Chapter-1

Question 1. Cost Differentiation & Product Differentiation??

Answer-

Cost Leadership

Driving down costs is another way to increase profitability. To compete on cost, firm must balance
price with acceptable quality and become the lowest cost producer in an industry. A firm can create
a cost advantage in two different ways, by reducing the cost of individual value chain activities and
by reconfiguring the value chain

▪ Source - Cost Leadership can be sourced from cost effective inputs, process innovation or re-
engineering, low-cost distribution channel, superior operation management, learning curve, and the
economics of scale.

▪ Benefits - By producing at the lowest possible cost, the manufacturer can compete on price with
every other producer in the industry and earn the highest unit profits, or by charging a lower price
than others, it can capture market share.

Product differentiation is achieved by investing more time and resources into activities like research
and development, design, or marketing that can help the organisation’s product stand out.

Question 2. STEEPLE?

Answer-

Industry analysis was conventionally performed using the PEST Framework, i.e., Political, Economic,
Social, and Technology, but this approach has evolved to reflect the dynamics of the business
environment, to PESTEL with the addition of environmental and legal issues, and now to STEEPLE
with the addition of ethical aspects.

Chapter-2

Question 1. Cost of Quality?

Answer-

Today, the view of quality cost among practitioners seems to fall into three categories:

1. Higher quality means a higher cost.

2. The resultant savings are greater than the cost of improving quality.
3. Quality costs are those incurred in excess of those that would have been incurred if the
product was built or the service performed exactly right the first time

Mr. Philip B. Crosby, in his book Quality is Free, referred to the COQ costs in two broad categories,
namely ‘Price of Conformance’ and ‘Price of Non-Conformance’. These two can be bifurcated further
into prevention & appraisal costs and internal & external failure costs. Hence, COQ is often
referred to as the PAF (prevention, appraisal, and failure) model. In other words, ‘Price of
Conformance’ is known as ‘Cost of Good Quality’ and ‘Price of Non-Conformance’ is often termed as
‘Cost of Poor Quality’.

Question 2. Outsourcing?

Answer-

Outsourcing is defined as the transfer of non-core business functions or activities to other external
firms or organizations that specialize in that type of work. The external agency is referred to as a
"Third Party Service Provider" as the set of business processes or the specific project is related to the
arrangement between the client, "The First Party" and the end user, or "The Second Party".

Pros of outsourcing include reduced cost of operations, improved productivity (opportunity to focus
on core functions), striving or driving for specialization, and flexibility (to scale up or down).

Shortcomings of outsourcing include cultural differences, security issues (reliability), and

communication problems (privacy or trade secrets). The following steps should be taken to ensure
the success of outsourcing strategies–

1. When it comes to outsourcing vendors, the bigger and older the better.

2. Outsourcing should be avoided for jobs that are proprietary or require strict security.

3. It is best to start small and constantly monitor.

Without adequate steps, quality control issues, security violations, and poor customer service
experiences can wipe out all cost savings attributed to lower wages and more

Question 3. Service Level Agreement (SLA)?

Answer-

An agreement between the customer and service provider is termed as a service-level agreement.
This can be a legally binding formal or informal "contract". The agreement may be between separate
organisations or within different teams inside the organisation. SLAs commonly include many
components, from a definition of services to the termination of an agreement. To ensure that SLAs
are consistently met, agreements are often designed with specific lines of differentiation, and the
parties involved are required to meet regularly to create an open forum for communication.
Providers rewards and penalties are specified. There is always room left for revisiting in most SLAs.

Chapter-3
Question 1. Product Life Costing?

Answer-

Life cycle costing is a system that identifies and accumulates the actual costs and corresponding
revenues, attributable to cost object, from its inception to abandonment.

1. Product Life Cycle

Each product has a life cycle, which may vary from a few days to months to several years
depending upon the aging process of product. The product life cycle is a pattern of types of cost,
amount of expenditure, quantum and value of sales and amount of profit over the stages from
 conceiving the idea till the deletion of product from the product range. The life cycle of any
product consists of four phases, which are –

❑ Introduction (market development or launch)

❑ Growth

❑ Maturity

❑ Decline

Uses of Product Life Cycle (PLC)

▪ As a Planning tool, it characterizes the marketing challenges in each stage and poses major
alternative strategies, i.e., application of kaizen.

