Master of Business Administration- MBA Semester 4 MB0052 Strategic Management and Business Policy- 4 Credits (Book ID: B1699)

Assignment (60 Marks) Note: Answer all questions (with 300 to 400 words each) must be written within 6 -8 pages. Each Question carries 10 marks 6 X 10=60

Q1. Explain the corporate strategy in different types of organization. A well-formulated strategy is vital for growth and development of any organizati onwhether it is a small business, a big private enterprise, a public sector compa ny, a multinational corporation or a non-profit organization. But, the nature an d focus of corporate strategy in these different types of organizations will be different, primarily because of the nature of their operations and organizationa l objectives and priorities. Small businesses, for example, generally operate in a single market or a limited number of markets with a single product or a limited range of products. The nat ure and scope of operations are likely to be less of a strategic issue than in l arger organizations. Not much of strategic planning may also be required or invo lved; and, the company may be content with making and selling existing products and generating some profit. In many cases, the founder or the owner himself form s the senior/top management and his/her wisdom gives direction to the company. In large businesses or companieswhether in the private sector, public sector or m ultinationalsthe situation is entirely different. Both the internal and the exter nal environment and the organizational objectives and priorities are different. For all large private sector enterprises, there is a clear growth perspective, b ecause the stakeholders want the companies to grow, increase market share and ge nerate more revenue and profit. For all such companies, both strategic planning and strategic management play dominant roles. Multinationals have a greater focus on growth and development, and also diversif ication in terms of both products and markets. This is necessary to remain inter nationally competitive and sustain their global presence. For example, multinati onal companies like General Motors, Honda and Toyota may have to decide about th e most strategic locations or configurations of plants for manufacturing the car s. They are already operating multi location (country) strategies, and, in such companies, roles of strategic planning and management become more critical in op timizing manufacturing facilities, resource allocation and control. In public sector companies, objectives and priorities can be quite different fro m those in the private sector. Generation of employment and maximizing output ma y be more important objectives than maximizing profit. Stability rather than gro wth may be the priority many times. Accountability system is also very different in public sector from that in private sector. There is also greater focus on co rporate social responsibility. The corporate planning system and management have to take into account all these factors and evolve more balancing strategies. In non-profit organizations, the focus on social responsibilities is even greate

r than in the public sector. In these organizations, ideology and underlying val ues are of central strategic significance. Many of these organizations have mult iple service objectives, and the beneficiaries of service are not necessarily th e contributors to revenue or resource. All these make strategic planning and man agement in these organizations quite different from all other organizations. The evaluation criteria also become different.

Q2. What is the role consultants play in the strategic planning and management p rocess of a company? Is it an essential role? Answer - Management consultants can play very useful roles in the strategic plan ning process of a company. Consultants render services in different functional a reas of management including the strategic planning and management process. In c ompanies with no separate planning division or unit, consultants can fill that g ap. They can undertake planning and strategy exercises as and when the company m anagement feels the need for such exercises or consultancies. Even in companies with a corporate planning division/unit, consultants may provide specialized inp uts or insights into identified management or strategy areas. Top strategic cons ultants like McKinsey & Company use or develop latest tools, techniques or model s to work out solutions to specific strategic management problems or issuesbe it productivity, cost efficiency, restructuring, long-term growth or diversificatio n. Consultants bring with them diversified skills (most of the consulting compan ies are multidisciplinary) and experience from various companies which may not b e available internally in a single company. This is the reason why even large mu ltinational companies hire consultants for achieving their goals or objectives. There are many international consultants who are in demand in different countrie s. There are also national consultants. Leading international consultants, in ad dition to McKinsey & Company, are Boston Consulting Group (BCG), Arthur D Little and Accenture (formerly Anderson Consulting). Prominent Indian consulting compa nies are A F Ferguson, Tata Consultancy Services (TCS) and ABC Consultants. Consultants, sometimes have a difficult or delicate role to play. In many compan ies, a situation develops when the chief executive or the top management needs t o bank upon the support of an external agency like a consultant to push through a strategic change in the organizational structure or management system of the c ompany. It may be for growth and development or downsizing. In both cases, many companies face internal resistance to change. The resistance is more if it is do wnsizing even when it is required for turning around a company. This happens par ticularly in public sector companies where implementing change is always difficu lt. Consultants are engaged to support or substantiate the companys point of view (in the form of their recommendations) so that change is more easily acceptable to the internal stakeholders of the company. Consultants role may become delicat e and, sometimes, tricky in such cases, and they should carefully weigh the ethi cal implication of their participation.

Q3. What is strategic audit? Explain its relevance to corporate strategy and cor porate governance. Answer - With increasing pressure on boards from external stakeholders to be mor e active, many directors are seeking more practical ways to conduct strategic ov erview of company management without getting directly involved in it. Donaldson (1995) has suggested strategic audit as a new tool for systematic review of strate gy by board members without directly involving themselves with management of com panies.

