Question Paper

Business Policy & Strategy (MB311) : January 2007

Section A : Basic Concepts (30 Marks)

• This section consists of questions with serial number 1 - 30.

• Answer all questions.
• Each question carries one mark.
• Maximum time for answering Section A is 30 Minutes.

< Answer >

1. During the implementation of strategy, who among the following represents an important source for clarification,
guidance and adjustment?
(a) Strategist
(b) Manager
(c) General Manager
(d) Board of Directors
(e) Chief Executive Officer (CEO).
< Answer >
2. Which of the following are specific deviations in key forecasts of industry and are set to alert industry?
(a) Standard points
(b) Deviated points
(c) Tangible points
(d) Trigger points
(e) Specific points.
< Answer >
3. The essence of control is the ability to take action to achieve planned results. The basis for action is provided by two
different control mechanisms formal procedures and clans. Which of the following is/are not true regarding clans?
I. Clan mechanism relies on adjusting rules, procedures, guidelines, budgets and directives.
II. Clan control derives itself from cultural settings.
III. Clan control is highly efficient in selective environments.
IV. A strong culture facilitates the control process by enhancing the clan control.
(a) Only (I) above
(b) Both (I) and (II) above
(c) Both (II) and (IV) above
(d) (I), (II) and (III) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
4. According to Henri Fayol, the objective of control is to point out weakness and errors in order to rectify them and
prevent recurrence. Which of the following are the procedures that the control function includes?
I. Measuring the actual performance.
II. Comparing actual performance to standards.
III. Developing alternative action plans.
IV. Taking corrective action to ensure that planned events actually occur.
V. Analyzing on the feedbacks.
(a) Both (I) and (III) above
(b) (I), (II) and (III) above
(c) (I), (II) and (IV) above
(d) (I), (III) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
 < Answer >
5. The criteria of feasibility assess the practical implementation and working of strategy. Which of the following
questions need to be assessed in the evaluation stage?
I. Does the company have sufficient financial resources to implement the strategy?
II. Can the strategy overcome the difficulties identified in the strategic analysis?
III. Will the technology be available to compete effectively?
IV. Do the company’s objectives and values fit in with the strategy?
V. Is the company capable of procuring the necessary materials and services?
(a) (I), (II) and (III) above
(b) (I), (II) and (IV) above
(c) (I), (III) and (V) above
(d) (I), (II), (III) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
< Answer >
6. A going-private transaction involves a small group of investors purchasing the entire equity interest in a public
company. When the members of the incumbent management group initiates the transaction, it is known as
(a) Leveraged buyout
(b) Management buyout
(c) Spin-offs
(d) Divestiture
(e) Proxy contest.
< Answer >
7. During which merger wave, more emphasis was on achieving economies of scale by the mass industrial production of
consumer goods?
(a) First merger wave
(b) Second merger wave
(c) Third merger wave
(d) Fourth merger wave
(e) Fifth merger wave.
< Answer >
8. Which of the following is a budget that is based on a series of different budgets based on different levels of output?
(a) Zero-based budget
(b) Cost budget
(c) Dependable budget
(d) Rigid budget
(e) Variable budget.
< Answer >
9. Exporting through independent intermediaries to various countries is indirect exporting. In which of the following
ways of indirect exporting does, intermediary manages export for a fee?
(a) Temporary exporter
(b) Domestic exporter
(c) Domestic based exporting agent
(d) Cooperative organization
(e) Export management company.
< Answer >
10. The allocation of resources in an organization requires planning and controlling. To achieve this, the method used by
most organizations is budgeting. Which of the following is the main function of executive staff budget?
(a) It focuses on a specific product of the firm and permits determination of returns on investment from each
product
(b) It includes requirements for raw materials, components, energy, human and other resources necessary to
produce the projected output
(c) It indicates special expense accounts, compensation, and human resource requirements for higher levels
of the organization
(d) It is used to establish local or regional revenue and/or cost centers for planning and controlling purposes
(e) It reflects the strategies of the firm in relation to research and development investments; frequent sources
of future sales and revenue.
 < Answer >
11. There are three basic characteristics which differentiate functional strategies from grand strategies: time horizon
covered, specificity, and participation in their development. Which of the following statements is/are true about
specificity?
I. The functional strategy is more specific than a grand strategy.
II. Grand strategies are restricted to the company’s subunits.
III. The general direction is provided by the functional strategy.
IV. Functional strategies give specific guidance to managers responsible for completing the objectives successfully.
(a) Only (I) above
(b) Both (II) and (III) above
(c) Both (I) and (IV) above
(d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
12. A firm derives its value from value addition activities such as designing, producing, marketing, delivering, and
supporting activities. Efficiency in one or more than one of theses can lend either cost advantage or differentiation
advantage to the firm. A firm can gain cost advantage from
I. Low-cost physical distribution system.
II. Superior sales force utilization.
III. Responsive order entry system.
IV. Efficient assembly process.
(a) Only (I) above
(b) Both (I) and (III) above
(c) (I), (II) and (III) above
(d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
13. Objectives state end results and overall objectives need to be supported by sub-objectives. Thus, objectives form a
hierarchy. Which of the following is the correct sequence of hierarchy of objectives?
I. Mission.
II. Social economic purpose.
III. More specific overall objectives.
IV. Overall objectives of the organization.
V. Division objectives.
VI. Department objectives.
VII. Individual objectives.