▪ As a Control tool, the PLC concept allows the company to measure product performance against
similar products launched in the past.

▪ As a Forecasting tool, it is less useful because sales histories exhibit diverse patterns, and the
stages vary in duration.

Question 2. Overall Equipment Effectiveness (OEE)?

Answer-

The most important approach to the measurement of TPM performance is known as the Overall
Equipment Effectiveness (OEE) measure. The calculation of the OEE measure requires the
identification of “six big losses”.

▪ Equipment Failure/ Breakdown

▪ Set-up/ Adjustments

▪ Idling and Minor Stoppages

▪ Reduced Speed ▪ Reduced Yield and

▪ Quality Defects and Rework

The first two losses refer to time losses and are used to calculate the availability of equipment. The
third and fourth losses are speed losses that determine the performance efficiency of equipment.
The last two losses are regarded as quality losses.

Availability(>90%) X Performance(>95%) X Quality(>99%) = OEE

Refer Page 3.30 Illustration 2

Chapter-5
Question 1. Types of Digital Technologies For Digital Transformation?

Answer-
Question 2. Disruptive Innovation?

Answer-

Disruptive Innovation refers to the process of transforming an expensive or highly sophisticated

product, offering, or service into one that is simpler, more affordable, and accessible to a broader
population.

Disruptive Innovation is a bit different from Sustaining Innovation

All innovations are not disruptive. While disruptive innovation expands the market, sometimes
displacing long-standing incumbents; sustaining innovation is incremental and targets existing
customers who used a previous iteration of the product or service. Smartphone companies are
examples of sustaining innovation because they continuously innovate and use new technologies to
improve their existing products in order to increase profitability.

Low-end disruption - Low-end disruption occurs when a company uses a low-cost business model to
enter at the bottom of an existing market and claim a segment.

New-market disruption - New-market disruption occurs when a new entrant expands the market by
targeting customers who have never used a similar product before. The disruptive company creates
a new market by making its products more accessible or less expensive

Hence, the main difference between the two is that lowend disruption focuses on overserved
customers, while new-market disruption focuses on underserved customers
Question 3. Components of Disruptive Innovation?

Answer-

There are three main components of disruptive innovation:

▪ Enabling Technology - Innovation requires the ability to create a better product. The transistor
radio, for example, used the broadcast network to create a low-cost portable radio.

▪ Disruptive or Innovative Business Model - For a disruptive business to succeed, it must use a new
business model that targets new or low-end customers within a given industry. This is what
distinguishes a disruptive innovation from a standard innovation. Even if they are unique, not all
innovations are disruptive.

▪ Coherent Value Network - For a disruptive innovation to succeed, it must be accepted across a
coherent value network, which includes suppliers.

Question 4. Innovation Hub & Incubators?

Answer-

An innovation hub is a physical space that brings together researchers, creators, and innovators to
nurture ideas into industry-changing products and services.

Incubators focus on early-stage startups that do not have a business model in place. They help
nurture a startup by developing its strong idea into a viable product and are commonly referred to
as a school for startups. Incubators typically work on a fee-basis as opposed to taking an equity stake
in the startup.

Incubators are also referred to as startup hubs, i.e., the places that aim to provide the 'ideal'
conditions for founders to quickly grow their young businesses; through a structured, collaborative
program. Primary Identifiers are-

▪ Guide to form a product or service.

▪ Seed funding and angel investor.

▪ Venture capital.

▪ Presentation skills and business etiquette.

▪ Training program.

▪ Networking opportunities.

Question 5. Start-Ups Vs Incubments?

Answer-

A startup is “a temporary organization designed to look for a business model that is repeatable and
scalable.” Alternatively, it can be described as a company that is just getting started, trying out
different models, and isn't well-established in its niche. However, because they are new and more
willing to take risks, they have the potential to cause significant disruption.
While an incumbent is “a permanent organization designed to execute a business model that is
repeatable and scalable”. Alternatively, one can say that incumbent companies are the businesses
that lead the market and have an established brand and audience. Incumbent companies are also
big enough to have thousands of employees and see billions in revenue each year.

Question 6. Types of E-Commerce Models?

Answer-

A company that follows this model will provide a digital marketplace where both buyers and sellers
of a given item can transact. This has provided both flexibility and convenience.

