Kamalpokhari, KTM, Nepal

www.hcm.edu.np

Master of Business Administration (MBA)

February intake 2019
Semester IV

Assignment of
Strategic Management

Submitted By Submitted To
Dikchhya Tamrakar Himalayan College of Management
MBA 4th Sem Kamalpokhari ,Ktm.
There are FOUR (4) questions in this section. Answer ALL questions in the Answer
Booklet.

(50 MARKS)
QUESTIONS 1 (10 Marks)

BCG matrix has established itself to be widely accepted tool by every industry player
since the day of its discovery.

a. Construct BCG matrix diagram and explain its components to clarify the meaning
of the BCG matrix? (2
Marks)

Answer: Boston Consulting Group (BCG) Matrix is a four celled matrix (a 2 * 2 matrix)
developed by BCG, USA. It is the most renowned corporate portfolio analysis tool. It
provides a graphic representation for an organization to examine different businesses in it’s
portfolio on the basis of their related market share and industry growth rates. It is a two
dimensional analysis on management of SBU’s (Strategic Business Units). In other words, it
is a comparative analysis of business potential and the evaluation of environment.
According to this matrix, business could be classified as high or low according to their
industry growth rate and relative market share.
Relative Market Share = SBU Sales this year leading competitors sales this year.
Market Growth Rate = Industry sales this year - Industry Sales last year.
Diagram of BCG Matrix
Meaning of the BCG Matrix

Stars: Stars represent business units having a large market share in a fast-growing industry.
They may generate cash, but stars require huge investments to maintain their lead because of
the fast-growing market. Net cash flow is usually modest.

Cash Cows: Cash Cows represent business units having a large market share in a mature,
slow-growing industry. Cash cows require little investment and generate cash, which people
can utilize for investment in other business units. These strategic business units are the
corporation’s key source of money and are specifically the core business. Also, they are the
foundation of the organization. These businesses usually follow stability strategies. When
cash cows lose their appeal and move towards deterioration, then people may pursue a
retrenchment policy.

Question Marks: Question marks represent business units having a low relative market share
and are located in a high-growth industry. They require a huge amount of cash to maintain or
gain market share. They need attention to determine if the venture can be viable. Question
marks are generally new goods and services which have a good commercial perspective.
There is no specific strategy that people can adopt.

Dogs: Dogs represent businesses having weak market shares in low-growth markets. They
neither generate cash nor require a huge amount of money. Due to low market share, these
business units face cost disadvantages. Generally, retrenchment strategies are adopted
because these firms can gain market share only at the expense of competitor’s/rival firms.
These business firms have a weak market share because of high costs, poor quality,
ineffective marketing, and many more. Unless a dog has some other strategic aim, it should
be liquidated if there are fewer prospects to gain market share. The number of dogs should be
avoided and minimized in an organization.

b. Why do you think BCG matrix is an important tool for portfolio management? (8
Marks)
Answer:
BCG matrix. (or growth-share matrix) is a corporate planning tool, which is used to portray
firm's brand portfolio or SBUs on a quadrant along relative market share axis (horizontal
axis) and speed of market growth (vertical axis) axis. BCG chart to help organisations with
the task of analysing their product line or portfolio. The matrix assess products on two
dimensions. The first dimension looks at the products general level of growth within its
market.
BCG Matrix is known as Boston Consulting Group Matrix. It is an important tool for
portfolio Management because it helps companies track R & D investment and business units
return in a disciplined and systematic way. The matrix enables you to determine which assets
could produce future revenues and make investment decisions that ensure funds are allocated
to the right assets. For example, if a company is not developing many new products, it needs
to consider where income will come from in the future. This tool can reveal these portfolio
weaknesses that may threaten a company's future long-term cash flow.
1. By maintaining a disciplined and structured approach to monitoring R&D investments and
business unit returns.
2. The matrix helps you see which assets can generate future income and make investment
choices that ensure funds are distributed to the right assets.
3. Cash Cows are expected to fund Question Marks and Stars with their savings. Dogs must
either be divested or liquidated to free up cash with little ability to put to greater use
elsewhere. To ensure positive cash flows in the future, we'll need a well-balanced portfolio of
Question Marks, Stars, and Cash Cows.
4. Ideally, an asset should be introduced as a Question Mark into a growing market,
increasing the share to become a Rising Star. As the market growth slows, the asset should
retain share to become a Cash Cow; finally, it should become a Puppy if its share falls. To
optimize lifetime profitability, executives must make strategic choices that push assets down
this road.
5. Easy to perform
6. Helps to understand the strategic positions of business portfolio
7. it's a good starting point for further, more thorough analysis.
 8. It provides a high-level way to see the opportunities for each product in your portfolio.
9. It enables you to think about how to allocate your limited resources to the portfolio so that
profit is maximized over the long-term.
10. It shows if your portfolio is balanced..
QUESTIONS 2 (20 Marks)

