Assignment

(MB0052-STRATEGIC MANAGEMENT AND BUSINESS POLICY)

Q1. Briefly discuss concept of strategy? Explain the various levels of
strategy in an organization.
a). Meaning of strategy - The word ‘strategy’ comes from Greek strategies, which
refers to a military general and combines stratus (the army) and a go (to lead). The
concept and practice of strategy and planning started in the military, and, over time, it
entered business and management. The key or common objective of both business
strategy and military strategy is the same, i.e., to secure competitive advantage over the
rivals or opponents. Strategy is a concept that is used universally but understood
differently, and, therefore, defined differently. In fact, strategy as a concept is better
described and more easily put into practice than defined. Most companies recognize
that strategy is central to business and management. It is also recognized that it is
strategy that makes the difference between success and failure of many companies and
businesses. Yet, there is always a lack of conceptual clarity about what strategy is.

b). Levels - Three levels in the strategic management process are: the corporate level,
the business unit or SBU level and the functional level. These three levels of strategy
distinctly exist only in multiple SBU firms. For single-business companies, corporate-
level strategy and SBU-level strategy are not really distinguishable because all the
organizational level strategies for resource allocation or growth or market diversification
is formulated with respect to the particular product or business of the company (only in
the case of product diversification, corporate-level strategy and single business unit-
level strategy may/would be different).

Corporate
Strategy

SBU 1 SBU 2 SBU 3 SBU Top

Strategy Strategy Strategy Management

Operations Marketing Financial Personnel

Strategies Strategies Strategies Strategies

Middle Management
Corporate, SBU and functional level - Corporate-level strategy sets the long-
term objectives of an organization and broad policies and controls within which an SBU
operates. The corporate-level strategies also help an SBU to define its scope of
operations and also limit or enhance SBU’s operations through resources the corporate
management allocates for securing competitive advantage. Functional-level strategies
follow from, and also support, SBU-level strategies. Strategies at the functional level are
often described as tactical. Such strategies are guided and controlled by overall SBU
strategies. Functional strategies are more concerned with implementation of corporate-
and SBU-level strategies rather than formulation of strategies. Strategic management
process at three levels also involves decision making. But, the types of decision making,
their scope and impact are different at different levels. The characteristics of decision
making at three levels may be more clearly understood in terms of major dimensions of
decision making.

Level of Strategy

Dimension
Corporate SBU Functional
Type of Decision Conceptual/ Policy Policy/ Operational Operational
Investment High Medium Low/Nil
Risk Involved High Medium Low
Time Horizon Long Term Medium Term Short Term
Impact Critical Major Minor
Flexibility High Medium Low
Adaptability Low Medium High

Q2. How strategic planning and strategic management are interrelated

to each other? Which comes first?
Strategic Planning and Strategic Management - Plan or planning should precede
action. And, strategic planning should precede strategic management. Strategic
planning (also called corporate planning) provides the framework (some call it a tool) for
all major decisions of an enterprise—decisions on products, markets, investments and
organizational structure. In a successful organization, strategic planning or strategic
planning division acts as the nerve centre of business opportunities and growth. It also
acts as a restraint or defence mechanism that helps an organization foresee and avoid
major mistakes in product, market, or investment decisions.

A strategic plan, also called a corporate plan or perspective plan, is a blueprint or

