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REGISTRATIO NO: 581126578
Subject Name – Strategic Management and Business Policy Subject Code - MB0052
Assignment Set – 1 (60 Marks)
Note: Each Question carries 10 marks. Answer all the questions.
Q 1. What is meant by ‘Strategy’? What are the levels of strategy? Differentiate between goals and objectives. Ans: Strategy Means: We all have loosely played around with the term strategy in our daily lives without identifying the key features that are implicitly addressed in our usage. My aim here is to isolate the key aspects of strategy as they pertain to starting and running a business. Putting it simply, strategy refers to the action/method/trick/technique/direction one would adopt in achieving a certain objective. For business purposes, objectives are usually more precisely defined using numerical values – 10% increase in sales in the next year could be an example of a business objective (sales). Objectives differ depending upon the conditions one may find himself in and therefore would result in the adoption of varied strategies. In a football field the formation of on-field players like 4-4-2 could be a part of the winning strategy, changing interest rates by the fed or the central bank could be a part of an economic strategy. Similarly, there could be political strategies, business strategies and so on. It is nothing but natural for strategies to differ in substance but they all share some common issues that get addressed in the process. So, in order to work on strategic substance it is imperative we understand the issues that need to be answered in our strategic choices. Let us look at this rather fundamental structure of strategy definition. Firstly, when we think of strategy we are thinking on a long term basis. Strategies are formed keeping in mind the mission of an organization that help further decide the direction to be adopted. Mission is basically the broad reason for an organization's existence. This is the first structural block. Secondly, strategies are crafted under the characteristics of an organization's strengths and weaknesses. The resources and competencies of a system help define and shape the multitude of strategic choices available to the management to choose from. This forms the second major structural block and alongside the first lays the basic foundation for strategy formation. The rest is basically a web where we need to analyze the current domain of the organization's activities and possible future expanse, the culture of the organization, the values and expectations of stakeholders, the operational and business environment and the competition. Once this analysis is done, strategies can be derived that help to provide a competitive advantage in the given environment after also considering its expected future developments. This aspect is rather important as strategies cannot be altered time and again. They, however, should keep room for a little change as they have to stand the test of time and therefore need to be aligned correspondingly to dynamic environments. To sum it up, strategies are essentially long term directions of an organization that define the manner in which competitive advantage shall be achieved, alongside the fulfillment of stakeholders' expectations, within the boundaries of the organization's strengths and weaknesses. Evidently, the process of developing strategies is a tedious one and requires concrete analysis of many inter-related factors. It is extremely complex and has an inherent uncertainty about its conception. As strategy developer one has to be harmonized with the vagueness of the opportunity costs for a particular strategic choice and once committed, should focus entirely on the chosen strategic direction. All actions are linked to the strategy of the organization and hence a thorough analysis of various mediating factors is critical to its success. We shall look into the
MBA – 4rt Semester
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evaluates the actions of competitors and specifies actions the company must take to maintain and improve its competitive advantages. to achieve differentiation in quality or other desirable features or to focus on promotion. It should align with the business goals.NAME: SANJOY BASU REGISTRATIO NO: 581126578 analysis in the following sections but for now it is important to accept and understand strategy in all its inherent individual colors. Writing clear goals is an essential section of planning the strategy. business and functional. Other Functional Strategies: The non-marketing functional strategies must support the marketing strategy that. The Levels of Strategy: The three levels of strategy for a company are corporate. MBA – 4rt Semester Page No: 2 . The advertising department must develop a promotional strategy. but they must also deliver data that allows the corporate strategy to examine possible diversification. strategic components from a functional level must signal to the corporate level that an implementation of alternative strategies is required. corporate strategy consists of continuously evaluating the benefits of remaining in a single business versus becoming active in complementary industries. Once the marketing strategy has identified the kind of product customers want. A typical marketing strategy is to determine customer needs in an area where the company has a natural competitive advantage. Their corporate strategy must demonstrate the advantages of remaining active in only one industry while evaluating business opportunities in areas with complementary activities. Goals are hard to measure and do not have definite timeline. Goals are long-term targets that should be achieved in a business. those strategies are tightly focused on one industry. and abstract. Singlebusiness companies are usually either highly ranked in their single business or dominant in their niche. reputation or staffing. Business strategy develops competitive advantages within a businesses segment. The business strategy sets goals for performance. profitability and growth. operations and finance to ensure that each part of the company has strategies to support the business. If events outside the company's control lead to a deterioration of its position. sales must sell the product and customer service must support it. Functional strategy operates at the level of marketing. The marketing strategy forms the basis for the strategies of these other departments. Such advantages might be in location. Business Strategy: The business strategy of a single-business company is similar to that of a business unit of a diversified company except that the business strategy must support corporate strategic initiatives aimed at the single business. For single-business companies. facilities. In a singlebusiness company. in turn. The strategies at the functional level try to maintain such a position but also look for external danger signs. is a component of the overall business strategy. it passes the information to operations to design and produce such a product at the required cost. Goals are indefinable. Differentiate between goals and objectives: Goals are statements that provide an overview about what the project should achieve. the corporate strategy must compare the return of a continuing investment in the single business with the acquisition or starting up of complementary businesses. Corporate strategy focuses on determining which businesses the company should be in. the marketing strategy on a functional level influences the other functions and their strategies. Marketing Functional Strategy: In companies that are marketing oriented. With a goal of optimizing company operations. Typical strategies are to become a low-price leader. Corporate Strategy: Single-business companies have the advantage of focus and rapid response but are vulnerable to problems in their industry.