Balanced Scorecard is considered to be one of the most important tools for making
strategic choices.

a. What is the balanced scorecard? (5 Marks)

Answer:
The balanced scorecard (BSC) is a strategic planning and management system. Organizations
use BSCs to: ... Align the day-to-day work that everyone is doing with strategy. Prioritize
projects, products, and services. Measure and monitor progress towards strategic targets.
In 1992 Drs. David P. Norton and Robert S. Kaplan developed a balanced scorecard. It is a
business framework used for tracking and managing an organization's strategy.
The BSC framework is based on the balance between leading and lagging indicators, which
can respectively be thought of as the drivers and outcomes of your company goals. When
used in the Balanced Scorecard framework, these key indicators tell you whether or not
you're accomplishing your goals and whether you're on the right track to achieve future goals.
The four categories of a balanced scorecard are financial perspective, internal business
perspective, customer perspective, and learning and growth perspective.
A balanced scorecard model promotes positive behavior in an organization by isolating four
distinct areas to be evaluated. Learning and development, business processes, customers, and
funding are the four fields that make up the legs. The balanced scorecard is used to
accomplish these four main business functions' priorities, metrics, initiatives, and objectives.
The balanced scorecard will provide insight into the whole organization when looking at
company goals. The flat scorecard model can be used to apply strategy mapping to assess
where an organization adds value. It can also be used as a balanced scorecard to build
strategy and priorities for a company.

b. How does this tool serve to monitor the performance of the human resource
function?(5 Marks)

Answer:

By balancing specified departmental objectives with success in the company's strategic

objectives, balanced Scorecards for Human Resources can help concentrate employees on
activities that support the company's goals. It also demonstrates the strategic importance of
HR by providing concrete, easy-to-understand contribution concepts and metrics.
This simple scorecard analysis will help determine whether human resources are beneficial to
the company or need further growth. With this assessment in hand, the business will prosper,
and we can identify focus areas for personal development and learning.
The Scorecard enables management to identify performance categories that are aligned with
the company's strategy. These categories are then converted into measures, and surveillance
monitors output against those measures. Companies use employee performance metrics to
monitor their expertise, abilities, and contributions to the organization.
Also, we could somehow say that this tool serves to monitor the performance of the human
resource function in the following ways;
● Describe the strategy.
● Measure the strategy.
● Track the actions are taken to improve upon the results Better Strategic Planning
● Improved Strategy Communication & Execution
● Better Alignment of Projects and Initiatives
● Better Management Information
● Improved Performance Reporting
● Better Organizational Alignment
● Better Process Alignment

c. What do you understand by leading and lagging indicators? Explain. (10

Marks)
Answer:
As corporate executives, we are constantly trying to figure out how to reach our company's
targets, which necessitate the use of 'main indicators," metrics,' or 'leading indicators,' or
'KPIs, "measures,' or 'lead measures.' They tell us if we've accomplished our objectives and if
we're on the right track for future goals. There are two types of indicators: leading and
lagging. Leading indicators can generally be seen as drivers, and lagging indicators are
regarded as results. But this definition, naturally, is oversimplified.

