Open UniversityofMauritius

PROGRAMME NAME: BA (Hons) Business Accounting and Finance (OUbs....)

BSc (Hons)Business Management/Specialisation
BSc (Hons) Marketing Management

EXAMINATION FOR: June – July 2021

MODULE: Business Strategy and Change [OUBA001411]

DATE:

DURATION: 2 Hours

READING TIME: 10 Minutes

INSTRUCTIONS TO CANDIDATES

1. The paper consists of Section Aand Section B.

2. Section A is COMPULSORY.
3. Answer ANY TWO questions from Section B.
4. Always start a new question on a fresh page.
5. Total marks: 100

This question paper consists of 4 questions and 5 pages.

THIS QUESTION PAPER CONTAINS FOUR QUESTIONS

SECTION A: Compulsory (50 marks)

Page 1 of 14
Read the extract below and answer ALL questions that follow.
Once a “giant,” BORDERS became a “weakling” on its knees

Borders changed the way books were sold and became the largest book retailer in
the world. At one time, it had more than 1,300 large stores and approximately
35,000 employees. But, in February 2011, Borders declared bankruptcy. When it
did so, it had shrunk to 674 stores and about 19,500 employees. Borders
experienced hard times and paid for the ineffective strategies employed by its
executive leadership teams. At its peak in the 1990s, Borders stock sold for more
than $35 per share. On the day it declared bankruptcy, Borders stock sold for 23
cents per share.
What went wrong? Many goods are now sold by large chain store retailers.
However, the way people buy and what they buy is beginning to change- especially
in retail sales of books. Since 1995 and the founding of Amazon.com, books have
been sold over the Internet. But with the rise of digital technology, electronic books
and devices to read them have become highly popular. Quite obviously, they do not
require large “brick-and-mortar” stores to sell them. Borders simply did not adjust
quickly or effectively to these changes in the marketplace. Of course, it had to
compete against Barnes & Noble, Walmart, Costco, and other large retailers selling
books. It did not adjust quickly to Amazon’s appearance in the market. It was much
slower than Barnes & Noble, and that company required almost two years to launch
Barnesandnoble.com.
Web- based retailing is growing in popularity, especially for electronic books. With
eReaders such as Amazon’s Kindle, Barnes & Nobles’s NOOK, and Apple’s highly
versatile iPad, the old way of selling books is rapidly becoming a dinosaur. While
these changes were occurring in the retail book market, Borders invested heavily to
enhance the marketing for traditional book selling. Borders tried to lure customers to
its stores with promises of an enriching experience.
Borders was also harmed by chaos in its executive ranks, having three regular CEOs
and an interim CEO within a period of about two years. As a result of poor strategic
decisions and ineffective strategic leadership, Borders suffered net losses of $344
million for 2008 and 2009. It also had compiled a massive debt in a campaign to buy
back its stock while trying to keep the price high. All of its actions had the opposite
effect.
With the bankruptcy, Borders wants to stay in business if it can reach agreement
with its debtors. It plans to close about 200 more stores, and obtain reduced rent by
renegotiating its current long leases. But it must do much more and quickly if it is to
survive in the new book retail market
(Adapted from Strategic Management: Competitiveness & Globalization,by M.A.Hitt, R.D.Ireland
&R.E. Hoskisson (10th Edition) 2013, South-Western Cengage Learning, Ohio, United States

Question 1

Page 2 of 14
(a) “As a result of poor strategic decisions and ineffective strategic
leadership, Borders suffered net losses of $344 million for 2008 and
2009”.

It is understood from this quote that ineffective leadership was a main

cause of failure for Borders as the leaders could not properly cope with
the changing business environment.
In line with the above, discuss the importance of having an effective
leadership in a state of change as witnessed in the case of Border.
(10 marks)
(2 marks * 5 main points justifying the importance of effective leadership in a state of
change)
Students may relate to the case by using any 5 of the following:
Effective leadership is one of most essential parts of an organisation to sustain its business
in the face of problems caused by rapid changes. Good leaders usually have a clear vision
for the company and therefore can easily identify the problems and obstacles that currently
stand between them and the aims of the organisation. Leaders at Borders failed to set a
clear vision and were near-sighted with conventional strategic formulation, inapt for the
upcoming circumstances in book-selling.

