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CA IPCC : Question Paper (with Answers) - INFORMATION TECHNOLOGY & STRATEGIC MANAGEMENT Nov 2013

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DISCLAIMER The Suggested Answers hosted in the website do not constitute the basis for evaluation of the students answers in the examination. The answers are prepared by the Faculty of the Board of Studies with a view to assist the students in their education. While due care is taken in preparation of the answers, if any errors or omissions are noticed, the same may be brought to the attention of the Director of Studies. The Council of the Institute is not in anyway responsible for the correctness or otherwise of the answers published herein. The Institute of Chartered Accountants of India PAPER 7 : INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT SECTION A : INFORMATION TECHNOLOGY Question No. 1 is compulsory Answer any five questions from the rest. Question 1 Describe briefly the following terms with reference to Information Technology. (i) Data Dictionary (ii) Transaction Log (iii) Binary Coded Decimal (BCD) (iv) Unicode (v) Hub (vi) Protocol Converter (vii) Multiplexer (viii) Web Casting (ix) Intranet (x) Data Publishing (as internet application) (1 x 10 = 10 Marks) Answer (i) Data Dictionary: Data Dictionary maintains information pertaining to structure and usage of data and Meta data. Each piece of data and various synonyms of data field are determined in consultation with database users. (ii) Transaction Log: A transaction log is a file that records database modifications that consist of inserts, updates, deletes, commits, rollbacks, and database schema changes. A transaction log is not required but is recommended. (iii) Binary Coded Decimal (BCD): The BCD is the simplest binary code that uses 4 bits to represent a decimal number. Each digit is represented by a combination of the binary digits 0 and 1. (iv) Unicode: Unicode is a worldwide character code standard. In this code system, 16-bits (2 bytes) are used to represent a single character or symbol. Using this code system, 65,536 different characters can be represented inside the computer. (v) Hub: A hub is a multi port connecting device that is used to interconnect LAN devices by means of simple twisted pair wires. A hub can be used to extend the physical length of a network. The Institute of Chartered Accountants of India 44 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 (vi) Protocol Converter: A protocol converter is a device that provides interoperability amongst networking devices by converting protocols of one device to another in order to transform data and commends from one application to another for exchanging information. (vii) Multiplexer: This device enables several devices to share one communication line. The multiplexer scans each device to collect and transmit data on a single line to the CPU. (viii) Web Casting: This refers to the transmission of data by one node and received by many, sometimes all, of the other nodes over the Internet. (ix) Intranet: Intranet is a type of information system that facilitates communication with Internet technology within the organization among widely dispersed departments, divisions and regional locations using Web browsers, Web servers and Data warehouses. (x) Data Publishing (as Internet application): Data publishing is an Internet application that refers to either forwarding of the information that needs to be made available to others to specific addresses or kept on display in a special site. Question 2 (a) What is the difference between compilers and interpreters? Describe any two advantages of interpreters over compilers. (2 + 2 = 4 Marks) (b) Discuss any four benefits of an Expert System. (4 Marks) Answer (a) Compilers: Compilers translate the entire program into machine language before the program is executed. The compiler translates the program (called as source Program or Source Module) submitted for compilation into machine language, producing an Object Program (or Object Module). Linkage editor then binds the Object Module to object modules of any subprograms of this program, producing a resultant program called a Load Program (or load module), ready for execution. Interpreters: Interpreters are system software which translates program into machine language one line at a time as they are being run. Each statement is translated into machine language just before it is executed. No object module or storable load module is ever produced. Some of the advantages of Interpreters over Compilers are as follows: (i) Interpreters are usually easier and faster to use than compilers. (ii) Interpreters typically provide users with superior error messages. When a program contains an error and blows up, the interpreter knows exactly which statement triggered the error the one it last translated, thus helping the programmers debug their programs. The Institute of Chartered Accountants of India PAPER 7: INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT 45 (iii) An interpreter for a Third Generation Language typically requires less storage space in primary memory than a compiler for that language. (iv) Interpreters are usually less expensive than compilers. (b) An Expert System (ES) is a computerized information system that allows non-experts to make decisions comparable to those of an expert. Some of the benefits of Expert Systems are as follows: (i) They provide a cost-effective alternative to human experts. (ii) They can outperform a single expert because their knowledge is representative of numerous experts. They are faster and more consistent and do not get distracted, overworked, or stressed out. (iii) They produce better-quality and more consistent decisions. Expert systems assist users in identifying potential decision making problems, which increases the probability that sound decisions will be made. (iv) They can increase