301

O.D.M Computer & Mgt. Education

BUSINESS POLICY & STRAEGIC ANALYSIS (CP-301) Ques 1:- What is Business Policy? How does Business Policy make the Study of Management more meaningful? Ans:- Business Policy:The term Business Policy may be used interchangeably with Strategic Management, corporate planning etc. Primarily the term Business Policy means a long-term planning for the total business – “as a whole”. BUSINESS- Corporate/ Overall functioning POLICY – Planning/ Formulation of Strategies Thus Business policy means a long-term planning of any Organization for the purpose of its GROWTH SURVIVAL EXPANSION DIVERSIFICATION ETC. The planning of the overall Business is done by the top-level managers who have the relevant skills experience and knowledge to take a strategic decision for the overall corporate. Acc to Christensen:“Business Policy is the study of the functions and responsibilities of Senior Management, the crucial problems that affect success in the total enterprise, and the decision that determine the direction of the Organization and shape its future.” From the above definition it may be understood that Business Policy attempts to study what path is the Organization going to take in future.

-------------GAP------------------------Actual Position Planning

Anticipated Position Designing

Implementing Steps

O.D.M Computer & Mgt. Education

Study of Business Policy •

Nature of Business Policy:-

1. Business Policy is a Study:It is a study of a what the top level Managers do and what guides their activities. 2. Top-Management:Business Policy deals with the long term perspective of the Organization. These decision are taken by the managers at the senior level of management. Therefore, Business Policy attempts to Study the functions and responsibilities of the senior management which primarily concerns itself to the crucial problems or decisions of the organization. 3. Future –Oriented:As the Study of Business Policy entails what should be done to take a desired future course of position it is future-oriented. The Senior level managers anticipate and predict the future and take a policy decision in the present. 4. Choice of a Position:The study of a Business Policy involves evaluating Various courses of action and various desired future positions and ultimately choosing one of the best suitable future position. Leader Follower Choice of a position Challenger Initiator 5. Choice of a Strategy: It also involves an evaluation and choice of a Strategy to reach upto the desired future position. Mergers & Acquisitions Joint Ventures Choice of a Strategy Diversification Integration 6. Mobilization of Resources:The study of Business Policy is also concerned with the optimum and mobilization of the available and the required resources in an organisatio9n for the achievement of the : Organizational Goals 2

O.D.M Computer & Mgt. Education Short-term Goals •

Long-term Goals

Evaluation of Business Policy:Future Strategic thinking 1980’s Strategic Management 1960’s Strategy Paradigm 1930-40’s Planned Policy formulation – Integration areas Mid 1930’s Ad-hoc Policy-making 1911 Hartvard Business School introduced an integrative Course in Management.

In the Initial days managers used to do with day to day planning methods. The first phase in mid 1930’s was the premise of ad-hoc policy-making mainly due to the nature of the business of that period. The second phase in 1930’s and 1940’s was marked by the increasing environmental changes. Planned Policy formulation replaced ad-hoc policy making, which led to the emphasis shift to the integration of functional areas. The third phase during 1960’s was based on strategy paradigm. It was the effect and relationship of the business with the environment, which guided the process of policy making. In the early eighties, the patterns changed again companies went global and competition increased Japanese Companies unleashed a force across the world along with other Asian companies and possed threats for the U.S. and European Companies. Strategic Management Strategic process of business

Responsibilities of General management

• Importance 3

O.D.M Computer & Mgt. Education The study of Business Policy makes the study of management more meaningful. It completes the study of management for the students, as it puts together the information of all the functional areas and gives a complete picture of the organization for determining a comprehensive future policy of an organization. Thus the Business policy is important for Students

Executives

For Students:a) Business Policy seeks to integrate the knowledge gained in various functional areas of management i.e. Finance, Production, Marketing, and Human Relations etc. b) All the constraints and complexities of the real life business are studied in the subject of Business Policy. c) The study & practice of management becomes more meaning with the integration of all the functional sub-systems. For Executives:d) Business Policy helps to create an understanding of how policies are formulated e) The study makes the executives more receptive to the developments in the environment to pick ideas and suggestion for implementation purpose. f) Business Policy prepares the executives at middle-level of management for the understanding of strategic decision – making. g) It offers a unique perspective to executives to understand the senior management’s viewpoint. CONCLUSIONS:The purpose of the business policy course is to integrate the knowledge gained in various functional areas, to adopt a generalist approach and to comprehend the complex interaction taking place within the organization. It is a core subject that integrates all the knowledge & experience gained for future of the organization. Example-1 The study of the planning & activation of a joint venture between ONGC Mittal Energy (OME) and ONGC Videsh (OVL) as Mittal Steel Group is a strategic decision. Example-2 The kolkata based – ITC, known primarily for its tobacco products has taken a strategic decision to enter into Soaps by targeting SEC-A consumers using products in the Rs. 15/- range.

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O.D.M Computer & Mgt. Education Ques. 2:- Differentiate between Vision and a ‘Mission’ Mention the characteristics of a good mission statement. Ans:- VISION:The promoters of an organization, normally have some aspirations which guide them in the structuring and functioning of the organization. These aspirations are expressed in strategic intent means intention. A strategic intent should lead to on end. That end is the Vision of an organization. It is what the firm or person would ultimately like to become in the future. A vision is more dreamt of than it is articulated. Many a times it may not be evident what vision does the top management holds for its organization. A vision could be as hazy & vague as a dream. Yet it is a powerful motivator to action. Acc to Kotler:- “Vision is a description of something in the future.” Acc to El-Namaki:- “Vision is a mental perception of the mind of environment on individual, or an organization that aspires to creat within a broad time horizon and the underlying conditions for the actualization of this perception. This vision is a future aspiration that leads to an inspiration to be the best in one’s field of action. It acts as a strong motivating factor for the senior level managers as it provides a direction to the organizational efforts.