While effective leadership being far-sighted, it could effectively and efficiently anticipate
change and bring about the necessary reforms that will bring the company into the future
while keeping abreast with contemporary changes in the business world. This was lacking at
Borders due to ineffective leadership.

Effective leadership gives a clear direction to the employees, and also lead them to commit
to their jobs and to work as a team to achieve the organization’s goals and objectives in a
state of turbulences.

Leaders are the ones who control and take charge of the operation of an organization and
good leaders are able to set optimistic goals and objectives while steering the operation of
the company towards those goals through effective strategies. At Borders, they could not
take charge effectively and the company soon became bankrupt.

A leader with strong leadership skills can easily motivate and influence the employees of the
organization and apply effective changes to the organization. If there is no effective
leadership in an organization, no change will happen and the organisation will perish while
facing a volatile environment.

Intelligent leaders also have the responsibility to use their skills and knowledge to effectively
and efficiently guide their business forward in the face of an uncertain future and also to
decrease the feelings of insecurity in their employees caused by that uncertainty and build
trust in employees.

Effective leadership enables the leaders to stay connected with their employees in difficult
times of change and they stand as pillars to those employees, while keeping them bonded,
concentrated and persevering. Lack of effective leadership in a state of change renders
employees disillusioned, confused and unmotivated.

Page 3 of 14
Effective Leadership can shape a good culture, a culture adaptable to change. Employees
and leaders in the organization need to trust each other in order to shape a positive
organizational culture. Leaders with strong leadership skills are able to shape a positive
culture in the organization. A positive organizational culture not only improves but also
influences the behaviour and attitude of the employees in the organization for the better.

(b) In order to face up and survive its changing business environment,

Borders could have adopted different change strategies.

Describe the three components of change strategies and discuss how

Borders could have adjusted them to render its strategies more effective
and adaptable to its changing environment.
2 marks per component description (2 * 3 = 6 marks); 3 marks for showing the
adjustment made to each component (3 * 3 = 9 marks).
(15 marks)
The three components of the change strategies are Content, People and Process,
which students have to describe.
Adjustments:
 For the content of change, changing the organisational structure, technology,
culture, amongst others, may enhance the readiness of Borders to implement
these major changes. For example, the company will have to modify its physical
store space and bet more on its website and social media platforms.

 For the people component, the readiness of employees to embrace change

should be enhanced, by eliminating their resistance to change. This could be
done by giving them clear directives, training and development, motivation and
rewards, and not only guide them but take them on board in the change process.
Management style might be required to change as well here, to have a more
dynamic, open and collaborative approach, with the sense of employee
empowerment to take decisions in a state of change, while making them
accountable collectively for the outcome of their actions. The attitude towards
handling mistakes during trial and error, fostering creativity and innovation among
people and embracing workforce diversity could all be considered here to help
Borders increase its capabilities and be better prepared to embrace change
continuously.

 For the process of change, detailing how everything fits in together is important.
How to integrate all the components that have altered, how the value chain is
being revamped, whether a radical change in methods of operations is required,
all these could be considered here. For example, the use of technology in the
process could bring in radical change, diminishing the need for excessive people,
excess space and hence, lower rental cost while keeping and selling e-books.

Page 4 of 14
(c) “It plans to close about 200 more stores, and obtain reduced rent by
renegotiating its current long leases. But it must do much more and
quickly if it is to survive in the new book retail market”.

Discuss what could have Borders done to increase its chances of

survival in the new book retail market? Use appropriate models and
strategies to support your recommendations.
[25 marks]
(5 marks per pertinent recommendation through the use of models and/or strategies.
Students are expected to discuss and propose at least 5 solutions here)
Students should comment on at least some of these points below. Some level of
flexibility is allowed for interpreting students’ responses.