(a) I, II, III, IV, V, VI, VII

(b) I, III, II, IV, V, VI, VII
(c) I, II, III, IV, VI, V, VII
(d) II, I, III, IV, V, VI, VII
(e) II, I, IV, III, V, VI, VII.
< Answer >
14. Which of the following is a statement of means that indicates the method to be used to achieve the company’s
objectives and also which is a unique package of long-term strategies?
(a) Vision
(b) Mission
(c) Grand strategy
(d) Functional strategy
(e) Operational strategy.
< Answer >
15. An analysis of which of the following, enables a firm to forecast the change in the cost drivers of value activities and
which value activity should increase or decrease in absolute or in relative cost importance?
(a) Differential scale sensitivity
(b) Cost dynamics
(c) Industry real growth
(d) Segment cost behavior
(e) The cost of purchased inputs.
 < Answer >
16. Which of the following is/are the key consideration(s) of capital acquisition in a financial strategy?
I. Cost of capital.
II. Cash flow requirements.
III. Credit policies.
IV. Payment timing and procedure.
(a) Only (I) above
(b) Both (I) and (III) above
(c) Both (I) and (IV) above
(d) (I), (III) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
17. Mergers can be defined as the integration of two or more firms on co-equal basis. Which of the following is/are not
the economic rationale for major types of mergers?
I. To extend business by sharing investments.
II. To extend business by overcoming entry barriers.
III. To avoid the internal costs of developing new products.
IV. To reduce the negative affects of competition.
(a) Only (I) above
(b) Both (I) and (II) above
(c) Both (III) and (IV) above
(d) (I), (II) and (III) above
(e) (I), (II) and (IV) above.
< Answer >
18. Which of the following variables is/are not related to rivalry among existing firms?
I. Access to distribution channels.
II. Amount of fixed costs.
III Alternative buyers.
IV. Alternative suppliers.
V. Product differentiation.
(a) Only (V) above
(b) Both (I) and (V) above
(c) (I), (II) and (III) above
(d) (III), (IV) and (V) above
(e) (II), (III), (IV) and (V) above.
< Answer >
19. In which of the following phases of the merger movements, more emphasis was on creating synergies and also
technology play an important role?
(a) First merger wave
(b) Second merger wave
(c) Third merger wave
(d) Fourth merger wave
(e) Fifth merger wave.
< Answer >
20. Organizational culture is the set of important assumptions that members of an organization share in common. Which
of the following is false regarding the ways by which a firm can manage around the culture?
(a) Use new task forces, teams or program coordinators
(b) Create a separate firm or division
(c) Sell out a successful idea
(d) Take the advantage of the situation to reinforce the current culture
(e) Sub-contract.
 < Answer >
21. Coordination is a must in the organizations for a smooth functioning. But if the coordination is lacking in the large
functional structure across the organization, the company’s performance will get disturbed. This problem can be
tackled by
I. Breaking the firm into smaller business units that can focus on particular products, or markets.
II. Employing staff who are responsible for coordinating activities across the functions.
III. Formalizing the role of the product/project manager in a matrix structure.
IV. Seeking approval from higher authorities for taking trivial decisions.
(a) Both (I) and (III) above
(b) Both (I) and (IV) above
(c) (I), (II) and (III) above
(d) (I), (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
22. A strategy of a non-profit organization, in which top management retains all decision-making authority so that low-
level managers cannot take any actions to which the sponsors may object is called
(a) Offensive centralization
(b) Defensive centralization
(c) Conglomerate diversification
(d) Concentric diversification
(e) Vertical diversification.
< Answer >
23. A company, with which of the following orientations believes that the values and priorities of the parent organization
should guide the strategic decision making of all its operations?
(a) Ethnocentric
(b) Polycentric
(c) Geocentric
(d) Regiocentric
(e) Physiocentric.
< Answer >
24. Which of the following is/are true of strategic leadership style?
I. Small organizations are run democratically.
II. Leadership style also relates to the role of planning and the importance of incremental change in strategic
management.
III. In relatively stable environments both entrepreneurial leadership style and conservative leadership style can be
appropriate and successful.
(a) Only (I) above
(b) Only (II) above
(c) Both (I) and (II) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above.
< Answer >
25. Which of the following refers to the development of long term plans for managing opportunities and threats in the
external environment and for utilizing the strengths and overcoming the weaknesses within the organization?
(a) Strategy formulation
(b) Strategy implementation
(c) Environmental scanning
(d) Evaluation and control
(e) Strategy dismantling.
< Answer >
26. Sri Ganesh Ltd. is an automobile distributor, which has its operating units in all the major cities in the country. These
units share the parent firm’s infrastructure, procurement, and other support activities. This is an example of
(a) Industry scope
(b) Horizontal scope
(c) Geographic scope
(d) Vertical scope
(e) Segment scope.
 < Answer >
27. The General Manager needs a variety of skills. This is because they are required to perform variety of functions and
different roles. Which of the following is incorrect regarding the degree of skills required for the General Managers
at different levels?
(a) Top level managers require high human relations (HR) skills
(b) The middle level managers moderate conceptual skills
(c) The middle level managers require high human relations (HR) skills
(d) Lower level managers require low conceptual skills
(e) Lower level managers require high technical skills.
< Answer >
28. The structure is considered to be the best, based on the strategy of the firm. A landmark study in understanding the
choice of structure as a function of strategy is provided by Alfred Chandler. Over an extended time period, Chandler
studied large corporations and found a common strategy-structure sequence. Which of the following is the correct
sequence of the strategy structure?
I. Emergence of administrative problems; decline in performance.
II. Choice of new strategy.
III. A shift to an organization structure more in line with the strategy needs.
IV. Improved profitability and strategy execution.
(a) I, II, III, IV
(b) I, III, II, IV
(c) II, I, III, IV
(d) III, II, I, IV
(e) IV, I, II, III.
< Answer >
29. Although the global competitive position of many leading companies of the world has strengthened significantly in
recent years, there are still weaknesses that require correction. Which of the following are the steps in the technology
policy that should be taken by the government in order to meet the global competitive challenges?
I. Urgent national priority to be given to technology leadership.
II. Greater emphasis on R&D allocations to improve transfer of basic research to new products and process.
III. Coordination among government agencies in policy setting.
IV. Encouragement to industries by decreasing the tax credits for R&D.
V. Encouragement to industries to form consortia for developing new technology.
(a) Both (I) and (II) above
(b) (I), (II) and (IV) above
(c) (I), (III) and (V) above
(d) (I), (II), (III) and (V) above
(e) All (I), (II), (III), (IV) and (V) above.
< Answer >
30. Capital budgets outline specific expenditure for plants, equipment, machinery, inventories and other capital items
needed during the budget period. Which of the following is/are often developed to control the use of capital resources
along with the capital budget?
I. Cash budgets.
II. Cash flow statement.
III. Balance sheet.
(a) Only (I) above
(b) Both (I) and (II) above
(c) Both (I) and (III) above
(d) Both (II) and (III) above
(e) All (I), (II) and (III) above.

END OF SECTION A

Section B : Caselets (50 Marks)

• This section consists of questions with serial number 1 – 7.

 • Answer all questions.
• Marks are indicated against each question.
• Detailed explanations should form part of 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. “Xerox offers a wonderful example of taking knowledge management in too big a dose. The sales < Answer >
force reorganization killed a capability that Xerox had. When you do that, you fall into the same
trap that the advocates of business process re-engineering did in the past. It just becomes another
good reason to fire people.” In this context, explain turnaround.
(8 marks)

2. With respect to the caselet, explain the evolution of Xerox Corporation. < Answer >

(5 marks)

