Master of Business Administration- MBA Semester 4

MB0052 Strategic Management and Business Policy- 4 Credits

(Book ID: B1699)
Assignment (60 marks)

Q1. Explain the corporate strategy in different types of organization.

Ans:- 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.

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.
In large businesses or companieswhether 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.
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.
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.
Johnson and Scholes (2005) have given a good and detailed exposition of strategic
management in various types of organizations mentioned above.
Q2. What is the role consultants play in the strategic planning and management process
of a company? Is it an essential role?
Ans:- 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. This is the reason why even large multinational companies hire consultants for
achieving their goals or objectives.
There are many international consultants who are in demand in different countries. There are
also national consultants. Leading international consultants, in addition to McKinsey &
Company, are Boston Consulting Group (BCG), Arthur D Little and Accenture (formerly
Anderson Consulting). Prominent Indian consulting companies are A F Ferguson, Tata
Consultancy Services (TCS) and
ABC Consultants.
Consultants, sometimes have a difficult or delicate role to play. In many companies, a
situation develops when the chief executive or the top management needs to bank upon the
support of an external agency like a consultant to push through a strategic change in the
organizational structure or management system of the company. It may be for growth and
development or downsizing. In both cases, many companies face internal resistance to
change. The resistance is more if it is downsizing even when it is required for turning around
a company. This happens particularly in public sector companies where implementing change
is always difficult. Consultants are engaged to support or substantiate the companys point of
view (in the form of their recommendations) so that change is more easily acceptable to the
internal stakeholders of the company.
Consultants role may become delicate and, sometimes, tricky in such cases, and they should
carefully weigh the ethical implication of their participation.
Q3. What is strategic audit? Explain its relevance to corporate strategy and corporate
governance.
Ans:- Strategic audit is a formal strategic-review process, which imposes its own discipline
on both the board and the management very much like the financial audit process8. But, it is
different from management audit, which is undertaken in many companies by the senior/top

management on the progress and outcome of important corporate activities. To understand

strategic audit in the correct perspective, one needs to analyse this in terms of its various
elements.
Donaldson has specified five elements of strategic audit. These are:
1. Establishing criteria for performance
2. Database design and maintenance
3. Strategic audit committee
4. Relationship with the CEO
5. Alert to duty (by board members)
The performance criteria should be simple, well-understood and wellaccepted measures of
financial performance. A number of measures of financial performance are available. One
common measure, used by many companies, is return on investment (ROI). The ROI can be
analysed like this: profit per unit of sales (profit margin); sales per unit of capital employed
(asset turnover); and, capital employed per unit of equity invested (leverage). If these three
ratios are multiplied together, the resultant ratio will give profit per unit of equity. This
criterion would fulfil two objectives: first, sustainable rate of return on shareholder
investment, and, second, to decide whether the return is less, or equal to or more than returns
on alternative investments with comparable risk, i.e., whether the companys chosen strategy
is justifiable or not.
To calculate different performance ratios and monitor performance criteria, a proper database
is essential. This involves both database design and maintenance. This has to be a regular and
an ongoing process. Data on financial performance can sometimes be sensitive to the
managers/ employees of a company. It is, therefore, suggested that financial and related data
design, maintenance and analyses should be entrusted to the auditors of the company or
outside consultants.
For effective strategic audit, a strategic audit committee should be constituted. According to
Donaldson, outside directors should select three of their own members to form the committee.
This will impart regularity and more commitment to the strategic audit process. The
committee would decide on the frequency of their meeting, periodicity of interaction with the

CEO or top management of the company and, also when they should make presentation to or
hold discussion with the full
board.
A sensitive issue is the strategic audit committees relationship with the CEO. Any CEO
would be generally apprehensive of such a committee. The strategic audit committee needs to
create and maintain an atmosphere of mutuality. It is true that whenever a question or a
discussion on the strategic direction of a company comes up in a board meeting, it is
perceived by many CEOs as an implicit criticism of the current strategy and leadership of the
company. It is also true that regular strategic process involving the CEO reduces chances of
unpleasant or confronting situations. In fact, ideally, the functioning of the strategic audit
committee should be seen as a low-key operation, positive in approach, designed to lend
support and credibility to company leadership and management.
The strategic audit committee and also the board should always be alert and vigilant to ensure
that there are no slippages. Business cycles indicate that period of success may be followed
by a period of slump. The strategic audit committee and the board should be alert enough to
get signals so that they can act in time. This is necessary because complacence develops after
success both in the board and in the management.
If properly conceived, designed and conducted, strategic audit, more than management audit,
can be a powerful tool for monitoring the strategic process of a company and also strike a
good balance between corporate strategy and corporate governance.
Q4. What is Corporate Social Responsibility(CSR) ? Which are the issues involved in
analysis of CSR? Name three companies with high CSR rating.
Ans:- External stakeholders of an organization are too many and varied and many of them
represent different sections or social groups. This implies that organizations should be socially
responsible; that is, in addition to the interests of the shareholders, businesses or companies
should also serve the society. This is corporate social responsibility (CSR). Corporate social
responsibility can be defined as the alignment of business operations with social values.

