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CA IPCC : Sample / Mock Test Paper (with Model Answers) - INFORMATION TECHNOLOGY & STRATEGIC MANAGEMENT Oct 2014

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Test Series: October, 2014 MOCK TEST PAPER 2 INTERMEDIATE (IPC): GROUP II PAPER 7: INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT SECTION A: INFORMATION TECHNOLOGY Question No. 1 is compulsory. Attempt any five questions from the rest. Time Allowed 1 Hours 1. Maximum Marks 50 Answer all the following questions in brief. (i) Six Sigma (ii) Decision Tree (iii) Micro Architecture (iv) Virtual Memory (v) Multiplexer (vi) HTTPS (Hyper Text Transfer Protocol Secure) (vii) Transaction Processing System (viii) Smart Cards (ix) Access Controls (x) Customer Relationship Management Software 2. (1 x 10 = 10 Marks) (4 Marks) (b) Discuss the Network Security Vulnerabilities. 3. (a) Differentiate between Asynchronous and Synchronous Transmission. (4 Marks) (a) Discuss in brief, various Business Intelligence Tools. (4 Marks) (b) What is Supply Chain Management (SCM)? Discuss its components in brief. (4 Marks) 4. (a) Discuss the prime basis on which the business applications can be classified? (4 Marks) (b) Differentiate between Manual Information Processing Cycle and Computerized (4 Marks) Information Processing Cycle. 5. (a) Discuss Value Chain Automation, in brief. (4 Marks) (b) Discuss various success factors of Business Process Reengineering (BPR).(4 Marks) 6. (a) Discuss multiple types of cloud in Cloud Computing. (4 Marks) (b) Discuss Information System Life Cycle in brief. (4 Marks) The Institute of Chartered Accountants of India 7. Write short notes on any four of the following. (a) Process Management (b) Application Software (c) Virtual Private Network (d) Business Intelligence (e) Objectives of Business Process Automation (BPA) The Institute of Chartered Accountants of India (4 2 = 8 Marks) Test Series: October, 2014 MOCK TEST PAPER 2 INTERMEDIATE (IPC): GROUP II PAPER 7: INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT SECTION B: STRATEGIC MANAGEMENT Question No.1 is compulsory. Attempt any five questions from the rest. Time Allowed 1 Hours Maximum Marks 50 (3 Marks) (3 Marks) (c) Define Benchmarking. (3 Marks) (d) Explain why some organizations adopt turnaround strategy. (3 Marks) (e) What is relevance of TOWS Matrix in strategic planning process? 2. (a) Is competition good for organisations? (b) What do you mean by Core competencies?. 1. (3 Marks) (a) Explain the concept of Product Life Cycle (3 Marks) (b) State with reasons which of the following statements is correct/incorrect: (i) (2 Marks) (ii) 3. Restructuring is a slow process that brings consistent changes. Retrenchment implies downsizing of organizational structure. (2 Marks) (a) Write short notes on the following: (i) Strategic groups. (ii) Define Competitive advantage. (2 Marks) (2 Marks) (b) Discuss different characteristics exhibited by business environment. 4 (3 Marks) (a) Strategy is partly proactive and partly reactive." Do you agree? Discuss. (3 Marks) (b) Explain strategic planning and discuss the difference between top-down and bottom-up approach. (4 Marks) 5 Explain the five competitive forces in an industry as enunciated by Michael Porter? (7 Marks) 6. Explain prominent areas where Human Resource Manager can play a strategic role. (7 Marks) 7. (a) What do you understand by strategic leadership? What are two approaches to leadership style? (4 Marks) (b) What do you understand by merger and acquisitions? . The Institute of Chartered Accountants of India (3 Marks) Test Series: October, 2014 MOCK TEST PAPER 2 INTERMEDIATE (IPC): GROUP II PAPER 7: INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT SECTION A: INFORMATION TECHNOLOGY SUGGESTED ANSWERS/HINTS 1. (i) Six Sigma: Six Sigma is a set of strategies, techniques, and tools for process improvement. It seeks to improve the quality of process outputs by identifying and removing the causes of defects and minimizing variability in manufacturing and business processes. (ii) Decision Tree: A Decision Tree is a collection of a basis (condition) and a conclusion (action). In its tree-like representation, the premises and conclusions are shown as nodes, and the branches of the tree connect the premises and the conclusions. (iii) Micro Architecture: It is a lower level detailed description of the system that is sufficient for completely describing the operation of all parts of the computing system, and how they are inter-connected and inter-operate in order to implement the ISA. (iv) Virtual Memory: Virtual Memory is in fact not a separate device but an imaginary memory area supported by some operating systems (for example, Windows) in conjunction with the hardware. Virtual memory combines computer s RAM with temporary space on the hard disk. (v) Multiplexer: A multiplexer is a communications processor that allows a single communications channel to carry simultaneous data transmissions from many terminals. Typically, a multiplexer merges the transmissions of several terminals at one end of a communications channel, while a similar unit separates the individual transmissions at the receiving end. (vi) HTTPS (Hyper Text Transfer Protocol Secure): Hypertext Transfer Protocol Secure (HTTPS) is a communications protocol for secure communication over a computer network, with especially wide deployment on the Internet. The security of HTTPS uses long term public and secret keys to exchange a short term session key to encrypt the data flow between client and server. (vii) Transaction Processing System: A Transaction Processing System (TPS) may be defined as a type of information system that collects, stores, modifies and retrieves the day-to-day data transactions of an enterprise. Archetypal examples of such systems would be used in an Airline Reservation Systems, Railway reservation The Institute of Chartered Accountants