MBA ASSIGNMENT Mb0052-Strategic Management and Business Policy.docx

STRATEGIC MANAGEMENT AND BUSINESS POLICY SUBJECT CODE – MB0052 Ques.1. Define the term “Strategic Management”. Explain the importance of strategic management. Ans:- Strategic management is that set of decisions and actions which leads to the development of an effective strategy or strategies to help achieve corporate objectives. ‘Strategic management is defined as the set of decisions and actions in formulation and implementation of strategies designed to achieve the objectives of an organization:’ ‘Strategic management is primarily concerned with relating the organization to its environment, formulating strategies to adapt to that environment, and, assuming that implementation of strategies takes place.’ All the management functions of a company can be broadly classified into two categories: strategic and operational. Strategic functions are performed more at the senior and top management level, and operational functions are discharged more by middle and lower management levels. In other words, it can be said that, as the level of management moves up, the managers perform more strategic functions and less operational functions. Importance of strategic management: 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. An organization can derive many benefits from strategic management. Strategic management allows an organization to be more proactive than reactive in shaping its own future. It allows an organization to initiate and influence rather than just respond to activities or situations; and, this enables the organization to exercise control over its present activities and give directions to growth and development. Small business owners, CEOs and managers of many profit and non-profit organizations have recognized the benefits of strategic management. The benefits of strategic management can be both financial and non-financial. Different research studies indicate that organizations using strategic management are more profitable and successful than those which do not.8 Companies using strategic management techniques show significant improvement in productivity, sales and profitability compared to the ones without systematic planning. High-performing companies do more systematic planning to prepare for future changes in the environment—both internal and external. Ques.2. Describe Porter’s five forces Model. Ans:- Porter suggests that there are five basic competitive forces, which influence the state of competition in an industry. He calls the ―structural determinants of the intensity of competition‟, which collectively determine the profit potential of the industry as a whole. Some industries have a bigger profit potential than others, since keener competition means lower profits. These five competitive forces are as follows:

NAVNEET SINGH, 581125640

Page 1

Threat of New Entrants: A new entrant into an industry will bring extra capacity. The new entrant will have to make an investment to break into the market, and will want to obtain a certain market share. The strength of the threat from new entrants depends on two factors:  The strength of the barriers of entry  The likely response of existing competitors to the new entrants Threat from Substitute Products: The products or services that are produced in one industry are likely to have substitutes that are produced by another industry, which satisfy the same customer’s need. Which firms in an industry are faced with threats from substitute products, they are likely to find that demand for their products is relatively sensitive to price. Bargaining Power of Customers: Customers should want better quality products and services at a lower price, and if they succeed in getting what they want, they will force down the profitability of supplies in the industry. The profitability of an industry is therefore dependent on the customers’ bargaining power. The Bargaining Power of Suppliers: Just customers can influence the profitability of an industry by exerting pressure for higher quality products or lower prices, so too can suppliers influence profitability by exerting pressure for higher prices. The Rivalry amongst Current Competitors in the Industry: The intensity of competitive rivalry within an industry will affect profitability of the industry as a whole. Competitive action might take the form of price competition, advertising battles, sales promotion campaigns, introducing new product from the market, improving after sales services or providing guarantee or warranties. Q.3 Define the term “Business policy”. Explain its importance. Ans:- Business policy or policy is different from strategy and strategy is different from tactics. If we consider policy, strategy and tactics together, policy comes before strategy and strategy comes before tactics as a sequence or conceptual chain in the management process: Policy, Strategy, and Tactics. But, all the three concepts are closely interrelated. NAVNEET SINGH, 581125640

Page 2

Policy is different from strategy. ‘Policy’ is derived from the Greek word ‘politeia’, meaning‘ polity’, that is, the state and its citizens, and Latin polotis meaning ‘polished’, that is, clear. According to the New Webster Dictionary, ‘policy’ means the art or manner of governing a nation or the principle on which any measure or course of action is based. This definition implies that policy is a prescribed guideline for governing actions of an organization with respect to given objectives. Kotler has given a clear definition of policy: Policies define how the company will deal with stakeholders, employees, customers, suppliers, distributors and other important groups. Policies narrow the range of individual discretions so that employees act consistently on important issues.  Policies should follow from organizational objectives and should be formulated in consistency with such objectives.  Policies provide guidelines to managers/members in an organization for deciding a course of action, and these limit their discretion or freedom in choosing the course of action.  Policy formulation is generally the function of senior or top management of a company, and not the job of all managers.  Policies are commonly expressed in qualitative terms in a general way.  Sometimes, policies can also be stated in a conditional or more specific way.  In any organization, a policy will remain in vogue for sometime till it is reviewed, and a change in the policy is made or the policy is replaced by a new one4. This means that policies do not change frequently. The difference between policy and strategy should now be clear. Policy is broader or more general—more in the form of guidelines or principles. Strategy is more specific with reference to a particular situation, target or objective. Policy generally comes first; strategy comes later, and, sometimes, follows from or is subject to policy. Over a period of time, because of pressure of business and growing competition, business policies of many companies evolved into specific strategic processes. The paradigm shift between policy and strategy has been well enunciated by Hofer and others (1984). This is shown below. First Phase: Till the mid-1930s: (Ad hoc policy) Ad hoc policy making necessitated by the expansion of American firms in terms of product, markets and customers; and, the consequent need for replacing informal controls by framing functional policies to guide managers. Second Phase: 1930s and 1940s (Planned policy) Planned policy formulation instead of ad hoc policy making and shift of emphasis to integration of function areas caused by environmental changes. Third Phase: 1960s (Strategy) Rapid pace of environmental changes and increasing complexity of management necessitating a critical look at business in relation to environment and the need for strategic decisions. Fourth Phase: 1980s and later (Strategic management) Shift of focus to strategic processes and the responsibility of management in resolving strategic issues. Q.4 What, in brief, are the types of Strategic Alliances and the purpose of each? Supplement your answer with real life examples. NAVNEET SINGH, 581125640

