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MB0052 - Strategic Management and Business Policy

Roll no.

Q1. A well formulated strategy is vital for growth and development of any organization. Explain the corporate strategy in different types of organization.
Answer: 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 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 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. Corporate strategy in Multinational: 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 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 sectors: 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.

Recovery. for the future which implies business continuity. Explain any two strategies for business continuity planning. and the beneficiaries of service are not necessarily the contributors to revenue or resource. Importance of Business Continuity Planning (BCP): Businesses today can be exposed to different types of threats natural or man-made. 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. Strategies for Business Continuity Planning: Because of the possibility of different kinds of impacts. appropriate strategies should be developed and used to deal with particular situations. and Restoration. Many of these organizations have multiple service objectives. ideology and underlying values are of central strategic significance. All these make strategic planning and management in these organizations quite different from all other organizations. The evaluation criteria also become different. BCP plays a critical role in a business its survival and sustainability. but also for tomorrow. Common preventive control measures are: . Thus. Q2. Answer: 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. that is. These are Prevention. In these organizations. Write the importance of business continuity planning. BCP prepares companies to prevent or respond to such situations so that the damages or losses are minimized and the business or company survives. the focus on social responsibilities is even greater than in the public sector. Businesses need to be planned not only for today. Resumption. Five different strategies should be developed for five different situations/actions. Companies can adopt many preventive control measures as safeguards. Prevention: This means taking steps or actions to prevent or minimize the chances of occurring of a disaster. Response.Corporate strategy in Non-profit organizations: In non-profit organizations. and depending on the nature of damage or disaster.

the Technical Team and Operations Team should get into action. Q3. etc. in other words. Managers will continue to play their roles. Governed corporation is a model of successful corporate governance. and also of shareholders. Both the directors and shareholders should be proactive and not reactive in the policymaking process. The Damage Assessment Team would assess the nature and magnitude of the damage. the team should investigate into  The cause of disruption or damage  The scope for preventing additional damage  What can be salvaged  What repairs. Two other teams would also be involved they are Technical Team and the Operations Team. Response: Response is a reactive step. manned surveillance at the location.  Personnel controls: Skilled/trained personnel are posted to man sensitive zones where key or critical resources may be located.  Software controls: These involve modern methods of controls through computerized systems or software. Security controls: These involve controls by setting up barriers to protect the site and prevent unauthorized entry into the premises. to mutually work out effective ways to rectify the mistake rather than fire the management. weather forecasting systems. intrusion detection systems. restorations and replacements are required Based on the report of the Damage Assessment Team. the BCP team should immediately inform the management and the Damage Assessment Team. etc. encryption. The Technical Team is the key decision maker for further actions of the BCP and the Operations Team executes the actual damage control operations of BCP. Answer: Governed Corporation: In the governed corporation the focus is on improving decision making. fire extinguishers. The result is a positive change in the way companies discuss. This means . major characteristics and policies of a company. The objective is to minimize chances of mistakes and even if they occur. This means. After an interruption or damage has taken place. companies should start rethinking about the role of directors.  Infrastructure controls: These include appropriate infrastructural facilities like UPS/back-up power. firewall. To create the governed corporation. Define and explain governed corporation. decide and review policy. More specifically. These include authentication. Distinguish between managed corporation and governed corporation in terms of board’s role. smoke/fire detectors.

monitor and.  Board meeting may take place without  Minimum time commitment by the CEO being present. also the directors about what they think of corporate policies and decisions. The Managed Corporation The Governed Corporation Board’s Role Board’s Role  Board’s role is to hire. board members (may be two days in a month). change failed decisions and monitor and reverse management.  Methods and procedures to foster open  Board methods and procedures to allow debate and keep the board apprised of outside directors to evaluate managers shareholders’ concerns.  Board’s role is to foster effective when necessary.  Committee of independent directors to evaluate the CEO. process and performance. industry and finance.  Designated committee to evaluate new policy proposals.  Regular meetings shareholders with large shareholders. With shareholders and board/ directors participating in policy and decision making. Policies Policies  Vital areas of expertise must be  Separate the CEO and chairman (or represented on the board such as core lead outside director). Directors should guide managers to take best possible decisions major shareholders should be able to communicate directly with the senior managers/CEO and. directors and shareholders) have a voice in the governance of the company.  Independent financial and legal advisors available to outside directors. the corporation is governed rather than managed because all the three critical constituents (managers. . and. the board of directors. the managers and shareholders. Board Characteristics Board Characteristics  Power sufficient to control the CEO  Expertise sufficient to allow the board and the performance-evaluation to add value to the decision-making process.  Board members free to ask for information from any employee.  Independence to ensure that the CEO is  Incentives to ensure that the board is impartially evaluated and those committed to create organizational directors are not compromised or covalue.that there are three critical constituents of the governed corporation. failed policies. independently and effectively. opted by management.  Measurable norms or yardsticks for judging CEO’s performance. the managers already involved.

