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December, 2011

Ms-91 Advanced Strategic Management

SECTION – A

1. (a) Discuss the various kinds of corporate strategy and under which conditionsieach strategy would be followed ?

(b) Explain the process of policy formulation. Is policy formulation different from strategy formulation ? Discuss.

2. Why is the need for corporate governance felt ? Discuss the subject in the context of Indian situation. What needs to be done further ?

3. Discuss the various approaches/modes of entering into foreign markets and point out their relative advantages and disadvantages. Under what conditions/situations each approach would be considered suitable ?

4. (a) How could R and D create competitive advantage for a firm ? What a firm could do to achieve competitive advantage in implementing its competitive strategy ?

(b) Briefly discuss the characteristics of innovative organizations.

5. Briefly explain the following :

(a) The changing business paradigm and the ethical dilemmas

(b) Characteristics of dynamic environment.

SECTION - B

Read and analyze the case study, hereinafter carefully and answer the questions given

below :

Subhiksha Trading Services (STS) Over the last nine months, R.Subramanian has aged much beyond his 43 years. The Managing Director of Subhiksha Trading Services-which pioneered the discounted retail format in India-has been struggling to get his brainchild operational again after it collapsed in February following a cash cycle squeeze. In fact, the change in Subhiksha's fortunes has been as dramatic as its rapid rise from being just a regional player to a national one. "We were a darling company that could do no wrong till September 2008 and suddenly we were in trouble," rues a dishevelled Subramanian, as he looked back at Subhiksha's early days-clearly successful-and the recent crisis-without doubt an avoidable tragedy. It was in 1996 that the idea of Subhiksha (prosperity in Sanskrit) came to his mind. Organised retail, in India, was non-existent. Subramanian, and IIT Madras and IIM Ahmedabad alumnus, was then into the financial services business of asset securitisation. Research revealed that grocery was one of the largest categories of spending for the average customer, that they were extremely price sensitive on groceries and that discount stores were the largest growing format. But unlike in the West, people in India preferred to shop groceries close by. The model slowly fell into place-a large number of small stores with easy accessibility offering products at a discount. Some vital statistics about Subhiksha are given in Table 1.

Table-1

SUBHIKSHA

YEAR OF FOUNDING: 1997

FOUNDER:

R. Subramanian,

IIT Madras and

TIM Ahmedabad

BUSINESS:

Discounted retail

FUNDING: R. Subramanian,

ICICI Venture (equity);

Consortium of Banks (debt)

EMPLOYEES: 14,000

(by end of 2008)

REVENUE:

Rs 2,305 crore (2007-08)