productivity. (iv) They preserve the expertise of an expert leaving the organization. Question 3 (a) Describe various stages of Data Mining. (4 Marks) (b) Define Data Definition Language (DDL). Describe various functions of DDL. (4 Marks) Answer (a) Stages in Data Mining are discussed below: (i) Selection: Selecting or segmenting the data according to some criteria so that subsets of the data can be determined. For example, all those people who own a car can be criteria for selection. (ii) Pre-processing: This is the data cleansing stage where certain information is removed which is deemed unnecessary and may slow down queries. Also the data is re-configured to ensure a consistent format as there is a possibility of inconsistent formats because the data is drawn from several sources. (iii) Transformation: The data is not merely transferred across but transformed. For example, demographic overlays are commonly used in market research. The data is made usable and navigable. (iv) Data Mining: This stage is concerned with the extraction of patterns from the data. A pattern can be defined as a given set of facts (data) F, a language L and some measures of certainty C. The Institute of Chartered Accountants of India 46 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 (v) Integration and evaluation: The patterns identified by the systems are interpreted into knowledge which can then be used to support human decision making. For example, prediction and classification tasks, summarizing the contents of a data base or explaining observed phenomena. (b) Data Definition Language (DDL): It defines the conceptual schema providing a link between the logical (the way the user views the data) and physical (the way in which the data is stored physically) structures of the database. The logical structure of a database is a schema. A subschema is the way a specific application views the data from the database. Some of the functions of Data Definition Language (DDL) are as follows: (i) They define the physical characteristics of each record, field in the record, field s data type, field s length, field s logical name and also specify relationships among the records, (ii) They describe the schema and subschema, (iii) They indicate the keys of the record, (iv) They provide means for associating related records or fields, (v) They provide for data security measures, (vi) They provide for logical and physical data independence. Question 4 (a) Explain Star Network Topology. Discuss its advantages and disadvantages. (4 Marks) (b) Describe various value added services offered by a Data Centre. (4 Marks) Answer (a) Star Network Topology: Star topology is characterized by communication channels emanating from centralized control. The processing nodes in a star network topology interconnect directly with a central system. Each terminal, small computer or large main frame can communicate only with the central site and not with other nodes in the network. If it is desired to transmit information from one node to another, it can be done only by sending the details to the central node, which in turn sends them to the destination. For example, a star network may be used in banking for centralized record keeping in an on-line branch office environment. Advantages: It is easy to add new nodes and remove existing nodes. A node failure does not bring down the entire network. It is easier to diagnose network problems through a central hub. The Institute of Chartered Accountants of India PAPER 7: INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT 47 Disadvantages: If the central hub fails, the whole network ceases to function. It costs more to cable a star configuration than other topologies as more cable is required than for a bus or ring configuration. (b) Value added services provided by a data centre: (i) Database monitoring: This is done via a database agent, which enables the high availability of the database through comprehensive automated management. (ii) Web monitoring: This is to assess and monitor website performance, availability, integrity and the responsiveness from a site visitor s perspective. It also reports on HTTP, FTP service status, monitors URL availability and round-trip response times, and verifies Web content accuracy and changes. (iii) Backup and Restore: It provides centralized multi-system management capabilities. It is also a comprehensive integrated management solution for enterprise data storage using specialized backup agents for the operating system, database, open files and application. (iv) Intrusion Detection System (IDS): Host-based Intrusion Detection Systems operate on a host to detect malicious activity on that host and Network-based ID systems operate on network data flows. The IDS is scalable so that the system grows with the organization, from smaller networks to enterprise installation. It provides automated network-based security assessment and policy compliance evaluation. (v) Storage on Demand: It provides the back-end infrastructure as well as the expertise, best practices and proven processes so as to give a robust, easily management and cost-effective storage strategy. It provides data storage infrastructure that supports users ability to access information at any given moments one that gives the security, reliability and availability needed to meet company demands. Question 5 Distinguish between the following: (a) URN and URL (2 Marks) (b) HTTP and HTML (3 Marks) (c) Half Duplex and Full Duplex Connection (3 Marks) Answer (a) URN: A Uniform Resource Name (URN) is a specification of URI (Uniform Resource Identifier) that identifies the resource by name ie. it functions like a person's name. URL: A Uniform Resource Locator (URL) is a specification of URI that defines the network location of a specific resource ie. it resembles to a person's street address. It is The Institute of Chartered Accountants of India 48 