"Xerox offers a wonderful example of taking knowledge management in too big a dose. The sales force
reorganization killed a capability that Xerox had. When you do that, you fall into the same trap that the
advocates of business process re-engineering did in the past. It just becomes another good reason to fire
people."
Gabriel Szulanksi, Professor of management studies at Wharton Business School.
Xerox Corp. (Xerox), the world's largest photocopier manufacturer had been in trouble since the late 1990s. Between
April 1999, when G. Richard Thoman (Thoman) became CEO, and May 2000, Xerox lost $20 billion in stock
market value. When Thoman warned that there would be a decline in earnings for the third quarter of 1999, Xerox's
share price fell to $32.5 on October 8, 1999 from a high of $64 in May 1999. On December 10, 1999, when Thoman
said that earnings would decline further in the fourth-quarter, Xerox's share price dropped sharply again, falling to
one-third of May 1999's level.
Earnings did in fact fall in the last two quarters of 1999, and they continued to fall in the first and second quarters of
2000 too. After this, the company slipped into the red, posting quarterly losses of $167 million and $198 million in
the third and fourth quarters of 2000. On December 5, 2000, the stock price fell to $4.69. Xerox blamed the huge
salesforce reorganization, a weak economy in Brazil and customers' Y2K fears for the downward turn. But analysts
believed that internal issues such as bad debt provisions and accounting irregularities in its Mexico operations were
more to blame than the external factors, for Xerox's bad performance. On May 11, 2000, Thoman stepped down as
CEO and Paul Allaire (Allaire), who was his predecessor and the Chairman, took over again. Also in May 2000,
Anne Mulcahy (Mulcahy) who was the President of Xerox's General Market Operations was made Chief operating
officer (COO) and president. Together, Mulcahy and Allaire announced a turnaround strategy which included cutting
$1 billion in costs and raising upto $4 billion through the sale of assets. In 2001, Mulcahy became the CEO.
In 2002, Mulcahy became the chairperson of Xerox (while continuing as CEO). Palo Alto Research Center (PARC)
was also incorporated as a wholly owned subsidiary of Xerox. At the end of fiscal 2002, Xerox announced its first
profits after two years of heavy losses. The company made a net income of $91 million from total revenues of about
$15.85 billion. The restructuring efforts of the company also pared down the workforce, at the end of 2002; the
company had 67,800 employees worldwide compared to 98,000 in 1999. Xerox continued to make profits in 2003 as
well, it reported a net income of $360 million from revenues of $15.7 billion.
1906 was an important year in the history of Xerox. In that year, the Haloid Company (Haloid), which later
commercialized the process of photocopying, was set up. It was also the year in which Chester. F. Carlson (Carlson),
the inventor of photocopier was born. Carlson was a patent attorney and part-time researcher and inventor. His job at
the patent office in New York required him to make a large number of copies of important patents. Carlson, who was
arthritic, found this a painful and tedious process. This prompted him to conduct experiments in the area of
photoconductivity, through which multiple copies could be made with minimal effort.
Carlson experimented with 'electrophotography' in his kitchen and in 1938, applied for a patent for the process. He
made the first "photocopy" using a zinc plate covered with sulfur. The words "10-22-38 Astoria" were written on a
microscope slide, which was placed on top of more sulfur and under a bright light. After the slide was removed, a
mirror image of the words remained.
Carlson tried to sell his invention to some companies, but because the process was still rather underdeveloped, he
failed. Besides, at that time, multiple copies were made using carbon paper, and people did not feel any dire need for
an electronic machine. Between 1939 and 1944, Carlson was turned away by more than 20 companies, including
IBM and General Electric, who did not believe that there was a significant market for copiers.
In 1944, the Battelle Memorial Institute, a non-profit organization in Columbus, Ohio, contracted with Carlson to
refine his new process.(Carlson was the patent attorney for a client of Battelle, and sent a copy of the patent for the
company to review). Over the next few years, the institute conducted experiments to improve the process of electro-
photography. In 1947, Haloid approached Battelle to obtain a license to develop and market a copying machine
based on this technology. Haloid felt that the word electro-photography was too complicated and did not have good
recall value. After consulting a professor of classical languages in Ohio State University, Haloid and Carlson
changed the name of the process to 'xerography', derived from Greek words which meant 'dry-writing'.
Haloid decided to call the new copier machines 'Xerox' and in 1948, the word Xerox was trademarked. In 1949, the
first xerographic copier called 'Model A' was introduced in the market. The copier was reasonably successful. In
1953, Haloid established its first overseas subsidiary in Canada and, in 1956, Rank Xerox Limited, a joint venture
between the Haloid Company and Rank Organization PLC, a UK based company, was formed. With the success of
its first copiers in the market, in 1958, Haloid changed its name to Haloid Xerox Inc. In 1959, the company brought
out the first copier to use ordinary paper, which it called Xerox 914. The 914 was immensely successful and quickly
made millionaires of the investors who had supported the company in its long years of R&D. Haloid Xerox Inc. also
purchased the worldwide patents on the process of xerography from the Battelle institute.
The success of the 914 copiers prompted Haloid Xerox Inc. to change its name to Xerox Corporation (Xerox) in
1961. Later the same year, the shares of the company were listed on the New York Stock Exchange. In 1962, Fuji
Xerox was formed as a joint venture between Rank Xerox and Fuji Photo Film Co. Ltd.

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

3. With respect to the caselet, explain the journey of Tata tea from a plantation company to an < Answer >
international consumer products company.
(5 marks)

4. “Apart from the size of the deal, what made it particularly special was the fact that it was the first < Answer >
ever Leveraged Buy-Out (LBO) by any Indian company. This method of financing had never
been successfully attempted before by any Indian company.” In this light, explain the various
stages in an LBO. Also, explain the criticisms of LBO.
(9 marks)

5. Is the Tata’s move to acquire the UK heavyweight brand Tetley whose net worth was four times < Answer >
to that of Tata justified? Give reasons. Also, Explain the various factors that make a firm a
desirable candidate for acquisition and vulnerable to a takeover?
(9 marks)

"We were very clear that the burden on Tata tea should be such that the company would be able to absorb it. And it
would not materially affect Tata Tea's bottomline"
-N.A.Soonavala, Vice-Chairman, Tata Tea.

