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Assignment: (SMU Jan-2016 exam)

Program: MBA-Sem-4
Subject Code & Name: MB0052 - Strategic Management & Business policy.

Q. 1 (a) Define Strategic Management and Strategic Planning.


(b) Discuss the benefits of Strategic Management.
Answer:
(a) Strategic Management and Strategic Planning:
Strategic Management Like strategy, strategic management also has been defined differently by
different authors and strategy analysts. Below three definitions of strategic management together
give completeness to the concept of strategic management.
Strategic management is that set of decisions and actions which leads to the development of an
effective strategy or strategies to help achieve corporate objectives.
Strategic management is defined as the set of decisions and actions in formulation and
implementation of strategies designed to achieve the objectives of an organization:
Strategic management is primarily concerned with relating the organization to its environment,
formulating strategies to adapt to that environment, and, assuming that implementation of strategies
takes place.
Strategic planning: (also called corporate planning) provides the framework (some call it a tool) for
all major decisions of an enterprisedecisions on products, markets, investments and Organizational
structure. In a successful organization, strategic planning or strategic planning division acts as the
nerve centre of business opportunities and growth. It also acts as a restraint or defense mechanism
that helps an organization foresee and avoid major mistakes in product, market, or investment
decisions.
b) Benefits of Strategic Management:
Different research studies indicate that organizations using strategic management are more profitable
and successful than those which do not. Companies using strategic management techniques show
significant improvement in productivity, sales and profitability compared to the ones without
systematic planning.
Greenley (1986) has analyzed various non-financial benefits of strategic management. He has
enunciated the benefits of strategic management as given below:
It provides for an objective view of management problems.
It allows for identification, prioritization and exploitation of opportunities.
It allows for more effective allocation of time and resources to identified opportunities.

It provides a framework for improved coordination and control of activities.


It enables major decisions to support established objectives and priorities better..
It helps to integrate the behavior of individuals into a total effect.
It provides a cooperative and integrated approach to tackling problems and opportunities.
It creates a framework for internal communication among managers.
It encourages forward thinking.
It imparts a degree of discipline, formality and positiveness to the management of a business.
It encourages a favorable attitude towards change.

Q.2 Discuss the difference between defensive strategies and pre-emptive strategies. Give
examples to support your answer.

Answer:
Difference between defensive strategies and pre-emptive strategies:
Defensive Strategies:
The classic form of retaining existing (civil) territory is to mount a position defense by constructing
strong ramparts to keep out the enemy. In business, position defense is problem with many
organizations is that the defender often becomes complacent and, does not realize that the enemy is
making slow, but steady, inroads into the customer base.
One of the unfortunate examples of this situation is IBM. The company built a big global business in
the computer industry based on unmatched customer loyalty. But, IBM ignored the threats, may be
unknowingly, and posed by the advent of the networked PC and more powerful operating systems.
The company realized, rather late in the 1990s, that customer loyalty had been completely eroded by
competitors who were more strongly committed to fulfilling the changing needs of customers.
Counter-offensive strategy has a different advantage. It has the advantage of not having to respond
before one measure up the real nature of the competitive threat. Nevertheless, it is a belated response,
and there is always the risk that by waiting until you see the whites of the enemys eyes, a company
may be forced to spend massive resources to recover lost grounds.
Example: Xerox Corporation is an example. Xerox had been forced to make large investments in
R&D, technology, manufacturing process and organizational structure during the last few years to
regain some of the lost ground in the photocopier market to competitors such as Canon.
Retreat is sometimes a good defense. After a careful review of circumstances, if it is evident that the
competitor has the potential to overwhelm the company, then there may be very little logic in
defending a position which will be eventually lost to the enemy.

Pre-emptive Strategies:
Attack is the best form of defense is the basis of pre-emptive defense strategies. As the name
indicates, in pre-emptive defense strategies, companies, after having identified a possible threat, take
action ahead of competitors.
Pre-emption is considered by many as one of the smartest strategies. Pre-emption, as a strategy,
requires a close understanding of the planned and potential moves of competitors for slowing down
or blocking those moves. To develop pre-emptive strategies, companies need to consider five steps.
Ascertain where the market or competitors are moving or might move;
Identify potential strategies for getting their first or for blocking the competitors moves;
Ascertain whether these strategies are consistent with the companys current strategic goals;
Determine whether these strategies are feasible in terms of resources and competences;
Determine whether and how far they are likely to affect the competitors objectives, actions and
reactions.

