Question Bank - Chapter 6 Compiled by Neeraj Arora and TEAM

Chapter 6
Question Bank

This question bank is not for sale, this is compiled for the benefit of students and can also be used by the teachers.
All the questions are from ICAI Publications - Source ICAI Publications as uploaded on [Link]

6.1 Functional strategies

Q1. Rohit Bhargava is the Managing Director of Smooth and Simple Pvt Ltd. The company established in
2011, with 35 employees grew very fast to become an organisation with 335 employees in the year
2016. With the increase in size Rohit started facing difficulty in managing things. Many a times he
finds that personnel at the functional level are not in sync with the strategies of the top. He felt that
strategies need to be segregated into viable plans and policies that are compatible with each other
and communicated down the line.
Why does Rohit need to segregate the strategies into functional plans? Discuss.
(RTP, Nov 2018, NA) (MTP 2, May 2019, 5 Marks) (Study Material)

Rohit Bhargava needs to break higher level strategies into functional strategies for implementation.
These functional strategies, in form of Marketing, Finance, Human Resource, Production, Research
and Development help in achieving the organisational objective. The reasons why functional
strategies are needed can be enumerated as follows:
● Functional strategies lay down clearly what is to be done at the functional level. They provide a
sense of direction to the functional staff.
● They are aimed at facilitating the implementation of corporate strategies and the business
strategies formulation at the business level.
● They act as basis for controlling activities in the different functional areas of business.
● They help in bringing harmony and coordination as they are formulated to achieve major
strategies.
● Similar situations occurring in different functional areas are handled in a consistent manner
by the functional managers.

Q2. Marketing Strategy is the following type of strategy:

(a) Business Strategy.
(b) Functional Strategy.
(c) Growth Strategy.
(d) Product Strategy.
(RTP, May 2019, NA)

Correct answer: (b) Functional Strategy

Q3. ABC Ltd is a company that has grown eleven times its size in last five years. With the increase in size
the company is facing difficulty in managing things. Many a times functional level is not in sync with
the corporate level. What will you like to advise to the company and why?
(RTP, May 2019, NA) (RTP, May 2020, NA) (RTP, May 2021, NA) (Study Material)

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The higher-level corporate strategies need to be segregated into viable plans and policies that are
compatible with each other and communicated down the line. The higher-level strategies need to be
broken into functional strategies for implementation. These functional strategies, in form of
marketing, finance, human resource, production, research and development help in achieving the
organisational objective. The reasons why functional strategies are needed can be enumerated as
follows:
● Functional strategies lay down clearly what is to be done at the functional level. They provide a
sense of direction to the functional staff.
● They are aimed at facilitating the implementation of corporate strategies and the business
strategies formulation at the business level.
● They act as basis for controlling activities in the different functional areas of business.
● They help in bringing harmony and coordination as they are formulated to achieve major
strategies.
● Similar situations occurring in different functional areas are handled in a consistent manner
by the functional managers.

Q4. A Ltd. has recently decided to install a new IT system to improve the efficiency of its payroll function. A
ltd. believes this will reduce the cost of running the payroll system by 20%. Which one of the following
levels of strategy is the above IT system most closely linked to?
(a) Corporate level
(b) Functional level
(c) Business level
(d) Strategic level
(RTP, Nov 2021, NA)

Correct answer: (b) Functional level

Q5. Functional level managers are concerned with_________

(a) Strategies that are responsible for the operations of specific business
(b) Strategies that span multiple businesses
(c) Strategies that are specific to particular country
(d) Strategies that encourage a favourable attitude toward change

Correct answer: (a) Strategies that are responsible for the operations of specific business

Q6. What is meant by Functional strategies? In term of level, where will you put them? Are functional
strategies really important for business?
(Study Material)

Once higher level corporate and business strategies are developed, management has to formulate
and implement strategies for each functional area. For effective implementation, strategists have to
provide direction to functional managers regarding the plans and policies to be adopted. In fact, the
effectiveness of strategic management depends critically on the manner in which strategies are
implemented. Strategy of one functional area cannot be looked at in isolation, because it is the extent
to which all the functional tasks are interwoven that determines the effectiveness of the major
strategy.
Functional area strategy such as marketing, financial, production and human resource are based on
the functional capabilities of an organisation. For each functional area, first the major sub areas are

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identified and then for each of these sub functional areas, contents of functional strategies, important
factors, and their importance in the process of strategy implementation is identified.
In terms of the level of strategy formulation, functional strategies operate below the SBU or business-
level strategies. Within functional strategies, there might be several sub-functional areas. Functional
strategies are made within the higher level strategies and guidelines therein that are set at higher
levels of an organisation. Functional managers need guidance from the business strategy in order to
make decisions. Operational plans tell the functional managers what has to be done while policies
state how the plans are to be implemented.
Major strategies must be translated to lower levels to give holistic strategic direction to an
organisation. Functional strategies provide details to business strategy and govern as to how key
activities of the business will be managed. Functional strategies play two important roles. Firstly, they
provide support to the overall business strategy. Secondly, they spell out as to how functional
managers will work so as to ensure better performance in their respective functional areas. The
reasons why functional strategies are really important and needed for business can be enumerated as
follows:
● The development of functional strategies is aimed at making the strategies - formulated at
the top management level practically feasible at the functional level.
● Functional strategies facilitate flow of strategic decisions to the different parts of an
organisation.
● They act as basis for controlling activities in the different functional areas of business.
● The time spent by functional managers in decision making is reduced as plans lay down
clearly what is to be done and policies provide the discretionary framework within which
decisions need to be taken.
● Functional strategies help in bringing harmony and coordination as they remain part of major
strategies.
● Similar situations occurring in different functional areas are handled in a consistent manner
by the functional managers.