Strategic audit is a formal strategic-review process, which imposes its own disc ipline on both the board and the management very much like the financial audit p rocess. But, it is different from management audit, which is undertaken in many companies by the senior/top management on the progress and outcome of important corporate activities. To understand strategic audit in the correct perspective, one needs to analyse this in terms of its various elements. Donaldson has specified five elements of strategic audit. These are: Establishing criteria for performance Database design and maintenance Strategic audit committee Relationship with the CEO Alert to duty (by board members) The performance criteria should be simple, well-understood and well accepted mea sures of financial performance. A number of measures of financial performance ar e available. One common measure, used by many companies, is return on investment (ROI). The ROI can be analysed like this: profit per unit of sales (profit marg in); sales per unit of capital employed (asset turnover); and, capital employed per unit of equity invested (leverage). If these three ratios are multiplied tog ether, the resultant ratio will give profit per unit of equity. This criterion w ould fulfil two objectives: first, sustainable rate of return on shareholder inv estment, and, second, to decide whether the return is less, or equal to or more than returns on alternative investments with comparable risk, i.e., whether the companys chosen strategy is justifiable or not. To calculate different performance ratios and monitor performance criteria, a pr oper database is essential. This involves both database design and maintenance. This has to be a regular and an ongoing process. Data on financial performance c an sometimes be sensitive to the managers/ employees of a company. It is, theref ore, suggested that financial and related data design, maintenance and analyses should be entrusted to the auditors of the company or outside consultants. For effective strategic audit, a strategic audit committee should be constituted . According to Donaldson, outside directors should select three of their own mem bers to form the committee. This will impart regularity and more commitment to t he strategic audit process. The committee would decide on the frequency of their meeting, periodicity of interaction with the CEO or top management of the compa ny and, also when they should make presentation to or hold discussion with the f ull board. A sensitive issue is the strategic audit committees relationship with the CEO. An y CEO would be generally apprehensive of such a committee. The strategic audit c ommittee needs to create and maintain an atmosphere of mutuality. It is true tha t whenever a question or a discussion on the strategic direction of a company co mes up in a board meeting, it is perceived by many CEOs as an implicit criticism of the current strategy and leadership of the company. It is also true that reg ular strategic process involving the CEO reduces chances of unpleasant or confro nting situations. In fact, ideally, the functioning of the strategic audit commi ttee should be seen as a low-key operation, positive in approach, designed to le nd support and credibility to company leadership and management. The strategic audit committee and also the board should always be alert and vigi lant to ensure that there are no slippages. Business cycles indicate that period of success may be followed by a period of slump. The strategic audit committee and the board should be alert enough to get signals so that they can act in time . This is necessary because complacence develops after success both in the board and in the management. If properly conceived, designed and conducted, strategic audit, more than management audit, can be a powerful tool for monitoring the st

rategic process of a company and also strike a good balance between corporate st rategy and corporate governance. Q4. What is Corporate Social Responsibility(CSR) ? Which are the issues involved in analysis of CSR? Name three companies with high CSR rating. Answer - Corporate social responsibility (CSR) can be defined as the alignment o f business operations with social values. External stakeholders of an organizati on are too many and varied and many of them represent different sections or soci al groups. This implies that organizations should be socially responsible; that is, in addition to the interests of the shareholders, businesses or companies sh ould also serve the society. This is corporate social responsibility (CSR). Issues involved in analysis of CSR Even after four decades since Friedman said this, corporate social responsibilit y has remained a contentious issue. Managers are struggling to decide to what ex tent they should adopt CSR in their strategy-building process. The debate or dic hotomy is clear: Should a company behave in a socially responsible manner and ma ke the profitability policy follow from this; or, should a company aim at profit maximization and try to be as socially responsible as possible. Exponents of CS R argue that business depends on, exists to serve and, cannot be separated from th e environment; the environment is represented by external stakeholders like cust omers, competitors, suppliers, government agencies, local communities and societ y in general. Proponents of profit maximization like Friedman, on the other hand , think that a company has responsibility only for the financial well-being of i ts stockholders; and other objective or policy may threaten the health and prosp erity of the company. The relationship between CSR and profit is complex. Although the two are not mut ually exclusive, neither of them is a prerequisite for the other. Advocates of c orporate pragmatism suggest that CSR and profit need not necessarily be viewed a s two competing concepts. It may be more rational to include CSR as a factor or component in the strategy-building process of the business which should determin e, along with other objectives, how to increase or maximize profit. Several research studies10 have been undertaken to determine the relationship be tween corporate social performance and financial performance. But, none of these studies has been able to establish the precise nature of relationship between t he two. There may be a number of reasons for this. One reason may be that there is no significant correlation between social and financial performance. Another reason may be that the benefits of CSR are offset by its negative effect on prof itability with no consequentially visible financial impact on the company. Other reasons include methodological weaknesses or drawbacks and/or problems with ope rational definitions or inadequacy of the conceptual models used in the studies. A general conclusion from these studies, however, is that certain relationship between CSR and profitability may exist, but, the nature of the relationship is not clear. 3 companies with high CSR rating are Johnson & Johnson Coca-Cola Wal-Mart

