Question Paper
Business Policy & Strategy (MB311): July 2005
Section A : Basic Concepts (30 Marks)
• This section consists of questions with serial number 1 - 30.
• Answer all questions.
• Each question carries one mark.
• Maximum time for answering Section A is 30 Minutes.
1. Which among the following is studied with reference to the size, growth rate, age composition, sex < Answer >
composition, life expectancy etc. of the population?
(a) Social environment (b) Cultural environment
(c) Ethical environment (d) Demographic environment
(e) Economic environment.
2. Firms usually source raw material from external suppliers and process them to produce the desired < Answer >
product. However, some firms may attempt to produce the raw material or some components on their
own. For example, Levi’s manufactures the cloth required for making jeans. Which of the following
best describes this strategy?
(a) Acquisition (b) Horizontal integration
(c) Backward integration (d) Diversification
(e) Forward integration.
3. In which of the following structures, functional and product forms are combined simultaneously at the < Answer >
same level of the organization?
(a) Divisional structure (b) Functional structure (c) Simple structure
(d) Matrix structure (e) Geographic structure.
< Answer >
4. Which of the following ratios is used to measure the effective utilization of firms resources?
(a) Liquidity ratios (b) Activity ratios (c) Profitability ratios
(d) Leverage ratios (e) Turnover ratios.
5. Which of the following controls reflects the need to thoroughly reconsider the firm’s basic strategy < Answer >
based on a sudden unexpected event?
(a) Implementation control (b) Special alert control (c) Premise control
(d) Operational control (e) Strategic surveillance.
< Answer >
6. Which of the following statements would hold true for the assumptions of value chain analysis?
(a) To divide firms activities into two major categories
(b) To acquire in-depth understanding of firms capability
(c) To create competitive advantage
(d) To create value for both producer of products or service and its users
(e) A process of internal analysis.
< Answer >
7. Which of the following are the characteristics of fragmented industries?
(a) Low barriers to entry
(b) High barriers to entry
(c) High barriers to entry; with low product differentiation
(d) Low barriers to entry; with high product differentiation
(e) Low barriers to entry; with low product differentiation.
8. Irena has been assigned to work on the development of a budget that plans future investments in major < Answer >
assets such as building and heavy machinery. Irena is working on a (n)
(a) Cash budget (b) Capital budget
(c) Revenue budget (d) Operating budget
(e) Expense budget.
9. The structure of organization is based on the strategy of the firm. Which statement(s) support(s) the < Answer >
choice of structure as a function of strategy?
I. In implementing strategy, all forms of organizational structure are not equally effective
II. In large organizations, structure seems to have a life of their own
III. Sheer growth can make restructuring essential
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IV. Understanding the structure, strategy relationship is provided by research on corporate segment
(a) Only (I) above (b) Both (I) and (II) above
(c) Both (II) and (III) above (d) Both (II) and (IV) above
(e) All (I), (II), (III) and (IV) above.
< Answer >
10. The vision of an organization becomes more tangible when it is expressed in the form of
(a) Objectives (b) Goals (c) Mission
statement
(d) Policies (e) Procedures.
< Answer >
11. The difference between a merger and a joint venture is
(a) There is no profit sharing in joint ventures while in mergers partners share their profits
(b) In joint venture when two firms combine there is no organizational autonomy left between them
while it is not so in the case of mergers
(c) When two firms go for a joint venture they maintain their separate legal entity whereas it is not
the case with merger
(d) Joint venture is for unforeseeable future which is not the case with mergers
(e) In joint venture there is no expectation of profit.
< Answer >
12. Which of these, according to Porter, is not a support activity in a manufacturing firm's value chain?
(a) Firm infrastructure (b) Marketing and sales
(c) Human resource management (d) Procurement (e) General administration.
13. Managers play a key role in the decision-making system of the business. Which of the following does < Answer >
not come under the decisional roles category?
(a) Negotiator (b) Resource allocator
(c) Entrepreneur (d) Liaison role
(e) Disturbance handler.
14. Which of the following strategies describes the pricing policy where the company brings a product to < Answer >
the market with a remarkably low price?
(a) Skimming price (b) Penetration price
(c) Cost-plus price (d) Virtual price (e) Push price.
15. The collection of beliefs, expectations and values learned and shared by a corporation's members and < Answer >
transmitted from one generation of employees to another is known as
(a) Cultural Integration (b) Cultural Intensity
(c) Corporate Culture (d) Corporate Integration
(e) Corporate Identity.