6.2 Marketing Strategy

Q1. A campaign advocating the message of ‘SAVE WATER’ is:

a) Services Marketing
b) Holistic marketing
c) Social Marketing
d) Direct Marketing
(Sample MCQs) (MTP 1, Nov 2019, 1 Mark)

Correct answer: (c) Social Marketing

Q2. Correct/ Incorrect.

Publicity is personal form of promotion.
(RTP, May 2018, NA)

The statement is Incorrect.

Publicity is a non-personal form of promotion similar to advertising. However, no payments are made
to the media as in case of advertising. Organizations skilfully seek to promote themselves and their

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products without payment. Publicity is communication of a product, brand or business by placing

information about it in the media without paying for the time or media space directly.

Q3. Ronit Roy has started a new business of manufacturing washing powder. Make a plan for him to
promote his product.
(RTP, May 2018, NA) (Study Material)

Promotion stands for activities that communicate the merits of the product and persuade target
consumers to buy it. Strategies are needed to combine individual methods such as advertising,
personal selling, and sales promotion into a coordinated campaign. Modern marketing is highly
promotional oriented.
Ronit needs to cover four major direct promotional methods or tools – personal selling, advertising,
publicity and sales promotion. They are briefly explained as follows:
(i) Personal selling: Personal Selling involves face-to-face interaction of sales force with the
prospective customers and provides a high degree of personal attention to them. In personal selling,
oral communication is made with potential buyers of a product with the intention of making a sale.
Ronit may engage a sales team to reach potential customers, explain the benefits of the product and
make a sale.
While personal selling is highly effective it suffers from very high costs as sales personnel are
expensive. Considering the product is a new launch in a competitive environment having a sales
team would be essential.
(ii) Advertising: Advertising is a non-personal, highly flexible and dynamic promotional method.
Ronit needs to advertise washing powder through hoardings, display boards particularly near the
point of sale. He may also consider having advertisements through handouts, newspapers,
magazines and internet. Television and radio are costly alternatives that may be considered according
to his budget.
(iii) Publicity: Publicity is also a non-personal form of promotion similar to advertising. He may
organize a launch party where journalists are invited. It is way of reaching customers with negligible
cost. Basic tools for publicity are press releases, press conferences, reports, stories, and internet
releases. These releases must be of interest to the public.
(iv) Sales promotion: Sales promotion is an omnibus term that includes all activities that are
undertaken to promote the business but are not specifically included under personal selling,
advertising or publicity. Ronit may offer free trial packs to generate interest in the product. Activities
like discounts, contests, money refunds, instalments, kiosks, exhibitions and fairs constitute sales
promotion. All these are meant to give a boost to the sales. Sales promotion done periodically may
help in getting a larger market share.

Q4. Correct/ Incorrect.

Marketing function has no relation with production function.
(MTP 2, May 2018, 2 Marks) (SA, May 2018, 2 Marks)

The statement is incorrect.

Marketing function and production function complement each other. They need to work in tandem
to produce goods as per the needs and preferences of the customers. Marketing links the production
with the customers.

Q5. Define the term 'Marketing'. Distinguish between social marketing and service marketing.
(SA, May 2018, 5 Marks)

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In general, marketing is an activity performed by business organizations. In the present day for
business, it is considered to be the activities related to identifying the needs of customers and taking
such actions to satisfy them in return of some consideration. The term marketing constitutes different
processes, functions, exchanges and activities that create perceived value by satisfying needs of
individuals.
Social marketing and service marketing are marketing strategies primarily with different orientations.
Social Marketing refers to the design, implementation, and control of programs seeking to increase
the acceptability of a social ideas, cause, or practice among a target group. For instance, the publicity
campaign for prohibition of smoking or encouraging girl child, etc.
On the other hand, service marketing is applying the concepts, tools, and techniques, of marketing to
services. Service is any activity or benefit that one party can offer to another that is essentially
intangible and non-perishing. These may be from business to consumer and from business to
business.

Q6. Correct/ Incorrect.

Tele-shopping is an instance of direct marketing.
(RTP, Nov 2018, NA)

The statement is correct.

Direct marketing is done through various advertising media that interact directly with customer.
Teleshopping is a form of direct marketing which operates without conventional intermediaries and
employs television and other IT devices for reaching the customer. The communication between the
marketer and the customer is direct through third party interfaces such as telecom or postal systems.

Q7. What are the objectives that must be kept in mind while designing a pricing strategy of a new
product?
(RTP, Nov 2018, NA) (MTP 1, Nov 2021, 5 Marks)

For a new product pricing strategies for entering a market needs to be designed. In pricing a really
new product at least three objectives must be kept in mind.
i. Making the product acceptable to the customers.
ii. Producing a reasonable margin over cost.
iii. Achieving a market that helps in developing market share.
For a new product an organization may either choose to skim or penetrate the market. In skimming
prices are set at a very high level. The product is directed to those buyers who are relatively price
insensitive but sensitive to the novelty of the new product. For example call rates of mobile telephony
were set very high initially. Even the incoming calls were charged. Since the initial off take of the
product is low, high price, in a way, helps in rationing of supply in favour of those who can afford it.
In penetration pricing firm keeps a temptingly low price for a new product which itself is selling point.
A very large number of the potential customers may be able to afford and willing to try the product.

Q8. Correct/ Incorrect.

Marketers alone can deliver superior value to customers.
(MTP 2, Nov 2018, 2 Marks)

The statement is incorrect.

A marketer alone cannot deliver superior value to the customers. It needs to work in coordination
with other departments to accomplish this. It is important to be part of organization chain and
marketer needs to work in coordination with other departments in the search for competitive

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advantages. Organisations need to look at the value chain network along with its own chain of
activities and the chain of suppliers, distributors and ultimately customers.

Q9. Define Augmented Marketing. Give two examples.

