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Ans:- A well-formulated strategy is vital for growth and development of any Organization —whether it
is a small business, a big private enterprise, a public sector company, a multinational corporation or a non-profit organization. But, the nature and focus of corporate strategy in these different types of organizations will be different, primarily because of the nature of their operations and organizational objectives and priorities. Small businesses, for example, generally operate in a single market or a limited number of markets with a single product or a limited range of products. The nature and scope of operations are likely to be less of a strategic issue than in larger organizations. Not much of strategic planning may also be required or involved; and, the company may be content with making and selling existing product(s) and generating some profit. In many cases, the founder or the owner himself forms the senior/top management and his (her) wisdom gives direction to the company. In large businesses or companies—whether in the private sector, public sector or multinationals — the situation is entirely different. Both the internal and the external environment and the organizational objectives and priorities are different. For all large private sector enterprises, there is a clear growth perspective, because the stakeholders want the companies to grow, increase market share and generate more revenue and profit. For all such companies, both strategic planning and strategic management play dominant roles. Multinationals have a greater focus on growth and development, and also diversification in terms of both products and markets. This is necessary to remain internationally competitive and sustain their global presence. For example, multinational companies like General Motors, Honda and Toyota may have to decide about the most strategic locations or configurations of plants for manufacturing the cars. They are already operating multi location (country) strategies, and, in such companies, roles of strategic planning and management become more critical in optimizing manufacturing facilities, resource allocation and control. In public sector companies, objectives and priorities can be quite different from those in the private sector. Generation of employment and maximizing output may be more important objectives than maximizing profit. Stability rather than growth may be the priority many times. Accountability system is also very different in public sector from that in private sector. There is also greater focus on corporate social responsibility. The corporate planning system and management have to take into account all these factors and evolve more balancing strategies. In non-profit organizations, the focus on social responsibilities is even greater than in the public sector. In these organizations, ideology and underlying values are of central strategic significance. Many of these organizations have multiple service objectives, and the beneficiaries of service are not necessarily the contributors to revenue or resource. All these make strategic planning and management in these organizations quite different from all other organizations. The evaluation criteria also become different. Johnson and Scholes (2005) have given a good and detailed exposition of strategic management in various types of organizations mentioned above.
long-term growth or diversification.Management consultants can play very useful roles in the strategic planning process of a company. Prominent Indian consulting companies are A F Ferguson. Tata Consultancy Services (TCS) and ABC Consultants. sometimes have a difficult or delicate role to play. What is the role consultants play in the strategic planning and management process of a company? Is it an essential role? Ans:. It may be for growth and development or downsizing. . tricky in such cases.Q2. Top strategic consultants like McKinsey & Company use or develop latest tools. are Boston Consulting Group (BCG). Consultants are engaged to support or substantiate the company’s point of view (in the form of their recommendations) so that change is more easily acceptable to the internal stakeholders of the company. In many companies. consultants may provide specialized inputs or insights into identified management or strategy areas. This happens particularly in public sector companies where implementing change is always difficult. in addition to McKinsey & Company. Consultants bring with them diversified skills (most of the consulting companies are multidisciplinary) and experience from various companies which may not be available internally in a single company. and they should carefully weigh the ethical implication of their participation. sometimes. Arthur D Little and Accenture (formerly Anderson Consulting). consultants can fill that gap. In companies with no separate planning division or unit. There are many international consultants who are in demand in different countries. 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. many companies face internal resistance to change. restructuring. This is the reason why even large multinational companies hire consultants for achieving their goals or objectives. There are also national consultants. Even in companies with a corporate planning division/unit. Consultants. Leading international consultants. In both cases. They can undertake planning and strategy exercises as and when the company management feels the need for such exercises or consultancies. Consultants render services in different functional areas of management including the strategic planning and management process. cost efficiency. Consultants’ role may become delicate and. The resistance is more if it is downsizing even when it is required for turning around a company. techniques or models to work out solutions to specific strategic management problems or issues—be it productivity.