16. The management of change in any company generally fails for one reason, i.e. an inadequate < Answer >
understanding on the part of top management. Quinn argues that the hardest part of strategic
management is implementation of change. The roles of strategic leaders are critical in the process
because they are responsible for the proposed change.
Which of the following statements is contradictory to the Quinn’s Incremental Model?
(a) The strategic leaders will develop their information channels within and extend to the organization
(b) The strategic leader should generate awareness of the desired change within the organization
(c) The strategy will be floated as a clear major change so that it will attract minimum resistance
(d) In the initial period, the strategy will be flexible, so that changes can be made in the light of trials
(e) Finally, the proposed changes will be formalized and ideally accepted within the organization.
< Answer >
17. Grand strategies refers to the strategies that
(a) Involve diversification into related/unrelated business
(b) Are aimed at creating entry barriers in the industry
(c) Indicate the methods to be used to achieve the company’s objectives
(d) Lead to a redefinition of the company’s culture/mission
(e) Implement new ideas.
18. The process by which strategies and policies are put into action through the development of programs, < Answer >
budgets, and procedures is known as
(a) Strategy formulation (b) Strategy implementation
(c) Strategy control (d) Strategy manipulation (e) Strategy direction.
19. When an acquiring firm is focusing purely on the profit pattern of the venture and is little concerned < Answer >
with creating product/market synergy with existing businesses, it is commonly referred to as
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(a) Concentric diversification (b) Backward integration
(c) Horizontal integration (d) Conglomerate diversification
(e) Vertical integration.
< Answer >
20. Two reasons for mergers and acquisitions are
(a) To increase managerial staff and to minimize economies of scale
(b) To reduce tax obligations and increase managerial staff
(c) To create seasonal trends in sales and to make better use of a new sales force
(d) To provide improved capacity utilization and to gain new technology
(e) To divest assets and to improve economies of scale.
21. Which power is used in the advertisements of shirts like Van Heusen and Arrow to show how group < Answer >
acceptance takes place through wearing their shirts?
(a) Expert power (b) Coercive power
(c) Legitimate power (d) Referent power (e) Reward power.
< Answer >
22. Technological transfer, market sharing and investment sharing are involved in a/an
(a) Acquisition (b) Management contracts
(c) Turnkey operation (d) Joint venture
(e) Wholly owned subsidiary.
23. Cultural, legal, political and economic conditions may dictate different optimum operating practices < Answer >
from one country to another. This leads to adoption of
(a) Multi-domestic strategy (b) Global strategy
(c) Nationalistic strategy (d) Transnational strategy
(e) Regional strategy.
< Answer >
24. Which of the following features of a market encourages a firm to enter the market?
(a) High competitive advantage, high risk, high market attractiveness
(b) Low competitive advantage, low risk, high market attractiveness
(c) High competitive advantage, high risk, high exit barrier
(d) Low competitive advantage, high risk, high market attractiveness
(e) High competitive advantage, low risk, high market attractiveness.
< Answer >
25. Which of the following does not support the contingency approach to strategic choice?
(a) A downturn in the economy (b) A labour strike
(c) A technological break through (d) Change in firm’s
management
(e) Shortage of critical material.
< Answer >
26. Which of the following statements is/are correct with regard to competitive scope of the value chain?
I. In segment scope, the buyers are served by a variety of products.
II. The extent to which activities are performed by independent firm instead of
in-house is analyzed under vertical scope.
III. In industry scope the firms view with a coordinated strategy in the range of related industries.
END OF SECTION A
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Caselet 1
Read the caselet carefully and answer the following questions:
1. ‘‘Umang is primarily a project engineering company,’’ said Kohli. ‘‘That is where we should refocus our energies.
Our main thrust should be on bagging contract jobs worldwide for large engineering projects. I don’t think a
satellite status marginalizes our skills,’’ he continues. In this light, how do you support the stand taken by Kohli?
(8 marks) < Answer >
2. What strategies do you recommend for Umang to pursue? Give reasons.
(7 marks) < Answer >
Contract Manufacturing Strategy
Dhruv kohli, Managing Director, Umang Ltd., knew he was holding on to a lifeline. But he was aware that some of his
direct reports thought otherwise. Vinay Paliwal, Vice-President (HRD), was particularly forthright. ‘‘A death trap,’’ he
said. The issue in question was the tentative offer made by Fredrick plc of the UK, after months of mutual talks, for
using Umang’s facilities for captive manufacture of air-conditioners.
