© The Institute of Chartered Accountants of India

Test Series: October, 2019
MOCK TEST PAPER 1

INTERMEDIATE (IPC-New): GROUP – II
PAPER – 7: ENTERPRISE INFORMATION SYSTEMS AND STRATEGIC MANAGEMENT
SECTION – A: Enterprise Information Systems
Time Allowed – 1½ Hours Maximum Marks: 50 Marks
Division A - Multiple Choice Questions

Total Marks: 15 Marks
Question Nos. 1 to 5 carries 2 marks each.
1. _________________________a kind of business risk in an enterprise that keeps fines and penalties
to organization from a regulatory agency due to non-compliance with laws and regulations.
a. Financial Risk
b. Strategic risk
c. Regulatory Risk
d. Hazard risk
2. Mr. A is an auditor of a company XYZ Ltd. While evaluating controls over ERP systems, Mr. A used
certain operational controls under ____________ which are administered through the computer
center/computer operations group and the built-in operating system controls. Which of the following
controls he is working on?
a. Environmental Controls
b. Application controls
c. Management Controls
d. Audit Controls
3. Mr. X is the Sales manager of the company. The chief sales head wants to evaluate an annual sale
made by sales revenue of company’s branches in different regions. Mr. X is preparing the sheets
using computer software. Which of the following software he may be working on?
a. Application software
b. Operating Systems Software
c. System Software
d. Asset Management Software
4. Mr. A has a bakery which is running successfully currently. He wants his business to be expanded
further through online mode for which he hired a technical person Mr. X who could guide him in
adopting to online business. Mr. X is supposed to give a presentation to Mr. A on technological
infrastructure requirement for the business. Identify the point which should not form part of his
presentation.
a. Payment gateway
b. Web portal
c. Data Interchange
d. Type of vendors
© The Institute of Chartered Accountants of India

5. The full-scale Banking solution is a scalable, integrated e-banking system that meets the deployment
requirements in traditional and non-traditional banking environments with some key aspects in its
architecture. Which of the following key aspect is not used in CBS architecture?
a. Customer centric
b. Regulatory Compliance
c. Resource optimization
d. Selection of employees
Question Nos. 6 to 10 carries 1 mark each.
6. The success of any Business Process Automation (BPA) shall only be achieved when BPA ensures
certain characteristics. Which of the following is not included in those characteristics?
a. Diligence
b. Integrity
c. Availability
d. Timeliness
7. Mr. A is working with XYZ company which is under the process of adopting Enterprise Resource
Management (ERM). He made a list of Policies and procedures that need to be estab lished and
executed to ensure that risk responses that management selected, are effectively carried out. Which
of the component of ERM is this activity carried on?
a. Risk Assessment
b. Control Activities
c. Information and Communication
d. Monitoring
8. Mr. C is a software developer associated with a company for which he developed application software.
The developed software is needed to be installed on hard disc of every computer used by users, one
by one. Which of the following application is developed by him?
a. Web application
b. Operating system Application
c. Installed Application
d. Cloud Application
9. A Database Model is a type of data model that determines the logical structure of a database and
fundamentally determines in which manner data can be stored, organized and manipulated. Which of
the following database model stores and organizes data in a table structure?
a. Network data model
b. Hierarchical data model
c. Object oriented database model
d. Relational database model
10. XYZ is the service provider company which is under the process of setting up of network architecture
for a shoe making company. XYZ decides to work on three tier architecture to design the network
architecture. What would be the sequence of three layers that company may use in this architecture?
a. Client tier, Middle tier, Database tier
b. Middle tier, Database tier, Client tier

c. Database tier, Logic tier, Client tier
d. Client tier, Data tier, Database tier
Division B-Descriptive Questions

