Test 3: answer key

Question 1 · 2 marks · Strategic Choices - BCG Growth-Share Matrix · medium

Scenario. Mahaveer Conglomerate operates four Strategic Business Units. The following portfolio information is available: SBU A operates in a market growing at 18 percent and has a relative market share of 1.80; SBU B operates in a market growing at 3 percent and has a relative market share of 2.40; SBU C operates in a market growing at 20 percent and has a relative market share of 0.45; and SBU D operates in a market growing at 2 percent and has a relative market share of 0.35. The management classifies market growth and relative market share into high and low categories, respectively. SBU B generates a cash surplus of ₹27 crore after meeting its maintenance requirements. SBU A requires ₹12 crore to maintain its competitive position, while SBU C requires ₹15 crore to pursue a credible market-share expansion programme. SBU D requires additional funding merely to continue operations, and management has concluded that no commercially viable recovery path presently exists. The corporate office must classify the portfolio and formulate a rational resource-allocation policy.

Based on the market growth rate and relative market share data of Mahaveer Conglomerate, which of the following correctly classifies its four SBUs in the BCG Growth-Share Matrix, in the order A, B, C and D?

1. Star, Cash Cow, Question Mark and Dog (correct answer)
2. Question Mark, Cash Cow, Star and Dog
3. Star, Dog, Question Mark and Cash Cow
4. Cash Cow, Star, Dog and Question Mark

Answer: A — Star, Cash Cow, Question Mark and Dog

Working. Step 1: A = 18% market growth (high) and relative share 1.80 (high) = Star. Step 2: B = 3% market growth (low) and relative share 2.40 (high) = Cash Cow. Step 3: C = 20% market growth (high) and relative share 0.45 (low) = Question Mark. Step 4: D = 2% market growth (low) and relative share 0.35 (low) = Dog. Final sequence: Star, Cash Cow, Question Mark, Dog.

Explanation. The correct option is (a). The BCG matrix uses market growth rate on the vertical axis and relative market share on the horizontal axis. SBU A has high growth and high relative share, making it a Star. SBU B has low growth and high share, making it a Cash Cow. SBU C has high growth and low share, making it a Question Mark. SBU D has low growth and low share, making it a Dog. Option (b) incorrectly classifies A as a Question Mark despite its high relative market share and C as a Star despite its low relative share. Option (c) incorrectly classifies B as a Dog and D as a Cash Cow, reversing their relative market-share implications. Option (d) incorrectly swaps the classifications of the four units and fails to match their respective growth and share combinations.

Where it goes wrong. The common error is using market growth alone to classify a business unit. Both dimensions must be considered together. High market share in a low-growth market means Cash Cow, not Star.

Authority. Chapter 4: Strategic Choices - Section 4.4.3 Boston Consulting Group (BCG) Growth-Share Matrix

Question 2 · 2 marks · Strategic Choices - BCG Portfolio Resource Allocation · hard

Mahaveer Conglomerate has ₹27 crore of surplus cash generated by its Cash Cow, SBU B. SBU A requires ₹12 crore to maintain its position, SBU C requires ₹15 crore for a credible market-share expansion programme, and SBU D requires further cash merely to survive despite having no commercially viable recovery path. Which resource-allocation decision is most consistent with BCG portfolio management?

1. Use the entire surplus to support SBU D and defer investment in the Star and Question Mark.
2. Distribute the surplus equally among all four SBUs irrespective of their portfolio positions.
3. Allocate ₹12 crore to SBU A and selectively invest ₹15 crore in SBU C while avoiding further investment in SBU D. (correct answer)
4. Allocate the entire ₹27 crore to SBU C and reduce maintenance investment in SBU A.

Answer: C — Allocate ₹12 crore to SBU A and selectively invest ₹15 crore in SBU C while avoiding further investment in SBU D.

Working. Step 1: Cash surplus available from Cash Cow B = ₹27 crore. Step 2: Required investment for Star A = ₹12 crore. Step 3: Selected investment in Question Mark C = ₹15 crore. Step 4: Total strategic allocation = ₹12 crore + ₹15 crore = ₹27 crore. Step 5: Remaining funds = ₹27 crore - ₹27 crore = Nil. Step 6: No additional survival funding is allocated to Dog D because the scenario establishes that no commercially viable recovery path exists.

