EIS SM CA Inter Question Paper Nov 2020

EIS SM CA Inter Question Paper Nov 2020 – CA Inter EIS SM Notes is designed strictly as per the latest syllabus and exam pattern.

CA Inter EIS SM Question Paper Nov 2020

Section A:
Enterprise Information Systems

Question 1.
(a) Data Analytics is the process of examining data sets to draw conclusions about the information they contain, increasingly with the aid of specialized systems and software. List out any three application areas of Data Analytics in today’s world. (3 Marks)
(Author Note: Write any three Application areas only. The answer given below is given in detail)

1. At a high level,
Data Analytics methodologies include:
Exploratory Data Analysis (EDA), which aims to find patterns and rela-tionships in data, and

Confirmatory Data Analysis (CDA), which applies statistical techniques to determine whether hypotheses about a data set are True or False.
EDA is often compared to detective work, while CDA is akin to the work of a judge or jury during a court trial.

2. Data Analytics can also be separated into Quantitative Data Analysis and Qualitative Data Analysis.
Quantitative Data Analysis: This involves analysis of numerical data with quantifiable variables that can be compared or measured statistically.

Qualitative Data Analysis: The qualitative approach is more interpretive – it focuses on understanding the content of non-numerical data like text, images, audio and video, including common phrases, themes and points of view.

* Part I consists of Multiple Choice Questions are not available in public domain.

3. At the application level,
Business Intelligence and reporting provides business executives and other corporate workers with actionable information about key performance indicators, business operations, customers and more. Now, organizations increasingly use self-service BI tools that let executives, business analysts and operational workers run their own ad hoc queries and build reports themselves. More advanced types of Data Analytics include-

  • Data Mining, which involves sorting through large data sets to identify trends, patterns and relationships;
  • Predictive Analytics, which seeks to predict customer behaviour, equipment failures and other future events; and
  • Machine Learning, an artificial intelligence technique that uses automated algorithms to churn through data sets more quickly than data scientists can do via conventional analytical modelling.

Big Data Analytics applies data mining, predictive analytics and machine learning tools to sets of big data that often contain unstructured and semi-structured data. Text mining provides a means of analysing documents, emails and other text-based content.

4. Some other Application areas of Data Analytics are as follows:

  • Data Analytics initiatives support a wide variety of business uses. For example, banks and credit card companies analyse withdrawal and spending patterns to prevent fraud and identity theft.
  • E-commerce companies and marketing services providers do clickstream analysis to identify website visitors who are more likely to buy a product or service based on navigation and page-viewing patterns.
  • Mobile network operators examine customer data to forecast so they can take steps to prevent defections to business rivals; to boost customer relationship management efforts. Other companies also engage in CRM analytics to segment customers for marketing campaigns and equip call centre workers with up-to-date information about callers.
  • Healthcare organizations mine patient data to evaluate the effectiveness of treatments for cancer and other diseases.

(b) Briefly explain any two types of Mortgage loan in a Banking system. (2 Marks)
A Mortgage loan is a secured loan which is secured on the borrower’s property by marking a lien on the property as collateral for the loan. If the borrower stops paying, then the lender has the first charge on the property. Mortgages are used by individuals and businesses to make large real estate purchases without paying the entire value of the purchase upfront. Over the period of many years, the borrowers repay the loan amount along with interest until there is no outstanding.

Types of Mortgage Loan

  1. Home Loan: This is a traditional mortgage where customer has an option of selecting fixed or variable rate of interest and is provided for the purchase of property.
  2. Top Up Loan here the customer already has an existing loan and is applying for additional amount either for refurbishment or renovation of the house.
  3. Loans for Under Construction Property: In case of under construction properties the loan is disbursed in tranches/parts as per construction plan.

Question 2.
(a) Protecting the integrity of a database when application software acts as an interface to interact between the user and the database are called j update controls and report controls. Discuss any three update controls and three report controls. (6 Marks)
Protecting the integrity of a database when application software acts as an interface to interact between the user and the database, are called update controls and report controls.

