PREVIOUS YEAR SOLVED PAPERS - UGC NET Management July 2018

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52. According to Weighted-factor Approach to strategic incentive management, if for any strategic business unit, return on assets is 25%, cash flow is 25%, strategic funds programs (developmental expenses) is 25% and market share increase is also 25%, then this will fall in which category?

  • Option : B
  • Explanation : The following three approaches are tailored to help match measurements and rewards with explicit strategic objectives and timeframes.
    1. Weighted-Factor Method: This method is particularly appropriate for measuring and rewarding the performance of top SBU managers and group level executives when performance factors and their importance vary from one SBU to another. One corporation’s measurements might contain the following variations: the performance of high-growth SBUs is measured in terms of market share, sales growth, designated future payoff, and progress on several future-oriented strategic projects; the performance of low-growth SBUs, in contrast, is measured in terms of ROI and cash generation; and the performance of medium-growth SBUs is measured for a combination of these factors. (Refer to Table).
    2. Long-Term Evaluation Method: This method compensates managers for achieving objectives set over a multiyear period. An executive is promised some company stock or “performance units” (convertible into money) in amounts to be based on long-term performance. An executive committee, for example, might set a particular objective in terms of growth in earnings per share during a five year period. The giving of awards would be contingent on the corporation’s meeting that objective within the designated time. Any executive who leaves the corporation before the objective is met receives nothing. The typical emphasis on stock price makes this approach more applicable to top management than to business unit managers. Because rising stock markets tend to raise the stock price of mediocre companies, there is a developing trend to index stock options to competitors or to the Standard & Poor’s 500.
    3. Strategic-Funds Method: This method encourages executives to look at developmental expenses as being different from the expenses required for current operations. The accounting statement for a corporate unit enters strategic funds as a separate entry below the current ROI. It is, therefore, possible to distinguish between those expense dollars consumed in the generation of current revenues and those invested in the future of the business. Therefore, the manager can be evaluated on both a short - and a long-term basis and has an incentive to invest strategic funds in the future.
    An effective way to achieve the desired strategic results through a reward system is to combine the three approaches:
    1. Segregate strategic funds from short-term funds as is done in the strategic-funds method.
    2. Develop a weighted-factor chart for each SBU.
    3. Measure performance on three bases: The pretax profit indicated by the strategic fund's approach, the weighted factors, and the long-term evaluation of the SBUs’ and the corporation’s performance.
    Table: Weighted-Factor Approach to Strategic Incentive Management
    Strategic Business UnitCategory FactorWeight
    High GrowthReturn on assets
    Cash flow
    Strategic funds programs (developmental expenses)
    Market-share increase
    Total
    10%
    0%
    45%
    45%
    100%
    Medium GrowthReturn on assets
    Cash flow
    Strategic-funds programs (developmental expenses)
    Market-share increase
    Total
     
    25%
    25%
    25%
    25%
    100%
    Low GrowthReturn on assets
    Cash flow
    Strategic-funds programs (developmental expenses)
    Market-share increase
    Total
    50%
    50%
    0%
    0%
    100%
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53. A concept given for diversified corporations which advocates:
(a) What businesses should a diversified corporation own and why; and
(b) What organizational structure, management processes, and philosophy will foster superior performance from the corporation’s individual business units, is known as:

  • Option : C
  • Explanation : Corporate Parenting Analysis: A diversified corporation or a multi-business company is often viewed as consisting of a corporate headquarter or centre with SBUs acting satellites. The manner in which the center manages and nurtures individual businesses is known as corporate parenting. The total corporation is viewed in terms of resources and capabilities that can be used to build individual businesses as well as create synergies across these businesses. In this manner, corporate parenting attempts to do away with the one major drawback of the corporate portfolio techniques. While portfolio techniques consider the industry attractiveness of various industries and focus on the cash contributions that individual businesses could make to the overall portfolio of businesses, corporate parenting views the organization in its totality as a diversified corporation and focusses on the value created from the relationship between the parent and its businesses.
    Campbell, Goold, and Alexander suggest that the diversified corporation must address these two issues:
    (a) What businesses should a diversified corporation own and why?
    (b) What organizational structure, management processes, and philosophy will foster superior performance from the corporation’s individual business units?
    If we do this, the search for the appropriate corporate strategy involves three steps.
    1. Examine each business in terms of its CSFs
    2. Examine each business unit in terms of those areas in which performance can be improved
    3. Analyze how well the parent corporation fits with the business unit.
    Strategic Business Unit: A strategic business unit, popularly known as SBU, is a fully functional unit of a business that has its own vision and direction. Typically, a strategic business unit operates as a separate unit, but it is also an important part of the company. It reports to the headquarters about its operational status.
    A strategic business unit or SBU operates as an independent entity, but it has to report directly to the headquarters of the organization about the status of its operation. It operates independently and is focused on the target market. It is big enough to have its own support functions such as HR, training departments etc. There are several benefits of having an SBU. This principle works best for organizations that have multiple product structures. The best example of SBU is companies like Proctor and Gamble, LG, etc. These companies have different product categories under one roof. For example, LG as a company makes consumer durables.
    It makes refrigerators, washing machines, airconditioners as well as televisions. These small units are formed as separate SBUs so that revenues, costs as well as profits can be tracked independently. Once a unit is given an SBU status, it can make its own decisions, investments, budgets etc. It will be quick to react when the product market takes a shift or changes start happening before the shift happens.
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54. A company in packaged tea business provides special service to its institutional buyers, apart from its consumer sales through market intermediaries, in order to encourage bulk buying and thus improving marketing efficiency, is an example of:

  • Option : C
  • Explanation : Stability Strategies
    The corporate strategy of stability is adopted by an organization when it attempts at the incremental improvement of its performance by marginally changing one or more of its businesses in terms of their respective customer groups, customer functions, and alternative technologies - either singly or collectively.
    In order to understand how stability strategies work, here are three examples to illustrate how organizations could aim at stability in each of the three dimensions of customers groups, customer functions and alternative technologies respectively.
    > A packaged tea company provides special service to its institutional buyers, apart from its consumer sales through market intermediaries, in order to encourage bulk buying and thus improve its marketing efficiency.
    > A copier machine company provides better after-sales service to its existing customers to improve its company and product image and increase sales of accessories and consumables.
    > A steel company modernizes its plant to improve efficiency and productivity.
    Note that all three companies here, do not go beyond what they are doing presently; they serve the same markets with the present products using the existing technology. The strategies aim at stability by causing the companies to marginally improve their performance or, at least, letting them remain where they are in case they face a volatile environment and a highly competitive market.
    The essence of stability strategies is, therefore, not doing anything but sustaining moderate growth in line with the existing trends.
    Sometimes, strategists, like army commanders, think it better to retreat than to advance. It is in such situations that retrenchment is a feasible strategic alternative.
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55. Match the items of List-II with List-I and select the correct code:

List-IList-II
(a) Mission(i) Aspiration expressed as strategic intent
(b) Vision(ii) Activities needed to accomplish the plan
(c) Objectives (iii) Accomplishing results at a certain time
(d) Programs(iv) Reason for existence

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