MB0052 - Strategic Management and Business Policy

MB0052 - Strategic Management and Business Policy
Q1. Describe the role of five major participants in the Strategic Management Process (SMP)
of a company.
Ans:
The major five participants in SMP are:
1. Board of directors
2. Chief Executive Officer (CEO)
3. Corporate planning staf
4. Other managers
5. Consultants
Role of Board of Directors:

In any organizational hierarchy, the board of directors is the apex/highest level body. The
board is the final authority in managing the affairs of a company, strategic or non-strategic.
They perform these functions according to or subject to the memorandum of association and
articles of association of the company. The role of a board member depends on his (her)
degree of involvement in the strategic process; and the degree of involvement of a member
depends partly on the management philosophy of a company and partly on the interest a
particular board member takes in the affairs of the company. The levels of involvement and,
therefore, the roles of the board members can vary widely.
Wheelan and Hunger have analysed the role of board members in terms of a continuum as
shown below
Between the passive boards and the extraordinarily participative ones, there are boards which
are more common in companies. These boards play a balancing role between the strategy
making process in the companies and the shareholders. Major strategic functions performed by
these boards are:
1.
2.
3.
4.
5.
6.
Approval of the corporate budget and resource allocation for strategic investments
Periodic review of the strategic planning process
Monitoring the chief executives role in the strategic management process
Triggering discussion on growth possibilities and alternatives
Guiding the chief executive in formulating organization-level strategies
Review of strategy implementation with respect to results or profitability
Role of Chief Executive:

The chief executive plays the most important role in the strategic management process of a
company. Major management functions of a chief executive, however, can be broadly divided
into two categories; strategic and non-strategic. Every chief executive should clearly distinguish
between his/her strategic functions and non-strategic or operational functions so that he can
appropriately allocate his time and concentrate more on strategic functions. Strategic and nonstrategic functions of a chief executive in selected basic organizational areas are given below
Role of Corporate Planning Staf
The corporate planning division performs various functions mostly of a strategic nature. Major
functions of the corporate planning staf may be summarized as follows:
1. Assisting the chief executive in developing and formalizing fundamental concepts or
divisions about organizational growth and diversification.
2. Scanning the environment and identifying new business opportunities.
3. Analyzing cost benefits of alternative investment opportunities and allocating resources
to various activities/projects.
4. Integrating SBU plans (and, sometimes, also functional plans) into corporate plans.
5. Monitoring progress of strategic plans at corporate level, SBU level and functional levels.
6. Undertaking mid-term review of plans and strategies and, suggesting changes, if and
when necessary.
7. Evaluating plan performancemeasuring the degree of success (or failure) of strategic
plans and reporting to the chief executive for any necessary action.
Role of Senior Managers

The senior managers, also play an important role in the strategic management process of a
company. The senior managers include SBU heads and also functional heads. Some of these
heads are at the level of directors who are represented on the board. The senior managers are
members of diferent management committees, including top management committees which
are involved in strategic planning and management. Some of these committees consider and
evaluate proposals for new investment, restructuring, diversification, etc. In all these committees
some corporate planning staf members are also represented.
Role of Consultants
Management consultants can play very useful roles in the strategic planning process of a
company. Consultants render services in diferent functional areas of management including the
strategic planning and management process. In companies with no separate planning division
or unit, consultants can fill that gap. They can undertake planning and strategy exercises as and
when the company management feels the need for such exercises or consultancies. Even in
companies with a corporate planning division/unit, consultants may provide specialized inputs or
insights into identified management or strategy areas.
Consultants, sometimes have a difficult or delicate role to play. In many companies, a situation
develops when the chief executive or the top management needs to bank upon the support of
an external agency like a consultant to push through a strategic change in the organizational
structure or management system of the company.
Q2.Differentiate between mission and vision of a company? Explain with examples.
Ans:
Mission and Vision
Sometimes, mission and vision of a company are used synonymously or interchangeably. This
is not correct. A clear distinction exists between the two. Mission is concerned more with the
present; the vision more with the future.
The mission statement answers the question: What is our business?
The vision statement answers the question: What do we want to become or, which way should
we be going?