(SA, Nov 2018, 2 Marks)

Augmented Marketing is provision of additional customer services and benefits built around the core
and actual products that relate to introduction of hi-tech services like movies on demand, online
computer repair services, etc. Such innovative offerings provide a set of benefits that promise to
elevate customer service to unprecedented levels.

Q10. Explain the marketing mix in the context of modern marketing.

(SA, Nov 2018, 5 Marks)

Marketing mix is a set of controllable marketing variables that the firm blends to produce the
response that it wants in the target market. Marketing mix consists of everything that the firm can do
to influence the demand for its product. The original framework of marketing mix comprises of
product, price, place and promotion.
Modern marketing is highly promotional oriented and include personal selling, advertising, publicity
and sales promotion.
Personal selling – involves face to face interaction of sales persons with the prospective customers
and provides a high degree of personal attention. It involves working with one customer at a time and
hence not cost effective. The intention of oral communication is sale.
Advertising – is a non-personal, flexible and dynamic promotion method. The media for advertising
are several and choice of an appropriate one is important for effectiveness of message. Sale of the
product and the amount of expenditure cannot be directly measured.
Publicity – is also non-personal but no payments are made to the media. Publicity is communication
of a product, brand or business by placing information about it in the media without paying for the
time or media space directly. It could be through press releases, press conferences, reports, etc.
Sales promotion – includes all activities that are undertaken to promote the business but are not
specifically included under personal selling, advertising or publicity. Activities like discounts, contests,
money refunds, exhibitions etc. are included.

Q11. Decisions with regards to marketing mix are related to:

a. Growth Strategy
b. Business level strategy
c. Functional strategy
d. Corporate decisions
(MTP 1, May 2019, 1 Mark)

Correct answer: (c) Functional strategy

Q12. For a new product, an organization may choose:

(a) Skimming pricing strategy
(b) Penetration pricing strategy
(c) Both (a) and (b)
(d) None of these
(MTP 1, Nov 2019, 1 Mark)

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Correct answer: (c) Both (a) and (b)

Q13. The marketing strategy which is used to reduce or shift the demand is:
(a) Enlightened Marketing
(b) Synchro-Marketing
(c) Place Marketing
(d) Demarketing
(RTP, May 2020, NA)

Correct answer: (d) Demarketing

Q14. Mr. Vicky Verma, a Gwalior based entrepreneur, has entered into an exclusive-retail deal with an
Italian company selling ‘Fantasy-3D’, a Hologram LED Fan, which is being used for advertising at
public places. Mr. Verma procured a total of 500 units of the product and paid upfront as per the
seller’s policy. This resulted in blocking of his working capital significantly and the shipment is
expected in a month. Meanwhile his continued efforts of establishing relations with the marketing
heads of corporates resulted in a series of meetings, where he demonstrated his specialist product
knowledge by changing the hologram images to personalise basis specifications of the customer. The
management of a big automative company was impressed with the quality and adaptability of the
product, and awarded a contract of 125 units to be displayed in the auto-maker’s showrooms. Identify
and explain the product promotion strategy adopted by Mr. Verma.
(RTP, Nov 2020, NA)

Mr. Vicky Verma established personal contacts with potential buyers of the product and persuaded
the marketing department over several physical meetings, and was finally able to make sales. The
personal relation establishment and physical demonstration, indicates that Mr. Verma used the
Personal Selling method of Promotion. Modern marketing is highly promotional oriented and include
personal selling, advertising, publicity and sales promotion. Personal selling involves face to face
interaction of sales persons with the prospective customers and provides a high degree of personal
attention. It involves working with one customer at a time and hence not cost effective. The intention
of oral communication is sale.

Q15. Elucidate Expanded Marketing Mix

(SA, Jan 2021, 5 Marks)

Typically, all organizations use a combination of 4 Ps in some form or the other that is product, price,
place, and promotion. However, the above elements of marketing mix are not exhaustive. There are a
few more elements that may form part of an organizational marketing mix strategy as follows:
1. People: all human actors who play a part in delivery of the market offering and thus influence the
buyer’s perception, namely the firm’s personnel and the customer.
2. Physical evidence: the environment in which the market offering is delivered and where the firm
and customer interact.
3. Process: the actual procedures, mechanisms and flow of activities by which the product/ service is
delivered.

Q16. Write short note on Publicity and Sales Promotion.

(RTP, May 2021, NA) (RTP, Nov 2021, NA)

Or

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Distinguish between the following: Publicity & Sales Promotion.

(MTP 1, May 2022, 5 Marks)

Publicity and Sales promotion are adopted by organizations when they are undertaking promotion in
the overall marketing mix.
Publicity is a non-personal form of promotion similar to advertising. However, no payments are made
to the media as in case of advertising. Organizations skillfully seek to promote themselves and their
product without payment. Publicity is communication of a product, brand or business by placing
information about it in the media without paying for the time or media space directly.
Thus, it is way of reaching customers with negligible cost. Basic tools for publicity are press releases,
press conferences, reports, stories, and internet releases. These releases must be of interest to the
public.
Sales promotion is an omnibus term that includes all activities that are undertaken to promote the
business but are not specifically included under personal selling, advertising or publicity. Activities
like discounts, contests, money refunds, installments, kiosks, exhibitions and fairs constitute sales
promotion. All these are meant to give a boost to the sales. Sales promotion done periodically may
help in getting a larger market share to an organization.

