The seventh case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY 7

Types of Strategic Integration

Identify the types of strategic integration in each of the following independent situations and state any two conditions when such an integration is not beneficial to a company.

(i) A soft drink manufacturing company "A" is facing stiff competition from another manufacturer. "A" buys bottle from a supplier. "A" wants to manufacture its own bottles and avoid a price mark-up on the bottles and thereby compete with lower cost of packaged drinks.

(ii) Company Comp makes laptops and it wants to acquire its competitor's laptop division "D" and sell under the one brand name "Comp".

 (iii) Agricult Company, which is currently engaged in efficient crop production with modern techniques, is planning to set up its own outlets to sell raw farm processed agricultural products.

Answer:

(i) Vertical backward integration:

 It is not beneficial when:  

a)   There are capacity building issues - for example, the firm may need to build excess upstream capacity to ensure that its downstream operations have sufficient supply under all demand conditions.

b)   Low efficiency lead to potentially higher costs resulting from lack of supplier competition.

c)        When previous upstream or downstream investment lead to decrease flexibility.

d)       Due to in-house development there is decreased ability for enhanced product variety.

e)      Development of new core competencies may compromise existing competencies.

(ii) Horizontal integration:

 It is not beneficial when:  

a)      The investment involved is huge.

b)      When the industry is saturated.

c)     There is inefficiency in the bought-out entity.

d) There is significant increase in overhead cost without corresponding revenue generation or increase in productivity.

(iii) Vertical forward integration:

 It is not beneficial when:
 a)      The company has to incur very high distribution costs.

 b)      There is likelihood of decrease in concentration of existing products.

 c)       The company will tend to become inefficient with regard to its existing strong operations.

 d)     There is considerable investment required.

                                                                                                Source: Suggested Answers - June 2014 by ICAI

The sixth case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY 6

Opportunities, Strengths, Threats and Business Strategies of a Central Government (Government of India (GOI)) Department

The postal department of GOI is trying to develop competitive strategies to make better profits. The chief of the postal department presents the following facts:

 (i) There are many couriers who operate in major cities and offer guaranteed delivery at very marginally higher prices than the postal department and yet manage to make a lot of profits.

(ii) Couriers offer tracking facilities on the e-computer so that a customer knows when his consignment is getting delivered or where it is located at any point of time.

(iii) Many pick up points are available for customers. Even retail customers find it convenient to book their requirements without having to travel much. For bulk booking, the couriers provided pick up facility at no further cost.

 (iv) Couriers are not available in rural and sub-urban areas whereas postal network is very good in these places.

 (v) Couriers in the cities operate until 7 p.m. whereas the corresponding speed posts or registered posts close at 2-30 p.m. / 4 p.m. in most areas and 6 p.m. / 8 p.m. in big Post Offices in Metro Cities/GPO respectively. There are one or at most two centers which operate speed post counters for 24 hours, but there are no 24×7 courier facilities.

 (vi) Postal services for parcels are much cheaper than the courier services. (vii) International courier charges very highly priced for documents and parcels, whereas postal charges are up to 70% cheaper, but delivery is at least 50% slower. Retail customers prefer postal services while corporate houses prefer couriers.

(viii) International courier is mainly parcel services. Documents are not prominent revenue makers due to electronic mode of communication.

 (ix) Staff in courier services is more customer-friendly than the Postal Dept. staff, whereas the Postal Dept. staff are paid much more.

 (x) While wondering how different the scale of profits could be between similar services, the Chief of Postal Department considers that for a Post Office to operate, in addition to document/parcel bookings, banking services like MIS/PF/Savings Account, etc. telephone bill payment services, stamp sale services and other services are being rendered, requiring the necessary hierarchy of approving authority to be present. He is considering opening of more centers exclusively for the equivalent of courier services.

Required:

(a) Identify threats to the Postal Department, GOI.

(b) What would you consider as important strengths of the Postal Department, GOI?

(c) Mention the opportunities that the Postal Department, GOI can profitably consider.

(d) Apart from (x) suggest appropriate business strategies that the Postal Department, GOI may practically apply to successfully run a long-term profitable document/parcel service on the lines of the courier service.

Answer:

(a) Threats:

(i) Couriers are almost replacing document delivery by postal department.

(ii) Couriers could cut price to increase the market share in parcel delivery segment.

(iii) Couriers may fast expand to capture some of the more viable rural areas and satellite towns also. Loss of such customers is a big threat.

(iv) More courier operators could get together to achieve better coverage and lower cost and offer stiff competition as bundled operators.