In exchange for any transaction, the buyer and seller in the business receive a fee or commission.
The commission is calculated as a percentage of the buyer's purchase price. Among various
subcategories of E-Commerce models, the major ones are –

1. Business to Business (B2B) - B2B e-commerce involves transactions between a

manufacturer and wholesaler, or a wholesaler and a retailer, through an online sales portal.
B2B e - commerce is one of the fastest-growing sales models.
2. Business to Customer (B2C) - B2C e-commerce, also called retail ecommerce, is a business
model that involves sales between online businesses and consumers.
3. Customer to Customer (C2C) - C2C e-commerce, is a business model that fosters commerce
between private individuals.
4. Customer to Business (C2B) - C2B is a type of e-commerce where a consumer or end user
offers something to an organization. C2B businesses focus on generating value from their
customer base by crowdsourcing ideas, soliciting feedback, and more.

Chapter-6
Question 1. Monopoly?

Answer-

Monopoly is a market condition where there is only one supplier or producer of a homogeneous
product for which there is no close substitute but has many buyers. Under the monopoly, a firm is a
price setter, i.e., it can fix any price, but here also, the pricing is done taking the elasticity of demand
for the product into consideration. That means though the seller/ producer can fix any price, but it
will go for the price where demand for the product and consequent profit will be maximum.

1.Monopolistic Competition

A monopolistically competitive market is one in which there are a large number of firms producing
similar but not identical products. Since there is a limit to the growth of competitors, the excess
profits earned by monopolistic situation attract new competition. This will have a long-run effect on
the excess profits, which will tend to diminish because of the price competition with close
substitutes. The company will, however, have to compare marginal cost and marginal revenue in
maximising its profits.
Under monopolistic conditions, consumers may buy more at a lower price than at a higher price. The
profit can be maximised by equating marginal revenue with marginal cost.

2.Oligopoly

A market structure where there are few firms producing or selling homogenous or identical
products. In this type of market structure, the firms are aware of the mutual interdependence of
investment, production process, advertising, and sales plan of their rival firms. Hence, any change in
any variable by a firm is likely to have an equal reaction on the part of other competing firms. It is
therefore clear that the oligopolistic firm, while determining the price for its product, should
consider not only the demand for the product but also the reactions of the other firms in the
industry to any action or decision it may take.

Question 2. Pricing?

Answer-

1.Pricing Theory

The basic approach in most of the micro-economic theory (theory of the individual firm and its
relation to other firms) defines the term optimum price as that price which yields the maximum
profits (excess of total revenues over total costs).

Thus, the basic assumption of the pricing theory is that the firm’s main objective is to maximise its
profits. It also assumes that the firm takes into consideration the position of demand and cost
functions and that the firm produces one product.

2.Profit Maximisation Model

Pricing model is a mathematical model which uses the economic theory of pricing.

(i) As per the economic theory of pricing, Profit is Maximum at a level of output where
Marginal Revenue (MR) is equal to Marginal Cost (MC), i.e.,

Marginal Revenue (MR) = Marginal Cost (MC)

This model determines the level of production up to which production can be continued.

(ii) The Basic Price equation, which is used to determine the Price where Profit is Maximum.
The equation is written as:

P = a – bQ

Where, P = Price

[
b = Slope of the Demand Curve, Calculated as b=Change in Price /Change in Quantity ]
Q = Quantity Demanded

a = Price at Which Demand is Zero

(iii) The Marginal Revenue equation is written as Marginal Revenue

(MR) = P = a – 2bQ
Question 3. KANO Performance Model?

Answer-

The Kano Model14 of product development and customer satisfaction is used for prioritizing the
most important features in a product roadmap. Developers can use research data to decide which
features will make the most positive impact on users, which are considered essential for basic
function, and which may help a product stand out in a crowded marketplace.

The model defines the following attributes of any product or services –

1.Threshold attributes (Must-be qualities) (M) - When these characteristics are met, they are taken
for granted, but when they are not met, they cause dissatisfaction. Customers expect these qualities
and regard them as basic; it is unlikely that they will mention them to the company when asked
about quality attributes.

To illustrate – Touch Screen.

2.Performance attributes (One-dimensional qualities) (O) - These are features that, as businesses
invest in them, result in a proportionate increase in customer satisfaction. Dr. Noriaki referred to this
type of feature as "one-dimensional" due to the direct, linear relationship between the amount of
money invested in it and the amount of customer satisfaction it provides. These also include
customers who know what they want and consider carefully when deciding whether to buy your
product or your competitor's.

