SMU

ASSIGNMENT
SEMESTER – 4
MB0052

STRATEGIC MANAGEMENT &

BUSINESS POLICY
Set-1
SUBMITTED BY:
GYANENDRA KUMAR
MBA
ROLL NO:-520941253

Q.1 What similarities and differences do you find in BCG business portfolio matrix,
Ansoff growth matrix and GE growth pyramid.
 Ans. The BCG matrix is a portfolio management tool used in product life cycle. BCG
matrix is often used to highlight the products which get more funding and attention within the
company. During a product’s life cycle, it is categorised into one of four types for the purpose of
funding decisions. Figure 3.5 below depicts the BCG matrix.

Figure BCG Growth Share Matrix

Question Marks (high growth, low market share) are new products with potential success, but
they need a lot of cash for development. If such a product gains enough market shares to become
a market leader, which is categorised under Stars, the organisation takes money from more
mature products and spends it on Question Marks.

Stars (high growth, high market share) are products at the peak of their product life cycle and
they are in a growing market. When their market rate grows, they become Cash Cows.

Cash Cows (low growth, high market share) are typically products that bring in far more money
than is needed to maintain their market share. In this declining stage of their life cycle, these
products are milked for cash that can be invested in new Question Marks.

Dogs (low growth, low market share) are products that have low market share and do not have
the potential to bring in much cash. According to BCG matrix, Dogs have to be sold off or be
managed carefully for the small amount of cash they guarantee.

The key to success is assumed to be the market share. Firms with the highest market share tend to
have a cost leadership position based on economies of scale among other things. If a company is
able to apply the experience curve to its advantage, it should able to produce and sell new
products at low price, enough to garner early market share leadership.

Limitations of BCG matrix:

— The use of highs and lows to form four categories is too simple

— The correlation between market share and profitability is questionable. Low share business
can also be profitable.

— Product lines or business are considered only in relation to one competitor: the market leader.
Small competitors with fast growing shares are ignored.

— Growth rate is the only aspect of industry attractiveness

— Market share is the only aspect of overall competitive position

Igor Ansoff growth matrix

The Ansoff Growth matrix is a tool that helps organisations to decide about their product and
market growth strategy. Growth matrix suggests that an organisation’s attempts to grow depend
on whether it markets new or existing products in new or existing markets. Ansoff’s matrix
suggests strategic choices to achieve the objectives. Figure 3.6 depicts Ansoff growth matrix.

Figure Ansoff Growth Matrix

Market penetration – Market penetration is a strategy where the business focuses on selling
existing products into existing markets. This increases the revenue of the organisation.

Market development – Market development is a growth strategy where the business seeks to sell
its existing products into new markets. This means that the product is the same, but it is marketed
to a new audience.

Product development – Product development is a growth strategy where a business aims to

introduce new products into existing markets. This strategy may need the development of new
competencies and requires the business to revise products to appeal to existing markets.
Diversification – Diversification is the growth strategy where a business markets new products in
new markets. This is an intrinsically riskier strategy because the business is moving into markets
in which it has little or no experience.

For a business to adopt a diversification strategy, it should have a clear idea about what it expects
to gain from the strategy and an honest assessment of the risks.

McKinsey/GE growth pyramid

The McKinsey/GE matrix is a tool that performs a business portfolio analysis on the Strategic
Business units in an organisation. It is more sophisticated than BCG matrix in the following three
aspects:

— Industry (market) attractiveness – Industry attractiveness replaces market growth. It includes

market growth, industry profitability, size and pricing practices, among other possible
opportunities and threats.

— Competitive strength – Competitive strength replaces market share. It includes market share as
well as technological positions, profitability, size, among other possible strengths and
weaknesses.

— McKinsey/GE growth pyramid matrix works with 3*3 grids while BCG matrix is 2*2
matrixes.

External factors that determine market attractiveness are the following:

— Market size

— Market growth

— Market profitability

— Pricing trends

— Competitive intensity/rivalry

— Overall risk of returns in the industry

— Opportunity to differentiate products and services

— Segmentation

— Distribution structure (e.g., retail, direct, wholesale)

Internal factors that affect competitive strength are the following:

— Strength of assets and competencies

— Relative brand strength

— Market share

— Customer loyalty

— Relative cost position (cost structure compared to competitors)

— Distribution strength

— Record of technological or other innovation

— Access to financial and other investment resources

Figure - McKinsey/GE Growth Pyramid

Q.2 Discuss the investment strategies applicable for businesses and methods to
rectify faulty investment strategies.

Ans. An investment strategy is a key component of every conceivable business type, and it's
critical to ensuring the success of the business. Entire college programs have been designed
specifically to teach business investment strategies, but a few key tips can help lay groundwork
for effective investing.

Use Income to Eliminate Debt

o While the pay-down of outstanding debt may not seem like business investment
on the surface, debt elimination can equate to a financial return that outpaces
even the best investments. If a business has outstanding debt financed at a given
interest rate, paying off that debt guarantees an instant return of that percentage.
Because business debt often reaches into double digit interest rates, paying off
this debt can provide an instant, guaranteed return that is significantly higher than
usual returns on other investments.

Reinvest Funds to Nurture the Business

o Perhaps one of the most common ways businesses invest their funds involves
purchasing additional equipment, remodeling customer-facing environments or
opening additional locations. By reinvesting profits back into the business for
expansion or improvement, the business stands to gain additional profits as a
result of the expansion. As an added bonus, a guaranteed return on the
investment will come in the form of tax not assessed on the reinvested funds.

Invest in Other Businesses

o Some businesses find success in investing their profits in other noncompeting

businesses. These investments may be made as traditional cash investments, as
loans or by purchasing securities issued to business start-ups. Investing in other
businesses can be an especially wise move for companies in shaky industries, as
spreading investments into other types of operations can help diversify a
business's holdings and reduce the risk of a complete business loss.

Or

— Use of income to eliminate debt

— Reinvestment of funds to nurture the business

— Investment in other businesses

Investment is defined as the commitment of money or capital (e.g. purchasing assets, keeping
funds in a bank account etc) to generate future returns. A proper understanding of the investment
strategies and a thorough analysis of the options helps an investor to create a portfolio that
maximises returns and minimises exposure to risks.

Following are the ways to invest successfully:

— Leave a margin of safety – Always leave a margin of safety in your investments to protect
your portfolio. The following are the two ways to incorporate the above principle in your
investment selection process.
° Be conservative in your valuation assumptions

° Only buy assets dealing at substantial discounts to your conservative estimate.

— Invest in business which you understand – Invest in a business in which you have a thorough
understanding of the customers, products/services etc.

— Make assumptions – Make assumptions about your future performance by recognising your
own limitations. Never purchase the stock until you understand the industrial economy and able
to forecast the future of the company with certainty.

— Measure your success – Evaluate your performance by the underlying measures in business.

— Have a clear disposition towards price – The more you pay for an asset in relation to its
earnings, the lesser is your return value. So have a clear outlook towards the price.

— Allocate capital by opportunity cost – Allocate investments/assets to the choice which has
been opted as the best among several mutually exclusive choices.

Internal methods to rectify faulty investment strategies

In this section we will explain the methods to rectify faulty investment strategies. Some of the
methods are as follows:

— Internal transformation

— Corporate restructuring and reorganisation

— Financial restructuring

— Divestment strategy

— Expansion strategy

— Diversification strategy

— Vertical and horizontal integration strategy

— Building core competencies and critical success factors

Frequent assessment report assists in detecting the problems associated with faulty investment
strategies in an organisation.

Internal transformation
Internal transformation takes place in an organisation to sustain constant growth, survival and
maintain profitability. It includes corporate restructuring, downsizing of employees etc. The
following are the reasons for internal transformation of a company:

— Pressure on owner to decrease costs

— Overstaffing

— Large and complicated company structure

— Low flexibility of staff

— Financial instability

The main objective of a company which adopts internal transformation is to increase efficiency
by reaching the standards in the global market. This is achieved by holding high quality level of
productivity.

The essential components of a successful business transformation are as follows:

— Achievement

° A new level of sustainably high performance emerges

° Extraordinary and unexpected results appear throughout

— Improved synergy

° Collaboration naturally occurs across all levels

° Creativity and innovation flourishes

— Aliveness

° Employees flourish as they openly express their passion, commitment and creativity towards
work.