The ability to pre-empt requires companies to be creative or innovative. In fact, creativity or


innovation is often a key resource in pre-emption. It allows companies to see the unexpected
opportunity, threat or competition and design the strategy in advance.

Q.3 (a) Why Turnaround strategy is sometimes called as an extension of restructuring


strategy ?
(b) Differentiate between surgical and non-surgical turnaround. Give examples.
Answer:
(a) Reason for calling turnaround strategy as extension of restructuring strategy
Corporate turnaround may be defined as organizational recovery from business decline or crisis.
Business decline for a company means continuous fall in turnover or revenue, eroding profit, or
accrual or accumulation of losses. So, business or organizational decline, like business performance,
is understood in relative terms, that are, compared with the past. But, some strategy analysts describe
business decline in terms of current comparisons also; for example, relative to industry rates or
averages or even relative to economic growth of the country. Corporate crisis means deepening or
perpetuation of a decline. Turnaround strategies are usually required for crisis situations,
b) Surgical Turnaround and Non-surgical Turnaround:
Generally, there are two methods of corporate turnaround:
Surgical and
Nonsurgical.
The surgical method, more commonly practiced in the West, involves sweeping changes like firing of
staff, managers, wholesale reshuffling of portfolios, closing down operations, etc. Some call it
bloodbath or bloodshed. Non-surgical turnaround adopts the opposite approach, that is, peaceful
meansrevamping or recovery through meetings, discussions, persuasions, consensus, etc.
The operations in surgical turnaround are like this: the first step is to replace the chief executive of
the ailing company by a new iron chief. The new chief promptly gets into action; he asserts his
authority. He issues pre-emptory orders, centralizes functions and spears some convenient
scapegoats. Then he goes about firing employees en masse and auctioning/selling whole plants and
divisions until the fat is satisfactorily cut to the bone. The bloodbath over, the product mix is
revamped, obsolete machinery is replaced, marketing is strengthened, controls are toughened,
accountability for performance is focused and so on.
Example of Surgical Turnaround Strategy:

At GE, 1,00, 000 of a workforce of 4,00, 000 lost their jobs; at Imperial Chemical Industries (ICI),
the labor force was reduced from 90,000 to 59, 000; half the staff at Chrysler Corporation
disappeared; at British Steel, half the companys production capacity and 80 per cent of workforce
were gone.
Non- Surgical Turnaround Strategy:
Turnaround management of the humane type may involve negotiated and humane layoffs and
divestiture, but, not a bloodbath. This type of turnaround also is generally brought about by the new
helmsman. But, he spends a great deal of time in trying to understand organizational problems and
deliberating on them. He takes all the stakeholders including unions into confidence; forms groups
within the organization to brainstorm together on what needs to be done to get over the crisis; tries to

create a new work culture; and, generally infuses a strong sense of participation among the
employees and many critical decisions become participative decisions.
Example: There are many examples of successful turnarounds of the humane type including Enfield,
Volkswagen, Lucas, Air India, SPIC, BHEL and SAIL.

Q.4 Write short notes on the following expansion strategies:


(a) Penetration strategy for growth in existing markets
(b) Expansion through Diversification?
Answer:
(a) Penetration strategy for growth in existing markets
One growth strategy in business is market penetration. A small company uses a market penetration
strategy when it decides to market existing products within the same market it has been using. The
only way to grow using existing products and markets is to increase market share by lowering prices.
Market penetration involves achieving growth through existing products in existing markets and a
firm can achieve this by:
1. Motivating the existing customers to buy its product more frequently and in larger quantities.
Market penetration strategy generally focuses on changing the infrequent users of the firms products
or services to frequent users and frequent users to heavy users. Typical schemes used for this purpose
are volume discounts, bonus cards, price promotion, heavy advertising, regular publicity, wider
distribution etc.
2. Increasing its efforts to attract its competitors customers. For this purpose, the firm must develop
significant competitive advantages. Attractive product design, high product quality, attractive prices,
stronger advertising, and wider distribution can lead over its competitors. All these require heavy
investment, which only firms with substantial resources, can afford.
3. Targeting new customers in its current markets. Price concessions, better customer service,
increasing publicity and other techniques can be useful in this effort.