Example . Goals are high level statements that provide overall framework about the purpose of the project. unrealistic job description.The objective of a marketing company is to raise the sales by 20% by the end of the financial year. The difference between organizational goals and objectives is depicted in table 1. Both goals and objectives are the tools for achieving the target.. Objectives are the targets that an organization wants to achieve over a period of time. etc. planning and implementing the strategy in an organization to ensure a continued success. Define the term “Strategic Management”. Goals are indefinable and the achievement cannot be measured whereas the success of an objective can be easily measured. Organizational policies and strategy provide guidelines for action. Explain the importance of strategic management. Highlight the strategies and policies which were successful supporting with examples. Briefly describe the organization you are referring to.An automobile company has a Goal to become the leading manufacturer of a particular type of car with certain advanced technological features and the Objective is to manufacture 30. Describe how strategy and policies are formulated in the organization you are familiar with. but objectives are set with specific timelines. rotating work shifts. inequality of incentives. Goals cannot be put in a timeframe. inflexible rules. The importance of strategic management: Explain the importance of strategy and policies in organizational functioning. Ans: The Term Strategic Management: Strategic management is a systematic approach of analyzing. Strategic management is a long term procedure which helps the organization in achieving a long term goal and its overall responsibility lies with the general management team. ambiguous procedures. frequent reallocation of activities. Example .One of the goals of a company helpdesk is to increase the customer satisfaction for customers calling for support. Organization wide policies MBA – 4rt Semester Page No: 3 .000 cars in 2011. It focuses on building a solid foundation that will be subsequently achieved by the combined efforts of each and every employee of the organization.NAME: SANJOY BASU REGISTRATIO NO: 581126578 Example . work as stressors. Thus. The two concepts are different but related. Objectives are lower level statements that describe the tangible products and deliverables that the project will deliver. Table 1: Differences between Organizational Goals and Objectives Goals Are long term Are general intentions with broad outcome Cannot be validated Are intangible – can be qualitative as well as quantitative Are abstract Objectives Are usually meant for short term Are precise statements with specific outcome Can be validated Are tangible – are usually quantitative and measurable Are concrete Q 2. unfair and arbitrary performance evaluation. Unfavorable and ambiguous policies or strategy may affect the functioning of the individuals adversely and they may experience stress.