Question No. 1 is compulsory.
Attempt any three questions out of remaining four questions.
1. (a) Describe any four activities performed by Operating Systems Software. (3 Marks)
(b) Discuss any two risks of Business Process Automation. (2 Marks)
2. (a) Mr. A is appointed as a manager in XYZ company which is planning to adopt the automation of
its major business processes. He has been asked to prepare a list of the sequence of steps that
the company should adhere to implement Business Process Automation. Draft Mr. A’s reply.
(6 Marks)
(b) ABC is a Nationalized bank expanding its business in various banking sectors. The bank’s Top
Management is seeking a report on various risks associated with Data Centre and Network
Operations of Core Banking System from Mr. Z, a senior manager of the bank. Prepare a list of
the same. (4 Marks)
3. (a) XYZ is an Indian based garment manufacturing company which has implemented ERP
(Enterprise Resource Planning). The Material Management (MM) module of ERP is used to
manage its daily operations like – import of raw material, its movement related logistics, Supply
chain management, warehouse management, production etc. Discuss the overall purchase
process for XYZ company covered under MM. (6 Marks)
(b) Explain the traditional methods of Digital Payments used in e-commerce transactions. (4 Marks)
4. (a) ABC Ltd. is a company which wants to convert their traditional business to online business or
e-business. Help its manager to make the list of benefits for any one of the following:
(i) Individuals
Or
(ii) Business (6 Marks)
(b) Discuss any two risks and their corresponding controls related to the process of Mortgage
involved in Core Banking System. (4 Marks)
5. (a) Mr. X is an auditor of the company and plays a vital role in evaluating the performance of various
controls under managerial controls. The top management is the one who takes responsibility for
Information Systems function. Explain the functions that a senior manager must perform in
organizing and controlling functions. (6 Marks)
(b) Being a manager of a company X, you are required to prepare a MIS report for Annual General
Meeting(AGM) of the company. What characteristics will make this information useful for the
management? (4 Marks)

SECTION – B: STRATEGIC MANAGEMENT
Question 1 and 2 are compulsory.
Attempt any three questions out of remaining four questions.
Time Allowed – 1½ Hours Maximum Marks – 50
1. (i) Which of the following are responsible for formulating and developing realistic and attainable
strategies?
(a) Corporate level and business level managers
(b) Corporate level and functional level managers
(c) Functional level managers and business level managers
(d) Corporate level managers, business level managers and functional level managers
(ii) Competitive landscape requires the application of:
(a) Competitive advantage
(b) Competitive strategy
(c) Competitive acumen
(d) Competitive intelligence
(iii) Which one is not the element of strategic intent?
(a) Business model
(b) Vision
(c) Business definition
(d) Business standard
(iv) If suppliers are unreliable or too costly, which of these strategies may be appropriate?
(a) Horizontal integration
(b) Backward integration
(c) Market penetration
(d) Forward integration
(v) In Michael Porter’s generic strategy _____________ emphasizes producing standardized products
at a very low per unit-cost for consumers who are price sensitive.
(a) Cheap leadership
(b) Inferior product leadership
(c) Cost leadership
(d) Cost benefit
(vi) A campaign advocating the message of ‘save water’ is:
(a) Services Marketing
(b) Holistic marketing
(c) Social Marketing
(d) Direct Marketing

(vii) ______________leadership style may be appropriate in turbulent environment.
(a) Transactional
(b) Transformational
(c) Autocratic
(d) None of these
(viii) The purpose of strategy evaluation is to:
(a) increase the budget annually
(b) alert management to problems or potential problems
(c) make budget changes
(d) evaluate employees’ performance
(ix) Strategic management can be effectively used by NGOs to:
(a) Use resource effectively
(b) Raise funds
(c) Achieve goals
(d) All the above
(x) Anything that a firm does especially well compared to rival firms is referred to as _____.
(a) Competitive advantage
(b) Comparative advantage
(c) Opportunity cost
(d) Sustainable advantage
(xi) What is the first step in the comprehensive strategic -management model?
(a) Developing vision and mission statements
(b) Performing external audits
(c) Measuring and evaluating performance
(d) Establishing long-term objectives
(xii) Which strategy is implemented after the failure of turnaround strategy?
(a) Expansion strategy
(b) Diversification strategy
(c) Divestment strategy
(d) Growth strategy
(xiii) Best-cost provider strategy involves providing customers more value for the money by
emphasizing:
(a) Low cost and low quality difference
(b) Low cost and better quality difference
(c) High cost and low quality difference
(d) High cost and better quality difference
(xiv) For a new product, an organization may choose:
(a) Skimming pricing strategy
(b) Penetration pricing strategy