• Benefits of a VISION:Acc to Parikh:1. Good visions are inspiring. 2. Visions represent a discontinuity and shows the company what is to be achieved as an ultimate position. 3. Good visions helps in the certain of a common identity and a shared sense of purpose. 4. Good visions are competitive, original and unique. They give a sense of identity to all the employees in an organization. 5. Visions foster long-term thinking and guides the organizational working towards a common philosophy. 6. A Vision represent integrity and may be useful for the benefit of people. Thus a good Visions may be inspiring & motivating to the management. It may guide the working of a dream i. e. a Vision. A vision articulates the position that a firm would like to attain in the distant future. E.g. :IOC’s Vision “Indian Oil aims to achieve international standards of excellence in all aspects of energy an diversified business with focus on customer delight through quality products and services.” Thus Vision constitutes future aspirations that lead to an inspiration to be the best in one’s field of activity. Mission: A mission is a statement which defines the role that an organization plaus in a society. It is the link that the organization develops between its existence and the need of the society. While the essence of a vision is forward-looking view of what an organization wishes to become Mission is what an organization is and why it exists. According to Thomson. 5

O.D.M Computer & Mgt. Education “Mission is the essential purpose of the organization concerning particularly why it is in existence, the nature of the business it is in an the customers it seeks to serve and satisfy.” According to Hunger:Mission is the purpose or reason for the organizations existence. Statement of the Mission Formally reason of existence Formulated Informally

Vision

Dream to be achieved in future

* CHARACTERISTICS OF A MISSION STATEMENT: 1. Feasible:A mission statement should always aim high should not be an impossible statement. It should be realistic and achievable. According to Havell’s: VISION:- “We are committed to the cause of enriching the quality of life by ensuring safe, efficient and convenient use of electricity.” MISSION: ” Better Technology Better Quality Better Tomorrow” CONCLUSION:Therefore from the above discussion it may be concluded that a vision is a future dream of the promoters of an organization. Based on this foundation, the top management designs a statement for the very reason of its existence in the society, which is called Mission. The two terms are different in concept yet they complement each other in giving a purpose to the existence of an organization and guides its activities towards a future position. Strategic Intent Vision Mission Business (Corporate level) Objectives Divisional Objectives Departmental/ Functional Objectives Operational Objectives

Q.3:- What is the concept of Environment in Strategic Management? What aspects does Environmental Appraisal deal with? 6

O.D.M Computer & Mgt. Education Ans:- Environment: The term basically means the surroundings: external objectives, variables, events and circumstances under which someone or something exists. In terms of Business, Environment refers to the culmination of all conditions, events, circumstances and situations and the various pressures and influences and surround and directly and indirectly affects the organization. Circumstances

Environment

Conditions

Influences

Situation

Pressure Directly Environmental Influence on organization

Indirectly

*Characteristics of Environment:a) Complex: The environment consists of a number of factors and variables directly or indirectly influencing the operations of any business organization. All the factors and conditions which form a part of the environment are interrelated and interdependent. One factor influences or get influenced by another factor. Thus environment is a very complex phenomenon whose parts may be easily understood in isolation but a total picture may require sufficient understanding and knowledge.

Globalisation Liberalisation Technological advancement

Competition

Infrastructure development Environment sub-systems b) Dynamic: Due to so many forces operating in the environment the nature of environment is constantly changing and is thus dynamic in nature. 7

O.D.M Computer & Mgt. Education c) Multi-Faceted: The character of the environment is understood by the person who is observing it. It has got many angles. It ultimately depends upon the perception of the observer, what he derives out of the development of the events. For example the de-licensing of the industries may be considered as an opportunity by some who want to enter the business. However the same may be considered as a threat by those who were earlier having a monopoly in a particular business. d) Far-reaching impact: The developments and events shaping the environment have a far reaching influence on the operations of a business. For example any change in the tastes & linking of customers affect the growth & profitability of a firm. For any business organization the study of environment is of utmost important to be able to adjust itself to the latest developments and to be able to reap the benefits of the opportunities arising in the market. The complexities of any environment may be understood by dividing it into different categories. Environment Internal Vs. External

General Vs. Relevant

A) INTERNAL ENVIRONMENT: The internal environment of a business consists of various factors existing within an organization which results into building its strengths & weaknesses. It includes:Employees & their skill base. Level of Technology available Availability of various resources like finance, infrastructure etc. Process Organizational design and structure Organizational work culture- Procedures – policies. B) EXTERNAL ENVIRONMENT: The external environment of a business includes all the factors outside the organization. It is this set of factors which provide an opportunity or pose threats to the organization. It includes i) Market Environment: Customers needs, preferences, attitudes, perception, bargaining & purchasing power, satisfaction etc. Product: features, functions, ingredients, image, price, differentiation, availability, substitutes, services etc. Marketing intermediary: Channel, levels, costs, logistics, delivery, service & financial schemes etc. Competitor related factors: types & number of competitors, entry & exit of competitors, nature & strategy of competition. ii) Technological Environment: Sources of technology, cost of technology acquisition, Technological development, stages of development change & rate of change, research & development. 8

O.D.M Computer & Mgt. Education Impact of technology on human beings and environmental effort. Communication & infrastructural technology. iii) Supplier Environment:Cost, availability & continuity of supply of raw materials, parts & components. Cost & availability of finance, energy, human resources, machinery, spare parts & after sales service. Infrastructural support & ease of availability. Bargaining power of suppliers & existence of substitutes. iv) Economic Environment:Stage of economic development of the country. Structure of economy- Capitalist/Socialist/Mixed Economic policies- industrial, monetary & fiscal Economic planning Economic indicates like national income, GNP per capita income, savings & investment. Balance of payments, value of exports & investment. v) Regulatory Environment:Constitutional framework, Directive principles, fundamental rights, division of powers. Policies related to licensing, monopoly, foreign investment, financing etc. Policies related to distribution & pricing Policies related to imports & exports Other policies related to the public sector, small scale industries, environmental pollution, consumer protection etc. vi) Political Environment: The political system and its features, political parties. The political structure Political processes like party system, elections, economic & industrial promotion & regulation. Political philosophy, governments role in business etc. vii) Socio-cultural Environment:- Demographic characteristics e.g. Population and its density, distribution, change, age composition, interstate, migration, rural-urban mobility & income distribution. Environmental pollution, consumerism, corruption, use of mass media etc. Family, family values & family structure. Role and position of men, women, children etc. Educational level, work ethics, role of minority etc. viii) International environment:Globalisation, global blocks Global HR, Global information system Global markets & competitiveness Global legal system C) General Environment:A wider perception of the environment includes all the aspects of the external environment e.g. National/ international Economic Social/ Demographic Technological Political etc. together constitute the general environment. The general environment affects the business someway or the other and thus all business houses are concerned 9

O.D.M Computer & Mgt. Education about it. The general environment offers a common set of opportunities and poses a common set of threats to all the players in the industry. However, the organization may not be influenced by each factor of the general environment. D) Relevant Environment:Every business organization is concerned with a set of environment aspects, which have a direct, or an immediate affect on the business. This part of the general environment which is of an immediate concern to the business is termed as Relevant environment. What constitutes a relevant envornment depends upon the perception & working of the business and the industry a firm is in.