Q17. A famous restaurant enjoys full occupancy during the lunch and dinner time for last few months. In
fact, many customers go back as they have to wait for their turn. Between 15:00 hours to 18:00 hours,
the occupancy rate is near to nil. To raise the footfalls of customers during this lean time, the owner
offers a discount of 20% on total bill if a customer comes in these 3 hours. Whic type of marketing
strategy does the restaurant follow to attract the customers in the lean period?
(a) Differential Marketing
(b)Synchro-marketing
(c) Place Marketing
(d) Concentrated Marketing
(MTP 2, May 2021, 2 Marks)

Correct answer: (b) Synchro-marketing

Q18. "Business organizations face countless marketing challenges that affect the success or failure of
strategy implementation". In light of this statement, discuss some marketing decisions that require
special attention.
(SA, Nov 2021, 5 Marks)

A business organization faces countless marketing challenges that affect the success or failure of
strategy implementation. Some examples of marketing decisions that may require special attention
are as follows:
1. The amount and the extent of advertising to be done. Whether to use heavy or light advertising.
What should be the amount of advertising in print media, television or internet?
2. Decisions regarding distribution network to be used. Whether to use exclusive dealerships or
multiple channels of distribution.
3. Whether to be a price leader or a price follower?
4. Whether to offer a complete or limited warranty?
5. Whether to limit or enhance the share of business done with a single or a few customers?
6. Whether to reward sales people based on straight salary, straight commission, or on a combination
of salary and commission?

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Q19. Airlines providing special lounge access to loyal customers is a type of which marketing?
(a) Augmented Marketing
(b) Direct Marketing
(c) Relationship Marketing
(d) Services Marketing
(RTP, May 2022, NA)

Correct answer: (c) Relationship Marketing

Q20. What do you understand by the term marketing mix? Briefly explain its various components.
(Study Material)

Marketing mix is a systematic way of classifying the key decision areas of marketing management. It
is the set of controllable marketing variables that the firm blends to produce the response that it
wants in the target market. The original framework of marketing mix comprises of 4 P’s - product,
price, place and promotion. These are subsequently expanded to highlight certain other key decision
areas especially in case of services like people, processes, and physical evidence. The elements of
original framework are:
● Product: It stands for the “goods-and-service” combination the company offers to the target
market.
● Price: It stands for the amount of money customers have to pay to obtain the product.
● Place: It stands for company activities that make the product available to target consumers
and includes marketing channel, distribution policies and geographical availabilty.
● Promotion: It stands for activities that communicate the merits of the product and persuade
target consumers to buy it.
Expanded marketing mix: Typically, all organizations use a combination of 4 Ps in some form or the
other that is product, price, place, and promotion. However, the above elements of marketing mix are
not exhaustive. There are a few more elements that may form part of an organizational marketing
mix strategy as follows:
People: all human actors who play a part in delivery of the market offering and thus influence the
buyer’s perception, namely the firm’s personnel and the customer.
Physical evidence: the environment in which the market offering is delivered and where the firm
and customer interact.
Process: the actual procedures, mechanisms and flow of activities by which the product/ service is
delivered.

Q21. What do you understand by promotion? What are various promotion tools adopted by organization?
(Study Material)

Promotion stands for activities that communicate the merits of the product and persuade target
consumers to buy it. Strategies are needed to combine individual methods such as advertising,
personal selling, and sales promotion into a coordinated campaign. In addition, promotional
strategies must be adjusted as a product move from an earlier stage to a later stage of its life.
Modern marketing is highly promotional oriented. Organisations strive to push their sales and market
standing on a sustained basis and in a profitable manner under conditions of complex direct and
indirect competitive situations.
Promotion is communication, persuasion and conditioning process. There are at least four major
direct promotional methods or tools briefly explained as follows:

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(i) Personal selling: Personal Selling is one of the oldest forms of promotion. It involves face-to-face
interaction of sales force with the prospective customers and provides a high degree of personal
attention to them. In personal selling, oral communication is made with potential buyers of a product
with the intention of making a sale. Personal selling suffers from very high costs as sales personnel
attend one customer at a time.
(ii) Advertising: Advertising is a non-personal, highly flexible and dynamic promotional method. The
media for advertisings are several such as pamphlets, brochures, newspapers, magazines, hoardings,
display boards, radio, television and internet. Choice of appropriate media is important for
effectiveness of the message. The media may be local, regional, or national. The type of the message,
copy, and illustration are a matter of choice and creativity. Advertising may be directed towards
consumers, middlemen or opinion leaders. Advertising is likely to succeed in promoting the sales of
an organisation but its effectiveness in respect to the expenditure cannot be directly measured. Sales
is a function of several variables out of which advertising is only one.
(iii) Publicity: Publicity is also a non-personal form of promotion similar to advertising. However, No
payments are made to the media as in case of advertising. Organisations skillfully seeks to promote
themselves and their product with negligible cost. Publicity is a communication of a product, brand
or business by placing information about it in the media. Basic tools for publicity are press releases,
press conferences, reports, stories, and internet releases. These releases must be of interest to the
public.
(iv) Sales promotion: Sales promotion includes all activities that are undertaken to promote the
business but are not specifically included under personal selling, advertising or publicity. Activities
like discounts, contests, money refunds, instalments, kiosks, exhibitions and fairs constitute sales
promotion. All these are meant to give a boost to the sales.

6.3 Financial Strategy

Q1. Financial objectives involve all of the following except:

a. Growth in revenues
b. Larger market share
c. Higher dividends
d. Greater return on investment
(Sample MCQs) (MTP 1, May 2019, 1 Mark)

Correct answer: (b) Larger market share

Q2. “Evaluating the worth of a business is central to strategy implementation.” In the light of this
statement, explain the methods that can be used for determining the worth of a business.
(MTP 1, May 2018, 5 Marks) (Study Material)

Or

Discuss the various approaches for evaluating the worth of a business.