° Growth and development occurs both personally and professionally

— Shared future

° The entire organisation unites to accomplish the future and live consistently with core values

We will now discuss the two internal transformation processes in the following section.

— Corporate restructuring and re-organisation

— Layoffs and employee termination

Q.3. a. Distinguish policy, procedure and programmes with examples. (5 marks)
b. Give a short note on synergy.

Differences between policy, procedure, process and programmes

In the previous topic we discussed the definition and meaning of policy, procedure, process and
programmes. Now we will analyze how each concept is different from the other.

1. Policy is general Procedure identifies Process is a set of Programme is a

in nature and the specific actions activities conducted by concrete scheme of
identifies the and explains when people to achieve activities designed
company rules. an action needs to organizational goals. to accomplish a
2. Policy explains the be taken. specific objective.
reason for Process defines the
existence of an It describes method in which the It provides step by
organisation. emergency work is done. step approach to the
3. Policy shows how procedures which activities taken to
rules are enforced include warnings It is a long term rule achieve the goals.
and describes its and cautions. that drives an
consequences. organization. Programming helps
4. It defines an It is systematic way in developing an
outcome or a goal. of handling routine economical way of
5. They are described actions. doing things in a
by using simple systematic manner.
sentences. Procedure defines
6. Policies are the means to
guidelines for achieve the goals.
managerial
actions. Procedures are
7. It is a planned way written in an outline
to handle certain format.
issues in the
organization.
It is generally
8. It is framed by the
detailed and rigid. It
top level
is a part of tactical
management.
tools.

9. Policies are a part

of the strategies of
the organization.

Ans. b. Synergy is the energy or force created by the working together of various parts or
processes.
Synergy in business is the benefit derived from combining two or more elements (or
businesses) so that the performance of the combination is higher than that of the sum of the
individual elements (or businesses).
Organizations strive to achieve positive synergy or strategic fit by combining multiple products,
business lines, or markets. One way to achieve positive synergy is by acquiring related products,
so that sales representatives can sell numerous products during one sales call. Rather than having
two representatives make two sales calls to a potential customer, one sales representative can
offer the broader mix of products.

Mergers and acquisitions are corporate-level strategies designed to achieve positive synergy. The
2004 acquisition of AT&T Wireless by Cingular was an effort to create customer benefits and
growth prospects that neither company could have achieved on its own—offering better coverage,
improved quality and reliability, and a wide array of innovative services for consumers.

Negative synergy is also possible at the corporate level. Downsizing and the divestiture of
businesses is in part the result of negative synergy. For instance, Kimberly-Clark Corporation set
out to sharpen its emphasis on consumer and health care products by divesting its tiny interests in
business paper and pulp production. According to the company, the removal of the pulp mill will
enhance operational flexibility and eliminate distraction on periphery units, thus allowing the
corporation to concentrate on a single, core business activity.

The intended result of many business decisions is positive synergy. Managers expect that
combining employees into teams or broadening the firm's product or market mix will result in a
higher level of performance. However, the mere combination of people or business elements does
not necessarily lead to better outcomes, and the resulting lack of harmony or coordination can
lead to negative synergy.

Q.4. Select any established Indian company and analyse the different types of
strategies taken up by the company over the last few years.

Cadbury plc, formerly known as Cadbury-Schweppes plc, before it demerged from its Americas
Beverages manufacturing business in 2008 (Peston, 2008), is the world’s leading confectionery
manufacturer and distributor. Cadbury plc “operates in over 60 countries, works with over 35,000
direct and indirect suppliers and employs around 50,000 people” (Cadbury India Ltd., 2008).

Cadbury stresses the importance that it places on quality. Apart from its mission statement, it also
references the slogan, “Cadbury means quality” as an integral part of its business’s activities
(Superbrands, 2008).

Lastly, Cadbury also aims to put “A Cadbury in every pocket” (Karvy Research, n.d.) by
targeting current consumers and encouraging them to make impulse purchases and by
maintaining a superior marketing mix (Karvy Research, n.d.).

Cadbury India Ltd, as the Indian subsidiary of this confectionery giant, also utilizes the same
mission and vision statements of its parent firm when operating in the Indian market, albeit with
different business strategies and approaches. Since Cadbury’s activities vary from country to
country, this report will simply examine the activities of Cadbury India Ltd in the Indian market,
one of the fastest growing confectioneries markets in the world (Financial Express, 2008).
Products offered by Cadbury India Ltd.

Cadbury plc manufactures and sells three different kinds of confectionery: chocolate, candy and
chewing gum (Cadbury India Ltd., 2008), but in the Indian market, its product line is split up into
the chocolate confectionery, milk food drinks, candy and gums categories (Cadbury India Ltd.,
2008).

This report will examine two different products offered to the Indian market by Cadbury India:
Cadbury Dairy Milk (chocolate category) and Cadbury Bournvita (milk drinks category).

(a) Cadbury Dairy Milk

(i) Pricing

Cadbury India enjoys controlling 70% of the confectionery market in India, of which 30% is
directly due to the success of its Dairy Milk product, which averages sales of around 1 million
bars per day (Cadbury Dairy Milk, 2008; Marketing Communications, 2008). Cadbury Dairy
Milk bars are Cadbury India’s cash cow in the country’s 4000 tonne, Rs. 6.50 billion (around 1.6
billion CAD) chocolate market (Gupta, 2003), as such, has been designated its flagship brand
(Cadbury India Ltd., 2008; Chatterjee, 2000).

Part of Cadbury Dairy Milk’s success lies in its shared history with India’s identity (it was first
sold in 1948, one year after the country was made independent from the British Empire)
(Cadbury Dairy Milk, 2008) but also in the fact that it is priced relatively cheaply (Chatterjee,
2006) and is relatively affordable by the Indian masses. Even its smallest Dairy Milk bar, the 13
gram version, is priced at Rs. 5 (about 0.13 CAD), affordable by many middle-class Indians as an
occasional treat, but not affordable for those who buy from the less-then-3-rupee (Rs. 3) segment
of the market (Chatterjee, 2006). Its history of operating in the country and its average level
pricing of chocolate bars, has made the Cadbury dairy Milk bar synonymous with high quality,
affordable pure milk chocolate for many Indian customers (Cadbury Dairy Milk, 2008).

(ii) Consumer segments served and advertising/promotional strategies used

Cadbury India Ltd continuously markets Dairy Milk as a relatively inexpensive treat, towards
market segments divided by age, income, technological knowledge and health-consciousness.

In the 1990’s, the company stated promoting the chocolate for “the kid in everyone”, in an
attempt to appeal to adults as well as children (Cadbury Dairy Milk, 2008).

In order to appeal to potential lower-income customers in the villages of India, further marketing
in the form of the “Real taste of life” campaign (Cadbury Dairy Milk, 2008) attempted to absorb
these customers into its market share. By using opinion leaders from Bollywood and using
extensive advertising in newspapers, television, magazines and massive billboards across the
country, Cadbury managed to capture the attention of the nation and cement its market share
superiority in India (Cadbury Dairy Milk, 2008; Marketing Communications, 2008).

Nowadays, Cadbury’s is trying to tap into the potential market of younger generation Internet
users by offering contests and hosting competitions online, the most notable being its “Pappu
Pass Ho Gaya” (Pappu Passed!) joint venture operation with Reliance India Mobile, a branch of
India’s largest network service provider, which allowed students across the country to check their
examination grades online and celebrate with Cadbury’s Dairy Milk if they did well (Cadbury
Dairy Milk, 2008).
Furthermore, Cadbury India continuously develops new versions of its Dairy Milk brand in order
to keep its adult and children consumers satisfied and interested. Variations include the Fruit &
Nut and Crackle & Roast Almond variations (Cadbury Dairy Milk, 2008) which are meant for
snacking, as well as the Cadbury Dairy Milk Desserts, “to cater to the urge for ‘something sweet’
after meals” (Cadbury Dairy Milk, 2008). The Cadbury Bournville Dark Chocolate bar, similar to
the Dairy Milk bar, targets the health-conscious market segment of the chocolate market, who
wish to enjoy the taste of dark chocolate but also its health benefits (Financial Express, 2008).
Lastly, Cadbury Dairy Milk Wowie, with Disney characters embossed on each chocolate square
(Cadbury Dairy Milk, 2008) clearly targets the child segment of its market. Cadbury’s market
segmentation is quite effective because it allows them to target all three major market segments:
children, adults and technologically-savvy consumers, but it does not serve those segments of the
market that have been divided by income levels. Although Dairy Milk is affordable to the upper
and middle-income consumers who view it as a mid-priced item (Kochhar, 2007), lower income
consumers who buy from the less-than-3-rupee range of chocolate cannot afford to buy Cadbury
Dairy Milk regularly. Cadbury will need to address the needs of this market segment in order to
boost its sales of Dairy Milk.