"It was important to make the right decision on the comprehensiveness of the transaction. The model has been driven
by existing and future earnings potential of the Tetley group and the resultant post-acquisition cash flows to
immediately justify the business and financial model"
-Rana Kapoor, MD, Rabo India Finance Ltd., Commenting on the deal.
In the summer of 2000, the Indian corporate fraternity witnessed to a pathbreaking achievement, never heard of or
seen before in the history of corporate India. In a landmark deal, heralding a new chapter in the Indian corporate
history, Tata Tea acquired the UK heavyweight brand Tetley for a staggering 271 million pounds.
This deal which happened to be the largest cross-border acquisition by any Indian company marked the culmination
of Tata Tea's strategy of pushing for aggressive growth and worldwide expansion. The acquisition of Tetley
pitchforked Tata Tea into a position where it could rub shoulders with global behemoths like Unilever and Lawrie.
The acquisition of Tetley made Tata Tea the second biggest tea company in the world. (The first being Unilever,
owner of BrookeBond and Lipton) Moreover it also went through a metamorphosis from a plantation company to an
international consumer products company.
Ratan Tata, Chairman, Tata group said, "It is a great signal to global industry. It is a momentous occasion as an
Indian company has been able to acquire a brand and an overseas company."
Apart from the size of the deal, what made it particularly special was the fact that it was the first ever leveraged buy-
out (LBO) by any Indian company. This method of financing had never been successfully attempted before by any
Indian company. Tetley's price tag of 271 mn pounds (US $450 m) was more than four times the net worth of Tata
tea which stood at US $ 114 m. This David & Goliath aspect was what made the entire transaction so unusual. What
made it possible was the financing mechanism of LBO. This mechanism allowed the acquirer (Tata Tea) to minimize
its cash outlay in making the purchase.
Tata Tea was incorporated in 1962 as Tata Finlay Limited, and commenced business in 1963. The company, in
collaboration with Tata Finlay & Company, Glasgow, UK, initially set up an instant tea factory at Munnar (Kerala)
and a blending/packaging unit in Bangalore.
Over the years, the company expanded its operations and also acquired tea plantations. In 1976, the company
acquired Sterling Tea companies from James Finlay & Company for Rs 115 million, using Rs 19.8 million of equity
and Rs. 95.2 million of unsecured loans at 5% per annum interest. In 1982, Tata Industries Limited bought out the
entire stake of James Finlay & Company in the joint venture, Tata Finlay Ltd. In 1983, the company was renamed
Tata Tea Limited.
In the mid 1980s, to offset the erratic fluctuations in commodity prices, Tata Tea felt it necessary to enter the
branded tea market.
In May 1984, the company revolutionized the value-added tea market in India by launching Kanan Devan tea in
polypack. In 1984, the company set up a research and development center at Munnar, Kerala. In 1986, it launched
Tata Tea Dust in Maharashtra. In 1988, the Tata Tea Leaf was launched in Madhya Pradesh. In 1989, Tata Tea
bought a 52% stake in Karnataka-based Consolidated Coffee Limited-the largest coffee plantation in Asia, in order
to expand its coffee business. In 1991, Tata Tea formed a joint venture with Tetley International, UK, to market its
branded tea abroad.
In 1992, Tata Tea took a 9.5% stake in Asian Coffee-the Hyderabad based 100% export oriented unit known for its
instant coffee, through an open offer. This offer was the first of its kind in Indian corporate history. Later, in 1994,
Tata Tea increased its stake in Asian Coffee to 64.5% through another open offer. This helped it to consolidate its
position in the coffee industry.
In 1995, Tata Tea unveiled a massive physical upgradation program at a cost of Rs 1.6 billion. The upgradation
program, spread over four years, was meant to improve its production facilities. In the same year, the company,
along with a Sri Lankan partner, bid successfully for a group of 20 tea estates in the famous Watawala plantations in
Sri Lanka.

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

6. To supply fuel at a low price, when the crude oil prices are increasing at a much higher rate is < Answer >
always a very challenging job. In order to supply customers at lower cost and ensure profitable
return, at the same time maintaining its market leader position, which strategy can Chevron
adopt?
(7 mars)

7. Since crude oil is a commodity traded on a world market, prices fluctuate daily for many reasons, < Answer >
and Chevron Texaco carefully monitors these changes. In this light, discuss the importance of
planning under uncertainty in an organization.
(7 marks)

Based in San Ramon, Calif., Chevron Products Co. is one of the largest refiners and marketers of petroleum products
in the United States. With six refineries and 7,900 retail outlets, it serves customers in 29 states, primarily in the
West, Southwest and South.
With one of the strongest brands in the fuels and convenience business, Chevron Product’s retail network is among
the market leaders in roughly 17 states in USA. The company’s proprietary and patented gasoline additive
“Techron” is widely recognized as providing unbeatable intake system performance, while also not contributing to
harmful combustion chamber deposits in automobile engines. Moreover, with self-serve pumps that use “Fast Pay”
technology, computerized point-of-sale terminals and a satellite communication network, Chevron’s facilities are
designed for maximum consumer convenience.
Chevron Products Co. has watched the cost of its gasoline (petrol) rise in the first months of 2003. In general, the
forces of supply, demand and competition have affected gasoline prices in most regions. Fundamentally, though, the
greatest single factor affecting gasoline prices is the cost of crude oil. Beginning in 2002, crude oil prices rose for a
number of reasons, including
• Concern over the possibility of a war in Iraq and what affect that might have on world crude supplies;
• The effects of a strike in Venezuela, the world’s eighth-largest crude oil producer;
• A colder than usual winter in the Eastern United States and Europe has led to greater demand for heating oil.
Market prices of gasoline are determined by supply, demand and competition. And, this year, a confluence of
factors, a rise in crude oil prices has led to corresponding hikes to the price at the pump. Prices have moved past $2 a
gallon ($.52 a liter) in some parts of the United States – the largest market for gasoline, consuming 9 million barrels
of gasoline a day, 44 percent of the world’s total consumption.
Cost of crude:
Crude oil costs have risen to near historic levels in the past few months, peaking at $39.99 per barrel on February 27
– up from $22 a year earlier. Since then, prices have decreased, dropping below $30 a barrel in late March – a
fluctuation of more than 25 percent in less than a month. When the cost of crude and the key raw material for
producing gasoline goes up, the cost to the refiner that makes the gasoline also increases.
Venezuelan Crisis:
A two-month general strike in Venezuela erased 2.3 million barrels per day in exports. The loss particularly affected
the United States market, which imports 1.4 million barrels per day from Venezuela, the fourth-largest supplier of oil
to the United States. The strike ended February 4, but the recovery of production to pre-strike levels is expected to
take some time.
The loss of Venezuelan crude on the world market compounded the supply issues caused by falling output among
Organization of Petroleum Exporting Countries (OPEC) members that began in early 2002 when demand was low
and supply abundant. OPEC exports to the United States total 4.6 million barrels per day, 40 percent of U.S. imports.
OPEC nations in the Middle East – primarily Saudi Arabia – committed to increase production to make up the
shortfall, but those shipments typically take about 40 days to reach the United States.
Adding to the challenge, the crude coming from the Middle East to make up the difference is a heavy, high-sulfur
grade and not all refineries are capable of processing that stock. In some cases, it must be blended with a lighter
crude that is easier to refine into gasoline. As a result, prices for light crude, such as West Texas Intermediate,
increased more steeply than other types of crude.
Weather Factor:
Meanwhile, unusually cold temperatures on both sides of the Atlantic this winter resulted in a greater need for
heating oil or distillates. When producing more distillates, refiners, in turn, must reduce the amount of gasoline they
can manufacture. In order to meet the heating needs this winter, refiners concentrated their production on distillates,
reducing gasoline production, even though demand for gasoline continued to be seasonally strong.
Because of the heavy demand for heating oil during an abnormally cold winter, heating oil inventories in early
March had dropped 18 percent from the previous year. In the North Eastern U.S., however, where heating oil is the
predominant heating fuel, supplies were down 39 percent from the same time a year ago.
The demand for heating oil continued to be strong through January and February when the industry typically
experiences a heavier maintenance cycle, which reduces output. Maintenance at refineries throughout the world is
routinely scheduled years in advance, and it usually occurs during these late winter months when demand for
distillate begins to tail off and gasoline demand tends to be lower than during the summer driving season.
Inventory Levels:
Because of the additional demands for heating oil, refiners drew down their supplies of crude oil on hand.
Worldwide, industry stocks of crude oil dropped 4 percent in December from the previous year, according to the
International Energy Agency (IEA). Inventories at U.S. refineries dropped to an especially low level – 274 million
barrels in late February – 47 percent off from the previous year.
War:
In October 1990, following the Iraqi invasion of Kuwait, oil prices climbed to more than $41 a barrel, in part because
of fears of a shortage of crude oil. The current war in Iraq has also affected oil prices. In the months leading up to the
 current military action, concerns about potential conflict, on top of the decrease in Venezuelan supply and weather-
related demands, led to the crude price increases described above. Since the beginning of military action on March
19, however, crude prices have fallen as concerns lessened over the possible destruction of Iraqi oil wells and the
potential effect of the war on other producers in the region. But the war continuing on the second week, still there are
lot of uncertainties in the global oil markets.
Prices have begun to rise, however, with news that civil unrest in Nigeria has eliminated more than 800,000 barrels
per day of production in the Niger Delta.
Since crude oil is a commodity traded on a world market, prices fluctuate daily for many reasons, and Chevron
Texaco carefully monitors these changes.