To illustrate - battery life of smart phones.

3.Excitement or Delight attributes (Attractive qualities) (A) - These characteristics provide

satisfaction when they are met but do not cause dissatisfaction when they are not met. They are not
usually expected and thus frequently go unspoken. Hence the wow factor therefore yields high ROI.
To illustrate – seat upgrade in a flight/ train.

4.Indifferent qualities (I) - These aspects are neither good nor bad and have no effect, positive or
negative, on customer satisfaction.

To illustrate – look of emoticons in messaging apps, placement of logo on phone, size thereof.

5.Reverse qualities (R) - If these aspects exist, they lead to dissatisfaction; if they do not exist, they
do not lead to satisfaction.

To illustrate – Pop-up messages appear on phones whenever open apps for approval or have too
much complexity to operate.

6.Questionable attribute (Q) - An ambiguous feature whose presence is doubtful or questionable. It

behaves in a similar fashion to reverse quality.

Chapter-7
Question 1. Value Added & Non Value Added Activities?

Answer-
Value-Added Activities

The VA activities are those activities which are indispensable in order to complete the process. The
customers are usually willing to pay (in some way) for these services. For example, polishing
furniture by a manufacturer dealing in furniture is a value added activity.

Non-Value-Added Activities

The NVA activity represents work that is not valued by the external or internal customer. NVA
activities do not improve the quality or function of a product or service, but they can adversely affect
costs and prices. Non-Value-Added activities create waste, result in delays of some sort, add costs to
the products or services, and for which the customer is not willing to pay. Moving materials and
machine set up for a production run are examples of NVA activities.

In the manufacturing operation, five major activities are often cited as wasteful and unnecessary:

Question 2. Manufacturing Cycle Efficiency (MCE)?

Answer-
Manufacturing Cycle Efficiency (MCE) = The term “Efficiency” can be interpreted to mean
“manufacturing related Value Addition”. So, MCE is the ratio of value addition time to the total time
taken to manufacture a product.

Therefore, MCE= Processing Time/ Manufacturing Cycle Time

A Perfect MCE would yield a ratio equal to 1 i.e., all processing time would be value-added. While
such a result is not likely to occur, managers should always strive to raise the ratio in that direction.
Any non-value-added time results in an MCE of less than 1.

An MCE of 0.5, for example, would mean that half of the total production time consists of
inspection, moving, and similar non-value-added activities. In many manufacturing companies, the
MCE < 0.1 which means that 90% of the time a unit is in process is spent on activities that do not add
value to the product. MCE helps companies to reduce non-value-added activities and thus get
products into the hands of customers more quickly and at a lower cost.

Example

Consider a 50-minute doctor’s office visit. Suppose a patient spends 10 of those minutes on
administrative tasks such as filling out forms, 25 minutes waiting in the reception area and
examination room, and 15 minutes with a nurse or doctor. The service cycle efficiency for this visit
equals 15/50, or 0.30. In other words, only 30% of the 50 minutes added value to the patient/
customer. Minimizing their non-value-added service times has allowed doctors to treat more
patients in less time

Question 3. PARETO Analysis?

Answer-

Pareto’s 80:20 rule simply states that 80 percent of the results come from only 20 percent of effort
(vital few), while the remaining 20 percent of results are achieved by 80 percent of effort (trivial
many). Or alternatively, 20 percent of the sources cause 80 percent of the problems.

Pareto Analysis as Management Tool

The management can use Pareto Analysis in different circumstances to focus on key areas as a
control mechanism. Pareto Analysis is really useful in defining the top priorities because it essentially
uses the law of diminishing returns (pick the low-hanging fruit first).

Pareto Analysis ranks the causes in descending order of value index (effect), hence helping to
identify the pay-off. It’s obvious that the focus is on items at the top (vital few) of the list because
these have a higher probability of payoff.

Chapter-8
Question 1. Meaning of Matrix Organisation?

