZATIONAL STRUCTURE
The new plan considered breaking up discovery eIIorts through a combination oI
centralization and decentralization. Investments to generate new chemical entities (NCE)
would concentrate on traditional activities and genetics while aiming to develop economies oI
scale. Discovery eIIorts would then be broken into six autonomous sub-units while aiming to
maintain the excitement oI a small discovery outIit. Drug development (including clinical
trials) and marketing would again be co-ordinated by the central organization.

The plan Ior the new structure at GlaxoSmithKline also considered creating six sub-units (one
in Italy, two in the UK and three in the US) out oI the middle section oI the pipeline`, the part
oI the drug generation process considered to be that where bright ideas are incorporated into
drugs. The six business units, called Centres oI Excellence (Cedds), were to organize the
eIIorts oI the 24 R&D sites across the world, work semi-autonomously and compete to attract
Iinancial resources Irom head oIIice (and eventually Irom venture capitalists and even the
stock market). It was hoped that as a result oI the plan, the new company would avoid greater
scale and associated bureaucracy while maintaining agility, entrepreneurial spirit and
individual accountability in a key part oI drug discovery.
Moreover, attract talent by emulating the culture at biotechnology Iirms, including the
introduction oI big share option packages through which scientists receive royalties on the
sale oI medicines they helped to invent.
Finally, the plan Ior the new structure at GlaxoSmithKline also considered clinical trials and
marketing to be undertaken on a massive scale, oIten across continents, and simultaneously
complying with strict regulatory conditions. Scale at this last stage oI the pipeline` aimed to
achieve corporate control and uniIormity as well as capitalize on global reach.
The debate around the role oI health care in the business portIolio oI GlaxoSmithKline
suggested that new company was at crossroads. The merger could yield a wealth oI new
drugs, Ior the good oI shareholders and patients alike. And the new company seemed to have
everything needed to be the best in the business, but so did Glaxo and Wellcome or Beecham
and SmithKline Beckman when they merged.
5. THE ROLE OF INDUSTRY LIFE CYCLE
There is a close link between the various stages in the industry liIe cycle and the level oI
M&A activity. All the Iour stages i.e introduction, exploitation, maturity and decline, have
distinct role to play in M&A process. In the initial and growth stages oI the industry liIe cycle,
new or small Iirms are the targets Ior related or conglomerate mergers. The process oI mergers
is initiated by larger Iirms in mature or declining industries. The larger Iirms provide
managerial and Iinancial eIIiciencies through mergers. Horizontal mergers between smaller
Iirms take place to acquire managerial and Iinancial resources. The purpose behind horizontal
and related mergers in the maturity stage is to match the low cost and price perIormance oI
other Iirms, both domestic and Ioreign by achieving economies oI scale in research, marketing
and production. Horizontal and related mergers may take place in the maturity stage to match
the low cost and price perIormance oI other Iirms (domestic or Ioreign) by achieving
economies oI scale in research, marketing and production. Some horizontal acquisitions may
take place to provide management skills and a broader Iinancial base.
In the decline stage, horizontal mergers take place to ensure survival, vertical mergers to
increase eIIiciency and proIit margins, concentric acquisitions to obtain opportunities Ior
synergy and carry-over oI managerial capabilities and conglomerate acquisitions may be
undertaken to utilize Iinancial slack oI mature Iirms in declining industries.
Glaxo Wellcome and SmithKlineBeecham merged to match the low cost and price
perIormance oI other Iirms (domestic or Ioreign) by achieving economies oI scale in research,
marketing and production. Also, to provide management skills and a broader Iinancial base.
< T0P >
6. Marketing Strategies:
Standardizing product: P&G expanded abroad aIter World War II by exporting its brands
< T0P >