Major Update Controls Are Given As Follows:

  • Ensure All Records on Files are processed: While processing, the transaction file records mapped to the respective master file, and the end-of-file of the transaction file with respect to the end-of-file of the master file is to be ensured.
  • Process multiple transactions for a single record in the correct order: Multiple transactions can occur based on a single master record (e.g. dispatch of a product to different distribution centers). Here, the order in which transactions are processed against the product master record must be done based on a sorted transaction codes.
  • Sequence Check between Transaction and Master Files: Synchroniza-tion and the correct sequence of processing between the master file and transaction file is critical to maintain the integrity of updating, insertion or deletion of records in the master file with respect to the transaction records. If errors, in this stage are overlooked, it leads to corruption of the critical data.
  • Maintain a suspense account: When mapping between the master record to transaction record results in a mismatch due to failure in the corresponding record entry in the master record; then these trans-actions are maintained in a suspense account. A non-zero balance of the suspenses accounts reflects the errors to be corrected.

Major Report Controls Are Given As Follows:

  • Print Suspense Account Entries: Similar to the update controls, the suspense account entries are to be periodically monitors with the respective error file and action taken on time.
  • Print-Run-to Run control Totals: Run-to-Run control totals help in identifying errors or irregularities like record dropped erroneously from a transaction file, wrong sequence of updating or the application software processing errors.
  • Standing Data: Application programs use many internal tables to perform various functions like gross pay calculation, billing calculation based on a price table, bank interest calculation etc. Maintaining integrity of the pay rate table, price table and interest table is critical within an organization.

Existence / Recovery Controls: The back-up and recovery strategies together encompass the controls required to restore failure in a database. Backup strategies are implemented using prior version and logs of transactions or changes to the database. Recovery strategies involve roll-forward (current state database from a previous version) or the roll-back (previous state database from the current version) methods.

(b) After defining risk appetite, strategies are set to manage risks. Explain any four risk management strategies. (4 Marks)
[Author Note: Same Question could be asked as:
Explain in brief Risk Management Strategies.
In an organization, effective risk management involves identification of high-level risk exposures and their analysis. Discuss all the risk manage-ment strategies out of which Senior Management of an organization may choose to adopt any of the risk management strategy based on the analysis of risks. [RTP MAY-20]
When risks are identified, and analyzed, it is not always appropriate to implement controls to counter them. Some risks may be minor, and it may not be cost effective to implement expensive control processes for them. Risk management strategy is explained and illustrated below:

1. Tolerate/Accept the risk. One of the primary functions of management is managing risk. Some risks may be considered minor because their impact and probability of occurrence is low. In this case, consciously accepting the risk as a cost of doing business is appropriate, as well as periodically reviewing the risk to ensure its impact remains low.

2. Terminate/Eliminate the risk. It is possible for a risk to be associated with the use of a technology, supplier, or vendor. The risk can be eliminated by replacing the technology with more robust products and by seeking more capable suppliers and vendors.

3. Transfer/Share the risk. Risk mitigation approaches can be shared with trading partners and suppliers. A good example is outsourcing infrastructure management. In such a case, the supplier mitigates the risks associated with managing the IT infrastructure by being more capable and having access to more highly skilled staff than the primary organization. Risk also may be mitigated by transferring the cost of realized risk to an insurance provider.

4. Treat/mitigate the risk. Where other options have been eliminated, suitable controls must be devised and implemented to prevent the risk from manifesting itself or to minimize its effects.

5. Turn back. Where the probability or impact of the risk is very low, then management may decide to ignore the risk.

Question 3.
(a) Many organization are implementing Enterprise Resource Planning [ERP] software, where it integrates all of the processes needed to run Js their business with a single system. As a System analyst briefly explain the benefits to ERP system. (6 Marks)
1. Information integration
2. Use of Latest Technology
3. On-time Shipment
4. Reduction of lead-time
5. Reduction in Cycle Time
6. Reduced Quality Costs
7. Improved Resource utilization
8. Better Customer Satisfaction
9. Improved Supplier Performance
10. Increased Flexibility
11. Improved information accuracy and decision-making capability
12. Better Analysis and Planning Capabilities

1. Information integration: The reason ERP systems are called integrated is because they possess the ability to automatically update data between related business functions and components. For example – one needs to only update the status of an order at one place in the order-processing system; and all the other components will automatically get updated.

2. Use of Latest Technology: ERP packages are adapted to utilize the latest developments in Information Technology such as open systems, client/ server technology, Cloud Computing, Mobile computing etc. It is this adaptation of ERP packages to the latest changes in IT that makes the flexible adaptation to changes in future development environments possible.

