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What Are Different Types of Strategic Missions at SBU Level How Do These Missions Affect Strategic Planning Process and Budgeting at SBU Level

What Are Different Types of Strategic Missions at SBU Level How Do These Missions Affect Strategic Planning Process and Budgeting at SBU Level

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Management-control-system – 4th Sem -
Management-control-system – 4th Sem -

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Published by: MAHENDRA SHIVAJI DHENAK on May 27, 2010
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09/26/2014

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Q:3) what are different types of Strategic Missions at SBU level? How do these missions affectStrategic Planning process and Budgeting at SBU Level?Different Types of Strategic Missions:Business Unit Mission:
In a diversified firm one of the important tasks of senior management is resource deployment, that is, makedecisions regarding the use of the cash generated from some business units to finance growth in other  business units. Several planning models have been developed to help corporate level managers of diversified firms to effectively allocate resources. These models suggest that a firm has business units inseveral categories, identified by their mission; the appropriate strategies for each category differ. Together,the several units make up a portfolio, the components of which differ as to their risk/reward characteristics just as the components of an investment portfolio differ. Both the corporate 'office and the business unitgeneral manager are involved in identifying the missions of individual business units. Of the many planning models, two of the most widely used are Boston Consulting Group's two-by-two growth-sharematrix and General Electric Company/McKinsey & Company's three-by-three industry attractiveness- business strength matrix. While these models differ in the methodologies they use to develop the mostappropriate missions for the various business units, they have the same set of missions from which tochoose: build, hold, harvest, and divest.
Build:
This mission implies an objective of increased market share, even at the expense of short-term
 
earnings and cash flow (e.g., Merck's bio-technology, Black and Decker's handheld electrictools).
Hold:
This strategic mission is geared to the protection of the business unit's marketshare and competitive position (e.g.: IBM's mainframe computers).
Harvest:
This mission has the objective of maximizing short-term earnings and cashflow, even at the expense of market share (e.g., American Brands' tobacco products,General Electric's and Sylvania's light bulbs)
Divest:
This mission indicates a decision to withdraw from the business either through a process of slow liquidation or outright sale. While the planning models can aid in theformulation of missions, they are not cook books. A business unit's position on a planning grid should not be the sole basis for deciding its mission.
Business Unit Competitive Advantage:
Every business unit should develop acompetitive advantage in order to accomplish its mission. Three interrelated questionshave to be considered in developing the business unit's competitive= advantage. First,what is the structure of the industry in which the business unit operates? Second, how
 
should the business unit exploit the industry's structure? Third, what will be the basis of the business unit's competitive advantage?
Industry Analysis:
Research has highlighted the important role industry conditions playin the performance of individual firms. Studies have shown that average industry profitability is, by far, the most significant predictor of firm performance. According toPorter, the structure of an industry should be analyzed in terms of the collective strengthof five competitive forces.1. The intensity of rivalry among existing competitors. Factors affecting direct rivalry are industry growth, product differentiability, number and diversity of competitors, level of fixed costs, intermittentovercapacity, and exit barriers.2. The bargaining power of customers. Factors affecting buyer power are number of buyers, buyer'sswitching costs, buyer's ability to integrate backward, impact of the business unit's product on buyer's totalcosts, impact of the business unit's product on buyer's product quality/ performance, and significance of the business unit's volume to buyers.3. The bargaining power of suppliers. Factors affecting supplier power are number of suppliers, supplier'sability to integrate forward, presence of substitute inputs, and importance of the business unit's volume tosuppliers.4. Threat from substitutes. Factors affecting substitute threat are relative price/performance of substitutes, buyer's switching costs, and buyer's propensity to substitute.5. The threat of new entry. Factors affecting entry barriers are capital requirements, access to distributionchannels, economies of scale, product differentiation, technological complexity of product or process,expected retaliation from existing firms, and government policy.
We make three observations with regard to the industry analysis:
1. The more powerful the five forces are, the less profitable an industry is likely to be. In industries whereaverage profitability is high (such as soft drinks and pharmaceuticals), the five forces are weak (e.g., in thesoft drink industry, entry barriers are high). In industries where the average profitability is low (such assteel and coal), the five forces are strong (e.g., in the steel industry, threat from substitutes is high).2. Depending on the relative strength of the five forces, the key strategic issues facing the business unit willdiffer from one industry to another.3. Understanding the nature of each force helps the firm to formulate effective strategies. Supplier selection(a strategic issue) is aided by the analysis of the relative power of several supplier groups; the business unitshould link with the supplier group for which it has the best competitive advantage. Similarly, analyzingthe relative bargaining power of several buyer groups will facilitate selection of target customer segments.

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