"Between 2006-07 and 2007-08 we doubled our stores, tripled our revenues and

almost quadrupled our profits - R. Subramanian "We opened our first shop in Chennai in March 1997 with funds from the financial services business, a team of passionate youngsters with little retail experience and a plan to set up a Chennai-centric retail business with low prices and high level of neighbourhood focus as the USP," recalls Subramanian. In the first year 10 stores were opened and the count rose to 19 by March 1999. By then Subhiksha was breaking even, volumes were picking up and customers were responding. Problems did arise initially though, as its unique discounting model enraged the retail trade in Chennai, which accused it of unfairly undercutting their business. By 2000 Subhiksha grew to nearly 50 shops in Chennai retailing groceries and medicines. ICICI Venture's decision then to pick up a 10 per cent stake in Subhiksha for Rs 15 crore gave the retailer enhanced credibility in the market. This money was used to expand outside Chennai, into the rest of Tamil Nadu. By 2002-03, Subhiksha had 140 stores across 30 towns in Tamil Nadu. Sales grew steadily. Cash flows were reasonable and debt, at Rs 15 crore against the net worth of Rs 23 crore, was comfortable. Expansion and Expansion : In 2004, the retail sector was seeing an enhanced level of activity. In what proved to be a watershed decision later in its brief history, Subhiksha decided to expand nationally and more so, scale up at a rapid pace. "We realised that we had done our bit in Tamil Nadu and it was time to go national. The question we faced was do we expand sequentially (one state at a time) or parallely (many states simultaneously) ? We opted for the latter," reveals Subramanian. “Between late 2004 and early 2007, Rs 160 crore worth of equity was raised. That apart, a debt of Rs 220 crore and a bridge loan of Rs 125 crore (pending raising of equity from capital markets) was arranged to fund the national rollout. On an average, 60 to 70 stores were added in a month. The pace of rollout is evident from the fact that till September 2006, Subhiksha had a store count of just 160, but by March 2007 it had shot up to 670 and by March 2008 to 1,320. By September 2008, it was 1,650-in all 1,500 stores were added ih just 24 months. "Business was growing like mad. Despite the cost pressures in 2006 after Reliance, the Birlas and others announced plans to enter retail, between 2006-07 and 2007-08 we doubled our stores (from 670 to 1,320), tripled our revenues (from Rs 833 crore to Rs. 2,305 crore) and almost quadrupled our profits (from Rs. 11 crore to Rs. 39 crore)." says Subramanian. By then Subhiksha had become the country's largest mobile phone retailer with an annual turnover of Rs 1,000 crore. Buoyed by its performance, Wipro Chairman Azim Premji, in March 2008, picked up the 10 per cent stake in Subhiksha that was offloaded by ICICI Venture for Rs 230 crore, pegging the company's valuation at Rs 2,300 crore. Expansion Funding : Debt our Equity. It was clearly the highest point in the retailer's history (and, in a way, beginning of its decline too). The company, which had been contemplating and postponing initial public offering (IPO) since 2007, failed to capitalise on Premji's investment and the goodwill it created to raise money from the market. "We kept thinking : why dilute equity for shareholders ? We wanted to keep equity low and raise more debt. This strategy will return better money for shareholders as stock market is booming. But we should have raised equity in March 2008. There was a lot of investor interest in Subhiksha. Not doing it then was a mistake." Concedes Subramanian. Subhiksha entered 2008-09 with a Rs 1,000-crore investment plan for increasing the store count to 2,200 (from 1,320 as of March 2008) and add a new line of business-consumer durables information technology (CDIT) products retailing. It was to be funded by Rs 400 crore equity and Rs 600 crore debt. In June 2008, it announced a merger plan with Blue Green Construction Ltd, a company listed on the Madras Stock Exchange, and which had done some research on the CDIT business. By then the stock markets had begun to weaken. "A weak market, we thought, would at best lower our valuation by 10 per cent or so. There was nothing to tell us that we were in for a complete collapse of the equity markets," explains Subramanian. The banks were getting worried too. The bridge loan of Rs 125 crore was coming up for repayment in September 2008 and there was no sign of equity. They were finding it difficult to lend. Working Capital for Expansion "By July 2008, we were finding it difficult to borrow. But we kept the expansion going as we were confident of raising equity. In fact, in September we had some good offers for equity but before we could grab it Lehman Brothers collapsed and the markets fell off," reveals Subramanian. In the absence of borrowings. Subhiksha made the cardinal mistake of diverting working capital to fund expansion. Consequently vendor payments were defaulted. They stopped supplies and the shelves ran empty. Salaries and other statutory dues were not paid. Security staff deserted their jobs and over 600 stores were vandalised in November-December 2008. "We desperately worked with various stakeholders to put something together to prevent a collapse. All we needed then was Rs 125 crore to be back in shape. Between September and November 2008, we had four meetings of the collective financial stakeholders. But unfortunately it was a period when liquidity was tight. Investors, too, could not do much as the markets were crazy," rues Subhiksha's founder, adding, "In a way we got into trouble at the wrong time." By end-February 2009 operations came to a standstill. Says Subramanian, "At this stage, everybody's reaction was emotional. There were people who said we should have been more careful in managing our money, which is perfectly right, and that we did not have a plan B." Independent directors quit, relations with ICICI Venture soured (it withdrew its nominees from the board and reportedly sought government investigation into the affairs of Subhiksha). Premji and ICICI Venture objected to the merger of Subhiksha with Blue Green Construction Ltd. Cash Flow Management ? Subramanian is now banking on the much-delayed Corporate Debt Restructuring (CDR) process (involving 13 banks with cumulative exposure of over Rs. 800 crore) to bring Subhiksha back to life. "I don't see ourselves getting back to 1,650 stores. We will probably restart about 1,200 stores once the CDR process is through. We should clearly be back in business in the second quarter of the current fiscal", claims Subramanian. He adds: "Regaining the credibility of vendors, lenders, investors and the employees will be the toughest challenge for us." Has the discounted retail model failed ? His response is quick: "Subhiksha's problem was cash flow mismanagement. We ran a profitable business. We were completely overconfident when it came to raising equity. If anybody wants to be a

serious grocery player in India, they have to follow our path. The model is eminently successful."

Questions:

(a) What went wrong with STS ? What do you attribute as the reasons for its collapse ? Elucidate clearly.

(b) Did STS have a clear strategy ? What should have been the focus of STS ? What cost STS its business ?

(c) Can the company be revived or does revival seem a possibility ? If yes, how, present a plan of action; if no, why (give reasons) ?

(d) Was the expansion funding route adopted by STS justified. Give reasons. 