Explanation. The correct option is (c). BCG portfolio analysis recognises that Cash Cows generate surplus cash and generally require lower investment. Such cash can support Stars, which require funds to preserve their competitive positions, and selected Question Marks where a credible opportunity exists to improve market share. Accordingly, ₹12 crore can be allocated to SBU A and ₹15 crore to SBU C. SBU D is a Dog with no viable recovery path, so additional investment merely to continue operations is not justified under the stated facts. Option (a) directs funds into an unviable Dog and neglects the Star and the selected Question Mark. Option (b) ignores portfolio differences and distributes funds without considering the strategic position of each unit. Option (d) excessively concentrates resources in a Question Mark while undermining the established competitive position of the Star.

Where it goes wrong. Students often assume that the highest-growth business should automatically receive all available capital. BCG analysis also considers relative market share, cash-generation capacity and investment requirements. A Question Mark should receive selective investment, not unconditional funding.

Authority. Chapter 4: Strategic Choices - Section 4.4.3 Boston Consulting Group (BCG) Growth-Share Matrix; Chapter 4: Strategic Choices - Section 4.4.3.1 BCG Matrix: Post Identification Strategies

Question 3 · 2 marks · Strategic Choices - BCG Post-Identification Strategies · medium

Management must determine the post-identification BCG strategies for SBU C and SBU D. SBU C operates in a rapidly expanding market but has low relative market share and a credible opportunity to strengthen its position. SBU D operates in a low-growth market, has low relative market share and has no viable recovery prospects. Which combination should the board adopt?

1. Harvest SBU C and build SBU D.
2. Hold SBU C and hold SBU D irrespective of their future potential.
3. Divest SBU C immediately and build SBU D.
4. Build SBU C selectively and divest SBU D. (correct answer)

Answer: D — Build SBU C selectively and divest SBU D.

Working. Step 1: SBU C = High market growth + Low relative market share = Question Mark. Step 2: A credible route to increasing market share exists. Step 3: Appropriate response for C = Build through selective investment. Step 4: SBU D = Low market growth + Low relative market share = Dog. Step 5: No viable recovery route exists. Step 6: Appropriate response for D = Divest or sell the business and redirect resources elsewhere.

Explanation. The correct option is (d). SBU C is a Question Mark. Where a credible opportunity exists to increase market share in a high-growth market, the Build strategy may be adopted. SBU D is a Dog with no viable recovery potential, making Divest the appropriate portfolio action under the stated facts. Option (a) reverses the strategic responses: harvesting is associated with maximising short-term cash flows, while building is not appropriate for an unviable Dog. Option (b) ignores the need to decide the future role of each business unit and preserves an unviable position. Option (c) prematurely divests a Question Mark with a credible growth opportunity and commits capital to an unviable Dog.

Where it goes wrong. The common conceptual trap is treating all Question Marks as automatic divestment candidates and all Dogs as units that should always be retained. BCG decisions depend on the future prospects and strategic role of each business.

Authority. Chapter 4: Strategic Choices - Section 4.4.3.1 BCG Matrix: Post Identification Strategies

Question 4 · 2 marks · Strategic Choices - Ansoff Product-Market Growth Matrix · medium

Scenario. Titan Dynamics Ltd. currently operates an industrial AI software business and serves established domestic enterprise customers through its existing cloud platform. The company is considering four growth initiatives. First, it proposes to increase subscriptions and usage among its existing domestic enterprise customers by offering bundled services and intensive promotional campaigns for its current platform. Second, it plans to sell the unchanged existing platform to enterprise customers in Southeast Asian geographical markets where it presently has no operations. Third, it intends to introduce a new AI-based risk analytics module for its existing domestic enterprise customer base. Fourth, the board proposes to enter packaged food manufacturing and sell those products to unrelated customers through new retail markets. The packaged food business has no connection with the company's existing products, customers, technology or operational capabilities. Management wants to classify these growth initiatives using Ansoff's Product-Market Growth Matrix and distinguish related growth from unrelated diversification.

Titan Dynamics proposes to increase subscriptions, customer usage and sales of its existing cloud platform among its established domestic enterprise customers through bundled services and intensive promotion. No significant new product is introduced and no new geographical or customer market is entered. Which Ansoff strategy is being followed?

1. Market Development
2. Market Penetration (correct answer)
3. Product Development
4. Diversification

Answer: B — Market Penetration

Working. Step 1: Existing product = Existing cloud platform. Step 2: Existing market = Established domestic enterprise customers. Step 3: Proposed action = Increase sales and usage through promotional activities and bundled services. Step 4: Existing product + Existing market = Market Penetration.