Donaldson has specified five elements of strategic audit. and.e. which is undertaken in many companies by the senior/top management on the progress and outcome of important corporate activities.. Database design and maintenance 3. The strategic audit committee needs to create and maintain an atmosphere of mutuality. It is also true that regular strategic process involving the CEO reduces chances of unpleasant or confronting situations. This criterion would fulfil two objectives: first. one needs to analyse this in terms of its various elements. In fact. a strategic audit committee should be constituted. which imposes its own discipline on both the board and the management very much like the financial audit process8. the resultant ratio will give profit per unit of equity. These are: 1. second. One common measure. Relationship with the CEO 5. to decide whether the return is less. sales per unit of capital employed (asset turnover).Strategic audit is a formal strategic-review process. designed to lend support and credibility to company . It is. The committee would decide on the frequency of their meeting. positive in approach. Strategic audit committee 4. But. According to Donaldson. the functioning of the strategic audit committee should be seen as a low-key operation. it is perceived by many CEOs as an implicit criticism of the current strategy and leadership of the company. used by many companies. periodicity of interaction with the CEO or top management of the company and. suggested that financial and related data design. is return on investment (ROI). a proper database is essential. A sensitive issue is the strategic audit committee’s relationship with the CEO. This has to be a regular and an ongoing process. The ROI can be analysed like this: profit per unit of sales (profit margin). Establishing criteria for performance 2. Any CEO would be generally apprehensive of such a committee. For effective strategic audit. ideally. i. This will impart regularity and more commitment to the strategic audit process. capital employed per unit of equity invested (leverage). Data on financial performance can sometimes be sensitive to the managers/ employees of a company. or equal to or more than returns on alternative investments with comparable risk. maintenance and analyses should be entrusted to the auditors of the company or outside consultants. To calculate different performance ratios and monitor performance criteria. What is strategic audit? Explain its relevance to corporate strategy and corporate governance. To understand strategic audit in the correct perspective. If these three ratios are multiplied together. also when they should make presentation to or hold discussion with the full board. It is true that whenever a question or a discussion on the strategic direction of a company comes up in a board meeting.Q3. it is different from management audit. Alert to duty (by board members) The performance criteria should be simple. therefore. sustainable rate of return on shareholder investment. Ans:. outside directors should select three of their own members to form the committee. A number of measures of financial performance are available. This involves both database design and maintenance. and. whether the company’s chosen strategy is justifiable or not. well-understood and wellaccepted measures of financial performance.
Companies like Infosys. strategic audit. The conflict between internal and external stakeholders can go much further than mentioned so far. What is Corporate Social Responsibility(CSR) ? Which are the issues involved in analysis of CSR? Name three companies with high CSR rating. greater good of the external stakeholders. In India also. markets. administered during strategy implementation and reaffirmed or changed during strategy evaluation. FedEx. Social policies may directly affect a company’s products and services. on the other hand. Dr. Godrej. customers and self-image. objectives and profitability. Hero Honda. technology. think that the competing or social claims of external stakeholders should be balanced in such a way that it protects the company mission. Coca-Cola. McDonald’s. According to these thinkers. more than management audit. many companies are integrating CSR into their business practices and making significant contributions to society. Business cycles indicate that period of success may be followed by a period of slump. external stakeholders of an organization are too many and varied and many of them represent different sections or social groups. This is corporate social responsibility (CSR). Microsoft. ITC. environmental safety and conservation of natural resources should be the overriding considerations for formulation of policy and strategic decision making. designed and conducted. Some feel that this is the most problematic issue in deciding company responsibility. Wipro. They feel that social responsibilities of companies should be clearly enunciated and declared as social policy. IBM and Johnson & Johnson are some of the leading companies. The strategic audit committee and the board should be alert enough to get signals so that they can act in time. The debate continues. Q4. companies are trying to integrate corporate social responsibility into their business operations and strategies. an organization’s social policy should be integrated into all management activities including the mission statement and objectives. Many of them feel that issues like pollution. can be a powerful tool for monitoring the strategic process of a company and also strike a good balance between corporate strategy and corporate governance. Corporate social responsibility can be defined as the alignment of business operations with social values. Reddy’s. External stakeholders argue that internal stakeholders’ demand be made secondary to the greater need of the society. This implies that organizations should be socially responsible. Some of these companies have also established foundations to cater to the needs of society. The strategic audit committee and also the board should always be alert and vigilant to ensure that there are no slippages.leadership and management. that is. Internal stakeholders. Strong exponents of CSR also talk of social policy for companies. Ans:. Many feel that corporate social policy should be articulated during strategy formulation.7 Worldwide. Mahindra & Mahindra and Tata Steel are the foremost among them. that is.As mentioned above. . waste disposals. in addition to the interests of the shareholders. If properly conceived. This is necessary because complacence develops after success both in the board and in the management. businesses or companies should also serve the society.