of India by IRCT, Banking Systems, or the Accounting System of roughly any outsized company. (viii) 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. Contact Cards, Contactless Cards and Combi/Hybrid Cards are three types of smart cards. (ix) Access Controls: Access controls are implemented with an access control mechanism and links the authentic users to the authorized resources they are permitted to access. Cryptography, Passwords, Personal Identification Numbers (PIN) and Identification Cards are some of the examples of access controls. (x) Customer Relationship Management Software: These are specialized applications catering to the need of organizations largely in FMCG (Fast-Moving Consumer Goods) categories. These entities need to interact with their customers and respond to them. The response may be in the form of service support or may lead to product innovation. These are sought by entities, which deal directly with consumers. 2. (a) S.No. ASYNCHRONOUS TRANSMISSION SYNCHRONOUS TRANSMISSION 1 Each data word is accompanied by Allows characters to be sent down start and stop bits. the line without start-stop bits. 2 Extra Start and Stop bits slow down Transmission is faster as in the transmission process relatively. absence of start and stop bits, many data words can be transmitted per second. It is relatively cheaper. The synchronous device is more expensive to build as it must be smart enough to differentiate between the actual data and the special synchronous characters. More reliable as the start and stop Chances of data loss are relatively bits ensure that the sender and the higher. receiver remain in step with one another. It is less efficient. It is more efficient. 3 4 5 The Institute of Chartered Accountants of India (b) Network Security Vulnerability: Network Security Vulnerability is an inherent weakness in the design, configuration, or implementation of a network or system that renders it susceptible to a threat. The following facts are responsible for occurrence of vulnerabilities in the software: 3. Software Bugs - Software bugs are so common that users have developed techniques to work around the consequences, for example - buffer overflow, failure to handle exceptional conditions, access validation error, input validation errors are some of the common software flaws. Timing Windows - This problem may occur when a temporary file is exploited by an intruder to gain access to the file, overwrite important data, and use the file as a gateway for advancing further into the system. Insecure default configurations - Insecure default configurations occur when vendors use known default passwords to make it as easy as possible for consumers to set up new systems. Trusting Untrustworthy information - This is usually a problem that affects routers, or those computers that connect one network to another. When routers are not programmed to verify that they are receiving information from a unique host, bogus routers can gain access to systems and do damage. End users - Generally, users of computer systems are not professionals and are not always security conscious. Users do human errors, for example - save confidential files to places where they are not properly protected. (a) Business Intelligence tools are a type of software that is designed to retrieve, analyze and report data. Some of the key Business Intelligence tools are given as follows: Simple Reporting and Querying: Business Intelligence must be connected with the enterprise data and all the necessary data is available in one place, in one common format. There are reporting tools used to arrange information into a readable format and distribute it to the people who need it. Business Analysis: This refers to presenting visualizing data in a multidimensional manner. Query and report data is presented in row after row of two-dimensional data. ETL (Extract, Transform, Load) tools bring in data from outside sources, transform it to meet business specified operational needs, and then load the results into the company database. Dashboards: This involves using the information gathered from the data warehouse and making it available to users as snapshots of many different things. Dashboards are flexible tools that can be bent into as many different shapes as per user requirements. It includes a collection of graphs, reports, The Institute of Chartered Accountants of India and Key Performance Indicators (KPIs) that can help monitor such business activities as progress on a specific initiative. Scorecards: This involves providing a visual representation of the enterprise strategy by taking critical metrics and mapping them to strategic goals throughout the enterprise. A scorecard has a graphical list of specific, attainable strategic milestones, combined with metrics that serve as benchmarks. Data Mining or Statistical Analysis: This involves using statistical, artificial intelligence, and related techniques to mine through large volumes of data and providing knowledge without users even having to ask specific questions. For Example - OLAP (Online Analytical Processing) is a multi-dimensional analytical tool typically used in data mining that gathers and process vast amounts of information into useful packets. (b) Supply Chain Management (SCM): Supply Chain Management may be defined as the process of planning, implementing and controlling the operations of the supply chain with the purpose of satisfying the customer's requirement as efficiently as possible. Components of SCM (i) Procurement/Purchasing This begins with the purchasing of parts, components, or services. Procurement must ensure that the right items are delivered in the exact quantities at the correct location on the specified time schedule at minimal cost. This means that procurement must concern itself with the determination of who should supply the parts, the components, or the services. (ii) Operations - The second major