(SA, Nov 2019, 5 Marks)

It is true that evaluating the worth of a business is central to strategy implementation. There are
circumstances where it is important to evaluate the actual worth of the business. These

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circumstances can be wide and varied. At a higher level they may include acquisition, merges or
diversification. They may also include other situations such as fixing of share price in an issue.
Acquisition, merger, retrenchment may require establishing the financial worth or cash value of a
business to successfully implement such strategies.
Various methods for determining a business’s worth can be grouped into three main approaches.
(i) Net worth or stockholders’ equity: Net worth is the total assets minus total outside liabilities of an
organisation.
(ii) Future benefits to owners through net profits: These benefits are considered to be much
greater than the amount of profits. A conservative rule of thumb is to establish a business’s worth as
five times the firm’s current annual profit. A five-year average profit level could also be used.
(iii) Market-determined business worth: This, in turn, involves three methods. First, the firm’s worth
may be based on the selling price of a similar company. The second approach is called the
price-earnings ratio method whereby the market price of the firm’s equity shares is divided by the
annual earnings per share and multiplied by the firm’s average net income for the preceding years.
The third approach can be called the outstanding shares method whereby one has to simply multiply
the number of shares outstanding by the market price per share and add a premium.

Q3. A web company initially started as an online marketplace for books. From “biggest E - Bookstore,” its
owners wants to expand into an e commerce platform selling electronic goods. Implementation of
this needs additional funds.
What are the different sources of raising funds and their impact on the financial strategy which you as
a financial manager will consider?
(RTP, Nov 2019, NA) (Study Material)

Or

Successful implementation of any project needs additional funds. What are the different sources of
raising funds and their impact on the financial strategy which you as a financial manager will
consider?
(Study Material)

Successful strategy implementation often requires additional capital. Besides net profit from
operations and the sale of assets, two basic sources of capital for an organization are debt and equity.
Being a financial manager to determine an appropriate mix of debt and equity in a firm’s capital
structure can be vital to successful strategy implementation. Fixed debt obligations generally must
be met, regardless of circumstances. This does not mean that stock issuances are always better than
debt for raising capital. If ordinary stock is issued to finance strategy implementation; ownership and
control of the enterprise are diluted. This can be a serious concern in today’s business environment of
hostile takeovers, mergers, and acquisitions.
The major factors regarding which strategies have to be made by a financial manager are: capital
structure; procurement of capital and working capital borrowings; reserves and surplus as sources of
funds; and relationship with lenders, banks and financial institutions. Strategies related to the sources
of funds are important since they determine how financial resources will be made available for the
implementation of strategies. Organizations have a range of alternatives regarding the sources of
funds. While one company may rely on external borrowings, another may follow a policy of internal
financing.

Q4. What do you mean by financial strategy of an organization? How the worth of a business is
evaluated?
(RTP, May 2020, NA) (Study Material)

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The financial strategies of an organization are related to several finance/ accounting concepts
considered to be central to strategy implementation. These are: acquiring needed capital/sources of
fund, developing projected financial statements/budgets, management/usage of funds, and
evaluating the worth of a business.
Various methods for determining a business’s worth can be grouped into three main approaches
which are as follows:
(i) Net worth or stockholders’ equity: Net worth is the total assets minus total outside liabilities of an
organisation.
(ii) Future benefits to owners through net profits: These benefits are considered to be much
greater than the amount of profits. A conservative rule of thumb is to establish a business’s worth as
five times the firm’s current annual profit. A five-year average profit level could also be used.
(iii) Market-determined business worth: This, in turn, involves three methods. First, the firm’s worth
may be based on the selling price of a similar company. The second approach is called the
price-earnings ratio method whereby the market price of the firm’s equity shares is divided by the
annual earnings per share and multiplied by the firm’s average net income for the preceding years.
The third approach can be called the outstanding shares method whereby one has to simply multiply
the number of shares outstanding by the market price per share and add a premium.

Q5. You are a manager of a firm, and you have to raise funds for a business project. From which sources
can you raise the funds for your company?
(RTP, May 2022, NA)

Strategies related to the source of fund are important since they determine how financial resources
will be available for the implementation of the financial strategies. Companies may rely on internal
and external sources of financing for their short term and long term requirement of their funds. The
funds may be raised from national and international money and capital markets.
Following are some important sources for raising funds:
i. Net profit from the operations: Using retained earnings to reinvest in the business, either in new
projects or to scale up existing operations.
ii. Sale of assets: The purpose of an asset sale is generally to increase cash flow, reduce bad debt risk
and liquidation of assets.
iii. Debt: Debt is an amount of money borrowed by one party from another. It is used by many
corporations as a method of making large purchases that they could not afford under normal
circumstances. It could be applied to boost organizations return on investment. During low earning
periods, too much debt in the capital structure of an organisation can endanger stockholder’s return
and jeopardize company survival. Debt can be in the form of debentures, bonds, loans from financial
institutions and deposits from public/fixed deposits.
iv. Issuance of share capital to the public: Equity can be of two type - ordinary Shares and
preference shares.

6.4 Production/Operations Strategy

Q1. Write short note on Production system

(RTP, May 2018, NA)

Production System is concerned with the capacity, location, layout, product or service design, work
systems, degree of automation, extent of vertical integration, and such factors. Strategies related to

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production system are significant as they deal with vital issues affecting the capability of the
organisation to achieve its objectives.
Strategy implementation would have to take into account the production system factors as they
involve decisions which are long-term in nature and influence not only the operations capability of an
organisation but also its ability to implement strategies and achieve objectives.

6.5 Logistics Management

Q1. ‘‘Inbound and Outbound logistics” are related to:

a) Supply Chain Management
b) Logistics Management
c) Value Chain Analysis
d) All of the above
(Sample MCQs)

Correct answer: (d) All of the above

Q2. Define logistics strategy.

(RTP, May 2018, NA) (RTP, Nov 2018, NA)

Logistics is a process that integrates the flow of supplies into, through and out of an organization to
achieve a level of service that facilitate movement and availability of materials in a proper manner.
When a company creates a logistics strategy, it is defining the service levels at which its logistics is
smooth and is cost effective.

