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MB0052- Strategic Management and Business

Policy
Que.1 Briefly discuss concept of strategy? Explain the various levels of strategy in an
organization.

Ans. Strategy is a concept that is used universally but understood differently, and,
therefore, defined differently. In fact, strategy as a concept is better described and more
easily put into practice than defined. Most companies recognize that strategy is central
to business and management. It is also recognized that it is strategy that makes the
difference between success and failure of many companies and businesses.
The word strategy comes from Greek strategies, which refers to a military general
and combines stratus (the army) and ago (to lead). The concept and practice of strategy
and planning started in the military, and, over time, it entered business and
management. The key or common objective of both business strategy and military
strategy is the same, i.e., to secure competitive advantage over the rivals or opponents.

Levels of Strategy

Strategies exist at different levels in an organization. Three different levels of


organizational strategy can be clearly distinguished

FIGURE: Levels of Strategy

Corporate-level strategies are concerned with overall purpose or objective


of the organization; for example, diversification through joint venture, merger
or acquisition.
Business unit-level strategies address themselves to issues of a particular
business unit or product group of an organizationstrategies for product
development and/or identification and exploitation of new market opportunities.

Functional strategies (sometimes, called operational strategies)


concentrate on particular functional or operational areas like manufacturing,
marketing, logistics, etc.

For single-business companies, corporate-level strategies and business unit-


level strategies may not be much different. But for multi-business companies like
Unilever (or its subsidiary Hindustan Unilever), business unit-level strategies
would be quite distinct from corporate- level strategies. Functional-level
strategies, however, would be common in both single- business and
multiple-business companies. The three levels of strategy are not isolated: these
strategies support, complement or reinforce each other for the achievement of
organizational objectives.
Que.2How strategic planning and strategic management are interrelated to each other?
Which comes first?
Ans. Strategic Planning and Strategic Management

Plan or planning should precede action. And, strategic planning should


precede strategic management. Strategic planning (also called corporate
planning) provides the framework (some call it a tool) for all major decisions of an
enterprisedecisions on products, markets, investments and organizational
structure. In a successful organization, strategic planning or strategic planning
division acts as the nerve centre of business opportunities and growth. It also
acts as a restraint or defence mechanism that helps an organization foresee and
avoid major mistakes in product, market, or investment decisions. A strategic
plan, also called a corporate plan or perspective plan, is a blueprint or
document which incorporates details regarding different elements of strategic
management. This includes vision/mission, goals, organizational appraisal,
environmental analysis, resource allocation and the manner in which an
organization proposes to put the strategies into action. The concept and role of
strategic planning would be clear if we mention the major areas of strategic
planning in an organization.
First, strategic planning is concerned with environment or rather, the fit
between the environment, the internal competencies and business (es) of a
company.
Second, it is concerned with the portfolio of businesses a company should
have. More specifically, it is concerned with changesadditions or deletionsin a
companys product- market postures.

Third, strategic planning is mostly concerned with the future or the long-term
dynamics of an organization rather than its day-to-day tasks or operations.

Fourth, strategic planning is concerned with growthdirection, pattern and


timing of growth. Fifth, strategy is the concern of strategic planning. Growth
priorities and choice of corporate strategy are also its concerns.
Finally, strategic planning is intended to suggest to an organization, measures
or capabilities required to face uncertainties to the extent possible.

All large organizations formulate strategic plans. In 1997, All India


Management Association (AlMA) conducted a study to find out about business
plans, strategies, techniques and tools adopted by various Indian companies. The
study results were published in Business Today. The study showed that 56 per
cent of the total number of companies (160) surveyed had published strategy. In
terms of planning horizon, the period covered in the strategic plan was less than 3
years by 44 per cent of the companies, 35 years by 40 per cent of the companies
and more than 5 years by 16 per cent. Analysed in terms of company size,
bigger companies planned for a longer period. For 45 per cent of the large
companies, the planning period was more than 5 years, but for 70 per cent of
the small companies, the period was less than 3 years. A characteristic feature
of the starting plans of many large Indian companies is that the long-term planning
horizons of these companies generally coincide with the national planning period.
This means that many of these companies follow a five-year planning period which
synchronizes with the 5- year plans of the country. This is particularly true of public
sector enterprises in the core sector.