Indian consumers seem to be satisfied with Cadbury Dairy Milk as its marketing promotes it as
an occasional indulgence, despite popular opinion that it is a relatively expensive luxury product
(Cadbury India Ltd. Analysts Meet, 1999). This restrained marketing has allowed the chocolate to
slowly become a measure of quality for many Indians, as Cadbury Dairy Milk is their “Gold
Standard” for chocolate, where the “pure taste of Cadbury Dairy Milk defines the chocolate taste
for the Indian consumer” (Cadbury India Ltd., 2008). In fact, Cadbury Dairy Milk was voted one
of the India’s most trusted brands in a poll conducted in 2005 (Cadbury Dairy Milk, 2008).

(iii) Product Positioning

Cadbury India Ltd’s main sources of competition come from Amul, India’s own dairy company
and Nestle India, Nestle’s subsidiary in India. As seen in Appendix B, Cadbury India controls
around 70% (Cadbury India Ltd., 2008) of the chocolate market, whereas Amul controls around
2% (Dobhal, n.d.) and Nestle India around 27% (Nestle to expand, 2008).

As mentioned earlier, Cadbury’s main strength comes from it ability to market Dairy Milk
products “through altering the theme and functionality of the product as the time demands”
(Cadbury India Ltd Analysts Meet, 1999). Although this has allowed it to control more of the
market than its closest competitors, the reasons for its success may also lie in the fact that many
Indians still view its chocolates as luxury products (Cadbury India Ltd Analysts Meet, 1999) and
not as household goods. This contradicts Cadbury’s assertion that its leadership is maintained by
a “superior marketing mix” (Karvy Research, n.d.). Cadbury India may have misinterpreted the
popularity of Dairy Milk as a sign that the Indian public has accepted it as a household product.
In fact, the booming economy and the increasing affluence of the burgeoning middle class (Basu,
2004) has promoted the use of status symbols, where the regular consumption of so-called luxury
chocolates such as Cadbury Dairy Milk is viewed as fashionable (Kochhar, 2007). Despite
Amul’s longer history in India, its chocolates are viewed as being local and not luxurious,
justifying a lower price tag (Chansarkar et al., 2006). Cadbury India must maintain its current
marketing strategy but slowly start to promote Dairy Milk as a household good so that consumers
spend their rising disposable incomes on it and boost its sales (Rai, 2006).

Amul’s origins as a community welfare program in Gujarat, one of India’s most industrialized
states, to becoming a national enterprise (Amul, 2008) spanned the decades during which newly-
independent India forged its identity, thus becoming an integral part of India’s identity and giving
its marketing strategy a new source of authority. Cadbury simply cannot match this kind of
national endorsement, so by at least promoting the fact that it has been operating in India for
almost as long as Amul, it can try to be “Indian” too. This, in combination with the longest
running advertising campaign that Amul is famous for gives it a brand awareness boost.

Moreover, Amul’s reputation for credibility, safety and consumer satisfaction was only reinforced
when Cadbury India’s Chinese-made products were found to be contaminated with worms and
melamine (Sinn and Karimi, 2008). The “Gold Standard” (Cadbury Dairy Milk, 2008) was no
longer gold, nor was it a standard anymore, as people’s confidence in its safety was shattered. In
order to position its products as safe and affordable treats once again, Cadbury India should make
attempts to be even more sensitive to consumer demands. Customer satisfaction must be given
the utmost importance, even if the company has to run at a loss for a few months, as this will
eventually allow it to negate some of the extensive damage that this negative publicity has to the
firm’s reputation. The new extra-layer packaging of chocolate that is now being used in the
manufacture of Dairy Milk is a good first step to take in reclaiming some of the public’s trust
(Vivek, 2004).

Lastly, Amul’s innovative ideas will be the bane of Cadbury. Their release of diabetic friendly
chocolate and chocolates catering to different ethnic flavours (Janve and Dogra, 2007) as well as
chocolates for festive seasons allow them to rapidly sway consumers over to their products. This
accounts for their soaring annual market growth rates of 18% annually (Indian Express, 1999).

In comparison to Nestle India however, Cadbury India’s longer track history gives it a
competitive edge. Cadbury has more of a brand recognition power than Nestle has, and it uses
this extensively to promote Cadbury Dairy Milk all over the country. Nestle still has to break into
the Indian market; one way to do this would be to follow Amul’s lead and develop and market
products that meet specific ethnic needs, such as chocolates for Diwali and Rakshabandan (two
different Indian festivals) (Kochhar, 2007) , concepts that Cadbury India has yet to explore.

Cadbury India must counter this threat that Nestle and Amul pose, namely, the production of
chocolates specifically for the festive seasons of India. By doing so, Cadbury will be able to
position its chocolates as chocolate specifically designed for India, endearing it to the consumers
and boosting its sales.

(a) Cadbury Bournvita

(i) Pricing

Cadbury Bournvita was first sold on the Indian markets in 1948, soon after Cadbury India Ltd
(then known as Cadbury-Fry) was incorporated (Cadbury Bournvita, 2008). As a result of being
one of the first products offered on the Indian market by Cadbury, combined with successful
marketing strategies and promotional offers, Cadbury Bournvita enjoys a 17% market share of
the malt-based food drink market (Cadbury Bournvita, 2008). India alone accounts for 22% of the
world’s malt-food milk drink retail sales (BeverageDaily, 2004), but unlike Cadbury Dairy Milk,
Cadbury Bournvita does not control a large share of India’s malt-based food drinks market.

Bournvita is largely sold in 500 gram bottles for around Rs. 95 (2.35 CAD) a piece despite other
sizes being available, and is perceived to be quite expensive (Hawa, 2002). However, due to its
long history with India, and the fact that it is used a staple source of nourishment by Indian
mothers for their children, Bournvita’s still remains popular (Hawa, 2002).

(ii) Consumer segments served and advertising/promotional strategies used

Cadbury markets its Bournvita product in diverse market segments. Bournvita has been marketed
mainly towards children, but also finds followers amongst elderly people, pregnant women and
athletes (Hawa, 2002; Cadbury Bournvita, 2008). Continuous brand re-invention, a “rich brand
heritage” and complete overhauls in packaging, product design, promotion and distribution have
allowed Cadbury Bournvita to maintain its 17% market share over the years in India’s 220,000
tonne malt-food market (Cadbury Bournvita, 2008; BeverageDaily, 2004).

Over the years, Cadbury has marketed Bournvita in order to appeal to the change in perceptions
and tastes of its consumers. It focused on the “Good Upbringing, Goodness that grows with you”
campaign to promote Bournvita as an essential health drink for children (Cadbury Bournvita,
2008). This campaign was conducted mainly on the radio, the primary medium of communication
for many Indians at the time (Ranjan, 2007). This campaign was followed by the massively
successful “Brought up right, Bournvita bright” television, newspaper and magazine campaign
(Cadbury Bournvita, 2008) to reach out to more children and promote the link between
intelligence and Bournvita, a concept that appealed to many children. In order to cement their
consumer base and ensure brand loyalty, in the 1990s, Bournvita challenged the public by
promising complete physical and mental development for its consumers (Cadbury Bournvita,
2008), where the subsequent television marketing campaign secured Cadbury Bournvita’s place
in the Indian market. The most recent marketing campaign undertaken by Cadbury Bournvita is
the one specially designed to harness consumers’ uncertainty about the challenges of the new
millennium. The “Real Achievers who have grown up on Bournvita” campaign focused on
preparing consumers with the health, vitality and nutrition necessary for facing the challenges of
the new millennium (Cadbury Bournvita, 2008) and allowed Cadbury Bournvita to keep “pace
with the evolving mindsets of the new age consumers” (Cadbury Bournvita, 2008). This
marketing campaign was broadcast on television and published in newspapers in an effort to
recruit contestants (Kapoor, 2007).

The release of new versions of the original Bournvita such as Bournvita 5-Star, combining the
flavour of the original chocolate Bournvita with the flavor of Cadbury 5-Star (Cadbury
Bournvita, 2008), one of its caramel chocolates helps maintain consumer interest. The new
product is being aimed at the segment of children who want nutrition but also taste (Cadbury
Bournvita, 2008).