END OF SECTION B

Section C : Applied Theory (20 Marks)

• This section consists of 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. The chief executive officer (CEO) or the Managing Director is the person responsible for the < Answer >
functioning of the entire organization. The CEO has to play crucial and multiple roles in
formulating and implementing mission, objectives, policies and strategies. In this context, explain
the multiple roles of a CEO.
(10 marks)

9. What are the various factors that would be the focus of ‘internal factors’? Also, explain the < Answer >
process for evaluating internal factors.
(10 marks)

END OF SECTION C

END OF QUESTION PAPER

Suggested Answers
Business Policy & Strategy (MB311) : January 2007
Section A : Basic Concepts
1. Answer : (c) < TOP >

Reason: During the implementation of strategy, General Manager represents an important source for
clarification, guidance and adjustment.
2. Answer : (d) < TOP >

Reason: Trigger points are specific deviations in key forecasts of industry and are set to alert industry.
3. Answer : (a) < TOP >

Reason: Option (a), formal procedures not clans rely on adjusting rules, procedures, guidelines, budgets and
directives. All the other options are true regarding clans. Hence, option(a) is the answer.
4. Answer : (c) < TOP >

Reason: The control function includes three procedures they are :

• Measuring the actual performance.
• Comparing actual performance to standards.
• Taking corrective action to ensure that planned events actually occur.
Hence the option (c) is the answer.
5. Answer : (c) < TOP >

Reason: The criteria of feasibility assess the practical implementation and working of strategy. The following
questions need to be assessed in the evaluation stage
• Does the company have sufficient financial resources to implement the strategy?
• Is the company capable of performing at the required level?
• Can the necessary market position can be achieved?
• Is the company capable of coping with competition effectively?
• Will the technology be available to compete effectively?
• Can the company ensure that the required managerial and operative skills will be available?
• Is the company capable of procuring the necessary materials and services?
Hence the option (c) is the correct answer.
6. Answer : (b) < TOP >

Reason: A going-private transaction involves a small group of investors purchasing the entire equity interest in a
public company. When the members of the incumbent management group initiates the transaction, it is
known as management buy-out.
7. Answer : (b) < TOP >

Reason: During the second merger wave, more emphasis was on achieving economies of scale by the mass
industrial production of consumer goods.
8. Answer : (e) < TOP >

Reason: Variable budget is a series of different budgets based on different levels of output.
9. Answer : (e) < TOP >

Reason: Exporting through independent intermediaries to various countries is indirect exporting. The export
management company manages export for a fee.
10. Answer : (c) < TOP >

Reason : The executive staff budget indicates special expense accounts, compensation, and human resources
requirements for higher levels of the organization.
11. Answer : (c) < TOP >

Reason : A functional strategy is more specific than a grand strategy. Functional strategies are restricted to the
company’s subunits, carrying out certain functional activities in key areas, in order to omplement the
grand strategy. The general direction is provided by the grand strategy. Functional strategies give
specific guidance to managers responsible for completing the objectives sucessfully. Such strategies are
meant to ensure that managers meet their objectives in the best possible way.
12. Answer : (d) < TOP >

Reason: A firm derives its value from value addition activities such as designing, producing, marketing,
delivering, and supporting activities. Efficiency in one or more than one of theses can lend either cost
advantage or differentiation advantage to the firm. A firm can gain cost advantage from low-cost
physical distribution system, superior sales force utilization, or an efficient assembly process.
Similarly, differentiation advantage can be gained by procurring high quality raw materials, having a
superior product design, or a responsiv order entery system.
13. Answer : (e) < TOP >

Reason: The hierarchy of objectives is as follows:

1. Social economic purpose
2. Mission
3. Overall objectives of the organization
4. More specific overall objectives
5. Division objectives
6. Department objectives
7. Individual objectives.
Hence option(e) is the correct sequence of the hierarchy of objectives.
14. Answer : (c) < TOP >

Reason: Grand strategy is a statement of means that indicates the method to be used to achieve the company’s
objectives. This strategy is a unique package of long-term strategies.
15. Answer : (b) < TOP >

Reason: An analysis of cost dynamics enables a firm to forecast the change in the cost drivers of value activities
and which value activity should increase or decrease in absolute or in relative cost importance .
16. Answer : (a) 1. <
TOP >
Reason: The key considerations of capital acquisition are as follows:
• Cost of capital
• Proportion of short and long term debt
• Balance between internal and external funding
• Appropriate risk and ownership
• Level and forms of leasing.
Hence the option (a) is the correct answer.
17. Answer : (a) < TOP >

Reason : To extend business by sharing investments is a motive of a joint venture not that of a merger. All other
statements are true about the mergers. Hence option (a) is the answer.
18. Answer : (d) < TOP >

Reason: Existence of alternative suppliers, buyers and product differentiation leads to reduction in rivalry among
existing firms.Access to distribution channels is a cause of rivalry among existing firms as the channels
are limited and all the players are eying for the given distribution channels. Amount of fixed costs also
leads to rivalry among existing firms as the proportion of fixed costs in the cost structure (i.e operating
leverage) decides the responsiveness of the firms to business risks.
19. Answer : (d) < TOP >

Reason: In the fourth merger movement, more emphasis was on creating synergies and also technology play
an important role during the period
20. Answer : (d) < TOP >

Reason: A firm can manage around the culture in the following ways:
• Create a separate firm or division.
• Use new task forces, teams or program coordinators.
• Sell out a successful idea.
• Sub-contract.
• Bring in out side expertise.
Thus option (d) is the answer.
21. Answer : (c) < TOP >