element of supply chain management system is operations. Having received raw materials, parts, components, assemblies, or services from suppliers, the firm must transform them and produce the products or the services that meet the needs of its consumers. It must conduct this transformation in an efficient and effective manner for the benefit of the supply chain management system. (iii) Distribution - The third element of the supply chain management system is distribution. Distribution involves several activities transportation (logistics), warehousing, and Customer Relationship Management (CRM). The first and most obvious is logistics the transportation of goods across the entire supply chain. (iv) Integration - The last element of supply chain management is the need for integration. It is critical that all participants in the service chain recognize the entirety of the service chain. The impact of the failure to adopt a system- The Institute of Chartered Accountants of India wide perspective - that is, examining the totality of the chain can significantly increase costs and destroy value. 4. (a) Classification is an effort to categorize numerous types of business applications on a logical basis. There can be numerous ways under which classification can take place. Nature of processing: This is the way an application updates data, say in batch processing, there is a time delay in occurrence and recording of transaction. On the other hand in online processing, the transactions are recorded at the moment they occur. An application that allows query handling/ responses to updates in system is classified as real time processing system. Source of application: The name of category is self-explanatory, as it tells the source from where application has been bought. TALLY, is a purchased application. An entity may get an application developed for itself, this is inhouse developed application. A new method for getting applications is being used today, i.e. leased applications, where user pays fixed rent for using the application for agreed terms. Many specialized vendors provide users with option to get their job done by paying monthly rent; this is referred to as outsourcing. Nature of business: This classification is based on the users for whom the application has been developed. Here, the emphasis is on size and complexity of business process. Say, for example, a business application being used by a large number of small business establishment in India may not be effective for a large business organizations. Functions covered: A business application may be classified based on business function it covers. For example - accounting applications, Office Management software, Compliance application, Customer Relationship Management, Decision making software, ERP software, Product lifecycle management, etc. (b) Manual Information Processing Cycle: These are the systems where the level of manual intervention is very high. For example - valuation of exam papers, teaching, operations in operation theatres, ticket checking by railway staff in trains, buying of grocery, billing done by small medical shops, people maintaining books manually, etc. Components of manual information processing cycle include: Input: Put details in register. Process: Summarize the information. Output: Present information to management in the form of reports. As the level of human intervention is very high, the quality of information generated from these systems is prone to flaws such as delayed information, inaccurate The Institute of Chartered Accountants of India information, incomplete information and low levels of detail. Manual Processing Cycle Computerized Information Processing Cycle: These are systems where computers are used at every stage of transaction processing. The components of a computerized information processing cycle include: Input: Entering data into the computer; Storage: Saving data, programs, or output for future use; and Processing: Performing operations on the data; Output: Presenting the results. As the processing is computerized the quality of information generated from these systems is timely, accurate, fast and reliable. Computerized Processing Cycle 5. (a) Value Chain Automation: Value chain refers to separate activities which are necessary to strengthen an organization's strategies and are linked together both inside and outside the organization. It is defined as a chain of activities that a firm operating in a specific industry performs in order to deliver a valuable product or service for the market. The idea of the Value Chain is based on the process view of organizations, the idea of seeing a manufacturing (or service) organization as a system, made up of subsystems each with inputs, transformation processes and outputs. Value chain of a manufacturing organization comprises of Primary and Supportive activities. The primary ones are inclusive of inbound logistics, operations, outbound logistics, marketing and sales, and services. The supportive activities relate to procurement, human resource management, technology development and infrastructure. Six business functions of the value chain are Research and development; Design of The Institute of Chartered Accountants of India products, services, or processes; Production; Marketing and sales; Distribution and Customer service. Value Chain Analysis is a useful tool for working out how we can create the greatest possible value for our customers. IT helps us identify the ways in which we create value for our customers and then helps us think through how we can maximize this value: whether through superb products, great services, or jobs well done. (b) Various success factors of Business Process Re-engineering (BPR) are as follows: (i) Organization wide commitment: Changes to business processes would have a direct impact on processes, organizational structures, work culture, information flows, infrastructure & technologies