The mission statement focusses on the present strategic thrust, while the vision statement
outlines the strategic path. All visionary companies have a vision statement. The vision of
Microsoft (since 1999) has been to broad base its outlook to empower people through great
software anytime, anywhere and on any device including the PC and an incredibly rich variety of
digital devices accessing the power of the Internet .Most progressive companies develop both a
mission statement and a vision statement. Indian Oil Corporation (IOC) is a good example.
Vision and mission statements of IOC are:
Vision: Indian Oil aims to achieve international standards of excellence in all aspects of
energy and diversified business with focus on customer delight through quality products and
services.
Mission: Maintaining national leadership in oil refining, marketing and pipeline
transportation.
Vision and mission statements can be generally found in the beginning of annual reports of
companies. These statements are also seen in the corporate or long-term strategic plans of
companies. These also appear in many company reports or documents like customer service
agreements, loan requests, labour relations contracts, etc. Many companies also display them
at prominent points or locations in company premises.
5.4.2 Mission Statements of Some Companies

Mission statements of individual companies vary widely. We give below, as examples, mission
statements of two Indian companiesTata Steel and Hero Honda Motorsand, two US
companiesPepsico and Dell computer. All these companies are in diferent kinds of business.
Tata Iron and Steel Company (TISCO)
The fundamental mission of TISCO (Tata Iron and Steel Company Limited; now Tata Steel) is to
strengthen Indias industrial base through increased productivity, efective utilization of
manpower and material resources, and continued application of modern scientific managerial
methods as well as through systematic growth in keeping with the national aspirations. The
company recognizes that while honesty and integrity are the essential ingredients of a strong
and stable enterprise, profitability provides the main spark for economic activity. It affirms its
faith in democratic values and in the importance of success of individuals, collective and
corporate enterprise for the emancipation and prosperity of the country. Guided by its basic
philosophy, the company believes in discharging its responsibility towards shareholders,
employees, customers and the community.
Hero Honda Motors

It is our mission to strive for synergy between technology, systems and human resources to
produce products and services that meet the quality, performance and price aspirations of our
customers. While doing so, we maintain the highest standards of ethics and societal
responsibilities. This mission is what drives us to new heights in excellence and helps us to
forge a unique and mutually beneficial relationship with all our stakeholders. We are committed
to moving ahead resolutely on this path.
Pepsico
Pepsicos mission is to increase the value of our shareholders investment. We do this through
sales growth, cost controls and wise investment resources. We believe our commercial success
depends upon ofering quality and value to our consumers and customers; providing products
that are safe, wholesome, economically efficient and environmentally sound and, providing a fair
return to our investors while adhering to the highest standards of integrity.
Dell Computer
Dell Computers mission is to be the most successful computer company in the world at
delivering the best customer experience in markets we serve. In doing so, Dell will meet
customer expectations of the highest quality with leading technology, competitive pricing,
individual and company accountability, best-in class service and support, flexible customization
capability, superior corporate citizenship and financial stability.
Q3: Explain in detail Porters four generic strategies.
Ans:
Porters Four Generic Strategies: Porter (1985) evolved the theory that there are
four generic strategic options available to companies.
These are:
Cost leadership
Focused cost leadership
Diferentiation
Focused diferentiation
Porters theory is based on the concepts of niche marketing and mass marketing and product
proposition to be ofered by diferent companies. Two dimensions of the strategy analysis are
market coverage and basis of product performance. Porters theory or the strategy option matrix
is shown in Figure 8.3.
Cost leadership strategy is based on exploiting some aspects of the production process,
which can be executed at a cost significantly lower than that of competitors. There can be
various sources of this cost advantage: i.e lower input costs, (e.g., the price paid by New
Zealand timber mills for the logs produced by the countrys highly efficient forestry industry or
cheap source of high quality bauxite for National Aluminum Company (NALCO) in India from its
mines); ii. in-plant production costs, (e.g., lower labor costs enjoyed by Japanese companies
locating their video assembly operations in Thailand); iii. lower delivery cost because of
proximity of key markets, (e.g., the practice of major beer producers in Europe to locate microbreweries in or around major metropolitan cities).