PORTER’S FIVE FORCES MODEL OF EXTERNAL ENVIRONMENT Potential Entrants Relative power of Unions and Government etc.

Other Stockholders Suppliers

Threat of New Entrants

Industry Competitors

Buyers Bargaining power of suppliers

Bargaining power ofRivalry among existing firms buyers Threat of substitute Products or services

Substitutes According to Michael Porter: “Competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry’s attractiveness.” CONCLUSION:Thus the study of various aspects of the environment is undertaken by the strategist in order to determine positive & negative trends that could impact upon organizational performance. Change is a continuous phenomenon in the external environment and that change is unpredictable from the perspectives of timing & strength. A manager’s ability to recognize and anticipate environmental changes plays a key role in shaping the company’s future. Understanding of the external environment helps to build the company’s base of knowledge and information, which can help improve a company’s competitive position, buffer the company from environmental impacts & build bridges to influence stakeholders of the company. This will improve the company’s opportunities to successfully adopt its strategic direction to the trend of the environment. Q.4.: Define SWOT. What is the rationale of performing SWOT? Ans: SWOT: Any Business organization for its survival and growth undertakes a detailed SWOT analysis. SWOT is the shortform for Strength Weaknesses Opportunities & Threats 10

O.D.M Computer & Mgt. Education In the cut-throat competition faced by the business today a detailed environmental scanning is a must. The study of Internal & External Environment, General & Relevant environment makes a business house adopt itself to the ever changing and ever demanding surroundings in which the business operates. S

W

O

T

Internal External Environment Environment The strengths & Weaknesses of any organization are inherent and reside in the internal environment of a business. The Opportunities & Threats are the development or events which exist in the external environment and are open to all the players in the industry. a)

Strengths: A strength of a business is its capacity or ability to perform or to possess any resource relevant for the success or otherwise of a firm, which may not be possessed by a rival player in the industry. For e.g. Skilled manpower Level of technology Economy of Scales or availability of cheap finance Intense distribution channels Raw materials/ components at least cost. Efficient suppliers etc. The strengths possessed by a firm gives it a strategic advantage over the other firms either in the short run or in the long run business can take a risk based on one of its strengths. This strength, if realized can help strategic planning of a firm. b)

Weaknesses: A weakness of a business is its shortcoming or unability to do something or to possess something which a rival firm may have. This weakness determines the level of strategic advantage gained by a competitive firm over a business. A weakness could be poor availability or poor retention of skilled manpower. High cost of capital Outdated or expensive technology High cost of production Unreliable suppliers. Shallow distribution channels Poor state of logistics & physical distribution Every organization should try to further strengthen its abilities and try to overcome or hide or compensate its weaknesses. These weaknesses or shortcoming are generally made known to the customers by competitors. The firm should always have a ready strength available to be able to compensate any or all of its weaknesses in the eyes or the customers. For example: 11

O.D.M Computer & Mgt. Education Weakness of high cost of production may be justified by unique features, high quality & durability etc. of the product. c)

Opportunities:

An opportunity is any chance or an event, which can be utilized and taken advantage of an opportunity, lies in the external environment and is open to all the players in the industry serving on the same platform. It primarily depends upon the perception as well as the resources of the organization that, whether any occurrence is considered as an opportunity or not. An effective manager is always receptive to opportunities, which may soon be converted into strengths. An opportunity may be :Some favourable law passed by the legislature of the country Entry or exit of a competitor a substitute Change of the consumer behaviour Change in the technology compatible to organisational resources Availability of a cheap finance Possibility of a joint ventures or takes over Change in the competitor’s strategy Change of a political party in power etc. Thus if any event or an occurrence is in favour of the organization it is perceived to be an opportunity by it. Opportunities are taken advantage of to create a competitive edge or a first mover’s advantage in the industry. Threats Threats exists in the external environment. It is in accordance of an event or the potential occurrence of an event which may adversely affect the organisation’s functioning or potentiality to lead over the competitors in today’s time or in future. The above mentioned opportunities may well act as a threat to an organization If it is not suiting its style or working, resources or business strategy. It is very significant for any business organization to do its SWOT analysis on a regular interval to make use of its strength & opportunities, to overcome its weaknesses and to avoid the threats in hampering its business.

Implementation

d)

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Indicators of competitive strengths 1. Strong market share 2. Growing customer base and customer loyalty. 3. Above average market visibility 4. Strongly differentiated products 5. Cost advantages 6. Above average profit margins 7. A creative & entrepreneurial alert management 8. Above average technological & innovational capability Indicators of Competitive Weaknesses 1. Competitive disadvantages 2. Short on financial resources 3. Slipping reputation with customers 4. Lag in new product development 13

THE BUSINESS STRATEGIC-PLANNING PROCESS

Internal Environment

SWOT Analysis Business Mission

External Environment

Goal Formulation

Feedback & Control

Strategic Formulation

Program Formulation

O.D.M Computer & Mgt. Education

O.D.M Computer & Mgt. Education 5. 6. 7. 8.

High cost of production Weak product quality Losing ground to rival companies Lacking skills & capabilities in key areas

CONCLUSION: A Successful strategist concentrates his efforts on the understanding of both external as well as the internal analysis. The knowledge of competitive moves and counter moves and the recognition of the potential competitive advantages of the organization. Both are equality important to be realized by a Strategist.

Q.5. Differentiate between BCG and GE matrix tools used for Strategic planning. Ans:- BCG GROWTH- SHARE MATRIX: The Boston Consulting Group (BCG) a leading management-consulting firm developed and popularized a growth share matrix. The matrix comprises of four quadrants each describing the size and position of the strategic business unit owned by an organization.