1990) that the central building block of the corporate strategy is core competence. There are two problems with this. Benchmarking is a good way and is generally recommended for undertaking performance standard and also for differentiating between good and bad performance.e. imaging and laser control. marketing. cameras and image scanners. Core competence gives a company a clear competitive advantage over its competitors. either through parallel innovations or imitations. Hamel and Prahalad. Honda’s core competence is in engines (for cars and motorcycles). (b) It should lead to a level of performance in a product or process which is significantly better than those of competitors. to secure competitive advantage. According to them. Canon’s core competence lies in optics. Core competence is not just a single strength or skill or capability of a company. Distinguish between core competence. Ans:. and now South Korea is doing to Japanese electronics. This is what Japanese companies have done in the fields of electronics and automobiles. because it focuses predominantly on the product or process and technology. as Hamel and Prahalad put it. it is ‘interwoven resources. or.. this has to be amply supported by special capabilities in the related vital areas like resource or financial management. Sony’s core competence in manufacturing allows the company to make everything from the Sony walkman to video cameras to notebook computer. First. 3M’s core competence is in sticky tape technology. laser printers. strategic competence and threshold competence. Xerox’s core competence is in photocopying. argue in ‘The Core Competence of the Corporation’ (HBR. Use examples. (c) It should be robust. technology and skill’ or synergy culminating into a special or core competence. strong and aggressive competitors may develop. imaging and microprocessor controls have enabled it to enter markets as seemingly diverse as copiers. many advantages gained in different ways (like a superior product feature. This is important because managers often take an internal view of value and either miss or deliberately overlook the customer perspective. Core competence is not about such incremental changes or improvements. a new marketing campaign or an innovative price policy/strategy) are not robust and are likely to be short lived.Q5. ‘The combination of individual technologies and production skills’. Canon’s core competence in optics. a particular competence level of a company should satisfy three criteria: (a) It should relate to an activity or process that inherently underlies the value in the product or service as perceived by the customer. cost management. To achieve core competence. difficult for competitors to imitate. about the whole process through which continuous change and improvement take place which lead to or sustain clearly differentiated advantage. i. Second.1 Distinctive Competence Core competence may not be enough. etc. but. ITC’s in tobacco and cigarettes and Godrej’s in locks and storewels. logistics. Hamel and Prahalad themselves have said later (1994): . Sony has a core competence in miniaturization. process or technology or technological innovation may not be enough. In a fast changing world. IBM’s core computer technology is also facing the same problem. two of the greatest exponents of core competence. JVC’s in video tape technology. only product. similar products or processes which are highly competitive. (We will be discussing benchmarking in Unit 11). Hamel and Prahalad defined core competence as the combination of individual technologies and production skills that underlie a company’s product lines. distinctive competence.Core Competence Core competence of a company is one of its special or unique internal competences.