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 used to address and access individual Web pages and Internet resources. The format of a URL is: protocol/Internet address/Web page address. (b) HTTP: HTTP stands for HyperText Transfer Protocol and is defined as the set of rules for transferring files (text, graphic images, sound, video, and other multimedia files) on the World Wide Web. All computers in the web communicate with each other using HTTP. As soon as a Web user opens their Web browser, the user is indirectly making use of HTTP. HTML: HTML stands for HyperText Markup Language and is the main markup language for web page. HTML lets the creator of a Web page specify how text will be displayed and how to link to other Web pages, files, and Internet services. These links are formally known as hypertext links, because they are activated when a user clicks on specific text or images within a Web page. (c) Half-duplex Connection: A half-duplex connection (or Semi-duplex) is a connection in which the data flows in one direction or the other, but not both at the same time. With this type of connection, each end of the connection transmits in turn. This type of connection makes it possible to have bidirectional communications using the full capacity of the line. For example: Walkie Talkie. Full-Duplex Connection: A Full-duplex connection is a connection in which the data flows in both directions simultaneously. Each end of the line can thus transmit and receive at the same time, which means that the bandwidth is divided in two for each direction of data transmission if the same transmission medium is used for both directions of transmission. For example: mobile phones. Question 6 A book publisher of Information Technology offers discount to its customers on the basis of customer type as detailed below: Customer Type Discount Book Seller 30% Library 20% Student 10% Further if number of copies purchased is more than 20, then additional discount of 5% is allowed irrespective of customer type. Number of books, unit price of each book and customer type are given as input. Draw a flow chart to calculate the net amount after all discount and print customer type, number of copies and net amount. (8 Marks) The Institute of Chartered Accountants of India PAPER 7: INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT Answer Let us define the variables: Customer Type: CT; Discount: DISC; Number of Copies: NC; Unit Price of Each Book: X Net Amount: AMT Start Read CT, NC, X If CT= Book Seller? If CT= Library ? No If NC > 20? Yes DISC = 0.3 Yes If NC > 20? DISC = 0.2 AMT = NC *(X - DISC*X) Print CT, NC, AMT Stop The Institute of Chartered Accountants of India Yes No DISC = 0.25 DISC = 0.35 No Yes No No If CT= Student ? Yes Yes If NC > 20? No DISC = 0.15 DISC = 0.1 Print Invalid Customer Type 49 50 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Question 7 Write short notes on any four of the following: (i) Smart Cards (ii) Bluetooth (iii) Collaborative CRM (iv) Operational Data Store (ODS) (v) Telnet (2 x 4 = 8 Marks) Answer (i) Smart Cards: Smart cards have an embedded microchip instead of magnetic strip. The chip contains all the information a magnetic strip contains but offers the possibility of manipulating the data and executing applications on the card. Three types of smart cards are widely available - Contact Cards, Contactless Cards and Combi Cards. (ii) Bluetooth: Bluetooth is a specification that describes how mobile phones, computers and Personal Digital Assistants (PDA) can be easily interconnected using a short range wireless connection. Using this technology, users of cell phone and PDA can get quickly synchronized with information in desktop or notebook, initiate the sending or receiving of a fax, initiate a print out or in general, have a total coordination between these devices. (iii) Collaborative CRM: Collaborative CRM facilitates interactions with customers through all channels like personal, letter, fax, phone, web, E-mail and supports co-ordination of employee teams and channels. It is a solution that brings people, processes and data together so companies can better serve and retain their customers. The data/activities can be structured, unstructured, conversational, and/or transactional in nature. (iv) Operational Data Store (ODS): An ODS is an integrated database of operational data. Its sources include legacy systems and it contains current or near term data. An ODS may contain 30 to 60 days of information and are used in some data warehouse architectures to provide near real time reporting capability in the event where the data warehouse's loading time or architecture prevents it from being able to provide near real time reporting capability. (v) Telnet: Telnet is a protocol that allows us to connect to remote computers (called hosts) over a TCP/IP network (such as the Internet). We use software called a telnet client on our computer to make a connection to a telnet server (i.e., the remote host). Once our telnet client establishes a connection to the remote host, our client becomes a virtual terminal, allowing us to communicate with the remote host from our computer. The Institute of Chartered Accountants of India PAPER 7: INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT 51 SECTION B Question No. 8 is compulsory. Answer any five questions from the rest. Question 8 (a) Business environment exhibits many characteristics. Explain. (3 Marks) (b) What are the different responsibilities of a strategic leader? (3 Marks) (c) Firms can use benchmarking process to achieve improvement in diverse range of management functions. Elucidate. (3 Marks) (d) Why functional strategies are needed for any business? (3 Marks) (e) Discuss the major dimensions of strategic decisions. (3 Marks) Answer (a) Business environment exhibits many characteristics as follows: Environment is complex: The environment consists of a number of factors, events, conditions and influences