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O.D.M Computer & Mgt. Education H Stars

Question Marks

Cash Cow

Dogs

Market Growth Rate

L L

H

Relative Market Share Growth On the vertical axis is the Market Growth rate of the market in which the business operates. A market growth rate above 10 percent is considered to be high. On the horizontal axis is the Relative Market Share. It refers to the Strategic Business Unit’s market share as compared to the firm, which is its largest competitor in the segment under consideration. The relative market share serves a measure of the company’s strength in the market segment. The two axis are divided into high & low. The growth matrix is divided into four cells each indicating a different type of business profile. 1. Question marks:These are Businesses that operate in high- growth markets but have low relative market shares. A question mark requires a lot of cash because the company has to spend money on plant, equipment and personnel to keep up with the fast growing market and because it wants to overtake the market leader. The company has to think hard about whether to keep on investing money into this business or put an end. 2. Stars: It is a market leader in a high growth market. A star does not necessarily produce a positive cash flow for the company. The company must spend substantial funds to keep up with the high market growth an to fight off competitor attacks. A star is a potential business which has the competitive advantage to be a market leader in an industry that is growing fast. 3. Cash cows: Stars with a falling growth rate that still have the largest relative market share and produce a lot of cash for the company is called a cash cow. The company does not have to finance expansion because the markets growth rate has slowed because the business is the market leader it enjoys economies of scale and higher profit margins. The company uses its cash cows to pay bills and support other business. 4. Dogs Businesses that have weak market shares in low-growth markets are in the dog category. The company should consider whether they are expecting a turn around in the market growth rate or a new chance for market leadership else they should divest this business. It would be fruitless to spend and money on this matrix business. G-E MATRIX 15

O.D.M Computer & Mgt. Education A refined version of the BCG Matrix is the one pioneered by General Electric. An SBU’s appropriate objectives cannot be determined solely by its position I the growth share matrix. If additional factors are considered the growth-share matrix can be seen as a special case of multifactor portfolio matrix.

Market Attractiveness

High

Protect position

Invest to build

Build Selectively

Manage Earnings

Build Selectivity

Medium

Low

Protect Refocus

Strong

for Limited Expansion or Harves

& Manage earning

for Divest

Medium Business Strength

Weak

Market attractiveness – Competitive - Position Portfolio Each business is rated in terms of two major dimensions – market attractiveness and business strength. Companies are successful to the extent that they enter attractive markets and posses the required business strengths to succeed in the markets. If one of these fact is missing the business will not produce outstanding results. Neither a strong company operating in an attractive market will do very well. To measure the two dimensions, strategic planners must identify the factors underlying each dimension and find a way to measure them and combine them. Market attractiveness varies with the market’s size, annual market growth rate, historical profit margins etc. business strength varies with the company’s market share, share of growth, product, quality etc. While the BCG matrix considers only two factors, the GE portfolio matrix helps the strategic planners to look at more factors in evaluating an actual or potential business than the BCG model does. As against the BCG matrix the GE matrix is divided into nine cells, which in turn falls into zones. High

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Market Attractiveness

O.D.M Computer & Mgt. Education

Medium

Low

Business Strength

The three cells in the upper left corner indicates strong SBU’s in which the company should invest or grow. The diagonal cells stretching from the lower left to the upper right indicate SBU’s that are medium in overall attractiveness. The company should pursue selectively and manage for earnings. The three cells in the lower-right corner indicate SBU’s that are low in overall attractiveness. The company should give serious thought to harvesting or divesting these business units. Apart from the BCG and GE portfolio matrix, three more portfolio matrix are used to evaluate the strength of business units and facilitate strategic planning. A) Direction Policy B) Space Matrix CONCLUSION: Portfolio models have helped managers to think more strategically, to understand the economics of their businesses better, improve the quality of their plans, improve communication between business and corporate management, eliminate weaker businesses & strengthen their investment in more promising businesses. However, portfolio models must be used cautiously. They may lead the company to place too much emphasis on market-share growth and entry into high growth businesses or to neglect its current businesses because may end up in the same cell position though differ greatly in underlying ratings & weights. Q.6. : “The core of general management is Strategy” Elaborate. Also discuss the role that a strategist play in strategic management. Ans: STRATEGY: THE concept of Strategy is central to understanding Business Policy and Strategic Management. The term ‘Strategy’ is derived from the Greek word ‘Strategos’ which means generalship. The term Strategy means the art of the managing or adopting a course of action. A course of action may be: - to take advantage of opportunities - to devise ways to counter threats etc. 17

O.D.M Computer & Mgt. Education ACCORDING TO ALFRED D. CHANDLER (1962) “A Strategy is the determination of the basic long- term goals and objectives of an enterprise and the adoption of the courses of action and the allocation of resources necessary for carrying out these goals.” ACCORDING TO WILLIAM F.GLUECK (1972) “A Strategy is a unified, comprehensive and integrated plan designed to assure that the basic objectives of the enterprise are achieved.” By combining the above definitions we understand that a Strategy is a plan or course of action or a set of decision rules forming a pattern or creating a common thread related to the organizations’ activities which are derived from its policies, objectives and goals. In business the strategy operates at different levels. Corporate Level Strategy

Corporate Office

Business Level Strategy SBU 1

SBU 2

SBU 3

Functional Level Strategy

Production

Operations

Marketing

Finance

Personnel

Apart from the three levels mentioned, many a times a strategy may be designed at higher levels. Such strategies may be called the Societal Strategies. The strategies may be set at levels lower than the functional level, which are called Operational Strategies. “The stream of decisions and actions which leads to the development of a an effective strategy or strategies to help achieve corporate objectives.” -Glueck (1984) Strategy is the most significant concept in Business policy and Strategic Management. It guides the functional and operational decisions by defining the broad course of action. For example, for an old and very well established company, which had been the market leader for several years, suddenly faces threat from the emergence of competitors has e.g. Bajaj Scooters faced competition from LML scooters. A course of action may involve strategies like expansion diversification, focus, turn around, stability or divestment phases in the Strategic Management. 18

O.D.M Computer & Mgt. Education

Establishment of Strategic intent

Formulation of Strategies

Implementation of Strategies

Strategic Evaluation

Strategic Control Role of strategists: Strategists are individuals or groups who are primarily involved in the formulation, implementation and evaluation of strategy. For different levels of managers and sometimes even outside experts are involved. a) Board of Directors: The Board of Directors are the ultimate legal authority which is elected by the owners of the organization. The board is responsible for providing guidance and establishing the directives. There may be difference between the role played by the Boards of different Organisations. The board activities include: To direct Discuss matters of technology collaboration New product development Senior management appointments Reviewing and screening executive decisions Setting and accomplishing objectives Reviewing and evaluating organisational performance

b)