(b) Expansion through Diversification


Diversification is another form of internal growth strategy. This type of strategy can be very risky.
The purpose of diversification is to allow the company to enter new lines of business that are
different from current operations. There are four types of diversification:
a) Vertical diversification
b) Horizontal diversification
c) Concentric diversification
d) Conglomerate diversification

a) Vertical Diversification
In vertical integration new products or services are added which are complementary to the present
product line or service. The purpose of vertical diversification is to improve economic and marketing
ability of the firm. Vertical diversification includes:

i. Backward integration:
In backward integration, the company expands its business activities in such a way that it moves
backward of its present line of business.
ii. Forward integration:
In forward integration, the company expands its activities in such a way that it moves ahead of its
present line of business.
b) Horizontal Diversification:
Horizontal diversification involves addition of parallel products to the existing product line. For
example: A company, manufacturing refrigerator may enter into manufacturing air conditioners. The
purpose of horizontal diversification is to expand market area and to cut down competition.
c) Concentric diversification:
When a firm diversifies into business, which is related with its present business it is called concentric
diversification. It is an extreme form of horizontal diversification. For example: Car dealer may start
a finance company to finance hire purchase of cars.
d) Conglomerate diversification:
When a firm diversifies into business, which is not related to its existing business both in terms of
marketing and technology it is called conglomerate diversification.

Q.5 Discuss the competitive strategy in:


(a) Emerging industry
(b) Declining industry
Answer:
Competitive strategies enable a firm to outperform competitors in the industry. These strategies
include overall cost leadership, differentiation, and focus.
(a) Emerging industry
Emerging industries are created by technological innovations, shifts in relative cost relationships, or
the emergence of new consumer needs. Given the high level of uncertainty and risk and the lack of
clarity in the rules of competition, formulating a strategy in this type of industry involves identifying
early buyers or early adopters because early adopters influence the industry development, and the
way in which industry designs, produces, delivers, and markets its product.
Strategic Avenues for Competing in an Emerging Industry
1. Dealing with all the risks and opportunities of an emerging industry is one of the most challenging
business strategy problems.
2. To be successful in an emerging industry, companies usually have to pursue one or more of the
following strategic avenues:
a. Try to win the early race for industry leadership with risk-taking entrepreneurship and a bold
creative strategy.
b. Push to perfect the technology, improve product quality, and develop additional attractive
performance features.
c. As technological uncertainty clears and a dominant technology emerges, adopt it quickly.
d. Form strategic alliances with key suppliers to gain access to specialized skills, technological
capabilities, and critical materials or components.
e. Acquire or form alliances with companies that have related or complementary technological
expertise.
f. Try to capture any first-mover advantages associated with early commitments to promising
technologies.
g. Pursue new customer groups, new user applications, and entry into new geographical areas.
3. The short-term value of winning the early race for growth and market share leadership has to be
balanced against the longer-range need to build a durable competitive edge and a defendable market
position.
4. Young companies in fast-growing markets face three strategic hurdles: (1) managing their own
rapid expansion, (2) defending against competitors trying to horn in on their success, and (3)
building a competitive position extending beyond their initial product or market.