Focused cost leadership exploits the same advantages as in cost leadership strategy, but
the company occupies a specific niche or niches serving only a part of the total market. For
example horticulture enterprise, which operates an onsite farm shop, ofers low-priced fresh
vegetables to the inhabitants in the immediate neighborhood area.
Porter has mentioned that cost leadership and focused cost leadership represent a low scale
advantage because it is quite likely that eventually a companys capabilities will be eroded by
rising costs (labour cost in particular) or its market position will be challenged by an even lower
cost producer of goods, (e.g., Russias post-Perestroika entry in the world arms market ofering
extremely competitive prices).
Diferentiation strategy is based on ofering superior performance, and Porter argues that
this is a high scale advantage because, first, the producer can usually command a premium
price for its product and, second, competitors are less of a threat, because to be successful,
they must be able to ofer an even higher performance product.
Focused diferentiation, which is typically a strategy of smaller and most specialist
companies, is also based on superior performance. The only diference is that in this strategy, a
company specializes in serving the needs of a specific market or markets.
Q4. Differentiate between core competence and distinctive competence

Ans:
Core Competence
Core competence of a company is one of its special or unique internal competence. Core
competence is not just a single strength or skill or capability of a company; it is interwoven
resources, technology and skill or synergy culminating into a special or core competence. Core
competence gives a company a clear competitive advantage over its competitors.
Sony has a core competence in miniaturization;
Xeroxs core competence is in photocopying;
Canons core competence lies in optics, imaging and laser control;
Hondas core competence is in engines (for cars and motorcycles);
3Ms core competence is in sticky tape technology;
JVCs in video tape technology;
ITCs in tobacco and cigarettes and
Godrejs in locks and storewels.
Distinctive Competence
Core competence may not be enough, because it focuses predominantly on the product or
process and technology, or, as Hamel and Prahalad put it; The combination of individual
technologies and production skills. There are two problems with this. First, strong and
aggressive competitors may develop, either through parallel innovations or imitations, similar
products or processes which are highly competitive. This is what Japanese companies have
done in the fields of electronics and automobiles, and now South Korea is doing to Japanese
electronics; IBMs core computer technology is also facing the same problem. Second, to secure
competitive advantage, only product, process or technology or technological innovation may not
be enough; this has to be amply supported by special capabilities in the related vital areas like
resource or financial management, cost management, marketing, logistics, etc.
Hamel and Prahalad themselves have said later (1994):
We have to look at the organization as a portfolio of competencies, of underlying strengths, and,
not just a portfolio and business unit. We must also identify those core competencies that would
allow us to create new products; and we must ask ourselves what we can leverage as we move
into the future, and what we can do that other companies might find difficult.
Distinctive competences may provide an answer to some of these points. Distinctive
competence is based on the assumption that there are diferent alternative ways to secure
competitive advantage and not only special technical and production expertise as emphasized
by core competence.
Distinctive competence includes core competence as one of the alternatives. But, there are
other alternatives that are also based on organizational capabilities. So, distinctive competence
is more broad based.
Thompson and Strickland (1992) have defined distinctive competence as: Distinctive
competence is the unique capability that helps an organization in capitalizing upon a particular
opportunity; the competitive edge it may give a firm in the marketplace.
So, the focus in distinctive competence is on exploiting a market opportunity. And, depending on
the market or competitive situation, one or some of the alternative competences may work; for
example, product or process superiority (core competence), product diferentiation (situational or
adaptability), cost efectiveness or cost efficiency to support a price strategy, special capability in
marketing or distribution, etc. Under given circumstances, one of these, or a combination of
some of these, will produce a distinctive competence which would be appropriate or best suited
to exploit the opportunity and produce desired results. Since resources are limited, identification
of distinctive competence may also help efficient allocation of resources.
Q5: Define the term industry. List the types of industries. How do you conduct an industry
analysis?
Ans:
Definition of Industry
An industry can be broadly defined as the group of firms producing products that are close
substitutes for each other.1 There is, however, a great deal of controversy over an appropriate
definition of industry. The debate or controversy mostly centers around how close
substitutability needs to be in terms of product, process or geographic market boundaries
Definition of an industry should not be thought to be same as definition of the business in
which a company wants to compete. Industry may be broadly defined or narrowly defined. If
industry is broadly defined, it does not follow that business should also be broadly defined
without focus.
