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MB0052 - Strategic Management and Business Policy

1.

Describe the role of five major participants in the Strategic
Management Process (SMP) of a company.

The five major participants in the strategic management process of a company
although they may play quite different roles. The five participants are:
1.
2.
3.
4.
5.

Board of directors
Chief Executive Officer (CEO)
Corporate planning staff
Other managers
Consultants

Role of Board of Directors
In any organizational hierarchy, the board of directors is the apex/highest level
body. The board is the final authority in managing the affairs of a company
strategic or non-strategic. They perform these functions according to or
subject to the memorandum of association and articles of association of the
company.
The role of a board member depends on his (her) degree of involvement in the
strategic process; and the degree of involvement of a member depends part
Lyon the management philosophy of a company and partly on the interest a
particular board member takes in the affairs of the company. The levels of
involvement and, therefore, the roles of the board members can vary widely.
Role of Chief Executive
The chief executive plays the most important role in the strategic
management process of a company. Major management functions of a chief
executive, however, can be broadly divided into two categories; strategic and
non-strategic.
Every chief executive should clearly distinguish between his/her strategic
functions and non-strategic or operational functions so that he can
appropriately allocate his time and concentrate more on strategic functions.
Role of Corporate Planning Staf
Every chief executive needs the support of his corporate planning staff. With
increasing volatility of the competitive environment, the strategic planning
and management process is becoming more complex. Also, with the
introduction of new tools, techniques and planning models, the planning
system is also becoming more technical and specialized. Therefore, almost all
large companies and multinationals have created a separate corporate
planning division or unit.

This is the reason why even large multinational companies hire consultants for achieving their goals or objectives. Some of these heads are at the level of directors who are represented on the board. Role of Senior Managers Not only the corporate planning staff but other managers. It captures the essence of a company’s’ goal but does not explain how you are going to achieve those goals. consultants can fill that gap. Even in companies with a corporate planning division/unit. They can undertake planning and strategy exercises as and when the company management feels the need for such exercises or consultancies. 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.This division or unit is equipped with specialized planning staff who forms the nucleus of strategic planning activities of a company. cost efficiency. In companies with no separate planning division or unit. Consultants render services in different functional areas of management including the strategic planning and management process. It is something a company constantly strives towards and should always be positioned in a future focused way. long-term growth or diversification. techniques or models to work out solutions to specific strategic management problems or issues—be it productivity. including top management committees which are involved in strategic planning and management. The senior managers include SBU heads and also functional heads. 2 Diferentiate between mission and vision of a company? Explain with examples. diversification. also play an important role in the strategic management process of a company. consultants may provide specialized inputs or insights into identified management or strategy areas. In many companies. In all these committees some corporate planning staff members are also represented. Some of these committees consider and evaluate proposals for new investment. restructuring. Role of Consultants Management consultants can play very useful roles in the strategic planning process of a company. restructuring. Vision A vision statement is a short and inspiring phrase of what a business intends to become and achieve at some point in the future. Top strategic consultants like McKinsey & Company use or develop latest tools. this division or unit functions directly under the charge of the chief executive. . The senior managers are members of different management committees. particularly the senior managers. etc.

If it’s that good. an environmentally responsible company  How you want to be perceived as an organisation  Your primary business focus and the goals you are working towards  Who you target and who you care about – don’t forget to honour your employees    – e. A very high level description of what you offer Your presence How you expect to grow Examples of great phrases to include in mission statements are:  We believe  We envision  We are driven to  We will always  We design . is it hidden in the back room because someone forgot to put it up? I believe that both vision and mission statements should be in every office where employees can see them and embrace the ideas. etc.g. and while longer than a vision statement (most are around one paragraph) it should still be unambiguous and to the point. delivering promising careers. every employee in your organisation will be guided by it and remember it. Is yours that good? Or worse. You should integrate socially meaningful positions for your company. Examples of Vision Statements A company I admire – Virgin:  “I believe that in the future we will be able to enjoy healthy & fulfilling lifestyles whilst minimising the negative impact we have on the world” Richard Branson Another great company – Boeing:  “People working together as one global enterprise for aerospace leadership” A company famous for its statements Nike:  “To be the number one athletic company in the world” Mission A mission statement clarifies an organisations purpose..g. we hire the best and brightest. Everyone needs to “live” them and be reminded of them as the core drivers of business. measurable criteria and take it to a higher level. or there’s absolutely no point doing it. A mission statement could include:  Your moral stance – e.The most important thing a vision statement must do is inspire and energize its employees.