 Given that Borders operates in the retail industry which is characterized by

rapid evolution of reaching out to new customers and serving existing ones at
the same time, requires the company to adapt to change spontaneously by
constantly monitoring competitor offerings and adapting its current strategies.
It should, therefore, conduct its environmental scanning to be alert of its
changing circumstances at internal, micro-external and/or macro-external
level. Various tools could be used such as PESTEL, SWOT, 5Ms, McKinsey’s
7S Model, VRIO, etc to take cognizance of the environment.

 Borders should first decide whether it is targeting a broad market or a narrow

segment of the market. In this case, if it decides to build an online presence
similar to its main competitors namely Barnes & Noble, Walmart and Costco,
it should know whether the main chunk of its customers usually purchase
online and whether they prefer reading content online. Through conducting
surveys and by analyzing its customer profiles, Borders can have a more
precise idea of whether its customers will respond positively to its new
offerings in case it decides to go with the online store and online content
delivery method.
 Borders has the choice of either retaliating against its competitors by
matching their offerings, cooperating with them or simply being innovative and
entrepreneurial in its own way. Various grand strategies could be produced
here.

 Instead of matching competition, Borders could on another side combine its

resources and capabilities with other similar players in the market to create a
competitive advantage. By creating strategic alliances with players such as
Amazon, Borders can concentrate on its core business which is to work with
publishing houses and source new books and leave the selling part to the
other partner. Also, by reaching out to online customers, Borders can
significantly reduce the risk of failing the first time it enters into this new
business segment. Moreover, Borders can more easily integrate new
technology into its business model by benefiting from the expertise of its
partners who boast strong experience in their respective fields. An important
point to bear in mind is trust between partners to avoid conflicts.

Page 5 of 14
  On the other hand, Borders could engage in strategic entrepreneurship by
fostering internal innovation. It could create cross-functional product
development teams to include employees in the process.

SECTION B (50 marks)

Answer any two questions from this section.

Question 2 (25 marks)

The American Academic, Michael E. Porter, contributed significantly in the business

management discipline. He introduced tools to measure the different layers of the
business environment. Additionally, he came up with the generic strategies that
organisations could follow to attain a sustainable competitive advantage.

In view of the above,

(a) Elaborate on the following tools, while identifying which layer of the
environment they are meant to assess:

(i) Michael Porter’s Five Forces Model (Identification of layer: 1 mark;

Elaboration on the tool: 4 marks)

(5 marks)

It is targeted towards analysis of the industry or the competitive environment, also known as
the market environment. It involves analysing the industry’s competitiveness through the
Five Forces Model, meaning from five different perspectives.
Students are required to elaborate on the following five forces:
 Freedom of Entry and Exit

 Threat of substitute products

 Bargaining power of suppliers

 Bargaining power of customers

 Degree of competitive rivalry

The above determines the level of competition prevailing in the industry as a whole, which
could help determine the position of the organisation relative to competition (competitive
analysis).

(ii) Value Chain Analysis (Identification of layer: 1 mark; Elaboration on

the tool: 4 marks)

Page 6 of 14
 (5 marks)

The Value Chain Analysis is a vital tool which could be used to make a thorough internal
assessment within the organisation to determine whether all activities are contributing
towards value creation of the organisation, be they primary or secondary activities. If through
the VCA, activities are identified which are adding up to cost but not contributing to the
advancement of the organisation, they are deemed inefficient and wasteful, and the
organisation should thus eliminate them to diminish cost. This analysis also helps determine
if the primary and support activities are coherently and seamlessly taking place, which could
determine the effectiveness of the processes within the organisation. Hence, it is a tool for
assessing the internal layer of the business environment.

(b) Explain what is meant by a ‘sustainable competitive advantage’.

(5 marks)

A competitive advantage is an advantage over competitors gained by offering consumers

greater value, either by means of lower prices or by providing greater benefits and service
that justifies higher prices.

A competitive advantage could be sustained as long as competitors are unable to imitate the
goods, services, valuable resources, skills and competencies of the organisation. An
organisation’s success depends much on its ability to develop and sustain its competitive
advantage over the long term. For so to happen, it must constantly challenge itself before
others do so and keep on innovating its products, services and processes, as well as
training, motivating and empowering its employees in order to always remain ahead of
competitors.

