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MB0052 STRATEGIC MANAGEMENT AND BUSINESS POLICY

Question 1 - Describe the role of five major participants in the Strategic Management
Process (SMP) of a company.
The fact that the strategic management process involves strategy making at the corporate
level, SBU level and functional level also implies that managers at different levelstop,
senior and middleparticipate in the strategic planning and management process. In addition
to the managers, the board of directors also play a definite role. Many times, management
consultants also play important roles in the strategic planning and management of a company.
So, there may be five major participants in the strategic management process of a company
although they may play quite different roles. The five participants are:
1. Board of directors
2. Chief Executive Officer (CEO)
3. Corporate planning staff
4. Other managers
5. Consultants
Role of Board of Directors
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 partly on the management
philosophy of a company and partly on the interest a particular board member takes in the
affairs of the company.
Major strategic functions performed by these boards are:
Approval of the corporate budget and resource allocation for strategic investments
Periodic review of the strategic planning process
Monitoring the chief executives role in the strategic management process
Triggering discussion on growth possibilities and alternatives
Guiding the chief executive in formulating organization-level strategies
Review of strategy implementation with respect to results or profitability
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. Three major roles6 of the chief executive:
Managing relationship with the environment

Managing the board


Long-term planning
Role of Corporate Planning Staff
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. Major functions of the corporate planning staff is as summarized as
follows:
Assisting the chief executive in developing and formalizing fundamental concepts or
divisions about organizational growth and diversification.
Scanning the environment and identifying new business opportunities.
Analysing cost benefits of alternative investment opportunities and allocating resources to
various activities/projects.
Integrating SBU plans (and, sometimes, also functional plans) into corporate plans.
Monitoring progress of strategic plans at corporate level, SBU level and functional levels.
Undertaking mid-term review of plans and strategies and, suggesting changes, if and when
necessary.
Evaluating plan performancemeasuring the degree of success (or failure) of strategic
plans and reporting to the chief executive for any necessary action.
Role of Senior Managers
Not only the corporate planning staff but other managers, particularly the senior managers,
also play an important role in the strategic management process of a company. The senior
managers include SBU heads and also functional heads. Some of these heads are at the level
of directors who are represented on the board. The senior managers are members of different
management committees, including top management committees which are involved in
strategic planning and management. Some of these committees consider and evaluate
proposals for new investment, restructuring, diversification, etc.
Role of Consultants
Management consultants can play very useful roles in the strategic planning process of a
company. Consultants render services in different functional areas of management including
the strategic planning and management process. In companies with no separate planning
division or unit, consultants can fill that gap. They can undertake planning and strategy
exercises as and when the company management feels the need for such exercises or
consultancies. Even in companies with a corporate planning division/unit, consultants may
provide specialized inputs or insights into identified management or strategy areas. Top

strategic consultants like McKinsey & Company use or develop latest tools, techniques or
models to work out solutions to specific strategic management problems or issuesbe it
productivity, cost efficiency, restructuring, long-term growth or diversification. 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.
Question 2 Differentiate between mission and vision of a company? Explain with
examples.
Mission
The mission statement of a company is variously called a statement of philosophy, a
statement of beliefs, a statement of purpose and, a statement of business principles.
The mission statement should be as explicit or comprehensive as possible. Some feel that the
mission statement should have seven dimensions or serve seven different purposes or
objectives.
These are:
To ensure unanimity of purposes within the organization
To develop a basis or standard for allocating organizational resources
To provide a basis for motivating the use of the organizations resources
To establish a general culture or organizational climate; for example, to suggest a businesslike approach
To facilitate the translation of objectives and goals into jobs and responsibilities and
assignment of tasks to responsible segments within the organization
To serve as a focal point for those who can identify themselves with the organizations
purpose and business
To specify organizational purposes and inspire translation of these purposes into goals in
such a way that cost, time and performance parameters can be assessed and controlled.
Examples
Hero Honda Motors
It is our mission to strive for synergy between technology, systems and human resources to
produce products and services that meet the quality, performance and price aspirations of our
customers. While doing so, we maintain the highest standards of ethics and societal

responsibilities. This mission is what drives us to new heights in excellence and helps us to
forge a unique and mutually beneficial relationship with all our stakeholders. We are
committed to moving ahead resolutely on this path.
PepsiCo
PepsiCos mission is to increase the value of our shareholders investment. We do this
through sales growth, cost controls and wise investment resources. We believe our
commercial success depends upon offering quality and value to our consumers and
customers; providing products that are safe, wholesome, economically efficient and
environmentally sound and, providing a fair return to our investors while adhering to the
highest standards of integrity.
Vision
Sometimes, mission and vision of a company are used synonymously or interchangeably.
This is not correct. A clear distinction exists between the two. Mission is concerned more
with the present; the vision more with the future. The mission statement answers the
question: What is our business? The vision statement answers the question: What do we
want to become or, which way should we be going? The mission statement focusses on the
present strategic thrust, while the vision statement outlines the strategic path. All visionary
companies have a vision statement. Vision and mission statements can be generally found in
the beginning of annual reports of companies. These statements are also seen in the corporate
or long-term strategic plans of companies. These also appear in many company reports or
documents like customer service agreements, loan requests, and labour relations contracts,
etc. Many companies also display them at prominent points or locations in company
premises.