3. On-time Shipment: Since the different functions involved in the timely delivery of the finished goods to the customers- purchasing, material man-agement production, production planning, plant maintenance, sales and distribution – are integrated and the procedures automated; the chances of errors are minimal and the production efficiency is high. Thus, by integrating the various business functions and automating the procedures and tasks the ERP system ensures on-time delivery of goods to the customers.

4. Reduction of lead-time: The elapsed time between placing an order and receiving it is known as the Lead-time. The ERP Systems by virtue of their integrated nature with many modules like Finance, Manufacturing, Material Management Module etc.; the use of the latest technologies like EFT (Electronic Fund Transfer), EDI (Electronic Data Interchange) reduce the lead times and make it possible for the organizations to have the items at the time they are required.

5. Reduction in Cycle Time: Cycle time is the time between placement of the order and delivery of the product. In an ERP System; all the data, updated to the minute, is available in the centralized database and all the procedures are automated, almost all these activities are done without human intervention. This efficiency of the ERP systems helps in reducing the cycle time.

6. Reduced Quality Costs: Quality is defined in many different ways- excellence, conformance to specifications, fitness for use, value for the price and so on. The ERP System’s central database eliminates redundant specifications and ensures that a single change to standard procedures takes effect immediately throughout the organization. The ERP systems also provide tools for implementing total quality management programs within an organization.

7. Improved Resource utilization: The efficient functioning of the different modules in the ERP system like manufacturing, material management, plant maintenance, sales and distribution ensures that the inventory is kept to a minimum level, the machine down time is minimum and the goods are produced only as per the demand and the finished goods are delivered to the customer in the most efficient way. Thus, the ERP systems help the organization in drastically improving the capacity and resource utilization.

8. Better Customer Satisfaction: Customer satisfaction means meeting or exceeding customers ‘requirements for a product or service. With the help of web-enabled ERP systems, customers can place the order, track the status of the order and make the payment sitting at home. Since all the details of the product and the customer are available to the person at the technical support department also, the company will be able to better support the customer.

9. Improved Supplier Performance: ERP systems provide vendor manage-ment and procurement support tools designed to coordinate all aspects of the procurement process. They support the organization in its efforts to effectively negotiate, monitor and control procurement costs and schedules while assuring superior product quality. The supplier management and control processes are comprised of features that will help the organization in managing supplier relations, monitoring vendor activities and managing supplier quality.

10. Increased Flexibility: ERP Systems help the companies to remain flex-ible by making the company information available across the departmental barriers and automating most of the processes and procedures, thus enabling the company to react quickly to the changing market conditions.

11. Improved information accuracy and decision-making capability: The three fundamental characteristics of information are accuracy, relevancy and timeliness. The information needs to be accurate, relevant for the decision-maker and available to the decision-makers when he requires it. The strength of ERP Systems- integration and automation – help in improving the information accuracy and help in better decision-making.

12. Better Analysis and Planning Capabilities: Another advantage provided by ERP Systems is the boost to the planning functions. By enabling the comprehensive and unified management of related business functions such as production, finance, inventory management etc. and their data, it becomes possible to utilize fully many types of Decision Support Systems (DSS) and simulation functions, what-if analysis and so on; thus, enabling the decision-makers to make better and informed decisions.

(b) Define any four constraints which are usually taken from the characteristics of grid environments and application in order to develop grid computing security architecture. (4 Marks)
[Author Note: Same Question could be asked as:
Q. Explain Grid Computing Security.
Prepare a list of constraints that are required to develop Grid Computing Security.
To develop security architecture, following constraints are taken from the characteristics of grid environment and application.

  • Single Sign-on: A user should authenticate once and they should be able to acquire resources, use them, and release them and to commu-nicate internally without any further authentication,
  • Protection of Credentials: User passwords, private keys, etc. should be protected.
  • Interoperability with local security solutions: Access to local resources should have local security policy at a local level. Despite of modifying every local resource there is an inter-domain security server for pro-viding security to local resource.
  • Exportability: The code should be exportable i.e. they cannot use a large amount of encryption at a time. There should be a minimum communication at a time.
  • Support for secure group communication: In a communication there are number of processes which coordinate their activities. This coor-dination must be secure and for this there is no such security policy.
    Support for multiple implementations, There should be a security policy which should provide security to multiple sources based on public and private key cryptography.