document which incorporates details regarding different elements of strategic
management. This includes vision/mission, goals, organizational appraisal,
environmental analysis, resource allocation and the manner in which an organization
proposes to put the strategies into action. The concept and role of strategic planning
would be clear if we mention the major areas of strategic planning in an organization.
First, strategic planning is concerned with environment or rather, the fit between the
environment, the internal competencies and business(es) of a company. Second, it is
concerned with the portfolio of businesses a company should have. More specifically, it
is concerned with changes—additions or deletions—in a company’s product-market
postures.
Third, strategic planning is mostly concerned with the future or the long-term dynamics
of an organization rather than its day-to-day tasks or operations. Fourth, strategic
planning is concerned with growth—direction, pattern and timing of growth. Fifth,
strategy is the concern of strategic planning. Growth priorities and choice of corporate
strategy are also its concerns. Finally, strategic planning is intended to suggest to an
organization, measures or capabilities required to face uncertainties to the extent
possible.
Strategic planning and strategic management are intimately related to each other.
Where strategic planning ends, strategic management takes over; but, both are
complementary to each other. They form vital links in an integrated chain in corporate
management. Both are continuous processes. Strategic management may be more
continuous, because it involves implementation and monitoring also.

Q3. What is a mission statement? Differentiate between a mission

statement and vision statement.
a). Mission Statement - The mission statement of a company is variously called a
statement of philosophy, a statement of beliefs, a statement of purpose and, a
statement of business principles. A mission statement is many in one. It embodies the
business philosophy of a company’s decision makers, implies the image the company
wishes to project for itself, reflects the company’s self-concept; indicates the company’s
principal product or service areas and, the customer needs the company seeks to
satisfy. In short, it describes the company’s product, market and technological focus;
and it does so in a way that reflects the values and priorities of the company’s strategic
decision makers.

The mission statement should be as explicit or comprehensive as possible. Some feel

that the mission statement should have seven dimensions or serve seven different
purposes or objectives. These are:
 To ensure unanimity of purposes within the organization
 To develop a basis or standard for allocating organizational resources
 To provide a basis for motivating the use of the organization’s resources
 To establish a general culture or organizational climate; for example, to suggest a
business-like approach
 To facilitate the translation of objectives and goals into jobs and responsibilities
and assignment of tasks to responsible segments within the organization
 To serve as a focal point for those who can identify themselves with the
organization’s purpose and business
 To specify organizational purposes and inspire translation of these purposes into
goals in such a way that cost, time and performance parameters can be
assessed and controlled.

b). 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 focuses on the present strategic thrust, while the vision
statement outlines the strategic path. All visionary companies have a vision statement.
  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.

Q4. What is SWOT analysis in terms of Internal & External Analysis?

Explain SWOT analysis in the form of a matrix?
SWOT Analysis - Companies have been using SWOT analysis for long, whether for
general business strategy or for marketing strategy. In SWOT, ‘S’ and ‘W’ relate to
internal competence factors, and ‘O’ and ‘T’ pertains to external environment factors:

S – Strengths
Internal competence factor
W – Weaknesses
O – Opportunities
External environmental factors
T – Threats

A strength is a resource, skill, capability or any other advantage relative to competitors

and in relation to markets. A weakness is a limitation or deficiency in resource, skills and
capabilities or any other disadvantage relative to competitors which impedes
performance of an organization.

SWOT analysis can be a useful tool to analyse the extent to which strategy of an
organization and its more specific strengths and weaknesses are capable of dealing
with the changes in the business environment. And, this would decide whether a
particular factor in the environment is an opportunity or threat to the organization with
reference to the particular strategy.

For systematic SWOT analysis, major strengths and weaknesses of the organization for
the strategy should be worked out. Then, the important factors in the environment
relevant to this strategy should be identified. Finally, the strengths and weaknesses
should be matched with the environmental factors through matching analysis or a
matrix.
The internal and external situations can provide valuable information which can come in
handy at times. The SWOT analysis categorizes the internal organizational factors as
strengths and weaknesses and the external situational aspects as opportunities or
threats. The strengths can be used for building a competitive advantage, whereas
weakness may hinder the process. With a clear understanding of these four aspects,
any organization can increase its strength, overcome weakness, cash on good
opportunities and put aside the potential threats.
The purpose of SWOT analysis is to identify crucial factors for realizing the goals. The
internal factors of an organization can be considered as strengths or weaknesses
depending upon their impact on the organization. These may include all 4P's,
personnel, manufacturing capabilities, finance, etc, whereas external factors are
technological changes, macroeconomic factors, socio-cultural changes and legislation,
as well as changes occurring in the marketplace.
Strengths - An organization's strengths are its resources that lie in:
 Cost advantages from proprietary know how
 Patents
 Influential brand names
 Access to natural resources
 Accessible distribution network