 (v) International couriers may reset their prices and offer stiffer competition, since already in terms of delivery schedules they have a higher preference. The only prohibited aspect is the price, which may soon be reset.

(b) Strengths:

(i) There is a huge network in rural and sub-urban areas which is no easily affordable by couriers.

(ii) Cheaper pricing tactics with the help of government support and infrastructure usage and inter governmental rates.

(iii) International parcel/document services have a lot of retail customers who prefer this system.

(iv) 24×7 service in select centers which is yet to be copied by competitor effectively.

(c) Opportunities:

(i) Pick up facilities could lure more users.

(ii) Established 24×7 round the clock services in more centers to service more customers in different areas of the country.

(iii) Lower the rates for documents and offer stiffer competition like stay out pricing.

(iv) Parcel packing and pick up services at the customers' door step.

(v) Faster international delivery for embracing corporate clients from competing services, together with mobile phone updates on tracking.

 (vi) Extended working timings for collection centers, especially those that are near railway stations or airports.

(d) Business Strategy:

(i) Tie up with couriers for subcontracting delivery of bundled bulk bags to rural areas by train.

(ii) Set up shift system at strategic centers. Get data on volume of services at different times and enhance availability of services.

(iii) Establish tracking facility on the mobile phones at a price - for example, with BSNL at cheaper rates.

(iv)  Create better pick up facilities at more number of intervals, extend the last cut-off time.

 (v) Cut overhead costs by using skeletal staff at non-pick hours.

(vi)  Award incentives for timely service of staff at critical points. Extra reward for better customer satisfaction.

(vii)Establish a monitoring system and fix responsibility among staff - by customer analysis, repeat customers, customer feedback on why some bulk customers have shifted, etc.

(viii) Additional transport can be outsourced under proper supervision. Fixed costs can be reduced by removing staff without much work or by redistributing and aggregating work so that there no idle time.

(ix) Establish mobile counters in vans for many areas so that more comfort is given for nearby pick up facility and more customers are attracted.

                                                                                                    Source: Suggested Answers - June 2014 by ICAI

The fifth case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY 5

Reasons for fall in market share and suggestions for improvement

Mr. Abraham has recently joined as the Production Manager of Super Food Products Ltd. an Indian subsidiary of a multinational food manufacturer and having an annual turnover of Rs. 500 crores. His first major assignment in the company was to give a new marketing thrust to the several leading known brands of the company whose market share was continuously eroding in the face of growing competition. To start with, he decided to concentrate on two major brands, Power-pack Instant Milk Powder for family and Tomato ketchup with an annual turnover of Rs. 80 crores and Rs. 100 crores respectively. These accounted for a market share of 47% and 28% respectively for the financial year 2011-12 as compared to 68% and 45% for the financial year 2008-09. In spite these slide in the market shares, these brands could retain higher consumer preference and loyalty vis-à-vis other competitive brands.

With a view to having a better appreciation of promotional themes, Mr.Abraham convened a meeting with the advertising agency, Progressive Advertising Ltd. The meeting generated several new ideas on how to push brands up in the consumer recall and preference.

In the light of the above, answer the following questions:

(i) List out the possible reasons why the company has suffered a fall in its market share?

(ii) If you were the Product Manager, what would be your marketing strategy for arresting the trend of slackening sales in the light of the meeting with the advertising agency?

Answers:

(i)  Possible reasons for fall in the market share are:

- Increased domestic and foreign competition

- Shifts in consumer tastes

- Increased price cutting and better dealer margins by rivals

- Complacency on the part of the top management, taking leadership position in the market for granted

- Technological advances through better R&D by competitors

(ii) As a Product Manager, I would focus on the following marketing strategy:

- Find new users- convince people who do not consume milk powder and tomato ketchup to start using the same under market penetration strategy

- New users- discover and promote new users for the products

- Continuous innovation through better R&D

- Increased distribution effectiveness

- Maintain price level or reduce the same through cost cutting 

Source: Suggested Answers - June 2012 by ICAI

The fourth case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY 4

Advantages of Global Strategic Alliance

HP and Microsoft global strategic alliance is one of the longest standing alliances of its kind in the industry, with more than 25 years of combined market place leadership focused on helping customers and channel patterns around the world to improve productivity through the use of innovative technologies. Branded the HP and Microsoft Frontline Partnership, the companies share technology, engineering and marketing resources to create and promote solutions based on industry-standard computing platforms that help solve some of the most challenging IT problems. HP and Microsoft have jointly engineered solutions that deploy smoothly, seamlessly and delivered competitive advantage. Over the time, the alliance has expanded from its earliest roots focused on the desktop PC to include innovations in the data center and emerging technologies for businesses of all sizes. The alliance also has expanded to provide opportunities for our more than 32,000 joint resellers and ecosystem partners.