(c) Discuss the generic strategies proposed by Michael Porter which could
help attain a sustainable competitive advantage. (3 marks per generic
strategy, namely, Cost Leadership, differentiation and Focus; 1 mark for
Hybrid strategy)

Page 7 of 14
 (10 marks)

Michael Porter came forward with basic approaches to attain sustainable competitive
advantage through three fundamental generic strategies, namely, cost leadership,
differentiation and focus strategies. The first two concentrate on broad markets while the
third one focuses on narrow markets and may tend either towards cost focus or
differentiation focus.
Cost Leadership – through standardization, specialization of labour, bulk buying and
economies of scale, learning curve, backward vertical integration, strategic combinations to
maximize use of excess capacity, amongst others; ability to charge lower prices to beat
competitors’ prices due to reduction in production costs.
Differentiation –through innovation, Research and development, provision of superior
perceived value products, establishment of a distinguished brand name and equity, charging
higher prices and earn superior profits
Focus – cost or differentiation based, or through a combination of both (Best-cost strategy)
by understanding particular needs of a narrow, specific set of customers and effectively
servicing them, which might not be possible or profitable for a large established competitor to
do.
Hybrid Strategies: Combination of Cost Leadership and Differentiation Strategies.

Once the organization decides on its generic strategy to follow, all its activities, people and
processes are geared towards same. The organisation’s whole value chain will be impacted
with the adoption of any of the above generic strategies.

Question 3 (25 marks)

(a) Organisations often take bold and enthusiastic decisions to transcend

their national borders to trade globally, which imply taking various risks
and facing international pressures.

Elaborate on five main risks that these organisations have to face while
deciding to go global. (2 marks per risk)
(10 marks)
Students are expected to elaborate on those main risks which organisations going
global may have to face, for example:
1. Risk for not having the right product-market fit, especially if the organisation
wishes to export the domestically produced standardised products. Very few
markets in the world are so alike that they will support an identical product or
business model with identical results.

Page 8 of 14
 2. Cultural risk: In many foreign countries, customers may have apprehension to
accept or try a foreign brand due to their own beliefs, values and perceptions
related to their national culture. Religion also dictates particular consumer
buying behaviour, for example, if the product includes gelatine.
3. Partner Risk: Going global often means introducing new partners into the
business model: be it service providers, distributors, financial institutions, or
even joint-venture partners or franchisees. Each one is a key risk, especially if
the organisation lacks a Plan B or exit strategy should the partnership not
work out.
4. Political Risk: In every country, the host government may introduce or change
statutory or regulatory policies which might not always be in favour of the
organisation. Sometimes, due to political unrest, there might be the risk of
confiscation or expropriation of assets.
5. Currency Risk: When trading globally, the organisation has to face the
adversities of any foreign exchange or currency fluctuation risk, whereby any
large currency swing might wipe out substantial gains achieved.
There are various other risks that students may discuss, such as country risk,
financial risk, competitive risk, among so many others.

(b) Taking into consideration the competitive pressures prevailing on the

global market, discuss the strategic choices available to organisations in
their pursuit of global expansion. (2 marks for identifying the competitive
pressures, 1 mark for showing the conflictual element and 3 marks per global
strategic choice)

(15 marks)

To tackle this question, students are expected to demonstrate the two main competitive
pressures that companies have to face while going global, namely:
 Pressures for cost reductions

 Pressures to be locally responsive

These pressures place conflicting demands on the firm. Pressures for cost reduction force
the firm to lower its cost per unit, but pressures for local responsiveness require the firm to
adapt its products to meet local demands in each market – a strategy that raises costs.