Leading Indicators: A leading indicator is any metric or variable predicting a potential shift
in another interesting variable. Leading indicators are useful because they provide insight into
possible future outcomes, allowing companies to take appropriate action.
Indicators are those variables that tell us how we are going to achieve a goal. A lead indicator
(or conductor) forces us to ask ourselves, "How can this goal be better or faster? What
process or variables? What do we need to do well to improve our results or our goal?"
● Leading indicators are different based on the goal. For "improve customer renewals",
some leading indicators might be as follows:
● Percent of customer that completes the midyear check-in process
● Number of customers that attend the annual conference (or webinar, or other activity)
● Number of products a customer purchases
Lagging Indicators: Understanding lagging indicators is important before understanding
leading indicators. Lagging metrics are the most realistic way of determining whether we
have met our objectives. We will find concrete lagging measures to tell what happened in this
quarter or the previous year by looking at the outputs and results. Lagging measures do not
predict what will happen; instead, they reveal what will happen. A useful/good or accurate
indicator for our objectives should be considered when developing lagging indicators. What
processes or inputs result in this result? These are essential components for comprehension.

The following are some examples of lagging indicators:

● Profits
● Revenue
● Expenses
● Number of Customers
● Percent Renewal

QUESTION 3 (10 MARKS)

Define Benchmarking. Outline 4 different types of Benchmarking, with a brief note on

each.

Answer:

Benchmarking is a process of measuring the performance of a company's products, services,

or processes against those of another business considered to be the best in the industry, aka
“best in class.” The point of benchmarking is to identify internal opportunities for
improvement.
Benchmarking is a valuable method for gaining strategic insight because it provides
"evidence-based" performance insights across product and market life cycles. In general,
applying what you've learned from benchmarking yields the notable and impressive results
that you've heard about. By examining why and how practices produce excellent outcomes,
we add to the conventional metric approach. Many business leaders and organizations use our
benchmarking tool to identify holes in the process and enhance results.

There are advantages and disadvantages of benchmarking, and they are as below;

● Improves Learning Methodology

● Initiates Technological Upgradation
 ● Improve Company's Standards
● Enhances Work Quality
● Cope Up with Competition
● Improves Efficiency
● Increases Customer Satisfaction
● Help Overcome Weaknesses

Disadvantages:

● Lack of Information
● Increases Dependency
● Lack of Understanding
● Incorrect Comparison
● Costly Affair

Also, there are different types of benchmarking, and they are:

1. Performance benchmarking - entails collecting and comparing numerical data (i.e.,

measures or key performance indicators). When it comes to identifying performance
differences, benchmarking is typically the first step.

What we require: Standard measures and KPIs, as well as a system for extracting, collecting,
and analyzing data, are all needed.

What we get: Data that informs decision-making. This form of benchmarking is usually the
first step organizations take to identify performance gaps.

1. Practice benchmarking - involves collecting and comparing qualitative data on how

individuals, procedures, and technologies are used to operate. What we require:
Process mapping is a popular method for gathering and comparing qualitative data.
We get a clearer understanding of where and how performance differences exist and
best practices that the business may extend to other fields.

2. Internal benchmarking - compares metrics (performance benchmarking) and

practices (practice benchmarking) from different units, product lines, departments,
programs, geographies, etc., within the organization. What we need: At least two
areas within the organization that has shared metrics and practices.

What we get: Internal benchmarking is a good starting point to understand the current
standard of business performance. Sustained internal benchmarking applies mainly to large
organizations where certain business areas are more efficient than others.
 1. External benchmarking - compares metrics and practices of one organization to one
or many others. What we need: For custom benchmarking, we need one or more
organizations to agree to participate. We may also need a third party to facilitate data
collection. This approach can be highly valuable but often requires significant time
and effort, which can be used to compare performance to organizations worldwide
and in nearly every industry.