. Apple reinvented the mobile phone with its revolutionary iPhone and App Store. . in-plant production costs. the practice of major beer producers in Europe to locate micro-breweries in or around major metropolitan cities).g.. (e. lower labor costs enjoyed by Japanese companies locating their video assembly operations in Thailand). Two dimensions of the strategy analysis are market coverage and basis of product performance.g.    We lead To deliver To exceed Etc… Examples of Mission Statements Another amazing company – Apple – although their mission statement is a bit boring  Apple designs Macs. iLife.. the best personal computers in the world. Explain in detail Porter’s four generic strategies. (e. lower delivery cost because of proximity of key markets. iWork. along with OS X. These are: • Cost leadership • Focused cost leadership • Differentiation • Focused differentiation Porter’s theory is based on the concepts of niche marketing and mass marketing and product proposition to be offered by different companies. ii. which can be executed at a cost significantly lower than that of competitors. Porter (1985) evolved the theory that there are four generic strategic options available to companies. Apple leads the digital music revolution with its iPods and iTunes online store. 3. (e.g. iii. and professional software. lower input costs. Cost leadership strategy is based on exploiting some aspects of the production process. the price paid by New Zealand timber mills for the logs produced by the country’s highly efficient forestry industry or cheap source of high quality bauxite for National Aluminum Company (NALCO) in India from its mines). and has recently introduced its magical iPad which is defining the future of mobile media and computing devices. There can be various sources of this cost advantage: i.

Core competence gives a company a clear competitive advantage over its competitors. For. second. the Cray Corporation supplies ‘super computers’ to the aerospace and defiance industries. Xerox’s core competence is in photocopying. 3M’s core competence is in sticky tape technology. it is ‘interwoven resources.Focused cost leadership exploits the same advantages as in cost leadership strategy. offers low-priced fresh vegetables to the inhabitants in the immediate neighborhood area. Core competence is not just a single strength or skill or capability of a company. ITC’s in tobacco and cigarettes and Godrej’s in locks and storewels. but the company occupies a specific niche or niches serving only a part of the total market. JVC’s in video tape technology. Focused differentiation. Hamel and Prahalad defined core competence as the combination of individual technologies and . technology and skill’ or synergy culminating into a special or core competence. two of the greatest exponents of core competence. 4 Diferentiate between core competence and distinctive competence. Sony has a core competence in miniaturization. The only difference is that in this strategy. (e. is also based on superior performance. competitors are less of a threat.g. which is typically a strategy of smaller and most specialist companies. Canon’s core competence lies in optics. For example horticulture enterprise. Core Competence Core competence of a company is one of its special or unique internal competence.. 1990) that the central building block of the corporate strategy is core competence. which operates an onsite farm shop. first. e. Porter has mentioned that cost leadership and focused cost leadership represent a ‘low scale advantage’ because it is quite likely that eventually a company’s capabilities will be eroded by rising costs (labour cost in particular) or its market position will be challenged by an even lower cost producer of goods. they must be able to offer an even higher performance product. Differentiation strategy is based on offering superior performance.g. Russia’s post-Perestroika entry in the world arms market offering extremely competitive prices). the producer can usually command a premium price for its product and. imaging and laser control. a company specializes in serving the needs of a specific market or markets. and Porter argues that this is a ‘high scale advantage’ because. Honda’s core competence is in engines (for cars and motorcycles). argue in ‘The Core Competence of the Corporation’ (HBR. Hamel and Prahalad.. because to be successful.

strong and aggressive competitors may develop. First. this has to be amply supported by special capabilities in the related vital areas like resource or financial management. This is what Japanese companies have done in the fields of electronics and automobiles. and what we can do that other companies might Distinctive competences may provide an answer to some of these points. cameras and image scanners Distinctive Competence Core competence may not be enough.production skills that underlie a company’s product lines. There are two problems with this. and now South Korea is doing to Japanes electronics. laser printers. ‘The combination of individual technologies and production skills’. similar products or processes which are highly competitive. . and. 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. cost management. and we must ask ourselves what we can leverage as we move into the future. logistics. to secure competitive advantage. Sony’s core competence in manufacturing allows the company to make everything from the Sony walkman to video cameras to notebook computer. imaging and microprocessor controls have enabled it to enter markets as seemingly diverse as copiers.. processor technology or technological innovation may not be enough. etc We have to look at the organization as a portfolio of competencies. According to them. Second. of underlying strengths. IBM’s core computer technology is also facing the same problem. marketing.. not just a portfolio and business unit . Canon’s core competence in optics. as Hamel and Prahalad put it. either through parallel innovations or imitations. because it focuses predominantly on the product or process and technology. or. only product. We must also identify those core competencies that would allow us to create new products..

