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Roll Number: 521151329 Name: Sarita Kumari MBA Semester 4 MB0052 Strategic Management and Business Policy (Book

k Id B1699)

Q1. A Well-formulated strategy is vital for growth and development of any organization. Explain corporate strategy in different types of organizations. Ans. Corporate Strategy in Different Types of Organizations: 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. Corporate Strategy in Small Business 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. Corporate Strategy in Large Business In large businesses or companieswhether in the private sector, public sector or multinationalsthe 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. Corporate Strategy in Multinationals Business 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. Corporate Strategy in Public Business 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. Q2. Businesses need to be planned not only for today, but also for tomorrow, that is for the future which implies business continuity. Write the importance of business continuity planning. Explain any two strategies for business continuity planning. Ans. Business continuity planning: Business continuity planning means proactively working out a means or method of preventing or mitigating the consequences of a disaster natural or manmade (sabotage or terrorism) and managing it to limit to the level or degree that a business unit can afford. Importance of Business Continuity Planning: As indicated in the definition, businesses today can be exposed to different types of threats natural or manmade. Major threats are: Natural disasters such as floods or earthquakes or accidents Man-made threats like sabotage or terrorism Financial crisis or disaster can be partly man-made and partly due to Environmental factors.

BCP prepares companies to prevent or respond to such situations so that the damages or losses are minimized and the business or company survives. Thus, BCP plays a critical role in a businessits survival and sustainability. Because of the possibility of different kinds of impacts, and depending on the nature of damage or disaster, appropriate strategies should be developed and used to deal with particular situations. Five different strategies should be developed for five different situations/actions. These are: 1. Prevention 2. Response 3. Resumption 4. Recovery 5. Restoration Prevention Conventionally, prevention is the best strategy; this means taking steps or actions to prevent or minimize the chances of occurring of a disaster. Companies can adopt many preventive control measures as safeguards. Common preventive control measures are: (a) Security controls: These involve controls by setting up barriers to protect the site and prevent unauthorized entry into the premises. This means, in other words, manned surveillance at the location. (b) Infrastructure controls: These include appropriate infrastructural facilities like UPS/back-up power, smoke/fire detectors, fire extinguishers, weather forecasting systems, etc. (c) Personnel controls: Skilled/trained personnel are posted to man sensitive zones where key or critical resources may be located. (d) Software controls: These involve modern methods of controls through computerized systems or software. These include authentication, encryption, firewall, intrusion detection systems, etc. Response Prevention is a pre-emptive measure; response is a reactive step. If prevention is not possible, fast response is the next best alternative strategy. After an interruption or damage has taken place, the BCP team should immediately

inform the management and the Damage Assessment Team. Two other teams would also be involved: the Technical Team and the Operations Team. The Damage Assessment Team would assess the nature and magnitude of the damage. More specifically, the team should investigate into: The cause of disruption or damage. The scope for preventing additional damage. What can be salvaged. What repairs, restorations and replacements are required. Developing a Business Continuity Plan Plans and strategies work together. A plan is also essential for implementation of a strategy or strategies. A separate plan can be made for each of the five strategies, i.e., prevention, response, resumption, recovery and restoration or an integrated plan can be prepared incorporating or dealing with all the strategies. Q3. Governed corporation is a model of successful corporate governance. Define and explain governed corporation. Distinguish between managed corporation and governed corporation in terms of boards role, major characteristics and policies of a company. Ans. Governed Corporation: The answer to problems of corporate failure in the managed corporation lies in the governed corporation. In the governed corporation, the focus is not on powernot monitoring or controlling the managersbut, on improving decision making. The objective is to minimize chances of mistakes; and, even if they occur, to mutually work out effective ways to rectify the mistake rather than fire the management. The result is a positive change in the way companies discuss, decide and review policy. Major differences in approach between the managed corporation and the governed corporation in terms of boards role, characteristics and policies are: The Managed Corporation The Governed Corporation Boards Role: Boards Role: Boards role is to hire, monitor and, when necessary, Boards role is to foster effective decisions and monitor change failed management and reverse failed policies. Board Characteristics Power sufficient to control the CEO and the performance-evaluation process. Independence to ensure that the CEO is impartially evaluated and that director are not compromised or co-opted by management. Board methods and procedures to allow outside directors to evaluate managers independently and effectively. Policies Separate the CEO and chairman (or lead outside director). Board meeting may take place without CEO being present. Committee of independent directors to evaluate the CEO. Independent financial and legal advisors available to outside directors. Measurable norms or yardsticks for judging CEOs performance. Board Characteristics Expertise sufficient to allow the board to add value to the decision-making process and performance. Incentives to ensure that the board is committed to create organizational value. Methods and procedures to foster open debate and keep the board apprised of shareholders concerns. Policies Vital areas of expertise must be represented on the board such as core industry and finance. Minimum time commitment by the board members (may be two days in a month). Designated committee to evaluate new policy proposals. Regular meetings shareholders with large Shareholders. Board members free to ask for information from any employee.