Marico Industries, the maker of Parachute coconut oil, had prepared a


strategic business plan for the period, 199196. For the preparation of the plan, a
strategic planning team was formed consisting of six managers from different
functional areas/disciplines. The planning team made some forecasts about
the general macroeconomic environment during 199196 and how the Indian
economy would perform during the period in terms of aggregate demand,
technology development and availability of raw materials. In addition to these, the
company had considered other environmental factors also. Based on an
analysis of the major strengths and weaknesses of the company and the
environmental factors (opportunities and threats), a detailed SWOT analysis of the
company was undertaken. The objective of SWOT analysis was to identify growth
and expansion possibilities in existing and new products/businesses. These were
finally translated into projected volumes, turnover and profitability.

Once a strategic plan is prepared, the same is submitted to the senior


management/top management for their consideration and approval. In Marico
Industries also, the strategic business plan prepared by the planning group was
submitted to the senior management and finally to the top management
(CEO). Deliberations took place at different levels and the business plan was
finalized. This became more like an annual plan which was to be revised and
updated every year during the reference period (199196) as per the strategic
business plan. Maricos target was to increase its turnover to `300 crore by 1995
96. The business plan also stipulated that Marico should add a new product to its
portfolio every year and seek technology tie-up for introduction of new
products. Strategic planning and strategic management are intimately related
to each other. Where strategic planning ends, strategic management takes over;
but, both are complementary to each other. They form vital links in an
integrated chain in corporate management. Both are continuous processes.
Strategic management may be more continuous, because it involves
implementation and monitoring also.
Que.3What is a mission statement? Differentiate between a mission statement and vision
statement.
Ans. Mission Statement

A business is not defined by its name, statutes or articles of incorporation. It


is defined by the business mission. Only a clear definition of the mission and the
purpose of the organization make possible clear and realistic business objectives.
Peter Drucker
EXAMPLE:

Vision and mission statements of Indian Oil Corporation are:

Vision: Indian Oil aims to achieve international standards of excellence in all


aspects of energy and diversified business with focus on customer delight
through quality products and services.

Mission: Maintaining national leadership in oil refining, marketing and


pipeline transportation.

Explanation and Difference between Vision Mission Statement:

All visionary companies have a vision statement. The vision of Microsoft (since
1999) has been to broad base its outlook to empower people through great
software anytime, anywhere and on any device including the PC and an
incredibly rich variety of digital devices accessing the power of the Internet.

Vision and mission statements can be generally found in the beginning of


annual reports of companies. These statements are also seen in the corporate or
long-term strategic plans of companies. These also appear in many company
reports or documents like customer service agreements, loan requests, labour
relations contracts, etc. Many companies also display them at prominent
points or locations in company premises.

The mission statement of a company is variously called a statement of


philosophy, a statement of beliefs, a statement of purpose and, a statement of
business principles. A mission statement is many in one. It embodies the business
philosophy of a companys decision makers, implies the image the company
wishes to project for itself, reflects the companys self-concept; indicates the
companys principal product or service areas and, the customer needs the
company seeks to satisfy. In short, it describes the companys product, market and
technological focus; and it does so in a way that reflects the values and priorities
of the companys strategic decision makers.
Que.4What is SWOT analysis in terms of Internal & External Analysis? Explain SWOT
analysis in the form of a matrix?
Ans. SWOT Analysis
SWOT is an acronym used to describe the particular Strengths, Weaknesses,
Opportunities, and Threats that are strategic factors for a specific company. A SWOT
should represent an organizations core competencies while also identifying
opportunities it cannot currently use to its advantage due to a gap in resources.

The SWOT analysis framework has gained widespread acceptance because of its
simplicity and power in developing strategy. Just like any planning tool, a SWOT
analysis is only as good as the information that makes it up. Research and accurate
data is vital to identify key issues in an organizations environment.
A challenge posed by an unfavorable trend or development that would lead (in
absence of a defensive marketing action) to deterioration in profits/sales.