By also sponsoring the Indian Olympic team to the Moscow Olympics of 1980 (Cadbury
Bournvita, 2008), Cadbury Bournvita has managed to appeal to an athletic market segment as
well. Recently, by supporting sports competitions and sponsoring athletes across the country,
Cadbury Bournvita has managed to promote itself as a sports drink for athletes (Kapoor, 2007).

Furthermore, one of the most famous Indian examples of Cadbury Bournvita’s ingenious
marketing is its sponsorship of the Bournvita Quiz Contest. The Bournvita Quiz Contest is the
longest running quiz show in India, having first been aired in 1972. The Contest spans 7
countries, has involved more than 4000 schools and more than 1 million students, making it one
of the most popular high school contests (Cadbury Bournvita, 2008), as well as one of Cadbury’s
most successful marketing ventures till date.
However, despite Cadbury Bournvita’s history of serving consumers in the Indian market, and
amidst allegations of declining quality and taste of the Bournvita brand (Hawa, 2002), many
customers still feel that Bournvita does not have the appeal that other brands, such as Horlicks do
(refer to Appendix C) and thus the market is slowly switiching over to white malt-based food
drinks such as Horlicks (Karvy Research, n.d.; Cadbury India Ltd Analysts Meet, 1999).

(iii) Product Positioning

The malt-based food drinks market in India is divided into brown drinks and white drinks
categories (Cadbury India Ltd Analysts Meet, 1999; Karvy Research, n.d.), with white drinks
being popular in the southern and eastern parts of the country, and the brown drinks being
popular in the northern and western parts of the country (Karvy Research, n.d.).

Cadbury Bournvita’s major source of competition comes from GlaxoSmithKline’s Horlicks and
Heinz Food’s Complan. As seen in Appendix C, Horlicks is the market leader with a 44% market
share (Chatterjee, 2006), followed by Cadbury Bournvita with its 17% market share (Chatterjee,
2006) and then Complan with its 13% market share (Samajdar, 2006).

As mentioned earlier, the malt-drinks market is split up into the white and brown drinks
categories. The white drinks category is mainly led by Horlicks whereas the brown drinks
category is led by Bournvita (Karvy Research, n.d.). Lately, more consumers have started
switching over to consuming white drinks than brown drinks, thereby giving Horlicks a larger
market share than Bournvita (Karvy Research, n.d.).

When competing with Horlicks, Cadbury Bournvita’s current marketing strategy is simply not
enough. Given than Horlicks has been operating in the Indian market for longer than Cadbury
(Horlicks, 2008), this larger market share may be explained by more consumer familiarity with
Horlicks than with Bournvita, however, Horlicks’ extensive marketing campaigns may also have
played a part.

Horlicks has always marketed itself as a “Great Family Nourisher” with products such as
Mother’s Horlicks designed for different members of the family (Horlicks, 2008), which makes it
more appealing to a wider section of the market, with products designed for different members of
the family, such as Mother’s Horlicks (Horlicks, 2008), than Bournvita’s mainly child-oriented
approach. Thus, even elderly and convalescent consumers can consume the product without
feeling conscious of consuming a child-only product. Even the Bournvita Quiz Contest,
effectively Bournvita’s longest running marketing campaign, mainly attracts more child
consumers to its product (Radakrishnan, 2002), and thus cannot compete with Horlicks’ wider
appeal. Thus, the solution lies in Cadbury India marketing Bournvita as an adult drink as well.
Only then will it be able to compete effectively with Horlicks.

Meanwhile, Complan’s market share of 13% (Samajdar, 2006), is less than Bournvita’s.
Although both products are targeted at children, Complan has marketed itself as a “perfect
nutritional supplement” (Complan, n.d.) rather than as a healthy drink for children, which is
Bournvita’s approach. Since the words ‘nutritional supplement’ connote a need for extra
nourishment, this may possibly work against Complan as many families may feel that their child
receives enough nourishment and does not require more. Although Cadbury Bournvita currently
has a larger market share of the two, it must continue to market itself as a child-friendly drink,
and not as a nutritional supplement, in order to maintain its superiority.
Delivering Cadbury products to customers India’s 300 billion USD retail market is growing at
a rate of 30% per annum (Rai, 2006). In a country where half a billion people are under the age of
25, disposable incomes are on the rise and the economy is growing at a rate of 8% annually (Rai,
2006), selling treats such as Cadbury Dairy Milk bars and Cadbury Bournvita powder will
generate massive returns. However, in order to be able to sell these products to customers, proper
distribution channels must be identified. The Indian retail sector is composed of 97% “family-run,
street corner stores” (Rai, 2006) and the remaining 3% consisting of malls and shopping
complexes.

Therefore, Cadbury India Ltd. produces its products in factories spread geographically across
India, but also sells its products through a chain of over 300,000 retailers spread across India
(Cadbury India Ltd Analysts Meet, 1999). The efforts of these retailers are augmented by the
support of 1900 distributor locations and 27 depots (Cadbury India Ltd Analysts Meet, 1999).
Furthermore, of a total of 3600 locations that sell Cadbury products, almost 3100 locations are
directly supplied by Cadbury India Ltd distributors at least thrice a month (Cadbury India Ltd
Analysts Meet, 1999).

These distribution networks give Cadbury India its competitive edge in India’s massive consumer
market.

SWOT Analysis of Cadbury India Ltd.

Cadbury India Ltd’s objective of putting a “Cadbury in every pocket” (Karvy Research, n.d.) can
only be done if the company markets its Cadbury Dairy Milk as a household good and its
Bournvita as a family-friendly drink. Until then, its Cadbury Dairy Milk success will only be
short-term in nature and Bournvita will not be able to reverse the trend towards the consumption
of white malted drinks (Cadbury India Ltd Analysts Meet, 1999) and compete with Horlicks. As
seen in Appendix D, if Cadbury Dairy Milk can be marketed extensively enough to break the
‘luxury’ perception that consumers have of it currently (Cadbury India Ltd Analysts Meet, 1999),
it can benefit from inelastic demand as a household product, thus generating a constant stream of
revenue and cementing the Dairy Milk brand as a cash cow product. This objective can be
accomplished by simply building on the good reputation and trust that it has earned, and by
listening to the needs of its consumers. Bournvita meanwhile needs to be extensively marketed in
order to reduce the damaging effect that Horlicks’ family-friendly marketing mix is having on its
market share. Furthermore, the key threat that can affect Cadbury India Ltd’s success in India is
Amul’s innovative marketing strategy. As a result of its witty marketing strategies, length of time
serving India and its ability to develop and market products specifically tailored for Indian
consumers, Amul’s yearly growth rate of 18% may slowly start to eat away at Cadbury’s success
(Indian Express, 1999).

Conclusion

Cadbury India Ltd’s position in India is relatively strong. In order to maintain its lead in such a
large market, it must learn to address the specific needs of its consumers and continue to maintain
their goodwill, while also analyzing its competitors’ marketing strategies. By doing so, it will be
able to isolate the benefits and drawbacks of its competitors’ marketing mix and use those to its
own advantage.

Cadbury must also appreciate the advantages of a positive reputation and always stress consumer
satisfaction. One key aspect of this lies in maintaining the safety of its products so that the name
of Cadbury is always synonymous with high quality safe products. Repeats of the recent
melamine and worms issues cannot be allowed to happen as once consumer confidence in its
brand name is shattered, Cadbury India’s brand recognition aspect will immediately work against
it by highlighting the link between its name and contaminated food products. This will cripple
sales and reverse the fruits of 70 years of hard work in the country, leaving the path open for
more efficient local companies like Amul to learn from Cadbury India’s mistakes and take over
its market share.

