ASSIGNMENT FOR INDEPENDENT

STUDY I
Title: What management IS
[ISBN: 1-86197-645-3 or 978-1-86197-645-1; Penguin Books]

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ASSIGNMENT FOR INDEPENDENT STUDY I

Book Title: What management IS

Contents
1. An external orientation rather than an inward focus is useful in understanding
the concept of value. Describe value creation from the context of a low-cost
airlines (no-frills airlines). Compare it with how the Indian Railways creates value....3
2. Describe the business model of your organization. Point out the salient features
and drawbacks of the model, if any. Suggest suitable measures to overcome the
drawbacks.................................................................................................................. 5
3. Strategy is about being different. Critically analyze the statement and explain
the significance of being different for competitive advantage. Supplement your
answer with examples from the world of business.....................................................7
4.
i. Numbers are in fact, managements only window to reality. Discuss the
significance of systematic measurement of performance. Also, discuss the need for
careful interpretation of the numbers.........................................................................8
ii. Describe the performance measures used in your department. Do they address
the performance needs of the present as well as the innovation required to face the
future? Justify.............................................................................................................. 9
5. Good management is entrepreneurial. Discuss..................................................10

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1. An external orientation rather than an inward focus is useful in

understanding the concept of value. Describe value creation from
the context of a low-cost airlines (no-frills airlines). Compare it with
how the Indian Railways creates value.
What is Value? (Price is what you pay and value is what you get Warren Buffet)
In the Industrial Market, calculating the economic value of a good or service
(that is determining how much it is worth) is often fairly the straight forward. The
value created for the customer usually resides in time or labor or material saved
and those savings can be quickly translated into a cash equivalent.
Customers define the Value (External Orientation)
Value creation is a term which cannot be defined / quantified specifically and
measured accurately or attributed a particular definition. It has a distinct and broad
view and originates from the customers point of view rather than monetary value
which originates from the organizations financials. An external orientation is
important and useful to understand value rather than an inward focus.
Value Creation from the context of low-cost airlines in India Customers Define
Value:
India is one of the fastest growing aviation industries in the world. Because of the
introduction of liberalization policy and deregulation policy in the Indian aviation
sector, the industry has witnessed a vast difference with the entry of the privately
owned full service airlines and low cost carriers. Besides, there was significant
increase in the number of domestic air travel passengers. Some of the factors that
have resulted in higher demand for air transport in India include the growing
purchasing power of middle class, low airfares offered by low cost carriers and the
growth of the tourism industry in India. Now focus is towards customers. Today
there are new segments of travelers; the leisure customers and the first time
travelers apart from the earlier Business travelers.
Low Cost:
Earlier domestic flying in India was as costly as international flights. The main
airlines back then were Air India and Indian Airlines. But today, there are multiple
airlines operating in the domestic routes, thereby giving Indian travelers
competitive prices. Till the early years of the 21st century, trains were the best
means (price wise) for the lower and middle income groups in India had for
travelling inside the country.
Less Time:
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Book Title: What management IS

But now, someone from Tamil Nadu does not have to spend 65 hours in trains to
reach New Delhi. An employee with an IT/Pharma MNC has a 2 day weekend,
flexible work/time schedule, plus high disposable income to visit his hometown from
the metro cities he works in.
New / Better / Safer Aircrafts:
The biggest headline maker in the global aviation industry in recent times is not
Cathay Pacific or Lufthansa but a domestic player from India, known as Indigo
Airlines. It made headlines by placing the biggest order in the history of Airbus
worth 16$ billion to buy 180 A320s. This includes 30 classic A320s and 150
upgraded versions called A320neo. Compare this to the old/aging aircrafts with Air
India.
Skilled Personnel:
The young, confident personnel in their smart new uniforms project an efficient
approach to flying as compared to the aging red tape of the full cost airlines!
Online Ticketing System:
The concept of e-ticketing allows airlines to evade the middle-men / travel agencies
commission which can instead be passed on to the end customer. The schedules,
fares and availability of tickets online are published on their websites. An All India
24*7 multi-lingual call-center for ticket booking is also available by most airlines.
Innovation in Pricing:
Dynamic pricing i.e. selling at a higher price during high season (tourist season) and
selling cheap during the off-seasons resulting in price change depending upon the
kind of competition and also the load factor. Buying weeks in advance also results in
price change.
No-Frills:
The low-cost airlines maintain low operating cost structure along-with less luxury
than their competitors by eliminating all non-essential facilities. But they may
charge extra for add-on facilities like food, priority boarding, seat allocating,
wheelchair assistance, baggage etc. which the new young traveler doesnt need if
it helps to reduce ticket cost. X Compared to the time taken to reach from point A to
point B in India by train or other means, the number of people who will continue to
use air transportation will only increase as years pass by. Indian travelers are slowly
getting used to the fast paced and comfortable travelling by air and they are ready
to spend on this provided they get value for money in terms of speed, safety and
comfort.
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ASSIGNMENT FOR INDEPENDENT STUDY I