arising from different sources and is complex because it is somewhat easier to understand in parts but difficult to grasp in totality. Environment is dynamic: The environment is constantly changing in nature. Due to the many and varied influences operating; there is dynamism in the environment causing it to continuously change its shape and character. Environment is multi-faceted: What shape and character an environment assumes depends on the perception of the observer. A particular change in the environment, or a new development, may be viewed differently by different observers, i.e. as an opportunity for one company and a threat for another. Environment has a far reaching impact: The growth and profitability of an organization depends critically on the environment in which it exists. And thus any environmental change has an impact on the organization in several different ways. (b) A strategic leader has several responsibilities, including the following: Environment Scanning. Dealing with the diverse and cognitively competitive situations. Managing human capital. Effectively managing the company's operations. Sustaining high performance over time. Willing to make candid, courageous, and yet pragmatic decisions. Decision-making responsibilities that cannot be delegated. Seeking feedback through face-to-face communications. Being spokesman of the organisation. The Institute of Chartered Accountants of India 52 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 (c) Benchmarking is a process of finding the best practices within and outside the industry to which an organisation belongs. Knowledge of the best practices helps in setting standards and finding ways to match or even surpass own performances with the best performances. Benchmarking is a process of continuous improvement in search for competitive advantage. Firms can use benchmarking process to achieve improvement in diverse range of management function mentioned below: 1. maintenance operations, 2. assessment of total manufacturing costs, 3. product development, 4. product distribution, 5. customer services, 6. plant utilisation levels; and 7. human resource management. (d) The reasons why functional strategies are really important and needed for business can be enumerated as follows: 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. (e) The major dimensions of strategic decisions are given below: Strategic issues require top-management decisions: Strategic issues involve thinking in totality of the organizations and also there is lot of risk involved and hence required to be considered by the top management. Strategic issues involve the allocation of large amounts of company resources: They may require huge financial investment to venture into a new area of business or the organization may require huge number of manpower with new set of skills in them. The Institute of Chartered Accountants of India PAPER 7: INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT 53 Strategic issues are likely to have a significant impact on the long term prosperity of the firm: Generally the results of strategic implementation are seen on a long term basis and not immediately. Strategic issues are future oriented: Strategic thinking involves predicting the future environmental conditions and how to orient for the changed conditions. Strategic issues usually have major multifunctional or multi-business consequences: As they involve organization in totality they affect different sections of the organization with varying degree. Strategic issues necessitate consideration of factors in the firm s external environment: Strategic focus in organization involves orienting its internal environment to the changes of external environment. Question 9 (a) State with reasons which of the following statements is correct or incorrect: (i) A company s strategy has always to be proactive in nature. (ii) Culture promotes better execution of strategy. (b) A global company has three characteristics. Explain. (2 x 2 = 4 Marks) (3 Marks) Answer (a) (i) Incorrect: A company s strategy is a blend of proactive actions and reactive actions by the management. Reactive actions are required to address unanticipated developments and environmental conditions. Thus, not every strategic move is the result of proactive and deliberate management actions. At times, some kind of strategic reaction or adjustments are also required. (ii) Correct: Strong cultures in an organisation promotes good strategy execution when there s fit and hurt execution when there s negligible fit. A culture grounded in values, practices, and behavioural norms that match what is needed for good strategy execution helps energize people throughout the company to do their jobs in a strategy-supportive manner, adding significantly to the power and effectiveness of strategy execution. (b) The global company views the world as one market minimizing the importance of national boundaries. It has three attributes: (i) It is a conglomerate of multiple units located in different parts of the globe but all linked with common ownership. (ii) Multiple units draw a common pool of resources such as money, credit, patents, trade name, etc. (iii) The units respond to common strategy. The Institute of Chartered Accountants of India 54 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 Question 10 Explain the major steps which are required for the successful implementation of supply chain management in the business organization. (7 Marks) Answer The following are the major steps which are required for the successful implementation of Supply Chain Management in the business organizations: 1. Product development: Customers and suppliers must work together in the product development process. When products are developed and launched in shorter time, it would help organizations to remain competitive. 