BITS-PILANI, K K BIRLA GOA CAMPUS

First Semester 2024-2025

MID TERM EXAMINATION (OPEN BOOK)
COURSE NO: MGTS F211 COURSE TITLE: Principles of Management
DATE: 07-10-2024 (9:30-11:00 AM) MARKS: 30 Marks
Answer all questions
1. The Starbucks Corporation has about 182,000 employees across 19,767 company operated &
licensed stores in 62 countries. Their product mix includes highly differentiated products such
as roasted and handcrafted high quality/premium priced coffees, tea, a variety of fresh food
items and other beverages. They also sell a variety of coffee and tea products and license their
trademarks through other channels such as licensed stores, grocery and national food service
accounts. Starbucks primarily operates with much caution and competes in the retail coffee
and snacks store industry, as there are many substitutes for the products in the industry. This
industry experienced a major slowdown in 2009 due to the economic crisis and changing
consumer tastes. Due to the economic slump, consumers spent less on luxuries like eating out,
choosing to purchase low-price items and switched to cheaper alternatives instead of high-
priced coffee drinks due to shrinking budgets. As it goes, the large number of consumers do
not have much say in the company’s pricing and other strategies; while the brand name gives
a major edge to the company to mend their strategies as and when they want. The industry
grew at a low annualized average growth rate of 0.9% from 2008 till 2013 due to high market
saturation. The company is forecasted to grow at an annualized rate of 3.9% over the next five
years, with a potential to reach $20.1 billion revenues in the US if there are no potential threats
of low-cost new entrants. This growth would be mainly driven by an improving economy,
increase in consumer confidence and expanding menu offerings within the industry. Starbucks
dominates the industry with a market share of 36.7%, Dunkin Brands with 24.6% and other
competitors like McDonalds, Costa Coffee, Tim Horton’s etc.
Analyze the case using Porter’s five forces model? [5]

2. IBM Corporation has been a pioneer in valuing and appreciating its diverse workforce, ever
since its inception in the US. In 1935, almost 30 years before the Equal Pay Act guaranteed
pay equality between the sexes, then IBM president Thomas Watson promised women equal
pay for equal work. In 1943, the company had its first female vice president. Again, 30 years
before the Family and Medical Leave Act (FMLA) granted women unpaid leave for the birth
of a child, IBM offered the same benefit to female employees, extending it to one year in the
1960s and to three years in 1988. The new CEO, Gerstner was still surprised at the low level
of diversity in the senior ranks of the company. For all the efforts being made to promote
diversity, the company still had what he perceived a masculine culture. In 1995, he created
eight diversity task forces around demographic groups such as women and men, as well as
Asians, African Americans, LGBT individuals, Hispanics, Native Americans, and employees
with disabilities. Each task force conducted a series of meetings and surveyed thousands of
employees to arrive at the key factors concerning each particular group. The presence of a
male-dominated culture, lack of networking opportunities, and work-life management
challenges topped the list of concerns for women. Asian employees were most concerned about
stereotyping, lack of networking, and limited employment development plans. African
American employee concerns included retention, lack of networking, and limited training
 opportunities. Armed with a list of priorities, the company launched a number of key programs
and initiatives to address these issues. What is probably most unique about this approach is
that the company acted on each concern whether it was based on reality or perception. One of
the biggest hurdles facing diversity at IBM is the limited minority representation in fields such
as computer sciences and engineering. To tackle this issue, IBM partners with colleges to
increase recruitment of Hispanics to these programs. These programs were instrumental in
more than tripling the number of female executives worldwide as well as doubling the number
of minority executives. The number of LGBT executives increased sevenfold, and executives
with disabilities tripled.
a. To IBM’s credit, the movement toward equality worked out exceptionally well for them.
Which of the policy changes seem radical? What policies do you feel are still lacking in
the company? [1+1]
b. Some individuals may feel that so much focus is put on making the workplace better for
underrepresented groups that the majority of the workforce becomes neglected. Do you
feel this was the case at IBM? Why, Why not? How can a company ensure that no
employee is neglected, regardless of their demographic group? [1+1]
c. What competitive advantages could IBM have gained from having such a diverse
workforce? [2]

3. In addition to being one of the most successful fashion brands in history, Levi’s is also one of
the first to push for a more ethical and sustainable supply chain. In 1991, the brand created its
Terms of Engagement, which established its global code of conduct regarding its supply chain
and set standards for workers’ rights, a safe work environment, and an environmentally
friendly production process. To maintain its commitment in a changing world, Levi’s regularly
updates its Terms of Engagement and participated more in the CSR activities. In 2011, on the
20th anniversary of its code of conduct, Levi’s announced its Worker Wellbeing Initiative to
implement further programs focused on the health and well-being of supply chain workers.
Since 2011, the Worker Well-being initiative has been expanded to 12 countries, benefitting
more than 100,000 workers. In 2016, the brand scaled up the initiative, vowing to expand the
program to more than 3,00,000 workers to produce more than 80 percent of its product in
Worker Well-being factories by 2025. For its continued efforts to maintain the well-being of
its people and the environment, Levi’s was named one of Engage for Good’s 2020 Golden
Halo Awards winner, the highest honor reserved for socially responsible companies. Since its
outset, the company has also made special efforts to champion its philanthropic model which
involves giving 1 percent of its products, profits and employee’s time to the needy communities
and non-profit sectors.
a. What is the idea that is being discussed in the last sentence? Why do companies engage in
such activities? [1+1]
b. Suppose the stakeholders of the company find it extremely disappointing that the CEO has
decided to fund socially beneficial activities compromising the company’s profits. Do you
think the CEO should step back in such a case? Why, why not? What could he do to
overcome the resistance from the stakeholders? [1+1]
c. Suppose that, in spite of a resistance from the majority of stakeholders, the CEO decides
to continue with the socially responsible activities as it is the right thing to do and the
company has a long-standing history of the same. What individual/company-specific
factors do you think resulted in this decision of the CEO? [2]
4. A plastic manufacturer has under consideration the proposal to produce high-quality plastic
glasses. The necessary equipment to manufacture the glasses would cost Rs 1 lakh and last 5
years. The depreciation is charged based on the straight-line method by other firms in the
industry, and the current manufacturer here would follow the same. There is no other asset in
this block. The expected salvage value is Rs 10,000. The glasses can be sold at Rs 4 each.
Regardless of the level of production, the manufacturer will incur a cash cost of Rs 25,000
each year if the project is undertaken. The variable costs are estimated at Rs 2 per glass. The
manufacturer estimates it will sell about 75,000 glasses annually; the tax rate is 35 percent.
Assume 20 percent of the cost of capital and the additional working requirement, which is Rs
50,000.
a. Calculate the free cash flow generated by new equipment. [2]
b. Evaluate whether the manufacturer should purchase the new equipment based on the
project's Net Present Value (NPV). [2]
c. What would be the ARR of the project? [2]

5. A small building contractor has recently experienced two successive years in which work
opportunities exceed the firm’s capacity. The contractor must now decide on capacity for next
year. Estimated profits under each of the two possible states of nature are as shown in the table
below.
Next Year Demand
Alternative Low High
Do nothing $50K $60K
Expand $20K $80K
Subcontract $40K $70K

a. Which alternative should be selected if the decision criterion is (1) Maximax? (2)
Maximin? (3) Laplace? and (4) Minimax regret? [4]
b. Suppose after a certain amount of discussion, the contractor is able to subjectively
assess the probabilities of low and high demand: P(low) = .3 and P(high) = .7.
Determine the expected profit of each alternative. Which alternative is best? Why?
[2]
c. Analyze the problem using a decision tree. [1]