(c) Both (a) and (b)
(d) None of these
(xv) A person who searched for business opportunity and starts a new enterprise to make use of that
opportunity is called
(a) Employee
(b) Entrepreneur
(c) Intrapreneur
(d) Investor (15 x 1 = 15 Marks)
2. ‘Coffee Beans’ is a coffeehouse chain that operates across the globe in different countries. ‘Coffee
Beans’ has adopted a strategy to build business by establishing product uniqueness or qualities and
gain competitive advantage based on features of its offerings in coffee business. Which type of strategy
‘Coffee Beans’ has adopted? (5 Marks)
3. (a) “Strategy is partly proactive and partly reactive.” Discuss. (5 Marks)
(b) Zumba Robots, an electronic robot manufacturing company is a leader in its business segment.
Over a period of time, it started losing its grip on the market as its overall position started to weaken.
Discuss the type of audit that you would like to suggest to analyse the situation of the company?
(5 Marks)
4. (a) What is strategic decision making? What tasks are performed by a strategic Manager? (5 Marks)
(b) Telecom industry is growing at a rapid speed in India. There is a cut throat competition among the
service providers in the industry. Identify the capabilities that will best serve as a source of
competitive advantage for a firm over its rivals? (5 Marks)
5. (a) State the factors of human resource that influence on employee’s competence. (5 Marks)
(b) Differentiate between divestment and liquidation strategy. (5 Marks)
6. (a) How can a corporate culture be both strength and weakness of an organisation? (5 Marks)
(b) Write a short note on need for turnaround strategy. (5 Marks)

MOCK TEST PAPER 1
INTERMEDIATE (NEW): GROUP – II
PAPER – 7: ENTERPRISE INFORMATION SYSTEMS AND STRATEGIC MANAGEMENT
SECTION – A: ENTERPRISE INFORMATION SYSTEMS
Time Allowed – 1½ Hours Maximum Marks: 50 Marks
Answers
Division A - Multiple Choice Questions

1. (c) Regulatory Risk
2. (a) Environmental Controls
3. (a) Application Software
4. (d) Type of Vendors
5. (d) Selection of employees
6. (a) Diligence
7. (b) Control Activities
8. (c) Installed Application
9. (d) Relational database Model
10. (a) Client tier, Middle tier, Database tier
Section B Descriptive Questions
1. (a) A variety of activities are executed by Operating Systems which include:
 Performing hardware functions: Operating System acts as an intermediary between the
application program and the hardware by obtaining input from keyboards, retrieve data from
disk and display output on monitors
 User Interfaces: Nowadays, Operating Systems are Graphic User Interface (GUI) based
which uses icons and menus like in the case of Windows.
 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.
 Memory Management: Operating System allows controlling how memory is accessed and
maximize available memory and storage.
 Task Management: This facilitates a user to work with more than one application at a time
i.e. multitasking and allows more than one user to use the system i.e. time sharing.
 Networking Capability: Operating systems can provide systems with features and
capabilities to help connect computer networks like Linux & Windows 8.
 Logical Access Security: Operating systems provide logical security by establishing a
procedure for identification and authentication using a User ID and Password.