Question 4.
(a) Once the complete business of a bank is captured by technology 3 and processes are 6 automated in Core Banking System [CBS], the data of the bank, customer, management and staff are completely dependent on the Data Centre. From a risk assessment point of view, it is critical to ensure that the bank can impart training to its staff in the core areas of technology for efficient risk management. Explain any six common IT risks related to CBS. (6 Marks)
Some of the common IT risks related to CBS are as follows:

  1. Access Controls: Designing and monitoring access control is an extremely challenging task. Bank environments are subject to all types of attacks; thus, a strong access control system is a crucial part of a bank’s overall security plan. Access control, however, does vary between branch networks and head office locations.
  2. User Identity Management: This could be a serious issue. Some Banks may have more than 5000 users interacting with the CBS at once.
  3. Authorization process: Anybody with access to the CBS, including the customer himself, can enter data directly. What is the authorization process? If the process is not robust, it can lead to unauthorized access to the customer information.
  4. Authentication procedures: Usernames and Passwords, Personal Identification Number (PIN), One Time Password (OTP) are some of the most commonly used authentication methods. However, these may be inadequate and hence the user entering the transaction may not be determinable or traceable.
  5. Maintaining response time: Maintaining the interfacing software and ensuring optimum response time and up time can be challenging.
  6. Several software interfaces across diverse networks: A Data Centre can have as many as 75-100 different interfaces and application software. A data center must also contain adequate infrastructure, such as power distribution and supplemental power subsystems, including electrical switching; uninterruptible power supplies; backup generators and so on. Lapse in any of these may lead to real-time data loss.
  7. Ownership of Data/process: Data resides at the Data Centre. Establish clear ownership.
  8. Incident handling procedures: Incident handling procedures are used to address and manage the aftermath of a security breach or cyber-attack. However, these at times, may not be adequate considering the need for real-time risk management.
  9. Change Management: Though Change management reduces the risk that a new system or other change will be rejected by the users; however, at the same time, it requires changes at application level and data level of the database- Master files, transaction files and reporting software.

(b) Public cloud is the cloud infrastructure that is provisioned for open use by the general public. Explain any four characteristics of public cloud. (4 Marks)
Characteristics of Public Cloud

  • Highly Scalable: The resources in the public cloud are large in number and the service providers make sure that all requests are granted. Hence public clouds are scalable.
  • Affordable: The cloud is offered to the public on a pay-as-you-go basis; hence the user has to pay only for what he or she is using (using on a per-hour basis). And this does not involve any cost related to the deployment.
  • Less Secure: Since it is offered by a third party and they have full control over the cloud, the public cloud is less secure out of all the other deployment models.
  • Highly Available: It is highly available because anybody from any part of the world can access the public cloud with proper permission, and this is not possible in other models as geographical or other access restrictions might be there.
  • Stringent SLAs: As the service provider’s business reputation and customer strength are totally dependent on the cloud services, the follow the SLAs strictly and violations are avoided.

Question 5.
(a) Enterprise Risk Management [ERM] framework consists of inte-grated components 6 that are derived from the way management runs a business and are integrated with the management process. Define any six components of ERM framework. (6 Marks)
ERM framework consists of eight interrelated components that are derived from the way management runs a business, and are integrated with the management process. These components are as follows:
1. Internal Environment:

  • The internal environment encompasses the tone of an organization, and sets the basis for how risk is viewed and addressed by an entity’s people, including risk management philosophy and risk appetite, integrity and ethical values, and the environment in which they operate.
  • Management sets a philosophy regarding risk and establishes a risk appetite.
  • The internal environment sets the foundation for how risk and control are viewed and addressed by an entity’s people.

2. Risk Assessment:

  • Identified risks are analyzed to form a basis for determining how they should be managed.
  • Risks are associated with related objectives that may be affected.
  • Risks are assessed on both an inherent & a residual basis, and the assessment considers both risk likelihood and impact.

3. Control Activities:

  • Policies and procedures are established and executed to help ensure that the risk responses management selected, are effectively carried out.

4. Information and Communication:

  • Relevant information is identified, captured and communicated in a form and time frame that enable people to carry out their responsibilities.
  • Information is needed at all levels of an entity for identifying, assessing and responding to risk.
  • Effective communication also should occur in a broader sense, flowing down, across and up the entity.
  • Personnel need to receive clear communications regarding their role and responsibilities.

5. Monitoring:

  • The entire ERM process should be monitored, and modifications made as necessary.
  • In this way, the system can react dynamically, changing as con-ditions warrant.
  • Monitoring is accomplished through ongoing managem ent activi-ties, separate evaluations of the ERM processes or a combination of the both.