And.’3 So. ITC’s core competence is in tobacco and cigarettes. has described it like this: ‘We do not believe in core competence. they may have core competence. Distinctive competence includes core competence as one of the alternatives. Companies with threshold competence can. over time. to outwit competitors.4 Strategic Competence Strategic competence coexists with. they used their strategic competence to out manoeuvre Nirma (which was launched very aggressively) and re-establish their leadership in the detergent market. Strategic competence is the competence level required to formulate. not just a portfolio and business unit. implementing and managing large scale projects’ and mobilizing requisite resources for that. for example. But. one or some of the alternative competences may work. but. graduate to a higher level of competence. special capability in marketing or distribution. or a combination of some of these. But.and the late 80s. Multi-product or multi-SBU companies may often possess a portfolio of competences. for example. for example. cost effectiveness or cost efficiency to support a price strategy. identification of distinctive competence may also help efficient allocation of resources.. they had been surviving with threshold competence in vanaspati . product differentiation (situational or adaptability). Threshold Competence Threshold competence is the competence level required just for survival in the market or business. we believe in building competence around people and processes to create value’. one of these. implement and produce results with a particular strategy. 5 or No. and.2 Distinctive competences may provide an answer to some of these points. or supports. there are other alternatives that are also based on organizational capabilities. the competitive edge it may give a firm in the marketplace. Chairman and MD. but.. Mukesh Ambani. In some product or business. of underlying strengths. Distinctive competence is based on the assumption that there are different alternative ways to secure competitive advantage and not only special technical and production expertise as emphasized by core competence. continued threshold competence can also lead to closure of business. Reliance Industries. 6 player in the market or those struggling to survive. Since resources are limited. So. they have distinctive competence in hospitality business and agri-business. They do not think in terms of core competence. and we must ask ourselves what we can leverage as we move into the future. product or process superiority (core competence). Threshold competence may be adopted by No. Under given circumstances. and what we can do that other companies might find difficult. Strategic competence may also involve combination or convergence of different capabilities as in the case of Hindustan Unilever. Hindustan Unilever has distinctive competence and strategic competence in many businesses. core competence and distinctive competence. 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. etc. has developed its distinctive competence in ‘conceiving. not in all. distinctive competence is more broad based. We must also identify those core competencies that would allow us to create new products. In the mid. depending on the market or competitive situation. will produce a distinctive competence which would be appropriate or best suited to exploit the opportunity and produce desired results. The competence level of a company may be weaker than many of its competitors. the focus in distinctive competence is on exploiting a market opportunity. Hindustan Unilever did this. But.We have to look at the organization as a portfolio of competencies..
To be a global industry. as explained above about IBM. . an industry should have multi-locational manufacturing facilities. global strategy and transnational strategy.business (Dalda) for some time. Core Competence Distinctive Competence Organizationa competence c Threshold Competence Strategic Competence Figure 6.4 Distinction should be made between an international industry and a global industry. and finally. To be called a global industry. distinctive competence. International strategy can be adopted for those products and services which are not available in some countries and can be transferred from other countries. These are standard products with little or no differentiation. multi-domestic strategy. IBM’s strategic position in competing for computer sales in France and Germany has improved significantly because of technology and marketing skills developed in other countries. industries with multinational competitors are not necessarily global industries.1. For example. and. Some examples are: Kellogg’s. Ans:. Indian software. international strategy. An industry in a country may be international if it comprises a number of multinational companies. and a worldwide manufacturing system which is well coordinated. A conceptual portfolio of organizational competence consisting of core competence. they exited from that business. International strategies are not very common or popular. an industry’s economics and competitors in different national markets should be considered jointly rather than individually.1 Portfolio of Organizational Competence Q6. strategic competence and threshold is shown in Figure 6. the strategic positions of companies in different countries or national markets are governed by their overall global positions.Global industry In global industry. compete worldwide to secure global synergy or competitive advantage. But. and Indian handicrafts. What is global industry? Explain with examples.
Microsoft. These also include high technology products which have universal applicability and hardly require any local adaptation. feel that the transnational strategy is the only viable competitive strategy in global business. there is always a price pressure or cost pressure. Examples : Asian Paints (paints in general). Indian garments. in global business. Many multinational FMCG companies like Unilever and Procter & Gamble follow transnational strategies through their fully owned subsidiaries in different countries. In fact. .Multidomestic strategy is almost opposite of international strategy. and. Global strategy suits companies which make highly standardized sophisticated products. cost effectiveness may be also difficult to achieve because of lack of scale economies. Texas Instruments. many. Transnational strategy is the most difficult strategy to follow because this is based on a combination of two apparently contradictory factors. But. cost effectiveness and local adaptation. Examples are: Intel. cost pressure is less. Motorola. and. Pepsi and Domino’s Pizza. Global retail chains like Wal-Mart and Marks & Spencer also come under this category. Coca-Cola.e. Multidomestic strategy involves high degree of local responsiveness or local content. this may be a ‘true’ global strategy because. Products are highly customized to suit local requirements or conditions.. Many companies are adopting this approach to become successful. Some good examples are: Caterpillar (taking on Komatsu and Hitachi). Because of high customization. i. are in a position to reap benefits of economies of scale and experience effects. also the need to make the product as close to a particular country’s expectation as possible to maximize value offerings. McDonald’s. including Bartlett and Ghoshal (1989).
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