 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.
(b) The risks of Business Process Automation (BPA) are classified below:
• Input & Access: All input transaction data may not be accurate, complete and authorized.
• File & Data Transmission: All files and data transmitted may not be processed accurately
and completely, due to network error.
• Processing: Valid input data may not have been processed accurately and completely due
to program error or bugs.
• Output: Is not complete and accurate due to program error or bugs and is distributed to
unauthorized personnel due to weak access control.
• Data: Master data and transaction data may be changed by unauthorized personnel due to
weak access control.
• Infrastructure: All data & programs could be lost if there is no proper backup in the event of
a disaster and the business could come to a standstill.
2. (a) Various steps of automation are given as follows:
Step 1: Define why we plan to go for a BPA?
Step 2: Understand the rules / regulation under which needs to comply with?
Step 3: Document the process, we wish to automate.
Step 4: Define the objectives/goals to be achieved by implementing BPA.
Step 5: Engage the business process consultant.
Step 6: Calculate the ROI for project.
Step 7: Developing the BPA.
Step 8: Testing the BPA.
(b) Risks associated with respect to Data Centre and Network Operation in CBS are:
• The transaction may not be recorded completely or accurately, and the related items will be
inaccurately or incompletely recorded.
• Invalid items may be recorded or valid items may be inaccurately or incompletely reco rded.
• Timely and adequate technical support may not be available and issues may not be resolved.
• User queries may not be timely and adequately resolved. Help desk function exists to provide
support on user queries regarding systems.
• Timely execution and complete processing and availability of data may not be ensured.
• Unavailability of applications and data backups in the event of a disaster. It can also result in
disclosure of sensitive information.
• Data may be lost and systems may not be recoverable in the event of a serious system failure.
This may result in regulatory/ legal complaints, loss of reputation beside financial loss.
• Backup may not be available if subject to some disaster, resulting in risk of data loss.
3. (a) Steps involved in Purchase Process are as following:
 Purchase Requisition from Production Department: Production department sends a
request to purchase department for purchase of raw material required for production.

 Evaluation of Requisition: Purchase department shall evaluate the requisition with the
current stock position and purchase order pending position and shall decide about accepting
or rejection the requisition.
 Asking for Quotation: If requisition is accepted, quotations shall be asked to approve
vendors for purchase of material.
 Evaluation of quotations – Quotations received shall be evaluated and compared.
 Purchase Order – This is a transaction for letting an approved vendor know what we want to
purchase, how much we want to purchase, at what rate we want to purchase, by what date
we want the delivery, where we want the delivery. Hence a typical purchase order shall have
following information.
• Description of stock items to be purchased.
• Quantity of these stock items.
• Rate for purchases.
• Due Date by which material is to be received.
• Godown where material is to be received.
 Material Receipt – This is a transaction of receipt of material against purchase order. This is
commonly known as Material Receipt Note (MRN) or Goods Receipt Note (GRN). This
transaction shall have a linking with Purchase Order. Information in Purchase Order is
automatically copied to Material Receipt Voucher for saving time and efforts of user. Stock is
increased after recording of this transaction.
 Issue of material – Material received by stores shall be issued to production department as
per requirement.
 Purchase Invoice – This is a financial transaction. Trial balance is affected due this
transaction. Material Receipt transaction does not affec t trial balance. This transaction shall
have a linking with Material Receipt Transaction and all the details of material received shall
be copied automatically in purchase invoice. As stock is increased in Material Receipt
transaction, it will not be increased again after recording of purchase invoice.
 Payment to Vendor – Payment shall be made to vendor based on purchase invoice recorded
earlier. Payment transaction shall have a linking with purchase invoice.
(b) Traditional Methods of Digital Payment are as follows:
(i) E-Wallet: E-wallet or mobile wallet is the digital version of physical wallet with more
functionality. User can keep his / her money in an E-wallet and use it when needed. Use the
E-wallets to recharge phone, pay at various places and send money to friends. If user’s have
a smartphone and a stable internet connection, they can use E-wallets to make payments.
These E-Wallets also give additional cashback offers.
(ii) Cards: Cards are provided by banks to their account holders. These have been the most
used digital payment modes till now. Various types of cards are as follows:
a. Credit Cards: A small plastic card issued by a bank, or issuer etc., allowing the holder
to purchase goods or services on credit. In this mode of payment, the buyer’s cash flow
is not immediately impacted. User of the card makes payment to card issuer at end of
billing cycle which is generally a monthly cycle. Credit Card issuer charge customers per
transactions / 5% of transaction as transaction fees.
b. Debits Cards: A small plastic card issued by a bank. Allowing the holder to purchase
goods or services on credit. In this mode of payment, the buyer’s cash flow is
immediately affected that as soon as payment is authorized buyers account is debited.