2. Procurement: Procurement requires careful resource planning, quality issues, identifying sources, negotiation, order placement, inbound transportation and storage. Organizations have to coordinate with suppliers in scheduling the uninterrupted suppliesand also to involve them in planning the manufacturing process. 3. Manufacturing: Flexible manufacturing processes must be in place to respond to market changes. They should be adaptive to accommodate customization and changes in the taste and preferences. Changes in the manufacturing process be made to reduce manufacturing cycle. 4. Physical distribution: Delivery of final products to customers is the last position in a marketing channel. Availability of the products at the right place at right time is important for each channel participant. Through physical distribution processes serving the customer become an integral part of marketing. 5. Outsourcing: Outsourcing is not limited to the procurement of materials and components, but also include outsourcing of services that traditionally have been provided within an organization. The company ought to focus on those activities where it has competency and everything else will be outsourced. 6. Customer services: Organizations through interfaces with the company's production and distribution operations develop customer relationships so as to satisfy them. They work with customer to determine mutually satisfying goals, establish and maintain relationships. This in turn helps in producing positive feelings in the organization and the customers. 7. Performance measurement: There is a strong relationship between the supplier, customer and organisation. Supplier capabilities and customer relationships can be correlated with a firm performance. Performance is measured in different parameters such as costs, customer service, productivity and quality. Question 11 From the following information relating to X Ltd. company, prepare BCG Matrix and also analyse it. The Institute of Chartered Accountants of India PAPER 7: INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT Product Revenues Percent (in `) Revenues Profit Percent Profit (in `) 55 Percentage Percentage Market Industry Share Growth Rate A 60 Crore 48 1200 Lakh 48 80 + 15 B 40 Crore 32 500 Lakh 20 40 + 10 C 20 Crore 16 750 Lakh 30 60 - 20 D 05 Crore 04 50 Lakh 02 05 - 10 100 2500 Lakh 100 Total 125 Crore (4+3 = 7 Marks) Answer Using the BCG approach, a company classifies its different businesses on a two dimensional Growth-Share Matrix. In the Matrix, the vertical axis represents market growth rate and provides a measure of market attractiveness. The horizontal axis represents relative market share and serves as a measure of company strength in the market. With the given data on market share and industry growth rate of X Ltd., its four products are placed in the BCG matrix as follows: Relative Market Share Low High Product A [80% Market Share +15% Growth Rate] Stars Product B [40%Market Share +10%Growth Rate] Question Marks Low Market Growth Rate High Product C [60% Market Share -20% Growth Rate] Cash Cows Product D [05% Market Share -10% Growth Rate] Dogs Product A. It falls in the Star category and is in the best position with high relative market share and a high industry growth rate. This product has the best opportunities for expansion. It will require heavy investment to maintain its present position. Product B. It is a question mark product that has a relatively low market share, yet competes in a high growth industry. This product will also need lot of cash to hold its share. If unattended, it is capable of becoming a cash trap. Product C. It is a cash cow for the business, has a relatively high market share competing in an industry with negative growth rate. The company should take advantage of its present The Institute of Chartered Accountants of India 56 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 position that may be difficult to maintain in the long run. Currently it needs less investment to maintain its market share. Product D. It is presently placed in the Dog category, is in the worst position as it has relatively a low market share and competes in an industry with negative growth rate. This product does not have much future. It should be minimized by means of divestment or liquidation. Question 12 (a) Identify the Generic Strategy used in the following examples: (i) Bell Computer has decided to rely exclusively on direct marketing. (ii) Our basic strategy was to charge a price so low that micro computer makers couldn t do the software internally for that cheaply. (iii) MD TV , a TV channel has identified a profitable audience niche in the electronic media. It has further exploited that niche through the addition of new channels like MD TV Profit and Image. (3 Marks) (b) What do you mean by Logistic Strategy? What are the different areas to examine while developing a logistic strategy? (1 + 3 = 4 Marks) Answer (a) In the given examples the generic strategies that are being followed are given as under: (i) Differentiation: Bell Computers is differentiating on product delivery as computer market is highly competitive and the products are very similar. (ii) Cost Leadership: Keeping the prices low so that microcomputer makers acquire the software rather than developing themselves is a case of cost leadership. (iii) Focus: MDTV has identified a profitable area (audience niche) and is focusing on it. (b) Management of 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. A company may develop a number of logistics strategies for specific product lines, specific countries or specific customers because of constant changes in supply chains. There are different areas that should be examined for each company that should be considered and should include: Transportation: Does the current transportation strategies help service levels required by the organisation? Outsourcing: Areas of outsourcing of logistics function are to be identified. The effect of partnership with