Pound has suggested five major changes in the managed corporation for it to evolve into a governed corporation. First, board members should be experts, i.e., well versed with the companyits products, structure, functioning, policies and practicesthe industry and environmental influences and governmental regulations; second, board meetings should focus on discussions on new policies, decisions and strategies, and not just on reviews of past performance; third, directors should have better access to information on products, customers, competitors, market conditions and critical strategic and organizational issues; fourth, directors should devote a significant proportion of their professional time to the company or the corporation to have more meaningful and effective involvement in decision making; fifth, board members should have proper incentive to develop and show the right commitment to the company. Directors cannot be expected to take serious interest in formulation and implementation of company policies and strategies unless they are sufficiently compensated for it. Q4. Price or market competitiveness of a product or business depends on its cost competitiveness. Cost competitiveness implies two things-cost efficiency and cost effectiveness. Explain the concept of cost efficiency of an organization. Analyze the major determinants of cost efficiency. Ans. Cost Efficiency Various factors contribute to cost efficiency in an organization. These may even include factors which are not directly related to cost or cost management like general work environment or culture in the organization, motivation levels of managers, approach of the top management, etc. However, here we shall consider the factors that are directly related to cost competence or cost efficiency. Four major factors may be identified: economies of scale, supply cost or cost of raw materials and inputs, product or process design, and experience or experience effect. Economies of scale: Economies of scale are the most conventional and, also a very important source of cost efficiency. In manufacturing organizations, fixed cost (per unit of output), which initially remains very high, starts going down progressively as output increases. Because of this, average cost of output decreases as output increases, or the scale of operations increases. This also means increase in capacity utilization of plant and machinery. In non-manufacturing organizations or non-manufacturing activities, economies of scale can be affected through mass advertising, mass marketing, extensive distribution, etc. Economies of scale can also be achieved through global partnering and global networks. Supply cost: Costs of raw materials and various inputs constitute supply cost. Inputs generally include raw material inputs or intermediate inputs and energy inputs. In an extended sense, these inputs can include factor inputs like labor also. In highly raw material-intensive industries like steel, cement and non-ferrous metals, supply costs constitute a very high proportion of total cost of the product and, therefore, become a very important determinant of the level of cost efficiency. Product design: Product design starts at the R&D stage even if it is an imitation. Many feel that product design is the first step in efficient cost management, because the nature of the product determines, to a large extent, the raw material and other input requirements and supply cost. Cost efficiency in production processes can be achieved through better process engineering, increase in productivity(depends partly on the technology level) and better working capital management. Cost competitiveness through product design need not, however, be confined to manufacturing or production process alone. Innovative product design can lead to cost saving through its influence on other parts of the value chain also like distribution or after-sales service. Canon proved this in its battle with Xerox. Xeroxs competitive advantage was built on its service and support network. Canon designed a copier which needed far less servicing8 and, through this, made one of the strong competence areas of Xerox largely redundant. In the process, Canon also achieved cost efficiency by spending much less on its service network. Experience: Experience in any activity in an organization can be an important source of cost advantage or cost efficiencybe it manufacturing or any other functional area. Many studies have been conducted to establish the relationship between cumulative experience gained in an organization and its unit cost. The relationship is