(i) Define strategic alliance. Identify three basic types of strategic alliances.

(ii) What are the advantages of the HP and Microsoft global strategic alliance?

Answer:

(i) A Strategic Alliance is a relationship between two or more parties to pursue a set of agreed upon goals or to meet a critical business need while remaining independent organizations. This form of cooperation lies between M&A and organic growth. Strategic alliances are cooperative strategies between firms whereby resources and capabilities are combined to create a competitive advantage. All strategic alliances require firms to exchange and share resources and capabilities to co-developed or distribute goods or services. The three basic types of strategic alliances are:

(a) Joint ventures, where a legally independent company is created by at least two other firms, with each firm usually owning an equal percentage of the new company.

Benefits of Joint Venture:

(i) Pooling of resources, (ii) Full utilization of underutilized resources, (iii) Higher rates of profits, (iv) Low risk factors, (v) Massive leverage

(b) Equity strategic alliances, whereby partners own different percentages of equity in the new company they have formed.

Example of Equity Strategic Alliances Ford Motor Company and Mazda Motor Corporation formed a long – standing equity strategic alliance.

(c) Non-equity strategic alliance, which are contractual relationships between firms to share some of their resources and capabilities. Typical forms are like Licensing agreements, distribution agreements and supply contracts.

Example of Non-Equity Strategic Alliances Example of a successful non- equity strategic alliances is the du and Vodafone alliances formed in 2009.

 (ii) The following are specific advantages in the global strategic alliance:

(a) Get instant market access;

(b) Exploit new opportunities to strengthen the position in a market where a firm already have a foothold;

(c) Increase sales;

(d) Gain new skills and technology;

(e) Develop new products at a profit;

(f) Share fixed costs and resources;

(g) Enlarge the distribution channels;

(h) Broaden the businesses and political contact base;

(i) Gain greater knowledge on international customs and culture:

(j) Enhance your image in the world market place.

Source: Suggested Answers - December 2013 by ICAI

The third case study for CMA (Final) - Group 3 students-

Paper 15- Business Strategy and Strategic Cost Management

CASE STUDY 3

Identification of Core Competence of Educational Institution

In a small town called Vellore in South Indian State of Tamilnadu, there is now one famous deemed university called the Vellore Institute of Technology (VIT). Its founder, Mr. Viswanathan, has adopted a unique model of building formidable Core Competencies. He has made huge investments in creating world-class infrastructure, which has attracted the best minds as students not only from various parts of India but also from other countries of the world, including developed countries like Canada and several African nations. What has really mattered is that the quality of teaching has improved, as VIT has been able to conduct very regularly, has opened up many vistas of knowledge and opened up many doors, in the international arena, through very innovative tie-ups with foreign universities. In fact, VIT is just one example of a deemed university that has made India proud. Since, it supplies high quality information technology professionals to all companies. The campus recruitments are one hundred per cent. This has made it a very formidable learning centre in India.

There are few tests useful for identifying a core competence. Does it fit to VIT?

Answer:

There are few tests useful for identifying a core competence. A core competence should; 

(i) Provide access to a wide variety of markets. 

(ii) Contribute significantly to the end-product benefits. 

(iii) Be difficult for competitors to imitate; and 

(iv) It should be valuable.

Source: Suggested Answers - December 2013 by ICAI

Here is the second case study for CMA (Final) - Group 3 students-

Paper 15- Business Strategy and Strategic Cost Management

CASE STUDY 2

A Case Study on Strategic Intent

Fastfix is a small company operating in a single city. Its business is repairing laptops. It has earned a good name for its fair charges and speedy delivery. For the next five years, the environment offers the following information: Many school students are being given laptops by the school themselves and this trend is likely to continue for another five years. College students and coaching centres provide new laptops to all the students during the admission. The fees are inclusive of these costs. Tablets are first replacing laptops in certain market segments and models are changing every six months. If there are major repairs, richer people discard the products and go in for new products or newer versions. However, there are rural markets and certain parts of urban markets which will still be interested in the low cost repaired and re-sold products. Considering the above case of Fastfix it will limit its operations to only one city. 

