SPM Practice Kit

CFAP 3
STRATEGY AND
PERFORMANCE MEASUREMENT
PRACTICE KIT
The School of Business Education

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 SPM Practice Kit

Table of Contents
Chapter 01: Foundations of Strategy ..........................................................................................................13

Questions .......................................................................................................................................................13
1. ANSAR (PRIVATE) LIMITED (WINTER 2018 – Q.3) ............................................................................ 13
2. HI-TECH LIMITED (SUMMER 2018 – Q.7C) ..................................................................................... 13
3. BEST LIMITED (SUMMER 2017 – Q.1A) .......................................................................................... 13
4. FUNCTIONS OF STRATEGIC PLANNING (SUMMER 2016 – Q.4)............................................................ 13
5. STRATEGIC MANAGEMENT PROCESS (SUMMER 2014 – Q.2) ............................................................. 14
6. ZEST PHARMACEUTICAL COMPANY LIMITED (WINTER 2013 – Q.5)..................................................... 14
7. EAST-WEST CENTRE OF DIABETES................................................................................................... 14
Foundation of Strategy ............................................................................................................................... 15

Answers .......................................................................................................................................................... 15

1. ANSAR (PRIVATE) LIMITED (WINTER 2018 – Q.3) ............................................................................ 15

2. HI-TECH LIMITED (SUMMER 2018 – Q.7C) ..................................................................................... 15
3. BEST LIMITED (SUMMER 2017 – Q.1 A) ......................................................................................... 15
4. FUNCTIONS OF STRATEGIC PLANNING (SUMMER 2016 – Q.4)............................................................ 16
5. STRATEGIC MANAGEMENT PROCESS (SUMMER 2014 – Q.2) ............................................................. 16
6. ZEST PHARMACEUTICAL COMPANY LIMITED (WINTER 2013 – Q.5)..................................................... 16
7. EAST-WEST CENTRE OF DIABETES ........................................................................................... 17
Chapter 02: Business Environment ..............................................................................................................18

Questions .......................................................................................................................................................18
1. GOOD FOOD RESTAURANTS (SUMMER 2016 – Q.2)......................................................................... 18
2. STRATEGY EVALUATION (SUMMER 2015 – Q.2) .............................................................................. 18
3. NETWORK SOLUTIONS – PESTEL ANALYSIS ..................................................................................... 18
4. GERTONIA (WINTER 2019 – Q.4) .................................................................................................. 20
5. AVOCADO DELIGHT (SUMMER 2021 - Q.6) ..................................................................................... 21
Answers .......................................................................................................................................................... 22
1. GOOD FOOD RESTAURANTS (SUMMER 2016 – Q.2)......................................................................... 22
2. STRATEGY EVALUATION (SUMMER 2015 – Q.2) .............................................................................. 23
3. NETWORK SOLUTIONS – PESTEL ANALYSIS ..................................................................................... 23
4. GERTONIA (WINTER 2019 - Q.4)................................................................................................... 27
5. AVOCADO (SUMMER 2021 - Q.6) ................................................................................................. 29
Chapter 03: Competitive Environment .......................................................................................................31

Questions .......................................................................................................................................................31
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1. MARKET COMPETITIVE STRATEGY (SUMMER 2019 – Q.6) ................................................................. 31

2. MARVEL GROUP (WINTER 2018 – Q.2) ......................................................................................... 31
3. MICHAEL PORTER’S FIVE-FORCES MODEL – 1 (WINTER 2014 – Q.1) .................................................. 31
4. MICHAEL PORTER’S FIVE-FORCES MODEL – 2 (SUMMER 2014 – Q.8) ................................................ 32
5. ENTRY BARRIERS (SUMMER 2013 – Q.9A) ...................................................................................... 32
6. IDENTIFICATION OF STRATEGIES (WINTER 2012 – Q.4) ..................................................................... 32
7. MICHAEL PORTER'S FIVE FORCES MODEL (SUMMER 2011 – Q.2A) .................................................... 33
8. BUSINESS STRATEGY (WINTER 2010 – Q.3) .................................................................................... 34
9. ETIHAD LIMITED (WINTER 2019 (Q.1) ........................................................................................... 35
10. PORTER’S FIVE FORCES (WINTER 2020 (Q.6) .................................................................................. 35
11. SINO PHARMA (SUMMER 2021 - Q.3A).......................................................................................... 36
Answers .......................................................................................................................................................... 37
1. MARKET COMPETITIVE STRATEGY (SUMMER 2019 – Q.6) ................................................................. 37
2. MARVEL GROUP (WINTER 2018 – Q.2A, B, C) ................................................................................ 37
3. MICHAEL PORTER’S FIVE-FORCES MODEL – 1 (WINTER 2014 – Q.1) .................................................. 38
4. MICHAEL PORTER’S FIVE-FORCES MODEL – 2 (SUMMER 2014 – Q.8) ................................................ 38
5. ENTRY BARRIERS (SUMMER 2013 – Q.9A) ...................................................................................... 39
6. IDENTIFY THE STRATEGIES (WINTER 2012 – Q.4) ............................................................................. 40
7. MICHAEL PORTER'S FIVE FORCES MODEL (SUMMER 2011 – Q.6B)..................................................... 40
8. BUSINESS STRATEGY (WINTER 2010 – Q.8B) .................................................................................. 40
9. ETIHAD LIMITED (WINTER 2019 (Q.1) ........................................................................................... 41
10. PORTER’S FIVE FORCES (WINTER 2020 (Q.6) .................................................................................. 42
11. SINO PHARMA (SUMMER 2021 - Q.3A).......................................................................................... 43
Chapter 04: Capability Analysis of Business .............................................................................................. 45

Questions .......................................................................................................................................................45

1. THE COFFEE HUB (WINTER 2017 – Q.4) ........................................................................................ 45

2. GOOD FOOD RESTAURANTS (SUMMER 2016 – Q.2)......................................................................... 45
3. STRATEGIC ADVANTAGE (WINTER 2014 – Q.9B).............................................................................. 45
4. INTERNAL BENCHMARKING AND FUNCTIONAL BENCHMARKING (SUMMER 2014 – Q.4B) ....................... 45
5. OPERATIONAL AND STRATEGIC AREAS (SUMMER 2008 – Q.6) ........................................................... 46
6. SWOT ANALYSIS III ..................................................................................................................... 46
7. STAR COFFEE (WINTER 2020 Q.1 (A,B) .......................................................................................... 47
Capability Analysis of Business .................................................................................................................48

Answers .......................................................................................................................................................... 48

1. THE COFFEE HUB (WINTER 2017 – Q.4) ........................................................................................ 48

2. GOOD FOOD RESTAURANTS (SUMMER 2016 – Q.2)......................................................................... 48
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3. STRATEGIC ADVANTAGE (WINTER 2014 – Q.9B).............................................................................. 49

4. INTERNAL BENCHMARKING AND FUNCTIONAL BENCHMARKING (SUMMER 2014 – Q.4B) ....................... 49
5. OPERATIONAL AND STRATEGIC AREAS (SUMMER 2008 – Q.6) ........................................................... 50
6. SWOT ANALYSIS III ..................................................................................................................... 50
7. START COFFEE (WINTER 2020 Q.1 (A, B) ........................................................................................ 51
Chapter 05: Competitive Strategies ............................................................................................................53

Questions .......................................................................................................................................................53
1. RELIANCE MOTORS (SUMMER 2019 – Q.5) .................................................................................... 53
2. PIONEER LIMITED (WINTER 2017 – Q.1) ........................................................................................ 53
3. WE CONNECT (WINTER 2017 – Q.3A) ........................................................................................... 54
4. RISING STAR (WINTER 2017 – Q.5) ............................................................................................... 54
5. COST LEADERSHIP STRATEGY (SUMMER 2017 – Q.2A)...................................................................... 54
6. INTERNATIONAL STRATEGIC ALLIANCES (WINTER 2015 – Q.10A) ....................................................... 54
7. JOINT VENTURES AND STRATEGIC ALLIANCES (WINTER 2014 – Q.4) ................................................... 55
8. HAWK – ENGINEERING LIMITED (WINTER 2012 – Q.1) ..................................................................... 55
9. MARKET CHALLENGER STRATEGY AND MARKET FOLLOWER STRATEGY (SUMMER 2012 – Q.9)................ 55
10. MARKET NICHE ........................................................................................................................... 56
11. ZAIN KITCHEN (SUMMER 2021 (Q.1) ............................................................................................. 56
12. PARASH SOAP (WINTER 2021 Q.7 (A, B, C)..................................................................................... 57
Answers .......................................................................................................................................................... 58

1. RELIANCE MOTORS (SUMMER 2019 – Q.5) .................................................................................... 58

2. PIONEER LIMITED (WINTER 2017 – Q.1) ........................................................................................ 59
3. WE CONNECT (WINTER 2017 – Q.3A) ........................................................................................... 60
4. RISING STAR (WINTER 2017 – Q.5) ............................................................................................... 60
5. COST LEADERSHIP STRATEGY (SUMMER 2017 – Q.2A)...................................................................... 61
6. INTERNATIONAL STRATEGIC ALLIANCES (WINTER 2015 – Q.10A) ....................................................... 61
7. JOINT VENTURES AND STRATEGIC ALLIANCES (WINTER 2014 – Q.4) ................................................... 62
8. HAWK – ENGINEERING LIMITED (WINTER 2012 – Q.1) ..................................................................... 62
9. MARKET CHALLENGER STRATEGY AND MARKET FOLLOWER STRATEGY (SUMMER 2012 – Q.9)................ 63
10. MARKET NICHE ........................................................................................................................... 64
11. ZAIN KITCHEN (SUMMER 2021 (Q.1) ............................................................................................. 64
12. PARASH SOAP (WINTER 2021 Q.7 (A, B, C)..................................................................................... 65
Chapter 06: Alternative Strategies ..............................................................................................................67

Questions .......................................................................................................................................................67

1. GRILL SHACK (GS) (SUMMER 2019 – Q.3) ..................................................................................... 67

2. FASHION COUTURE (WINTER 2018 – Q.1) ...................................................................................... 67
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3. IDENTIFICATION OF BUSINESS STRATEGIES – 1 (SUMMER 2018 – Q.7) ................................................ 68

4. ROBUST TYRES LIMITED (WINTER 2016 – Q.1A) .............................................................................. 68
5. EXPANSION OR INTEGRATION STRATEGIES (SUMMER 2016 – Q.7) ...................................................... 69
6. ACQUISITIONS, MERGERS & SELL-OFF/DIVESTURE (SUMMER 2015 – Q.3) .......................................... 69
7. ORGANIC GROWTH (WINTER 2013 – Q.8) ..................................................................................... 69
8. STRATEGIES OF VERTICAL EXPANSION (SUMMER 2013 – Q.3A) .......................................................... 69
9. DIVESTMENT STRATEGY ................................................................................................................ 70
10. PRODUCT MARKET STRATEGIES ...................................................................................................... 70
11. SMILE-SWEET.............................................................................................................................. 71
12. ENVIRONMENT MANAGEMENT SOCIETY .......................................................................................... 71
13. ZARYAB KHAN (WINTER 2020 Q.8 (A, B, C) .................................................................................... 72
14. SINO PHARMA (SUMMER 2021 Q.3 (B).......................................................................................... 73
15. B3 (SUMMER 2021 (Q.7) ............................................................................................................ 73
16. START BEANS (WINTER 2021 (Q.1) ............................................................................................... 74
Alternative Strategies ..................................................................................................................................75

Answers .......................................................................................................................................................... 75
1. GRILL SHACK (GS) (SUMMER 2019 – Q.3) ..................................................................................... 75
2. FASHION COUTURE (WINTER 2018 – Q.1) ...................................................................................... 75
3. IDENTIFICATION OF BUSINESS STRATEGIES – 1 (SUMMER 2018 – Q.7) ................................................ 76
4. ROBUST TYRES LIMITED (WINTER 2016 – Q.1A) .............................................................................. 77
5. EXPANSION OR INTEGRATION STRATEGIES (SUMMER 2016 – Q.7) ...................................................... 77
6. ACQUISITIONS, MERGERS & SELL-OFF/DIVESTURE (SUMMER 2015 – Q.3) .......................................... 77
7. ORGANIC GROWTH (WINTER 2013 – Q.8) ..................................................................................... 77
8. STRATEGIES OF VERTICAL EXPANSION (SUMMER 2013 – Q.3A) .......................................................... 78
9. DIVESTMENT STRATEGY .......................................................................................................... 78
10. PRODUCT MARKET STRATEGIES ...................................................................................................... 80
11. SMILE-SWEET.............................................................................................................................. 80
12. ENVIRONMENT MANAGEMENT SOCIETY CONTEXT............................................................................. 80
13. ZARYAB KHAN (WINTER 2020 Q.8 (A, B, C) .................................................................................... 83
14. SINO PHARMA (SUMMER 2021 Q.3 (B).......................................................................................... 85
15. B3 (SUMMER 2021 (Q.7) ............................................................................................................ 86
16. START BEANS (WINTER 2021 (Q.1) ............................................................................................... 87
Chapter 07: Management Change ...............................................................................................................89

Questions .......................................................................................................................................................89
1. SMOOTH NETWORK SERVICE (SUMMER 2018 – Q.4) ....................................................................... 89
2. RESISTANCE FROM EMPLOYEES (SUMMER 2012 – Q.7A) .................................................................. 89
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3. CHANGE MANAGEMENT II ............................................................................................................ 89

4. CHANGE MANAGEMENT III ........................................................................................................... 90
5. YARN MANUFACTURER (WINTER 2021 Q.2 (A, B) ............................................................................ 91
Management Change ..................................................................................................................................92

Answers .......................................................................................................................................................... 92
1. SMOOTH NETWORK SERVICE (SUMMER 2018 – Q.4) ....................................................................... 92
2. CHANGE MANAGEMENT II ............................................................................................................ 92
3. CHANGE MANAGEMENT III ........................................................................................................... 93
4. YARN MANUFACTURER (WINTER 2021 Q.2 (A, B) ............................................................................ 95
Chapter 08: Categories and Measurement of Risk ..................................................................................97

Questions .......................................................................................................................................................97

1. OPERATIONAL RISKS (SUMMER 2017 – Q.2B) ................................................................................. 97

2. RISK PROBABILITY AND IMPACT FACTOR (WINTER 2016 – Q.3) .......................................................... 97
3. MANAGING CREDIT RISK ............................................................................................................... 97
4. JPX ........................................................................................................................................... 98
Categories and Measurement of Risk ................................................................................................... 100

Answers ....................................................................................................................................................... 100

1. OPERATIONAL RISKS (SUMMER 2017 – Q.2B) ............................................................................... 100
2. RISK PROBABILITY AND IMPACT FACTOR (WINTER 2016 – Q.3) ........................................................ 100
3. MANAGING CREDIT RISK ............................................................................................................. 101
4. JPX ......................................................................................................................................... 102
Chapter 09: Mitigation and Controlling Risk ......................................................................................... 105

Questions .................................................................................................................................................... 105

1. KIDS WIZARD (SUMMER 2018 – Q.2) .......................................................................................... 105
2. RISK MANAGEMENT REVIEW ....................................................................................................... 106
Answers ....................................................................................................................................................... 107
1. KIDS WIZARD (SUMMER 2018 – Q.2) .......................................................................................... 107
2. RISK MANAGEMENT REVIEW ....................................................................................................... 109
Chapter 10: ..................................................................................................................................................... 110

Effectiveness of ICT ................................................................................................................................... 110

Question ...................................................................................................................................................... 110

1. IT, PORTER AND GLOBALIZATION .................................................................................................. 110
2. INTERNET ................................................................................................................................. 110
3. ALPHA (WINTER 2019 (Q.2B)..................................................................................................... 111
4. E-STORE (WINTER 2019 (Q.6).................................................................................................... 111
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5. AUM UNIVERSITY (WINTER 2020 Q.4 (A) .................................................................................... 111

6. TVL (WINTER 2021 Q.8) ........................................................................................................... 112
Answers ....................................................................................................................................................... 113

1. IT, PORTER AND GLOBALISATION .......................................................................................... 113

2. INTRANET .............................................................................................................................. 114
3. ALPHA (WINTER 2019 (Q.2B)..................................................................................................... 116
4. E-STORE (WINTER 2019 (Q.6).................................................................................................... 116
5. AUM UNIVERSITY (WINTER 2020 Q.4 (A) .................................................................................... 117
6. TVL (WINTER 2021 Q.8) ........................................................................................................... 118
Chapter 11: Management Approaches and Employee Recruitment .................................................. 120

Questions .................................................................................................................................................... 120

1. EFFECTIVE RECRUITMENT & SELECTION (WINTER 2018 – Q.8A)....................................................... 120
2. PERSON SPECIFICATION (WINTER 2017 – Q.9) .............................................................................. 120
3. CENTRAL TELECOMMUNICATION COMPANY (SUMMER 2017 – Q.5A) ............................................... 120
4. ROLES & RESPONSIBILITIES (WINTER 2016 – Q.2B)........................................................................ 120
5. RECRUITMENT TESTS (SUMMER 2016 – Q.10) .............................................................................. 120
6. ZYPHER REFINERY LIMITED (WINTER 2015 – Q.3A) ........................................................................ 121
7. OUTSOURCE RECRUITMENT (SUMMER 2014 – Q.3) ....................................................................... 121
8. SOUND HEALTH PHARMACEUTICALS LIMITED (WINTER 2011 – Q.1) ................................................. 121
9. WINTECH LIMITED (WINTER 2019 (Q.5A) .................................................................................... 121
10. LEATHER FIESTA LIMITED (WINTER 2020 (Q.5).............................................................................. 122
Answers ....................................................................................................................................................... 124

1. EFFECTIVE RECRUITMENT & SELECTION (WINTER 2018 – Q.8A)....................................................... 124

2. PERSON SPECIFICATION (WINTER 2017 – Q.9) .............................................................................. 124
3. CENTRAL TELECOMMUNICATION COMPANY (SUMMER 2017 – Q.5A) ............................................... 125
4. ROLES & RESPONSIBILITIES (WINTER 2016 – Q.2B)........................................................................ 125
5. RECRUITMENT TESTS (SUMMER 2016 – Q.10) .............................................................................. 125
6. ZYPHER REFINERY LIMITED (WINTER 2015 – Q.3A) ........................................................................ 126
7. OUTSOURCE RECRUITMENT (SUMMER 2014 – Q.3) ....................................................................... 126
8. SOUND HEALTH PHARMACEUTICALS LIMITED (WINTER 2011 – Q.1) ................................................. 127
9. WINTECH LIMITED (WINTER 2019 (Q.5A) .................................................................................... 128
10. LEATHER FIESTA (WINTER 2020 (Q.5).......................................................................................... 129
Chapter 12: Learning Organizations ........................................................................................................ 131

Questions .................................................................................................................................................... 131

1. MANAGEMENT TRAINEE PROGRAM (SUMMER 2018 – Q.6) ............................................................ 131

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2. PLATINUM LIMITED (SUMMER 2017 – Q.8) .................................................................................. 131

3. DILIGENT ENTERPRISE LIMITED (WINTER 2016 – Q.5) .................................................................... 132
4. AF (SUMMER 2021 Q.8 (B)........................................................................................................ 132
Learning Organizations ............................................................................................................................ 133

Answers ....................................................................................................................................................... 133

1. MANAGEMENT TRAINEE PROGRAM (SUMMER 2018 – Q.6) ............................................................ 133
2. PLATINUM LIMITED (SUMMER 2017 – Q.8) .................................................................................. 134
3. DILIGENT ENTERPRISE LIMITED (WINTER 2016 – Q.5) .................................................................... 134
4. AF (SUMMER 2021 Q.8 (B)........................................................................................................ 135
Chapter 13: Management Challenges ...................................................................................................... 136

Questions .................................................................................................................................................... 136

1. BLUE OCEAN SERVICES (SUMMER 2019 – Q.1) ............................................................................. 136

2. SCHOOL OF LEADERS (WINTER 2018 – Q.8B) ................................................................................ 136
3. FATIMA FAWAD (WINTER 2017 – Q.8) ........................................................................................ 137
4. VALLEY BANK LIMITED (WINTER 2016 – Q.2A).............................................................................. 137
5. AHMED LIMITED (SUMMER 2016 – Q.5) ...................................................................................... 137
6. VISION CONSULTANTS (SUMMER 2015 – Q.7) .............................................................................. 138
7. SOLUTIONS LIMITED (WINTER 2019 (Q.5B).................................................................................. 138
8. DOLPHIN LIMITED (WINTER 2020 Q.4 (B) ................................................................................... 138
9. HRM (WINTER 2021 Q.3 (A, B, C) ............................................................................................. 139
Management Challenges ......................................................................................................................... 140

Answers ....................................................................................................................................................... 140

1. BLUE OCEAN SERVICES (SUMMER 2019 – Q.1) ............................................................................. 140
2. SCHOOL OF LEADERS (WINTER 2018 – Q.8B) ................................................................................ 141
3. FATIMA FAWAD (WINTER 2017 – Q.8) ........................................................................................ 141
4. VALLEY BANK LIMITED (WINTER 2016 – Q.2A).............................................................................. 142
5. AHMED LIMITED (SUMMER 2016 – Q.5) ...................................................................................... 142
6. VISION CONSULTANTS (SUMMER 2015 – Q.7) .............................................................................. 143
7. SOLUTIONS LIMITED (WINTER 2019 (Q.5B).................................................................................. 143
8. DOLPHIN LIMITED (WINTER 2020 Q.4 (B) ................................................................................... 144
9. HRM (WINTER 2021 Q.3 (A, B, C) ............................................................................................. 144
Chapter 14: Business Operations .............................................................................................................. 147

Questions .................................................................................................................................................... 147

1. BABY TOYS (SUMMER 2019 – Q.8) ............................................................................................. 147

2. E-COMMERCE (WINTER 2018 – Q.4) .......................................................................................... 147
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3. KIDZ WIZARD (SUMMER – Q2A) .................................................................................................. 148

4. NKL ELECTRONIC SSERVICES ........................................................................................................ 148
Business Operations.................................................................................................................................. 150

Answers ....................................................................................................................................................... 150

1. BABY TOYS (SUMMER 2019 – Q.8) ............................................................................................. 150
2. E-COMMERCE (WINTER 2018 – Q.4) .......................................................................................... 150
3. KIDZ WIZARD (SUMMER – Q.2A) ................................................................................................. 151
4. NKL ELECTRONIC SERVICES .................................................................................................... 151
Chapter 15: Marketing Essentials ............................................................................................................. 155

Questions .................................................................................................................................................... 155

1. HEALTH CARE SERVICE PROVIDERS (SUMMER 2018 - Q.3) .............................................................. 155
2. SUPERB TILES LIMITED (WINTER 2016 – Q.6) ............................................................................... 155
3. EMPIRICAL STUDIES (WINTER 2015 – Q.2B) .................................................................................. 155
4. SHALIMAR DAIRIES LIMITED (WINTER 2015 – Q.5A) ...................................................................... 155
5. ‘GOING GLOBAL ACTING LOCAL’ (WINTER 2015 - Q.9A)................................................................. 156
6. BRAND NAMES (SUMMER 2015 – Q.9B) ...................................................................................... 156
7. PROMOTIONAL STRATEGIES (SUMMER 2014 – Q.7A) ..................................................................... 156
8. PULL & PUSH MARKETING STRATEGY (WINTER 2013 - Q.4B) .......................................................... 156
9. MARKETING MIX (SUMMER 2012 – Q.5) ..................................................................................... 156
10. MARKETING-MIX STRATEGIES (WINTER 2008 – Q.10) ................................................................... 157
11. RIVAJ GROUP (WINTER 2019 Q.7) .............................................................................................. 157
12. MARKET SIZING (WINTER 2020 Q.2) ........................................................................................... 158
13. MB (SUMMER 2021 Q.5) .......................................................................................................... 158
14. SHINE AND RISE (SUMMER 2021 - Q.8A) ...................................................................................... 159
15. GIL (WINTER 2021 - Q.4) ......................................................................................................... 159
Marketing Essentials ................................................................................................................................. 160

Answers ....................................................................................................................................................... 160

1. HEALTH CARE SERVICE PROVIDERS (SUMMER 2018 - Q.3) .............................................................. 160

2. SUPERB TILES LIMITED (WINTER 2016 – Q.6) ............................................................................... 160
3. EMPIRICAL STUDIES (WINTER 2015 – Q.2B) .................................................................................. 161
4. SHALIMAR DAIRIES LIMITED (WINTER 2015 – Q.5A) ...................................................................... 161
5. ‘GOING GLOBAL ACTING LOCAL’ (WINTER 2015 - Q.9A)................................................................. 162
6. BRAND NAMES (SUMMER 2015 – Q.9B) ...................................................................................... 162
7. PROMOTIONAL STRATEGIES (SUMMER 2014 – Q.7A) ..................................................................... 162
8. PULL & PUSH MARKETING STRATEGY (WINTER 2013 - Q.4B) .......................................................... 163
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9. MARKETING MIX (SUMMER 2012 – Q.5) ..................................................................................... 163

10. MARKETING-MIX STRATEGIES (WINTER 2008 – Q.10) ................................................................... 164
11. RIVAJ GROUP (WINTER 2019 Q.7) .............................................................................................. 165
12. MARKET SIZING (WINTER 2020 - Q.2) ......................................................................................... 166
13. MB (SUMMER 2021 - Q.5) ........................................................................................................ 167
14. SHINE AND RISE (SUMMER 2021 - Q.8)........................................................................................ 168
15. GIL (WINTER 2021 - Q.4) ......................................................................................................... 169
Chapter 16: Financial and Non-Financial Performance Measurement .............................................. 171

Questions .................................................................................................................................................... 171

1. GRILL SHACK (SUMMER 2019 – Q.3C) ......................................................................................... 171
2. CITY EXPRESS (WINTER 2018 – Q.5)............................................................................................ 171
3. KEY PERFORMANCE INDICATORS (SUMMER 2017 – Q.9A)............................................................... 171
4. CRITICAL SUCCESS FACTORS (WINTER 2016 – Q.8A) ...................................................................... 172
5. BALANCED SCORECARD (WINTER 2016 – Q.7) .............................................................................. 172
6. BLISS ENTERTAINMENT LIMITED (WINTER 2015 – Q.6A) ................................................................. 172
7. FINTEX COMPANY LIMITED (SUMMER 2012 – Q.1) ........................................................................ 172
8. OBJECTIVE EVALUATION.............................................................................................................. 173
9. KEY SUCCESS FACTORS................................................................................................................ 173
Financial and Non-Financial Performance Measurement Answers ................................................. 174
1. GRILL SHACK (SUMMER 2019 – Q.3C) ......................................................................................... 174
2. CITY EXPRESS (WINTER 2018 – Q.5)............................................................................................ 174
3. KEY PERFORMANCE INDICATORS (SUMMER 2017 – Q.9A)............................................................... 175
4. CRITICAL SUCCESS FACTORS (WINTER 2016 – Q.8A) ...................................................................... 175
5. BALANCED SCORECARD (WINTER 2016 – Q.7) .............................................................................. 176
6. BLISS ENTERTAINMENT LIMITED (WINTER 2015 – Q.6A) ................................................................. 176
7. FINTEX COMPANY LIMITED (SUMMER 2012 – Q.1) ........................................................................ 177
8. OBJECTIVE EVALUATION.............................................................................................................. 178
9. KEY SUCCESS FACTORS................................................................................................................ 178
Chapter 18: Corporate Social Responsibility .......................................................................................... 180

Questions .................................................................................................................................................... 180

1. SHANDAAR (PRIVATE) LIMITED (SUMMER 2019 – Q.7A)................................................................. 180

2. RESPONSIBILITIES TO SOCIETY (WINTER 2018 – Q.6A).................................................................... 180
3. TRENDSETTERS LIMITED (WINTER 2017 – Q.10)............................................................................ 180
4. RESPONSIBLE CORPORATE CITIZEN (SUMMER 2017 – Q.4B) ............................................................ 180
5. TRIPLE BOTTOM LINE REPORTING SYSTEM (SUMMER 2017 – Q.9B) ................................................. 180
6. ASPIRE TEXTILE (WINTER 2021 Q.6) ........................................................................................... 181
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Answers ....................................................................................................................................................... 182

1. SHANDAAR (PRIVATE) LIMITED (SUMMER 2019 – Q.7A)................................................................. 182

2. RESPONSIBILITIES TO SOCIETY (WINTER 2018 – Q.6A).................................................................... 182
3. TRENDSETTERS LIMITED (WINTER 2017 – Q.10)............................................................................ 182
4. RESPONSIBLE CORPORATE CITIZEN (SUMMER 2017 – Q.4B) ............................................................ 183
5. TRIPLE BOTTOM LINE REPORTING SYSTEM (SUMMER 2017 – Q.9B) ................................................. 183
6. ASPIRE TEXTILE (WINTER 2021 Q.6) ........................................................................................... 184
Chapter 19: Corporate and Professional Ethics ..................................................................................... 185

Questions .................................................................................................................................................... 185

1. AITMAAD BUILDERS & CONTRACTORS (WINTER 2018 – Q.6) .......................................................... 185
2. MILESTONE LIMITED (SUMMER 2018 – Q.8)................................................................................. 185
3. BC LIMITED (SUMMER 2017 – Q.4A)........................................................................................... 186
4. SMART FIT (SUMMER 2021 Q.4 (A, B, C) ...................................................................................... 186
5. ZYMAL ARYAN (WINTER 2019 Q.3(A, B) ...................................................................................... 187
Corporate and Professional Ethics ......................................................................................................... 188

Answers ....................................................................................................................................................... 188

1. AITMAAD BUILDERS & CONTRACTORS (WINTER 2018 – Q.6) .......................................................... 188

2. MILESTONE LIMITED (SUMMER 2018 – Q.8)................................................................................. 188
3. BC LIMITED (SUMMER 2017 – Q.4A)........................................................................................... 189
4. SMART FIT (SUMMER 2021 Q.4 (A, B, C) ...................................................................................... 190
5. ZYMAL ARYAN (WINTER 2019 Q.3(A, B) ...................................................................................... 191
Chapter 20: Ethical Resolution .................................................................................................................. 192

Questions .................................................................................................................................................... 192

1. SHAYAN AHSAN (SUMMER 2019 – Q.7B) ..................................................................................... 192
2. MILESTONE LIMITED (SUMMER 2018 – Q.8A) ............................................................................... 192
3. ULTRA CARE (WINTER 2017 – Q.11) ........................................................................................... 192
4. WORKSHOP .............................................................................................................................. 193
5. MARTHA .................................................................................................................................. 193
6. ZYMAL ARYAN (WINTER 2019 Q.3(C) .......................................................................................... 194
7. SPORTY LIMITED (WINTER 2020 Q.3(A, B, C) ................................................................................ 195
8. ETHICAL RESOLUTION MODEL (SUMMER 2021 - Q.2)..................................................................... 195
9. MIRROR TEST (WINTER 2021 - Q.5) ........................................................................................... 196
Answers ....................................................................................................................................................... 197

1. SHAYAN AHSAN (SUMMER 2019 – Q.7B) ..................................................................................... 197

2. MILESTONE LIMITED (SUMMER 2018 – Q.8A) ............................................................................... 198
 SPM Practice Kit

3. ULTRA CARE (WINTER 2017 – Q.11) ........................................................................................... 199

4. WORKSHOP ........................................................................................................................... 199
5. MARTHA ................................................................................................................................ 201
6. ZAYMAL ARYAN (WINTER 2019 Q.3(C) ........................................................................................ 202
7. SPORTY LIMITED (WINTER 2020 Q.3(A, B, C) ................................................................................ 203
8. ETHICAL RESOLUTION MODEL (SUMMER 2021 (Q.2) ..................................................................... 204
9. MIRROR TEST (WINTER 2021 - Q.5) ........................................................................................... 205
 SPM Practice Kit
Chapter 01: Foundations of Strategy
Questions

CHAPTER 01:
FOUNDATIONS OF STRATEGY
QUESTIONS

1. ANSAR (PRIVATE) LIMITED (WINTER 2018 – Q.3)

Ansar (Private) Limited (APL) has recently been registered as a private limited company. It is in the
process of developing vision and mission statements. Ms. Shanzeh Ghafoor (Shanzeh) the CEO has
advised her team to formulate the vision and mission statements similar to MEL Limited which is the
largest listed company engaged in the same business.

Required:
a. List down the various purposes of vision and mission statements. (04 marks)
b. Explain whether you agree with Shanzeh’s approach of developing mission and vision statements
similar to those of MEL Limited. (03 marks)

2. HI-TECH LIMITED (SUMMER 2018 – Q.7C)

Identify the strategies/policies that are being pursued in each of the following cases. Also discuss two
risks associated with each strategy/policy:

Hi-tech Limited is providing software solutions in a hyper-competitive environment where set of

circumstances cannot be predicted with reasonable certainty. The management encourages employees
to respond to the environmental changes by means of creativity whereas formal planning and approvals
have low importance. (04 marks)

3. BEST LIMITED (SUMMER 2017 – Q.1A)

Best Limited (BL) has been incorporated recently with the objective of establishing the business of
manufacturing and marketing of fast moving consumer goods. The company realizes that it would have
to compete in a highly challenging business environment.
Discuss briefly why it would be essential for BL to give high degree of importance to the strategic
planning process for achievement of its corporate objectives. (08
marks)

4. FUNCTIONS OF STRATEGIC PLANNING (SUMMER 2016 – Q.4)

In the present rapidly changing and highly competitive environment, strategic management has become
an extremely challenging task for business leaders.
Explain the key factors/actions, which in your opinion are important for ensuring that the functions of
strategic planning and management are performed in a coordinated manner to achieve the pre-
determined goals set in the strategic plans. (09 marks)
 SPM Practice Kit
Chapter 01: Foundations of Strategy
Questions

5. STRATEGIC MANAGEMENT PROCESS (SUMMER 2014 – Q.2)

Strategic Management is a long-term planning process under taken to achieve the organizational goals
during a period ranging between 3-5 years. Describe the important stages involved in the Strategic
Management process of major business organizations. (09 marks)

6. ZEST PHARMACEUTICAL COMPANY LIMITED (WINTER 2013 – Q.5)

Zest Pharmaceutical Company Limited (ZPCL) had assigned some of the most talented individuals in the
organization to formulate the company's strategic plan. The strategic plan was considered and approved
by the top management, including the board of directors However, ZPCL's actual performance was
rather disappointing and the company was not able to achieve the objectives envisaged in the strategic
plan due to shortcomings in the various stages of implementation various stages of implementation of
the strategic plan.
As an external consultant, identify and explain six critical factors in the strategy implementation process
which may have been responsible for the poor performance ZPLC. (15 marks)

7. EAST-WEST CENTRE OF DIABETES

East-West Centre of Diabetes (EWCD), a non-profit organization has recently received substantial
donations from a group of overseas Pakistani philanthropists. EWCD has ambitious plans to develop the
institution into an absolutely world-class research and teaching university-cum-hospital in the country.
The Hospital would provide infrastructure facilities and medical care by a team of highly reputable
consultants. It is envisaged to provide treatment for diabetes which is growing at an alarming rate and
adversely affecting the health of a large segment of the population in all age groups. The University
would also help to produce qualified doctors who would specialise in the treatment of patients suffering
from this highly debilitating disease.

Required
Prepare a Mission Statement for EWCD stating its purpose and identifying its core values. The Mission
Statement should be brief, simple and clearly highlight the important purpose, intent and aspirations of
EWCD
 SPM Practice Kit
Chapter 01: Foundation of Strategy
Answers

Chapter 01:
Foundation of Strategy

ANSWERS

1. ANSAR (PRIVATE) LIMITED (WINTER 2018 – Q.3)

a. The purposes of vision and mission statements are listed below:
 These provide basis for consistent strategic planning decisions.
 These assist in translating management’s intentions and purposes into corporate
objectives.
 Provide a common purpose for all groups and individuals within the organization.
 Assist in establishing goals for the organization.
 Assist in improving the overall image of an organization among external stakeholders
and
 Public in general.

b. Vision and mission statements reflect the unique/distinctive identity of an organization. The
uniqueness can be in terms of business philosophy, purpose of business and capabilities of
an organization. APL is a newly registered private company whereas MEL is a well-
established listed company therefore, it is highly likely that above parameters of unique
identity could be different. Hence, I do not agree with Ms. Shanzeh’s approach of imitating
the mission and vision statements of MEL.

2. HI-TECH LIMITED (SUMMER 2018 – Q.7C)

High-tech Limited is pursuing emergent strategy. This strategy might be subject to following risks:
a. The entity may be subject to high risks because of absence of formal planning and approval
process as employees may not be able to make appropriate decisions in all situations.
b. There might be over reliance on the ability of individuals within the entity to be innovative
and be entrepreneurial.

3. BEST LIMITED (SUMMER 2017 – Q.1 A)

It would be essential for Best Limited to give high degree of importance to the strategic planning
process to achieve the following objectives:
a. It would enable BL to identify, prioritize and grasp opportunities for achieving its objectives.
b. It would enable BL to identify business risks in the environment and adopt appropriate
measures to mitigate these risks.
c. It would provide a framework for coordination and control of various activities at the
corporate, business and functional levels.
d. It would enable BL to make optimum utilization of its financial, human and all other
resources.
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Chapter 01: Foundation of Strategy
Answers

e. It would enable BL to create alignment between long-term, medium-term and short-term

objectives.

4. FUNCTIONS OF STRATEGIC PLANNING (SUMMER 2016 – Q.4)

The key factors actions which are important for ensuring that the functions of strategic planning and
management are performed in a coordinated manner to achieve the pre-determined goals set in the
strategic plans are as follows:
a. Commitment from top management in terms of overall support and required resources.
b. Involving the employees in the strategic planning exercise to ensure their ownership stake.
c. Considering the strategic planning process as a continuous and integrated effort at all levels
rather than an isolated one time exercise.
d. Giving due importance to the roles of operational level managers.
e. Integrating and coordinating the various management and operational functions.
f. Implementing sound control systems and procedures to measure actual performance and its
comparison with the targets.
g. Taking timely corrective measures

5. STRATEGIC MANAGEMENT PROCESS (SUMMER 2014 – Q.2)

The important stages involved in the Strategic Management process are:

Strategy Formulation:
This includes developing the organization’s vision and mission, identifying the organization’s external
opportunities and threats, determining internal strengths and weaknesses, establishing long-term
objectives and selecting the strategies to be pursued during a period of 3-5 years. Strategy formulation
issues mainly include allocation of resources among the different business segments and decisions
whether to expand existing business lines or to pursue diversification strategies.

6. ZEST PHARMACEUTICAL COMPANY LIMITED (WINTER 2013 – Q.5)

The important factors which may have been responsible for the poor performance in ZPCL's strategy
implementation process in spite of formulation of it well-conceived strategic plans are discussed below:

Changes in business conditions.

The actual business conditions may have unexpectedly deteriorated due to factors beyond ZPCL's
control. These may have derailed the strategic plan and created impediments in its implementation:
 Communication of objectives of the strategic plan: If the objectives of the strategic plan
were not communicated fully to those responsible for implementation of the strategic plan,
the employees not being fully aware of the goals envisaged in the strategic plan may have
performed without complete knowledge of the specific goals assigned to the various
departments.
 Non-supportive corporate culture: The management may not have been able to create a
conducive organizational culture which is necessary for promoting sound work ethics and
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Chapter 01: Foundation of Strategy
Answers

thus obstacles may have been created in the achievement of the objectives of the strategic
plan.
 Lack of alignment between the organization structure and the strategic plan: The
organizational structure comprising of production, R&D, marketing and human resources
departments may not have been able to work in close collaboration in pursuit of the
goals envisaged in the formulation of the strategic plan due to imbalances in the
allocation of powers and responsibilities.
 Improper allocation of resources: Resource allocation is a critical management activity
which facilitates the implementation; of the strategic plan. The resource allocation process in
ZPCL may not have been in accordance with the strategic plan because of pressures from
certain groups and personal; considerations.
 Inadequate monitoring of implementation of the strategic plan: ZPCL may not have
established milestones and standards for measuring the performance in the various stages
of implementation of the strategic plan. This may have prevented. ZPCL from identifying any
deviations and taking prompt corrective actions to ensure that the implementation process
was in accordance with the objectives envisaged in the strategic plan.
 Poor linkage between employee performance and rewards with the strategy: Decisions
regarding salary structures, rewards and promotions must be aligned 'with the aims of the
strategic plan and be able to motivate the employee toward achievement of the objectives
of the strategic plan. The compensation and reward packages in ZPCL may have been
based-on personal considerations and may have resulted in lack of motivation among the
employees which created impediments in the achievement of the objectives of the strategic
plan.
 Inability to manage conflicts: Individuals and groups within the organization may have had
conflicts on certain issues. Differences in expectations, perceptions, work schedules and
departmental goals in ~PCL may have resulted in conflicts which may have been
impediments to the achievement of the goals envisaged in the strategic plans.

7. EAST-WEST CENTRE OF DIABETES

EWCD is committed to the development of human capabilities through the sharing of knowledge and
application through service. It seeks to prepare individuals who would be exemplary doctors and nurses,
through excellence in research and education, all dedicated to provide meaningful contribution to
society in the treatment of diabetes
 SPM Practice Kit
Chapter 02: Business Analysis
Questions

CHAPTER 02:
BUSINESS ENVIRONMENT
QUESTIONS
1. GOOD FOOD RESTAURANTS (SUMMER 2016 – Q.2)
Established in the year 2006 in Karachi, Good Food Restaurants (GPR) has achieved remarkable growth
and presently owns and operates a chain of ten restaurants in Karachi, Lahore and Islamabad. GFR's
operations have been highly profitable because it has a significant base of loyal customers who are not
only a source of repeat business but they also promote its image through word-of-mouth
advertisement.

dentify the strengths, weaknesses, opportunities and threats for GFR. (Mention any four Points in respect
of each)
Note: Only list the parameters - explanations are not require. (08 marks)

2. STRATEGY EVALUATION (SUMMER 2015 – Q.2)

Strategy evaluation, as an essential element of the strategic management process, involves reviewing.
Changes in the environment during the implementation phase of the strategy, comparing actual
performance with the targets and taking timely corrective measures to ensure that the operations
remain on track.

Explain briefly the reasons why strategy evaluation has become a more challenging task in the present
rapidly changing global economic and political environment. (09 marks)

3. NETWORK SOLUTIONS – PESTEL ANALYSIS

Introduction
Network Solutions (NS) is a privately owned high technology company established in 2002 by computer
engineer, Kevin Testa. It is situated in the country of Redland, a prosperous developed nation with a
stable well established political system. Successive governments in Redland have promoted technology
by providing grants and tax incentives. Tax credits are also provided to offset company investment in
research and development. The government, like many governments worldwide, have invested heavily in
a national telecommunications infrastructure. However, in 20X4 the country suffered an economic
downturn that led many companies to postpone technological investment.

By 20X4 NS employed 75 full-time employees in a new, purpose-built factory and office unit. These
employees were a mixture of technically qualified engineers, working in research and development
(R&D), factory staff manufacturing and assembling products and a small sales and service support team.
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Chapter 02: Business Analysis
Questions

Product areas
In 20X4, NS had three distinct product/service areas – data communication components, network
management systems and, finally, technical support.
NS sells data communication components to original equipment manufacturers (OEMs), who use these
components in their hardware. Both the OEMs and their customers are predominantly large
international companies. NS has established a good reputation for the quality and performance of its
components, which are competitively priced. However, NS has less than 1% of the domestic marketplace
and faces competition from over twenty significant suppliers, most of who also compete internationally.
Furthermore, one of the company’s OEM customers accounts for 40% of its sales in this area.

The international market for data communication components had increased from Rs.3.3 trillion in 20W1
to Rs.8.1 trillion in 20X4. Forecasts for 20X5 and beyond predict growth from increased sales to currently
installed networks rather than from the installation of new networks.

The maturity of the technology means that product lifecycles are becoming shorter. Success comes from
producing high volumes of reliable components at relatively low prices. NS produces components in a
relatively prosperous country where there is significant legislation defining maximum work hours and
minimum wage rates. All new components have to be approved by an appropriate government
approval body in each country that NS supplies. This approval process is both costly and time
consuming.

The second product area is network management systems. NS originally supplied fault detection
systems to a small number of large end-users such as banks, public utility providers and global
manufacturers. NS recognised the unique requirements of each customer and so it customised its
product to meet specific needs and requirements. They pioneered a modular design which allowed
customers to adapt standard system modules to fit their exact networking requirements. The success of
their product led to it being awarded a prestigious government technology award for “technological
innovation in data communications”. This further enhanced the company’s reputation and enabled it to
become a successful niche player in a relatively low volume market with gross margins in excess of 40%.
They only have two or three competitors in this specialist market. Unlike component manufacture, there
is no requirement to seek government approval for new network products.

Finally, the complexity of NS products means that technical support is a third key business area. It has
an excellent reputation for this support. However, it is increasingly difficult and costly to maintain the
required level of support because the company does not have a geographically distributed network of
support engineers. All technical support is provided from its headquarters. This contrasts with the
national and international support services of their large competitors.
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Chapter 02: Business Analysis
Questions

Current issues
NS currently manufacture 40% of the components used in its products. The rest of the components,
including semiconductors and microprocessors, are bought in from a few selected global suppliers.
Serious production problems have resulted from periodic component shortages, creating significant
delays in manufacturing, assembly and customer deliveries.
NS is still a relatively immature organisation. There are small functional departments for sales and
marketing, technical research and development, manufacturing and procurement. Kevin still personally
undertakes all staff recruitment and staff development. He is finding the recruitment of high calibre staff
a problem, with NS’ small size and geographical location making it difficult to attract the key personnel
necessary for future growth.
Required
a. Evaluate the macro-environment of NS using a PESTEL analysis.
b. Analyse the competitive environment that NS is competing in.

4. GERTONIA (WINTER 2019 – Q.4)

Gertonia is the largest economy in the European region and enjoys a stable and business friendly
government. Its automotive industry is well known for producing top quality speed car brands and is
considered an industry leader in the world. It has an excellent road network with no speed limit that
makes it perfect to meet the Gertonian’s appetite and demand for quality and speed.

Gertonia’s automotive industry is the largest industry sector and employer in the country which includes
from the large car manufacturers to extensive support network of many subsystems, component and
parts manufacturers. The industry is well supported by iron and steel industries, efficient financial and IT
systems, well reputed technical education institutes, heavy public and private expenditure in education
and highly skilled workforce. There is an intense competition and a constant pressure on manufacturer
to innovate.

Fredrick Dunden, Head of Auto Industry Union, believes Gertonia has developed a national comparative
advantage over many other countries, however, he is hesitant about the future leadership position for
speed cars mainly due to the tougher regulations on emission requirements prompted by Gertonia’s
deteriorating environmental conditions, petrol depended engines and systems of speed cars,
government plans to introduce speed limits on all areas to reduce the increasing rate of car accidents in
some areas, changing needs of the tech-savvy consumers and the rising trend of people interested in
driving rented speed cars rather than owning one.