6. Objective Setting:

  • Objectives should be set before management can identify events potentially affecting their achievement.
  • ERM ensures that management has a process in place to set objectives and that the chosen objectives support and align with the entity’s mission/vision and are consistent with the entity’s risk appetite.

7. Event Identification:

  • Potential events that might have an impact on the entity should be identified.
  • Event identification includes identifying factors – internal and external – that influence how potential events may affect strategy implementation and achievement of objectives. ;
  • It includes distinguishing between potential events that represent risks, those representing opportunities and those that may be both.
  • Opportunities are channelled back to management’s strategy or objective-setting processes.

8. Risk Response:

  • Management selects an approach or set of actions to align assessed risks with the entity’s risk tolerance and risk appetite, in the context of the strategy and objectives.
  • Personnel identify and evaluate possible responses to risks, including avoiding, accepting, reducing and sharing risk.

(b) (i) Define any two information system controls based on objectives of controls. (2 Marks)
(A) Preventive Controls:

  1. These controls prevent errors, omissions, or security incidents from occurring.
  2. In other words, Preventive Controls are those inputs, which are designed to prevent an error, omission or malicious act occurring.
  3. Some of the examples of Preventive Controls are as follows:
    • Employing qualified personnel;
    • Segregation of duties;
    • Access control;
    • Documentation;
    • Training and retraining of staff;
    • Firewalls;
    • Anti-virus software (sometimes this acts like a corrective control also), etc.,
    • Passwords.
    • Vaccination against diseases;
    • prescribing appropriate books for a course;
    • Authorization of transaction;
    • Validation, edit checks in the application;

(B) Detective Controls:

  1. These controls are designed to detect errors, omissions or malicious acts that occur and report the occurrence.
  2. In other words, Detective Controls detect errors or incidents that elude preventive controls.
  3. Examples:
    • Cash counts;
    • Bank reconciliation;
    • review of payroll reports;
    • Compare transactions on reports to source documents;
    • Monitor actual expenditures against budget;
    • Check points in production jobs;
    • Duplicate checking of calculations; (past-due accounts report);
    • The internal audit functions;
    • Intrusion Detection System;

(C) Corrective Controls:

  1. It is desirable to correct errors, omissions, or incidents once they have been detected.
  2. Corrective controls are designed to reduce the impact or correct an error once it has been detected.
  3. Examples:
    • Submit corrective journal entries after discovering an error;
    • A Business Continuity Plan (BCP);
    • Contingency planning;
    • Backup procedure;
    • Rerun procedures;
    • Change Input value to an application system; and
    • Investigate budget variance and report violations.

(b) Name any four activities executed by the Operating System. (2 Marks)
A variety of activities are executed by Operating systems which include:

  1. Memory Management: Memory Management features of Operating System allow controlling how memory is accessed and maximize available memory & storage.
  2. Task Management: This facilitates a user to work with more than one application at a time ie. multitasking and allows more than one user to use the system ie. time sharing.
  3. Networking Capability: Operating systems can provide systems with features & capabilities to help connect computer networks like Linux & Windows 8
  4. Logical Access Security: Operating systems provide logical security by establishing a procedure for identification & authentication using a User ID and Password.
  5. File management: The operating system keeps a track of where each file is stored and who can access it, based on which it provides the file retrieval.
  6. Performing hardware functions: Operating System acts as an interme-diary between the application program and the hardware by obtaining input from keyboards, retrieve data from disk and display output on monitors.
  7. User Interfaces: Nowadays, Operating Systems are Graphic User Interface (GUI) based which uses icons and menus like in the case of Windows.
  8. Hardware Independence:
    • Operating system provides Application Program Interfaces (API),
    • which can be used by application developers to create application software,
    • thus obviating the need to understand the inner workings of OS and hardware. Thus, OS gives us hardware independence.


Write short note on Cryptography. (2 Marks)
It deals with programs for transforming data into cipher text that are meaningless to anyone, who does not possess the authentication to access the respective system resource or file.
A cryptographic technique encrypts data (clear text) into cryptograms (cipher text) and its strength depends on the time and cost to decipher the cipher text by a cryptanalyst.

Three techniques of cryptography are:

  • Transposition (permute the order of characters within a set of data),
  • Substitution (replace text with a key-text) and
  • Product cipher (combination of transposition and substitution).