Chief Executive Officer:A CEO may be designated as the Managing Director, Executive Director, President or General Manager. He is chief Strategist and plays a major role in decisionmaking. He is responsible forExecution of functions of strategic importance Setting the mission, objectives & goals of the organization Organisational leader, Organiser, Implementer, Coordinator and controller. c)

Role of Entrepreneurs:An Entrepreneur is the person who starts a new business and has a high level of “achievement-motivation”. Since the entrepreneurs are the initiators and owners they 19

O.D.M Computer & Mgt. Education provide a sense of direction to the organization and set objectives and formulates strategies to achieve them. An entrepreneur usually play all strategic roles simultaneously. d)

Senior Management:The Senior Management consists of managers at the highest level of the managerial hierarchy. Managers at the senior level may serve the Board of Directors on rotational basis, may be as a part of executive committees formed to deal with new project. They look after: Modernization Technology upgradation Diversification & expansion Plan implementation & communication New product development Assisting the board & the CEO in the formulation, implementation & evaluation of strategy. e)

Consultants:There may be Organisations, which do not have corporate planning department because of small size, infrequent requirements, financial constraints etc. Such organisations hire external consultants for strategic planning they may be. Individuals Academicians Consultancy companies etc. They provide professional service by specially trained & experienced persons to advise and assist managers & administrators to improve their performance & effectiveness of their Organisations. e.g. A.F.Ferguson, McKinsey & Co. Conclusion: Thus there are various parties involved in the strategy Formulation, Implementation & evaluation. Strategies give a direction to the company. They coordinate the efforts of all functions & all levels towards a predetermined common organisational purpose. It facilitates an optimum resource allocation & helps programming all organisational activities in advance. Q.7. What are the different types of Strategies under Corporate- level Strategies (a) Stability (b) Expansion (c) Retrenchment (d) Combination. Discuss its advantages & disadvantages. Ans: CORPORATE – LEVEL STRATEGY:Corporate level strategies are basically about choice of direction that a firm adopts in order to achieve its objectives. These strategies guide decision – making related to allocating resources among the different businesses of a firm, transferring resources from one set of business to others and managing & nurturing a portfolio of businesses in such a way that the overall corporate objectives are achieved. There are different types of grand strategies. 20

O.D.M Computer & Mgt. Education I)

STABILITY STRATEGY It is a strategy, which aims at an incremental improvement of its functional performance. It may aim at marginally changing any one aspect of the business:Customer segment Alternative Technology Product mix etc. A stability strategy is adopted because It is less risky Environment faced is relatively unstable. Expansion may not be suitable. There may be three types of stability strategies. No-change Strategy Proceed with caution/pause strategy

Profit strategy

a)

No-change Strategy:It involves a conclusions decision to do nothing new and to continue with the present business. b)

Profit Strategy: There may be a situation when the firm tries to sustain its profitability by reducing investments, cutting costs, raising prices, increasing productivity etc. c)

Pause Strategy:It is a strategy to give a pause to the blasting expansion strategy in the past or toe move cautiously before moving into a new business aspect. DISADVANTAGES OF STABILITY STRATEGY -

Acts as a testing ground, before entering into a new venture Gives a period of rest if the company had been pursuing aggressive expansion. Suitable when any expansion may be threatening

II

EXPANSIONS STRATEGY: THIS strategy aims at high growth by substantially broadening the scope of one or more of its businesses. It aims at the improvement of its overall performance in business. There may be five types of Expansion Strategies. Cooperation

Concentration

Integration Internationalisation 21

Diversification

O.D.M Computer & Mgt. Education

a)

Expansion through concentration:It is also called as intensification, focus or specialization strategy. It involves concentration of resources on one or more of a firm business so that it leads to expansion b)

Expansion through Integration: Integration means combining activities related to present activity of a firm. It is an expansion strategy which involves integrating to any business activity in the value chain ahead or backwards existing business of an organisation. Potato

Chips

Backward Integration

Distribution Existing business

Forward Integration

c)

Expansion through diversification:Diversification involves a substantial change in the business of the organisation. Concrete Diversification:- When the new activity is related to existing business activity.

Marketing Related

Technology Related

Marketing & Technology related Conglomerate diversification: A strategy that plans to enter into an unrelated business activity for eg. Godrej locks/Almirahs/Referigerators/Soaps. d)

Expansion through Cooperation:it is a strategy which works on the possibility of mutual cooperation with competitors; with the competition also going at the same time. Mergers:It is a strategy of two or more organisation in which one acquires the assets and liabilities of the other in exchange of share or cash.

Conglomerate mergers Horizontal mergers

(2 unrelated firms)

(2 firms in same business)

Concentric mergers Vertical mergers (2 firms creating complementary products)

(2 related firms)

Takeover:It is a strategy where an attempt is made by one firm to acquire ownership or control over another firm against the wishes of the latter’s management. 22

O.D.M Computer & Mgt. Education Joint venture:It is a strategy where two or more companies combine to form a new company in order to make use of the strengths of the partners to gain access to a new business. Eg. Maruti-Suzuki. Strategic alliance:Two or more firms unite to pursue a set of agreed upon goals but remain independent subsequent to the formation of the alliance. e)

Expansion through Internationalisation:These are the types of expansion strategies that require firms to market their products beyond the national market. High Global Strategy

Transnational Strategy

International Strategy

Multidomestic Strategy

Cost Pressures

Low

Low

High

Pressure for local Responsiveness RETRENCHMENT STRATEGY Retrenchment strategy is followed when organisation aims at a contraction of the scope of business. It may involve a total or partial withdrawal from an existing business. A firm may adopt this strategy when faced with adverse external environment eg. Shrinking market share, diminishing profitability, falling sales, emergence of substitute products, adverse government policies, tougher competition, changing customer need & preferences etc. It involves strategies like. III

a)