Required:
(a) Explain how Gertonia achieves the national comparative advantage over many other countries. (06)
(b) Discuss the threat(s) and weakness(es) of the automotive industry for speed cars presented in the
case, and provide suggestions to Fredrick Dunden to tackle these issues. (12)
 SPM Practice Kit
Chapter 02: Business Analysis
Questions

5. AVOCADO DELIGHT (SUMMER 2021 - Q.6)

Avocado Delight (AD) is a European company that manufactures and sells canned avocado paste. In
order to better serve the growing product demand in Asia, AD is contemplating to establish its
operations in Asia and is considering Country A and B for the purpose.

Country A is a large agricultural country that is naturally suited to grow avocados, which is not only the
most popular local delicacy used in various food items but also is the most exported fruit item. It has
many small to medium sized companies that are highly competitive and support the production and
processing of agri-products. It has unstable government with volatile political environment. It is
incessantly involved in countering long standing disputes with its neighbours that includes Country B.

Country B is a small densely populated country that is well-known for its free ports, sound
infrastructure, very high residential and commercial property rates and taxes, a stable and credible
government, strong financial industry and an efficient business environment. It is the most well-reputed
and interconnected country in the region. It has world renowned educational institutes that support no
cost for higher education. The graduates of these institutions are not only in great demand within the
country but also are well sought after abroad.

Required:
Discuss the national competitive advantage of Country A and B, and recommend a course of action to
AD. (10)
 SPM Practice Kit
Chapter 02: Business Environment
Answers

CHAPTER 02:
BUSINESS ENVIRONMENT
ANSWERS

1. GOOD FOOD RESTAURANTS (SUMMER 2016 – Q.2)

Strengths Weakness
- Strong customer loyalty - Does not hold price leadership
position in the market
- Use of superior quality basic - Rising cost of operation and food
ingredients ingredients
- Efficient and courteous customer - Difficulties in procurement of good
service quality food ingredients
- Good location of restaurants - Heavy investment required in
maintaining the existing facilities
- Consistent high quality of food - Inconsistent quality of food at the
different restaurants

Opportunities Threats
- Increase in number of prospective - loss of trained staff to competitors
affluent customers
- Increase in number of working - Changes in eating habits of health
families who prefer to eat out conscious customer
- Introduction of home delivery - Aggressive competition from existing
services
- Addition of more facilities/ services - entry of new competitors
like free internet, children play area,
etc.
- Market penetration in other cities. -
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Chapter 02: Business Environment
Answers

2. STRATEGY EVALUATION (SUMMER 2015 – Q.2)

Strategy evaluation has become a more challenging task in the rapidly changing global economic and
political business environment due to the following reasons:
(i) Domestic as well as global economic environments have become more volatile which affect
the business operations due to sharp variations in prices of raw materials, disruptions in
sources of supplies, economic and political upheavals in major markets and changes in
financial regulatory policies.
(ii) Rapidly changing technologies and development of new and more innovative products
which result in short term product life cycles and obsolescence of established products.
(iii) Emergence of new and resourceful competitors who pursue aggressive promotional
marketing strategies to penetrate and capture the market held by existing suppliers.
(iv) Complex legislation such as those relating to environment, customer protection,
transparency and privacy.
(v) Rapidly changing political scenarios in which countries realign their economic and political
alliances and strategies resulting in upsurge in Uncertainties for business entities.

3. NETWORK SOLUTIONS – PESTEL ANALYSIS

Tutorial note: The suggested answer presented below gives more detail than would be expected from a
candidate under examination conditions.
The answers are intended to provide guidance on the approach required from candidates, and on the
range and depth of knowledge, which could be written by an excellent candidate.
a. The PESTEL framework may be used to explore the macro-environmental influences that might
affect an organisation. There are six main influences in the framework: political, economic, socio-
cultural, technological, environmental and legal. However, these influences are inter-linked. For
example, political developments and environmental requirements are often implemented through
legislation. Candidates will be given credit for defining the main macro-economic influences that
affect NS, rather than the strict classification of these in the PESTEL framework.

Political
The political environment in which organisations operate is very significant. Political parties may
encourage or discourage economic activity through taxation policies and legislative programmes.
NS is based in a stable, prosperous country, where successive governments have valued and
encouraged technology. Tax incentives and grants are given to companies that invest in
technology and in research and development. Tax credits are also provided to companies that
invest in research and development. These incentives are open to NS, its domestic competitors
and its domestic customers. The government has also promoted the use of technology through a
well-publicised awards scheme. NS is a recent beneficiary of such an award – for “technological
innovation in data communications”.
The scenario suggests that the government itself is a major investor in communications
technology. This technology has to be delivered through equipment that meets certain standards
of reliability and compatibility. The government has put an approval process in place to ensure
 SPM Practice Kit
Chapter 02: Business Environment
Answers

such standards. Such a process should ensure that technically inferior goods do not make it into
the market place.
The current political environment wishes to protect its citizens who are employees, by enacting
legislation concerning employment hours, conditions and reward.

Economic
The stage or phase of the economic or business cycle clearly affects customer buying decisions.
The case study suggests that 20X4 saw a downturn in the domestic economy which resulted in a
reduction of customer commitment to long-term investment. Customers may postpone their
buying decisions, although if innovative products bring cost and communication advantages then
they will eventually have to invest in them.
Despite worsening economic conditions, labour costs remain high in Redland and the company
may have to re-consider their commitment to manufacturing in the country.

Socio-cultural
It appears that electronic communication and information exchange will continue to increase with
implications for companies supplying products and systems to meet these growing needs. All
evidence suggests that the social use of services on such networks will increase. Hence, although
demand appears to be currently dropping off, new social uses for telecommunication networks
might spark off a new wave of investment.

Technological
Technology is a significant factor in shaping the life cycles of existing products and the
introduction of new ones. The technology sector is extremely innovative, with new and improved
technologies constantly emerging. NS must scan the external environment for such technologies
and identify how they might affect the future of their current products. NS must also consider
how such emergent technologies might be used in their own products. The forecast that increased
sales will come from currently installed networks rather than from the installation of new networks
is also relevant here.

Environmental issues
Green issues have an increasing impact on organisations, particularly in prosperous developed
countries. The reduction of emissions and improvement of re-cycling are likely to be reflected in
socio-cultural trends and enshrined in legislation. The cost of waste disposal is also increasing. All
these issues combine to increase the costs of manufacture and affect the competitiveness of the
company in its market place.
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Chapter 02: Business Environment
Answers

Legal
NS operates in a country where there are laws defining employer responsibilities and employee
rights. It is likely that such regulation will continue and NS, like all companies working in Redland,
have to evaluate the benefits and costs of working within such constraints. Some organisations
seek to gain competitive advantage by moving to countries where regulation is more lax and
hence avoid the compliance costs incurred by their competitors. The scenario suggests that NS
has significant international competitors. It is likely that some of these will be based in countries
where employment and other legislation are less onerous.

Summary
In the context of the scenario, it is political, legal and economic factors that significantly affect NS.
However, as a technology company with significant investment in research and development, NS
must continue to scan the technological environment to identify trends that could undermine,
enhance or replace their products.

b. Michael Porter provides, through his five forces framework, a useful way of analysing the
competitive environment of NS. Analysis suggests that the following key factors are shaping this
environment. Other appropriate models and frameworks could be used and appropriate credit
would be given.

Bargaining power of buyers

NS is competing in two discrete market places. In the data communications component market it
where it has less than 1% of the market share it is, at best, a supplier of marginal significance. The
customers are OEMs, large industrial buyers who are likely to demand a testing combination of
low prices, high quality and reliability. They are unlikely to tolerate the late delivery of orders. It
appears that alternative sources of supply are readily available and that switching costs are
relatively low. This combination of circumstances suggests that OEMs have significant bargaining
power in this market place. This is particularly true for the OEM who currently accounts for 40% of
NS’ current sales.

In the second market place, where network management systems are supplied to large end users,
the buyers appear to have less bargaining power. NS is catering for each customer’s specific
needs and so each solution is, to some degree, a bespoke solution. This makes it much harder for
buyers to compare products and prices of potential suppliers, unlike in the commodity like data
communication component market. Alternative sources of supply are much more difficult to find
as there only two or three companies in this specialist marketplace. Furthermore, the product
purchase is likely to represent a relatively small part of the buyer’s overall investment in
information and communication systems. Reduced bargaining power makes this product less price
sensitive and so provides an opportunity to generate good margins. Large international customers
are likely to be cautious about moving to new suppliers
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Chapter 02: Business Environment
Answers

The bargaining power of suppliers

It seems unlikely that NS will be able to exert much influence on it suppliers. They are purchasing
semiconductors and microprocessors from major global companies, who probably have well-
known and powerful brands. NS, as a small company, will not have the power to exert buyer
pressure on its suppliers, either in terms of price or delivery. Current problems associated with the
delivery of components are having a significant impact on the company’s ability to meet customer
deadlines and expectations. Clearly an audit needs to be made of supplier performance and the
opportunity, or otherwise, for NS to concentrate on suppliers able to deliver on time. However, for
a small company like NS, the supplier appears to be in an excellent bargaining position.

If labour is seen as a supplier, then evidence again suggests that NS is in a relatively weak
position. The scenario notes the difficulty of finding high calibre staff with NS’s “small size and
location making it difficult to attract the key personnel necessary for future growth”.

Threats from new entrants

NS is operating in an industry where the costs of entry are significant because it is capital and
knowledge intensive. NS has shown that there is a place for smaller innovative companies able to
identify and exploit specialist market niches. Economies of scale compel new entrants to enter at
significant output levels or suffer a cost disadvantage. The products are complex and there is likely
to be a significant learning curve with costs only falling as volume builds up over time.

The need for government approval of new data communications components creates an approval
process that is both lengthy and expensive and so creates a significant barrier to new entrants.
New entrants may be discouraged by the uncertainty surrounding the industry, in terms of
technology, user acceptance and the R&D investment necessary to create components and
systems compatible with OEM’s equipment and end user systems. Furthermore, the need to offer
comprehensive aftersales support, although a problem for NS, does also create a significant
barrier to new entrants.

Finally, the exit costs and barriers to exit in the shape of industry-specific knowledge, skills and
assets reduce the attractiveness of the marketplace to new entrants.

Threats from substitutes

High technology industries are, by their very nature, prone to new technologies emerging that
threaten and then eventually replace the established technology. Hence it is very important that
companies in such industries constantly scan the external environment to identify and anticipate
such threats. There is evidence that large, successful, high technology companies are particularly
vulnerable to ignoring the challenge from disruptive new technologies. However, the small size of
the NS may give it a competitive advantage in its ability to respond quickly and flexibly to change.
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Chapter 02: Business Environment
Answers

Rivalry amongst competitors

Very different levels of competition are being experienced in the two market places NS is
operating in. Unfortunately the financial data given does not separate out the revenue and costs
for each market place. However, it is clear that the high-volume, low-margin component business
offers intense competition with buyers who are able to use their size to extract favourable prices.
NS has less than 1% of the home market and there are over twenty competing suppliers, some of
whom have significant international presence, with a dedicated, geographically distributed support
team. The ability of NS to generate better market share and volumes through product innovation
in this market seems highly unlikely. Competitive rivalry is high when there are many competing
firms and the costs of leaving the industry are high.

The intensity of rivalry in the network management systems market is significantly less because
there are only two or three competitors in this specialist market. NS is dealing with a small
number of large end users, designing products specific to their needs. In Porter’s terms, NS are
adopting a focused differentiation strategy. In these low-volume, high margin markers the
emphasis has to be on increasing the volume side of the business, but at the same time making
sure that they have the resources to handle new customers.

4. GERTONIA (WINTER 2019 - Q.4)

(a) Porter’s Diamond shape model can be used to explain the national comparative competitive
advantage for a country over other countries. In the case of Gertonia they can be explained as
such:
(i) Firm strategy, structure and rivalry:
 There is intensive competition among the manufacturers and constant pressure to
innovate.
 Public and private expenditure/investment in education.

(ii) Related and supporting industries

 Extensive network of many subsystems, component and parts manufacturers.
 The industry is well supported by iron and steel industries.
 Well reputed technical education institutes.

(iii) Favourable factor conditions:

 It has an excellent road network with no speed limit.
 Efficient financial and IT systems.
 Business friendly government.
 Highly skilled workforce.
 Repute for top quality speed car brands.
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(iv) Demand conditions in the home market:

 Gertonians have an appetite and demand for quality and speed.

(b) Threat: Tougher regulations on emission requirements / Deteriorating environmental conditions

This means companies would need to meet the new regulations, which in many cases would
mean changing the speed cars. This runs a risk of loss in business due to high costs, risk of
comprise in quality, difficulty in meeting regulations, etc.
Suggestions:
 Make environmentally friendly cars to satisfy regulatory requirements.
 Conduct CSR activities to reduce deterioration of environment causing by cars.

Threat: Government plans to introduce speed limits on all areas One of the reasons Gertonia
can produce high speed cars is because of the local demand to meet Gertonian appetite. Plan
to introduce speed limits would mean Gertonians cannot drive fast at will which will
consequently affect local demand for fast cars. Hence, this can compromise the leadership
position.
Suggestions:
 Gertonia has a business friendly government, as such government can be asked to keep no
speed limits for areas that do not run the risk of accidents due to high speed e.g.
highways, etc.
 The accidents may be due to reasons other than high speed cars (e.g. bad roads, etc), as
such a closer look at the issue should be suggested to the government.

Threat: Changing needs of the IT-savvy consumers This would require the companies to
upgrade to meet the high-tech demands of the consumers. If not responded quick enough, this
would result in loss of business.
Suggestions:
This is a manageable threat as Gertonia has efficient IT and financial systems, healthy spending
in education and a push to be innovative. The industry should quickly react to meet the
customer needs.

Threat: Rising trend of people interested in driving rented cars rather than owning one
This may result in lower demand resulting in lower profitability and an industry wide change
from targeting consumers to own the car to targeting organizations that rent out the car.
Suggestions:
 Strategies should be planned to target businesses who would give people cars to drive.
 Expand market and reach areas where people would like to own cars.
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Weakness: Not responding quick enough to the changes in environment Gertonian automotive
industry has not been moving quick enough to respond to the changes in the environment, for
example, they are not responding to IT-savvy consumers, heavy reliance on petrol and changing
trends of driving a rented car rather than owning one.
Suggestion:
 R&D should be encouraged in the industry.
 Private and public investments should be diverted for R&D.
 R&D efforts should be directed towards reducing reliance on petrol dependent engines and
systems to produce environmentally friendly cars.

5. AVOCADO (SUMMER 2021 - Q.6)

Porter’s Diamond model can be used to discuss the national competitive advantage:

Country A Country B
Favorable factor Naturally suited to grow Avocados. It is well-known for its free ports and
conditions sound infrastructure. It is the most
well-reputed and interconnected
country in the region.
Related and Many companies are supporting the It has world renowned educational
supporting industries production and processing of agri- institutes that support no cost for
products. higher education.
It also has strong financial industry that
supports businesses and consequently
a healthy economy.

Demand conditions It is the most popular local delicacy The graduates are not only in high
in the home market used in various food items. demand within the country but also
are well sought after abroad.

Firm strategy, There are many small to medium It has efficient business environment.
structure and rivalry sized companies that are highly
competitive.

Government Support It has unstable government with It has stable and credible government.
volatile political environment. It is
incessantly involved in countering
long standing disputes with its
neighbors that includes Country B.
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Country A:
AD’s purpose is to facilitate its product demand in the region, opening a manufacturing facility or
business/rep-office would be problematic due to the troublesome political environment. AD may only
consider establishing its operations in Country A, if it either successfully negotiates or seeks an
agreement with the government to minimize the impact of volatile political environment on AD’s
operations.

Country B:
It has national competitive advantage in providing business services. It seems like a developed service
based economy. It is also well-positioned to capitalize on trading business due to free ports, efficient
business environment and infrastructure. The skilled workforce required to conduct business in the
region is easily available here. Therefore, AD may consider carrying trading activities through a
business/rep-office here. However, it may not be suitable for opening a manufacturing facility because
of very high residential and commercial property rates and taxes.

Other Countries:
 For manufacturing in Asia, AD should look for another country that is conducive to Avocado paste
manufacturing and can work well with country B.
 Or, it can continue to manufacture in Europe and use the rep-office in Country B for facilitating
business activities.
 Or, if possible, it can look for other countries that are more suitable for Avocado paste
manufacturing and selling.
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CHAPTER 03:
COMPETITIVE ENVIRONMENT
QUESTIONS

1. MARKET COMPETITIVE STRATEGY (SUMMER 2019 – Q.6)

Captain of the Sea (COS) is a state of the art cruise ship with an enormous capacity to carry 5000
passengers. It has been built to display several striking features for a cruise ship. This includes one of a
kind 3-storey full-length shopping mall that continues to attract a large number of customers and
repeat business.

Required:
a. Identify and explain the market competitive strategy being followed at COS. (03 marks)
b. Suggest how following the strategy, identified in (a) above, helps COS in providing a suitable
defence against each of Porter’s five competitive forces. (05
marks)

2. MARVEL GROUP (WINTER 2018 – Q.2)

Glory is a series of high-end smartphones and tablets designed, manufactured and marketed by Marvel
Group (MG). MG is highly regarded for innovative product designs and aggressive marketing campaigns.
The mobile phone industry is one of the fastest growing sectors of economy where a number of
competitors attempt to outperform each other in terms of product designs, features and pricing. MG is
in the process of introducing new series of foldable smartphones (Glory Ultimate) that could be a vital
breakthrough in mobile phone industry. The management of MG intends to adopt life cycle costing for
Glory Ultimate.

Required:
a. Discuss the benefits that MG may enjoy by adopting life cycle costing. (03 marks)
b. List the costs that MG might have to incur in each phase of the life cycle of Glory Ultimate.
(04 marks)
c. Suggest the strategies that MG may adopt to extend the maturity phase of Glory Ultimate.
(04 marks)

3. MICHAEL PORTER’S FIVE-FORCES MODEL – 1 (WINTER 2014 – Q.1)

Rivalry among competing firms is usually considered to be the most powerful of Michael Porter’s Five-
Forces Model of competitive analysis. Identify and illustrate the circumstances in which rivalry among
the competitors would be intense.

Also identify any one business in Pakistan in which you consider rivalry among competitors to be
intense and give a reason for your choice. (09
marks)
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4. MICHAEL PORTER’S FIVE-FORCES MODEL – 2 (SUMMER 2014 – Q.8)

Discuss the relevant competitive environment in the context of Michael Porter’s Five-Forces Model of
Competition in each of the three scenarios presented below. Substantiate your answer by stating the
significant characteristics of competitive environment facing the organisations in each of the scenarios.

(i) Ocean Ship Breaking Company is located in a country which has access to skilled low-cost
manpower, convenient berthing/ship-dismantling facilities, liberal tax incentives and an expanding
domestic market for sale of steel scrap. Despite the above favourable factors, very few
entrepreneurs have interest in this so called ‘dirty and demanding’ business. On the other hand,
the shipping industry is facing a surplus of unserviceable vessels. These vessels have to be
scrapped as early as possible due to their high maintenance costs and port charges.
(ii) Two companies have developed genetically modified rice seeds after intensive research at a
considerable cost. These companies have also made substantial investments in physical facilities
for producing the seeds. These seeds have resulted in unprecedented increase in per acre yields in
the three countries in which these seeds have been marketed to-date. Both the companies expect
phenomenal increase in their revenues and earnings after they launch their products in other rice
growing countries due to the envisaged demand in these countries.
(iii) In Country PQR there are six cement manufacturers of similar strength and resourcefulness. These
manufacturers share among themselves 90 percent of the aggregate market which is expected to
remain stagnant due to lack of demand for new housing and absence of plans for major
infrastructure projects in the country in the foreseeable future. (09 marks)

5. ENTRY BARRIERS (SUMMER 2013 – Q.9A)

What are the different types of entry barriers which may discourage entrants from establishing new
manufacturing units in spite of substantial demand/supply gap for products in any industry?
(07 marks)

6. IDENTIFICATION OF STRATEGIES (WINTER 2012 – Q.4)

Identify the strategies/policies/objectives which are being pursued in each of the following cases:

(i) Poshak Fashions (PF) are designers and manufacturers of superfine cotton garments and have
their two outlets in Karachi and Lahore. PF produces only limited quantities of their exclusive
designs of garments for the narrow niche market of the most fashion-conscious customers. PF
introduces new designs of garments for the coming season and the unsold inventory at the end
of the previous season is sold at lower prices to other retailers in the country after removing PF's
prestigious labels. PF is pursuing a market strategy.
(ii) Super Beverages believes that the world is one 'big market for its products and its various
subsidiaries and divisions pursue a uniform marketing strategy for sale of its products in different
countries. Super Beverages has adopted a strategy for marketing its products
in different countries.
(iii) Sarmad Group is a pioneer in the textile industry in the country. The second generation
entrepreneurs of this Group have ambitious plans to launch new ventures in telecommunications
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electronic media and real estate development. The Group is now seeking to follow
strategy.
(iv) To press for their demands, employees of Citizens Bank Limited have decided to work strictly
according to the terms of their contract of employment and refuse to perform any extra tasks,
resulting in slow down of banking services and causing inconvenience to customers. The
employees of Citizens Bank Limited are pursuing policy
(v) Good Meats has recently established several-retail outlets to sell-selected cuts-of-choice meats
and establish its own brand name in a high-growth market before new competitors enter this
market and set up their business on similar-lines. Good Meats wants to seize the
advantage of this market.
(vi) Neptune chemical a manufacturer of industrial chemicals has established independent units-who-
would be responsible for development of their own marketing strategies with in the company's
over all-market arid customer focus to be able to serve the needs of the various categories of
customers more efficiently. The independent units are of Neptune Chemicals.
(06 marks)

7. MICHAEL PORTER'S FIVE FORCES MODEL (SUMMER 2011 – Q.2A)

Identify the force of competition which is relevant in the context of Michael Porter's Five Forces Model
of Competition in each of the scenarios presented below. Substantiate your answer by highlighting the
salient features of the Model of Competition selected by you in each of these scenarios.

a. Four companies of similar size and strength are engaged in the manufacture of detergent powder
Jar washing clothes. These companies are key market players and jointly share ·95% of the
aggregate market which is not expected to witness any 1 significant growth in the foreseeable
future.
b. Sound Health Pharmaceuticals and Good Care Pharmaceuticals are manufacturers of two new
medicines for treatment of cancer. The medicines have been developed after a long period of
research at a very substantial R&D cost and are highly effective. Both the existing manufacturers
are earning exceptionally high profits in a market which is expected to witness growth in the
future.
c. Lucky Coal Mines Limited is the sole supplier of coal to a cement plant located in close proximity
to the mines. The cement plant requires substantial quantities of coal for firing of its kilns. Quality
of this coal is most suitable for the cement plant and also cost effective due to low transportation
costs. Lucky Coal Mines has several buyers who are willing to purchase the coal because of its
high calorific value. (09 marks)
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8. BUSINESS STRATEGY (WINTER 2010 – Q.3)

Identify the business strategy/policy/tool which an organisation is pursuing in each of the following
situations:
a. In 1990, Sony launched the first High Definition (HD) TV in the market at a price of $43,000 per
set. These TV sets were purchased by customers who could afford to pay the high price for the
new technology. After reaping the maximum profits and recovery of the sunk R&D costs, the price
was gradually reduced in 1993 to $ 6,000 for a 28” TV set to attract new customers. This strategy
is called __________.
b. The management tool that enables a firm to classify its range of products according to their
current market share and expected growth is called __________.
c. The assessment tool used to compare and identify the variance between a firm's current market
coverage and potential market opportunities for its products is called __________.
d. A company which has capabilities to manufacture a complete line of superior quality ball bearings
for a wide range of original equipment manufacturers and industrial users is pursuing a strategy
of __________.
e. If a company engaged in the textile manufacturing business acquires majority holdings in a sugar
mill, a motor car manufacturing plant and a private airline; it is pursuing a __________ strategy.
f. The chief executive officer who makes alternative plans to deal with emergencies or unexpected
situations prior to their occurrence is pursuing a __________ strategy. (g) A firm uses different
brands of essentially the same product to target different market segments is pursuing a
__________strategy.
g. A bank which strives to develop better understanding of the customer’s needs and satisfy them to
create customer loyalty is adopting a policy of __________.
h. A method of demand forecasting in which a firm markets its new products in a limited
geographical area to ascertain consumer response and from this sample develops projections of
the size of market over a larger area is called __________.
(09 mark)
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9. ETIHAD LIMITED (WINTER 2019 (Q.1)

Etihad Limited manufactures and sells three products. The following information is available in this
regard:

Product 1 Product 2 Product 3

(See note-1) (See note-2) (See note-3)
Year Total Total Total
Sales Sales Sales
market size market size market size
-------------------------------- Rs. in million --------------------------------
Actual
2017 74 132 3 70 10 100
2018 72 134 2 71 14 120
2019 74 133 2 69 16 140
Forecasted
2020 73 135 2 68 18 160
2021 74 134 1 62 22 190

Note 1: Product 1 is a long-standing product that has been consistently selling in the same market.
Note 2: Product 2 has been consistently selling in the same market for quite some time.
Note 3: Product 3 was introduced in 2017 and is still considered new in the market.

In the current year, 2019, the market share of the biggest competitor for Product 1 is 20%, Product 2 is
44% and Product 3 is 37%.

Required:
Analyse the information provided above and devise strategies for each of three products . (14)

10. PORTER’S FIVE FORCES (WINTER 2020 (Q.6)

The internet has invigorated the industry competition by challenging the existing ways of doing
business. It has also significantly disrupted the Porter’s five forces of industry competition.

Required:
Analyze the impact of internet on each of the Porter’s five forces. Also provide business/industry
examples to support your analysis. (10)
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11. SINO PHARMA (SUMMER 2021 - Q.3A)

SinoPharma (SP), is engaged in manufacturing and selling of pharmaceutical products. The following
information pertains to two of its products:

InstaB
It is a mature branded product whose patent expired at the end of 2015. Thereafter, two competitors
launched their generic products i.e. GenA and RapidA in 2016 and 2017 respectively. The table below
shows sales volume of InstaB, GenA and RapidA over the years:

Year 2014 2015 2016 2017 2018 2019 2020* 2021 2022
--------------------- Sales volume in '000 ---------------------
InstaB 220 220 115 90 80 70 60 50 45
GenA - - 110 108 90 94 100 112 116
RapidA - - - 26 55 60 63 62 63
Total market size 220 220 225 224 225 224 223 224 224
* indicates current year

Azkaard
Azkaard was launched in 2012 in the market and its patent is expiring in 2022. It continues to enjoy
great returns in a mature low growth market. However, SP is concerned that Azkaard too will meet the
fate of InstaB unless proper competitive strategies are planned before its patent expires. One of the
suggestions is to discontinue Azkaard as soon as the patent expires and utilize the resources on other
products which have potential in the existing market.

Required:
a. Boston Consulting Group (BCG) Matrix (10)
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CHAPTER 03:
COMPETITIVE ENVIRONMENT
ANSWERS
1. MARKET COMPETITIVE STRATEGY (SUMMER 2019 – Q.6)
a. Captain of the Sea (COS) is following the Differentiation Strategy.
 Making the product different: means making a product different from rival products in a way
that customers can recognize.
 Customers may pay more for the value of unique features: customers might be willing to pay
a higher price for the product, because they value its different features.
b. Differentiation strategy can affect Porter’s five forces in the following ways:
 Threat from potential entrants: Offering the services in line of COS would require significant
capital investment which might create entry barriers for potential entrants.
 Threat from substitute products: The uniqueness of services being offered by COS i.e. one of
a kind shopping experience in a cruise ship may reduce the threat of substitute products
significantly

2. MARVEL GROUP (WINTER 2018 – Q.2A, B, C)

a. MG may enjoy the following benefits by adopting life cycle costing:
 The potential profitability of Glory Ultimate would be assessed before major development is
carried out and further costs are committed. It may assist management in deciding whether to
introduce new series at all or not.
 It may assist in identifying various types of costs over the life of Ultimate Glory. Strategies may
then be devised to reduce / control these costs.
 It may assist in developing a pricing strategy that would cover the costs and achieve desired
level of profits.
b. MG might have to incur following costs in each phase of the life cycle of Glory Ultimate:
(i) Introductory phase
 Manufacturing costs (costs of operations)
 Marketing and advertising costs to raise product awareness
 Costs of setting up and expansion of distribution channels
(ii) Growth phase
 Increased costs of working capital
 Costs of increasing capacity
 Marketing and advertising costs to raise customer base
(iii) Maturity phase
 Costs to maintain manufacturing capacity
 Marketing and product enhancement costs to extend maturity
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(iv) Decline phase

 Costs of withdrawals (costs of remaining warranties)
 Discounts to attract customers

c. MG may adopt any or combination of the following strategies to extend the maturity phase of
Glory Ultimate:
 Differentiate by modifying design, features, packaging, etc. to extend product life.
 Sell to untapped markets in terms of geographical area, gender, type of customer, life style
etc.
 Revisit pricing strategy by offering discounts or promotional schemes to attract customers
who are happy to purchase ‘old models’ for a lower price and avoid paying the premium
required for the new models.

3. MICHAEL PORTER’S FIVE-FORCES MODEL – 1 (WINTER 2014 – Q.1)

Rivalry among the competitors will be intense/high:
1. If the number of competitors is high and they are equal in size, strength and capabilities.
2. In case the overall market is not expanding and the competitors resort to price cutting and
aggressive promotion to capture a larger share of the aggregate market.
3. If there is not much brand loyalty among the customers and it is easy and less costly for them to
switch suppliers.
4. In industries-which have to incur substantial fixed costs, the competitors would strive hard to
manufacture and sell larger quantities to spread and recover their fixed costs from sale of large
number of units
5. If the products are perishable or have limited shelf lives as the competitors would resort price
cutting and aggressive promotion to dispose of their stocks.
6. When there are major exit barriers and alternatives uses of the assets are limited.
Example:
Manufacturers of soaps/soft drinks/biscuits etc., mobile/telephone service providers. Reasons:
These are relatively' low value-pro duds and are purchased frequently by the Customers at
convenient outlets, the customers can be persuaded easily to change their preferences and hence
their brand loyalties.

4. MICHAEL PORTER’S FIVE-FORCES MODEL – 2 (SUMMER 2014 – Q.8)

Bargaining Power of Buyers
Ocean Ship Breaking Company enjoys an exceptionally strong bargaining position vis-a-vis the ship-
owners. OSBC can purchase ships at very low prices. Besides, OSBC has the significant advantages of
low ship dismantling costs, favourable tax policies and a ready market for sale of steel scrap material
combined with limited number of interested entrepreneurs in this line of business which would
strengthen its position vis-a-vis the ship owners
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Potential Threat of Entry of New Competitors

Since the market for genetically modified rice seeds is expected to offer significant growth prospects
resulting in increase in revenues and lucrative profits by the two companies, there would be a strong
attraction for other resourceful research-oriented companies to enter this market. Although the new
entrants would have to incur huge R&D costs to develop the specialized products, and make substantial
investments in creation of production facilities yet threats from potential competitors cannot be ruled
out.
Rivalry among Existing Firms
Since SLX companies of equal size and strength are involved in competition in the market for cement
which is not expected to show any growth, the strategies pursued by only those companies would be
successful to the extent that they have competitive advantages over the strategies of their rivals. Price
competition, campaigns for creation of perceptions of better quality of cement, free onsite deliver to
bulk buyers and aggressive promotional strategies would be common features among the competing
firms.

5. ENTRY BARRIERS (SUMMER 2013 – Q.9A)

The different types of entry barriers which may discourage new entrants from establishing new
manufacturing units in spite of the substantial demand/supply gap for products in any industry are:
1. It may be difficult to achieve economies of scale quickly due to technical/operating constraints
with the result that the new entrants may sustain substantial losses for a considerable period.
2. The technology and specialised know-how for manufacture of the products may be held closely
by a few suppliers and it may be difficult or too expensive for new entrants to gain access to such
technology.
3. The existing suppliers may have deeply-entrenched brands and enjoy strong customer loyalty
which may make it difficult for the new entrants .to compete with them.
4. The existing suppliers may be financially resourceful and enter into price wars to deter new
entrants.
5. The initial capital requirements may be too large and beyond the capacity of potential new
entrants.
6. It may be difficult for new entrants to have access to sources of raw materials as the existing
manufacturers may have highly favourable ownership/lease rights of these sources.
7. The existing suppliers may have well-established relations with knowledgeable and resourceful
distribution channels and the new entrants may find it difficult to develop new marketing channels
for distribution of their products.
The government regulatory policies may prohibit new entrants from establishing new units to provide
protection to state-owned industries.
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6. IDENTIFY THE STRATEGIES (WINTER 2012 – Q.4)

a. Market skimming
b. Conglomerate or Diversification
c. First mover advantage
d. Global
e. Work-to-rule
f. Strategic Business Units

7. MICHAEL PORTER'S FIVE FORCES MODEL (SUMMER 2011 – Q.6B)

Rivalry among Existing Firms – Since companies of equal size and strength are involved in competition
in a market which is not expected to show any growth, the strategies pursued by anyone company can
be successful to the extent that it has competitive advantage over the strategies of its rivals. Price
competition, campaigns for creation of perceptions of quality differentiation, more convenient and
attractive packaging features and aggressive promotion would be observed among the competing firms.

Potential Threat of Entry of New Competitors – Since the market has significant growth prospects and
present firms are earning lucrative profits there would be a strong attraction for other resourceful
companies to enter this market although a new entrant would have to incur huge research and-
development costs to develop the specialized products, yet threats from successful and experienced
companies would always be present.

Bargaining Power of the Supplier – Lucky Coal Mines is in a strong bargaining position. It can sell its
coal to many other buyers whereas the cement plant would have to incur high transportation costs -
switching costs - if it were to procure coal from other mines which are located at a considerable
distance. Furthermore, the quality of coal from other sources may not be as suitable for the cement
plant Lucky Coal Mines can therefore dictate its terms e.g. price, advance payments on placement of
orders and recovery of transportation costs from the cement plant.

8. BUSINESS STRATEGY (WINTER 2010 – Q.8B)

The business strategy/policy in each of these situations is:

(a) Market Skimming Pricing Strategy

(b) BCG Matrix
(c) Gap Analysis
(d) Product Specialization
(e) Conglomerate Diversification or Conglomerate Expansion Strategy
(f) Contingency Planning Strategy
(g) Multi-brand Strategy
(h) Relationship Marketing
(i) Test Marketing
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9. ETIHAD LIMITED (WINTER 2019 (Q.1)

Product 1:
Analysis of Info:
 It is a product in a market with low growth.
 Its market share is consistently very high and is forecasted to remain high.
 Its market share in the current year, 2019, is 56% (55.6%), which makes it the market leader.
 It is a long standing product in the existing market.
 It displays the characteristics of a mature product with dominant position.
 This is a Cash Cow product.
Future Strategies:
 It should be dealt with consistently to keep reaping profits.
 The cash generated by product 1 can be used to invest in other products.
 Market penetration, although difficult to implement in a low growth market, should be used
when expansion is required as it is the least risky approach. For example, this can be obtained
through cost leadership and acquisition of competitors, etc.

Product 2:
Analysis of Info:
 It is a product in a market with declining growth.
 Its market share is consistently very low and is forecasted to dip lower.
 Its market share in the current year is about 3% (2.9%) which is much less than the 44%
market share of the market leader.
 It is an existing product in the existing market.
 It has weak position and seems to be in the decline phase.
 This is a Dog product.
Future Strategies:
 If the product is generating required ROIs or positive NPV, EM can choose to keep the
product till it is feasible.
 Divest the product as it is projected to decline and may incur losses.
 If EM decides to keep this product for any reason (e.g. profit, brand value, product synergy,
etc), market penetration strategy may be used for expansion, however, EM should avoid risky
investments on this product.

Product 3:
Analysis of Info:
 It is a product in a market that is showing high growth.
 It has low market share.
 Its market share in the current year is about 11% (11.4%) which is less than the 37% market
share of the market leader.
 It is considered a new product in the new market.
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 It resembles an entrepreneurial venture in a high growth market.

 This is a Question Mark product.
Future Strategies:
 The market is growing quickly, there is an opportunity to increase market share, but initially it
will require a substantial investment of cash to increase or even maintain market share. EM
should keep investing in the growth of this product.
 EM can invest cash generated from product 1 into Product 3.
 Differentiation or focus strategy may be used to gain a larger market share

10. PORTER’S FIVE FORCES (WINTER 2020 (Q.6)

The impact of internet on each of the Porter’s five forces along with business/industry examples is
analyzed as follows:
Threat of new entrants
The internet has increased the threat as barriers to entry have generally been lowered in many
industries. The use of internet has enhanced the ability of new competitors to market their products or
services by entering the market more quickly (formalities of setting up business can be avoided) and
more cheaply (no large physical set-ups, employment of full-time sales force or distribute products
through traditional retail networks can be significantly reduced).

Example - online food delivery businesses have invested little capital and captured the large size of
market very quickly.

Threat of substitute products

The internet has increased the threat posed by substitute products as the same underlying products can
now easily and inexpensively be delivered through an alternative distribution medium. This threat is
further strengthened in industries where switching costs are low and buyer propensity to substitute is
high.

Example – online newspapers have reduced the demand for hard-copy daily newspapers.

Bargaining power of customers

The internet has increased the bargaining power of customers substantially. By using search engines,
customers are able to obtain information about the rival products of many different competitors.
Customers are also finding it easier to switch suppliers because of greater availability of substitute
products and low switching costs involved.

Example – airline ticket prices are updated in real-time that can easily be compared before customers
can make purchase decisions.
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Bargaining power of suppliers

The internet has increased the bargaining power of suppliers as they now can access greater number of
clients or customers (due to global reach) for their products. As a result, the bargaining power of
suppliers is likely increased. Example – online retail business and e-payments have made it easier for
suppliers to access greater number of customers. Competitive rivalry with existing competitors The
internet has significantly increased the competitive rivalry among competitors. Organizations have been
providing greater amount of information about themselves and their products on their websites. This
makes it easier for competitors to imitate. Also, low entry and exit barriers also encourage new
competitors to enter the market without making large capital investments.

Example – mobile phone companies have been introducing and aggressively marketing new features
frequently thus intensifying the competition.

11. SINO PHARMA (SUMMER 2021 - Q.3A)

a. BCG Matrix:

InstaB
It is a ‘Dog’ as it has a low market share in a low growth market. Its market share has
continuously been declining from the year its patent expired. Its market share in the current
year is about 27%, which is much less than the share of the market leader (45%). Further, it is
forecasted to continue to decline to 20% by 2022.

Recommended Strategies
 If it is no more generating positive cash flows, then the appropriate strategy would be to
withdraw it and invest the resources in other products which have potential in the existing
market.
 If it is generating positive cash flows, then SP may continue to enjoy the cash flows as
long as these are positive before eventually withdrawing from the market.
 If SP decides to continue it, then it is recommended to not to invest heavily as gaining
market share in a low-growth market is highly unlikely to achieve.

Azkaard
It is a ‘Cash cow’ as it has a high market share in a low growth market. It is a patent product
and enjoying 100% market share which would continue at least till the patent expires. It is
more likely earning substantial net cash inflows due to the benefit of having a patent in place.
Recommended Strategies If SP decides to continue Azkaard when patent expires:

 Defend and maintain market share which might be possible by achieving economies of
scale and/or become efficient through experience.
 Try to extend the patent validity as long as possible.
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Chapter 03: Competitive Environment
Answers

 Do nothing and keep reaping the profits as long as it enjoys positive cash flows and then
eventually withdraw from the market.
 Use the cash from the sales of Azkaard for R&D or to further develop other drugs which
are in ‘Question mark’ and or ‘Star’ quadrants.

If SP decides to discontinue Azkaard when patent expires:

 Use the sale proceeds of Azkaard for R&D or to further develop drugs that are in
‘Question mark’ and or ‘Star’ quadrants.
 For the last year before the patent expires, raise the prices further, if feasible, to gain
maximum benefit before competition kicks in that would reduce revenue and market
share.
 SPM Practice Kit
Chapter 04: Capability Analysis of Business
Questions

CHAPTER 04:
CAPABILITY ANALYSIS OF BUSINESS
QUESTIONS

1. THE COFFEE HUB (WINTER 2017 – Q.4)

The Coffee Hub (TCH) is a newly established chain offering gourmet blend coffee in a variety of flavours
in a state-of-the-art customer friendly coffeehouses. It imports the highest quality of coffee beans from
suppliers around the globe. Besides own operated coffeehouses, it has issued operating licences to
other stores as well. TCH also offers packaged coffee to online customers.

Required: List the activities to be carried out by TCH in respect of its primary value chain based on the
classification suggested by Porter. (08 marks)

2. GOOD FOOD RESTAURANTS (SUMMER 2016 – Q.2)

Established in the year 2006 in Karachi, Good Food Restaurants (GFR) has achieved remarkable growth
and presently owns and operates a chain of ten restaurants in Karachi, Lahore and Islamabad. GFR’s
operations have been highly profitable because it has a significant base of loyal customers who are not
only a source of repeat business but they also promote its image through word-of-mouth
advertisement.

Identify the strengths, weaknesses, opportunities and threats for GFR. (Mention any four points in
respect of each)
Note: Only list the parameters – explanations are not required. (08 marks)

3. STRATEGIC ADVANTAGE (WINTER 2014 – Q.9B)

Quality is a strategic advantage which can be achieved by an enterprise through long-term commitment
to excellence in all areas of operations.

Identify the factors you consider to be most critical for achieving quality as a sustainable strategic
advantage. (04 marks)

4. INTERNAL BENCHMARKING AND FUNCTIONAL BENCHMARKING (SUMMER 2014 – Q.4B)

Various types of Benchmarking are used as points of reference or standards against which performances
of organisations are measured. State the difference between Internal Benchmarking and Functional
Benchmarking.
Give one example each of Internal Benchmarking and Functional Benchmarking. (05 marks)
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Chapter 04: Capability Analysis of Business
Questions

5. OPERATIONAL AND STRATEGIC AREAS (SUMMER 2008 – Q.6)

In the current economic scenario, business organizations are under continuous stress to achieve
economies in their production and operating costs. The pressures for cost reduction emanate from the
management as well as the competitors and customers. Identify eight operational and strategic areas
which must be scanned continuously by an industry leader to achieve cost economies and maintain its
competitive advantage.
(08 marks)

6. SWOT ANALYSIS III

ABC is a multinational company specialising in travel goods such as suitcases and travel bags. It has a
strong position in the ‘luxury goods’ section of the market, and its brand is well-known and highly-
regarded.
It has manufacturing facilities and distribution centres located around the world. Its IS/IT systems
strategy has been to allow decentralisation of systems. Each division of the company has been allowed
to develop and use its own IS/IT systems.
The company has been successful in using developments in information technology. It has EDI links with
many of its major suppliers, and it was one of the first companies in the industry to develop a website
for advertising and selling its goods directly to consumers. However, the popularity of the website has
been falling, and the number of ‘hits’ per day is now down to a third of its peak level about three years
ago.
Although the company has EDI links with suppliers, it does not yet have similar arrangements with its
major customers. However, some customers have recently suggested that improvements could be made
in their supply chain by establishing extranet links.
The company is in a highly-competitive market, and rival companies have been successful in taking
market share by offering well-designed products at lower prices.
The directors of ABC are aware that some managers have ideas for improving competitiveness, but
these ideas are spread out throughout the company, and it has been difficult for different divisions in
different countries to exchange their ideas. It has been suggested that a new intranet system could be
introduced to improve the interchange of ideas within the group.
The directors are also aware that they do not have as much information as they would like about their
competitors. Travel goods are a type of fashion accessory for many customers, and ABC would probably
benefit from learning much faster about the initiatives that its competitors are taking in the market. It
has been suggested that an information system should be developed for senior managers, giving them
access to information about competitors, including easy access to their internet sites.

Required
Construct a simple SWOT analysis (strengths, weaknesses, opportunities and threats analysis) for ABC.
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Chapter 04: Capability Analysis of Business
Questions

7. STAR COFFEE (WINTER 2020 Q.1 (A,B)

Star Coffee (SC) is a USA based chain of high-end cafes. It has sixty-three state of the art cafes mostly in
the commercial areas of the country to target office workers.

Every year in October, SC orders freshly harvested and processed coffee cherries from several growers in
Guatemala – a place that is well-known for its coffee industry and offers benefits of labour arbitrage.
Along with the payment for cherries, SC pays the growers to book premium shipping agents who can
deliver the cherries to SC warehouse in USA. When the shipments arrive, SC workers run quality checks
to keep only the best quality cherries and return the rest back to the growers. SC keeps the cherries in a
highly well-maintained large storage facility at the warehouse to ensure they stay fresh as long as
possible and are carefully sent to the cafes when required.

Each SC cafe is equipped with roasters and grinders. The roasting process is quite complex but the
grinding process is fairly simple. As soon as the cherries arrive at the cafes, they are checked for
freshness and roasted into coffee beans according to SC's specific requirements. The coffee beans carry
a long shelf life and are kept at small stores in the cafes. To bring just the right flavours, the coffee
beans are crushed by grinders right when that perfect cup of coffee needs to be prepared.

SC takes pride in its proprietary quality control, roasting and grinding processes and markets them by
putting imprints on cups, placing attractive posters on cafe walls and by word of mouth through their
customers. SC is extremely particular about the customer experience at the cafes. It only hires
experienced staff, maintains cafes in immaculate condition, has a credible loyalty program and provides
free use of Wi-Fi, newspapers and magazines.

Required:
a. Explain how SC’s primary business activities offer value to the customers to achieve the competitive
advantage. (06)
b. Suggest improvements in SC’s primary business activities to reduce costs without reducing the value
delivered to the customers. (06)
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Chapter 04: Capability Analysis of Business
Answers

Chapter 04:
Capability Analysis of Business

ANSWERS

1. THE COFFEE HUB (WINTER 2017 – Q.4)

Activities that may be carried out by TCH in respect of its primary value chain based on the classification
suggested by Porter:
Inbound logistics
 Procurement of the finest quality of coffee beans
 Developing and maintaining strategic relationship with suppliers
 Safe transportation of beans from suppliers to coffeehouses and licensed stores
 Adequate storage of beans to ensure that quality remains intact
Operations
 Roasting of coffee to bring out the deep and intense flavour
 Frequent testing to ensure quality consistency
 Packaging of gourmet blends for online orders
 Adequate maintenance of coffee makers (coffee brewer, milk frother etc.)
Outbound logistics
 Sale of coffee through TCH’s own operated coffeehouses as well as licensed stores
 Delivery of packaged coffee to online customers.
Marketing and sales
 Marketing through various mediums i.e. print and electronic media particularly social media
 Marketing through word of mouth by providing high quality of coffee with high level of customer
services
 Participation in food festivals and related events
Service
 Ensuring best services at all coffee houses
 Complimentary coffee or refund to unsatisfied customers
 Encouraging feedback from customers and addressing their concerns, if any.

