Drive- Winter 2013 Program/Semester - MBADS/ MBAFLEX/ MBAHCSN3/ MBAN2 SEM 4 Subject code & name - MB0052- Strategic

c Management and Business Policy

Q1. What is strategy? Explain some of the major reasons for lack of strategic management in some companies? (Meaning of strategy-3, Reasons for lack of Strategic management-7) 10 marks Answer. Strategy In business, corporate strategy refers to the overall strategy of an organization that is made up of multiple business units, operating in multiple markets. It determines how the corporation as a whole supports and enhances the value of the business units within it; and it answers the question, "How do we structure the overall business, so that all of its parts create more value together than they would individually? Strategy at the business unit level is concerned with competing successfully in individual markets, and it addresses the question, "How do we win in this market?" However, this strategy needs to be linked to the objectives identified in the corporate level strategy. For instance, many successful and productive organizations have a corporate strategy to guide the big picture. Each business unit within the organization then has a business unit strategy, which its leaders use to determine how they will compete in their individual markets. Major reasons for lack of strategic management in some companies The importance of new ventures to the economy is substantial in terms of innovation, employment, and sales and effective planning can help these new firms survive and grow. Unfortunately, research has shown a distinct lack of planning on the part of new ventures. Five reasons for the lack of strategic planning have been found: 1. Time scarcity. Managers report that their time is scarce and difficult to allocate to planning in the face of day-to-day operating schedules. 2. Lack of knowledge. Small firm owners/managers have minimal exposure to, and knowledge of, the planning process. They are uncertain of the components of the process and the sequence of those components. The entrepreneurs are also unfamiliar with many planning information sources and how they can be used. 3. Lack of expertise/skills. Small-business managers typically are generalists, and they often lack the specialized expertise necessary for the planning process. 4. Lack of trust and openness. Small firm owners/managers are highly sensitive and guarded about their businesses and the decisions that affect them. Consequently, they are hesitant to formulate a strategic plan that requires participation by employees or outside consultants. 5. Perception of high cost. Small-business owners perceive the cost associated with planning to be very high. This fear of expensive planning causes many business owners to avoid or ignore planning as a viable process. 8 In addition to these reasons, other factors have been reported as difficulties of the planning process. For example, both high-performing and low-performing small ventures have problems with long-range planning. Both time and expense are

major obstacles. Additionally, low-performing firms report that a poor planning climate, inexperienced managers, and unfavorable economic conditions are problems.

Q2 Explain the following: (a) Core competence (b) Value chain analysis (Core competence-5, Value chain analysis-5) 10 marks Answer. Core competence Core competence is a management tool that enables an organization to deliver a unique value to its customers. Building up core competency becomes essential to gain competitive advantage because advantages originating from the productprice-performance-tradeoffs are almost short-term especially when technology keeps on changing. The profits earned by the various business units can only last through competencies. Example in a small town called Vellore in the south Indian state of Tamil Nadu, there is a famous deemed university called the Vellore Institute of Technology (VIT). Its founder, Mr. Vishwanathan, has adopted a unique model of building formidable core competencies. He has made huge investments in creating world-class infrastructure, which has attracted the best minds as students not only from various parts of India, but also from other countries of the world, including developed countries like Canada, and several African nations. What has really mattered is that, the quality of teaching has improved, as VIT has been able to attract high-calibre teachers from all over the country. The national and international seminars that has been conducted very regularly, has opened up many vistas of knowledge, and opened up many doors, in the international arena through very innovative tie-ups with foreign universities. Value chain analysis Michael Porter introduced the concept of value chain analysis in his book, The Competitive Advantage. Each organization has its own internal value chain of activities. Michael Porter suggested that the value chain of an organization can be split into primary activities and support activities.

Primary activities are those that are concerned with creating and delivering the end product.

Operations The raw goods acquired are converted into the final product. Value is added to the product at this phase as it moves through the production line. Outbound logistics Once the products have been produced, they are ready for distribution to distribution centers, wholesalers, and retailers. Marketing and sales Marketing ensures that the end product is targeted to the right customer group. The marketing process establishes an effective strategy. Services After the products are sold, the organization has to offer support services. This may be in the form of customer support, guarantees and warranties. With the above mentioned activities, it is essential for the organization to develop the competitive advantage that Porter described in his book. The support activities aid the primary activities in helping the organization achieve its competitive advantage. Procurement This section supplies raw material for the organization and obtains the best price and quality. Technology development An organization should be technology driven. The organization uses technology to reduce production cost, which in turn adds value, and to develop new products through research and development. Human resources The organization has to recruit and train the right people to succeed in their objectives. The organization has to encourage its employees and pay them the market price if they are expected to stay with the organization and add value to it during their period of employment. Firm infrastructure The organization needs to ensure that its financial structure, legal structure and management structure works efficiently and helps the organization move forward. The value chain includes the whole organization. It looks at, how primary and support activities can effectively work together and help the organization gain a superior competitive advantage. Q3. Describe in brief the following environmental factors which a business strategist considers: (a) Political factors (b) Technology (Description of Political factors-5, Description of Technology as an environmental factor-5) 10 marks Answer.