Future Strategy In the branded impulse market, the share of chocolate in 6.6% and Cadbury’s
share in the impulse segment is 4.8% factor like changing attitude, higher disposable income, a
large youth population, and low penetration of chocolate (22% of urban population) point
towards a big opportunity of increasing the share of chocolate in the branded impulse among the
costly alternative in the branded impulse market.
It appears that company is likely to play the value game to expand the market encouraged by the
recent success of its low priced ‘value for many packs’.
Various measures are undertaken in all areas of operation to create value for the future.
New channel of marketing such as gifting and child connectivity and low end value for money
product for expanding the consumer base have been identified.
In terms of manufacturing management focus is on optimizing manufacturing efficiencies and
creating a world class manufacturing location for CDM and Éclairs. The company is today the
second best manufacturing location of Cadbury’s Schweppes in the world.
Efficient sourcing of key raw material i.e. coca through forward purchase of imports, higher local
consumption by entering long term contract with farmer and undertaking efforts in expanding
local coca area development. The initiatives in the terms of development a long term domestic
coca a sourcing base would field maximum gains when commodity prices start moving up
.
• Use of it to improve logistic and distribution competitiveness
• Utilizing mass media to create and maintain brands.
• Expand the consumer base. The company has added 8 million new consumer in the current year
and how has consumer base of 60 million although the growth in absolute numbers is lower than
targeted, the company has been able to increase the width of its consumer base through launch of
low priced products.
• Improving distribution quality by addressing issues of product stability by installation of visi
coolers at several outlets. This would be really effective in maintaining consumption in summer,
when sales usually dip due to the fact that the heat effects product quality and thereby
consumption.
• The above are some steps being taken internally to improve future operation and profitability.
At the same time the management is also aware of external changes taking place in the
competitive environment and is taking steps to remain competitive in the future environment of
free imports, lower barrier to trade and the advent of all global players in to the country. The
management is not unduly concerned about the huge deluge of imported chocolate brands in the
market place.It is of the view that size of this imported premium market is small to threaten its
own volumes or sales in fact, the company looks at the tree important as an opportunity, where it
could optimally use the global Cadbury Schweppes portfolio. The company would be able to not
only provide greater variety, but it would also be more cost effective to test market new product
as well as improve speed of response to change in consumer preference through imports. The
only concerns that the company has in this regard is the current high level of duties, which limit
the opportunity to launch value for money products.
Q. 5 Why do you think it is necessary for organisations to have vision and mission
statements and also core competencies? Support your answer with relevant
examples.

Ans. Vision and Mission statements

A well-articulated strategic intent guides the development of goals and helps in inspiring the
employees to achieve targets. It also facilitates in utilising the intent to allocate resources and in
encouraging team participation. It comprises of the vision and mission statements.

Vision statement

A vision statement defines the purpose and principles of an organisation in terms of the values of
the organisation. It is a concise and motivating statement that guides the employees to select the
procedures to attain the goals. Vision statement is the framework of strategic planning. A vision
statement describes the future ambition of an organisation. A vision is the ability to view what the
organisation wants to be in future. It is prepared for the organisation and its employees. It should
be implanted in the organisation being collectively shared by everyone in the organisation. It
conveys an effective business plan. It integrates an understanding about the nature and aspirations
of the organisation and develops this conception to lead the organisation towards a better
objective. It must synchronise with the organisation’s principles. The ambition should be rational
and achievable.

Example - Wal-Mart’s vision is to become worldwide leader in retailing.

Vision statement of L&T

L&T employees shall be innovative and the empowered team will constantly create values and
attain global benchmarks.

L&T shall promote a culture of trust and continuous learning. It shall meet the expectations of
employees, stakeholders and society.

(i) Cadbury’s Vision Statement

Our objective is to deliver superior shareholder returns by realizing our vision to the be
the world’s biggest and best confectionery company. We are currently the biggest, and
we have an enduring commitment to become the undisputed best. At the heart of our plan
is our performance scorecard, delivered through our priorities, sustainability
commitments and culture

Cadbury plans to “deliver superior shareholder returns” (Cadbury plc, 2008) by measuring its
financial progress in the areas of growth, efficiency, capabilities and sustainability from 2008 to
2011 (Cadbury plc, 2008).
Mission statement

A mission statement is the extensive definition of the mission of an organisation. It is a concise

description of the existence and fundamental purpose of an organisation. It describes the present
potentials and activities of the organisation. It conveys the purpose of the organisation to its
employees and the public. It is vital for the development and growth of the organisation.

Mission statement is the responsibility by which an organisation aims to serve its stakeholders. It
gives a framework on the operations of the organisation within which the strategies are devised. It
describes the present capabilities, the stakeholders and the reason for existence of an organisation.
The statement distinguishes an organisation from its other competitors by explaining its scope of
activities, technologies, its products and services used to achieve the goals and objectives. It
should be practical and achievable. It should be clear and precise so that the actions can be taken
based on it. It should be unique and different to leave an impact on everyone. It should be
credible so that the stakeholders accept it.

Example -Wal-Mart’s mission is to provide ordinary customers the chance to buy the same thing
as rich people.

Mission statement of IBM

“At IBM, we strive to be the forerunner in inventing, developing and manufacturing most
advanced information technologies, including computer systems, software, storage systems and
microelectronics.”

The distinction between mission statement and vision statement is that the mission statement
focuses on the present position of the organisation and the vision statement focuses on the future
of the organisation.

(ii) Cadbury’s Mission Statement

Cadbury’s mission statement outlines its overall business objective and its commitment to its
customers.

Our core purpose “Working together to create brands people love” captures the spirit of what we
are trying to achieve as a business. We collaborate and work as teams to convert products into
brands.

Core competencies are those skills that are critical for a business to achieve competitive
advantage. These skills enable a business to deliver essential customer benefit like the selection
of a product or service by a customer. Core competency is the key strength of business because it
comprises the essential skills. These are the central areas of expertise of the company where
maximum value is added to its services or products. Example – Infosys has a core competency in
information technology.
It is a unique skill or technology that establishes a distinct customer value. As the organisation
progresses and adapts to the new environment, the core competencies also adjust to the change.
They are not rigid but flexible to advancing time. The organisation makes the maximum
utilisation of the competencies and correlates them to new opportunities in the market. Resources
and capabilities are the building blocks on which an organisation builds and executes a value-
added strategy. The strategy is devised in a manner that an organisation can receive reasonable
profit and attain strategic competitiveness.

Core Competencies are not fixed. They change in response to the transformation in the
environment of the company. They are adaptable and advance over time. As an organisation
progresses and adapts to new circumstances, the core competencies also adapt to the
transformation.

Q. 6. What is SBU? Explain its features, functions and roles. Mention some of the successful
SBU of MNC’s.

Ans. Strategic Business Unit or SBU is understood as a business unit within the overall
corporate identity which is distinguishable from other business because it serves a defined
external market where management can conduct strategic planning in relation to products and
markets. The unique small business unit benefits that a firm aggressively promotes in a consistent
manner. When companies become really large, they are best thought of as being composed of a
number of businesses (or SBUs).Strategic Business Unit (SBU) is necessary when corporation
starts to provide different products and hence, need to follow different strategies.SBUs are also
known as strategy centers, Independent Business Unit or even Strategic Planning Centers.

Strategic Business Unit (SBUs) is necessary when corporation starts to provide different products
and hence, need to follow different strategies. To ease its operation, corporate set different groups
of product/product line regarding the strategy to follow (in terms of competition, prices,
substitutability, style/ quality, and impact of product withdrawal). These strategic groups are
called Strategic Business Units (SBUs).

Each Business Unit must meet the following criteria:

1. Have a unique business mission, independent from other SBUs.

2. Have clearly definable set of competitors.
3. Is able to carry out integrative planning relatively independently of other SBUs.

Should have a Manager authorized and responsible for its operation.

SMU
ASSIGNMENT
 SEMESTER – 4
MB0052

STRATEGIC MANAGEMENT &

BUSINESS POLICY
Set-2
SUBMITTED BY:
GYANENDRA KUMAR
MBA
ROLL NO:-520941253

Q.1 Explain with respect to policies – steps in framing business policy and stages of
policy cycle. Will these help in decision making?

Policy formulation is the process of designing the policy. The major function of designing the
policy relies upon the managers. Policy framing is one of the phases of strategic planning in the
organisation. It is based on the underlying objectives of the organisation. Framing and monitoring
the policy is one of the critical tasks in the organisation.
The process of framing policies consists of the following steps:

— Definition of purpose – The first step towards framing policies includes the process of
identifying the objectives and the philosophy of the organisation. The purpose is to select the
guidelines for measuring the performance based on the organisation’s strengths and weaknesses,
its available resources and the personnel. The basic concept of the business activities is defined in
this phase.

Example – The perception of the garment company is to develop the finest cloth at less cost.
Adding to such a conceptual view, the company must define the purpose in terms of guidelines
needed for measuring the performance and obtaining the desired targets.