The conflict between internal and external stakeholders can go much further than mentioned
so far. Some feel that this is the most problematic issue in deciding company responsibility.
External stakeholders argue that internal stakeholders demand be made secondary to the
greater need of the society; that is, greater good of the external stakeholders. Many of them
feel that issues like pollution, waste disposals, environmental safety and conservation of
natural resources should be the overriding considerations for formulation of policy and
strategic decision making. Internal stakeholders, on the other hand, think that the competing
or social claims of external stakeholders should be balanced in such a way that it protects the
company mission, objectives and profitability. The debate continues.
Strong exponents of CSR also talk of social policy for companies. They feel that social
responsibilities of companies should be clearly enunciated and declared as social policy.
Social policies may directly affect a companys products and services, technology, markets,
customers and self-image. According to these thinkers, an organizations social policy should
be integrated into all management activities including the mission statement and objectives.
Many feel that corporate social policy should be articulated during strategy formulation,
administered during strategy implementation and reaffirmed or changed during strategy
evaluation.7
Worldwide, companies are trying to integrate corporate social responsibility into their
business operations and strategies. Microsoft, Coca-Cola, McDonalds, FedEx, IBM and
Johnson & Johnson are some of the leading companies. In India also, many companies are
integrating CSR into their business practices and making significant contributions to society.
Companies like Infosys, Wipro, Hero Honda, ITC, Dr. Reddys, Godrej, Mahindra &
Mahindra and Tata Steel
are the foremost among them. Some of these companies have also established foundations to
cater to the needs of society.
Q5. Distinguish between core competence, distinctive competence, strategic competence
and threshold competence. Use examples.
Ans:- Core Competence
Core competence of a company is one of its special or unique internal competences. 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. (We will be discussing benchmarking in Unit 11).
(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.1

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 unit.... 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.2
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 more broad 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.3
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.
Since resources are limited, identification of distinctive competence may also help efficient
allocation of resources. Reliance Industries, for example, has developed its distinctive
competence in conceiving, implementing and managing large scale projects and mobilizing
requisite resources for that. They do not think in terms of core competence. Mukesh Ambani,
Chairman and MD, has described it like this:
We do not believe in core competence; we believe in building competence around people and
processes to create value.4
Strategic Competence
Strategic competence coexists with, or supports, core competence and distinctive competence.
Strategic competence is the competence level required to formulate, implement and produce
results with a particular strategy, for example, to outwit competitors. Hindustan Unilever did
this. In the mid- and the late 80s, they used their strategic competence to out manoeuvre
Nirma (which was launched very aggressively) and re-establish their leadership in the
detergent market. Strategic competence may also involve combination or convergence of
different capabilities as in the case of Hindustan Unilever.
Threshold Competence
Threshold competence is the competence level required just for survival in the market or
business. The competence level of a company may be weaker than many of its competitors.
Threshold competence may be adopted by No. 5 or No. 6 player in the market or those
struggling to survive. Companies with threshold competence can, over time, graduate to a
higher level of competence. But, continued threshold competence can also lead to closure of
business.
Multi-product or multi-SBU companies may often possess a portfolio of competences. In
some product or business, they may have core competence, but, not in all. ITCs core
competence is in tobacco and cigarettes, but, they have distinctive competence in hospitality

business and agri-business. Hindustan Unilever has distinctive competence and strategic
competence in many businesses. But, they had been surviving with threshold competence in
vanaspati business (Dalda) for some time, and finally, they exited from that business. A
conceptual portfolio of organizational competence consisting of core competence, distinctive
competence, strategic competence and threshold is shown in Figure 6.1.

Core Competence

Distinctive
Competence

Organizationa competence
c

Threshold
Competence

Strategic
Competence

Q6. What is global industry? Explain with examples, international strategy, multidomestic strategy, global strategy and transnational strategy.
Ans:- Global industry
In global industry, the strategic positions of companies in different countries or national
markets are governed by their overall global positions. For example, IBMs strategic position
in competing for computer sales in France and Germany has improved significantly because
of technology and marketing skills developed in other countries, and a worldwide
manufacturing system which is well coordinated. To be called a global industry, an industrys
economics and competitors in different national markets should be considered jointly rather
than individually.
Distinction should be made between an international industry and a global industry. An
industry in a country may be international if it comprises a number of multinational
companies. But, industries with multinational competitors are not necessarily global
industries. To be a global industry, as explained above about IBM, an industry should have
multi-locational manufacturing facilities, and, compete worldwide to secure global synergy or
competitive advantage.

International strategy can be adopted for those products and services which are not available
in some countries and can be transferred from other countries. These are standard products
with little or no differentiation. International strategies are not very common or popular. Some
examples are: Kelloggs, Indian software, and Indian handicrafts.
Multidomestic strategy is almost opposite of international strategy. Multidomestic strategy
involves high degree of local responsiveness or local content. Products are highly customized
to suit local requirements or conditions. Because of high customization, cost pressure is less;
cost effectiveness may be also difficult to achieve because of lack of scale economies.
Examples : Asian Paints (paints in general), Indian garments.
Global strategy suits companies which make highly standardized sophisticated products, and,
are in a position to reap benefits of economies of scale and experience effects. These also
include high technology products which have universal applicability and hardly require any
local adaptation. Examples are: Intel, Motorola, Microsoft, Texas Instruments. Global retail
chains like Wal-Mart and Marks & Spencer also come under this category.
Transnational strategy is the most difficult strategy to follow because this is based on a
combination of two apparently contradictory factors, i.e., cost effectiveness and local
adaptation. But, this may be a true global strategy because, in global business, there is
always a price pressure or cost pressure; and, also the need to make the product as close to a
particular countrys expectation as possible to maximize value offerings. In fact, many,
including Bartlett and Ghoshal (1989), feel that the transnational strategy is the only viable
competitive strategy in global business. Many companies are adopting this approach to
become successful. Some good examples are: Caterpillar (taking on Komatsu and Hitachi),
McDonalds, Coca-Cola, Pepsi and Dominos Pizza. Many multinational FMCG companies
like Unilever and Procter & Gamble follow transnational strategies through their fully owned
subsidiaries in different countries.