Section B: Strategic Management

Question 6.
ABC Ltd., is a beverage manufacturing company. It chiefly manufac-tures soft drinks. The 5 products are priced on the lower side which has made the company a leader in the business. Currently it is holding 35 percent market share.

The R & D of company developed a formula for manufacturing sugar free beverages. On successful trail and approval by the competent authorities, company was granted to manufacture sugar free beverages. This company is the pioneer to launch sugar free beverages which are sold at a relatively higher prices. These products product has proved profitable for the company.

Identify the strategy employed by the company ABC Ltd., and mention what measure could be adopted by the company to achieve the employed strategy. (5 Marks)
Strategy adopted by Company ABC Ltd. is Differentiation Strategy since ABC Ltd is the pioneer to launch sugar free beverages which are sold at a relatively higher prices.

This strategy is aimed at broad mass market and involves the creation of a product or service that is perceived by the customers as unique. The uniqueness can be associated with product design, brand image, features, technology, dealer network or customer service. Because of differentiation, the business can charge a premium for its product.

To achieve differentiation, following are the measures that could be adopted by an organization to incorporate:

  1. Offer utility for the customers and match the products with their tastes and preferences.
  2. Elevate the performance of the product.
  3. Offer the promise of high quality product/service for buyer satisfac-tion.
  4. Rapid product innovation.
  5. Taking steps for enhancing image and its brand value.
  6. Fixing product prices based on the unique features of the product and buying capacity of the customer.

Question 7.
(a) Draw “Divisional Structure” with the help of a diagram. Also, give advantages and disadvantages of this structure in brief. (5 Marks)
EIS SM CA Inter Question Paper Nov 2020 1
A divisional structure has some clear advantages.

  1. First and perhaps foremost accountability is clear. That is, divisional managers can be held responsible for sales and profit levels.
  2. Because a divisional structure is based on extensive delegation of authority, managers and employees can easily see the results of their good or bad performances.
  3. As a result, employee morale is generally higher in a divisional struc-ture than it is in centralized structure.
  4. it creates career development opportunities for managers,
  5. allows local control of local situations,
  6. leads to a competitive climate within an organization, and allows new businesses and products In be added easily.

Limitations of Divisional Structure/Design:

  1. Perhaps the most important limitation is that a divisional structure is costly, for a number of reasons.
    • First, each division requires functional specialists who must be paid.
    • Second, there exists some duplication of staff services, facilities, and personnel; for instance, functional specialists are also needed centrally (at headquarters) to coordinate divisional activities.
    • Third, managers must be well qualified because the divisional design forces delegation of authority better-qualified individuals requires higher salaries.
  2. It requires an elaborate, headquarters-driven control system.
  3. Finally, certain regions, products, or customers may sometimes receive special treatment, and It may be difficult to maintain consistent, company wide practices.

(b) What is Strategic control? Kindly explain the statement that ‘premise control is a tool for systematic and continuous monitoring of the environment. (5 Marks)
Strategic Control: According to Schendel and Hofer “Strategic control focuses on the dual questions of whether:

  1. the strategy is being implemented as planned; and
  2. the results produced by the strategy are those intended.”

There is often a time gap between the stages of strategy formulation and its implementation. A strategy might be affected on account of changes in internal and external environments of organisation. There is a need for warning systems to track a strategy as it is being implemented. Strategic control is the process of evaluating strategy as it is formulated and imple-mented. It is directed towards identifying problems and changes in premises and making necessary adjustments.

There are four types of strategic control. Premise control is one of them.

PREMISE CONTROL: A strategy is formed on the basis of certain as-sumptions or premises about the complex and turbulent organizational environment. Over a period of time these premises may not remain valid. Premise control is a tool for systematic and continuous monitoring of the environment to verify the validity and accuracy of the premises on which the strategy has been built. It primarily involves monitoring two types of factors:

  1. Environmental factors such as economic (inflation, liquidity, interest rates), technology, social and legal-regulatory.
  2. Industry factors such as competitors, suppliers, substitutes.

It is neither feasible nor desirable to control all types of premises in the same manner. Different premises may require different amount of control. Thus, managers are required to select those premises that are likely
to change and would severely impact the functioning of the organization and its strategy.