5. Up-and-coming companies can help their cause by: (1) selecting knowledgeable members for their
boards of directors, (2) hiring entrepreneurial managers with experience in guiding young businesses
through the start-up and takeoff stages, (3) concentrating on out-innovating the competition, and (4)
merging with or acquiring another firm to gain added expertise and a stronger resource base.
Declining Industry:
An industry where growth is either negative or is not growing at the broader rate of economic
growth. There are many reasons for a declining industry: consumer demand may be steadily
evaporating, the depletion of a natural resource may be occurring, or there may be the emergent
substitutes because of technological innovation.
Strategies for Firms in Stagnant or Declining Industries :
1. Many firms operate in industries where demand is growing more slowly than the economy-wide
average or is even declining.
2. Stagnant demand by itself is not enough to make an industry unattractive. Selling out May or may
not be practical and closing operations is always a last resort.
3. Businesses competing in stagnant or declining industries must resign themselves to performance
targets consistent with available market opportunities.
4. In general, companies that succeed in stagnant industries employ one or more of three strategic
themes:
a. Pursue a focused strategy aimed at the fastest growing market segments within the industry.
b. Stress differentiation based on quality improvement and product innovation.
c. Strive to drive costs down and become the industrys low-cost provider.
5. These three strategic themes are not mutually exclusive.
6. The most common strategic mistakes companies make in stagnating or declining markets are:
a. Getting trapped in a profitless war of attrition .
b. Diverting too much cash out of the business too quickly.
c. Being overly optimistic about the industrys future and spending too much on improvements in
anticipation that things will get better.

Q.6 Benchmarking is the process by which companies look at the best in the industry and try
to imitate their styles and processes
Evaluate the rationale for benchmarking exercises and discuss the features and types of
benchmarking. Please ensure to include an example to support your answer.
Reasons of benchmarking
Features of benchmarking
Types of benchmarking
One or two examples of benchmarking
Answer:
Benchmarking is the process of measuring products, services, and processes against those of
organizations known to be leaders in one or more aspects of their operations. Benchmarking provides
necessary insights to help you understand how your organization compares with similar
organizations, even if they are in a different business or have a different group of customers.
Additionally, benchmarking can help you identify areas, systems, or processes for improvements
either incremental improvements or dramatic (business process reengineering) improvements.
Types of benchmarking
1) Process benchmarking
The initiating firm focuses its observation and investigation of business processes with a goal of
identifying and observing the best practices from one or more benchmark firms. Activity analysis
will be required where the objective is to benchmark cost and efficiency; increasingly applied to
back-office processes where outsourcing may be a consideration.
2) Financial benchmarking
Performing a financial analysis and comparing the results in an effort to assess your overall
competitiveness.
3) Performance benchmarking
Allow the initiator of the firm to assess their competitive position by comparing products and
services with those of target firms.
4) Product benchmarking
The process of designing new products or upgrades to current ones. This process can sometimes
involve reverse engineering which is taking apart competitors products to find strengths and
weaknesses.

5) Strategic benchmarking
Involves observing how others compete. This type is usually not industry specific meaning it is best
to look at other industries.

6) Functional benchmarking:
A company will focus its benchmarking on a single function in order to improve the operation of that
particular function. Complex functions such as Human Resources, Finance and Accounting and
Information and Communication Technology are unlikely to be directly comparable in cost and
efficiency terms and may need to be disaggregated into processes to make valid comparison.
Reasons for Benchmarking:
1.
2.
3.
4.
5.
6.
7.

Increased productivity and individual design of the firm/Company..


Strategic tool for better performance and development
Enhanced learning for the employees, management and customers etc.
Growth potential for the company in better market position and other aspects as well.
Assessment of performance tool to improve the performance.
Continuous improvement tool .
Vehicle to improve performance.

Feature of benchmarking:
1. It enables more effective strategic planning and controlling;
2. It lowers the costs of incorrect business decisions;
3. It enables a companys efficiency to increase through the successful design and implementation of
restructuring business processes and their continuous improvement;
4. It helps in solving business problems;
5. It adds an important element to the continuous education of employees encourages their
innovativeness, creativity and contributes to the creation of new ideas;
6. It enables a relative assessment of the business success and effectiveness of diverse business
factors; and
7. It encourages changes and fosters special knowledge, which enables greater flexibility and faster
adaptation to the changing business environment.
Examples
Internal benchmarking where two departments compare performance, financial performance,
productivity, efficiency, staff turnover, customer complaint procedure with the view to improving
their performance.
External benchmarking where one company compares its performance to the best in the
industry, on areas like superior customer service or product development. They try to emulate their
superior performance by learning how they deliver it understanding their processes.
THE END