2nd Semester Strategic Management Examination (MBA 402) Duration 2 hours Total 40% weight on the final grading

/ Closed book

Instructions to candidates
You are allowed two hours to answer this question paper. You are allowed 10 minutes reading time before the examination begins during which you should read the question paper and, if you wish, highlight and/or make notes on the question paper. However, you will not be allowed, under any circumstances, to open the answer book and start writing or use your calculator during the reading time. You are strongly advised to carefully read ALL the question requirements before attempting the question concerned (that is all parts and/or subquestions). ALL answers must be written in the answer book. Answers or notes written on the question paper will not be submitted for marking. Section A 10 Compulsory Questions. (20 Marks) Section B 05 Compulsory Questions. (30 marks) Section C Contains 2 questions and you may select one.(50 marks) Write your candidate number, the paper number and examination subject title in the spaces provided on the front of the answer book. Please indicate the questions you have attempted on the front Right hand Corner of the Answer book

Strategic Management Examination (MBA 402) Duration 2 hours Closed book

Learning outcome
Evaluate and reflect on the influences driving demand within the business to consumer and business to business markets and the factors influencing the strength of their influence Gain insights into relationships of the characteristics of markets to business performance

Section A
(1) The Squirrel Approach of an organisation (a) Makes single big decision (b) Starts to analyse self and its territories (c) Decisions are riskier (d) Start with the entire world (2) Unique resources are the (a) Resources required to meet customers minimum requirements (b) Resources that underpin Competitive advantage and are difficult for competitors to imitate or obtain (c) Activities that underpin Competitive advantage and are difficult for competitors to imitate or obtain (d) Activities and processes Needed to meet customers minimum requirements (3) Inbound logistics is (a) A secondary activity that refers to price negotiation of incoming raw materials. (b) A secondary activity that refers to receipt, storage and inward distribution of raw materials. (c) A primary activity that refers to inbound enquiries and customer complaints. (d) A primary activity that refers to receipt, storage and inward distribution of raw materials.

(4) Arrange in the right sequence of Generic Stages - Strategic Drift (a) Strategic Drift, Incremental change, Flux, Transformational Change or Death (b) Strategic Drift, Flux, Incremental change, Transformational Change or Death (c) Incremental change, Strategic Drift, Flux, Transformational Change or Death (d) Incremental change, Flux, Transformational Change or Death, Strategic Drift (5) Core rigidity could be identified as (a) Organisations may not find it easy to detect new trends (b) Organisations may make them very difficult to change without major upheaval (c) Organisations may find it extremely difficult change suppliers or turn your back on employees. (d) Organisations goes in the wrong direction (6) Which is not a factor for Environmental motives for mergers and acquisitions (a) Speed of entry (b) Competitive situation (c) Cost efficiencies (d) Consolidation opportunities (7) Sticky prices (a) are prices that are constant over a period of time (b) are prices that changes over period of time (c) Are prices that do always adjust rapidly to maintain the equality between quantity supplied and quantity demanded. (d) Are prices that do not always adjust rapidly to maintain the equality between quantity supplied and quantity demanded. (8) The price elasticity of demand is a measure of: (a) How quickly a particular market reaches equilibrium. (b) The change in supply associated with lower prices. (c) The percent change in sales associated with the percent change in price. (d) The effect of an increase in the number of consumers in a particular market. (9) If each 5% increase in the price of gasoline reduces by 2% the quantity purchased, the price elasticity of demand for gasoline is: (a) - 0.4 (b) - 2.0 (c) - 2.5 (d) - 5.0 (10) Kaizen is not (a) Continuous improvement

(b) A Bottom up approach (c) Radical change (d) A programme Supports suggestion scheme

Section B
1. Critically evaluate the Hybrid Strategy. 2. Identify 3 types of strategic alliance and explain them in terms of Risk, Resource management and Type of market conditions are they viable to operate. 3. Compare and contrast Organic and inorganic Growth 4. Criticality Identify few strategic information and its sources that a FMCG company would require 5. Critically examine the main obstacles to change that a company pursuing a differentiation strategy faces if forced to pursue a cost leadership strategy?