You are required to give: 

(i) A vision statement; 

(ii) A mission statement; 

(iii) Does SWOT analysis exist?

(iv) Some parameters that could be used in such the above situation relating to the financial and growth perspectives in a Balance Score Card (BSC). 

Answers:

(i) Vision Statement: Our Company intends to provide the best quality of repairs to laptops in the fastest possible time anywhere in the city with the most reasonable changes to customers. 

(ii) Mission Statement: We deliver at customers‟ doorstep their fully functional laptops with minimum down times for customers while ensuring:

(a) Timely delivery as promised: 

(b) Reasonable charges: 

(c) Good quality of services; 

(d) Replacement of parts by genuine parts based on genuine needs; 

(e) Pick up of faulty laptops; and

(f) Offer stand by laptops as per customer requests.

(iii) SWOT Analysis:

(a) Strengths: Access to standard parts that normally fail in laptops, network of trained employees who have thorough job knowledge, available loyal customers, less time in delivery and perfect commitment. 

(b) Weakness: Going beyond the scope of faults recognized by the customers, often leading to cost over runs while preventing future repairs calls. 

(c) Opportunities: Branches may be opened in schools/colleges/big coaching centres. Business can be extended to sale of reworked computers in ready and going markets, preventing maintenance services, annual maintenance contracts, upgrades and compatibility addition with new peripherals, etc. 

(d) Threats: Unless tablet markets also are created to, there is a threat to long term survival. Threats from one stop shops for repairing all types of mobiles /computers /laptop /tablets/ iphones/smart phones, etc. Threats of obsolescence resulting in non-availability of spares. 

(iv) Balance Score Cards (BSC): 

(a) Financial perspective: Revenue from repairs, average job order cost, total spares purchases, delivery costs, (revenue per jobless variable cost per job) as a % of revenue par job, debtors management (target nil), etc. 

(b) Learning/innovation/growth perspectives: Number of employees trained, number of new products repaired, number of new spares used, machinery used for cleaning/servicing, new logistics management, service call tracking, repair status on-line tracking, etc.

Source: Suggested Answers - December 2013 by ICAI

Here is a case study for CMA (Final) Group 3 students-

Paper 15 - Business Strategy and Strategic Cost Management

CASE STUDY 1

Business intelligence in aviation industry

A Case of Business Intelligence in Aviation- the entire matrix of India’s aviation industry has been challenged ever since no-frills airlines made air travel affordable for the country’s growing middle class. Given that Low Cost Carriers (LCC) is the future of air travels in India. LCC are practically non-existent in now-a-days. What is the reason behind such sorry state of affairs among airlines? The answer lies in ‘pricing’. Experts say that Indian LCC have not been able to price their tickets right and at one point even brought their fares close to that of Full Service Carriers (FSC).

According to global standards, the average cost per passenger for LCCs should be $ 35 lower than that of FSCs. But this is contingent on better utilization of aircraft through faster turnarounds i.e. the time taken between landing and the next flight. This is where technology initiatives such as Corporate Performance Management using Business Intelligence (BI) tools can come very handy.

(i) What is ‘Business Intelligence’?

(ii) How to create a ‘Business Intelligence Strategy’ in aviation industry?

(iii)How ‘Business Intelligence’can  enhance the overall decision-making process in Low Cost Airlines Carriers.

Answers:

(i) The term “Business Intelligence (BI)” represents the tools and systems that play a key role in the strategic planning process of the corporation. These systems allow a company to gather, store access and analyze corporate data to aid in decision-making. Generally these systems will illustrate BI in the areas of customer profiling, customer support, market research, market segmentation, product profitability, statistical analysis and inventory and distribution analysis to make a few.

(ii)BI can help here on two counts by utilizing the data held within the organization, trusting that it is reasonably clean and accurate:

(a)   Establishing early warning systems and detection of trends

(b)   Finding relevant patterns and insight

So a BI strategy needs to:

(a)   Be aligned to support the business strategy and goals

(b)   Provide the information the business needs to be an effective job

(c)   Make best and cost effective use of the BI technology and best practices available in terms of implementation speed and development.

(iii)The BI tools can serve to provide self-service querying and reporting facilities, dashboards and like to analyze the performance of the airlines in depth and enhance the overall decision making process in the organization. BI can help capture information such as:

(a)    Average landing per day in each serviced location.

(b)    Average flight duration between two destinations

(c)    Average seat capacity utilization during different times of the day

(d)   Average turnaround time of aircraft.

Source: Suggested Answers - December 2013 by ICAI.