Answer-

- This is a type of departmentalization that superimposes a horizontal set of divisional reporting

relationships onto a hierarchical functional structure. Thus, the structure is both a function and a
divisional organization at the same time. Employees will have two bosses to report to: project
manager and the functional manager. However, decisions such as promotions, salary
recommendations, and annual reviews remain the functional manager’s responsibility. To be
effective, both the functional manager and the project manager must communicate regularly,
coordinate work demands on employees, and resolve conflicts together. If not, employees will be in
a position of dilemma where they will be confused and demotivated when the two bosses seem to
hate each other.

Matrix structural organisation can be divided into weak and strong matrix structures. A weak matrix
retains the management of the project in the hands of the functional managers instead of the
project team.

Question 2. Altman Z’s Score?

Answer-

Altman Z score is a customised version of the discriminant analysis technique of R. A. Fisher (1936),
meaning the Z score model is capable of considering multiple factors at a single point of time for
analysis; this feature makes Altman’s Z score a sophisticated model that combines key five ratios
into a single discriminate score called the Z score.

Z Score = 1.2X1 + 1.4X2 + 3.3X3 + 0.6X4 + 1.0X5

Wherein,

X1 = working capital/total assets

X2 = retained earnings/total assets

X3 = earnings before interest and tax/total assets

X4 = market value of equity/total liabilities

X5 = sales/total assets

Question 3. Argenti’s A Score?

Answer-

This model has three dimensions or groups – defects, mistakes, and symptoms of failure.

Interpretation of A Score

The maximum score allotted is 100 (43 from Group A, 45 from Group B, and 12 from Group C). For a
firm to be cleared as healthy, its overall score must be less than the maximum acceptable score of 25
(with 10 and 15 being the maximum acceptable scores in Group A (defects) and B (mistakes)
respectively). If a firm scores anything in Group C, this is immediately seen as an indicator that the
firm is at risk.

A firm that scores more than 25 overall, even if it scores below the individual thresholds in either
Group A (10) or Group B (15), would still be considered at risk.

Chapter-9
Question 1. Return on Investment (ROI)?

Answer-

“ROI expresses divisional profit as a percentage of the assets employed in the division. Assets
employed can be defined as total divisional assets, assets controllable by the divisional manager, or
net assets.”

The manager of division α would be unwilling to invest an additional ₹20 lacs because the return on
the proposed project is 10%, which would decrease the present ROI of 13%.

On the other hand, the manager of division β would wish to invest the ₹20 lacs because the return
on the proposed project of 7% is in excess of the present ROI of 5%, and it would increase the
division's ROI.

The managers of both divisions would make decisions that would not be in the best interests of the
company. The company should accept only those projects where the ROI > Cost of Capital (8%), but
the manager of division α would reject a possible return of 10%, and the manager of division β
would accept a possible return of 7%.

This is a situation of sub-optimisation. ROI can therefore lead to a lack of goal congruence.

Question 2. Residual Income (RI)?

Answer-

Residual income is the excess of controllable profit over a predetermined organisation-wide

minimum hurdle rate (cost of capital charge) on the investment controllable by the divisional
manager. So higher the residual income means better performance.”
Question 3. Dimensions of Triple Bottom Line (TBL)?

Answer-

To measure the performance of business decision in economic terms, we consider only one bottom
line, i.e., profit, but to consider the sustainability of business decision there are three bottom lines,
i.e., People, Planet and Profit (also known as dimensions of TBL).
 Chapter-10
Question 1. Value of Money Framework (VFM)?

Answer-

VFM framework can be used for measurement of performance in the not-for-profit sector because
Not-for-profit organisations are expected to provide the best possible value from available money
(usually limited). VFM framework ensures-

1. Effectiveness (spend wisely) (an output measure, the goal approach) → whether the
organisation has achieved its desired mission and objectives?

2. Efficiency (spend well) (a link between input and output factor, as a process approach) →
Whether the resources and funds available to the organisation have been efficiently utilised i.e.,
maximum output has been obtained with minimum input?

3. Economy (spend less) (as an input measure, the resource approach) → Whether the appropriate
quantity and quality of inputs are available at the lowest cost?

Note –

Now two more Es have been added, i.e., Equity (spend fairly) and Ethics (spend properly). It is worth
to note that five elements (to ensure the value for money framework works properly) need to be
taken care of: Input, Process, Output, Outcome, and Impact.

Chapter-11
Question 1. Types of Performance Report?

Answer-
 Chapter-13
Question 1. Planning & Operational Variance?

Answer-
Question 2. Interpretation of Variance?

Answer-