Section C
1. Pharma Pharma(PP) is a research company operating in the Pharmaceutical Industry. It has been established for twelve years. The company employs 30 scientists working in three research teams. One of those teams has invented a formula Zi which supports the cure of Asthma significantly faster than any other medicine currently available commercially. The other teams are working in the areas of sports related illnesses and cancer. Currently, PP holds two patents, one of them will expire in 2012 and the other in 2014. There are no new patents have been filed since the 2004. The company is recently was bought over by three friends John, Jean and Jack (JJJ), who made $350m from the sale of their previous pharmaceutical distribution business. JJJ, wants to encourage their staff to be more commercially aware since they were more towards pure research and has decided that the company must now capitalize upon the innovative formula Zi JJJ recognizes that this will be a significant change for the company and that the change will require significant planning and management. Currently there is no performance measurement system in place within the company. With their previous experience, JJJ believes that the Balanced Scorecard might be the best performance measurement system for PP.

(a) Critically evaluate the components of the Balanced Scorecard model.

(10 marks)

(b) Recommend, with reasons, two measures that PP should use in each of the components of the
Balanced Scorecard model. (25 marks)

(c) Advice JJJ on the process of introducing and using BSC model
(15 marks) 2. SuperElectron(SE) supplies electrical components to the automobile industry by exporting from the home country in which it is currently based. The company has recently set up a research facility in the home country to develop eco friendly fuel cells. The concept of these new fuel cells has attracted a great deal of interest from the environmental lobby since it offers the prospect of very environmentally friendly vehicles. The market for these vehicles is in the development stage and there have been relatively few sales so far for this new technology. SE hopes that the current pressure from environmental groups and governments will lead to large volume sales. Presently, Electrical component manufacturers are under pressure to manufacture close to the locations of their customers. The Board is looking forward to open a research facility abroad, to work in partnership with the facility in the home country and capitalize on the benefits that a foreign base could offer. If this venture were successful, the organization would consider opening a manufacturing facility next to the proposed overseas R&D base. The board of directors recognizes that different countries will offer different potential advantages and disadvantages. It has been decided that the ideal characteristics and factors for the chosen country should be determined, so that potential choices can be screened effectively before a final decision is made.

Required (a) Critically examine and advise on the ideal characteristics and factors which should be
present in the chosen country to do what. (25 marks)

(b) Evaluate the nature and sources of information that the organization should use when
evaluating potential countries and put forward your own recommendations.. . (25 marks)

Answers
Section A 1B 2B 3D 4C 5B 6C 7D 8C 9A 10 C

Section B 1. Critically evaluate the Hybrid Strategy. Whats Hybrid?, Why in between, Why not in between? 2. Identify 3 types of strategic alliance and explain them in terms of Risk, Resource management and Type of market conditions they are viable to operate. Candidate Identifying any 3 strategies, EX: Licensing, Alliance, Franchising, JV etc 3. Compare and contrast Organic and inorganic Growth Why organic Growth, Why Not ?. Why Inorganic Growth, Why Not? 4. Identify few strategic information a FMCG company would require and their sources Long term view, Affects company Markets and Products and their sources 5. What are the main obstacles to change that a company pursuing a differentiation strategy faces if forced to pursue a cost leadership strategy? Differentiation Vs Cost Leadership, The mind set changes etc Section C 1 (a) The balanced scorecard combines financial and non-financial measures of performance and is claimed to be a technique for implementing the mission and objectives of the business strategy. There are four perspectives in the model: 1. The financial perspective. This should consist of measures that answer the question to be financially successful how should we appear to our shareholders? Typical measures would relate to improved returns, increased sales turnover, and increased asset utilization, return on capital employed, and generation of cash flow or economic value added. 2. The customer perspective. This should consist of measures that answer the question to achieve our vision, how should we appear to our customers? Typical measures would relate to customer profitability, capturing new markets, customer satisfaction, customer retention, new customer acquisition, customer response time and extending the product range. 3. The internal business process perspective. This should consist of measures that answer the question To satisfy our shareholders and customers, what business processes must we excel at? Typical measures would relate to product design, product development, post sales service, reduced stock levels, improved lead times and other measures of efficiency. 4. The learning and growth perspective. This should consist of measures that answer the question, to achieve our vision, how will we sustain our ability to change and improve? Typical measures would relate to the ability of staff, information systems and knowledge transfer, the development of new products, the modification of existing products, and ideas and suggestions from employees. Note: This answer is more detailed than might be expected but has been developed for study purposes. (b)