Employees clearly understand how their role supports the company's organizational strategy second key strategy element is External Assessment. A strategy must be judged on the basis of its relationships to other policies and goals of the organization. each policy fits into an integrated pattern. Consistency with the Environment: The strategy should be consistent with the environment. 3. There are two basic issues which management must decide in relating strategy and resources. which reflects an organization's approach to gathering and analyzing essential market data. 1. • Focused Purpose • Clearly defining short-term purpose • Ensuring mission is realistic • Serving the best interests of all stakeholders • Defining a point of differentiation • Future Perspective • Clearly defining long-term outlook • Appealing to the long-term interests of the company's stakeholders • Providing a foundation for decision-making Strategic Advantage: Competitive advantage is a key driver to forming an organizational strategy. 2. Appropriate Time Horizon: A good strategy not only provides what objectives would be achieved. identifying industry opportunities and threats. depends upon several factors. In choosing an appropriate time horizon. the organization must pay careful attention MBA – 4rt Semester Page No: 4 . These decisions are the result of a complex decision-making process designed to establish organizational goals and long-range plans for resource allocation. Process involved in strategy formulation is the same as discussed in policy formulation. Consistency with the environment has both static and dynamic aspects. each organization must decide the degree of risk it can take. Specifying all factors that compose the environment is a complex and perhaps unmanageable task. of course. taken together. this should make sense with respect to what is going on outside. a major difficulty in the strategic decision process is the identifying and analysis the factors bearing on the problem. Resources are those things that help an organization achieve its objectives. and physical facilities. however. This. Satisfactory Degree of Risk: Strategy and resources. it also indicates when objective would be achieved. in turn. But a valid strategy can gain extraordinary results for the organization whose general level of competence is only average. studying macro and micro economic information. Appropriateness in the Light of Available Resources: The strategy should be appropriate in the light of available resources. and in a well-worked out strategy. it implies judging the strategy. These are what the critical resources are? The three resources most frequently identified as critical are money. 4. and understanding what it takes to be successful in a given market. 5. Included in this data are developing competitive profiles. with its suitability to the existing environment.NAME: SANJOY BASU REGISTRATIO NO: 581126578 designed to achieve major organizational objectives. Competitive advantage is clearly understood by all stakeholders. Internal Consistency: Internal consistency refers to the cumulative impact of individual policies on corporate goals. This is due to the fact that a significant part of every strategy is the time horizon on which it is based. many factors determining organization's success or failure. determine the degree of risk which the organization is under taking. Thus. Evaluation of a Strategy: There are. that is. In a static sense. competence. Strategy formulation: Strategy consists of a set of long-range decisions which establish actions to exploit opportunities or combat threats in response to environmental forces and developments.
6. Describe Porter’s five forces Model. Goals have time-based utility and must be established far enough in advance to allow the organization to adjust to them.NAME: SANJOY BASU REGISTRATIO NO: 581126578 to the goals being pursued. the results measure two factors: the strategy selected and the skill with which it is being executed. the nature of competition in any industry is personified in the following five forces: i) Threat of new potential entrants ii) Threat of substitute product/services iii) Bargaining power of suppliers iv) Bargaining power of buyers v) Rivalry among current competitors The five forces mentioned above are very significant from point of view of strategy formulation. Ans: Porter’s five forces Model: Michael Porter (Harvard Business School Management Researcher) designed various vital frameworks for developing an organization’s strategy. These forces jointly determine the profitability of industry because they shape the prices which can be MBA – 4rt Semester Page No: 5 . The company has evolved a competitive advantage in terms of an excellent after sales service not easily matched by any of its close competitors. The workability of a strategy can be measured in terms of results which are obtained. By seeking entry in the video cassette players and personal computers in the future the company would be using its existing distribution network thus creating marketing synergy. However. both these factors can be examined. Worth ability: The strategy must have enough degree of workability. The potential of these forces differs from industry to industry. In terms of future areas of growth. let us review the strategy of a medium-sized company “Approve Electronics” involved in manufacturing and marketing electronic entertainment products. the company’s R&D division is involved in designing video cassette players and personal computers to be marketed in either Northern or East region markets. As an example. In terms of product/market scope the company has restricted itself to marketing of television sets in the Northern and Eastern regions of the country. One of the most renowned among managers making strategic decisions is the five competitive forces model that determines industry structure. Q 3. Most of the key personnel in marketing and sales have been deployed in such a way that they contribute their maximum in various regions with high degree of autonomy and constitute the company’s distinctive competence. According to Porter. If the results are not up to standards.