— Preparation of strategic intelligence – This step involves analysing the internal environment
of the organisation. The strategic intelligence is the process of detailed description of what the
company is and assessing its sphere of operations. The prediction of the future happenings
including the opportunities and risks must be known because it lays heavy impact on the
company’s position in the market.

— Policy alternatives – Alternating policies must be identified and analysed once the objectives
of the organisation are defined. The managers recognise the problems faced by the organisation
and discover the alternative policies. This step is the central phase of framing a policy. A list of
policy alternatives is generated by considering the probabilities of the problems faced by the
organisation.

Example – Inventory systems in Das n Das Company

The Das n Das Company invested on control systems to avoid taking decisions on the routine
matter regarding the orders, timings of production, etc. In such a situation, many factors are
considered by the top level management to increase the production rate and the size of orders.
Hence meetings are held to discuss the implementation of the policy that suits the best.

The top level management introduced an alternative to the inventory control policy that consisted
of determination and evaluation of various conflicting factors. The policy is adopted to represent
a balance between the internal factors like employees, resources and the production.

— Policy analysis – This step involves analysing the alternative policies and examining its
contribution towards the objectives of the organisation. An alternative policy is based on the
consequences to be faced by the organisation. The elements of policy analysis process include
evaluating the consequences of various alternatives and their effects on the objectives of the
organisation.

— Strategic choice – It is the process of selecting the policies that is best suited for the
organisation. This is done by the top level management. The policies act as guidelines to fulfill
the organisation’s purpose. Establishing the specific policies represents the strategic commitment
towards achieving the objective of organisation.

— Policy review – Policy review is the process to evaluate whether the framed policy is matching
the organisational performance. A periodical review of policies is necessary to maintain the
policies up to date.
This section explained the various steps involved in framing business policies. The next section
defines policy cycle and describes the stages of policy cycle.

Policy cycle is the process of analysing, planning, designing, and implementing the policies in the
organisation. Every organisation typically has high and low level policies. The high level policies
govern the entire company in all circumstances. They mainly deal with the organisation’s needs.
It forms a standard and does not lend procedures. The low level policies deal with a set of specific
circumstances. It helps in creating procedures to govern the organisation in specific situations.

These policies are necessary to govern the organisation. Hence it must be reviewed and reshaped
as the objectives of the organisation changes. The policy cycle is necessary to implement this
process.

Stages of policy cycle

The policy cycle consists of the following stages:

Setting the policy agenda

Policy agenda is the process of describing the sequence of business activities in the organisation
and planning the measures to frame a policy. A list of factors is considered which includes
processes, resources, revenue etc. The top level management organises committee meetings to
discuss these factors and make a detailed planning for framing a policy.

Writing policy

It is the process of drafting the policy for the organisation. The policy is drafted based on the
various factors discussed in the meetings. A separate team under framing business policies is
responsible for writing policies. The policy statements must be clear, concise and easily
implemented in the organisation. The policies are created in such a way that it does not lead to
controversies. The drafted policies adhere to the organisations objectives.

Implementation of policy

The implementation process is necessary to effectively communicate the drafted policies. This
phase makes the policy visible to the employees in the organisation. An environment of
compliance is achieved between the organisation norms and the employees only if the employees
are aware of policies in the organisation. Generally, employees view the policies as restrictions.
Hence, implementing the policies systematically reduces the negative perception of the
employees.

Policy implementation tasks are:

— Policy legitimating – The proposed policy must obtain authenticity from the team
implementing the policy.

— Constituency structure – The policy must be marketed in such a way that it promotes the
relationship between the beneficiaries.
— Resource allocation – The resources that are supporting the implementation of policy must be
acquired or reallocated depending on the implementation of the strategy.

— Organisational design and modification – The existing organisation must be re-engineered or

modified according to the new policy.

— Resource mobilisation – The resources in the organisation must be redirected to provide the
capacity to conduct action as per the implemented policy.

Enforcing policy

Enforcing policy is the process of applying the drafted policies in situations that are in
compliance between the organisation and the employees. The top level management has the clear
responsibility for enforcing the policies. If the employees are found exploiting the policies then
the organisation has powers to impose penalties to the employees. Hence enforcing policies
develops responses to the problems faced in the organisation without hampering the
organisation’s success.

Reviewing the policy

Reviewing the policies is the process of checking whether the policies are matching the business
activities in the organisation. This phase includes re-examining the existing policies. All the
policies must be reviewed on daily basis. If any errors are found that are not compatible to the
organisation’s views then it is reverted to the policy drafting team to re-draft. Reviewing policies
ensures that they reflect the business realities of the moment.

Updating policy

If any changes are made in the process of the business activities then the existing policies also
must be changed. The review team holds the responsibilities of updating policies. If the policies
are not updated then the organisation experiences issues with various factors in the organisation.

enever any business policy is framed, it has to be observed by the decision makers as feasible and
beneficial for the organisation’s growth and success. Just because a policy is in place, it doesn’t
mean that it will help business decisions. Therefore, business policies have to be framed after a
careful scrutiny and then decided whether such policies are needed or not.

Once policies are in place and implemented, it should further help in functional and operational
decisions without causing any ambiguities or delays in procedures. Policies should act as guiding
light to lead the organisation and business strategies in the right path.

A change in policy or amendments done to existing policies should also be considered in decision
making before implementing them. Further, it should not cause any major disruptions in the
internal environment.

Policy making decisions together with strategic decisions must provide clarity, flexibility and
assistance to other business decisions.

Interdependence between policy and strategy

Business policies and business strategies requires compatibility. A policy should not hinder
strategic decisions and in the same way, a strategy should not restrict policy decisions. Both have
to be complementary to each other.

Q.2 Assess the challenges involved in Strategic Management in the near future.

Strategic management includes strategic planning, implementation and review/control of the

strategy of an organization. All most all the modern organizations engage in strategic
management to ensure that they achieve the desired level of performance. But in the modern
business context strategic management faces many challenges such as:

• Orientation for globalization-

Every aspect of the business is getting globalised and business organizations step in to global
operations with MNC and other foreign business operations methods. Due to the globlised
operations of the business world there are new orientations such as international human resource
management (IHRM) and international finance are emerging. Company’s strategic management
process has to be updated to cope up with these new orientations.

• Emerging e-commerce and internet culture-

With the wide expansion of world wide wed (www) and the technology businesses have moved
on to e-commerce where they conduct business electronic means such as online
purchasing/selling and online advertising. Strategic management process of the business should
be able to accommodate e-commerce motives into the business process.

• Cut throat competition-

With the globalization, e-commerce and other changes in the business environment, todays
business world has become hyper competitive where the organization can no longer survive
without executing proper competitive strategy. Strategic management process should generate
competitive intelligence and predict the next moves of the competitors and build
the competitive strategy to win the battle with competitors.

• Diversification-

With the rapid changing business environment and increased uncertainty the business risk
has increased drastically. To diversify the business risk companies now engage in diversified
operations where they focus on more than one business area/industry rather than specializing in
one area. The strategic management should be able to identify diversified business opportunities
and manage them well.

• Active pressure groups-

In the modern world there are active pressure groups operating such as environmental activism
and consumer protectionism. Strategic management should identify these external pressure
groups and hear about their concerns.

• Motive for Corporate Social Responsibility (CSR) and ethics-

The modern business organizations have engage in CSR and ethics to keep up their
corporate reputation and be competitive in the environment. Strategic management should look
into possible CSR activities and implement those to be in line with expectations of the society.

Q.3 Four years back, Pure Ltd. was a newly started company. It deals in designer
fabrics. Its top management comprises mainly of young talented persons. They
would to know to make the company follow ethical codes and practice CSR as the
company moves ahead. They are also interested in meeting its business obligations.
Could you suggest to the management on how to go about it?

Ans. Ethics and corporate social responsibility are essential factors which influences business
undertakings and its functional operations. Business ethics are referred as moral rules and
regulations governing the business world to guide in making effective corporate decisions.

Corporate Social Responsibility (CSR) means operating a business that meets or exceeds the
ethical, legal, commercial and public expectations. CSR focuses in maintaining the effective
business features in an organisation.

Corporate Social Responsibility (CSR) is the continuing obligation of a business to behave

ethically and contribute to the economic development of the organisation. It improves the quality
of life of the organisation. The meaning of CSR has two folds. On one hand, it exhibits the ethical
behaviour that an organisation exhibit towards its internal and external stakeholders. And on the
other hand, it denotes the responsibility of an organisation towards the environment and society in
which it operates. Thus CSR makes a significant contribution towards sustainability and
competitiveness of the organisation.