2. GOOD FOOD RESTAURANTS (SUMMER 2016 – Q.2)

Strengths: Weakness:
 Strong customer loyalty  Does not hold price leadership position in
the market
 use of superior quality basic  Rising costs of operation and food
ingredient ingredient
 Efficient and courteous customer  Difficulties in procurement of good quality
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Chapter 04: Capability Analysis of Business
Answers

service food ingredients

 Good location of restaurants  Heavy investment required in maintaining
the existing facilities
 Consistent high quality of food  Inconsistent quality of food at the different
restaurants

Opportunities: Threats:
 increase in number of prospective  loss of trained staff to competitors
affluent customers
 increase in number of working  changes in eating habits of health conscious
families who prefer to eat out costumers
 introduction of home delivery  aggressive competition from existing
services restaurants
 addition of more facilities/ services  entry of new competitors
like free internet , children play
area etc.
 market penetration in other cities 

3. STRATEGIC ADVANTAGE (WINTER 2014 – Q.9B)

The critical factors for achieving quality as a sustainable strategic advantage are:
a. Understanding the needs and preferences of the customers.
b. Paying attention to laid out specifications.
c. Striving to learn and improve continuously.
d. Giving importance to customer feedback.
e. Stress on quality assurance in all stage of the value chain.

4. INTERNAL BENCHMARKING AND FUNCTIONAL BENCHMARKING (SUMMER 2014 – Q.4B)

Internal Benchmarking is a method by which one operating unit or function is compared with the other
similar function within the same industry.
OR
It is a method by which the best practices or functions are compared within the same organization.
Functional Benchmarking comp res similar functions in one organisation with those of other external
entities who also perform that particular function regardless of the industry in which these functions are
performed.
Example of Internal bench marketing Gross profit percentage of one airline will gross profit percentage
of another airline.
Example of Functional Bench marketing: Compensation packages of the CEOs of a pharmaceutical
company and a company engaged in manufacturing of textile products.
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Chapter 04: Capability Analysis of Business
Answers

5. OPERATIONAL AND STRATEGIC AREAS (SUMMER 2008 – Q.6)

The economies in production and operating costs can be achieved by focusing in the following PIIP
areas:
a. Exploring alternate sources of cheaper raw materials and components.
b. Negotiating with existing suppliers of raw materials and components for more favourable terms.
c. Relocating facilities to areas which have lower costs.
d. Improving capacity utilization to achieve economies in costs.
e. Introducing modifications in production designs to- reduce costs.
f. Improving machine and worker efficiencies.
g. Re-engineering processes to eliminate activities and bring cost reductions.
h. Hiring contract workers with the objective to reduce labour costs.
i. Outsourcing processes/ manufacturing of components to low cost suppliers if quality control
measures can be implemented.
j. Adopting efficient inventory management practices such as just-in-time inventory management
techniques.

6. SWOT ANALYSIS III

Strengths
 Strong brand and reputation
 Worldwide facilities for manufacture and distribution
 Managers with ideas for improving the business
 Successful experience with EDI
 Successful experience with website and e-commerce.

Weaknesses
 Poor communications between divisions within the company
 Little or no access to information about competitors
 Possibly the decentralisation of IS/IT systems is a weakness.

Opportunities
 Possible use of intranet to improve internal communications and interchange of ideas
 Possible use of extranets to improve communications with customers
 Possible use of an executive information system to provide more information about competitors
and the market.

Threats
 Strong competition in the market. Competitors have made some successful initiatives.
 Significant fall in number of ‘hits’ on the website.
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Chapter 04: Capability Analysis of Business
Answers

7. START COFFEE (WINTER 2020 Q.1 (A, B)

a. Primary activities
 Inbound logistics
 SC gets cherries from Guatemala to ensure it has the best quality of cherries, to make the
perfect cup of coffee.
 SC pays growers to book premium shipping agents to ensure quality and timely delivery of
cherries.
 SC performs quality check on the cherries received to ensure only the best are selected for
coffee.
 SC carefully stores the cherries at the warehouse and sends them to the cafes per demand
to ensure that the quality of the cherries is maintained to standard.
 Cherries are carefully delivered to the cafes to ensure their quality is maintained.

 Operations
 SC cafes roast the cherries themselves so they can roast the cherries into coffee beans per
SC’s specific requirements for quality.
 SC cafes grind the coffee beans right when the cup of coffee needs to be made so the
customer receives the very fresh coffee every time.

 Outbound logistics
 The cafes act as a delivery point where the customers can come and enjoy their coffee.

 Marketing and sales

 By keeping the cafes in the commercial areas, it can easily reach out to their target
customers.
 SC does not spend much on marketing activities (e.g. tv adverts, social media, etc.). It only
spends on in-store posters and imprints on cups. This saves them money.

 Service (after sales)

 All the facilities at cafes (free use of Wi-fi, newspapers, magazines, etc.) and after sales
services (loyalty programs) are to ensure the customers have a pleasant experience.

b. SC can make the following improvements:

 Instead of shipping the cherries to US only to be returned back to Guatemala after the quality
check, SC should peform the quality check before buying the cherries. This way it can save
shipping costs on:
 return of unwanted goods; and
 labour intensive process of quality check in US, that is likely more expensive than
Guatemala.
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Chapter 04: Capability Analysis of Business
Answers

 Instead of asking several growers to arrange their separate shipping agents, SC should select
and hire its own shipping agent to reduce:
 handling and delivery costs by several shipping agents; and
 costs for tracking shipments.

 Roasting should be done centrally at the warehouse or preferably in Guatemala (if feasible). It
can reduce costs on:
 training of cafe staff on the complex roasting process;
 storing high-maintenance cherries at the warehouse;
 delivering high-maintenance cherries locally to the cafes; and
 Shipping high-maintenance cherries from Guatemala.
 SPM Practice Kit
Chapter 05: Competitive Strategies
Questions

CHAPTER 05:
COMPETITIVE STRATEGIES
QUESTIONS

1. RELIANCE MOTORS (SUMMER 2019 – Q.5)

Reliance Motors (RM) launched a small car, called Mini-R, in 2016 that failed to bring in the expected
revenues and the production had to stop.
Mini-R was targeted for working women in their twenties. It was designed to be used in metropolitan
cities where a small car would easily navigate through the busy streets. It had a typical design and all
the standard built-in technical features. However, the customer could pay extra to get the desired
features available in the market like high-tech sound system and a hybrid technology kit for fuel
efficiency.
The pricing for Mini-R was kept at a premium level. It was decided that RM would initially charge high
price which would then be reduced gradually over a couple of years. Mini-R was mainly marketed by
putting big catchy adverts in daily newspapers to attract the customers.
Through a market survey of the targeted customers, Mohsin Sheikh, CEO of RM, found out that most of
the targeted customers were simply unaware of the car and those who knew about it did not perceive
the car offers value for money.

Required:
a. Why did customers perceive Mini-R could not offer value for money? (02 marks)
b. Before the launch of Mini-R in 2016, suggest how changing the following could have resulted in a
more desirable outcome:
(i) Product (Mini-R) only
(ii) Pricing only
(iii) Both product and pricing (08 marks)
c. Explain the reasons why targeted customers might be unaware of the car. Also, suggest cost
effective ways to create awareness among targeted customers. (03 marks)

2. PIONEER LIMITED (WINTER 2017 – Q.1)

Pioneer Limited (PL) is engaged in the business of manufacture of wide range of personal products. The
new management in PL is seeking strategies for sustaining competitive advantage over rival firms and
their products and services.

Required:
a. Identify and discuss the strategies that PL may pursue to attain sustainable competitive advantage.
(06 marks)
b. Discuss any two risks associated with the strategies identified under (a). (06 marks)
 SPM Practice Kit
Chapter 05: Competitive Strategies
Questions

c. Recommend the optimal strategy for PL giving two reasons to support your point of view. You
may assume necessary details in this regard. (02 marks)

3. WE CONNECT (WINTER 2017 – Q.3A)

‘We Connect’ is the leading mobile network operator in the country. One of its packages ‘all you desire
four’ has garnered considerable customers’ interest. This package allows customers to select a latest
smartphone, customized internet data usage package, customized local on net and off net minutes and
mobile insurance. The package is for a term of 12 to 36 months and customer has to pay low initial and
equal monthly payments. However, discontinuation of the package prior to the agreed term involves
high cost for the customer.

Required:
Identify and discuss the strategy being followed by ‘We Connect’ in respect of this package.
(04 marks)

4. RISING STAR (WINTER 2017 – Q.5)

Rising Star, sports goods manufacturer and retailer has gained country-wide recognition. It intends to
expand its business globally by franchising its business.
Required:
Briefly discuss the matters that Rising Star should consider before entering into the franchising business.
(07 marks)

5. COST LEADERSHIP STRATEGY (SUMMER 2017 – Q.2A)

Firms which pursue cost leadership strategies in intensely competitive markets make continuous efforts
to achieve economies in their manufacturing and operating costs as pressures for cost reductions
emanate from internal as well as external stakeholders.
Identify six operational/strategic actions which would enable a firm pursuing cost leadership strategy to
maintain and strengthen its competitive advantage. (06 marks)

6. INTERNATIONAL STRATEGIC ALLIANCES (WINTER 2015 – Q.10A)

The prime purpose of international strategic alliances is to co-operate to achieve mutually beneficial
business objectives of the participants whilst retaining their individual autonomy and flexibility. However,
there are numerous instances where the strategic alliances are not able to establish durable
relationships and have resulted in their breakdown. Explain briefly the reasons which result in failure of
strategic alliance arrangements. (06 marks)
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Questions

7. JOINT VENTURES AND STRATEGIC ALLIANCES (WINTER 2014 – Q.4)

Joint ventures and strategic alliances are popular modes of penetrating in foreign markets to achieve
synergies and augment competitive advantages. Despite the potential benefits of these partnerships, the
participants must be cognisant of the risks of these arrangements and keep them within manageable
proportions.
Required:
Identify and explain briefly the risks which should be considered while negotiating agreements for joint
ventures and strategic alliances. (08 marks)

8. HAWK – ENGINEERING LIMITED (WINTER 2012 – Q.1)

A sound system of Environment Scanning is of critical importance in the formulation of Strategic. Plans
of any progressive company operating in a' fast-changing and competitive business environment.
Hawk – Engineering Limited (HEL) is engaged in the business of manufacturing of small motors which
are installed in printers. HEL has made substantial investments in manufacturing facilities and R&D and
has developed its own in-house technology and manufacturing processes. This gives HEL competitive
advantage over its rivals in terms of meeting the stringent requirements of its quality conscious
customers. Important customers of HEL are the original equipment manufacturers of precision laser
printers. Although motors account for a nominal proportion of the cost of the laser printers, their
efficient and reliable performance are of crucial importance for BEL's customers who provide
performance guarantees for their products. HEL is one of the few 'firms who manufacture these types of
small motors. It is able to achieve high profit margins and returns on its investments because of the
superior quality of its product for which its customers are willing to pay premium prices.
Required:
Identify and explain briefly four factors which HEL should monitor. Closely to anticipate the emerging
business environment in which it operates and its impact in the formulation of its Strategic Plans.
(10marks)

9. MARKET CHALLENGER STRATEGY AND MARKET FOLLOWER STRATEGY (SUMMER 2012 –

Q.9)
Firms ranking in second and third positions in highly competitive industries demonstrate significant
business strengths and hold a sizeable share of the aggregate market. Often these firms have to make
strategic marketing decisions whether to challenge the Market Leader to achieve the top position or to
continue to hold on to their Market Follower status.
Required:
Discuss the concepts of Market Challenger Strategy and Market Follower Strategy and briefly explain the
circumstances in which a firm would prefer to pursue a particular market strategy.

(10 marks)
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Chapter 05: Competitive Strategies
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10. MARKET NICHE

The Western Isles Tourist Board is a government-funded body responsible for promoting and
developing tourism in its region of the country. The tourism industry has been restricted in the past by
unpredictable weather in the summer and cold winters. The Board governors have agreed that in order
to increase the number of tourists coming to the region, it is essential to attract businesses that will
provide services and facilities, such as activity centres and hotels.
To create interest in tourism-related businesses, the Board has decided that it should identify niche
markets in the tourism industry that might be developed in the Western Isles. By identifying niche
markets, the Board governors hope that they will start to attract more businesses that will specialise in
catering for particular types of tourist.

Required:
Suggest and briefly explain the market niches that might exist for tourism businesses in the region.

11. ZAIN KITCHEN (SUMMER 2021 (Q.1)

Zain’s Kitchen, owned and managed by Zain, is a small chain of three restaurants located in different
areas of Karachi. One restaurant is located in Gulistan-e-Johar (‘Johar’) that serves full menu of various
‘desi’ food items at low cost. The Johar branch has a large number of customers that consider it highly
cost effective.

The second restaurant is in Clifton. It serves desi and continental food that is comparatively pricier than
the Johar branch. It is well-known for its delicious steaks and burgers. It is the only restaurant in the
vicinity that has a large play area for children and is a go to place for children’s birthday parties.

The third restaurant is located near West Wharf and has fish only menu. It is famous for its tasty and
unique fish recipes among fish lovers.

The recent economic downturn has brought about varied sets of issues from all the branches, which are
becoming increasingly difficult for Zain to manage. One of Zain’s relatives who owns a successful chain
of high-end restaurants has suggested him to replicate Johar branch’s model to the other two branches.

Required:
Analyze the information provided above in the light of Porter’s generic strategies. Also discuss the likely
impact of following the suggestion of Zain’s relative and recommend a possible course of action. (10)
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Chapter 05: Competitive Strategies
Questions

12. PARASH SOAP (WINTER 2021 Q.7 (A, B, C)

The hand wash soap market of Parash, a tourist friendly metropolitan city in Asia, can be categorized by
two product variants: bar soap and liquid soap. Before 2019, only two standard size of the variants were
offered in the market i.e. 3.5 inches’ soap bar and 500 ml liquid soap bottles.

In January 2019, Khalid established a new company called Soapsy in Parash to fill the gap in the market.
Soapsy makes 2 inches travel size ‘mini-soap bars’ and 200 ml ‘mini-liquid soap’ bottles for air travellers.
The bars and liquid soap are designed to be used 9 to 10 times for standard quantity usage. To-date,
Soapsy has been extremely consistent in its approach and offerings with no observable changes to the
internal workings of the company. It remains the only company catering to travellers in Parash.
Presented below is the quantity of each product sold during the period specified:

Note: The figures presented are in multiple of 10,000.

Required:
a. Comment on the appropriateness of the gap chosen by Soapsy. (03)
b. Analyse information provided in the case and identify possible reasons of slump in sales in 2020.
(06)
c. Advise future strategies to Soapsy on how they can tackle a slump in sales like experienced in 2020.
(04)
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Chapter 05: Competitive Strategies
Answers

Chapter 05:
Competitive Strategies
ANSWERS

1. RELIANCE MOTORS (SUMMER 2019 – Q.5)

RM had made a standard product (standard features) and was charging premium price for it that
translated into customers’ perception of low value for money. Mini-R is targeting working women in
their twenties who are most likely starters in their professions and may not have high amount of
disposable income, hence, are cost conscious. Therefore, value for money becomes even more
important.
a. Changes in the Product Only:
Add distinguishing features to increase the perceived value of the product. Features can be in
terms of:
 Attractive design, colour variants, comfort levels, etc.
 Hybrid technology, anti-lock braking system, GPS navigation system, rear parking sensor, etc.
b. Changes in the Pricing:
 For a standard product offering standard features, the price of the product needed to be low
for the value it offered. RM needed to go for a low price option.
 Skim pricing strategy was used in the case which did not work for RM as there were no
differentiating features to justify premium pricing.
 For a standard (non-distinguishing) product, penetration pricing might have been more
appropriate to capture large share of the market quickly.
c. Change both product and pricing
 Improve product offerings and reduce pricing
 The Mini-R could have been improved by adding distinguishing features and reducing pricing
to appeal to the target audience (young working women).
 Price should not be set too low given the distinguishing features have added value to overall
product. - Either skim or penetration pricing strategy could have been used depending on the
distinguishing features introduced in the car.
 Lower product offerings and reduce pricing
 Mini-R could have been made to offer lower value by reducing the standard offerings. To
justify basic offerings, price had to be reduced to competitively lower levels.
 Penetration pricing would have been a better option to attract a large customer base quickly.
 Improving product offerings and increasing price further would not have been practical as a
premium level pricing had already been charged.
 Lowering product offerings and increasing price would have been a strategy for failure as RM
had already failed to achieve desired revenues with the existing product offerings and pricing.
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Chapter 05: Competitive Strategies
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Target customers are working women in their twenties. Many who belong to this customer group may
not be known to read daily newspapers. Hence, many target customers may still be unawared of Mini-R.
Marketing efforts need to be concentrated on venues where target audience is most likely to be found.
Young individuals are avid technology users. Hence, channels like social media, mobile applications and
websites should also be used for the purpose. Other venues may include: magazines, banners in
shopping malls or sponsoring concerts, etc.

2. PIONEER LIMITED (WINTER 2017 – Q.1)

a. There are three strategies that may be pursued by PL to attain sustainable competitive advantage:
(i) Cost leadership strategy Organisation seeks this strategy where it sets out to become the
lowest-cost producer in the market. The aim is to produce a product or service at lower
operating costs than the competitors, to be in a position to gain competitive advantage. This
enables the organisation to sell goods or offer services at the same price as of the
competitors and make a larger profit or sell at a lower price than competitors and still make a
high profit by increasing market share. This strategy is associated with large-scale businesses
offering standard products with relatively little or no differentiation that are readily acceptable
to the majority of customers.
(ii) Differentiation strategy Organisation seeks this strategy where it is in a position to provide a
product or service which the customer perceives to be of a higher value than those offered by
the competitors due to certain unique features. The customers consider that the additional
cost of purchasing the particular product or service is well below what the product or service
is worth as compared to the other available alternatives.
Product or service may be differentiated in terms of design, features, brand image, customer
services, etc.
(iii) Focus strategy: Organisation seeks this strategy where consumer markets are segmented and
organisation selects one or more particular segment as target market for its products or
services. A competitive advantage may be established by focusing on a particular niche which
could be specific buyer group, segment of the product line, geographic market, etc. Within a
market segment, a business entity might seek competitive advantage through:
 Cost leadership; or 3
 Product differentiation

b. Cost leadership strategy Risks:

 Relatively low prices may be perceived as of low quality product/service in the mind set of
buyers.
 This strategy requires certain skills and attributes such as intolerance of waste, broader span of
control, high bargaining skills, lean production methods, intensive monitoring, etc. which
might be difficult to sustain in the long run.
 Continued capital investments might be required to maintain cost advantage and organisation
may find it difficult to finance it.
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Chapter 05: Competitive Strategies
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 Technological advancements and / or innovations may make past inventions, learnings or

methods obsolete.

Differentiation strategy Risks:

 It may be difficult to hold customer brand loyalty when cost gap gets wider.
 The competitive advantage of differentiation would be eliminated when competitor(s) imitate
it.
 Buyers’ preferences for differentiating factor may lessen over the period of time.

Focus strategy Risks:

 Since focus is on a particular segment, any change in demand of that segment would have
significant implications.
 The area of focus may be imitated by others or even disappear with the passage of time.
 Other firms may provide even a narrower focus or establish sub-segments within a segment
and serve even better.

c. PL should pursue cost leadership strategy if:

 It is operating as a large-scale business and can be benefited from economies of scale.
 It is offering standard products with relatively low or no differentiation that are readily
acceptable to the majority of customers.

3. WE CONNECT (WINTER 2017 – Q.3A)

‘We Connect’ is following a ‘lock-in’ strategy. The idea of lock-in strategy is that when a customer has
made an initial decision to purchase a company’s product or service, there would be a commitment to
make more purchases from the same company in the future. The customer becomes dependent upon
vendor for products and services and is unable to use another vendor without incurring substantial
switching costs.

From vendors’ perspective such strategy would help in earning recurring revenue and minimizing
competitive rivalry. However, the vendor has to persist with the package and would not be able to gain
from favourable changes in the market dynamics.

4. RISING STAR (WINTER 2017 – Q.5)

Rising Star should consider the following factors before entering into the franchising business:
 The market in which it would operate i.e. whether market is in growth mode or in decline, level of
competition, laws and regulations, etc.
 Its business ability to adapt and change to fit in with the local requirements.
 Development of well-defined systems and best practices.
 Development of marketing and brand promotion strategies that may be required in the new
market.
 Selection of franchisees that are committed to operate according to the established standards of
Rising Star.
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 Training of franchised staff to acquaint them with the skills that are necessary to perform their
duties.
 Although franchisees make most of the capital investment, Rising Star may have to provide
extended financial support with regard to stock build-up, marketing etc.
 Developing policies regarding up-front payment and royalties in such a manner as to create a
win-win situation for both the parties.
 Exit strategies in the event of failure in meeting the desired results.

5. COST LEADERSHIP STRATEGY (SUMMER 2017 – Q.2A)

The operational/strategic actions which would enable a firm to achieve economies in production and
operating costs to maintain and strengthen its competitive advantage are as follows:
 explore alternate sources of cheaper raw materials and components;
 negotiate with existing suppliers of raw materials and components for more favourable terms;
 relocate facilities to areas which have lower costs;
 0improve capacity utilization to achieve economies of scale;
 re-engineer processes to eliminate activities to achieve cost reductions;
 consider hiring of contract workers with the objective to reduce labour costs;
 outsource processes/manufacture of components to low cost suppliers;
 Implement efficient inventory management practices such as just-in-time inventory management
techniques.

6. INTERNATIONAL STRATEGIC ALLIANCES (WINTER 2015 – Q.10A)

International strategic alliances often result in failure due to the following reasons:
a. The participants in the strategic alliance do not have matching capabilities and resources with the
result that the weak partner is not able to make the expected contribution on an ongoing basis as
were envisaged which results in differences and consequent breakdown of the strategic alliance
arrangement.
b. In the absence of full commitment and support of the top management of the participants, the
strategic alliances often face operational and working problems of inadequate authority,
responsibility and guidance from the higher levels which results in poor performance and failure of
the arrangement.
c. The strategic partners have major differences in terms of their products, technologies, and markets
with the result they are not able to dove-tail their activities and provide any tangible advantages to
each other and ultimately consider that the relationship does not serve much purpose.
d. The cultures values, leadership styles, business experiences and size are too diverse to establish
sound working relationships among the participants which results in the breakdown of the strategic
alliance arrangements.
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7. JOINT VENTURES AND STRATEGIC ALLIANCES (WINTER 2014 – Q.4)

The risks which should be considered by the participants entering into joint ventures/ collaboration
arrangements are:
a. Lack of well-defined strategy for the joint venture/strategic alliance arrangements - The
purpose and need of the joint venture/strategic alliance arrangement must be clearly understood by
the participants:
In the absence of clearly defined benefits that would be derived from the arrangements and their
significance to the 'participants; the joint venture/ collaboration arrangement would not yield
satisfactory results.
b. Inadequate knowledge of capabilities and resources of the participants - The participants
entering into the 'joint venture/strategic alliance must be aware' of the strengths and resources
which each of them would bring to the joint venture/strategic alliance arrangement and its synergy
impact for achieving the desired outcome. Failure to correctly ascertain the capabilities and
resourcefulness of the participants would create friction and result in unsatisfactory performance of
the joint venture/ collaboration arrangement.
c. Lack of clarity on issues of management and control - In joint venture/ strategic alliance .............
arrangements the management and control of the assets are shared between the Participants. In the
absence of well-defined arrangements for sharing of management and control and strong support
by the top management the joint venture/strategic alliance would not be able to achieve its
objectives.
d. Inability to recognize differences in cultures between countries - Companies in different
countries have different leadership styles and in some cultures authoritarian styles of
leadership/management may be me norm and in other cultures participative and consultative style
of management is considered to be the appropriate style. Failure to recognize differences in the
cultures arid make necessary adjustments in the working styles may result in working incompatibility
and failure of the joint ventures/strategic alliance arrangement.

8. HAWK – ENGINEERING LIMITED (WINTER 2012 – Q.1)

HEL should closely monitor the following factors in the emerging business environment in which it
operates and its impact in the formulation of its strategic plans:
Projection of future demand for laser printers in the international market - The demand for motors
by the original equipment manufacturers of laser printers is a derived demand and changes in the
demand for these printers can have considerable impact on the business prospects of BEL. HEL would
have to expand its manufacturing capacity if it anticipates increase in the demand for laser printers or
alternatively explore new markets for Its products if It foresees decline in demand for these printers in
its existing markets.
Technological changes - Changes in models and designs of laser printers due to variations in
customers’ requirements can have considerable impact 90 HELs business prospects, HEL would have to
keep abreast of these changes, continuously enhance its R&D capabilities and introduce necessary
modifications in its manufacturing processes, designs and tooling, This would involve substantial R&D
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expenditures and investment in additional equipment which would have to be incorporated in its
strategic planning process.
Threat of entry of new competitors - HEL is presently earning high profit margins and" realizing
attractive returns on investments. Therefore, the threat of new entrants WAO may pose competitive
challenges to BEL is always present. HEL should be prepared to meet the threat of new entrants and
adopt appropriate measures to maintain its competitive advantages and face threats posed by potential
competitors by interacting closely with its important customers and creating barriers of high switching
costs. This would involve continuous upgrading of technology and improvement of manufacturing
process to retain its competitive advantage.
Competitive rivalry and prices of Competing Products - Although HEL has significant competitive
advantages in terms of quality of its products over its competitors, it should take cognizance of the
strategies of its rivals who would want to improve the quality of their products and may offer
competitive prices to attract HEL's customers, BEL should adopt appropriate strategies to monitor these
threats and counter them effectively.
Diversification - HEL's present customer base and product range is considered to be quite narrow. It
may like to explore the prospects of marketing its products to other original equipment manufacturers
such as manufacturers of photocopiers, computers, etc. and also introduce related products (other than
small motors).

9. MARKET CHALLENGER STRATEGY AND MARKET FOLLOWER STRATEGY (SUMMER 2012 –

Q.9)
Market Challenger Strategy - In this strategy, firms which are placed in second and third positions
launch aggressive marketing campaigns to capture a larger share of the market to dislodge the market
leader from its number one position. A market challenger must have substantial resources and
sustaining capability to challenge the market leader. A resourceful market challenger rimy launch a full
frontal attack to match the market leader's main strengths, i.e. product, pricing, advertising and
distribution efforts. The outcome of the challenge would depend on the relative strengths of each of the
firms. Alternatively a market challenger may pursue a strategy of indirect attack on the competitor's
weaknesses and gradually make inroads in the market to achieve the top position. A market challenger
may also pursue a strategy of acquisition of smaller companies to eliminate competition and steadily
increase its share of the market to achieve top position.
Market Follower Strategy - In a market follower strategy, a firm prefers to retain its runner up position
in the industry rather than to attack and dislodge the market leader. When the market follower realizes
that the market leader would put up strong resistance and not yield easily from its well-entrenched
position or the market follower lacks the resources to meet the capabilities of the market leader, it
decides to maintain its existing status. A market follower may be satisfied with its existing runner-up
position as it would not have to incur the high expenditure on developing new products and educating
the consumers of the new product in the market.
A market follower learns from the market leader's products and programs usually with less investment.
A market follower retains the current customers and plans to achieve a fair share of the market
expansion and also avoids retaliation from the market leader. A market follower strives to keep its
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Chapter 05: Competitive Strategies
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manufacturing costs and prices low and maintain the quality of its products to meet-its targets of
market share, sales revenue and profitability without inviting retaliation from the market leader.

10. MARKET NICHE

In the tourism industry, a market niche might be identified according to the type of holiday preferred by
particular groups of customer. If so, niche markets in tourism could be (for example):
1. City break holidays
2. Golfing holidays
3. Walking holidays
4. Sailing holidays
5. Sight-seeing holidays/culture holidays
6. Skiing holiday

11. ZAIN KITCHEN (SUMMER 2021 (Q.1)

Porter’s generic strategies are analyzed as follows:
(i) Johar branch
It is following cost leadership strategy. Johar branch is seeking to become least-cost producer by
offering food items at a lower price than rival products. This strategy would give Zain’s Kitchen a
competitive advantage as it is seeking to offer the same value as its competitors but at a lower cost.

(ii) Clifton branch

It is following differentiation strategy. Clifton branch is differentiating by offering delicious steaks
and burgers and a large play area for children. This strategy would give Zain’s Kitchen a competitive
advantage as customers seem willing to pay higher price for its products to enjoy the unique
experience which otherwise is not available from other restaurants.

(iii) West Wharf branch

It is following focus strategy. West Wharf branch is focusing a particular segment of market i.e. fish
lovers. This strategy would give Zain’s Kitchen a competitive advantage as it is concentrating on
selling the product to a particular segment of the market. Further, within a market segment, Zain’s
Kitchen has adopted product differentiation strategy.

Impact of following the suggestion of Zain’s relative

Replicating Johar’s branch model to Clifton and West Wharf branches would mean risking business from
customers who visit these restaurants for differentiation value, such as delicious steaks and burgers,
large play area and unique fish recipes. It might be difficult to maintain that differentiation while
seeking to achieve cost efficiencies.

Recommendation
 The impact on business is due to the economic downturn, which is likely going to recover when the
situation improves. Instead of disturbing the existing business models, Zain should try to work on
strategies that could make it easier to manage his restaurants during these tough times e.g. cut
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down on operations, offer limited services where possible, starting delivery services, close operations
temporarily, etc.
 For management issues, he may concentrate on managing his workload through other means e.g.
delegation of work, prioritization of work, etc.

12. PARASH SOAP (WINTER 2021 Q.7 (A, B, C)

a. Soapsy has rightfully picked the correct strategic gap as there are only two product variants in
the market, any other variant would strategically be a gap in the market e.g. different size of the
soap bars and liquid soap bottles other than the standard ones.
The target customers, air travelers, usually have space and weight limitations, hence, smaller sized
portions of soap bar and liquid soap bottles is a viable solution for the purpose.
There could be other strategic gaps as well such as different colors, shapes, fragrances, etc.

b. Standard soap industry trend:

The ‘standard-size’ soap industry showed consistent growth up until Dec 19, after which, Mar 20
showed a huge surge in the quantity of both of the types of products sold. Although, liquid soap
showed a bigger percentage increase (i.e. 78% up) than the soap bars (i.e. 36% up). After 2020,
both the product types kept the high usage volume and showed consistent growth.

Probable reasons:
 Change in consumer behavior is likely caused by changes in external environment after Dec
19. The trend shows that people are consuming more liquid soap bottles and soap bars that
are a common house hold / indoors product for hand wash. The surge in the demand may
be due to people spending more time at home or indoors, also, there may be a need to
clean hands more often.
 Infectious disease (e.g. covid-19) that spreads through touch may require people to stay
indoors, such a scenario may result in an abrupt change in demand of the product which
may change consumer behavior, attitude and usage of standard soaps.

Soapsy:
Mini-soap bar trend:
It showed a gradual decline up until Dec 19, after which, Mar 20 showed a steep decline in the
number of products sold. After 2020, the product continued to level off and did not sell beyond
30,000 units.

Probable reason:
The product may not be accepted in the market. This may be because soap bars that are
expected to be used 9 to 10 times are difficult to keep as they can get wet and dissolve quickly,
which can be a messy outcome for a traveler.
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Mini-liquid soap:
It showed consistent growth in sales up until Dec 19, after which, Mar 20 showed a steep
decline in the number of products sold. From Dec 2020, it shows a huge up surge in sales, way
more sales than before 2020 (i.e. 94% increase). After 2020, the mini-liquid soap keeps the
improved sales figures and shows consistent growth hereon forth.

Probable reasons:
 The liquid bottles are less messy to keep and are easily managed for 9 to 10 times of usage.
 The change brought about by the change in consumer behavior, which is likely caused by
the environment or external factors to the company, for example, an infectious disease that
causes people to wash hands frequently.

Overall comments:
For the slump in sales that almost brought Soapsy business to a halt may have happened due
to reduced air travel (e.g. caused by air travel restrictions) that decreased the need for travelers
to carry soap with them.

c. Should the circumstances of 2020 occur again, Soapsy could:

 Cut down the production until the environment becomes favorable again.
 Analyze other gaps in the market and serve it.
 Use alternate channels where the ‘mini-products’ could be viable e.g. trains, restaurants,
buses, etc.
 Make bigger soaps (or soap bundles) and bottles to serve the change in consumer behavior
to use more hand wash soap.
 Follow the trend i.e. make standard soaps, given the capability is available. This will mean
directly competing and getting into strategic space served by existing market players. For
this, Soapsy can utilize the following strategies:
 Cost leadership – try to reduce cost and hence price of the standard soap.
 Differentiation – make the product different from others e.g. by using different colors,
shapes, fragrance, etc.
  Focus – try to serve the needs of a niche market e.g. restaurants, etc.
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CHAPTER 06:
ALTERNATIVE STRATEGIES
QUESTIONS

1. GRILL SHACK (GS) (SUMMER 2019 – Q.3)

Grill Shack (GS) is the largest fast food chain of the country. It is regarded for ambiance, gourmet meals
and customer services. The major ingredients are imported from USA. The management is concerned
over the increasing cost of imports contributed by weakening local currency and increasing import
duties. GS is considering acquiring local livestock and poultry farms where all activities from breeding to
processing would be carried out exclusively for meeting major ingredient requirements of GS. Fariha
Wajahat (Fariha), marketing head, has raised concerns that such integration may have adverse impact on
the financial and non-financial performance of the business. However, COO has suggested that
introduction of entity-wide balanced scorecard could assist in achieving a satisfactory balance between
various aspects of performance.

Required:
a. Identify the integration GS is intending to pursue. Briefly discuss the benefits that may accrue to
GS on adopting such integration. (05 marks)
b. Justify the concerns raised by Fariha. (03 marks)

2. FASHION COUTURE (WINTER 2018 – Q.1)

Fashion Couture (FC), a leading fashion designer has a presence in all the prominent shopping malls
across the country. It started a small boutique that transformed into a first choice brand among women
in short span of time. It has following three product lines:

 Daily wear: It comprises of unstitched and ready-made dresses. It was the first product line that
FC introduced in 1990 and gained instant popularity due to availability of different designs and
sizes with reasonable quality and courteous customer support staff at the most economical prices
in the market. The demand for this product line has significant potential for growth in the existing
market and the competitors are striving hard to increase their respective market shares.
 Bridal dresses: It comprises of tailor-made bridal dresses. This product line is popular among
targeted upper class groups. The designers are well-qualified having sound knowledge of
customer needs. The premium quality and unique designs are highly regarded by targeted
customers. However, the demand for bridal dresses is moderate whereas competitors offering
party wear dresses are enjoying hefty profits due to high demand.
 Fragrances: It comprises of range of perfumes. This product line was first launched in 2015.
Despite aggressive marketing, this product line could not attract the high end targeted customers
who have strong brand loyalty towards already established brands available in the market.
Consequently, FC has set high prices in the hope of achieving break-even.
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Required:
a. Identify and discuss the strategic position of each of the product line of FC in the strategic clock
as suggested by Bowman. (09 marks)
b. Recommend the growth strategy for each of the product line of FC in terms of Ansoff’s Matrix.
Also discuss how the recommended strategy can be implemented successfully.
(09 marks)

3. IDENTIFICATION OF BUSINESS STRATEGIES – 1 (SUMMER 2018 – Q.7)

Identify the strategies/policies that are being pursued in each of the following cases. Also discuss two
risks associated with each strategy/policy:

a. Ethnic Wears (EW) is a family owned and managed business. EW has been efficiently using its core
competences i.e. innovation and strong marketing capabilities to sustain competitive advantage.
The owners support well-planned and effectively controlled expansion by utilizing available profits
and core competencies. (04 marks)
b. Oven Fresh (OF) are a home based cake bakers. They have outsourced their online order taking,
packaging and delivery services to Tezz food distributors. However, due to constant complaints of
customers over delayed delivery, OF is in the process of starting its own delivery services.
(04 marks)

4. ROBUST TYRES LIMITED (WINTER 2016 – Q.1A)

Robust Tyres Limited (RTL) is engaged in the business of manufacturing and marketing of tyres for cars,
trucks and tractors. Recently, Eagle Tyre Limited (ETL) has offered to sell its company to RTL because of
serious internal conflicts among the principal owners.

Consultants appointed by RTL to conduct an examination of the affairs of ETL have given satisfactory
report regarding the quality of assets, competence of the staff, manufacturing processes, marketing and
distribution network, and financial position of the company.
The consultants have further stated that the asking price by ETL is high but not to of unreasonable.
Discuss what other matters of significance RTL should consider in evaluating the proposal of ETL.
(06 marks)
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5. EXPANSION OR INTEGRATION STRATEGIES (SUMMER 2016 – Q.7)

Identify the types of expansion/integration strategies pursued by the companies in the following
scenarios:

a. ABC Limited, a manufacturer of a wide range of confectionary products has merged with XYZ
Confectioners. It is envisaged that the proposed merger would offer significant economies of scale
and further consolidate its competitive advantages. (01 marks)
b. Coolair Fan Company, a Gujranwala-based manufacturer of ceiling fans presently markets its
products in Punjab and KPK. The company has decided to promote its products in Sindh and
Baluchistan and has appointed distributors for marketing its products in these two provinces.
(01 marks)
c. Superior Sugar Mills Limited has developed its own plantations for growing sugar cane to ensure
steady supply of good quality sugar cane. (01 marks)
d. Climax Pipes Limited, a manufacturer of PVC pipes has established facilities for manufacture of
auto rickshaws. (01 marks)
e. Household Appliances Company a manufacturer of home appliances has sold the division for
manufacture of vacuum cleaning machines because it involved wholly different manufacturing
competencies and marketing efforts which did not blend well with the company’s overall
strategies. (01 marks)

6. ACQUISITIONS, MERGERS & SELL-OFF/DIVESTURE (SUMMER 2015 – Q.3)

Major business corporations regularly pursue and review their global strategies of acquisitions, mergers
and sell-off/divesture. Explain briefly the different circumstances in which these business corporations
may consider it advisable to pursue strategies of sell-off/divesture of a division or a distinct portion of
their overall business operations. (06 marks)

7. ORGANIC GROWTH (WINTER 2013 – Q.8)

Most companies prefer to achieve their objectives of expansion through organic/internal growth.

Give any four reasons why a company may prefer to achieve expansion through internal growth and not
through acquisition of other entities. (06 marks)

8. STRATEGIES OF VERTICAL EXPANSION (SUMMER 2013 – Q.3A)

Various studies show that in the present business environment, strategies of vertical expansion are
pursued less frequently than the other strategies of business growth.

Explain briefly the reasons why firms do not always consider it advantageous to pursue strategies of
vertical expansion vis-á-vis the other strategies of business growth. (08 marks)
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9. DIVESTMENT STRATEGY
Granville Holdings plc is a large international consumer goods company specialising in household
cleaning products and toiletries. It has many manufacturing and sales facilities throughout the world.
Over several years it has offered an increasingly wide range of products appealing to differing market
segments based on both socio-demographic and geographical criteria. However, this product spread
has not only resulted in increased sales volume, but production, marketing and distribution costs have
also increased disproportionately. Granville’s costs are now about 20% higher than those of its nearest
competitors. In such a competitive market, it is difficult to pass on these extra costs to the customer.
In order to regain a competitive position, Chris Button, the Managing Director of Granville Holdings, has
been advised to reduce the range of products and the product lines. Advisors have suggested that a cut
back in the product mix by about 20% could increase profits by at least 40%. Reed is keen to
implement such a product divestment strategy, but he fears that this cutting back could alienate
customers. He needs to know which products need to be removed and which products are important to
the survival of the company. He is unhappy about the overall performance of his company's activities.
Benchmarking has been recommended as a method of assessing how his company’s performance
compares with that of his competitors.
Required:
a. Using appropriate analytical models, discuss how Chris Button might select the products to be
removed from the portfolio as part of his product divestment strategy.

10. PRODUCT MARKET STRATEGIES

Green Tile Company specialises in roof repairs and new roofing. It operates in the North Town area of a
major city. The company has been successful. The success is due largely to growing market demand for
new and better roofing, due to the increasing regularity of strong winds and gales at various times of
the year.
The company has two owner-managers, Stan and Oliver, who want to grow the business organically.
They are considering several strategies for doing this.
The following information is relevant to their strategic thinking:
1. The company’s market share of the business for new roofs and roof repairs in North Town is
estimated to be 25%.
2. There is a strong local demand for the installation of new, improved satellite dishes that have
recently been introduced to the market. These are attached to roofs of houses and other
buildings.
3. Stan’s sister works for the company. She has been talking to a friend, who has told her about a
severe shortage of firms that provide office cleaning services in the North Town area. She used to
work as an administration manager in an office cleaning firm in a different part of the city.

Required:
Four different product-market strategies are market penetration, product penetration, market
development and diversification. Suggest a product-market strategy for each of these four categories
that Green Tile Company could select as a way of developing its business. Justify your answers.
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11. SMILE-SWEET
Smile-sweet is the world’s only producer of a sugar sweetener called sucralose, which it sells under a
well-established brand name. Smile-sweet has maintained its monopoly in the market for sucralose by
enforcing its patents over the production process for the product. These patents have about 15 years
left before they expire.
There is a rapid growth in the demand for sucralose. Demand grew by over 60% last year, and the
entity currently has insufficient production capacity to meet all the demand. Supplies to customers are
therefore rationed. Smile-sweet is investing in an increase in its production capacity, by expanding
facilities in its existing production plant and opening a new production facility in another country where
labour costs are lower.
The huge success of sucralose is caused by the growing concerns of the public about obesity, and the
preference of many consumers for sweeteners rather than sugar. In addition unlike other sweeteners,
sucralose is a versatile product that can be used in the production of other consumer items, such as soft
drinks, cakes, yoghurts and cereals.
A US competitor has announced that it is exploring the possibility of developing a rival sucralose
product that would not breach the patent rights of Smile-sweet, and that it will hope to have a product
on the market in about five years’ time.
Required:
a. Identify and briefly explain the stage in the product life cycle that sucralose has reached.
b. Assuming that the US competitor does not enter the market sooner, suggest what will happen in
the market for sucralose when the patents of Smile-sweet eventually expire, and why.
c. Suggest and explain strategies that Smile-sweet could pursue in order to maintain its dominance
of the highly-profitable market for sucralose.

12. ENVIRONMENT MANAGEMENT SOCIETY

The Environment Management Society (EMS) was established in 1999 by environment practitioners who
felt that environmental management and audit should have its own qualification. EMS has its own Board
who report to a Council of eight members. Policy is made by the Board and ratified by Council. EMS is
registered as a private limited entity.
EMS employs staff to administer its qualification and to provide services to its members. The
qualification began as one certificate, developed by the original founding members of the Society. It has
since been developed, by members and officers of the EMS, into a four certificate scheme leading to a
Diploma. EMS employs a full-time chief examiner who is responsible for setting the certificate
examinations which take place monthly in training centres throughout the country. No examinations are
currently held in other countries.
If candidates pass all four papers they can undertake an oral Diploma examination. If they pass this oral
they are eligible to become members. All examinations are open-book one hour examinations, preceded
by 15 minutes reading time. At a recent meeting, EMS Council rejected the concept of computer-based
assessment. They felt that competence in this area was best assessed by written examination answers.
Candidate numbers for the qualification have fallen dramatically in the last two years. The Board of EMS
has concluded that this drop reflects the maturing marketplace in the country. Many people who were
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practitioners in environmental management and audit when the qualification was introduced have now
gained their Diploma. The stream of new candidates and hence members is relatively small
Consequently, the EMS Board has suggested that they should now look to attract international
candidates and it has targeted countries where environmental management and audit is becoming more
important. It is now formulating a strategy to launch the qualification in India, China and Russia.
However, any strategy has to recognise that both the EMS Board and the Council are very cautious and
notably risk averse. EMS is only confident about its technical capability within a restricted definition of
environmental management and audit. Attempts to look at complementary qualification areas (such as
soil and water conservation) have been swiftly rejected by Council as being non-core areas and
therefore outside the scope of their expertise.

Required:
Internal development, acquisitions and strategic alliances are three development methods by which an
organisation’s strategic direction can be pursued.
a. Explain the principles of internal development and discuss how appropriate this development
method is to EMS.
b. Explain the principles of acquisitions and discuss how appropriate this development method is to
EMS.
c. Explain the principles of strategic alliances and discuss how appropriate this development method
is to EMS

13. ZARYAB KHAN (WINTER 2020 Q.8 (A, B, C)

Zaryab Khan, a young enthusiastic entrepreneur, started a venture under the brand name ‘Flagship
Products’ (FP) three years ago. Zaryab prides in achieving the consistent growth by means of effective
utilization of available profits and consistent optimization of core capabilities.

Zaryab is considering expanding business in Middle East. He is of the opinion that FP should launch its
first international venture as a wholly owned business. He is confident that the existing growth strategy
of FP should be continued in Middle East in future as well. However, Marketing Head and CFO have
shown their reservations over launching a wholly owned business in Middle East.

Marketing Head is of the view that FP should establish joint venture. On the other hand, CFO believes
that franchising is a better option as it would be less risky given the fact that FP has no previous
experience of operating in foreign markets.

Required:
a. Explain the existing growth strategy of FP. Also discuss why this strategy might not be suitable in
the long-term. (06)
b. Discuss the methods of expanding business in Middle East as suggested by Marketing Head and
CFO. (05)
c. Discuss the factors that FP would need to consider while deciding on whether to launch wholly
owned business or form an alliance with a local company in Middle East. (05)
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14. SINO PHARMA (SUMMER 2021 Q.3 (B)

SinoPharma (SP), is engaged in manufacturing and selling of pharmaceutical products. The following
information pertains to two of its products:

InstaB
It is a mature branded product whose patent expired at the end of 2015. Thereafter, two competitors
launched their generic products i.e. GenA and RapidA in 2016 and 2017 respectively. The table below
shows sales volume of InstaB, GenA and RapidA over the years:

Year 2014 2015 2016 2017 2018 2019 2020* 2021 2022
--------------------- Sales volume in '000 ---------------------
InstaB 220 220 115 90 80 70 60 50 45
GenA - - 110 108 90 94 100 112 116
RapidA - - - 26 55 60 63 62 63
Total market size 220 220 225 224 225 224 223 224 224
* indicates current year

Azkaard
Azkaard was launched in 2012 in the market and its patent is expiring in 2022. It continues to enjoy
great returns in a mature low growth market. However, SP is concerned that Azkaard too will meet the
fate of InstaB unless proper competitive strategies are planned before its patent expires. One of the
suggestions is to discontinue Azkaard as soon as the patent expires and utilize the resources on other
products which have potential in the existing market.

Required:
(b) Ansoff’s Growth Matrix (08)

15. B3 (SUMMER 2021 (Q.7)

Big Buck Bunny (B3), a toy manufacturing and selling company, is owned and run by Mustafa. B3 toys
are in high demand because of good quality at low prices. B3 has a vision to produce and sell toys at
the best economical prices which is strongly advocated by Mustafa under B3’s slogan of ‘Every Penny
Matters’.

Toys are manufactured in a high cost efficient environment under the supervision of Mustafa. B3 has an
arrangement with a known large distributor who collects the toys from factory and distributes them to
widespread network of retailers.

Saniya, daughter of Mustafa, who has recently joined B3, has proposed that cost efficiencies can further
be achieved if B3 eliminates the distributor from the existing supply chain and starts self-managed
distribution network to retailers. This way related costs such as delay in supply to retailers, mishandling
of products and commission to distributor would be avoided.
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Saniya has further proposed that distribution network would be financed through a bank loan. She is
confident that B3 would successfully negotiate the bank loan on favourable terms which would make
the proposal financially viable.