Umang had two business divisions: air-conditioners and refrigerators. Over 80 percent of the turnover in both divisions
came from projects and the rest from trading through the dealer network. By successfully bidding for and executing
large projects-both at home and abroad - Umang had acquired, over the years, a fine grip over costs, time frames, and
pricing that gave it a formidable edge over competitors. The company led the central air-conditioning segment (45
percent) and the room air-conditioners segment (33 percent) and had the second-largest market share of 21 percent in
refrigerators.
‘‘The deal with Fredrick envisages the transfer of one of the three existing AC manufacturing facilities of Umang to a
new 50:50 joint venture,’’ said Kohli. ‘‘Fredrick perceives the JV as a platform with which to get a foothold in India
and the neighboring markets. For Umang, it would mean a new growth ambition: focusing on the higher end of the
value chain. Servicing AC equipment-which not only offers higher margins, but also fits in well with our project
orientation-will be the driver for us. That is where the future lies.’’
‘‘In fact, I feel that, over time, we should look for similar arrangements not only for our two other AC manufacturing
facilities but also for the refrigeration business,’’ said Rajiv Desai, Vice-President (Corporate Planning).
‘‘If we pursue that logic, where would Umang be five years from now?’’ asked Arun Singh, VP (Special Projects). ‘‘It
will move out of manufacturing for itself. We will become a satellite firm, orbiting around global majors. Umang will
lose its historical identity. Is that what we want? Several skills would become redundant. Several people would become
redundant. It will be gut wrenching for those who have built it all up.’’
‘‘The business drivers of yore, like capacity utilisation and cost reduction, are no longer valid at Umang,’’ said Vikas
Sarang, COO (Refrigerators). ‘‘We should now look for value. Is each of our activities, processes, businesses, and
delivering value? Is it contributing to enhancing shareholder return? That is the question. Value addition over-rides cost
reduction as a business objective. That is why we need to reposition ourselves on the value chain.’’
‘‘We have to safeguard the future of Umang,’’ added Kohli. ‘‘The white goods sector is facing a churn. The volumes
we sought when we set up two new AC facilities in India in 1992 and 1995 are simply not there. The market is facing a
glut. We need to look for alternatives in order to survive. And, satellite manufacture is a worthwhile option.’’
‘‘My main apprehension is whether we are forfeiting all that we have built over the years,’’ said Vinay Agarwal, COO
(Air-conditioners),’’ and, in doing so, compromising the future of the company.’’
‘‘You have a point there,’’ said Kohli. ‘‘Let us list our competencies.’’
‘‘Our project engineering skills,’’ said Agarwal. ‘‘Our competitors simply do not have the range of capability that we
have in terms of EPC (engineering, procurement and construction management) skills, product technology, IT
infrastructure and after-sales-service. We ensure the best deliverables in terms of service quality and timeliness. This
has been repeatedly acknowledged by our customers whose referrals have consistently generated over 50 percent of new
business every year. Our ability to offer customized services to clients, in terms of managing airflows and temperatures,
is among the finest in the world. It has taken years to build this.’’
‘‘The fact that we operate on a low working capital is a major competency in the industry,’’ said Arun Vinayak, VP
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(Finance). ‘‘We conduct our business with client funds rather than with bank finance. In fact, our reliance on bank
finance is less than 5 percent of our working capital requirements. We have ensured maximum liquidity in operations by
fixing milestones for each project, executing each phase of the rolling project as per a time schedule, and securing
prompt payments at the end of each milestone. That is what sets us apart from domestic competition whose relatively
stronger focus on unitary products and ducted systems forces them to borrow funds to finance their manufacturing and
marketing operations.’’
‘‘How about the fact that we have a disproportionate share of outstanding technical talent in the Indian air-conditioning
and refrigeration industry?’’ asked Paliwal. ‘‘With 650 qualified engineers and 1,200 trained technical staff, we have
the single-largest concentration of industry specialists in the country. The competence of our people is what has
contributed to our monopoly position in central air-conditioning. Incidentally, that, in turn, is what enables us to attract
good quality people whenever the need arises. Our competitors will take long to come anywhere close.’’
‘‘Or the long-term relationships we have built up with architects, interior designers, contractors, vendors, and installers
all over the country. It is unmatched by any of our competitors,’’ he continued. ‘‘Or the finest logistics support system
with over 2,000 dealers today nationwide. It is an effective entry barrier to any MNC trying to set up shop in India.’’