Book Title: What management IS

Value Creation at Indian Railways:

Indian Railway Catering and Tourism Corporation Ltd. (IRCTC) is a Public Sector
Enterprise under Ministry of Railways. IRCTC was incorporated on 27th September,
1999 as an extended arm of the Indian Railways to upgrade, professionalize and
manage the catering and hospitality services at stations, on trains and other
locations and to promote domestic and international tourism through development
of budget hotels, special tour packages, information & commercial publicity and
global reservation systems. Food Plazas on Railway premises, Railneer', Rail Tour
Packages and Internet Ticketing' IRCTC is managing on Board Catering Services in
Rajdhani / Shatabdi / Duronto and Mail / Express Trains and Static Catering Units
such as Refreshment Rooms, AVMs, Book Stalls, Milk Stalls, Ice Cream Stalls, Petha
& Peda Stalls etc. across the Indian Railway Network.
Computerized Passenger Reservation System:
Customer Focus: Out of the total passengers carried by IR, inter-city passengers
constitute a mere 9% of the total volume. But, this small proportion generated 176
billion passenger-km out of a total of 341 billion passenger-km, about 52% of the
total. They also bring in revenue of Rs. 42.9 billion in total passenger revenue of Rs.
60 billion, constituting roughly 72% of the total. These customers have been
provided with the facility of making their reservation 30 days in advance. Managing
all India Railway Enquiry Call Centre, Tourism Portal: For a customer, access to a
product or service is more important than its ownership. This process begins with
sharing information with customers and providing them with tools like toll free
numbers and website addresses. * Safety Audit: Modernize railways train control,
operational and safety systems and networks. * Expansion of passenger ticketing
and PRS network through Internet / modern technology based ticketing. * The
customer today has access to a range of services including travel reservations and
getting tickets delivered to his / her choice of address. * Add-on services like Budget
hotels information provided on website. * Complaint Management System
* Running of Special Train, Special Charters / Coach and promotion of Value added
tours, * Manufacturing Packaged Drinking Water for Indian Railway Passengers, *
Rail Tour Packages: Includes all Inclusive packages with confirmed Rail reservation,
hotel accommodation, road transportation, meals, sightseeing etc. for important
tourist destinations across India.
Freight Operations Information System (FOIS):
The market share of IR in the total freight traffic has declined in the last 20 years
mainly due to the inability of IR to carry all the traffic offered to it. This inability
arises from the fact that IR has been consistently facing severe shortage of Rolling
Stock for carrying all traffic and serious constraints in line capacity for moving the
traffic. While considerable inputs are needed for augmenting the capacity of rolling
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Book Title: What management IS

stock as well as line capacity, the optimum utilization of existing resources is

considered more imperative for carrying additional volume of traffic. Realizing that
computerization can improve the utilization of rolling stock assets, Railways decided
in 1986 to go in for an integrated computer communication system called Freight
Operation Information System (FOIS) with an objective to computerize the
information relating to all operational activities and monitor the performance of all
activity centers connected with freight traffic management.
When the organizations look from the outside in, they often see a brave
new world of innovative offering in the form of solutions and value added
services aimed at meeting customers need, not simple selling them
product.