Required:
Evaluate the proposal of Saniya from the perspective of Suitability, Feasibility and Acceptability criteria.
Also give your recommendation. (10)

16. START BEANS (WINTER 2021 (Q.1)

Star Beans (SB) is a well-known brand of cafes in Amerita. It is one of the biggest names in cafes in
terms of revenue, number of branches and reach within the country. SB is renowned for its great tasting
coffee and trendy cafes in high activity areas like commercial hubs and tourist spots. SB is frequently
recommended by numerous tourist blogs as a must try for people visiting Amerita.

Two years ago, SB decided to open cafes in Sirania, a small mountainous country that is well-known for
its beautiful landscapes and lakes amongst the tourists. Sirania has a rich coffee culture. For Siranians,
coffee is not just a drink, it is a part of their social culture. Meeting over a cup of coffee is a common
reason to meet family and friends. Almost every neighbourhood in Sirania has a coffee shop where
locals gather after work. The servers at the cafe usually know the regular customers by names and serve
their preferred flavours without having to ask first. Sirania has three states and each state has its own
local brand of coffee that is distinctly different from others. One could take a sip and guess the origin of
the coffee where it was made.

The huge coffee drinking market in Sirania attracted SB in the first place. SB entered Sirania’s market
with full force by opening several cafes covering almost every commercial area in each city and all major
lakes in the country. However, SB’s business never really picked up in Sirania. It has been two years and
all the cafes are showing losses except a few cafes near the lakes. SB is not sure what went wrong. The
CEO of SB said – “We did everything right. We shipped our great tasting coffee directly from our central
plant in Amerita. We made sure that all the cafes implement our winning ways to the dot. We had
strong financial support and were committed to stay in Sirania. However, sometimes you don’t get all
that you want and with a sad heart I announce that we will be closing all our loss making cafes in
Sirania”.

Required:
Evaluate and suggest improvements to SB’s strategy for international business operations. Include
Critical Success Factors in your answer. (11)
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CHAPTER 06:

ALTERNATIVE STRATEGIES

ANSWERS
1. GRILL SHACK (GS) (SUMMER 2019 – Q.3)
a. GS is intending to pursue ‘backward vertical integration’ as it is entering the product market of its
suppliers. Following benefits may accrue to GS:
 It would have greater control over the source of supply that may be extended to desired
quality and timely availability of ingredients.
 It may be in a better position to differentiate its product as backward vertical integration often
assists in making unique components to meet customers’ demand more efficiently.
 It may result in reducing costs for GS in terms of suppliers’ profit margins and import duties.
 It may develop competitive advantage for GS as it would be in a better position of achieving
economies of scale.
 It may relieve GS from foreign exchange risks.
b. Fariha has rightly raised concerns over probable adverse impact on the financial and non-financial
performance of GS because of the following:
 Acquiring and operating livestock and poultry farms may involve high capital investments. The
costs incurred may outweigh the benefits expected to achieve.
 Core competence (ambiance, customer service and gourmet meals) might be compromised
while seeking new competence that may adversely impact the overall reputation of GS.
 A relaxed relationship between entities is likely to grow. Management at farms know that GS
restaurants would most certainly buy its products that may result in less pressure on achieving
cost efficiency and innovation.
 As GS would no more be importing ingredients from USA, certain number of customers might
be lost who prefer meals prepared from imported ingredients.

2. FASHION COUTURE (WINTER 2018 – Q.1)

Strategic position of product lines in the strategic clock as suggested by Bowman are identified and
discussed as follows:

 Daily wear In the Bowman’s strategic clock, strategy for this product line is ‘low price strategy’. The
customers perceive that product is offering average benefits (not regarded as low-quality product)
at a low price when compared with similar products being offered by the competitors in the
market. This strategy is likely to be implemented successfully by the least-cost producer only.
 Bridal dresses In the Bowman’s strategic clock, strategy for this product line is ‘focused
differentiation strategy’. The customers perceive that product is offering above average benefits
and therefore are ready to pay higher-than-average prices. This strategy is likely to be
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implemented successfully when products under this category are strongly branded as premium
products so that high prices can be justified.
 Fragrances Bowman has identified such strategy as is being followed in this case as ‘strategies that
will fail’. The decision to charge high prices may result in customers’ perception that benefits
derived from such products do not justify the prices as they can purchase products offering more
benefits in similar or even low prices. This strategy is highly unlikely to be successful.
 Recommended strategy for each product line in terms of Ansoff’s Matrix with guidance for
implementation is given hereunder:
 Daily wear: It is recommended to follow market penetration strategy as demand for this product
line has significant potential for growth in the existing market. This strategy can be implemented
successfully by means of aggressive marketing. FC should seek to sell more of its current products
in its existing markets by persuading existing customers to buy more, persuading individuals who
have not bought the product in the past to start buying and persuading individuals to switch from
buying the products of competitors.
 Bridal dresses: It is recommended to follow product development strategy. This can be achieved
by offering party wear dresses also as competitors are enjoying hefty profits. This strategy can be
implemented successfully by using qualified staff and the existing brand name that may be
extended to new products i.e. party wear dresses.
 Fragrances: It is recommended to follow market development strategy since high end targeted
customers have strong brand loyalty to competitors’ products. This strategy can be implemented
successfully by selling products in new geographical markets (regional, national, etc.) or attracting
customers in new market segments (low end customers) by offering slightly differentiated versions
of its existing products or by making them available through different distribution channels.

3. IDENTIFICATION OF BUSINESS STRATEGIES – 1 (SUMMER 2018 – Q.7)

a. EW is pursuing organic growth (internal development) strategy. This strategy might be subject to
the following risks:
 There might be a limit to the rate of growth a business entity can achieve with its internal
resources. The entity might not have sufficient resources to meet the growing sales demand.
 The entity might be slow in responding to the changing market dynamics and the rival firms
might be able to grow much more quickly by means of mergers, acquisitions and joint
ventures.
b. OF is pursuing the strategy of forward vertical integration. This strategy might be subject to
following risks:
 Vertical forward integration may require substantial capital investments. The costs associated
with such integration may outweigh the benefits derived from it.
 OF might have to compromise its core competencies or new competencies and its technical
skills might be beyond the capabilities of the entity.
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4. ROBUST TYRES LIMITED (WINTER 2016 – Q.1A)

RTL’s management should carefully examine the following important matters while evaluating the
proposal of ETL for sale of its company:

1. The prospects of achieving significant synergies. (Increase in sales, economies in expenses, etc.)
2. The prospects of growth in demand. (Local as well as international)
3. The availability of sufficient financial resources for acquisition. (Its short and long term impact on
RTL)
4. Differences between the cultures of the two organizations. (Impact of such differences on the
merged entity)
5. Organisation structure of the merged entity. (The financial and motivational aspects of such
changes)

5. EXPANSION OR INTEGRATION STRATEGIES (SUMMER 2016 – Q.7)

a. Horizontal integration
b. Market development
c. Vertical or backward integration
d. Conglomerate expansion! Diversification
e. Divesture/Disinvestment strategy

6. ACQUISITIONS, MERGERS & SELL-OFF/DIVESTURE (SUMMER 2015 – Q.3)

Business corporations may pursue strategies of sell off/ divesture in the following circumstances:

1. The corporation may decide to restructure its operations and concentrate its efforts and resources
in areas in which it has core competencies and competitive advantages.
2. The corporation may decide to sell-off/divest a division which is incurring losses.
3. The corporation may need liquid resources for its business and does not consider it advisable to'
obtain additional financing through debt or equity sources. The selloff/divesture may generate
sufficient liquid resources for the requirements of its business.
4. The corporation may receive a lucrative offer from a -prospective buyer- for -purchase of a
division which may lead to' realisation of substantial profits.
5. The corporation may consider a particular division as a 'misfit' in terms of the division's radically
different management culture, values.

7. ORGANIC GROWTH (WINTER 2013 – Q.8)

Companies prefer to pursue policies of growth by organic/internal expansion and not through in
acquisition for the following reasons:
1. Expansion of physical infrastructure and facilities can be planned more efficiently to fulfil the
organizational requirements. In case of acquisition, the company would have to utilize the existing
sites and facilities which may not be the most suitable option for its requirements.
2. The cost of acquisition of an existing company may be much higher than the cost of expansion of
assets through internal growth.
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3. The sizes of the entities presently available for acquisition may not be appropriate for the l
particular need of the entity.
4. In acquisitions, a company acquires all the functions of other companies resulting in duplication of
facilities or redundancies which ultimately results in inefficient performance 1 and lowering of
employee morale.
5. Human Resources can be utilized more effectively and with a greater degree of cohesion of
corporate culture by adopting strategies of organic growth. Also, in the case of organic growth,
better career development opportunities are provided to the employees.

8. STRATEGIES OF VERTICAL EXPANSION (SUMMER 2013 – Q.3A)

In the present environment, strategies of vertical expansion are not always considered to be as
advantageous as other strategies of business growth due to the following reasons:
1. Vertical expansion requires huge: capital investments, diverse management competencies and
technical skills which are often beyond-the capabilities of individual firms.
2. Firms seek to achieve advantages of economies of scale which can be obtained only if the
volumes in their main lines of business are sufficiently large and enable specialist firms to provide
the products/render services at costs which are lower than those which can be achieved through
pursuance of policies of vertical expansion.
3. Vertical expansion requires long term commitments in different types of business activities from
which it may be difficult to with draw in times of changes in business environment. Therefore,
firms prefer to enter into business relationships of long term contracts, alliances, franchising,
licensing, etc. with external parties rather than pursue policies of vertical expansion.
4. Advantages of business specialisation outweigh the disadvantages on account of lack of direct
control of sources of raw materials or distribution channels. In present business situations, large
and reputable manufacturers and service providers are competing vigorously for securing
business. Consequently, these firms prefer to concentrate in their core business activities and
procure supplies/services from specialists in their chosen fields.

9. DIVESTMENT STRATEGY
a. There are several academic models that could be applied to analyse this situation. Two of the
most widely used models refer to the product life cycle and the Boston Consulting Group’s (BCG)
growth-share matrix. It is on these two that this suggested answer will concentrate.
It is obvious that Granville Holdings plc has allowed its range of products to grow without too
much regard to the overall efficiency and effectiveness of the product spread. It is required that a
more rational approach should be taken so as to rationalise the product portfolio.
The product life cycle can be used to assess where each of the products is located. Some
products, in their introductory stage, may not be contributing well to overall profits because of
initial research and market development costs but might in future provide a regular stream of
income to the company. Those in the growth stage should already be profit providers. It is in the
later stages of the life cycle that attention needs to be paid.
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In the maturity/saturation stages it may be prudent to assess whether there is any long-term
future in the products. Would investment in alternative products be more sensible? This question
is more critical for products in the decline stage. It must be asked whether withdrawing these
products would be advisable. Products can still be profitable in the decline stage, particularly if
competitors are leaving the market faster than market demand is falling.

It is also important to assess how these products contribute to the overall performance of the
company. Withdrawing a product might annoy key customers. The products might also provide a
complementary range and withdrawal of one product might adversely affect samples of other
products.

It is also important to assess how costs such as marketing, distribution and even manufacturing
have been allocated. The withdrawal of certain products could result in others having to share and
carry higher costs, so making them price uncompetitive. Product rationalisation programmes
should not be undertaken without considering the consequences of such an action.

The BCG growth-share matrix examines the inter-relationships between market share and market
growth of given products. It assesses resource generation alongside resource needs.

The ‘cash-cow’, described as such because products in this criteria (low growth and high market
share) are usually very profitable and generate surplus funds and so are often used to finance
other developments. Such products are not recommended for deletion.

The ‘stars’ generate high revenues because the products have high market shares, but because the
market is growing fast investment in such products must be high to maintain their market
position. These products are unlikely to be highly profitable as yet, but decisions to withdraw such
products should be rejected. It is likely that such products will become more profitable as the
market develops further.

The ‘problem child’ or ‘question mark’ product is probably currently losing money. A prognosis
needs to be made of future movements. Can the product achieve a significant share of the
market? If the assumption is positive, then the product may proceed to become a ‘star’ and later a
‘cash cow’. However if there are considerable doubts the product may have to be withdrawn

It is often assumed that ‘dogs’ –products with low market share and low growth potential should
be withdrawn from the market place. However some ‘dogs’ occupy a niche position and are still
capable of returning a profit. If this is the case then they can be persevered with until such times
as they have little to offer the company.
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However, loss making ‘dogs’ need to be abandoned. They consume too much management time
and money. These need to be focused on present and future winners.

Chris Button needs to be careful which products to remove from the portfolio. Some
rationalisation will be needed, but this should be carried out carefully and not rushed into.

10. PRODUCT MARKET STRATEGIES

Market penetration Increase market share

Product development Market the installation of satellite dishes to the
existing customer base
Market development Expand the business into another area of the
city
Diversification Start up a new business operation by offering
office cleaning services

11. SMILE-SWEET
a. The product is in the growth stage of its life cycle
b. When the patents expire, competitors will inevitably enter the market, and the ability of Smile-
sweet to charge monopoly prices will end. Profitability will fall dramatically
c. Smile-sweet should make every effort to enforce its patents, and must not allow the US
competitor to breach its patent rights.
However, it is not clear whether the patent rights will be sufficient to prevent the US competitor
from entering the market in a few years’ time. Smile-sweet must therefore develop alternative
strategies, to give it a competitive advantage over competitors when they eventually get into the
market. These strategies should include:
1. improving the efficiency of operations
2. developing the brand name for its product
3. investing in larger and more efficient production facilities
4. make sure that supply can meet demand

12. ENVIRONMENT MANAGEMENT SOCIETY CONTEXT

The decline in the number of people taking the qualification appears to be a reflection of the maturity
of the marketplace. The large pool of unqualified environmental managers and auditors that existed
when the qualification was launched has now been exploited. There are now fewer candidates taking the
examinations and fewer members joining the EMS. The organisation’s response to this has been to look
for international markets where it can promote the qualifications it currently offers. It hopes to find large
pools of unqualified environmental managers and auditors in these markets.
The scenario suggests that EMS currently has relatively limited strategic ambitions. There is no evidence
that EMS plans to develop new qualifications outside its current portfolio. Indeed, attempts to look at
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complementary qualifications (such as soil and water conservation) have been rejected by Council.
Hence, expansion into new strategic business markets does not appear to be an option.

Strategy Development
a. Internal development Internal development takes place when strategies are developed by
building on or developing the organisation’s own capabilities. It is often termed organic growth.
This is how EMS has operated up to now. The original certificates were developed by the founders
of the Society. Since then, additional certificates have been added and the Diploma programme
developed at the instigation of members and officers of the Societ.

Internal development takes place when strategies are developed by building on or developing the
organisation’s own capabilities. It is often termed organic growth. This is how EMS has operated
up to now. The original certificates were developed by the founders of the Society. Since then,
additional certificates have been added and the Diploma programme developed at the instigation
of members and officers of the Society

In summary, internal growth has been the method of strategy development at EMS up to now,
based on a strategic direction of consolidation and market penetration. There is no evidence that
EMS is considering developing new products to arrest the fall in qualification numbers. However,
the Board has suggested developing new markets for the current qualification range and India,
China and Russia have been identified as potential targets. It seems unlikely that internal
development will be an appropriate method of pursuing this strategic direction.

b. Mergers and Acquisitions

A strategy of acquisition is one where one organisation (such as EMS) takes ownership of other
existing organisations in the target countries. One of the most compelling reasons for acquisition
is the speed it allows an organisation to enter a new product or market area. EMS might look to
acquire organisations already offering certification in its target markets. These organisations would
then become the mechanism for launching EMS qualifications into these markets. In addition, it is
likely that these organisations will have qualifications that the EMS does not currently offer. These
qualifications could then be offered, if appropriate, in EMS’s home market. This arrangement
would provide EMS with the opportunity to quickly offer its core competences into its target
markets, as well as gaining new competencies which it could exploit at home.

However, acquisitions usually require considerable expenditure at some point in time and evidence
suggests that there is a high risk that they will not deliver the returns that they promised. It is
unlikely that the EMS will have enough money to fund such acquisitions and its status as a private
limited entity means that it cannot currently access the markets to fund such growth. Any
acquisitions will have to be funded from its cash reserves or from private equity investment
groups. Furthermore, acquisitions also bring political and cultural issues which evidence suggests
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the organisation would have difficulty with. Under achievement in mergers and acquisitions often
results from problems of cultural fit. This can be particularly problematic with international
acquisitions, which is exactly the type of acquisition under consideration here. So, although
acquisitions are a popular way of fuelling growth it is unlikely that EMS will have either the cash
or the cultural will to pursue this method of strategy development. There is no evidence that EMS
has any expertise in acquiring organisations in its home market and so such acquisitions overseas
would be extremely risky.

c. Strategic Alliances
A strategic alliance takes place when two or more organisations share resources and activities to
pursue a particular strategy. This approach has become increasingly popular for a number of
reasons. In the context of EMS it would allow the organisation to enter into a marketplace without
the large financial outlay of acquiring a local organisation. Furthermore, it would avoid the cultural
dislocation of either acquiring or merging with another organisation. The motive for the alliance
would be co13 specialisation with each partner concentrating on the activities that best match
their capabilities. Johnson, Scholes and Whittington suggest that co-specialisation alliances “are
used to enter new geographic markets where an organisation needs local knowledge and
expertise”. This fits the EMS requirement exactly.

The exact nature of the alliance would require much thought and indeed different types of
alliance might be forged in the three markets targeted by EMS. A joint venture is where a new
organisation is set up jointly owned by the parents. This is a formal alliance and will obviously
take some time to establish. EMS will have to contribute cost and resources to the newly
established company, but such costs and resources should be much less than those incurred in an
acquisition. However, joint ventures take time to establish and it may be not be an option if EMS
wants to quickly move into a target marketplace to speedily arrest its falling numbers.

A licence agreement could be an alternative where EMS licenses the use of its qualification in the
target market. This could be organised in a number of ways. For example, a local organisation
could market the EMS qualification as its own and pay EMS a fee for each issued certificate and
diploma.

Alternatively, the qualification may be marketed by the local organisation as an EMS qualification
and EMS pays this organisation a licence fee for every certificate and diploma it issues in that
country. This requires less commitment from EMS but it is likely to bring in less financial returns,
with less control over how the qualification is marketed. Furthermore, if the qualification is
successful, there is the risk that the local organisation will develop its own alternative so that it
gains all the income from the transaction, not just a percentage of the transaction fee.

At first sight, the strategic alliance appears very appropriate to EMS’s current situation. The
licensing approach is particularly attractive because it seems to offer very quick access to new
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markets without any great financial commitment and without any cultural upheaval within EMS
itself. However, the uptake of the qualification is unpredictable and the marketing and promotion
of the qualification is outside the control of EMS. EMS may find this difficult to accept.
Furthermore, the EMS will only be receiving a fraction of the income and so it must ensure that
this fraction is sufficient to fuel growth expectations and service the newly qualified members in
other countries.

Finally, there is often a paradox in organisations where internal development has been the
strategic method adopted so far. An organisation used to internal development and control often
finds it difficult to trust partners in an alliance. Yet trust and cooperation is probably the most
important ingredient of making such strategic alliances work

13. ZARYAB KHAN (WINTER 2020 Q.8 (A, B, C)

a. The existing growth strategy of FP is ‘Organic Growth’. According to this strategy, an entity
seeks growth in business through effective utilization of its own resources. This strategy assists
an entity to control the rate of growth while ensuring that it has sufficient sources at disposal.
It also directs the company’s focus on developing the core competencies in order to grow
successfully.

This strategy might not be suitable in the long-term because of the following reasons:
 There is a limit to the rate of growth FP can achieve with its internal resources. Rival firms
might be able to grow much more quickly by means of mergers, acquisitions and joint
ventures.
 In order to expand a business beyond the limits of its current capacity, FP might need to
invest in new capacity. The lead time between taking a decision to invest in new capacity
and the availability of new capacity might be long. Until new capacity is available, FP
might not be able to meet customer demand and it might therefore, loss business to
competitors.
 In the need of diversification, FP might find it difficult to learn new skills as it relies on its
existing core capabilities which might not be relevant for diversified activities.
 FP might eventually need to change its organization and management structures in order
to handle the growth in its business. The change in organization structure and
management style might be challenging to accomplish.

b. Marketing Head has suggested joint venture as method of expanding business in Middle East.
According to this method, FP would need to seek partnership with one or more entities to
develop a business or an activity jointly. It would allow FP to share financing as well as
business risks with the joint venture partner(s).
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However, joint venture would subject to certain risks such as:

 one joint venture partner might perceive that other joint venture partner(s) not
contributing adequately; or
 joint-venture partner(s) might start to compete with each other instead of collaborating; or
 one of the joint venture partners might want early withdrawal than expected from the
venture.

CFO has suggested franchising as a method of expanding business in Middle East. According
to this method, FP would involve in:
 supplying product design and rights to sell the product to franchisee. It might also need
to provide centralized marketing service and other support services such as business
advice to franchisee; and
 receiving a constant inflow of cash from franchisee by means of royalty which might be
fixed amount or based on the value of franchisee’s sales (or the size of its profits) or
combination of both.

However, FP would not likely be able to participate in day to day operational decisions of
franchisee. Further, FP would have to draft franchise agreement with considerable care to
protect its brand name and to present a consistent appearance to its customers in Middle
East.

Conclusion:
The decision on whether to go for joint venture or franchising would depend on risk and
control appetite of FP. If risk and control appetite is low then franchising would be more
viable option and vice versa.

c. FP would need to consider following factors while deciding on launching wholly owned
business or forming an alliance with a local company in Middle East:
 The legal constraints or restrictions for setting up a business by foreign company in
Middle East and likely relaxation or ease of these constraints or restrictions by forming an
alliance with a local company.
 Knowledge of business conditions and marketing practices that management of local
company is likely to offer.
 Size of and access to existing customers of local company.
 The probable challenges of direct competition with local company. Particularly, considering
the customers’ buying habits or preferences of favoring local company or foreign entity in
making purchase decisions.
 The risk and power appetite of FP as forming an alliance with a local business would be
less risky in terms of financial risks but there would also be sharing of decision making
power. Whereas, wholly owned business would give greater decision making power but
with greater risks.
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 The amount of capital FP is intended to invest in Middle East. Partnership with local
business would require less investment as compared to wholly owned business.

14. SINO PHARMA (SUMMER 2021 Q.3 (B)

b. Ansoff’s Growth Model

InstaB and Azkaard

Both are existing products in the existing market. They are long-standing products that have
enjoyed the monopoly due to patent.

Recommended strategies
If SP decides to continue InstaB and Azkaard Adopt market penetration strategy according to
which SP would need to seek sell more of InstaB and Azkaard in its existing market. However,
it might be difficult to achieve as market has reached maturity or is growing slowly.

Market penetration strategy can be realized by persuading the individuals to switch from
buying the products of competitors. It can be achieved by seeking better work arrangements
with distributors, medical professionals and other external contributors of the supply chain e.g.
offering relevant benefits to pharmacies and doctors for its products, offering profit sharing to
distributors, etc.

However, following risks are associated with it:

 If SP fails to increase sales, InstaB and Azkaard will have no strategic direction and will
suffer from ‘strategic drift’.
 Competitors may retaliate with their own marketing initiatives to win the customers.

If SP decides to discontinue InstaB and Azkaard

There is a potential for other products in the existing market so it is recommended to adopt
product development strategy as follows:
 SP seems to have a strong research and development as it has been enjoying the patents
on its products. It should attempt to develop new range of products and get them
patented to enjoy high profit margins.
 Develop generic of competitors’ products whose patents have been expired or to be
expired shortly if there is potential for such generics in the existing market.
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15. B3 (SUMMER 2021 (Q.7)

The proposal of Saniya, from the perspective of Suitability, Feasibility and Acceptability criteria, is
evaluated as follows:

Suitability
The suitability criterion of given proposal is evaluated as follows:

 B3 would be moving into a later stage of the supply chain which is an example of vertical
forward integration. It seems to be a suitable strategy as it would complement the existing
business of B3 and may give it a competitive advantage.
 It would give B3 control over its channel of distribution and would likely result in cost
efficiencies which is consistent with the slogan of ‘Every Penny Matters’.
 B3 is in a strong position and its toys are in growth stage of product life cycle. B3 can further
strengthen its position by seeking cost leadership and be able to produce and sell toys at the
best economical prices.

Acceptability
The acceptability criterion of given proposal is evaluated as follows:

 Owners – Mustafa is a strong supporter of achieving cost efficiencies, so the proposal would
likely be acceptable to him.
 Customers - They would also support this proposal as cost efficiencies will likely result in low
prices of toys.
 Retailers – They may or may not react positively as they will be buying directly from B3. They
might have developed strong relationship with the distributor. B3 would need to convince the
retailers that it would not affect their business and in fact it might overcome the existing issue
of delay deliveries.
 Employees – The existing employees would likely be unaffected by the proposal as it would
not affect their work. B3 would likely need to hire new employees for self-managed
distribution network.

Feasibility
The feasibility criterion of given proposal is evaluated as follows:
 The proposed distribution network would be financed through a bank loan. However, financial
viability relies on the fact that B3 would successfully negotiate the bank loan on favorable
terms.
 B3 has no previous experience of handling distribution network. It appears that it would need
to hire staff and rely on their capabilities for efficient distribution network.
 The capabilities required for successful management of distribution network would be very
different from the existing capabilities of B3 which are focused on manufacturing of toys. B3
may end up with diverting its focus from core competencies and lose out the competitive
advantage it has.
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Chapter 06: Alternative Strategies
Answers

Recommendation
The setting-up of distribution network seems to be an attractive opportunity that could assist
B3 in achieving its objective of attaining cost efficiencies. However, it seems that financial
feasibility is not performed appropriately as it strongly relies on successful negotiation with
the bank. Further, it appears that B3 has not considered or evaluated that what other
alternative(s) would be available if the bank refuses to provide finance at the expected
favorable terms or refuses to provide finance at all and whether the proposal would then be
financially viable.

Also, lack of experience and expertise of managing distribution network may render this
proposal as high-risk venture. It is therefore, advised to perform due diligence before going
ahead with the proposal.

16. START BEANS (WINTER 2021 (Q.1)

SB followed international scale operations / standardization strategy to expand its business in
Sirania. It tried to replicate its standard product and approach to selling coffee in Sirania by
shipping coffee directly from its central plant in Amerita.

The benefits of such a strategy are that SB can keep a tight control on the standard product
offerings thereby ensuring consistent product quality. Also, it can reap benefits of economies of
scale in its product offerings, thereby it helps to obtain cost-minimizing balance between
production costs and distribution costs.

However, such a strategy makes it difficult to cater to variations in the local market needs.

It is clear that international scale operations/standardization strategy was unsuccessful in Sirania.

To be successful in Sirania, SB must understand that critical success factors (CSF) for Sirania are
different from Amerita and tackle them accordingly. Following are the CSF for Sirania:
 Local taste
 Social drink
 Neighborhood café culture
 Personalized service
 Acceptance by the local clientele
 Popular tourist spots

To tackle the CSFs, SB should have followed the international diversity strategy, also called multi-
domestic strategy. In this strategy, the company recognizes the differences in customer needs in
each different country, and bases its strategy on the view that most or all value-adding activities
must be located in the country where the target national market is located. In each country, the
product is adapted to suit the unique requirements of the local customers.
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Chapter 06: Alternative Strategies
Answers

SB should have adapted their business to tackle the CSF’s in Sirania as follows:
 It should offer menu according to the local taste.
 It should improve its service to reflect the local culture.
 It should not open all the branches at once, instead, it should grow organically to stand a
better chance to be accepted by the community.
 It should open cafes in neighborhoods where the market of such drinks lie in Sirania.
 It should continue operating cafes at tourist spots (all lakes) as tourists like SB’s coffee.
 It should also consider collaboration strategies with local businesses who understand the local
environment in Sirania. The strategies may include strategic alliances, joint ventures,
franchising, etc.
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Chapter 07: Management Change
Questions

CHAPTER 07:
MANAGEMENT CHANGE
QUESTIONS

1. SMOOTH NETWORK SERVICE (SUMMER 2018 – Q.4)

4 Smooth Network Service (SNS), a medium sized network service provider has organizational structure
of five levels with a span of control of three. Mr Tahir Ali is the CEO and reports to the board of
directors. He is responsible for company’s overall affairs and makes most of the major decisions himself.
The role of managers is mainly restricted to close supervision of operational staff engaged in the day to
day operations of the entity. Mr Tahir Ali is concerned over weakening performance of the entity.
He has identified the following issues:
1. Growing number of customer complaints about delayed response to their network issues.
2. The packages offered by the company seem outdated in terms of customer demands and market
trends.
3. One of the potential clients has opted for competitor’s services as SNS could not timely respond
to the client’s pricing query.
Required:
a. Identify and discuss the type of organizational structure prevalent in SNS, based on the existing
span of control. (03 marks)
b. Recommend the structural changes that SNS may need to adopt along with appropriate
justification. (07 marks)

2. RESISTANCE FROM EMPLOYEES (SUMMER 2012 – Q.7A)

Research in a number of organisational settings shows that efforts to introduce major changes for
achieving the objectives of corporate turn-around and improvements invariably meet with strong
resistance from employees at various levels.

Identify the reasons why employees offer strong resistance to major organisational changes and prefer
to continue with the existing status. (05 marks)

3. CHANGE MANAGEMENT II
A manufacturing company produces engineering items to the specifications of its customers, and each
customer order is treated as a unique job. A customer order is taken by a sales representative. It is then
processed in an order processing department. Each job goes through three stages of manufacturing:
cutting, grinding and assembly. The despatch department is then responsible for delivering the finished
item to the customer.
The company’s management were aware that the company was losing a large amount of potential
business to rival companies, who were able to achieve a much shorter lead time in processing orders,
manufacture and delivery to customers
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Chapter 07: Management Change
Questions

The company therefore called in some BPR consultants, who recommended that the company should
restructure its order fulfilment process. The manufacturing operations should be restructured. Instead of
having three separate departments for cutting, grinding and assembly, workers should be grouped into
multi-skilled teams, each equipped with its own machines and tools for all three stages of production.
Customer orders should be assigned to a team whose leader would be responsible for completing the
job to the required quality standards in the fastest time possible. In addition, order processing and
delivery should be combined into an order fulfilment operation. The individual responsible for
processing a customer order should remain responsible for arranging the production work, chasing
progress of the job and arranging delivery of the finished item to the customer.
The company’s management have accepted the recommendations of the consultants. However, they are
aware that the changes will meet strong resistance from many employees, especially production workers
who will be required to become multi-skilled. There may also be resistance from employees who will
become order fulfilment managers and made responsible for the lead times for jobs.
Required
a. Using a model of your choice, suggest how a firm of change consultants might assist the
company in planning and implementing the changes.

4. CHANGE MANAGEMENT III

Feathers Theatre is located in a large commuter town 30 miles from Lahore. David Manning has recently
been appointed as the new chief executive with a brief to improve attendances, which have fallen to
their lowest level ever in recent years, with some shows only one-third full. He has put together a plan
that will hopefully improve the current situation.
It is apparent that the differences in opinions held by the theatre stakeholders – e.g. actors, the local
council and the theatre volunteers who help out with the running – will present problems to
management and in particular to David Manning. He will have to initiate change within the theatre if
the required solutions are to be introduced. This will be neither welcome nor easy to implement.
Required
a. Examine why the different parties might resist the introduction of new objectives and new
operations.
b. David Manning will need to provide leadership if he is to be successful in introducing change.
Discuss the key attributes he will need if he is to be a successful change agent
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Chapter 07: Management Change
Questions

5. YARN MANUFACTURER (WINTER 2021 Q.2 (A, B)

a. Company A is a cotton yarn manufacturer founded in 1997. It has 65 employees with Rs. 58 million
revenues and is growing steadily. It is a well-structured organization which follows centralized
decision making model and has strong procedures and control systems. However, recently there
have been a number of concerns raised by the employees about the efficiency and effectiveness of
decisions made by the top management.

Company B is a direct competitor of Company A. It was founded in 2007 and has 68 employees
with Rs. 65 million revenues. Its organizational structure has evolved into five divisions each having
its own divisional manager who handles all matters pertaining to the division and reports progress
to the top management.

Required:
In light of Greiner’s growth model, explain the current growth phase and the crisis to be expected
for Company A and Company B. (08)

b. An industry analyst was asked about how Company B grew and evolved so rapidly when compared
to Company A, he said – “the only differentiating factor could be that Company B has a better
marketing and sales team”.

Required:
Using Greiner’s growth model, evaluate and indicate your agreement with the industry analyst’s
comments. (05)
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Chapter 07: Management Change
Answers

CHAPTER 07:
MANAGEMENT CHANGE

ANSWERS

1. SMOOTH NETWORK SERVICE (SUMMER 2018 – Q.4)

a. The organizational structure of SNS is ‘tall-narrow’ as there are many layers of management from
top down to operational level where each management level has small number of subordinates
directly reporting to them. There is close supervision of work as span of control is narrow and
slow vertical communication as shape of the organization structure is tall.
b. SNS may adopt ‘wide-flat’ organization structure to overcome the existing issues as it would bring
following benefits:
 The few layers of management from top down to operational levels would facilitate rapid
vertical communication and decision making as information would travel quickly.
 The wide span of control would result in the greater delegation of responsibilities to
subordinates. The subordinates would have greater participation in decision making by having
more access to top management and thereby improved motivation and creativity.
 The elimination of the excess layers of management would result in greater cost savings as
well as retention of the best talent staff
 It would allow the CEO and managers to engage in more important activities that add value
including development of new packages to meet customer demands and market trends
 There would be less emphasis on formal roles and individuals would be willing to carry out
other tasks as per business needs.

2. CHANGE MANAGEMENT II
a. A suitable model might be the Lewin’s three-step change model, supported by Lewin’s force field
analysis.
1. The three-step change process is unfreeze, move (change) and refreeze. The ‘unfreeze’ step is
to develop recognition amongst the people affected that change is needed and is desirable,
and obtaining agreement about the nature of the changes that are required. The ‘move’ step
is making the change. Once a change has been made, there is a risk that employees will go
back into their former habits and ways of doing things ‘re-freeze’ means taking measures to
ensure that the change becomes established and the new ‘accepted way of doing things’.
2. Force field analysis can be used to assess the strength of resistance to change, and the nature
of the forces driving change. Lewin recommended that the most effective approach t gaining
acceptance of change is to find ways of reducing the forces of resistance to change.
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Chapter 07: Management Change
Answers

3. CHANGE MANAGEMENT III

a. Changes are required at Feathers Theatre if it is to survive and prosper. However, change is almost
always resisted and it will be no different at this theatre.

The reasons for resistance will be the same experienced in other organisations. There is always the
fear of the unknown. How will the professional actors cope with the increased pressures
associated with presenting more plays? How will audiences react to these changes?

The current situation is known and possibly understood. However the changes proposed may not
operate in the ways intended and the situation may deteriorate. People also resist change if their
vested interests are threatened. This is applicable to nearly all the stakeholders. There may be a
switch to less satisfying and interesting plays. This will affect both the actors/ actresses as well as
the volunteers, but for opposite reasons. The members of the town council might have some of
their patronage removed and their prestige might be reduced. This would not be in their
interests.

Change is also resisted if the stakeholders misinterpret the causes and consequences of the
change. It is essential that David Manning has full consultation with all parties and clarifies all
points. If any group of stakeholders believes it is being discriminated against, it will resist change.
It is important to stress a 'win-win' situation and not a 'win-lose' one Ideally timing needs to be
right to introduce changes. It is not usually desirable to have change forced on an organisation.
However, it is possible that in a crisis, people will pull together and agree to compromise.

Change is also usually resisted if there are insufficient resources to help facilitate that change.
Unfortunately Feathers Theatre does not have sufficient resources – this is the reason for the
changes. Consequently, it is likely that some difficult decisions will have to be taken involving
issues such as redundancies, possible pay reductions, higher ticket prices and a tight control over
costs. These types of change will always be resisted. It is the strength of the resistance which is of
critical importance.

Apart from economic fears, such as redundancies and pay cuts, there are a number of social
reasons for resisting change. The volunteers may feel that their work is under-valued if their views
are not taken into consideration. Members of the town council might believe that their status has
been reduced if their opinions are not taken into account. This could have a serious impact on
the way they view the theatre's grant. Requiring the resident acting group to change their method
of working could imply a criticism as to their past performance. More important, however, is the
breaking up of the group as a result of the proposed redundancies. There is probably going to be
resistance here. This is likely to be the most delicate part of David Manning's negotiations. He has
to demonstrate to the group that alternative strategies could involve even greater sacrifices.
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Most of the reasons for resisting change could be challenged by open discussions. The facts must
be made clear to all parties. A process of 'divide and rule' will only make the situation worse.
David must state the position as it is. He must review the alternative strategies as presented by
the stakeholders and show why and how they would not solve the problem. He must present his
ideas for improving the situation, explaining how the changes could be implemented and what
benefits and disadvantages may occur. Finally he must show how the situation will only
deteriorate if nothing is done. Hopefully the stakeholders will appreciate the logic of his
suggestions, and realise that they may all have to compromise on some but not all of their
ambitions, and recognise that they still have an important role to play in the theatre

b. Implementing change successfully in an environment such as Feathers Theatre, where the

participants all have differing ideas as to what should be done, requires leadership of a high
quality. David Manning has one particular advantage. Being a new appointee he is not seen to be
an ally of any particular stakeholder group. He is not associated with any strategies in the past,
which have been badly implemented. He brings to the situation fresh and unbiased ideas.
However, there is also a risk that some of the interested parties may feel that he has inadequate
experience.
Mason must possess good interpersonal skills. He must be able to relate to all the parties, but
must not be seen to treat one group more favourably than others. This may not be such an easy
task because the different stakeholder groups, although all concerned with the success of the
theatre, have different backgrounds, different objectives and will have different personalities. He
must be a good communicator so that he can explain the changes so that each party sees the
benefits for them. He must provide good information and not be selective. Usually the
information leaks out via a 'grapevine' and this would only make the situation worse. Mason also
needs to be able to time his negotiations correctly, so that the interested parties have an
opportunity to listen to, reflect on and understand the varying arguments. In trying to do this
when a stakeholder group, such as the actors, is concentrating on a performance, would be a big
mistake. He must take time over the change programme. A ‘quick-fix’ attitude is not advisable.

Mason must prove to be both a trustworthy and an inspirational leader. If there is any doubt as
to his commitment to the theatre, or if he is suspected of dishonestly representing their views,
then his chances of winning the people over will be poor. It is a mistake to try to hide the truth,
even if it is unwelcome. He needs to inspire each of the parties so that they are willing to
subordinate their personal views for the benefit of the theatre as a whole. Good change agents
also need to be opportunistic. This does not imply that they seek short-term advantages, but that
when they see an opportunity to successfully accelerate the change, then they seize it. Mason
must also have sound planning skills. Change does not just occur. If it is to be successfully
achieved then it must be planned for. Unlikely outcomes must be considered and contingency
plans and explanations must be prepared.
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Chapter 07: Management Change
Answers

Mason needs to demonstrate a competence in team-building. It is useful to get the stakeholders

to participate together in the change programme. This involvement can increase the commitment
of the groups by providing them with a sense of 'ownership'. He must monitor the progress of
the change to ensure that it is actually happening. Some groups will find it harder to accept the
changes required than others. Mason should recognise the need to provide support when this
occurs and give counselling if necessary. The change will progress that much more effectively if
the groups feel comfortable with the situation. If a favourable and positive climate can be created
then change will be more readily effected.

4. YARN MANUFACTURER (WINTER 2021 Q.2 (A, B)

a. Company A
Current stage:
It is in Phase 2 (Period of growth through direction) of Greiner’s growth model. In this phase:
 the entity is more structured with a ‘traditional’ management hierarchy.
 formal systems are present.
 growth happens through direction, formal procedures and systems.
Crisis to be expected:
Crisis of autonomy is to be expected. As the entity grows, the hierarchical management structure
would become inefficient. The control systems and reporting systems are designed for close control
from the top by senior management. However, management control from the top would not be as
effective as it used to be. Top management is far away from actual operations, and ‘local’ managers
know much more about how the business functions in their area of operations.

Company B
Current stage:
It is in phase 3 (Period of growth through delegation) of Greiner’s growth model. In this phase:
 the entity is reorganized, with much more authority delegated to ‘local’ managers.
 the entity is organized in divisions, which might be profit centers. Central management receives
reports from the divisions, but divisional managers take most of the decisions about how the
division should be run.
 central management concentrates much more on strategy and business expansion.
Crisis to be expected:
Crisis of control is to be expected. As the business continues to grow, central management would
realize that they are losing most of their own authority, and that the local managers are becoming
perhaps too powerful and unaccountable.

b. The industry analyst is not entirely right. Basically, anything that results in company B to increase its
rate of growth (i.e. increase in size of the company in a relatively less time), in phase 1 and phase 2
of Greiner’s model, could be the reason for its relatively rapid growth. Therefore, yes, it is possible
that a better sales and marketing team could be more efficient in bringing in new business from the
market, which would result in a higher profits and consequently increase in the size of organization.
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Chapter 07: Management Change
Answers

As a result, the company can grow quickly and reach the ‘crisis’ stage faster. However, there could
be numerous other reasons on how the company evolved so rapidly and successfully e.g. better
operations team, efficient innovation mechanisms, better planning and control systems, effective
customer relations team, etc. Also, ability to handle ‘crisis’ more effectively and efficiently may also
be a reason to evolve more rapidly, for example, the ability to adopt to change efficiently should
help the organization to evolve more quickly, ability of the management team to predict and tackle
crisis better should help them be prepared for the crisis ahead of time, etc.
 SPM Practice Kit
CHAPTER 08: CATEGORIES AND MEASUREMENT OF RISK
Questions

CHAPTER 08:
CATEGORIES AND MEASUREMENT OF RISK
QUESTIONS

1. OPERATIONAL RISKS (SUMMER 2017 – Q.2B)

Identify four operational risks which may adversely impact the operations of a shipping company which
is a bulk cargo carrier of dry goods such as coal, iron ore, cement, wheat, etc. (03 marks)

2. RISK PROBABILITY AND IMPACT FACTOR (WINTER 2016 – Q.3)

Identify the degree of the risk probability and impact factor in each of the following scenarios and state
the reason for your answer.

a. A major fire in the facilities of Paragon Oil Refinery Limited would have disastrous
consequences for the company. Therefore, the company has implemented most stringent fire
control procedures and systems and offers fire-fighting training to its employees from time-
to-time. (02
marks)

b. Work in Sun Shipbreaking Company is hazardous as strenuous manual working methods are
involved in dismantling of old ships. Preventive measures of workforce training and protective
safeguards are almost non-existent a major accident may result in loss of lives of a large
number of workers. (02 marks)

c. Workers in Highland Marble Factory face continuous exposure to fine dust particles which
cause respiratory diseases. The factory requires 120 workers. 10-15 per cent of workers leave
each year to seek jobs elsewhere in more conducive work environments although the
company provides them adequate protective facilities.
(02 mark)

3. MANAGING CREDIT RISK

The finance director of Basket Company is preparing a proposal to put to the board of directors. He
believes that the company is much too cautious in its policy of giving credit to customers. At the
moment all customers are given 30 days’ credit.
He believes that by increasing its exposure to credit risk, and increasing credit terms to 60 days, the
company will achieve an increase in annual sales of up to 20%. He also thinks that some improvements
in debt collection procedures will reduce the level of bad debts, although some bad debts cannot be
avoided. He thinks that the value of sales where there is a default will fall each year from 2% of sales to
1.8% of sales.
He believes that in order to increase annual sales and profits, the company should be willing to increase
its risk appetite, and accept the risk of higher bad debts.
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CHAPTER 08: CATEGORIES AND MEASUREMENT OF RISK
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Required
Using this example of managing credit risk, explain and illustrate the meaning of:
 Exposure to risk
 Risk of losses
 Residual risk
 Risk appetite.

4. JPX
Chemco is a well-established listed African chemical company involved in research into, and the
production of, a range of chemicals used in industries such as agrochemicals, oil and gas, paint, plastics
and building materials. A strategic priority recognised by the Chemco board some time ago was to
increase its international presence as a means of gaining international market share and servicing its
increasingly geographically dispersed customer base. The Chemco board, which operated as a unitary
structure, identified JPX as a possible acquisition target because of its good product ‘fit’ with Chemco
and the fact that its geographical coverage would significantly strengthen Chemco’s internationalisation
strategy. Based outside Africa in a region of growth in the chemical industry, JPX was seen by analysts
as a good opportunity for Chemco, especially as JPX’s recent flotation had provided potential access to
a controlling shareholding through the regional stock market where JPX operated.

When the board of Chemco met to discuss the proposed acquisition of JPX, a number of issues were
tabled for discussion. Bill White, Chemco’s chief executive, had overseen the research process that had
identified JPX as a potential acquisition target. He was driving the process and wanted the Chemco
board of directors to approve the next move, which was to begin the valuation process with a view to
making an offer to JPX’s shareholders. Bill said that the strategic benefits of this acquisition were in
increasing overseas market share and gaining economies of scale.

While Chemco was a public company, JPX had been family owned and operated for most of its thirty-
five year history. Seventy-five percent of the share capital was floated on its own country’s stock
exchange two years ago, but Leena Sharif, Chemco’s company secretary suggested that the corporate
governance requirements in JPX’s country were not as rigorous as in many parts of the world. She also
suggested that the family business culture was still present in JPX and pointed out that it operated a
two-tier board with members of the family on the upper tier. At the last annual general meeting,
observers noticed that the JPX board, mainly consisting of family members, had ‘dominated discussions’
and had discouraged the expression of views from the company’s external shareholders. JPX had no
non-executive directors and none of the board committee structure that many listed companies like
Chemco had in place. Bill reported that although JPX’s department heads were all directors, they were
not invited to attend board meetings when strategy and management monitoring issues were being
discussed. They were, he said, treated more like middle management by the upper tier of the JPX board
and that important views may not be being heard when devising strategy. Leena suggested that these
features made the JPX board’s upper tier less externally accountable and less likely to take advice when
making decisions. She said that board accountability was fundamental to public trust and that JPX’s
board might do well to recognise this, especially if the acquisition were to go ahead.
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CHAPTER 08: CATEGORIES AND MEASUREMENT OF RISK
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Chemco’s finance director, Susan Brown advised caution over the whole acquisition proposal. She saw
the proposal as being very risky. In addition to the uncertainties over exposure to foreign markets, she
believed that Chemco would also have difficulties with integrating JPX into the Chemco culture and
structure. While Chemco was fully compliant with corporate governance best practice, the country in
which JPX was based had few corporate governance requirements. Manprit Randhawa, Chemco’s
operations director, asked Bill if he knew anything about JPX’s risk exposure. Manprit suggested that the
acquisition of JPX might expose Chemco to a number of risks that could not only affect the success of
the proposed acquisition but also, potentially, Chemco itself. Bill replied that he would look at the risks
in more detail if the Chemco board agreed to take the proposal forward to its next stage.