These are important ways of looking at the structure of an industry. Based on such factors,
various industries can be broadly classified into five categories according to Porter:
1. Fragmented industry
2. Emerging industry
3. Mature industry
4. Declining industry
5. Global industry
Fragmented industry
As fragmented industry is characterized by the existence of a large number of small and
medium units, and, no single company has any significant market share, and, none of these
units can individually afect the market or industry outcome. The uniqueness of a fragmented
industry is the absence of any market leader, and, typically, the market share of the largest unit
does not exceed 10 per cent.
Fragmented industries are common in certain sectors of the economy including services,
retailing, distribution and agricultural products. Fragmented industries in some of these sectors
are characterized by product diferentiation, whereas undiferentiated products more commonly
exist in fragmented industries in other sectors. For example, computer software, television
network/ program and fast food industries are characterized by products or services which are
diferentiated; but, agricultural produce, ATMs, dry cleaning, etc., essentially involve
undiferentiated products. Fragmented industries also vary widely in technological sophistication
ranging from high technology operations like solar heating to non-technological activities like
retailing and distribution.
Emerging industry
An emerging industry is a developing or newly formed industry in which market for products
initially exists in latent form, and, becomes visible later. An emerging industry may be created by
technological innovations, new consumers or industrial needs for economic or sociological
changes which create the environment or potential market for a new product or service.
Emerging industries are being created all the time; or, to put it in other words, most of the
existing industries today were emerging industries at some point of time or the other. Examples
are word processors, photocopiers, computers, VCR/VCP, CTV, etc. Diferent emerging
industries may have diferent structuresstructural details always vary. But, most of the
emerging industries exhibit some common structural characteristics.
Mature industry
A mature industry is one which has passed through transition from period of fast growth to
more modest or stable growth. Maturity is an important or critical phase in the industry life cycle.
During this period, fundamental changes often take place in the competitive environment, and,
companies are usually faced with difficult strategic decisions for survival and growth because
competition becomes very intense. Industry maturity, in some cases, may be delayed or
postponed because of innovations or other events or developments including environmental
changes. This would mean prolonging the industry growth cycle or the transition to maturity.
Transition to maturity is associated with important changes in the industry structure and
competitive environment. Industry maturity is characterized by new trends or tendencies for
change. Porter (1980) has identified and analyzed nine such trends or tendencies.
Declining industry
A declining industry is one with negative growth, that is, an industry which has registered
absolute decline in sales over a sustained period of time. Such decline in sales is not because
of business cycles or any other short-term factors like strike, lockouts or material shortages.
Therefore, a declining industry does not represent a short-term discontinuity, but, a trend
expressed in falling industry output, sales, profitability and dwindling number of competitors. In
industry life cycle, decline follows maturity. Decline sets in generally because of product
obsolescence or emergence of a strong substitute product. For example, demand for oil-based
laundry soaps for cloth washing declined fast because of introduction of synthetic washing
materials. In-depth study of a wide cross-section of declining industries shows that industry
reactions and the nature of competition during decline vary markedly. Some industries age
gracefully; these industries have avoided losses by exiting either before the decline or in time
during the decline. Many other industries in similar situations have got involved in bitter
marketing warfare, prolonged excess capacity and heavy operating losses.
Global industry
In global industry, the strategic position of companies in diferent countries or national markets
are governed by their overall global positions. For example, IBMs strategic position in competing
for computer sales in France and Germany has improved significantly because of technology
and marketing skills developed in other countries, and a worldwide manufacturing system which
is well coordinated. To be called a global industry, an industrys economics and competitors in
diferent national markets should be considered jointly rather than individually. Distinction should
be made between an international industry and a global industry. An industry in a country may
be international if it comprises a number of multinational companies. But, industries with
multinational competitors are not necessarily global industries. To be a global industry, as
explained above about IBM, an industry should have multi-locational manufacturing facilities,
and, compete worldwide to secure global synergy or competitive advantage.