and job competencies. This requires strong leadership, support and sponsorship from the top management. Top management not only has to recognize the need for change but also has to convince every affected group about the potential benefits of the change to the organization as a whole and secure their commitment. (ii) BPR team composition: A BPR team is formed which would be responsible to take the BPR project forward and make key decisions and recommendations. The BPR team would include active representatives from top management, business process owners, technical experts and users. It is important that the teams must be kept of manageable size (say 10 members) to ensure wellcoordinated, effective and efficient completion of the entire BPR process. (iii) Business needs analysis: It is important to identify exactly what current processes need reengineering. This would help determine the strategy and goals for BPR. A series of sessions are held with the process owners and stakeholders and all the ideas would be evaluated to outline and conceptualize the desired business process. The outcome of this analysis would be BPR project plan identifying specific problem areas, setting goals and relating them to key business objectives. This alignment of the BPR strategy with the enterprise strategy is one of the most important aspects. (iv) Adequate IT infrastructure: Adequate investment in IT infrastructure in line is of vital importance to successful BPR implementation. An IT infrastructure is a set of hardware, software, networks, facilities, etc. (including all of the information technology), in order to develop, test, deliver, monitor, control or support IT services. Effective alignment of IT infrastructure to BPR strategy would determine the success of BPR efforts. (v) Effective change management: BPR involves changes in people behavior and culture, processes and technologies. Hence, resistance would be a natural consequence which needs to be dealt with effectively. An effective change management process would consider the current culture to foster a change in the prevailing beliefs, attitudes and behaviors effectively. The success of BPR The Institute of Chartered Accountants of India depends on how effectively management conveys the need for change to the people. (vi) Ongoing continuous improvement: BPR is an ongoing process; hence innovation and continuous improvement are key to the successful implementation of BPR. 6. (a) The Cloud Computing environment can consist of multiple types of clouds based on their deployment and usage. These are explained as follows: Public Cloud: The public cloud is made available to the general public or a large industry group. They are administrated by third parties or vendors over the Internet, and services are offered on pay-per-use basis. The key benefits are : (a) It is widely used in the development, deployment and management of enterprise applications, at affordable costs; (b) It allows organizations to deliver highly scalable and reliable applications rapidly and at more affordable costs. Private Clouds: This cloud computing environment resides within the boundaries of an organization and is used exclusively for the organization s benefits. These are also called internal clouds. They are built primarily by IT departments within enterprises who seek to optimize utilization of infrastructure resources within the enterprise by provisioning the infrastructure with applications using the concepts of grid and virtualization. The benefit of a Private Cloud is that it enables an enterprise to manage the infrastructure and have more control, but this comes at the cost of IT department creating a secure and scalable cloud. Community Clouds: This is the sharing of computing infrastructure in between organizations of the same community. For example, all Government organizations within India may share computing infrastructure on the cloud to manage data. The risk is that data may be stored with the data of competitors. Hybrid Clouds: It is a composition of two or more clouds (Private, Community or Public) and is maintained by both internal and external providers. They have to maintain their unique identity, but are bound together by standardized data and application portability. With a hybrid cloud, organizations might run noncore applications in a public cloud, while maintaining core applications and sensitive data in-house in a private cloud. (b) Information system Life Cycle: This is commonly referred as Software/System Development Life Cycle (SDLC), which is a methodology used to describe the process of building information systems. It is the logical starting point in the entire life cycle of a computerized system. Activities start when any enterprise decides to go for computerization or migrate from existing computerized system to a new one. The Institute of Chartered Accountants of India Phase 1: System Investigation - This phase examines that What is the problem and is it worth solving ? Feasibility study is done under the following dimensions: Technical feasibility: Does the technology exist to implement the proposed system or is it a practical proposition? Economic feasibility: Is proposed system cost-effective: if benefits do not outweigh costs, it s not worth going ahead? Legal feasibility: Is there any conflict between the proposed system and legal requirements? Operational feasibility: Are the current work practices and procedures adequate to support the new system? Schedule feasibility: How long will the system take to develop, or can it be done in a desired time-frame? Phase 2: System Analysis - This phase examines that What must the Information System do to solve the problem ? The Systems Analyst examines data and information flows in the enterprise using data flow diagrams; establishes what the proposed system will actually do (not how it will do it); analyzes costs and benefits; outlines system implementation options (e.g. in-house or using consultants); considers possible hardware configurations; and makes recommendations. Phase 3: System Designing - This phase examines that How will the Information System do what it must do to obtain the solution to the problem ? This phase specifies the technical aspects of a proposed system in terms of Hardware platform, Software, Outputs, Inputs, User interface, Modular design, Test plan, Conversion plan and Documentation. Phase 4: System Implementation - This phase examines that How will the Solution be put into effect ? This phase involves Coding and testing of the system; Acquisition of hardware and software; and either installation of the new system or conversion of the old system to the new one. In Installation, new hardware, which may involve extensive re-cabling and changes in office layouts are installed; Training the users on the new system; and Conversion of master files to the new system or creation of new master files. Phase 5: System Maintenance and Review - This phase evaluates results of solution and modifies the system to meet the changing needs. Post implementation review would be done to address Programming amendments, Adjustment of clerical procedures, Modification of Reports, and Request for new programs. This is often the longest of the stages since it is an on-going process having some sort of long term continuum. The Institute of Chartered Accountants of India 7. (a) Process Management: Process management is based on a view of an organization as a system of interlinked processes which involves concerted efforts to map, improve and adhere to organizational processes. To manage a process, The first task is to define it. This involves defining the steps (tasks) in the process and mapping the tasks to the roles involved in the process. Once the process is mapped and implemented, performance measures can be established. Establishing measurements creates a basis to improve the process. The last piece of the process management definition describes the organizational setup that enables the standardization of and adherence to the process throughout the organization. Assigning enterprise process owners and aligning employees performance reviews and compensation to the value creation of the processes could accomplish this. (b) Application Software: Application software includes all those computer software that cause a computer to perform useful tasks beyond the running of the computer itself. It is a collection of programs which address a real life problem of its end users which may be business or scientific or any other problem. The different types of application software are Application Suite, Enterprise Software, Enterprise Infrastructure Software, Information Worker Software, Content Access Software, Educational Software, Media Development Software etc. Some of the most popular and widely accepted benefits of Application Software are to address user needs, less threat from virus and Regular updates. However, there are certain disadvantages of such software as well. Development is costly and may be Infected from Malware. (c) Virtual Private Network (VPN): Virtual Private Network (VPN) is a secure network that uses the Internet as its main backbone network, but relies on the firewalls and other security features of the Internet and Intranet connections and those of participating organizations. Many organizations use Virtual Private Networks (VPNs) to establish secure intranets and extranets. A VPN is a private network that uses a public network (usually the Internet) to connect remote sites or users together. The VPN uses "virtual connections routed through the Internet from the business's private network to the remote site or employee. By using a VPN, businesses ensure security - anyone intercepting the encrypted data can't read it. (d) Business Intelligence: Business Intelligence (BI) is the delivery of accurate, useful information to the appropriate decision makers within the necessary time frame to support effective decision making for business processes. It is comprised of information that contains patterns, relationships, and trends about customers, suppliers, business partners and employees. Business intelligence systems process, store and provide useful information to the user who need it, when they The Institute of Chartered Accountants of India need it. It can handle large amounts of information to help identify and develop new opportunities. BI, in simple words, refers to the process of collecting and refining information from many sources, analyzing and presenting the information in useful ways so that users can make better business decisions. It is essentially timely, accurate, high-value, and actionable business insights, and the work processes and technologies used to obtain them. (e) Objectives of Business Process Automation (BPA) The success of any Business Process Automation shall only be achieved when BPA ensures: Confidentiality: To ensure that data is only available to persons who have right to see the same; Integrity: To ensure that no un-authorized amendments can be made in the data; Availability: To ensure that data is available when asked for; and Timeliness: To ensure that data is made available in at the right time. The Institute of Chartered Accountants of India Test Series: October, 2014 MOCK TEST PAPER 2 INTERMEDIATE (IPC): GROUP II PAPER 7: INFORMATION TECHNOLOGY AND STRATEGIC MANAGEMENT SECTION B: STRATEGIC MANAGEMENT SUGGESTED ANSWERS/HINTS 1. (a) While it can be argued whether competition is good or bad for an individual business, in broader sense it helps business and its environment. Some of the benefits of competition for businesses are: 1. Brings innovation. 2. Pushes business to use resources wisely. 3. Find better methods and processes for doing same things. 4. Improve quality. 5. Offer competitive prices and improve sales. 