Turnaround Strategies:It means devising a strategy to reversing the trend, negatively affecting the organisation. The strategy implemented internally focus on the ways and means of reversing the process of decline. b) Divestment:It is a strategy which cuts-off the loss- making units or divisions, a product list or any of its decline causing function etc. it involves a sale of a portion of business. It is adopted in case a turn-around strategy is not successful. c) Liquidation:It is a strategy adopted to abandon all its activities completely. It involves closing down a firm and setting its assets. It is considered to be the last resort for any strategist as it involves both loss to employees as well as to the organisation. Advantages of Retrenchment strategy 23

O.D.M Computer & Mgt. Education To move out of loss-making business. To meet threatening environment (Government/ competitor/ Substitutes/ Economy/ Customers needs & preferences). Supports profitable businesses by reallocation of resources. Saves managements efforts by cutting off unprofitable business. Disadvantages May be used a short –cut to putting hard work May divest a potentially profitable business. May be the decline is temporary. IV COMBINATION STRATEGIES:It is strategy adopted by an organisation as a mixture of Stability, Expansion & Retrenchment either at the same time in its different businesses or at different times in the same business with the aim of improving its performance. In practice it is very difficult to find any organisation that has run its business on a single strategy.

Simultaneous

Sequential

Simultaneous & Sequential Advantage of Combination Strategy

Big organisation facing complex environment cannot run a single strategy. An organisation has different business. Each business lies in different industry requiring a different response. CONCLUSION:Thus, the above discussion shows that there exists various strategic alternatives before a strategist. Depending on the - Type and nature of business - Growth & future of business - Nature and number of competitors - External environmental variables - Overall philosophy of the top-management - Internal strengths & weaknesses etc; a given strategy or a combination is adopted

********************************************************************************************** Q.8: Distinguish between the different approaches in Decision – Making. Ans : DECISION MAKING: The process of decision – making is a very complex and an important function. It involves considering various alternatives to reach to a choice of an alternative which facilitates the accomplishment of the organisational objective. Strategy formulation involves a choice amongst alternatives. It is the most important task of the senior management to take decision on strategic issue. Decision-making is of two types 24

O.D.M Computer & Mgt. Education Conventional Decision-Making Objective Setting Identification alternatives Evaluation of alternatives Choosing the best alternative Routine decisions Middle & lower levels of management

Variability

Strategic Decision-making More complex & varied decisions Extremely difficult choice Responsibility of the Senior level management Important issues Long term impact.

Rationality Creativity Factors in Decision making

Individual Vs. Group decision-making

Person Related factor

APPROACHES TO DECISIONS- MAKING a) Rational approach:The rational approach to decision-making involves an intensive effort in all the steps:Identification of Problem Diagnosis of the problem Identification of various alternatives

(Simon) Bounded Rationality

Evaluation of alternatives Choice of an alternative Implementation of decision Review & control This approach holds that all the steps involve an effort to reach to a quality decision. Extensive information Search and a logical analysis is done by a decision – making function. However such an approach undermines personal & the psychological factors which play an important role in the process of decision-making. Not all managers may be able to collect, consider & analysis the details & the information. b)

Human Approach:The Human approach of Decision – Making maintains that the human factors plays a significant role in decision – making. Not all decisions may be made rationally. A personal touch, emotional analysis and psychological factors like perception; motivation & attitude etc. may affect the process of Decision- making. c)

Combination:25

O.D.M Computer & Mgt. Education The third approach to decision- making is a combination of the two approaches mentioned above.

Human Approach

Rational Approach

Combination Approach This approach states that practically decisions are not completely rational or completely emotional. These are taken in combination of the two. A Strategist tries to take a decision based on an extensive research however he may have some personal factors affecting his choice of an alternative. Thus it’s the combination, which is the most practical approach of decision-making. **********************************************************************************************

Q 9. Discuss the Techniques used for Operational Control. Ans:- Operational Control:Operational control is aimed at the allocation and use of organisational resources through an evaluation of the performance of the organisational units an to assess their contribution to the achievement of organisational objectives. Concerned with actual results or performance Control Strategic Control Strategic Control Proactive Continuous questioning of the basic direction of strategy Focus on external environment 26

Operational Control

O.D.M Computer & Mgt. Education Operational Control Reactive Allocation & use of organisation resources Focus on internal environment Process of Operational Control Strategy / Plan objectives

Reformulate Strategy/plan

Setting standards of performance

Check standards

Actual performance

Check performance

Measurement of actual performance Analysing Variance

Feedback TECHNIQUES FOR OPERATIONAL CONTROL The techniques for Operational control are based on organisatonal appraisal i.e. internal environmental performance. Broadly speaking there are three sets of Techniques. Internal Analysis Comparative Analysis

Comprehensive Analysis

a)

INTERNAL ANALYSIS:it is the analysis of the internal environment of the organisation strengths & weaknesses etc. this analysis can be done by various methods:i) Value-chain Analysis:Value chain is the sequence of activities starting from production to marketing. The value – chain analysis focuses on a set of these inter-related activities undertaken in an organisation. The importance of this technique is that the total tasks of an organisation are segregated into different parts and then evaluated. ii) Quantitative Analysis:It is an operational technique which makes use of a physical unit in quantitative terms for the purpose of performance assessment. It is one of the most popularly used methods. Quantitative techniques Financial parameters Ratio Analysis Economic value-added (EVA) Activity based costing (ABC) b)

Physical parameters Computation of absenteeism Market ranking Rate of advertising recall Total cycle time of production

COMPARATIVE ANALYSIS:27

O.D.M Computer & Mgt. Education The technique mentioned aims at comparing the performance of an organisation with its past performance. This comparison helps in the operational control. There exists three techniques:i) Historical Analysis:The technique of Historical analysis is a very easy to implement and a very frequently used technique. This aims at comparing the present performance of an organisation uses past date i.e. historical data for analysis of comparison. ii) Industry Norms:This method of comparison uses the standards of leading firms in the same industry to be used for comparison with the performance achieved by an organisation. Present performance Of an organisation.

VS

Industry norms/average of performance

iii)

Bench marketing:Bench marketing is a comparative technique, where the performance of an organisation is measured against the best practices in an area. Performance Of an organisation

VS

The best practices in the Industry

c)

COMPREHENSIVE ANALYSIS:As the name suggests, it is a technique, which encompasses total activities of an organisation for the purpose of analysis. i) Balanced Scorecard:This method is based on the identification of four key performance measures of – customer perspective, internal business perspective, innovation & learning perspective & financial perspective. The performance of an organisation is measured taking into account various parameters. ii) Key Factor Rating:It is a very comprehensive method taking a holistic view of the organisational performance. It takes into account key factors in several areas & then evaluates performance.

