Introduction to Management (MB111) : Section B

Section B : Caselets (50 Marks)
• This section consists of questions with serial number 1 – 7.
• Answer all questions.
• Marks are indicated against each question.
• Detailed workings should form part of your answer.
• Do not spend more than 110 - 120 minutes on Section B.

Caselet 1
Read the caselet carefully and answer the following questions:
1. The success of a business depends to a great extent on various forces in the external environment. Describe the
environmental factors that pushed Sturdy Synthetics into losses.
(7 marks) <>
2. Sturdy Synthetics, which had posted a net loss of Rs.160 crore during 1998-99, was able to bring it down to Rs.
70.65 crore by 1999-2000, while its operating profit increased to Rs.266 crore. How did Sturdy manage to achieve
the remarkable turnaround?
(6 marks) <>
A ‘STURDY’ TURNAROUND
Its obituary had been in the offing for a long time. Sturdy Synthetics, the country’s second largest polyester
manufacturer, proved its critics wrong by achieving a remarkable turnaround after three tumultuous years in 2000-01.
Its profile looks all the more impressive when one takes into account an environment where company after company in
this business-such as Oriya Synthetics, JK Synthetics, Raymond, DCL, Parasrampuria, JCT Phagwara--either folded up,
reported sick or went up for sale. The global and domestic environment during 1996-99 for the polyester business had
adversely impacted almost every Indian manufacturer except Reliance Industries.
Triggered by the Asian currency crisis, the prices of raw materials fluctuated sharply during this period. Added to it was
the Indian government’s skew towards the cotton fibre industry (which continues till date) and its apathy towards
polyester manufactures, which was manifested in heavy import duty on raw material for polyester as well as the
imposition of stiff excise duty. While excise duty charged on cotton was 9.2 per cent, it was 36.8 per cent for polyester.
Polyester was also perhaps the only industry where the customs duty on raw materials was higher than the customs duty
on finished products. In such a stifling environment, the Indian polyester industry gasped for survival. Only the toughest
could survive and Sturdy did. In doing so, Sturdy has emerged stronger, stable and better positioned to pursue a bold
new strategy for growth and profit in the future. Today, Sturdy is the single largest dedicated polyester manufacturer in
the country, with an 18 per cent market share and sales touching Rs. 1986.03 crore during 2000-01.
Sturdy Synthetics (I) Ltd. had commenced production through spinning operations in 1989 from Pithampur in Madhya
Pradesh, with an initial capacity of 21,120 spindles, which soon increased to 122,880 spindles per year and Sturdy grew
rapidly into one of India’s leading manufacturers and exporters of synthetic blended yarn by 1992. The turning point
came in 1993 when Sturdy undertook the strategic decision to integrate backwards in the textiles value chain by setting
up a Rs. 170 crore integrated polyester plant at Butibori, near Nagpur. This saw the transformation of the company from
that of a pure spun yarn company to emerge as India’s second largest polyester player, with an installed capacity of
280,000 tons per annum. Sturdy also went for technical collaborations with Du Pont of USA and Toyobo of Japan.
The year 1994-96 was a boom period for the polyester industry and Sturdy reaped a good harvest. But the boom phase
also saw the international prices of raw materials shoot up. Besides international price fluctuation, Sturdy had also to
fight major forces in the domestic market. Rival manufacturers, who had economies of scale, resorted to slashing their
prices, thereby forcing producers like Sturdy to follow suit. Consequently, margins came under pressure. Sturdy, like
many other companies, went into the red. But unlike most others, it survived, fighting with its back to wall.
Interestingly, it also continued to grow at a steady rate of 15-20 per cent per annum during this period. It operated at 97
per cent of capacity, while the industry average was 83 per cent during 1998-99. Ironic though it sounds, it was a period
of high growth and high losses. It was again an unusual situation, whereby industry was growing at a rate of 15-20 per
cent but margins continued to be under pressure.
In 1999-2000, the situation had begun to stabilize. Sturdy, which had posted a net loss of Rs. 160 crore during 1998-99,
was able to bring it down to Rs. 70.65 crore by 1999-2000, while its operating profit increased to Rs. 266 crore. So
where does Sturdy figure in this environment? Increasing demand and firming prices do not necessarily mean profit and
survival in the polyester business today.
Caselet 2
Read the caselet carefully and answer the following questions:
3. Do you think Thornton’s proposal to decentralize the rules and procedures of Cosmo Plastics will work? What
factors influenced the degree of decentralization in the company?
(10 marks) <>
4. Delegation of authority should be commensurate with responsibility. Describe the factors that influenced
delegation of authority in Cosmo Plastics.
(6 marks) <>
CHANGING THE RULES AT COSMO PLASTICS
When Alice Thornton took over as chief executive officer at Cosmo Plastics, the company was in trouble. Cosmo had
started out as an innovative company, known for creating a new product just as the popularity of one of the industry’s
old standbys was fading, i.e., replacing yo-yo’s with water guns. In two decades, it had become an established maker of
plastics for the toy industry. Cosmo had grown from a dozen employees to four hundred, and its rules had grown
haphazardly with it. Thornton’s predecessor, Willard P. Blatz, had found the company’s procedures chaotic and had
instituted a uniform set of rules for all employees. Since then, both research output and manufacturing productivity had
steadily declined. When the company’s board of directors hired Thornton, they emphasized the need to evaluate and
revise the company’s formal procedures in an attempt to reverse the trends.