18
and marketing policies to Western Europe, initially with considerable success. Over the next
30 years, this policy oI developing new products and marketing strategies in the United States
and then transIerring them to other countries became entrenched. Although some adaptation
oI marketing policies to accommodate country diIIerences was pursued, it was minimal.
The Iirst signs that this policy was no longer eIIective emerged in the 1970s, when P&G
suIIered a number oI major setbacks in Japan. By 1985, aIter 13 years in Japan, P&G was still
losing $40 million a year there. It had introduced disposable diapers in Japan and at one time
had commanded an 80 percent share oI the market, but by the early 1980s it held a miserable
8 percent. Three large Japanese consumer products companies were dominating the market.
P&G's diapers, developed in the United States, were too bulky Ior the tastes oI Japanese
consumers. Kao, a Japanese company, had developed a line oI trim-Iit diapers that appealed
more to Japanese tastes. Kao introduced its product with a marketing blitz and was quickly
rewarded with a 30 percent share oI the market. P&G realized it would have to modiIy its
diapers iI it were to compete in Japan. It did, and the company now has a 30 percent share oI
the Japanese market. Plus, P&G's trim-Iit diapers have become a best-seller in the United
States.
Adapting the product: P&G's experience with disposable diapers and laundry detergents in
Japan Iorced the company to rethink its product development and marketing philosophy. The
company now admits that its US-centered way oI doing business no longer works. Since the
late 1980s, P&G has been delegating more responsibility Ior new-product development and
marketing to its major subsidiaries in Japan and Europe. The company is more responsive to
local diIIerences in consumer tastes and preIerences and more willing to admit that good new
products can be developed outside the United States.
Evidence that this new approach is working can again be Iound in the company's activities in
Japan. Until 1995, P&G did not sell dish soap in Japan. By 1998, it had Japan's best-selling
brand, Joy, which now has a 20 percent share oI Japan's $400 million market Ior dish soap. It
made major inroads against the products oI two domestic Iirms, Kao and Lion Corp., each oI
which marketed multiple brands and controlled nearly 40 percent oI the market beIore P&G's
entry. P&G's success with Joy was due to its ability to develop a product Iormula that was
speciIically targeted at the unmet needs oI Japanese consumers, to the design oI a packaging
Iormat that appealed to retailers, and to the development oI a compelling advertising
campaign.
Localization: In researching the market in the early 1990s, P&G discovered an odd habit;
Japanese homemakers, one aIter another, squirted out excessive amounts oI detergent onto
dirty dishes, a clear sign oI dissatisIaction with existing products. On Iurther inspection, P&G
Iound that this behavior resulted Irom the changing eating habits oI Japanese consumers. The
Japanese are consuming more Iried Iood, and existing dish soaps did not eIIectively remove
grease. Armed with this knowledge, P&G researchers in Japan went to work to create a highly
concentrated soap Iormula based on a new technology developed by the company's scientists
in Europe that was highly eIIective in removing grease. The company also designed a novel
package Ior the product. The packaging oI existing products had a clear weakness; the long-
necked bottles wasted space on supermarket shelves. P&G's dish soap containers were
compact cylinders that took less space in stores, warehouses, and delivery trucks. This
improved the eIIiciency oI distribution and allowed supermarkets to use their shelI space more
eIIectively, which made them receptive to stocking Joy. P&G also devoted considerable
attention to developing an advertising campaign.
7. The strategic planning Ior company like P&G in the multinational environment is more
complex than that oI domestic planning. There are at least Iive contributing Iactors.
A multinational company like P&G Iaces multiple political, economic, legal, social and
cultural environments as well as various rates oI change within each oI them.
Due to national sovereignty issues and widely diIIering economic, and social conditions, the
interactions between the national and social conditions, the interactions between the national
and Ioreign environments are complex.
Geographical separation, cultural and national diIIerences and various in business practices all
tend to make communication between headquarters and the overseas aIIiliates diIIicult.
Multinational companies like P&G Iace extreme competition because oI diIIerences in
industry structures.
Multinational companies like P&G are conIronted by various international organizations, such
as the European Economic community, the European Free Trade Area, and the Latin American
Free Trade Area, that restrict a Iirm`s selection oI its competitive strategies.
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Section C: Applied Theory
8. CULTURE AND POWER
Power, Irom the viewpoint oI strategic management and speciIically organizational culture, is
an extent to which individuals or a group are able to persuade, induce or coerce others into
Iollowing certain courses oI actions. It would be highly helpIul to know the sources oI power
to understand and assess the importance oI power in relation to culture within strategic
management. A clear distinction should be made between the authority and power in assessing
the impact oI power on culture and in turn on strategic management.
Sources of power:The sources oI power can be divided into two broad categories. They are
i. Internal sources and
ii. Sources Ior external stakeholders.
Internal Sources
Hierarchy
Hierarchical positions in the organizational structure provide Iormal authority to the
managers at higher levels. The managers with more Iormal authority inIluence the policy
Iormulation and implementation extensively. Managers should use this power along with
other types oI power to make their inIluence eIIicient.
Influence/charisma
InIluence is an importance source oI power. This arises Irom personal qualities like
charisma oI the leader. Charisma is the leader's ability to inIluence others through
personal magnetism, enthusiasm and strongly held convictions. Leaders communicate
these convictions and their vision Ior the Iuture through a dramatic, persuasive manner
oI speaking. Charismatic leaders create an image oI competence and success. Their
personal magnetism makes them role models Ior their employees. Thus inIluencing the
overall organizational culture. The more the Iollowers admire their leaders, the more
likely they are to accept their leader's values and belieIs. This acceptance makes the
leaders to exert signiIicant inIluence over their Iollowers' behaviors. The charismatic
leaders are more powerIul during the periods oI organizational crisis and transition.
Control of strategic resources
Control oI strategic resources is an important source oI power. The relative importance
oI diIIerent resources changes depending upon the strategy and situation. The leader can
gain power by possessing or controlling the strategic resources.
Expertise or knowledge or skill
Expertise or knowledge is a crucial source oI power Ior top management. Managers
acquire power through achievement and perIormance. The better the achievement and
perIormance, the greater will be the power oI the managers. Expertise reIers to
manager's ability to inIluence the behavior oI others. The subordinates Iollow the
managers as they believe that their managers have command and knowledge oI the
situation. Thus, norms are inIormally established leading to a deIinite 'organization
culture.
Control of the environment