Finance director Susan Brown, had obtained the most recent annual report for JPX and highlighted what
she considered to be an interesting, but unexplained, comment about ‘negative local environmental
impact’ in its accounts. She asked chief executive Bill White if he could find out what the comment
meant and whether JPX had any plans to make provision for any environmental impact. Bill White was
able to report, based on his previous dealings with JPX, that it did not produce any voluntary
environmental reporting. The Chemco board broadly supported the idea of environmental reporting
although company secretary Leena Sharif recently told Bill White that she was unaware of the meaning
of the terms ‘environmental footprint’ and ‘environmental reporting’ and so couldn’t say whether she
was supportive or not. It was agreed, however, that relevant information on JPX’s environmental
performance and risk would be necessary if the acquisition went ahead

Required
a. Manprit suggested that the acquisition of JPX might expose Chemco to a number of risks.
Illustrating from the case as required, identify the risks that Chemco might incur in acquiring JPX
and explain how risk can be assessed.
b. Write a memo to Leena Sharif defining ‘environmental footprint’ and briefly explaining the
importance of environmental reporting for JPX.
 SPM Practice Kit
CHAPTER 08: CATEGORIES AND MEASUREMENT OF RISK
Answers

CHAPTER 08:
CATEGORIES AND MEASUREMENT OF RISK

ANSWERS

1. OPERATIONAL RISKS (SUMMER 2017 – Q.2B)

The operational risks which may adversely impact the operations of a shipping company which carries
bulk cargo of dry goods are as follows:
1. Accident at the point of loading or discharge of the cargo;
2. Strikes by dock workers at the seaports;
3. Piracy/high jacking of ship during transit;
4. Jettisoning of cargo due to sea storm;
5. Acts of wars/major political disruptions in the countries of loading/discharge of cargo or in the
shipping lanes;
6. Stringent emission control regulations which may not be adhered due to malfunction/failure
of equipment.

2. RISK PROBABILITY AND IMPACT FACTOR (WINTER 2016 – Q.3)

a. Low probability and High impact. Paragon Oil Refinery Limited implements strict fire control
systems and its workers are highly trained, therefore the probability of a major fire is rather
remote. However, the occurrence of a major fire can result in huge losses because of
inflammable fuel stocks which would rapidly engulf all the facilities.

b. High probability and High impact. The workers who break/dismantle the ships are not given
proper training and work with minimum protective safeguards in hazardous working
conditions; therefore the probability of accidents is quite high. A major accident resulting in
loss of many human lives may lead to heavy fines or even cancellation of shipbreaking license
and closure of the business.

c.
1. Health Risk: Low probability and Low impact: The workers are continuously exposed to
dust but the probability of their suffering from respiratory diseases is low because the
company provides them adequate protective facilities, consequently, its impact on
company’s business is low in terms of incurring health costs for the workers.
2. Worker turnover Risk: Low to moderate probability and impact: The worker turnover risk
is low to moderate due to their perception of having respiratory diseases however, its
impact on the company’s business is again low to moderate as the worker turnover is not
expected to result in major setback/loss for the company because of abundant availability of
workers.
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CHAPTER 08: CATEGORIES AND MEASUREMENT OF RISK
Answers

3. MANAGING CREDIT RISK

Exposure to risk
All business activities involve some risks and whenever a risk exists, there is an exposure to that risk.
This means that the actual outcome might be worse (or better) than expected. For example if a
company makes a strategic capital investment, there is a risk that the investment will make a loss, or will
fail to provide an adequate return.
With credit risk, there is a possibility that when a company gives credit to its customers, the customer
might fail to pay what he owes, and there will be a bad debt. With credit risk, the total exposure to risk
can be measured as the total amount of receivables.

Risk of losses
When a business entity has exposures to risk, there is a risk that some unexpected losses will occur if
adverse events occur. The amount of the loss that might occur is rarely the full amount of the exposure.
For example, if a company has an exposure to bad debts, with receivables of Rs.10 million, it is most
unlikely that all the receivables will become bad debts. Even when a customer becomes a bad debt,
some of the debt might be recovered in legal proceedings. The risk of losses is an estimate of what the
losses might be from a given exposure to risk.
The risk of losses cannot always be measured, but with credit risk, it might be possible to estimate the
risk of losses from an exposure to credit risk as:
Total exposure (= total receivables) × Probability of default × Loss in the event of a default.
For example, if a company has Rs.10 million of annual sales, there is a 2% probability of default and in
the event of default by a customer only (on average) 25% of the debt will be recovered, the risk of
losses is:
Rs.10 million × 2% × 75% = Rs.150, 000.

Residual risk
Residual risk is the risk of losses after allowing for all risk control measures to reduce or contain the risk.
In the case of bad debt risk, the risk might be reduced through better credit-checking procedures, or
more efficient debt collection procedures. The finance director of Basket Company thinks that the bad
debt risk can be reduced by improving debt collection procedures. If the probability of default could be
reduced to, say, 1.8%, and sales will increase by 20% each year to Rs.12 million, the risk of losses would
be reduced to Rs.12 million × 1.8% × 75% = Rs.162,000.

Risk appetite
Risk appetite describes the amount of risk (losses) that an entity is prepared to accept in order to obtain
the expected benefits. In this example, if the company is willing to increase the credit period allowed to
customers from 30 days to 60 days, the risk of annual losses from bad debts will rise from Rs.150, 000
to Rs.162, 000.
The company must decide whether it has the ‘appetite’ to accept the risk of losses of Rs.162,000 in
order to obtain the benefits of higher annual sales (Rs.2 million) and the additional profits from those
sales.
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CHAPTER 08: CATEGORIES AND MEASUREMENT OF RISK
Answers

4. JPX
a. Risks of the proposed acquisition

Risks that Chemco might incur in acquiring JPX.

The case describes a number of risks that Chemco could become exposed to if the acquisition was
successful. Explicitly, the case highlights a possible environmental risk (the ‘negative local
environmental impact’) that may or may not be eventually valued as a provision (depending on
whether or not it is likely to result in a liability). Other risks are likely to emerge as the proposed
acquisition develops.

Exchange rate risks apply to any business dealing with revenue or capital flows between two or
more currency zones. The case explicitly describes Chemco and JPX existing in different regions of
the world. Whilst exchange rate volatility can undermine confidence in cash flow projections, it
should also be borne in mind that medium term increases or decreases in exchange values can
materially affect the returns on an investment (in this case, Chemco’s investment in JPX).

There is some market risk in Chemco’s valuation of JPX stock. This could be a substantial risk
because of JPX’s relatively recent flotation where the market price of JPX may not have yet found
its intrinsic level. In addition, it is not certain that Chemco has full knowledge of the fair price to
pay for each JPX share given the issues of dealing across national borders and in valuing stock in
JPX’s country.
All mergers and acquisitions (‘integrations’) are exposed to synergy risks. Whilst it is expected and
hoped that every merger or acquisition will result in synergies (perhaps from scale economies as
the case mentions), in practice, many integrations fail to realise any. In extreme cases, the costs
arising from integration can threaten the very survival of the companies involved.

Finally, there are risks associated with the bringing-together of the two board structures.
Specifically, structural and cultural changes will be required at JPX to bring it in line with
Chemco’s. The creation of a unitary board and the increased involvement of NEDs and
departmental heads may be problematic, for example, Chemco’s board is likely to insist on such
changes post-acquisition.

Assessment of risk
The assessment of the risk exposure of any organisation has five components. Firstly, the identity
(nature and extent) of the risks facing the company should be identified (such as considering the
risks involved in acquiring JPX). This may involve consulting with relevant senior managers,
consultants and other stakeholders.

Second, the company should decide on the categories of risk that are regarded as acceptable for
the company to bear. Of course any decision to discontinue exposure to a given risk will have
implications for the activities of the company and this cost will need to be considered against the
benefit of the reduced risk.
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CHAPTER 08: CATEGORIES AND MEASUREMENT OF RISK
Answers

Third, the assessment of risk should quantify, as far as possible, the likelihood (probability) of the
identified risks materialising. Risks with a high probability of occurring will attract higher levels of
management attention than those with lower probabilities.

Fourth, an assessment of risk will entail an examination of the company’s ability to reduce the
impact on the business of risks that do materialise. Consultation with affected parties (e.g.
departmental heads, stakeholders, etc.) is likely to be beneficial, as information on minimising
negative impact may sometimes be a matter of technical detail.

Fifth and finally, risk assessment involves an understanding of the costs of operating particular
controls to review and manage the related risks. These costs will include information gathering
costs, management overhead, external consultancy where appropriate, etc.

b. Environmental reporting.

Memorandum
From: Professional Accountant
To: Leena Sharif
Date: DD/MM/YYYY
Re: Environmental issues at Chemco and JPX

1. Introduction
I have been asked to write to you on two matters of potential importance to Chemco in
respect of environmental issues. The first of these is to consider the meaning of the term,
‘environmental footprint’ and the second is to briefly review the arguments for inviting JPX
(should the acquisition proceed) to introduce environmental reporting.

2. ‘Environmental footprint’
Explanation of ‘environmental footprint’
The use of the term ‘footprint’ with regard to the environment is intended to convey a
meaning similar to its use in everyday language. In the same way that humans and animals
leave physical footprints that show where they have been, so organisations such as Chemco
leave evidence of their operations in the environment. They operate at a net cost to the
environment. The environmental footprint is an attempt to evaluate the size of Chemco’s
impact on the environment in three respects.

Firstly, concerning the company’s resource consumption where resources are defined in terms
of inputs such as energy, feedstock, water, land use, etc

Second, concerning any harm to the environment brought about by pollution emissions. These
include emissions of carbon and other chemicals, local emissions, spillages, etc. It is likely that
as a chemical manufacturer, both of these impacts will be larger for Chemco than for some
other types of business.
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Thirdly, the environmental footprint includes a measurement of the resource consumption and
pollution emissions in terms of harm to the environment in either qualitative, quantitative or
replacement terms.

3. Environmental reporting at JPX.

Arguments for environmental reporting at JPX
There are number of arguments for environmental reporting in general and others that may
be specifically relevant to JPX. In general terms and firstly, I’m sure as company secretary you
will recognise the importance of observing the corporate governance and reporting principles
of transparency, openness, responsibility and fairness wherever possible. We should invite JPX
to adopt these values should the acquisition proceed. Any deliberate concealment would
clearly be counter to these principles and so ‘more’ rather than ‘less’ reporting is always
beneficial.

Second, it is important to present a balanced and understandable assessment of the

company’s position and prospects to external stakeholders.

Third, it is important that JPX recognises the existence and size of its environment footprint,
and reporting is a useful means if doing this.

Fourth, and specifically with regard to JPX and other companies with a substantial potential
environmental footprint, there is a need to explain environmental strategy to investors and
other interested stakeholders (e.g. Chemco). Finally, there is a need to explain in more detail
the ‘negative local environmental impact’ and an environmental report would be an ideal
place for such an explanation.

Summary:
As JPX’s ‘environmental footprint’ is potentially quite large, it is important that Chemco
ensures as far as possible, that any such footprint left by JPX is known and measured.
Additionally, in the interests of transparency, openness, responsibility and fairness, it is
important that it is also fully reported upon for the information of both investors and other
interested stakeholders.
 SPM Practice Kit
Chapter 09: Mitigation and Controlling Risk
Questions

CHAPTER 09:
MITIGATION AND CONTROLLING RISK
QUESTIONS

1. KIDS WIZARD (SUMMER 2018 – Q.2)

Kids Wizard (KW), a chain of stores, is engaged in the business of baby clothing and accessories. KW
had been regarded for its high quality products at the most affordable prices until it had to face a
major setback when it introduced ‘toys’ section for infants few years back. The toys section got an
immense response and high revenues were generated. However, a major defect was identified in one of
the toy categories forcing KW to recall the entire category and had to face legal proceedings which
resulted in shutting down of entire section of toys. Subsequent internal findings revealed that material
used in the toys was of sub-standard quality which could not be identified because of the absence of
quality control measures. The management of KW now intends to expand into furniture manufacturing
business under the banner ‘baby bed and bedding’, a new section in its chain of stores. It is optimistic
about the success of the new section and has carried out an extensive research on material and supplier
selection. It believes that a well-launched marketing campaign and competitive pricing would help to
generate high profits. However, given the past experience, management is considering to place certain
quality control measures and appoint a risk specialist for overall risk management.

Required:
a. Identify four classifications of quality-related costs and mention two costs which KW may incur
under each classification. (06 marks)
b. Briefly discuss the activities/functions of risk specialist in the risk management process.
(04 marks)
c. Assume that you have been appointed as a risk specialist at KW. Identify and discuss the
approaches under TARA framework for risk management. Also recommend the most appropriate
approach under the given situation with justification.
(10 marks)
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Chapter 09: Mitigation and Controlling Risk
Questions

2. RISK MANAGEMENT REVIEW

Bobby Smythe has just been elected to the board of directors of Trans Gadgets, a large manufacturing
company, as an independent non-executive director. It is his first appointment as a non-executive
director, and he is not yet familiar with his role and responsibilities.
At the next board meeting, an item on the agenda is a review of risk management within the company.
The board are required by the country’s code of corporate governance to review each year the
adequacy of the system of risk management.
Bobby Smythe is preparing a list of questions to ask at the board meeting on this topic. He wants to
obtain satisfactory answers to his questions before he will be prepared to agree that the risk
management system is adequate.

Required
Prepare a list of at least six questions that Bobby Smythe should ask, to help him assess the adequacy
of the company’s risk management system.
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Chapter 09: Mitigation and Controlling Risk
Answers

CHAPTER 09:
MITIGATION AND CONTROLLING RISK
ANSWERS

1. KIDS WIZARD (SUMMER 2018 – Q.2)

a. Costs that KW may have to incur under each of the four classified quality-related costs are
given hereunder:

1. Prevention costs:
These are incurred to avoid defects and quality concerns. Examples may include:
 Designing products with in-built quality.
 Training employees to encourage high standard performance.
 Establishing specifications for incoming materials, processes and finished products.
 Appointment of quality control expert / purchasing of premium quality materials / hiring
of skilled labor.

2. Appraisal costs:
These are incurred to identify defective products before passing on to the customers.
Examples may include:
 Testing and inspecting of incoming materials.
 Testing and inspecting of final products.
 Performing quality audits to ensure quality system is functioning appropriately.

3. Internal failure costs:

These are incurred to remove defects discovered before the product is delivered to the
customer. Examples may include:
 Re-working / rectifying the defects to bring the product to the required quality standard.
 Scrapping items that cannot be repaired, used or sold.
 Production time lost due to failure and defects.

4. External failure costs:

These are associated with the removal of defect that have been discovered after the
product has been delivered to the customer. Examples may include:
 Costs of carrying out repair work under a guarantee or warranty.
 Costs of recalling the entire products to correct the design fault.
 Costs of lost reputation.
 Legal costs because of liability arising from defective product.
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Chapter 09: Mitigation and Controlling Risk
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b. Activities / functions of risk specialist in the risk management process:

 Identifying the risks that are prevailing internally (operational risks) as well as externally
(strategic risks).
 Assessing the significance of each risk identified in terms of likelihood of risk occurrence
as well as the size of the loss in the event of its occurrence.
 Designing, implementing and monitoring risk management strategies and policies in
accordance with the best practices.
 Preparing periodical risk management reports for senior management and offering
recommendations.

c. The risk management approaches of TARA framework are identified and discussed as follows:
1. Transferring risk: This approach involves passing on whole or part of the risk to a third
party so that in the event of its occurrence, the third party suffers all or part of the loss. A
common example of risk transfer is insurance. However, this approach is appropriate for
risks where the potential losses are high but the probability of a loss occurring is fairly
low.
2. Avoiding risk: This approach involves avoidance of risk altogether by either not investing
or withdrawing from certain business area(s) completely. However, for making
entrepreneurial profits, some business risks have to be taken and this approach is only
appropriate in the extreme circumstances where risk is too high as compared to the return
expected from it.
3. Reducing risk: This approach involves mitigation of risk by restricting exposure in a
particular area or attempting to reduce the adverse effects in the event the risk actually
occurs. This can be achieved by means of sound system of internal controls.
4. Accepting risk: Under this approach risk, is retained in the expectation of making a higher
return. This approach is appropriate where exposure to risk is acceptable and the benefits
expected from it outweigh the costs of managing it. However, identified risk should be
managed and exposure to it should be restricted to acceptable limits.

Recommendation:
Keeping in view the history of KW as well as high expectations from the new section, I would
recommend a combination of transferring and reducing risks approaches. KW may insure
certain part of its exposure to risk (to mitigate losses) as well as develop sound internal
controls system (for quality maintenance) to reduce the risk to an acceptable level. Acceptance
(because of past experience) and avoidance (new section is expected to generate high profits)
are not recommended approaches under the given situation.
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Chapter 09: Mitigation and Controlling Risk
Answers

2. RISK MANAGEMENT REVIEW

a. (Tutorial note: There is no single ‘correct’ answer to this question. The list of questions below
is indicative of the questions that Robert Lam should ask.)

Questions:
1. Does the company have a system for identifying risks (and if so, what is it)?
2. Does the company have a system for assessing risks and prioritising risks?
3. Does the company actively manage its risks?
4. Has the board of directors communicated to management what levels of risk are acceptable?
(Or: Has the board formulated and communicated a clear policy on risk and risk
management?)
5. Has the board of directors identified the limits of its ‘risk appetite?
6. Should certain risks be taken at all, or should they be avoided? (Or: Should the exposure to
certain risks be increased/reduced?)
7. Should certain risks be taken at all, or should they be avoided? (Or: Should the exposure to
certain risks be increased/reduced?)
 SPM Practice Kit
Chapter 10: Effectiveness of ICT
Questions

CHAPTER 10:
EFFECTIVENESS OF ICT

QUESTION

1. IT, PORTER AND GLOBALIZATION

Required
a. Use Porter’s five forces model to analyse the impact of the internet on competitive markets.
b. Explain how e-commerce has helped lower the barriers to globalisation faced by companies.

2. INTERNET
DGB Ltd is a large importer of homecare products; the head office supports seven area branches which
are spread out over a large geographical area. Each of the area offices is run fairly autonomously, each
office having its own management team including IT support personnel. DGB sells its entire range of
products through third party dealers.
The rating awarded to a dealer determines which categories of products they are able to sell. Head
office sets the dealers’ rating and prices, but leaves the daily interaction with dealers to the area
management; there is a pre-set upper and lower limit per item. The price ranges are reviewed quarterly
and any changes in prices are faxed or emailed to the branches following the review. This allows for
local price bargaining and price setting; individual targets are set annually for each area. Salaries and
bonuses depend on meeting and beating these targets.
Currently each DGB area office and warehouse supports and supplies its ‘own’ dealers with the required
products. When inventories become low they place a Required Stock Form (RSF) with head office. On
receipt of the RSF, head office despatch the goods from their central warehouse to the appropriate area
office. When the central warehouse becomes low on any particular item(s), DGB will raise purchase
orders and send them to one of their many international suppliers. Typically, each area office has its
own inventory recording system, running on locally networked personal computer systems (PCs). RSFs
are e-mailed to head office.
Required
a. Describe the major characteristic and benefits of an intranet.
b. Assess the impact of implementing an intranet across the head office and branches. Assume that
DGB is going to maintain its current physical structure (i.e. central office and seven branches).
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Chapter 10: Effectiveness of ICT
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3. ALPHA (WINTER 2019 (Q.2B)

Alpha, a small management consultancy firm, deals with corporate trainings on various finance matters.
It gets the required training data in an Excel format through email. The data is kept on a central
computer that can be accessed remotely through the internet with a password.

Recently, a long-standing corporate client has asked Alpha to provide consultancy on an investment
decision. Not willing to pass the opportunity, the directors at Alpha have said yes to the client as they
believe that their senior executives have the capability to perform the task. However, the directors are
concerned about the risks of handling such sensitive and confidential investment information with the
existing IT controls in place.

Required:
Briefly explain the general system software controls that Alpha should employ to protect data
confidentiality. (04)

4. E-STORE (WINTER 2019 (Q.6)

Fahad Ahmad (Fahad) owns a small retail store that sells computer parts and accessories. In an effort to
expand the business, Fahad is planning to attract a wider customer base by launching its own e-store to
sell the goods online.

Required:
a. Discuss whether it is advisable for Fahad to launch its own e-store. (06)
b. Mention the alternatives available to Fahad to sell the goods online and recommend the most
suitable alternative(s). (05)

5. AUM UNIVERSITY (WINTER 2020 Q.4 (A)

a. On 15 March 2020, middle of spring semester, AUM University (AUM) decided to promptly act on
government’s directive to close university campuses for the rest of the semester due to the global
pandemic and take all classes online. Since the closure of campuses, complaints have been
mounting from faculty members, students and IT support staff. Summary of their complaints is as
follows:
 Faculty members are complaining that they are ill-prepared with taking the courses online and
using online teaching tools.
 Students say that the sudden burst of online work from the university and stay-athome chores
amount to a lot of work, which they were not ready for. Also, due to varied personal
circumstances not all of the students can attend online sessions in a synchronous mode.
 IT support staff is facing a resource crunch as they are overwhelmed with a sudden rush of
queries from faculty and students.
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Chapter 10: Effectiveness of ICT
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Required:
Propose possible measures AUM should adopt to address the issues in order to successfully deliver
online teaching services. (10)

6. TVL (WINTER 2021 Q.8)

The Vocal Limited (TVL) is a medium-sized publishing house. TVL’s magazines are recognized for quality
contents and catchy images. The content for magazines is mostly outsourced to well-known content
writers which is then edited in-house before sending to distributors and retailers.

Hunain, CEO, is concerned over significant downfall in sales and profitability over the past two years. In
a recent meeting, Zarnish, Distribution Head, pointed towards the emerging trend of e-reading and
emphasized that TVL should consider e-publishing its magazines as well. She suggested that TVL may
duplicate its existing brand identity to e-publishing.

Zarnish also mentioned that e-publishing would facilitate direct interaction with targeted customers and
adoption of Customer Relationship Management (CRM) system could assist in attracting and retaining
them.

The existing IT team at TVL comprises of two officers who are involved in day-to-day administrative and
basic technical support. Hunain understands that setting up e-publishing would involve cost but he is
optimistic that it is a one-time cost which could be recovered in no time as e-publishing would have an
immediate positive effect on the profitability of the company.

Required:
a. Discuss the potential challenges to e-publishing that TVL may encounter. (06)
b. Comment on CEO’s viewpoint that e-publishing would involve one-time cost that would be
recovered immediately. (03)
c. Evaluate Zarnish’s suggestion of duplicating the existing brand identity for e-publishing. Suggest the
other possible alternatives of e-branding that may also be considered. (04)
d. Discuss how CRM system could assist TVL in attracting and retaining the targeted customers. (05)
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Chapter 10: Effectiveness of ICT
Answers

Chapter 10:
Effectiveness of ICT
ANSWERS

1. IT, PORTER AND GLOBALISATION

a)
Competitive rivalry with existing competitors. The internet encourages greater competition.
Companies provide a large amount of information about themselves and their products on their
websites. This makes it easier for competitors to copy what they are doing. As a result of the
stronger competition, selling prices are depressed.
Threat of new entrants. In many industries, the barriers to entry have been lowered. By using the
internet, new competitors can enter the market more quickly and more cheaply. Companies are
able to enter the market using the internet to market their products or services. They do not need
to employ an expensive full-time sales force, or distribute their products through (expensive)
traditional retail networks.
Bargaining power of suppliers. Suppliers are able to use the internet to increase the number of
clients or customers for their products. As a result, the bargaining power of suppliers is likely to
increase.
Bargaining power of customers. The internet has increased the bargaining power of customers
substantially. Customers are able to obtain information about the rival products of many different
competitors, by using search engines such as Google and visiting many different websites. The
reality is that customers using the internet are finding it easier to switch suppliers, and the
openness of the internet and its standards makes it difficult for a customer to maintain its
customer network intact.
Threat of substitute products. The internet has also increased the threat posed by substitute
products whereby the same underlying products can be delivered through an alternative
distribution medium. For example, online newspapers have reduced the demand for hard-copy
daily newspapers. Internet banking has led to the closure of a number of high-street branches as
banks seek to minimise their overheads whilst reaching their customers virtually rather than
physically.

b) The internet and e-mail in particular have made it much easier for suppliers to make contact with
customers in geographically-distant countries.

The internet and e-mail have also made it easier for customers to search for suppliers in other
countries of the world. For example, when a customer performs a product search on Amazon they
are in fact making a global search across Amazon’s global supply chain.
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Chapter 10: Effectiveness of ICT
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Suppliers and customers can communicate with each other much more quickly and easily, in spite
of differences in time zones.

Customers can search the internet to find suppliers who are able to provide what they want at a
competitive price. They can compare rival products or services, and can compare prices. For
example, product prices might be lower in the USA or China than in Europe for a particular
product.

Suppliers can try to attract more customers from wider geographical markets by advertising their
goods or services on their website (or other information websites and search engines). The growth
in advertising across social media platforms such as YouTube and Facebook enables suppliers to
reach those global markets reasonably easily.

2. INTRANET
a) Intranet characteristics
An intranet is a collection of data collated with the use of internet technology, allowing a number
of pages to be linked together and published. Features include hyperlinks, icons and search
engines accessed with the use of a browser.
The data is only available to the staff working within DGB, creating a facility which enables the
staff to access and share common information relating to the provision of DGB products.
Benefits
Corporate image –The access to the pages on the intranet may be noted with a logo, symbol or
consistent colour, etc., this will help staff to identify with the intranet and the information that it
provides, and therefore create a common understanding
Links –There is the opportunity to link items on the pages together, which improves the ability to
move between information which relates to each other, therefore facilitating ease and speed of
access to data.
Search facility – As the data can be linked, the intranet has the power to enable staff to search
for items with a common theme, therefore reducing the time to retrieve information.

b) The impact of the use of an intranet on the operations of the business includes the following.
Inventory management – all data relating to inventory maintained by the company can be stored
on web pages, facilitating search functions. This will help the company to quickly replenish
inventory between branches without having to contact a supplier. This will reduce the costs of
ordering from a supplier when the inventory is already available within one of the branches. There
is also the opportunity to link this internal inventory system to that of their suppliers, therefore
giving the opportunity to have automatic ordering from the supplier at the lowest cost (extranet).
Price control – the collation of the prices relating to the upper and lower limits can be
maintained more easily with the input from dealers. When the headquarters carry out the
quarterly review, it can be achieved more quickly as all the prices are stored centrally. The ability
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Chapter 10: Effectiveness of ICT
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to access the information more quickly helps to ensure that the limits are accurate, to enhance
competitiveness.
Costs – the intranet becomes the source of information for all the users/staff, this will help to
reduce the printing of catalogues and distribution of information to customers and dealers. The
identification of possible duplication of information may also be easier to evaluate, eliminating
time spent on tasks such as searching. All current internal information can be easily maintained
and distributed.
Compatibility – the company will need to evaluate the compatibility of the existing system within
the organisation to maximise the potential of interfaces between the systems. This will have to be
considered before the decision to develop the intranet is made, as poor interfaces will limit the
information provision and in some cases increase the time to complete tasks.
Group working – there may be an opportunity to encourage staff to work as a group or on a
virtual team, with the use of discussion boards and chat rooms. This may enable staff to have a
greater understanding of each other’s tasks and responsibilities. This may facilitate the sense of
loyalty and identification which the staff may feel. This is especially important for a geographically
dispersed company such as DGB.
Corporate resource – the information collated on the intranet will enable DGB to gather
information which relates to the operations of the business, such as sales and marketing. The
managers at DGB will be able to search the information to determine which customer or dealer
provides the most revenue, therefore targeting the marketing efforts on these particularly
important companies.

Other issues include:

 Interface with other systems within DGB, e.g. legacy systems; this will increase returns of the
investment made in the intranet, such as the opportunity to generate revenue with the
development of an extranet.
 Presentation in a user-friendly format increasing the skills of staff.
 There may be concerns from staff that working practices may change, resulting in a lack of
support. This would reduce the chance of successful implementation. This is particularly
important, as there will be a change in culture in relation to the way that staff interact and
work with each other.
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Chapter 10: Effectiveness of ICT
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3. ALPHA (WINTER 2019 (Q.2B)

Passwords:
Alpha should follow strong password policy. The policy may include having a password with a
combination of letters, numbers and symbols, that is not easily guessed, periodically changing
passwords, etc.

Encryption:
The data confidentiality can be maintained at Alpha by asking the clients to encrypt data before
sending it through network. When Alpha has received the encrypted data it can decrypt it with a
decryption key to access the data.

Firewall:
Alpha should use firewall to protect its computer that stores the client data to protect it from
unauthorized access from within and outside the company. It can also be used to obtain reports
on blocked messages for further analysis and action.

Install anti-virus software

Alpha should install anti-virus software to protect it from viruses that can harm the system and
compromise data confidentiality.

4. E-STORE (WINTER 2019 (Q.6)

(a) Although, owning an e-store would give Fahad an access to wider customer base, before
launching an e-store, Fahad should consider the following:
 Setting up a website to sell products online can be expensive for a small retail store. The
setup of a website involves showing an online catalogue with photographs, keeping
records of inventory balances, getting website hosting, setting up the facility for online
payments, delivery of goods to customers, etc. All these can be costly to implement.
 It might take time to establish a e-store and particularly creating awareness among
targeted customers about products being offered by Fahad. This may require significant
spending on marketing as well.
 Continuous availability is must for the success of the e-store. The availability could be
compromised due to poor maintenance, inappropriate hosting and denial of service
attacks, etc.
 Operating costs can be substantial for maintaining a website. The operating costs include
regularly updating the website to keep it current and attractive, regularly managing
hosting requirements and costs. Fahad might not have the requisite skills to do the
required maintenance. Hiring a resource to do maintenance can be costly for a small
business.
Based on the points above, he is not advised to establish his own e-store. Instead, he should
look for credible alternatives that can overcome these challenges to achieve the objective.
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Chapter 10: Effectiveness of ICT
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(b) Fahad can:

 Get associated with an e-intermediary, for example daraz.pk, olx.com.pk.
 Join e-Auctions.
 Form alliances with partner managed e-stores.
Fahad can select any or a combination of the above alternatives.

Reasons:
 The e-portals (e-intermediaries, e-Auctions, partner e-stores) would be readily available
that would give Fahad an immediate access to a wide range of customers.
 It would require low initial investment as registration costs are generally minimal. However,
a certain percentage of commission on each sale may need to be paid.
 It would give Fahad an access to well-established e-portals designed and maintained by
team of experts.
 Fahad would not require extensive technical skills to manage e-business. The skills such as
regular website updating, continuous availability and marketing campaigns would be
performed already.

5. AUM UNIVERSITY (WINTER 2020 Q.4 (A)

 The issues noted are the result of an unplanned change (or reactive change) that happens in
response to developments, events and new circumstances that have arisen. The change is not
intended in advance. In this case the event was government’s directive to switch to online
mode of teaching due to a global pandemic.
It is proposed that AUM should adopt the following measures to address the identified issues:

 For AUM management:

 Conduct awareness sessions among faculty and administration staff on the need for
change.
 Get buy-in from department heads and opinion/talk leaders (among students, faculty and
staff) on the need for change.

 For faculty:
Faculty must be provided with adequate training and support in using online teaching tools
and taking their classes online.

 For students:
 Students should not be overburden with assignments. Faculty should be informed and
advised to make appropriate arrangements.
 Asynchronous mode of teaching should be made available to students. Online sessions
should be recorded and lecture material should be provided so students who cannot
attend live sessions can work on the material in their own time.
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Chapter 10: Effectiveness of ICT
Answers

 University Counsellors should be made aware and available to tackle student issues.
 Student helpdesk should be formed to assist students with their queries/needs (e.g.
trainings/scheduling/availability of facilities/etc.).
 Students should be kept well informed and advised to show support and understanding
towards the changes made.

 For IT support staff:

 IT support staff should be provided with more resources (additional staff, new IT equipment
etc.) to address queries in a timely manner.
 They should be provided with the training to manage queries and tackle common technical
issues in this period.
 They should be asked to prepare FAQs for common queries.

In light of the analysis above, other recommendations are:

 Need for time to get ready is the common denominator to address faculty, student and IT
support issues. The university should take a short break or slow down to let everybody catch
up and get ready for the desired change.
 AUM management should encourage university staff (faculty, IT support, etc.) to keep open
communication and show flexibility and understanding towards varied needs of students
during this time. It should also encourage them to seek guidance from management when
required.

6. TVL (WINTER 2021 Q.8)

a. TVL may encounter following potential challenges to e-publishing:
 An IT infrastructure would be needed to support e-publishing that would involve high costs
such as development of website, availability of high bandwidth, facilities for online payment, etc.
This would particularly be challenging as TVL’s declining profitability is the key concern of CEO.
 The existing IT team comprises of only two staff who are involved in dayto-day basic
administrative and technical support. For e-publishing, TVL would either have to hire a specialist
IT team or recruit new members or to arrange the training for the existing IT staff to have
necessary knowledge and skills to successfully operate e-publishing.
 E-publishing would facilitate direct interaction with customers which appears to be absent
currently. This would call for marketing and customer relationship skills which could either be
met by hiring a marketing team or outsourcing to marketing specialists having knowledge of e-
marketing and dealing with customer queries and related matters.
 The existing supply chain involves the content writers, distributors and retailers. The e-publishing
would likely change the existing business model significantly. Particularly, distributors and
retailers may raise objections and either call for revised pricing/commission or refuse to
continue the business with TVL.
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Chapter 10: Effectiveness of ICT
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b. The CEO’s viewpoint is not correct because:

 the website for e-publishing would need to be kept up-to-date in terms of new uploads and
edits as well as a dedicated technical team would also be required to ensure 24/7 support.
Therefore, the assumption of on-time cost is not entirely true.
 it will take time to develop a website, recruit and train staff, marketing and attracting the
customers to make a purchase from website. So, the assumption of CEO that it would have an
immediate positive impact on the profitability of the company might not hold true either.

c. Zarnish’s suggestion of duplicating the existing brand identity would be effective as developing and
gaining recognition of new brand identity would involve time, skills and costs. However, if TVL fails
to duplicate its existing brand identity (quality content and catchy images) effectively for e-
publishing, its existing brand identity would also get damage.

The other possible alternatives for e-branding that may also be considered:
 Extend the existing brand by creating the slightly different version of it. This would allow the
association with the existing brand as well as also suggest to the customers that the e-
publishing offered by TVL might be different.
 Partnership with an existing e-brand. For example, partnership with the established online
bookstores or e-libraries. This would give an immediate access to the existing customer base of
partnering organization.
 Create a new brand for e-publishing. It would allow TVL to break free from the perceptions
associated with the old brand name which customers might have perceived as too traditional.

d. CRM could assist TVL in attracting and retaining the targeted customers as follows:
 Collecting customer information. It would assist in identifying and categorizing targeted
customers according to their interests.
 Storing customer information. It would help in creating a customer database where all the
customer information would be kept up-to-date.
 Accessing the information when needed. It will retrieve the desired customer information which
could assist in improved personalized customer services.
 Analyzing customer behavior. It would help in providing better customer experience when they
interact with TVL as staff dealing with these customers would be well-informed about their
purchasing patterns.
 Monitoring of key customer management performance indicators, such as number of customer
complaints. It would help in minimizing customer complaints.
 SPM Practice Kit
Chapter 11: Management Approaches and Employee Recruitment
Questions

CHAPTER 11:
MANAGEMENT APPROACHES AND EMPLOYEE RECRUITMENT
QUESTIONS

1. EFFECTIVE RECRUITMENT & SELECTION (WINTER 2018 – Q.8A)

An effective recruitment and selection process is likely to result in hiring of individuals that best fit with
organization structure and needs. List the factors that may hinder an organization from carrying out
effective recruitment and selection. (04 marks)

2. PERSON SPECIFICATION (WINTER 2017 – Q.9)

The person specification is an important part of the recruiter’s toolbox. A well-designed person
specification assists in attracting the right candidate for the job.
Required:
Draft a ‘Person Specification’ for the position of Marketing Manager containing one essential and one
desirable attribute in respect of each of the categories prescribed by Alec Rodger.
(08 marks)

3. CENTRAL TELECOMMUNICATION COMPANY (SUMMER 2017 – Q.5A)

Central Telecommunication Company (CTC) is operating in an environment of intense competition.
Abdul Hakeem, General Manager Marketing of CTC has resigned recently and the management intends
to short-list candidates to fill the vacant position.
Identify four types of competencies which the management should assess in recruiting a suitable
replacement. (06 marks)

4. ROLES & RESPONSIBILITIES (WINTER 2016 – Q.2B)

Describe briefly the reasons why senior human resource managers have assumed increasingly important
roles and responsibilities in the formulation and implementation of corporate level strategies of leading
organisations. (05 marks)

5. RECRUITMENT TESTS (SUMMER 2016 – Q.10)

a. Explain briefly the purpose of each of the following types of recruitment tests which are
administered to candidates in the selection process.
1. Intelligence Tests
2. Proficiency Tests
3. Aptitude Tests
4. Psychometric tests (06 marks)

b. Identify three different steps which a firm may take subsequent to the successful interview and
prior to the issuance of appointment letter to a candidate. (02 marks)
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Chapter 11: Management Approaches and Employee Recruitment
Questions

6. ZYPHER REFINERY LIMITED (WINTER 2015 – Q.3A)

Zypher Refinery Limited (ZRL) is in the advanced stage of establishing a major oil refinery in the country.
The newly appointed director of human resources is presently involved in the formulation of a
comprehensive human resource plan which would be presented to the board of directors for approval.
The HR report would be of considerable importance and would include the various aspects of human
resource planning process for ZRL’s operations.
Discuss the various aspects of the HR planning process which should be included in the report to
enable the board to reach a well-considered decision and accord its approval.
(09 marks)

7. OUTSOURCE RECRUITMENT (SUMMER 2014 – Q.3)

a. Briefly explain the reasons why certain organisations prefer to outsource functions concerning
recruitment of new employees to private employment agencies and professional recruiters rather
than to handle these functions themselves. (08 marks)

b. Interviews are a widely accepted method of the recruitment process and often play a major role in
the decision whether to accept or reject a candidate for a particular position. However, the results
of these interviews may not always be reliable due to the weaknesses in the process of the
interviews which may result in erroneous recruitment outcomes.
Describe four shortcomings in the interview process which, in your opinion, may result in
erroneous recruitment outcomes. (06 marks)

8. SOUND HEALTH PHARMACEUTICALS LIMITED (WINTER 2011 – Q.1)

Sound Health Pharmaceuticals Limited (SHPL) is a .reputable international company engaged in the
business of manufacture of a wide range of medicines with facilities located in several countries SHPL’s
product have been developed after long period of research at considerable cost and are prescribed by
medical consultants for patients suffering from life-threatening diseases. As Director of Human
Resources, you have to recruit Director Public Relations and Media Affairs to replace the incumbent
official who is expected to retire shortly. Identify and explain briefly eight critical skills and competencies
you would seek in the prospective candidates for this high-profile position in SHPL's senior
management hierarchy. (08 marks)

9. WINTECH LIMITED (WINTER 2019 (Q.5A)

WinTech Limited, a US based company is looking for a candidate to fill a key position in finance
department at its Karachi office. The potential candidate would be expected to lead a large team of
accountants in a complex environment where strict deadlines for reporting would need to be met. The
candidate would be reporting to CFO and would also need to frequently liaise with the head office in
US. Human resources manager in liaison with CFO has prepared the following job description to be
advertised shortly:
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Chapter 11: Management Approaches and Employee Recruitment
Questions

WinTech Limited is looking for an enthusiastic individual to fill a vacancy in finance department at its
Karachi office. The person will be reporting to CFO. Job responsibilities include:
 Monitoring day-to-day financial operations of the company.
 Preparing periodic financial reports and statements.
 Developing strategies to ensure that financial risk is minimized.
 Ensuring compliance with financial regulations and legislation.
Salary: Competitive
How to apply: email us [email protected]

Required:
Identify the shortcomings in the above advertisement / job description. Also make suggestions to
overcome the identified shortcomings. (06)

10. LEATHER FIESTA LIMITED (WINTER 2020 (Q.5)

Leather Fiesta Limited (LFL), a medium-sized company, is engaged in making and selling shoes
and bags. The company intends to introduce new product lines and expand the business in other
regions and for that management is considering appointing Regional Sales Director (RSD) for new
region.

RSD would lead a large team, work in close liaison with Country Sales Head and report to Board
of Directors. Other key responsibilities include: overseeing revenue generation strategies including
launching successful marketing and sales campaigns, interfacing with inventory and purchasing
departments, reviewing and analyzing periodic sales reports and cultivating lasting relationships
with customers and other stakeholders.

The human resource department has shortlisted two candidates for the position of RSD. The
summarized profiles are given below:

Name of
Brief Introduction Key Skills & Competencies
Candidate

He has been associated with LFL for over ten  Meeting sales targets consistently
years and has worked at various positions in  Maintaining good client
Arham Nasir the sales function. He is currently working as relationships
Sales Manager and reporting to his Regional  Preparing and finalizing sales
Sales Director. reports

He has working experience of over twenty  Developing sales targets

Shahveer Zaidi years with number of small and medium sized  Managing portfolio of products
organizations. He is currently leading a sales  Monitoring sales strategies
function and reporting to board of directors
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Chapter 11: Management Approaches and Employee Recruitment
Questions

at Star Limited, a small sized organization.

Required:
Evaluate the profiles of shortlisted candidates and discuss the factors that Board of Directors
may consider before making selection from above candidates. (12)
 SPM Practice Kit
Chapter 11: Management Approaches and Employee Recruitment
Answers

Chapter 11:
Management Approaches and Employee Recruitment
ANSWERS

1. EFFECTIVE RECRUITMENT & SELECTION (WINTER 2018 – Q.8A)

The following factors may hinder an organization from carrying out effective recruitment and selection:

 Lack of proper job analysis may attract individuals lacking the particular skills essential for the job.
 Badly designed job advertisement / application form where ideal requirements are primarily
focused on and minimum acceptable requirements are ignored may deter suitable candidates to
apply in the first place.
 Use of inappropriate media for advertising the job may result in lack of awareness of vacancy
among the potential candidates.
 The individuals responsible for making the selection may lack the skills necessary for successful
selection.
 The selection process is not monitored or reviewed regularly thereby disregarding the
improvements essential for effective functioning of the process.

2. PERSON SPECIFICATION (WINTER 2017 – Q.9)

Sr. Categories Essential Desirable

1 Physical make-up Highly presentable Good health record

2 Attainments Graduate in marketing or Membership of relevant

similar or ability to professional body
demonstrate knowledge
or skill
3 General intelligence Critical thinking ability Methodical

4 Special aptitudes Creative thinking Able to prioritize, delegate

and multi-tasking

5 Interests Highly social Like travelling and meeting

people from diverse culture
and backgrounds
6 Disposition Demonstrating a positive Knowledgeable and literate
attitude, dependability, in culturally diverse work
honesty and practices
trustworthiness
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Chapter 11: Management Approaches and Employee Recruitment
Answers

7 Circumstances Willing to occasionally Willing to travel extensively

work on flexible hours for work
(weekends and public
holidays as well)

3. CENTRAL TELECOMMUNICATION COMPANY (SUMMER 2017 – Q.5A)

The management of CTC should assess the following competencies in recruiting a suitable replacement
for the position of General Manager Marketing:

a. Communication Competency – Ability to communicate effectively with senior management and

subordinates as well as other stakeholders, including customers.
b. Planning and Administrative Competency – The ability to plan and organise activities and make
rational decisions specially in matters of pursuing marketing strategies to counter policies of the
competitors.
c. Teamwork Competency – The ability to complete the tasks through co-ordination with senior
members of the management team as well as the subordinates.
d. Strategic Action Competency – The ability to understand the overall mission and strategies of the
organization and be able to achieve the objectives of CTC.
e. Self-management Competency – The individual should have a sense of integrity and good ethics
and be willing to accept responsibilities.

4. ROLES & RESPONSIBILITIES (WINTER 2016 – Q.2B)

Senior human resource managers have now assumed increasingly important roles and responsibilities in
the formulation and implementation of corporate level strategies of leading organisations due to the
following reasons:
a. Senior Human Resource managers are responsible for management of employees who are the
vital assets of leading organisations and therefore deserve closer attention.
b. Senior Human Resource managers are specially trained and possess expertise to develop cohesive
organisational structures to achieve the overall strategic objectives of the company.
c. Senior Human Resource managers are responsible for formulating strategies of reward systems
and promotions in the organisations. The perceived fairness and equity in the development of
these policies play a vital role in employee induction, motivation and productivity at all levels.
d. Senior Human Resource managers formulate and implement fair and objective policies of career
path and succession planning for employees to ensure that the senior management positions are
filled-in by competent personnel at all times to achieve the corporate objectives.

5. RECRUITMENT TESTS (SUMMER 2016 – Q.10)

a. The purpose of different types of tests administered to the prospective candidates are:
1. Intelligence Tests – To measure the candidate's ability to think logically and make rational
decisions.
2. Proficiency Tests – To evaluate the candidate's ability to perform a particular task.
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Chapter 11: Management Approaches and Employee Recruitment
Answers

3. Aptitude Tests – To ascertain the candidate's behavioural attributes to work with others in a
team environment, handle work-related stress and cope with the demands of the job.
4. Psychometric tests – To quantify psychological dimensions of the applicants in terms of their
intelligence, personality and motivation levels.

b. A firm may take the following steps subsequent to the successful interview and prior to the
issuance of appointment letter to the candidate:
5. Conduct of medical tests.
6. Verification of degrees and certificates.
7. Checking of references furnished by the successful candidates.

6. ZYPHER REFINERY LIMITED (WINTER 2015 – Q.3A)

The various aspects of human resource planning process which should be incorporated in the report to
be submitted to the board are as follows:
a. Identifying the environment for availability of suitably qualified and experienced personnel sources
and the extent of competition for hiring their services by prospective employers.
b. Complete investigation of the various tasks to be performed in ZRL, contents of the jobs and the
required skills for these positions at different levels in the organizational hierarchy.
c. Developing recruitment plans for the number of personnel to be hired, sourcing of these
personnel, their qualifications, work skills and competencies.
d. Documenting authorities and responsibilities of the employee at various levels to achieve
efficiencies and ensure smooth day-to-day working.
e. Formulating remuneration packages, including fringe benefits to attract, retain and motivate the
most suitable employees.
f. Training of employees as persons with requisite skills in sufficient numbers may not be readily
available.