June, 2013

Ms-91 : Advanced Strategic Management

SECTION - A

1. (a) Briefly discuss the approaches to corporate management. Which one, you think, can be regarded as more appropriate to Indian environment and why ?

(b) what is corporate policy and what is its significance" ? How could management formulate effective corporate policy ?

2. (a) "Effective corporate governance is the new mantra of corporate management today." Why is it necessary for corporate business to have good governance ? Discuss.

(b) Several companies have the position of Chairman of the Board of Directors and the CEO merged into one. Discuss the merits and demerits of this kind of arrangement.

3. (a) What could be the various modes of entry into global markets ? Discuss their merits and demerits.

(b) What are the various pricing strategies available to a firm ? Discuss each one of them with reference to different market structures.

4. (a) "R&D strategy can enhance the competitiveness of a firm." Explain , how ?

(b) Discuss some of the problems or challenges in the effective implementation of a knowledge management system.

5. (a) Why is it important for corporate business to conduct itself in a socially responsible manner ? Explain with examples.

(b) Differentiate between Partial Social Audit and Comprehensive Audit.

SECTION-B

6. Read and analyse the case and answer the questions given at the end.

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From: Minoo Batliwala, chairman

To: Rakcsii Mohan, managing ilirector

Date: May 7

Dear Rakesh,

I've just received a copy of Shringar Auto's preliminary audited results for 1994-95, which will be reviewed by the board on May 25. I think this is an opportune moment to share with you some of my concerns about our future before we're drowned in the celebrations of a successful year. I must admit that the numbers look great. Few of us expected profits to jump by 110 per cent to Rs 310 crore considering that turnover rose by 36 per cent to Rs 2,290 crore. We continue to maintain our leadership position on the homefront with a 52 per cent marketshare in the two-wheeler market: 72 per cent in scooters and 31 per cent in motor-cycles. Our margins are higher than those of any of our domestic rivals. And the stock price of Rs 700 proves that investors are happy. Most people think we're doing everything right. To be honest, I do not. I don't believe that our figures are telling us the truth. Which is that Shringar may not continue to perform as well. Last fortnight, a consultant suggested as much to me privately. And the signs that he pointed to are real, very real. Let 's face it, a 72 per cent share of the scooters market today means that we've dropped four percentage points in two years. In motorcycles too, we've dropped four percentage points. Which means that our competitors are growing faster than we are. Now more competitors are coming in-including foreign companies.

When I look around me, I see not just a successful recovery from a recession, but also overconfidence and complacency. Don't misunderstand me. In the three decades since I started Shringo-r, there are many people who have stood by the company through good and had times. But they're all convinced that the way we've been doing business all these years has proved so efficient that there's no need to change it. How can I tell such self-assured and confident people that we're headed down a one-way street unless we're prepared to change the very basic of our success ? Do you have any answers ?

Regards.

Internal memo

From: Rakesh Mohan, managing director

To: Minoo Batliwala, chairman

c.c. : Hemanth Desai, executive director

Date: May 9

Dear Mr. Batliwala.

Thanks for your note. You have articulated a problem 1 have often faced over the years: you can't argue with success. Of course when the circumstances are abnormal, you can push through change. People rise to the occasion either because they see a challenge or because, quite simple, they are scared. I needn't remind you how we rode the automobile recession in 1990-91. Our sales had plunged by 50 per cent, production had to be slashed by 30 per cent, and profits fell by a fifth. We cut costs just by looking around. We improved quality by disbanding the quality assurance department and assigning the responsibility to the shopfloor staff. We flattened the management hierarchy from 11 layers to six. We raised R&D allocations on projects aimed at improving fuel efficiency and niche products. We did all this for two years-and we not only survived, but prospered. In 1990, a single shift used to produce 128 scooters per assembly line: today ,the same line produces 410 pershift with the same number of people. An improvement of that magnitude would not have come about if we did not have a crisis. I agree with you that we need the same sense of urgency even today. Here's my suggestion: why don't we build some crisis scenarios so that the company can react the same way as it did when the recession hit us ?

Regards.

Internal memo

From: Minoo Batliwala, Chairman

To: Rakesh Mohan, managing director

Date: May 15

Dear Rakesh,

I am glad you agree with me that a fat, happy, and profitable organisation like ours needs to create crisis. What worries me, though, is whether we will barter away our present-day success in the process. Reacting to a recession is one thing: you weren't doing well  anyway and neither were our competitors. So, you didn't have to worry about not letting success slip by while you fought fires. Can we cope with the confusion that unleashing a crisis will lead to ? How will our people react to this sudden spectre thrust upon them ? How will we make the crisis credible ? Please don't think I'm playing the devil's advocate: I genuinely feel that we need to light fires. But how can we convince people there's one when there's no smoke?