‘‘A satellite status only ensures that we fritter away all these advantages,’’ said Paliwal.
‘‘Umang is primarily a project engineering company,’’ said Kohli. ‘‘That is where we should refocus our energies. Our
main thrust should be on bagging contract jobs worldwide for large engineering projects. I don’t think a satellite status
marginalizes our skills,’’ he continues.
“I see this as an excellent opportunity for Umang to re-invent itself as a value-driven company. By focusing on the
service end of the value chain, we will stay on top of market circumstances instead of being overwhelmed by them.’’
Caselet 2
Read the caselet carefully and answer the following questions:
3. Compare the organizational characteristics of the two companies and identify the sources of conflict between the
companies.
(8 marks) < Answer >
4. What strategies should the companies pursue in integrating their operations? Discuss.
(10 marks) < Answer >
Old vs. New Cultures
Sunil Khurana, 35, Managing Director, PowerWare Ltd, was on his routine early morning rounds of the company’s
shopfloor, when Vinayak Pandey, Chief Security Officer, pulled up on his side.
‘‘We have a problem, sir,’’ Pandey said. ‘‘It is the boys at Netronix,’’ he said, trying to keep pace with both Khurana
and Manu Patel, VP (Manufacturing), who was accompanying the MD. ‘‘They are indisciplined. They are punching
their attendance cards at all odd hours. They walk in and out of the factory as they please. It is a breakdown of
discipline. It has generated resentment among the regulars.’’
‘‘There we go again,’’ said Khurana, winking at Patel. ‘‘Pandey, why don’t you come for the executive committee
meeting scheduled in half-hour? We’ll catch up.’’
Khurana could see the divide. Ever since it was set up as an e-commerce venture within the premises of Powerhouse in
June, 2000, Netronix had opened up battlefronts within. The venture per se had made eminent business sense.
PowerWare was a major player in the Indian electrical industry with the third-largest market share in its flagship
product of transformers. Employing around 400 workmen at a sprawling industrial estate in Pune, it had a turnover of
Rs.100 crore.
Having built up domain expertise, setting up Netronix.com as an industry portal was a logical next step for PowerWare.
The site’s objective was to provide a database of manufacturers, products, product specifications, dealers, India-specific
research reports, and country reports.
‘‘We have several exciting plans for Netronix,’’ said Khurana, opening the meeting later at his office. ‘‘As part of
generating revenue streams for the portal, we are working on three areas. All electrical manufacturers and dealers will
be invited to open their online shops at our portal for a fee. We will also be billing them between 0.5 and 1 percent of
the value of each transaction as our commission. And once we become a full-fledged b2b exchange, we will have
regular auctions for disposal of surplus inventories that will also bring in fee-income.’’
‘‘But the major source of revenue,’’ said Hiranmay Kelkar, V-P (Marketing), ‘‘comes from becoming an Application
Service Provider to small and medium enterprises (SMEs) in the electrical industry. We can put up a software package
on our portal that would enable thousands of SMEs to use it as a selling medium for either a license fee or a transaction
fee payable to Netronix. We are looking at a B2B potential in excess of Rs.10,000 crores turnover per annum that
should translate into a Rs.100 crores portal income.’’
‘‘That is equivalent to the turnover of our brick-and-mortar business at PowerWare,’’ said Vinod Roy, V-P (Finance),
excitedly. “Given the fact that our capital investment in Netronix was Rs.15 crores and the recurring annual investments
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will be about Rs.10 crores, the returns are quite impressive.’’
‘‘That should normally charge up the entire organization,’’ said Aditya Sinha, V-P (HRD). ‘‘But there are schisms. Of
course, there are reasons. The traditional business at PowerWare is not technology-intensive. The pace is slow and
relaxed. Business relationships have been long-term. There is no need for customer focus because a bulk of our
revenues come from state electricity boards. Contrast this with the situation at Netronix, which has only 20 employees.
True, except for five, they were drafted from PowerWare. But they are young, all in their late 20s. Because we update
the site every four hours, they work 24/7. They have flexi time. When we signed them on, we doubled their salaries
straightaway. We have also promised them ESOPs in future.’’