cement and non-ferrous metals. average cost of output decreases as output increases. more efficient is the value creation process. This also means increase in capacity utilization of plant and machinery. lesser the resources or cost. Answer: Cost Efficiency: Cost efficiency may be defined as the level of resources or cost required to produce a particular output or create a given value. which initially remains very high. 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. also a very important source of cost efficiency. these inputs can include factor inputs like labor also. product or process design. The factors that are directly related to cost competence or cost efficiency may be identified as economies of scale. is the ability to contribute to the defined level of objectives or goals or to produce results. Inventory (of raw materials. therefore. therefore. Companies are becoming increasingly aware of this. Price or market competitiveness of a product or business depends on its cost competitiveness. Many companies have achieved cost efficiency through these methods. Explain the concept of cost efficiency of an organization. Product/process design: Product design starts at the R&D stage even if it is an imitation. become a very important determinant of the level of cost efficiency. Cost competitiveness implies two things-cost efficiency and cost effectiveness. Xerox’s competitive advantage was built on its service and support network. starts going down progressively as output increases. In highly raw material-intensive industries like steel. Analyze the major determinants of cost efficiency. supply costs constitute a very high proportion of total cost of the product and. Cost efficiency in production processes can be achieved through better process engineering. Canon proved this in its battle with Xerox. So. Economies of scale: Economies of scale are the most conventional and. Economies of scale can also be achieved through global partnering and global networks. In manufacturing organizations. . components and spares) planning and management are also part of this. Companies are also reducing the number of vendors to make the raw material supply chain more cohesive and cost efficient. supply cost or cost of raw materials and inputs.Q4. increase in productivity (depends partly on the technology level) and better working capital management. Because of this. and experience or experience effect. In an extended sense. Effectiveness is more plan-output relationship how much of the plan has been fulfilled or realized given a resource level or cost. fixed cost (per unit of output). or the scale of operations increases. Inputs generally include raw material inputs or intermediate inputs and energy inputs. Effectiveness. Supply cost: Costs of raw materials and various inputs constitute supply cost.

companies will concentrate their resources where the company presently has or can rapidly develop a meaningful competitive advantage in the narrowest possible product market scope consistent with the firm’s resources and market requirements. The management may consider change of strategy only if results are not forthcoming. Strategic advantage: If an organization’s strategic advantage lies in the present business and market. Stability strategy is most commonly used by an organization. it should pursue stability strategy. If. Stability strategies are followed by organizations as corporate-level strategy also. This is particularly true of public sector companies. Discuss six situations when it is good/best to pursue stability strategy. an organization has high market share. is not willing to take market risks. . it should follow stability strategy for some period for more efficient management. It has been generally observed that as companies/corporations grow older.Experience: Experience in any activity in an organization can be an important source of cost advantage or cost efficiency be it manufacturing or any other functional area. Frequent past changes: If a company had made frequent strategic changes in the past. Answer: Stability Strategy: In an effective stability strategy. for example. it is always recommended that. the organization may show signs of destabilization. Otherwise. are more likely to follow a stability strategy. Many studies have been conducted to establish the relationship between cumulative experience gained in an organization and its unit cost. An organization will continue in similar business as it currently pursues similar objectives and resource base. they get more rooted in structures and systems and. Perception of management about performance: If the management is satisfied with present performance and. The relationship is generally expressed as an inverse relationship between cumulative output and unit cost unit cost decreases as cumulative output increases. 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. after a period of internal change and restructuring or expansions. stability strategy should be pursued as a pause or rehabilitation. Q5. Situations Best to Pursue Stability Strategy: Good parenting can help SBUs to follow any strategy effectively including stability strategies. Give some Indian examples. We can also identity some specific situations when it is best to pursue stability strategy. they may like to adopt stability strategy and continue with it. Slowness to change: Some organizations are slow to change or resistant to change. In fact.

integrity in business. 1999. to a large extent. stability strategy may be the best. etc. There are also companies which do not conform to strong ethical norms. but nothing much beyond that. ICICI. Some companies have a grievance cell. If the environment is generally stable in terms of macroeconomic situation. etc. etc. Major findings of the study are summarized below: Mission statement: About 85 per cent of the companies surveyed are reported to have a mission statement. Answer: Business Ethics in Indian Companies: In terms of ethical practices. companies in India. Sometimes. Company policy on ethics: Many companies have a documented policy on ethics. Study analysis and findings are contained in Business Ethics Survey Report: India. stability strategy is not recommended. Some of the major ethical concerns expressed by companies are: leakage or misuse . KPMG India conducted a survey of 280 top Indian companies for ascertaining the level of business ethics in India. Describe the state of business ethics in Indian companies. the nature of environment determines. can be classified as good and bad. Profit objective/maximization: Every company has some profit objective which is commensurate with the level of investment. market structure. The particular strategy to be followed depends on the precise nature of the environmental impact. Analyze in terms of KPMG business ethics survey. Corporate culture governs. which are highly ethical. business ethics and values in an organization. the company should stick to this. But. implementation or reinforcement of a formal ethical system is weak in most of these companies. the kind of strategy to be followed by a company. Amul. We have just given the examples of Infosys. harassment in the workplace. If the environment is hostile or volatile. government policy regulations and competition. Q6. stability strategy may even help in profit maximization. We also have regulations like the MRTP Act and FEMA (earlier FERA) for curbing unethical business practices. Stable environment: Given the organizational resources and capabilities. But. as in many other can continue in the same business and defend its position through incremental strategic changes. output level. some companies conduct periodic workshop on business ethics. If the stability strategy helps the company achieve its profit objective. Very few companies emphasize ethical and moral issues such as organizational values.. willingness to take risk. most of these statements focus on customer service and customer satisfaction. Ethical risk in the workplace: Many companies express concern about lack of ethics in the workplace. to a large extent.

Strengthening ethical practices: Most Indian companies are of the opinion that. 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. two factors are important: first professionalizing company management and second minimizing state or governmental control and interference. insider trading (48 per cent). Education in ethics should be incorporated in the formal management development programmers of companies. Training in business ethics: Majority of the companies feel that training in business ethics should be given high priority. receiving gifts or favors from suppliers (48 per cent). for strengthening ethical business practices.of confidential information (77 per cent). promoting personal interest (47 per cent).