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MB0052 Strategic Management and Business Policy

Q1. Explain the corporate strategy in different types of organization. Ans1. A well formulated strategy is vital for growth and development of any organization whether a small business, a big private enterprise, a public sector company, a multinational corporation or a non-profit organization. But, the nature and focus of corporate strategy in these different types of organizations will be different, primarily because of the nature of their operations and organizational objectives and priorities. Small businesses Generally operate in a single market or a limited no. of markets with a single product or a limited range of products. The nature and scope of operations are less of a strategic issue. Not much strategic planning may be required or involved; the company may be content with making and selling existing product(s) and generating some profit. In most cases, the founder or the owner himself forms the senior/top management and gives direction to the company. Large businesses or companies (private/public/multinational) Both internal and external environment and the organizational objectives and priorities are different. Private sector - Clear growth perspective, because the stakeholders want the company to grow, increase market share and generate more revenue and profit. - Dominant roles played by Strategic planning Strategic management Multinationals - Greater focus on growth and development - Diversification in terms of both products and markets - Roles of strategic planning and management become more critical in optimizing manufacturing facilities, resource allocation and control. Public sector - Generation of employment and maximizing output more important objectives - Priority stability rather than growth - Greater focus on corporate social responsibility Non-profit organizations Greater focus on social responsibilities Ideology and underlying values are of central strategic significance. Many have multiple service objectives, and the beneficiaries of service are not necessarily the contributors to revenue or resource.

Q2. What is the role consultants play in the strategic planning and management process of a company? Is it an essential role? Ans2. Management consultants can play a very useful role in the strategic planning process of a company. Render services in different functional areas of management including the strategic planning and management process. In companies with no separate planning division or unit, consultants can fill that gap. Can undertake planning and strategy exercises as and when the company management feels the need for such exercises or consultancies. Even in companies with a corporate planning division/unit, consultants may provide specialized inputs or insights into identified management or strategy areas. Top strategic consultants use or develop latest tools, techniques or models to work out solutions to specific strategic management problems or issues be it productivity, cost efficiency, re-structuring, long-term growth or diversification. Consultants bring with them diversified skills (most consultancies are multi-disciplinary) and experience from various companies which may not be available internally in a single company. Might sometimes have a difficult or delicate role to play. 1. Growth and development of the company 2. Downsizing of the company 3. Implementation of change in public sector companies Few consultancies are enumerated as under 1. McKinsey & Company 2. Boston Consulting Group (BCG) 3. Arthur D Little 4. Accenture 5. AF Ferguson 6. Tata Consulting Services (TCS) 7. ABC Consultants

Q3. What is strategic audit? Explain its relevance to corporate strategy and corporate governance. Ans3. Strategic Audit was proposed by DONALDSON in 1995 as a new tool for systematic review of strategy by board members without directly involving themselves with management of companies. Strategic Audit is a formal strategic-review process, which imposes its own discipline on both the board and the management. Donaldson has specified 5 elements of strategic audit 1) Establishing criteria for performance Criteria should be simple, well-understood and well accepted measures of financial performance. Commonly used measure Return On Investment (ROI) The ROI can be analysed by the following - Profit per unit of sales i.e. profit margin - Sales per unit of capital employed i.e. asset turnover - Capital employed per unit of equity invested i.e. leverage - Profit margin * Asset turnover * leverage = Profit per unit of equity which fulfils two objectives a. Sustainable rate of return on shareholder investment b. To decide whether the return is less/equal to/more than returns on alternative investments with comparable risk. 2) Database design and maintenance To calculate different performance ratios and monitor performance criteria Regular and ongoing process Financial and related data design, maintenance & analyses should be entrusted to the auditors of the company or outside consultants. 3) Strategic audit committee According to Donaldson outside directors should select 3 of their own members to form the committee. This will impart regularity & more commitment to the strategic audit process. The functioning of this committee should be seen as a low-key operation, positive in approach, designed to lend support & credibility to company leadership & management. 4) Relationship with the CEO Strategic audit committee needs to create & maintain an atmosphere of mutuality. Regular strategic process involving the CEO reduces chances of unpleasant or confronting situations. 5) Alert to duty (by board members)