‘‘It might help if we physically moved Netronix out of the premises of PowerWare,’’ suggested Pandey. Sinha was
quick to point out that it will only be a cosmetic change. ‘‘We must retain it within PowerWare,’’ chipped in Khurana
who, as the concurrent CEO of Netronix, saw it as his personal responsibility to ensure company-wide integration. ‘‘I
have been witness to the contrasts in the operating environment of the two businesses. Unlike our parent business where
processes are governed by precision and detail, the new business has no rules to go by. Frankly, it is a crazy scene. But
the guys there are committed. The point is: how do we blend the inherent merits of both businesses to build a seamless
organization?’’
‘‘I think the issue is more basic,’’ said Neil Richards, who had been part of the HRD division of PowerWare before
being asked to head the operations at Netronix. ‘‘There is a growing feeling among senior employees at PowerWare that
they are subsidising a loss-making business. After all, Netronix is bleeding. And it will be at least another three-to-five
years before the hemorrhage stops. And they are all miffed at the attention that the ‘nerds’, as they call us, attract
wherever we go. The fancy packages we get, the paper money we will encash... a lot of myths are being floated. In fact,
one of the plant supervisors asked me in the canteen only this morning: ‘‘when will you start making some money for a
change? Our bonus this year will go down because of the losses you guys are making at Netronix. Can’t blame him,
though.’’
Caselet 3
Read the caselet carefully and answer the following questions:
5. What are the initiatives that DYNAX has taken so far to face competition from imports? What are the strategic
options available to the company to face the competition? Explain.
(7 marks) < Answer >
6. What functional strategies should DYNAX implement to be successful? Discuss
(10 marks) < Answer >
Import Competition
We have crossed the final frontier in global trade,’’ said the official of the Union Ministry of Commerce, looking
straight into the news cameras. It was evident from his self-assured manner that he had mastered the art of the sound
byte. Watching him perform on TV, soon after the EXIM Policy 2001-02 was announced on March 31, Cyrus
Batliwala, CEO, DYNAX Spinning & Weaving Mills Co, was amused. And angered. As a leading spokesman for the
Indian textile industry, Batliwala had always campaigned for what he called ‘‘internal liberalization’’ as a precursor to
opening the doors to competition. ‘‘Final frontier, huh?’’ he said to himself. ‘‘Final offensive on indigenous enterprise
is more like it.’’
Batliwala had been with DYNAX, one of oldest composite textile mills in the country, for more than two decades. He
had steered the company through every crisis-right from the invasion of power looms in the 80s to the deluge of foreign
textile brands in the 90s. But nothing, Batliwala felt, would beat the removal of Quantitative Restrictions on textile
imports on March 31, 2001 for its novelty. And naiveté.
‘‘True, we saw it coming,’’ he said, addressing his A-Team later in the evening. ‘‘Right since 1991, there has been a
progressive move towards dismantling trade controls. It is also true that we have a breathing time of three more years
before the tariff rates are brought in line with the requirements of WTO. But the cost structure is simply not in favour of
DYNAX vis-á-vis, say, China-based Shanghai Clothing Co., which is invading our turf. Shanghai Clothing gets power
at Rs 1.75 per unit, whereas we pay Rs 4 per unit. It borrows funds at about 6 percent while our cost of finance is 15
percent. Where is the level playing field?’’
‘‘I visited the plant when I was in China last week,’’ said Vikram Roy, Vice-President (Marketing). ‘‘Shanghai
Clothing has aggressive growth targets. It gets a quarter of its export revenue from the Indian market and wants to
double it every year. Its efforts at market expansion are focused and concerted. All the way. Its labor force is energized.
The productivity per person there is Rs.30 lakhs. DYNAX’s is Rs.2 lakhs per person. The infrastructure support
provided in China for textiles is very good. The turnaround time at Shenzen port is 24 hours, compared to 7 days at
Nhava Sheva in Mumbai.’’
‘‘A desperate situation calls for desperate solution,’’ said Batliwala. ‘‘But let us first review the initiatives we have
taken so far. We can then examine the various options before us.’’
‘‘Cost control has been the sheet anchor of our strategy,’’ said Sourab Sen, Vice-President (Manufacturing). Indeed,
DYNAX had taken four major steps in this regard. First, it had shut down the unit at Parel, which was manufacturing
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low-end products, where price competition from power looms was stiff. Second, it had begun concentrating on exports
where price realizations were higher. Ergo, from a 15 percent share of turnover in 1994, the share of exports has gone
up to 40 percent. “We are chasing a target of 50 percent by 2003,’’ said Sen.