Q6. What is meant by structure of an organisation? Describe the five major structural types
or forms of an organisation
Ans:
Structure of an Organization
Structure of an organization defines the levels and roles of management in a hierarchical

way. One can also say that an organizational structure spells out the way tasks, functions and
responsibilities are allocated for implementing a policy or strategy. These also imply that an
organizational structure facilitates or constrains how processes and relationships work. An
organizational structure is presented through the organizational chart. The organizational chart,
however, is only a visual expression of the tasks, functions responsibilities, and the links and
hierarchies among them. The structure goes beyond the visible chart and signifies the
mechanism through which an organization works.
Major structural types or forms are mentioned below:
1. Entrepreneurial Structure
2. Functional Structure
3. Divisional Structure
4. SBU Structure
5. Matrix Structure
6. Project-based Structure
Entrepreneurial Structure
This is the most elementary form of structure. The entrepreneurial structure represents an
organization which is owned and managed by a single individual the entrepreneur. Some call
it a simple structure and contend that this is no formal structure at all. 3 Organizations with such
structures are typically single business product or service companies which cater to local or
regional markets.
This is the way most small businesses operate. The owner-entrepreneur assumes/discharges
most of the responsibilities of management with some manager(s)/staf assisting him/her. The
manager(s)/staf hardly exercise any authority and there is no or very little division of
management responsibilities
Advantages:
1. Decision making, including strategic decisions, is fast.
2. This also implies prompt and timely response to environmental changes.
3. Implementation also would be fast because authority is vested in one person and is fully
centralized.
4. Informality also is an advantage because the structure is free of procedures which often
slow down matters.
Disadvantages:
1. Excessive reliance on the owner-entrepreneur.
2. There may be too much demand on the time of the entrepreneur; this may result in
his/her devoting disproportionately more time to day-to-day operational matters and
paying less attention to important strategic decisions.
3. Carries the bias of a single individual into corporate decisions because there are no
checks and balances in the system.
Functional Structure
A functional structure is based on diferentiation and allocation of primary functions such as
production, marketing, finance, and HR along with certain delegation of powers. Each of these
functions is headed by a general manager or director usually at board level. Other important
functions or activities like public relations and legal may be directly under the charge of CEO or
MD. The functional structure is most commonly used by medium and large organizations with
narrow or limited product range.
Advantages
1. The functional structure can lead to efficiency by focusing on functional specialization.
2. Allocation of work or job responsibilities also is clear and straightforward.
3. All operational matters can be delegated to the functional groups so that the top
management/CEO can concentrate more on corporate-level strategies.
4. The functional structure also signifies that specialists are managing tasks and
responsibilities at senior-and middle management levels.
5. The CEO is in touch with all functions/operations through functional heads.
6. This also reduces or simplifies the control mechanism.
Disadvantages:
1. Coordination among diferent functions becomes difficult
2. This structure can also lead to functional conflicts, particularly between line and staf
functions.
3. Functional specialization may also lead to narrow specification and
compartmentalization which may afect organizational efficiency and growth prospects.
4. Because of functional groupings and allocations, senior managers may often be
burdened with operational or routine matters and may neglect strategic issues.
Divisional Structure
A divisional structure also called multidivisional structure consists of separate divisions
constituted on the basis of products, services or geographical areas. Need for a divisional
structure arises primarily because of inadequacy of a simple functional structure to deal with the
complexities of business as an organization grows very large. The more common form of
divisionalization is on the basis of product or business. Divisionalization gives focus on diferent
divisions with separate product/market strategies. The divisional structure, however, does not do
away with the functional structure.
Advantages
1. It enables concentration on major business areas of an organization, that is products
(product-based divisions) and/or markets (geographic divisions).
2. Since, the divisional functions are directly under the control of the divisional head,
coordination and management of intra-divisional operations become easy, and this
contributes to functional and operational efficiency.
3. Enables quick response to environmental changes in matters afecting the divisions
business.
4. The structure also gives enough time to top management for concentrating on strategic
issues.
Disadvantages:
1. There is a possibility of confusion over authority and responsibility in terms of
centralization [top management/CEO and decentralization (divisions)].
2. There is the possibility of conflicts among the divisions because of diferences in interest,
objectives and priorities.
3. There is also the issue of intra-divisional trading (and pricing policy) because some
division may be the input supplier to some other division.