The threat of entry by potential competitors is partially a function of extent of barriers to entry. Bargaining power of the suppliers refer to the potential of the suppliers to increase the prices of inputs( labour. raw materials. They have high switching cost. they are regarded as a threat. Before making strategic decisions. Bargaining Power of Suppliers: Suppliers refer to the firms that provide inputs to the industry. They emphasize upon quality products. 4. Rivalry among current competitors: Rivalry refers to the competitive struggle for market share between firms in an industry. Entry of new players increases the industry capacity. the managers should use the five forces framework to determine the competitive structure of industry. They pose credible threat of forward integration. In this way. They pose credible threat of backward integration. Extreme rivalry among established firms poses a strong threat to profitability. Strong suppliers can extract profits out of an industry by increasing costs of firms in the industry. Bargaining Power of Buyers: Buyers refer to the customers who finally consume the product or the firms who distribute the industry’s product to the final consumers. Risk of entry by potential competitors: Potential competitors refer to the firms which are not currently competing in the industry but have the potential to do so if given a choice. Supplier’s products have a few substitutes. The various barriers to entry are• Economies of scale • Brand loyalty • Government Regulation • Customer Switching Costs • Absolute Cost Advantage • Ease in distribution • Strong Capital base 2. services. 5. Let’s discuss the five factors of Porter’s model in detail: 1. They have full information about the product and the market. Buyers are not significant to strong suppliers. begins a competition for market share and lowers the current costs. they are regarded as a threat. etc) or the costs of industry in other ways. Their product is an important input to buyer’s product. They purchase in large quantities. Substitutes pose a ceiling (upper limit) on the potential returns of an industry by putting a setting a limit on the price that firms can charge for their product in an industry. In this way. Lesser the number of MBA – 4rt Semester Page No: 6 . Strong suppliers’ products are unique.NAME: SANJOY BASU REGISTRATIO NO: 581126578 charged. Threat of Substitute products: Substitute products refer to the products having ability of satisfying customer’s needs effectively. Bargaining power of buyers refer to the potential of buyers to bargain down the prices charged by the firms in the industry or to increase the firms cost in the industry by demanding better quality and service of product. Strong buyers can extract profits out of an industry by lowering the prices and increasing the costs. the costs which can be borne. The strength of rivalry among established firms within an industry is a function of following factors: • Extent of exit barriers • Amount of fixed cost • Competitive structure of industry • Presence of global customers • Absence of switching costs • Growth Rate of industry • Demand conditions 3. and the investment required to compete in the industry.
and the capital investment essential for survival and competition in industry. Also. It presents a stagnant view of competition. the five forces model overlooks the role of innovation as well as the significance of individual firm differences. 4. After identifying its strengths and weaknesses. Evaluating the Organizational Environment . It is known that strategy is generally a medium for realization of organizational objectives. Though these steps do not follow a rigid chronological order. Setting Organizations’ objectives . Whatever be the industry. a sixth significant factor.The key component of any strategy statement is to set the long-term objectives of the organization.In this step.Aiming in context with the divisional plans .complementary. an organization must keep a track of competitors’ moves and actions so as to discover probable opportunities of threats to its market or supply sources. The purpose of such a review is to make sure that the factors important for competitive success in the market can be discovered so that the management can identify their own strengths and weaknesses as well as their competitors’ strengths and weaknesses.Setting Quantitative Targets . This five forces model also help in making strategic decisions as it is used by the managers to determine industry’s competitive structure. While fixing the organizational objectives. Porter ignored. an organization must practically fix the quantitative target values for some of the organizational objectives. strategy is a wider term which believes in the manner of deployment of resources so as to achieve the objectives. these five forces influence the profitability as they affect the prices. the contributions made by each department or division or product category within the organization is identified and accordingly strategic planning is done for each sub-unit. Thus. The idea behind this is to compare with long term customers. It is essential to conduct a qualitative and quantitative review of an organizations existing product line. Strategy includes both the fixation of objectives as well the medium to be used to realize those objectives. 1. This includes a review of the organizations competitive position. Objectives stress the state of being there whereas Strategy stresses upon the process of reaching there. Once the objectives and the factors influencing strategic decisions have been determined. however.NAME: SANJOY BASU REGISTRATIO NO: 581126578 close substitutes a product has. Strong complementary might have a strong positive effect on the industry. it is easy to take strategic decisions. 3. 2. so as to evaluate the contribution that might be made by various product zones or operating departments. What is strategic formulation and what are its processes? Ans: Strategic formulation and its processes: Strategy formulation refers to the process of choosing the most appropriate course of action for the realization of organizational goals and objectives and thereby achieving the organizational vision.In this step.The next step is to evaluate the general economic and industrial environment in which the organization operates. Q 4. the costs. greater is the opportunity for the firms in industry to raise their product prices and earn greater profits (other things being equal). MBA – 4rt Semester Page No: 7 . The process of strategy formulation basically involves six main steps. it is essential that the factors which influence the selection of objectives must be analyzed before the selection of objectives. This term refers to the reliance that develops between the companies whose products work is in combination with each other. This requires a careful analysis of macroeconomic trends. The power of Porter’s five forces varies from industry to industry. however they are very rational and can be easily followed in this order.