‘‘We have set up a 100 percent EOU at Nasik in technical collaboration with an Italian firm. DYNAX has also taken
several change initiatives like TQM. We have spent Rs.100 crores on modernization in the last four years, with specific
focus on flexibility and product development ‘‘
‘‘That apart,’’ added Roy, ‘‘the product mix is being rationalized. We have been focusing more on the manufacture of
high-end products like readymades and garments. And also on higher width fabric which helps us secure economies
through lower unit cost. We are also changing the sales mix which at present breaks up into 25 percent to garment
manufacturers, 32 percent, exports and the rest, retail. The mix will change gradually in favour of exports and sale to
garment makers. That is where lie high yields.’’
‘‘These measures are fine,’’ said Batliwala. ‘‘But they do not preempt competition.’’
‘‘There is one area where our competitors in the Asian region are vulnerable,’’ said Roy. ‘‘They cannot handle niche
businesses. They are good at mass production and mass marketing. But they are not comfortable with smaller
production runs requiring flexibility in manufacturing. This is where we should take them on. DYNAX, for example,
can deliver the finished sample of a fabric in two weeks. That is a formidable advantage, which firms like Shanghai
Clothing cannot match. We should exploit it fully.’’
‘‘We should move into the high end of the value chain,’’ said Damodar Hegde, Vice-President (Finance). ‘‘We should
stop making basic products-like the normal fabric-and move into value-added items like non-iron, anti-crease, water-
repellent, and fire-resistant fabrics. These technologies are available today for a price. We should also expand our retail
network and concentrate on branding where the ROI is much higher.’’
‘‘We should start looking at options like sourcing cheaper fabric from the Southeast and the Far East, add value in
India, and re-export,” said Chintaman Deshmukh, Vice-President (Special Projects). ‘‘For example, we can get our
manufacturing done outside India by leasing garment factories. We should also get into JVS with players in the Asian
region. That will preempt competition.’’
‘‘If you can’t beat them,’’ said Roy, ‘‘join them. There is merit in turning our competitors into allies.’’ “But what we
need,” Batlivala reminded his A-team, “is quick solutions. Now if someone can just name some.’’
END OF SECTION B
7. Briefly outline the advantages and disadvantages of functional structure and multidivisional structure in
organizations. Also identify the advantages of centralization and decentralization of decision-making in
organizations.
(10 marks) < Answer >
8. The combination of resources, capabilities and core competencies for mutual business gains leads to strategic
partnerships and associations. Elucidate the rationale behind joint venture.
(10 marks) < Answer >
END OF SECTION C
Section B : Caselets
1. Advantages of contract manufacturing:
• Gives access to markets hitherto unavailable
• Allows moving up the value chain into services
• Renews Umang's much needed focus on margins
• Aids in reinvention of the ageing company.
Disadvantages of contract manufacturing:
• Will lead to a loss of carefully built brand identity
• Could erode organizational skills and competencies
• Sends out wrong signals to employees about the future
• Dangerously lowers entry barriers to new rivals.
< TOP >
2. Go for the alliance: The alliance brings focus to the company's operations. It enables Kohli and his team to
concentrate all resources on strengthening the core skills in project management, and not manufacturing which
does not add much value. Forming an alliance is better than sharing the market with a formidable competitor like
Fredrick. Fredrick brings to the table brand value, technical expertise, strong R&D, better technology, and,
perhaps, more staying power. Umang brings local market penetration and relationships, an excellent technical
team, efficient business practices, and front-end people of outstanding personal repute. Both parties would be
interested in a tie-up, and it will soon boil down to negotiating attractive alliance terms.
The nature of the alliance can range from a simple contract manufacturing arrangement to things like joint product
development, joint project execution in international markets, combined distribution in the retail side, and co-
branding. Umang may not be geared to independently support R&D investments in air purification technology,
variable speed compressors, and environment-friendly materials. If the deal with Umang falls through, Fredrick
would be forced to find another Indian partner, who could well prove to be sub optimal.
In entering into any transaction with Fredrick, Umang should ensure a long lock-in period, rather than a year-to-
year perspective, and move according to a pre-determined transition plan. This could mean starting with a
manufacturing alliance for one of its plants, adding more plants, moving to a marketing and distribution alliance,
and finally a full merger. Such a phased move will allay the concerns of Umang's management team and build
more confidence in the manner in which the combined strengths of the two organizations are being harnessed and
also, in particular, how the careers of the senior managers are being shaped.