7. OUTSOURCE RECRUITMENT (SUMMER 2014 – Q.3)

a. Organisations prefer to outsource functions regarding recruitment of new employees to private
employment agencies and professional recruiters because:
 These organisations may not have adequately trained staff in their human resources
departments to prepare and place suitable advertisements in the media, handling/scrutinizing
the applications for identification of suitable candidates and subsequent processing of their
applications.
 These organisations may not want to disclose to their competitors that they are in the process
of recruiting particular types of professionals as it may reveal the direction of their expansion
schemes.
 These organizations may anticipate an overwhelming response' to the advertised position(s)
and consider that. it would, be cost-effective c.' to appoint professional employment agencies
to process and screen the large number of applicants and screen the large number of
applicants and short is the most suitable applicants for final selection by the organization.
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Chapter 11: Management Approaches and Employee Recruitment
Answers

 These organisations may consider that placement of advertisements for recruitment of

personnel may provide dues to the rates of their employee's turnover and create negative
perceptions of their human-resource policies among their stakeholders and, rival competitors.
 Private employment agencies generally maintain databanks of potential candidates from which
tile most suitable candidates can be identified readily if the particular position has to be filled-
in quickly.
 Many senior level personnel may not consider it discreet to respond directly to advertisements
placed in the media as it would compromise the confidentiality of their personal information
to outsiders and disclosure of their interest in change of jobs which may not materialize.
These individuals would be comfortable in dealing with the professional head-hunters who
would match the suitable candidates and the prospective employers prior to pursing the
matter any further.

b. The recruitment interviews may result in erroneous selection outcomes because of the following
shortcomings:
 Interviewers do' not possess the requisite job knowledge and/or interviewing skills to evaluate
objectively the suitability of the candidates for the particular position.
 Interviewer's judgments may be influenced by the candidate's affiliations with educational
institutions, racial backgrounds and political leanings.
 Interviewers often make up their minds about a candidate within the first few minutes of the
interview on the basis of the candidate's CV, mannerisms and appearance and do not utilize
the available time for objective evaluation.
 Interviewers are not able to concentrate at the same level over prolonged periods when they
are required to interview several candidates in a single session. Consequently all the
candidates may not receive the same degree of attention and discerning evaluative capability
from the interviewers.
 In panel interviews individual interviewers often assign widely different marks on the rating
scale because of lack of specific criteria and on the basis of their own perceptions.

8. SOUND HEALTH PHARMACEUTICALS LIMITED (WINTER 2011 – Q.1)

The critical Skills and Competencies required for the position of Director Public Relations and Media
Affairs of SHPL are:

a. Good understanding of SHPL's mission, goals and objectives and the ability to communicate them
to all the stakeholders.
b. Deep understanding and insight of the role of the various media channels in projecting a positive
image of the reputation and standing of SHPL.
c. Demonstrable track record and experience in media relations and media contacts to handle
unforeseen situations which may affect SHPL's reputation and image.
d. Excellent interpersonal and communication skills with ability to deliver messages by adopting
appropriate styles, tools arid techniques depending on the type of information.
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Chapter 11: Management Approaches and Employee Recruitment
Answers

e. Good management and organizational skills and be able to prioritize and plan activities taking
into account factors such as deadlines and resources.
f. Work closely with senior level executives as an effective member of the top management.
g. assimilate complex information and take independent action where necessary and handle multiple
projects and work demands at a time
h. Excellent writing skills with a high level of capability to attend to details.
i. Qualities of leadership and a positive frame of mind CD.
j. Proficient in developing web-site content maintenance and supporting the in-house broadcasting
department.

9. WINTECH LIMITED (WINTER 2019 (Q.5A)

The shortcomings in the advertisement of job description and suggestions for improvements are given
below:
Shortcomings Suggestions
The job title is missing. Given the job description, the appropriate job
title might be ‘Finance Manager’ / ‘Accounting
and Finance Manager’.
The information regarding expected weekly or Given the job is challenging as person would
monthly working hours are not included in the need to meet strict deadlines, information
job description. regarding expected working hours/overtime
might also be included.
The information concerning frequent liaison with It is suggested to include this information as part
the head office in US is not given. of job description Further, job description may
also include that candidate might also require to
work/available on specific hours due to timing
difference in Karachi and US.
It is not mentioned that whether potential Since, potential candidate is expected to lead a
candidate would work individually or as a team large team of accountants, this information
member. should also be included.
Mentioning of salary as competitive might not be It is suggested to provide a range of expected
sufficient. salary to attract the potential candidates.
Key dates are missing. It is suggested to mention the date of job
announcement and/or the last date for applying
for the position.
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Chapter 11: Management Approaches and Employee Recruitment
Answers

10. LEATHER FIESTA (WINTER 2020 (Q.5)

The profiles of shortlisted candidates are evaluated as follows:

Arham Nasir
 He has experience of working at various positions in the sales function at LFL. He would likely
have detailed understanding of the LFL’s sales function which could be relevant for the
position of RSD.
 He must be well-versed with the existing culture and norms of LFL as well as people he will be
working with.
 The management must know him well with respect to how he has performed so far and what
his strengths and weaknesses are.
 He has track record of consistently meeting sales targets and maintaining good relationship
with clients which are part of responsibilities for RSD.

Shahveer Zaidi
 He has twenty years working experience with number of small and medium sized
organizations.
 He would likely bring knowledge and experience of relevant working practices from those
organizations which could be essential for the position of RSD.
 He has experience of managing portfolio of products, developing sales targets and monitoring
sales strategies.

Additional factors that Board of Directors may consider:

Both profiles seem to have good potential for the position of RSD at LFL. However, board of
directors may consider following factors as well:
 Appointment of Arham would also mean an internal promotion that would give a message to
the existing workforce at LFL that company values its employees by providing career
development opportunities.
 It would not only improve the morale and motivation of the existing workforce but would also
likely to act as an effective tool for retaining key employees.
 Appointment of Arham as RSD would save time and cost in terms of recruitment and selection
process and getting acquaint with the existing culture of LFL.
 Shahveer has more working experience (two times than Arham). Although he is currently
associated with a small sized organization, he has experience of leading a sales function and
direct reporting to board of directors.
 Appointment of Shahveer would mean external hiring so he could bring ‘fresh thinking’ and
new ideas into LFL which could be essential for the position of RSD as LFL is intending to
introduce new product lines and expanding business in other regions.
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Chapter 11: Management Approaches and Employee Recruitment
Answers

Recommendation
We recommend board of directors to consider the above factors in the ambit of company’s policy
and preference of internal promotion or external hiring.

We would also recommend that board of directors must also consider other relevant factors as
well such as qualification, experience and potential for overseeing revenue generation strategies,
launching successful marketing and sales campaigns, managing stakeholders, leading a large team,
etc. all of which are vital for the position of RSD at LFL.
 SPM Practice Kit
Chapter 12: Learning Organizations
Question

CHAPTER 12:
LEARNING ORGANIZATIONS
QUESTIONS

1. MANAGEMENT TRAINEE PROGRAM (SUMMER 2018 – Q.6)

a. According to Honey and Mumford learning styles model, pragmatists find abstract theories and
concepts of no use unless they can see their relevance to practical action. Suggest the
circumstances under which pragmatists learn the most. (03 marks)

b. Kashan Mirza had joined Apna Bank under 2 years’ Management Trainee Program (MTP) along
with several other trainees. At the time of joining, he was highly motivated and under the
impression that he would be provided an opportunity to understand the entire operations of the
bank and his role would be of participative nature. Twenty-three months into the job, he feels that
being a graduate from top business school, his knowledge and skills have never been fully
utilized. His day to day work mostly revolves around scanning and filing the account opening
forms of new customers with no direct supervision.
Though the bank’s policy manual states that it follows 360-degree approach to appraisal, when
Kashan logged onto HR portal, he found that he was appraised with a rating of 3 (average)
without his involvement in the entire appraisal process. The same thing had happened last year
also and when he attempted to discuss the promotion and increased pay opportunities with his
supervisor he was informed that the bank was already paying above market salaries.
Kashan’s MTP is ending next month and he is not willing to continue even if he is offered a job.
However, he is determined to share his experience with HR head in an exit interview, which he
learnt is the only way to approach her.
Required: Assuming all of the above is true, identify and discuss the issues that the bank may
need to address and offer suggestions to overcome them. (12 marks)

2. PLATINUM LIMITED (SUMMER 2017 – Q.8)

Platinum Limited encourages active workplace learning at the factory floor level as the management is
of the opinion that this learning process results in optimum benefits for the organisation as well as the
employees.

Explain briefly any four factors which in your opinion contribute towards the success of active workplace
learning process among the participants. (06 marks)
 SPM Practice Kit
Chapter 12: Learning Organizations
Question

3. DILIGENT ENTERPRISE LIMITED (WINTER 2016 – Q.5)

Diligent Enterprise Limited (DEL) is a highly progressive multinational company and has subsidiaries in
several countries. DEL considers Akmal Khan as an exceptionally talented employee and has identified
him for assuming a senior management position.

Discuss briefly four employee development methods which DEL may adopt to enable Akmal Khan to
assume a senior management position in the group. (08 marks)

4. AF (SUMMER 2021 Q.8 (B)

b. Afridi Furniture (AF) is engaged in making and selling office furniture. The sales function is
comprised of personnel having varying set of skills and experiences. Javed, a foreign qualified
MBA, has recently joined AF as Sales Head. He has observed that sales personnel remain busy
throughout the day either making phone calls to potential customers or spending time on field
work.

Javed believes that sales figure of AF can significantly be improved if sales personnel become
more vigilant and improve their persuasion skills. On inquiry, he learnt that previous Sales Head, at
the start of each quarter, used to gather sales personnel and brief them about the expected
strategies. At the end of session, queries of sales personnel were answered.

He decided to train his sales personnel and provided them the learning material comprising of
business case studies, self-developed notes and videos on the topic of ‘efficient selling’ that he
gathered during his MBA.

After two weeks, on inquiry, he was surprised that large number of sales personnel had not even
opened the learning material and the remaining had barely gone through and understood it.

Required:
Discuss the probable factors that may act as barriers to learning in the above case. (08)
 SPM Practice Kit
Chapter 12: Learning Organizations
Answer

CHAPTER 12:
LEARNING ORGANIZATIONS
ANSWERS
1. MANAGEMENT TRAINEE PROGRAM (SUMMER 2018 – Q.6)
a. Pragmatists learn the most under the following circumstances:
 They are offered an opportunity to apply ideas and techniques in practice.
 They are given fair feedback on how well they have done.
 They are provided with a model that they may admire and can copy.
For example a boss who acts as role model.

b. The issues that need to be addressed with the suggestions are discussed as follows:
 Job description: There seems to be a lack of proper job description or absence of it all
together as Kashan was under the impression of greater job responsibilities at the time of
joining the bank. There should be an appropriately designed job description in place and
potential employees should be clearly communicated the roles expected from them.
 Perception of low contribution: There is a perception of low contribution in the mind of
Kashan as he believes that his day to day work is clerical and his contribution is insignificant
as no one supervises his work. This perception can be rectified by means of appropriate job
rotation, job enrichment and / or job enlargement.
 Performance appraisal method: 360-degree approach to appraisal has not been followed
even though it is mentioned in the bank’s policy manual. The purpose of appraisal is
somehow lost when employee is not encouraged to participate and understand his strengths
and areas needing improvements. 360-degree approach should be implemented whereby
individual’s performance should be assessed by people familiar with his work including self-
assessment by the individual. Moreover, not following a stated policy reflects lack of
transparency and ethical training.
 Inadequate reward system: The existing reward system is not appropriate as paying above
market salaries without adequate justification can be questionable. The bank should adopt
performance based pay and promotions to keep employees motivated to improve their
performance and ensure retention of talented individuals.
 Inadequate communication channels: There seems to be an absence of appropriate
communication channel between employees and HR head as HR head is only approachable at
the time of exit interview. Apna Bank needs to develop appropriate channels of
communication whereby periodic feedback from employees / MTs should be encouraged and
views expressed in the feedback should be taken seriously.
 Low motivation: Kashan was highly motivated at the time of joining the bank but now he is
not willing to continue even if he is offered a job which is a sign of demotivation. A major
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Chapter 12: Learning Organizations
Answer

overhauling seems necessary to improve the existing working environment and the motivation
levels.
 Over expectations from management training program: Being a fresh graduate, Kashan
might have been over ambitious as he had expected that he would learn the entire operations
of the bank and would be involved in the decision making activities. HR of the bank should
conduct orientation sessions and offer mentoring programs to management trainees for
adequate guidance pertaining to their work and related concerns.

2. PLATINUM LIMITED (SUMMER 2017 – Q.8)

The factors which contribute towards the success of active workplace learning process at the factory
floor level are as follows:
a. Real work situation.
b. Informal Two way communication in an open environment/ sharing of knowledge and experiences
of participants.
c. Commitment from the participants.
d. Involvement of senior management.

3. DILIGENT ENTERPRISE LIMITED (WINTER 2016 – Q.5)

a.
1. The Balanced Scorecard is a strategy evaluation and control tool which enables management to
measure and manage an organisation’s progress towards achievement of its long-term strategic
objectives.
2. The Balanced Scorecard contains a combination of key strategic and financial objectives tailored
according to the needs of the particular type of activities of the business
3. The Balanced Scorecard approach enables management to establish goals and targets from the
following perspectives:
- Financial performance
- Customer knowledge
- Internal operational processes and
- Learning and growth.
4. A Balanced Scorecard offers the advantages of evaluation of a firm’s strategies from both the
quantitative and qualitative standpoints and integrate vital information of financial and non-financial
parameters.
5. The Balanced Scorecard approach enables management to take cognizance of the shareholder value
and establish linkages between short-term profitability and the issues of long-term strategic
perspective of the organisation.
6. The Balanced Scorecard approach offers a more comprehensive evaluation and control mechanism
than the traditional measures of performance such as business ratios and productivity analysis which
offer only a narrow view of an entity’s past performance.
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b. A fragmented industry/business is an industry/business in which no single enterprise is a major

player to be able to influence the industry. The individual market segments for a fragmented
industry/business are relatively small and are not considered to be attractive for an organisation of
significant size. The mode of entry/exit in a fragmented business is easy and the requirements of
investment are small with the result that a large number of such businesses are established in
close proximity to each other.
Examples of a typical fragmented industry/business are: bakeries, laundry shops, hair cutting
salons, vegetable and fruit retailers and meat shops.

4. AF (SUMMER 2021 Q.8 (B)

a. The following factors may act as barriers to learning in the above case:
 It seems that training gap (i.e. skills expected from employees and skills they currently
possess) has not appropriately been identified and analyzed. Javed has handed over the
learning material assuming that it would fit for all.
 There seems to be a lack of communication of purpose of training. It appears that Javed
has neither communicated the objectives that are being sought from the training nor the
timelines for completion of training to the sales personnel.
 It seems that Javed has not committed enough resources to achieve the objectives of
training. There is no time off work for training is given. Further, there are no additional
monetary or non-monetary rewards attached to successful completion of the training.
Trainees might have to compromise on family and/or other commitments and lack of
incentives might affect their motivation towards learning.
 The learning material may be badly designed. Javed has shared the material that he
gathered while doing MBA. The material might have been prepared to serve the different
purpose that is for study and research and not keeping the existing learning needs of
sales personnel in mind.
 It appears that sales personnel are already loaded with the work. The existing workload
seems to take up too much time leaving barely any room for taking time out for learning
new things.
 The training method does not seem well-suited to the learning style of the sales teams.
The existing learning material requires self-learning whereas in the past, learning
objectives were achieved by means of interactive sessions where the doubts if any, were
cleared out then and there.
 The training material may have put the trainees on a ‘learning gradient’ that might be
too steep and unreasonable. The sales personnel have varying set of skills and
experiences. Some of them may have found it either too difficult or too easy given their
existing level of knowledge and skills.
 The sales personnel might comprise of individuals not having interest in the subject of
training or who do not want to learn anything new.
 SPM Practice Kit
Chapter 13: Management Challenges
Questions

CHAPTER 13:
MANAGEMENT CHALLENGES
QUESTIONS

1. BLUE OCEAN SERVICES (SUMMER 2019 – Q.1)

Blue Ocean Services (BOS) is a medium sized consulting firm. It offers accounting and tax solutions.
Zarrak Rashid (Zarrak), managing director, had started the firm at a small scale. The unwavering
approach of providing exemplary services has resulted in a growing number of clients each year.

The firm has just completed the demanding season of filing annual tax returns for clients. This year was
particularly challenging as just before the start of the season, some key management personnel and
staff resigned from the office. BOS was already understaffed and given the past practice of the firm,
Zarrak had to fill the vacancies on recommendations of colleagues and friends.
Like previous years, this year too, Zarrak had to spend a considerable time in solving client queries that
he believed could have been resolved at lower levels. He retains the authority for performance appraisal
of employees whereby he informs the performance targets set by him at the beginning of year to each
concerned employee.
Required:
Identify the issues that BOS may need to address and offer suggestions for improvements in the
process under each of the following headings:
a. Workforce planning (04 marks)
b. Recruitment and selection (04 marks)
c. Training and development (04 marks)
d. Performance appraisal (04 marks)

2. SCHOOL OF LEADERS (WINTER 2018 – Q.8B)

School of Leaders (SoL) is one of the largest school networks in the city. The management of SoL often
fills up the key positions externally as it believes that external recruitment could bring fresh thinking and
ideas. It has recently hired Ms. Shireen Qadir (Shireen) as Chief Administration Officer who had
previously worked with an IT company.

Shireen has noticed that student intake has been declining and staff turnover is relatively high. She
believes that training and development of teaching staff is imminent. She has contacted ‘Shape Your
Future’ (SYF), a firm of trainers that used to train staff of the company in which she was previously
employed. As part of the proposal, SYF has designed a 100 hours training program stretched over a
period of 30 days. 50 hours would be allotted for in-house training and remaining 50 hours would be
self-learning for which manual and online material would be provided.
The training would be conducted on weekends.
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Chapter 13: Management Challenges
Questions

Required:
a. Identify and discuss the factors that might act as barriers to achievement of objectives of the
training program of SoL. (08 marks)
b. Explain whether you agree with the management’s policy of giving preference to external
recruitment. (04 marks)

3. FATIMA FAWAD (WINTER 2017 – Q.8)

Fatima Fawad has recently been promoted as Accounts Supervisor in place of her ex-boss who has
resigned. Shortly after taking over, she started to receive complaints concerning Jawad Shah who was
recruited as Accounts Assistant last year. On probing, she has gathered the following information:

1. Jawad Shah is a fresh graduate with distinction from a well-known university.

2. He has been assigned various responsibilities from time to time. Although his performance in the
first assignment was satisfactory, it has deteriorated subsequently as he often fails to meet
deadlines and his work contains number of errors.
3. He does not pitch-in in any work which he considers beyond his responsibilities.
4. He does not get along well with his colleagues.

Required:
a. Identify and discuss the probable reasons that might have contributed to the poor performance of
Jawad Shah. (05 marks)
b. As the supervisor of Jawad Shah, what steps Fatima may take to address the situation?
(05 marks)

4. VALLEY BANK LIMITED (WINTER 2016 – Q.2A)

Valley Bank Limited (VBL) is pursuing a strategy of promoting its products such as credit cards, car loans
and bank lockers and has hired 20 customer services representatives to contact prospective customers
on telephone. Although VBL offers emoluments which are slightly higher than the prevailing market, it is
experiencing a very high turnover among the customer services representatives. Identify any five
possible reasons for the high turnover rate.
(05 marks)

5. AHMED LIMITED (SUMMER 2016 – Q.5)

Ahmed Limited follows a policy of periodically introducing employee incentive schemes to motivate the
employees and ensure high levels of performance.

Describe briefly the considerations which management must keep in perspective for successful
implementation of employment incentive schemes. (06 marks)
 SPM Practice Kit
Chapter 13: Management Challenges
Questions

6. VISION CONSULTANTS (SUMMER 2015 – Q.7)

a. Vision Consultants (VC) is a partnership firm of four professional engineers which provides
comprehensive services for establishing major power generation units on a turn-key basis. VC has
a staff of twelve qualified engineers who are working at various levels in the organisation. VC
operates in an environment in which it has to face numerous challenges of meeting stringent
deadlines, keeping abreast of rapidly changing technologies, interacting with demanding clients
and complying with the regulatory requirements.
Identify and briefly explain the policies which would enable VC to create and encourage a good
team environment in the firm. (07 marks)
b. Paragon Chemicals Limited has recently experienced a sharp increase in the number of accidents
in its factory. You have been appointed as a Safety Engineer to offer recommendations for
reducing the accident rates.
State the different human, environmental and mechanical/technical safety measures which you
would recommend to reduce the risks of accidents in each of these categories.
(06 marks)

7. SOLUTIONS LIMITED (WINTER 2019 (Q.5B)

Solutions Limited (SL) is known for having strong sales force. To attract the talented sales personnel, SL
offers higher than industry base pay. Although opportunities for promotions are limited due to the size
of the firm, SL compensates sales personnel by means of lucrative cash bonuses. Financial targets are
communicated to sales groups at the beginning of each quarter and cash bonuses are paid on the basis
of collective performance of the group members.

However, recent increase in turnover of sales personnel despite having an attractive reward system has
been a matter of concern for the management of SL.

Required:
Critically evaluate the existing reward system for sales personnel at SL. Your evaluation should include
discussion of shortcomings and suggestions for improvement. (10)

8. DOLPHIN LIMITED (WINTER 2020 Q.4 (B)

b. Faiz Ibrahim is a Regional Sales Manager at Dolphin Limited. He leads a team of 10 sales
personnel. There is a vacant position of Assistant Sales Manager and management has
authorized Faiz to promote one of his sales personnel for that position.

Faiz has been appraising performance of his team in the scale of 4-6 out of 10 for the past five
years. Given the on-going economic downturn in the region, none of the sales personnel has
met the targets this year and Faiz could not decide on how to select sales personnel for
promotion.

Required:
Discuss the appraiser bias in the above case. Suggest techniques of assessment that Faiz may
apply while deciding to select the sales personnel for promotion. (05)
 SPM Practice Kit
Chapter 13: Management Challenges
Questions

9. HRM (WINTER 2021 Q.3 (A, B, C)

The Human Resources Department has received the following emails from Faraz, Sales Head and Laiba,
Sales Officer:

Email from Faraz

To: Human Resources Department
From: Faraz Mobeen
Subject: Dismissal
Date: 8 December 2021

Laiba has not been able to meet targets for the past two years. I have given her multiple verbal
intimations through performance appraisals that she needs to improve her performance. However, she
never takes my words seriously and has shown no intent for improvement. Today, we lost a potential
client only because she failed to send the proposal on time. I have informed her that she cannot work
with me anymore.

Regards,
Faraz
Email from Laiba
To: Human Resources Department
From: Laiba Nausheen
Subject: Unfair dismissal
Date: 8 December 2021

This morning Faraz called to tell that he is dismissing me from the job. I know Faraz does not like me as
it is implied from his actions that he likes to work with young people and finds aged staff low on
motivation. It was also reflected in annual performance appraisal interviews wherein he mostly talked
about my weaknesses and failures during the year and ended the interviews with giving me low
performance ratings. Unfortunately, that is all formal interactions we have had in these past two years. I
always try to put in my best efforts. I consider this an unjust dismissal and would like to hear from
senior management or else, I will seek legal advice and act accordingly.

Regards,
Laiba

Required:
a. Evaluate the disciplinary action taken by Faraz. Suggest other disciplinary alternatives that Faraz
could have considered before dismissing Laiba. (04)
b. Identify the shortcomings in the performance appraisals of Laiba. Suggest the improvements for
future performance appraisals. (06)
c. (c) Recommend the disciplinary process that senior management may follow to offer fair trial to
Laiba. (05)
 SPM Practice Kit
Chapter 13: Management Challenges
Answers

CHAPTER 13:
MANAGEMENT CHALLENGES
ANSWERS
1. BLUE OCEAN SERVICES (SUMMER 2019 – Q.1)
a. Workforce planning despite the fact that the number of clients has been growing each year,
before the start of demanding season, BOS was understaffed.
Suggestions for improvement in the process
 Study the corporate objectives of BOS to estimate the expected total size and organization
structure of the entity.
 Forecast the expected number of employees by keeping in view that clients of BOS have been
increasing and BOS has demanding annual period.
 Assess the existing human resources at BOS including the estimation of what might happen to
these resources each year over the forecasted period.
 Prepare policies and plans to fill the gap between existing human resources and forecasts of
future requirements.

b. Recruitment and selection there is an absence of appropriate recruitment and selection policy as
vacancies are filled by Zarrak on recommendations of colleagues and friends.
Suggestions for improvement in the process
 In case of any vacancy, identify the skills needed for the job. There should be proper job
analysis, job description and person specification.
 Vacancy may first be filled by identifying potential individuals already working within the firm
as part of developing and promoting internal staff.
 If vacancy cannot be filled internally, encourage applications from potential candidates best
suited for the job by various means such as newspapers, web portals, recruiters, etc.
 Select candidates on the basis of merit (carrying out tests and interviews) who can be best ‘fit’
for the role expected from them.

c. Training and development employees at BOS are either not suitable for the work expected from
them or lack the requisite skills as Zarrak has been involved in solving the queries that can be
resolved at the lower levels.
Suggestions for improvement in the process
 Identify the training gap i.e. skills required to perform the job and the existing skills of the
employees.
 Set objectives to fill the identified training gap.
 Design / arrange the training and development programs (training content, delivery method,
etc.)
 Evaluate and review to check whether desired objectives are achieved.
 SPM Practice Kit
Chapter 13: Management Challenges
Answers

d. Performance appraisal Performance targets are set without the involvement of the concerned
employees.
Suggestions for improvement in the process
 Encourage employees to participate in an appraisal interview to agree the performance targets
expected from them.
 Targets set must be agreed and recorded for future reference. Monitor employees’
performance periodically to identify the need for training or development
 Appraise employees on the basis of targets meet by them.

2. SCHOOL OF LEADERS (WINTER 2018 – Q.8B)

The following factors might act as barriers to achievement of objectives of the training program of Sol:
 It seems that training needs have not been analysed (i.e. skills expected from employees and skills
they currently possess) as blanket training program is designed for all teaching staff.
 The selection of trainers may be not be appropriate unless SYF has previous experience of
designing and offering of training to teaching professionals.
 Training program seems to be inadequately designed. SoL wants teaching staff to learn too much
(100 hours training program) in too little time (30 days).
 Training method might not be suitable as 50 hours are fixed for self-online learning that might be
cumbersome as trainees generally tend to avoid reading materials for self-learning.
 Trainees might resist learning new skills. They already seem to be low in motivation as reflected by
high staff turnover.
It seems that management is not committing sufficient resources in terms of employees’ time and
monetary or non-monetary rewards. Trainees might have to compromise on family and/or other
commitments and lack of incentives might affect their motivation towards training.

3. FATIMA FAWAD (WINTER 2017 – Q.8)

a. Jawad Shah’s poor performance could be attributed to the following factors:
1. Job description-Poor performance may be attributed to the fact that Jawad Shah might not
have been provided with proper job description beforehand. Moreover, he performed
satisfactorily in the first assignment but his performance declined subsequently which may be
because he is disenchanted by the way he was assigned various responsibilities/he is
demotivated due to the overburden of work assigned to him from time to time.
2. Orientation and integration Jawad Shah’s reluctance to pitch in and lack of integration with
colleagues may be due to absence of orientation and integration offered to him at the time of
joining. Orientation and integration is the process by which new employee is introduced with
office colleagues. It provides employees with a clear understanding of what is expected of
them and how their roles fit into the overall objectives of the organisation.
3. Training and development Jawad Shah’s distinction at university indicates that he might have
been performing poorly due to lack of training and development programs or lack of proper
supervision and feedback.
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Chapter 13: Management Challenges
Answers

4. Misfit for the role Jawad Shah might not be a ‘good fit’ for the role assigned to him. He
might have been recruited on the basis of perceived capability to perform the job rather than
on the basis of ‘best fit’ for the job.
5. Underqualified Although Jawad Shah has distinction at university, he may be underqualified
for the job as he is a fresh graduate and may lack experience and skills required for the job.

b. Fatima may take the following steps:

1. Meet with Jawad Shah in person to restart the working relationships and discuss
 Jawad Shah’s understanding of job description / job requirements.
 Probable problems/issues being encountered by Jawad Shah.
 Problems already identified and the standard of performance expected from him.
 Reassure him that his performance can be improved and remove any misconceptions in
his mind about work and organisation.
2. Facilitate a meeting between him and colleagues to ice break and encourage him to interact
more to understand the culture of organisation and the role expected of him.
3. Resolve any issues that Jawad Shah might be facing by arranging orientation session, training
programs, etc. and close supervision to see if he is responding well to the programs.
4. Resolve any issues that Jawad Shah might be facing by arranging orientation session, training
programs, etc. and close supervision to see if he is responding well to the programs.

As a last resort, if still Jamal Shah fails to perform as required of him, Fatima should consider
initiating termination proceedings.

4. VALLEY BANK LIMITED (WINTER 2016 – Q.2A)

The high rate of employee turnover of customer services representatives of Valley Bank Limited may be
attributable to the following reasons:
1. The customer services representatives are not trained properly to deal with demanding customers
and are increasingly under pressure.
2. Low success ratios in closing deals with new customers demotivate the customer services
representatives.
3. The products of VBL are not attractive for customers vis-à-vis those of the competitors.
4. Uncomfortable office environment.
5. Unprofessional organizational culture
6. The individuals making the selection are not trained in or do not have the necessary skills to
select candidates who are able to perform in a fast paced environment

5. AHMED LIMITED (SUMMER 2016 – Q.5)

Management must keep in perspective the 'following considerations for successful implementation of
employee incentive schemes:
1. Benefits offered are attractive for employees to motivate them to make extra efforts.
2. Quality standards are maintained and not compromised.
3. Standards of performance should be achievable and rewards are linked with performance.
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Chapter 13: Management Challenges
Answers

4. Incentive plan should be easy to understand and acceptable to the employees as being fair.

6. VISION CONSULTANTS (SUMMER 2015 – Q.7)

VC would be able to create, develop and encourage a good working environment of supporting
individual and team effort by adopting the following policies:
1. Pursuing a leadership style and performance culture based on mutual consultation
2. Recognising the=professional competencies, experience and contribution of the·· partners as well
as the staff as highly valuable resources.
3. Integrating the' 'efforts of the partners and the staff through open horizontal and vertical
communications to reach optimal solutions of the problems.
4. Ensuring commitment of the partners and the staff towards achievement of the tasks through
maximum input of individual knowledge and team efforts.

7. SOLUTIONS LIMITED (WINTER 2019 (Q.5B)

The shortcomings in the existing reward system with suggestions are evaluated below:

Bonuses based on achievement of financial targets

It appears that bonuses are only linked to achievement of financial performance. Sales force might be
incentivized by a bonus to achieve financial targets while ignoring the other aspects of performance
(non-financial) for which there are no specific bonuses.
It is suggested that reward system should be designed to consider both financial as well as non-
financial performances such as quality of service, successful implementation of a new process, improving
knowledge and skills, etc.

Focus on short-term objectives

Bonuses are paid on meeting the quarterly targets. It appears that SL is directing its sales personnel to
primarily focus on achievement of short-term objectives while long-term objectives might not be given
due consideration.
It is suggested that SL should devise a reward system that links rewards with performances that also
support the achievement of long-term strategic objectives.

Absence / Lack of implicit rewards

It appears that there is an absence or a lack of implicit rewards at SL as indicated by limited
opportunities for promotions. For some sales personnel, implicit rewards might be as important as
explicit rewards. This might also be the reason for recent increase in employee turnover.
It is suggested that SL should also include the element of implicit rewards. For example, granting shares
or share options to employees that are contingent upon minimum number of years of employment with
SL.

Group incentives over individual incentives

SL pays bonuses to work groups on the basis of collective performance of group members. Some
members might believe that they are responsible for successful performance of the group and other
group members are not contributing as much as they should have done.
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Chapter 13: Management Challenges
Answers

It is suggested that element of individual performance should not altogether be ignored. The group
bonuses should be divided among the group members on an agreed basis for example on the basis of
actual contribution by each group member.

Over compensatory reward system

SL is paying base pay higher than industry average to attract the talented sales personnel. However, a
sales person not being a right fit might not leave SL because of lack of better/high-paying opportunities
outside SL.
It is suggested that high base pay should not only be restricted to attract talented personnel but also
be linked to the expected performance.

8. DOLPHIN LIMITED (WINTER 2020 Q.4 (B)

b. The appraiser bias in the given case is ‘Central tendency bias’, whereby appraiser groups the
bulk of employees into mid-level grades meaning that most employees are considered ‘average’
with just a few ‘high’ and ‘under’ achieving outliers. This type of bias ignores the fact that the
relative performance of group of individuals may collectively be above or below average based
on long-term performance averages.
Faiz may apply following techniques of assessment while deciding on selecting the sales
personnel for promotion:

 He may assess performance of sales personnel by comparing the targets that have been set and
the targets that have actually been achieved. In this way, best performer may be identified and
promoted.
 He may ‘rank’ sales personnel in order of competence (skills, qualification or experience). It
would assist in establishing which sales personnel are better than others and who can be
considered for promotion.
 He may use critical incident method to identify the right person for promotion. It would involve
discussing how well sales personnel dealt with the critical incident (for example, how each sales
person performs during on-going economic downturn and whether any lessons are learned for
the future).
 He may use rating scales (numerical or non-numerical) to rate sales personnel on the basis of
different competence or performance factors. The overall performance of sales personnel may
then calculated by adding up the scores for each factor to identify the best candidate for
promotion.

9. HRM (WINTER 2021 Q.3 (A, B, C)

a. Before deciding upon which disciplinary action to take, management has to keep in mind the very
purpose of it. The goal is to guide the employees towards a better performance or an appropriate
conduct. The process has to be constructive and should not be meant for punishing the employees.
 SPM Practice Kit
Chapter 13: Management Challenges
Answers

In the given case, if all the information holds true then Laiba’s continuous below par performance
might be detrimental to the company in the long-run as other staff may also start believing that
there are no disciplinary actions in place if desired results are not achieved. However, the dismissal
should be considered as a last resort when other progressive disciplinary actions fail to gain
employee’s attention.

Faraz could have taken following alternative disciplinary action(s) before finally deciding to dismiss
Laiba:

Written warning(s)
Faraz had verbally warned Laiba. So, the next alternative could have been a written warning(s) in the
form of a letter discussing the problem area, impact of issue and consequences of repeated
occurrences.

Suspension without pay / reduction of pay within a class

Faraz could have suspended Laiba for a certain number of working days and dock the pay for the
number of days suspended or reduced her pay for the same position and work. However, it should
be in line with the company’s policy and as per employment contract of Laiba.

Demotion to a lower classification

Another alternative could have been a demotion. However, this disciplinary action would need to be
backed by a reasonable expectation that Laiba would perform well at the lower position.

b. Shortcomings in the performance appraisals of Laiba along with suggestions for improvement are
discussed below:
 Laiba saw performance appraisals as an occasion for criticism from Faraz. It is recommended
that a more constructive approach can be adopted whereby employees are encouraged to
understand and improve their performance rather than seeing it as some form of confrontation.
 It appears that appraisal interviews were one-sided as Faraz mostly talked about Laiba’s
weaknesses and failures and ended the interviews by giving his assessment of her competence.
It is recommended to adopt more participative approach whereby staff should also be given an
opportunity to answer back and share their opinions.
 It appears that performance appraisal is an annual event as Faraz had barely interacted with
Laiba other than for annual appraisal interviews. It is recommended that more frequent appraisal
should be performed (quarterly, half-yearly) and there should also be a follow-up action plan in
place.
 It appears an appraiser bias (personal bias on an old age) is involved as claimed by Laiba. It is
recommended to provide training to appraisers to learn how to avoid any prejudice or
discrimination against staff for personal reasons and focus on objective performance-driven
reasons.
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Chapter 13: Management Challenges
Answers

 It appears that Faraz only verbally warned her and no formal records of performance appraisal
interviews are maintained. It is recommended that whatever targets or objectives for the
employee are agreed, should be recorded and documented as these will provide the basis for
follow-up action and feedback.

c. The senior management may follow the following disciplinary process:

 Establish the facts of the case. This is particularly important as Laiba has claimed that Faraz has
treated her discriminatorily. If Laiba’s claim is correct then Faraz should be questioned for his
action. The purpose at this point of time is to collect and collate all relevant evidence.
 If it is established that there exists a disciplinary case that needs to be answered, then intimate
Laiba for a disciplinary meeting through a written notice. The notice should contain all necessary
details about the case so that Laiba has the opportunity to prepare well to answer the points
likely to be raised at the disciplinary meeting.
 At the disciplinary meeting, Laiba should be given fair opportunity to answer the case, ask
questions, present evidence, call witness or accompany by a companion as well.
 After the disciplinary meeting, the decision taken by the management should be informed to
Laiba. It might be appropriate to give her a written warning(s) to be followed by progressive
disciplinary actions.
 Laiba should be given a right to appeal if she feels that action against her is wrong or unjust. In
case she appeals, it should be heard impartially and without any unreasonable delays. The
decision of the appeal should be communicated to her in writing.
 SPM Practice Kit
Chapter 14: BUSINESS OPERATIONS
Question

CHAPTER 14:
BUSINESS OPERATIONS
QUESTIONS

1. BABY TOYS (SUMMER 2019 – Q.8)

Baby Toys (BT) is a wholesale store that procures various components of toys from suppliers and
assembles them to be sold at the store. Lately, Ibrahim Sheikh (Ibrahim), owner of BT has been facing
stock mismanagement issues. Some items in the store frequently go out of stock, whereas others keep
on piling up. One of the friends has suggested Ibrahim to categorize his inventory depending on the
inventory holding costs and apply different control mechanisms to each category. The table below
shows the three required categories:

Category Annual inventory holding cost (%)

A 70%
B 20%
C 10%

Another friend has suggested Ibrahim to use Just-in-time (JIT) as it can significantly reduce costs.
Required:
a. Suggest inventory control mechanisms for each category presented in the table.
(05 marks)
b. Identify the requirements for a successful JIT system. Briefly explain whether it would be a practical
option for BT. (03 marks)

2. E-COMMERCE (WINTER 2018 – Q.4)

a. What do you understand by ‘virtual supply chain’? Also mention the benefits of virtual supply
chain. (04 marks)
b. Al-Zamin (AZ) is a producer of cement and related products. In a recent evaluation of the existing
operations, the management of AZ is considering to adopt virtual supply chain. In the first phase,
AZ would implement e-procurement system where focus would be on e-sourcing, e-purchasing
and e-payment. If process runs smoothly, AZ would adopt a comprehensive virtual supply chain.
Required:
i. Briefly describe the terms ‘e-sourcing’, ‘e-purchasing’ and ‘e-payment’.
(03 marks)
i. Suggest any two examples of data validation checks that would assist the management of
AZ to ensure that data input in the system is correct. (04 marks)
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3. KIDZ WIZARD (SUMMER – Q2A)

Kidz Wizard (KW), a chain of stores, is engaged in the business of baby clothing and accessories. KW
had been regarded for its high quality products at the most affordable prices until it had to face a
major setback when it introduced ‘toys’ section for infants few years back. The toys section got an
immense response and high revenues were generated. However, a major defect was identified in one of
the toy categories forcing KW to recall the entire category and had to face legal proceedings which
resulted in shutting down of entire section of toys. Subsequent internal findings revealed that material
used in the toys was of sub-standard quality which could not be identified because of the absence of
quality control measures. The management of KW now intends to expand into furniture manufacturing
business under the banner ‘baby bed and bedding’, a new section in its chain of stores. It is optimistic
about the success of the new section and has carried out an extensive research on material and supplier
selection. It believes that a well-launched marketing campaign and competitive pricing would help to
generate high profits. However, given the past experience, management is considering to place certain
quality control measures and appoint a risk specialist for overall risk management.

Required:
a. Identify four classifications of quality-related costs and mention two costs which KW may incur
under each classification. (06 marks)
b. Briefly discuss the activities/functions of risk specialist in the risk management process.
(04 marks)
c. Assume that you have been appointed as a risk specialist at KW. Identify and discuss the
approaches under TARA framework for risk management. Also recommend the most appropriate
approach under the given situation with justification.
(10 marks)

4. NKL ELECTRONIC SSERVICES

NKL Electronic Services operates in a high labour cost environment in Western Europe and imports
electronic products from the Republic of Korea. It re-brands and re-packages them as NKL products and
then sells them to business and domestic customers in the local geographical region. Its only current
source of supply is ESAS electronics based in a factory on the outskirts of Seoul, the capital of the
Republic of Korea. NKL regularly places orders for ESAS products through the ESAS web-site and pays
for them by credit card. As soon as the payment is confirmed ESAS automatically e-mails NKL a
confirmation of order, an order reference number and likely shipping date. When the order is actually
despatched, ESAS send NKL a notice of despatch e-mail and a container reference number. ESAS
currently organises all the shipping of the products. The products are sent in containers and then trans-
shipped to EIF, the logistics company used by ESAS to distribute its products. EIF then delivers the
products to the NKL factory. Once they arrive, they are quality inspected and products that pass the
inspection are re-branded as NKL products (by adding appropriate logos) and packaged in specially
fabricated NKL boxes. These products are then stored ready for sale. All customer sales are from stock.
Products that fail the inspection are returned to ESAS.
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Currently 60% of sales are made to domestic customers and 40% to business customers. Most domestic
customers pick up their products from NKL and set them up themselves. In contrast, most business
customers ask NKL to set up the electronic equipment at their offices, for which NKL makes a small
charge. NKL currently advertises its products in local and regional newspapers. NKL also has a web site
which provides product details. Potential customers can enquire about the specification and availability
of products through an e-mail facility in the web site. NKL then e-mails an appropriate response directly
to the person making the enquiry. Payment for products cannot currently be made through the web
site.
Feedback from existing customers suggests that they particularly value the installation and support
offered by the company. The company employs specialist technicians who (for a fee) will install
equipment in both homes and offices. They will also come out and troubleshoot problems with
equipment that is still under warranty. NKL also offer a helpline and a back to base facility for customers
whose products are out of warranty. Feedback from current customers suggests that this support is
highly valued. One commented that “it contrasts favourably with your large customers who offer
support through impersonal off-shore call centres and a time-consuming returns policy”. Customers can
also pay for technicians to come on-site to sort out problems with out-of-warranty equipment.
NKL now plans to increase their product range and market share. It plans to grow from its current
turnover of Rs.50m per annum to Rs.120m per annum in two years’ time. David Masood, the owner of
NKL, believes that NKL must change its business model if it is to achieve this growth. He believes that
these changes will also have to tackle problems associated with
 Missing, or potentially missing shipments. Shipments can only be tracked through contacting the
shipment account holder, ESAS, and on occasions they have been reluctant or unable to help. The
trans-shipment to EIF has also caused problems and this has usually been identified as the point
where goods have been lost. ESAS does not appear to be able to reliably track the relationship
between the container shipment and the Waybills used in the EIF system.
 The likely delivery dates of orders, the progress of orders and the progress of shipments is poorly
specified and monitored. Hence deliveries are relatively unpredictable and this can cause
congestion problems in the delivery bay

David also recognises that growth will mean that the company has to sell more products outside its
region and the technical installation and support so valued by local customers will be difficult to
maintain. He is also adamant that NKL will continue to import only fully configured products. It is not
interested in importing components and assembling them. NKL also does not wish to build or invest in
assembly plants overseas or to commit to a long-term contract with one supplier
Required
a. Draw the primary activities of NKL on a value chain. Comment on the significance of each of these
activities and the value that they offer to customers.
b. Explain how NKL might re-structure its upstream supply chain to achieve the growth required by
NKL and to tackle the problems that David Masood has identified.
c. Explain how NKL might re-structure its downstream supply chain to achieve the growth required
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CHAPTER 14:
BUSINESS OPERATIONS
ANSWERS
1. BABY TOYS (SUMMER 2019 – Q.8)
a.
i. For Category A: The annual holding costs are the highest. Hence, high level of control on
inventory is required. Items in this category can be controlled by purchasing the EOQ as soon
as the inventory level falls to a set reorder level.
ii. For Category B: The annual holding costs are in the middle. Hence, moderate level of control
on inventory is required.
Items in this category can be controlled by a periodic review system, with orders placed to
restore the inventory level to a maximum level.
iii. For Category C: The annual holding costs are the lowest. Hence, low level of control on
inventory is required.
Items in this category may be purchased in large quantities and controlled by means of a two-
bin system i.e. when one bin gets empty purchase is planned to fill it up before the stocks run
out.

b. Following are the requirements for a successful JIT system:

i. Efficient and high-quality production.
ii. Efficient and reliable supply arrangements with key suppliers.
IT will not be a practical option because BT has stock mismanagement issues which can result
in inefficient production/assembly time.

2. E-COMMERCE (WINTER 2018 – Q.4)

a. Virtual supply chain consists of electronic communications links between suppliers and customers
in the supply chain.
The links may use websites, extranet or electronic data interchange. Following are the benefits of
virtual supply chain:
(i) It improves information flows with suppliers and customers.
(ii) It results in time and costs savings.
(iii) It reduces the probability of errors that can occur when information is transferred manually.
b.
(i) E-sourcing: It is the use of electronic methods for finding new suppliers and negotiating
terms for purchase agreements
(ii) E-purchasing: It is the process of making purchases electronically by submitting requests for
quotations to suppliers, receiving quotations from them and placing the order electronically.
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(iii) E-payment: It is the use of electronic methods for payments such as electronic invoicing /
self-billing and payment to suppliers by sending electronic instructions to the bank.

(ii) Examples of data validation checks that would assist the management of AZ to ensure that
data input in e-procurement system is correct are given below:
To input a transaction for purchase of goods, the system would require a code number for the
supplier (range check). If all supplier codes are in the range of 2000-3999, input of supplier
code outside this range would be reported as an error.
Key code numbers can be designed to include a ‘check digit’ (digit check). This is an
additional digit in the code that enables the program to check the code against an input
error.

3. KIDZ WIZARD (SUMMER – Q.2A)

Costs that KW may have to incur under each of the four classified quality-related costs are given
hereunder:

Prevention costs:
These are incurred to avoid defects and quality concerns. Examples may include:
 Designing products with in-built quality.
 Training employees to encourage high standard performance.
 Establishing specifications for incoming materials, processes and finished products.
 Appointment of quality control expert / purchasing of premium quality materials / hiring of skilled
labor.

Appraisal costs: These are incurred to identify defective products before passing on to the customers.
Examples may include:
Testing and inspecting of incoming materials.

4. NKL ELECTRONIC SERVICES

a. A simple value chain of the primary activities of NKL is shown below

Handling and Re-branding of Customer Local On-site

storing inbound products collection advertising technical
fully configured Repackaging of Technician Web based support Back
equipment products delivery and enquiries to base
Quality installation support
inspection
Inbound Operations Outbound Marketing Service
logistics Logistics and sales

Comments about value might include:

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Inbound logistics: Excellent quality assurance is required in inbound logistics. This is essential for
pre-configured equipment where customers have high expectations of reliability. As well as
contributing to customer satisfaction, high quality also reduces service costs.

Operations: This is a relatively small component in the NKL value chain and actually adds little
value to the customer. It is also being undertaken in a relatively high cost country. NKL might wish
to re-visit the current arrangement

Outbound logistics: Customer feedback shows that this is greatly valued. Products can be picked
up from stock and delivery and installation is provided if required. Most of the company’s larger
competitors cannot offer this service. However, it is unlikely that this value can be retained when
NKL begins to increasingly supply outside the geographical region it is in.