An evaluation needs to be completed drawing conclusions about how the


opportunities and threats may affect the firm.

EXTERNAL: MACRO- demographic/economic, technological, social/cultural,


political/legal / MICRO- customers, competitors, channels, suppliers, publics
INTERNAL RESOURCES: the firm

Competitor analysis is a critical aspect of this step.

Identify the actual competitors as well as substitutes.


Assess competitors objectives, strategies, strengths & weaknesses, and reaction
patterns.

Select which competitors to attack or avoid.

The Internal Analysis of strengths and weaknesses focuses on internal factors that
give an organization certain advantages and disadvantages in meeting the needs of its
target market. Strengths refer to core competencies that give the firm an advantage in
meeting the needs of its target markets. Any analysis of company strengths should be
market oriented/customer focused because strengths are only meaningful when they
assist the firm in meeting customer needs. Weaknesses refer to any limitations a company
faces in developing or implementing a strategy. Weaknesses should also be examined
from a customer perspective because customers often perceive weaknesses that a
company cannot see. Being market focused when analyzing strengths and
weaknesses does not mean that non-market oriented strengths and weaknesses should
be forgotten. Rather, it suggests that all firms should tie their strengths and weaknesses
to customer requirements. Only those strengths that relate to satisfying a customer need
should be considered true core competencies.

The following area analyses are used to look at all internal factors affecting a
company:

Resources: Profitability, sales, product quality brand associations, existing overall


brand, relative cost of this new product, employee capability, product portfolio
analysis
Capabilities: Goal: To identify internal strategic strengths, weaknesses, problems,
constraints and uncertainties

The External Analysis takes a look at the opportunities and threats existing in your
organizations environment. Both opportunities and threats are independent from the
organization. Differentiating between strengths/weaknesses and opportunities/threats is
to ask this essential question: Would this be an issue if the organization didnt exist? If yes,
it is an issue that is external to the organization. Opportunities are favorable conditions
in an organizations environment that can produce rewards if leveraged properly.
Opportunities must be acted on if the organization wants to benefit from them. Threats
are barriers presented to an organization that prevent them from reaching their desired
objectives.

The following area analyses are used to look at all external factors affecting a
company:

Customer analysis: Segments, motivations, unmet needs

Competitive analysis: Identify completely, put in strategic groups, evaluate


performance, image, their objectives, strategies, culture, cost structure, strengths,
weakness

Market analysis: Overall size, projected growth, profitability, entry barriers, cost
structure, distribution system, trends, key success factors

Environmental analysis: Technological, governmental, economic, cultural,


demographic, scenarios, information-need areas Goal: To identify external
opportunities, threats, trends, and strategic uncertainties

The SWOT Matrix helps visualize the analysis. Also, when executing this analysis it is
important to understand how these elements work together. When an organization
matches internal strengths to external opportunities, it creates core competencies in
meeting the needs of its customers. In addition, an organization should act to convert
internal weaknesses into strengths and external threats into opportunities.

Que.5 Define corporate turnaround? Distinguish between surgical and nonsurgical


turnaround. Explain with some examples?

Ans. Corporate turnaround may be defined as organizational recovery from business


decline or crisis. Business decline for a company means continuous fall in turnover or
revenue, eroding profit, or accrual or accumulation of losses. So, business or
organizational decline, like business performance, is understood in relative terms, that
is, compared with the past. But, some strategy analysts describe business decline in
terms of current comparisons also; for example, relative to industry rates or averages
or even relative to economic growth of the

country. Corporate crisis means deepening or perpetuation of a decline.


Turnaround strategies are usually required for crisis situations. If organizational
decline is not continuous or severe, corporate restructuring can provide the solutions. That
is why turnaround strategy may be said to be an extension of restructuring strategy.
When restructuring is very comprehensive and leads to corp orate recovery, it almost
becomes a turnaround strategy as mentioned above in the case of Voltas. Corpor ate or
business decline manifests itself in many forms or symptoms, including profitability. These
symptoms are actually different performance criteria of companies. Major symptoms
or criteria or situations which signal towards the need for a turnaround strategy are:

Steadily declining market share;


Continuous negative cash flow;
Negative profit or accumulating losses;
Accumulation of debt;
Falling share price in a steady market;
Mismanagement and low morale.