6. Businesses with little or no competition will stagnate. Competition not only help the business but also employees, customers/consumers and society. It is strong force behind the present growth and development. Accordingly we may say that the competition is good for business. This is notwithstanding that some of the businesses may lose out in the competitive race. (b) Core competencies are those capabilities that are critical to a business achieving competitive advantage. 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. In order to qualify as a core competence, the competency should differentiate the business from any other similar businesses. Many organizations have restructured their businesses by divesting those businesses which do not match their 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. (c) Benchmarking is a process of finding the best practices within and outside the industry to which an organisation belongs. Knowledge of the best helps in standards setting and finding ways to match or even surpass own performances with the best performances. The Institute of Chartered Accountants of India 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 like maintenance operations, assessment of total manufacturing costs, product development, product distribution, customer services, plant utilisation levels and human resource management (d) Turnaround is needed when an enterprise's performance deteriorates to a point that it needs a radical change of direction in strategy, and possibly in structure and culture as well. It is a highly targeted effort to return an organization to profitability and increase positive cash flows to a sufficient level. It is used when both threats and weaknesses adversely affect the health of an organization so much that its basic survival is difficult. The overall goal of turnaround strategy is to return an underperforming or distressed company to normalcy in terms of acceptable levels of profitability, solvency, liquidity and cash flow. To achieve its objectives, turnaround strategy must reverse causes of distress, resolve the financial crisis, achieve a rapid improvement in financial performance, regain stakeholder support, and overcome internal constraints and unfavourable industry characteristics. (e) The TOWS matrix illustrates how the external opportunities and threats facing a particular corporation can be matched with company's internal strengths and weaknesses to result in possible strategic alternatives to be competitive. It is a good way to use brainstorming and to create alternative strategies that might not otherwise be considered. It forces strategic managers to design various growth, stability or retrenchment strategies. It can be used to generate corporate as well as business strategies. Moreover, TOWS Matrix is very useful for generating a series of alternatives that the decision makers of a company or business unit might not otherwise have considered. Nevertheless, the TOWS Matrix is only one of the many ways to generate alternative strategies. In a way TOWS is considered to be an improvement over the SWOT. However, it is not undermining the SWOT analysis. 2. (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. The Institute of Chartered Accountants of India 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. 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. (b) (i) (ii) 3. Incorrect: Restructuring is neither slow nor the changes are consistent with the existing structure. An organisation that needs to improve its efficiency and profitability may use restructuring as a strategic tool. It involves careful study of existing structures and identifying focus areas that need to be dismantled and rebuilt within an organization. Strategic restructuring in organisations is often adopted after acquisitions, takeovers or bankruptcy. Invariably it also forms part of turnaround management. Restructuring can involve a significant change of an organization s liabilities or assets. Incorrect: In the context of strategic management, retrenchment implies giving up certain products and reducing the level of business as a compulsive measure to cope up with certain adverse developments on which the firm has little control. Downsizing is planned elimination of positions or jobs. Retrenchment does not imply downsizing, however, the latter is often used to implement a retrenchment strategy. (a) (i) Strategic groups are conceptually defined clusters of competitors that share similar strategies and therefore compete more directly with one another than with other firms in the same industry. Strong economic compulsions often constrain these firms from switching one competitive posture to another. Any industry contains only one strategic group when all firms essentially have identical strategies and have comparable market positions. At the other extreme, there are as many strategic groups as there are competitors when each rival pursues a distinctively different competitive approach and occupies a substantially different competitive position in the market place. (ii) Competitive advantage is the result of a strategy capable of helping a firm to maintain and sustain a favourable market position. This position is translated into higher profits compared to those obtained by competitors operating in the same industry. (b) Decision making is a managerial process and function which is greatly influenced by the broad characteristics of business environment. Business environment exhibits many characteristics. These characteristics are: Environment is complex: The environment consists of a number of factors, events, conditions and influences arising from different sources. All these do not exist in isolation but interact with each other to create entirely new sets of The Institute of Chartered Accountants of India 4 influences. It is difficult to comprehend at once the factors constituting a given environment. All in all, environment is a complex that 