We get an objective understanding of the organization's current state, which allows us to set
baselines and goals for improvement.

QUESTION 4 (10 MARKS)

A firm's relative position within its industry determines whether a firm's profitability is
above or below the industry average. The fundamental basis of above average
profitability in the long run is sustainable competitive advantage. Explain the statement.

Answer:

Companies' success or failure is determined by rivalry. The competition decides whether the
company's practices, such as creativity, a coherent culture, or successful execution, are
appropriate for its success. The goal of competitive strategy is to create a productive and
long-term position by combating the forces that decide industrial competitiveness.
A firm's relative position within its industry determines whether a firm's profitability is above
or below the industry average. The fundamental basis of above average profitability in the
long run is sustainable competitive advantage. There are two basic types of competitive
advantage a firm can possess: low cost or differentiation. The two basic types of competitive
advantage combined with the scope of activities for which a firm seeks to achieve them, lead
to three generic strategies for achieving above average performance in an industry: cost
leadership, differentiation, and focus. The focus strategy has two variants, cost focus and
differentiation focus.

A business can gain a competitive advantage by providing value to its customers that exceed
its costs. The term "value" refers to what buyers are willing to pay, and the higher the value,
the better. As a result of lower prices than rivals for the same or exclusive sales, higher prices
are more than compensated.
Two basic forms of competitive advantage are cost management and differentiation.
Interrelationships with business units operating in related industries can significantly improve
competitive advantages in one market. The relationships between business units are the
primary means by which a diversified organization generates value and provides the
foundation for a company strategy.

The ability of corporations to form market structures puts a special responsibility on industry
leaders. Because of their size and power over customers, suppliers, and other rivals, leaders'
actions may have an unreasonable effect on the structure. Meanwhile, the leaders' massive
market shares mean that any improvements to the industry's overall configuration will impact
them. As a result, a leader must actively balance his strategic advantage with the industry's
overall health. Many leaders will be better off improving or protecting market structure rather
than boosting their productivity.

If a company's strengths and weaknesses vary significantly from its rivals, there are two basic
types of competitive advantages: low cost and differentiation. Its effect on relative prices
largely determines the meaning of any company's strength or weakness. The cost advantage
and distinction are derived from the industry's structure.
Following are method to determine profit is below or average industry level:-
1. Cost Leadership
In cost leadership, a firm sets out to become the low cost producer in its industry. The sources
of cost advantage are varied and depend on the structure of the industry. They may include
the pursuit of economies of scale, proprietary technology, preferential access to raw materials
and other factors. A low cost producer must find and exploit all sources of cost advantage. if
a firm can achieve and sustain overall cost leadership, then it will be an above average
performer in its industry, provided it can command prices at or near the industry average.

2. Differentiation
In a differentiation strategy a firm seeks to be unique in its industry along some dimensions
that are widely valued by buyers. It selects one or more attributes that many buyers in an
industry perceive as important, and uniquely positions itself to meet those needs. It is
rewarded for its uniqueness with a premium price.

3. Focus
The generic strategy of focus rests on the choice of a narrow competitive scope within an
industry. The focuser selects a segment or group of segments in the industry and tailors its
strategy to serving them to the exclusion of others.

The focus strategy has two variants.

(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b)
differentiation focus a firm seeks differentiation in its target segment. Both variants of the
focus strategy rest on differences between a focuser's target segment and other segments in
the industry. The target segments must either have buyers with unusual needs or else the
production and delivery system that best serves the target segment must differ from that of
other industry segments. Cost focus exploits differences in cost behaviour in some segments,
while differentiation focus exploits the special needs of buyers in certain segments.

*** END OF QUESTIONS ***