The measures that PP may choose to use for each of the perspectives are as follows: The financial perspective 1. NPV of R&D accomplishments/ R&D expenditure. This should give an indication of how successful the development process is. Although there will be a delay in using this metric it does look to the long term future of the organization. 2. Cash flow. Since PP a positive cash flow will be an indicator of success of the new strategic direction. 3. Time taken for new products to break even. This will measure the effectiveness of the development process for PP and also the effectiveness of the new marketing department in identifying opportunities for new products which have significant potential. 4. Return on capital employed. PP is a commercial organization and, ultimately, the investors will wish to see a return on his investment. The customer perspective 1. Market share. The market for processors is highly competitive but, if the processor is truly innovative, then it should capture market share from the firms currently in the market. 2. Net sales of products developed in the last 12 months compared to total sales. This would provide an ongoing measure of the continuing effectiveness of both the research and the development efforts of PP. 3. Feedback from customers. Since PP is a relatively new company, building customer relationships will be of significant importance. Therefore, measuring its reputation amongst its customers will be very important. The internal business process perspective 1. Time spent on development as a percentage of total time. As the intention of PP is to change the emphasis of the researchers to development rather than blue sky research this will be a useful control measure to determine the success of the initiative. 2. Number of patents filed. At present the researchers are publishing academic papers from their research but are not filing patents which would indicate the commercial viability of their work. This measure would be a good indication of the shift in emphasis. 3. Lead time for development from concept to market. PP is seeking to redirect its researchers to be better developers and, as such, will want to measure their efficiency in turning ideas into tangible products. The learning and growth perspective 1. $ spent per patentable discovery. This would provide a measure of the effectiveness of the development activity of the researchers in PP. 2. Number of design modifications or re-works. This will measure the efficiency of the development process which should improve as the researchers become more adept at commercializing their discoveries. 3. Number of joint authored academic research papers. PP does not want to discourage blue sky research only to shift the emphasis. Measuring the number of jointly authored research papers will indicate the relative importance of both blue sky research and collaborative work. (c) The system chosen should include a mixture of both financial and non-financial measures.

As PP changes the emphasis from exploratory research to commercial development there will be a greater need for quantitative measures of performance. These measures will also need to be more externally focused. The Introducing and development of a balanced scorecard includes four management processes: 1. Translating the vision. This stage helps managers build consensus of opinion about the organizations vision and strategy. For PP the vision and strategy have changed and this would present an opportunity to fine tune the concept of being more commercially focused. The implications of this, for all of the employees, would be investigated at this stage. Explaining the concept of the balanced scorecard would provide an opportunity to educate the scientists and engineers about the requirements of customers and other stakeholders including themselves. 2. Communicating and linking. This gives management an opportunity to tie in the objectives and strategies to departmental and individual objectives. Specific objectives could be created and agreed with the engineers relating to the four perspectives of the balanced scorecard. The objectives agreed with the researchers should form the basis of performance related pay should PP decide to introduce such a scheme. Additionally the marketing staff should be involved with the researchers so that some of the research should be market driven rather than purely concept driven. 3. Business planning. PP should develop the opportunity to implement a rigorous business and financial plan integrating this with the individual, and departmental, plans for the researchers. The new marketing staff should identify the potential customers for the new processor and scope the potential demand for this product. 4. Feedback and learning. The management of PP should use the balanced scorecard to encourage the dissemination of new knowledge across the research teams so that organizational learning takes place. They must encourage that learning to have a strategic direction which ties in with the overall vision of the founding entrepreneur. However, blue sky research should not be completely discouraged. DD may wish to allow researchers to spend a portion of their time, say 10%, on ideas and concepts of their own which are not directly related to the new product development which features in the business plans for their research groups.