Weakness - The weakness can be lack of certain strengths that include:

 Lack of patent protection
 Deprived of access to main distribution channels
 Weak brand name
 Poor customer reputation
 High cost structure
 Inaccessible natural resources

Opportunities - The assessment of external environment may bring forth certain new
opportunities which are as follows:
 Technologies innovations
 Elimination of international trade barriers
 An untapped market need
Threats - Unfavorable changes in external environment may pose threat to the
organization. Some of them are as follows:
 Consumers shift to different brand
 Arrival of substitutes
 Strict regulations
 Growing trade barriers

The steps in the common three phase SWOT analysis process are
Phase 1: Detect strategic issues - Identify external issues relevant to the firm's
strategic position in the industry and the general environment at large with the
understanding that opportunities and threats are factors that management cannot
directly influence.
 Identify internal issues relevant to the firm's strategic position.
 Analyze and rank the external issues according to probability and impact.
 List the key strategic issues factors inside or outside the organization that
significantly impact the long-term competitive position in the SWOT matrix.

Phase 2: Determine the strategy - Identify firm's strategic fit given its internal
capabilities and external environment.
 Formulate alternative strategies to address key issues.
 Place the alternative strategies in one of the four quadrants in the SWOT matrix.
Strategies that combine:
 internal strengths with external opportunities are the most ideal mix, but require
understanding how the internal strengths can support weaknesses in other
areas;
 internal weaknesses with opportunities must be judged on investment
effectiveness to determine if the gain is worth the effort to buy or develop the
internal capability,
 internal strengths with external threats demand knowing the worth of adapting
the organization to change the threat into opportunity;
 internal weaknesses with threats create an organization's worst-case scenario.
Radical changes such as divestment are required.
 Develop additional strategies for any remaining "blind spots" in SWOT matrix.
Select an appropriate strategy.

Phase 3: Implement and monitor strategy

 Develop action plan to implement strategy;
 Assign responsibilities and budgets;
 Monitor progress;
 Start review process from beginning.
Q5. Define Corporate Turnaround? Distinguish between surgical and
nonsurgical turnaround. Explain with some example?
a). Turnaround Strategy - Corporate turnaround may be defined as organizational
recovery from business decline or crisis. Business decline for a company means
continuous fall in turnover or revenue, eroding profit, or accrual or accumulation of
losses. So, business or organizational decline, like business performance, is understood
in relative terms, that are, compared with the past. But, some strategy analysts describe
business decline in terms of current comparisons also; for example, relative to industry
rates or averages or even relative to economic growth of the country. Corporate crisis
means deepening or perpetuation of a decline. Turnaround strategies are usually
required for crisis situations. If organizational decline is not continuous or severe,
corporate restructuring can provide the solutions. That is why turnaround strategy may
be said to be an extension of restructuring strategy. When restructuring is very
comprehensive and leads to corporate recovery, it almost becomes a turnaround
strategy as mentioned above in the case of Voltas.

Corporate or business decline manifests itself in many forms or symptoms, including

profitability. These symptoms are actually different performance criteria of companies.
Major symptoms or criteria or situations which signal towards the need for a turnaround
strategy are:
 Steadily declining market share;
 Continuous negative cash flow;
 Negative profit or accumulating losses;
 Accumulation of debt;
 Falling share price in a steady market;
 Mismanagement and low morale.