Examples
Microsoft
The vision of Microsoft (since 1999) has been to broad base its outlook to empower people
through great software anytime, anywhere and on any device including the PC and an
incredibly rich variety of digital devices accessing the power of the Internet.
IOC

Most progressive companies develop both a mission statement and a vision statement. Indian
Oil Corporation (IOC) is a good example. Vision statements of IOC4 are:
Indian Oil aims to achieve international standards of excellence in all aspects of energy and
diversified business with focus on customer delight through quality products and services.
Question 3 Explain in detail Porters four generic strategies.
Porter (1985) evolved the theory that there are four generic strategic options available to
companies. These are:
Cost leadership
Focused cost leadership
Differentiation
Focused differentiation
Porters theory is based on the concepts of niche marketing and mass marketing and product
proposition to be offered by different companies. Two dimensions of the strategy analysis are
market coverage and basis of product performance. Porters theory or the strategy option
matrix is shown in Fig. below

Cost leadership strategy is based on exploiting some aspects of the production process, which
can be executed at a cost significantly lower than that of competitors. There can be various
sources of this cost advantage:
i.

Lower input costs, (e.g., the price paid by New Zealand timber mills for the logs
produced by the countrys highly efficient forestry industry or cheap source of
high quality bauxite for National Aluminium Company (NALCO) in India from

ii.

its mines);
In-plant production costs, (e.g., lower labour costs enjoyed by Japanese companies

iii.

locating their video assembly operations in Thailand);


Lower delivery cost because of proximity of key markets, (e.g., the practice of
major beer producers in Europe to locate micro-breweries in or around major
metropolitan cities).

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

product lines. According to them, Sonys core competence in manufacturing allows the
company to make everything from the Sony walkman to video cameras to notebook
computer. Canons core competence in optics, imaging and microprocessor controls have
enabled it to enter markets as seemingly diverse as copiers, laser printers, cameras and image
scanners. To achieve core competence, 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. This is important because managers often take an
internal view of value and either miss or deliberately overlook the customer perspective.
(b) It should lead to a level of performance in a product or process which is significantly
better than those of competitors. Benchmarking is a good way and is generally recommended
for undertaking performance standard and also for differentiating between good and bad
performance.
(c) It should be robust, i.e., difficult for competitors to imitate. In a fast changing world,
many advantages gained in different ways (like a superior product feature, a new marketing
campaign or an innovative price policy/strategy) are not robust and are likely to be short
lived. Core competence is not about such incremental changes or improvements, but, about
the whole process through which continuous change and improvement take place which lead
to or sustain clearly differentiated advantage.
Distinctive Competence
Core competence may not be enough, because it focuses predominantly on the product or
process and technology, or, as Hamel and Prahalad put it; The combination of individual
technologies and production skills. There are two problems with this. First, strong and
aggressive competitors may develop, either through parallel innovations or imitations, similar
products or processes which are highly competitive. This is what Japanese companies have
done in the fields of electronics and automobiles, and now South Korea is doing to Japanese
electronics; IBMs core computer technology is also facing the same problem. Second, to
secure competitive advantage, only product, process or technology or technological
innovation may not be enough; this has to be amply supported by special capabilities in the
related vital areas like resource or financial management, cost management, marketing,
logistics, etc.

Hamel and Prahalad themselves have said later (1994): We have to look at the organization as
a portfolio of competencies, of underlying strengths, and, not just a portfolio and business.
We must also identify those core competencies that would allow us to create new products;
and we must ask ourselves what we can leverage as we move into the future, and what we
can do that other companies might find difficult.
Distinctive competences may provide an answer to some of these points. 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.
Distinctive competence includes core competence as one of the alternatives. But, there are
other alternatives that are also based on organizational capabilities. So, distinctive
competence is broader based. 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; the competitive edge it may give a firm in the
marketplace.
So, the focus in distinctive competence is on exploiting a market opportunity. And, depending
on the market or competitive situation, one or some of the alternative competences may
work; for example, product or process superiority (core competence), product differentiation
(situational or adaptability), cost effectiveness or cost efficiency to support a price strategy,
special capability in marketing or distribution, etc. Under given circumstances, one of these,
or a combination of some of these, will produce a distinctive competence which would be
appropriate or best suited to exploit the opportunity and produce desired results.
Question 5 - Define the term industry. List the types of industries. How do you conduct
an industry analysis?
Industry
An industry can be broadly defined as the group of firms producing products that are close
substitutes for each other. There is, however, a great deal of controversy over an appropriate
definition of industry. The debate or controversy mostly centres around how close
substitutability needs to be in terms of product, process or geographic market boundaries.
Types

1.
2.
3.
4.
5.