4. If there are too many divisions, complexity of coordination and, also of cooperation is
likely to arise.
SBU Structure:
Divisions closely approximate strategic business units (SBUs) in all large multi business
organizations. The fundamental factor in the SBU structure is to identify independent
product/market segment which requires distinct strategies. Each of these product/market
segments also face a diferent environment, and, therefore, more is the need for separate
strategies. In many companies, particularly in the public sector, the earlier divisional structure
has been replaced by an SBU structure to give more focus on individual business and clearly
define the role of corporate parents. Some strategic analysts feel that creation of divisions,
which closely match SBUs may be difficult in practice due to size and efficiency factors because
there may have to be too many divisions.
Advantages:
1. SBU structure is an improvement over the divisional structure.
2. The structure facilitates strategic management of large and diverse organizations
through SBUs.
3. Because of clear strategic focus, the structure enables assessment/measurement of
performance of individual SBUs.
4. This also makes possible fixing of responsibility and clear accountability at the level of
business units on the basis of performance and strategic positions of diferent
businesses.
5. It is also possible or easy to add a new business with high potential and divest
unprofitable ones.
Disadvantages:
1. Efective management of all the units simultaneously may become a problem for the
corporate organization.
2. There may be problems of defining autonomy of the SBUs and striking a proper balance
between SBU autonomy and corporate parenting.
3. As in the case of divisions, issues/problems of inter-SBU trading exists including pricing
and profit policies.
4. With diverse SBUs, conflicts of interests among units are quite likely and the larger the
number of SBUs, higher are the chances of such conflicts.
Matrix Structure:
A matrix structure is a need-based or project-based structure which does not follow the
conventional lines of hierarchy or control. We can call it a combination structure combination of
diferent divisions or functions designed to form a project team for launching a new product,
development of a new market or geographical operations. In the matrix structure, a project
manager is appointed to coordinate and manage project activities. Functional/specialist
resources are drawn from diferent divisions/functional areas to constitute the project team. The
members of the team have dual responsibility and authority one is project responsibility and
authority and the other their line responsibility and authority in terms of hierarchy and
command. Every matrix structure usually has a defined duration, that is, the project period. After
the completion of the project, the managers go back to their respective divisions/functional
areas. Matrix structures need not be adopted only by very large complex organizations; these
can be used by many professional organizations, like construction companies, consultancy
organizations, etc. Multinational companies may use matrix structure for international trading of
various products.
Advantages
1. The greatest advantage of the matrix structure is that it fosters an interdisciplinary
approach to organizational business and encourages/promotes teamwork.
2. This also implies harnessing talents in the organization to optimize outcome. This
means, in other words, maximum utilization of the limited resources of functional
specialists in an organization.
3. The matrix structure also makes possible timely and efficient response to diferent
environmental situations because of built-in flexibility and diverse talents in the project
group.
4. The structure also facilitates development of management through increased
participation and involvement in organizational business and decisions.
5. This should also generally improve the quality of decision making in all group projects/
businesses.
Disadvantages:
1. It replaces formal lines of authorities, and, this is likely to result in ambiguity of
relationship, responsibility and authority. This implies lack of clarity in task and job
responsibilities.
2. Due to the team approach, decision making takes longer because consensus has to be
reached in all important matters.
3. The team approach also increases the chances or degrees of conflict among team
members. This happens partly because of dual accountability system. The dual
accountability system also creates confusion and difficulty for individual team members.
Project-based Structure
Some strategic analysts make a distinction between a matrix structure and a purely projectbased structure. Most matrix structures are also project based, but, many of these structures
have indefinite life like international trading operations of multinational companies. A project
structure is one in which teams are created for specific purposes or projects, the project team
undertakes the assigned work, and immediately on completion, the team is dissolved. Project
based structures are more temporary than matrix structures. Such structures typically represent
civil engineering/construction, IT/MIS, consultancy, event management and management
development programs. The organizational structure is a constantly changing collection of

project teams created, made functional and knit together loosely by a small corporate team.In
such a structure, there may be cross membership of teams. Project-based structures, as
described above, are growing in importance because of their inherent flexibility and ability to
adapt to new situations quickly.

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