(iii) Net Banking: In this mode, the customers log to his / her bank account and makes payments.
All public sectors, large private sector banks allow net banking facilities to their customers.
4. (a) The major benefits from e-business are as follows:
A. Benefits to Customer / Individual / User
• Convenience: Every product at the tip of individual’s fingertips on internet.
• Time saving: No. of operations that can be performed both by potential buyers and
sellers increase.
• Various Options: There are several options available for customers which are not only
being easy to compare but are provided by different players in the market.
• Easy to find reviews: There are often reviews about a particular site or product from
the previous customers which provides valuable feedback.
• Coupon and Deals: There are discount coupons and reward points available for
customers to encourage online transaction.
• Anytime Access: Even midnight access to the e commerce platforms is available which
brings in customer suitability.
OR
B. Benefits to Business / Sellers
• Increased Customer Base: Since the number of people getting online is increasing,
which are creating not only new customers but also retaining the old ones.
• Recurring payments made easy: Each business has number of operations being
homogeneous. Brings in uniformity of scaled operations.
• Instant Transaction: The transactions of e commerce are based on real time processes.
This has made possible to crack number of deals.
• Provides a dynamic market: Since there are several players, providing a dynamic
market which enhances quality and business.
• Reduction in costs:
 To buyers from increased competition in procurement as more suppliers are able
to compete in an electronically open marketplace.
 To suppliers by electronically accessing on-line databases of bid opportunities, on-
line abilities to submit bids, and on-line review of rewards.
 In overhead costs through uniformity, automation, and large-scale integration of
management processes.
 Advertising costs.
• Efficiency improvement due to:
 Reduction in time to complete business transactions, particularly from delivery to
payment.
 Reduction in errors, time, for information processing by eliminating requirements
for re-entering data.
 Reduction in inventories and reduction of risk of obsolete inventories as the
demand for goods and services is electronically linked through just-intime inventory
and integrated manufacturing techniques.
• Creation of new markets: This is done through the ability to easily and cheaply reach
potential customers.
4