CSR is effective in number of areas such as human rights, safety at work, consumer protection,
climate protection, caring for the environment, sustainable management of natural resources, and
such other issues. CSR also provides health and safety measures, preserves employee rights and
discourages discrimination at workplace. CSR activities include commitment to product quality,
fair pricing policies, providing correct information to the consumers, resorting to legal assistance
in case of unresolved business problems, so on.

Example – TATA implemented social welfare provisions for its employees since 1945
Business obligations are the ties which bind an organisation to pay or to do something agreeable
by the laws and customs of the country in which the obligation is made. Obligations in terms of
business are the duties of an organisation towards the upliftment of the people and the country.
Organisations also have to essentially take care of the interests of its stakeholders and employees.
A portion of the business profits may be retained back so as to cycle the funds within the
business.

There are various obligations of a business. Following are some of the business obligations in
terms of social, ethical, moral and environmental way:

Social business obligations

The sense of principles and morality regarding social and community issues may be referred to as
the social obligations.

Business is about the relationships with people and community. But in the current world,
businesses follow limited obligation towards social issues. Social responsibility is demonstrated
by the determination of the organisation to treat customers, employees and investors fairly and
honestly. There are several social issues that affect the current business workplace, but ethical
standards play an important role in business decision making in an organisation.

Factors which enhance social business obligations are as follows:

— Implementing punishable act towards corruption or any illegal act in an organisation

— The employer-employee relationships must be stable.

— Although an organisation might succeed, but it must respect ethical values, people and
community.

— The quality and loyalty of company’s workforce must not change

— The higher officials must possess the following qualities like honesty, responsibility,
consistency, dignity etc.

Example – The reasons for the death of employees who inhale fumes from chemical spill in a
factory is the negligence of social obligation that failed to provide safety and security for its
employees.

Moral business obligations

Moral obligation is a responsibility of balancing various needs of an individual by accurate

understanding of the right or wrong actions using the acquired knowledge by an organisation.
Moral responsibility is based on the relationships among friends, neighbours, co-workers and
family members. The vital components of moral responsibility are deeply rooted in the structure
of every society and are a part of social life.

Wars, gang violence, toxic waste spills, corporate fraud, manufacture of unsafe and defective
products, failure of legislative bodies, financial waste by governmental agenciesc are the
outcomes of poor moral obligations of an organisation.

Collective moral responsibility of a business deals with appropriate arrangements of the

widespread harm and misconduct by different groups.

Example – The emergence of HIV infection and AIDS has refocused the interest of moral
obligations in preventing the transmission of such communicable disease by the medical institutes
of the nation.

Ethical business obligations

In the time of rapid technological and social change, a business organisation must help their
employees to develop a new understanding of ethical values. Many ethical conflicts have arisen
around the business world in the past. An organisation has certain responsibility towards reducing
unethical issues. Example – Worldwide inequality of income can result in unethical practices
such as the child labour; monopoly suppliers can exploit the consumers, etc.

Building ethical obligations in an organisation is highly significant for a business. A company

owes an ethical obligation to the individuals and groups who are responsible for the success of
the company. There are four groups of people who are generally responsible for the success of a
business. It includes employees, customers, community and shareholders.

Ethical obligations in an organisation include the following ethical duties with different values,
assumptions and social constructions of the employment relationship.

Example – Infosys has developed its corporate social responsibility by establishing social
rehabilitation and rural upliftment programme, educational system upliftment programme, etc.
The company could fulfill its CSR due to its ethical obligations.

Q.4. What is BCP? Discuss its importance and influence on strategic management.
How contingency planning is related to BCP?
Business continuity plan (BCP) is a process followed by an organisation to survive in an event
that causes disruption to normal business processes. BCP not only includes major disasters (e.g.
loss of a building due to natural calamities, fire accident etc) but also routine interruption (e.g.
hard disk crash due to virus, major power interruption etc).In such cases BCP ensures that critical
operations continue to be available.

document containing the recovery timeline methodology, test-validated documentation,

procedures, and action instructions developed specifically for use in restoring organisation
operations in the event of a declared disaster. To be effective, most Business Continuity Plans
also require testing, skilled personnel, access to vital records, and alternate recovery resources
including facilities”.

BCP is a collection of procedures which is developed, recorded and maintained in readiness for
use in the event of an emergency or disaster.

Every organisation is at risk due to natural disasters like flooding, hurricanes or earthquakes, or
any common causes of systems disasters. Sometimes it can also be due to human interference like
hacking or virus attack. Business Continuity Planning is important to the continued success of an
organisation. They are critical for the continuous operations in all types of businesses. Every
company needs a detailed contingency plan that ensures continuous business operations in case of
any unforeseen, difficult or catastrophic event occurs. Recently most of the organisations rely on
technology to do business and give more importance to IT and communication services. They
become highly vulnerable to loss of information and service a result of catastrophe.

BCP is very important due to the following reasons:

— Advanced planning

— Threats

Advanced planning

Many companies have realised that it is not sufficient to implement a generic BCP. For an
efficient response, with respect to continuous operations, it must adopt to specific risks and
catastrophic situations which could range from major building loss to local system failure.

Organisations must plan for the recovery of critical business functions, using priorities and
timescales that were obtained from assessed risks and accompanying data. BCP must cover the
requirements of IT, data and voice communications as well as of essential personnel and offsite
locations. In today’s scenario, it is no longer sufficient for an organisation to recover its
technology and communications infrastructure but it must also have accessible people and
accommodations in which they can work.

Threats

Natural disasters are not the only threats to a business operation. Corporate espionage organised
crime, hacking, whacking packet sniffing etc are some of the man-made disasters. Hackers could
destabilise an organisation’s entire operation. To respond to this threat, it is important to use
results generated from risk analysis and management activity to undertake focused, organisation-
specific security testing, including vulnerability assessment and penetration testing of the network
infrastructure.

Where an event causes a company to close down its entire network, it is critical to ensure that
employees and other users still get access to their data and applications as quickly and securely as
possible. To accomplish this, companies can organise various information management solutions
by implementing network management procedures.

In spite of giving attention to Business Continuity Planning following recent terrorist activities,
organisations are still failing to put strategic contingency plans in place. Gartner, an analyst firm
estimates that only 35% of the organisations have a comprehensive disaster recovery plan in
place and fewer than 10% have crisis management, contingency, business recovery and business
resumption plans. This is an alarming statistic.

Example for corporate espionage and organised crime – An employee of Ellery Systems Inc.
resigned and took the computer software codes with him. The codes had a potential market value
of billion dollars. As they didn’t implement BCP, Ellery systems went out of business and its
employees lost their jobs. Millions of dollars invested and many years of hard work were lost.

Contingency planning is a planning strategy that deals with uncertainty by identifying specific
responses to possible future conditions. Contingency planning realises that future is impossible to
predict, so it is best to have a variety of flexible and responsive solutions available. It is an
alternative course of action that can be implemented in the event when a primary approach fails to
function as it should. Contingency plans allow the businesses and other entities to quickly adapt
to the changing circumstances.

Concepts

Contingency plans are developed by identifying possible failure in the usual flow of operations
and strategies. Contingency plans should overcome these failures and continue with the functions
of the organisation. Organisations create contingency plans to achieve the objectives that are
listed below:

— Day to day operations of the organisation continue without a great deal of interruption or
interference.

— Backup plan is capable of remaining functional as long as it takes to restore primary plan.

— Emergency plan minimizes inconvenience to customers, allowing the organisation to continue

providing good and services.

Implementation
Contingency plans can be practically applied to any level of organisation as a part of planning
process. It involves the following steps:

— Identify the objectives and targets

— Identify various strategies that help to achieve objectives and targets.

— Evaluate the costs and benefits of each strategy, and rank them according to cost-effectiveness
or benefit/cost ratios. The ranking can take other significant factors into account such as
implementation and other additional benefits.

— Implement the required strategies to achieve the targets. It generally starts with the most cost
effective and easy to implement strategies, and working down the list to more costly and difficult
strategies.

— After they are implemented, assess the programs and strategies with regard to various
performance measures, to ensure that they are effective.

— Evaluate overall results with regard to targets to decide if the additional strategies should be
implemented.