Explanation. The correct option is (b), Market Penetration. Market penetration involves increasing sales of existing products in existing markets. Titan Dynamics is attempting to increase usage and subscriptions of its current cloud platform among its existing domestic enterprise customers. Option (a) Market Development involves selling existing products into new markets, which is not occurring. Option (c) Product Development involves introducing new or substantially modified products for existing markets, whereas the platform remains unchanged. Option (d) Diversification involves entering new product and market areas, which is also absent.

Where it goes wrong. A promotional campaign does not automatically represent market development. Students must identify whether the product and market are existing or new. Increased sales from existing customers using existing products indicate market penetration.

Authority. Chapter 4: Strategic Choices - Section 4.4.1 Ansoff's Product Market Growth Matrix; Chapter 4: Strategic Choices - Expansion through Intensification: Market Penetration

Question 5 · 2 marks · Strategic Choices - Ansoff Product-Market Growth Matrix · hard

Titan Dynamics proposes two separate initiatives: (i) selling its unchanged cloud platform to enterprise customers in Southeast Asian geographical markets where it has not previously operated; and (ii) developing a new AI-based risk analytics module for its established domestic enterprise customer base. Which classification correctly identifies initiatives (i) and (ii), respectively?

1. Market Development and Market Development
2. Product Development and Market Penetration
3. Market Development and Product Development (correct answer)
4. Diversification and Market Penetration

Answer: C — Market Development and Product Development

Working. Step 1: Initiative (i): Product = Existing; Market = New geographical market. Therefore, Market Development. Step 2: Initiative (ii): Product = New AI analytics module; Market = Existing domestic customer base. Therefore, Product Development. Step 3: Correct sequence = Market Development followed by Product Development.

Explanation. The correct option is (c). Initiative (i) involves an existing product being marketed in a new geographical market. This is Market Development. Initiative (ii) involves introducing a new product to an existing customer market. This is Product Development. Option (a) incorrectly classifies both initiatives as market development; the second involves a new product. Option (b) reverses the first classification and incorrectly treats introduction of a new module as mere penetration. Option (d) incorrectly treats an existing platform entering a new geographical market as diversification and the new module as market penetration.

Where it goes wrong. The most common confusion is between market development and product development. In market development, the product remains existing while the market changes. In product development, the market remains existing while the product changes.

Authority. Chapter 4: Strategic Choices - Section 4.4.1 Ansoff's Product Market Growth Matrix; Chapter 4: Strategic Choices - Expansion through Intensification: Market Development and Product Development

Question 6 · 2 marks · Strategic Choices - Diversification Strategy · medium

The board of Titan Dynamics proposes to enter packaged food manufacturing and sell its products to unrelated customers through entirely new retail markets. The proposed business has no connection with its existing AI software products, customer groups or technologies. Which strategic classification most accurately describes this initiative?

1. Conglomerate Diversification (correct answer)
2. Market Development
3. Product Development
4. Market Penetration

Answer: A — Conglomerate Diversification

Working. Step 1: Existing business = Industrial AI software. Step 2: Proposed product = Packaged food products, which are new. Step 3: Proposed market and customer group = New retail markets and unrelated customers. Step 4: Product and market are both new, satisfying Ansoff's diversification category. Step 5: No relationship in product, market or technology exists, so the specific classification is Conglomerate Diversification.

Explanation. The correct option is (a), Conglomerate Diversification. Under Ansoff's framework, diversification involves new products in new markets. The absence of any linkage between Titan's existing software business and its proposed packaged food business makes this specifically conglomerate or unrelated diversification. Option (b) Market Development involves existing products entering new markets, whereas Titan is introducing an entirely new product business. Option (c) Product Development requires new products for existing markets, which is not the case. Option (d) Market Penetration involves existing products and existing markets, neither of which describes the proposed food business.

Where it goes wrong. Not every new-product and new-market initiative automatically establishes conglomerate diversification. The additional factor is the absence of a common connection in terms of products, markets, customers, technology or functions. The scenario expressly establishes that the new business is unrelated.

Authority. Chapter 4: Strategic Choices - Section 4.4.1 Ansoff's Product Market Growth Matrix; Chapter 4: Strategic Choices - Expansion through Diversification: Conglomerate Diversification

Question 7 · 2 marks · Strategy Implementation and Evaluation - Strategic Business Unit Structure · hard

Scenario. MultiTech Corp. is a diversified enterprise operating in industrial automation equipment and consumer computing products. Its industrial automation business consists of several related product divisions operating across different geographical regions. These divisions serve substantially similar industrial customer groups and face a common set of major competitors. The consumer computing business serves a different customer group, uses different technologies and faces a separate set of competitors. The board is considering an SBU structure to improve strategic planning and accountability. It proposes to group strategically related operations into identifiable business units, appoint managers responsible for strategic planning and profit performance, and retain overall corporate strategy and strategic coordination at headquarters. The board must determine the appropriate SBU boundaries and distinguish the responsibilities of SBU managers from those of corporate headquarters.