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 several 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. This is frequently seen when the same development is welcomed as an opportunity by one company while another company perceives it as a threat. Environment has a far reaching impact: The environment has a far reaching impact on organizations. The growth and profitability of an organization depends critically on the environment in which it exists. Any environment change has an impact on the organization in several different ways. (a) Yes, strategy is partly proactive and partly reactive. In proactive strategy, organizations will analyze possible environmental scenarios and create strategic framework after proper planning and set procedures and work on these strategies in a predetermined manner. However, in reality no company can forecast both internal and external environment exactly. Everything cannot be planned in advance. It is not possible to anticipate moves of rival firms, consumer behaviour, evolving technologies and so on. There can be significant deviations between what was visualized and what actually happens. Strategies need to be attuned or modified in light of possible environmental changes. There can be significant or major strategic changes when the environment demands. Reactive strategy is triggered by the changes in the environment and provides ways and means to cope with the negative factors or take advantage of emerging opportunities. (b) Strategic planning determines where an organization is going over the next year or more and the ways for going there. The process is organization-wide, or focused on a major function such as a division or other major function. As such strategic planning is a top level management function. The flow of planning can be from corporate to divisional level or vice-versa. There are two approaches for strategic planning - top down or bottom up. Top down strategic planning describes a centralized approach to strategy formulation in which the corporate centre or head office determines mission, strategic intent, objectives and strategies for the organization as a whole and for all parts. Unit managers are seen as implementers of pre-specified corporate strategies. The Institute of Chartered Accountants of India Bottom up strategic planning is the characteristic of autonomous or semiautonomous divisions or subsidiary companies in which the corporate centre does not conceptualize its strategic role as being directly responsible for determining the mission, objectives, or strategies of its operational activities. It may prefer to act as a catalyst and facilitator, keeping things reasonably simple and confining itself to perspective and broader strategic intent. 5. Five forces model of Michael Porter is a powerful and widely used tool for systematically diagnosing the significant competitive pressures in the market and assessing their strength and importance. The model holds that the state of competition in an industry is a composite of competitive pressures operating in five areas of the over all market. These five forces are: 1. Threat of new entrants: New entrants are always a powerful source of competition. The new capacity and product range they bring in throw up new competitive pressure. And the bigger the new entrant, the more severe the competitive effect. New entrants also place a limit on prices and affect the profitability of existing players. 2. Bargaining power of customers: This is another force that influences the competitive condition of the industry. This force will become heavier depending on the possibilities of the buyers forming groups or cartels. Mostly, this is a phenomenon seen in industrial products. Quite often, users of industrial products come together formally or informally and exert pressure on the producer. The bargaining power of the buyers influences not only the prices that the producer can charge but also influences in many cases, costs and investments of the producer because powerful buyers usually bargain for better services which involve costs and investment on the part of the producer. 3. Bargaining power of suppliers: Quite often suppliers, too, exercise considerable bargaining power over companies. The more specialised the offering from the supplier, greater is his clout. And, if the suppliers are also limited in number they stand a still better chance to exhibit their bargaining power. The bargaining power of suppliers determines the cost of raw materials and other inputs of the industry and, therefore, industry attractiveness and profitability. 4. Rivalry among current players: The rivalry among existing players is quite obvious. This is what is normally understood as competition. For any player, the competitors influence strategic decisions at different strategic levels. The impact is evident more at functional level in the prices being changed, advertising, and pressures on costs, product and so on. 5. Threats from substitutes: Substitute products are a latent source of competition in an industry. In many cases they become a major constituent of competition. Substitute products offering a price advantage and/or performance improvement to the consumer can drastically alter the competitive character of an industry. And they The Institute of Chartered Accountants of India can bring it about all of a sudden. For example, coir suffered at the hands of synthetic fibre. Wherever substantial investment in R&D is taking place, threats from substitute products can be expected. Substitutes, too, usually limit the prices and profits in an industry. The five forces together determine industry attractiveness/profitability. This is so because these forces influence the causes that underlie industry attractiveness/profitability. For example, elements such as cost and investment needed for being a player in the industry decide industry profitability, and all such elements are governed by these forces. The collective strength of these five competitive forces determines the scope to earn attractive profits. The strength of the forces may vary from industry to industry. 