Thus by adjusting to change on SBU levels. Strategic business units can be best explained with an example. The key to Strategic business management is to have a strict watch on the investment and returns from each SBU. Planning independence. 1) Empowerment of the SBU manager – Several times the empowerment of SBU managers is crucial for the success of the SBU / products.Choice of Strategy . 3 of such features are discussed below. organizational strengths. They are focused towards a set of products and are responsible for each and every decision / strategy to be taken for that particular set of products. the SBU manager might need a higher investment for his products. the SBU can immediately become double profitable.NAME: SANJOY BASU REGISTRATIO NO: 581126578 5. he needs to communicate to the top management that he would also like a range of LED products to make the SBU even more profitable. Thus several times. Thus by adding LED to its portfolio. along with the reasons for using SBU’s there are also some powers which needs to be inferred on an SBU. However. Thus to track the investments against return. HUL may have a line of products in the shampoo category. This critical evaluation identifies the degree of gap that persists between the actual reality and the long-term aspirations of the organization. this revenue might also become useful for the other SBU thereby promoting growth of both of them. This might not always be negative. For example – if an LCD manager knows that LED’s are more in demand now. A critical evaluation of the organizations past performance. Of one SBU gains more profit then usual. the organization as a whole can become profitable. These organizations are characterized by multiple categories and multiple product lines. At such times the manager should be supported from the organization. Thus the first SBU does not get the independence to implement some important strategies. Similarly LG might have a line of products in the television category. 6. Only this confidence will help the manager in the progress of the SBU. Portfolio / MBA – 4rt Semester Page No: 8 . Similarly there might be other restrictions applied to one SBU as it is using some resources which are shared by another SBU. they may classify the category as a different SBU itself. Strategic Business Unit’s features and advantages: There are several reasons SBU’s are used in an organization and they are mentioned in my post on the importance for using SBU’s in a multi product organization. What if one SBU needs some budget but the same is not offered because the budget is being shared by 2 other SBU’s and as it is the budget is short. The SBU manager too plays a crucial role in this and hence he is recruited from the industry with extensive experience of that particular industry. 2) Degree of sharing of one SBU with another – This point is directly connected to the first one. An attempt is made by the organization to estimate its probable future condition if the current trends persist. What is Strategic Business Unit? What are its features and advantages? Ans: Strategic Business Unit: Strategic business units are absolutely essential for multi product organizations.Performance Analysis . Empowerment and others are such powers which influence a SBU. The best course of action is actually chosen after considering organizational goals. 3) Changes in the market – An SBU absolutely needs to be flexible because it needs to adapt to any major changes in the market. For example. These business units are basically known as profit centers.Performance analysis includes discovering and analyzing the gap between the planned or desired performance. This is mainly because this manager is the one who is actually in touch with the market and knows the best strategies which can be used for optimum returns. This is where sharing actually plays a positive role. potential and limitations as well as the external opportunities. Q 5.This is the ultimate step in Strategy Formulation. Example of Strategic business units – The best example of strategic business unit would be to take organizations like HUL. P&G or LG in focus. present condition and the desired future conditions must be done by the organization.
which strategic management deals with. They define the limits within which decisions must be made. When they become capable of relating environmental changes to policy changes with in an organization. managers feel themselves to be a part of the process. strategic management cut across the narrow functional boundaries. It permits the lower level management to deal with the problems and issues without consulting top level management every time for decisions. Hence.NAME: SANJOY BASU REGISTRATIO NO: 581126578 Multi SBU management and is done at the absolute top level of the management. and its affect on SBU’s is anticipated which is then taken into consideration. Define the term “Business policy”. Importance of Business Policy: Strategic management is wide and encompasses all function and thus it seeks to integrate the knowledge and experience gained in various functional area of management. the significant issues affecting organizational success and the decisions affecting organization in long-run. for a multi product organization. Each and every change in the market. Business policy is the study of the roles and responsibilities of top level management. Explain its importance. This in turn helps to create an understanding of how policies are formulated and also in creating an appreciation of the complexities of the environment that the senior management faces in policy formulation. Business policy also deals with acquisition of resources with which organizational goals can be achieved. Business policies are the guidelines developed by an organization to govern its actions. It enables one to understand and make sense of complex interaction that takes place between different functional areas. business management may actually mean product portfolio management or SBU management. They then can become more receptive to the ideas and suggestions of the senior management. Q 6. Ans: The Term “Business policy”: Business Policy defines the scope or spheres within which decisions can be taken by the subordinates in an organization. In order to develop a theoretical structure of its own. In real life there are constraints and complexities. ***************************** MBA – 4rt Semester Page No: 9 . which helps to reduce their feeling of isolation. and what the top management are thinking. Managers need to be in control and therefore begin by gaining an understanding of the business environment.
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