Strategic choices to compete in the international environment

There are four basic strategic choices to compete in the international environment
 Global (standardization) strategy

 Multi-domestic or localisation strategy

 Transnational strategy

Page 9 of 14
  International strategy
Very Often, the global strategies are classified according to two dimensions, namely, need
for local responsiveness or pressure for cost reduction/global integration:

Global Standardization Strategy

This strategy focuses on increasing profitability and pursues growth by reaping the cost
reductions that come from economies of scale, learning effects and location economies. The
strategic goal is to pursue a low-cost strategy on a global scale.
The global standardization strategy makes sense when there are strong pressures for cost
reduction and when demands for local responsiveness are minimal.
Localization or Multi-Domestic Strategy
The localization strategy focuses on increasing profitability by customizing the firm’s goods
or services so that they provide a good match to tastes and preferences in different national
markets.
The localization strategy makes sense when there are substantial differences across nations
regarding consumer tastes and preferences and their buying behaviour. It is also viable
when cost pressures are not too intense.
Localization strategy may give a firm a competitive edge, but if the firm is simultaneously
facing aggressive competition, the company will also have to reduce its cost structures and
the only way to do that may be to shift towards a transnational strategy.
Transnational Strategy
The transnational strategy tries to simultaneously:
 Achieve low costs through location economies, economies of scale and learning
effects.
 Differentiate the product offering across geographic markets to account for local
differences.
 Foster a multi-directional flow of skills between different subsidiaries in the firm’s
global network of operations.

Page 10 of 14
  The transnational strategy makes sense when the pressures for cost reduction and
local responsiveness are both intense.
International Strategy
The international strategy involves taking products first produced for the domestic market
and then selling them internationally with only minimal local customization.
The international strategy makes sense when there are low cost pressures and low
pressures for local responsiveness.
However, an international strategy may not be viable in the long-term. To survive, firms may
need to shift to a global standardization strategy or a transnational strategy ahead of
competitors.

Question 4 (25 marks)

Strategic Management has increasingly become important in the world of business

characterised by volatility, uncertainty and turbulence. Organisations are, thus,
required to take a more strategic approach to be able to survive and prosper.

In line of the above,

(a) Discuss five reasons why Strategic Management is important in the

contemporary business context. (2 marks * 5 reasons justifying the
importance of Strategic Management)

(10 marks)

Strategic Management is increasingly becoming important in the current business

world as it impacts on the success or failure of the organisation which is apparently
navigating in a rough and deep blue sea where risks and challenges are always
looming around. Its approach gives the ability to plan for wars and competitions, and
win them. Effective strategic management can transform the performance of an
organisation, make fortunes for shareholders or change the structure of an industry.
Ineffective strategic management can bankrupt companies and ruin the careers of
executives.

Students are expected to produce any five reasons to discuss the importance of
Strategic Management. These could be as follows:

1. Accomplishment of Long-Term Objectives: Business environment changes

rapidly. A business concern cannot achieve its long-term objectives of

Page 11 of 14
 profitability, a higher rate of return, productivity, technological leadership, market
standing, and market leadership without formulating an appropriate strategy and
without implementing it effectively. Strategic management, thus, enables to
achieve the long-term objectives of an organisation through its strategic
management processes.

2. Strategic management helps a decision-maker to get equipped with management

tools to scan the environment and determine its overall position relative to the
market and industry before taking any strategic move and making any substantial
investment.

3. Strategic management assists a business concern to identify its strategic

advantages in the areas of finance, production, marketing, technology, research
and development, and human resource management over other firms in the
industry through a thorough internal analysis of the firm.

4. The conditions of most businesses change so fast that strategic management is

the only way to anticipate future problems and opportunities. It allows an
enterprise to make its decisions based on long range forecasts, not spur-of-the
moment reactions.

5. Strategic Management could help directing the organizational activities along the
right path by formulating the right, most effective and efficient strategies to help
attain the organisational objectives when the organisation might be facing
unprecedented changes, challenges and competition. It enables careful selection
of a strategy out of various strategic alternatives, which might diminish risk of
failure.

6. Strategic management improves quality of strategic decisions through group

interaction – The process of group interaction for decision-making facilitates
generation of alternative strategies and better screening of opinion due to
specialised perspectives of group members. This approach could also enable
brainstorming and development of contingent strategies in case of any deviation
or disruption emanated from the highly volatile business environment.

7. Moreover, strategic management, being objective oriented, can provide all the
employees with clear ideas about what to do, when to do, where to do and how to
do. Thus, an orientation towards strategic management can assure better
coherence, coordination, performance and greater unity in the enterprise. It could
enable attainment of strategic fit.