Fragmented industry
Emerging industry
Mature industry
Declining industry
Global industry

Industry Analysis
Porter (1980) has suggested some detailed guidelines for conducting industry analysis. These
are contained in How to Conduct an Industry Analysis (Appendix B) in Competitive
Strategy (1980). Porter discusses sources of published or secondary data, generation or
collection of primary data, various categories of data, scheme of data processing and strategy
for industry analysis. He has also suggested a broad framework for industry analysis in terms
of categories of data and competition.
Industry analysis should follow a number of logical or strategic steps. These are shown
below:
Step 1: Determine or specify the objective or objectives so that there is no lack of focus.
Step 2: Collect and scan through available published or secondary data.
Step 3: Identify data or information gaps for generation of primary data.
Step 4: Generate primary data (through survey, interviews, meetings, etc.,) to fill the data
information gap.
Step 5: Process/tabulate various data as mentioned in Box 11.1
Step 6: Prepare a general overview of the industry using the processed/tabulated
data/information.
Step 7: Prepare specific sectoral analysistechnology, product, marketing pattern,
competition analysis.
Step 8: Draw inferences or conclusions to complete the analysis.
Question 6 - What is meant by structure of an organisation? Describe the five major
structural types or forms of an organisation.
Structure of an organization defines the levels and roles of management in a hierarchical way.
One can also say that an organizational structure spells out the way tasks, functions and
responsibilities are allocated for implementing a policy or strategy. These also imply that an
organizational structure facilitates or constrains how processes and relationships work. Major
structural types or forms are mentioned below:

1.
2.
3.
4.
5.
6.

Entrepreneurial Structure
Functional Structure
Divisional Structure
SBU Structure
Matrix Structure
Project-based Structure

Entrepreneurial Structure
This is the most elementary form of structure. The entrepreneurial structure represents an
organization which is owned and managed by a single individual the entrepreneur. Some call
it a simple structure and contend that this is no formal structure at all.3 Organizations with
such structures are typically single business product or service companies which cater to local
or regional markets.
This is the way most small businesses operate. The owner-entrepreneur assumes/discharges
most of the responsibilities of management with some manager(s)/staff assisting him/her. The
manager(s)/staff hardly exercise any authority and there is no or very little division of
management responsibilities.
Functional Structure
As an organization increases in size with expansion of business, the simple entrepreneurial
system outlives its utility as a structural form. Need arises for functional specialization and
also delegation of powers for efficient functioning. This implies a functional structure. A
functional structure is based on differentiation and allocation of primary functions such as
production, marketing, finance, and HR along with certain delegation of powers. Each of
these functions is headed by a general manager or director usually at board level. Other
important functions or activities like public relations and legal may be directly under the
charge of CEO or MD (Figure 13.4). The functional structure is most commonly used by
medium and large organizations with narrow or limited product range.
Divisional Structure
A divisional structuresome call it multidivisional structureconsists of separate divisions
constituted on the basis of products, services or geographical areas. 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. The more common form of
divisionalization is on the basis of product or business. Divisionalization gives focus on

different divisions with separate product/market strategies. The divisional structure, however,
does not do away with the functional structure.

SBU Structure
Divisions closely approximate strategic business units (SBUs) in all large multi business
organizations. The fundamental factor in the SBU structure is to identify independent
product/market segment which requires distinct strategies. Each of these product/market
segments also face a different environment, and, therefore, more is the need for separate
strategies. In many companies, particularly in the public sector, 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.
Matrix Structure
A matrix structure is a need-based or project-based structure which does not follow the
conventional lines of hierarchy or control. We can call it a combination structure
combination of different divisions or functionsdesigned to form a project team for
launching a new product, development of a new market or geographical operations. In the
matrix structure, a project manager is appointed to coordinate and manage project activities.
Functional/specialist resources are drawn from different divisions/functional areas to
constitute the project team.
The members of the team have dual responsibility and authorityone is project
responsibility and authority and the other their line responsibility and authority in terms of
hierarchy and command. Every matrix structure usually has a defined duration, that is, the
project period. After the completion of the project, the managers go back to their respective
divisions/functional areas. Matrix structures need not be adopted only by very large complex
organizations; these can be used by many professional organizations, like construction
companies, consultancy organizations, etc.
Project-based Structure
Some strategic analysts make a distinction between a matrix structure and a purely projectbased structure. Most matrix structures are also project based, but, many of these structures
have indefinite life like international trading operations of multinational companies. A project

structure is one in which teams are created for specific purposes or projects, the project team
undertakes the assigned work, and immediately on completion, the team is dissolved. Project
based structures are more temporary than matrix structures. Such structures typically
represent civil engineering/construction, IT/MIS, consultancy, event management and
management development programmes. The organizational structure is a constantly changing
collection of project teams created, made functional and knit together loosely by a small
corporate team.