external service providers on the desired service level of organisation is also to be examined. The Institute of Chartered Accountants of India PAPER 7: INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT 57 Competitors: Review the procedures adopted by competitors. It is also to be judged whether adopting the procedures followed by the competitors will be overall beneficial to the organisation. This will also help in identifying the areas that may be avoided. Availability of information: The information regarding logistics should be timely and accurate. If the data is inaccurate then the decisions that are made will be incorrect. With the newer technologies it is possible to maintain information on movement of fleets and materials on real time basis. Strategic uniformity: The objectives of the logistics should be in line with overall objectives and strategies of the organisation. They should aid in the accomplishment of major strategies of the business organisation. Question 13 Distinguish between the following: (a) Concentric Diversification and Conglomerate Diversification. (4 Marks) (b) Operational Control and Management Control. (3 Marks) Answer (a) The following are the principal points of distinction between concentric diversification and conglomerate diversification: (i) Concentric diversification occurs when a firm adds related products or markets. On the other hand conglomerate diversification occurs when a firm diversifies into areas that are unrelated to its current line of business. (ii) In concentric diversification, the new business is linked to the existing businesses through process, technology or marketing. In conglomerate diversification, no such linkages exist; the new business/product is disjointed from the existing businesses/products. (iii) The most common reasons for pursuing a concentric diversification are that opportunities in a firm s existing line of business are available. However, common reasons for pursuing a conglomerate growth strategy is that opportunities in a firm's current line of business are limited or opportunities outside are highly lucrative. (b) Difference between Operational Control and Management Control is as under: (i) The thrust of operational control is on individual tasks or transactions as against total or more aggregative management functions. When compared with operational, management control is more inclusive and more aggregative, in the sense of embracing the integrated activities of a complete department, division or even entire organisation, instead or mere narrowly circumscribed activities of sub-units. For example, procuring specific items for inventory is a matter of operational control, in contrast to inventory management as a whole. The Institute of Chartered Accountants of India 58 INTERMEDIATE (IPC) EXAMINATION: NOVEMBER, 2013 (ii) Many of the control systems in organisations are operational and mechanistic in nature. A set of standards, plans and instructions are formulated. On the other hand the basic purpose of management control is the achievement of enterprise goals short range and long range in a most effective and efficient manner. Question 14 Write short notes on the following: (a) Product Life Cycle (4 Marks) (b) Components of Value Chain (3 Marks) OR Six Sigma (3 Marks) Answer (a) Product Life Cycle is a useful concept for guiding strategic choice. Product Life Cycle is an S-shaped curve which exhibits the relationship of sales with respect of time for a product that passes through the four successive stages of introduction, growth, maturity and decline. Introduction Stage: The first stage of PLC is the introduction stage in which competition is almost negligible, prices are relatively high and markets are limited. Growth Stage: The second phase of PLC is growth stage. In the growth stage, the demand expands rapidly, prices fall, competition increases and market expands. The customer has knowledge about the product and shows interest in purchasing it. Maturity Stage: The third phase of PLC is maturity stage. In this stage, the competition gets tough and market gets stablised. Profit comes down because of stiff competition. At this stage organisations may work for maintaining stability. Time Figure: Product Life Cycle The Institute of Chartered Accountants of India Decline Maturity Growth Introduction Sales Decline Stage: In the declining stage of PLC, the sales and profits fall down sharply due to some new product replaces the existing product. So a combination of strategies can be implemented to stay in the market either by diversification or retrenchment. PAPER 7: INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT (b) 59 EITHER Value chain. It describes the activities within an organization that go to make up a product / service. Value chain of a manufacturing organization comprises of primary and supportive activities. Primary Activities are inclusive of: inbound logistics, operations, outbound logistics, marketing and sales; and services. Supportive Activities relate to: procurement, human resource management, technology development; and infrastructure. OR Meaning of Six Sigma: Primarily Six sigma means maintenance of the desired quality in processes and end products. It means taking systemic and integrated efforts toward improving quality and reducing cost. It is a highly disciplined process that helps in developing and delivering near-perfect products and services. It strives to meet and improve organizational goals on quality, cost, scheduling, manpower, new products and so on. It works continuously towards revising the current standards and establishing higher ones. Six sigma strives that 99.99966% of products manufactured are defect free. Six Sigma efforts target three main areas: (i) Improving Customer Satisfaction (ii) Reducing cycle time (iii) Reducing defects The Institute of Chartered Accountants of India

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