Reason: Coordination is a must in the organizations for a smooth functioning. But if the coordination is lacking
in the large functional structure across the organization, the company’s performance will get disturbed.
This problem can be tackled by:
• Breaking the firm into smaller business units that can focus on particular products, or markets.
• Introducing staff who are responsible for coordinating activities across the functions.
• Formalizing the role of the product/project manager in a matrix structure.
Thus the option (c) is the correct answer.
< TOP >
22. Answer : (b)
Reason : Defensive centralization deals with retaining all decision making authority at the top management level.
The top management of a not-for-profit organization must always be alert to the sponsors' view of an
organizational activity. Answers a, c, d, e are incorrect since they do not pertain to retention of all
decision making authority at the top management level.
< TOP >
23. Answer : (a)
Reason: A company with a ethnocentric orientation believes that the values and priorities of the parent
organization should guide the strategic decision making of all its operations.
24. Answer : (d) < TOP >

Reason : The statements, Leadership style also relates to the role of planning and the importance of incremental
change in strategic management and in relatively stable environments both entrepreneurial leadership
style and conservative leadership style can be appropriate and successful.
25. Answer : (a) < TOP >

Reason : Strategy formulation refers to the development of long term plans for managing opportunities and
threats in the external environment and for utilizing the strengths and overcoming the weaknesses
within the organization.
26. Answer : (d) < TOP >

Reason: Sri Ganesh Ltd. is an automobile distributor, which has its operating units in all the major cities in the
country. These units share the firm’s infrastructure, procurement, and other support activities. This is an
example of Geographic scope.
27. Answer : (a) < TOP >

Reason : Degree of skills requirement for the General Managers at different levels is as follows:
General Management Degree of Skills Requirement
level Conceptual skills Human Relations Skills Technical skills
Top Level Managers High Moderate Low
Middle Level Managers Moderate High Moderate
Lower Level Managers Low Moderate High
28. Answer : (c) < TOP >

Reason: The structure is considered to be the best, based on the strategy of the firm. A landmark study in
understanding the choice of structure as a function of strategy is provided by Alfred Chandler. Over an
extended time period, Chandler studied large corporations and found a common strategy-structure
sequence.
1. Choice of new strategy.
2. Emergence of administrative problems; decline in performance.
3. A shift to an organization structure more in line with the strategy needs.
4. Improved profitability and strategy execution.
Hence option(c) is the correct sequence.
29. Answer : (d) < TOP >

Reason: The technology policy, which the government has to take in order to meet the global competitive
challenges are:
• Urgent national priority to be given to technology leadership
• greater emphasis on R&D allocations to improve transfer of basic research to new products
and process
• Better coordination among government agencies in policy setting and allocation of funds to R&D
• Increased tax credits for R&D investments in industry
• Encouragement to industries to form consortia for developing new technology
Thus option (d) is the answer.
30. Answer : (c) < TOP >

Reason : Capital budgets outline specific expenditure for plants, equipment, machinery, inventories and other
capital items needed during the budget period. Cash budgets and balance sheets are often developed to
control the use of capital resources along with the capital budget.