Section C 2 Requirement (a) The ideal characteristics of potential countries can be explained by using Porters Diamond: Firm strategy, structure and rivalry. There would need to be established national firms in the country competing for a strong home market for technologically advanced products. There should be an established automobile market with a number of national manufacturers who will be likely to buy the fuel cells once they are successfully developed. Ideally, those manufacturers should be exporting to adjacent countries to increase the potential market for SEs products. An established capital market and long term planning horizons amongst the existing businesses are also important. Demand conditions. Since SE will be enjoying derived demand, the consumer market needs to be environmentally aware and sufficiently affluent to pay the

premiums that these types of car command. This degree of sophistication is important since a. Substantial demand will allow economies of scale and once the initial product development is completed, process development will become more important. b. Once process development becomes more important there will be a greater emphasis on the export market by the automobile manufacturers which will allow SE to enjoy even greater economies of scale. c. Supplying a strong and varied demand will facilitate the innovation process by the information gained from purchasers who are critical and discerning. Related and supporting industries. The country in which SE chooses to open its R&D base should, ideally, have a number of other technologically innovative manufacturers based there. If there are world class suppliers of technology and components there will be a cluster effect on education and skill profiles of the work force. This should make initial recruitment of staff easier. There will also be the prospect of better commercial relationships with suppliers, and an easier transfer of expertise between SE, automobile manufacturers, university research departments and suppliers. Factor conditions. These can be considered as a. Basic factor conditions which will include natural resources, raw materials, skilled and unskilled labour, and a pleasant environment. Since it is likely that SE will want to transfer some staff to the research facility from its home market the attractiveness of the country will be important. b. Advanced factor conditions are largely brought about by government decisions and policy. These would include infrastructure including an internet backbone, quality of university level education and research, high speed transport particularly connections with potential export markets and the reputation of the civil society. c. The role of government. The majority of the factors above are dependent upon the nature and quality of the government. Policy decisions on business support, tariffs and trade, education, welfare, taxation and monetary policy will all have an impact upon the factors above and the attractiveness of the country to inward investment. Political and economic stability will be an issue that G will wish to consider. Whilst the current government in a country may be doing all of the right things there is no guarantee that it will continue in power. The current government will need to be assessed as well as the strength, and views, of any credible political party opposition. Similarly there will be a need to consider the strength and views of any lobby groups and Non-Governmental Organizations (NGOs) in the country and internationally who may not favor foreign direct investment. Requirement (b) Sources of information Since SE will be looking for a developed country, the collection of information should be relatively easy. G will need to gather information on the following: Economic conditions and the latest indicators. Data concerning domestic demand, GDP, inflation and interest rates, exchange rates will all be available from government departments. The fact that the information is readily available would be a good indicator of the attractiveness of the country for inward investment. The information will also be available in reports from the World Trade Organization and the Organization for Economic Cooperation and Development (OECD).

 Industry reviews and status reports for industries with similar high technology content to the new cells that SE is developing together with reports on the automobile industry should be available from government departments and trade associations. Major consultancies such as McKinsey and Accenture will also have industry reviews available. The web sites of the national companies based in the target countries will often give an indication of the work they are doing and the degree of sophistication of their products. Sales and marketing information concerning the degree of sophistication of the consumer market and their propensity to buy environmentally friendly cars should be available from marketing agencies in the country. Infrastructure information such as road and air transport can be obtained from the government and from simple tourist guides for the area. The quality of the education system can be judged by SEs own scientists who will know the reputation of the universities and the researchers that work in them. The number of publications will be available on the universities own web sites and the number of patents filed can be established from the World International Property Association, an agency of the United Nations. The quality of the financial markets can be determined by talking to SEs own bank and stockbrokers. Information concerning legislation and regulation should be available from the potential host government and there will be an assessment of the attractiveness of the country available from WTO and OECD. Information concerning the tax regime should be available from the same sources and from the companys own accountants. The skill profile can be determined by reference to the International Labour Organization (ILO) a special agency of the United Nations. Political structure and stability can be established by talking to the government in SEs home country which will have an assessment based on the attractiveness of the country as an export target. SE should look at the economy of the region, as well as the attractiveness of the individual country, since it will be hoping that the automobile manufacturers in the host country will export to adjacent countries. All of these sources of information can be added to by use of a press cuttings service such as Lexis Nexis or Factiva and use of The Economist Intelligence Unit.