• Easier entry into new markets: This is especially into geographically remote markets,
for enterprises regardless of size and location.
• Better quality of goods: As standardized specifications and competition have
increased and improved variety of goods through expanded markets and the ability to
produce customized goods. Elimination of Time Delays: Faster time to market as
business processes are linked, thus enabling seamless processing and eliminating time
delays.
(b) Risk and Control related to Mortgage Process are as follows:
Risk Key Controls
Incorrect customer and loan details There is secondary review performed by an independent
are captured which will affect the team member who will verify loan details captured in
overall downstream process. core banking application with offer letter.
Incorrect loan amount disbursed. There is secondary review performed by an independent
team member who will verify loan amount to be
disbursed with the core banking application to the
signed offer letter.
Interest amount is incorrectly Interest amount is auto calculated by the core banking
calculated and charged. application basis loan amount, ROI and tenure.
Unauthorized changes made to System enforced segregation of duties exist in the core
loan master data or customer data. banking application where the inputter of the transaction
cannot approve its own transaction and reviewer cannot
edit any details submitted by inputter.
5. (a) The functions performed in organizing and controlling functions are as follows:
A. Organizing – There should be a prescribed IT organizational structure with documented roles
and responsibilities and agreed job descriptions. This includes gathering, allocating, and
coordinating the resources needed to accomplish the goals that are established during
Planning function.
a. Resourcing the Information Systems Function: A major responsibility of top
management is to acquire the resources needed to accomplish the goals and objectives
set out in the information systems plan. These resources include hardware, software,
personnel, finances and facilities.
b. Staffing the Information systems Function: Staffing the Information systems function
involves three major activities - Acquisition of information systems personnel,
Development of information systems personnel; and Termination of information system s
personnel.
B. Controlling – This includes comparing actual performance with planned performance as a
basis for taking any corrective actions that are needed. This involves determining when the
actual activities of the information system’s functions deviate from the planned activities.
 Overall Control of IS Function: When top managers seek to exercise overall control of
the information systems function, two questions arise:
• How much the organization should be spending on the information system s
function?
• Is the organization getting value for the money from its information system s
function?
 Control of Information System Activities: Top managers should seek to control the
activities based on Policies and Procedures; where Policies provide broad, general
5

guidelines for behavior whereas Standards provide specific guidelines for behavior. New
and existing staff must be made aware of the policies and procedures that govern their
work.
 Control over Information System Services: For each service level, estimates must be
made of he expected benefits and resource consumption and finally the review
committee must establish priorities.
(b) The characteristics of information are as follows:
• Relevant - MIS reports need to be specific to the business area they address. This is
important because a report that includes unnecessary information might be ignored.
• Timely - Managers need to know what’s happening now or in the recent past to make
decisions about the future. Be careful not to include information that is old. An example of
timely information for your report might be customer phone calls and emails going back 12
months from the current date.
• Accurate - It’s critical that numbers add up and that dates and times are correct. Managers
and others who rely on MIS reports can’t make sound decisions with information that is wrong.
Financial information is often required to be accurate to the dollar. In other cases, it may be
OK to round off numbers.
• Structured - Information in an MIS report can be complicated. Making that information easy
to follow helps management understand what the report is saying. Try to break long passages
of information into more readable blocks or chunks and give these chunks meaningful
headings.

SECTION – B: STRATEGIC MANAGEMENT
SUGGESTED ANSWERS/HINTS
1.
(i) (ii) (iii) (iv) (v) (vi) (vii) (viii) (ix) (x)
d d d b c c b b d a
(xi) (xii) (xiii) (xiv) (xv)
a c b c b
2. Coffee Beans is opting for differentiation strategy. 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, Coffee Beans can charge a premium for its product.
3. (a) Strategy is partly proactive and partly reactive. In proactive strategy, organizations will analyze
possible environmental scenarios and create strategic framework after proper planning and set
procedures and work on these strategies in a predetermined manner. However, in reality no
company can forecast both internal and external environment exactly. Everything cannot be
planned in advance. It is not possible to anticipate moves of rival firms, consumer behaviour,
evolving technologies and so on.
There can be significant deviations between what was visualized and what actually happens.
Strategies need to be attuned or modified in the light of possible environmental changes. There
can be significant or major strategic changes when the environment demands. Reactive strategy
is triggered by the changes in the environment and provides ways and means to cope with th e
negative factors or take advantage of emerging opportunities.
(b) The audit of management performance with regard to its strategies helps ‘Zumba Robots’ identify
problem areas and correct the strategic approaches that have not been effective so far. A strategy
audit is a review of a company's business plan and strategies to identify weaknesses and
shortcomings and enable a successful development of the company. An assessment of the external
environment shows where changes happen and where organization’s strategic management no
longer match the demands of the marketplace. Based on such analysis, Zumba Robots can
improve business performance by periodically conducting such an audit.
4. (a) Decision making is a managerial process of selecting the best course of action out of several
alternative courses for the purpose of accomplishment of the organizational goals. Decisions may
be operational i.e., which relate to general day-to-day operations. They may also be strategic in
nature. According to Jauch and Glueck “Strategic decisions encompass the definition of the
business, products to be handled, markets to be served, functions to be performed and
major policies needed for the organisation to execute these decisions to achieve the
strategic objectives.”
The primary task of the strategic manager is conceptualizing, designing and executing company
strategies. For this purpose, his tasks include:
 Defining the mission and goals of the organization.
 Determining what businesses it should be in.
 Allocating resources among the different businesses.
 Formulating and implementing strategies that span individual businesses.