Q3. Distinguish between the following:

Inbound logistics and outbound logistics
(RTP, May 2018, NA)

Inbound logistics are the activities concerned with receiving, storing and distributing the inputs to
the product/service. It includes all activities such as materials handling, stock control, transport, etc.
Outbound logistics relate to collection, storage and distribution of the product to customers. It
includes all activities such as storage/warehousing of finished goods, order processing, scheduling
deliveries, operation of delivery vehicles, etc.

Q4. Distinguish between logistic management and supply chain management.

(MTP 2, May 2018, 5 Marks) (RTP, Nov 2018, NA) (MTP 2, Nov 2018, 5 Marks) (MTP 1, May 2019, 5
Marks) (MTP 2, Nov 2021, 5 Marks)

Supply chain management is an extension of logistic management. However, there are differences
between the two. Logistical activities typically include management of inbound and outbound goods,
transportation, warehousing, handling of material, fulfillment of orders, inventory management and
supply/demand planning. Although these activities also form part of supply chain management, the
latter is much broader. Logistic management can be termed as one of its part that is related to
planning, implementing, and controlling the movement and storage of goods, services and related
information between the point of origin and the point of consumption.

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Supply chain management is an integrating function of all the major business activities and business
processes within and across organisations. Supply Chain Management is a systems view of the
linkages in the chain consisting of different channel partners – suppliers, intermediaries, third-party
service providers and customers. Different elements in the chain work together in a collaborative and
coordinated manner. Often it is used as a tool of business transformation and involves delivering the
right product at the right time to the right place and at the right price.

Q5. What steps are to be considered for implementing the supply chain management in a business
organization? Explain.
(SA, Nov 2018, 5 Marks)

Or

Discuss the major steps in implementing supply chain management system in a business
organization.
(Study Material)

Or

Implementing supply chain management in a business organization has several steps. Discuss.
(RTP, Nov 2019, NA)

Successful implementing supply management systems requires a change from managing individual
functions to integrating activities into key supply chain processes. It involves collaborative work
between buyers and suppliers, joint product development, common systems and shared information.
A key requirement for successfully implementing supply chain will be network of information sharing
and management. Implementing and successfully running supply chain management system will
involve:
(i) Product development – Customers and suppliers must work together in the product
development process. Products are developed and launched in shorter time and help organisations
to remain competitive.
(ii) Procurement – requires careful resource planning, quality issues, identifying sources, negotiation,
order placement, inbound transportation and storage. Organisations coordinate with suppliers in
scheduling without interruption.
(iii) Manufacturing – Flexible manufacturing process is required to respond to market changes like
accommodate customisation and changes in tastes and preferences. Manufacturing is done on the
basis of just in time and minimum lot sizes.
(iv) Physical Distribution – Delivery of final product to customers is the last position in a marketing
channel. To ensure right place at right time is important for each channel participant. So supply chain
management links a marketing channel with customers.
(v) Outsourcing – is not limited to the procurement of materials and components but also includes
outsourcing of services that traditionally have been provided within an organisation. The company
will focus on the core competency areas alone and outsource rest.
(vi) Customer Service – Organisations work with customers to determine mutually satisfying goals,
establish and maintain relationships. This produces positive feelings in the organisation and among
customers.
(vii) Performance Measurement – Supplier capabilities and customer relationships can be corrected
with a firm’s performance. Performance is measured in different parameters such as costs, customer
services, productivity and quality.

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Q6. The purpose of logistics management is

a. Provide customer satisfaction
b. Create automation
c. Procure better quality raw material
d. Manage inward and outward movement of goods
(MTP 2, May 2019, 1 Mark)

Correct answer: (d) Manage inward and outward movement of goods

Q7. Supply chain refers to the linkages between:

(a) Suppliers
(b) Customers
(c) Manufacturers
(d) All the above
(RTP, May 2020, NA) (MTP 1, Nov 2020, 1 Mark)

Correct answer: (d) All the above

Q8. What are the issues to· be resolved by a business enterprise to have an effective logistic strategy?
(SA, May 2021, 5 Marks)

Management of logistics is a process which integrates the flow of supplies into, through and out of an
organisation to achieve a level of service which ensures that the right materials are available at the
right place, at the right time, of the right quality and at the right cost.
For a business enterprise, effective logistic strategy will involve raising and finding
solutions to the following questions:
● Which sources of raw materials and components are available?
● How many manufacturing locations are there?
● What products are being made at each manufacturing location?
● What modes of transportation should be used for various products?
● What is the nature of distribution facilities?
● What is the nature of materials handling equipment possessed? Is it ideal?
● What is the method for deploying inventory in the logistics network?
● Should the business firm own the transport vehicles or hire?

Q9. What is supply chain management? Is it same as logistics management? Discuss.

(Study Material)

Meaning of supply chain management: The term supply chain refers to the linkages between
suppliers, manufacturers and customers. Supply chain involve all activities like sourcing and
procurement of material, conversion, and logistics. Planning and control of supply chains are
important components of its management. Naturally, management of supply chains include closely
working with channel partners - suppliers, intermediaries, other service providers and customers.
Supply chain management is defined as the process of planning, implementing, and controlling the
supply chain operations. It is a cross-functional approach to managing the movement of raw
materials into an organization and the movement of finished goods out of the organization toward
the end-consumer who are to be satisfied as efficiently as possible. It encompasses all movement and
storage of raw materials, workin- process inventory, and finished goods from point-of-origin to

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point-of-consumption. Organizations are finding that they must rely on the chain to successfully
compete in the global market.
Modern organizations are striving to focus on core competencies and reduce their ownership of
sources of raw materials and distribution channels. These functions can be outsourced to other
business organizations that specialize in those activities and can perform in better and cost-effective
manner. In a way organization in the supply chain do tasks according to their core-competencies.
Working in the supply chain improve trust and collaboration amongst partners and thus improve
flow and management of inventory.
Is logistic management same as supply chain management? Supply chain management is an
extension of logistic management. However, there is difference between the two. Logistical activities
typically include management of inbound and outbound goods, transportation, warehousing,
handling of material, fulfilment of orders, inventory management, supply/demand planning.
Although these activities also form part of Supply chain management, the latter has different
components. Logistic management can be termed as one of its part that is related to planning,
implementing, and controlling the movement and storage of goods, services and related information
between the point of origin and the point of consumption.
Supply chain management includes more aspects apart from the logistics function. It is a tool of
business transformation and involves delivering the right product at the right time to the right place
and at the right price. It reduces costs of organizations and enhances customer service.