2. Describe the business model of your organization. Point out the

salient features and drawbacks of the model, if any. Suggest
suitable measures to overcome the drawbacks.
A business model is a theoretical structure of how an organization will
perform based on assumptions made. The theory predicts the value it creates
for participants: the shareholders, customers, etc. As real data comes in, the
theory is revised to account for real results.
Amazons Company Business Model:
The company relies solely on the online model to distribute products and
services. Online refers to the usage of internet for online purchases and
transactions. The business model allows companies to experiment and grow
without substantial investments in retail locations or branch offices. The
company focuses on using its buying power to extract discounts and then
offers consumers these discounts.
Salient features: It allows the company to benefit from doing online
commerce that can reach a vast consumer population. Consumers are happy
with the efficiency and flexibility involved with online purchases, so this
business method gives the company a competitive advantage. It allows
owners and managers to focus on a handful of core competencies. Narrowing
the companys focus allows leaders to eliminate distractions and to clarify the
firms unique sales proposition. It allows differentiating itself from competitors
with broader offerings. Establishing expert status in a single area helps new
company offerings attract attention from customers and investors. The
company prefers to handle as many of their critical business functions in
house as possible.
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Drawbacks & Suitable Measures:

The Companys tendency to owning and operating its own fulfillment centers
instead of relying on third-party warehousing and shipping companies despite
the challenges inherent in building out sophisticated supply chain services.
Alternatively the company can follow the wider business trend favoring
outsourcing to handle some of their critical business functions. The company
can conduct business both offline and online. Offline refers to doing business
in person, such as having store locations or buildings. Traditional retailers
have begun to operate their in-house web services, enabling them to
compete more aggressively with web-only businesses. Example: Barnes &
Noble earned praise for marrying in-store pickup services and electronic
delivery options to its existing store network. Future businesses must
consider the impact of an established brick-and-mortar competitor moving
into their niche. Its core operation, direct sales to consumers, remained
despite product line diversification. Many company leaders like the singular
focus of the business when pitching for venture capital, but must capitulate
to investor demand to diversify over time. It would essentially operate two
retail businesses-- online and offline retail stores. The stores expand their
selections to appeal to broader tastes and provide a one-stop shopping
experience. Business models are easy to recognize - after an organization has
succeeded or failed. Before the fact, the success or failure of a model can be
assessed only on the basis of assumptions about the behavior of people and
organizations in markets. Essentially, every model is based on a set of
hypotheses about how the world works. The world here is a world of markets
on which the organization depends on for its success - markets for talent,
capital, supplies and products or services.