Question 8.
(a) Discuss the guidelines for selection of Research and Development, expertise by an organization. (5 Marks)
A critical question is whether a firm should develop research and development expertise internally or outside to external agencies. The fol-lowing guidelines can be used to help make this decision:

  1. If the rate of technical progress is slow, the rate of market growth is moderate, and there are significant barriers to possible new entrants, then in-house R&D is the preferred solution. The reason is that R&D, if successful, will result in a temporary product or process monopoly that the company can exploit.
  2. If technology is changing rapidly and the market is growing slowly, then a major effort in R&D may be very risky, because it may lead to the development of an ultimately obsolete technology or one for which there is no market.
  3. If technology is changing slowly but the market is growing quickly, there generally is not enough time for in-house development. The prescribed approach is to obtain R&D expertise on an exclusive or non-exclusive basis from an outside firm.
  4. If both technical progress and market growth are fast, R&D expertise should be obtained through acquisition of a well-established firm in the industry.

(b) Why companies should go global? Mention any five reasons. (5 Marks)
There are several reasons why companies go global. These are dis-cussed as follows:

  • The first and foremost reason is need to grow. It is basic need of organisations. Often finding opportunities in the other parts of the globe organisation extend their businesses and globalise.
  • There is rapid shrinking of time and distance across the globe thanks to faster communication, speedier transportation, growing financial flows and rapid technological changes.
  • It is being realised that the domestic markets are no longer adequate and rich. Japanese have flooded the U.S. market with automobiles and electronics because the home market was not large enough to absorb whatever was produced.
  • There can be varied other reasons such as need for reliable or cheaper source of raw-materials, cheap labour, etc.
    For Example: Hyundai got competent engineers at lower cost, industry friendly Maharashtra Govt, which allowed them to setup a unit in India which supplies spare parts for all Hyundai Cars across the world. Companies often set up overseas plants to reduce high transportation costs.
  • Companies often set up overseas plants to reduce high transportation costs.
    For Example: Making a car in Korea & exporting it in Europe & America is expensive & time consuming therefore India as a manufacturing hub for Hyundai proved to be better place.
  • When exporting organisations find foreign markets to open up or grow big, they may naturally look at overseas manufacturing plants and sales branches to generate higher sales and better cash flow.
    For Example: Hyundai cars made by Korea, sold in India were highly demanded and Hyundai decided to setup a plant here.
  • The rise of services to constitute the largest single sector in the world economy; and regional economic integration, which has involved both the world’s largest economies as well as certain developing economies.
  • The apparent and real collapse of international trade barriers redefines the roles of state and industry. The trend is towards increased privatization of manufacturing and services sectors, less government interference in business decisions and more dependence on the value-added sector to gain market place competitiveness. The trade tariffs and custom barriers are getting lowered, resulting in increased flow of business.
  • Globalization has made companies in different countries to form strate-gic alliances to ward off (to prevent from) economic and technological threats and leverage their respective comparative and competitive advantages.

Question 9.
(a) State factors of human resource that have a strong influence on employee competence. (5 Marks)
Human resource management has been accepted as a strategic partner in the formulation of organization’s strategies and in the implementation of such strategies through human resource planning, employment, training, appraisal and reward systems.

The following points should be kept in mind:

  1. Recruitment and selection: The workforce will be more competent if a firm can successfully identify, attract, and select the most competent applicants.
  2. Training: The workforce will be more competent if employees are well trained to perform their jobs properly.
  3. Appraisal of performance: The performance appraisal is to identify any performance deficiencies experienced by employees due to lack of competence. Such deficiencies, once identified, can often be solved through counseling, coaching or training.
  4. Compensation: A firm can usually increase the competency of its workforce by offering pay and benefit packages that are more attractive than those of their competitors. This practice enables organizations to attract and retain the most capable people.

(b) What is Strategic Vision? Describe the elements of Strategic Vision. (5 Marks)

  • Strategic Management is defined as a dynamic process of formulation, implementation, evaluation, and control of strategies to realize the organization’s strategic intent.
  • Strategic intent refers to purposes of what the organization strives for.
  • Senior managers must define “what they want to do” and “why they want to do”.
  • “ Why they want to do” represents strategic intent of the firm.
  • Strategic intent can be understood as the philosophical base of stra-tegic management. It implies the purposes, which an organization endeavours to achieving.
  • Strategic intent gives an idea of what the organization desires to attain in future.

Elements of Strategic Intent are:

1. Vision: Vision implies the blueprint of the company’s future position. It describes where the organization wants to land. It depicts the orga-nization’s aspirations and provides a glimpse of what the organization would like to become in future. Every sub-system of the organization is required to follow its vision.