Marketing and sales: This is very low-key at NKL and will have to be developed if the company is
to deliver the proposed growth. The limited functionality of the website offers little value to
customers

Service: Customer feedback shows that this is greatly valued. Most of the company’s competitors
cannot offer this level of service. They offer support from off-shore call centres and a returns
policy that is both time consuming to undertake and slow in rectification. However, it is unlikely
that this value can be retained when NKL begins to increasingly supply outside the geographical
region it is in

b. NKL has already gained efficiencies by procuring products through the supplier’s web-site.
However, the website has restricted functionality. When NKL places the order it is not informed of
the expected delivery date until it receives the confirmation email from ESAS. It is also unable to
track the status of their order and so it is only when it receives a despatch email from ESAS that it
knows that it is on its way. Because NKL is not the owner of the shipment, it is unable to track the
delivery and so the physical arrival of the goods cannot be easily predicted. On occasions where
shipments have appeared to have been lost, NKL has had to ask ESAS to track the shipment and
report on its status. This has not been very satisfactory and the problem has been exacerbated by
having two shippers involved. ESAS has not been able to reliably track the transhipment of goods
from their shipper to EIF, the logistics company used to distribute their products in the country.
Some shipments have been lost and it is time-consuming to track and follow-up shipments which
are causing concern. Finally, because NKL has no long term contract with ESAS, it has to pay when
it places the order through a credit card transaction on the ESAS website.

NKL has stated that it wishes to continue importing fully configured products. It is not interested
in importing components and assembling them. It also does not wish to build or invest in
assembly plants in other countries. However, it may wish to consider the following changes to its
upstream supply chain
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 Seek to identify a wider range of suppliers and so trade through other sell-side websites.
Clearly there are costs associated with this. Suppliers have to be identified and evaluated and
financial and trading arrangements have to be established. However, it removes the risk of
single-sourcing and other suppliers may have better systems in place to support order and
delivery tracking.
 Seek to identify suppliers who are willing and able to re-brand and package their products
with NKL material at the production plant. This should reduce NKL costs as this is currently
undertaken in a country where wage rates are high
 Re-consider the decision not to negotiate long-term contracts with suppliers (including ESAS)
and so explore the possibility of more favourable payment terms. NKL has avoided long-term
contracts up to now. It may also not be possible to enter into such contracts if NKL begins to
trade with a number of suppliers.
 Seek to identify suppliers (including ESAS) who are able to provide information about delivery
dates prior to purchase and who are able to provide internet-based order tracking systems to
their customers. This should allow much better planning.
 Consider replacing the two supplier shippers with a contracted logistics company which will
collect the goods from the supplier and transport the goods directly to NKL. This should
reduce physical transhipment problems and allow seamless monitoring of the progress of the
order from despatch to arrival. It will also allow NKL to plan for the arrival of goods and to
schedule its re-packaging.

NKL might also wish to consider two other procurement models; buy-side and the independent
marketplace.
In the buy-side model NKL would use its website to invite potential suppliers to bid for contract
requirements posted on the site. This places the onus on suppliers to spend time completing
details and making commitments. It should also attract a much wider range of suppliers than
would have been possible through NKL searching sell-side sites for potential suppliers.
Unfortunately, it is unlikely that NKL is large enough to host such a model. However, it may wish
to prototype it to see if it is viable and whether it uncovers potential suppliers who have not been
found in sell-side websites searches.
In the independent marketplace model, NKL places its requirements on an intermediary website.
These are essentially B2B electronic marketplaces which allow, on the one hand, potential
customers to search products being offered by suppliers and, on the other hand, customers to
place their requirements and be contacted by potential suppliers. Such marketplaces promise
greater supplier choice with reduced costs. They also provide an opportunity for aggregation
where smaller organisations (such as NKL) can get together with companies that have the same
requirement to place larger orders to gain cheaper prices and better purchasing terms. It is also
likely that such marketplaces will increasingly offer algorithms that automatically match customers
and suppliers, so reducing the search costs associated with the sell-side model. The independent
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marketplace model may be a useful approach for NKL. Many of the suppliers participating in these
marketplaces are electronics companies.

c. NKL’s downstream supply chain is also very simple at the moment. It has a web-site that shows
information about NKL products. Customers can make enquiries about the specification and
availability of these products through an e-mail facility.

Conventional marketing is undertaken through local advertising and buyers either collect their
products or they are delivered and installed by a specialist group of technicians. NKL could tune
its downstream supply chain by using many of the approaches mentioned in the previous section.
For example:
 Developing the website so that it not only shows products but also product availability.
Customers would be able to place orders and pay for them securely over the website. The site
could be integrated with a logistics system so that orders and deliveries can be tracked by the
customer. NKL must recognise that most of its competitors already have such systems.
However, NKL will have to put a similar system in place to be able to support its growth plans.
 Participating in independent marketplace websites as a supplier. NKL may also be able to
exploit aggregation by combining with other suppliers in consortia to bid for large contracts.
 NKL may also consider participating in B2C marketplaces such as eBay many organisations use
this as their route to market for commodity products.

NKL may also wish to consider replacing its sales from stock approach with sales from order. In
the current approach, NKL purchases products in advance and re-packages and stores these
products before selling them to customers. This leads to very quick order fulfilment but high
storage and financing costs. These costs will become greater if the planned growth occurs. NKL
may wish to consider offering products on its website at a discount but with specified delivery
terms. This would allow the company to supply to order rather than supply from stock.
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Questions

CHAPTER 15:
MARKETING ESSENTIALS
QUESTIONS

1. HEALTH CARE SERVICE PROVIDERS (SUMMER 2018 - Q.3)

a. Health care service providers usually do not undertake aggressive promotions as they rely more
on favourable word of mouth. Mention three strategies that health care centers may adopt to
promote the services being offered by them. (03 marks)
b. Marketers often split the product and/or service into three levels i.e. core product level, actual
product level and augmented product level for the purpose of better product management,
segmentation and positioning
Explain the three levels of a product. Give one example under each level in case of a health care
center. (06 marks)

2. SUPERB TILES LIMITED (WINTER 2016 – Q.6)

Superb Tiles Limited (STL) is a manufacturer of ceramic tiles and has over the years established a
reputation for the quality and durability of its products. Recently, a new competitor has entered the
market and has launched an aggressive market penetration strategy to make inroads in the market held
by STL. Shafiq Ahmed, Marketing Director of STL has proposed a strategy of reducing the prices to
counter the threats from the competitor.
Identify and explain briefly some of the weaknesses of price cutting strategy which the management of
STL must consider prior to making a final decision in this regard.
(08 marks)

3. EMPIRICAL STUDIES (WINTER 2015 – Q.2B)

Empirical studies show that a large number of business entities use external data for monitoring
competition and business intelligence, providing credibility to research projects and presentation of
reports to management.

State the inherent limitations which should be kept in perspective while using external data.
(05 marks)

4. SHALIMAR DAIRIES LIMITED (WINTER 2015 – Q.5A)

Shalimar Dairies Limited (SDL) is engaged in the business of producing, processing and marketing of
packaged milk. SDL has excess milk processing capacity and is considering launching an aggressive
marketing penetration strategy to increase its sales and share of the growing market.

Explain briefly the factors which SDL should consider prior to launching of aggressive market
penetration strategy. (06 marks)
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5. ‘GOING GLOBAL ACTING LOCAL’ (WINTER 2015 - Q.9A)

‘Going global acting local’ is often the proclaimed slogan of multinational corporations who actively
pursue strategies of global expansion.

State briefly five different actions by which multinational corporations can demonstrate that they are
implementing the strategy of ‘going global and acting local’ in their overseas businesses.
(05 marks)

6. BRAND NAMES (SUMMER 2015 – Q.9B)

State four reasons (in each situation) why some businesses:

 Give brand names to their products

 Do not give brand names to their products. (06 marks)

7. PROMOTIONAL STRATEGIES (SUMMER 2014 – Q.7A)

Narrate (with brief comments) the different types of promotional strategies which are adopted for
marketing of consumer goods in the following stages of their Product Life Cycles:

1. Introduction stage
2. Growth stage
3. Maturity stage
4. Declining stage (06 marks)

8. PULL & PUSH MARKETING STRATEGY (WINTER 2013 - Q.4B)

While formulating its marketing strategy, a manufacturer must decide whether it intends to pursue a
pull marketing strategy or a push marketing strategy. State the salient features of a pull marketing
strategy and a push marketing strategy and indicate the situations in which each of these strategies
would yield optimal results. (07 marks)

9. MARKETING MIX (SUMMER 2012 – Q.5)

Consumer Products are classified by marketers in different categories as follows:

1. Convenience Products detergents, packaged milk, newspapers, soft drinks, etc.

2. Shopping Products readymade clothes, furniture, carpets, shoes, etc.
3. Specialty Products televisions, refrigerators, branded watches, etc.

The marketing mix of each category of Consumer Products comprises of the following ingredients:

Price Customer Buying Behavior

Expensive less frequent purchase/keen comparison of price,
quality and style
low price special purchase effort/brand loyalty
high price frequent purchase/less planning
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Distribution Promotion
distribution in few outlets advertising and personal selling by producer/resellers
widespread distribution at mass promotion/advertising by producer
convenient locations
outlets in specialised carefully targeted promotion by producer/resellers
markets/shopping malls

You are required to identify the most appropriate characteristics of each ingredient of the marketing
mix for the above categories of Consumer Products.

10. MARKETING-MIX STRATEGIES (WINTER 2008 – Q.10)

Strategists involved in the marketing of Fast Moving Consumer Goods (FMCG) keep a close watch on
the various stages of the Life Cycle of their products and adjust their strategies accordingly.

List the type of marketing-mix strategies of Products, Pricing, Distribution and Sales Promotion which
should be pursued to meet the requirements of the products which are in the introduction, growth,
maturity and decline stages of their product life cycle.
(12 marks)

11. RIVAJ GROUP (WINTER 2019 Q.7)

a. The expected role of accounting function in devising and implementing marketing strategies in
an organization is much broader than just performing investment analysis on the basis of
financial return.
Required:
Discuss the expected role of accounting function in devising and successful implementation of
marketing strategies in an organization. (03)

b. Rivaaj Group is intending to introduce a new product line under the brand name ‘Super Athlete
Sportswear’ (SAS) that would manufacture and market sportswear such as shoes, apparels and
related accessories.
SAS would offer two variants of sportswear; premium variant with unique features targeting
high-end customers and economy variant with basic features targeting middle and low income
customers. Sportswear would be offered through SAS dedicated outlets, distributors who would
supply to the major retail chains and SAS official website.
Required:
Recommend marketing strategy to SAS for each of the following 4 P’s of the marketing mix:
(12)
 Product  Price  Place  Promotion
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12. MARKET SIZING (WINTER 2020 Q.2)

a. Fatima Fawad is a well-known dietician. She is planning a start-up business under the brand
name ‘Know Your Calories’ (KYC) for which she is determining the size of her target market. KYC
would prepare customized daily, weekly and monthly healthy meals and exercise plans and
would charge premium price. In the first phase, KYC would target working women only.
Required:
Explain how Fatima may determine the size of target market by using different approaches to
market sizing. (05)

b. Bina’s Kitchen (BK) is a medium size company specializing in ready to cook spices. Management
at BK plans to provide personalized services to its customers to improve customer retention. It is
considering to adopt Customer Relationship Management (CRM) system to efficiently provide
personalized customer service.
Required:
Discuss how the functions of CRM system can assist BK to improve customer retention. (05)

13. MB (SUMMER 2021 Q.5)

Movie Buff (MB), a media production house, was established in late 90s. It has an exclusive library of
music, movies and TV shows (entertainment content). The entertainment content is released through
DVDs which are sold and marketed through distributors, retailers and sales agents. MB uses traditional
methods for promotions and updates regarding entertainment content such as brochures, magazines,
etc.

The management is concerned over declining demand for DVDs. The Marketing Head has proposed
that MB should also start selling its entertainment content directly to end-consumers through online
streaming website which is gaining popularity. She believes that it would improve the existing marketing
mix of MB. CFO has also supported the idea and suggested that customers would be offered various
monthly packages to subscribe for entertainment content which would likely improve the revenue
stream and profitability of MB.

Required:
a. Explain how ‘six I’s’ of e-marketing mix could be used to improve the existing marketing mix of
MB. (12)
b. Explain how MB may assure customers that its website is secured for sharing information and
making online payments for subscription. (03)
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14. SHINE AND RISE (SUMMER 2021 - Q.8A)

a. Shine & Rise, a cosmetic company, has decided to change the name of its well-known brand
‘White Shine’ to ‘Bright Shine’. The management has directed the marketing team to
communicate it to a large segment of customers as quickly as possible, without disturbing the
existing budgets greatly.
The marketing team has come up with the following promotional strategies:
 Advertising campaign through TV and social media
 Sales promotion via buy-one-get-one free
 Sponsorship of beauty contest starting next month

Required:
Evaluate each of the above promotion strategies and recommend the appropriate course of
action to the company. (05)

15. GIL (WINTER 2021 - Q.4)

Game IT Limited (GIL) is the market leader in the video game industry. It has introduced the slickest
video game console (Console) that supports high-end graphics and online video streaming services
giving unique experience to users. The Console is patented to prevent competitors from imitating its
unique design and ultra-advanced features.

GIL has been enjoying high profit margin by selling Console as an exclusive brand to its targeted
high-end customers through celebrities’ endorsements and positive word of mouth. Customers make
purchases through GIL’s high-tech website or its dedicated flagship stores wherein customers can
have tangible experience before buying Console.

The patent on Console is expiring in a year’s time. The management has decided that after the expiry
of patent, it would continue offering Console to existing customer base by using current marketing
mix strategy. However, to counter competitors and meet large untapped markets of middle and low-
end potential customers, a standard and economical Console variant would also be introduced.

Required:
By using 4 P’s of marketing mix:
a. explain the existing marketing strategy of GIL. (06)
b. evaluate the management’s decision to continue the existing marketing strategy for high-end
customers after the expiry of the patent. (02)
c. recommend the marketing strategy for the standard and economical Console variant. (07)
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Answers

CHAPTER 15:
MARKETING ESSENTIALS
ANSWERS
1. HEALTH CARE SERVICE PROVIDERS (SUMMER 2018 - Q.3)
a. Health care centers may adopt following strategies to promote their services:
1. Conducting camps offering free or subsidized medical check-ups to build awareness of
services being offered by them.
2. Sponsoring public health awareness events and programs to increase public awareness of their
existence and to improve general image.
3. Providing quality services such as minimum waiting time, interactive patient – doctor sessions,
hygiene environment, well trained support staff, etc. resulting in spreading positive word of
mouth.
4. Advertising of services by means of media such as health magazines, newspapers, social media
pages, etc.

b. The three levels of product with examples are discussed as follows:

1. Core product level:
This level reflects the core need or benefit that the product is trying to meet or deliver. It does
not have a tangible form. It answers the basic question of why customer is buying the
product. For health care center, the core product level could be ‘preventive and curative
treatment’.
2. Actual product level:
This level attempts to translate the core product level into actual product level. It mainly
involves development of product features, design, brand name, packaging, etc. to deliver the
core customer value. For health care center, the actual product level could be room,
medicines, ICU, surgery, etc.
a. Augmented product level:
This level builds around the core value and actual product levels. It aims to offer additional
services and benefits along with the product which may differentiate the product in the
marketplace to gain greater market share. For health care center, the augmented product
could be maintenance of case history of patients, pharmacy, ambulance service, etc.

2. SUPERB TILES LIMITED (WINTER 2016 – Q.6)

STL must evaluate the following factors prior to implementing a price cutting strategy:

a. A sharp reduction in prices of products by STL would result in decline in the profit margins and
returns on investment. This may adversely affect the company’s ability to meet the expectations of
its stakeholders such as shareholders, employees, suppliers etc.
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Answers

b. Ceramic tiles are ‘shopping goods’ and are purchased less frequently and to fulfill very specific
needs. Hence, price is only one of the several factors that affect the customers’ decision.
c. STL has a well-established reputation for superior quality of its products. Reduction in prices may
adversely affect that perception. The adverse perception of products and market positioning of its
brand may not be easy to change in future.
d. It may not be easy to increase the prices again in the near future, whereas STL may not be able to
sustain the low profitability/loss incurring market penetration strategy in the long run.
Consequently, STL should assess the resourcefulness of the competitor as long price war may be
unsustainable.
e. Low prices of STL’s products may have adverse effect on the dealers/distributors if their
commissions/profits are also reduced.

3. EMPIRICAL STUDIES (WINTER 2015 – Q.2B)

The limitations of external data are:

a. The intervals in the collection of data, units of measurement and proper cross comparison may
not be appropriate as the data has not been collected from representative samples.
b. The external data may have been gathered to present information more favorably for certain
specific users.
c. Data from international sources may be presented in a foreign language and translations may
distort their correct interpretation.
d. The data may have copyrights and its use without prior permission can lead to legal
complications.
e. The data may be outdated and inaccurate due to changes in environment and technology.

4. SHALIMAR DAIRIES LIMITED (WINTER 2015 – Q.5A)

The factors which should be considered carefully by SDL prior to launching aggressive market
penetration strategies are as follows:

a. Responses from competitors. - Market penetration strategies of offering packaged milk at low
prices or highly aggressive promotional campaigns can result in competitors also pursuing policies
of matching responses to retain their share of the market.
b. Perception of quality of milk in the minds of the customers - Pursuance of an aggressive
penetration strategy by lowering the prices may convey an impression in the minds of the
customers of unwholesome quality of milk.
c. Subsequent price increases - Customers expect the prices to remain low for prolonged periods
and in the event of subsequent increase in prices they may switch to competitors products which
would result in loss of market share gained previously. Keeping prices low for a long period may
involve high costs.
d. Brand loyalty - Market penetration strategies should take into consideration the fact that
customers who have loyalties and strong brand preferences for competitors' products would not
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necessarily switch to the company's brand. Aggressive penetration policies usually attract
customers who seek bargains of low prices.

5. ‘GOING GLOBAL ACTING LOCAL’ (WINTER 2015 - Q.9A)

Multinational corporations can demonstrate that they are pursuing the strategy of 'going global acting
local' in true perspective by taking the following actions:

a. Being a good corporate citizen in the countries in which they operate by respecting their cultures,
customs, traditions and languages.
b. Transferring their manufacturing technologies and procedures to their companies located in
foreign countries.
c. Keeping the number of expatriates to the minimum level and providing the local nationals with
the training and skills to assume positions of responsibilities.
d. Developing R&D facilities in the overseas companies to enable them to manufacture products
according to the tastes and preferences of the local customers.
e. Being responsive to the environmental concerns of the host countries by conserving energy,
reducing pollution and disposing effluents and wastages properly.

6. BRAND NAMES (SUMMER 2015 – Q.9B)

a. Businesses give brand names to their products to:
 market, promote and advertise readily identifiable products
 assure customers of consistent good quality of the products
 benefit from the company's reputation in the market
 Help introduce different qualities/varieties of the same product in the market.
b. Businesses do not give brand names to their products because they:
 do not want to incur expenditures on promoting a particular brand
 are not in a position or willing to maintain consistent quality of the products
 sell low quality products which do not have to comply with regulatory standards
 Sell products which cannot be physically differentiated from the products of competitors such
as simple items of hardware (nails, nuts and bolts), ice, etc.
 Sell low price products in the low-income segments of the market.

7. PROMOTIONAL STRATEGIES (SUMMER 2014 – Q.7A)

Marketers pursue the Promotional Strategies consumer for goods in the different stages of their Product
Life Cycles as follows:

a. Introduction Stage
 inform and educate the potential customers of the existence of the product
 encourage trial of product and create awareness of the benefits that would accrue to the-
customers by using the product and how it should be used
 secure distribution in leading retail outlets
 place heavy emphasis on personal selling and promotion in trade shows and exhibitions
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b. Growth Stage
 stimulate demand in selected market segments and promote the particular brand as
competition increases
 increase emphasis on advertising to capture a-large share of the growing market
 enter new markets and expand coverage
 identify new distribution channels
 shift emphasis from product awareness to the individual firm's brand preference through
aggressive advertising
c. Maturity Stage
 focus on promotion and advertising to persuade the customers to purchase the particular
brand rather than to provide information about the product
 selective promotion only as intense competition and increase in promotion expenditures
would result in lower profits
 increase R&D budgets to improve product quality vis-a-vis competitors
 Extend product lines to meet niche customer demand.
d. Declining Stage
 Reduce promotion expenses as the size of the market is shrinking.
 Focus of promotion towards reminding remaining customers.

8. PULL & PUSH MARKETING STRATEGY (WINTER 2013 - Q.4B)

Pull Marketing Strategy:

 In a pull marketing strategy, the manufacturer places greater reliance on advertising, direct
promotion arid other forms of direct communication with the consumers to persuade them to
demand the product from the intermediaries and thus induce the intermediaries to place orders
with the manufacturer.
 A pull marketing strategy would yield optimal results when there is strong brand loyalty for the
product and the consumers are convinced of the superiority of the product and demand the
particular brand by name from the intermediary,

Push Marketing Strategy:

 In a push marketing strategy, the manufacturer deploys own sales force and offers attractive
margins and extended credit terms to the intermediaries to encourage them to carry, promote
and sell the product to the end users.
 A push marketing strategy may be adopted when there is low brand loyalty for the product or the
intermediary is in a position to influence the customer's decision or the product is an impulse
purchase item.

9. MARKETING MIX (SUMMER 2012 – Q.5)

Identification of appropriate characteristics of each category of the Marketing Mix for the different
categories of Consumer Products are as follows:
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Convince Shopping Specialty

products products Products
1 Price Low price High price Expensive
2 Consumer Frequent purchase / less Less frequent Special purchase
buying planning purchase / keep effort / brand loyalty
behavior comparison of
price quality and
style
3 Distribution Widespread distribution Distribution in few Outlets in specialized
channels at convenient location outlets markets / shopping
malls
4 Promotion Mass promotion by Advertising and personal selling by
advertising produce producer / reseller
Carefully targeted promotion by producer /
reseller

10. MARKETING-MIX STRATEGIES (WINTER 2008 – Q.10)

The marketing-mix strategies in different stages of Product Life Cycle should be pursued on the toil
owing lines.

Marketing Stages
Mix Introducing Growth Maturity Decline
Product Basic product Protect extension, Diversification of Phasing out of
after sale service product weak product
and warranties
Price Unit cost, plus Price to penetrate Price to meat Reduce price
market competition
Distribution Build selected Build intensive Strengthen Eliminate
distribution distribution channels distribution unprofitable
channels network outlets
Sales Heavy sales Reduce effort due to Increase efforts to Reduce cost to
Promotion promotion increase in promote brand minimum level
consumer demand
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11. RIVAJ GROUP (WINTER 2019 Q.7)

a. The expected role of accounting function in devising and successful implementation of
marketing strategy in an organization is discussed below:
 Appraising investment in terms of strategic as well as financial assessment of proposed new
investment projects.
 Providing a reporting system for the marketing function including management information
on customer profitability, channel of distribution profitability as well as product profitability.
 Assessing the effectiveness of marketing initiatives and the marketing mix in collaboration
with marketing function.
 Identifying and measuring the value addition throughout the value chain in liaison with
marketing function.
b. The marketing strategy for SAS for each of the given 4 P’s of the marketing mix is
recommended below:
Product
It is recommended to adopt following marketing strategy for products:
 For premium variant, marketing strategy could be ‘product differentiation’ i.e. marketing
products as different from competitors.
 For economy variant, marketing strategy could be ‘cost leadership’ i.e. marketing products as
low costs when compare to competitors.

Price
It is recommended to adopt following marketing strategy for price:
 For premium variant targeting high-end customers, marketing strategy could be ‘market
skimming price’ i.e. to charge high prices initially from customers willing to pay premium
price because of new or different product.
 For economy variant targeting middle-class and low income customers, marketing strategy
could be ‘market penetration price’ i.e. to charge low prices to win a large share of potential
market at the early stage of product life cycle.

Place
It is recommended to adopt following marketing strategy for place:
 For customers willing to buy from retail outlets, marketing strategy could be an adequate
distribution network getting the products to the places (SAS own dedicated outlets and
major retail chains) where customers want to buy them.
 For customers willing to buy online, marketing strategy could be efficient delivery of
products to customer’s desired location / user friendly website supporting customers in
making buying decisions.
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Promotion Strategy
It is recommended to adopt following marketing strategy for promotion:
 For distributors, marketing strategy for promotion could be push strategy i.e. persuading
distributors to buy the products for resale by offering special credit terms.
 For end-consumers, marketing strategy for promotion could be pull strategy i.e. getting
end-consumers to want to buy the product through advertisement and sales promotions.

12. MARKET SIZING (WINTER 2020 - Q.2)

a. Fatima may determine the size of target market by using following approaches to market sizing:

Top-down approach
Fatima may seek market-wide information (statistics of working women) from government
offices, statisticians or independent market research firms. This information then may be refined
by excluding those working women who would not be interested in KYC’s meal and exercise
plans and those who could not afford premium prices.

This would then just leave the target market to those working women who are looking for
healthy life styles and willing to pay premium price for KYC’s meal and exercise plans.

Bottom-up (demand-side) approach

Fatima may organize a series of focus groups and chairs discussions with working women about
their desired or targeted healthy life styles and whether they are willing to pay premium prices.
She may also ask the attendees to fill out a questionnaire.

Using the feedback from the focus groups, chair discussions and questionnaires, Fatima may
extrapolate the results across working women (on the basis of statistics) to establish the size of
the target market. However, Fatima Fawad would need to take care of how she selects the
sample to ensure that it can be extrapolated across targeted customers with reasonable
accuracy.

Supply-side approach
Fatima may collect the sales data of competitors who are offering healthy meals and exercise
plans targeting working women (from published annual reports, trade press articles or market
researchers) and determine the market share these competitors represent.

Fatima then may gross-up the market share of these competitors to arrive at an estimated size
of target market i.e. working women looking for healthy life styles.

b. The functions of CRM can assist Bina’s Kitchen to improve customer retention as follows:
 Collect information for identifying individual customers and categorizing their behavior so
that the key customers and their requirements can be identified.
 Store the customer information and keep it up to date. It will help create a customer
database where all the customer information will be kept up to date.
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 Access the information, often instantly, whenever it is needed. It will retrieve the desired
customer information efficiently, which will result in improved personalized customer
services.
 Analyze customer behavior as it will help in better understanding of customer behavior and
patterns.
 Use the analysis of customer behavior to develop a more effective retention strategy. It will
help develop better personalized customer service strategies and improve retention.
 Monitor key customer management performance indicators, such as the number of
customer complaints. This will help minimize customer complaints.

13. MB (SUMMER 2021 - Q.5)

a. ‘Six I’s’ of e-marketing mix could be used to improve the existing marketing mix of MB as
follows:

Interactivity
MB is currently relying on push media as communication is one way that is from MB to the
customers whereby it is trying to persuade the customers to buy its products. A Website would
act as a pull medium, as it would aim to attract interest from customers and make them want to
visit the Website.

Moreover, the Website would allow a greater interactivity with customers and create a dialogue.
It may take several forms such as encouraging customers to provide details about themselves
and subscribe for updates regarding promotions and new release of entertainment content. This
would create continuation of the dialogue in the future and connection with the customer that
would help in establishing long-term relationships.

Intelligence
MB has apparently no direct access to data of its end-consumers therefore, it is not utilizing the
marketing intelligence efficiently. The direct selling through Website would allow MB to collect
data about its customers and other visitors to a Website. MB can analyze this data to produce
marketing information about type of entertainment content customers buy/watch or search the
most.

Moreover, ‘clickstream analysis’ of data on a Website log file can be used to build up a picture
of customer preferences, and possibly also to identify different market segments.

Individualization
MB is not currently applying the principle of individualization as updates and promotions are
communicated in general through traditional methods. The Website would help in tailored or
personalized communication to the individuals. For example, the activities (music and movies
watched or searched) of customer can be recorded and whenever that customer next visits the
Website, relevant information would be retrieved from the data files to produce an
individualized messages or recommend the related entertainment content watched or searched
earlier.
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Integration
The Website would provide scope for integrated marketing communication. MB would be able
to better integrate online streaming with the selling of DVDs.

Further, communication tools such as built-in call back facility, buying decisions support, and
encouragement of users to check a list of frequently asked questions (FAQs) before contacting
customer support via phone call, etc. can be better integrated.

Industry restructuring
MB is currently selling its entertainment content through distributors, retailers and sales agents.
The Website can be used to disintermediate by selling directly to endconsumers. This would
likely reduce or abandon the need of intermediaries and thus reduce the incidence of offering
discounts / commission to these intermediaries.

Independence of location
MB has limited geographical reach at present. The sell through Website would give MB a global
reach. It would be able to sell to any place without the need of a physical presence or
intermediaries. Similarly, customers would be able to access the Website from any location.

b. MB may assure its customers regarding the security of information and online payment by
having a ‘WebTrust’. It would act as a mean of assurance to the customers that MB’s Website
meets the following principles of high standards:
 Business and information privacy practices.
 Transaction integrity
 Information protection.

14. SHINE AND RISE (SUMMER 2021 - Q.8)

a. The promotion strategies are evaluated as follows:

Advertising campaign through TV and social media

This is an easy and quick method of reaching a large target market. However, advertisement
through TV can be expensive. Further, it also relies on potential customers reacting proactively
to it.

Sales promotion via buy-one-get-one free

Customers like receiving free goods. Further, this can act as a persuasive strategy in the short-
term in encouraging potential new customers to try the product. However, it can be expensive if
needs to penetrate a large target market.

Sponsorship of beauty contest starting next month

This strategy is good for brand awareness and positive corporate image, as it shows the
company’s involvement and a way of giving back to the community. However, it may have a
very limited reach and it can be potentially expensive as well.
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Recommendation
 The promotion strategy of sponsorship of beauty contest can be ruled out on the grounds
that it would only start after a month’s time, it may have limited reach as well as it can be
potentially expensive.
 Strategy of sales promotion via buy-one-get-one could be very expensive as company is
targeting a large segment of customers
 It is recommended that management should opt for carefully developed advertisement
campaign through social media as it is relatively inexpensive method and can reach the
large audience. Advertising through TV can either be avoided or restricted to limited airtime
so that it does not disturb the budget of the company greatly.

15. GIL (WINTER 2021 - Q.4)

a. By using 4 P’s of marketing mix, the existing marketing strategy of GIL is explained as follows:
Product
GIL is pursuing ‘product differentiation’ strategy. According to this strategy, product is differentiated
by means of unique design, packaging or features that are not available in the market. The
customers of GIL seem happy to enjoy the unique experience which otherwise is not available from
other competitors.

Price
GIL is pursuing ‘market skimming price’ strategy. According to this strategy, higher price is charged
to maximize the profits at the early stage of product life. This strategy seems justified as GIL has
patent over the unique design and ultra-advanced features of Console that are not being offered by
the competitors and targeted high-end customers are willing to pay premium price.

Place
GIL is pursuing strategy of selling Console through dedicated website and flagship stores wherein
customers can have the real feel of the product before buying it.

Promotion
GIL is pursuing a pull strategy of promotion. This strategy aims at getting the end-consumer to buy
the product. GIL is achieving this objective by means of celebrities’ endorsements and positive word
of mouth

b. The management’s decision to continue the existing marketing strategy for highend customers is
less likely to be successful unless:
 GIL has strong customer loyalty who would continue to buy its console irrespective of
availability of Console’s variants at varying rates from the competitors of GIL.
 GIL would be able to continue to differentiate Console from its competitors. This can be
achieved by adding new unique features (design, packaging, etc.) that are either difficult to
imitate or get them patented from copying by the competitors.
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c. GIL may pursue following marketing strategy for standard and economical variant Console:
Product
Pursue cost leadership strategy by seeking to become the least-cost producer. The aim would be
creating the same value as competitors but at a lower cost. However, for this strategy, GIL would
need to have an excellent system of cost control to cut down costs that do not add much value.

Price
Pursue market penetration pricing strategy. It would involve charging low price with the aim to build
customer demand quickly and winning a large share of the potential market.

Place
Add new avenues for place where customers can buy the product. This may involve development of
a distribution network to get Console to the places where customers want to buy it for example,
major retail outlets.

Promotion
Adopt aggressive promotional strategy. This may include push strategy by using marketing tools
such as low prices and generous credit terms to persuade the distributors to buy and stock-up
Consoles, offering special discounts to customers, etc
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CHAPTER 16:
FINANCIAL AND NON-FINANCIAL PERFORMANCE MEASUREMENT
QUESTIONS

1. GRILL SHACK (SUMMER 2019 – Q.3C)

Grill Shack (GS) is the largest fast food chain of the country. It is regarded for ambiance, gourmet meals
and customer services. The major ingredients are imported from USA. The management is concerned
over the increasing cost of imports contributed by weakening local currency and increasing import
duties.

GS is considering acquiring local livestock and poultry farms where all activities from breeding to
processing would be carried out exclusively for meeting major ingredient requirements of GS. Fariha
Wajahat (Fariha), marketing head, has raised concerns that such integration may have adverse impact on
the financial and non-financial performance of the business. However, COO has suggested that
introduction of entity-wide balanced scorecard could assist in achieving a satisfactory balance between
various aspects of performance.

Required:
Devise a balanced scorecard for GS by suggesting three outcome measures under each aspect of
performance. (06 marks)

2. CITY EXPRESS (WINTER 2018 – Q.5)

City Express (CE) operates inter-city passenger bus service over 20 districts of Sindh. It was incorporated
in 2015 when Government of Sindh (GoS) awarded the company exclusive road permits to operate in
distant areas of Sindh. CE was an instant success because of wide area coverage, low ticket pricing and
large fleet of state-of-the-art buses. In view of the encouraging response from general public, GoS is
also considering to introduce a new inter-city train service.

GoS has been providing subsidies, granting various tax exemptions and promoting services of CE by
extensive coverage in the electronic and social media to encourage CE to operate in areas with low
profit margins. Still, certain routes are not profitable. In these routes, buses often depart late and
schedules are cancelled frequently. The management of CE is considering to negotiate with GoS to relax
restrictions on fixation of fare rates to counter increasing fuel costs.

Required:
a. Perform SWOT analysis for CE. (06 marks)
b. Suggest any eight non-financial performance indicators for CE. (04 marks)

3. KEY PERFORMANCE INDICATORS (SUMMER 2017 – Q.9A)

What do you understand by the term Key Performance Indicators (KPIs)? List any six KPIs for a
commercial bank assuming necessary details. (08 marks)
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4. CRITICAL SUCCESS FACTORS (WINTER 2016 – Q.8A)

Critical Success Factors are those elements of strengths in which a firm must excel to outperform its
competitors. State any six Critical Success Factors which in your opinion would be most important for a
nationwide courier company to retain its market leadership position.
(06 marks)

5. BALANCED SCORECARD (WINTER 2016 – Q.7)

Briefly describe the concept of ‘Balanced Scorecard’ and discuss the main benefits which the
management of a progressive organisation seeks to achieve by adopting a Balanced Scorecard
approach. (07 marks)

6. BLISS ENTERTAINMENT LIMITED (WINTER 2015 – Q.6A)

In June 2011, Jaleel Ahmed was appointed human resource manager of Bliss Entertainment Limited, a
holiday resort, which provides a wide range of rest and recreation facilities to customers. Jaleel Ahmed
is of the opinion that the human resource performance of the company has improved significantly
during the preceding 4 years.
Identify and briefly explain the significance of any four human resource performance indexes/indicators
which should be incorporated in Jaleel’s report to the management to substantiate his viewpoint.
(06 marks)

7. FINTEX COMPANY LIMITED (SUMMER 2012 – Q.1)

Fintex Company Limited (FCL) is in the advanced stage of implementing facilities for manufacture of
home textile products such as curtain draperies, sofa cloth, bed linen, towels, table covers, etc.

FCL intends to market its products to customers through 20 company-owned retail outlets to be
established in the major cities. FCL’s Institutional Marketing Division (IMD) would sell the company’s
products, as well as workers uniforms to be procured from external vendors, to institutional customers
such as hotels, hospitals, industrial companies and government organisations.
FCL’s principal corporate objectives are to create a sustainable competitive advantage and obtain a firm
foothold in the substantial and fast growing target market of middle class customers. These customers
are keen shoppers who want quality products at affordable prices. FCL’s IMD also wants to aggressively
pursue marketing strategies to cater to the requirements of the institutional customers who are a source
of repeat business.
Identify and explain briefly four Critical Success Factors which in your opinion would create sustainable
long-term competitive advantage for FCL. (10 marks)
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8. OBJECTIVE EVALUATION
A well-established and successful Chinese company engaged in the business of manufacturing of a wide
range of home appliances such as refrigerators, washing machines, microwave ovens and assorted
juicers and blenders intends to launch its products in Pakistan. The Company’s management is of the
opinion that its products have significant cost and quality advantages and can capture 4-5 percent share
of Pakistan’s market in 5 years.

Required:
Identify and list at least twelve key parameters which should be considered by the company for an
objective evaluation of the Export Market Potential.
Note: Only list the key parameters – explanations are not required.

9. KEY SUCCESS FACTORS

In recent years, some low-cost airline companies have achieved commercial success and have developed
a large network of passenger air routes. One such airline uses a balanced scorecard approach to setting
strategic performance objectives.

Required:
a. Describe three factors that might have been key factors contributing to the success of the airline
company.
b. For each of the four areas of the balanced scorecard, suggest three performance targets that
might be used by the airline company.
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CHAPTER 16:
FINANCIAL AND NON-FINANCIAL PERFORMANCE MEASUREMENT
ANSWERS

1. GRILL SHACK (SUMMER 2019 – Q.3C)

Financial perspective Customer perspective

Return on investment Customer retention
Productivity and cost control Number of new customers
Revenue growth Customer satisfaction

Internal perspective Innovation and learning perspective

Meal preparation time Number of new meals introduced
Number of operational control failures Employee Productivity
Standardization of processes Time to develop new meals

2. CITY EXPRESS (WINTER 2018 – Q.5)

a. SWOT analysis for CE is as follows:
1. Strengths
 Exclusive road permits.
 Large fleet of state-of-the-art buses.
 Wide area coverage.
2. Weaknesses
 Restriction on fixation of fare rates.
 Reliance on GoS for subsidies, tax exemptions and promotion of business.
 Buses often depart late and schedules are cancelled frequently.
 Unprofitable routes.
3. Opportunities
 Operate in unexplored markets of other provinces / Start operating intercity bus services.
 Abandon non-profitable routes.
 Negotiate with GoS to revise the fares / subsidies.
4. Threats
 Introduction of new inter-city train services by GoS.
 Non-preferential treatment from GoS in future.

b. NFPIs for CE are listed below:

 Number of customer complaints
 Average time to resolve customer complaints
 Customer satisfaction index
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 Bus occupancy ratios

 Number of new routes started
 Number of routes closed down
 Number of late departures
 Number of cancelled schedules
 Number of accidents reported
 Percentage of public awareness of CE services by means of annual market research
 Percentage of market share

3. KEY PERFORMANCE INDICATORS (SUMMER 2017 – Q.9A)

Key Performance Indicators are quantifiable measures for evaluating the performance of the critical
success factors of an organisation in achieving its strategic business targets against its set objectives.

The Key Performance Indicators for a commercial bank may include:

1. Total Deposits per Branch (Total Deposits ÷ No. of Branches)
2. Non-performing Loan Ratio (Non-performing loans ÷ Total Loans)
3. Capital Adequacy Ratio (Total equity ÷ Total weighted risk assets; this is expressed in terms of
percentage).
4. Advances – Deposit ratio (Total Advances ÷ Total Deposits; this is expressed in terms of
percentage).
5. Revenue per employee (Total revenue ÷ Total employees).
6. Spread between cost of deposits and income on advances (Rate of interest earned on advances
less rate of interest paid on deposits; this is expressed in absolute terms).
7. Branch Efficiency Ratio (Total non-interest expenses incurred ÷ Total Revenue (interest + non-
interest income) generated; this is expressed in terms of percentage).
8. Percentage increase in credit/debit cards issued during the year.
9. Number of new bank branches opened during the year.
10. Number of new loans/advances given during the year.

4. CRITICAL SUCCESS FACTORS (WINTER 2016 – Q.8A)

The Critical Success Factors for a nationwide courier company to enable it to retain its market leadership
position are as follows:
1. Highly competent and aggressive management team and motivated staff who are trained and
empowered to respond to customer needs.
2. A highly reliable system which ensures delivery of the consignment within the designated time
from the point of collection to the point of delivery at its destination.
3. Location of collection offices at convenient commercial points as well as facilities for collection
of parcels at the premises of important customers.
4. A network of procedures and systems which can promptly trace the location of each
parcel/package at any point from collection to its delivery at the final destination.
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5. Generation of Management Information Reports to enable the management to monitor the

timely delivery of packages to the consignees.
6. Appropriate systems and customer-care staff to investigate any delays/errors or causes of
customer complaints/dissatisfaction and adopt corrective measures.
7. An alert telephone answering system which is capable of responding promptly to queries of
customers who seek any information regarding the company’s products.
8. A deeply enshrined culture in the organisation which treats the customers as important
stakeholders and employees strive hard to outperform the competitors.
9. Cordial relationships with transportation providers locally and globally.

5. BALANCED SCORECARD (WINTER 2016 – Q.7)

1. The Balanced Scorecard is a strategy evaluation and control tool which enables management to
measure and manage an organisation’s progress towards achievement of its long-term strategic
objectives.
2. The Balanced Scorecard contains a combination of key strategic and financial objectives tailored
according to the needs of the particular type of activities of the business.
3. The Balanced Scorecard approach enables management to establish goals and targets from the
following perspectives:
 financial performance
 customer knowledge
 internal operational processes and
 learning and growth

4. A Balanced Scorecard offers the advantages of evaluation of a firm’s strategies from both the
quantitative and qualitative standpoints and integrate vital information of financial and non-
financial parameters.
5. The Balanced Scorecard approach enables management to take cognizance of the shareholder
value and establish linkages between short-term profitability and the issues of long-term strategic
perspective of the organisation.
6. The Balanced Scorecard approach offers a more comprehensive evaluation and control mechanism
than the traditional measures of performance such as business ratios and productivity analysis
which offer only a narrow view of an entity’s past performance.

6. BLISS ENTERTAINMENT LIMITED (WINTER 2015 – Q.6A)

The following indexes/indicators of human resource performance and their significance should be
incorporated in HR manager's report to the management:
Lower employee absenteeism rate - Comparative figures of lower employee absenteeism rates to
demonstrate that the employees are now more committed and motivated and work with greater
dedication.
Lower employee turnover rate - Comparative figures of employee turnover rates in the years prior to
2011 and subsequent to Jaleel's appointment to show that the employees are now more satisfied with
their jobs and have less tendency to seek alternative opportunities elsewhere.
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Lower employee turnover rate - Comparative figures of employee turnover rates in the years prior to
2011 and subsequent to Jaleel's appointment to show that the employees are now more satisfied with
their jobs and have less tendency to seek alternative opportunities elsewhere.
Lower rate of customer complaints - Decline in the rates of customer complaints/negative feedback
during the preceding four years which reflects the efficiency and high morale of the employees as they
render more attentive and better customer care services to the visitors.
Increased internal promotions from within the company - The employees are now more competent and
perform their duties with dedication with the result that a high proportion of the next level job
openings are filled internally by the employees. This results in greater employee motivation, reduced
time to fill in jobs and lower recruitment costs.

7. FINTEX COMPANY LIMITED (SUMMER 2012 – Q.1)

The Critical Success Factors which would create sustainable long term competitive advantage for FCL
and enable the company to obtain a firm foothold in the target market are:
1. Management and Organizational Competence: The knowledge, skills and attitude of the
management relating to understanding of the home textile industry, the objectives and role of
FCL, including insight in FCLts strengths and weakness and pursuance of appropriate corporate
and business strategies to achieve the objectives would be critical success factors The
management of FCL would have to develop necessary competence for identifying opportunities,
formulating, implementing and monitoring sound corporate strategies, creating a supporting
organizational structure and mobilizing resource.
2. Manufacturing Capability and Production Process: FCL should acquire and develop the best
manufacturing capabilities and introduce sound technical processes. It needs to manufacture
products which would satisfy the needs of its customers who want new and better products at
affordable prices.
3. Skilled and Motivated employees: PCL must adopt sound policies relating to hiring, training,
development, performance evaluation, working environment and compensation of its employees.
These policies would promote motivation arid commitment of the employees at all levels towards
the achievement of the objectives of the company.
4. Marketing Know-how and Promotion Strategies: Market research and knowledge of the target
market is essential for sustained growth in sales, Marketing programs would have to be developed
to meet 'the needs of the customer groups, company-owned retail outlets would enable FCL to
achieve high rates of sales turnover through finely tuned marketing policies and also retain high
profit margins which otherwise would be demanded by prominent retailers. Ability of the
Institutional Marketing Division to develop a supply chain of reliable vendors who can
manufacture products of the required specifications to be sold to 'the institutional customers
would also be a critical success factor for PCL.
 SPM Practice Kit
Chapter 16: Financial and Non-Financial Performance Measurement
Answers

8. OBJECTIVE EVALUATION

Current Market Size: Economic Stability:

 Population Size and Growth  Balance of Payments Position
 GDP Size and Growth  Taxation Policy
 Domestic Production of  Monetary and Trade Policy Regulations
Appliances
 Volume of Import of Appliances
 Sources of Import of Appliances

Market Accessibility: Miscellaneous:

 Import duties and tariffs  Non-tariff barriers
 Existing distribution channels  Attitude towards Chinese products
 Pricing methods and credit terms  Political stability
 Promotional and advertising  Cultural differences within the country
practices
 Resourcefulness of potential  Level of education
distributors

9. KEY SUCCESS FACTORS

a.
1. Low-cost operations (allowing the airline to offer low-cost flights to passengers)
2. The development of a route network (using ‘secondary airports), avoiding direct competition
with other low-cost airlines
3. Brand development and successful marketing (for example, selling direct to the customer and
avoiding the cost of the ‘middle man’ such as travel agents).

b. Suggestions for an answer

Financial targets Customer satisfaction targets

Return on capital employed Financial Number of complaints
gearing
Average revenue per seat/kilometre Amount of compensation payments % of
customers who are repeat customers
Gross profit margin per seat/kilometre

Targets for the enhancement of Targets for learning and growth

internal processes
Targets for aeroplane load factor Route network development targets
 SPM Practice Kit
Chapter 16: Financial and Non-Financial Performance Measurement
Answers

Punctuality targets
Targets for avoidable delays Targets for Average time for a new route to break
the conversion ratio of enquiries into even
sales
E-commerce performance targets Career progression rates for employees in
the company
 SPM Practice Kit
Chapter 18: Corporate Social Responsibility
Questions

CHAPTER 18:
CORPORATE SOCIAL RESPONSIBILITY
QUESTIONS

1. SHANDAAR (PRIVATE) LIMITED (SUMMER 2019 – Q.7A)

Shandaar (Private) Limited (SPL) is a leading plastic manufacturer. It supplies plastic and chemical
products through its plant situated in the industrial area. There has been growing pressure from social
groups on plastic manufacturers to carry out environmental conscious practices. Required: Suggest
various environmental initiatives that SPL may take to respond to social groups and create sustainable
business.
(04 marks)

2. RESPONSIBILITIES TO SOCIETY (WINTER 2018 – Q.6A)

Entities are regarded as citizens of the society in which they exist and operate. As corporate citizens,
they owe certain responsibilities to society similar to that of individual citizens. One of the ways to fulfill
this responsibility is to follow a corporate social responsibility (CSR) policy that aims to ensure that
entities conduct their businesses in the common interest of society at large. Required: Briefly discuss
some of the basic principles that an entity may keep in perspective while formulating its CSR policy.
(05 marks)

3. TRENDSETTERS LIMITED (WINTER 2017 – Q.10)

Sameer Khan, the CEO of Trendsetters Limited (TL) has recently attended a seminar on ‘integrated
reporting’. He learned that traditional financial reporting as the sole measure of a company’s
performance is not sufficient and businesses need a reporting environment that allows them to explain
how their strategy drives performance and leads to the creation of value over time. He intends to
introduce integrated reporting for his organisation.