and. VCR/VCP. CTV. no single company has any significant market share. and. Emerging industry An emerging industry is a developing or newly formed industry in which market for products initially exists in latent form. An emerging industry may be created by technological innovations.5 Define the term ‘industry’. List the types of industries. and. The uniqueness of a fragmented industry is the absence of any market leader. How do you conduct an industry analysis? An industry can be broadly defined as ‘the group of firms producing products that are close substitutes for each other. new consumers or industrial needs for economic or sociological changes which create the environment or potential market for a new product or service. and. the market share of the largest unit does not exceed 10 per cent. Fragmented industry As fragmented industry is characterized by the existence of a large number of small and medium units. Different emerging industries may have different structures—structural details always vary. Emerging industries are being created all the time. typically. photocopiers. most of the emerging industries exhibit some common structural characteristics. But. or. none of these units can individually affect the market or industry outcome. becomes visible later. most of the existing industries today were emerging industries at some point of time or the other. computers. Examples are word processors. etc. Mature industry . to put it in other words.

however. To be called a global industry. and. a declining industry does not represent a short-term discontinuity. In industry life cycle. Declining industry A declining industry is one with negative growth. an industry’s economics and competitors in different national markets should be considered jointly rather than individually. Maturity is an important or critical phase in the industry life cycle. fundamental changes often take place in the competitive environment. Therefore. For example. may be delayed or postponed because of innovations or other events or developments including environmental changes. functions and responsibilities are allocated for implementing a policy or strategy. The structure goes . that is. companies are usually faced with difficult strategic decisions for survival and growth because competition becomes very intense.2 An organizational structure is presented through the organizational chart. These also imply that an organizational structure facilitates or constrains how processes and relationships work. demand for oil-based laundry soaps for cloth washing declined fast because of introduction of synthetic washing materials. a trend expressed in falling industry output. Global industry In global industry. and the links and hierarchies among them. For example. The organizational chart. the strategic position of companies in different countries or national markets is governed by their overall global positions. sales. During this period. is only a visual expression of the tasks. 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. functions responsibilities. Such decline in sales is not because of business cycles or any other short-term factors like strike. decline follows maturity. in some cases. Industry maturity. an industry which has registered absolute decline in sales over a sustained period of time. Decline sets in generally because of product obsolescence or emergence of a strong substitute product. Structure of an organization defines the levels and roles of management in a hierarchical way.A mature industry is one which has passed through transition from period of fast growth to more modest or stable growth. profitability and dwindling number of competitors. and a worldwide manufacturing system which is well coordinated. One can also say that an organizational structure spells out the way tasks. This would mean prolonging the industry growth cycle or the transition to maturity. but. lockouts or material shortages. 6 What is meant by ‘structure of an organization’? Describe the five major structural types or forms of an organization.

Each of these product/market segments also face a different environment. This implies a functional structure. SBU Structure Divisions closely approximate strategic business units (SBUs) in all large multibusiness organizations. the earlier divisional structure has been replaced by an SBU structure to give more focus on individual business and clearly define the role of corporate parents.beyond the visible chart and signifies the mechanism through which an organization works. and HR along with certain delegation of powers. the simple entrepreneurial system outlives its utility as a structural form. The fundamental factor in the SBU structure is to identify independent product/market segment which requires distinct strategies.3 Organizations with such structures are typically single business product or service companies which cater to local or regional markets. services or geographical areas. In many companies. Some call it a simple structure and contend that this is no formal structure at all. The more common form of divisionalization is on the basis of product or business. Matrix Structure . particularly in the public sector. Need arises for functional specialization and also delegation of powers for efficient functioning. Divisionalization gives focus on different divisions with separate product/market strategies. Entrepreneurial Structure This is the most elementary form of structure. more is the need for separate strategies. marketing. The entrepreneurial structure represents an organization which is owned and managed by a single individual— the entrepreneur. Divisional Structure A divisional structure—some call it multidivisional structure—consists of separate divisions constituted on the basis of products. and. Need for a divisional structure arises primarily because of inadequacy of a simple functional structure to deal with the complexities of business as an organization grows very large. finance. Functional Structure As an organization increases in size with expansion of business. A functional structure is based on differentiation and allocation of primary functions such as production. therefore.

development of a new market or geographical operations. The members of the team have dual responsibility and authority—one is project responsibility and authority and the other their ‘line’ responsibility and authority in terms of hierarchy and command. that is. In the matrix structure.A matrix structure is a need-based or project-based structure which does not follow the conventional lines of hierarchy or control. Functional/specialist resources are drawn from different divisions/functional areas to constitute the project team. the project period . a project manager is appointed to oordinate and manage project activities. We can call it a combination structure —combination of different divisions or functions—designed to form a project team for launching a new product. Every matrix structure usually has a defined duration.