Political factors Political factors impact the organizations in many ways. Political factors can create benefits and opportunities for the organizations. The political environment has an important impact on the business. There is a large field with many factors which the companies have to consider if they want to expand overseas Political environment is not stable and can change quickly. Monitoring, understanding and adapting to the political environment is absolutely essential for any business, because it significantly affects every business. Political factors are basically to what degree the government intervenes in the economy. Specifically, political factors include areas such as tax policy, labor law, environmental law, trade restrictions, tariffs, and political stability. Political factors may also include goods and services which the government wants to provide or be provided (merit goods) and those that the government does not want to be provided (demerit goods or merit bads). Furthermore, governments have great influence on the health, education, and infrastructure of a nation.

Political factors can be: 1) Stability of the government 2) Fair-trade laws 3) Antitrust laws 4) Tax laws 5) Minimum wage legislation and Economic policy of the government pollution laws as cited in Develop 6) Defense and military policy Diplomatic events in surrounding countries These factors can be restrictive or beneficial. Restrictive factors are those factors that limit profits

Technology Technological factors include technological aspects such as R&D activity, automation, technology incentives and the rate of technological change. They can determine barriers to entry, minimum efficient production level and influence outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and lead to innovation. Technology Do you need an Enterprise Content Management (ECM) Solution? Your information management program is going to rely on technology to enable your organization to comply with your policies and execute your information management processes. The right application of technology can provide your program with a great degree of control over your organization s information while having a minimal impact on daily activities of your staff. Technology Your users love Collaboration Tools What do you do with those? Controlling the creation phase of the information lifecycle is one of the most complicated information management issues you face. Striking a balance between controlling information and allowing your staff to be creative and innovative requires imagination and collaboration. Technology What about your Enterprise Systems and Business Applications? The business applications (e.g., ERP, Human Resources Information System, Accounting, etc.) within your enterprise support your business processes and enable your organization to run efficiently. Often, these applications are repositories of your corporations information assets. Whether stored as content in a transactional system or as rows of data in a database table, the information stored in your business applications is a key component of your institutional knowledge and intellectual capital.

Q4. Write a brief note on Turnaround strategy. 10 (Brief note on Turnaround strategy) 10 marks Answer. Turnaround strategy means to convert, change or transform a loss-making company into a profit-making company. Turnaround is a process of undertaking temporary reduction in the activities to make a stronger organization. This kind of processing is called downsizing or rightsizing. The idea behind this strategy is to have a temporary reduction of activities in the organization to pursue growth strategy at some future point. Turnaround strategy acts as a doctor when issues like negative profits, mismanagement and decline in market share arise in the organization. Also, Turnaround

strategy is described in terms of how the turnaround strategy components of managing, stabilising, funding and fixing an underperforming or distressed company are applied over the natural stages of a turnaround. company profitable again. The main purpose of implementing a turnaround strategy is to turn the company from a negative point to a positive one. If a turnaround strategy is not applied to a sick company, it will close down. It is a remedy for curing industrial sickness. Turnaround is a restructuring strategy. Here, a loss-bearing company is

transformed into a profit-earning company, by making systematic efforts. It tries to remove all weaknesses to help a sick company once again become strong, stable and a profit-making institution. It tries to reverse the position from loss to profit, from declining sales to increasing sales, from weakness to strength, and from instability to stability. It aids to reduce the brought forward losses of the loss-making company. It helps the sick company to stand once again in the market. It is a complete U-turn of a planned strategic economic transition. The overall goal of turnaround strategy is to return an underperforming or distressed company to normal in terms of acceptable levels of profitability, solvency, liquidity and cash flow. To achieve its objectives, turnaround strategy must reverse causes of distress, resolve the financial crisis, achieve a rapid improvement in financial performance, regain stakeholder support, and overcome internal constraints and unfavorable industry characteristics.

Turnaround strategy components The components of turnaround strategy are: Managing the turnaround in terms of turnaround leadership, stakeholder management, and turnaround project management. Stabilizing the distressed company by ensuring the short-term future of the business through cash management, demonstrating control, re-introducing predictability and ensuring legal and fiduciary compliance. Funding and recapitalizing the distressed business. Fixing the distressed company in strategic, organizational and operational terms.