Usually, events internally in the company aIIect the external view oI the company's
perIormance. Some individuals' or groups have more inIluence over events and
company's internal environmental Iactors. This can be a source oI power within the
company. Normally, marketing and Iinance managers can control the important internal
environmental Iactors. ThereIore, they play a dominant role in cultural settings oI
strategic management whereas the human resources, production and operations
managers take a back seat.
Exercising discretion

Exercising discretion is a most signiIicant source oI power within an organization.
Individuals or groups, due to the nature and levels oItheir jobs, derive power. Normally,
strategy is to be implemented by a number oI individuals across the organization. These
individuals use the power so derived in the process oI strategy implementation, thus,
making the organization stand unique in its cultural transition.
Sources for External Stakeholders
Resource dependence

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Almost all external stakeholders like banks, Iinancial companies, suppliers oI raw
materials, etc. derive power as the company depends on them Ior resources. Usually, the
short-term survival oI a company is mostly dependent on anyone or more oI these
stakeholders.
Involvement in implementation
Under the present day circumstances, all over the world, the importance now has been
shiIted Irom manuIacturing to the distribution. The distribution agencies have the power
oI knowledge about consumer's tastes and preIerences. In Iact, distribution agencies
determine or inIluence the type oI product to be produced. Thus, the distribution
agencies derive power by involving in the implementation process.
Expertise

The agencies having specialized skills or expertise like the advertising agencies that is
demanded by the company to perIorm a speciIic activity Ior remuneration derive the
power Ior their expertise knowledge.
Internal links

Internal links can provide a way Ior external stakeholders to inIluence tile company's
strategy. Highly authoritarian organization normally does not provide internal links and
give chance to external stakeholders to inIluence the strategic management process to a
minimum.