generally expressed as an inverse relationship between cumulative output and unit costunit cost decreases as cumulative output increases. In a cost-conscious organization, all the four major factors, i.e., economies of scale, supply cost, product/process design and experience may play active roles for achieving cost efficiency. However, economies of scale and experience effect can occur only after an organization has been in operation for some time. Newly launched companies or products must concentrate on product/ process design and supply cost and try to reduce the experience cycle through a more efficient management system. Q5. Stability strategy is most commonly used by an organization. An organization will continue in similar business as it currently pursues similar objectives and resource base. Discuss six situations when it is good/best to pursue stability strategy. Give some Indian examples. Ans. When Best to Pursue Stability Strategy: Good parenting can help SBUs to follow any strategy effectively including stability strategies. In large multibusiness organizations, some SBUs may follow stability strategy; some other SBUs may have to adopt strategy for internal change and restructuring; other SBUs may pursue expansion strategy. Stability strategies are followed by organizations as corporate-level strategy also. In fact, most organizations (single business or multi-business) follow stability strategies for a period of time; some organizations follow this for a longer period than others. It has been generally observed that as companies/corporations grow older, they get more rooted in structures and systems and, are more likely to follow a stability strategy. L&T is an example. We can also identity some specific situations when it is best to pursue stability strategy: (a) Perception of management about performance: If the management is satisfied with present performance and, is not willing to take market risks, they may like to adopt stability strategy and continue with it. The management may consider change of strategy only if results are not forthcoming. (b) Slowness to change: Some organizations are slow to change or resistant to change. This is particularly true of public sector companies. Many such companies are not organizationally equipped for fast or sudden change and lack the ability to cope with risk and uncertainty inherent in such change. (c) Frequent past changes: If a company had made frequent strategic changes in the past, it should follow stability strategy for some period for more efficient management. In fact, it is always recommended that, after a period of internal change and restructuring or expansions, stability strategy should be pursued as a pause or rehabilitation. Otherwise, the organization may show signs of destabilization. (d) Strategic advantage: If an organizations strategic advantage lies in the present business and market, it should pursue stability strategy. If, for example, an organization has high market share, it can continue in the same business and defend its position through incremental strategic changes. (e) Profit objective/maximization: Every company has some profit objective which is commensurate with the level of investment, output level, market structure, willingness to take risk, etc. If the stability strategy helps the company achieve its profit objective, the company should stick to this. Sometimes, stability strategy may even help in profit maximization. (f) Stable environment: Given the organizational resources and capabilities, the nature of environment determines, to a large extent, the kind of strategy to be followed by a company. If the environment is generally stable in terms of macroeconomic situation, government policy regulations and competition, stability strategy may be the best. The particular strategy to be followed depends on the precise nature of the environmental impact. If the environment is hostile or volatile, stability strategy is not recommended.

Some Indian Examples: In practice, many companies in India and various other countries follow stability strategies. The reasons or situations can be those mentioned above. Such factors and circumstances relate to conditions in a particular country. In India, in addition to the situations mentioned above, reasons for pursuit of stability strategy by companies are of three types: 1. Overcapacity or underutilization of capacity; 2. Regulatory restrictions or controls; 3. Lack or withdrawal of budgetary support for expansion. The steel industry, cement industry and coal industry in India have overcapacity. This is one of the most important reasons why companies like SAIL, Coal India and ACC are adopting the stability strategy. Such companies cannot go for expansion strategies. Instead, they are concentrating on improving their operational efficiency. Cigarette and alcoholic beverages industries are subject to regulatory restrictions and there is strict control over expansion of these industries. Companies in the cigarette industry, like ITC, are going for growth and diversification in Agri business, hospitality business and export. Many companies in the public sector are forced to adopt stability strategy because of governments policy of privatization or divestment and curtailing or stopping budgetary support for any expansion program. Many public sector companies in India also adopt stability strategies because of their size, slowness to change, unwillingness to take risk and the accountability system. Examples are many: BHEL, BPCL, HPCL, IOC, HCL, RCF, STC, MMTC, etc., in addition to SAIL and Coal India. Q6. Corporate culture governs, to a large extent, business ethics and values in an organization. Describe the state of business ethics in Indian companies. Analyze in terms of KPMG business ethics survey. Ans. Business Ethics in Indian Companies In terms of ethical practices, companies in India, as in many other countries, can be classified as good and bad. We have just given the examples of Infosys, Amul, ICICI, etc., which are highly ethical. There are also companies which do not conform to strong ethical norms. We also have regulations like the MRTP Act and FEMA (earlier FERA) for curbing unethical business practices. KPMG India conducted a survey of 280 top Indian companies for ascertaining the level of business ethics in India. Study analysis and findings are contained in Business Ethics Survey Report: India, 1999. Major findings of the study are summarized below: (a) Mission statement: About 85 per cent of the companies surveyed are reported to have a mission statement. But, most of these statements focus on customer service and customer satisfaction. Very few companies emphasize ethical and moral issues such as organizational values, integrity in business, harassment in the workplace, etc. (b) Company policy on ethics: Many companies have a documented policy on ethics. But, implementation or reinforcement of a formal ethical system is weak in most of these companies. Some companies have a grievance cell; some companies conduct periodic workshop on business ethics, but nothing much beyond that. (c) Ethical risk in the workplace: Many companies express concern about lack of ethics in the workplace. Some of the major ethical concerns expressed by companies are: leakage or misuse of confidential information (77 per cent); insider trading (48 per cent); receiving gifts or favors from suppliers (48 per cent); promoting personal interest (47 per cent). (d) External factors in corporate ethics: Most Indian companies feel that ethical problems in business arise because of external or environmental factors. Two major external factors are government policies/regulations and political interference.

(e) Training in business ethics: Majority of the companies feel that training in business ethics should be given high priority. Education in ethics should be incorporated in the formal management development programs of companies. (f) Strengthening ethical practices: Most Indian companies are of the opinion that, for strengthening ethical business practices, two factors are important: first, professionalizing company management; and, second, minimizing state or governmental control and interference.