Q5. Define the term strategic alliance. What are its characteristics and objectives? (Definition of the term strategic alliance-2, Characteristics of strategic alliance-2, Objectives of strategic alliance-4) 10 marks Answer. Strategic alliance: Strategic alliance involves the individual organizations to modify its basic business activities and join in agreement with similar organizations to reduce duplication of manufacturing products and improve performance. Strategic alliance is the process of mutual agreement between the organizations to achieve objectives of common interest. They are obtained by the co-operation between the companies. Strategic alliances contribute in successful implementation of strategic plan because it is strategic in nature. It provides relationship between organizations to plan various strategies in achieving a common goal.

Characteristics of strategic alliance

The various characteristics of strategic alliances are: The organizations share the advantages and organize the management of alliance until the agreement lasts. The two independent organizations involving in agreement have a similar idea of achieving objectives with respect to alliances. To develop more areas in alliances, the organizations contribute their own resources like technology, production, R&D, marketing etc to increase the performance. Objectives of strategic alliance Strategic alliances are required to increase productivity ratio. When two organizations involve in manufacturing the desired product, it helps in saving time for the individual organizations. An increasing desire of global operations requires strategic alliances to converge the industry in many international markets. The intention for geographic expansion makes the organizations to enter into alliances for reducing the cost and manufacturing more innovative products. The new economy enables the organizations to use business policy to gain competition in market share, technologies, partners resources etc. The fast growing organizations extensively rely on forming alliances so that it enables the organizations to add and balance resources among them. This helps the organizations to grow at a faster rate in technology and operations. Example Cisco accelerated the collaboration across departmental and corporate boundaries due to the changing nature of work. The focus was on the network based collaboration that required tight integration of the application stack with networks, communications, and mobility. This made Cisco develop relationship with several leading IT solution providers and vendor organizations.

Q6. Write short notes on the following: a) Competitive advantage b) Porters Competitive threat model (Competitive advantage-5, Porters Competitive threat model (Five Forces model)-5) 10 marks Answer. Competitive advantage Competitive advantage acts as the elements that lead businesses to greater success. Being an individual organization, it might not be strong enough to achieve these elements. Hence the organizations enter into alliance and combine individual strengths to achieve success more effectively. A competitive advantage exists when the firm is able to deliver the same benefits as competitors but at a lower cost (cost advantage), or deliver benefits that exceed those of competing products (differentiation advantage). Thus, a competitive advantage enables the firm to create superior value for its customers and superior profits for itself. The following diagram combines the resource-based and positioning views to illustrate the concept of competitive advantage:

A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage. Porters Competitive threat model Porter's fives forces model is an excellent model to analyze a particular industry. These five competitive forces identified by the Michael Porter are: 1) Competitive rivalry 2) Power of buyers 3) Threats of substitutes 4) Power of suppliers

5) Threat of new entrants. It looks at the five main factors that affect a particular industry:

Competitive Rivalry If entry to an industry is easy then competitive rivalry is likely to be high. If it is easy for customers to move to substitute products for example from coke to water then again rivalry will be high.

Power of Buyers Buyers or customers can exert influence and control over an industry in certain circumstances. This happens when: There is little differentiation over the product and substitutes can be found easily by customers/buyers. Buyers/customers are sensitive to price fluctuations. Switching to another product is not costly for customers/buyers. Threat of Substitutes Customer can easily switch to substitute products. So substitutes are a threat to your company. When there are actual and potential substitute products available then segment is unattractive. Profits and prices are affected by substitutes so, there is need to closely monitor price trends. In substitute industries, if competition rises or technology modernizes then prices and profits decline. Power of Suppliers Suppliers are also essential for the success of an organization as they provide businesses with the resources they need to produce their products and services. Supplier power can come from: If there is one or just a few suppliers that can provide the resources a business needs. If it is expensive to move from one supplier to another (known also as switching cost) If there is no other substitute for the product provided by the supplier. Threat of new entrants Threat of new entry depends upon entry and exit barriers. There is variation in attractiveness of segment depending upon entry and exit barriers. That segment is more attractive which has high entry barriers and low exit barriers. Some new firms enter into industry and low performing companies leave the market easily. When both entry and exit barriers are high then profit margin is also high but companies face more risk because poor performance companies stay in and fight it out. When these barriers are low then firms easily enter and exit the industry, profit is low. The worst condition is when entry barriers are low and exit barriers are high then in good times firms enter and it become very difficult to exit in bad times.