Q5. Distinguish between core competence, distinctive competence, strategic compe

tence and threshold competence. Use examples. Answer Four major types or levels of competence may be distinguished: Core competence Distinctive competence Strategic competence Threshold competence Core Competence Core competence of a company is one of its special or unique int ernal competence. Core competence is not just a single strength or skill or capa bility of a company; it is interwoven resources, technology and skill or synergy culminating into a special o r core competence. Core competence gives a company a clear competitive advantage over its competitors. Sony has a core competence in miniaturization; Xeroxs core competence is in photocopying; Canons core competence lies in optics, imaging an d laser control; Hondas core competence is in engines (for cars and motorcycles); 3Ms core competence is in sticky tape technology; JVCs in video tape technology; ITCs in tobacco and cigarettes and Godrejs in locks and storewels. Distinctive Competence Core competence may not be enough, because it focuses pre dominantly on the product or process and technology, or, as Hamel and Prahalad p ut it; The combination of individual technologies and production skills. There are two problems with this. First, strong and aggressive competitors may develop, e ither through parallel innovations or imitations, similar products or processes which are highly competitive. This is what Japanese companies have done in the f ields of electronics and automobiles, and now South Korea is doing to Japanese e lectronics; IBMs core computer technology is also facing the same problem. Second , to secure competitive advantage, only product, process or technology or techno logical innovation may not be enough; this has to be amply supported by special capabilities in the related vital areas like resource or financial management, c ost management, marketing, logistics, etc. Strategic Competence Strategic competence coexists with, or supports, core compe tence and distinctive competence. Strategic competence is the competence level r equired to formulate, implement and produce results with a particular strategy, for example, to outwit competitors. Hindustan Unilever did this. In the mid- and the late 80s, they used their strategic competence to out manoeuvre Nirma (whic h was launched very aggressively) and re-establish their leadership in the deter gent market. Strategic competence may also involve combination or convergence of different capabilities as in the case of Hindustan Unilever. Threshold Competence Threshold competence is the competence level required just for survival in the market or business. The competence level of a company may be weaker than many of its competitors. Threshold competence may be adopted by No. 5 or No. 6 player in the market or those struggling to survive. Companies with threshold competence can, over time, graduate to a higher level of competence. B ut, continued threshold competence can also lead to closure of business. Multi-p roduct or multi-SBU companies may often possess a portfolio of competences. In s ome product or business, they may have core competence, but, not in all. ITCs cor e competence is in tobacco and cigarettes, but, they have distinctive competence in hospitality business and agri-business. Hindustan Unilever has distinctive c ompetence and strategic competence in many businesses. But, they had been surviv ing with threshold competence in vanaspati business for some time, and finally, they exited from th at business.

Q6. What is global industry? Explain with examples, international strategy, mult i-domestic strategy, global strategy and transnational strategy. Answer - In global industry, the strategic position of companies in different co untries or national markets are governed by their overall global positions. For example, IBMs strategic position in competing for computer sales in France and Ge rmany has improved significantly because of technology and marketing skills deve loped in other countries, and a worldwide manufacturing system which is well coo rdinated. To be called a global industry, an industrys economics and competitors in different national markets should be considered jointly rather than individua lly. International strategy, multi-domestic strategy, global strategy, and transnatio nal strategy Pressure for local responsiveness Low High 1. International strategy can be adopted for those products and services which a re not available in some countries and can be transferred from other countries. These are standard products with little or no differentiation. International str ategies are not very common or popular. Some examples are: Kelloggs, Indian softw are, and Indian handicrafts. International strategy Multidomestic strategy Global strategy Transnational stra tegy Core competence Threshold competence Strategic competence Distinctive competence Organizational Competence Cost Pressure Low High 2. Multidomestic strategy is almost opposite of international strategy. Multidom estic strategy involves high degree of local responsiveness or local content. Pr oducts are highly customized to suit local requirements or conditions. Because o f high customization, cost pressure is less; cost effectiveness may be also diff icult to achieve because of lack of scale economies. Examples : Asian Paints (pa ints in general), Indian garments. 3. Global strategy suits companies which make highly standardized sophisticated products, and, are in a position to reap benefits of economies of scale and expe rience effects. These also include high technology products which have universal applicability and hardly require any local adaptation. Examples are: Intel, Mot orola, Microsoft, Texas Instruments. Global retail chains like Walmart and Marks & Spencer also come under this category. 4. Transnational strategy is the most difficult strategy to follow because this is based on a combination of two apparently contradictory factors, i.e., cost ef fectiveness and local adaptation. But, this may be a true global strategy because, in global business, there is always a price pressure or cost pressure; and, als o the need to make the product as close to a particular countrys expectation as p ossible to maximize value offerings. In fact, many, including Bartlett and Ghosh al (1989), feel that the transnational strategy is the only viable competitive s

trategy in global business. Many companies are adopting this approach to become successful. Some good examples are : Caterpillar (taking on Komatsu and Hitachi) , McDonalds, Coca-Cola, Pepsi and Dominos Pizza. Many multinational FMCG companies like Unilever and Procter & Gamble follow transnational strategies through thei r fully owned subsidiaries in different countries.