3. Strategy is about being different. Critically analyze the statement and

explain the significance of being different for competitive advantage.
Supplement your answer with examples from the world of business.
The success of a business does not depend on its business model alone. To succeed
it must also have the right strategy. According to the author, strategy is all about
"how you are going to do better by being different." It provides the basis for
superior performance (in comparison to competitors) and is critical to success. A
good business model is only the beginning of strategic thinking.
Although nowadays many writers liken business to war, there are significant
differences between the two. A war is always a zero-sum game. If one side wins, the
other side loses. While strategy in management is also about winning, competition
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in business need not always be a zero-sum game. Most of the time, there is room in
the markets for more than one winner. For a business, an effective strategy results
in competitive advantage, which in turn translates into superior returns.
In recent times, there has been a growing body of opinion that the notion of
sustainable competitive advantage, which provides the basis for continuing superior
performance, is obsolete in an environment of rapid technological change and
dynamic markets. While there is some truth to this assertion, the objective of
strategy remains unchanged - "figuring out how to hide from the competition, or
dampen it, or constrain it, so that you can earn superior returns." If you see your
business as a castle, earlier it was sufficient to build a moat around it to protect it
from competition.
Now, you may even have to move the castle - i.e., find new ways to differentiate
yourself from the competition. Strategy also involves tradeoffs. In a tradeoff, when
choosing one option, you forgo one or more alternative options. Example: Dell
Computers followed a direct selling model to reach its customers. Its competitors
could not quickly adopt the direct selling model because of the tradeoff involved - if
they had tried to sell direct like Dell, they would have disrupted their existing
distribution channels and alienated their distributors. A real tradeoff was involved
here, and in such a situation, they couldn't have it both ways. Example: Wal-Mart,
the discount retailer, did differently from competitors the following:
* Adapting the supermarket to sell clothes, appliances, and other goods.
* Cutting the frills (sales attendants, fancy displays, etc.) means lower costs and
cheaper products.
* First-mover advantage: move into & establish self in territories where no
competitors exist.
* Up to date inventory: know what's selling and how much so that you can order
more (if it sells well) or cancel (if no one is interested) as is appropriate
* Cross-docking: supplier's goods were transferred straight from an unloading dock
to delivery trucks bound for the stores. This meant less unpacking and repacking
also no idle storage time.
4. i. Numbers are in fact, managements only window to reality. Discuss
the significance of systematic measurement of performance. Also,
discuss the need for careful interpretation of the numbers.
Equally important to management is quantifying performance. This starts out with
measuring then goes onto analyzing the context of the measurements. Reading the
measures and their context is usually represented as a ratio or percentage or
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average or trend. These numbers help managers decide the appropriate course of
action to take. The actual number crunching is easily taught and easily learned. The
more difficult skill is interpreting the number as this requires experience. Experience
helps develop expectations about the numbers and guides the manager decisions.
The kind of performance measures that are important to a manager depends on the
nature of his job. Ultimately, what gets measured; gets managed. One of the most
fundamental managerial challenges is to translate an organization's mission into
performance. To do this, the mission must be made tangible - i.e., translated into
goals and performance measures that can be understood by everyone. Many
modern day managers are so obsessed with the bottom line that they forget other
aspects of management. True, good managers must be concerned with meeting
profitability targets. But they must also understand the organization's purpose, and
focus on measures that can help achieve that purpose. Profits are the results of
achieving that purpose, not the purpose itself.
According to David Packard, the cofounder of Hewlett-Packard, "Profit is not the
proper end and aim of management - it is what makes all of the proper ends and
aims possible." The most commonly used measures of performance are financial
measures. With these measures one can compare the performance of different
firms. Nowadays, many measures are fine-tuned to meet the needs of specific firms
or industries. However, these must not be used without a proper appreciation of
their limitations and their relevance to the mission, strategy and situation of the
firm.
For example, in the case of Dell Computers, one of the keys to success is speed, or
the time elapsed between the manufacture of the components of the computer and
the delivery of the assembled computer to the customer. This concern with speed is
apparent in all the measures Dell uses to measure performance. The important
numbers are: revenues, costs, profits and cash flow. Again these numbers are aids
to understanding. In themselves, they are not fool proof. The numbers are simple
but the markets are complex. Numbers are essential to monitor execution. Numbers
by themselves, however, mean little; to measure performance, they must be put in
the right context and compared against some clear reference point.
Take the case of the grounding of the Concorde jets after one jet crashed in July
2000 because of a tire burst. The jets were taken out of service, even though there
had been only three disintegrating tire incidents in 31 years. At first glance, three
incidents in 31 years look like a good safety record. However, if we look at this
figure in relation to the number of times the Concorde has flown, this is an
extraordinarily high failure rate. In this case, putting the numbers in the right
context provided the true measure of performance. Another example of the
importance of numbers in management is six sigma; a measure of quality used by
many of the world's leading companies. This measure indicates the percentage of
an
organization's
efforts
that
are
error-free.
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ii. Describe the performance measures used in your department. Do

they address the performance needs of the present as well as the
innovation required to face the future? Justify.
Performance Measures for Dell a Direct Selling Organization
Mission: Give customers best technology at lowest cost
Measures:

Low inventory- Building and shipping computers to users quickly lessens

obsolescence and storage costs.

Lessen touches - The more often components are touched, the more quality
suffers

Return on invested capital. Revenues - (Costs of goods + advertising

+building facilities + inventory etc.)