Methods of Assessing Power
It rather very diIIicult to assess power oI internal individuals or groups and external
'Stakeholders. However, suggested best way oI assessing power is to depend on indicators" oI
power. There are Iour basic indicators oI power within organizations.
The status of the individual or groups
The position oI an individual in the organizational hierarchy, the job and the grade oI
would indicate the assessment oI the power. Similarly, the reputation oI individual or
group compared to others can also be used to assess the power held by them.
The claim on resources

The claim oI the individual or group Ior resources in terms oI share in budget, number oI
employees, Iinances, etc. can be used to measure the power. Usually, resources oI the
least powerIul group get eroded by more powerIul group.
Representation in powerful positions

The power oI the individuals and groups can be assessed by their representation in
boards, committees, groups, teams, etc.
Symbols of power

Power oI individuals and groups can also be assessed through various symbols like the
size and location oI oIIices, Iacilities like secretary, telephones, carpets, meeting
tables, etc.
The indicators to assess the power oI external stakeholders are:
i. The status: The status oI the external stakeholders like suppliers oI raw materials,
distributors, Iinancial institutions, etc. can be assessed through the timeliness oI response
and the extent oI demands that are met by the company.
ii. Resource dependence: Resource dependency can be measured by the proportion oI the
company's business with a single distributor, proposition oI the raw material supplied by
a supplier to the total raw materials required by the company, etc.
iii. Negotiating arrangements: The power oI the external stakeholder can be assessed
through whether the stakeholder invited Ior negotiation is allowed to interact closely or
treated at arm's length.
iv. Symbols: Symbols are equally valuable clues. The symbols that are used to assess the
power oI external stakeholders include the level oI manager that deals with the
stakeholder, whether the management team wine or dine with the stakeholders, etc.
9. The general manager is an entrepreneur, strategist, leader and chieI implementer. The general
managers integrate various activities, roles and Iunctions Ior achieving organizational
objectives. The strategic management responsibilities oI a general manager are:
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1. Establishing the Mission - deciding on the business or businesses that the company or
division' should engage in and other Iundamentals that will guide and characterize the
business, such as continuous growth. A mission is usually enduring and timeless.
2. Formulating 'a company Philosophy - establishing the belieIs, values, attitudes and
unwritten guidelines and add up to, "the way we do things around here".
3. Establishing policies - deciding on plans oI action to guide the perIormance oI all major
activities in carrying out strategy in accordance with company philosophy.
4. Setting objectives - deciding on achievement targets within a deIined time range.
Objectives are narrower in scope than the mission and are designed to aid in making
operational plans Ior carrying out strategy.
5. Developing Strategy - developing concepts, ideas and plans Ior achieving objectives
successIully and meeting and beating the competition. Strategic planning is part oI the
total planning process that includes management and operation planning,
6. Planning the Organization Structure - developing the plan oI organization and the
activities that help people work together to perIorm activities in accordance with
strategy, philosophy and policies.
7. Providing Personnel - recruiting, selecting and developing people to Iill the positions in
the organization plan.
8. Establishing Procedures - determining and prescribing how all important and recurrent
activities will be carried out.
9. Providing Facilities - providing the plant equipment and other physical Iacilities
required to carry on the business.
10. Providing Capital - making sure the business has the money and credit needed Ior
working capital and physical Iacilities.
11. Setting Standards establishing measures-oI perIormance that will enable the business
to best achieve its long-term objectives successIully.
12. Establishing Management Programmes and operational Plans Developing
programmes and plans governing activities and the use oI resources that when carried
out in accordance with established strategy, policies, procedures and standards, will
enable people to achieve particular objectives. These are phases oI total planning
process, which includes strategic planning.
13. Providing Control Information - supplying Iacts and Iigures to help people Iollow the
strategy, policies, procedures and programmes, to keep alert to Iorces at work inside and
outside the business, to measure overall company perIormance against established plans
and standards.
14. Activating People - Commanding and motivating people to act in accordance with
philosophy, policies, procedures and standards in carrying out the plans oI the company.

The general managers need a variety oI skills. This is because they are required to perIorm
variety .Iunctions and diIIerent roles. For instance, top level managers are expected to have
more conceptual skills and junior managers more technical skills. Thus, it can be said that the
general managers oI an organization are executives at pinnacle oI the enterprise or strategic
business units, who are responsible Ior survival and eIIective Iunctioning oI the organization.

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