Consolidation: Large EPC firms usually do not have manufacturing facilities of their own. This is the trend
worldwide. They outsource all equipment supplies and fabrication work. Having built up expertise in handling
large ac projects, Umang should now consolidate its areas of strength. There is little merit in clinging on to skills
that have lost their edge-even if they have helped build Umang as an organisation in the past. Times are changing
and Umang will have to move with the times, to safeguard its future.
Manufacturing: Own manufacturing simply does not have relevance in the context of not only the expertise
acquired by Umang in EPC, but also of the proposed JV with Fredrick. In fact, own-manufacturing might now be a
handicap on three grounds. One, Umang would be forced to buy components and equipment from its own captive
source and forfeit the price, and delivery advantages available in the open market. Two, the assurance of a captive
customer would provide no incentive to a manufacturing unit to improve efficiency, reduce costs, and enhance
product quality. And, finally, the company may become inward looking, losing all initiatives to look for alternate
sources of supplies.
Service: After sales service is clearly a growth area. There is a possibility of this activity being spun off into an
independent profit center. Kohli and his team should develop and nurture such focus areas within the company.
Jobs should be driven towards pockets where they can be done cost-effectively. That is the key to managing an
EPC business. And given the proposed JV with Fredrick, I am sure Umang is on the right track.
Productivity: The company should review internal operations and look for areas for productivity improvements.
The scope for cost reduction needs to be examined in detail. The objective is to ensure that by the time demand
picks up, Umang is in a better position to take on competition as a leaner and fitter organization.
< TOP >
3.
Powerware Netronix
Hierarchical; command & Organization Networked and
control Structure flexible
Setting the agenda & Role of Creating a milieu for
enforcing change Leadership success
Long-tern; individual Compensation Short-term;
rewards collective
rewards
Focused on functional Internal Focused on the
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turfs Processes customer
Linear, time-bound & Career Plan Lateral and multi-
predictable tasked
Sources Of Conflict
• Netronix does not have revenue sources
• PowerWare is subsidizing a loss-making venture
• Varying perceptions of office discipline and conformity
• Gaps in salary structure too wide
• A feeling among PowerWare employees of being marginalized.
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4. Khurana has to ensure, through appropriate communication channels, that all employees of PowerWare recognize
the fact that the idea behind setting up Netronix is to provide value-added services at every link in the value chain.
He must reiterate the fact that the new business will require time to stabilize and that it will be a drain on the
resources of the organization in the short term but, if nurtured well, deliver very high returns to all the stakeholders
of PowerWare. The success of Netronix will also demonstrate the company's ability to constantly renew itself in
anticipation of future technology trends.
Khurana is facing challenges that are quite typical for an incumbent launching a new economy business. To
successfully address these challenges Khurana must address five key issues:
• Organisational structure: It is important to delink Netronix from PowerWare. The portal business must be
quickly spun off as a Strategic Business Unit (SBU) with its own resource pool. This would be a precursor to
turning Netronix into a separate legal entity and making Initial Public and Employee Stock Option offers
possible. The delinking also enables each organization to develop its own culture.
• People strategy: Khurana may need to hire external people for Netronix, particularly in technology and
marketing, as PowerWare may not have all the relevant skills in-house. However, he should allow
PowerWare staffers with the requisite skills to move to Netronix if they so desire. He must make it clear that
there is no fallback option and the move cannot be reversed. The new economy business is a high-risk, high-
reward business and all must share the risks and rewards equally.
• Compensation policy: Khurana's compensation policy for the new economy business should be
performance-based. This means that fixed salary levels could be moderate, but performance-based bonuses
and ESOPs would boost the total compensation package and make it attractive. Parity between PowerWare
and Netronix salaries should prevail only at the level of the fixed component of the salary. While Khurana
might find it difficult to slash the salaries of migrants from PowerWare, he should increase the variable
component in their compensation.
• Governance: With PowerWare and Netronix functioning as two separate businesses, Khurana need not
worry about the need for integration. Khurana should also consider having an independent, active board of
directors for Netronix. This board could be constituted with a mix of venture capitalists, domain specialists,
and entrepreneurs with good track records.
• Planning and Performance Monitoring: Khurana must ensure that he has a robust business plan, based on
discussions with vendors and customers. He must focus more on planning than on performance reviews-of
both the micro-processes and the business as a whole so that mid-course corrections can be introduced
without delay.
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