Page 3

Ans: Strategic alliance may be defined as cooperation between two or more organizations with a common objective, shared control and contributions (in terms of resources, skills and capabilities) by the partners for mutual benefit. This definition can be expanded and made more comprehensive in terms of essential features or characteristics of strategic alliance. A typical strategic alliance exhibits five essential features or characteristics: (a) Two or more organizations join together to pursue a defined objective or goal during a specified period, but, remain organizationally independent entities; (b) The organizations pool their resources and investments and also share risks for their mutual (and not individual) interest/benefit; (c) The alliance partners contribute, on a continuing basis, in one or more strategic areas like technology, process, product, design, etc; (d) The relationship among the partners is reciprocal with partners sharing specific individual strengths or capabilities to render power to the alliance; (e) The partners jointly exercise control over the performance or progress of the arrangement with regard to the defined goal or objective and share the benefits or results collectively. Six objectives or purposes are more commonly observed: (a) Development of a new product: In the pharmaceutical industry, new product development takes place on a continuous basis, and, in this, many strategic alliances are formed between pharmaceutical companies and research laboratories and institutions for R&D. We have already given the example of Boeing and their Japanese partners. (b) Development of a new technology: Development of technology is a long term process, and, also, many times, involves considerable cost. Collaboration leverages the resources and technical expertise of two or more companies. (c) Reducing manufacturing cost: Co-production, common in the pharmaceutical industry, is a good form of strategic alliance to reduce manufacturing cost through economies of scale. (d) Entering new markets: This is often the objective in international business. Many foreign companies enter into strategic alliances with some local companies (host country) to enter into and establish themselves in that country. ‘Piggybacking’ is a common form of strategic alliance. Some of the Japanese electronic manufacturing companies like Matsushita Electricals, during their initial years, had entered into strategic alliances with some US electrical or electronic manufacturers for entering into the US market. (e) Marketing and Sales: This is common in both national and international business. Many manufacturers in India have marketing and sales arrangements with companies like MMTC and Tata Exports for both domestic and international marketing. (f) Distribution: In pharmaceutical and other industries where distribution represents high fixed cost, potential competitors swap their products for distribution in the respective markets where they have well-established distribution systems. Many such alliances exist between the US and Japanese pharmaceutical companies. For example, if research laboratories or institutions are involved, most of the funding is done by the corporate concerned. As mentioned above, many areas of business—from R&D to distribution— provide scope for strategic alliance. In the semi-conductor industry, many companies in the US and Japan feel ‘short-handed’ in their R&D, and they swap licences. In a NAVNEET SINGH, 581125640

Page 4

multiple alliance, which includes both technology and operations, Samsung Electronics and IBM Korea have entered into an agreement to swap patents for design and manufacture of semiconductors. IBM and Apple Computer, have formed an alliance for development of hardware and software technology for a new generation of desktop computers. Ranbaxy has formed a strategic alliance with Eli Lilly of the US to fulfil its mission of becoming a researchbased international pharmaceutical company. In the telecommunication sector, a number of strategic alliances have been formed between Indian and foreign companies: Crompton Greaves and Millicom; Usha Martin and Telekom Malaysia; SPIC group and Telstra, etc. A good example of synergistic benefits from a strategic alliance is that of Taj hotels and British Airways; both create mutual advantages through complementarity of hotel and airline services. In the field of agricultural development, Hindustan Unilever and ICICI have entered into a partnership project for contract farming of wheat and rice in MP and Haryana. Q5. Explain the concept, need for and importance of a Decision Support System. Ans:- Abbreviated DSS, the term refers to an interactive computerized system that gathers and presents data from a wide range of sources, typically for business purposes. DSS applications are systems and subsystems that help people make decisions based on data that is culled from a wide range of sources. DSSs include knowledge-based systems. A properly designed DSS is an interactive softwarebased system intended to help decision makers compile useful information from a combination of raw data, documents, and personal knowledge, or business models to identify and solve problems and make decisions.  Need in… Typical information that a decision support application might gather and present includes:  Inventories of information assets (including legacy and relational data sources, cubes, data warehouses, and data marts),  Comparative sales figures between one period and the next,  Projected revenue figures based on product sales assumptions.  clinical decision support system for medical diagnosis  A growing area of DSS application, concepts, principles, and techniques is in agricultural production, marketing for sustainable development.  1. 2. 3. 4. 5. 6. 7.