6.6 Research and Development Strategy

Q1. How would you argue that Research and Development Personnel are important for effective strategy
implementation?
(RTP, Nov 2020, NA) (Study Material)

Research and Development (R&D) personnel can play an integral part in strategy implementation.
These individuals are generally charged with developing new products and improving old products in
a way that will allow effective strategy implementation. R&D employees and managers perform tasks
that include transferring complex technology, adjusting processes to local raw materials, adapting
processes to local markets, and altering products to particular tastes and specifications.
Strategies such as product development, market penetration, and concentric diversification require
that new products be successfully developed and that old products be significantly improved. But the
level of management support for R&D is often constrained by resource availability.

Q2. Discuss the guidelines for selection of Research & Development expertise by an organization.
(SA, Nov 2020, 5 Marks) (Study Material)

A critical question is whether a firm should develop research and development expertise internally or
outside to external agencies. The answer to this critical question mainly depends on rate of
technology progress and rate of market growth. The following guidelines can be used to help make
this decision:
● If the rate of technical progress is slow, the rate of market growth is moderate, and there are
significant barriers to possible new entrants, then in-house R&D is the preferred solution. The
reason is that R&D, if successful, will result in a temporary product or process monopoly that
the company can exploit.

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● If technology is changing rapidly and the market is growing slowly, then a major effort in R&D
may be very risky, because it may lead to the development of an ultimately obsolete
technology or one for which there is no market.
● If technology is changing slowly but the market is growing quickly, there generally is not
enough time for in-house development. The prescribed approach is to obtain R&D expertise
on an exclusive or non-exclusive basis from an outside firm.
● If both technical progress and market growth are fast, R&D expertise should be obtained
through acquisition of a well-established firm in the industry.

Q3. Explain the three major R & D approaches to implement strategic decisions.
(MTP 1, May 2021, 5 Marks) (MTP 1, Nov 2021, 5 Marks)

There are at least three major R&D approaches for implementing strategies.
i. Be the leader: The first strategy is to be the first firm to market new technological products. This is a
glamorous and exciting strategy but also a dangerous one. Firms such as 3M and General Electric
have been successful with this approach, but many other pioneering firms have fallen, with rival firms
seizing the initiative.
ii. Be an innovative imitator: A second R&D approach is to be an innovative imitator of successful
products, thus minimizing the risks and costs of startup. This approach entails allowing a pioneer firm
to develop the first version of the new product and to demonstrate that a market exists. Then, laggard
firms develop a similar product. This strategy requires excellent R&D personnel and an excellent
marketing department.
iii. Be a low cost producer: A third R&D strategy is to be a low-cost producer by mass-producing
products similar to but less expensive than products recently introduced. As a new product accepted
by customers, price becomes increasingly important in the buying decision. Also, mass marketing
replaces personal selling as the dominant selling strategy. This R&D strategy requires substantial
investment in plant and equipment, but fewer expenditures in R&D than the two approaches
described earlier.

Q4. ABC Ltd was facing problems in achieving efficiency and improving results. The functional managers
were called for a meeting to address the issue. After a lot of brain storming, it was decided to go for a
redesigning of the set systems by making the processes innovative. Hence, the redesigning of its
infrared sighting mechanism that it supplied to another company was undertaken. It was observed
that ABC Ltd. had reduced its number of parts from 37 to 10, the number of assembly steps from 27 to
12, the time spent fabricating metal on fabricating metal from 525 minutes per unit to 150 minutes
per unit, and the unit assembly time from 129 minutes to 20 minutes. As a result, a substantial decline
in manufacturing costs occurs. This helped the company in attaining better sales and bigger market
share. To achieve the operational efficiency, which of functional areas must have been involved and
why?
(Study Material)

To achieve this kind of operational efficiency, the functional areas that must have been majorly
involved are Production department and R & D department. The main aim of production department
in the strategic implementation is concerned with the capacity, location, layout, product or service
design, work systems, degree of automation, extent of vertical integration, and such factors.
Strategies related to production system are significant as they deal with vital issues affecting the
capability of the organisation in achieving production related strategical goals such as using efficient
production strategies like Just-in-Time technique and flexible manufacturing processes that aim at
building efficiency in operational matters.
The strategies related to operations planning and control also come under the purview of production
manager. These are concerned with aggregate production planning, materials supply, inventory, cost,

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and quality management; and maintenance of plant and equipment. Here, the aim of strategy
implementation is to see how efficiently resources are utilized and in what manner the day-to-day
operations can be managed in the light of long-term objectives. Operations planning and control
provides an example of an organizational activity that is aimed at translating objectives into reality
and has been used as an efficient strategic tool.
In this case every effort at every level was made to reduce the cost of production by redesigning its
products and streamline production processes. They also thought in terms of making production
processes innovative and this can be achieved by the cross-functional involvement as it involves
working on production processes, quality management and applying innovative techniques. This
brings in the role of R&D department too in this process of redesigning and improving efficiency.
R & D department performs tasks that include transferring complex technology, adjusting processes
to local raw materials, adapting processes to local markets, and altering products to particular tastes
and specifications and improve the old products be significantly. R&D strategy to be effective need to
tie external opportunities to internal strengths and is linked with attainment of objectives as it
emphasizes on product or process improvements, on applied research.
Hence, in the above case, both production and R&D department were involved in redesigning of its
infrared sighting mechanism, reduced its number of parts, the number of assembly steps, the time
spent fabricating metal on fabricating metal and the unit assembly time. This led to their achieving
their functional strategic goal of achieving efficiency and cutting costs and thereby improving their
production processes.