6. The prominent areas where the human resource manager can play strategic role are as follows: (i) Providing purposeful direction: The human resource management must be able to lead people and the organization towards the desired direction involving people. The management have to ensure harmony between organisational objectives and individual objectives. Objectives are specific aims which must be in the line with the goal of the organization and the all actions of each person must be consistent with them. The Institute of Chartered Accountants of India (ii) Creating competitive atmosphere: In the present business environment, maintaining competitive position or gains is an important objective of any business. Having a highly committed and competent workforce is very important for getting a competitively advantageous position. (iii) Facilitation of change: The human resource manager will be more concerned about furthering the organization not just maintaining it. He has to devote more time to promote acceptance of change rather than maintaining the status quo. (iv) Diversion of workforce: In a modern organization, management of diverse workforce is a great challenge. Workforce diversity can be observed in terms of male and female, young and old, educated and uneducated, unskilled and professional employee and so on. Maintaining a congenial healthy work environment is a challenge for HR Manager. Motivation, maintaining morale and commitment are some of the key task that a HR manager has to perform. (v) Empowerment of human resources: Empowerment 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. (vi) Building core competency: The human resource manager has an important 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. 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. (vii) Development of works ethics and culture: A vibrant work culture will have to be developed in the organizations to create an atmosphere of trust among people and to encourage creative ideas by the people. Far reaching changes with the help of technical knowledge will be required for this purpose. 7. (a) Strategic leadership is the ability of influencing others to voluntarily make decisions that enhance prospects for the organisation s long-term success while maintaining short-term financial stability. It includes determining the firm s strategic direction, aligning the firm s strategy with its culture, modelling and communicating high ethical standards, and initiating changes in the firm s strategy, when necessary. Strategic leadership sets the firm s direction by developing and communicating a vision of future and inspire organization members to move in that direction. Unlike strategic leadership, managerial leadership is generally concerned with the shortterm, day-to-day activities. Two basic approaches to leadership can be transformational leadership style and transactional leadership style. Transformational leadership style use charisma and enthusiasm to inspire people to exert them for the good of the organization. Transformational leadership style may The Institute of Chartered Accountants of India be appropriate in turbulent environments, in industries at the very start or end of their life-cycles, in poorly performing organizations when there is a need to inspire a company to embrace major changes. Transformational leaders offer excitement, vision, intellectual stimulation and personal satisfaction. They inspire involvement in a mission, giving followers a dream or vision of a higher calling so as to elicit more dramatic changes in organizational performance. Such a leadership motivates followers to do more than originally affected to do by stretching their abilities and increasing their self-confidence, and also promote innovation throughout the organization. Whereas, transactional leadership style focus more on designing systems and controlling the organization s activities and are more likely to be associated with improving the current situation. Transactional leaders try to build on the existing culture and enhance current practices. Transactional leadership style uses the authority of its office to exchange rewards, such as pay and status. They prefer a more formalized approach to motivation, setting clear goals with explicit rewards or penalties for achievement or non-achievement. Transactional leadership style may be appropriate in settled environment, in growing or mature industries, and in organizations that are performing well. The style is better suited in persuading people to work efficiently and run operations smoothly. (b) Acquisition of or merger with an existing concern is an instant means of achieving the expansion. It is an attractive and tempting proposition in the sense that it circumvents the time, risks and skills involved in screening internal growth opportunities, seizing them and building up the necessary resource base required to materialise growth. Organizations consider merger and acquisition proposals in a systematic manner, so that the marriage will be mutually beneficial, a happy and lasting affair. Apart from the urge to grow, acquisitions and mergers are resorted to for purposes of achieving a measure of synergy between the parent and the acquired enterprises. Synergy may result from such bases as physical facilities, technical and managerial skills, distribution channels, general administration, research and development and so on. Only positive synergistic effects are relevant in this connection which denote that the positive effects of the merged resources are greater than the some of the effects of the individual resources before merger or acquisition. The Institute of Chartered Accountants of India

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