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O.D.M Computer & Mgt. Education Q.10 (a) Write a short note on Industry Analysis. Ans:- INDUSTRY ANALYSIS:Because Organisations are open system, a number of environment factors influence these inevitably that is suppliers, competitors and buyers. Suppliers :- They supply the goods Competitors:- They have impact on out business. Their every step influence us. Buyers:- By whom we makes profit. The industrial environment of the firm. INTERNATIONAL ENVIRONMENT Legal Env..

Economic Env. The industry env. Social & Cultural Env.

Suppliers

Political Env.

Competitors

Technological Env.

Natural Env.

Buyers

INDUSTRY CHARACTERISTICS THAT COULD IMPACT FIRMS PERFORMANCE The number of firms in the industry The level and pattern of Promotional expenditure. The rate and nature of technological competition. The relative size of firm. Consumer preferences for the product and for related products. The rate of demand growth. The extent of demand growth. The price behaviour of the leading firm. The minimum efficient scale of production. Buyers switching costs. Demand- side economies of scale. 29

O.D.M Computer & Mgt. Education Specificity of plant and equipment to industry etc.

Threats of entry

Jockeying for position

Michael porter’s analysis Powerful Suppliers

Substitute Products

Powerful buyers

i) i) ii) iii)

Threats of Entry The economies of scale Brand identification Govt. Limitations (License requirement)

ii) Powerful Buyers:When buyer can force down prices. iii) Powerful Suppliers: When Suppliers can force buyers to pay higher prices iv) Substitute Products:By placing a ceiling on the price it can change to substitute products or services and limit the potential of an industry. V) Jockeying for Position:The strongest forces which influence the profitability of a firm become the determining factors in strategy formulation. Usefulness of Industry Analysis :A. Industry Attractiveness B. Competitive Position. Industry Attractiveness:30

O.D.M Computer & Mgt. Education a) b) c)

Growth potential Profitability of the industry Relative abilities of players.

Competitive Position:Where does the firm stand in comparison to others ina particular Industry. INDUSTRY ANALYSIS 1.

2.

3.

4.

5.

6.

7.

Basic Features:Size of Industry Product offering Volume Industry Environment:Fragmented Industry Emerging Industry Nature of Industry Declining Industry Global Industry Industry Structure: Market Size Number of players Shares of players Nature of competitions. Industry attractiveness:Profit Potential Growth Prospects. Barriers in industry entry Industry performance:Production Sales Profitability Industry Practices:Product Policy Pricing Strategies Promotion Policy Distribution Policy etc. Future Scenario:Change in consumer Preferences Product innovations Entry or exit of firms in a market. Rate of growth etc.

Conclusion:For any strategist to plan for a policy for future requires a complete internal as well as external analysis. In the external environmental analysis special effort is put on 31

O.D.M Computer & Mgt. Education Industry Analysis. The analysis of the Industry includes the overall variables of the industry includes the overall variables of the industry incorporating its size, nature, performance, attractiveness, relative market share etc. by analysing the industry, a Strategist can very well evaluate whether it should enter into a given business with investments or refrain from going ahead. Threat of entry:A new entrant in an industry represents a competitive threat for established firm (Called as Incumbents) but the likelihood of new entrant is functional of two factors. New Entrant

Barriers to entry

Retaliatio n from Incumben Major Forces in this are:Economics of scale:New entrants have to enter the industry in big way to reap economies of scale. There will be a risk of a strong retaliation to over come these barriers. Auto mobile manufacturers have customized their product. Expected retaliation:Retaliation (Strong) can be expected if incumbent has a major share in industry but industry growth is slow. Product differentiation:Product differentiation refers to physical/perceptional differences that make a product special/Unique. Companies such as Pepsi, Coke spend huge amount on advertisement and create emotional bondings. It is very difficult to switch customers from them. Capital Requirement:Competing in new Industry needs huge capital investment. Even when competing in a new industry is attractive, the huge capital needed for successful market entry may create a barrier. Cost disadvantages;32

O.D.M Computer & Mgt. Education Established companies have cost advantages that new entrants can not duplicate e.g. favourable locations Mc Donalds. Switching costs:If a buyer were to change his supplies from an established supplier to new comer then cost may have to be paid in form of new handling equipment, training cost etc. b) Intensity of Rivalry:Firms operating within an industry are mutually dependent. Action takes by one firm usually attract competitive retaliation in from of price cutting modifications in product or promotion etc. This variable studies the extent of competition amongst the competing firms. c) Powerful suppliers:A supplier is said to be powerful when:Strong Supplier:It is dominated by a few large companies & is more concentrated than the industry to which it sells Selling to fragmented buyers means that concentrated suppliers will be able to exert great influence over price, quality etc. for e.g. pharmaceutical industry. No Substitute:If there are no substitute products to buyers and if they have no alternative sources of supply then all buyers are weak in relation to existing suppliers. Buyer’s Importance as a Customer:If the buying industry is not an important customer of the supplier then the supplier is in a strong position for example, McDonald is a much more important customer of soft drink producer than a small disc would be. Suppliers ability to enter the buying Industry:When supplier can enter the Industry of their customer, then their bargaining power is increased. If the firm has its own production, R & D and has no distribution channel, they can put great pressure on buyers, by threatening them to enter the market. d) Powerful buyers:Customers can force price down demanding better quality or more service & play competition off against each other, in case they are stronger that the suppliers. Buyer’s Concentration:Buyers are concentrated at one place or buy in large quantities related to total industry sales. In such scenario buyers can get deals stuck in their favour. For e.g. Computer & Automobile industry. Price Sensitivity:If the product that the buyers purchase represent a large portion of buyer’s cost. In such a case, price is an important issue for buyers. They all are keen to bargain for favourable terms & indulge in selective buying. For e.g. Refrigerator v/s Cigarettes. Standardized products:If the products that the buyers purchase are standardized, in such case buyers have a tendency to play one seller against another. For example steel is a standardized product, all automobile like Maruti, Hyundai can have bargaining power for that. e) Threat of Substitute products: Substitute products are different goods or services from outside a given industry that perform similar or the same function as a product that the industry produces. The presence of substitute products poses a threat on prices that can be changed by an industry. When relative price of substitute product rise, for example Tea & Coffee, plastic 33

O.D.M Computer & Mgt. Education bag vs paper beg, Oil vs LPG. Customers tend to switch their localities towards the substitute products because of low price. CONCLUSION: After having a view of Porter’s model we conclude that how a firm can do its competitive analysis & which can be done to avoid this by studying porter’s five forces and make effective strategic planning.