Required:
a. Briefly discuss the guiding principles for developing an ‘integrated report’. (04 marks)
b. List the benefits that TL might enjoy by ‘integrated reporting’. (02 marks)

4. RESPONSIBLE CORPORATE CITIZEN (SUMMER 2017 – Q.4B)

Briefly state four different ways in which a company may demonstrate that it operates as a responsible
corporate citizen. (04 marks)

5. TRIPLE BOTTOM LINE REPORTING SYSTEM (SUMMER 2017 – Q.9B)

State briefly the concept of Triple bottom line reporting system. Identify any three performance
measurement indicators under each aspect of performance discussed in Triple bottom line reporting
system. (07 marks)
 SPM Practice Kit
Chapter 18: Corporate Social Responsibility
Questions

6. ASPIRE TEXTILE (WINTER 2021 Q.6)

Aspire Textile Mills (ATM) has nationwide operations. It is considering expanding its customer base in
European market. The management has approached potential customer there who has requested ATM
to share its Corporate Social Responsibility (CSR) policy and related reporting.

ATM has no formal CSR policy in place. Some random CSR activities are performed due to local
pressure groups that have questioned ATM’s increasing environmental footprint and lack of social
contributions.

The management is considering adopting formal CSR policy and its reporting to stakeholders. However,
one of the board members has shown concern of likely increase in costs.

Required:
a. Advise the steps that ATM may take in formulating its CSR policy. (05)
b. Evaluate the board member’s concern that CSR program and related reporting would result in
increased costs. (02)
c. Recommend two measures that ATM may take to reduce environmental footprint and two measures
to increase social contributions. (02)
d. Suggest the reporting framework that ATM may adopt for sustainability reporting. (02)
 SPM Practice Kit
Chapter 18: Corporate Social Responsibility
Answers

Chapter 18:
Corporate Social Responsibility
ANSWERS
1. SHANDAAR (PRIVATE) LIMITED (SUMMER 2019 – Q.7A)
SPL may take following environmental initiatives to respond to social groups and to create sustainable
business:
 Setting a target of zero waste generation and zero waste emissions.
 Conserving energy and scarce resources such as water, electricity, natural gas, minerals, etc.
 Recycling materials to reduce the need for disposals.
 Making, using, handling and transporting materials safely and in an environment-friendly way
and in compliance with local regulations and the best international practices.
 Developing new products and processes that reduce the environmental risks.

2. RESPONSIBILITIES TO SOCIETY (WINTER 2018 – Q.6A)

An entity may keep in perspective the following basic principles while formulating its CSR policy:
a. Operate in an ethical way. It should have a recognized code of ethical behavior and ensure
that its employees act according to that code.
b. Treat employees fairly and with respect. The fair treatment could be assessed by entity’s
adherence to its employment policies such as good working conditions, provision for training,
equal opportunity employer, etc.
c. Be a responsible citizen in its community. Responsibility can be shown in the form of
respecting basic human rights (no tolerance of child labor), investing in local communities
(schools, parks, hospitals), etc.
d. Sustain the environment for future generations. This could take the form of reducing pollution,
cutting down the use of non-renewable energy resources, recycling of waste materials, etc.

3. TRENDSETTERS LIMITED (WINTER 2017 – Q.10)

a. An integrated report should:
 Provide insight into the organization’s strategy, and how that strategy relates to its ability
to create value in the short, medium and long term.
 Show a holistic picture of the combination, interrelatedness and dependencies between
the factors that affect the organization’s ability to create value over time.
 Provide insight into the nature and quality of the organization’s relationships with its key
stakeholders, including how and to what extent the organisation understands, takes into
account and responds to their legitimate needs and interests.
 Disclose all material matters that substantively affect the organization’s ability to create
value over the short, medium and long term.
 Be concised and devoid of any material errors.
 SPM Practice Kit
Chapter 18: Corporate Social Responsibility
Answers
 Be presented on a basis that is consistent over time and in a way that enables comparison
with other organizations.

b. TL might enjoy the following benefits:

 Improved reputation through greater transparency.
 Greater trust and engagement with stakeholders.

4. RESPONSIBLE CORPORATE CITIZEN (SUMMER 2017 – Q.4B)

A company may demonstrate that it operates as a responsible corporate citizen by:
1. improving the efficiency and sustainability of its business activities and products by reducing
electricity consumption, greenhouse gas emissions, water use and waste;
2. ensuring that its external contractors conform to regulatory requirements and meet the
required Health, Safety and Environment (HSE) standards;
3. Establishing goals and strategies for the enterprise and reporting publicly of its performance;
4. Integrating HSE practices consistent with the company’s management system into all aspects
of the business and ensuring legal compliance.

5. TRIPLE BOTTOM LINE REPORTING SYSTEM (SUMMER 2017 – Q.9B)

Triple bottom line reporting system involves assessment of actual performance in terms of
economic/financial, environmental and social indicators in the business organizations’ operating models
and reporting systems. The Triple bottom line reporting system comprises of a company’s overall
performances pertaining to:

Economic/Financial indicators:
1. sales revenue
2. profits, and earnings per share
3. dividends per share
4. production (units)

Environmental indicators:
1. Energy intensity (Revenue per unit of energy consumed)
2. Release of toxic materials/pollutants
3. Usage of recycled materials
4. Use of renewable resources.

Social indicators:
1. donations to communities and sponsorships of schools/welfare schemes
2. (percentage of employees comprising males and females
3. percentage of employees from minority groups
4. percentage of physically challenged employees
5. Employee satisfaction, based on feedback of employee opinions.
 SPM Practice Kit
Chapter 18: Corporate Social Responsibility
Answers

6. ASPIRE TEXTILE (WINTER 2021 Q.6)

a. ATM may take following steps in formulating its CSR policy:
 Decide the code of ethical values.
 Establish the existing position in terms of its code of ethical values and decide the position it
would like to reach in the future.
 Set realistic targets for achieving the desired position.
 Identify the key stakeholders whose opinions matter the most or whose views ATM wishes to
influence (European customers and pressure group).
 Select the reporting process through which ATM would communicate its CSR achievements to
the key stakeholders.
 Define the monitoring procedures through which actual achievements can be compared with the
targets and necessary actions can be taken on a timely basis.

b. The board member’s concern is not entirely correct. The adoption of CSR program and related
reporting would add new costs but it would also assist ATM in portraying itself as a company that
acknowledges its ethical and corporate social responsibilities. This would result in improved
reputation among stakeholders in particular customers from European market and local pressure
group. Therefore, it is advised that ATM to perform cost vs benefit analysis before making the final
decision.

c. ATM may take following measures to reduce its environmental footprint and increase social
footprint:

Environmental footprint measures:

 Adopting green procurement policies.
 Encouraging waste minimization and waste management by adopting policies on reducing
pollution and recycling waste.

Social footprint measures:

 Achieving employee diversification in terms of appropriate ratios of male, female and minority
groups.
 Making donations to communities and sponsorships of social events.

d. ATM may adopt ‘Triple bottom line’ as its reporting framework for sustainability reporting. Its aim is
to encourage companies to recognize social and environmental issues in their business models and
reporting systems. This reporting framework is also encouraged by Global Reporting Initiative (GRI)
which is an internationally recognized non-profit body that promotes sustainability reporting.
 SPM Practice Kit
Chapter 19: Corporate and Professional Ethics
Questions

CHAPTER 19:
CORPORATE AND PROFESSIONAL ETHICS
QUESTIONS

1. AITMAAD BUILDERS & CONTRACTORS (WINTER 2018 – Q.6)

a. Corruption among government officials could have devastating effects on society and these
effects can be multi-dimensional.

Required: Briefly discuss how corruption by the government officials of a country may result
in the country’s failure to achieve its economic objectives. (05 marks)

b. Mr. Faysal Adil (Faysal) is an experienced chartered accountant. He is on the board of directors
of Aitmaad Builders & Contractors (ABC). Government has recently invited tenders for
construction of country-wide hospitals. The successful bidding on these tenders would give
ABC a considerable competitive advantage.

Faysal’s younger brother is an influential member of a committee responsible for awarding the
contract. Faysal is under the pressure of the management to influence his brother to obtain
favour for ABC in the tendering process.

Required: Identify and briefly discuss how the fundamental principles of Code of Ethics of
ICAP may be compromised if Faysal proceeds with the management’s advice.

(06 marks)

2. MILESTONE LIMITED (SUMMER 2018 – Q.8)

Answer the following questions in the context of business and professional ethics:

a. The board of directors of Milestone Limited (ML) has authorized Ahad Mir, financial controller
to negotiate and select a bank for raising finance. Given the good credit rating of ML, number
of banks have shown interest. The terms and conditions offered by all the banks are more or
less similar. However, manager of Loyal Bank has also promised quick disbursement of
personalized housing loan with soft terms to Ahad Mir, who has been looking for housing
loan for some time. Required: Explain how Ahad Mir may carry out a mirror test.
(06 marks)

b. What do you understand by principles-based approach to resolve an ethical problem? Why do

accounting bodies prefer to have a conceptual framework for the accountants to follow rather
than a set of strict rules? (05 marks)
 SPM Practice Kit
Chapter 19: Corporate and Professional Ethics
Questions
c. Creative Automobile Limited is in the process of formulating a whistleblowing policy for its
employees. The management has requested you to advice in respect of the following:
1. The key objectives that should be kept in perspective while devising whistleblowing policy.
(02 marks)
2. Rules that should be followed to achieve the objectives in (1) above. (03 marks)

3. BC LIMITED (SUMMER 2017 – Q.4A)

ABC Limited is a recently established organization. The sponsors and management of ABC Limited
believe in a culture of strict adherence to high standards of ethical conduct. State five specific
measures/practices which ABC Limited may take in pursuance of a culture of adherence to high
standards of ethical conduct.
(05 marks)

4. SMART FIT (SUMMER 2021 Q.4 (A, B, C)

Smart Fit (SF), a fashion retailer having presence all over the country, is in limelight in social media over
safety practices for its workers. It all started when one of the dispatch riders carrying SF’s parcel
encountered a road accident resulting in multiple injuries. He made a video claiming that accident
happened due to overweight parcel and SF management is not accepting the mistake and instead
blaming him for not taking appropriate safety measures. This video has gone viral on social media and
people are criticizing SF for not taking care of its workers.

When management of SF interrogated Administration Head, he informed that accident happened

because of careless attitude of the rider as he was not wearing helmet. He pointed out that large
number of orders are dispatched on a daily basis and no such accidents have ever been reported
before. He stated that it was just a one-off incident and should not be given importance.

When contacted with HR Head, she informed that existing health and safety program is for employees
of SF only and these dispatch riders are freelancers, who are paid on the basis of number of orders they
deliver.

The management has concluded that despite having no legal binding, on ethical ground, SF would
implement safety program for dispatch riders to avoid future criticism from social media users.

Required:
a. Discuss the statement of Administration Head that such incidents should not be given importance.
(03)
b. Explain the ethical stance of management of SF to implement safety program for dispatch riders.
(03)
c. Suggest the factors that SF may consider in designing and implementing the safety program for
dispatch riders. (06)
 SPM Practice Kit
Chapter 19: Corporate and Professional Ethics
Questions
5. ZYMAL ARYAN (WINTER 2019 Q.3(A, B)

Zymal Aryan (Zymal), a chartered accountant has recently been appointed as CEO of Palate Foods
Limited (PFL), which is engaged in the manufacturing and marketing of ready-to-cook food.

Zymal has noticed that no formally defined corporate code of ethics exists at PFL. There have been
instances that urge the need of having a formal corporate code of ethics to deal with stakeholder
groups. Some of the instances are as follows:
 Managers often abuse junior staff with verbal and personal attacks;
 Internally reported cases of kickbacks in the procurement department are pending management
action;
 Female employees are not hired in the finance department;
 Data integrity is highly questionable as personal details of employees, customers and suppliers are
easily accessible; and
 No significant CSR activity has been carried out in the past three years.

Zymal’s concerns have further aggravated when in a recent meeting, marketing head informed her that
key ingredients for ready-to-cook food would not be available due to payment dispute with a foreign
supplier. Alternatively, PFL would buy local ingredients which would not be of as good quality as
imported ingredients. However, marketing head further informed that ready-to-cook food would be
aggressively marketed as new and improved products. When Zymal questions the ethical stance, she is
informed that such practice is a marketing norm and disclosure of that information would adversely
impact product demand and profitability which would not be acceptable to shareholders of PFL.

Required:
(a) List down the statements that might need to be included in the formal corporate code of ethics to
address the concerns of Zymal for each of the following stakeholder groups: (06)
 Employee  Customers  Society

(b) Mention the factors that Zymal would need to consider for effective implementation of and
compliance with the corporate code of ethics. (03)
 SPM Practice Kit
Chapter 19: Corporate and Professional Ethics
Answers

Chapter 19:
Corporate and Professional Ethics
ANSWERS
1. AITMAAD BUILDERS & CONTRACTORS (WINTER 2018 – Q.6)
a. Corruption by the government officials of a country may result in the country’s failure to
achieve its economic objectives as follows:
 Scarce resources might be deployed to high profile projects at the expense of basic
infrastructure projects such as hospitals, schools, etc.
 Tax revenue might be spent on individuals/entities delivering less than value expected to
derive from such spending.
 Fair market structures might be compromised resulting in distortion of competition and
discouraging potential investments.
 More efficient companies may lose out and in the long run that might lead to slower
growth in the economy.
 National resources might be placed in the control of small number of individuals that
might lead to concentration of wealth resulting in chaos and social conflicts.

b. If Faysal proceeds with the management’s advice, he may breach following fundamental
principles of Code of Ethics of ICAP:
 Integrity: According to this principle, chartered accountants must be honest and
straightforward in their professional and business dealings. Faysal might breach this
principle by involving in an unethical activity i.e. influencing his brother to gain favours.
 Objectivity: According to this principle, chartered accountants must not compromise their
professional or business judgment because of bias, conflict of interest or undue influence
of others. Faysal might breach this principle by influencing his brother under the pressure
of management.
 Professional behavior: According to this principle, chartered accountants are required to
comply with relevant laws and regulations and avoid any action that they know would
discredit the profession. Faysal might breach this principle by knowingly being involved in
an activity that could affect the reputation of the profession.

2. MILESTONE LIMITED (SUMMER 2018 – Q.8)

a. Ahad Mir may carry out a mirror test by asking following questions to himself:
1. Is selection of Loyal Bank legal? If it is not legal then I should not be selecting it.
2. What will other people think? Particularly key stakeholders such as shareholders, board of
directors, etc. and my close family members.
3. Is it ethically correct? Can I see in the mirror a person who has acted in a moral and
ethical way and whether I can justify my actions from an ethical perspective?
 SPM Practice Kit
Chapter 19: Corporate and Professional Ethics
Answers

b. Principles-based approach involves application of principles to resolve an ethical problem. It

encourages to follow general guidelines rather than following a particular set of strict rules.
Persons or organizations need to use judgments in applying principles to decide whether a
particular course of action is ethical or not.
Accounting bodies prefer conceptual framework over strict rules based approach because of
the following reasons:
 Accountants while making ethical decisions encounter number of complex and varied
situations. It might be impossible to predict all types of situations in advance and to make
rules for exact course of action.
 Views on ethics differ between countries and cultures. Behavior that might be considered
unethical in one country may be acceptable in another country. It might be difficult to
make allowances for national and cultural differences.
 As the business environment is changing frequently, a rules based approach would require
frequent reviews and updation i.e. after every new situation.

c.
1. Following key objectives should be kept in perspective while devising whistleblowing
policy:
 Encouragement of employees to report illegal or unethical behavior or practices within
the organization by protecting the whistle blower doing so in good faith.
 Discouragement of unfounded allegations made with the intention of defaming, out of
malice or dislike, by taking strict disciplinary action.

2. The rules that should be followed to achieve the above objectives:

 Employees should speak up any known concerns about illegal or unethical behavior.
However, in case of any doubt, they should first try to resolve it by discussing with
colleagues and managers or seeking advice from the relevant authority.
 Employees should not be punished for a whistleblowing done in good faith. They
should be protected from any undesirable actions as a consequence of such act.
 Disciplinary action should be taken against employees knowingly making a false report
to malign the others.

3. BC LIMITED (SUMMER 2017 – Q.4A)

The following measures may be implemented by the management of ABC Company Limited in
pursuance of a culture of strict adherence to high standards of ethical conduct:
1. A copy of the code of ethics approved by the board of directors is provided to all the
employees.
2. All new employees are informed of the high standards of ethics practiced in the company and
the policy of the management in this regard.
3. Training sessions/workshops on ethics are conducted from time to time with the active
participation of the senior management.
 SPM Practice Kit
Chapter 19: Corporate and Professional Ethics
Answers

4. A system of reporting whereby non-compliance of ethical conduct is brought to the notice of

the management.
5. All external stakeholders such as suppliers, contactors and customers are provided a policy
memorandum of compliance for dealings with the employees.
6. All internal policies/rules and the prevailing laws are observed in letter and spirit and instances
of deviations and findings are reported to the ethics committee.

4. SMART FIT (SUMMER 2021 Q.4 (A, B, C)

a. The statement of Administration Head is not justified. If such incidents are not given due
importance, SF may end up facing following repercussions:
 Loss of reputation in the eyes of stakeholders, in particular customers, which could result in
loss of business or in dire situation closure of business.
 The payment of compensation to injured workers and in the case of severe injury or death
that compensation may involve a significant amount with other legal consequences.
 Fines and other penalties from regulatory authority which may include suspension or
revocation of an operating license.
 High turnover of employees. Further, SF may find it difficult to recruit new employees or
freelance bike riders at market terms and conditions in future.

b. The management of SF has taken ethical stance of ‘enlightened self-interest’. According to this
ethical stance, company believes that it would benefit by showing some concerns for the
interests of employees, communities, the general public and the environment though interests
of its shareholders would remain the most important concern.

In the above case, SF management has decided to implement the safety program for dispatch
riders more for the sake of avoiding criticism from social media user than realizing its ethical
obligation towards society as a whole.

c. SF may consider following factors in designing and implementing the safety program for
dispatch riders:

Designing
 Identification of safety risks that are being faced by dispatch riders. This can be achieved by
having a dialogue with them or their representatives.
 The preparation of safety guidelines for minimizing the identified risks. These may include
wearing helmets, following traffic rules, limit on maximum weight of parcel, etc.
 SPM Practice Kit
Chapter 19: Corporate and Professional Ethics
Answers

Implementing
 Appoint a safety officer or assign this role to a senior management person whose job would
be to monitor related risks and to ensure that all necessary safety measures are in place and
working appropriately.
 The safety guidelines to be shared with dispatch riders to make them aware. This objective
may be effectively achieved by providing short training courses.
 Dispatch riders must be made aware that it is their moral and ethical duty to comply with
SF’s safety guidelines in order to protect both themselves and others from harm.

5. ZYMAL ARYAN (WINTER 2019 Q.3(A, B)

a. The statements that might need to be included in the revised corporate code of ethics to
address the concerns of Zymal are listed below:
Employees
 Equal opportunity of hiring in an organization regardless of gender.
 Zero tolerance of harassment of employees by colleagues or managers.
 Respect for the privacy of confidential information of each employee.
 Disciplinary action on giving or receiving kickbacks.

Customers
 Fair dealings with the customers.
 Truthfulness of marketing with no false claims.
 Respect for the privacy of confidential information of each customer.

Society
 Compliance with the spirit as well as the letter of laws.
 Carrying out regular CSR activities such as protection and prevention of environment,
contributions for charitable work, etc.

b. Zymal would need to consider the following factors for effective implementation of and
compliance with the revised corporate code of ethics:
 Code of ethics to be strongly endorsed by top management including herself.
 Training to be provided to employees for understanding of how to apply code of ethics
in practice.
 Code of ethics to be easily accessible to all employees.
 Code of ethics to be reviewed periodically and updated, when required.
 Adherence to the code of ethics should be part of employee contract and departure
from the code should be considered as a disciplinary offence.
 SPM Practice Kit
Chapter 20: Ethical Resolution
Question

CHAPTER 20:
ETHICAL RESOLUTION
QUESTIONS

1. SHAYAN AHSAN (SUMMER 2019 – Q.7B)

Shayan Ahsan (Shayan), a chartered accountant has recently joined as CFO in a large company. While
finalizing the annual budget of the company, CEO told him to inflate the training and development
budget by 25%. Shayan attempted to discuss that company was already on the verge of financial crisis
and such increment in budget might adversely reflect in the liquidity position of the company. However,
CEO did not respond positively to his concerns.

Close aide to CEO, on a promise to keep his identity anonymous, has informed Shayan that CEO is
planning a Europe trip with his family and like the previous personal trips of CEO, certain expenses of
that trip may also be charged against training and development budget. He has also advised not to
escalate this matter further as it may have severe repercussions on Shayan’s annual bonuses and as well
as his future continuity with the company.

Required:
a. List the factors that Shayan should consider before ‘blowing the whistle’. (03 marks)
b. Assume that all holds true, advice Shayan as to how he can resolve the issue by using the ethical
model based on threats and safeguards. (09 marks)

2. MILESTONE LIMITED (SUMMER 2018 – Q.8A)

Answer the following question in the context of business and professional ethics:

The board of directors of Milestone Limited (ML) has authorized Ahad Mir, financial controller to
negotiate and select a bank for raising finance. Given the good credit rating of ML, number of banks
have shown interest. The terms and conditions offered by all the banks are more or less similar.
However, manager of Loyal Bank has also promised quick disbursement of personalized housing loan
with soft terms to Ahad Mir, who has been looking for housing loan for some time.

Required:
Explain how Ahad Mir may carry out a mirror test. (06 marks)

3. ULTRA CARE (WINTER 2017 – Q.11)

Khadija Tariq, a fresh qualified chartered accountant has recently joined Ultra Care, a consultancy firm as
financial analyst. One of the firm’s clients has requested for advice on future prospects of automobile
industry in Pakistan. Her supervisor told her to copy the recent research work of another firm with minor
changes and issue the advice under firm’s name without citing the source. Khadija believed that it was
an unethical act and showed her concern but the supervisor told her that research work of the other
 SPM Practice Kit
Chapter 20: Ethical Resolution
Question

firm is not copy righted. Khadija believes that not following supervisor’s instructions would adversely be
reflected in her appraisal.

Required: Advise Khadija as to how she can resolve this conflict by assessing the relating threats and
safeguards. (09 marks)

4. WORKSHOP
You are a sole practitioner in public practice and you have taken on three new appointments. One is to
prepare the annual accounts of a small business partnership with two partners, and the other two are to
assist with the tax affairs of the two individual partners.

After taking on the appointments, you are told that the partners have now agreed to dissolve the
partnership. One partner plans to retire and the other will take over the entire business and run it as a
sole trader business. The partners have discussed how the assets of the business should be transferred
to the partner who will remain as the owner.

You are informed that the partners have privately agreed an amount for the value of the goodwill of the
business, and the retiring partner will receive 50% of this agreed goodwill value plus the return of his
balance sheet capital.

You are aware that in the balance sheet, the main asset is a workshop, which is valued at cost, at
Rs.12m. You do not have a current valuation, but you estimate that this workshop could have a current
market value in excess of Rs.25m. You do not know whether the retiring partner is aware of this, and
you are concerned that the agreed value for business goodwill might therefore be too low. It has also
not escaped your notice that the book-keeper for the partnership business is the husband of the
partner who is acquiring the entire business.

Required
Consider whether there is an ethical issue in this situation, and whether you have a duty to bring the
value of the workshop to the attention of the retiring partner. Suggest what you should do, if anything.

5. MARTHA
The board of a company was about to make a decision about whether to make a very large investment
to produce and market a new range of products. Jerry, the senior management accountant, prepared
figures for a board paper that analysed the financial implications of the investment. He used a
spreadsheet model to prepare the figures, but did not ask anyone to check his figures. Martha, one of
the team working for Jerry, subsequently found some errors in the figures that Jerry had prepared,
which were caused by a small error in the spreadsheet model. Although the error in the model was
small, it had a big effect on the figures. The original figures indicated that the new investment should
be undertaken. The amended figures raised doubts about whether the investment would be financially
viable.
 SPM Practice Kit
Chapter 20: Ethical Resolution
Question

Martha told Jerry about the errors in the figures, but Jerry decided not to inform the board. At the next
board meeting, the directors decided that the investment was too risky, and decided not to proceed
with it. Martha was relieved, but felt that she could not ignore the problem of the errors in the figures.
She had a meeting with Jerry, and Jerry agreed that in future he would involve his team more closely in
preparing and checking figures that were produced as management information.

Two months later Jerry’s boss, Bill, spotted some errors in another set of figures that Jerry had produced
and he asked Martha to correct them. In making the corrections, Martha found even more errors that
Bill had not seen, and she brought the matter to the attention of Jerry. Jerry told her to correct the
errors that Bill had seen, but not the others. He didn’t want to ‘lose face’ with his boss, and he didn’t
think that the errors mattered too much.

Required:
a. Suggest, with reasons, whether Martha took appropriate action in relation to the incorrect figures
produced by Jerry for the board paper.
b. Suggest with reasons the action, if any, that Martha should take in the current problem about
providing the corrected information for Bill.

6. ZYMAL ARYAN (WINTER 2019 Q.3(C)

Zymal Aryan (Zymal), a chartered accountant has recently been appointed as CEO of Palate Foods
Limited (PFL), which is engaged in the manufacturing and marketing of ready-to-cook food.

Zymal has noticed that no formally defined corporate code of ethics exists at PFL. There have been
instances that urge the need of having a formal corporate code of ethics to deal with stakeholder
groups. Some of the instances are as follows:
 Managers often abuse junior staff with verbal and personal attacks;
 Internally reported cases of kickbacks in the procurement department are pending management
action;
 Female employees are not hired in the finance department;
 Data integrity is highly questionable as personal details of employees, customers and suppliers are
easily accessible; and
 No significant CSR activity has been carried out in the past three years.

Zymal’s concerns have further aggravated when in a recent meeting, marketing head informed her that
key ingredients for ready-to-cook food would not be available due to payment dispute with a foreign
supplier. Alternatively, PFL would buy local ingredients which would not be of as good quality as
imported ingredients. However, marketing head further informed that ready-to-cook food would be
aggressively marketed as new and improved products. When Zymal questions the ethical stance, she is
informed that such practice is a marketing norm and disclosure of that information would adversely
impact product demand and profitability which would not be acceptable to shareholders of PFL.
 SPM Practice Kit
Chapter 20: Ethical Resolution
Question

Required:
(c) Identify and explain the fundamental principles of Code of Ethics of ICAP that may be compromised
if Zymal proceeds with the marketing head’s strategy. (06)

7. SPORTY LIMITED (WINTER 2020 Q.3(A, B, C)

Sporty Limited (SL) is engaged in exporting sports products in a highly competitive market. The
management of SL is under pressure of meeting targets as at the beginning of year, it has been clearly
communicated by CEO that if SL fails to meet financial targets, there will be no bonuses and promotions
for this year and some of the management personnel may also be laid-off.

Taha Buksh, Treasury Head, a qualified Chartered Accountant, has been given an additional role of
officiating the office of CFO in the absence of Mahira Akhtar, who is on annual leaves. Taha and Mahira
have been associated with SL for over ten years and they have also worked together in many projects
successfully.

Recently, one of the key customers has placed a large order with SL. While authorizing the sales invoice,
Taha noted the significant difference between the price agreed as per sale agreement and invoiced
price. On inquiry, Finance Manager informed him that under invoicing is a common practice to avoid tax
and import duties. It is also implied from the discussion that Mahira has never objected on customer’s
demand of under-invoicing and if Taha does not act as per customer’s demand, SL would most likely
lose out that customer to a major competitor.

Taha knows that under-invoicing is an illegal act and SL stresses on strict compliance with laws and
regulations. The disclosure of this information would likely result in legal consequences and bad
reputation for SL as well as internal disciplinary action against Mahira.

Required:
a. Identify and explain threats to compliance with the fundamental principles of ethics that Taha might
be subject to. (06)
b. Suggest the safeguards that SL may apply within the work environment to prevent illegal/unethical
activities. (05)
c. Discuss the matters that Taha may consider before disclosing the information to board of directors.
(04)

8. ETHICAL RESOLUTION MODEL (SUMMER 2021 - Q.2)

Fatima, a member of the Institute of Chartered Accountants of Pakistan, has recently joined FinTech, a
consultancy firm, as senior associate, at a lucrative salary package. She was enjoying her job until the
following two recent incidents caught her off guard:
 SPM Practice Kit
Chapter 20: Ethical Resolution
Question

First incident
Supervisor has assigned her a task of creating working paper templates. He has informed that he is
expecting her to create a replica of working paper templates of her previous employer, which is the rival
firm of FinTech.

Fatima tried to raise a concern that those templates might be the intellectual property of her previous
employer, to which supervisor responded that ‘only those people grow here who put FinTech as their
first priority’.

Second incident
During a meeting with the client, managing partner introduced her as merger and acquisition specialist
and proposed the client to assign his firm the upcoming merger project where Fatima would be leading
the team from FinTech.

Fatima has never claimed to be a specialist of merger projects, in fact, she has no previous experience
of working on such projects. She is deeply concerned that if project is assigned to her, she would not
be able to perform at the required standards.

Required:
Advise Fatima as to how she may apply the ethical model based on threats and safeguards in the above
case. (12)

9. MIRROR TEST (WINTER 2021 - Q.5)

Blue Ocean, a marketing agency in Karachi, offers digital marketing solutions. There has been a
considerable change in the consumer buying behavior post COVID-19. Therefore, the board has
requested Huzaifa, Marketing Head, to find and propose a training program on the subject. He is also
authorized to nominate 3 candidates who would accompany him for that training program.

Huzaifa who is eager to visit Dubai Expo 2020, got excited and started looking for possible training
programs in Dubai only and finally found one there. However, he also knows that similar programs at
much lower pricing are also offered in Karachi.

Required:
Carry out a mirror test for Huzaifa. (04)
CHAPTER 20:
ETHICAL RESOLUTION
ANSWERS

1. SHAYAN AHSAN (SUMMER 2019 – Q.7B)

a. SPL may take following environmental initiatives to respond to social groups and to create
sustainable business:
1. Setting a target of zero waste generation and zero waste emissions.
2. Conserving energy and scarce resources such as water, electricity, natural gas, minerals,
etc.
3. Recycling materials to reduce the need for disposals.
4. Making, using, handling and transporting materials safely and in an environment-friendly
way and in compliance with local regulations and the best international practices.
5. Developing new products and processes that reduce the environmental risks.

b.
(i) Shayan should consider following factors before blowing the whistle:
 Whether he has sufficient evidence to justify blowing the whistle. At this point of time,
Shayan is only being informed by close aide of CEO for the possibility of misuse of
company’s budget.
 Double check that he has thought about the situation objectively and with neutral
emotion.
 Consider whether there is scope to discuss events confidentially with the relevant
authorities (internal audit, human resource, professional helpline, etc.)
 Ensure that he follows company’s policy and whistleblowing procedures at all times.

(ii) Shayan may resolve the given conflict by ethical model based on threats and safeguards as
follows:
1. Identify the issue Shayan is told to inflate the budget allocated for training and
development that might be used for personal trip of CEO. Such act may not be illegal but
it is unethical.
2. Identify the threats there are threats of self-interest and intimidation as Shayan is
informed that escalating the matter might adversely reflect on his annual bonuses and
future continuity with the company. There is also a possibility of noncompliance with the
fundamental principles of integrity and professional behavior.
3. Assess the significance of threats the scale of threat to certain extent might depend on
the significance of the budget inflated for catering personal trip and the effect this would
have on the profitability of the company. In this case, inflation of budget by more than
25% might be significant given the fact that company is already facing financial crisis.
 Further, deliberate unethical act by top management may also raise significant doubts on
overall environment (integrity and culture) of organization
4. Applying safeguards: Shayan would need to consider safeguards to protect himself against
the ethical threats. He may need to take following steps:
 Discuss his concerns with CEO.
 If CEO does not respond positively, he would need to consider the arrangements that
company may have for internal whistle blowing.
 In the absence of formal arrangements for whistle blowing, he might consider
reporting his concerns to the senior personnel in the organization (those charged with
governance).
 If his concerns still remain unaddressed, he might consider seeking an expert advice
which in that case may be ICAP.
5. Taking action: If all these measures fail to remove his concerns or ethical risks still exist, he
might need to consider requesting disassociation from the responsibility of budget
finalization or resign from the position.

2. MILESTONE LIMITED (SUMMER 2018 – Q.8A)

a. Ahad Mir may carry out a mirror test by asking following questions to himself:
(i) Is selection of Loyal Bank legal? If it is not legal then I should not be selecting it.
(ii) What will other people think? Particularly key stakeholders such as shareholders, board of
directors, etc. and my close family members.
(iii) Is it ethically correct? Can I see in the mirror a person who has acted in a moral and
ethical way and whether I can justify my actions from an ethical perspective?

b. Principles-based approach involves application of principles to resolve an ethical problem. It

encourages to follow general guidelines rather than following a particular set of strict rules.
Persons or organizations need to use judgments in applying principles to decide whether a
particular course of action is ethical or not.

Accounting bodies prefer conceptual framework over strict rules based approach because of
the following reasons:
 Accountants while making ethical decisions encounter number of complex and varied
situations. It might be impossible to predict all types of situations in advance and to make
rules for exact course of action.
 Views on ethics differ between countries and cultures. Behavior that might be considered
unethical in one country may be acceptable in another country. It might be difficult to
make allowances for national and cultural differences.
 As the business environment is changing frequently, a rules based approach would require
frequent reviews and updation i.e. after every new situation.

c.
 (i) Following key objectives should be kept in perspective while devising whistleblowing
policy:
 Encouragement of employees to report illegal or unethical behavior or practices within
the organization by protecting the whistleblower doing so in good faith.
 Discouragement of unfounded allegations made with the intention of defaming, out of
malice or dislike, by taking strict disciplinary action.

(ii) The rules that should be followed to achieve the above objectives:
 Employees should speak up any known concerns about illegal or unethical behavior.
However, in case of any doubt, they should first try to resolve it by discussing with
colleagues and managers or seeking advice from the relevant authority.
 Employees should not be punished for a whistleblowing done in good faith. They
should be protected from any undesirable actions as a consequence of such act.
 Disciplinary action should be taken against employees knowingly making a false report
to malign the others.

3. ULTRA CARE (WINTER 2017 – Q.11)

Khadija Tariq can resolve this conflict by carrying out the following steps:
1. Identify the issue. Copying research work of the other firm with minor changes without citing
the source is an act of plagiarism. It may not be illegal as research work is not copy righted
but it is unethical.
2. Identify the threats: There is a threat to integrity and professional behavior. She believes that
further arguing with supervisor would badly reflect in her appraisal which is a form of
intimidation threat.
3. Assess how serious the threats are. The significance of threat will depend on how much
research work of other firm she would be using in her report. In this case, it seems that she
would inevitably use information from the other firm’s work and the threats would be
significant.
4. Find a way to resolve the matter through internal procedures. She might consider using the
arrangements that the company may have for internal ‘whistle blowing’. If there are no formal
arrangements for whistle blowing, she might consider reporting her concerns to the senior
personnel in the organization.
5. If no-one in the company takes up her concerns and tries to deal with the problem, she might
consider as a final resort, reporting the matter to someone in authority. She may contact ICAP
for confidential advice on this matter.
6. If all these measures fail to remove her concern about the ethical risk, she might need to
consider disassociating herself from the project or resign.

4. WORKSHOP
1. The first step in assessing the situation is to decide whether an ethical issue does exist. The
partners have agreed a valuation for the business, and an amount that the remaining partner
 will pay the retiring partner to take over the entire business. There is a concern that the
valuation of the balance sheet might have been based on a balance sheet valuation of assets,
and that the value of the workshop might not have been brought to the attention of the
retiring partner. If these are the actual facts, the retiring partner will be paid less than his or
her fair share of the business on retirement.
If possible, as much information about the valuation of the business should be obtained,
without (yet) alerting the partners to your concerns. There may be a written agreement
between the partners about what should happen on the retirement of one of the partners. For
example, there may be a written partnership agreement in which a process is specified for
valuing the business on the retirement of a partner. If the partners have reached their agreed
valuation of the business in a fair and open way, there is no ethical problem for the
accountant
If there are doubts about whether the valuation of the business has been fair, there is an ethical
issue to resolve, because one of the clients could be treated unfairly by the other.

2. The next step is to assess the threats to the accountant’s compliance with the fundamental
ethical principles. The two clients could have a conflict of interests. This raises threats to the
accountant’s integrity (objectivity) and ability to treat the affairs of each client with
confidentiality.
Integrity is threatened because at some stage, the accountant might have to take sides, and
support the interests of one client against the interests of the other. Confidentiality is threatened
because by raising concerns with one client, the accountant would be breaching confidentiality
for the other client.
The threats would seem to be sufficiently significant to make the accountant consider whether
additional safeguards could be introduced to eliminate the risk.

3. The next step is therefore to consider safeguards. In a large accounting practice, it might be
possible to appoint another senior member of staff to take over dealing with the affairs of one
of the client partners. Since the accountant here is a sole practitioner, this is not possible in this
situation.
There are no other obvious safeguards that can be introduced, and the accountant is therefore
faced with a significant threat to compliance with the fundamental ethical principles. He should
not allow this to happen.

4. A solution to the problem has to be found. The most suitable solution in this case would be to
arrange a meeting with both partners, where the accountant should inform them that he is
unable to continue providing professional services to both of them.
At the meeting, the partners might agree that the accountant should continue to provide a
service to one of them, but the accountant should not ‘take sides’ and indicate any preference
for one client.
5. MARTHA
a. Martha did not learn about the error in the figures for the board until after they had been
submitted. The consequence of the error could have been very serious, and the board might
have taken a big investment decision based on misleading and incorrect information.

There is a threat to the integrity of Jerry and the members of his team, including Martha,
when information is provided that is known to be materially incorrect.
Martha was probably correct to wait until the board made its investment decision. Since the
board decided not to invest, the failure of Jerry to report the corrected figures to the board
did not have any immediate consequence.
However, Martha was also correct to recognise that a similar problem might happen again in
the future, and she looked for a suitable safeguard. She thought that she had found a
safeguard by obtaining agreement from Jerry to involve his team more closely in the future in
preparing and checking figures.
In conclusion, the action by Martha in this first instance was probably appropriate, and she
complied with the fundamental ethical principles (even though Jerry did not).
However, she should maintain documentary evidence or a documentary record of the incident,
in case she needs to raise the matter again at some time in the future.

b. The second incident showed to Martha that the safeguard she agreed with Jerry earlier had
not worked. Jerry submitted figures to Bill that were presumably not checked by anyone else
in Jerry’s team. However, Martha would need to check this point: errors in checking Jerry’s
figures could have been made by someone else in the team.
Another ethical issue arises however, because Jerry has asked Martha not to correct all the
errors she found, only those that Bill knows about. If Martha agrees to do what Jerry has
asked, she will be in breach of the fundamental principle of objectivity. Accountants should
not be involved in the provision of information that is materially incorrect or misleading.

There is pressure from Jerry to make her do what he wants, possibly by asking her to act out
of a sense of loyalty to him (a familiarity threat) or because Martha feels intimidated by the
possible consequences of arguing with her boss and refusing to comply with his instructions.

Martha is in a very difficult position. She must comply with the fundamental ethical principles,
but in doing so she will inevitably cause problems in her working relationship with Jerry.
I recommend that Martha should take the following action
1. She should speak to Jerry about her concerns, and explain that she cannot agree to do
what he has asked.
2. She should discuss the failure of their previous agreement and her concern that there
could be more similar situations in the future where Jerry prepares incorrect information
and asks his staff to cover up the errors.
 3. She should explain that she will provide corrected figures to Bill with corrections to all the
errors that she has found. She will draw the additional errors to the attention of Bill.
4. She should tell Jerry that she is concerned with his unprofessional conduct, and that she
cannot continue to work for him in the future. She will therefore need to consider her
position.

This leaves a problem unresolved. If Martha asks for a transfer to another department, she will
be leaving Jerry to continue to do what he has done in the past, preparing figures without
due care and covering up any errors. This is likely to be a serious situation for the company.
Martha might therefore decide that she needs to inform Bill about the problems she has
experienced. She should inform him about Jerry’s reluctance to admit to his mistakes (and she
could explain the consequences by giving Bill another set of figures containing corrections
only to the errors that he had found, so that he can compare them with Martha’s own
corrected figures). She should also mention the earlier incident about the errors in the board
papers and Jerry’s similar refusal on that occasion to admit to the errors.
Bill can then make a decision about what action is appropriate.

6. ZAYMAL ARYAN (WINTER 2019 Q.3(C)

If Zymal proceeds with the marketing head’s strategy, she may compromise following fundamental
principles of Code of Ethics of ICAP:

Integrity
According to this principle, a chartered accountant must be honest and straightforward in his/her
professional and business dealings. Zymal would breach this principle by knowingly not disclosing the
fact that quality has been compromised.

Objectivity
According to this principle, a chartered accountant must not allow his/her professional or business
judgement to be affected by bias, conflicts of interest or undue influence from others. Zymal would
breach this principle by being influenced from the pressure of shareholders to maintain the profitability.

Professional behavior
According to this principle, a chartered accountant must observe relevant laws and regulations and
avoid any actions that would discredit the accountancy profession. Claiming of better and improved
product might not be illegal (a marketing norm as mentioned by marketing head) but an unethical act
which may impact the reputation of PFL as well the accounting profession in general.
7. SPORTY LIMITED (WINTER 2020 Q.3(A, B, C)
a. Taha might be subject to following threats to compliance with the fundamental principles of ethics:
Self-interest threat
There is a self-interest threat as bonuses and promotions for management are subject to meeting
financial targets and management is already under pressure of meeting them. The disclosure of this
information would likely result in legal consequences and bad reputation for SL which would
adversely affect meeting those financial targets.
Familiarity threat
There is a familiarity threat as Taha and Mahira have worked together in many successful projects
and have been associated with SL for over a long period of time (10 years). The disclosure of
information by Taha would likely result in an internal disciplinary action against Mahira which could
affect his relationship with her.
Intimidation threat
There is an intimidation threat as CEO has already communicated at the beginning of the year that
if financial targets are not met, some of the management personnel may be laidoff. The losing out
of key customer with a large order may adversely affect the management’s ability of meeting
financial targets and thereby layoff of some management personnel.

b. SL may apply the following safeguards within the work environment to prevent unethical / illegal
activities:
 Developing code of ethics to be endorsed by top management who should communicate and
encourage strict compliance with it by all employees.
 Ensuring implementation, compliance and monitoring of a system of sound internal controls. 
Keeping individuals away from work where there might be a threat to their compliance with the
fundamental principles of ethics (for example where a conflict of interests or a threat of
familiarity exists).
 Rotating employees particularly at key positions or regular review of their work to
reduce the probability of error or fraud.
 Encouraging employees to blow whistle of illegal / unethical activities within the work
environment.
 Encouraging employees to discuss illegal and ethical concerns with those people in the
company who are responsible for governance issues, such as the audit committee,
senior non-executive director, or board of directors.

c. Taha may consider following matters before disclosing the information to board of directors:
 Whether he has sufficient evidence to justify disclosing the information to board of
directors. At this point of time, it is only implied from discussion with Finance Manager
that Mahira has been involved in an illegal activity.
 Whether he has thought about the situation objectively and with neutral emotions.
  Whether there is a scope to discuss it confidentially with the relevant authorities
(internal audit, human resource, professional helpline, etc.).
 Whether there is a legal obligation to report to external regulatory bodies or institutions.
 Whether he is following company’s policy and procedures for disclosing sensitive
information at all the times.

8. ETHICAL RESOLUTION MODEL (SUMMER 2021 (Q.2)

Fatima may apply ethical model based on threats and safeguards in the given case as follows:

Stage 1:
Recognize and define the ethical issues Use of likely intellectual property of previous employer without
proper authorization would be unethical and might be illegal as well. Further, accepting the project
knowingly that she would not be able to perform at the expected standards, might not be illegal but
unethical.

Stage 2:
Identify threats to compliance with the ethical principles There is a self-interest threat as Fatima is
enjoying a lucrative salary package which she might not otherwise receive from any other organization.
There is also an intimidation threat as the statement of supervisor has inferred that she might not have
career progress if she does not oblige.

The threats would likely result in compromising following principles of ethics:

Integrity – if she accepts to lead the project, she would not be honest with her employer as well as with
the client, as she knows that she would not meet the required level of performance.

Confidentiality – if she replicates the working paper templates which might be intellectual property of
her previous employer, she would breach this principle.

Professional behavior – if she fails to perform at the required standards, she would likely end up with
discrediting accountancy profession.

Stage 3: Assess the significance of the threats

The significance of the threats depend on:
 What kind of information would be shared and whether that information is publicly accessible? In
this case, Fatima would inevitably be sharing the confidential information of her previous employer
that would render this threat as a significant one.
 The expected role of Fatima in a merger project. She would be leading the team without requisite
skills, this threat would also likely to be high.
Stage 4: Apply safeguards
 For threat to compliance with confidentiality, Fatima needs to clear out with her supervisor that she
cannot create replica of working paper templates of her previous employer without proper
authorization. If supervisor still pressurizes her then she may seek help from other appropriate
 channels such as discussion with higher management within FinTech or ICAP, without compromising
the principle of confidentiality.
 For threat to compliance with the principles of integrity and professional behavior, she may request
the managing partner to either change her role in the project or withdraw her from the project.

Stage 5: Re-assess the threats to compliance after additional safeguards

After applying the above safeguards, Fatima would need to re-assess whether the risks have been
eliminated or reduced to an insignificant level or not.

Stage 6: Make the decision

If Fatima believes that threats to compliance with above principles of ethics have been not been
eliminated or reduced to an insignificant level, she may as a final resort, resign from the job.

9. MIRROR TEST (WINTER 2021 - Q.5)

Huzaifa may carry out a mirror test by asking following questions to himself:
 Is proposing Dubai for training program legal? If it is not legal then I should not be proposing it.
 What will other people think? Particularly key stakeholders such as board of directors (who has
shown trust on me in proposing a training program), colleagues (who might feel bad that I put
personal interest over organizational interest), family (who may consider that I am fulfilling my
desire of visiting Dubai Expo 2020, at the cost of the company), etc.
 Is it ethically correct? Can i see in the mirror a person who has acted in a moral and ethical
way and whether i can justify my actions from an ethical perspective.