b). Surgical Turnaround and Non-surgical Turnaround - Generally, there are

two methods of corporate turnaround:
 Surgical and
 Nonsurgical.
The surgical method, more commonly practiced in the West, involves sweeping
changes like firing of staff, managers, wholesale reshuffling of portfolios, closing down
operations, etc. Some call it bloodbath or bloodshed. Non-surgical turnaround adopts
the opposite approach, that is, peaceful means—revamping or recovery through
meetings, discussions, persuasions, consensus, etc. The operations in surgical
turnaround are like this: the first step is to replace the chief executive of the ailing
company by a new ‘iron’ chief. The new chief promptly gets into action; he asserts his
authority. He issues pre-emptory orders, centralizes functions and spears some
convenient scapegoats. Then he goes about firing employees en masse and
auctioning/selling whole plants and divisions ‘until the fat is satisfactorily cut to the
bone’. The bloodbath over, the product mix is revamped, obsolete machinery is
replaced, marketing is strengthened, controls are toughened, accountability for
performance is focused and so on.
Example of Surgical Turnaround Strategy - At GE, 1,00, 000 of a workforce of
4,00, 000 lost their jobs; at Imperial Chemical Industries (ICI), the labor force was
reduced from 90,000 to 59, 000; half the staff at Chrysler Corporation disappeared; at
British Steel, half the company’s production capacity and 80 per cent of workforce were
gone.
Non- Surgical Turnaround Strategy - Turnaround management of the humane type
may involve negotiated and humane layoffs and divestiture, but, not a bloodbath. This
type of turnaround also is generally brought about by the new helmsman. But, he
spends a great deal of time in trying to understand organizational problems and
deliberating on them. He takes all the stakeholders including unions into confidence;
forms groups within the organization to brainstorm together on what needs to be done
to get over the crisis; tries to create a new work culture; and, generally infuses a strong
sense of participation among the employees and many critical decisions become
participative decisions.
Example - There are many examples of successful turnarounds of the humane type
including Enfield, Volkswagen, Lucas, Air India, SPIC, BHEL and SAIL.

Q6. What are the major characteristic of an effective strategy

evaluation system? Analyze these characteristics.
Characteristics of an Effective Evaluation System - Strategy evaluation and
control is an elaborate, and, at times, complex, process. It can also be a sensitive
process because of the human factor involved. Too much or too rigorous evaluation and
control may be expensive and, sometimes counterproductive also—authority and
flexibility may be challenged, minimized or even eliminated. Too little or no evaluation
may create the opposite effect—lack of responsibility and accountability. In some
companies, strategy evaluation simply means performance appraisal of the
organization. This is also not correct. The evaluation system should be balanced and
follow some norms and standards. Strategic analysts have laid down certain basic
requirements which evaluation should comply with to be effective.

 First, strategy evaluation process or measures should be meaningful. These

should specifically relate to the objectives/targets and the plan. There should be
clear focus and no ambiguity.
 Second, strategy evaluation and control process should be economical. This
means that the process should not be made unnecessarily elaborate and incur
too much cost on evaluation itself. Use of too much of information which may not
be necessary increases cost which is avoidable.

 Third, the evaluation process should conform to a proper time dimension for
control and information retrieval or dissemination. Time dimension of control
should coincide with the time span of the activity or the implementation phase.
Also, information on developments or feedback should be timely (not delayed or
provided too early) to make evaluation and control more appropriate.

 Fourth, strategy evaluation system should give a true picture of what is actually
happening. The objective of evaluation is not fault finding. Sometimes,
performance may be overshadowed by external factors or the environment. For
example, during a severe slump in economic/business activity, productivity and
profitability may decline in spite of best efforts by the managers to implement
strategy. This should be analysed in the correct perspective.

 Fifth, strategy evaluation process should not dominate or curb decisions; it

should promote mutual understanding, trust and common cause. All functional
and operational areas should cooperate with each other in evaluating and
controlling strategies. Strategy evaluation process should be simple and not too
complex or restrictive. Complex evaluation systems may confuse managers and
result in lack of accomplishments.