Future objective where will emphasis in future?

Current Strategy How are we currently competing?

VS

Response What will our competitors do in future?

Assumptions Are we operating under a status quo?

Capabilities What are our strengths & weakness?

Ques:- What do you mean by competitive advantage? What are the determinants of national competitive advantage? Explain approaches and types of competitive advantage? Ans:- Definition:- Competitive Advantage – a situation in which there is a match between the distinctive competencies of a firm and the factors critical for success within its industry that permits the firm to out per form competitors. Competitive Advantage profile a statement showing

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O.D.M Computer & Mgt. Education competitive position of an organization in the market place. It is also known as Strategic Advantage. Dynamics of National Competitive Advantage:National Competitive Advantage:- Competitive advantage to a country in relation to other countries. Like each organization , each country is known in terms of its competitive advantage. For ex.:- USA of computers, credit cards, Japan for electronic & automobiles, Germany for printing Presses, Switzer land for pharmaceuticals and India for software professionals. The question is what factors have contributed to generate advantage to these countries in specific areas? The answer of this question is important for the purpose of generating competitive advantage at the global level. According to M.Parter has categories various national attributes in four groups.

Firm Strategy structure & rivalry

Factor conditions

Demand Condition

Related & supported Industries 1. Factor Condition:- Factor that provide base for undertaking various business activities. These resources can be divide into five broad categories-human resources, knowledge resource, physic resource, capital resource & infrastructure. 2. Demand Condition:- The nature of demand conditions for an organization’s or industry’s product services in the country is important because it determines the rate of and nature of improvement & innovation by the organisations. These factors either train organisations for world-class competitive or fail to adequately prepare them to competent in the global market place 3. Related & supporting Industries:- Apart from the main industry in which context competitive advantage is talked about, the conditions of related & supporting industries also determine industry’s competitive advantage. However the Long run , the relationship between main industry & related & supporting industries becomes reciprocal. For ex.:- If the main Industry is developed, the relate industries will also develop with a time lag. In the same way, the related industries will provide support to the further development of the main industry. 4. Firmstrategy,structure & Rivalry:- Differences in strategy, structure & rivalry create advantages or disadvantages to firms. Competing in different types of industries in a nation. The aggregate of these determines national competitive advantage. The way different firms shape their strategy- ranging from a broad outlook and long-term profitability to narrow range and short term profitability-determine how the nation will be

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O.D.M Computer & Mgt. Education competitive. For ex.:- US companies rank return on investment, share price increase, & market share in that order. Approaches for Competitive Advantage:These approaches are as follows:1. Generic competitive strategy 2. STRATEGIC intent 3. Bench Marketing 4. Synergistic approach 5. critical success factors approach. 1. Generic competitive strategy:- A basic strategy based on the principle that the achievement of competitive advantage is at the case of superior market strategy. COST BROAD

NARROW

DIFFERENTIATION

Overall cost leadership

Differentiation

Cost Focus Different ion

Focused

Competitive & Scope

Competitive Base (a)

Overall coat leadership:- an organization’s position as the Industry’s least cost producer in broadly defined markets or a wide mix of products. (b) Cost Focus:- a situation in which an organisation focus on a narrow market segment & offers product at the lower price than its competitors based on cost advantage. (c) Differentiation:- is the act of designing a set of meaning full differences of distinguish the organisations offerings from competitor’s offerings (d) Focused Differentiation:- differentiation of activities to generate competitive advantage in a narrowly defined market/ coustmor segment. II. Strategic Intent:- ambitions and obsession for winning which are used a means for generating competitive advantage. According to Hamel & Prahalad:(a) Building layers of advantage (b) Searching for loose bricks (c) Changing the rules for engagement (d) Collaborating III. Bench Marking:- It is another tool which can be used to generate competitive advantage. It is a process of identifying, understanding, and adapting outstanding practices from within the same organization or from other business to help improve performance. Types of Benchmarking:1. Product Benchmarking 2. Competitive bench marking 3. process bench marking 4. strategic benchmarking 5. global benchmarking. IV. Synergic Approach:- can be used as a means do generating competitive advantage to an organisation if the managers are sufficiently aware about how synergistic effect is developed. Synergy is the process of putting two or more elements together to achieve a sum total greater than the sum total of individual elements separately. This effect is described as 2+2=5 effect.

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O.D.M Computer & Mgt. Education Areas of synergistic effect:- Production synergy - Marketing synergy - Research development synergy - Financial synergy - General management synergy V. Critical Success factors Approach:- characteristics, conditions or variables which when sustained can have significant impact on the success of an organisation competing in a particular industry. • Organisational Critical success factors:Mckinsey 7’s framework:Strategy, Structure, systems, staffs, skills, style, shared values • Types of competitive Advantage:-

LARGE

FEW

MANY

Volume

Specialized Size of advantage

SMALL

Stalemated

Fragmented

Number of approaches of competitive advantage 1. Volume:- volume of competitive advantage exists when organisation has very few advantages but these are quite large in volume. For ex.:- In luxury car segment, product differentiation in terms of style, comfort, design etc. is used for generating competitive advantage and cost becomes secondary. 2. Specialized:- specialized competitive advantage exists when an organisation has the opportunity to adopt many approaches together to generate competitive advantage. For ex.:- Organisations manufacturing specialized machinery for selected market-segment can combine both approaches-low cost & product different ion- to be competitive. 3. stalemated:- competitive advantage exists when an organisation operates in an industry in which meaningful product, differentiation is not possible & industry’s cost structure is quite rigid. For ex.:- sugar industry, product differentiation does not exist. 4. Fragmented:- competitive advantage exists an organisation has many opportunities but each opportunity has limited payoff. 5. For ex. Restaurants.

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