MultiTech Corp. operates several regional divisions in industrial automation and a separate consumer computing business. The industrial automation divisions have related products, similar technologies and a common competitor set, whereas consumer computing operates in a distinct product market with separate competitors. Which proposed organisational arrangement most closely follows the ICAI concept of Strategic Business Unit structure?

1. Create one independent SBU for every geographical office because each region has separate operational responsibilities.
2. Place all businesses in a single SBU because they belong to the same legal company.
3. Create separate SBUs for finance, marketing, production and human resources irrespective of the businesses served.
4. Group related industrial automation divisions into one SBU and treat consumer computing as a separate SBU, with each having identifiable business responsibility and a manager accountable for strategic planning and profit performance. (correct answer)

Answer: D — Group related industrial automation divisions into one SBU and treat consumer computing as a separate SBU, with each having identifiable business responsibility and a manager accountable for strategic planning and profit performance.

Working. Step 1: Identify related businesses. Industrial automation divisions have related products and technologies. Step 2: Examine competitors. The industrial automation divisions face a common competitor set. Step 3: Examine independent strategic characteristics. Consumer computing has distinct products, customers, technology and competitors. Step 4: Group industrial automation divisions into one SBU. Step 5: Constitute consumer computing as a separate SBU. Step 6: Appoint managers with strategic planning and profit-performance responsibility for each SBU.

Explanation. The correct option is (d). An SBU represents a single business or a collection of related businesses that can be planned independently, has its own competitor set and has a manager responsible for strategic planning and profit performance. The related industrial automation divisions can therefore be grouped together, while the distinct consumer computing business can be treated separately. Option (a) incorrectly assumes that every geographical office must represent a separate business. Geographical boundaries alone do not establish separate SBUs. Option (b) ignores the distinct strategic characteristics and competitors of the two businesses. Option (c) describes functional departments rather than strategically related business units.

Where it goes wrong. Students often confuse geographical divisions, functional departments and strategic business units. SBU boundaries should reflect strategically related businesses and their competitive environment, not merely the existing administrative chart or geographical distribution.

Authority. Chapter 5: Strategy Implementation and Evaluation - Strategic Business Unit (SBU) Structure

Question 8 · 1 marks · Strategy Implementation and Evaluation - Strategic Business Unit Structure · medium

After implementing the SBU structure, MultiTech Corp. must distribute decision-making responsibilities between its corporate headquarters and SBU managers. Which arrangement is consistent with the ICAI framework?

1. Corporate headquarters should directly control all routine daily operating decisions of every SBU, while SBU managers should only report historical results.
2. Corporate headquarters should formulate and coordinate overall corporate strategy and exercise strategic and financial controls, while SBU managers handle delegated day-to-day operations and business-unit strategy with accountability for profit performance. (correct answer)
3. SBU managers should be responsible only for operational expenditure, while headquarters should independently determine every product-level competitive decision.
4. Every geographical division should formulate an unrelated corporate strategy and report only its turnover to headquarters.

Answer: B — Corporate headquarters should formulate and coordinate overall corporate strategy and exercise strategic and financial controls, while SBU managers handle delegated day-to-day operations and business-unit strategy with accountability for profit performance.

Working. Step 1: Corporate headquarters = Overall corporate strategy, coordination and strategic and financial controls. Step 2: SBU managers = Delegated day-to-day operations and business-unit strategy. Step 3: SBU managers are responsible for strategic planning and profit performance within their assigned business units. Step 4: Therefore, option (b) correctly allocates responsibilities.

Explanation. The correct option is (b). Under an SBU structure, corporate headquarters retains responsibility for overall corporate strategy and manages the SBUs through strategic and financial controls. SBU managers receive delegated responsibility for day-to-day operations and business-unit strategy and are accountable for profit performance. Option (a) defeats the purpose of delegation by centralising routine operations at headquarters. Option (c) improperly removes strategic planning and profit accountability from SBU managers. Option (d) confuses geographical divisions with independent SBUs and incorrectly disperses overall corporate strategy.

Where it goes wrong. The key distinction is between corporate-level strategic coordination and delegated business-unit management. Decentralising operational responsibility does not mean surrendering overall corporate direction and control.

Authority. Chapter 5: Strategy Implementation and Evaluation - Strategic Business Unit (SBU) Structure