Section B : Caselets
1. “Xerox offers a wonderful example of taking knowledge management in too big a dose. The sales force reorganization killed a
capability that Xerox had. When you do that, you fall into the same trap that the advocates of business process re-
engineering did in the past. It just becomes another good reason to fire people.” Xerox had to fire people, because it wanted to
turnaround its business. A turnaround occurs when a firm perseveres through an existing-threatening performance decline ;ends
the threat with a combination of strategies, system, skills and capabilities; and achieve sustainable performance recovery. The
obverse of performance recovery is failure and eventual death.
Xerox Corp. (Xerox), the world's largest photocopier manufacturer had been in trouble since the late 1990s. Between April
1999, when G. Richard Thoman (Thoman) became CEO, and May 2000, Xerox lost $20 billion in stock market value. When
Thoman warned that there would be a decline in earnings for the third quarter of 1999, Xerox's share price fell to $32.5 on
October 8, 1999 from a high of $64 in May 1999. On December 10, 1999, when Thoman said that earnings would decline
further in the fourth-quarter, Xerox's share price dropped sharply again, falling to one-third of May 1999's level.
Earnings did in fact fall in the last two quarters of 1999, and they continued to fall in the first and second quarters of 2000 too.
After this, the company slipped into the red, posting quarterly losses of $167 million and $198 million in the third and fourth
quarters of 2000. On December 5, 2000, the stock price fell to $4.69. Xerox blamed the huge salesforce reorganization, a weak
economy in Brazil and customers' Y2K fears for the downward turn. But analysts believed that internal issues such as bad debt
provisions and accounting irregularities in its Mexico operations were more to blame than the external factors, for Xerox's bad
performance. On May 11, 2000, Thoman stepped down as CEO and Paul Allaire (Allaire), who was his predecessor and the
Chairman, took over again. Also in May 2000, Anne Mulcahy (Mulcahy) who was the President of Xerox's General Market
Operations was made Chief operating officer (COO) and president. Together, Mulcahy and Allaire announced a turnaround
strategy which included cutting $1 billion in costs and raising upto $4 billion through the sale of assets. In 2001, Mulcahy
became the CEO.
In 2002, Mulcahy became the chairperson of Xerox (while continuing as CEO). Palo Alto Research Center (PARC) was also
incorporated as a wholly owned subsidiary of Xerox. At the end of fiscal 2002, Xerox announced its first profits after two years
of heavy losses. The company made a net income of $91 million from total revenues of about $15.85 billion. The restructuring
efforts of the company also pared down the workforce, at the end of 2002; the company had 67,800 employees worldwide
compared to 98,000 in 1999. Xerox continued to make profits in 2003 as well, it reported a net income of $360 million from
revenues of $15.7 billion.
< TOP >
2. Evolution of Xerox Corporation
1906 was an important year in the history of Xerox. In that year, the Haloid Company (Haloid), which later commercialized the
process of photocopying, was set up. It was also the year in which Chester. F. Carlson (Carlson), the inventor of photocopier was
born. Carlson was a patent attorney and part-time researcher and inventor. His job at the patent office in New York required him
to make a large number of copies of important patents. Carlson, who was arthritic, found this a painful and tedious process. This
prompted him to conduct experiments in the area of photoconductivity, through which multiple copies could be made with
minimal effort.
Carlson experimented with 'electrophotography' in his kitchen and in 1938, applied for a patent for the process. He made the first
"photocopy" using a zinc plate covered with sulfur. The words "10-22-38 Astoria" were written on a microscope slide, which
was placed on top of more sulfur and under a bright light. After the slide was removed, a mirror image of the words remained.
Carlson tried to sell his invention to some companies, but because the process was still rather underdeveloped, he failed.
Besides, at that time, multiple copies were made using carbon paper, and people did not feel any dire need for an electronic
 machine. Between 1939 and 1944, Carlson was turned away by more than 20 companies, including IBM and General Electric,
who did not believe that there was a significant market for copiers. In 1944, the Battelle Memorial Institute, a non-profit
organization in Columbus, Ohio, contracted with Carlson to refine his new process. (Carlson was the patent attorney for a client
of Battelle, and sent a copy of the patent for the company to review). Over the next few years, the institute conducted
experiments to improve the process of electro-photography. In 1947, Haloid approached Battelle to obtain a license to develop
and market a copying machine based on this technology. Haloid felt that the word electro-photography was too complicated and
did not have good recall value. After consulting a professor of classical languages in Ohio State University, Haloid and Carlson
changed the name of the process to 'xerography', derived from Greek words which meant 'dry-writing'. Haloid decided to call the
new copier machines 'Xerox' and in 1948, the word Xerox was trademarked. In 1949, the first xerographic copier called 'Model
A' was introduced in the market. The copier was reasonably successful. In 1953, Haloid established its first overseas subsidiary
in Canada and, in 1956, Rank Xerox Limited, a joint venture between the Haloid Company and Rank Organization PLC, a UK
based company, was formed. With the success of its first copiers in the market, in 1958, Haloid changed its name to Haloid
Xerox Inc. In 1959, the company brought out the first copier to use ordinary paper, which it called Xerox 914. The 914 was
immensely successful and quickly made millionaires of the investors who had supported the company in its long years of R&D.
Haloid Xerox Inc. also purchased the worldwide patents on the process of xerography from the Battelle institute. The success of
the 914 copiers prompted Haloid Xerox Inc. to change its name to Xerox Corporation (Xerox) in 1961. Later the same year, the
shares of the company were listed on the New York Stock Exchange. In 1962, Fuji Xerox was formed as a joint venture between
Rank Xerox and Fuji Photo Film Co Ltd.
< TOP >
3. Tata Tea was incorporated in 1962 as Tata Finlay Limited, and commenced business in 1963. The company, in collaboration
with Tata Finlay & Company, Glasgow, UK, initially set up an instant tea factory at Munnar (Kerala) and a blending/packaging
unit in Bangalore.
Over the years, the company expanded its operations and also acquired tea plantations. In 1976, the company acquired Sterling
Tea companies from James Finlay & Company for Rs 115 million, using Rs 19.8 million of equity and Rs. 95.2 million of
unsecured loans at 5% per annum interest. In 1982, Tata Industries Limited bought out the entire stake of James Finlay &
Company in the joint venture, Tata Finlay Ltd. In 1983, the company was renamed Tata Tea Limited. In the mid 1980s, to offset
the erratic fluctuations in commodity prices, Tata Tea felt it necessary to enter the branded tea market. In May 1984, the
company revolutionized the value-added tea market in India by launching Kanan Devan tea in polypack. In 1984, the company
set up a research and development center at Munnar, Kerala. In 1986, it launched Tata Tea Dust in Maharashtra. In 1988, the
Tata Tea Leaf was launched in Madhya Pradesh. In 1989, Tata Tea bought a 52% stake in Karnataka-based Consolidated Coffee
Limited-the largest coffee plantation in Asia, in order to expand its coffee business. In 1991, Tata Tea formed a joint venture
with Tetley International, UK, to market its branded tea abroad. In 1992, Tata Tea took a 9.5% stake in Asian Coffee-the
Hyderabad based 100% export oriented unit known for its instant coffee, through an open offer. This offer was the first of its
kind in Indian corporate history. Later, in 1994, Tata Tea increased its stake in Asian Coffee to 64.5% through another open
offer. This helped it to consolidate its position in the coffee industry. In 1995, Tata Tea unveiled a massive physical upgradation
program at a cost of Rs 1.6 billion. The upgradation program, spread over four years, was meant to improve its production
facilities. In the same year, the company, along with a Sri Lankan partner, bid successfully for a group of 20 tea estates in the
famous Watawala plantations in Sri Lanka.
< TOP >
4. Stages in an LBO
There are four distinct but related stages of in the process of an LBO:
• Arrangement of finance
• Taking the company private
• Restructuring
• Reverse LBO
Arrangement of finance
Raising the finance and establishing the incentive system for the management is the first step in any LBO operation. Normally 10
percent of the financing is undertaken by the LBO specialist, while the rest of the financing comes from merchant bankers,
venture capitalists and commercial banks. Other forms of financing include borrowing from banks against the company’s assets,
or borrowing through private placement or public offering of junk bonds which give very high yields but also carry greater risk.
Taking the company private
The shares of the target company are purchased by the buy-out specialist, who takes the company private. The buy-out specialist
may also purchase all the assets through the asset purchasing option.
Restructuring
The new management tries to enhance the profits and cash flow by cutting down on operating costs, or changing the marketing
strategy, etc. The new management may adopt any of the following policies:
• Consolidating and reorganizing the existing production facilities.
• Changing the product mix, which includes changing the quality of the product and policies relating to customer service
 and pricing.
• Reducing excess employment.
• Phasing out employees and reducing research and development costs, and costs involved in purchasing new plants and
equipment, as long as there is need to redeem the acquired debts.
• Getting better terms from suppliers.
• Selling off parts of the corporation or disposing off inventory to reduce debts.
However, even while implementing restructuring activities, approval should continue to be given to genuine requirements of
capital. A firm has to incur expenses on R&D and on new plants and equipment at some point; therefore any restructuring
activity should also look after long term objectives.
Reverse LBO
In reverse LBO, the investor group may take the company public again if the goals see by the LBO groups have already been
achieved. The purpose of this exercise is to create liquidity for the existing shareholders.
Criticisms of LBO
Despite the success of LBOs as a strategy to safeguard firms from hostile takeovers, it is criticized on many grounds:
• A major chunk of the funds available in the market are borrowed for financial restructuring of the firm, resulting in an
increase in the cost of debt.
• An LBO makes it more costly and difficult for other firms to borrow funds from the market.
• After the LBO, as firms streamline their operations, many employees lose their jobs.
Since the new management in the post-buyout scenario concentrates on short-term goals such as reduction of debt-burden, long
term investments on research and development, new plant and equipment are not made, hampering the growth of the firm in the
long run.
< TOP >

5. Yes, Tata’s move to acquire the UK heavyweight brand Tetley whose net worth was four times to that of Tata justified. The
various reasons to supoort this are as follows:
• By acquiring tetley Tata can easily enter in to different markets where it has no presence.
• By acquiring it had become the worlds second biggest tea company overnight.
• By acquring it, Tata has cut short a most challenging Competitor.
• By Acquiring it, Tata has won the fame of becoming the first Indian company to involve in a largest cross broader
acquisition.
• The acquisition has helped Tata to expand its Tata group of company’s empire.
• For the acquisition, funds was not at all a problem as it had a deep pockets.
The factors that make a firm a diserable candidate for acquisition and vulnerable to a takeover include:
• A low stock price compared to asset replacement cost or their potential earning power.
• A high liquid balance shhet with large amounts of excess cash, a valuable securities portfolio, and a significant unused
debt capacity.
• Good cash flow relative to current stock prices.
• Subsidiaries or properties that can be sold off without significantly improving the cash flow.
• Relatively small stock holdings under the control of incumbent management.
< TOP >