First, Thornton studied the rules Blatz had implemented. She was impressed to find that the entire procedures manual
was only twenty pages long. It began with the reasonable sentence "All employees of Cosmo Plastics shall be governed
by the following . . ." Thornton had expected to find evidence that Blatz had been a tyrant who ran the company with an
iron fist. But as she read through the manual, she found nothing to indicate this. In fact, some of the rules were rather
flexible. Employees could punch in anytime between 8:00 and 10:00 a.m. and leave nine hours later, between 5:00 and
7:00 p.m. Managers were expected to keep monthly notes on the people working for them and make yearly
recommendations to the human resources committee about raises, bonuses, promotions, and firings. Except for their
one-hour lunch break, which they could take at any time, employees were expected to be in the building at all times.
Puzzled, Thornton went down to the lounge where the research and development people gathered. She was surprised to
find a time clock on the wall. Curious, she fed a time card into it and was even more flabbergasted when the machine
chattered noisily, then spit it out without registering the time. Apparently R&D was none too pleased with the time
clock and had found a way to rig it. When Thornton looked up in astonishment, only two of the twelve employees who
had been in the room were still there. They said the others had "punched back in" when they saw the boss coming.
Thornton asked the remaining pair to tell her what was wrong with company rules, and she got an earful. The
researchers, mostly chemists and engineers with advanced graduate degrees, resented punching a time clock and having
their work evaluated once a month, when they could not reasonably be expected to come up with something new and
worth writing about more than twice a year. Before the implementation of the new rules, they had often gotten
inspiration from going down to the local dime store and picking up five dollars worth of cheap toys, but now they felt
they could make such trips only on their own time. And when a researcher came up with an innovative idea, it often
took months for the proposal to work its way up the company hierarchy to the attention of someone who could put it
into production. In short, all these sharp minds felt shackled.
Concluding that maybe she had overlooked the rigidity of the rules, Thornton walked over to the manufacturing
building to talk to the production supervisors. They responded to her questions with one word: anarchy. With
employees drifting in between 8:00 and 10:00 and then starting to drift out again by 11:00 for lunch, the supervisors
never knew if they had enough people to run a particular operation. Employee turnover was high, but not high enough
in some cases; supervisors believed the rules prevented them from firing all but the most incompetent workers before
the end of the yearly evaluation period. The rules were so "humane" that discipline was impossible to enforce.
By the time Alice Thornton got back to her office, she had a plan. The following week, she called in all the department
managers and asked them to draft formal rules and procedures for their individual areas. She told them she did not
intend to lose control of the company, but she wanted to see if they could improve productivity and morale by creating
formal procedures for their individual departments.
Caselet 3
Read the caselet carefully and answer the following questions:
5. Is organization development appropriate in this situation? What objectives can it (OD) achieve in New England
Arts Project?
(7 marks) <>
6. The employees of New England Arts Project opposed Martin Welk’s decision to introduce computers in the
organization. What factors have prompted the employees to offer resistance?
(6 marks) <>
7. Martin Welk is under pressure to reduce the time the project spends on routine paper work but is faced with
resistance from his employees to change. What measures can he take to overcome the employees’ resistance?
(8 marks) <>
THE FEAR OF COMPUTERS
The New England Arts Project had its headquarters above an Italian restaurant in Portsmouth, New Hampshire. The
Project had five full-time employees, and during busy times of the year, particularly the month before Christmas, it
hired as many as six part-time workers to type, address envelopes, and send out mailings. Although each of the five fulltimers
had a title and a formal job description, an observer would have had trouble telling their positions apart. Suzanne
Clammer, for instance, was the executive director, the head of the office, but she could be found typing or licking
envelopes just as often as Martin Welk, who had been working for less than a year as office coordinator, the lowest
position in the Project’s hierarchy.
Despite a constant sense of being a month behind, the office ran relatively smoothly. No outsider would have had a
prayer of finding a mailing list or a budget in the office, but Project employees knew where almost everything was, and
after a quiet fall they did not mind having their small space packed with workers in November. But a number of the
federal funding agencies on which the Project relied began to grumble about the cost of the part-time workers, the
amount of time the Project spent handling routine paperwork, and the chaotic condition of its financial records. The
pressure to make a radical change was on. Finally Martin Welk said : "Maybe we should get a computer."
To Welk, fresh out of college, where he had written his papers on a word processor, computers were just another tool to
make a job easier. But his belief was not shared by the others in the office, the youngest of whom had fifteen years more
seniority than him. A computer would eat the Project’s mailing list, they said, destroying any chance of raising funds for
the year. It would send the wrong things to the wrong people, insulting them and convincing them that the project had
become another faceless organization that did not care. They swapped horror stories about computers that had charged
them thousands of dollars for purchases they had never made or had assigned the same airplane seat to five people.
"We’ll lose all control," Suzanne Clammer complained. She saw some kind of office automation as inevitable, yet she
kept thinking she would probably quit before it came about. She liked hand-addressing mailings to arts patrons whom
she had met, and she felt sure that the recipients contributed more because they recognized her neat blue printing. She
remembered the agonies of typing class in high school and believed she was too old to take on something new and
bound to be much more confusing. Two other employees, with whom she had worked for a decade, called her after
work to ask if the prospect of a computer in the office meant they should be looking for other jobs. "I have enough
trouble with English grammar," one of them wailed. "I’ll never be able to learn computer language."
One morning Clammer called Martin Welk into her office, shut the door, and asked him if he could recommend any
computer consultants. She had read an article that explained how a company could waste thousands of dollars by
adopting integrated office automation in the wrong way, and she figured the Project would have to hire somebody for at
least six months to get the new machines working and to teach the staff how to use them. Welk was pleased because
Clammer evidently had accepted the idea of a computer in the office. But he also realized that as the resident authority
on computers, he had a lot of work to do before they went shopping for machines.
END OF SECTION B