8. Aligned with the above, Strategic management provides greater employee

motivation – Participation of employees or their representatives in strategy

Page 12 of 14
 formulation leads to a better understanding of the priorities and operation of the
reward system. Also, there is better appreciation on their part of the productivity-
reward linkage inherent in the strategic plan. Hence, goal-directed behaviour is
likely to follow incentives.

9. Strategic management minimises resistance to change – The benefit of

acceptability of change with minimum resistance is also likely to follow
participative process of strategy making, as there is greater awareness on the
basis of choosing a particular option and the limits to available alternatives. The
uncertainty, which is associated with change, is also eliminated in the process
and resistance to change is rendered innocuous.

10. Strategic management ensures an effective control in an organisation by

providing continuous monitoring system and tracking the strategy. This will
enable the organisation to implement the strategy successfully and to achieve the
desired results.

(b) Strategic Management follows a particular process, comprising three

distinct stages.

Elaborate on those three stages, demonstrating how strategies are

conceived, implemented, evaluated and controlled. (5 marks per stage)

(15 marks)

Students have to discuss that business strategies are not derived out of the blue, but
through a well-defined framework established through the three distinct stages of Strategic
Management such that the best strategies are derived which could solve business issues in
the most efficient and effective manner in the contemporary business world.
The best framework to follow is by considering the respective stages of the Strategic
Management Process through Strategic Planning, Implementation, Evaluation and Control:
Conceptualisation of Strategies through Strategic Planning Stage (5 marks)
Before conceptualising strategy, it is important to understand where the organisation has to
reach through a vision, what it has to do through its mission and then decide how to reach
there through the strategy. Hence, identification and understanding of the vision, mission
and corporate values, goals and objectives are imperative before strategies are formulated.
Following the above, a thorough environmental scanning should be conducted to identify
which are the environmental factors, both internal and external, which are impacting either
positively or negatively on the organisation. The outcomes of the environmental analysis are
of paramount importance before the formulation of strategies since they will enlighten the
organisation on which axle it could bet on its strategies.
In light of the above, strategic choices could be conceived, giving a range of choices or
pathways which the organisation could adopt to meet its objectives. However, these

Page 13 of 14
strategic choices should be evaluated to know which one is the best since the strategic
choices may not necessarily have the same degree of efficiency or effectiveness.
The best rated strategic choice, therefore, becomes the chosen strategy of the organisation
and at this stage, the Strategic Planning stage comes to an end. However, the effectiveness
of the chosen strategy could only be determined at the evaluation stage, once it is
implemented.
Strategic Implementation Stage (5 marks)
As from here, the Strategic Implementation phase starts and discussions pertaining to how
the strategy should be implemented to increase its chance of success would follow.
Financial, human and technical considerations should be given to ensure feasibility of the
strategies and methods of change strategies could also be considered here. Motivation of
employees, leadership style applied, effectiveness and efficiency in resource allocation are
the different elements which have to be considered at this level for the implementation of the
strategy. It is wise highlighting here that effectiveness of any strategy is determined at this
stage, once it is implemented and not at the stage when it is formulated. A good strategy
followed by its successful implementation could only lead to a successful strategy.
Strategic Evaluation and Control Stage (5 marks)
Once a strategy is implemented, the Strategic Evaluation and Control stage begins, whereby
the strategy is being evaluated based on its outcomes it produced and/or based on the way
it has been implemented. At this stage, various technical/ statistical/ quality assurance tools
could be deployed to make the assessment and evaluation. If the target outcomes have not
been achieved, it calls for strategic review or review of the objectives themselves (in case
they are over-enthusiastic). At this stage, it is understood that failure might have resulted
either through a strategy badly formulated or a good strategy formulated being badly
implemented.
This stage comprises setting a benchmark, comparing the actual results with the benchmark
and identifying any variance from the initial target. If so happens, corrective actions should
follow and the strategies are subsequently being adjusted accordingly.

Eventually, the strategic conceptualisation, implementation and evaluation end up being a

continuous cycle which helps the organisation to keep improving and modifying its strategies
relative to its changing business conditions, and this leads the organisation towards being
flexible and adaptable, with an attitude towards continuous improvement in a context of
change.

Page 14 of 14