6. From the beginning, Chevron had given utmost importance to Customer Service. The company’s proprietary and patented
gasoline additive “Techron” and self-serve pumps that use “Fast Pay” technology, computerized point-of-sale terminals and the
usage of satellite communication network, Chevron’s have always designed facilities for maximizing consumer convenience.
Chevron should start new oil explorations in countries like Central Asia and Russia and should use pioneering advanced
exploration technologies in the existing oil rigs operated by Chevron to generate more crude oil. It should also invest in oil
refiners that can hold greater gasoline stock and should weed out least –profitable service station .As prices of crude oil is key
determinant, the exploration and development cost should be kept at low so that profitability is maintained and gasoline is
supplied at decreased cost to customer. Planning helps the organization in oil industries to cope up with changing environment,
ex: in late 2002 there was a supply glut in the crude oil market but within few months because of Venezuelan Crisis oil,
weather factor and anticipation of Iraq war prices have risen again. So overall proper planning helps the oil companies to handle
the rapidly changing dynamic environment in more prudential way.
< TOP >
7. Planning is inevitable in any type of organization. In Oil companies especially it bridges the gap between the present and future.
Planning enables the management of oil companies to understand the requirements of the market and process accordingly. These
 help the oil companies to reduce the degree of uncertainty and risk while making major strategic decisions.
Importance of planning under uncertainty in oil companies:
• Determines the future destination of the oil companies: The war in Iraq has given Chevron a lot of opportunity in Drilling
and oil exploration.
• Planning makes activities to be pursued by employee’s of oil companies meaningful.
• Planning in the oil industry helps companies in economizing the operation.
• It reduces the risk with regard to uncertainty faced by oil companies.
• Planning discovers new ideas and opportunities for the oil companies.
• It facilitates coordination between the oil exploration and retailing.
• Facilitates Efficient Control.
< TOP >
Section C: Applied Theory
8. THE CHIEF EXECUTIVE OFFICER AND STRATEGIC MANAGEMENT
The chief executive officer (CEO) or the Managing Director is the person responsible for the functioning of the entire
organization. The CEO has to play crucial and multiple roles in formulating and implementing mission objectives policies and
strategies. His multiple roles include:
Organization Builder
The CEO has the responsibility for organization building through organizational change. But in general people resist change
due to reasons such as misunderstanding and lack of trust low tolerance for change etc. The CEO can deal with resistance
through
• Education and communication
• Participation and involvement
• Negotiation and agreement
• Manipulation and cooperation
• Explicit and implicit coercion
Organization Leader
The CEO must have a base for leadership. The CEO should have leadership skills such as:
Favorable attitude towards those in positions of authority such as supervisors
Desire to assist oneself to take charge
Desire to behave in a distinctive and different way
Sense of responsibility in carrying out routine duties associated with managerial work.
Desire to engage in competition.
Success Sharing by CEO
Monitoring sponsoring and helping others is an important activity of CEO. The CEO has to help the organization staff by
training coaching assisting informing writing letters of correspondence etc.
Executive Qualities
• Personalities of successful CEOs tend to vary but they have some commonalties such as:
• Knowing the strengths and spend most of their time in performing those activities in which they are strong.
• Managing time effectively.
• CEOs are intuitors in the sense that they deal well with ideas theories and innovations.
• He is generally an organized thinker.
• Motivated by power and ability to make things happen.
• Comfortable with a wide range of people but prefers casual associates.
• Has a high energy level.
Personal Dimensions for Selection of CEO
Various criteria have to be taken into consideration while selecting CEO. Some of these criteria are:
1. Capacity to abstract, conceptualize organize and integrate data into a coherent frame of reference
2. Sensitivity, ability to perceive subtleness of others feelings.
3. Articulateness, making a good impression.
 4. Sense of humor.
5. Vision clear about his/her career as well as where the organization should go.
6. Personal organization and having a good sense of time.
7. Adaptability, managing stress well.
8. Stamina having physical and mental energy.
9. Maturity.
10. Involvement sees oneself as a participating member of the organization.
11. Achievement, oriented towards organization’s success rather than personal success.
12. Authority has the feeling that he/she is the boss.
13. Judgement, knows when to act.
Role of CEO in Strategic Management
Among all the strategists CEO is the key person in the organization. Being at the top most position, he integrates functional areas
of manager and visualizes the total organization. He foresees external environment and its impact on business. He evaluates the
present mission, policies, and strategies against the future changes and reformulates them. Further new policies and strategies are
formulated as and when changes in the environment take place. Also, the CEO provides information to the board regarding
strategy formulation. Moreover he advises the board to continue the present strategy or formulate a new strategy. Thus the CEO
guides the senior managers in formulating implementing evaluating and reformulating strategies.
< TOP >

9. The various factors that would be the focus of internal factors are:
• Marketing.
• Finance and Accounting.
• Productivity/Operational/Technical.
• Personnel.
• Organization of General Management.
QUANTITATIVE APPROACHES FOR EVALUATING INTERNAL FACTORS
There are various quantitative tools for evaluating the internal capabilities of a firm. For evaluating financial, marketing and
operating factors, ratio analysis is a useful tool. The firm’s balance sheet and income statement are important sources from
which meaningful ratios can be derived. The process that helps in guiding internal analysis is described below.
1. In the first step, managers audit the key aspects of the business operation. Ion addition, the target key areas are assessed.
Generally, the targeted areas are central to the firm’s strategic decision and are called as “strategic internal factors”.
2. In the second step, managers evaluate the firms’ status by comparing the current condition of the strategic internal factors
with the past capabilities of the firm. Through this comparison, managers find out how much improvement has been
achieved. They also find out whether each key factor presents a favorable or unfavorable situation.
3. The third step is the most crucial one. In this step, managers seek some basis for comparison that is linked to key industry
or product/market conditions. This comparison accurately determines whether the company’s condition on a particular
factor represents a potential strength or weakness. Managers use three perspectives when making such a comparison.
• Requirements for success across different product/market stages of evolution
• What competitors are capable of doing
• Perceived key requirements for success in the market/industry segments in which they compete.
The results of this step determine whether key strategic internal factors are:
A. Competitive Advantages: If the key strategic internal factors lead to competitive advantages, then they provide an
edge over competitors
B. Basic Business Requirements: If the key strategic internal factors are basic business requirements, then they are
important capabilities for the firm. But these internal factors will also be typical for every viable competitor.
C. Key Vulnerabilities: If the key strategic internal factors lead to vulnerabilities, then the company lacks the necessary
skill, knowledge or resources to compete effectively.
4. The final step in internal analysis is to provide the results. Sometimes, in this step, the company profile is used as input into
the strategic management process.
The process of internal analysis, when matched with the results of management’s environmental analysis and mission priorities,
provides the critical foundation for strategy formulation. The managers are in a better position to formulate effective strategies
when the internal analysis is accurate, thorough and timely. < TOP >
< TOP OF THE DOCUMENT >