6.7 Human Resource Strategy

Q1. State the factors of human resource that have influence on employee’s competence.
(RTP, May 2018, NA) (MTP 1, Nov 2019, 5 Marks) (SA, Nov 2020, 5 Marks) (MTP 2, May 2021, 5 Marks)
(RTP, Nov 2021, NA) (MTP 2, Nov 2021, 5 Marks) (Study Material)

Human resource management has been accepted as a strategic partner in the formulation of
organization’s strategies and in the implementation of such strategies through human resource
planning, employment, training, appraisal and reward systems. The following points should be kept in
mind as they can have a strong influence on employee competence:
i. Recruitment and selection: The workforce will be more competent if a firm can successfully
identify, attract, and select highly competent applicants.
ii. Training: The workforce will be more competent if employees are well trained to perform their jobs
properly.
iii. Appraisal of performance: The performance appraisal is to identify any performance deficiencies
experienced by employees due to lack of competence. Such deficiencies, once identified, can often be
solved through counselling, coaching or training.
iv. Compensation: A firm can usually increase the competency of its workforce by offering pay,
benefits and rewards that are not only attractive than those of their competitors but also recognizes
merit.

Q2. Correct/ Incorrect.

Human resource management aids in strategic management.
(MTP 1, May 2018, 2 Marks)

The statement is correct.

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The human resource management helps the organization to effectively deal with the external
environmental challenges. The function has been accepted as a partner in the formulation of
organization’s strategies and in the implementation of such strategies through human resource
planning, employment, training, appraisal and rewarding of personnel.

Q3. Correct/ Incorrect.

Human Resource Manager's role is significant in building up core competency of the firm.
(SA, May 2018, 2 Marks)

The statement is correct.

The human resource manager has a significant role to play in developing core competency of the
firm. A core competence is a unique strength of an organization which may not be shared by others.
Core-competencies can be generated and maintained only through the effective management of
human resources and their skills.

Q4. Explain the prominent areas where human resource manager can play a strategic role.
(MTP 1, Nov 2018, 6 Marks) (RTP, May 2019, NA) (SA, May 2019, 5 Marks) (MTP 1, May 2020, 5 Marks)

Or

Explain any three prominent areas where human resource manager can play a strategic role.
(Study Material)

Or

You are the Human Resource Manager of a Company. What are the prominent areas where you can
play strategic role?
(RTP, May 2022, NA)

The prominent areas where the human resource manager can play strategic role are as follows:
1. Providing purposeful direction: The human resource manager must be able to lead people and
the organization towards the desired direction involving people right from the beginning. The most
important task of a HR manager is to ensure that the objectives of an organization are internalized by
each individual working in the organization. Objectives of an organization state the very purpose and
justification of its existence.
2. Building core competency: The human resource manager has a great role to play in developing
core competency by the firm. A core competence is a unique strength of an organization which may
not be shared by others. This may be in the form of human resources, marketing capability, or
technological capability. If the business is organized on the basis of core competency, it is likely to
generate competitive advantage. Because of this reason, many organizations have restructured their
businesses by divesting those businesses which do not match core competence. Organization of
business around core competence implies leveraging the limited resources of a firm. It needs creative,
courageous and dynamic leadership having faith in organization’s human resources.
3. Creating competitive advantage: Creating and maintaining a competitive advantage in the
globalized market is the object of any organization. There are two important ways a business can
achieve a competitive advantage over the others. The first is cost leadership which means the firm
aims to become a low cost leader in the industry. The second competitive strategy is differentiation
under which the firm seeks to be unique in the industry in terms of dimensions that are highly valued

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by the customers. Putting these strategies into effect carries a heavy premium on having a highly
committed and competent workforce.
4. Facilitation of change: The human resource manager will be more concerned with substance
rather than form, accomplishments rather than activities, and practice rather than theory. The HR
function will be responsible for furthering the organization not just maintaining it. Human resource
manager will have to devote more time to promote changes than to maintain the status quo.
5. Managing workforce diversity: In modern organizations, management of diverse workforce is a
great challenge. Workforce diversity can be observed in terms of male and female workers, young and
old workers, educated and uneducated workers, unskilled and professional employee, etc. Moreover,
many organizations also have people of different castes, religious and nationalities. The workforce in
future will comprise more of educated and self conscious workers. They will ask for higher degree of
participation and avenues for fulfilment. Money will no longer be the sole motivating force for
majority of the workers. Non - financial incentives will also play an important role in motivating the
workforce.
6. Empowerment of human resources: Empowerment means authorizing every member of an
organization to take up his/her own destiny realizing his/her full potential. It involves giving
more power to those who, at present, have little control what they do and little ability to
influence the decisions being made around them.
7. Development of works ethic and culture: Greater efforts will be needed to achieve cohesiveness
because employees will have transient commitment to groups. As changing work ethic requires
increasing emphasis on individuals, jobs will have to be redesigned to provide challenge. Flexible
starting and quitting times for employees may be necessary. Focus will shift from extrinsic to intrinsic
motivation. A vibrant work culture will have to be developed in the organizations to create an
atmosphere of trust among the employees and to encourage creative ideas by them.

Q5. Sport Spirit (SS) is a medium sized sports retailer. It currently operates three shops in the city at centre
locations. The management of Sport Spirit (SS) has a very careful recruitment policy; any applicant
must have a ‘passion for sport’. Which one of the following functional strategies would best describe
by SS?
(a) Human Resource Strategy
(b) Financial Strategy
(c) Operation Strategy
(d) Marketing Strategy
(MTP 1, Nov 2020, 1 Mark)

Correct answer: (a) Human Resource Strategy

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