Regards.

Internal memo

From: Hemanth Desai, executive director

To: Mr. Rakesh Mohan, managing director

Date: May 16

Dear Mr. Mohan,

Following up on your suggestion, here are my candidates for a crises. The two-wheeler market in the country is growing at about 20 per cent per annum, and the newly-emerging replacement segment is creating its own opportunities for growth. Given the unassailable dominance of Shringar, it will be difficult to market the idea of an impending crisis unless it is linked to some straightforward and honest evidence. We can examine the crises scenario from three different perspectives:

THE INDUSTRY: Shringar has retained its rank as the world's third-largest producer in the two-wheeler league this year. Honda tops the list with 35 per cent of global production, followed by Yamaha with 22 per cent, Shringar with nine per cent, Suzuki with eight per cent, and Piaggio with six per cent. While the gap between Shringar and Yamaha is wide, both Suzuki and Piaggio are snapping at our heels. We have no choice but to surpass our production levels every year in order just to remain where we are. And even to be the second-best in the world, we must chase the numbers far more aggressively than we are doing at present. Nearer home, our marketshare will no longer be unquestionably supreme as it has been for years now. As you will recall, the report by Crosby points out how new entrants will gain at our expense. This could be crisis No.1.

THE ORGANISATION: Shringar is a 30-year-old company. Over 30 per cent of the existing workforce have been with the company since the beginning. A lot of fat has been accumulating at various levels. We have to run Shringar like a small business: fast-moving, people-driven, and innovative. The alternative is a tired, old company which will gradually lose its edge in the marketplace. This could be crises No.2.

THE MARKET: Almost from the beginning we have had no need to market our products. Jumping places on the waiting list meant having to pay a premium. But now, there's a strong undercurrent of customer dissatisfaction. I don't know how this fact can be communicated, but I am sure it will make people at Shringar feel that they have to change in order to survive in the new competitive environment. This could be crisis No.3.

Regards.

Internal memo

From: Rakesh Mohan, managing director

To: Minoo Batliwala, chairman

Date: May 17

Dear Mr Batliwala

I am enclosing a note prepared by Hementh Desai on the possible areas which could qualify for a crisis. I have convened a meeting of the management committee on May 25, before the board meets, to discuss the preliminary audit report. We could discuss the issue further at the meeting and examine ways in which plausible crises for any or all of these could be communicated to the workforce. Many of them think that our company is great the way it is and are bound to ask: why should we change ? We can later work on a formal plan of action.

Regards.

Internal memo

From: Minoo Batliwala, chairman

To: Rakesh Mohan, managing director

May 18

Dear Rakesh,

I must confess to being deeply disturbed. I have been thinking about the efficacy and dangers of creating a crisis, and I'm battered by doubts. Do we have to go on creating a crisis every time we need to change gears? How can the company live in a perpetual state of tension? Isn't there something more positive, such as vision. To set our sights on the future ? There, too, I have my doubts. A vision statement, as it is usually presented, is top-driven, unidimensional, static, and overgeneralised.

I think we need to pursue what I may call bifocal vision-something that helps people in the organisation meet today's business needs even as it prepares them for tomorrow. Bear with the jargon, please. A bifocal vision simultaneously paints a picture of the opportunities available today and the best possible tomorrow. It demands that a company improve and perfect today's products and services to please current customers while developing new products and services to delight tomorrow's customers and investors.

Granted, creating bifocal vision will not be simple. We must perpetually work towards making our current processes obsolete before our competitors do it for us. We must assume that all processes, products, and services are experimental by nature. That way, when a process is seen as an experiment, it becomes temporary and thus, amenable to change. The second thing is that every meeting, agenda, memo, report, and discussion must have this bifocal dimension. Every decision must consider the impact on both today's customers and markets and tomorrow's. when that happens, we will have people who act like owners in the interest of the company-not managers who prefer to safeguard their individual turfs. Perhaps we would not then need an artificial crisis to charge us up.

What do you think ?

Regards.

Questions :

(i) Analytically diagnose the problem the Chairman of the company is faced with. What led to his feeling of insecurity ?

(ii) Should the chairman recreate the sence of doom that led to the company's successful emergence from the recession ?

(iii) Which strategy could succeed in motivating the employees into overcoming the challenge an (artificial) crisis or a new vision for the company, including aspiring targets ? Give your response by clearly analyzing the merits and demerits of each approach.

(iv) What other steps as part of the long term strategy would you suggest for the company ? What must shringar do to maintain its market leadership ?