Q4. What is Corporate Social Responsibility(CSR) ? Which are the issues involved in analysis of CSR? Name three companies with high CSR rating. Ans 4. Corporate Social responsibility is defined as the alignment of business operations with social values. The external stakeholders of a company argue that internal stakeholders demand be made secondary to the greater need of the society, i.e. the greater good of the external stakeholders. They believe that issues like pollution, waste disposals, environment safety and conservation of natural resources should be the overriding considerations for formulation of policy & strategic decision making. The internal stakeholders, on the contrary, think that the competing or social claims of external stakeholders should be balanced in such a way that it protects the company mission, objectives & profitability. Proponents of Corporate social responsibility feel that the social responsibilities of companies should be clearly enunciated & declared as social policy. Social policies may directly affect a companys products & services, technology, markets, customers & self-image. An organizations social policy should be integrated into all management activities including the mission statement and objectives. Corporate social policy should be articulated during strategy formulation, administered during strategy implementation & reaffirmed or changed during strategy evaluation. Companies with high CSR rating are as follows 1. Johnson & Johnson 2. Coca-Cola 3. Wal-mart 4. Hewlett-Packard 5. Anheuser Bush 6. Microsoft 7. IBM 8. Disney 9. McDonalds 10. 3M 11. UPS 12. FedEx 13. Target 14. Home Depot 15. General Electric

Q5. Distinguish between core competence, distinctive competence, strategic competence and threshold competence. Use examples. Ans 5. Competence is the ability to perform a task or achieve some objectives. Competence levels vary across organizations & also within an organization from time to time. The major types or levels of competence are 1. Core competence Special or unique internal competence of a company Interwoven resources, technology & skill or synergy Gives the company a clear competitive edge over its competitors. For instance the competitive advantages of a few companies are enumerated as below Sony miniaturization Xerox photocopying Canon optics, imaging and laser control Honda engines for cars & motorcycles 3Ms sticky tape technology JVC video tape technology ITC tobacco & cigarettes Godrejs locks & storewells According to Hamel & Prahalad The Core Competence of Corporation the central building block of corporate strategy is core competence. To achieve core competence, a particular competence level of a company should satisfy 3 criteria Relate to an activity or process that inherently underlies the value in the product or service as perceived by the customer. Lead to a level of performance in a product or process which is significantly better than those of competitors. Benchmarking is a good way & is generally recommended for undertaking performance standard & also for differentiating between good & bad performance. Should be robust, i.e. difficult for the competitors to imitate. 2. Distinctive competence Is based on the assumption that there are different alternative ways to secure competitive advantage & not only special technical & production expertise as emphasized by core competence. Includes core competence as one of the alternatives. But includes other alternatives also based on organizational capabilities. According to Thompson & Strickland Distinctive competence is the unique capability that helps an organization in capitalizing upon a particular opportunity, the competitive edge it may give a firm in the marketplace. The focus is to exploit market opportunity. Depending on the market or competitive situation, one or some of the alternative competencies may be at work eg Product or process superiority core competence Product differentiation situational or adaptability Cost effectiveness or cost efficiency to support a price strategy Special capability in marketing or distribution Since resources are limited, identification of distinctive competence may also help efficient allocation of resources. 3. Strategic competence Coexists with core competence and distinctive competence Competence level required to formulate, implement & produce results with a particular strategy. May also involve combination or convergence of different capabilities 4. Threshold competence Competence level required just for survival in the market or business Companies with threshold competence can, over time, graduate to a higher level of competence Continued threshold competence can also lead to closure of business.

Q6. What is global industry? Explain with examples, international strategy, multi-domestic strategy, global strategy and transnational strategy. Ans 6. In Global Industry; the strategic position of companies in different countries or national markets are governed by their overall global positions. e.g. IBMs strategic position in competing for computer sales in France & Germany has improved significantly because of technology & marketing skills developed in other countries, & a worldwide manufacturing system which is well co-ordinated. To be called a global industry, an industrys economics & competitors in different national markets should be considered jointly rather than individually. Distinction should be made between an international industry and a global industry. An industry in any country may be international if it comprises of a no. of MNCs. To be a Global industry, an industry should have multi-locational manufacturing facilities & compete worldwide to secure global synergy or competitive advantage. Competitive Strategy in Global Industries

Pressure for local responsiveness Low cost pressure low International strategy Global strategy High Multi-domestic strategy Transnational strategy

high

International strategy Adopted for those products and services which are not available in some countries & can be transferred from other countries. Standard products with little or no differentiation Not very popular E.g. Kelloggs, Indian software, Indian handicrafts etc Multi-domestic strategy Involves high degree of local responsiveness or local content Products are highly customised to suit local requirements or conditions Less cost pressure Cost effectiveness may be difficult to achieve because of lack of sale economies E.g. Paints, Indian garments Global strategy Suits companies which make highly standardized sophisticated products & are in a position to reap benefits of economies of scale & experience effects Include high technology products which have universal applicability & hardly require any local adaptation E.g. Intel, Motorola, Microsoft, Texas Instruments, Wal-Mart, Marks & Spencer etc Transnational strategy Most difficult Based on combination of 2 apparently contradictory factors i.e. cost effectiveness & local adaptation. Most feel it to be the only viable competitive strategy in global business. E.g. Caterpillar, McDonalds, Coca-cola, Pepsi, Dominos, Unilever, Proctor & Gamble etc