Importance: Improves personal efficiency Speed up the process of decision making Increases organizational control Encourages exploration and discovery on the part of the decision maker Speeds up problem solving in an organization Facilitates interpersonal communication Promotes learning or training

NAVNEET SINGH, 581125640

Page 5

8. Generates new evidence in support of a decision 9. Creates a competitive advantage over competition 10. Reveals new approaches to thinking about the problem space 11. Helps automate managerial processes 12. Create Innovative ideas to speed up the performance Q6. Write short notes on Corporate Social Responsibility Business Plan Ans :- Corporate Social Responsibility: External stakeholders of an organization are too many and varied and many of them represent different sections or social groups. This implies that organizations should be socially responsible; that is, in addition to the interests of the shareholders, businesses or companies should also serve the society. This is corporate social responsibility (CSR). Corporate social responsibility can be defined as the alignment of business operations with social values.

The conflict between internal and external stakeholders can go much further than mentioned so far. Some feel that this is the most problematic issue in deciding company responsibility. External stakeholders argue that internal stakeholders’ demand be made secondary to the greater need of the society; that is, greater good of the external stakeholders. Many of them feel that issues like pollution, waste disposals, environmental safety and conservation of natural resources should be the overriding considerations for formulation of policy and strategic decision making. Internal stakeholders, on the other hand, think that the competing or social claims of external stakeholders should be balanced in such a way that it protects the company mission, objectives and profitability. Many feel that corporate social policy should be articulated during strategy formulation, administered during strategy implementation and reaffirmed or changed during strategy evaluation. Business Plan:

NAVNEET SINGH, 581125640

Page 6

A business plan is a formal statement of a set of business goals, the reasons they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals. Business plans may also target changes in perception and branding by the customer, client, taxpayer, or larger community. When the existing business is to assume a major change or when planning a new venture, a 3 to 5 year business plan is required, since investors will look for their annual return in that timeframe. Business plans are decision-making tools. There is no fixed content for a business plan. Rather, the content and format of the business plan is determined by the goals and audience. A business plan represents all aspects of business planning process declaring vision and strategy alongside sub-plans to cover marketing, finance, operations, human resources as well as a legal plan, when required. A business plan is a summary of those disciplinary plans. A good business plan will help attract necessary financing by demonstrating the feasibility of your venture and the level of thought and professionalism you bring to the task. A good business plan serves the following purposes: 1. Revenue Generation – Your organization may hope to create a business that will generate sufficient net income or profit to finance other programs, activities or services provided by your organization. 2. Employment Creation – A new business venture may create job opportunities for community residents or the constituency served by your organization. 3. Neighborhood Development Strategy – A new business venture might serve as an anchor to a deteriorating neighborhood commercial area, attract additional businesses to the area and fill a gap in existing retail services. You may need to find a use for a vacant commercial property that blights a strategic area of your neighborhood. Or your business might focus on the rehabilitation of dilapidated single family homes in the community. 4. Establish Goals: Once you have identified goals for a new business venture, the next step in the business planning process is to identify and select the right business. Many organizations may find themselves starting at this point in the process. Business opportunities may have been dropped at your doorstep. Depending on the goals you have set, you might take several approaches to identify potential business opportunities. 5. Local Market Study: Whether your goal is to revitalize or fill space in a neighborhood commercial district or to rehabilitate vacant housing stock, you should conduct a local market study. A good market study will measure the level of existing goods and services provided in

NAVNEET SINGH, 581125640

Page 7

the area, and assess the capacity of the area to support existing and additional commercial or home-ownership activity. 6. Analysis of Local and Regional Industry Trends: Another method of investigating potential business opportunities is to research local and regional business and industry trends. You may be able to identify which business or industrial sectors are growing or declining in your city, metropolitan area or region. The regional or metropolitan area planning agency for your area is a good source of data on industry trends. 7. Internal Capacity: The board, staff or membership of your organization may possess knowledge and skills in a particular business sector or industry. Your organization may wish to draw upon this internal expertise in selecting potential business opportunities. Internal Purchasing Needs/Collaborative Procurement: Perhaps, the organization frequently purchases a particular service or product. If nearby affiliate organizations also use this service or product, this may present a business opportunity. Examples of such products or services include printing or copying services, travel services, transportation services, property management services, office supplies, catering services, and other products.

NAVNEET SINGH, 581125640

Page 8