2. Mission: Mission delineates the firm’s business, its goals and ways to reach the goals. It explains the reason for the existence of the firm in the society. It is designed to help potential shareholders and investors understand the purpose of the company. A mission statement helps to identify, ‘what business the company undertakes.’ It defines the present capabilities, activities, customer focus and role in society.

3. Business Definition: It seeks to explain the business undertaken by the firm, with respect to the customer needs, target markets, and alternative technologies. With the help of business definition, one can ascertain the strategic business choices. Organizational restructuring also depends upon the business definition.

4. Business Model: Business model, as the name implies is a strategy for the effective operation of the business, ascertaining sources of income, desired customer base, and financial details. Rival firms, operating in the same industry rely on the different business model due to their strategic choice.

5. Goals and Objectives:

  • These are the base of measurement.
  • Goals are the end results, that the organization attempts to achieve.
  • On the other hand, objectives are time-based measurable targets, which help in the accomplishment of goals. These are the end results which are to be attained with the help of an overall plan, over the particular period.
  • However, in practice, no distinction is made between goals and objectives and both the terms are used interchangeably.

The vision, mission, business definition, and business model explain the philosophy of the organization but the goals and objectives represent the results to be achieved in multiple areas of business.

Question 10.
(a) “There is a need for Strategic Management for Government and Medical Organization too.” Comments. (5 Marks)

  1. Organizations can be classified as commercial and non-commercial on the basis of the interest they have.
  2. Typically, a Government or Medical organization may function without any commercial objectives.
  3. A commercial organization has profit as its main aim.
  4. We can find many organizations around us, which do not have any commercial objective of making profits.
    (a) Their genesis may be for social, charitable, or educational purposes.
    (b) The strategic-management process is being used effectively by countless non-profit governmental organizations.
    (c) Many non-profit and governmental organizations outperform private firms and corporations on:

    •  innovativeness,
    • motivation,
    • productivity, and
    • human resource
      compared to for-profit firms, non-profit and governmental organizations often function as a monopoly, produce a product or service that offers little or no measurability of performance, and are totally dependent on outside financing.
      (d) Especially for these organizations, strategic management provides an excellent vehicle for developing and justifying requests for needed financial support.

(b) Briefly describe the meaning of Divestment and Liquidation strategy and establish differences between the two. (5 Marks)

  1. Divestment strategy involves the sale or liquidation of a portion of
    • business,
    • or a major division,
    • profit centre or SBU.
  2. Divestment is usually a part of rehabilitation or restructuring plan and is adopted when a turnaround has been attempted but has proved to be unsuccessful.
  3. The option of a turnaround may even be ignored if it is obvious that divestment is the only answer.

Liquidation Strategy:

  1. A retrenchment strategy considered the most extreme and unattractive is liquidation strategy, which involves closing down a firm and selling its assets.
  2. It is considered as the last resort because it leads to serious conse-quences such as:
    • loss of employment for workers and other employees,
    • termination of opportunities where a firm could pursue any future activities,
    • stigma of failure. (stigma in hindi means “Kalank”, in English “social disgrace”)
  3. Many small-scale units, proprietorship firms, and partnership ventures liquidate frequently but medium-and large-sized companies rarely liquidate in India.
  4. The company management, government, banks and financial insti-tutions, trade unions, suppliers and creditors, and other agencies are extremely reluctant to take a decision, or ask, for liquidation.
  5. Selling assets for implementing a liquidation strategy may also be difficult as buyers are difficult to find.

Write a short note on requirement of Strategy Audit. What are the basic activities of Strategy Audit? (5 Marks)
A strategy audit is needed under the following conditions:

  • When the performance indicators reflect that a strategy is not working properly or is not producing desired outcomes.
  • When the goals and objectives of the strategy are not being accomplished.
  • When a major change takes place in the external environment of the organization.
  • When the top management plans:

(a) to fine-tune the existing strategies and introduce new strategies and
(b) to ensure that a strategy that has worked in the past continues to be in-tune with subtle internal and external changes that may have occurred since the formulation of strategies.
Adequate and timely feedback is the cornerstone of effective strategy audit.
Strategy audit can be no better than the information on which it is based.

Basic Activities Of Strategy Audit:
Strategy Audit includes three basic activities:

  1. Examining the underlying bases of a firm’s strategy,
  2. Comparing expected results with actual results, and
  3. Taking corrective actions to ensure that performance conforms to plans.

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