 Providing leadership for the organization.
(b) Core competencies are capabilities that serve as a source of competitive advantage for a firm over
its rivals. Core competency as the collective learning in the organization, especially coordinating
diverse production skills and integrating multiple streams of technologies. An organization’s
combination of technological and managerial know-how, wisdom and experience are a complex
set of capabilities and resources that can lead to a competitive advantage compared to a
competitor.
5. (a) 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 as they can have a strong influence on employee competence:
i. Recruitment and selection: The workforce will be more competent if a firm can successfully
identify, attract, and select highly competent applicants.
ii. Training: The workforce will be more competent if employees are well trained to perform their
jobs properly.
iii. 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 counselling, coaching or training.
iv. Compensation: A firm can usually increase the competency of its workforce by offering pay,
benefits and rewards that are not only attractive than those of their competitors but also
recognizes merit.
(b)
Divestment Strategy Liquidation Strategy
Divestment strategy involves the sale or It involves closing down a firm and selling its
liquidation of a portion of business, or a major assets.
division, profit center or SBU.
Divestment is usually a part of rehabilitation or Liquidation becomes only option in case of
restructuring plan and is adopted when a severe and critical conditions where either
turnaround has been attempted but has proved turnaround and divestment are not seen as
to be unsuccessful. Option of a turnaround may solution or have been attempted but failed.
even be ignored if it is obvious that divestment
is the only answer.
Efforts are made for the survival of Liquidation as a form of retrenchment
organization. strategy is considered as the most extreme
and unattractive.
Survival of organization helps in retaining There is loss of employment with stigma of
personnel, at least to some extent. failure.
6. (a) The most important phenomenon which often distinguishes one organisation with another is its
corporate culture. Corporate culture refers to a company’s values, beliefs, business principles,
traditions, and ways of operating and internal work environment. Every corporation has a culture
that exerts powerful influences on the behaviour of managers.
(i) As a strength: Culture can facilitate communication, decision making and control and instil
cooperation and commitment. An organization’s culture could be strong and cohesive when it
conducts its business according to clear and explicit set of principles and values, which the
management devotes considerable time to communicating to employees and which values
are shared widely across the organisation.

(ii) As a weakness: Culture, as a weakness can obstruct the smooth implementation of strategy
by creating resistance to change. An organization’s culture could be characterised as weak
when many sub-cultures exists, few values and behavioural norms are shared and traditions
are rare. In such organizations, employees do not have a sense of commitment, loyalty and
sense of identity.
(b) Turnaround is needed when an enterprise's performance deteriorates to a point that it needs a
radical change of direction in strategy, and possibly in structure and culture as well. It is a highly
targeted effort to return an organization to profitability and increase positive cash flows to a
sufficient level. It is used when both threats and weaknesses adversely affect the health of an
organization so much that its basic survival is difficult.
The overall goal of turnaround strategy is to return an underperforming or distressed company to
normalcy in terms of acceptable levels of profitability, solvency, liquidity and cash flow. To achieve
its objectives, turnaround strategy must reverse causes of distress, resolve the financial crisis,
achieve a rapid improvement in financial performance, regain stakeholder support, and overcome
internal constraints and unfavourable industry characteristics.

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Test Series: October, 2019

MOCK TEST PAPER 1

Division A - Multiple Choice Questions