Contingency plans can be practically applied to any level of organisation as a part of planning
process. It involves the following steps:

— Identify the objectives and targets

— Identify various strategies that help to achieve objectives and targets.

— Evaluate the costs and benefits of each strategy, and rank them according to cost-effectiveness
or benefit/cost ratios. The ranking can take other significant factors into account such as
implementation and other additional benefits.

— Implement the required strategies to achieve the targets. It generally starts with the most cost
effective and easy to implement strategies, and working down the list to more costly and difficult
strategies.

— After they are implemented, assess the programs and strategies with regard to various
performance measures, to ensure that they are effective.

— Evaluate overall results with regard to targets to decide if the additional strategies should be
implemented.

Q. 5 Mention any 5 successful strategic alliances and discuss the key aspects
concerned with it. What kinds of problems were faced by companies that were
involved in these strategic alliances?
Joint venture

Joint venture is the most powerful business concept that has the ability to pool two or more
organisations in one project to achieve a common goal. In a joint venture, both the organisations
invest on the resources like money, time and skills to achieve the objectives. Joint venture has
been the hallmark for most successful organisations in the world. An individual partner in joint
venture may offer time and services whereas the other focuses on investments. This pools the
resources among the organisations and helps each other in achieving the objectives. An
agreement is formed between the two parties and the nature of agreement is truly beneficial with
huge rewards such that the profits are shared by both the organisations.

Merger is the process of combining two or more organisations to form a single organisation and
achieve greater efficiencies of scale and productivity. The main reason to involve into mergers is
to join with other company and reap the rewards obtained by the combined strengths of two
organisations. A smart organisation’s merger helps to enter into new markets, acquire more
customers, and excel among the competitors in the market. The participating organisation can
help the active partner in acquiring products, distribution channel, technical knowledge,
infrastructure to drive into new levels of success.

Collaborations and co-branding

Collaboration is the process of cooperative agreement of two or more organisations which may or
may not have previous relationship of working together to achieve a common goal. It is the
beginning to pool resources like knowledge, experience and sharing skills of team members to
effectively contribute to the development of a product rather working on narrow tasks as an
individual team member in support to the development. Such collaborations are the foundation
for concepts like concurrent engineering or integrated product development.

Collaboration is a win-win methodology. It means that both the organisations insist upon each
other to gain equal profits with no negative attitude of acquiring each other’s possessions.

Effective collaboration can be obtained by the following actions:

The organisations must get involve in the process from the beginning and avail the necessary
resources for collaboration.

— The work culture in the organisation must encourage teamwork, cooperation and
collaboration.

— There must be effective team work and cooperation among the employees of both the
organisations to achieve the goal.
— Systematic approach of product development process must be based on sharing of
information, technology etc.

Co-branding involves the process of combining two or more brands into a single product or
service. It is becoming a positive way to associate different brands and develop a strong brand in
the market. It creates synergy among the various brands. An organised co-branding strategy leads
the co brand partners to a win-win situation and helps in realising large demands in the market.

The co-branding agreement includes the important aspects such as rights, obligations, and
restrictions that are abiding to both the organisations. It also includes important provisions and
the needs must be carefully drafted to provide clear guidelines to the involved organisations. The
organisations form co-branding to accomplish many goals which include expansion of customers,
obtain financial benefits, respond to the needs of customers, strengthening its competitive
position, introducing new product with strong image and to gain operational benefits.

It is more frequently used in the field of fashion and apparels. It can also be used for promoting
campaigns, using cartoons on T-shirts, logos, distributing through branded retailer etc.

Example – The sportswear giant Nike formed co-branding agreements with Philips consumer
electronic products. The Philips electronic products will contain Nike’s logos and it is mainly
marketed in United States since the market share of Philips is not much impressive. The newly
introduced digital audio player and portable CD players of Philips will be unveiled with the Nike
logo to enhance profits in the market share in United States.

Technological partnering

It is the process of associating the technologies of two different companies to achieve a common
goal. The two organisations work as co-owners in business and share the profits and losses. The
technologies of individual organisations are shared to achieve desired outcome. The required
resources like knowledge, machinery, and expertise are collaborated between the organisations.

Example – The software giant, Infosys Technologies Ltd. has entered into partnership with US
based NVIDIA, GPU inventor and the world’s visual technologies giant. The purpose of this
partnering is to develop NVIDIA CUDA (Compute Unified Device Architecture). This
technology is viewed as the next big revolution in the field of technology in lending high
performance in computing. The software helps the developers of various applications to tap into
the previously uncultivated power of the GPU. This will enable certain applications to achieve
high performance. The capacity of CUDA is expected to multiply fifty times the performance of
existing computing and reduce the run time to advance the user enterprise.

Contractual agreements

It is the process of agreement with specific terms between two or more organisations which
guarantee in performing a specific task in return for a valuable benefit. The contractual agreement
is the heart of business dealings. It is the most significant areas of legal concern and involves
variations in certain situations and complexities.

The organisations require analysing fundamental factors before involving in contractual

agreements.

The elements to be analysed are:

— It is necessary to identify the type of offer being laid by the organisation to make an
agreement.

— The acceptance of the information involved in offer which results in meeting the market
needs.

— The organisations are required to recognise the strong commitment towards the contractual
agreement.

— Systematic scheduling of the process involved in manufacturing product without any

hindrances to both the organisations.

— Discover the terms and conditions for manufacturing the product and the guarantee of the
organisations in fulfilling it.

The contract agreement includes several documents such as letters, orders, offers and
counteroffers.

There are various types of contractual agreements. They are:

— Conditional – It is based on occurrence of an event.

— Joint and several – The organisations promise to perform together but still they possess
individual responsibilities.

— Implied – The judicial court will determine the contract between the organisations based on
circumstances. The parties will be able to buy all manufactured products, enter into a contract to
supply other’s requirements, or renewal of the existing contract.

Problems Involved in Strategic Alliances

There are numerous problems related to strategic alliances. Some of them are:

— One of the organizations suffers benefits due to incoherent goals

— Lack of trust between the organizations lead to poor performance in achieving the desired goal
— The existence of conflicts between the organizations’ due to internal issues like personnel and
resources causes problem to the strategic alliance

— Lack of commitment between the organizations leads to termination of the alliance contract

— Many organizations experience the risk of sharing too much knowledge with the partner
organization to become a competitor

— Reduces the possibility of future opportunities of getting into agreement with partner’s
competitors

Q. 6 Give a note on strategic evaluation and strategic control. (10 marks)

The core aim of strategic management succeeds only if it generates a positive outcome. Strategic
evaluation and control consists of data and reports about the performance of the organisation.
Improper analysis, planning or implementation of the strategies will result in negative
performance of the organisation. The top management needs to be updated about the performance
to take corrective actions for controlling the undesired performance.

All strategies are subject to constant modifications as the internal and external factors influencing
a strategy change constantly. It is essential for the strategist to constantly evaluate the
performance of the strategies on a timely basis. Strategic evaluation and control ensures that the
organisation is implementing the relevant strategy to reach its objectives. It compares the current
performance with the desired results and if necessary, provides feedback to the management to
take corrective measures.

Strategic evaluation consists of performance and activity reports. If performance results are
beyond the tolerance range, new implementation procedures are introduced. One of the obstacles
to effective strategic control is the difficulty in developing appropriate measures for important
activities. Strategic control stimulates the strategic managers to investigate the use of strategic
planning and implementation. After the evaluation, the manager will have knowledge about the
cause of the problem and the corrective actions.

The strategic-evaluation process with constantly updated corrective actions results in significant
and long-lasting consequences. Strategy evaluation is vital to an organisation’s well-being as
timely evaluations can alert the management about potential problems before the situation
becomes critical. Successful strategists combine patience with a willingness to take corrective
actions promptly, when necessary.

Strategic control is established to focus on the resources used in the performance (input),
activities that generate the performance (behaviour) and the result of actual performance (output).
Strategic control involves tracking the strategy as it is being planned, implemented and take
necessary actions when it indicates any negative performance.

 Control is taking measures that synchronize outcomes as closely as possible with plans
 Traditionally, has been almost completely based on financial performance
 Hence, top internal accounting officer became the “In Charge” official for organization
control policies and procedures
 What do we call the chief accounting officer of an organization?
 Answer: The Controller
– Financial Information was primary source
– Rewarded Efficiency
– Encouraged Dysfunctional Behavior