Managers translate the organization's mission into concrete terms of goals and
performance to focus members' actions. The challenge is that there is rarely a clear
and easy answer. Profits are not a goal; they are a result of the actions to achieve
the mission. Measurements evaluate performance. Measurements can be indicators,
guides, and goals for the managers and for the members. There is no one measure
that will tell you everything you need to know about the company. The profits can
tell you if costs are reasonable or if your product is doing well now. It cannot tell you
if your product will continue to do well tomorrow or if it even did as well last year.
Measures are industry and business specific. Some general important measures are:

* Operating & financial measures: indicate the productivity of resources, personnel,

etc.
* Employee turnover: can indicate organization spirit.
* External performance measures: can indicate customer satisfaction and loyalty.
* Market share: can indicate relative performance versus rivals. Each has strengths
and limitations. New measures or combinations of measures should be formulated
as required. Nowadays, many measures are fine-tuned to meet the needs of specific
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Book Title: What management IS

firms or industries. However, these must not be used without a proper appreciation
of their limitations and their relevance to the mission, strategy and situation of the
firm. Innovation and value creation is not necessarily a random process. Tools for
arriving at decisions involving uncertainty have been developed. These tools aid the
manager in arriving at good decisions.
* Break even analysis figure business costs then figure how many customers need
to spend (revenues) to make up the costs or break even.
* Payback analysis figure business costs then approximate revenues and how
quickly you get paid back. Because of the focus on return managers are more likely
to work with short term investments. It ignores risk and money lost from an
alternative investment(s).
* Net present value the same money you have now will be worth less or be able to
purchase less tomorrow. Net present value analyzes future cash flows and relates it
to today.

Probabilities and expected value analyze the chances/probabilities of possible

outcomes and weigh it against the profit this is the expected value.

Decision trees systematically layout decisions and their outcomes. Focuses

on steps, processes and effects. The tools can simplify complex problems,
analyze outcomes and tradeoffs, minimize uncertainty; but the final decision
is still the managers to make.

5. Good management is entrepreneurial. Discuss.

Good management take discipline as well as certain amount of courage and also it
takes a radical belief in the promise of Tomorrow. Also the good management team
should aware that there is no problem that cant be solved, no status quo that cant
be bettered.
Management must look at short term and long-term performance. Long-term
performance needs innovation, an entrepreneurial attitude. Good managers must
live in the future as much as in the present. While they are concerned with
immediate results, they must also look to the future. To stay ahead tomorrow, they
must innovate today. Innovation is a risky business - there is no guarantee that
investments in innovation will pay off in the future. Managers therefore gather and
use information to make informed choices about the future. Managing for the future
requires discipline and courage. It also requires optimism, a belief in the promise of
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tomorrow. These are characteristics usually associated with entrepreneurs, not

managers. To be effective, however, managers must also be entrepreneurs.
Entrepreneurship and management are not mutually exclusive - they are two sides
of the same coin. An entrepreneur who cannot manage will not succeed; and a
manager who does not innovate will fail.
Thinking outside the box has become a phrase synonymous with creativity and
innovation. A popular graphic to illustrate this is the 9 dot problem arranged in a 3 x
3 square formation. The problem posed is how to link all 9 dots without lifting your
pen and with just 4 lines. The solution requires the lines to extend outside the box
or square that you would naturally picture. This innovative solution comes about
because of the constraints or bounds of the box. This is the core principle of
innovation in business: creating new value within fixed constraints. Innovation is the
product of joint effort, not individual genius. It requires clarity about the
organization's goals and constraints. Thinking outside the box, a once useful catch
phrase, has become trite with overuse. Thinking inside the box, that is, with an
appreciation of constraints and realities, may prove more useful to innovation in
today's businesses. Innovation requires information. This information comes from
customers. Merely listening to customers is not enough. Managers must be
passionately interested in understanding people and their motives (without
imposing their own logic and intuitions on what they observe) to access information
that can lead to the development of innovative products and services. All the
information needed to make a decision that guarantees success will never be
available to a manager. However, what is available can be evaluated: What is
relevant and what is not? What are the facts and what are the assumptions? Today's
managers have powerful tools and techniques to help them take decisions under
conditions of uncertainty. At some point, however, managers have to fall back on
their judgment to take the right decision.

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Book Title: What management IS