Surgical Turnaround and Non-surgical Turnaround

Generally, there are two methods of corporate turnaround: surgical and nonsurgical.
The surgical method, more commonly practiced in the West, involves sweeping changes
like firing of staff, managers, wholesale reshuffling of portfolios, closing down
operations, etc. Some call it bloodbath or bloodshed. Non-surgical turnaround adopts
the opposite approach, that is, peaceful meansrevamping or recovery through
meetings, discussions, persuasions, consensus, etc.
The operations in surgical turnaround are like this: the first step is to replace the chief
executive of the ailing company by a new iron chief. The new chief promptly gets into
action; he asserts his authority. He issues pre-emptory orders, centralizes functions and
spears some convenient scapegoats. Then he goes about firing employees en masse and
auctioning/selling whole plants and divisions until the fat is satisfactorily cut to the
bone. The bloodbath over, the product mix is revamped, obsolete machinery is
replaced, marketing is strengthened, controls are toughened, accountability for
performance is focussed and so on. How bloody this sort of turnaround can be may be
seen from the examples of companies like the US video games manufacturer Atari,
which, among other actions, cut its labour force by two-thirds to 3500 to turn itself around.
At British Leyland, 84,000 employees (40 per cent) were axed to complete the surgery.
At GE, 1,00, 000 of a workforce of 4,00, 000 lost their jobs; at Imperial Chemical Industries
(ICI), the labour force was reduced from 90,000 to 59, 000; half the staff at Chrysler
Corporation disappeared; at British Steel, half the companys production capacity and 80
per cent of workforce were gone.
Turnaround management of the humane type may involve negotiated and humane
layoffs and divestiture, but, not a bloodbath. This type of turnaround also is generally
brought about by the new helmsman. But, he spends a great deal of time in trying to
understand organizational problems and deliberating on them. He takes all the
stakeholders including unions into confidence; forms groups within the organization to
brainstorm together on what needs to be done to get over the crisis; tries to create a
new work culture; and, generally infuses a strong sense of participation among the
employees and many critical decisions
Become participative decisions. There are many examples of successful turnarounds
of the humane type including Enfield, Volkswagen, Lucas, Air India, SPIC, BHEL and
SAIL.
Que.6 What are the major characteristics of an effective strategy evaluation
system? Analyze these characteristics.
Ans. Motivations are required to induce employees/managers to perform. ES or appraisals
are necessary to ascertain whether they are actually performing or performing
satisfactorily. So, ES has a role almost parallel to the motivation system. ES system
assesses managerial performance in terms of organizational objectives, priorities, and
strategies. The purpose of a positive ES is to remind managers how they are discharging
their tasks and responsibilities, particularly in relation to the strategy implementation. In a
progressive organization, this is a continuous process.
For the development of an effective ES, choice of factors to be used for appraisal
becomes a critical issue. It is generally advisable to use many factors or multiple criteria to
make the assessment system more objective and broad based. This indicates the need
for inclusion of a good number of quantitative factors in addition to the subjective or
qualitative factors. Several ES are available; some are purely quantitative or objective,
some are totally subjective or qualitative, and, some are mix of the two. Most of the actual
ES are based on an appropriate mix of the two types of factors to make the system more
acceptable and reliable.
Also, relevance or suitability of ES method to the corporate strategy adopted by firm
should be considered. E.g. If stability strategy is followed, the objective of ES should be
to focus on improving efficiency in current operations. Improvement of efficiency in
current operations, combined with initiative, can also help to achieve short-term
growth. For long-term growth, i.e., growth through expansion or diversification, focus
should be on long-term managerial characteristics of initiative, aggressiveness, risk taking
attitude, etc. ES should lay emphasis on these factors and be structured accordingly.